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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. _________)*
Heritage Financial Services, Inc.
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(Name of Issuer)
Common Stock, no par value per share
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(Title of Class of Securities)
42723H-10-0
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(CUSIP Number)
Donald J. Swistowicz, Executive Vice President, First Midwest Bancorp, Inc., 300
Park Boulevard, Suite 405, Itasca, IL 60143; (630) 875-7460
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(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
January 14, 1998
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) or (4), check the
following box.
Note: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies
are to be sent.
*The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which
would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities
Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of
that section of the Act but shall be subject to all other provisions of the
Act (however, see the Notes).
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CUSIP NO. 42723H-10-0
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1. Names of Reporting Persons.
I.R.S. Identification Nos. of above persons (entities only).
First Midwest Bancorp, Inc. - 36-3161078
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2. Check the Appropriate Box if a Member of a Group (See Instructions)
a. ..............................................................
b. ..............................................................
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3. SEC Use Only ......................................................
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4. Source of Funds (See Instructions) BK; WC
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5. Check if Disclosure of Legal Proceedings Is Required Pursuant to Items
2(d) or 2(e).......................................................
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6. Citizenship or Place of Organization Delaware
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Number of 7. Sole Voting Power 2,445,300 (1) (2)
Shares Bene- -----------------------------------------------------------
ficially by 8. Shared Voting Power -0- (1)
Owned by Each -----------------------------------------------------------
Reporting 9. Sole Dispositive Power 2,445,300 (1) (2)
Person With -----------------------------------------------------------
10. Shared Dispositive Power -0- (1)
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11. Aggregate Amount Beneficially Owned by Each Reporting Person:2,445,300
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12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See
Instructions)
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13. Percent of Class Represented by Amount in Row (11) 20.2% (1) (2)
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14. Type of Reporting Person (See Instructions)
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HC;CO
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Instructions for Cover Page
(1) Names and I.R.S. Identification Numbers of Reporting Persons - Furnish the
full legal name of each person for whom the report is filed - i.e., each
person required to sign the schedule itself-including each member of a
group. Do not include the name of a person required to be identified in the
report but who is not a reporting person. Reporting persons that are
entities are also requested to furnish their I.R.S. identification numbers,
although disclosure of such numbers is voluntary, not mandatory (see
"SPECIAL INSTRUCTIONS FOR COMPLYING WITH SCHEDULE 13D" below).
(2) If any of the shares beneficially owned by a reporting person are held as a
member of a group and such membership is expressly affirmed, please check
row 2(a). If the membership in a group is disclaimed or the reporting
person describes a relationship with other persons but does not affirm the
existence of a group, please check row 2(b) [unless a joint filing pursuant
to Rule 13d-1(f)(1) in which case it may not be necessary to check row
2(b)].
(3) The 3rd row is for SEC internal use; please leave blank.
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1/ This Schedule 13D relates to the Common Stock, no par value per share
("Heritage Common Stock"), of Heritage Financial Services, Inc., an Illinois
corporation ("Heritage"), up to 2,400,000 shares of which may be purchased by
First Midwest Bancorp, Inc. ("First Midwest"), upon exercise of an option (the
"Option") granted by Heritage to First Midwest. The Option is exercisable only
upon the occurrence of certain Purchase Events (as defined and described in Item
6 of this Schedule 13D), none of which has occurred as of the date of this
Schedule 13D, and may be exercised only following the receipt of certain
regulatory approvals if, as a result of the exercise, First Midwest would own
more than 5% of the Heritage Common Stock then outstanding. Unless and until
the Option becomes exercisable, First Midwest will not be entitled to any rights
of a shareholder in Heritage with respect to shares covered by the Option. First
Midwest expressly disclaims beneficial ownership of such shares. First Midwest
owns 45,300 shares (.4%) of Heritage Common Stock.
2/ Based upon the number of issued and outstanding shares of Heritage
Common Stock, as represented to First Midwest by Heritage on January 14, 1998.
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Item 1. Security and Issuer.
The title of the class of equity securities to which this Schedule 13D
relates is the Common Stock, no par value per share ("Heritage Common Stock"),
of Heritage Financial Services, Inc. ("Heritage"). Heritage is an Illinois
corporation with its principal executive offices at 12015 South Western Avenue,
Blue Island, Illinois 60406. Heritage is registered as a bank holding company
with the Board of Governors of the Federal Reserve System ("Federal Reserve
Board") under the Bank Holding Company Act of 1956, as amended ("BHC"), and is
principally engaged in the business of managing and controlling banks and
activities closely related thereto.
Item 2. Identity and Background.
This Schedule 13D has been filed by First Midwest Bancorp, Inc., a Delaware
corporation ("First Midwest"). The address of the principal executive offices
of First Midwest is 300 Park Boulevard, Suite 405, Itasca, Illinois 60143-0459.
First Midwest is registered as a bank holding company with the Federal Reserve
Board under the BHC.
Filed as Appendix I to this Schedule 13D is a list of the executive
officers and directors of First Midwest, containing the following information
with respect to each of them: (a) name, (b) business address and (c) present
principal occupation or employment and the name and, if different than such
person's business address, the address of any corporation or other organization
in which such employment is conducted. Each person listed in Appendix I is a
United States citizen.
During the past five years, neither First Midwest nor, to the best of First
Midwest's knowledge, any person named in Appendix I: (a) has been convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors); or
(b) has been a party to a civil proceeding of a judicial or administrative body
of competent jurisdiction and as a result of such proceeding was or is subject
to a judgment, decree or final order enjoining future violations of, or
prohibiting or mandating activities subject to, federal or state securities laws
or finding any violation with respect to such laws.
Item 3. Source and Amount of Funds or Other Considerations.
This Schedule 13D relates to the Heritage Common Stock that may be
purchased by First Midwest upon exercise of an option (the "Option") granted by
Heritage to First Midwest pursuant to the Stock Option Agreement, dated as of
January 14, 1998 (the "Option Agreement"). (Descriptions of the provisions of
the Option Agreement appearing throughout this Schedule 13D are qualified in
their entirety by references to the Stock Option Agreement, which is included as
Exhibit 1 to this Schedule 13D and is incorporated herein by reference.)
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The maximum number of shares of Heritage Common Stock that may be purchased
upon exercise of the Option is equal to 19.9% of the Heritage Common Stock
issued and outstanding as of January 14, 1998 (before giving effect to the
issuance of any shares subject to the Option). This number is 2,400,000 shares,
based on 12,090,402 shares of Heritage Common Stock issued and outstanding as of
January 14, 1998, as represented by Heritage to First Midwest. The purchase
price per share of Heritage Common Stock that may be purchased upon the exercise
of the Option is $21.25. The aggregate purchase price for all of the Heritage
Common Stock that may be purchased upon the exercise of the Option is,
therefore, $51,000,000. The number of shares and the purchase price are subject
to adjustment as described in Item 6.
If and when the Option is exercised, First Midwest anticipates that its
source of funds to pay the purchase price would be either working capital or
funds borrowed from one or more banks in the ordinary course of business; the
identity of any such bank or banks has not yet been determined.
During November of 1997, First Midwest acquired 45,300 shares (.4%) of
Heritage Common Stock at an average price of $23.87 per share for a total
consideration of $1,081,393. These shares were purchased with working capital
funds of First Midwest.
Item 4. Purpose of Transaction.
The Option was granted at the time of the execution of an Agreement and
Plan of Merger, dated as of January 14, 1998 (the "Merger Agreement"), between
Heritage and First Midwest and First Midwest Acquisition Corporation, a wholly
owned subsidiary of First Midwest ("Acquisition Corp"), providing for the merger
(the "Merger") of Heritage with and into Acquisition Corp which will be the
surviving corporation in the Merger. (Descriptions of the provisions of the
Merger Agreement appearing throughout this Schedule 13D are qualified in their
entirety by reference to the Merger Agreement which is included as Exhibit 2 to
this Schedule 13D and is incorporated herein by reference.)
Heritage granted the Option to First Midwest in order to induce First
Midwest to enter into the Merger Agreement. One effect of the Option is to
increase the likelihood that the Merger will be completed by making it more
difficult and more expensive for another party to obtain control of or acquire
Heritage.
The Merger Agreement prohibits Heritage from purchasing or redeeming any
shares of Heritage Common Stock, except in accordance with certain provisions of
the Option Agreement. In the Merger Agreement, Heritage has agreed to use its
best efforts to cause each of its affiliates (as that term is used in Rule 145
under the Securities Act of 1933, as amended (the "Securities Act")), to enter
into written agreements, providing, among other things, that the shares of First
Midwest Common Stock acquired by such affiliate in the Merger may not be
transferred unless the transfer is made pursuant to Rule 145, a registration
statement or an exemption from
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registration. The form of such agreement is attached as Exhibit 3 to this
Schedule 13D and is incorporated herein by reference.
In conjunction with the execution of the Merger Agreement, each of the
directors and executive officers of Heritage (the "Affiliates") has been
requested to execute an Agreement of Affiliates. (Descriptions of the provisions
of the Agreement of Affiliates appearing throughout this Schedule 13D are
qualified in their entirety by references to the Agreement of Affiliates, which
is included as Exhibit 4 to this Schedule 13D and is incorporated herein by
reference.)
This agreement provides that each Affiliate will use all reasonable efforts
to cause the Merger Agreement to be adopted by the stockholders of Heritage. It
further provides that each Affiliate will cause all shares owned or controlled
by him or her to be voted in favor of the Merger. The Affiliates own or control
approximately 2,456,110 shares (20.4%) of the Common Stock of Heritage.
This agreement also provides that an Affiliate will not enter into
negotiations or discussions concerning a possible Acquisition Transaction (as
defined in the Merger Agreement and discussed below at pages 9-10) and that an
Affiliate will not sell or agree to sell or dispose of in any manner any shares
of his or her Heritage Common Stock. The agreement, however, does permit an
Affiliate to dispose of his shares if such shares are transferred to a relative
or a charity, provided that the transferee agrees to be bound by the terms and
conditions of the agreement.
Neither First Midwest nor, to the best of First Midwest's knowledge, any
of the persons named in Appendix I hereto has any plans at this time to acquire
or dispose of any shares of Heritage Common Stock, other than on the
instructions of third parties for accounts which one of First Midwest's
subsidiaries manages in a fiduciary capacity for the benefit of such third
parties.
Following the consummation of the Merger, the persons who were serving as
directors and officers of First Midwest prior to the consummation of the Merger
will continue to serve as the directors and officers of First Midwest and the
persons who were serving as directors and officers of Acquisition Corp prior to
the consummation of the Merger will continue to serve as the directors and
officer of Acquisition Corp. Three directors of Heritage (Richard J. Wojcik,
John L. Sterling and Jack Payan) will be named to serve as directors of First
Midwest following the consummation of the Merger.
Pursuant to the Merger Agreement, each share of Heritage Common Stock will,
be converted into the right to receive 0.7695 of a share of First Midwest Common
Stock. As a result, after completion of the Merger, transactions in Heritage
Common Stock will no longer be reported on the Nasdaq National Market System and
Heritage Common Stock will be eligible for termination of registration pursuant
to Section 12(g)(4) of the Securities Exchange Act of 1934, as amended (the
"Securities Exchange Act").
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The Merger Agreement permits Heritage to declare and pay its regular
quarterly cash dividends on its Common Stock at a rate not to exceed $.11 per
share.
Except as set forth in Items 4, 5 and 6 of, and in the Appendix and
Exhibits to, this Schedule 13D, neither First Midwest, nor any of the persons
named in Appendix I hereto, has at this time any plans or proposals that relate
to or would result in (a) the acquisition by any person of additional securities
of Heritage, or the disposition of securities of Heritage, (b) an extraordinary
corporate transaction, such as a merger, reorganization, or liquidation,
involving Heritage or any of its subsidiaries, (c) a sale or transfer of a
material amount of the assets of Heritage or any of its subsidiaries, (d) any
change in the present Board of Directors or management of Heritage, including
any change in the number or terms of Heritage's directors or the filling of any
existing vacancies on Heritage's Board of Directors, (e) any material change in
the present capitalization or dividend policy of Heritage, (f) any other
material change in Heritage's business or corporate structure, (g) changes in
Heritage's charter, bylaws, or instruments corresponding thereto or other
actions that may impede the acquisition of control of Heritage by any person,
(h) causing a class of securities of Heritage to be delisted from a national
securities exchange or to cease to be authorized to be quoted in an inter-dealer
quotation system of a registered national securities association, (i) a class of
equity securities of Heritage becoming eligible for termination of registration
pursuant to Section 12(g)(4) of the Securities Exchange Act or (j) any action
similar to any of those enumerated above.
Item 5. Interest in Securities of the Issuer.
The maximum number of shares of Heritage Common Stock that may be purchased
upon exercise of the Option is equal to 19.9% of the Heritage Common Shares
outstanding as of January 14, 1998 (before giving effect to the issuance of any
shares subject to the Option). This number, which is subject to adjustment as
described in Item 6, is 2,400,000 shares, based on 12,090,402 shares of Heritage
Common Stock outstanding as of January 14, 1998, as represented by Heritage to
First Midwest. The Option is exercisable only upon the occurrence of certain
Purchase Events (as defined and described in Item 6), none of which has
occurred, and may be exercised only following the receipt of certain regulatory
approvals if, as a result of the exercise, First Midwest would own more than 5%
of the Heritage Common Stock then outstanding. Unless and until the Option
becomes exercisable, First Midwest disclaims beneficial ownership of the
Heritage Common Stock that may be purchased upon exercise of the Option.
First Midwest knows of no other person having the right to receive or the
power to direct the receipt of dividends from, or the proceeds from the sale of,
the shares of Heritage Common Stock that may be purchased upon the exercise of
the Option.
To the best of First Midwest's knowledge, no person listed in Appendix I
beneficially owns any shares of Heritage Common Stock as to which there is sole
power to vote or to direct the vote, shared power to vote or to direct the vote,
or sole or shared power to dispose or to direct the disposition.
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During November of 1997, First Midwest acquired 45,300 shares (.4%) of
Heritage Common Stock at an average price of $23.87 per share for a total
consideration of $1,081,393. These shares were purchased with working capital
funds of First Midwest. Assuming First Midwest exercises the Option, it would
own 2,445,300 shares (20.2%) of Heritage Common Stock. Except as otherwise
described in this Schedule 13D, no transactions in Heritage Common Stock have
been effected in the past 60 days by First Midwest or any of its subsidiaries
or, to the best of First Midwest's knowledge, by any of the persons listed in
Appendix I.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect
to Securities of the Issuer.
Set forth below are descriptions of certain provisions of the Option
Agreement and the Merger Agreement and each such description is qualified in its
entirety by reference to the Option Agreement and the Merger Agreement, which
are included as Exhibits to this Schedule 13D and are incorporated herein by
reference.
Option Agreement.
The Option Agreement provides for the purchase by First Midwest of up to
2,400,000 shares (the "Option Shares") of Heritage Common Stock at an exercise
price of $21.25 per share, subject to adjustment as provided therein, payable in
cash (the "Purchase Price"). The Option Shares, if issued pursuant to the
Option Agreement, would represent 19.9% of the Heritage Common Stock issued and
outstanding on January 14, 1998, before giving any effect to the issuance of any
Heritage Common Stock subject to the Option.
Upon any exercise of the Option, in the event the "Aggregate Value" of the
Option, as defined below, exceeds the Aggregate Value Cap, the exercise price
shall be increased so that the Aggregate Value is reduced to the Aggregate Value
Cap. The term "Aggregate Value" shall mean the amount arrived at by (i)
subtracting the exercise price from the then market value of a share of Heritage
Common Stock and (ii) multiplying the result by the total number of Option
Shares purchasable upon exercise of the Option. The market value of a share of
Heritage Common Stock shall be the most recent closing sale price for a share as
reported on any exchange or the Nasdaq Stock Market as of the close of the
Business Day preceding the date on which First Midwest consummates its purchase
of the Option Shares, or, if the shares of Heritage Common Stock are not traded
on an exchange or such market, the value of a share of Heritage Common Stock as
determined as of such Business Day by a nationally recognized investment banking
firm selected by First Midwest. The term "Aggregate Value Cap" means
$12,000,000 reduced by the sum of the Aggregate Values of all previous Option
exercises.
The number of shares of Heritage Common Stock subject to the Option will be
increased to the extent that additional shares of Heritage Common Stock are
issued or otherwise become outstanding (otherwise than pursuant to an exercise
of the Option) such that, after such issuance, the number of Option Shares
continues to equal 19.9% of the Heritage Common Stock then issued
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and outstanding before giving effect to the issuance of any Heritage Common
Stock subject to the Option. The number of shares of Heritage Common Stock
subject to the Option, and the applicable exercise price per Option Share, also
will be appropriately adjusted in the event of any stock dividends, split-ups,
mergers, recapitalizations, combinations, exchanges of shares, or the like,
relating to Heritage.
First Midwest may exercise the Option, in whole or in part, subject to
regulatory approval, after a Purchase Event (as hereinafter defined) shall have
occurred and prior to termination of the Option. Any exercise of the Option
shall be deemed to occur on the date notice is sent by First Midwest to
Heritage.
As used in the Option Agreement, "Purchase Event" shall mean: (i) the
Board of Directors of Heritage shall not have recommended that the shareholders
of Heritage reject a publicly disclosed offer to the Heritage's shareholders to
engage in an Acquisition Transaction with any person other than First Midwest or
its subsidiaries; (ii) Heritage, without having received First Midwest's prior
written consent, shall have entered into an agreement to engage in an
Acquisition Transaction with any person (other than First Midwest or its
subsidiaries); (iii) Heritage or any of its representatives shall have breached
Section 6.7 of the Merger Agreement; or (iv) a proposal is made by a third party
to Heritage or its shareholders to engage in an Acquisition Transaction and
Heritage shall have willfully breached any of its representations, warranties,
covenants or agreements contained in the Merger Agreement which breach would
entitle First Midwest to terminate the Merger Agreement (without regard to the
cure periods provided for therein) and such breach shall not have been cured
prior to the date on which First Midwest elects to exercise the Option. If more
than one of the transactions giving rise to a Purchase Event is undertaken or
effected, then all such transactions shall give rise only to one Purchase Event,
which Purchase Event shall be deemed continuing for all purposes hereof until
all such transactions are abandoned. As used in the Option Agreement, "person"
shall have the meanings specified in Sections 3(a)(9) and 13(d)(3) of the
Securities Exchange Act.
As used in the Option Agreement, "Acquisition Transaction" shall mean: (i)
a merger or consolidation, or any similar transaction (other than the Merger) of
any company with either Heritage or any significant subsidiary (as defined in
Rule 1.02 of Regulation S-X of the Securities and Exchange Commission) (a
"Significant Subsidiary") of Heritage, (ii) a purchase, lease or other
acquisition of all or substantially all the assets of either Heritage or any
Significant Subsidiary of Heritage, (iii) a purchase or other acquisition of
"beneficial ownership" by any "person" or "group" (as such terms are defined in
Section 13(d)(3) of the Securities Exchange Act) (including by way of merger,
consolidation, share exchange, or otherwise) which would cause such person or
group to become the beneficial owner of securities representing 20% or more of
the voting power of either Heritage or any Significant Subsidiary of Heritage,
but excluding the acquisition of beneficial ownership by any employee benefit
plan maintained or sponsored by Heritage, (iv) a tender or exchange offer to
acquire securities representing 20% or more of the voting power of Heritage, (v)
a public proxy or consent solicitation made to stockholders of Heritage seeking
proxies in opposition to any proposal relating to any of the transactions
contemplated by the Merger Agreement that has been recommended by the Board of
Directors of
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Heritage, (vi) the filing of an application or notice with the Federal Reserve
Board or any other federal or state regulatory authority seeking approval to
engage in one or more of the transactions referenced in clauses (i) through (iv)
above, or (vii) the making of a bona fide proposal to Heritage or its
stockholders by public announcement or written communication, that is or becomes
the subject of public disclosure, to engage in one or more of the transactions
referenced in clauses (i) through (v) above.
To the extent the Option shall not have been exercised, it shall terminate
and be of no further force and effect (i) at the Effective Time of the Merger;
(ii) upon a termination of the Merger Agreement pursuant to Section 10.1(a)
thereof; (iii) upon the termination of the Merger Agreement by Heritage pursuant
to Section 10.1(b), (d), (e) or (f) of the Merger Agreement; (iv) on the 360th
day after the termination of the Merger Agreement (such 360-day period after
termination of the Merger Agreement is referred to herein as the "Post-
Termination Period") for any other reason if no Purchase Event has occurred or
continued during the term of the Merger Agreement or during the Post-Termination
Period; or (v) on the 360th day after the discontinuance of all Purchase Events
that occurred or continued during the term of the Merger Agreement or during the
Post-Termination Period if a Purchase Event occurred or continued during any
such term or period.
In the event First Midwest elects to sue Heritage for damages because of
Heritage's breach of the Merger Agreement, First Midwest will not be able to
exercise the Option.
In the event that any person, other than First Midwest or any of its
subsidiaries, acquires beneficial ownership of 20% or more of the outstanding
shares of Heritage Common Stock; or the Board of Directors of Heritage shall
accept or publicly recommend that the stockholders of Heritage accept an offer
from a person, other than First Midwest or its subsidiaries, to acquire 20%
percent or more of either the outstanding shares of Heritage Common Stock or the
consolidated assets of Heritage (a "Repurchase Event"), at the request of First
Midwest and subject to any regulatory requirements, Heritage shall repurchase
the Option from First Midwest together with any of the Option Shares purchased
by First Midwest pursuant thereto, at a price equal to the sum of:
(i) the exercise price paid by First Midwest for any of the
Option Shares;
(ii) the difference between the "market/tender offer price" (as
defined below) for shares of Heritage Common Stock and the
exercise price as determined pursuant to the Option
Agreement, multiplied by the number of shares of Heritage
Common Stock with respect to which the Option has not been
exercised, but only if the market/tender offer price is
greater than such exercise price;
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(iii) the difference between the market/tender offer price (as
defined below) and the exercise price paid by First
Midwest for any Option Shares, multiplied by the number of
shares so purchased, but only if the market/tender offer
price is greater than such exercise price;
(iv) First Midwest's costs and expenses as provided in Section
10.3(a) of the Merger Agreement; and
(v) notwithstanding the foregoing, the maximum amount payable
by Heritage to First Midwest pursuant to the provisions of
the Option Agreement shall not exceed the sum of (i) the
aggregate exercise price paid by First Midwest to Heritage
in connection with the actual purchase by First Midwest of
any Option Shares, (ii) $12,000,000 and (iii) First
Midwest's costs and expenses as provided in Section
10.3(a) of the Merger Agreement.
As used in the Option Agreement, the phrase "market/tender offer price" shall
mean the greater of (x) the price per share at which a tender or exchange offer
has been made if such tender or exchange offer shall have given rise to the
Repurchase Event or (y) the highest price paid by a person, whose actions shall
have given rise to the Repurchase Event, for shares of Heritage Common Stock at
any time after the date of the Option Agreement, or (z) the highest closing
price for shares of Heritage Common Stock within the four-month period
immediately preceding the date First Midwest gives notice of the required
repurchase of the Option. In the event the consideration used in a Repurchase
Event is payable, in whole or in part, in securities or other property, the
value of such securities or other property shall be determined by a nationally
recognized investment banking firm selected by First Midwest.
At Heritage's option, Heritage may repurchase the Option from First Midwest
at the price specified in the preceding paragraph at any time beginning on the
360th day after the discontinuance of all Purchase Events that occurred or
continued during the term of the Merger Agreement or during the Post-Termination
Period if a Purchase Event occurred or continued during any such term or period.
If a Purchase Event occurs and is continuing, First Midwest will have the
right for a three-year period following its acquisition of any of the Option
Shares to require Heritage to use its best efforts to register the Option Shares
so that First Midwest may sell such shares. First Midwest will have two
registration rights. The first registration will be effected at Heritage's
expense; the expenses of the second registration will be shared by First Midwest
and Heritage. Each party will pay its own legal fees and First Midwest will pay
all underwriting discounts and commissions and all blue sky fees. Heritage will
indemnify and hold harmless First Midwest and pay its legal
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expenses against any losses, claims, damages or liabilities arising out of an
untrue statement of material fact contained in a registration statement or the
omission of a material fact from a registration statement, provided that such
information was not provided to Heritage by First Midwest.
Neither First Midwest nor Heritage may assign any of its respective rights
and obligations under the Option Agreement or the Option to any other person
without the express written consent of the other party, except that if a
Purchase Event occurs prior to termination of the Option, First Midwest, subject
to the terms of the Option Agreement, may assign in whole or in part its rights
and obligations thereunder; provided, however that until the date 30 days
following the date on which the Federal Reserve Board approves an application by
Grantee (as defined below) under the BHC to acquire the shares of the Heritage
Common Stock subject to the Option, if such approvals are necessary, Grantee may
not assign its rights under the Option except in (i) a widely dispersed public
distribution, (ii) a private placement in which no one party acquires the right
to purchase in excess of two percent of the voting shares of Heritage, (iii) an
assignment to a single party (e.g., a broker or investment banker) for the
purpose of conducting a widely dispersed public distribution on Grantee's
behalf, or (iv) any other manner approved by the Federal Reserve Board.
"Grantee" means First Midwest or any person, corporation or other entity to
which the Option Agreement or the Option is assigned pursuant to the Option
Agreement.
The rights and obligation of First Midwest and Heritage under the Option
Agreement are subject to receipt of any required regulatory approvals. Without
the prior approval of the Federal Reserve Board, First Midwest may not acquire
more than 5% of the outstanding Heritage Common Stock. First Midwest intends to
file applications for such approvals as soon as practicable.
Merger Agreement.
The Merger Agreement provides for the Merger of Heritage with and into
Acquisition Corp. Upon completion of the Merger, (i) each outstanding share of
Heritage Common Stock (other than Heritage Common Stock held in Heritage's
treasury or owned by First Midwest for its own account, or held by persons
seeking dissenters rights) will be converted into the right to receive 0.7695 of
a share of First Midwest Common Stock (the "Exchange Ratio"), (ii) outstanding
shares of Heritage Common Stock owned by First Midwest for its own account will
be canceled, and (iii) shares of Heritage Common Stock held in Heritage's
treasury will be canceled.
The Merger Agreement provides that if the dollar amount equal to the volume
weighted average price of all transactions for First Midwest Common Stock
("Acquiror Common Stock Price Per Share") on the Nasdaq Stock Market for each of
the ten trading days preceding the fifth trading day prior to the Closing Date
(the "Pricing Period") is less than $33.90 per share and if the percentage
determined by dividing the Acquiror Common Stock Price Per Share by $42.37 is 20
percentage points less then the percentage determined by dividing the Aggregate
Price Per Share of the Comparison Stocks (as defined below) for the Pricing
Period by the Aggregate Price
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Per Share of the Comparison Stocks as of January 14, 1998, then Heritage may
terminate the Merger Agreement, proceed with the Merger or renegotiate the
Exchange Ratio. In the event Heritage elects to terminate the Merger Agreement,
Heritage must give written notice thereof to First Midwest by the close of
business on the second Business Day after the end of the Pricing Period. The
"Aggregate Price Per Share of the Comparison Stocks" means the weighted average
of the closing prices of all of the comparison stocks for each day in question.
Twenty-three bank holding companies, listed in the Merger Agreement, make up the
Comparison Stocks. Under certain circumstances, a bank holding company may be
removed from this list.
Completion of the Merger is subject to certain conditions, including (a)
approvals by the stockholders of Heritage and First Midwest, (b) approvals by
the Federal Reserve Board and other regulatory authorities, (c) the
effectiveness under the Securities Act of a Registration Statement for the First
Midwest Common Stock to be issued pursuant to the Merger Agreement, (d) receipt
by First Midwest and Heritage of an opinion of counsel that the Merger
constitutes a tax-free reorganization for federal income tax purposes and that,
among other matters, no gain or loss will be recognized by Heritage's
stockholders upon conversion of the Heritage Common Stock into the right to
receive First Midwest Common Stock pursuant to the Merger, (f) the absence of
the occurrence of a Material Adverse Effect (as defined in the Merger Agreement)
to either First Midwest and of Heritage, (g) receipt by Heritage and First
Midwest of fairness opinions from their respective investment bankers, (h)
receipt by First Midwest of an opinion of its accountants that the Merger will
be accounted for on the "pooling of interests" method of accounting, (i)
approval by the stockholders of First Midwest of a charter amendment increasing
the authorized number of shares of First Midwest Common Stock (the "Charter
Amendment"), and (j) other conditions to closing customary in a transaction of
this type. None of the foregoing regulatory approvals have been obtained, and
there is no assurance that they will be obtained or, if they are obtained, as to
the time at which they will be obtained.
In the Merger Agreement, First Midwest and Heritage have made
representations and warranties to each other and made covenants with each other
that are customary in a transaction of this type. These representations,
warranties and covenants will not survive the completion of the Merger, except
those relating to employee benefit matters and stock options held by employees
of Heritage and the indemnification rights of the directors, officers, employees
and agents of Heritage.
First Midwest and Heritage have agreed promptly to file all reports and
applications required to be filed with the Securities and Exchange Commission,
the Federal Reserve Board and other regulatory authorities in order to obtain
the approvals required to carry out the Merger and other transactions
contemplated by the Merger Agreement.
First Midwest will, as soon as practicable, prepare and file with the
Securities and Exchange Commission a Registration Statement with respect to the
First Midwest Common Stock to be issued in the Merger; the Registration
Statement will include a Joint Proxy Statement to be mailed to the stockholders
of Heritage and First Midwest in connection with the Merger. Heritage and First
Midwest each will take all action necessary to convene as promptly as
practicable
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meetings of their respective stockholders for purposes of considering and taking
action upon the Merger Agreement. The Boards of Directors of Heritage and First
Midwest will recommend to their respective stockholders that they vote in favor
of the Merger. The Board of Directors of First Midwest will also recommend to
its stockholders that they vote in favor of the Charter Amendment.
Heritage has agreed that neither it (nor any of its subsidiaries) (i) shall
solicit any inquiry or the making of any proposal relating to an Acquisition
Transaction (as defined in the Merger Agreement; see also discussion at pages 9-
10 herein) or a potential Acquisition Transaction, or (ii) solicit or enter into
any agreement, arrangement, or understanding regarding any proposal (x) relating
to an Acquisition Transaction involving the other party or (y) providing for it
to abandon, terminate, or fail to consummate the Merger, or compensating it for
any such action described in this clause (y). Heritage shall use its best
efforts to cause its directors, officers, employees, agents, advisors,
consultants and other representatives to comply with such prohibitions. As of
January 14, 1998, Heritage is obligated to cease and cause to terminate any
existing activities, discussions, or negotiations with any person conducted
prior to such date. Heritage is to promptly notify First Midwest in the event
it receives any such inquiry or proposal. Notwithstanding the foregoing,
Heritage may provide information at the request of or enter into discussions or
negotiations with a third party with respect to an Acquisition Transaction if
the Board of Directors of Heritage determines, in good faith, that the exercise
of its fiduciary duties to Heritage's stockholders under applicable law,
requires it to take such action. Heritage must promptly notify First Midwest in
the event it receives any such inquiry or proposal. Heritage may not, in any
event, provide to such third party any information which it has not provided to
First Midwest. Heritage is not prohibited from accurately disclosing, in a
document filed with the Securities and Exchange Commission or in other
disclosures, if in the opinion of its Board of Directors disclosure is required
under applicable law, any such transactions.
Reference is made to Item 4 for a description of other provisions of the
Merger Agreement and the Agreement of Affiliates.
Other than as described in this Schedule 13D, neither First Midwest nor, to
the best of First Midwest's knowledge, any of the persons named in Appendix I
hereto has any contracts, arrangements, understandings, or relationships (legal
or otherwise) with any person with respect to any securities of Heritage,
including, but not limited to, transfer or voting of any securities of Heritage,
finder's fees, joint ventures, loan or option arrangements, puts or calls,
guarantees of profits, division of profits on loss, or the giving or withholding
of proxies.
Item 7. Material to be Filed as Exhibits.
The following are filed as appendices or exhibits to this Schedule 13D and
are incorporated herein by reference. The summary descriptions of such
documents set forth above are not intended to be complete and are qualified in
their entirety by reference to such appendices or exhibits.
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<PAGE>
Appendix I. Information Relating to Directors and Executive Officers of First
Midwest
Exhibit 1. Stock Option Agreement, dated as of January 14, 1998, between
First Midwest Bancorp, Inc., and Heritage Financial Services,
Inc.
Exhibit 2. Agreement and Plan of Merger, dated as of January 14, 1998,
between First Midwest Bancorp, Inc., and Heritage Financial
Services, Inc.
Exhibit 3. Schedule 6.11 to the Agreement and Plan of Merger: Form of
Agreement of Affiliates of Heritage Financial Services, Inc.
Exhibit 4. Agreement of Affiliates, dated as of January 14, 1998, between
First Midwest Bancorp, Inc., and certain affiliates of Acquiror.
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: January 21, 1998
FIRST MIDWEST BANCORP, INC.
By: DONALD J. SWISTOWICZ
---------------------------
Donald J. Swistowicz,
Executive Vice President
15
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Appendix I. Information Relating to Directors and Executive Officers of First
Midwest
Exhibit 1. Stock Option Agreement, dated as of January 14, 1998, between
First Midwest Bancorp, Inc., and Heritage Financial Services, Inc..
Exhibit 2. Agreement and Plan of Merger, dated as of January 14, 1998, between
First Midwest Bancorp, Inc., and Heritage Financial Services, Inc..
Exhibit 3. Schedule 6.11 to the Agreement and Plan of Merger: Form of
Agreement of Affiliates of Heritage Financial Services, Inc..
Exhibit 4. Agreement of Affiliates, dated as of January 14, 1998, between
First Midwest Bancorp, Inc., and certain affiliates of Acquiror.
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Appendix I
Information on Directors and Executive Officers
Information regarding the directors and executive officers of First Midwest
Bancorp, Inc. ("First Midwest"), is provided below. None of the persons listed
below beneficially owns any shares of Heritage Financial Services, Inc. capital
stock.
Position with First Midwest
and Principal Occupation,
Name and Business if other than as an
Address Executive Officer of First Midwest
- --------------------------- ----------------------------------
Andrew B. Barber Vice Chairman of the Board of Directors
First Midwest Bancorp, Inc. First Midwest Bancorp, Inc.
Itasca, IL
Vernon A. Brunner Director of First Midwest Bancorp, Inc.
Walgreen Co. Executive Vice President - Marketing,
Deerfield, IL Walgreen Co.
Bruce S. Chelberg Board of Directors, First Midwest Bancorp, Inc.
Whitman Corporation Chairman and CEO, Whitman Corporation
Rolling Meadows, IL
William J. Cowlin Board of Directors, First Midwest Bancorp, Inc.
William J. Cowlin, Ltd. Attorney, William J. Cowlin, Ltd.
Crystal Lake, IL
O. Ralph Edwards Board of Directors, First Midwest Bancorp, Inc.
Kiawah, S.C. Corporate Vice President, Retired
Abbott Laboratories
Joseph W. England Board of Directors, First Midwest Bancorp, Inc.
Deere & Company Senior Vice President, Deere & Company
Moline, IL
Thomas M. Garvin Board of Directors, First Midwest Bancorp, Inc.
G.G. Products Co. Chairman, G.G. Products Co.
Oak Brook, IL
i
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Position with First Midwest
and Principal Occupation,
Name and Business if other than as an
Address Executive Officer of First Midwest
- --------------------------- ----------------------------------
C.D. Oberwortmann Chairman of the Board of Directors,
First Midwest Bancorp, Inc. First Midwest Bancorp, Inc.
Itasca, IL
John M. O'Meara Board of Directors, First Midwest Bancorp, Inc.
First Midwest Bancorp, Inc. Executive Vice President and Chief Operating
Itasca, IL Officer
Robert P. O'Meara Board of Directors, First Midwest Bancorp, Inc.
First Midwest Bancorp, Inc. President and Chief Executive Officer
Itasca, IL
J. Stephen Vanderwoude Board of Directors, First Midwest Bancorp, Inc.
Madison River Telephone Co. Madison River Telephone Co.
Chapel Hills, N.C. Chairman & CEO
Donald J. Swistowicz Executive Vice President and Chief Financial
Midwest Bancorp, Inc. Officer
Itasca, IL First Midwest Bancorp, Inc.
ii
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EXHIBIT 1
STOCK OPTION AGREEMENT
----------------------
THIS STOCK OPTION AGREEMENT (the "Agreement"), dated as of January 14,
1998, between First Midwest Bancorp, Inc. ("Acquiror"), a Delaware corporation
registered as a bank holding company under the Bank Holding Company Act of 1956,
as amended (the "BHCA"), and Heritage Financial Services, Inc. ("Heritage"), an
Illinois corporation registered as a bank holding company under the BHCA.
WITNESSETH
----------
WHEREAS, the Boards of Directors of Acquiror and Heritage have approved an
Agreement and Plan of Merger, dated as of the date hereof (the "Merger
Agreement"), providing for the merger of Heritage with and into a wholly owned
subsidiary of Acquiror (the "Merger"); and
WHEREAS, to induce Acquiror to enter into the Merger Agreement, Acquiror
has required that Heritage agree, and Heritage has agreed, to grant to Acquiror
the option set forth herein to purchase shares of Heritage's authorized but
unissued common stock, no par value per share ("Heritage Common Stock").
NOW, THEREFORE, in consideration of the premises herein contained, the
parties agree as follows:
1. Definitions. Capitalized terms defined in the Merger Agreement
and used herein shall have the same meaning as in the Merger Agreement unless
otherwise specified herein.
2. Option.
(a) Grant of Option. Subject to the terms and conditions set
forth herein, Heritage hereby grants to Acquiror an unconditional, irrevocable
option (the "Option") to purchase up to 2,400,000 shares of Heritage Common
Stock (the "Option Shares") at an exercise price of $21.25 per share (with the
number of Option Shares and price per share being subject to adjustment pursuant
to Section 7 hereof), payable in cash as provided in Section 4 hereof; provided,
however, that in the event Heritage issues or agrees to issue any shares of
Heritage Common Stock (except for shares issued pursuant to Heritage Stock
Option Plans) after the date hereof at a price less than $21.25 per share (as
adjusted pursuant to Section 7 hereof), the exercise price shall be equal to
such lesser price; and provided further that in no event shall the aggregate
number of Option Shares issuable under the Option exceed 19.9 percent of the
number of shares of Heritage Common Stock then issued and outstanding before
giving effect to the issuance of the Option Shares.
<PAGE>
(b) Exercise Price. Upon any exercise of the Option, in the
event the "Aggregate Value" of the Option, as defined below, exceeds the
Aggregate Value Cap (as defined below), the exercise price shall be increased so
that the Aggregate Value is reduced to the amount of the Aggregate Value Cap.
The term "Aggregate Value" shall mean the amount arrived at by (i) subtracting
the exercise price from the then market value of a share of Heritage Common
Stock and (ii) multiplying the result by the total number of Option Shares
purchasable upon exercise of the Option. The market value of a share of
Heritage Common Stock shall be the most recent closing sale price for a share as
reported on any exchange or the Nasdaq Stock Market as of the close of the
Business Day preceding the date on which Acquiror consummates its purchase of
the Option Shares, or, if the shares of Heritage Common Stock are not traded on
an exchange or such market, the value of a share of Heritage Common Stock as
determined as of such Business Day by a nationally recognized investment banking
firm selected by Acquiror. The term "Aggregate Value Cap" means $12,000,000
reduced by the sum of Aggregate Values of all previous Option exercises.
3. Exercise of Option.
(a) Expiration of Option. Subject to compliance with applicable
provisions of law, Acquiror may exercise the Option, in whole or part, at any
time or from time to time upon the occurrence or during the continuance of a
Purchase Event (as defined below); provided that to the extent the Option shall
not have been exercised, it shall terminate and be of no further force and
effect (i) at the Effective Time of the Merger; (ii) upon a termination of the
Merger Agreement pursuant to Section 10.1(a) thereof; (iii) the acquisition by
upon a termination of the Merger Agreement by Heritage pursuant to Sections
10.1(b), 10.1(d), 10.1(e) or 10.1(f) of the Merger Agreement; (iv) on the 360th
day after the termination of the Merger Agreement (such 360-day period after
termination of the Merger Agreement is referred to herein as the "Post-
Termination Period") for any other reason if no Purchase Event has occurred or
continued during the term of the Merger Agreement or during the Post-Termination
Period; or (v) on the 360th day after the discontinuance of all Purchase Events
that occurred or continued during the term of the Merger Agreement or during the
Post-Termination Period if a Purchase Event occurred or continued during any
such term or period.
(b) Purchase Event. As used herein, "Purchase Event" shall
mean: (i) the Board of Directors of Heritage shall not have recommended that the
shareholders of Heritage reject a publicly disclosed offer to Heritage's
shareholders to engage in an Acquisition Transaction with any person other than
Acquiror or its Subsidiaries; (ii) Heritage, without having received Acquiror's
prior written consent, shall have entered into an agreement to engage in an
Acquisition Transaction with any person (other than Acquiror or its
Subsidiaries); (iii) Heritage or any of its Representatives shall have breached
Section 6.7 of the Merger Agreement; or (iv) a proposal is made by a third party
to Heritage or its shareholders to engage in an Acquisition Transaction and
Heritage shall have willfully breached any of its representations, warranties,
covenants or agreements contained in the Merger Agreement which breach would
entitle Acquiror to terminate the Merger Agreement (without regard to the cure
periods provided for therein) and such breach shall not have been cured prior to
the Notice Date (as defined below). If more than one of the transactions giving
rise to a Purchase Event under this Section 3(b) is undertaken or effected, then
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<PAGE>
all such transactions shall give rise only to one Purchase Event, which Purchase
Event shall be deemed continuing for all purposes hereof until all such
transactions are abandoned. As used in this Agreement, "person" shall have the
meanings specified in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange
Act of 1934, as amended.
(c) Notice of Purchase Event. Heritage shall notify Acquiror
promptly in writing of the occurrence of any Purchase Event; provided, however,
that the giving of such notice by Heritage shall not be a condition to the right
of Acquiror to exercise the Option.
(d) Notice of Exercise. In the event Acquiror wishes to
exercise the Option, it shall send to Heritage a written notice (the date of
which being herein referred to as the "Notice Date") specifying (i) the total
number of shares it will purchase pursuant to such exercise, and (ii) a place
and date not earlier than ten business days nor later than twenty business days
from the Notice Date for the closing of such purchase. Notwithstanding the
foregoing, if prior notification to or approval of the Federal Reserve or any
other Regulatory Authority is required in connection with such purchase,
Acquiror shall promptly file the required notice or application for approval and
shall expeditiously process the same and the period of time that otherwise would
run pursuant to the preceding sentence shall run instead from the date on which
any required notification periods have expired or been terminated or such
approvals have been obtained and any requisite waiting period or periods shall
have passed. Any exercise of the Option shall be deemed to occur on the Notice
Date relating thereto.
(e) Election of Remedies. First Midwest shall not be entitled
to exercise the Option in the event it elects to sue Heritage for damages
because of Heritage's Breach of the Merger Agreement. The exercise of the
Option by First Midwest shall not be deemed to deprive First Midwest of any
right to pursue any remedies it might have against any Person who is neither
Heritage nor an Affiliate or Representative of Heritage.
4. Payment and Delivery of Certificates.
(a) Payment. At the closing referred to in Section 3(d) hereof,
Acquiror shall pay to Heritage the aggregate purchase price for the shares
purchased pursuant to the exercise of the Option in immediately available funds
by a wire transfer to a bank account designated by Heritage; provided that the
failure or refusal of Heritage to designate such a bank account shall not
preclude Acquiror from exercising the Option.
(b) Delivery of Certificates. At such closing, simultaneously
with the delivery of cash as provided in subsection (a) above, Heritage shall
deliver to Acquiror a certificate or certificates representing the number of
shares of Heritage Common Stock purchased by Acquiror, which certificates may
bear the legend set forth in Section 4(c) below, and Acquiror shall deliver to
Heritage a letter agreeing that Acquiror will not offer to sell or otherwise
dispose of such shares in violation of this Agreement or applicable law or in a
manner that would result in Acquiror becoming an "underwriter" within the
meaning of that term under the Securities Act. Heritage shall pay all expenses
and any and all United States federal, state and local taxes (other than income
taxes) and other charges that may be payable in connection with the preparation,
3
<PAGE>
issuance and delivery of stock certificates under this Section 4 in the name of
Acquiror or its assignee, transferee or designee. Upon the giving by Acquiror
to Heritage of the written notice of exercise of the Option provided for under
Section 3(d) above and the tender of the applicable purchase price in
immediately available funds, Acquiror shall be deemed to be the holder of record
of the shares of Heritage Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of Heritage shall then be closed
or that certificates representing such shares of Heritage Common Stock shall not
then be actually delivered to Acquiror.
(c) Restrictive Legend. Certificates for Heritage Common Stock
delivered at a closing hereunder may be endorsed with a restrictive legend that
shall read substantially as follows:
"The transfer of the shares represented by this certificate is subject
to certain provisions of an agreement between the registered holder hereof
and the Issuer and to resale restrictions arising under the Securities Act
of 1933, as amended, and any applicable state securities laws, a copy of
which agreement is on file at the principal office of the Issuer. A copy
of such agreement will be mailed to the holder hereof without charge within
five days after the receipt by the Issuer of a written request."
It is understood that (i) the reference to the resale restrictions of the
Securities Act in the above legend shall be removed by delivery of substitute
certificate(s) without reference if Acquiror shall have delivered to Heritage a
copy of a letter from the staff of the SEC, or an opinion of counsel, in form
and substance reasonably satisfactory to Heritage, to the effect that such
legend is not required for purposes of the Securities Act; (ii) the reference to
the provisions of this Agreement in the above legend shall be removed by
delivery of substitute certificate(s) without such reference if the shares have
been sold or transferred in compliance with the provisions of this Agreement and
under circumstances that do not require the retention of such reference; and
(iii) the legend shall be removed in its entirety if the conditions in the
preceding clauses (i) and (ii) are both satisfied. In addition, such
certificates shall bear any other legend as may be required by law.
5. Heritage Representations. Heritage hereby represents and
warrants to Acquiror as follows:
(a) Reservation of Shares. Heritage has taken all necessary
corporate action to authorize and reserve for issuance a sufficient number of
shares of Heritage Common Stock to satisfy its obligations upon the exercise of
the Option without additional authorization of Heritage Common Stock after
giving effect to all other options, warrants, convertible securities and other
rights to purchase Heritage Common Stock. Heritage shall not, by charter
amendment or through reorganization, consolidation, merger, dissolution or sale
of assets or by any other voluntary act, avoid or seek to avoid the observance
or performance of any of the covenants, stipulations or conditions to be
observed or performed hereunder by Heritage.
(b) Duly Authorized Shares. The shares of Heritage Common Stock
to be issued upon exercise, in whole or in part, of the Option, when paid for as
provided herein,
4
<PAGE>
will be duly authorized, validly issued, fully paid and nonassessable, and will
be delivered free and clear of all claims, liens, encumbrances and security
interests and will not be subject to any preemptive rights.
(c) Additional Actions. Heritage shall promptly take all
reasonable action as may from time to time be required to be taken by it
(including (A) complying with all premerger notification, reporting and waiting
period requirements applicable to it specified in 15 U.S.C. Section 18a and
regulations promulgated thereunder, and (B) in the event, under the BHCA or a
state banking law, prior approval of or notice to the Federal Reserve or to any
other Regulatory Authority is necessary before the Option may be exercised,
cooperating fully with Acquiror in preparing such applications or notices and
providing such information to the applicable Regulatory Authority as may be
required) in order to permit Acquiror to exercise the Option and Heritage duly
and effectively to issue shares of Heritage Common Stock pursuant thereto.
Heritage shall promptly take all other reasonable action provided herein to
protect the rights of Acquiror against dilution.
(d) Principal Stockholders. To the Knowledge of Heritage, as of
the date of this Agreement, no person owns beneficially more than ten percent of
the outstanding shares of its Common Stock, except as set forth on Heritage's
1997 Proxy Statement.
6. Acquiror Representations. Acquiror hereby represents and
warrants to Heritage that Acquiror will not transfer or otherwise dispose of any
shares purchased by Acquiror pursuant to this Agreement except in a transaction
registered or exempt from registration under the Securities Act, and otherwise
in accordance with the terms of this Agreement.
7. Adjustment Upon Changes in Capitalization.
(a) Stock Dividends. In the event of any change in the
outstanding Heritage Common Stock by reason of stock dividends, split-ups,
mergers, recapitalizations, combinations, exchanges of shares, or the like (but
excluding any exercise of stock options pursuant to any of the Heritage Stock
Option Plans), the type and number of shares subject to the Option, or the
purchase price per share, as the case may be, shall be adjusted appropriately,
and proper provision shall be made in the agreements governing any such
transaction so that Acquiror shall receive upon exercise of the Option the
number and class of shares, other securities or property that Acquiror would
have received in respect of the shares of Heritage Common Stock subject to the
Option if the Option had been exercised and the Heritage Common Stock subject to
the Option had been issued to Acquiror immediately prior to such event or the
record date therefor, as applicable.
(b) Issuance of Additional Shares. In the event that any
additional shares of Heritage Common Stock are issued after the date of this
Agreement (other than pursuant to this Agreement or as provided in Section 7(a)
above or pursuant to any exercise of stock options pursuant to any of the
Heritage Stock Option Plans), the number of shares subject to the Option shall
be adjusted after such issuance, so that it equals 19.9 percent of the number of
shares of Heritage Common Stock then issued and outstanding before giving effect
to the issuance of the
5
<PAGE>
Option Shares; provided, however, that nothing contained in this Section 7 shall
be deemed to authorize Heritage to issue any shares of its Common Stock in
breach of the provisions of the Merger Agreement; and provided further that in
no event shall the number of shares subject to the Option exceed 19.9 percent of
Heritage's issued and outstanding Common Stock, before giving effect to the
issuance of the Option Shares.
8. Repurchase.
(a) Repurchase Price. In the event that after the date hereof
any person, other than Acquiror or any of its Subsidiaries, acquires beneficial
ownership of 20% or more of the outstanding shares of Heritage Common Stock; or
the Board of Directors of Heritage shall accept or publicly recommend that the
shareholders of Heritage accept an offer from a person, other than Acquiror or
its Subsidiaries, to acquire 20% or more of either the outstanding shares of
Heritage Common Stock or the consolidated assets of Heritage (a "Repurchase
Event"), at the request of Acquiror and subject to any regulatory requirements,
Heritage shall repurchase the Option but only prior to the expiration thereof
from Acquiror together with any of the Option Shares purchased by Acquiror
pursuant thereto, at a price equal to the sum of:
(i) the exercise price paid by Acquiror for any of the Option
Shares;
(ii) the difference between the "market/tender offer price" (as
defined below) for shares of Heritage Common Stock and the exercise
price as determined pursuant to Section 2 hereof, multiplied by the
number of shares of Heritage Common Stock with respect to which the
Option has not been exercised, but only if the market/tender offer
price is greater than such exercise price;
(iii) the difference between the market/tender offer price (as
defined below) and the exercise price paid by Acquiror for any Option
Shares, multiplied by the number of shares so purchased, but only if
the market/tender offer price is greater than such exercise price;
(iv) Acquiror's costs and expenses as provided in Section
10.3(a) of the Merger Agreement; provided there shall be no
duplication of payment under this Agreement and the Merger Agreement.
Any payment under this Section 8(a)(iv) shall only be made if no
payment has been made under Section 10.3(a) of the Merger Agreement,
and any payment under this Section 8(a)(iv) shall discharge any and
all obligations to Heritage to make a payment under Section 10.3(a) of
the Merger Agreement; and
(v) Notwithstanding the foregoing, the maximum amount payable
by Heritage to Acquiror pursuant to the provisions of this Section
8(a) shall not exceed the sum of (i) the aggregate exercise price paid
by Acquiror to Heritage in connection with the actual purchase by
Acquiror of any Option Shares, (ii) $12,000,000, and (iii) the amount
specified in Section 8(a)(iv) above.
6
<PAGE>
As used herein, the phrase "market/tender offer price" shall mean the greater of
(x) the price per share at which a tender or exchange offer has been made if
such tender or exchange offer shall have given rise to the Repurchase Event, or
(y) the highest price paid by a person, whose actions shall have given rise to
the Repurchase Event, for shares of Heritage Common Stock at any time after the
date of this Agreement, or (z) the highest closing price for shares of Heritage
Common Stock within the four-month period immediately preceding the date
Acquiror gives notice of the required repurchase of the Option. In the event
the consideration used in a Repurchase Event is payable, in whole or in part, in
securities or other property, the value of such securities or other property
shall be determined by a nationally recognized investment banking firm selected
by Acquiror.
(b) Repurchase Date. In the event Acquiror exercises its right
to require the repurchase of the Option and/or the Option Shares, Heritage
shall, within three business days thereafter, pay the required amount to
Acquiror in immediately available funds to an account designated by Acquiror and
Acquiror shall surrender the Option and the certificates evidencing the Option
Shares.
(c) Heritage's Repurchase Right. At Heritage's option, Heritage
may repurchase the Option and the Option Shares from Acquiror at the price
specified in Section 8(a) (as limited by Section 8(a)(v)) at any time beginning
on the 360th day after the discontinuance of all Purchase Events that occurred
or continued during the term of the Merger Agreement or during the Post-
Termination Period if a Purchase Event occurred or continued during any such
term or period.
(d) Heritage's First Right of Refusal. If, at any time within
eighteen months after the acquisition of Option Shares by Acquiror, it shall
desire to sell, assign, transfer or otherwise dispose of all or any of the
Option Shares, it shall give Heritage written notice of the proposed transaction
(an "Offeror's Notice"), identifying the proposed transferee, and setting forth
the terms of the proposed transaction. An Offeror's Notice shall be deemed an
offer by Acquiror to Heritage, which may be accepted within five business days
of the receipt of such Offeror's Notice, on the same terms and conditions and at
the same price at which Acquiror is proposing to transfer the Option Shares to a
third party. The purchase of the number of the Option Shares by Heritage
specified in the Offeror's Notice shall be closed within ten business days of
the date of the acceptance of the offer and the purchase price shall be paid to
Acquiror by wire transfer of immediately available funds to an account
designated by Acquiror. In the event of the failure or refusal of Heritage to
purchase all the Option Shares covered by the Offeror's Notice or if any
Regulatory Authority disapproves Heritage's proposed purchase of the Option
Shares, Acquiror may, within sixty days from the latter to occur of Heritage's
failure or refusal or the date of such disapproval, sell the number of Option
Shares specified in the Offeror's Notice to such third party at no less than the
price specified and on terms no more favorable to the purchaser than those set
forth in the Offeror's Notice. The requirements of this Section 8(d) shall not
apply to any disposition as a result of which the proposed transferee would
beneficially own not more than 2% of the voting power of Heritage.
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9. Registration Rights.
(a) Registration Procedure. If a Purchase Event shall have
occurred and be continuing, if requested by Acquiror at any time during the
three-year period beginning on the date of the acquisition of any of the Option
Shares, as expeditiously as possible, use its best efforts to effect the
registration of the Option Shares, on a form of general use under the Securities
Act, in order to permit the sale or other disposition of such shares in
accordance with the intended method of sale or other disposition requested by
Acquiror and by any underwriter selected by Acquiror; provided, however, that
Acquiror may effect only two registrations pursuant to this Section 9. The
first registration effected under this Section 9(a) shall be at Heritage's
expense. If a second registration is requested hereunder by Acquiror, it shall
be paid for equally by Acquiror and Heritage. In connection with such
registrations, each party shall pay the fees and expenses of its own legal
counsel and Acquiror shall pay all blue sky fees and any underwriting discounts
and commissions incurred in connection with such registrations. Acquiror shall
provide such information as may be necessary for Heritage's preparation of the
registration statement. Heritage will use its best efforts to cause such
registration statement first to become effective and then to remain effective
for such period not in excess of 180 days from the day such registration
statement first becomes effective or such shorter time as may be reasonably
necessary to effect such sales or other dispositions. The obligations of
Heritage hereunder to file a registration statement and to maintain its
effectiveness may be suspended for one or more periods of time that do not
exceed 120 days in the aggregate if the Board of Directors of Heritage shall
have determined that the filing of such registration statement or the
maintenance of its effectiveness would require a special audit of Heritage or
any of its Subsidiaries or the disclosure of nonpublic information that would
materially and adversely affect Heritage. The foregoing notwithstanding, if, at
the time of any request by Acquiror for registration of the Option Shares as
provided above, Heritage is in registration with respect to an underwritten
public offering of shares of its Common Stock, and if, in the good faith
judgment of the managing underwriter or managing underwriters, or, if none, the
sole underwriter or underwriters, of such offering, the inclusion of the Option
Shares would interfere with the successful marketing of the shares of Common
Stock offered by Heritage, the number of shares represented by Option Shares
which are to be covered in the registration statement contemplated hereby may be
reduced; provided, however, that after any such required reduction the number of
Option Shares to be included in such offering for the account of Acquiror shall
constitute at least 25% of the total number of shares to be sold by Acquiror and
Heritage in such offering in the aggregate; provided, further, however, that if
such reduction occurs, then Heritage shall file a registration statement for the
balance as promptly as practical and no reduction shall thereafter occur.
(b) Registration Indemnification. In connection with the filing
of any such registration statement, Heritage shall indemnify and hold harmless
Acquiror or its transferee against any losses, claims, damages or liabilities,
joint or several, to which Acquiror or its transferee may become subject,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration statement,
including any prospectus included therein, or any amendment or supplement
thereto, or arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or necessary
8
<PAGE>
to make the statements therein not misleading; and Heritage shall reimburse
Acquiror or its transferee for any legal or other expense reasonably incurred by
Acquiror or its transferee in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that Heritage
shall not be liable in any case to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or omission or
an alleged untrue statement or omission made in such registration statement, and
any prospectus included therein, or any amendment or supplement thereto, in
reliance upon and in conformity with written information furnished by or on
behalf of Acquiror or its transferee specifically for use in the preparation
thereof. Acquiror or its transferee shall indemnify and hold harmless Heritage
to the same extent as set forth in the immediately preceding sentence but only
with reference to written information furnished by or on behalf of Acquiror or
its transferee for use in the preparation of such registration statement, and
any prospectus included therein, or any amendment or supplement thereto; and
Acquiror or its transferee shall reimburse Heritage for any legal or other
expenses reasonably incurred by Heritage in connection with investigation or
defense of any such loss, claim, damage, liability or action.
10. Severability. If any term, provision, covenant or restriction
contained in this Agreement is held by a court or a Regulatory Authority of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or Regulatory Authority determines
that the Option will not permit the holder to acquire the full number of Option
Shares of Heritage Common Stock provided in Section 2 hereof (as adjusted
pursuant to Section 7 hereof), it is the express intention of Heritage to allow
the holder to acquire such lesser number of shares as may be permissible,
without any amendment or modification hereof.
11. Miscellaneous.
(a) Expenses. Except as otherwise provided herein, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder, including
fees and expenses of its own financial consultants, investment bankers,
accountants and counsel.
(b) Entire Agreement. Except as otherwise expressly provided
herein, this Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereto, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and assigns. Nothing in
this Agreement, expressed or implied, is intended to confer upon any party,
other than the parties hereto, and their respective successors and assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided herein.
(c) Assignment. Neither of the parties hereto may assign any of
its rights or obligations under this Agreement or the Option created hereunder
to any other person, without the express written consent of the other party,
except that in the event a Purchase Event
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<PAGE>
shall have occurred and be continuing Acquiror may assign in whole or in part
the Option, and its rights and obligations hereunder; provided, however, that
until the date thirty days following the date on which the Federal Reserve
approves an application by Grantee (as defined below) under the BHCA to acquire
the Option Shares, if such approvals are necessary, Grantee may not assign its
rights under the Option except in (i) a widely dispersed public distribution,
(ii) a private placement in which no one party acquires the right to purchase in
excess of two percent of the voting shares of Heritage, (iii) an assignment to a
single party (e.g., a broker or investment banker) for the purpose of conducting
a widely dispersed public distribution on Grantee's behalf, or (iv) any other
manner approved by the Federal Reserve. "Grantee" means Acquiror or any person,
corporation or other entity to which this Agreement or the Option created hereby
is assigned pursuant to this Section 11(c).
(d) Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
personally or by reliable overnight courier or sent by registered or certified
mail, postage prepaid, addressed as follows:
If to Acquiror: First Midwest Bancorp, Inc.
300 Park Boulevard
Suite 405
Itasca, Illinois 60143-0459
Attention: Mr. Donald J. Swistowicz,
Executive Vice President
with a copy to: Timothy M. Sullivan, Esquire
Hinshaw & Culbertson
222 North LaSalle Street, Suite 300
Chicago, Illinois 60601
If to Heritage: Heritage Financial Services, Inc.
12015 South Western Avenue
Blue Island, IL 60406
Attention: Richard T. Wojcik, Chairman and Chief
Executive Officer
with a copy to: John E. Freechack, Esquire
Barack Ferrazzano Kirschbaum Perlman & Nagelberg
333 W. Wacker Drive
Suite 2700
Chicago, IL 60606
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Joel S. Corwin, Esquire
Two First National Plaza
20 South Clark Street
Suite 2200
Chicago, Illinois 60603
A party may change its address for notice purposes by written notice to the
other party hereto. All such notices and communications shall be deemed
delivered when received by all parties entitled to such receipt hereunder.
(e) Extension of Time. All time periods specified herein shall
be extended, if necessary, by the length of time required for any necessary
governmental approval to be sought and received or governmental notice to be
given and the waiting period to expire, provided that any governmental
application or notice shall be made or given promptly. All of the parties
hereto shall use their best efforts to secure any required governmental approval
and to give any required governmental notice. Notwithstanding anything to the
contrary contained herein, no party shall be required to proceed with any
transaction described herein if any required governmental approval is not
obtained or if, upon the giving of any required governmental notice, the
notified governmental agency prohibits any such transaction. If any required
governmental approval is not obtained or if a governmental agency prohibits any
such transaction upon receipt of a required notice, the decision to appeal such
governmental action shall be solely that of Acquiror; provided, however, that
Acquiror shall bear all of the costs and expenses, including legal and
accounting fees, incurred by any of the parties hereto in prosecuting such an
appeal. Periods of time that otherwise would run under the terms of this
Agreement shall also be extended to the extent necessary to avoid liability
under Section 16(b) of the Securities Exchange Act of 1934, as amended.
(f) Counterparts. This Agreement may be executed in any number
of counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
(g) Specific Performance. The parties agree that damages would
be an inadequate remedy for a breach of the provisions of this Agreement by
Heritage and that this Agreement may be enforced by Acquiror through injunctive
or other equitable relief.
(h) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
agreements made and entirely to be performed within such state and such federal
laws as may be applicable.
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IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the day and year first above written.
FIRST MIDWEST BANCORP, INC.
By: DONALD J. SWISTOWICZ
------------------------------
Its Executive Vice President
HERITAGE FINANCIAL SERVICES, INC.
By RICHARD T. WOJCIK
-------------------------------
Its President
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EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
AMONG
FIRST MIDWEST BANCORP, INC.,
FIRST MIDWEST ACQUISITION CORPORATION
AND
HERITAGE FINANCIAL SERVICES, INC.
January 14, 1998
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into this
14th day of January, 1998, by and among FIRST MIDWEST BANCORP, INC., a Delaware
corporation ("Acquiror"), HERITAGE FINANCIAL SERVICES, INC., an Illinois
corporation ("Heritage"), and FIRST MIDWEST ACQUISITION CORPORATION, an Illinois
corporation and a wholly-owned subsidiary of Acquiror ("Acquisition Corp").
RECITALS
A. The parties hereto desire to effect a reorganization whereby Acquiror
desires to acquire control of Heritage through the merger (the "Merger") of
Heritage with and into Acquisition Corp with Acquisition Corp being the
surviving corporation (the "Surviving Corporation").
B. Pursuant to the terms of this Agreement, each common share of Heritage,
no par value per share ("Heritage Common Stock"), issued and outstanding at the
time of the closing of the Merger (the "Closing") shall be converted into the
right to receive the number of common shares of Acquiror, $0.01 par value per
share ("Acquiror Common Stock"), as provided in Section 3.2, and each
outstanding common share of Acquisition Corp shall be converted into and
thereafter represent one common share of the Surviving Corporation, $0.01 par
value per share.
C. Pursuant to the terms of this Agreement, at the time of the Closing
each then-outstanding right to acquire shares of Heritage Common Stock shall be
converted into the right to acquire shares of Acquiror Common Stock.
D. The parties desire to effect the Merger as a "pooling of interests" for
accounting purposes and as a tax-free "reorganization" under Section 368 of the
Code.
AGREEMENTS
In consideration of the foregoing premises and the mutual promises,
covenants and agreements hereinafter set forth, the parties hereto hereby agree
as follows:
ARTICLE 1
DEFINITIONS
Section 1.1 Definitions. In addition to those terms defined throughout
this Agreement, the following terms, when used herein, shall have the following
meanings.
(a) "Affiliate" means with respect to:
(i) a particular individual: (A) each other member of such
individual's Family; (B) any Person that is directly or indirectly controlled by
such individual or one or more
<PAGE>
members of such individual's Family; (C) any Person in which such individual or
members of such individual's Family hold (individually or in the aggregate) a
Material Interest; and (D) any Person with respect to which such individual or
one or more members of such individual's Family serves as a director, officer,
partner, executor, or trustee (or in a similar capacity); and
(ii) a specified Person other than an individual: (A) any Person
that directly or indirectly controls, is directly or indirectly controlled by,
or is directly or indirectly under common control with such specified Person;
(B) any Person that holds a Material Interest in such specified Person; (C) each
Person that serves as a director, officer, partner, executor, or trustee of such
specified Person (or in a similar capacity); (D) any Person in which such
specified Person holds a Material Interest; (E) any Person with respect to which
such specified Person serves as a general partner or a trustee (or in a similar
capacity); and (F) any Affiliate of any individual described in clause (B) or
(C) of this subsection (ii).
(b) "Applicable Contract" means any Contract: (i) under which a
Person has or may acquire any rights; (ii) under which such Person has or may
become subject to any obligation or liability; or (iii) by which such Person or
any of the assets owned or used by such Person is or may become bound.
(c) "Bank" means Heritage Bank, an Illinois state bank with its main
office located in Blue Island, Illinois, and a wholly-owned subsidiary of
Heritage.
(d) "Best Efforts" means the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to ensure that such result
is achieved as expeditiously as possible, provided, however, that an obligation
to use Best Efforts under this Agreement does not require the Person subject to
that obligation to take actions that would result in a materially adverse change
in the benefits to be received by such Person under this Agreement and the
Contemplated Transactions.
(e) "Breach" means with respect to a representation, warranty,
covenant, obligation, or other provision of this Agreement or any instrument
delivered pursuant to this Agreement: (i) any inaccuracy in or breach of, or any
failure to perform or comply with, such representation, warranty, covenant,
obligation or other provision; or (ii) any claim (by any Person) or other
occurrence or circumstance that is or was inconsistent with such representation,
warranty, covenant, obligation or other provision, and the term "Breach" means
any such inaccuracy, breach, failure, claim, occurrence, or circumstance.
(f) "Business Day" means any day except Saturday, Sunday and any day
on which the Bank is authorized or required by law or other government action to
close.
(g) "Code" means the Internal Revenue Code of 1986, as amended.
(h) "Contemplated Transactions" means all of the transactions
contemplated by this Agreement, including: (i) the merger of Heritage and
Acquisition Corp; (ii) the performance by
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Acquiror, Acquisition Corp and Heritage of their respective covenants and
obligations under this Agreement; (iii) Acquiror's acquisition of control of
Heritage and all of Heritage's Subsidiaries; (iv) Acquiror's issuance of
registered shares of Acquiror Common Stock in exchange for shares of Heritage
Common Stock; (v) the merger of the Bank, the Trust Bank and the Trust Company
into Subsidiaries of the Acquiror following the Effective Time, as contemplated
in Section 3.6; and (vi) approval by Acquiror's stockholders of an amendment to
Acquiror's certificate of incorporation increasing the number of authorized
shares of Acquiror Common Stock to not less than 60,000,000 shares.
(i) "Contract" means any agreement, contract, obligation, promise or
understanding (whether written or oral and whether express or implied) that is
legally binding.
(j) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(l) "Family" means with respect to an individual: (i) the individual;
(ii) the individual's spouse and former spouses; (iii) any other natural person
who is related to the individual or the individual's spouse within the second
degree; and (iv) any other natural person who resides with such individual.
(m) "Heritage Stock Option Plan" means any of the Heritage Employee
Benefit Plans under which Heritage grants options to purchase shares of Heritage
Common Stock.
(n) "Knowledge" with respect to:
(i) an individual means that such person will be deemed to have
"Knowledge" of a particular fact or other matter if such individual is actually
aware of such fact or other matter; and
(ii) a Person (other than an individual) means that such Person
will be deemed to have "Knowledge" of a particular fact or other matter if any
individual who is serving as a director, officer, partner, executor or trustee
of such Person (or in any similar capacity) has, or at any time had, Knowledge
of such fact or other matter.
(o) "Legal Requirement" means any federal, state, local, municipal,
foreign, international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, regulation, statute, or
treaty.
(p) "Material Adverse Effect" with respect to a Person (other than an
individual) means a material adverse effect on the consolidated financial
condition, assets or business of such Person and its Subsidiaries, if any,
provided, however, that with respect to a party to this Agreement, means, to the
extent the effect is quantifiable, any Material Adverse Effect that would cause
or would reasonably be likely to cause such party to reduce its consolidated
stockholders' equity by more than
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$3,000,000 in the case of Heritage and $8,400,000 in the case of First Midwest.
(q) "Material Interest" means the direct or indirect beneficial
ownership (as currently defined in Rule 13d-3 under the Exchange Act) of voting
securities or other voting interests representing at least 10% of the
outstanding voting power of a Person or equity securities or other equity
interests representing at least 10% of the outstanding equity securities or
equity interests in a Person.
(r) "Merger" means the merger of Acquisition Corp and Heritage
provided for in this Agreement.
(s) "Order" means any award, decision, injunction, judgment, order,
ruling, subpoena or verdict entered, issued, made or rendered by any court,
administrative or other governmental agency, including any Regulatory Authority,
or by any arbitrator.
(t) "Ordinary Course of Business" shall include any action taken by a
Person only if such action:
(i) is consistent with the past practices of such Person and is
taken in the ordinary course of the normal day-to-day operations of such Person;
(ii) is not required to be authorized by the board of directors
of such Person (or by any Person or group of Persons exercising similar
authority), other than loan approvals for customers of a financial institution
or purchases or sales of loan pools; and
(iii) is similar in nature and magnitude to actions customarily
taken, without any authorization by the board of directors (or by any Person or
group of Persons exercising similar authority), other than loan approvals for
customers of a financial institution, in the ordinary course of the normal day-
to-day operations of other Persons that are in the same line of business as such
Person.
(u) "Person" means any individual, corporation (including any non-
profit corporation), general or limited partnership, limited liability company,
joint venture, estate, trust, association, organization, labor union or other
entity or Regulatory Authority.
(v) "Proceeding" means any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal, administrative,
investigative or informal) commenced, brought, conducted or heard by or before,
or otherwise involving, any judicial or governmental authority, including a
Regulatory Authority, or arbitrator.
(w) "Regulatory Authorities" means any federal, state or local
governmental body, agency or authority which under applicable statutes and
regulations: (i) has supervisory, judicial, administrative, police, taxing or
other power or authority over Heritage or Acquiror or any of their respective
Subsidiaries; (ii) is required to approve, or give its consent to, the
Contemplated Transactions; or (iii) with which a filing must be made in
connection therewith, including in any case,
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<PAGE>
the Securities and Exchange Commission (the "SEC"), the Board of Governors of
the Federal Reserve System (the "Federal Reserve") and the Office of the
Commissioner of Banks and Real Estate of the State of Illinois (the
"Commissioner").
(x) "Representative" means with respect to a particular Person, any
director, officer, employee, agent, consultant, advisor or other representative
of such Person, including legal counsel, accountants and financial advisors.
(y) "Securities Act" means the Securities Act of 1933, as amended.
(z) "Subsidiary" means, with respect to any Person (the "Owner"), any
corporation or other Person of which securities or other interests representing
10% or more of the power of that corporation's voting stock or other equity
interests or other Person's board of directors or similar governing body, or
otherwise having the power to direct the business and policies of that
corporation or other Person (other than securities or other interests having
such power only upon the happening of a contingency that has not occurred) are
held by the Owner or one or more of its Subsidiaries.
(aa) "Tax" means any tax (including any income tax, capital gains tax,
value-added tax, sales tax, property tax, gift tax or estate tax), levy,
assessment, tariff, duty (including any customs duty), deficiency or other fee,
and any related charge or amount (including any fine, penalty, interest, or
addition to tax), imposed, assessed, or collected by or under the authority of
any Regulatory Authority or payable pursuant to any tax-sharing agreement or any
other Contract relating to the sharing or payment of any such tax, levy,
assessment, tariff, duty, deficiency or fee.
(bb) "Tax Return" means any return (including any information return),
report, statement, schedule, notice, form, or other document or information
filed with or submitted to, or required to be filed with or submitted to, any
Regulatory Authority in connection with the determination, assessment,
collection, or payment of any Tax or in connection with the administration,
implementation, or enforcement of or compliance with any Legal Requirement
relating to any Tax.
(cc) "Threatened" means a claim, Proceeding, dispute, action or other
matter for which any demand or statement has been made (orally or in writing) or
any notice has been given (orally or in writing), or if any other event has
occurred or any other circumstances exist, that would lead a prudent Person to
conclude that such a claim, Proceeding, dispute, action or other matter is
likely to be asserted, commenced, taken or otherwise pursued in the future.
(dd) "Trust Bank" means the First National Bank of Lockport, a
national banking association with business limited to the operation of a trust
department and an insurance agency business and activities incidental thereto,
with its main office located in Monee, Illinois, and a wholly owned-subsidiary
of Heritage.
(ee) "Trust Company" means Heritage Trust Company, an Illinois trust
company with its main office located in Tinley Park, Illinois, and a wholly-
owned subsidiary of Heritage.
5
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Section 1.2 Principles of Construction. (a) In this Agreement, unless
otherwise stated or the context otherwise requires, the following uses apply:
(i) actions permitted under this Agreement may be taken at any time and from
time to time in the actor's sole discretion; (ii) references to a statute shall
refer to the statute and any successor statute, and to all regulations
promulgated under or implementing the statute or successor, as in effect at the
relevant time; (iii) in computing periods from a specified date to a later
specified date, the words "from" and "commencing on" (and the like) mean "from
and including," and the words "to," "until" and "ending on" (and the like) mean
"to, but excluding"; (iv) references to a governmental or quasi-governmental
agency, authority or instrumentality shall also refer to a regulatory body that
succeeds to the functions of the agency, authority or instrumentality; (v)
indications of time of day mean Blue Island, Illinois time; (vi) "including"
means "including, but not limited to"; (vii) all references to sections,
schedules and exhibits are to sections, schedules and exhibits in or to this
Agreement unless otherwise specified; (viii) all words used in this Agreement
will be construed to be of such gender or number as the circumstances require;
and (ix) the captions and headings of articles, sections, schedules and exhibits
appearing in or attached to this Agreement have been inserted solely for
convenience of reference and shall not be considered a part of this Agreement
nor shall any of them affect the meaning or interpretation of this Agreement or
any of its provisions.
(b) The Schedules of each of Heritage and Acquiror referred to in
this Agreement shall consist of the information, agreements and other
documentation described and referred to in this Agreement as being included in
the Schedules with respect to such party, which Schedules were delivered by each
of Heritage and Acquiror to the other not less than one calendar day before the
date of this Agreement. Disclosure of any fact or item in any Schedule or
Exhibit hereto referenced by a particular paragraph or section in this Agreement
shall, should the existence of the fact or item or its contents be relevant to
any other paragraph or section, be deemed to be disclosed with respect to that
other paragraph or section whether or not an explicit cross-reference appears.
(c) All accounting terms not specifically defined herein shall be
construed in accordance with generally accepted accounting principles in the
United States, consistently applied.
6
<PAGE>
ARTICLE 2
THE MERGER
Section 2.1 Manner of Merger. Upon the terms and subject to the
conditions of this Agreement, at the Effective Time (as defined below), Heritage
shall be merged with and into Acquisition Corp pursuant to the provisions of,
and with the effect provided in, the Illinois Business Corporation Act of 1983,
as amended (the "Illinois BCA"), and Acquisition Corp shall be the corporation
resulting from such merger (the "Surviving Corporation"). As a result of the
Merger, each share of Heritage Common Stock issued and outstanding immediately
prior to the Effective Time, other than Dissenting Shares (as defined below),
will be converted into the right to receive the number of shares of Acquiror
Common Stock as provided in Section 3.2. Each right to acquire shares of
Heritage Common Stock outstanding immediately prior to the Effective Time shall
be converted into the right to acquire shares of Acquiror Common Stock as
provided in Section 6.12. The parties agree that they will cooperate and
restructure the method of the Merger so as to prevent the recognition of the
deferred inter-company tax liability relating to the purchase and assumption
transaction consummated by the Bank and the Trust Bank, provided, however, that
any such restructuring shall have no adverse effect on the consideration to be
received pursuant to the terms of this Agreement by, or the tax effect on,
holders of Heritage Common Stock.
Section 2.2 Effect of Merger. (a) At the Effective Time, Heritage
shall be merged with and into Acquisition Corp and Acquisition Corp shall be the
Surviving Corporation. Heritage and Acquisition Corp are sometimes referred to
collectively herein as the "Merging Corporations."
(b) Without limiting the generality of the foregoing, at the
Effective Time, the Surviving Corporation shall thereupon and thereafter possess
all the rights, privileges, immunities and franchises, as of a public or a
private nature, of each of the Merging Corporations, and all property, real,
personal and mixed, and all debts due on whatever account, including
subscriptions to shares, and all other choses in action, and all and every other
interest, of or belonging to or due to each of the Merging Corporations, shall
be taken and deemed to be transferred to and vested in the Surviving Corporation
without further act or deed; and the title to any real estate, or any interest
therein, vested in any of such corporations shall not revert or be in any way
impaired by reason of the Merger. Upon the terms and subject to the conditions
of this Agreement, the Surviving Corporation shall assume and thenceforth be
responsible and liable for all the liabilities and obligations (including all
obligations of indemnification, if any) of each of the Merging Corporations, and
any claim existing or action or proceeding pending by or against any of the
Merging Corporations may be prosecuted to judgment as if the Merger had not
taken place, or the Surviving Corporation may be substituted in its place.
Neither rights of creditors nor any liens upon the property of any of the
Merging Corporations shall be impaired by the Merger.
Section 2.3 Articles of Incorporation. From and after the Effective Time
and until amended as provided by law, the articles of incorporation of the
Surviving Corporation shall be the articles of incorporation of Acquisition Corp
as in effect immediately prior to the Effective Time.
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Section 2.4 Bylaws. From and after the Effective Time and until amended
as provided by law, the bylaws of the Surviving Corporation shall be the bylaws
of Acquisition Corp as in effect immediately prior to the Effective Time.
Section 2.5 Directors and Officers. The directors and officers of
Acquisition Corp immediately prior to the Effective Time shall serve as the
directors and officers of the Surviving Corporation until their successors shall
have been elected or appointed and shall have qualified in accordance with the
Illinois BCA and the articles of incorporation and bylaws of the Surviving
Corporation.
Section 2.6 Closing. (a) The closing of the Merger (the "Closing") shall
occur at the offices of Hinshaw & Culbertson, at 222 N. LaSalle Street, Chicago,
Illinois, on a date which is mutually acceptable to Acquiror and Heritage, but
if they fail to agree, at 10:00 a.m. on the date which is 30 calendar days after
the latest to occur of the receipt of all required approvals or consents of the
Regulatory Authorities for the Contemplated Transactions, the expiration of all
statutory waiting periods relating to such regulatory approvals and the receipt
of the approvals of the shareholders of Heritage and the stockholders of
Acquiror, or at such other time and place as Acquiror and Heritage may agree in
writing (the "Closing Date"). Subject to the provisions of Article 10, failure
to consummate the Merger on the date and time and at the place determined
pursuant to this Section will not result in the termination of this Agreement
and will not relieve any party of any obligation under this Agreement.
(b) The parties hereto agree to file on the Closing Date appropriate
articles of merger, as contemplated by Section 11.25 of the Illinois BCA, with
the Secretary of State of the State of Illinois. The Merger shall be effective
upon the close of business on the day when a certificate of merger has been
issued by the Secretary of State of the State of Illinois (the "Effective
Time").
Section 2.7 Acquiror's Deliveries at Closing. At the Closing, Acquiror
shall deliver the following items to Heritage:
(a) evidence of the delivery by Acquiror or its agents to the
Exchange Agent (as defined below) of:
(i) certificates representing the number of shares of Acquiror
Common Stock to be issued in exchange for the shares of Heritage Common Stock
pursuant to the terms of this Agreement; and
(ii) an aggregate amount of cash equal to the total fractional
shares of Acquiror Common Stock which former holders of Heritage Common Stock
would be entitled to receive;
(b) a good standing certificate for Acquiror issued by each of the
Secretary of State of the States of Delaware and Illinois, and dated in each
case not more than ten Business Days prior to the Closing Date, as defined
below;
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<PAGE>
(c) a good standing certificate for Acquisition Corp issued by the
Secretary of State of the State of Illinois, and dated not more than ten
Business Days prior to the Closing Date;
(d) a copy of the certificate of incorporation of Acquiror certified
not more than ten Business Days prior to the Closing Date by the Secretary of
State of the State of Delaware;
(e) a copy of the articles of incorporation of Acquisition Corp
certified not more that ten Business Days prior to the Closing Date by the
Secretary of State of the State of Illinois;
(f) a certificate of the Secretary or any Assistant Secretary of
Acquiror dated the Closing Date certifying a copy of the bylaws of Acquiror;
(g) copies of resolutions of the board of directors and stockholders
of Acquiror authorizing and approving this Agreement and the consummation of the
Contemplated Transactions, certified as of the Closing Date by the Secretary or
any Assistant Secretary of Acquiror;
(h) a certificate of the Secretary or any Assistant Secretary of
Acquisition Corp dated the Closing Date certifying a copy of the bylaws of
Acquisition Corp;
(i) a certificate executed by the President of Acquiror dated the
Closing Date stating that: (i) all of the representations and warranties of
Acquiror set forth in this Agreement are true and correct in all material
respects with the same force and effect as if all of such representations and
warranties were made at the Closing Date, except to the extent such
representations and warranties expressly relate to an earlier date, in which
case such representations and warranties shall be true and correct on and as of
such earlier date and giving full effect to any supplements that were delivered
by Acquiror to Heritage prior to the Closing Date in accordance with Section
7.8; and (ii) Acquiror has performed or complied in all material respects with
all of the covenants and obligations to be performed or complied with by
Acquiror under the terms of this Agreement on or prior to the Closing Date;
(j) a legal opinion of Acquiror's counsel dated the Closing Date to
the effect set forth in Exhibit A attached hereto; and
(k) such other documents as Heritage may reasonably request.
All of such items shall be reasonably satisfactory in form and substance to
Heritage and its counsel.
Section 2.8 Heritage's Deliveries at Closing. At the Closing, Heritage
shall deliver the following items to Acquiror:
(a) a good standing certificate for Heritage issued by the Secretary
of State of the State of Illinois and dated not more than ten Business Days
prior to the Closing Date;
(b) a copy of the articles of incorporation of Heritage certified not
more than ten
9
<PAGE>
Business Days prior to the Closing Date by the Secretary of State of the State
of Illinois;
(c) a certificate of the Secretary or any Assistant Secretary of
Heritage dated the Closing Date certifying a copy of the bylaws of Heritage;
(d) copies of resolutions of the board of directors and shareholders
of Heritage authorizing and approving this Agreement and the consummation of the
Contemplated Transactions, certified as of the Closing Date by the Secretary or
any Assistant Secretary of Heritage;
(e) a good standing certificate for the Bank issued by the
Commissioner dated not more than ten Business Days prior to the Closing Date;
(f) a copy of the charter of the Bank certified by the Commissioner
not more than ten Business Days prior to the Closing Date;
(g) a certificate of the Secretary of the Bank dated the Closing Date
certifying a copy of the bylaws of the Bank and stating that there have been no
further amendments to the charter of the Bank delivered pursuant to subsection
(f) of this Section;
(h) a good standing certificate for the Trust Company issued by the
Secretary of State of the State of Illinois dated not more than ten Business
Days prior to the Closing Date;
(i) a copy of the articles of incorporation of the Trust Company
certified by the Secretary of State of the State of Illinois not more than ten
Business Days prior to the Closing Date;
(j) a certificate of the Secretary of the Trust Company dated the
Closing Date certifying a copy of the bylaws of the Trust Company and stating
that there have been no further amendments to the articles of incorporation of
the Trust Company delivered pursuant to subsection (i) of this Section;
(k) a good standing certificate for the Trust Bank issued by the
Office of the Comptroller of the Currency (the "OCC") dated not more than ten
Business Days prior to the Closing Date;
(l) a copy of the articles of association of the Trust Bank certified
by the OCC not more than ten Business Days prior to the Closing Date;
(m) a certificate of the Secretary of the Trust Bank dated the Closing
Date certifying a copy of the bylaws of the Trust Bank and stating that there
have been no further amendments to the articles of association of the Trust Bank
delivered pursuant to subsection (l) of this Section;
(n) a certificate executed by the President of Heritage stating that:
(i) all of the representations and warranties of Heritage set forth in this
Agreement are true and correct in all material respects with the same force and
effect as if all of such representations and warranties were
10
<PAGE>
made at the Closing Date, except to the extent such representations and
warranties expressly relate to an earlier date, in which case such
representations and warranties shall be true and correct and as of such earlier
date and giving full effect to any supplements that were delivered by Heritage
to Acquiror prior to the Closing Date in accordance with Section 6.6; and (ii)
Heritage has performed and complied in all material respects with all of the
covenants and obligations to be performed or complied with by it under the terms
of this Agreement on or prior to the Closing Date;
(o) a list of Heritage's shareholders as of three Business Days prior
to the Closing Date certified by the Secretary or any Assistant Secretary of
Heritage;
(p) a legal opinion of Heritage's counsel dated the Closing Date and
to the effect set forth in Exhibit B; and
(q) such other documents as Acquiror may reasonably request.
All of such items shall be reasonably satisfactory in form and substance to
Acquiror and its counsel.
ARTICLE 3
TREATMENT OF AND PAYMENT FOR SHARES
Section 3.1 Treatment of Acquisition Corp Stock. Each common share, $.01
par value per share, of Acquisition Corp issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding at the Effective
Time, shall be unaffected by the Merger and shall thereafter represent all of
the issued and outstanding stock of the Surviving Corporation.
Section 3.2 Treatment of Heritage Common Stock. The conversion of each
issued and outstanding share of Heritage Common Stock into the right to receive
Acquiror Common Stock shall be governed by the provisions of this Section, and
the replacement of each outstanding right to acquire shares of Heritage Common
Stock with the right to acquire shares of Acquiror Common Stock shall be
governed by the provisions of Section 6.12.
(a) Each share of Heritage Common Stock which is issued and
outstanding immediately prior to the Effective Time (other than shares of
Heritage Common Stock held in the treasury of Heritage or held by Acquiror,
which shares shall be cancelled, and shares held by persons seeking appraisal
rights under the provisions of Sections 11.65 and 11.70 of the Illinois BCA)
shall be converted into and represent the right to receive 0.7695 shares of
Acquiror Common Stock (the "Exchange Ratio"). Pursuant to the First Midwest
Shareholder Rights Plan, which was adopted on February 15, 1989, and amended on
November 15, 1995 and June 18, 1997 (the "Rights Plan"), each share of Acquiror
Common Stock issued pursuant to this Section 3.2(a) shall be accompanied by a
Right (as defined in the Rights Plan).
(b) Heritage shall not be obligated to consummate the Merger when
both of the following conditions exist:
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<PAGE>
(i) the Acquiror Common Stock Price Per Share (as defined below)
is less than $33.90 (the "Lower Limit"); and
(ii) the percentage determined by dividing the Acquiror Common
Stock Price Per Share by $42.37 (the "Acquiror Base Price Per Share") is more
than 20 percentage points less than the percentage determined by dividing the
Aggregate Price Per Share of the Comparison Stocks (as defined below) for each
of the ten trading days immediately preceding the fifth trading day prior to the
Closing Date (the "Pricing Period") by the Aggregate Price Per Share of the
Comparison Stocks as of the date of this Agreement ("Comparison Stocks Base
Price Per Share").
(c) The "Acquiror Common Stock Price Per Share" shall be the dollar
amount equal to the volume weighted average price of all transactions for
Acquiror Common Stock as reported on the Nasdaq Stock Market for the Pricing
Period. The "Aggregate Price Per Share of the Comparison Stocks" means the
weighted average of the closing prices of all of the Comparison Stocks as
reported in the Wall Street Journal (or an equivalent source) for each day in
question.
(d) The "Comparison Stocks" mean the most widely held class of common
stock of each of the following corporations listed below, the common stock of
which is publicly traded and as to which there shall not have been, between the
date of this Agreement and the end of the Pricing Period, a publicly announced
proposed merger, acquisition or business combination of such corporation or a
tender offer, exchange offer or other transaction involving the acquisition of
such corporation or the publicly announced proposed merger, acquisiton or
business combination by such corporation involving the acquisition of another
company or companies in transactions with an aggregate value exceeding 20% of
the acquiring corporation's market capitalization as of the date of this
Agreement. In the event that common stock of any such corporation ceases to be
publicly traded or any such announcement is made, as described above, with
respect to any such corporation, such corporation shall be removed from the
Comparison Stocks, and the weights (which have been determined based on the
publicly reported number of outstanding shares of common stock on the date of
this Agreement) redistributed proportionately for purposes of determining the
Aggregate Price Per Share of the Comparison Stocks as of the date of this
Agreement and during the Pricing Period. Further, if any of the corporations
comprising the Comparison Stocks declares or effects a stock dividend,
reclassification, recapitalization, split-up, combination, exchange or shares or
similar transaction between the date of the Agreement and the end of the Pricing
Period, the price for the common stock of such corporation shall be
appropriately adjusted for the purposes of applying this Section 3.2(d).
12
<PAGE>
<TABLE>
<CAPTION>
Corporation Weighting (%)
----------- -------------
<S> <C>
First Citizens BancShares 6.58
UMB Financial Corp. 5.33
Old National Bancorp 6.36
Valley National Bancorp 7.71
Cullen/Frost Bankers Inc. 6.16
One Valley Bancorp Inc. 5.05
Citizens Banking Corp. 4.28
Fulton Financial Corp. 6.36
Whitney Holding Corp. 5.61
BancorpSouth Inc. 4.88
Commerce Bancorp Inc. 3.59
AMCORE Financial Inc. 3.26
Banknorth Group Inc. 2.37
First Commonwealth Financial 3.23
United Bankshares Inc. 3.52
F&M National Corp. 3.31
Hancock Holding Co. 3.28
TrustCo Bank Corp. of NY 3.19
Park National Corp. 4.41
Corus Bankshares Inc. 2.96
Mid Am Inc. 3.32
Firstbank of Illinois Co. 2.87
Chittenden Corp. 2.37
</TABLE>
(e) If the conditions set forth in Section 3.2(b) exist, Heritage
may, at its sole option: (i) terminate this Agreement; (ii) renegotiate with
Acquiror over the payment terms described herein; or (iii) proceed with the
Merger pursuant to the terms of this Agreement. If Heritage elects to exercise
this termination right, it will give prompt written notice to Acquiror as of the
close of business on the second Business Day after the end of the Pricing
Period.
(f) After the Effective Time, no holder of Heritage Common Stock
which is issued and outstanding immediately prior to the Effective Time will
have any rights in respect of such Heritage Common Stock except to receive
shares of Acquiror Common Stock for the shares of Heritage Common Stock
converted as provided in this Section, or to receive payment for such shares of
Heritage Common Stock in the manner and to the extent provided in Sections 11.65
and 11.70 of the Illinois BCA.
Section 3.3 Adjustments. The Exchange Ratio and related amounts and
related computations described in Section 3.2 shall be adjusted in the manner
provided in this Section upon the occurrence of any of the following events:
(a) If Acquiror declares a stock dividend, stock split or other
general distribution
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<PAGE>
of Acquiror Common Stock to holders of Acquiror Common Stock and the ex-dividend
or ex-distribution date for such stock dividend, stock split or distribution
occurs after the date of this Agreement or at any time through and including the
last day of the Pricing Period, then the Lower Limit, Acquiror Base Price Per
Share and, if necessary, the Acquiror Stock Price Per Share, shall be adjusted
by multiplying them by that ratio (i) the numerator of which shall be the total
number of shares of Acquiror Common Stock outstanding immediately prior to such
dividend, split, or distribution, and (ii) the denominator of which shall be the
total number of shares of Acquiror Common Stock outstanding immediately after
such dividend, split or distribution.
(b) If Acquiror declares a stock dividend, stock split or other
general distribution of Acquiror Common Stock to holders of Acquiror Common
Stock and the ex-dividend or ex-distribution date for such stock dividend, stock
split or distribution occurs at any time after the date of this Agreement and
prior to the Closing, then the Exchange Ratio shall be adjusted by multiplying
them by that ratio (i) the numerator of which shall be the total number of
shares of Acquiror Common Stock outstanding immediately after such dividend,
split or distribution, and (ii) the denominator of which shall be the total
number of shares of Acquiror Common Stock outstanding immediately prior to such
dividend, split, or distribution.
(c) Acquiror and Heritage agree not to convene the Closing at any time
which would result in there being an ex-dividend or ex-distribution date for any
transaction described in Section 3.3(a) during the Pricing Period.
(d) If prior to the last day of the Pricing Period there occurs with
respect to one or more of the Comparison Stocks any stock dividend, stock split,
distribution of stock with respect to stock or similar transactions changing the
number and value of issued and outstanding shares of that stock, then an
adjustment shall be made to the price of that Comparison Stock that was used in
computing the Comparison Stocks Base Price Per Share in the manner of the
adjustment described in Section 3.3(a) (unless such transaction results in
excluding that Comparison Stock from the definition of "Comparison Stocks").
(e) Notwithstanding the foregoing subsections of this Section 3.3, no
adjustment shall be made to the Exchange Ratio, the Lower Limit or the Acquiror
Base Price Per Share in the event of the issuance of additional shares of
Acquiror Common Stock pursuant to the grant or sale of shares to, or for the
account of, employees of Acquiror pursuant to Acquiror's (i) stock option, (ii)
qualified and non-qualified retirement and (iii) dividend reinvestment plans.
(f) Notwithstanding the other provisions of this Section 3.3, no
adjustment shall be made to the Exchange Ratio, the Lower Limit or the Acquiror
Base Price Per Share in the event of the issuance of additional shares of
Acquiror Common Stock or other securities pursuant to a public offering, private
placement, or an acquisition of one or more banks, corporations, or business
assets for consideration which the Board of Directors, or a duly authorized
committee of the Board of Directors, of Acquiror in its reasonable business
judgment determines to be fair and reasonable.
(g) Subject only to making any adjustment to the Exchange Ratio and
related
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<PAGE>
computations prescribed by this Section 3.3, nothing contained in this Agreement
is intended to preclude Acquiror from amending its restated certificate of
incorporation to change its capital structure or from issuing additional shares
of Acquiror Common Stock, preferred stock, shares of other capital stock or
securities which are convertible into shares of capital stock.
(h) In the event that the number of shares of Heritage Common Stock
outstanding is greater than 12,090,402 for any reason whatsoever (whether such
increase constitutes a breach of this Agreement), other than as a result of the
exercise of Heritage Stock Options identified in Section 6.12, then the Exchange
Ratio shall be adjusted to that ratio determined by multiplying the Exchange
Ratio by a fraction (i) the numerator of which shall be 12,090,402 (the total
number of shares of Heritage Common Stock outstanding as of the date of this
Agreement), and (ii) the denominator of which shall be the total number of
shares of Heritage Common Stock outstanding as of the Effective Time of the
Merger, excluding not more than 548,336 shares, if any, issued after the date of
this Agreement upon exercise of Heritage Stock Options identified in Section
6.12.
Section 3.4 Steps of Transaction.
--------------------
(a) No later than ten Business Days after the date of the special
and/or annual meeting of shareholders (the "Meeting Date") to be held pursuant
to Section 6.10 (the "Heritage Special Meeting"), Acquiror shall mail or cause
to be mailed to each then current holder of record of a certificate or
certificates representing outstanding shares of Heritage Common Stock (the
"Certificates") transmittal materials for use in surrendering such Certificates
in exchange for certificates representing shares of Acquiror Common Stock (the
Certificates with all properly completed transmittal materials, collectively
referred to as the "Transmittal Materials"). The instructions for completion of
the Transmittal Materials shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon delivery of the
Certificates (or a lost certificate affidavit and/or indemnity bond in a form or
forms reasonably acceptable to Acquiror). Pursuant to the terms of an exchange
agent agreement in the form of Exhibit C, the parties hereto agree to appoint
American Securities Transfer & Trust, Inc., Lakewood, Colorado, as exchange
agent (the "Exchange Agent"), for the parties to effect the surrender of the
Certificates in exchange for Acquiror Common Stock. Acquiror shall use all
reasonable efforts to mail or cause to be mailed the appropriate transmittal
materials to all persons who become holders of Heritage Common Stock subsequent
to the Meeting Date and no later than the close of business on the Business Day
which is ten Business Days prior to the Closing Date.
(b) The Exchange Agent may, in the exercise of its reasonable
discretion, disregard any defects in Transmittal Materials submitted to it that
it determines are immaterial. Acquiror shall cause the Exchange Agent to use
its Best Efforts promptly to notify any person of any defect in Transmittal
Materials submitted to the Exchange Agent. Acquiror and Heritage or their duly
authorized Representatives shall make and approve all computations contemplated
by Section 3.2, and all such computations shall be conclusive and binding on the
Exchange Agent.
(c) As promptly as practicable, but in no event later than five
Business Days after the submission by a holder of Heritage Common Stock of all
necessary Transmittal Materials (but in
15
<PAGE>
no event earlier than five Business Days after the Effective Time), Acquiror
shall cause the Exchange Agent to deliver to each such holder certificates
representing the number of whole shares of Acquiror Common Stock into which the
shares of Heritage Common Stock represented by the Certificates so surrendered
were converted, plus cash as hereinafter provided for any fractional share of
Acquiror Common Stock which such holder would have been entitled to receive.
(d) As promptly as practicable, but in no event later than 60 days
after the Effective Time, Acquiror shall send to each holder of record of
Heritage Common Stock immediately prior to the Effective Time who has not
previously submitted his or her Certificates, additional transmittal materials
for use in surrendering such Certificates to the Exchange Agent.
(e) No dividends or other distributions declared after the Effective
Time with respect to Acquiror Common Stock which are payable to shareholders of
record of Acquiror after the Effective Time shall be paid to a shareholder of
Heritage who is entitled to receive shares of Acquiror Common Stock pursuant to
this Agreement and who holds any unsurrendered Certificate with respect to
Acquiror Common Stock represented thereby, until such shareholder shall
surrender such Certificate (or an appropriate lost certificate affidavit and/or
indemnity bond). Until so surrendered and exchanged, each such outstanding
Certificate shall for all purposes, other than the payment of dividends or other
distributions, if any, to holders of record of shares of Acquiror Common Stock,
represent the shares of Acquiror Common Stock into and for which such shares
have been so converted; provided, however, that upon surrender of a Certificate,
there shall be paid to the record holder or holders of the Certificate, the
amount, without interest thereon, of such dividends and other distributions, if
any, which theretofore have become payable with respect to the number of whole
shares of Acquiror Common Stock represented by such Certificate.
(f) No fractional shares of Acquiror Common Stock shall be issued upon
the surrender for exchange of Certificates; no dividend or distribution of
Acquiror shall relate to any fractional share interest; and such fractional
share interests will not entitle the owner thereof to vote or to any rights of a
shareholder of Acquiror. Instead, each holder of shares of Heritage Common
Stock who has a fractional interest in shares of Acquiror Common Stock arising
upon the conversion or exchange of shares of Heritage Common Stock for Acquiror
Common Stock shall, at the time of surrender of the Certificates theretofore
representing Heritage Common Stock, be paid by Acquiror an amount in cash,
without interest, determined by multiplying such fractional share of Acquiror
Common Stock by the Acquiror Base Price Per Share.
(g) All rights to receive shares of Acquiror Common Stock into and for
which shares of Heritage Common Stock shall have been converted and exchanged
pursuant to this Agreement, shall be deemed to have been paid or issued, as the
case may be, in full satisfaction of all rights pertaining to such converted and
exchanged shares of Heritage Common Stock.
(h) If any certificate representing shares of Acquiror Common Stock is
to be issued in the name of a Person other than the Person in whose name the
Certificate surrendered in exchange therefor is registered, it shall be a
condition of the issuance thereof that the Certificate so surrendered shall be
properly endorsed, accompanied by all documents required to evidence and
16
<PAGE>
effect such transfer and otherwise in proper form for transfer.
Section 3.5 Dissenting Shares. Notwithstanding anything to the contrary
contained in this Agreement, to the extent appraisal rights are available to
Heritage shareholders pursuant to the Illinois BCA, any shares held by a person
who objects to the Merger, whose shares either were not entitled to vote or were
not voted in favor of the Merger and who complies with all of the provisions of
the Illinois BCA concerning the rights of such person to dissent from the Merger
and to require appraisal of such person's shares and who has not withdrawn such
objection or waived such rights prior to the Closing Date ("Dissenting Shares")
shall not be converted pursuant to Section 3.2 but shall become the right to
receive such consideration as may be determined to be due to the holder of such
Dissenting Shares pursuant to the Illinois BCA; provided, however, that each
Dissenting Share held by a person at the Effective Time who shall, after the
Effective Time, withdraw the demand for appraisal or lose the right of
appraisal, in either case pursuant to the Illinois BCA, shall be deemed to be
converted, as of the Effective Time, into the right to receive Acquiror Common
Stock as provided in this Article.
Section 3.6 Merger of Heritage Subsidiaries. The parties understand
that it is the present intention of Acquiror to merge the Bank, the Trust Bank
and the Trust Company at or after the Effective Time into one or more of
Acquiror's Subsidiaries. Heritage shall take all such actions as are reasonably
requested by Acquiror so that Acquiror may accomplish such mergers as aforesaid,
provided, however, that: (a) any such merger will be effective no earlier than
the Effective Time; (b) none of Acquiror's actions in connection with any such
merger will unreasonably interfere with any of the operations of Heritage or any
of its Subsidiaries prior to the Effective Time; (c) none of Heritage or any of
its Subsidiaries will be required to take any irrevocable action prior to the
Closing in connection with any such merger; and (d) no action taken or caused to
be taken by Heritage or any of its Subsidiaries pursuant to this Section will
result in any unreimbursed cost or expense to Heritage or any of its
Subsidiaries. Nothing contained in this Section is intended to impose an
obligation on Heritage or any of its Subsidiaries to alter the manner in which
they conduct their respective businesses.
17
<PAGE>
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF HERITAGE
Heritage hereby represents and warrants to Acquiror as follows:
Section 4.1 Heritage Organization. Heritage: (a) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Illinois and in each other jurisdiction in which the nature of the business
conducted or the properties or assets owned or leased by it makes such
qualification necessary and where the failure to be so qualified would
reasonably be expected to have a Material Adverse Effect on Heritage; (b) is
registered with the Federal Reserve as a bank holding company under the federal
Bank Holding Company Act of 1956, as amended (the "BHCA"); (c) has full power
and authority, corporate and otherwise, to operate as a bank holding company and
to own, operate and lease its properties as presently owned, operated and
leased, and to carry on its business as it is now being conducted; and (d)
except as set forth on Schedule 4.1, owns no voting stock or equity securities
of any corporation, association, partnership or other entity, other than all of
the issued and outstanding stock of the Bank, the Trust Company and the Trust
Bank.
Section 4.2 Bank Organization. The Bank is an Illinois state bank
duly organized, validly existing and in good standing under the laws of the
State of Illinois and is not required to qualify to do business in any other
jurisdiction where the failure to be so qualified would reasonably be expected
to have a Material Adverse Effect on Heritage. The Bank has full power and
authority, corporate and otherwise, to own, operate and lease its properties as
presently owned, operated and leased, and to carry on its business as it is now
being conducted, the deposits of which are insured to the extent allowed by
applicable law by the FDIC under the Bank Insurance Fund or the Savings and Loan
Insurance Fund. The copies of the charter and bylaws of the Bank and all
amendments thereto are substantially complete and correct and set forth on
Schedule 4.2.
Section 4.3 Trust Company and Trust Bank Organization. (a) The Trust
Company is an Illinois trust company duly organized, validly existing and in
good standing under the laws of the State of Illinois and is not required to
qualify to do business in any other jurisdiction where the failure to be so
qualified would reasonably be expected to have a Material Adverse Effect on
Heritage. The Trust Company has full power and authority, corporate and
otherwise, to own, operate and lease its properties as presently owned, operated
and leased, and to carry on its business as it is now being conducted. The
copies of the articles of incorporation and bylaws of the Trust Company and all
amendments thereto are complete and correct and set forth on Schedule 4.3(a).
(b) The Trust Bank is a national banking association duly organized,
validly existing and in good standing under the laws of the United States and is
not required to qualify to do business in any other jurisdiction where the
failure to be so qualified would reasonably be expected to have a Material
Adverse Effect on Heritage. The Trust Bank has full power and authority,
corporate and otherwise, to own, operate and lease its properties as presently
owned, operated and leased, and to carry on its business as it is now being
conducted. The copies of the articles of association and bylaws of the Trust
Bank and all amendments thereto are substantially complete and
18
<PAGE>
correct and set forth on Schedule 4.3(b).
Section 4.4 Authorization; Enforceability. (a) Heritage has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement and the Stock Option Agreement (as defined below). The execution,
delivery and performance of this Agreement and the Stock Option Agreement by
Heritage, and the consummation by it of its obligations under this Agreement and
the Stock Option Agreement, have been authorized by all necessary corporate
action (except for approval by the shareholders of Heritage), and this
Agreement, subject to the receipt of such shareholder approval and all required
regulatory approvals, constitutes a legal, valid and binding obligation of
Heritage enforceable in accordance with its terms, except as such enforcement
may be limited by bankruptcy, insolvency, reorganization or other laws and
subject to general principles of equity.
(b) Except as set forth on Schedule 4.4 and except for ordinary
corporate requirements, no "business combination," "moratorium," "control share"
or other state anti-takeover statute or regulation or any provision contained in
the articles of incorporation or bylaws of Heritage: (i) prohibits or restricts
Heritage's ability to perform its obligations under this Agreement or the Stock
Option Agreement, or its ability to consummate the transactions contemplated
hereby and thereby; (ii) would have the effect of invalidating or voiding this
Agreement or the Stock Option Agreement, or any provision hereof or thereof; or
(iii) would subject Acquiror to any material impediment or condition in
connection with the exercise of any of its rights under this Agreement or the
Stock Option Agreement. Not less than 66-2/3% of the members of the Board of
Directors of Heritage has approved the execution of this Agreement and the Stock
Option Agreement.
Section 4.5 No Conflict. Except as set forth on Schedule 4.5 and
where the occurrence of any of the following would not reasonably be expected to
have a Material Adverse Effect on Heritage, neither the execution nor delivery
of this Agreement nor the consummation or performance of any of the Contemplated
Transactions or the Stock Option Agreement will, directly or indirectly (with or
without notice or lapse of time): (a) contravene, conflict with, or result in a
violation of any provision of the articles of incorporation or charter, and the
bylaws, of Heritage or any of its Subsidiaries, or any resolution adopted by the
board of directors or shareholders of Heritage or any of its Subsidiaries; (b)
contravene, conflict with, or result in a violation of, or give any Regulatory
Authority or other Person the valid and enforceable right to challenge any of
the Contemplated Transactions or to exercise any remedy or obtain any relief
under, any Legal Requirement or any Order to which Heritage or any of its
Subsidiaries, or any of their respective assets that are owned or used by them,
may be subject, other than any of the foregoing that would be satisfied by
compliance with the provisions of the BHCA, the Illinois Bank Holding Company
Act of 1957, as amended (the "IBHCA"), the Securities Act, the Exchange Act, the
Illinois Banking Act (the "Illinois Act") and the Illinois BCA; (c) contravene,
conflict with, or result in a violation or breach of any provision of, or give
any Person the right to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel, terminate, or modify,
any material Applicable Contract to which Heritage or any of its Subsidiaries is
a party or by which any of their respective assets is bound; or (d) result in
the creation of any lien, charge or encumbrance upon or with respect to any of
the assets owned or used by Heritage or any of its Subsidiaries. Except as
contemplated
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by clause (b) of this Section and as set forth in Schedule 4.5, and except for
notice to and the approval of Heritage's shareholders, neither Heritage nor any
of its Subsidiaries is or will be required to give any notice to or obtain any
consent from any Person in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the Contemplated
Transactions.
Section 4.6 Heritage Capitalization. The authorized capital stock of
Heritage consists exclusively of: (a) 16,000,000 common shares, no par value
per share, of which (i) 12,090,402 shares were duly issued and outstanding,
fully paid and non-assessable; (ii) 548,336 shares (the "Heritage Stock
Options") were issuable under the outstanding option agreements described on
Schedule 4.6; and (iii) 37,911 shares were held by Heritage as treasury stock,
all as of December 31, 1997; and (b) 12,000,000 preferred shares, no par value
per share, none of which shares is issued or outstanding. Except as set forth
in this Section: (x) there are no unexpired or pending preemptive rights with
respect to any shares of capital stock of Heritage; (y) there are no outstanding
securities of Heritage which are convertible into or exchangeable for any shares
of Heritage's capital stock; and (z) Heritage is not a party to any Contract
relating to the issuance, sale or transfer of any equity securities or other
securities of Heritage. None of the shares of Heritage Common Stock were issued
in violation of any federal or state securities laws or any other Legal
Requirement. Heritage does not own or have any Contract to acquire, any equity
securities or other securities of any Person or any direct or indirect equity or
ownership interest in any other business except as set forth on Schedule 4.6.
Section 4.7 Subsidiary Capitalization. The authorized capital stock
of the Bank consists, and immediately prior to the Closing will consist,
exclusively of 1,231,241 shares of capital stock, $5.00 par value per share, all
of which shares are, and immediately prior to the Closing will be, duly
authorized, validly issued and outstanding, fully paid and nonassessable (the
"Bank Shares"). The authorized capital stock of the Trust Company consists, and
immediately prior to the Closing will consist, exclusively of 1,000 common
shares, no par value per share, all of which shares are, and immediately prior
to the Closing will be, duly authorized, validly issued and outstanding, fully
paid and nonassessable (the "Trust Company Shares"). The authorized capital
stock of the Trust Bank consists, and immediately prior to the Closing will
consist, exclusively of 20,000 shares of capital stock, $5.00 par value per
share, all of which shares are, and immediately prior to the Closing will be,
duly authorized, validly issued and outstanding, fully paid and nonassessable
(the "Trust Bank Shares," and collectively with the Bank Shares and the Trust
Company Shares, the "Heritage Subsidiary Shares"). Except as set forth on
Schedule 4.7, Heritage is and will be on the Closing Date the record and
beneficial owner of 100% of the Heritage Subsidiary Shares, free and clear of
any lien or encumbrance whatsoever. The Heritage Subsidiary Shares are and will
be on the Closing Date freely transferable and are and will be on the Closing
Date subject to no claim of right except pursuant to this Agreement. There are
no unexpired or pending preemptive rights with respect to any shares of capital
stock of Heritage's Subsidiaries. There are no outstanding securities of
Heritage's Subsidiaries which are convertible into or exchangeable for any
shares of the capital stock of any of Heritage's Subsidiaries, and none of
Heritage's Subsidiaries is a party to any Contract relating to the issuance,
sale or transfer of any equity securities or other securities of any of
Heritage's Subsidiaries. None of the Heritage Subsidiary Shares was issued in
violation of any federal or state securities laws
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or any other Legal Requirement. None of Heritage's Subsidiaries owns or has any
Contract to acquire, any equity securities or other securities of any Person or
any direct or indirect equity or ownership interest in any other business except
as set forth on Schedule 4.7.
Section 4.8 Financial Statements and Reports. True, correct and
complete copies of the following financial statements of Heritage are included
in Schedule 4.8:
(a) for each of the years ended December 31, 1994, 1995 and 1996,
Consolidated Balance Sheets and the related Statements of Income, Statements of
Changes in Shareholders' Equity and Statements of Cash Flows, and the footnotes
thereto; and
(b) for each of the quarters ended March 31, June 30 and September 30,
1997, the Consolidated Balance Sheets and the related Statements of Income,
Statements of Changes in Shareholders' Equity and Statements of Cash Flows, and
the footnotes thereto.
The financial statements described in clause (a) above are audited
statements and have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis. The financial statements
described in clause (b) above have been prepared on a basis consistent with past
accounting practices and as required by applicable rules or regulations and
fairly present the consolidated financial condition and results of operations at
the dates and for the periods presented, subject to year-end audit adjustments
(which changes in the aggregate would not reasonably be expected to have a
Material Adverse Effect on Heritage). Taken together, the financial statements
described in clauses (a) and (b) above (collectively, the "Heritage Financial
Statements") fairly and accurately present in all material respects the
respective financial position, assets, liabilities and results of operations of
Heritage and its Subsidiaries as at the respective dates of and for the periods
referred to in the Heritage Financial Statements.
Section 4.9 Books and Records. The books of account, minute books,
stock record books and other records of Heritage and its Subsidiaries are
complete and correct in all material respects, and have been maintained in
accordance with sound business practices and all material applicable Legal
Requirements, including the maintenance of any adequate system of internal
controls. The minute books of Heritage and its Subsidiaries contain accurate and
complete records in all material respects of all meetings held of, and corporate
action taken by, the shareholders, the board of directors, and committees of the
board of directors of Heritage and its Subsidiaries, respectively. At the
Closing, all of those books and records will be in the possession of Heritage or
its Subsidiaries.
Section 4.10 Title to Properties. Each of Heritage and its
Subsidiaries has good and marketable title to all assets and properties, whether
real or personal, tangible or intangible, which it purports to own and which it
depreciates or amortizes for purposes of its federal Tax Returns (including
other real estate owned), subject to no liens, mortgages, security interests,
encumbrances or charges of any kind except: (a) as noted in the most recent
Heritage Financial Statement or on Schedule 4.10; (b) statutory liens for Taxes
not yet delinquent or being contested in good faith by appropriate Proceedings
and for which appropriate reserves have been established and reflected on the
Heritage Financial Statements; (c) pledges or liens required to be granted in
connection with the acceptance of government deposits, granted in connection
with repurchase or reverse repurchase
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agreements or otherwise incurred in the Ordinary Course of Business; and (d)
minor defects and irregularities in title and encumbrances which do not
materially impair the use thereof for the purposes for which they are held and
which would not reasonably be expected to have a Material Adverse Effect on
Heritage. Each of Heritage and its Subsidiaries as lessee has the right under
valid and existing leases to occupy, use, possess and control any and all of the
respective material property leased by it. All buildings and structures owned
by each of Heritage and its Subsidiaries lie wholly within the boundaries of the
real property owned or validly leased by it and do not encroach upon the
property of, or otherwise conflict with the property rights of, any other
Person, except where any such encroachment would not reasonably be expected to
have a Material Adverse Effect on Heritage.
Section 4.11 Condition and Sufficiency of Assets. The material
buildings, structures and equipment of Heritage and its Subsidiaries are
structurally sound, are in good operating condition and repair, and are adequate
for the uses to which they are being put, and none of such buildings, structures
or equipment is in need of maintenance or repairs except for ordinary, routine
maintenance and repairs that are not material in the aggregate in nature or in
cost. The buildings, structures and equipment of Heritage and its Subsidiaries
are sufficient for the continued conduct of the business of Heritage and its
Subsidiaries after the Closing in substantially the same manner as conducted
prior to the Closing.
Section 4.12 Undisclosed Liabilities; Adverse Changes. Except as set
forth in Schedule 4.12, neither Heritage nor any of its Subsidiaries has any
material liabilities or obligations of any nature (whether known or unknown and
whether absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against in the Heritage Financial Statements
and current liabilities incurred in the Ordinary Course of Business since the
respective dates thereof. Since the date of the latest Heritage Financial
Statement, no event has occurred or circumstance exists that would reasonably be
expected to result in a Material Adverse Effect on Heritage and no facts or
circumstances have been discovered by Heritage from which it appears that there
is a significant risk and reasonable probability that Heritage will suffer a
Material Adverse Effect.
Section 4.13 Taxes. (a) Each of Heritage and its Subsidiaries has
duly filed or will duly file all Tax Returns required to be filed by it for all
periods prior to the Closing Date, and each such Tax Return is complete and
accurate in all material respects. Each of Heritage and its Subsidiaries has
paid, or made adequate provision for the payment of, all Taxes (whether or not
reflected in Tax Returns as filed or to be filed) due and payable by Heritage or
any of its Subsidiaries, or claimed to be due and payable by any Regulatory
Authority, by setting up adequate reserves therefor, and is not delinquent in
the payment of any Tax, except such Taxes as are being contested in good faith
and as to which adequate reserves have been provided. There is no material
claim or assessment pending or, to the Knowledge of Heritage, Threatened against
Heritage or any of its Subsidiaries for any material Taxes owed by any of them.
No audit, examination or investigation related to Taxes paid or payable by
Heritage or any of its Subsidiaries is presently being conducted or, to the
Knowledge of Heritage, Threatened by any Regulatory Authority. Heritage has
delivered to Acquiror true, correct and complete copies of all Tax Returns
previously filed by each of Heritage and its Subsidiaries and any tax
examination reports and statements of deficiencies assessed or agreed to for any
of Heritage or its Subsidiaries with respect to the last three fiscal years.
Deferred taxes of
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Heritage have been accounted for in accordance with generally accepted
accounting principles. Neither Heritage nor any of its Subsidiaries is, or has
been, a party to any tax allocation agreement or arrangement pursuant to which
it has any contingent or outstanding liability to any Person other than Heritage
or any of its Subsidiaries.
(b) Except where any of the following would not reasonably be expected
to result in a Material Adverse Effect on Heritage, each of Heritage and its
Subsidiaries has withheld amounts from its employees, shareholders or holders of
public deposit accounts in compliance with the tax withholding provisions of
applicable federal, state and local laws, has filed all federal, state and local
returns and reports for all years for which any such return or report would be
due with respect to employee income tax withholding, social security,
unemployment taxes, income and other taxes and all payments or deposits with
respect to such taxes have been timely made and, except as set forth in Schedule
4.13, has notified all employees, shareholders and holders of public deposit
accounts of their obligations to file all forms, statements or reports with it
in accordance with applicable federal, state and local tax laws and has taken
reasonable steps to insure that such employees, shareholders and holders of
public deposit accounts have filed all such forms, statements and reports with
it.
Section 4.14 Compliance With ERISA. (a) Except as set forth on Schedule
4.14, all employee benefit plans (as defined in Section 3(3) of ERISA)
established or maintained by Heritage or any of its Subsidiaries or to which
Heritage or any of its Subsidiaries contributes, are in compliance in all
material respects with all applicable requirements of ERISA, and are in
compliance in all material respects with all applicable requirements (including
qualification and non-discrimination requirements in effect as of the Closing)
of the Code for obtaining the tax benefits the Code thereupon permits with
respect to such employee benefit plans. For purposes of this Section, non-
compliance with the Code and ERISA is material if such non-compliance would
reasonably be expected to have a Material Adverse Effect on Heritage. No such
employee benefit plan has, or as of the Closing will have, any amount of
unfunded benefit liabilities (as defined in Section 4001(a)(18) of ERISA) for
which Heritage or any of its Subsidiaries would be liable to any Person under
Title IV of ERISA if any such employee benefit plan were terminated as of the
Closing, which amounts would be material to Heritage or its Subsidiaries. Such
employee benefit plans are funded in accordance with Section 412 of the Code (if
applicable). There would be no obligations which would be material to Heritage
or any of its Subsidiaries under Title IV of ERISA relating to any such employee
benefit plan that is a multi-employer plan if any such plan were terminated or
if Heritage or any of its Subsidiaries withdrew from any such plan as of the
Closing.
(b) Except as set forth in Schedule 4.14, Heritage neither maintains
nor has entered into any Heritage Employee Benefit Plan (as defined below) which
contains any change in control provisions which would cause an increase or
acceleration of benefits or benefit entitlements to employees or former
employees of Heritage or any of its Subsidiaries or their respective
beneficiaries, or other provisions, which would cause an increase in the
liability of Heritage or any of its Subsidiaries or of Acquiror as a result of
the Contemplated Transactions or any related action thereafter. All payments and
other compensation paid or payable by Heritage or any of its Subsidiaries under
this Agreement, any Heritage Employee Benefit Plan or otherwise, to or for the
benefit of any employee or director of Heritage or any of its Subsidiaries, are
in compliance with all
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applicable rules, regulations and bulletins promulgated by the Federal Deposit
Insurance Corporation.
(c) Except as set forth in Schedule 4.14, each of the Heritage
Employee Benefit Plans that is intended to be a pension, profit sharing, stock
bonus, thrift, savings or employee stock ownership plan that is qualified under
Section 401(a) of the Code ("Heritage Qualified Plans") has been determined by
the Internal Revenue Service to qualify under Section 401(a) of the Code, or an
application for determination of such qualification has been timely made to the
Internal Revenue Service prior to the end of the applicable remedial amendment
period under Section 401(b) of the Code (a copy of each such determination
letter or pending application has been provided to Acquiror), and, to the
Knowledge of Heritage, there exist no circumstances (other than circumstances
caused by transactions contemplated in this Agreement or any related actions)
likely to materially adversely affect the qualified status of any such Heritage
Qualified Plan.
(d) There is no pending or, to the Knowledge of Heritage, threatened
litigation or pending claim (other than benefit claims made in the ordinary
course) by or on behalf of or against any of the Heritage Employee Benefit Plans
(or with respect to the administration of any of such plans) now or heretofore
maintained by Heritage or any of its Subsidiaries which allege violations of
applicable state or federal law which are reasonably likely to result in a
Material Adverse Effect on Heritage or any such plan.
(e) Schedule 4.14 describes any obligation that Heritage or any of its
Subsidiaries has to provide health or welfare benefits to retirees or other
former employees, directors or their dependents (other than rights under Section
4980B of the Code or Section 601 of ERISA), including information as to the
number of retirees, other former employees or directors and dependents entitled
to such coverages and their ages.
(f) Except as set forth in Schedule 4.14, all accrued contributions
and other payments required to be made by Heritage to any Heritage Employee
Benefit Plan through the Closing Date have been made or reserves adequate for
such purposes have been set aside therefor and reflected on the Heritage
Financial Statements.
(g) Heritage has filed, and will continue to file in a timely manner,
all returns/reports and etc. pertaining to each Heritage Employee Benefit plan
with the Internal Revenue Service, the Pension Benefit Guaranty Corporation and
the Department of Labor. All such filings, as amended, were and will be complete
and accurate in all material respects.
Section 4.15 Compliance With Legal Requirements. Each of Heritage
and its Subsidiaries is, and at all times since January 1, 1994, has been, in
compliance with each Legal Requirement that is or was applicable to it or to the
conduct or operation of its respective businesses or the ownership or use of any
of its respective assets where the failure to so comply had, or would reasonably
be expected to have, a Material Adverse Effect on Heritage. No event has
occurred or circumstance exists that (with or without notice or lapse of time):
(a) may constitute or result in a violation by Heritage or any of its
Subsidiaries of, or a failure on the part of Heritage or any of its Subsidiaries
to comply with, any Legal Requirement; or (b) may give rise to any obligation on
the part
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of Heritage or any of its Subsidiaries to undertake, or to bear all or any
portion of the cost of, any remedial action of any nature, in either case of
such clauses (a) or (b) above, that would reasonably be expected to have a
Material Adverse Effect on Heritage. Except as set forth on Schedule 4.15,
neither Heritage nor any of its Subsidiaries has received, at any time since
January 1, 1994, any notice or other communication (whether oral or written)
from any Regulatory Authority or any other Person regarding: (x) any actual,
alleged, possible, or potential violation of, or failure to comply with, any
Legal Requirement; or (y) any actual, alleged, possible, or potential obligation
on the part of Heritage or any of its Subsidiaries to undertake, or to bear all
or any portion of the cost of, any remedial action of any nature, in either case
of such clauses (x) or (y) above, that would reasonably be expected to have a
Material Adverse Effect on Heritage.
Section 4.16 Legal Proceedings; Orders. Schedule 4.16 is a true and
correct list of all Proceedings and Orders pending, entered into or, to the
Knowledge of Heritage, Threatened against or affecting Heritage or any of its
Subsidiaries or any of their respective assets or businesses or the Contemplated
Transactions, during the past three years which had, or would reasonably be
expected to have, a Material Adverse Effect on Heritage, and there is no fact
known to Heritage which would provide a basis for any Proceeding or Order which
could have such an effect. To the Knowledge of Heritage, no officer, director,
agent, or employee of Heritage or any of its Subsidiaries is subject to any
Order that prohibits such officer, director, agent, or employee from engaging in
or continuing any conduct, activity or practice relating to the businesses of
Heritage or any of its Subsidiaries. Neither Heritage nor any of its
Subsidiaries has received, at any time since January 1, 1994, any notice or
other communication (whether oral or written) from any Regulatory Authority or
any other Person regarding any actual, alleged, possible, or potential violation
of, or failure to comply with, any Legal Requirement to which Heritage or any of
its Subsidiaries or any of their respective businesses or the assets owned or
used by them, is or has been subject where such violation or failure would
reasonably be expected to have a Material Adverse Effect on Heritage.
Section 4.17 Absence of Certain Changes and Events. Except as set
forth in Schedule 4.17, since December 31, 1996, each of Heritage and its
Subsidiaries has conducted its business only in the Ordinary Course of Business
and with respect to each there has not been any:
(a) change in the authorized or issued capital stock (except as
otherwise contemplated by this Agreement); grant of any stock option or right to
purchase shares of capital stock of Heritage or its Subsidiaries (except
pursuant to the Stock Option Agreement); issuance of any security convertible
into such capital stock or evidences of indebtedness (except in connection with
customer deposits); grant of any registration rights; purchase, redemption,
retirement or other acquisition by Heritage or any of its Subsidiaries of any
shares of any such capital stock; or declaration or payment of any dividend or
other distribution or payment in respect of shares of the capital stock of
Heritage or any of its Subsidiaries (other than dividends paid by any of the
Subsidiaries solely to Heritage);
(b) amendment to the articles of incorporation, charter or bylaws of
Heritage or any of the Subsidiaries (except as otherwise contemplated by this
Agreement);
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(c) payment or increase by Heritage or any of its Subsidiaries of any
bonuses, salaries or other compensation to any shareholder, director, officer or
employee (except for periodic payments or increases in the Ordinary Course of
Business or otherwise in accordance with past compensation practices) or entry
by Heritage or any of its Subsidiaries into any employment, severance or similar
Contract with any director, officer or employee;
(d) adoption, material amendment (except for any amendment necessary
to comply with any Legal Requirement) or termination of, or increase in the
payments to or benefits under, any Heritage Employee Benefit Plan (as defined
below);
(e) damage to or destruction or loss of any asset or property of
Heritage or any of its Subsidiaries not covered by insurance that had, or would
reasonably be expected to have, a Material Adverse Effect on Heritage;
(f) entry into, termination or extension of, or receipt of notice of
termination of any joint venture or similar agreement, or any material Contract
(other than relating to a loan made by the Bank in the Ordinary Course of
Business) or transaction involving a total remaining commitment by or to
Heritage or any of its Subsidiaries of at least $800,000;
(g) material change in any existing material lease of real or
personal property;
(h) sale (other than any sale in the Ordinary Course of Business),
lease or other disposition of any material asset or property of Heritage or any
of its Subsidiaries or mortgage, pledge or imposition of any lien or other
encumbrance on any material asset or property of Heritage or any of its
Subsidiaries except for tax and other liens which arise by operation of law and
with respect to which payment is not past due, and except for pledges or liens:
(i) required to be granted in connection with the acceptance by the Bank of
government deposits; (ii) granted in connection with repurchase or reverse
repurchase agreements; or (iii) otherwise incurred in the Ordinary Course of
Business;
(i) incurrence of any obligation or liability (fixed or contingent)
other than in the Ordinary Course of Business;
(j) cancellation or waiver of any claims or rights with a value to
Heritage or any of its Subsidiaries in excess of $200,000 other than in the
Ordinary Course of Business;
(k) any investment in, or purchase of, a depreciable or amortizable
capital asset exceeding $200,000, or aggregate investments of a capital nature
exceeding $400,000 (other than in the Ordinary Course of Business);
(l) except for the Contemplated Transactions, merger or consolidation
with or into any other Person, or acquisition of any stock, equity interest or
business of any other Person;
(m) transaction for the borrowing or loaning of monies, other than
in the Ordinary
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Course of Business;
(n) material change in the accounting methods used by Heritage or
any of its Subsidiaries; or
(o) agreement, whether oral or written, by Heritage or any of its
Subsidiaries to do any of the foregoing.
Section 4.18 Properties, Contracts, Employee Benefit Plans and Other
Agreements. Schedule 4.18 lists or describes the following:
(a) All real property owned by each of Heritage and its Subsidiaries
and the principal buildings and structures located thereon, together with a
legal description of such real estate, and each lease of real property to which
each of Heritage and its Subsidiaries is a party, identifying the parties
thereto, the annual rental payable, the expiration date thereof and a brief
description of the property covered, and in each case of either owned or leased
real property, the proper identification, if applicable, of each such property
as a branch or main office or other office of Heritage or its Subsidiaries;
(b) each Applicable Contract (other than with respect to a loan made
in the Ordinary Course of Business) that involves performance of services or
delivery of goods or materials by Heritage or any of its Subsidiaries of an
amount or value in excess of $100,000;
(c) each Applicable Contract that was not entered into in the Ordinary
Course of Business and that involves expenditures or receipts of Heritage or any
of its Subsidiaries in excess of $100,000;
(d) each lease, rental, license, installment and conditional sale
agreement and other Applicable Contract affecting the ownership of, leasing of,
title to, use of, or any personal property (except financing leases entered into
in the Ordinary Course of Business, and except for personal property leases and
installment and conditional sales agreements having a value per item or
aggregate payments of less than $100,000 and with terms of less than one year);
(e) each licensing agreement or other Applicable Contract with respect
to patents, trademarks, copyrights, or other intellectual property, but not
including any software commercially available from retail outlets (collectively,
"Heritage Intellectual Property Assets"), including agreements with current or
former employees, consultants or contractors regarding the appropriation or the
non-disclosure of any of the Heritage Intellectual Property Assets of Heritage
or any of its Subsidiaries;
(f) each collective bargaining agreement and other Applicable Contract
to or with any labor union or other employee representative of a group of
employees;
(g) each joint venture, partnership, and other Applicable Contract
(however named) involving a sharing of profits, losses, costs or liabilities by
Heritage or any of its Subsidiaries
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with any other Person;
(h) each Applicable Contract containing covenants that in any way
purport to restrict the business activity of Heritage or any of its Subsidiaries
or limit the freedom of Heritage or any of its Subsidiaries to engage in any
line of business or to compete with any Person;
(i) each Applicable Contract providing for payments to or by any
Person based on sales, purchases, or profits, other than direct payments for
goods;
(j) any employment agreement or arrangement with any director,
officer or employee of each of Heritage and its Subsidiaries;
(k) each profit sharing, group insurance, hospitalization, stock
option, pension, retirement, bonus, deferred compensation, stock bonus, stock
purchase or other employee welfare or benefit agreements, plans or arrangements
established, maintained, sponsored or undertaken by Heritage or any of its
Subsidiaries for the benefit of the officers, directors or employees of Heritage
or any of its Subsidiaries, including each trust or other agreement with any
custodian or any trustee for funds held under any such agreement, plan or
arrangement, and all other Contracts or arrangements under which pensions,
deferred compensation or other retirement benefits are being paid or may become
payable by Heritage or any of its Subsidiaries for the benefit of the employees
of Heritage or any of its Subsidiaries (collectively, the "Heritage Employee
Benefit Plans"), and, in respect to any of them, the latest reports or forms, if
any, filed with the Department of Labor and Pension Benefit Guaranty Corporation
under ERISA, any current financial or actuarial reports and any currently
effective IRS private rulings or determination letters obtained by or for the
benefit of Heritage or any of its Subsidiaries;
(l) each Applicable Contract entered into other than in the Ordinary
Course of Business that contains or provides for an express undertaking by
Heritage or any of its Subsidiaries to be responsible for special or
consequential damages;
(m) each Applicable Contract for the purchase of a depreciable or
amortizable capital asset with a purchase price in excess of $250,000;
(n) each written warranty, guaranty or other similar undertaking with
respect to contractual performance extended by Heritage or any of its
Subsidiaries other than in the Ordinary Course of Business; and
(o) each amendment, supplement and modification (whether oral or
written) in respect of any of the foregoing.
Copies of each document, plan or Contract listed and described on Schedule
4.18 are appended to such Schedule.
Section 4.19 No Defaults. Except as set forth in Schedule 4.19, each
material Contract
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identified or required to be identified in Schedule 4.18 is in full force and
effect and is valid and enforceable in accordance with its terms. Each of
Heritage and its Subsidiaries is, and at all times since January 1, 1994, has
been, in full compliance with all applicable terms and requirements of each
Contract under which any of Heritage or its Subsidiaries has or had any
obligation or liability or by which Heritage or any of its Subsidiaries or any
of the respective assets owned or used by them is or was bound where the failure
to be in such full compliance had, or would reasonably be expected to have, a
Material Adverse Effect on Heritage. To the Knowledge of Heritage, each other
Person that has or had any obligation or liability under any Contract under
which Heritage or any of its Subsidiaries has or had any rights is, and at all
times since January 1, 1994, has been, in full compliance with all applicable
terms and requirements of such Contract where the failure to be in such full
compliance had, or would reasonably be expected to have, a Material Adverse
Effect on Heritage. No event has occurred or circumstance exists that (with or
without notice or lapse of time) may contravene, conflict with, or result in a
violation or breach of, or give Heritage, any of its Subsidiaries or any other
Person the right to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel, terminate, or modify,
any Applicable Contract, any of which would reasonably be expected to have a
Material Adverse Effect on Heritage. Neither Heritage nor any of its
Subsidiaries has given to or received from any other Person, at any time since
January 1, 1994, any notice or other communication (whether oral or written)
regarding any actual, alleged, possible, or potential violation or breach of, or
default under, any Contract where such violation, breach or default had, or
would reasonably be expected to have, a Material Adverse Effect on Heritage.
Other than in the Ordinary Course of Business in connection with workouts and
restructured loans, there are no renegotiations of, attempts to renegotiate, or
outstanding rights to renegotiate any material amounts paid or payable to
Heritage or any of the Subsidiaries under current or completed Contracts with
any Person and no such Person has made written demand for such renegotiation.
Section 4.20 Insurance. Schedule 4.20 lists and briefly describes the
policies of insurance (including bankers blanket bond and insurance providing
benefits for employees) owned or held by Heritage or any of its Subsidiaries on
the date hereof. Each such policy is, and Heritage will use its Best Efforts to
keep each such policy, in full force and effect (except for any expiring policy
which is replaced by coverage at least as extensive) until the Closing. All
premiums due on such policies have been paid.
Section 4.21 Compliance with Environmental Laws. (a) Except as set forth
on Schedule 4.21, there are no actions, suits, investigations, liabilities,
inquiries, Proceedings or Orders involving Heritage or any of its Subsidiaries
or any of their respective assets that are pending or, to the Knowledge of
Heritage, Threatened, nor to the Knowledge of Heritage is there any factual
basis for any of the foregoing, as a result of any asserted failure of Heritage
or any of its Subsidiaries, or any predecessor thereof, to comply (or the
assertion of liability even if in compliance) with any Legal Requirements
designed to minimize, prevent, punish or remedy the consequences of actions that
damage or threaten the soil, land surface or subsurface strata, surface waters
(including navigable waters, oceans waters, streams, ponds, drainage basins and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life and any other environmental medium
or natural resource, any of which would reasonably be expected to have a
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Material Adverse Effect on Heritage.
(b) With respect to the real estate owned (including other real
estate owned) or leased by Heritage or any of its Subsidiaries (the "Heritage
Premises"), to the Knowledge of Heritage: (i) no part of the Heritage Premises
has been used for the generation, manufacture, handling, storage or disposal of
Hazardous Substances (as defined below); (ii) except as disclosed in Schedule
4.21, the Heritage Premises do not contain, and have never contained, an
underground storage tank; and (iii) the Heritage Premises do not contain and are
not contaminated by any material quantity of a Hazardous Substance from any
source. For purposes of this Agreement, "Hazardous Substance" has the meaning
set forth in Section 9601 of the Comprehensive Environmental Response
Compensation and Liability Act of 1980, 42 U.S.C.A., (S)9601 et seq., and also
includes any substance now or hereafter regulated by or subject to any
Environmental Laws (as defined below) and any other pollutant, contaminant or
waste, including, petroleum, asbestos, fiberglass, radon and polychlorinated
biphenyls. For purposes of this Agreement, "Environmental Laws" means all laws
(civil or common), ordinances, rules, regulations, guidelines and orders that:
(w) regulate air, water, soil and solid waste management, including the
generation, release, containment, storage, handling, transportation, disposition
or management of any Hazardous Substance; (x) regulate or prescribe requirements
for air, water or soil quality; (y) are intended to protect public health or the
environment; or (z) establish liability for the investigation, removal or
cleanup of, or damage caused by, any Hazardous Substance.
Section 4.22 Regulatory Filings. Since January 1, 1996, each of Heritage
and its Subsidiaries has filed in a timely manner all required filings with all
Regulatory Authorities, including the Securities and Exchange Commission (the
"SEC"), the Federal Reserve, the Federal Deposit Insurance Corporation and the
Commissioner. To the Knowledge of Heritage, all such filings were accurate and
complete in all material respects as of the dates of the filings, and no such
filing has made any untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading.
Section 4.23 Fiduciary Powers. Each of the Subsidiaries of Heritage has
properly administered all accounts for which it acts as fiduciary, including
accounts for which it serves as trustee, agent, custodian or investment advisor,
in accordance with the terms of the governing documents and applicable state and
federal law and regulations and common law where the failure to so administer
such accounts would reasonably be expected to have a Material Adverse Effect.
None of the Subsidiaries of Heritage or any of its respective directors,
officers or employees has committed any breach of trust with respect to any such
fiduciary account, and the accountings for each such fiduciary account are true
and correct in all material respects and accurately reflect the assets of such
fiduciary account, where any such failures or inaccuracies would reasonably be
expected to have a Material Adverse Effect.
Section 4.24 Disclosure. No representation or warranty of Heritage in this
Agreement omits to state a material fact necessary to make the statements herein
or therein, in light of the circumstances in which they were made, not
misleading. No notice given pursuant to Section 6.6 will contain any untrue
statement or omit to state a material fact necessary to make the statements
therein or in this Agreement, in light of the circumstances in which they were
made, not misleading.
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Section 4.25 Brokerage Commissions. Except as set forth on Schedule 4.25,
none of Heritage or any of its Subsidiaries or any of their respective
Representatives has incurred any obligation or liability, contingent or
otherwise, for brokerage or finders' fees or agents' commissions or other
similar payment in connection with this Agreement.
Section 4.26 Approval Delays. To the Knowledge of Heritage, there is no
reason why the granting of any of the regulatory approvals referred to in
Section 7.4 would be denied or unduly delayed.
Section 4.27 Allowance for Loan and Lease Losses. The allowance for loan
and lease losses shown on the Heritage Financial Statement, dated as of December
31, 1996 (and as shown on any Subsequent Heritage Financial Statement), to the
Knowledge of Heritage, as of such date was (and will be as of the date of each
such Subsequent Heritage Financial Statement) adequate in all material respects
to provide for possible or specific losses, net of recoveries relating to loans
previously charged off, on loans outstanding, and contained an additional amount
of unallocated reserves for unanticipated future losses at a level considered
adequate under the standards applied by applicable Regulatory Authorities and
based upon generally accepted accounting practices applicable to financial
institutions. To the Knowledge of Heritage, the aggregate principal amount of
loans contained (or that will be contained) in the loan portfolio of Heritage as
of December 31, 1996 (and as of the date of any Subsequent Heritage Financial
Statement), in excess of such reserve, was (and will be) fully collectible.
Section 4.28 Indemnification. To the Knowledge of Heritage, except as set
forth in Schedule 4.28, no action or failure to take action by any director,
officer, employee or agent of Heritage or any of its Subsidiaries has occurred
which would give rise to a claim or a potential claim by any such person for
indemnification from Heritage or any of its Subsidiaries under the corporate
indemnification provisions of Heritage or any of its Subsidiaries in effect on
the date of this Agreement.
Section 4.29 Insider Interests. All outstanding loans and other
contractual arrangements (including deposit relationships) between Heritage or
any of its Subsidiaries and any officer, director or employee of Heritage or any
of its Subsidiaries conform in all material respects to the applicable rules and
regulations and requirements of all Regulatory Authorities which were in effect
when such loans and other contractual arrangements were entered into. Except as
disclosed in Heritage's most recent proxy statement to its shareholders, no
officer, director or employee of Heritage or any of its Subsidiaries has any
Material Interest in any property, real or personal, tangible or intangible,
used in or pertaining to the business of Heritage or any of its Subsidiaries.
Section 4.30 Pooling and Tax. To the Knowledge of Heritage, neither it nor
any of its Subsidiaries has engaged in any act that would preclude or adversely
affect the Merger from qualifying for pooling of interests accounting treatment
or as a tax-free reorganization under Section 368(a) of the Code, and, to the
Knowledge of Heritage, there is no basis or reason why the conditions set forth
in Sections 8.12 and 9.11 will not be satisfied.
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Section 4.31 Stay Bonus Plan. Heritage has established a "stay bonus"
plan pursuant to which Heritage may offer cash payments to such employees of
Heritage and its Subsidiaries as it may choose in an effort to induce such
employees to remain in the employment of Heritage or any of its Subsidiaries,
but under the terms of which the aggregate payments made by Heritage may not
exceed $1,000,000 (the "Stay Bonus Plan").
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror hereby represents and warrants to Heritage as follows:
Section 5.1 Acquiror Organization. Acquiror: (a) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and in good standing under the laws of the State of Illinois and in
each other jurisdiction in which the nature of the business conducted or the
properties or assets owned or leased by it makes such qualification necessary
and where the failure to be so qualified would reasonably be expected to have a
Material Adverse Effect on Acquiror; (b) is registered with the Federal Reserve
as a bank holding company under the BHCA; (c) has full power and authority,
corporate and otherwise, to operate as a bank holding company and to own,
operate and lease its properties as presently owned, operated and leased, and to
carry on its business as it is now being conducted; and (d) owns no voting stock
or equity securities of any corporation, association, partnership or other
entity, other than all of the issued and outstanding stock of the entities
listed on Schedule 5.1.
Section 5.2 Subsidiaries' Organization. Each of Acquiror's Subsidiaries
is duly organized, validly existing and in good standing under the laws of the
respective jurisdiction of their incorporation or formation. Each of Acquiror's
Subsidiaries has full power and authority, corporate and otherwise, to own,
operate and lease its respective properties as presently owned, operated and
leased, and to carry on its respective business as it is now being conducted.
The copies of the certificate or articles of incorporation or charter, bylaws or
any other document of formation or governance of Acquiror's Subsidiaries and all
amendments thereto are complete and correct and set forth on Schedule 5.2.
Section 5.3 Authorization; Enforceability. (a) Each of Acquiror and
Acquisition Corp has the requisite corporate power and authority to enter into
and perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement by Acquiror and Acquisition Corp, and the
consummation by each of them of their respective obligations under this
Agreement, have been authorized by all necessary corporate action (except for
the approval by the stockholders of Acquiror), and this Agreement, subject to
the receipt of such stockholder approval and all required regulatory approvals,
constitutes a legal, valid and binding obligation of Acquiror and Acquisition
Corp enforceable in accordance with its terms, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization or other laws and subject to
general principles of equity.
(b) Except as set forth on Schedule 5.3 and except for ordinary corporate
requirements,
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no "business combination," "moratorium," "control share" or other state anti-
takeover statute or regulation or any provision contained in the certificate of
incorporation or bylaws of Acquiror: (i) prohibits or restricts Acquiror's
ability to perform its obligations under this Agreement or its ability to
consummate the transactions contemplated hereby; (ii) would have the effect of
invalidating or voiding this Agreement or any provision hereof; or (iii) would
subject Acquiror to any material impediment or condition in connection with the
exercise of any of its rights under this Agreement. Not less than 66-2/3% of the
members of the Board of Directors of Acquiror has approved the execution of this
Agreement.
Section 5.4 No Conflict. Except as set forth on Schedule 5.4 and except
where the occurrence of any of the following would not reasonably be expected to
have a Material Adverse Effect on Acquiror, neither the execution nor delivery
of this Agreement nor the consummation or performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time): (a) contravene, conflict with, or result in a violation of any provision
of the articles of incorporation or charter, and the bylaws, of Acquiror or any
of its Subsidiaries, or any resolution adopted by the board of directors or
shareholders of Acquiror or any of its Subsidiaries; (b) contravene, conflict
with, or result in a violation of, or give any Regulatory Authority or other
Person the valid and enforceable right to challenge any of the Contemplated
Transactions or to exercise any remedy or obtain any relief under, any Legal
Requirement or any Order to which Acquiror or any of its Subsidiaries, or any of
their respective assets that are owned or used by them, may be subject, other
than any of the foregoing that would be satisfied by compliance with the
provisions of the BHCA, the IBHCA, the Securities Act, the Exchange Act, the
Illinois Act and the Illinois BCA; (c) contravene, conflict with, or result in a
violation or breach of any provision of, or give any Person the right to declare
a default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any material Applicable
Contract to which Acquiror or any of its Subsidiaries is a party or by which any
of their respective assets is bound; or (d) result in the creation of any lien,
charge or encumbrance upon or with respect to any of the assets owned or used by
Acquiror or any of its Subsidiaries. Except as contemplated by clause (b) of
this Section and as set forth in Schedule 5.4, neither Acquiror nor any of its
Subsidiaries is or will be required to give any notice to or obtain any consent
from any Person in connection with the execution and delivery of this Agreement
or the consummation or performance of any of the Contemplated Transactions.
Section 5.5 Acquiror Capitalization. The authorized capital stock of
Acquiror consists exclusively of: (a) 30,000,000 common shares, $.01 par value
per share, of which (i) 20,072,442 shares were duly issued and outstanding,
fully paid and non-assessable; (ii) 964,935 shares were issuable under the
outstanding option agreements described on Schedule 5.5; and (iii) 664,707
shares were held by Acquiror as treasury stock, all as of December 31, 1997; and
(b) 1,000,000 preferred shares, no par value per share, none of which shares is
issued or outstanding, but 300,000 of which are reserved for issuance under the
Rights Plan. Except as set forth in this Section: (x) there are no unexpired or
pending preemptive rights with respect to any shares of capital stock of
Acquiror; (y) there are no outstanding securities of Acquiror which are
convertible into or exchangeable for any shares of Acquiror's capital stock; and
(z) Acquiror is not a party to any Contract relating to the issuance, sale or
transfer of any equity securities or other securities of Acquiror. None of the
shares
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of Acquiror Common Stock were issued in violation of any federal or state
securities laws or any other Legal Requirement. Acquiror does not own or have
any Contract to acquire, any equity securities or other securities of any Person
or any direct or indirect equity or ownership interest in any other business
except as set forth on Schedule 5.5.
Section 5.6 Subsidiary Capitalization. All of the issued and outstanding
shares of capital stock of Acquiror's Subsidiaries are, and immediately prior to
the Closing will be, duly authorized, validly issued and outstanding, fully paid
and nonassessable (collectively, the "Acquiror Subsidiary Shares"). Except as
set forth on Schedule 5.6, Acquiror is and will be on the Closing Date the
record and beneficial owner of 100% of the Acquiror Subsidiary Shares, free and
clear of any lien or encumbrance whatsoever. The Acquiror Subsidiary Shares are
and will be on the Closing Date freely transferable and are and will be on the
Closing Date subject to no claim of right except pursuant to this Agreement.
There are no unexpired or pending preemptive rights with respect to any shares
of capital stock of Acquiror's Subsidiaries. There are no outstanding securities
of any of Acquiror's Subsidiaries which are convertible into or exchangeable for
any shares of the capital stock of any of Acquiror's Subsidiaries nor is any of
Acquiror's Subsidiaries a party to any Contract relating to the issuance, sale
or transfer of any equity securities or other securities of any of Acquiror's
Subsidiaries. None of the Acquiror Subsidiary Shares was issued in violation of
any federal or state securities laws or any other Legal Requirement. None of
Acquiror's Subsidiaries owns or has any Contract to acquire, any equity
securities or other securities of any Person or any direct or indirect equity or
ownership interest in any other business except as set forth on Schedule 5.6.
Section 5.7 Financial Statements and Reports. True, correct and complete
copies of the following financial statements of Acquiror are included in
Schedule 5.7:
(a) for each of the years ended December 31, 1994, 1995 and 1996,
Consolidated Balance Sheets and the related Statements of Income, Statements of
Changes in Stockholders' Equity and Statements of Cash Flows, and the footnotes
thereto; and
(b) for each of the quarters ended March 31, June 30 and September
30, 1997, the Consolidated Balance Sheets and the related Statements of Income,
Statements of Changes in Stockholders' Equity and Statements of Cash Flows, and
the footnotes thereto.
The financial statements described in clause (a) above are audited
statements and have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis. The financial statements
described in clause (b) above have been prepared on a basis consistent with past
accounting practices and as required by applicable rules or regulations and
fairly present the consolidated financial condition and results of operations at
the dates and for the periods presented, subject to year-end audit adjustments
(which changes in the aggregate would not reasonably be expected to have a
Material Adverse Effect on Acquiror). Taken together, the financial statements
described in clauses (a) and (b) above (collectively, the "Acquiror Financial
Statements") fairly and accurately present in all material respects the
respective financial position, assets, liabilities and results of operations of
Acquiror and its Subsidiaries as at the respective dates of and for the periods
referred to in the Acquiror Financial Statements.
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Section 5.8 Books and Records. The books of account, minute books, stock
record books and other records of Acquiror and its Subsidiaries are complete and
correct in all material respects, and have been maintained in accordance with
sound business practices and all material applicable Legal Requirements,
including the maintenance of any adequate system of internal controls. The
minute books of Acquiror and its Subsidiaries contain accurate and complete
records in all material respects of all meetings held of, and corporate action
taken by, the shareholders, the board of directors, and committees of the board
of directors of Acquiror and its Subsidiaries, respectively. At the Closing, all
of those books and records will be in the possession of Acquiror or its
Subsidiaries.
Section 5.9 Title to Properties. Each of Acquiror and its Subsidiaries
has good and marketable title to all assets and properties, whether real or
personal, tangible or intangible, which it purports to own and which it
depreciates or amortizes for purposes of its federal Tax Returns (including the
other real estate owned), subject to no liens, mortgages, security interests,
encumbrances or charges of any kind except: (a) as noted in the most recent
Acquiror Financial Statement or on Schedule 5.9; (b) statutory liens for Taxes
not yet delinquent or being contested in good faith by appropriate Proceedings
and for which appropriate reserves have been established and reflected on the
Acquiror Financial Statements; (c) pledges or liens required to be granted in
connection with the acceptance of government deposits, granted in connection
with repurchase or reverse repurchase agreements or otherwise incurred in the
Ordinary Course of Business; and (d) minor defects and irregularities in title
and encumbrances which do not materially impair the use thereof for the purposes
for which they are held and which would not reasonably be expected to have a
Material Adverse Effect on Acquiror. Each of Acquiror and its Subsidiaries as
lessee has the right under valid and existing leases to occupy, use, possess and
control any and all of the respective material property leased by it. All
buildings and structures owned by each of Acquiror and its Subsidiaries lie
wholly within the boundaries of the real property owned or validly leased by it
and do not encroach upon the property of, or otherwise conflict with the
property rights of, any other Person, except where any such encroachment would
not reasonably be expected to have a Material Adverse Effect on Acquiror.
Section 5.10 Condition and Sufficiency of Assets. The material buildings,
structures and equipment of Acquiror and its Subsidiaries are structurally
sound, are in good operating condition and repair, and are adequate for the uses
to which they are being put, and none of such buildings, structures or equipment
is in need of maintenance or repairs except for ordinary, routine maintenance
and repairs that are not material in the aggregate in nature or in cost. The
buildings, structures and equipment of Acquiror and its Subsidiaries are
sufficient for the continued conduct of the business of Acquiror and its
Subsidiaries after the Closing in substantially the same manner as conducted
prior to the Closing.
Section 5.11 Undisclosed Liabilities; Adverse Changes. Except as set
forth in Schedule 5.11, neither Acquiror nor any of its Subsidiaries has any
material liabilities or obligations of any nature (whether known or unknown and
whether absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against in the Acquiror Financial Statements
and current liabilities incurred in the Ordinary Course of Business since the
respective dates thereof. Since the date of the latest Acquiror Financial
Statement, no event has occurred or circumstance
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exists that would reasonably be expected to result in a Material Adverse Effect
on Acquiror and no facts or circumstances have been discovered by Acquiror from
which it appears that there is a significant risk and reasonable probability
that Acquiror will suffer a Material Adverse Effect.
Section 5.12 Taxes. (a) Each of Acquiror and its Subsidiaries has duly
filed or will duly file all Tax Returns required to be filed by it for all
periods prior to the Closing Date, and each such Tax Return is complete and
accurate in all material respects. Each of Acquiror and its Subsidiaries has
paid, or made adequate provision for the payment of, all Taxes (whether or not
reflected in Tax Returns as filed or to be filed) due and payable by Acquiror or
any of its Subsidiaries, or claimed to be due and payable by any Regulatory
Authority, by setting up adequate reserves therefor, and is not delinquent in
the payment of any Tax, except such Taxes as are being contested in good faith
and as to which adequate reserves have been provided. There is no material claim
or assessment pending or, to the Knowledge of Acquiror, Threatened against
Acquiror or any of its Subsidiaries for any material Taxes owed by any of them.
No audit, examination or investigation related to Taxes paid or payable by
Acquiror or any of its Subsidiaries is presently being conducted or, to
Acquiror's Knowledge, Threatened by any Regulatory Authority. Acquiror has
delivered to Acquiror true, correct and complete copies of all Tax Returns
previously filed by each of Acquiror and its Subsidiaries and any tax
examination reports and statements of deficiencies assessed or agreed to for
Acquiror or any of its Subsidiaries with respect to the last three fiscal years.
Deferred taxes of Acquiror have been accounted for in accordance with generally
accepted accounting principles. Neither Acquiror nor any of its Subsidiaries is,
or has been, a party to any tax allocation agreement or arrangement pursuant to
which it has any contingent or outstanding liability to any Person other than
Acquiror or any of its Subsidiaries.
(b) Except where any of the following would not reasonably be
expected to result in a Material Adverse Effect on Acquiror, each of Acquiror
and its Subsidiaries has withheld amounts from its employees, shareholders or
holders of public deposit accounts in compliance with the tax withholding
provisions of applicable federal, state and local laws, has filed all federal,
state and local returns and reports for all years for which any such return or
report would be due with respect to employee income tax withholding, social
security, unemployment taxes, income and other taxes and all payments or
deposits with respect to such taxes have been timely made and, except as set
forth in Schedule 5.12, has notified all employees, stockholders and holders of
public deposit accounts of their obligations to file all forms, statements or
reports with it in accordance with applicable federal, state and local tax laws
and has taken reasonable steps to insure that such employees, shareholders and
holders of public deposit accounts have filed all such forms, statements and
reports with it.
Section 5.13 Compliance With ERISA. (a) Except as set forth on Schedule
5.13, all employee benefit plans (as defined in Section 3(3) of ERISA)
established or maintained by Acquiror or any of its Subsidiaries or to which
Acquiror or any of its Subsidiaries contributes, are in compliance in all
material respects with all applicable requirements of ERISA, and are in
compliance in all material respects with all applicable requirements (including
qualification and non-discrimination requirements in effect as of the Closing)
of the Code for obtaining the tax benefits the Code thereupon permits with
respect to such employee benefit plans. For purposes of this Section, non-
compliance with the Code and ERISA is material if such non-compliance would
reasonably be
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expected to have a Material Adverse Effect on Acquiror. No such employee benefit
plan has, or as of the Closing will have, any amount of unfunded benefit
liabilities (as defined in Section 4001(a)(18) of ERISA) for which Acquiror or
any of its Subsidiaries would be liable to any Person under Title IV of ERISA if
any such employee benefit plan were terminated as of the Closing, which amounts
would be material to Acquiror or its Subsidiaries. Such employee benefit plans
are funded in accordance with Section 412 of the Code (if applicable). There
would be no obligations which would be material to Acquiror or any of its
Subsidiaries under Title IV of ERISA relating to any such employee benefit plan
that is a multi-employer plan if any such plan were terminated or if Acquiror or
any of its Subsidiaries withdrew from any such plan as of the Closing.
(b) Except as set forth in Schedule 5.13, Acquiror neither maintains
nor has entered into any Acquiror Employee Benefit Plan (as defined below) which
contains any change in control provisions which would cause an increase or
acceleration of benefits or benefit entitlements to employees or former
employees of Acquiror or any of its Subsidiaries or their respective
beneficiaries, or other provisions, which would cause an increase in the
liability of Acquiror or any of its Subsidiaries or of Acquiror as a result of
the Contemplated Transactions or any related action thereafter. All payments and
other compensation paid or payable by Acquiror or any of its Subsidiaries under
this Agreement, any Acquiror Employee Benefit Plan or otherwise, to or for the
benefit of any employee or director of Acquiror or any of its Subsidiaries, are
in compliance with all applicable rules, regulations and bulletins promulgated
by the Federal Deposit Insurance Corporation.
(c) Except as set forth in Schedule 5.13, each of the Acquiror
Employee Benefit Plans that is intended to be a pension, profit sharing, stock
bonus, thrift, savings or employee stock ownership plan that is qualified under
Section 401(a) of the Code ("Acquiror Qualified Plans") has been determined by
the Internal Revenue Service to qualify under Section 401(a) of the Code, or an
application for determination of such qualification has been timely made to the
Internal Revenue Service prior to the end of the applicable remedial amendment
period under Section 401(b) of the Code (a copy of each such determination
letter or pending application has been provided to Acquiror), and, to the
Knowledge of Acquiror, there exist no circumstances (other than circumstances
caused by transactions contemplated in this Agreement or any related actions)
likely to materially adversely affect the qualified status of any such Acquiror
Qualified Plan.
(d) There is no pending or, to the Knowledge of Acquiror, threatened
litigation or pending claim (other than benefit claims made in the ordinary
course) by or on behalf of or against any of the Acquiror Employee Benefit Plans
(or with respect to the administration of any of such plans) now or heretofore
maintained by Acquiror or any of its Subsidiaries which allege violations of
applicable state or federal law which are reasonably likely to result in a
Material Adverse Effect on Acquiror or any such plan.
(e) Schedule 5.13 describes any obligation that Acquiror or any of
its Subsidiaries has to provide health or welfare benefits to retirees or other
former employees, directors or their dependents (other than rights under Section
4980B of the Code or Section 601 of ERISA), including information as to the
number of retirees, other former employees or directors and dependents entitled
to such coverages and their ages.
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(f) All accrued contributions and other payments required to be made
by Acquiror to any Acquiror Employee Benefit Plan through the Closing Date have
been made or reserves adequate for such purposes have been set aside therefor
and reflected on the Acquiror Financial Statements.
(g) Acquiror has filed, and will continue to file in a timely manner,
all returns/reports and etc. pertaining to each Acquiror Employee Benefit plan
with the Internal Revenue Service, the Pension Benefit Guaranty Corporation and
the Department of Labor. All such filings, as amended, were and will be complete
and accurate in all material respects.
Section 5.14 Compliance With Legal Requirements. Each of Acquiror and
its Subsidiaries is, and at all times since January 1, 1994, has been, in
compliance with each Legal Requirement that is or was applicable to it or to the
conduct or operation of its respective businesses or the ownership or use of any
of its respective assets where the failure to so comply had, or would reasonably
be expected to have, a Material Adverse Effect on Acquiror. No event has
occurred or circumstance exists that (with or without notice or lapse of time):
(a) may constitute or result in a violation by Acquiror or any of its
Subsidiaries of, or a failure on the part of Acquiror or any of its Subsidiaries
to comply with, any Legal Requirement; or (b) may give rise to any obligation on
the part of Acquiror or any of its Subsidiaries to undertake, or to bear all or
any portion of the cost of, any remedial action of any nature, in either case of
such clauses (a) or (b) above, that would reasonably be expected to have a
Material Adverse Effect on Acquiror. Except as set forth on Schedule 5.14,
neither Acquiror nor any of its Subsidiaries has received, at any time since
January 1, 1994, any notice or other communication (whether oral or written)
from any Regulatory Authority or any other Person regarding: (x) any actual,
alleged, possible, or potential violation of, or failure to comply with, any
Legal Requirement; or (y) any actual, alleged, possible, or potential obligation
on the part of Acquiror or any of its Subsidiaries to undertake, or to bear all
or any portion of the cost of, any remedial action of any nature, in either case
of such clauses (x) or (y) above, that would reasonably be expected to have a
Material Adverse Effect on Acquiror.
Section 5.15 Legal Proceedings; Orders. Schedule 5.15 is a true and
correct list of all Proceedings and Orders pending, entered into or, to the
Knowledge of Acquiror, Threatened against or affecting Acquiror or any of its
Subsidiaries or any of their respective assets or businesses, or the
Contemplated Transactions, during the past three years which had, or would
reasonably be expected to have, a Material Adverse Effect on Acquiror, and there
is no fact known to Acquiror which would provide a basis for any Proceeding or
Order which could have such an effect. To the Knowledge of Acquiror, no officer,
director, agent, or employee of Acquiror or any of its Subsidiaries is subject
to any Order that prohibits such officer, director, agent, or employee from
engaging in or continuing any conduct, activity or practice relating to the
businesses of Acquiror or any of its Subsidiaries. Neither Acquiror nor any of
its Subsidiaries has received, at any time since January 1, 1994, any notice or
other communication (whether oral or written) from any Regulatory Authority or
any other Person regarding any actual, alleged, possible, or potential violation
of, or failure to comply with, any Legal Requirement to which Acquiror or any of
its Subsidiaries or any of their respective businesses or the assets owned or
used by them, is or has been subject where such violation or failure would
reasonably be expected to have a Material Adverse Effect on Acquiror.
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Section 5.16 Absence of Certain Changes and Events. Except as set forth
in Schedule 5.16, since December 31, 1996, each of Acquiror and its Subsidiaries
has conducted its business only in the Ordinary Course of Business and with
respect to each there has not been any:
(a) change in the authorized or issued capital stock (except as
otherwise contemplated by this Agreement); grant of any stock option or right to
purchase shares of capital stock of Acquiror or its Subsidiaries (except in the
Ordinary Course of Business or otherwise in accordance with past compensation
practices); issuance of any security convertible into such capital stock or
evidences of indebtedness (except in connection with customer deposits); grant
of any registration rights; purchase, redemption, retirement or other
acquisition by Acquiror or any of its Subsidiaries of any shares of any such
capital stock; or declaration or payment of any dividend or other distribution
or payment in respect of shares of the capital stock of Acquiror or any of its
Subsidiaries (other than dividends paid by any of the Subsidiaries solely to
Acquiror or dividends paid by Acquiror to its stockholders in accordance with
past practice);
(b) amendment to the certificate or articles of incorporation or
charter, bylaws or any other document of formation or governance of Acquiror or
any of its Subsidiaries (except as otherwise contemplated by this Agreement);
(c) payment or increase by Acquiror or any of the Subsidiaries of any
bonuses, salaries or other compensation to any shareholder, director, officer or
employee (except for periodic payments or increases in the Ordinary Course of
Business or otherwise in accordance with past compensation practices) or entry
by Acquiror or any of its Subsidiaries into any employment, severance or similar
Contract with any director, officer or employee;
(d) adoption, material amendment (except for any amendment necessary
to comply with any Legal Requirement) or termination of, or increase in the
payments to or benefits under, any Acquiror Employee Benefit Plan (as defined
below);
(e) damage to or destruction or loss of any asset or property of
Acquiror or any of its Subsidiaries not covered by insurance that had, or would
reasonably be expected to have, a Material Adverse Effect on Acquiror;
(f) entry into, termination or extension of, or receipt of notice of
termination of any joint venture or similar agreement, or any material Contract
(other than relating to a loan made by any of Acquiror's banking Subsidiaries in
the Ordinary Course of Business) or transaction involving a total remaining
commitment by or to Acquiror or any of its Subsidiaries of at least $2,000,000;
(g) material change in any existing material lease of real or
personal property;
(h) sale (other than any sale in the Ordinary Course of Business),
lease or other disposition of any material asset or property of Acquiror or any
of its Subsidiaries or mortgage, pledge or imposition of any lien or other
encumbrance on any material asset or property of Acquiror
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or any of its Subsidiaries except for tax and other liens which arise by
operation of law and with respect to which payment is not past due, and except
for pledges or liens: (i) required to be granted in connection with the
acceptance by any of Acquiror's banking Subsidiaries of government deposits;
(ii) granted in connection with repurchase or reverse repurchase agreements; or
(iii) otherwise incurred in the Ordinary Course of Business;
(i) incurrence of any obligation or liability (fixed or contingent)
other than in the Ordinary Course of Business;
(j) cancellation or waiver of any claims or rights with a value to
Acquiror or any of its Subsidiaries in excess of $500,000 other than in the
Ordinary Course of Business;
(k) any investment in, or purchase of, a depreciable or amortizable
capital asset exceeding $500,000, or aggregate investments of a capital nature
exceeding $1,000,000 (other than in the Ordinary Course of Business);
(l) transaction for the borrowing or loaning of monies, other than in
the Ordinary Course of Business;
(m) material change in the accounting methods used by Acquiror or any
of its Subsidiaries; or
(n) agreement, whether oral or written, by Acquiror or any of its
Subsidiaries to do any of the foregoing.
Section 5.17 Properties, Contracts, Employee Benefit Plans and Other
Agreements. Schedule 5.17 lists or describes the following:
(a) each Applicable Contract that was not entered into in the
Ordinary Course of Business and that involves expenditures or receipts of
Acquiror or any of its Subsidiaries in excess of $500,000;
(b) each collective bargaining agreement and other Applicable
Contract to or with any labor union or other employee representative of a group
of employees;
(c) each joint venture, partnership, and other Applicable Contract
(however named) involving a sharing of profits, losses, costs or liabilities by
Acquiror or any of its Subsidiaries with any other Person where the investment
of Acquiror or any of its Subsidiaries is in excess of $500,000;
(d) each Applicable Contract containing covenants that in any way
purport to restrict the business activity of Acquiror or any of its Subsidiaries
or limit the freedom of Acquiror or any of its Subsidiaries to engage in any
line of business or to compete with any Person;
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(e) any employment agreement or arrangement with any director,
officer or employee of each of Acquiror and its Subsidiaries;
(f) each profit sharing, group insurance, hospitalization, stock
option, pension, retirement, bonus, deferred compensation, stock bonus, stock
purchase or other employee welfare or benefit agreements, plans or arrangements
established, maintained, sponsored or undertaken by Acquiror or any of its
Subsidiaries for the benefit of the officers, directors or employees of Acquiror
or any of its Subsidiaries, including each trust or other agreement with any
custodian or any trustee for funds held under any such agreement, plan or
arrangement, and all other Contracts or arrangements under which pensions,
deferred compensation or other retirement benefits are being paid or may become
payable by Acquiror or any of its Subsidiaries for the benefit of the employees
of Acquiror or any of its Subsidiaries (collectively, the "Acquiror Employee
Benefit Plans"), and, in respect to any of them, the latest reports or forms, if
any, filed with the Department of Labor and Pension Benefit Guaranty Corporation
under ERISA, any current financial or actuarial reports and any currently
effective IRS private rulings or determination letters obtained by or for the
benefit of Acquiror or any of its Subsidiaries;
(g) each Applicable Contract entered into other than in the Ordinary
Course of Business that contains or provides for an express undertaking by
Acquiror or any of its Subsidiaries to be responsible for special or
consequential damages; and
(h) each amendment, supplement and modification (whether oral or
written) in respect of any of the foregoing.
Section 5.18 No Defaults. Except as set forth in Schedule 5.18, each
material Contract of Acquiror is in full force and effect and is valid and
enforceable in accordance with its terms. Each of Acquiror and its Subsidiaries
is, and at all times since January 1, 1994, has been, in full compliance with
all applicable terms and requirements of each Contract under which any of
Acquiror or its Subsidiaries has or had any obligation or liability or by which
Acquiror or any of its Subsidiaries or any of the respective assets owned or
used by them is or was bound where the failure to be in such full compliance
had, or would reasonably be expected to have, a Material Adverse Effect on
Acquiror. To the Knowledge of Acquiror, each other Person that has or had any
obligation or liability under any Contract under which Acquiror or any of its
Subsidiaries has or had any rights is, and at all times since January 1, 1994,
has been, in full compliance with all applicable terms and requirements of such
Contract where the failure to be in such full compliance had, or would
reasonably be expected to have, a Material Adverse Effect on Acquiror. No event
has occurred or circumstance exists that (with or without notice or lapse of
time) may contravene, conflict with, or result in a violation or breach of, or
give Acquiror, any of its Subsidiaries or any other Person the right to declare
a default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any Applicable Contract, any
of which would reasonably be expected to have a Material Adverse Effect on
Acquiror. Neither Acquiror nor any of its Subsidiaries has given to or received
from any other Person, at any time since January 1, 1994, any notice or other
communication (whether oral or written) regarding any actual, alleged, possible,
or potential violation or breach of, or default under, any Contract where such
violation, breach or default had, or would
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reasonably be expected to have, a Material Adverse Effect on Acquiror. Other
than in the Ordinary Course of Business in connection with workouts and
restructured loans, there are no renegotiations of, attempts to renegotiate, or
outstanding rights to renegotiate any material amounts paid or payable to
Acquiror or any of the Subsidiaries under current or completed Contracts with
any Person and no such Person has made written demand for such renegotiation.
Section 5.19 Insurance. Schedule 5.19 lists and briefly describes the
policies of insurance (including bankers blanket bond and insurance providing
benefits for employees) owned or held by Acquiror or any of its Subsidiaries on
the date hereof. Each such policy is, and Acquiror will use its Best Efforts to
keep each such policy, in full force and effect (except for any expiring policy
which is replaced by coverage at least as extensive) until the Closing. All
premiums due on such policies have been paid.
Section 5.20 Compliance with Environmental Laws. (a) Except as set forth
on Schedule 5.20, there are no actions, suits, investigations, liabilities,
inquiries, Proceedings or Orders involving Acquiror or any of its Subsidiaries
or any of their respective assets that are pending or, to the Knowledge of
Acquiror, Threatened, nor to the Knowledge of Acquiror is there any factual
basis for any of the foregoing, as a result of any asserted failure of Acquiror
or any of its Subsidiaries, or any predecessor thereof, to comply (or the
assertion of liability even if in compliance) with any Legal Requirements
designed to minimize, prevent, punish or remedy the consequences of actions that
damage or threaten the soil, land surface or subsurface strata, surface waters
(including navigable waters, oceans waters, streams, ponds, drainage basins and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life and any other environmental medium
or natural resource, any of which would reasonably be expected to have a
Material Adverse Effect on Acquiror.
(b) With respect to the real estate owned (including other real
estate owned) or leased by Acquiror or any of its Subsidiaries (the "Acquiror
Premises"), to the Knowledge of Acquiror: (i) no part of the Acquiror Premises
has been used for the generation, manufacture, handling, storage or disposal of
Hazardous Substances; (ii) except as disclosed in Schedule 5.20, the Acquiror
Premises do not contain, and have never contained, an underground storage tank;
and (iii) the Acquiror Premises do not contain and are not contaminated by any
material quantity of a Hazardous Substance from any source.
Section 5.21 Regulatory Filings. Since January 1, 1996, each of Acquiror
and its Subsidiaries has filed in a timely manner all required filings with all
Regulatory Authorities, including the SEC, the Federal Reserve, the Federal
Deposit Insurance Corporation, the Office of the Comptroller of the Currency,
the Office of Thrift Supervision and the Commissioner. To the Knowledge of
Acquiror, all such filings were accurate and complete in all material respects
as of the dates of the filings, and no such filing has made any untrue statement
of a material fact or omitted to state a material fact necessary in order to
make the statements made, in light of the circumstances under which they were
made, not misleading.
Section 5.22 Fiduciary Powers. Each of the Subsidiaries of Acquiror has
properly
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administered all accounts for which it acts as fiduciary, including accounts for
which it serves as trustee, agent, custodian or investment advisor, in
accordance with the terms of the governing documents and applicable state and
federal law and regulations and common law where the failure to so administer
such accounts would reasonably be expected to have a Material Adverse Effect.
None of the Subsidiaries of Acquiror or any of its respective directors,
officers or employees has committed any breach of trust with respect to any such
fiduciary account, and the accountings for each such fiduciary account are true
and correct in all material respects and accurately reflect the assets of such
fiduciary account, where any such failures or inaccuracies would reasonably be
expected to have a Material Adverse Effect.
Section 5.23 Disclosure. No representation or warranty of Acquiror in this
Agreement omits to state a material fact necessary to make the statements herein
or therein, in light of the circumstances in which they were made, not
misleading. No notice given pursuant to Section 7.8 will contain any untrue
statement or omit to state a material fact necessary to make the statements
therein or in this Agreement, in light of the circumstances in which they were
made, not misleading.
Section 5.24 Brokerage Commissions. None of Acquiror or any of its
Subsidiaries or any of their respective Representatives has incurred any
obligation or liability, contingent or otherwise, for brokerage or finders' fees
or agents' commissions or other similar payment in connection with this
Agreement.
Section 5.25 Approval Delays. To the Knowledge of Acquiror, there is no
reason why the granting of any of the regulatory approvals referred to in
Section 7.4 would be denied or unduly delayed.
Section 5.26 Allowance for Loan and Lease Losses. The allowance for loan
and lease losses shown on the Acquiror Financial Statement, dated as of December
31, 1996 (and as shown on any Subsequent Acquiror Financial Statement), to the
Knowledge of Acquiror, as of such date was (and will be as of the date of each
such Subsequent Acquiror Financial Statement) adequate in all material respects
to provide for possible or specific losses, net of recoveries relating to loans
previously charged off, on loans outstanding, and contained an additional amount
of unallocated reserves for unanticipated future losses at a level considered
adequate under the standards applied by applicable Regulatory Authorities and
based upon generally accepted accounting practices applicable to financial
institutions. To the Knowledge of Acquiror, the aggregate principal amount of
loans contained (or that will be contained) in the loan portfolio of Acquiror as
of December 31, 1996 (and as of the date of any Subsequent Acquiror Financial
Statement), in excess of such reserve, was (and will be) fully collectible.
Section 5.27 Indemnification. To the Knowledge of Acquiror, except as set
forth in Schedule 5.27, no action or failure to take action by any director,
officer, employee or agent of Acquiror or any of its Subsidiaries has occurred
which would give rise to a claim or a potential claim by any such person for
indemnification from Acquiror or any of its Subsidiaries under the corporate
indemnification provisions of Acquiror or any of its Subsidiaries in effect on
the date of this Agreement.
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Section 5.28 Insider Interests. All outstanding loans and other contractual
arrangements (including deposit relationships) between Acquiror or any of its
Subsidiaries and any officer, director or employee of Acquiror or any of its
Subsidiaries conform in all material respects to the applicable rules and
regulations and requirements of all Regulatory Authorities which were in effect
when such loans and other contractual arrangements were entered into. Except as
disclosed in Acquiror's most recent proxy statement to its stockholders, no
officer, director or employee of Acquiror or any of its Subsidiaries has any
Material Interest in any property, real or personal, tangible or intangible,
used in or pertaining to the business of Acquiror or any of its Subsidiaries.
Section 5.29 Pooling and Tax. To the Knowledge of Acquiror, neither it nor
any of its Subsidiaries has engaged in any act that would preclude or adversely
affect the Merger from qualifying for pooling of interests accounting treatment
or as a tax-free reorganization under Section 368(a) of the Code, and, to the
Knowledge of Acquiror, there is no basis or reason why the conditions set forth
in Sections 8.12 and 9.11 will not be satisfied.
ARTICLE 6
HERITAGE'S COVENANTS
Section 6.1 Access and Investigation. (a) Acquiror and its Representatives
shall, at all times during normal business hours and with reasonable advance
notice prior to the Closing Date, have full and continuing access to the
facilities, operations, records and properties of Heritage and its Subsidiaries
in accordance with the provisions of this Section. Acquiror and its
Representatives may, prior to the Closing Date, make or cause to be made such
reasonable investigation of the operations, records and properties of each of
Heritage and its Subsidiaries and of their respective financial and legal
condition as Acquiror shall deem necessary or advisable to familiarize itself
with such records, properties and other matters; provided, that such access or
investigation shall not interfere unnecessarily with the normal operations of
Heritage and its Subsidiaries. Upon request, each of Heritage and its
Subsidiaries will furnish to Acquiror or its Representatives, attorneys'
responses to auditors' requests for information regarding Heritage or any of its
Subsidiaries, as the case may be, and such financial and operating data and
other information reasonably requested by Acquiror (provided with respect to
attorneys, such disclosure would not result in the waiver by Heritage or any of
its Subsidiaries of any claim of attorney-client privilege), and will permit
Acquiror or its Representatives to discuss such information directly with any
individual or firm performing auditing or accounting functions for Heritage or
any of its Subsidiaries, and such auditors and accountants shall be directed to
furnish copies of any reports or financial information as developed to Acquiror
or its Representatives. No investigation by Acquiror shall affect the
representations and warranties made by Heritage in this Agreement. This Section
shall not require the disclosure of any information the disclosure of which to
Acquiror would be prohibited by law.
(b) Heritage shall allow a representative of Acquiror to attend as an
observer: (i) all meetings of the Board of Directors of Heritage and its
Subsidiaries; and (ii) all meetings of the committees of each such Board,
including without limitation the audit and executive committees thereof, except
for any such meeting if and to the extent that any amendment to this Agreement
or
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the Stock Option Agreement or the merits of any Acquisition Transaction
described in Section 6.7 hereof is discussed. Heritage shall give reasonable
notice to Acquiror of any such meeting and, if known, the agenda for or business
to be discussed at such meeting. Heritage shall provide to Acquiror all
information provided to the directors on all such Boards and committees in
connection with all such meetings or otherwise provided to the directors. It is
understood by the parties that Acquiror's representative will not have any
voting rights with respect to matters discussed at these meetings and that
Acquiror is not managing the business or affairs of Heritage. All information
obtained by Acquiror at these meetings shall be treated in confidence as
provided in Section 11.6.
Section 6.2 Operations of Heritage. Between the date of this Agreement and
the Closing Date, Heritage will, and will cause each of its Subsidiaries, to
(a) conduct its respective business only in the Ordinary Course of
Business;
(b) use its Best Efforts to preserve intact its respective current
business organization, keep available the services of the current officers,
employees and agents and maintain the relations and goodwill with suppliers,
customers, landlords, creditors, employees, agents and others having business
relationships with it and will inform Acquiror as soon as it becomes aware of
the potential loss or diminution in the relationship with any consequential
customer, the term "consequential customer" to include the twenty largest loan,
depository or trust customers;
(c) confer with Acquiror concerning operational matters that would
reasonably be expected to have a Material Adverse Effect on Heritage;
(d) enter into loan and other business transactions only in accordance
with its current credit and other internal policies (and not amend such policies
except as may be required by any Regulatory Authority) and only on terms and
conditions consistent with arm's-length transactions and conduct its investment
activities and its asset liability management activities only in accordance with
Heritage's current investment policies and asset liability management policies
(and not amend such policies except as may be required by any Regulatory
Authority);
(e) consistent with past practice, maintain a reserve for possible
loan and lease losses which is adequate in all material respects under the
requirements of generally accepted accounting principles to provide for possible
losses, net of recoveries relating to loans previously charged off, on loans
outstanding (including accrued interest receivable);
(f) maintain all of its assets necessary for the conduct of its
business in good operating condition and repair, reasonable wear and tear and
damage by fire or unavoidable casualty excepted, and maintain policies of
insurance upon its assets and with respect to the conduct of its business in
amounts and kinds comparable to that in effect on the date hereof and pay all
premiums on such policies when due;
(g) file in a timely manner all required filings with all Regulatory
Authorities and cause such filings to be true and correct in all material
respects; and
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(h) maintain its books, accounts and records in the usual, regular and
ordinary manner, on a basis consistent with prior years and comply in all
material respects with all Legal Requirements.
Section 6.3 Negative Covenant. Except as otherwise expressly permitted by
this Agreement, as set forth on Schedule 6.3, pursuant to an existing Contract
disclosed in this Agreement or on Heritage's Schedules or pursuant to the Stay
Bonus Plan, between the date of this Agreement and the Closing Date, Heritage
will not, and will cause each of its Subsidiaries not to, without the prior
written consent of Acquiror, take any affirmative action, or fail to take any
reasonable action within its control, as a result of which any of the changes or
events listed in Section 4.17 is likely to occur other than those occurring in
the Ordinary Course of Business or in a manner consistent with past practices.
Section 6.4 Heritage Dividends. Beginning with the first calendar quarter
of 1998 and for each succeeding calendar quarter thereafter prior to that
calendar quarter in which the Effective Time shall occur, Heritage: (a) will not
declare or pay any dividends or make any distributions with respect to
outstanding Heritage Common Stock, except quarterly cash dividends which shall
not exceed $0.11 per share; (b) except as provided below, will not declare or
pay any dividends or make any distributions in any amount on Heritage Common
Stock in the calendar quarter in which the Effective Time shall occur and in
which the holders of Heritage Common Stock are entitled to receive regular
quarterly dividends on the shares of Acquiror Common Stock into which the shares
of Heritage Common Stock have been converted. It is the intent of clause (b) of
this Section to provide that the holders of Heritage Common Stock will receive
either payment of dividends on their shares of Heritage Common Stock as
permitted under (a) of this Section or the payment of cash dividends as the
holders of shares of Acquiror Common Stock received in exchange for the shares
of Heritage Common Stock for the calendar quarter during which the Effective
Time shall occur, but will not receive and will not become entitled to receive
for the same calendar quarter both the payment of a permitted dividend as
shareholders of Heritage and the payment of a cash dividend as the holders of
the shares of Acquiror Common Stock received in exchange for the shares of
Heritage Common Stock. In the event that Heritage does not declare and pay
permitted dividends on its Heritage Common Stock in a particular calendar
quarter because of Heritage's expectation that the Effective Time would occur in
said calendar quarter wherein the holders of Heritage Common Stock would have
become entitled to receive cash dividends for such calendar quarter on the
shares of Acquiror Common Stock to have been exchanged for the shares of
Heritage Common Stock, and the Effective Time does not in fact occur in said
calendar quarter, then, as a result thereof, Heritage shall be entitled to
declare and pay a permitted dividend (within the limitations of this Section) on
said shares of Heritage Common Stock for said calendar quarter as soon as
reasonably practicable.
Section 6.5 Subsequent Heritage Financial Statements. As soon as available
after the date hereof, Heritage will furnish Acquiror copies of the monthly
unaudited consolidated balance sheets and profit and loss statements of Heritage
prepared for its internal use for each month completed after the date of this
Agreement and prior to the Closing, and all other financial reports or
statements submitted by Heritage or any of its Subsidiaries to Regulatory
Authorities after the date hereof, to the extent permitted by law (collectively,
the "Subsequent Heritage Financial Statements").
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The Subsequent Heritage Financial Statements shall be prepared on a basis
consistent with past accounting practices and shall fairly present the financial
condition and results of operations for the dates and periods presented. The
Subsequent Heritage Financial Statements will not include any material assets or
omit to state any material liabilities, absolute or contingent, or other facts,
which inclusion or omission would render such financial statements misleading in
any material respect.
Section 6.6 Advice of Changes. Between the date of this Agreement and the
Closing Date, Heritage will promptly notify Acquiror in writing if Heritage
acquires Knowledge of any fact or condition that causes or constitutes a Breach
of any of Heritage's representations and warranties as of the date of this
Agreement, or if Heritage acquires Knowledge of the occurrence after the date of
this Agreement of any fact or condition that would (except as expressly
contemplated by this Agreement) cause or constitute a Breach of any such
representation or warranty had such representation or warranty been made as of
the time of occurrence or discovery of such fact or condition. Should any such
fact or condition require any change in the Schedules if such Schedules were
dated the date of the occurrence or discovery of any such fact or condition,
Heritage will promptly deliver to Acquiror a supplement to the Schedules
specifying such change. During the same period, Heritage will promptly notify
Acquiror of the occurrence of any Breach of any covenant of Heritage in this
Agreement or of the occurrence of any event that may make the satisfaction of
the conditions in Article 8 impossible or unlikely.
Section 6.7 Certain Actions. (a) Neither Heritage (nor any of its
Subsidiaries): (i) shall solicit, initiate, participate in discussions of, or
encourage or take any other action to facilitate (including by way of the
disclosing or furnishing of any information that it is not legally obligated to
disclose or furnish) any inquiry or the making of any proposal relating to an
Acquisition Transaction (as defined below) or a potential Acquisition
Transaction with respect to itself or any of its Subsidiaries; or (ii) shall (A)
solicit, initiate, participate in discussions of, or encourage or take any other
action to facilitate any inquiry or proposal, or (B) enter into any agreement,
arrangement, or understanding (whether written or oral), regarding any proposal
or transaction providing for or requiring it to abandon, terminate or fail to
consummate this Agreement, or compensating it or any of its Subsidiaries under
any of the instances described in this clause. Heritage shall immediately
instruct and otherwise use its Best Efforts to cause its Representatives
(including any Representative of any of its Subsidiaries) to comply with such
prohibitions. Heritage shall immediately cease and cause to be terminated any
existing activities, discussions, or negotiations with any Persons conducted
heretofore with respect to such activities. Notwithstanding the foregoing,
Heritage may provide information at the request of or enter into discussions or
negotiations with a Person with respect to an Acquisition Transaction if the
Board of Directors of Heritage determines, in good faith, that the exercise of
its fiduciary duties to Heritage's shareholders under applicable law requires it
to take such action, provided further, that Heritage may not, in any event,
provide to such Person any information which it has not provided to Acquiror.
Heritage shall promptly notify Acquiror orally and in writing in the event it
receives any such inquiry or proposal and shall provide reasonable detail of all
relevant facts relating to such inquiries. This Section shall not prohibit
accurate disclosure by Heritage in any document, including the Proxy Statement-
Prospectus and the Registration Statement (as each such term is defined below),
or other disclosure to the extent required by applicable law if, in the opinion
of the Board of Directors of Heritage, disclosure is required under applicable
law as to transactions
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contemplated hereby.
(b) "Acquisition Transaction" shall, with respect to Heritage, mean
any of the following: (i) a merger or consolidation, or any similar transaction
(other than the Merger) of any company with either Heritage or any significant
subsidiary (as defined in Rule 1.02 of Regulation S-X of the SEC) (a
"Significant Subsidiary") of Heritage, (ii) a purchase, lease or other
acquisition of all or substantially all the assets of either Heritage or any
Significant Subsidiary of Heritage, (iii) a purchase or other acquisition of
"beneficial ownership" by any "person" or "group" (as such terms are defined in
Section 13(d)(3) of the Securities Exchange Act) (including by way of merger,
consolidation, share exchange, or otherwise) which would cause such person or
group to become the beneficial owner of securities representing 20% or more of
the voting power of either Heritage or any Significant Subsidiary of Heritage,
but excluding the acquisition of beneficial ownership by any employee benefit
plan maintained or sponsored by Heritage, (iv) a tender or exchange offer to
acquire securities representing 20% or more of the voting power of Heritage, (v)
a public proxy or consent solicitation made to shareholders of Heritage seeking
proxies in opposition to any proposal relating to any of the transactions
contemplated by this Agreement that has been recommended by the Board of
Directors of Heritage, (vi) the filing of an application or notice with the
Federal Reserve or any other Regulatory Authority seeking approval to engage in
one or more of the transactions referenced in clauses (i) through (iv) above, or
(vii) the making of a bona fide proposal to Heritage or its shareholders by
public announcement or written communication, that is or becomes the subject of
public disclosure, to engage in one or more of the transactions referenced in
clauses (i) through (v) above.
Section 6.8 Best Efforts; Cooperation. Heritage agrees to use its Best
Efforts in good faith to satisfy the various covenants and conditions to Closing
in this Article and Article 8, respectively, and to consummate the transactions
contemplated hereby as promptly as possible. Heritage will not intentionally
take or intentionally permit to be taken any action that would be a Breach of
the terms or provisions of this Agreement. Between the date of this Agreement
and the Closing Date, Heritage will, and will cause each of its Subsidiaries to,
cooperate with Acquiror with respect to all filings that Acquiror is required by
Legal Requirements to make in connection with the Contemplated Transactions.
Section 6.9 Information Provided to Acquiror. Heritage agrees that none
of the information concerning Heritage or any of its Subsidiaries which is
provided or to be provided by Heritage or any of its Subsidiaries to Acquiror
for inclusion or which is included in the Registration Statement or Proxy
Statement-Prospectus and any other documents to be filed with any Regulatory
Authority in connection with the Contemplated Transactions will, at the
respective times such documents are filed and, in the case of the Registration
Statement, when it becomes effective and, with respect to the Proxy Statement-
Prospectus, when mailed, be false or misleading with respect to any material
fact, or omit to state any material fact necessary in order to make the
statements therein not misleading or, in the case of the Proxy Statement-
Prospectus, or any amendment thereof or supplement thereto, at the time of the
Heritage Special Meeting, be false or misleading with respect to any material
fact, or omit to state any material fact necessary to correct any statement in
any earlier communication with respect to the solicitation of any proxy for the
meeting in connection with which
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the Proxy Statement-Prospectus shall be mailed. Notwithstanding the foregoing,
Heritage shall have no responsibility for the truth or accuracy of any
information with respect to Acquiror or any of its Subsidiaries contained in the
Registration Statement or the Proxy Statement-Prospectus or in any document
submitted to, or other communication with, any Regulatory Authority.
Section 6.10 Shareholders' Meeting. Heritage shall cause the Heritage
Special Meeting to be held at the earliest practicable date after the
Registration Statement has become effective and the Proxy Statement-Prospectus
has been sent to Heritage's shareholders for the purpose of acting upon this
Agreement. In connection with the Heritage Special Meeting and in accordance
with the Illinois BCA, Heritage shall send to its shareholders at least 30 days
prior to such meeting, notice of the Heritage Special Meeting together with the
Proxy Statement-Prospectus which shall include a copy of this Agreement and a
copy of Section 11.70 of the Illinois BCA governing the procedures for
dissenting shareholders. Heritage shall recommend the approval of this Agreement
and the Merger and shall solicit proxies voting in favor thereof from its
shareholders.
Section 6.11 Affiliate Letters. Heritage shall use its Best Efforts to
obtain and deliver to Acquiror within five Business Days after the date hereof a
signed representation letter substantially in the form of Exhibit D hereto from
each executive officer and director of Heritage and each shareholder of Heritage
who may reasonably be deemed an "affiliate" of Heritage within the meaning of
such term as used in Rule 145 under the Securities Act and for purposes of
qualifying for pooling of interests accounting treatment for the Merger, and
shall use its Best Efforts to obtain and deliver to Acquiror a signed
representation letter substantially in the form of Exhibit D from any person who
becomes an executive officer or director of Heritage or any shareholder who
becomes such an "affiliate" after the date hereof and shall use its Best Efforts
to obtain and deliver such letter within five Business Days after such person
achieves such status.
Section 6.12 Heritage Stock Options. At the Effective Time, each Heritage
Stock Option shall be converted into and represent an option solely to purchase
shares of Acquiror Common Stock (a "Converted Stock Option"), increased to the
nearest full share, determined by multiplying (i) the number of shares of
Heritage Common Stock subject to such Heritage Stock Option immediately prior to
the Effective Time by (ii) 0.7695, at a per share exercise price achieved by
dividing the per share exercise price under such Heritage Stock Option by 0.7695
and rounding down to the nearest cent; provided, however, that each Heritage
Stock Option shall, in accordance with its terms, be subject to further
adjustment as appropriate to reflect any stock split, stock dividend,
recapitalization or other similar transaction subsequent to the Effective Time,
and shall be exercisable on the same terms and conditions as were applicable to
the Heritage Stock Options. The number of shares of Acquiror Common Stock
issuable pursuant to any Converted Stock Option shall also be adjusted to
reflect any change made in the Exchange Ratio pursuant to Section 3.3 or
otherwise. The Board of Directors of Heritage and the committee or committees
established under the Heritage Stock Option Plans shall take such actions or
make such determinations as may be required under such plans, subject to the
approval of Acquiror, to effect the provisions of this Section.
Section 6.13 Environmental Investigation. (a) Heritage shall engage an
environmental consultant acceptable to Acquiror to conduct a preliminary ("Phase
I") environmental assessment of
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each of the parcels of real estate used in the operation of the businesses of
Heritage and any Heritage Subsidiary and any other real estate owned by Heritage
or a Heritage Subsidiary (other than single family residences). The fees and
expenses of the consultant with respect to the Phase I assessments shall be
shared equally by Acquiror and Heritage. The consultant shall complete and
deliver the Phase I assessments not later than 60 days after the date of this
Agreement. If any environmental conditions are found, suspected, or would tend
to be indicated by the report of the consultant which may be contrary to the
representations and warranties of Heritage set forth herein without regard to
any exceptions that may be contained in Heritage's Schedules, then the parties
shall obtain from one or more mutually acceptable consultants or contractors, as
appropriate, an estimate of the cost of any further environmental investigation,
sampling, analysis, remediation or other follow-up work that may be necessary to
address those conditions in accordance with applicable laws and regulations.
(b) Upon receipt of the estimate of the costs of all follow-up work
to the Phase I assessments or any subsequent investigation phases that may be
conducted, the parties shall attempt to agree upon a course of action for
further investigation and remediation of any environmental condition suspected,
found to exist, or that would tend to be indicated by the report of the
consultant. All post-Phase I investigations or assessments (the cost of which
shall be paid by Heritage), all work plans for any post-Phase I assessments or
remediation, and any removal or remediation actions that may be performed, shall
be mutually satisfactory to Acquiror and Heritage. If such work plans or removal
or remediation actions would cost more than $3,000,000 (individually or in the
aggregate on a tax affected basis) to complete, Acquiror and Heritage shall
discuss a mutually acceptable modification of this Agreement. Acquiror and
Heritage shall cooperate in the review, approval and implementation of all work
plans.
(c) If the parties are unable to agree upon a course of action for
further investigation and remediation of an environmental condition or issue
raised by an environmental assessment and/or a mutually acceptable modification
to this Agreement, and the condition or issue is not one for which it can be
determined to a reasonable degree of certainty that the risk and expense to
which the Surviving Corporation and its Subsidiaries would be subject as owner
of the property involved can be quantified, in good faith, and limited to an
amount less than $3,000,000 (on a tax affected basis), then Acquiror may
terminate this Agreement by the earlier to occur of (i) 120 days after the
receipt of the Phase I assessments, or (ii) the receipt of all consents and
approvals of government regulatory authorities as legally required to consummate
the Merger and the expiration of all statutory waiting periods.
Section 6.14 Execution of the Stock Option Agreement. Simultaneously with
the execution of this Agreement and as a condition thereto, Heritage shall
execute and deliver the Stock Option Agreement, which grants to Acquiror an
option to acquire up to 19.9% of the issued and outstanding shares of Heritage
Common Stock upon the occurrence of certain circumstances, substantially in the
form attached hereto as Exhibit E (the "Stock Option Agreement").
Section 6.15 Capital Stock. Except for or as otherwise permitted in or
contemplated by this Agreement, or the Stock Option Agreement, without the prior
written consent of Acquiror, from the date of this Agreement to the earlier of
the Effective Time or the termination of this Agreement,
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Heritage shall not, and shall not enter into any agreement to, issue, sell or
otherwise permit to become outstanding any additional shares of Heritage Common
Stock, preferred stock, or any other capital stock of Heritage, or any stock
appreciation rights, or any option, warrant, conversion or other right to
acquire any such stock, or any security convertible into any such stock, other
than pursuant to the Heritage Stock Option Plans, the aggregate number of shares
of Heritage Common Stock covered by all existing grants being no more than
548,336 shares. No additional shares of Heritage Common Stock shall become
subject to new grants of employee stock options, stock appreciation rights or
similar stock based employee compensation rights.
Section 6.16 Title to Real Estate. As soon as practical after the date
hereof, but in any event no later than 60 days after the date hereof, Heritage
shall obtain and deliver to Acquiror, with respect to all real estate owned or
held pursuant to a ground lease by Heritage and its Subsidiaries, an owner's
preliminary report of title covering a date subsequent to the date hereof,
issued by Chicago Title Company or such other title insurance company as is
reasonably acceptable to Acquiror, showing fee simple title in Heritage or its
Subsidiaries in such real estate or the appropriate leasehold interest of
Heritage or its Subsidiaries subject only to liens, mortgages, security
interests, encumbrances or charges of any kind except: (a) liens, mortgages,
security interests or encumbrances or other charges as noted in the most recent
Heritage Financial Statement or on Schedule 4.10; (b) statutory liens for Taxes
not yet delinquent or being contested in good faith by appropriate Proceedings
and for which appropriate reserves have been established and reflected on the
Heritage Financial Statements; (c) pledges or liens required to be granted in
connection with the acceptance of government deposits, granted in connection
with repurchase or reverse repurchase agreements or otherwise incurred in the
Ordinary Course of Business; (d) minor defects and irregularities in title and
encumbrances which do not materially impair the use thereof for the purposes for
which they are held and which would not reasonably be expected to have a
Material Adverse Effect on Heritage; and (e) the standard exceptions to title
customarily contained in a policy on ALTA Owner's Form B. The cost of such
preliminary title reports shall be shared equally by Heritage and Acquiror.
Section 6.17 Pooling of Interests; Tax Treatment. Neither Heritage nor
any of its Subsidiaries shall voluntarily take any action that would disqualify
the Merger as a "pooling of interests" for accounting purposes or as a
"reorganization" that would be tax free or deferred to the shareholders of
Heritage pursuant to Section 368(a) of the Code; provided, however, that
Heritage, after consultation with Acquiror, may acquire additional treasury
shares, provided further, that Heritage acquires and disposes of such shares in
a manner that does not disqualify the Merger from being accounted for on a
"pooling of interests" method of accounting.
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ARTICLE 7
ACQUIROR'S COVENANTS
Section 7.1 Access and Investigation. Heritage and its Representatives
shall, at all times during normal business hours and with reasonable advance
notice prior to the Closing Date, have full and continuing access to the
facilities, operations, records and properties of Acquiror and its Subsidiaries
in accordance with the provisions of this Section. Heritage and its
Representatives may, prior to the Closing Date, make or cause to be made such
reasonable investigation of the operations, records and properties of each of
Acquiror and its Subsidiaries and their respective financial and legal condition
as Heritage shall deem necessary or advisable to familiarize itself with such
records, properties and other matters; provided, that such access or
investigation shall not interfere unnecessarily with the normal operations of
Acquiror and its Subsidiaries. Upon request, Acquiror will furnish to Heritage
or its Representatives, attorneys' responses to auditors' requests for
information regarding Acquiror and its Subsidiaries and such financial and
operating data and other information reasonably requested by Heritage (provided
with respect to attorneys, such disclosure would not result in the waiver by
Acquiror or any of its Subsidiaries of any claim of attorney-client privilege),
and will permit Heritage or its Representatives to discuss such information
directly with any individual or firm performing auditing or accounting functions
for Acquiror or its Subsidiaries, and such auditors and accountants shall be
directed to furnish copies of any reports or financial information as developed
to Heritage or its Representatives. No investigation by Heritage shall affect
the representations and warranties made by Acquiror in this Agreement. This
Section shall not require the disclosure of any information the disclosure of
which to Heritage would be prohibited by law.
Section 7.2 Operations of Acquiror. Between the date of this Agreement
and the Closing Date, Acquiror will, and will cause each of its Subsidiaries, to
(a) conduct its respective business only in the Ordinary Course of
Business;
(b) use its Best Efforts to preserve intact its respective current
business organization, keep available the services of the current officers,
employees and agents and maintain the relations and goodwill with suppliers,
customers, landlords, creditors, employees, agents and others having business
relationships with it and will inform Heritage as soon as it becomes aware of
the potential loss or diminution in the relationship with any consequential
customer, the term "consequential customer" to include the twenty largest loan,
depository or trust customers;
(c) confer with Heritage concerning operational matters that would
reasonably be expected to have a Material Adverse Effect on Acquiror;
(d) enter into loan and other business transactions only in
accordance with its current credit and other internal policies (and not amend
such policies except as may be required by any Regulatory Authority) and only on
terms and conditions consistent with arm's-length transactions and conduct its
investment activities and its asset liability management activities only in
accordance with Acquiror's current investment policies and asset liability
management policies (and not amend
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such policies except as may be required by any Regulatory Authority);
(e) consistent with past practice, maintain a reserve for possible
loan and lease losses which is adequate in all material respects under the
requirements of generally accepted accounting principles to provide for possible
losses, net of recoveries relating to loans previously charged off, on loans
outstanding (including accrued interest receivable);
(f) maintain all of its assets necessary for the conduct of its
business in good operating condition and repair, reasonable wear and tear and
damage by fire or unavoidable casualty excepted, and maintain policies of
insurance upon its assets and with respect to the conduct of its business in
amounts and kinds comparable to that in effect on the date hereof and pay all
premiums on such policies when due;
(g) file in a timely manner all required filings with all Regulatory
Authorities and cause such filings to be true and correct in all material
respects; and
(h) maintain its books, accounts and records in the usual, regular
and ordinary manner, on a basis consistent with prior years and comply in all
material respects with all Legal Requirements.
Section 7.3 Negative Covenant. Except as otherwise expressly permitted by
this Agreement or as set forth on Schedule 7.3 or pursuant to existing Contracts
disclosed in this Agreement or on Acquiror's Schedules, between the date of this
Agreement and the Closing Date, Acquiror will not, and will cause each of its
Subsidiaries not to, without the prior written consent of Heritage, take any
affirmative action, or fail to take any reasonable action within its control, as
a result of which any of the changes or events listed in Section 5.16 is likely
to occur other than those occurring in the Ordinary Course of Business or in a
manner consistent with past practices.
Section 7.4 Regulatory Approvals. Except as otherwise provided in this
Agreement, as promptly as practicable, but in no event later than 30 calendar
days after the date of this Agreement, Acquiror will make all filings required
by Legal Requirements to be made by it to consummate the Contemplated
Transactions (including all filings under the BHCA, the IHBCA and the Illinois
Act). Acquiror shall use its Best Efforts to pursue all necessary regulatory
approvals; provided, however, that Acquiror shall have no obligation to accept
non-standard conditions or restrictions with respect to the aforesaid approvals
of Regulatory Authorities if it shall reasonably determine that such conditions
or restrictions would be materially burdensome to Acquiror, the Surviving
Corporation and/or their respective Subsidiaries. In the event of an adverse or
unfavorable determination by any Regulatory Authority, or in the event the
Merger is challenged or opposed by any Proceeding brought by any Regulatory
Authority (including the Department of Justice), Acquiror shall use its Best
Efforts to reverse such determination or resolve any such Proceeding without the
imposition of any conditions or restrictions that would be materially burdensome
to Acquiror, the Surviving Corporation and/or their respective Subsidiaries. If
Acquiror is unsuccessful in such efforts, the determination of whether and to
what extent to seek appeal or review, administrative or otherwise, or other
appropriate remedies shall be made by Acquiror. In advance of filing any of the
documents
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required to be filed pursuant to this Section, Acquiror shall provide Heritage
and its counsel with a copy of such documents and provide Heritage and its
counsel a reasonable opportunity to comment thereon, and thereafter shall
promptly advise, and provide copies to, Heritage and its counsel of any material
communication received by Acquiror or its counsel from any Regulatory
Authorities with respect to any of such documents.
Section 7.5 SEC Registration. Acquiror shall file with the SEC as
promptly as practicable, but in no event later than 45 calendar days after the
execution of this Agreement, a Registration Statement on an appropriate form
under the Securities Act covering Acquiror Common Stock to be issued pursuant to
this Agreement and shall use its best efforts to cause the same to become
effective and thereafter, until the Effective Time or termination of this
Agreement, to keep the same effective and, if necessary, amend and supplement
the same. Such Registration Statement and any amendments and supplements thereto
are referred to herein as the "Registration Statement." The Registration
Statement shall include a Proxy Statement-Prospectus thereto reasonably
acceptable to Acquiror and Heritage (the "Proxy Statement-Prospectus"), prepared
by Acquiror and Heritage for use in connection with the Special Meeting, all in
accordance with the rules and regulations of the SEC. Acquiror shall, as
promptly as practicable, but in no event later than 45 calendar days after the
execution of this Agreement, make all filings required to obtain all Blue Sky
permits, authorizations, consents or approvals required for the issuance of
Acquiror Common Stock. In advance of filing any of the documents required to be
filed pursuant to this Section, Acquiror shall provide Heritage and its counsel
with a copy of such documents and provide Heritage and its counsel a reasonable
opportunity to comment thereon, and thereafter shall promptly advise, and
provide copies to, Heritage and its counsel of any material communication
received by Acquiror or its counsel from any Regulatory Authorities with respect
to any of such documents.
Section 7.6 Authorization and Reservation of Acquiror Common Stock;
Heritage Stock Options. (a) The board of directors of Acquiror shall, prior to
the Effective Time, authorize and reserve the maximum number of shares of
Acquiror Common Stock to be issued pursuant to this Agreement and take all other
necessary corporate action to consummate the Contemplated Transactions.
(b) Acquiror agrees to assume and honor each of the Converted Stock
Options in accordance with their terms. Acquiror shall cause the shares of
Acquiror Common Stock covered by such Converted Stock Options to be covered by
an effective registration statement filed on Form S-8 with the SEC and such
shares of Acquiror Common Stock shall be duly authorized and validly issued in
compliance with all applicable federal and state securities laws, fully paid and
nonassessable and not subject to or in violation of any preemptive rights.
Acquiror shall at and after the Effective Time have reserved sufficient shares
of Acquiror Common Stock for issuance with respect to such options. Acquiror
shall also take any action required to be taken under any applicable state blue
sky or securities laws in connection with the issuance of such shares.
Section 7.7 Indemnification. Except as may be limited by applicable law,
Acquiror hereby agrees to maintain all rights of indemnification currently
provided by Heritage and its Subsidiaries in favor of their current and former
employees, directors, officers and agents on terms
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no less favorable than those provided in the articles of incorporation or bylaws
of Heritage or any of its Subsidiaries or otherwise in effect on December 31,
1997 for a period of not less than four years from the Effective Time with
respect to matters occurring prior to the Effective Time. In the event Acquiror
or any of its successors or assigns (a) reorganizes or consolidates with or
merges into or enters into another business combination transaction with any
other person or entity and is not the resulting, continuing or surviving
corporation or entity of such reorganization, consolidation, merger or
transaction, or (b) liquidates, dissolves or transfers all or substantially all
of its properties and assets to any person or entity, then, and in each such
case, proper provision will be made so that such surviving corporation or
transferee and its successors and assigns assume the obligations set forth in
this Section. Acquiror agrees that, prior to or at the Effective Time, it will
provide under its directors' and officers' liability insurance prior acts and
omissions coverage for current and former officers and directors of Heritage and
its Subsidiaries for at least four years after the Effective Time.
Section 7.8 Advice of Changes. Between the date of this Agreement and the
Closing Date, Acquiror will promptly notify Heritage in writing if Acquiror
acquires Knowledge of any fact or condition that causes or constitutes a Breach
of any of Acquiror's or Acquisition Corp's representations and warranties as of
the date of this Agreement, or if Acquiror acquires Knowledge of the occurrence
after the date of this Agreement of any fact or condition that would (except as
expressly contemplated by this Agreement) cause or constitute a Breach of any
such representation or warranty had such representation or warranty been made as
of the time of occurrence or discovery of such fact or condition. If any such
fact or condition requires any change in the Schedules if such Schedules were
dated the date of the occurrence or discovery of any such fact or condition,
Acquiror will promptly deliver to Heritage a supplement to the Schedules
specifying such change. During the same period, Acquiror will promptly notify
Heritage of the occurrence of any Breach of any covenant of Acquiror or
Acquisition Corp in this Agreement or of the occurrence of any event that may
make the satisfaction of the conditions in Article 9 impossible or unlikely.
Section 7.9 Resolution of Heritage Employee Benefit Plans. Heritage and
Acquiror shall cooperate in effecting the following treatment of the Heritage
Employee Benefit Plans, except as mutually agreed upon by Acquiror and Heritage
prior to the Effective Time:
(a) At the Effective Time, Acquiror shall be substituted for Heritage
as the sponsoring employer under those Heritage Employee Benefit Plans with
respect to which Heritage or any of its Subsidiaries is a sponsoring employer
immediately prior to the Effective Time, and shall assume and be vested with all
of the powers, rights, duties, obligations and liabilities previously vested in
Heritage or its Subsidiary with respect to each such plan. Except as otherwise
provided herein, each such plan and any Heritage Employee Benefit Plan sponsored
by Heritage or any Heritage Subsidiary shall be continued in effect by Acquiror
or any applicable Acquiror Subsidiary after the Effective Time without a
termination or discontinuance thereof as a result of the Merger, subject to the
power reserved to Acquiror or any applicable Acquiror Subsidiary under each such
plan to subsequently amend or terminate the plan, which amendments or
terminations shall comply with applicable law. Heritage, each Heritage
Subsidiary, and Acquiror will use all reasonable efforts (i) to effect said
substitutions and assumptions, and such other actions contemplated under this
Agreement, and (ii) to amend such plans as to the extent necessary to provide
for said substitutions
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and assumptions, and such other actions contemplated under this Agreement.
(b) At or as promptly as practicable after the Effective Time as
Acquiror shall reasonably determine, Acquiror shall provide, or cause any
Acquiror Subsidiary to provide, to each employee of Heritage and any Heritage
Subsidiary as of the Effective Time ("Heritage Employees") the opportunity to
participate in each employee benefit plan and program maintained by Acquiror or
the Acquiror Subsidiaries for similarly-situated employees (the "Acquiror
Benefit Plans") provided that with respect to such Acquiror Benefit Plans,
Heritage Employees shall be given credit for service with Heritage or any
Heritage Subsidiary in determining eligibility for, vesting in and accrual of,
benefits thereunder, but not for purposes of any benefit accruals under
Acquiror's pension plan; and provided further that to the extent that the
initial period of coverage for Heritage Employees under any Acquiror Benefit
Plan that is an "employee welfare benefit plan" as defined in Section 3(1) of
ERISA is not a full 12-month period of coverage, Heritage Employees shall be
given credit under the applicable Acquiror Benefit Plans for any deductibles and
co-insurance payments made by such Heritage Employees under the Heritage
Employee Benefit Plans during the balance of such 12-month period of coverage.
Nothing in the preceding sentence shall obligate Acquiror to provide or cause to
be provided any benefits duplicative to those provided under any Heritage
Employee Benefit Plan continued pursuant to subparagraph (a) above. Except as
otherwise provided in this Agreement, the power of Acquiror or any Heritage or
Acquiror Subsidiary to amend or terminate any benefit plan or program, including
any Heritage Employee Benefit Plan shall not be altered or affected. Moreover,
this Agreement shall not constitute a contract of employment or create any
rights, to be retained or otherwise, in employment at Acquiror, any Heritage
Subsidiary or any Acquiror Subsidiary.
Section 7.10 Data Processing Agreement. As a result of the Contemplated
Transactions and Heritage's receipt of a letter dated July 14, 1997, from ALLTEL
Financial Information Services, Inc., the current provider to Heritage and its
Subsidiaries of data processing services ("ALLTEL"), Acquiror acknowledges and
agrees to the delivery by Heritage to ALLTEL on or before February 1, 1998, of
written notice by Heritage of its intent to terminate its current agreement with
ALLTEL effective on or before December 31, 1998. Acquiror further acknowledges
and agrees to the negotiation and execution by Heritage prior to March 31, 1998,
of a new agreement for the provision of data processing services to Heritage and
its Subsidiaries, which agreement shall be reasonably acceptable to Acquiror and
which agreement will provide for a conversion of Heritage and its Subsidiaries
to such new data processor on or before November 15, 1998, using a vendor
reasonably acceptable to Acquiror.
Section 7.11 Appointment of Directors. As soon as practicable after the
Effective Time, Acquiror shall take such steps as may be necessary to add each
Person named on Exhibit F as a director of Acquiror to serve for the longest
term possible under Acquiror's certificate of incorporation or bylaws, and
further, to cause each such Person to be nominated for re-election as a director
of Acquiror after the expiration of such Person's first term of office.
Section 7.12 Best Efforts. Acquiror agrees to use its Best Efforts in
good faith to satisfy the various covenants and conditions to Closing in this
Article and Article 9, respectively, and to
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consummate the transactions contemplated hereby as promptly as possible.
Acquiror will not intentionally take or intentionally permit to be taken any
action that would be in breach of the terms or provisions of this Agreement or
that would cause any of the representations or warranties contained herein to be
or become untrue.
Section 7.13 Stock Exchange Listing. Acquiror shall use its Best Efforts
to list on the Nasdaq Stock Market, subject to official notice of issuance, the
shares of Acquiror Common Stock to be issued in the Merger.
Section 7.14 Stockholders' Meeting. Acquiror shall cause a special and/or
annual meeting of its stockholders (the "Acquiror Special Meeting") to be held
at the earliest practicable date after the Registration Statement has become
effective and the Proxy Statement-Prospectus has been sent to Acquiror's
stockholders for the purpose of acting upon the actions contemplated by this
Agreement that require the approval of Acquiror's stockholders. In connection
with the Acquiror Special Meeting and in accordance with the Delaware General
Corporation Law, Acquiror shall send to its stockholders at least 30 days prior
to such meeting, notice of the Acquiror Special Meeting together with the Proxy
Statement-Prospectus which shall include a copy of this Agreement. Acquiror
shall recommend the approval of such actions required to be approved by its
stockholders and shall solicit proxies voting in favor thereof from its
stockholders.
Section 7.15 Publication of Combined Financial Results. Acquiror shall
use its Best Efforts to publish as soon as practicable, and shall publish no
later than 90 days after the Effective Time, at least 30 days of post-Merger
combined operations, combined sales and net income figures and any other
financial information necessary as contemplated by and in accordance with the
terms of SEC Accounting Series Release No. 135 and any related accounting rules.
Section 7.16 Pooling of Interests; Tax Treatment. Neither Acquiror nor
any of its Subsidiaries shall voluntarily take any action that would disqualify
the Merger as a "pooling of interests" for accounting purposes or as a
"reorganization" that would be tax free or deferred to the shareholders of
Heritage pursuant to Section 368(a) of the Code; provided, however, that
Acquiror, after consultation with Heritage, may acquire additional treasury
shares, provided further, that Acquiror acquires and disposes of such shares in
a manner that does not disqualify the Merger from being accounted for on a
"pooling of interests" method of accounting. The exercise by Acquiror of its
rights under the Stock Option Agreement shall not be deemed to be a violation of
this Section.
ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIROR AND ACQUISITION CORP
The obligations of Acquiror and Acquisition Corp to consummate the Merger
and to take the other actions required to be taken by each of Acquiror and
Acquisition Corp at the Closing are subject to the satisfaction, at or prior to
the Closing, of each of the following conditions (any of which may be waived by
Acquiror, in whole or in part):
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Section 8.1 Accuracy of Representations and Warranties. All of Heritage's
representations and warranties in this Agreement (considered collectively) must
have been accurate in all material respects as of the date of this Agreement,
and must be accurate in all material respects as of the Closing Date as if made
on the Closing Date, without giving effect to any supplement to any Schedules.
Section 8.2 Heritage's Performance. All of the covenants and obligations
that Heritage is required to perform or to comply with pursuant to this
Agreement at or prior to the Closing (considered collectively) must have been
duly performed and complied with in all material respects.
Section 8.3 Documents Satisfactory. All proceedings, corporate or other,
to be taken by Heritage in connection with the Contemplated Transactions, and
all documents incident thereto, shall be reasonably satisfactory in form and
substance to Acquiror and its counsel, and Heritage shall have made available to
Acquiror for examination the originals or true and correct copies of all records
and documents relating to the business and affairs of Heritage and its
Subsidiaries which Acquiror may reasonably request in connection with said
transactions.
Section 8.4 No Proceedings. Since the date of this Agreement, there must
not have been commenced or Threatened against Heritage, or against any of
Heritage's Affiliates, any Proceeding: (a) involving any challenge to, or
seeking damages or other relief in connection with, any of the Contemplated
Transactions; or (b) that may have the effect of preventing, delaying, making
illegal or otherwise interfering with any of the Contemplated Transactions, in
either case that would reasonably be expected to have a Material Adverse Effect
on Heritage.
Section 8.5 Absence of Material Adverse Changes. From the date hereof to
the Closing, there shall be and have been no event or occurrence that had or
would reasonably be expected to have a Material Adverse Effect on Heritage.
Section 8.6 Consents and Approvals. Any consents or approvals required to
be secured by either party by the terms of this Agreement or otherwise
reasonably necessary in the opinion of Acquiror to consummate the Contemplated
Transactions shall have been obtained and shall be reasonably satisfactory to
Acquiror, and all applicable waiting periods shall have expired.
Section 8.7 No Prohibition. Neither the consummation nor the performance
of any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time), contravene, or conflict with or result in a
violation of, or cause Heritage or any of Heritage's Affiliates to suffer any
adverse consequence under: (a) any applicable Legal Requirement or Order; or (b)
any Legal Requirement or Order that has been published, introduced, or otherwise
proposed by or before any Regulatory Authority, where any of the foregoing would
reasonably be expected to have a Material Adverse Effect on Heritage.
Section 8.8 Registration Statement. The Registration Statement filed by
Acquiror with the SEC with respect to the Acquiror Common Stock to be issued
pursuant to this Agreement shall have become effective and no stop order
proceedings with respect thereto shall be pending or
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Threatened.
Section 8.9 Corporate Approvals. This Agreement and the Contemplated
Transactions shall have been duly and validly authorized as required by all
applicable Legal Requirements by the shareholders of Heritage and the
stockholders of Acquiror. Such approvals shall have been obtained in conformity
with all applicable laws at meetings for which proxies are solicited in
compliance with applicable laws and requirements.
Section 8.10 Dissenting Shares. The total number of Dissenting Shares
shall be no greater than 5% of the number of shares of Heritage Common Stock
issued and outstanding immediately prior to the Effective Time.
Section 8.11 Fairness Opinion. Prior to distribution of the Proxy
Statement-Prospectus to the stockholders of Acquiror, an opinion shall have been
received by Acquiror from Goldman Sachs & Co. to the effect that the
consideration to be paid to Heritage's shareholders by Acquiror in connection
with the Merger, from a financial point of view, is fair to Acquiror's
stockholders and such opinion shall not have been withdrawn or materially
modified prior to the Closing.
Section 8.12 Pooling Opinion. Acquiror shall have received an opinion
paid for by Acquiror from Ernst & Young to the effect that the Merger shall be
accounted for on the "pooling of interests" method of accounting.
Section 8.13 Tax Opinion. Acquiror shall have received the opinion
described in Section 9.11 hereof.
ARTICLE 9
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF HERITAGE
Heritage's obligation to consummate the Merger and to take the other
actions required to be taken by Heritage at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by Heritage, in whole or in part):
Section 9.1 Accuracy of Representations and Warranties. All of the
representations and warranties of Acquiror and Acquisition Corp in this
Agreement (considered collectively) must have been accurate in all material
respects as of the date of this Agreement, and must be accurate in all material
respects as of the Closing Date as if made on the Closing Date, without giving
effect to any supplement to any Schedules.
Section 9.2 Acquiror's Performance. All of the covenants and obligations
that Acquiror and Acquisition Corp are required to perform or to comply with
pursuant to this Agreement at or prior to the Closing (considered collectively)
must have been duly performed and complied with in all material respects.
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Section 9.3 Documents Satisfactory. All proceedings, corporate or other,
to be taken by Acquiror in connection with the Contemplated Transactions, and
all documents incident thereto, shall be reasonably satisfactory in form and
substance to Heritage and its counsel, and Acquiror shall have made available to
Heritage for examination the originals or true and correct copies of all records
and documents relating to the business and affairs of Acquiror and its
Subsidiaries which Heritage may reasonably request in connection with said
transactions.
Section 9.4 No Proceedings. Since the date of this Agreement, there must
not have been commenced or Threatened against Acquiror, or against any of
Acquiror's Affiliates, any Proceeding: (a) involving any challenge to, or
seeking damages or other relief in connection with, any of the Contemplated
Transactions; or (b) that may have the effect of preventing, delaying, making
illegal or otherwise interfering with any of the Contemplated Transactions, in
either case that would reasonably be expected to have a Material Adverse Effect
on Acquiror.
Section 9.5 Absence of Material Adverse Changes. From the date hereof
to the Closing, there shall be and have been no event or occurrence that had or
would reasonably be expected to have a Material Adverse Effect on Acquiror.
Section 9.6 Consents and Approvals. Any consents or approvals required to
be secured by either party by the terms of this Agreement or otherwise
reasonably necessary in the opinion of Heritage to consummate the Contemplated
Transactions shall have been obtained and shall be reasonably satisfactory to
Heritage, and all applicable waiting periods shall have expired.
Section 9.7 No Prohibition. Neither the consummation nor the performance
of any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time), contravene, or conflict with or result in a
violation of, or cause Acquiror or any of Acquiror's Affiliates to suffer any
adverse consequence under: (a) any applicable Legal Requirement or Order; or (b)
any Legal Requirement or Order that has been published, introduced, or otherwise
proposed by or before any Regulatory Authority, where any of the foregoing would
reasonably be expected to have a Material Adverse Effect on Acquiror.
Section 9.8 Registration Statement. The Registration Statement filed by
Acquiror with the SEC with respect to the Acquiror Common Stock to be issued
pursuant to this Agreement shall have become effective and no stop order
proceedings with respect thereto shall be pending or Threatened.
Section 9.9 Directors' and Officers' Insurance Coverage. Acquiror
shall have delivered to Heritage satisfactory evidence that commencing
immediately after the Effective Time the officers and directors of Heritage and
its Subsidiaries are covered for events occurring after the Effective Time under
Acquiror's directors' and officers' liability insurance policy, in a manner
consistent with Section 7.7.
Section 9.10 Fairness Opinion. Prior to distribution of the Proxy
Statement-Prospectus to the shareholders of Heritage, an opinion shall have been
received by Heritage from McDonald &
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Company Securities, Inc. to the effect that the consideration to be received by
Heritage's shareholders from Acquiror in connection with the Merger, from a
financial point of view, is fair to Heritage's shareholders and such opinion
shall not have been withdrawn or materially modified prior to the Closing.
Section 9.11 Tax Opinion. At Acquiror's expense, Acquiror and Heritage
shall have received a written opinion of Hinshaw & Culbertson addressed to
Acquiror and Heritage, dated the Closing Date, subject to the customary
representations and assumptions referred to therein, and substantially to the
effect that: (a) the Merger will constitute a tax-free reorganization within the
meaning of Section 368(a) of the Code and that Acquiror and Heritage will each
be a party to the reorganization; (b) the exchange in the Merger of Acquiror
Common Stock for Heritage Common Stock will not give rise to the recognition of
any income, gain or loss to Acquiror, Heritage or the shareholders of Heritage
with respect to such exchange (except, with respect to the shareholders of
Heritage, to the extent of any cash paid in lieu of fractional shares and except
for treatment of the inter-company tax liability referred to in Section 2.1);
(c) the adjusted tax basis of the Acquiror Common Stock received by Heritage
shareholders who exchange all of their Heritage Common Stock in the Merger will
be the same as the adjusted tax basis of the shares of the Heritage Common Stock
surrendered in exchange therefor (reduced by any amount allocable to a
fractional share interest for which cash is received); and (d) the holding
period of the shares of Acquiror Common Stock received in the Merger will
include the period during which the shares of Heritage Common Stock surrendered
in exchange therefor were held, provided such shares of Heritage Common Stock
were held as capital assets at the Effective Time.
ARTICLE 10
TERMINATION
Section 10.1 Reasons for Termination and Abandonment. This Agreement may,
by prompt written notice given to the other parties prior to or at the Closing,
be terminated:
(a) by mutual consent of the boards of directors of Heritage, Acquiror
and Acquisition Corp;
(b) by either Acquiror or Heritage if: (i) a Breach of any provision
of this Agreement has been committed by the other party; (ii) such Breach has
had, or would reasonably be expected to have, a Material Adverse Effect upon the
non-breaching party or its shareholders if the Closing were to occur; (iii) such
Breach has not been waived; and (iv) such Breach cannot be or is not cured
within 30 days after written notice is delivered to the breaching party,
provided, however, in no case shall Acquiror be permitted to terminate this
Agreement as a result of any Breach by Acquisition Corp, and provided further,
that the condition set forth in clauses (iii) and (iv) of this paragraph need
not be satisfied to terminate this Agreement if such Breach was the result of
any intentional or grossly negligent: (A) action, (B) failure to act or (C)
misrepresentation, of or by the breaching party;
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(c) by Acquiror if: (i) any of the conditions in Article 8 has not
been satisfied as of the Closing Date or if satisfaction of such a condition is
or becomes impossible (other than through the failure of Acquiror or Acquisition
Corp to comply with its respective obligations under this Agreement); (ii) the
failure to satisfy such condition would reasonably be expected to have a
Material Adverse Effect upon Acquiror or its stockholders or Heritage or its
shareholders if the Closing were to occur; and (iii) Acquiror has not waived
such condition on or before the Closing Date, provided, however, that the
condition set forth in clause (iii) of this paragraph need not be satisfied to
terminate this Agreement if such Breach was the result of any intentional or
grossly negligent: (A) action, (B) failure to act or (C) misrepresentation, of
or by Heritage;
(d) by Heritage if: (i) any of the conditions in Article 9 has not
been satisfied as of the Closing Date or if satisfaction of such a condition is
or becomes impossible (other than through the failure of Heritage to comply with
its obligations under this Agreement); (ii) the failure to satisfy such
condition would reasonably be expected to have a Material Adverse Effect upon
Acquiror or its stockholders or Heritage or its shareholders if the Closing were
to occur; and (iii) Heritage has not waived such condition on or before the
Closing Date, provided, however, that the condition set forth in clause (iii) of
this paragraph need not be satisfied to terminate this Agreement if such Breach
was the result of any intentional or grossly negligent: (A) action, (B) failure
to act or (C) misrepresentation, of or by Acquiror or Acquisition Corp;
(e) by either Acquiror or Heritage if the Closing has not occurred
(other than through the failure of any party seeking to terminate this Agreement
to comply fully with its obligations under this Agreement) on or before the date
which is nine months after the date of this Agreement, or twelve months after
the date of this Agreement in the event a protest is filed with the Regulatory
Authorities alleging the failure of either party to comply with the Community
Reinvestment Act of 1977, as amended, or such later date as the parties may
agree upon;
(f) by Acquiror pursuant to the provisions of Section 6.13; and
(g) by Heritage pursuant to the provisions of Section 3.2.
In the event either Acquiror or Heritage elects to effect any termination
pursuant to Sections 10.1(b)-10.1(g) above, it shall give written notice to the
other specifying the basis for such termination and certifying that such
termination has been approved by the vote of a majority of the members of its
Board of Directors.
Section 10.2 Effect of Termination. If this Agreement is terminated
pursuant to Section 10.1, all further obligations of the parties under this
Agreement (except those set forth in Sections 10.3, 10.4 and 11.6 and any other
obligations set forth herein that are expressly stated to survive any such
termination) will terminate, provided, however, that if this Agreement is
terminated by a party because of the Breach of the Agreement by the other party
or because one or more of the conditions to the terminating party's obligations
under this Agreement is not satisfied as a result of the other party's failure
to comply with its obligations under this Agreement, the terminating party's
right to pursue all legal remedies will survive such termination unimpaired.
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Section 10.3 Payment to Acquiror. If the Merger contemplated herein is
not consummated because Heritage willfully Breaches any of its representations,
warranties, covenants or obligations under this Agreement, unless such Breach is
a result of the failure by Acquiror or Acquisition Corp to perform and comply in
all material respects with any of its material obligations under this Agreement
which are to be performed or complied with by it prior to or on the date
required hereunder, then, in addition to any other legal remedies available to
Acquiror, Heritage shall pay to Acquiror, upon its written demand, an amount
equal to Acquiror's costs and expenses incurred in connection with this
Agreement, provided, however, that such amount shall in no event be greater than
$1,000,000. Notwithstanding anything contained herein or in the Stock Option
Agreement to the contrary, Acquiror agrees that it shall have no further legal
or equitable remedy available to it as a result of any Breach by Heritage if
Acquiror has exercised all or any part of the Option granted under the Stock
Option Agreement, provided, however, that the provisions of this Section shall
in no way limit Acquiror's rights against any third party who is neither an
Affiliate nor a Representative of Heritage.
Section 10.4 Payment to Heritage. If the Merger contemplated herein is
not consummated because Acquiror willfully Breaches any of its representations,
warranties, covenants or obligations under this Agreement, unless such Breach is
a result of the failure by Heritage to perform and comply in all material
respects with any of its material obligations under this Agreement which are to
be performed or complied with by it prior to or on the date required hereunder,
then, in addition to any other legal remedies available to Heritage, Acquiror
shall pay to Heritage, upon its written demand, an amount equal to Heritage's
costs and expenses incurred in connection with this Agreement (including any
amounts paid in contemplation of the Closing), provided, however, that such
amount shall in no event be greater than $1,000,000.
ARTICLE 11
MISCELLANEOUS
Section 11.1 Governing Law. All questions concerning the construction,
validity and interpretation of this Agreement and the performance of the
obligations imposed by this Agreement shall be governed by the internal laws of
the State of Illinois applicable to Contracts made and wholly to be performed in
such state without regard to conflicts of laws.
Section 11.2 Assignments, Successors and No Third Party Rights. None of
the parties to this Agreement may assign any of its rights under this Agreement
without the prior consent of the other parties. Subject to the preceding
sentence, this Agreement and every representation, warranty, covenant, agreement
and provision hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. Except
with respect to those Persons who are clearly contemplated to receive the
benefits of Acquiror's covenants in Sections 7.6, 7.7 and 7.9, nothing expressed
or referred to in this Agreement will be construed to give any Person other than
the parties to this Agreement any legal or equitable right, remedy or claim
under or with respect to this Agreement or any provision of this Agreement.
Section 11.3 Waiver. The rights and remedies of the parties to this
Agreement are
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cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power or privilege, and no single or partial exercise of any such right, power
or privilege will preclude any other or further exercise of such right, power or
privilege or the exercise of any other right, power or privilege. To the maximum
extent permitted by applicable law: (a) no claim or right arising out of this
Agreement or the documents referred to in this Agreement can be discharged by
one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
Section 11.4 Expenses. Except as otherwise expressly provided in this
Agreement, each party to this Agreement will bear its respective expenses
incurred in connection with the preparation, execution, and performance of this
Agreement and the Contemplated Transactions, provided, however, that Acquiror
and Heritage agree to bear and pay one-half of the costs in connection with the
printing and mailing of the Registration Statement and the Proxy Statement-
Prospectus. In the event of termination of this Agreement, the obligation of
each party to pay its own expenses will be subject to any rights of such party
arising from a Breach of this Agreement by the other party.
Section 11.5 Publicity. Any public announcement or similar publicity with
respect to this Agreement or the Contemplated Transactions will be issued, if at
all, at such time and in such manner as Acquiror and Heritage shall jointly
determine. Unless consented to by the other in advance or required by Legal
Requirements, prior to the Closing neither Acquiror nor Heritage shall, and
shall cause each of its respective Subsidiaries to, keep this Agreement strictly
confidential and may not make any disclosure of this Agreement to any Person.
Heritage and Acquiror will consult with each other concerning the means by which
their respective employees, customers and suppliers and others having dealings
with either of them and their respective Subsidiaries will be informed of the
Contemplated Transactions.
Section 11.6 Confidentiality. Between the date of this Agreement and the
Closing Date, each of Acquiror and Heritage will maintain in confidence, and
will cause each of its respective Representatives to maintain in confidence, and
not use to the detriment of the other or its Subsidiaries any written, oral, or
other information obtained in confidence from the other of any of its
Subsidiaries in connection with this Agreement or the Contemplated Transactions,
unless: (a) such information is already known to such party or to others not
bound by a duty of confidentiality or such information becomes publicly
available through no fault of such party; (b) the use of such information is
necessary or appropriate in making any filing or obtaining any consent or
approval required for the consummation of the Contemplated Transactions; or (c)
the furnishing or use of such information is required by or necessary or
appropriate in connection with any legal proceedings. If the Contemplated
Transactions are not consummated, each party will return or destroy as much of
such written information as the other party may reasonably request.
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Section 11.7 Notices. All notices, consents, waivers and other
communications under this Agreement must be in writing (which shall include
telecopier communication) and will be deemed to have been duly given if
delivered by hand or by nationally recognized overnight delivery service
(receipt requested), mailed with first class postage prepaid or telecopied if
confirmed immediately thereafter by also mailing a copy of any notice, request
or other communication by mail with first class postage prepaid:
(a) If to Acquiror, to:
First Midwest Bancorp, Inc.
300 Park Boulevard, Suite 405
Itasca, Illinois 60143-0459
Telephone: (630) 875-7455
Telecopier: (630) 875-7474
Attention: Mr. Robert P. O'Meara
President
with copies to:
Hinshaw & Culbertson
222 North LaSalle Street, Suite 300
Chicago, Illinois 60603
Telephone: (312) 704-3852
Telecopier: (312) 704-3001
Attention: Timothy M. Sullivan, Esq.
(b) if to Heritage, to:
Heritage Financial Services, Inc.
12015 South Western Avenue
Blue Island, Illinois 60406
Attention: Richard T. Wojcik
Chairman and Chief Executive Officer
Telephone: (708) 385-2900
Telecopier: (708) 385-2926
copies to:
Barack Ferrazzano Kirschbaum Perlman & Nagelberg
333 West Wacker
Suite 2700
Chicago, Illinois 60606
Attention: John E. Freechack, Esq.
Telephone: (312) 984-3100
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Telecopier: (312) 984-3193
and to:
Joel S. Corwin, Esq.
Two First National Plaza
20 South Clark Street, Suite 2200
Chicago, Illinois 60603
Telephone: (312) 357-0100
Telecopier: (312) 357-0333
or to such other Person or place as Heritage shall furnish to Acquiror or
Acquiror shall furnish to Heritage in writing. Except as otherwise provided
herein, all such notices, consents, waivers and other communications shall be
effective: (a) if delivered by hand, when delivered; (b) if mailed in the manner
provided in this Section, five Business Days after deposit with the United
States Postal Service; (c) if delivered by overnight express delivery service,
on the next Business Day after deposit with such service; and (d) if by
telecopier, on the next Business Day if also confirmed by mail in the manner
provided in this Section.
Section 11.8 Entire Agreement. This Agreement and any documents executed
by the parties pursuant to this Agreement and referred to herein constitute the
entire understanding and agreement of the parties hereto and supersede all other
prior agreements and understandings, written or oral, relating to such subject
matter between the parties, provided, however, that the provisions of that
certain Confidentiality Agreement dated as of November 19, 1997, between
McDonald & Company Securities, Inc., as agent for Heritage, and Acquiror shall
only terminate concurrently with the Closing, if any, and otherwise shall only
terminate in accordance with its terms.
Section 11.9 Modification. This Agreement may not be amended except by a
written agreement executed by the party to be charged with the amendment.
Section 11.10 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement unless the
consummation of the Contemplated Transactions is adversely affected thereby.
Section 11.11 Further Assurances. The parties agree: (a) to furnish upon
request to each other such further information; (b) to execute and deliver to
each other such other documents; and (c) to do such other acts and things, all
as the other party may reasonably request for the purpose of carrying out the
intent of this Agreement and the documents referred to in this Agreement.
Section 11.12 Jurisdiction and Service of Process. Any action or
proceeding seeking to enforce any provision of, or based on any right arising
out of, this Agreement may be brought against
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any of the parties in the courts of the State of Illinois, County of Cook or, if
it has or can acquire jurisdiction, in the United States District Court for the
Northern District of the State of Illinois, and each of the parties consents to
the jurisdiction of such courts (and of the appropriate appellate courts) in any
such action or proceeding and waives any objection to venue laid therein.
Process in any action or proceeding referred to in the preceding sentence may be
served on any party anywhere in the world.
Section 11.13 Counterparts. This Agreement and any amendments thereto may
be executed in any number of counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same agreement.
[THIS SPACE LEFT INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers on the day and year first written above.
ATTEST HERITAGE FINANCIAL SERVICES, INC.
By: RONALD P. GROEBE By: RICHARD T. WOJCIK
-------------------------- ------------------------------------
Ronald P. Groebe Richard T. Wojcik
Secretary Chairman and Chief Executive Officer
ATTEST FIRST MIDWEST ACQUISITION
CORPORATION
By: JAMES M. ROOLF By: DONALD J. SWISTOWICZ
-------------------------- ------------------------------------
Name: JAMES M. ROOLF Name: DONALD J. SWISTOWICZ
Title: SR. VP & CORP. SEC. Title: EXECUTIVE V.P.
ATTEST FIRST MIDWEST BANCORP, INC.
By: JAMES M. ROOLF By: DONALD J. SWISTOWICZ
-------------------------- ------------------------------------
Name: JAMES M. ROOLF Name: DONALD J. SWISTOWICZ
Title: SR. VP & CORP. SEC Title: EXECUTIVE V.P.
<PAGE>
HERITAGE AFFILIATE'S LETTER
January 14, 1998
Gentlemen:
I have been advised that as of the date hereof I may be deemed to be an
"affiliate" of Heritage Financial Services, Inc., an Illinois corporation
("Heritage"), as the term "affiliate" is defined for purposes of paragraphs (c)
and (d) of Rule 145 of the Rules and Regulations of the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Act"). Pursuant to the terms of the Agreement and Plan of Merger, dated as of
January 14, 1998, by and between First Midwest Bancorp, Inc., a Delaware
corporation ("Acquiror"), First Midwest Acquisition Corporation, an Illinois
corporation ("Acquisition Corp"), and Heritage (the "Agreement"), Heritage will
be merged (the "Merger") with and into Acquisition Corp.
As used herein, "Heritage Common Stock" means the Common Stock, no par
value per share, of Heritage and "Acquiror Common Stock" means the Common Stock,
par value $.01 per share, of Acquiror.
I represent, warrant, and covenant to the Acquiror that in the event I
receive any Acquiror Common Stock as a result of the Merger:
A. I shall not make any sale, transfer, or other disposition of any
Acquiror Common Stock acquired by me in the Merger in violation of the
Act or the Rules and Regulations of the Commission.
B. I have carefully read this letter and the Agreement and discussed
their requirements and other applicable limitations upon my ability to
sell, transfer, or otherwise dispose of shares of Acquiror Common
Stock, to the extent I felt necessary, with my counsel or counsel for
Heritage.
<PAGE>
C. I have been advised that the issuance of Acquiror Common Stock to me
pursuant to the Merger has been or will be registered with the
Commission under the Act on a Registration Statement on Form S-4.
However, I have also been advised that, because at the time the Merger
will be submitted for a vote of the shareholders of Heritage, I may be
deemed to be an affiliate of Heritage, the distribution by me of any
Acquiror Common Stock acquired by me in the Merger will not be
registered under the Act and that I may not sell, transfer, or
otherwise dispose of any shares of Acquiror Common Stock acquired by
me in the Merger unless (i) such sale, transfer, or other disposition
has been registered under the Act, (ii) such sale, transfer, or other
disposition is made in conformity with sales volume and other
limitations set forth in Rule 145 promulgated by the Commission under
the Act, or (iii) in the opinion of counsel reasonably acceptable to
Acquiror, such sale, transfer, or other disposition is otherwise
exempt from registration under the Act.
D. I understand that Acquiror is under no obligation to register under
the Act the sale, transfer, or other disposition by me or on my behalf
of any Acquiror Common Stock acquired by me in the Merger or to take
any other action necessary in order to make an exemption from such
registration available.
E. I also understand that stop transfer instructions will be given to
Acquiror's transfer agents with respect to Acquiror Common Stock and
that there will be placed on the certificates for the Acquiror Common
Stock acquired by me in the Merger, or any substitutions therefor, a
legend stating in substance:
"The shares represented by this certificate were issued in a
transaction to which Rule 145 promulgated under the Securities
Act of 1933 applies. The shares represented by this certificate
may only be transferred in accordance with the terms of an
agreement, dated January 13, 1998, between the registered holder
hereof and the Issuer, a copy of which agreement will be mailed
to the holder hereof without charge within five days after
receipt of a written request therefor."
F. I also understand that unless the transfer by me of my Acquiror Common
Stock has been registered under the Act or is a sale made in
conformity with the provisions of Rule 145, Acquiror reserves the
right to put the following legend on the certificates issued to my
transferee:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 and were acquired
from a person who received such shares in a transaction to which
Rule 145 promulgated under the Securities Act of 1933 applies.
The shares may not be sold, pledged or otherwise transferred
except in accordance with an exemption from the registration
requirements of the Securities Act of 1933."
<PAGE>
G. I also understand that I may not sell or otherwise reduce my risk
relative to any shares of Heritage Common Stock or shares of Acquiror
Common Stock during the period of thirty (30) days prior to the Merger
and that, subsequent to the Merger, I may not sell or otherwise reduce
my risk relative to any shares of Acquiror Common Stock until such
time as financial results of Acquiror covering at least thirty (30)
days of post-Merger combined operations, including Acquiror and
Heritage, have been published.
It is understood and agreed that the legends set forth in Paragraph E and F
above shall be removed by delivery of substitute certificates without such
legend if the undersigned shall have delivered to Acquiror a copy of a letter
from the staff of the Commission, or an opinion of counsel in form and substance
reasonably satisfactory to Acquiror, to the effect that such legend is not
required for purposes of the Act.
Very truly yours
By: __________________________________
Accepted this 14th day of
January, 1998.
First Midwest Bancorp, Inc.
by: DONALD J. SWISTOWICZ
--------------------
Name
Executive Vice President
Title
<PAGE>
AGREEMENT OF AFFILIATES
-----------------------
THIS AGREEMENT OF AFFILIATES (the "Agreement") is made as of January 14,
1998, between the undersigned officers, directors and stockholders (the
"Affiliates") of Heritage Financial Services, Inc. ("Heritage"), and First
Midwest Bancorp, Inc. ("Acquiror"), for the purpose of inducing Acquiror and
First Midwest Acquisition Corporation to enter into an Agreement and Plan of
Merger (the "Merger Agreement") with Heritage. Capitalized terms used in this
Agreement, and not otherwise defined, have the meanings ascribed to them in the
Merger Agreement.
1. So long as the Merger Agreement has not been terminated, in
consideration of the Merger, the parties agree as follows:
(a) Each Affiliate, as an individual, shall use all reasonable efforts to
cause the Merger Agreement to be adopted by the shareholders of
Heritage and consummated according to its terms.
(b) Each Affiliate agrees to cause all shares of capital stock of Heritage
("Heritage Shares") owned by him or her or with respect to which he or
she shall have the sole right to vote, and to use all reasonable
efforts to cause shares with respect to which he or she shall share the
right to vote, to be voted in favor of the approval of the Merger and
the adoption of the Merger Agreement; provided, however, that this
provision shall not apply to any Heritage Shares held by an Affiliate
as a trustee or in any other comparable fiduciary capacity.
(c) Each Affiliate agrees that until the Merger is consummated or abandoned
pursuant to the Merger Agreement, he or she shall not, without
Acquiror's written consent, voluntarily sell or dispose of any Heritage
Shares owned or controlled by him or her or solicit, invite, negotiate,
discuss or enter into any agreement concerning any Acquisition
Transaction. Acquiror's written consent shall not be unreasonably
withheld in the event of a disposition by gift to a charity or to a
family member of the Affiliate made for estate planning purposes and
not to avoid the restrictions hereof, or in the event of a disposition
necessary to discharge a fiduciary duty as a trustee or comparable
fiduciary capacity; provided such transferee agrees to be bound by the
terms and conditions of this Agreement.
2. This Agreement may be executed in multiple counterparts at different
times by Acquiror and different Affiliates, each of which shall be an original,
but all of which together constitute one and the same agreement. This
Agreement, including each of its counterparts, shall be effective with respect
to additional Affiliates as, when, and if executed by Acquiror and such
additional Affiliates. Neither Acquiror's nor any Affiliate's rights or
obligations under this Agreement are contingent upon the execution of this
Agreement by any other Affiliate and this Agreement shall be binding only with
respect to each signatory to this Agreement and any of its counterparts.
<PAGE>
3. This Agreement sets forth the entire agreement and understanding
between Acquiror and the Affiliates in respect of the transactions contemplated
by this Agreement and supersedes all prior agreements, arrangements, and
understandings relating to the subject matter hereof.
4. This Agreement shall continue in effect until the Merger is
consummated or the Agreement is terminated in accordance with its terms.
IN WITNESS WHEREFORE, each of the undersigned Affiliates has executed this
Agreement in his or her individual capacity as of the date first written above.
- ------------------------------ ----------------------------------------
Richard T. Wojcik Frederick J. Sampias
- ------------------------------ ----------------------------------------
Ronald P. Grocbe John T. Gallagher
- ------------------------------ ----------------------------------------
Lael W. Mathis Jack Payan
- ------------------------------ ----------------------------------------
Arthur E. Sieloff John L. Sterling
- ------------------------------ ----------------------------------------
Chester Stranczek Arthur G. Tichenor
- ------------------------------ ----------------------------------------
Dominick J. Velo John E. Barry
- ------------------------------ ----------------------------------------
Paul A. Eckroth Carl C. Greer, individually and as
President of Martin Marketing and as
Voting Trustee under a Voting Trust
Agreement, dated December 31, 1985, as
amended on December 31, 1995
First Midwest Bancorp, Inc.
By:
-------------------------------------
Its Executive Vice President
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