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Registration No. 33-333-47381
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Pre-Effective Amendment No. 2 to
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
FIRST MIDWEST BANCORP, INC.
(Exact name of registrant as specified in its charter)
6022
(Primary Standard Industrial Classification Code Number)
Delaware 36-3161078
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
300 Park Boulevard, Suite 405, Itasca, Illinois 60143-0459, (630) 875-7450
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Donald J. Swistowicz
Executive Vice President
First Midwest Bancorp, Inc.
300 Park Boulevard, Suite 405, Itasca, Illinois 60143-0459
(630) 875-7460
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
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Timothy M. Sullivan John E. Freechack Joel S. Corwin
Hinshaw & Culbertson Barack Ferrazzano Kirschbaum Perlman & Nagelberg Law Offices of Joel S. Corwin
222 North LaSalle Street 333 West Wacker Drive 20 South Clark Street
Suite 300 Suite 2700 Suite 2200
Chicago, Illinois 60601-1081 Chicago, Illinois 60606 Chicago, Illinois 60603
(312) 704-3852 (312) 984-3100 (312) 357-0100
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Approximate date of commencement of proposed sale of the securities to the
public: Upon consummation of the Merger as described in the Registration
Statement.
If the only securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [_]
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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PROSPECTUS
9,719,657 Shares of
First Midwest Bancorp, Inc.
Common Stock
JOINT PROXY STATEMENT
for Meetings of
Heritage Financial Services, Inc. Shareholders and
First Midwest Bancorp, Inc. Stockholders
to be held June 17, 1998
This Joint Proxy Statement/Prospectus relates to the consideration of the
Agreement and Plan of Merger, dated January 14, 1998 (the "Merger Agreement"),
by and between First Midwest Bancorp, Inc. ("First Midwest"), and First Midwest
Acquisition Corporation, a wholly owned subsidiary of First Midwest
("Acquisition Corp"), and Heritage Financial Services, Inc. ("Heritage"), which
is attached to this Joint Proxy Statement/Prospectus as Appendix A, which
provides for the merger of Heritage into Acquisition Corp (the "Merger") and the
issuance of shares of First Midwest Common Stock to the Shareholders of Heritage
upon the consummation of the Merger (the "Issuance"). This Joint Proxy
Statement/Prospectus is first being mailed to First Midwest Stockholders and to
Heritage Shareholders on or about May 4, 1998.
This Joint Proxy Statement/Prospectus is being furnished to the
Shareholders of Heritage in connection with the solicitation of proxies by the
Board of Directors of Heritage for use at a Special Meeting of Shareholders of
Heritage to be held at 2:00 P.M., local time, on June 17, 1998, at Heritage
Bank, 11900 S. Pulaski Road, Alsip, Illinois and at any adjournments or
postponements thereof.
This Joint Proxy Statement/Prospectus is also being furnished to the
Stockholders of First Midwest in connection with the solicitation of proxies by
the Board of Directors of First Midwest for use at the Annual Meeting of
Stockholders of First Midwest to be held at 9:00 a.m., local time, on June 17,
1998 at the Oak Brook Hills Hotel, 3500 Midwest Road, Oak Brook, Illinois, and
at any adjournments or postponements thereof.
This Joint Proxy Statement/Prospectus is a prospectus of First Midwest
relating to its offering of shares of its Common Stock, $0.01 par value per
share ("First Midwest Common Stock"), to the holders of the Common Shares of
Heritage, no par value per share ("Heritage Common Stock"), in connection with
the proposed Merger. If the Merger Agreement is approved by the requisite vote
of Heritage Shareholders, if the Issuance and the proposed amendment to the
Restated Certificate of Incorporation of First Midwest increasing the number of
authorized shares of First Midwest Common Stock to 60,000,000 are approved by
the requisite vote of First Midwest Stockholders and if, following the
satisfaction of certain other conditions, the Merger is consummated, each issued
and outstanding share of Heritage Common Stock (except for shares held by
dissenting Heritage Shareholders) will be converted into and exchanged for
0.7695 of a share of First Midwest Common Stock (the "Exchange Ratio") as
described herein and in the Merger Agreement (see "THE MERGER").
Based on (i) 12,140,528 Heritage Common Shares outstanding on February 17,
1998, (ii) 490,605 Heritage Common Shares issuable upon the exercise of
outstanding employee stock options on such date, and (iii) a 0.7695 Exchange
Ratio, approximately 9,719,657 shares of First Midwest Common Stock will be
issued in the Merger, which represents approximately 32 percent of the number of
shares of First Midwest Common Stock outstanding on the First Midwest Record
Date (as defined herein), plus the number of shares of First Midwest Common
Stock to be issued in exchange for the Heritage Common Shares described in
clauses (i) and (ii) above. The actual number of shares of First Midwest Common
Stock to be issued in the Merger will depend on the number of Heritage Common
Shares outstanding at the Effective Time (as defined herein), the number of
Heritage Common Shares issuable upon the exercise of outstanding employee stock
options on such date, the Exchange Ratio and the number of Heritage Common
Shares held by dissenting Heritage Shareholders. The number of shares of First
Midwest Common Stock indicated at the top of this page is the maximum number of
shares of First Midwest Common Stock that is currently estimated to be issued in
the Merger.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE SECURITIES
OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR BANK DEPOSITS, ARE NOT
OBLIGATIONS OF OR GUARANTEED BY ANY BANKING OR NONBANKING AFFILIATE OF
FIRST MIDWEST AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
The date of this Joint Proxy Statement/Prospectus is ___________________, 1998
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FIRST MIDWEST BANCORP, INC.
AND
HERITAGE FINANCIAL SERVICES, INC.
JOINT PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
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TABLE OF CONTENTS........................................................... i
AVAILABLE INFORMATION....................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................. 2
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION................. 4
SUMMARY..................................................................... 5
The Parties............................................................. 5
First Midwest Meeting................................................... 9
Heritage Meeting........................................................10
The Merger..............................................................11
Merger Consideration....................................................11
Reasons for the Merger; Recommendations of the Boards of Directors......12
Opinions of Financial Advisors..........................................13
Dissenters' Appraisal Rights............................................14
Effective Time; Closing Date............................................14
Interests of Certain Persons in the Merger..............................14
Regulatory Approvals....................................................17
Conditions to the Merger................................................18
Waiver and Amendment; Termination.......................................18
Conduct of Business Pending the Merger..................................19
Expenses................................................................19
Accounting Treatment....................................................19
Federal Income Tax Consequences of the Merger...........................19
Stock Option Agreement..................................................20
Resales of First Midwest Common Stock...................................20
Charter Amendment.......................................................20
Effects of the Merger on Rights of Shareholders of Heritage.............21
Preferred Share Purchase Rights.........................................21
Nasdaq Stock Market Listing.............................................21
Market and Market Prices................................................21
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SELECTED FINANCIAL DATA OF FIRST MIDWEST BANCORP, INC........................23
SELECTED FINANCIAL DATA OF HERITAGE FINANCIAL SERVICES, INC..................25
COMPARATIVE PER COMMON SHARE DATA............................................27
RECENT DEVELOPMENTS..........................................................29
First Midwest Form 8-K Filing............................................29
Year 2000 Issues.........................................................30
FIRST MIDWEST MEETING........................................................31
Place, Time, Date and Record Date........................................31
Matters to Be Considered.................................................31
Vote Required............................................................32
Proxies..................................................................32
Security Ownership.......................................................34
HERITAGE MEETING.............................................................36
Place, Time, Date and Record Date........................................36
Matters to Be Considered.................................................36
Vote Required............................................................36
Proxies..................................................................37
Security Ownership.......................................................38
THE MERGER...................................................................42
General..................................................................42
Merger Consideration.....................................................42
Background of and Reasons for the Merger.................................44
Recommendations of the Boards of Directors...............................52
Opinion of Heritage Financial Advisor....................................52
Opinion of First Midwest Financial Advisor...............................59
Effective Time; Closing Date.............................................65
Exchange of Certificates by Heritage Shareholders........................65
Dissenters' Appraisal Rights.............................................66
Regulatory Approvals.....................................................68
Business Pending the Merger and Other Covenants..........................70
Representations and Warranties...........................................73
Conditions to the Merger.................................................74
Waiver and Amendment; Termination........................................75
Dividends................................................................76
Operations of Heritage After the Merger..................................77
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Interests of Certain Persons in the Merger.............................. 77
Effect on Employee Benefits............................................. 80
Agreement of Affiliates................................................. 81
Stock Option Agreement.................................................. 81
Federal Income Tax Consequences of the Merger........................... 85
Accounting Treatment.................................................... 87
Expenses................................................................ 87
Resale of First Midwest Common Stock.................................... 87
CHARTER AMENDMENT........................................................... 88
General................................................................. 88
Increase in Authorized Stock............................................ 88
Recommendation of First Midwest Board................................... 89
PRICE RANGE OF COMMON STOCK AND DIVIDENDS................................... 90
Market Prices........................................................... 90
Dividends............................................................... 91
PRO FORMA FINANCIAL INFORMATION............................................. 91
SUPERVISION AND REGULATION.................................................. 95
General................................................................. 95
Capital and Operational Requirements.................................... 96
Dividends............................................................... 98
Source of Strength Policy............................................... 98
FDIC Insurance Assessments; DIFA........................................ 99
DESCRIPTION OF FIRST MIDWEST COMMON AND PREFERRED STOCK.....................100
COMPARISON OF THE RIGHTS OF FIRST MIDWEST
STOCKHOLDERS AND HERITAGE SHAREHOLDERS..................................101
General.................................................................101
Common and Preferred Stock..............................................102
Stockholder Rights Plan.................................................102
Stockholder Action Without a Meeting; Power to Call Special Meetings
and Amendment of the Certificate and the Bylaws...................104
Stockholder Vote Required to Approve Business Combinations..............105
Evaluation of Proposed Offer............................................105
Delaware and Illinois Law Affecting Business Combinations...............106
Directors...............................................................107
Liability of Directors; Indemnification.................................107
Dissenters' Appraisal Rights............................................108
Advance Notice of Stockholder Proposals and Nominations.................109
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Anti-Takeover Effect.................................................... 110
FIRST MIDWEST DIRECTOR ELECTION............................................. 111
Election of Directors................................................... 111
Operations of the First Midwest Board................................... 114
Executive Officers and Executive Compensation........................... 116
Compensation Committee Report on Executive Compensation................. 120
Stock Performance Graph................................................. 122
Ownership Reports....................................................... 124
Certain Relationships and Related Transactions.......................... 124
Independent Auditors.................................................... 124
OPINIONS.................................................................... 124
EXPERTS..................................................................... 125
STOCKHOLDER PROPOSALS....................................................... 125
Appendix A - Agreement and Plan of Merger
Appendix B - Opinion of McDonald & Company Securities, Inc.
Appendix C - Opinion of Goldman Sachs & Co.
Appendix D - Sections 11.65 and 11.70 of the Illinois Business Corporation
Act of 1983
Appendix E - Stock Option Agreement
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iv
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AVAILABLE INFORMATION
First Midwest Bancorp, Inc. ("First Midwest"), and Heritage Financial
Services, Inc. ("Heritage"), are subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith file reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission") (File
Numbers 0-10967 and 0-15059, respectively). Such reports, proxy statements and
other information can be inspected and copied at the public reference facilities
of the Commission, at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Regional Offices of the Commission at the following locations: Seven World Trade
Center, Suite 1300, New York, New York, 10048; and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. In addition, the Commission
maintains a website (http://www.sec.gov) that contains certain reports, proxy
statements and other information regarding First Midwest and Heritage that First
Midwest and Heritage file electronically with the Commission. In addition, such
reports, proxy statements, and other information concerning First Midwest and
Heritage can be inspected at the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
This Joint Proxy Statement/Prospectus constitutes a part of a Registration
Statement filed by First Midwest with the Commission under the Securities Act of
1933, as amended (the "Securities Act"). This Joint Proxy Statement/Prospectus
does not contain all of the information set forth in the Registration Statement,
certain items of which are contained in exhibits to the Registration Statement
as permitted by the rules and regulations of the Commission. Reference is hereby
made to the Registration Statement and to the exhibits thereto for further
information with respect to First Midwest. Any statements contained herein
concerning the provisions of any contract, agreement or other document are not
necessarily complete and, in each instance, reference is made to the copy of
such contract, agreement or other document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have heretofore been filed by First Midwest
or Heritage with the Commission are incorporated by reference in this Joint
Proxy Statement/Prospectus: (1) First Midwest's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997; (2) First Midwest's Current Report on
Form 8-K filed on January 23, 1998; (3) the description of First Midwest Common
Stock, $0.01 par value per share, and Preferred Stock purchase rights associated
with the Common Stock of First Midwest, as contained in First Midwest's
Registration Statement on Form 8-A, dated February 17, 1989, as amended by
subsequently filed reports; (4) Heritage's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997; (5) Heritage's Current Report on Form 8-K
filed on January 27, 1998; and (6) the description of the Heritage Common
Shares, no par value per share, as contained in Heritage's Registration
Statement on Form 8-A, effective October 14, 1986, as amended by subsequently
filed reports.
All documents filed by First Midwest and Heritage with the Commission
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date of this Joint Proxy Statement/Prospectus and prior to the termination
of the offering made by this Joint Proxy Statement/Prospectus shall be deemed to
be incorporated by reference herein and to be a part hereof. Any statements
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this Joint
Proxy Statement/Prospectus to the extent that a statement contained herein (or
in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein) modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed to constitute a part of
this Joint Proxy Statement/Prospectus, except as so modified or superseded.
This Joint Proxy Statement/Prospectus incorporates documents by reference
which are not presented herein or delivered herewith. Such documents (other than
exhibits to such documents, unless such exhibits are
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specifically incorporated by reference) are available, without charge, to any
person, including any beneficial owner, to whom this Joint Proxy
Statement/Prospectus is delivered, on written or oral request. Requests for
documents relating to First Midwest should be directed to First Midwest Bancorp,
Inc., 300 Park Boulevard, Suite 405, Itasca, Illinois 60143-0459, Attention
James R. Roolf, Corporate Secretary, Telephone Number: (630) 875-7450. Requests
for documents relating to Heritage should be directed to Heritage Financial
Services, Inc., 12015 South Western Avenue, Blue Island, Illinois 60406,
Attention Ronald P. Groebe, Secretary, Telephone Number: (708) 385-2900. In
order to ensure timely delivery of these documents, any requests should be made
by June 15, 1998. First Midwest or Heritage, as the case may be, will send the
requested documents by first-class mail within one business day of the receipt
of the request. Persons requesting copies of exhibits to such documents will be
charged the costs of reproduction and mailing such exhibits.
--------------------------
No person has been authorized to give any information or to make any
representation other than as contained herein or incorporated in this Joint
Proxy Statement/Prospectus, and if given or made, such information or
representation should not be relied upon as having been authorized by First
Midwest or Heritage. This Joint Proxy Statement/Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any of the securities
offered by this Joint Proxy Statement/Prospectus in any state or to any person
in which or to whom it would be unlawful to make such an offer or solicitation.
The delivery of this Joint Proxy Statement/Prospectus at any time does not imply
that the information included herein is correct as of any time after its date.
All information contained in this Joint Proxy Statement/Prospectus with
respect to First Midwest and its subsidiaries has been supplied by First
Midwest, and all information with respect to Heritage and its subsidiaries has
been supplied by Heritage.
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CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION
This Joint Proxy Statement/Prospectus (including information included or
incorporated by reference herein) contains certain forward-looking statements
with respect to the financial condition, results of operations, plans,
objectives, future performance and business of each of First Midwest and
Heritage, including (i) statements relating to the cost savings estimated to
result from the Merger, (ii) statements relating to revenues estimated to result
from the Merger, (iii) statements relating to the restructuring charges
estimated to be incurred in connection with the Merger and (iv) statements
preceded by, followed by or that include the words "believes," "expects,"
"anticipates," "estimates" or similar expressions. See "SUMMARY," "COMPARATIVE
PER COMMON SHARE DATA," "RECENT DEVELOPMENTS," "THE MERGER -- Background and
Reasons For the Merger," "-- Opinion of First Midwest Financial Advisor" and "--
Opinion of Heritage Financial Advisor" and "PRO FORMA FINANCIAL INFORMATION."
These forward-looking statements involve certain risks and uncertainties.
Neither First Midwest nor Heritage undertake any obligation to reflect
circumstances or events that arise after the date hereof. Factors that may cause
actual results to differ materially from those contemplated by such forward-
looking statements include, among others, the following possibilities: (a)
expected cost savings from the Merger may not be fully realized or realized
within the expected time frame; (b) revenues following the Merger may be lower
than expected, or deposit attrition, operating costs or customer loss and
business disruption following the Merger may be greater than expected; (c)
competitive pressures among depository and other financial institutions may
increase significantly; (d) costs or difficulties related to the integration of
the business of First Midwest and Heritage may be greater than expected; (e)
changes in the interest rate environment may reduce margins; (f) general
economic or business conditions, either nationally or in the states in which
First Midwest is doing business, may be less favorable than expected, resulting
in, among other things, a deterioration in credit quality or a reduced demand
for credit; (g) legislative or regulatory changes may adversely affect the
business in which First Midwest is engaged; (h) the failure of the Company,
Heritage or their vendors or customers to achieve Year 2000 compliance on a
timely basis could result in disruptions of the Company's business; and (i)
changes may occur in the securities markets. The forward-looking earnings
estimates included in this Joint Proxy Statement/Prospectus have not been
examined or compiled by the independent public accountants of First Midwest or
Heritage nor have such accountants applied any procedures thereto. Accordingly,
such accountants do not express an opinion or any other form of assurance on
them. Further information on other factors which could affect the financial
results of First Midwest after the Merger is included in the Commission filings
incorporated by reference herein.
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SUMMARY
The following is a brief summary of certain information relating to the
Merger. The summary is necessarily incomplete and selective and is qualified in
its entirety by more detailed information contained elsewhere in this Joint
Proxy Statement/Prospectus, including the Appendixes hereto and the documents
incorporated by reference herein. All Stockholders of First Midwest and
Shareholders of Heritage are urged to read carefully this entire Joint Proxy
Statement/Prospectus, including the Appendixes hereto and the documents
incorporated by reference herein.
The Parties
First Midwest
First Midwest, a Delaware corporation headquartered in the Chicago suburb
of Itasca, Illinois, is Illinois' third largest publicly traded bank holding
company, with assets of approximately $3.6 billion at December 31, 1997, before
considering the proposed acquisition of Heritage. The subsidiaries of First
Midwest include a commercial bank and three nonbank subsidiaries which offer
trust and investment management, mortgage banking and credit life insurance
related services.
On a regular basis, First Midwest evaluates acquisition opportunities and
conducts due diligence activities in connection with possible acquisitions. As
a result, acquisition discussions, and in some cases negotiations, take place,
and future acquisitions involving cash, debt or equity securities can be
expected. Acquisitions typically involve the payment of a premium over book and
market values, and, therefore, some dilution of First Midwest's book value and
net income per common share may occur in connection with any future
transactions.
First Midwest Bank, N.A. (the "Bank"), is engaged in commercial and retail
banking and offers a broad range of lending, depository and related financial
services including accepting deposits; commercial and industrial, consumer and
real estate lending; collections; safe deposit box operations; and other banking
services tailored for individual, commercial and industrial, and governmental
customers. Structurally, the Bank is comprised of two divisions, a sales
division defined in four geographical regions and a support division providing
corporate administrative and support services through various functional
departments. At year end 1997, the Bank had approximately 1,250 full time
equivalent employees operating in fifty-five banking offices, primarily in
suburban metropolitan Chicago.
Approximately 78% of the Bank's assets are located in the suburban
metropolitan Chicago area. Within the Chicago metropolitan area, the Bank
operates in three of the fastest growing counties in Illinois: Lake and McHenry
Counties, north and northwest of the city of Chicago, and Will County, southwest
of the city. Lake County has the highest average household income in the State
of Illinois and the third highest employment rate, with employment growth rates
estimated to be approximately 27% for the period 1997 through 2007. McHenry
County, which is adjacent to Lake County on the west, has the fourth highest
average household income and the eleventh highest employment rate in the State
of Illinois, with the employment growth rate estimated to be
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approximately 17% for the same forward period. Will County ranks seventh and
sixth by the same measures, respectively, and has employment growth rates
estimated to be approximately 20% for the same forward period. The Bank
currently has the second largest share of bank deposits in the Lake, McHenry and
Will County markets with an estimated 8% of Lake County, 14% of McHenry County
and 16% of Will County.
Approximately 16% of the Bank's assets are located in the "Quad Cities"
area of Western Illinois and Eastern Iowa which includes the Illinois cities of
Moline and Rock Island and the Iowa cities of Davenport and Bettendorf. The Quad
Cities region has a population of approximately 400,000, employment in excess of
200,000 jobs, and annual retail sales of approximately $2.5 billion. Employment
growth in this market area is projected to be approximately 8% for the period
1997 through 2005. The Bank has an approximate 8% market share, or the second
largest, in the Quad Cities.
The Bank maintains branch operations in downstate Illinois primarily in
Vermilion and Champaign Counties, that represent approximately 6% of the Bank's
total assets. The Bank has approximately 17% of the total deposits in the
Vermilion County market.
A profile of banking and trust assets/offices and deposit market shares in
each of the Bank's primary banking markets, as well as on a pro forma basis
including Heritage, is shown on the map on page 7.
First Midwest Trust Company, N.A. (the "Trust Company"), provides trust and
investment management services to its clients, acting as executor,
administrator, trustee, agent, and in various other fiduciary capacities. As of
December 31, 1997, the Trust Company had approximately $1.6 billion in trust
assets under management, comprised of accounts ranging from small personal
investment portfolios to large corporate employee benefit plans. First Midwest
Mortgage Corporation performs centralized residential real estate mortgage loan
origination, sales and servicing operations previously conducted by the Bank.
First Midwest Insurance Company operates as a reinsurer of credit life, accident
and health insurance sold through the Bank, primarily in conjunction with the
Bank's consumer lending operations.
First Midwest's principal executive office is located at 300 Park
Boulevard, Suite 405, Itasca, Illinois, 60143-3459, and its telephone number is
(630) 875-7450.
Heritage
Heritage, an Illinois corporation headquartered in the Chicago suburb of
Tinley Park, Illinois, had assets of approximately $1.3 billion at December 31,
1997. The subsidiaries of Heritage include a commercial bank, a trust company
and a national trust bank which also conducts an insurance agency business.
Heritage's commercial bank subsidiary, Heritage Bank, is engaged in a
general commercial banking business which embraces all the usual functions of
commercial and retail banking, including: accepting deposits; commercial and
industrial, consumer and real estate lending; collections; safe deposit box
operations; and other banking services tailored for individual, commercial,
industrial and
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governmental customers. Heritage Bank operates seventeen banking offices in the
south and southwest suburbs of Chicago. Heritage Bank is the eighth largest
banking institution in Will County in market share of deposits.
Heritage Trust Company provides trust and investment management services to
its clients, acting as executor, administrator, trustee, agent, and in various
other fiduciary capacities. As of December 31, 1997, Heritage Trust Company had
approximately $225 million in trust assets under management, comprised of
accounts ranging from small personal investment portfolios to large corporate
employee benefit plans. First National Bank of Lockport provides trust services
and also acts as an insurance agency.
Heritage's principal executive office is located at 17500 South Oak Park
Avenue, Tinley Park, Illinois 60477, and its telephone number is (708) 532-8000.
Acquisition Corp
Acquisition Corp is an Illinois corporation and wholly owned subsidiary of
First Midwest and does not conduct any ongoing operations. The primary purpose
of Acquisition Corp is to facilitate the Merger.
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First Midwest Bancorp, Inc.("FMBI")
and
Heritage Financial Services, Inc.("HERS")
Banking and Trust Assets/Offices and Deposit Market Share
[MAP OF FIRST MIDWEST BANCORP, INC. AND
HERITAGE FINANCIAL SERVICES, INC. APPEARS HERE]
FMBI Western FMBI South Suburban
(Rock Island, Knox, and (Will, Southwest Cook, DuPage,
Scott (IA) Counties) Grundy, Kane and LaSalle
- ----------------------------- Counties)
Bank Assets: $600 Mil -----------------------------
Trust Assets: $500 Mil Bank Assets: $1.2 Bil
Offices: 13 Trust Assets: $770 Mil
Offices: 23
FMBI North Suburban
(Lake, McHenry and Northern FMBI Central
Cook Counties) (Vermilion and Champaign
- ----------------------------- Counties)
Bank Assets: $1.6 Bil -----------------------------
Trust Assets: $280 Mil Bank Assets: $220 Mil
Offices: 20 Trust Assets: $ 60 Mil
Offices: 6
HERS
(Southwest Cook, Will and
DuPage Counties)
- -----------------------------
Bank Assets: $1.3 Bil
Trust Assets: $200 Mil
Offices: 17
Suburban Chicago Deposit
Market Share Rank By County
- ----------------------------------------
County FMBI HERS Combined
- ----------- ---- ---- --------
1. Will #2 #8 #1
2. Lake #2 -- #2
3. McHenry #2 -- #2
4. Cook #75 #16 #14
5. DuPage nm nm nm
6. Kane nm -- nm
FMBI and HERS
-------------
Leading Independent Illinois BHC
. $5.0 Bil Assets
. 79 Offices - 87 ATMS
. $3.0 Bil in Loans
. $3.9 Bil in Deposits
Premier Suburban Chicago Franchise
. Suburban Chicago Headquartered
. 4.2 Bil Assets - 85% of the Company
. 60 Offices - 79 ATMs
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First Midwest Meeting
Meeting and Record Dates. The Annual Meeting of the Stockholders of First
Midwest will be held on June 17, 1998, at the Oak Brook Hills Hotel, 3500
Midwest Road, Oak Brook, Illinois, at 9:00 a.m., local time (and with any and
all adjournments or postponements thereof, the "First Midwest Meeting"). Only
holders of record of shares of First Midwest Common Stock at the close of
business on April 20, 1998 (the "First Midwest Record Date") are entitled to
notice of, and to vote at, the First Midwest Meeting. See "FIRST MIDWEST
MEETING -- Date, Time, Place and Record Date."
Matters to be Considered. At the First Midwest Meeting, First Midwest
Stockholders will vote on the following proposals (the "First Midwest
Proposals"): (i) the approval of the issuance of shares of First Midwest Common
Stock to Shareholders of Heritage (the "Issuance") pursuant to the Agreement and
Plan of Merger, dated as of January 14, 1998 (the "Merger Agreement"), by and
between First Midwest and Acquisition Corp and Heritage, and the transactions
contemplated thereby, including the merger of Heritage into Acquisition Corp
(the "Merger"); (ii) the approval and adoption of an amendment to First
Midwest's Restated Certificate of Incorporation to increase the number of
authorized shares of First Midwest Common Stock from 30,000,000 to 60,000,000
(the "Charter Amendment"); and (iii) the election of C.D. Oberwortmann, John M.
O'Meara and J. Stephen Vanderwoude to serve as directors of First Midwest (the
"First Midwest Director Election"). Stockholders will also consider and vote
upon such other matters as may properly be brought before the First Midwest
Meeting. See "FIRST MIDWEST MEETING -- Matters to Be Considered."
Vote Required. The affirmative vote of the holders of a majority of the
shares of First Midwest Common Stock represented at the First Midwest Meeting
and entitled to vote thereon is required for the approval of the Issuance. The
affirmative vote of the holders of a majority of the outstanding shares of First
Midwest Common Stock is required for approval of the Charter Amendment. The
First Midwest Director Election requires the vote of the holders of a plurality
of the shares of First Midwest Common Stock represented at the First Midwest
Meeting and entitled to vote thereon. As of the First Midwest Record Date, there
were ______ shares of First Midwest Common Stock entitled to be voted at the
First Midwest Meeting.
With a quorum, or in the absence of such, the affirmative vote of the
holders of a majority of the shares of First Midwest Common Stock represented at
the First Midwest Meeting may authorize the adjournment of such meeting. Shares
of First Midwest Common Stock represented by properly executed proxies which are
to be voted against the First Midwest Proposals will not be voted for the
adjournment of such meeting.
Approval of the Issuance and the Charter Amendment by the Stockholders of
First Midwest is a condition to, and required for, consummation of the Merger.
See "THE MERGER --Conditions to the Merger." The First Midwest Director Election
has no effect on the consummation of the Merger. The approval of the Issuance is
not a condition to the approval of the
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<PAGE>
Charter Amendment; however, approval of the Charter Amendment is a condition to
the Issuance. See "FIRST MIDWEST MEETING -- Vote Required."
Security Ownership. As of the First Midwest Record Date, directors and
executive officers of First Midwest and their affiliates held in the aggregate
________ shares (excluding option shares), or approximately __%, of the First
Midwest Common Stock. The directors and executive officers of First Midwest have
indicated that they intend to vote such shares of First Midwest Common Stock for
approval and adoption of the First Midwest Proposals at the First Midwest
Meeting. As of the First Midwest Record Date, directors and executive officers
of Heritage and their affiliates held no shares of First Midwest Common Stock.
See "FIRST MIDWEST MEETING -- Security Ownership."
Heritage Meeting
Meeting and Record Dates. A Special Meeting of the Shareholders of
Heritage will be held on June 17, 1998 at Heritage Bank, 11900 S. Pulaski Road,
Alsip, Illinois, at 2:00 P.M., local time (and with any adjournments or
postponements thereof, the "Heritage Meeting"). Only holders of record of
Heritage Common Stock at the close of business on April 20, 1998 (the "Heritage
Record Date") are entitled to notice of, and to vote at, the Heritage Meeting.
See "HERITAGE MEETING -- Date, Time, Place and Record Date."
Matters to be Considered. At the Heritage Meeting, Shareholders of
Heritage will vote on the approval and adoption of the Merger Agreement and the
transactions contemplated thereby, including the Merger of Heritage into
Acquisition Corp and the conversion of each share of Heritage Common Stock into
0.7695 of a share of First Midwest Common Stock. Heritage Shareholders will also
consider and vote upon such other matters as may properly be brought before the
Heritage Meeting. See "HERITAGE MEETING -- Matters to Be Considered."
Vote Required. Approval of the Merger at the Heritage Meeting will require
the affirmative vote of the holders of a majority of the outstanding shares of
Heritage Common Stock. As of February 17, 1998, there were 12,140,528 shares of
Heritage Common Stock entitled to be voted at the Heritage Meeting.
With a quorum, or in the absence of such, the affirmative vote of the
holders of a majority of the shares represented at the Heritage Meeting may
authorize the adjournment of such meeting. Shares of Heritage Common Stock
represented by properly executed proxies which are to be voted against the
Merger Agreement will not be voted for the adjournment of such meeting.
Approval of the Merger Agreement by the Shareholders of Heritage is a
condition to, and required for, consummation of the Merger. See "THE MERGER --
Conditions to the Merger."
Security Ownership. As of February 17, 1998, directors and executive
officers of Heritage held in the aggregate 2,275,665 shares (excluding option
shares and shares held in the Heritage
10
<PAGE>
Financial Services, Inc. Profit Sharing Plan), or approximately 18.7%, of the
Heritage Common Stock. The directors and executive officers of Heritage have
indicated that they intend to vote their shares of Heritage Common Stock for
approval and adoption of the Merger Agreement at the Heritage Meeting. These
individuals have entered into an Agreement of Affiliates with First Midwest
which, among other things, requires them to vote their shares of Heritage Common
Stock in favor of the Merger Agreement. See "HERITAGE MEETING--Security
Ownership," and "THE MERGER--Agreement of Affiliates."
As of the Heritage Record Date, First Midwest held 45,300 shares of
Heritage Common Stock, or less than 1% of the outstanding shares of Heritage
Common Stock. First Midwest has indicated that it intends to vote such shares of
Heritage Common Stock for approval and adoption of the Merger Agreement. First
Midwest entered into a Stock Option Agreement with Heritage on January 14, 1998,
pursuant to which Heritage granted to First Midwest an option to acquire, under
certain limited and specifically defined circumstances (none of which, to the
best of First Midwest's and Heritage's knowledge, has occurred as of the date of
this Joint Proxy Statement/Prospectus), up to 2,400,000 shares of Heritage
Common Stock (19.9% of the issued and outstanding Heritage Common Stock as of
January 14, 1998). See "THE MERGER--Stock Option Agreement." As of the
Heritage Record Date, the directors and executive officers of First Midwest and
their affiliates held no shares of Heritage Common Stock.
The Merger
The Shareholders of Heritage are each being asked to consider and vote upon
a proposal to approve and adopt the Merger Agreement, pursuant to which Heritage
will be merged with and into Acquisition Corp, with Acquisition Corp being the
surviving entity. See "THE MERGER--General."
Merger Consideration
Subject to the terms, conditions and procedures set forth in the Merger
Agreement, each share of Heritage Common Stock issued and outstanding
immediately prior to the Merger (except shares held by Heritage or First Midwest
or shares for which Shareholders of Heritage have perfected dissenters'
appraisal rights) will be converted into the right to receive 0.7695 (the
"Exchange Ratio") of a share of First Midwest Common Stock (the "Merger
Consideration"). The Merger Agreement provides that the Exchange Ratio will be
appropriately adjusted in the event of any split, combination, stock dividend or
stock distribution with respect to the First Midwest Common Stock effected by
First Midwest prior to the consummation of the Merger. See "THE MERGER--Merger
Consideration."
Based on the $________ per share closing price of the First Midwest Common
Stock reported on the Nasdaq Stock Market for _______________, 1998, the market
value of the Merger Consideration would be $_________ per share of Heritage
Common Stock as of such date. The number of shares of First Midwest Common Stock
to be received for each share of Heritage Common
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<PAGE>
Stock has been fixed at 0.7695. The market value of First Midwest Common Stock
to be received in the Merger is subject to fluctuation. Accordingly, an increase
in the market value of First Midwest Common Stock will increase the market value
of the Merger Consideration to be received in the Merger. A decrease in the
market value of First Midwest Common Stock will have the opposite effect.
Heritage may, at its sole option, terminate the Merger Agreement (the
"Termination Right"), renegotiate the Exchange Ratio with First Midwest or
proceed with the Merger, if (i) the dollar amount (the "First Midwest Common
Stock Price Per Share") equal to the volume weighted average of all transactions
reported for First Midwest Common Stock on the Nasdaq Stock Market during the
ten trading days immediately preceding the fifth trading day prior to the
Closing Date (the "Pricing Period") is less than $33.90; and (ii) the percentage
determined by dividing the First Midwest Common Stock Price Per Share by $42.37
(the closing price of First Midwest Common Stock as of the close of business on
January 14, 1998) is more than 20 percentage points less than the percentage
determined by dividing the weighted average of the closing prices of the common
stocks of certain selected bank holding companies for the Pricing Period by the
weighted average of the closing prices of the common stocks of such bank holding
companies as of the close of business on January 14, 1998. If Heritage elects to
exercise the Termination Right, it must give written notice to First Midwest as
of the close of business on the second business day after the end of the Pricing
Period. See "THE MERGER -- Merger Consideration" and "-- Waiver and Amendment;
Termination."
Fractional share interests of First Midwest Common Stock will not be
issued; instead, each Shareholder of Heritage who would be entitled to receive a
fractional share interest will receive cash equal to the product achieved when
such fractional share interest is multiplied by $42.37 (the closing price for
the shares of First Midwest Common Stock on January 14, 1998).
Reasons for the Merger; Recommendations of the Boards of Directors
Heritage. The Heritage Board of Directors (the "Heritage Board") has
unanimously approved and adopted the Merger Agreement and the transactions
contemplated thereby and has determined that the Merger is fair to, and in the
best interests of, Heritage and its Shareholders. The Heritage Board therefore
recommends a vote FOR approval of the Merger Agreement.
For a discussion of the factors considered by the Heritage Board in
reaching its decision to approve the Merger Agreement and the transactions
contemplated thereby, see "THE MERGER -- Background of and Reasons for the
Merger -- Heritage's Reasons for the Merger."
First Midwest. The First Midwest Board of Directors (the "First Midwest
Board") has unanimously adopted and approved the Merger Agreement and the
transactions contemplated thereby and has determined that the Merger and the
Issuance of the shares of First Midwest Common Stock pursuant thereto are fair
to, and in the best interests of, First Midwest and its Stockholders. The
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<PAGE>
First Midwest Board therefore recommends a vote FOR approval of the Issuance and
the Charter Amendment.
For a discussion of the factors considered by the First Midwest Board in
reaching its decision to approve the Merger Agreement and the transactions
contemplated thereby, see "THE MERGER -- Background of and Reasons for the
Merger -- First Midwest's Reasons for the Merger."
Opinions of Financial Advisors
Heritage. Heritage has retained McDonald & Company Securities, Inc.
("McDonald") as its financial advisor in connection with the transactions
contemplated by the Merger Agreement and to evaluate the financial terms of the
Merger. See "THE MERGER -- Background of and Reasons for the Merger --Heritage's
Reasons for the Merger."
On January 13, 1998, McDonald delivered its oral opinion to the Heritage
Board that, as of such date, the Exchange Ratio to be paid by First Midwest for
each share of Heritage Common Stock pursuant to the Merger Agreement was fair
from a financial point of view to the Shareholders of Heritage. McDonald
subsequently confirmed its earlier oral opinion by delivery of its written
opinion dated as of the date of this Joint Proxy Statement/Prospectus.
The full text of the written opinion of McDonald, dated as of the date of
this Joint Proxy Statement/Prospectus, which sets forth assumptions made,
matters considered and limitations on the review undertaken in connection with
the opinion, is attached hereto as Appendix B and is incorporated herein by
reference. Holders of Heritage Common Stock are urged to, and should, read such
opinion in its entirety. See "THE MERGER -- Opinion of Heritage Financial
Advisor."
First Midwest. On January 12, 1998, Goldman, Sachs & Co. ("Goldman Sachs")
delivered its oral opinion to the First Midwest Board that, as of such date, the
Exchange Ratio pursuant to the Merger Agreement was fair from a financial point
of view to First Midwest. Goldman Sachs subsequently confirmed its earlier oral
opinion by delivery of its written opinion dated as of the date of this Joint
Proxy Statement/Prospectus.
The full text of the written opinion of Goldman Sachs, dated as of the date
of this Joint Proxy Statement/Prospectus, which sets forth assumptions made,
matters considered and limitations on the review undertaken in connection with
the opinion, is attached hereto as Appendix C and is incorporated herein by
reference. Holders of First Midwest Common Stock are urged to, and should, read
such opinion in its entirety. See "THE MERGER -- Opinion of First Midwest
Financial Advisor."
13
<PAGE>
Dissenters' Appraisal Rights
Under Illinois law, each Shareholder of Heritage has dissenters' appraisal
rights provided such Shareholder does not vote in favor of the Merger Agreement
and complies with certain statutory procedures within the time frames specified
by the Illinois Business Corporation Act of 1983, as amended (the "IBCA"). The
value determined in such appraisal could be more than, the same as, or less than
the value of the Merger Consideration, depending upon the results of the
statutory appraisal process. Sections 11.65 and 11.70 of the IBCA, which contain
the provisions relating to dissenters' appraisal rights, are set forth on
Appendix D to this Joint Proxy Statement/Prospectus. It is a condition to First
Midwest's obligation to consummate the Merger that dissenters' appraisal rights
not be perfected with respect to more than 5% of the outstanding shares of
Heritage Common Stock. Under the Delaware General Corporation Law, First Midwest
Stockholders do not have dissenters' appraisal rights in connection with their
vote on the Issuance or the Charter Amendment. See "THE MERGER -- Dissenters'
Appraisal Rights" and "COMPARISON OF THE RIGHTS OF FIRST MIDWEST STOCKHOLDERS
AND HERITAGE SHAREHOLDERS -- Dissenters' Appraisal Rights."
Effective Time; Closing Date
The effective time of the Merger will be as of the close of business as of
the day on which a Certificate of Merger is issued by the Secretary of State of
Illinois (the "Effective Time"), which will occur only after receipt of all
regulatory approvals and the approval of the Issuance and the Charter Amendment
by the Stockholders of First Midwest and of the Merger Agreement by the
Shareholders of Heritage and the satisfaction or waiver of all other conditions
to the Merger. The closing of the Merger (the "Closing") will take place on a
date mutually agreed upon by First Midwest and Heritage (the "Closing Date"). In
the absence of such agreement, the Closing shall be held on the 30th calendar
day after the receipt of all regulatory approvals and the requisite approvals of
the Shareholders of Heritage and the Stockholders of First Midwest. See "THE
MERGER -- Effective Time; Closing Date."
Interests of Certain Persons in the Merger
Certain members of Heritage's management and the Heritage Board may be
deemed to have certain interests in the Merger in addition to their interests as
Shareholders of Heritage generally. These material interests include, among
others, provisions in the Merger Agreement relating to indemnification,
maintenance of director and officer liability insurance coverage and the
appointment of three members of the Heritage Board (Richard T. Wojcik, Jack
Payan and John L. Sterling) to the First Midwest Board following the
consummation of the Merger. In addition, the consummation of the Merger will
affect certain compensation benefits payable to the executive officers of
Heritage and the Heritage stock options held by these officers.
Eight of the executive officers of Heritage are covered by employment
agreements or employment termination benefits agreements with Heritage (the
"Heritage Employment Agreements"), which provide that in the event of the
termination of the executive officer's employment (as defined in his or her
Heritage Employment Agreement) following a change in
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<PAGE>
of Heritage, the executive officer (depending upon the terms of his or her
Employment Agreement) will be eligible to receive compensation equal to one, two
or three times his or her applicable compensation. In some cases, the applicable
compensation is based on an average of taxable compensation for the five most
recent calendar years ending prior to the occurrence of the change in control,
while in others it is equal to an officer's current compensation. The applicable
compensation would be payable over a one, two or three year period, depending
upon the particular agreement, and in some cases, an executive officer who is to
be paid over three years may elect to receive the payments over a two year
period. In addition, Heritage is obligated to provide coverage to such executive
officers under its employee group health/medical plans, at Heritage's expense,
while such compensation payments are being made by Heritage.
First Midwest has advised Heritage and these executive officers that the
consummation of the Merger will constitute a change in control of Heritage and
will result in a termination of the employment of these executive officers under
the terms of the Heritage Employment Agreements. Based on each executive
officer's applicable compensation, the maximum aggregate amount of cash
compensation payable to these officers of Heritage is approximately $4,950,000.
Under the terms of the Employment Agreements, these funds are to be deposited in
a trust established for the benefit of these executive officers. First Midwest
has agreed that it will deposit sufficient funds into the trust at the time of
the Closing to permit the trust to satisfy these compensation obligations. In
addition, First Midwest will extend coverage to such executive officers under
its employee group health/medical plans at its expense for the required period.
First Midwest may employ some or all of these officers following the
consummation of the Merger.
The estimated aggregate amount of the compensation payments that would be
due (and payable over one, two or three years) to each executive officer of
Heritage who is covered by an Employment Agreement following the consummation of
the Merger based on applicable compensation levels is as follows: Richard T.
Wojcik - $1,642,300; Frederick J. Sampias - $1,191,100; Ronald P. Groebe -
$695,600; Paul A. Eckroth - $481,900; John E. Barry - $417,900; Ramesh L.
Ajwani-$175,500; Susan G. Peterson - $175,000; and Albert A. Stroka - $168,000.
The payments are to be made in equal monthly installments as follows: (a)
Wojcik, Sampias, Groebe and Eckroth - payable over three years, unless the
executive officer elects to receive the payments over two years; (b) Barry -
payable over two years; and (c) Ajwani, Peterson and Stroka - payable over one
year.
The executive officers of Heritage held stock options covering an aggregate
of 490,605 shares of Heritage Common Stock as of February 17, 1998. Under the
terms of the Merger Agreement, the Heritage stock option agreements will be
amended, if necessary, prior to the consummation of the Merger to provide that
existing Heritage stock options will be converted into options to purchase
shares of First Midwest Common Stock. These options will continue to be governed
by the terms and conditions of the Heritage stock option agreements and First
Midwest will assume these options and honor these obligations.
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<PAGE>
Set forth below is certain information with respect to Heritage stock
options held by Heritage's executive officers as of February 17, 1998 and the
effect of the Merger on such options. The information assumes that no options
will be exercised prior to the Effective Time.
<TABLE>
<CAPTION>
Equivalent
Options for Equivalent Shares First Midwest
Shares of Heritage of First Midwest Average Price
Executive Officers Common Stock Common Stock Per Share *
- -------------------- ------------------ ----------------- -------------
<S> <C> <C> <C>
Richard T. Wojcik 96,800 74,490 $ 9.05
Frederick J. 110,044 84,681 8.30
Sampias 68,962 53,069 8.79
Ronald P. Groebe 74,887 57,629 8.32
John E. Barry 49,650 38,209 8.54
Paul A. Eckroth 75,300 57,946 8.73
Ramesh S. Ajwani 8,887 6,840 14.25
Susan G. Peterson 6,075 4,676 14.22
Albert A. Stroka ------- -------
490,605 377,540
Total
</TABLE>
*Based on the Heritage stock option exercise prices ($4.73 to $11.00)
divided by the Exchange Ratio.
Each Heritage stock option is accompanied by a limited stock appreciation
right (an "LSAR") which grants the holder, following a change in control of
Heritage (which will occur upon the approval of the Merger by the Heritage
Shareholders), the right to receive shares of Heritage Common Stock with a value
as of the LSAR exercise date equal to the difference between the fair market
value of a share of Heritage Common Stock as of the date of the exercise of the
LSAR and the purchase price per share under the accompanying stock option (the
"LSAR Benefit"). The accompanying option terminates if an LSAR is exercised.
Following the consummation of the Merger, holders of LSARs, who exercise
such LSARs, will receive shares of First Midwest Common Stock rather than shares
of Heritage Common Stock upon such exercise. The number of LSARs, the LSAR
Benefit and the number of shares of First Midwest Common Stock to be received in
lieu of shares of Heritage Common Stock following the consummation of the Merger
will be adjusted by the Exchange Ratio.
Based on the closing market price of Heritage Common Stock on February 17,
1998, of $29.63 per share, the estimated number of shares of Heritage Common
Stock distributable as a result of the potential exercise of outstanding LSARs
as of such date was as follows: Wojcik - 74,032; Sampias - 86,305; Groebe -
53,207; Eckroth - 38,634; Barry - 58,689; Ajwani - 58,225; Peterson - 5,597; and
Stroka - 3,830. If all of such LSARs were exercised, all of the options set
forth in the table would be canceled.
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Additionally, as a result of transactions contemplated by the Merger
Agreement, the vesting of Heritage stock options held by two executive officers
covering an aggregate of 3,863 shares of Heritage Common Stock will be
accelerated and become immediately exercisable. Based on the closing price of
First Midwest Common Stock of $42.37 as of January 14, 1998, the value of such
options would be approximately $83,500, immediately following consummation of
the Merger.
Prior to the execution of the Merger Agreement, Heritage established a
"stay bonus" program pursuant to which Heritage may offer cash payments to
certain employees of Heritage and its subsidiaries to induce such employees to
remain in the employment of Heritage or any of its subsidiaries. The aggregate
payments made by Heritage under this program may not exceed $1,000,000. As of
the date of this Joint Proxy Statement/Prospectus, stay bonus agreements have
been entered into with certain Heritage employees. No executive officers of
Heritage have entered into such agreements.
The Heritage Board was aware of all of the interests described above and
considered them, among other matters, in approving the Merger Agreement and the
transactions contemplated thereby. See "THE MERGER -- Interests of Certain
Persons in the Merger."
Regulatory Approvals
The Merger is subject to the approval of the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") and the Illinois
Commissioner of Banks and Real Estate (the "Illinois Commissioner"). First
Midwest filed applications for approval of the Merger with the Federal Reserve
Board and the Illinois Commissioner on February 13, 1998. The Federal Reserve
Board approved the Merger on April 13, 1998. First Midwest anticipates obtaining
the approval of the Illinois Commissioner during the second quarter of 1998.
There can be no assurance as to the timing of such approval or that the Illinois
Commissioner will approve the Merger.
It is a condition to the consummation of the Merger that the Federal
Reserve Board and Illinois Commissioner approvals not contain any non- standard
conditions or restrictions. If First Midwest reasonably determines that any such
non-standard conditions or restrictions would be unduly burdensome to First
Midwest or its subsidiaries, First Midwest will not be obligated to consummate
the Merger. The Federal Reserve Board approval did not contain any non-standard
conditions or restrictions. There can be no assurance that the Illinois
Commissioner approval will not contain conditions or restrictions which cause
such approval to fail to satisfy such conditions to the consummation of the
Merger. See "THE MERGER -- Conditions to the Merger" and "--Regulatory
Approvals."
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<PAGE>
Conditions to the Merger
The respective obligations of the parties to consummate the Merger are
subject to the fulfillment or waiver of certain conditions specified in the
Merger Agreement. These include, among other things, the receipt of the
requisite regulatory approvals and the approvals of the Stockholders of First
Midwest and the Shareholders of Heritage, the accuracy of the representations
and warranties contained therein, the performance of all obligations imposed
thereby, the receipt by First Midwest of a certain accounting opinion, the
receipt by First Midwest and Heritage of a certain tax opinion, the listing of
the shares of First Midwest Common Stock to be issued in the Merger on the
Nasdaq Stock Market and certain other conditions customary in transactions of
this nature. There can be no assurance as to when and if such conditions will be
satisfied or waived or that the Merger will be consummated. See "THE MERGER --
Conditions to the Merger."
Waiver and Amendment; Termination
Prior to the Effective Time, the First Midwest and Heritage Boards may
extend the time for performance of any obligations under the Merger Agreement,
waive any inaccuracies in the representations and warranties contained in the
Merger Agreement and waive compliance with any agreements or conditions
contained in the Merger Agreement. Subject to applicable law, the Merger
Agreement may be amended by action of the First Midwest and Heritage Boards at
any time before or after approval of the Merger Agreement by the Stockholders of
First Midwest and the Shareholders of Heritage. See "THE MERGER -- Waiver and
Amendment; Termination."
The Merger Agreement may be terminated at any time prior to the Effective
Time by the mutual agreement of the parties. In addition, the Merger Agreement
may be terminated at any time prior to the Effective Time: (i) by a non-
breaching party, if a party commits a breach of the Merger Agreement which will
have, or would reasonably be expected to have, a Material Adverse Effect (as
defined herein) upon the non-breaching party or its stockholders if the Closing
were to occur, such breach is not waived and such breach cannot be or is not
cured within thirty days after the delivery of a written notice by the non-
breaching party; (ii) by the party for whose benefit a Closing condition exists,
if the Closing condition has not been satisfied as of the Closing Date, or if
satisfaction of such condition becomes impossible (other than due to the failure
of a party for whose benefit the Closing condition exists to comply with its
obligations under the Merger Agreement), the failure to satisfy such condition
would reasonably be expected to have a Material Adverse Effect on First Midwest
or its Stockholders or Heritage or its Shareholders if the Closing were to occur
and such condition is not waived by the Closing Date by the party who for whose
benefit such condition exists; (iii) by either party, if the Closing has not
occurred (other than through the failure of the party seeking to terminate the
Merger Agreement to comply fully with its obligations under the Merger
Agreement) by October 14, 1998 (or January 14, 1999, in the event a protest is
filed with bank regulatory authorities alleging the failure of either First
Midwest or Heritage to comply with the Community Reinvestment Act of 1977, as
amended); and (iv) by Heritage, if it elects to exercise the Termination Right
(see "THE MERGER -- Merger Consideration" and "-- Waiver and Amendment;
Termination").
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Conduct of Business Pending the Merger
Each of First Midwest and Heritage has agreed to conduct its business prior
to the Effective Time in accordance with certain guidelines set forth in the
Merger Agreement. See "THE MERGER -- Business Pending the Merger and Other
Covenants."
Expenses
All expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereby are to be paid by the party incurring such
expenses, except that First Midwest and Heritage shall bear equally: (i) all
printing and mailing expenses associated with the Registration Statement and
this Joint Proxy Statement/Prospectus; and (ii) all expenses incurred in
conducting initial environmental inspections of, and securing title commitments
with respect to, Heritage's real estate. See "THE MERGER -- Expenses."
Accounting Treatment
It is intended that the Merger will be accounted for as a "pooling of
interests" in accordance with generally accepted accounting principles. A
condition to the consummation of the Merger is the receipt by First Midwest of a
letter from Ernst & Young LLP, the independent accountant of First Midwest, to
the effect that the Merger qualifies for pooling of interests accounting
treatment. See "THE MERGER -- Accounting Treatment" and "-- Conditions to the
Merger."
Federal Income Tax Consequences of the Merger
First Midwest and Heritage have received an opinion of Hinshaw &
Culbertson, First Midwest's counsel, dated as of the date of the Joint Proxy
Statement/Prospectus, to the effect that the Merger will be treated as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended, and for federal income tax purposes no gain or loss will be
recognized by First Midwest or Heritage, as a result of the Merger, and,
accordingly, for federal income tax purposes, no gain or loss will be recognized
by any Heritage Shareholder upon receipt solely of First Midwest Common Stock,
pursuant to the Merger (except with respect to cash received by a Heritage
Shareholder in lieu of a fractional share interest in First Midwest Common Stock
or as the result of the exercise of dissenter's appraisal rights).
BECAUSE CERTAIN TAX CONSEQUENCES MAY VARY DEPENDING UPON THE PARTICULAR
CIRCUMSTANCES OF A HERITAGE SHAREHOLDER, SUCH SHAREHOLDERS ARE URGED TO CONSULT
THEIR TAX ADVISORS CONCERNING THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE
MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF VARIOUS STATE, LOCAL AND
FOREIGN TAX LAWS. See "THE MERGER -- Federal Income Tax Consequences of the
Merger" and "--Conditions to the Merger."
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<PAGE>
Stock Option Agreement
As an inducement to First Midwest to enter into the Merger Agreement,
Heritage entered into a Stock Option Agreement with First Midwest on January 14,
1998, which provides First Midwest with an option (the "Option") to purchase up
to 2,400,000 shares of Heritage Common Stock, subject to adjustment. The Option
may be exercised upon the occurrence of certain limited and specifically defined
events (none of which, to the best of First Midwest's and Heritage's knowledge,
has occurred as of the date of this Joint Proxy Statement/Prospectus) at an
exercise price of $21.25 per share, subject to adjustment. The Heritage Common
Stock issuable upon exercise of the Option would represent approximately 19.9%
of the then outstanding Heritage Common Stock, prior to the exercise of the
Option. Under certain limited circumstances, First Midwest will have the right
to require Heritage to repurchase the Option (or the shares of Heritage Common
Stock purchased pursuant thereto).
The purchase of shares of Heritage Common Stock pursuant to the Option is
subject to compliance with applicable law, including the receipt of any
necessary approvals of the Federal Reserve Board and the Illinois Commissioner.
The issuance and exercise of the Option are not subject to approval by the
Shareholders of Heritage. The Stock Option Agreement and the Option may
discourage other competing offers to acquire Heritage and are intended to
increase the likelihood that the Merger will be consummated in accordance with
the terms set forth in the Merger Agreement. A copy of the Stock Option
Agreement is attached to this Joint Proxy Statement/Prospectus as Appendix E.
See "THE MERGER -- Stock Option Agreement."
Resales of First Midwest Common Stock
The shares of First Midwest Common Stock into which shares of Heritage
Common Stock are converted at the Effective Time will be freely transferable,
except for the shares issued to "Affiliates" (as defined by Rule 145 of the
Rules and Regulations of the Commission) of Heritage in connection with the
Merger. The shares to be issued to such Affiliates may only be sold (a) under a
separate registration for distribution (which First Midwest has not agreed to
provide); (b) pursuant to Rule 145 under the Securities Act of 1933, as amended;
or (c) pursuant to some other exemption from registration. Affiliates of
Heritage and First Midwest, subject to certain exceptions, may not sell or
otherwise dispose of shares of First Midwest Common Stock or Heritage Common
Stock beneficially owned by them during a period commencing thirty days prior to
the Effective Time and ending upon the publication by First Midwest of combined
financial results covering at least thirty days of post-Merger combined
operations of Heritage and First Midwest. First Midwest has agreed that it will
use its best efforts to cause such financial results to be published as soon as
possible after the Effective Time and that it will publish such financial
results within ninety days of the Effective Time. See "THE MERGER -- Resale Of
First Midwest Common Stock."
Charter Amendment
First Midwest does not presently have enough authorized but unissued shares
of Common Stock to consummate the Merger. Accordingly, the Stockholders of First
Midwest are being asked to vote upon, among other things, the Charter Amendment
which, if approved, would amend the
20
<PAGE>
Restated Certificate of Incorporation of First Midwest to increase the number of
authorized shares of First Midwest Common Stock from 30,000,000 to 60,000,000.
Approval of the Issuance and the Charter Amendment by the Stockholders of First
Midwest is a condition to, and required for, consummation of the Merger. See
"THE MERGER --Conditions to the Merger" and "CHARTER AMENDMENT." The approval of
the Issuance is not a condition to the approval of the Charter Amendment. The
approval of the Charter Amendment, however, is a condition to the Issuance.
Effects of the Merger on Rights of Shareholders of Heritage
As a result of the Merger, Shareholders of Heritage will become
Stockholders of First Midwest. For a comparison of the charter, bylaw and
corporate law provisions governing the rights of First Midwest Stockholders and
Heritage Shareholders, see "COMPARISON OF THE RIGHTS OF FIRST MIDWEST
STOCKHOLDERS AND HERITAGE SHAREHOLDERS."
Preferred Share Purchase Rights
Pursuant to the First Midwest Stockholder Rights Plan, each share of First
Midwest Common Stock, including the First Midwest Common Stock to be issued in
the Merger, entitles its holder to one right to purchase 1/100th of a share of
First Midwest preferred stock under certain limited circumstances. See
"COMPARISON OF THE RIGHTS OF FIRST MIDWEST STOCKHOLDERS AND HERITAGE
SHAREHOLDERS -- Stockholder Rights Plan."
Nasdaq Stock Market Listing
Both First Midwest Common Stock and Heritage Common Stock are currently
included for quotation on the Nasdaq Stock Market (symbols: FMBI and HERS,
respectively). It is a condition to consummation of the Merger that the First
Midwest Common Stock to be issued to the Shareholders of Heritage pursuant to
the Merger Agreement will be included for quotation on the Nasdaq Stock Market.
Market and Market Prices
The following table sets forth the last sale prices for First Midwest
Common Stock and Heritage Common Stock for the periods indicated, and the
equivalent per share value for Heritage Common Stock giving effect to the Merger
as of the same dates (see "PRICE RANGE OF COMMON STOCK AND DIVIDENDS"):
21
<PAGE>
<TABLE>
<CAPTION>
First
Midwest Heritage Equivalent
Common Common Per Share
Market Price Per Share at: Stock Stock Price/(2)/
- --------------------------- ------- -------- ----------
<S> <C> <C> <C>
December 31, 1997 $43.75 $29.00 $33.67
January 14, 1998/(1)/ $42.37 $30.25 $32.60
_______, 1998 $ $ $
_______, 1998 $ $ $
</TABLE>
(1) Trading date preceding public announcement of the proposed Merger.
(2) The Equivalent Per Share Price of Heritage Common Stock
is calculated based on the market value of First Midwest Common Stock,
as of the dates indicated, multiplied by the Exchange Ratio of 0.7695
of a share of First Midwest Common Stock for each share of Heritage
Common Stock.
22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
OF
FIRST MIDWEST BANCORP, INC.
(dollars in thousands, except per share data)
The following table sets forth in summary form certain historical
consolidated financial data of First Midwest Bancorp, Inc. ("First Midwest").
Previously reported information set forth below has been restated to reflect the
acquisition of SparBank, Incorporated in October, 1997 ("SparBank"), which was
accounted for as a pooling of interests, and a five-for-four for stock split
paid in December, 1996. The information set forth below should be read in
conjunction with, and is qualified in its entirety by, the historical
consolidated financial statements of First Midwest, including the notes thereto,
which are incorporated by reference herein. See "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
Operating Results
Interest income.................... $ 270,506 $ 268,793 $ 275,704 $ 235,210 $ 214,806
Interest expense................... 125,782 130,368 142,292 103,688 86,350
Net interest income................ 144,724 138,425 133,412 131,522 128,456
Provision for loan losses/(1)/..... 8,765 7,790 11,454 8,653 12,217
Noninterest income................. 37,222 34,335 33,695 30,145 33,110
Noninterest expense................ 108,364 104,480 104,554 104,470 104,312
Special charges (credits)/(2)/..... 5,446 287 3,529 3,900 ---
Income tax expense................. 20,556 20,331 16,166 15,168 13,739
Net income......................... 38,815 39,872 31,404 29,476 31,298
Net income - before
special items/(3)/.............. 43,897 39,644 34,580 31,855 31,298
===================================================================================================
Per Share Data
Net income, basic.................. $ 1.94 $ 1.96 $ 1.55 $ 1.47 $ 1.53
Net income, assuming
dilution......................... 1.92 1.95 1.53 1.46 1.53
Pro forma net income -
before special items/(3)/........ 2.20 1.95 1.71 1.59 1.53
Cash dividends declared............ .825 .704 .608 .544 .480
Book value at period end........... 16.82 15.52 14.61 12.46 12.87
Book value at period end,
as adjusted/(4)/................ 16.48 15.47 14.48 13.51 12.66
Market value at period end......... 43.75 32.63 23.10 19.19 20.19
===================================================================================================
Performance Ratios
Return on average equity........... 12.13% 13.08% 11.29% 11.57% 12.59%
Pro-forma return on average
equity-before special items/(3)/.. 13.72% 13.00% 12.43% 12.51% 12.59%
Return on average assets........... 1.10% 1.12% .87% .86% 1.01%
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Pro-forma return on average
assets-before special items/(3)/.. 1.25% 1.11% .96% .93% 1.01%
Net interest margin - tax
equivalent........................ 4.54% 4.31% 4.06% 4.25% 4.63%
Dividend payout ratio.............. 42.53% 35.92% 39.23% 37.01% 31.37%
Equity to average assets ratio..... 8.08% 8.57% 7.69% 7.47% 8.03%
====================================================================================================
Years ended December 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
Balance Sheet Highlights
Total assets....................... $3,614,173 $3,575,000 $3,660,811 $3,542,688 $3,305,584
Loans.............................. 2,333,252 2,352,225 2,364,516 2,159,102 1,961,728
Deposits........................... 2,795,975 2,636,939 2,656,951 2,505,977 2,437,371
Stockholders' equity............... 337,512 312,443 297,060 250,719 259,319
====================================================================================================
</TABLE>
/(1)/ 1997 and 1995 include $1,296 and $548, respectively, in provisions for
loan losses incident to conforming the credit policies of acquirees to
those of First Midwest.
/(2)/ Special charges in 1997 and 1995 include acquisition costs and
expenses incident to the SparBank and CF Bancorp, Inc. acquisitions,
respectively. 1996 includes a special assessment expense for SAIF of
$1,603, net of acquisition credits of $1,316. 1994 represents
restructure expenses.
/(3)/ Represents net income, net income per share, return on average equity
and return on average assets on a pro-forma basis excluding the after-
tax effect of the provisions for loan losses and special charges
(credits) described in (1) and (2) above.
/(4)/ securities available for sale existent as of the end of the year
indicated.
24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
OF
HERITAGE FINANCIAL SERVICES, INC.
(dollars in thousands, except per share data)
The following table sets forth in summary form certain historical
consolidated financial data of Heritage Financial Services, Inc. ("Heritage").
The financial data reflect the balances and results of operations of
acquisitions which occurred in 1996 and 1994 which were accounted for using the
purchase method. The per share data reflects a three-for-two stock split paid
in June 1997. Earnings per share data has been presented or restated to reflect
the adoption of SFAS No. 128. The information set forth below should be read in
conjunction with, and is qualified in its entirety by, the historical
consolidated financial statements of Heritage, including the notes thereto,
which are incorporated by reference herein. See "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
Summary of Operations
Interest income.................. $91,156 $83,824 $73,860 $60,158 $55,529
Interest expense................. 42,736 38,606 33,364 22,116 21,122
------- ------- ------- ------- -------
Net interest income............ 48,420 45,218 40,496 38,042 34,137
Provision for loan losses........ 600 400 200 90 500
Other income..................... 9,607 7,724 6,971 6,487 6,101
Other expense.................... 31,765 30,801 27,670 26,218 24,220
------- ------- ------- ------- -------
Income before income taxes..... 25,662 21,741 19,597 18,221 15,518
Income tax expense............... 7,869 6,903 6,303 5,804 4,493
------- ------- ------- ------- -------
Net income....................... $17,793 $14,838 $13,294 $12,417 $11,025
======= ======= ======= ======= =======
==================================================================================
Per Common Share Data
Net income, basic................ $ 1.48 $ 1.25 $ 1.12 $ 1.05 $ .94
================================= ======= ======= ======= ======= =======
Net income, assuming
dilution......................... 1.43 1.19 1.07 1.00 .89
Cash dividends paid.............. .40 .35 .29 .24 .21
Book value at year end........... 10.11 8.94 8.13 7.00 6.38
Market value at year end......... 29.00 14.17 12.83 11.00 10.67
==================================================================================
Financial Ratios
Net interest margin (TE)......... 4.45% 4.43% 4.58% 4.90% 4.82%
Return on average assets......... 1.40% 1.25% 1.31% 1.39% 1.33%
Return on average shareholders'
equity......................... 16.12% 15.00% 15.10% 15.81% 15.77%
Dividend payout ratio............ 27.15% 27.80% 26.27% 22.93% 22.73%
Average equity to
average assets................. 8.71% 8.34% 8.65% 8.78% 8.45%
Tier 1 capital to total assets... 7.81% 7.19% 7.75% 7.41% 7.87%
Total capital to risk-adjusted
assets......................... 15.17% 14.00% 14.66% 13.73% 14.45%
==================================================================================
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
------ ------ ------ ----- -----
Loan Quality
Net charge-offs (recoveries)
to average loans............... .06% .11% .08% (.03%) .13%
Allowance for loan losses
to loans....................... 1.35% 1.47% 1.49% 1.66% 1.68%
Nonperforming loans to loans..... .16% .66% .85% 1.04% 1.03%
Nonperforming assets to loans
plus OREO...................... .26% .75% .98% 1.15% 1.15%
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ----- -----
Year End Balances (in millions)
Total assets..................... $1,319 $1,229 $1,066 $ 953 $ 834
Net loans........................ 702 630 561 516 448
Total deposits................... 1,140 1,053 915 824 727
Total shareholders' equity....... 122 106 97 83 75
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ----- -----
Average Balances (in millions)
Total assets..................... $1,267 $1,187 $1,018 $ 895 $ 827
Total loans...................... 676 616 545 489 454
Total deposits................... 1,092 1,021 877 776 724
Total shareholders' equity....... 110 99 88 79 70
-------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
COMPARATIVE PER COMMON SHARE DATA
The following table presents selected comparative unaudited per common
share data for First Midwest Common Stock and Heritage Common Stock on a
historical and pro forma combined basis and for Heritage Common Stock on a pro
forma equivalent basis giving effect to the Merger on a pooling of interests
accounting basis and assuming an Exchange Ratio of 0.7695 of a share of First
Midwest Common Stock for each share of Heritage Common Stock. Such information
does not include any material expenses related to the Merger. See "RECENT
DEVELOPMENTS." The pro forma combined information is not necessarily indicative
of the actual results that would have occurred had the Merger been consummated
prior to the periods indicated, or of the future operations of the combined
entity. This information should be read in conjunction with, and is qualified
in its entirety by, the historical financial statements of First Midwest and
Heritage, including the respective notes thereto, which are incorporated by
reference herein, and the pro forma financial information, including the notes
thereto, appearing elsewhere in this Joint Proxy Statement/Prospectus.
Stockholders of First Midwest and Shareholders of Heritage are urged to read
such information carefully. See "AVAILABLE INFORMATION," "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE," "CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION," "RECENT DEVELOPMENTS" and "PRO FORMA FINANCIAL
INFORMATION."
Under the pooling of interests method of accounting, the historical basis
of the assets and liabilities of First Midwest and Heritage will be combined at
the Effective Time and carried forward at their previously recorded amounts.
The stockholders' equity accounts of First Midwest and Heritage will be combined
on First Midwest's consolidated balance sheet, and no goodwill or other
intangible assets will be created. Financial statements of First Midwest issued
after the Merger will be restated retroactively to reflect the consolidated
operations of First Midwest and Heritage as if the Merger had taken place prior
to the periods covered by such financial statements.
First Midwest and Heritage expect that the combined company will achieve
substantial benefits from the Merger in the form of operating cost savings.
However, the unaudited pro forma comparative per share data do not reflect any
direct costs or potential savings which are expected to result from the
consolidation of operations of First Midwest and Heritage, and, therefore, do
not purport to be indicative of the results of future operations.
27
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
First Midwest-Historical
Net Income, basic.................................... $ 1.94 $ 1.96 $ 1.55
Net income, assuming dilution /(1)/.................. 1.92 1.95 1.53
Cash dividends declared.............................. .825 .704 .608
Book value (at period end)........................... 16.82 15.52 14.61
Heritage-Historical
Net Income, basic.................................... $ 1.48 $ 1.25 $ 1.12
Net Income, assuming dilution /(1)/.................. 1.43 1.19 1.07
Cash dividends declared.............................. .40 .35 .29
Book value (at period end)........................... 10.11 8.94 8.13
First Midwest-Proforma Combined:
Net Income, basic/(1)/............................... $ 1.93 $ 1.86 $ 1.52
Net Income, assuming dilution/ (1)/.................. 1.90 1.82 1.49
Cash dividends declared/(2)/......................... .825 .704 .608
Book value (at period end)/(3)/...................... 15.26 14.30 13.35
Heritage-Common Stock-Equivalent Pro Forma
Combined/(4)/
Net Income, basic.................................... $ 1.49 $ 1.43 $ 1.17
Net Income, assuming dilution/ (1)/.................. 1.46 1.40 1.15
Cash dividends declared.............................. .635 .542 .468
Book value (at period end)........................... 11.74 11.00 10.27
</TABLE>
(1) The pro forma combined net income per common share (based on weighted
average shares outstanding) is based upon the combined historical net
income for First Midwest and Heritage, divided by the average pro forma
common shares of the combined entity.
(2) The pro forma combined dividends declared assume no changes in
historical dividends per share declared by First Midwest.
(3) The pro forma combined book value per share of First Midwest Common
Stock is based upon the combined historical total stockholders' equity
of First Midwest and Heritage divided by total pro forma common shares
of the combined entity assuming conversion of the Heritage Common Stock
at the 0.7695 Exchange Ratio (see "THE MERGER -- Merger
Consideration").
(4) The equivalent pro forma combined income, dividends and book value per
share of Heritage Common Stock represent the pro forma combined amounts
multiplied by the Exchange Ratio of 0.7695, which is based on the terms
of the Merger Agreement (see "THE MERGER -- Merger Consideration").
28
<PAGE>
RECENT DEVELOPMENTS
First Midwest Form 8-K Filing
On January 23, 1998, First Midwest filed a Current Report on Form 8-K with
the Commission (the "First Midwest Form 8-K"), which contains, among other
things, certain financial and other information (the "First Midwest Form 8-K
Materials") about the Merger. The First Midwest Form 8-K Materials contain
certain forward-looking statements regarding First Midwest, Heritage and the
combined organization following the Merger, including statements relating to
estimated cost savings and enhanced revenues that may be realized from the
Merger, and certain acquisition costs and charges expected to be incurred in
connection with the Merger. Such forward-looking statements involve significant
risks and uncertainties. Actual results may differ materially from the results
discussed in the First Midwest Form 8-K Materials and herein. Factors that
might cause such a difference include, but are not limited to, those discussed
in the First Midwest Form 8-K and First Midwest's Annual Report on Form 10-K for
the year ended December 31, 1997, and Heritage's Annual Report on Form 10-K for
the year ended December 31, 1997. See "AVAILABLE INFORMATION," "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE" and "CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION."
As indicated in the First Midwest Form 8-K:
. First Midwest expects to realize before-tax expense savings
resulting from the Merger of approximately $3.8 million and $9.6
million in 1998 and 1999, respectively, or approximately $2.3
million and $5.8 million after-tax, respectively. These estimates
assume that approximately 30% of Heritage's 1997 annualized
expenses are eliminated by the end of 1999.
. First Midwest expects to record pre-tax acquisition costs and
related charges currently estimated at $15.4 million upon the
consummation of the Merger, as summarized below:
<TABLE>
<CAPTION>
<S> <C>
Severance and Related Obligations.............. $ 8.0
Investment Banker Fees and Expenses............ 4.7
Professional and Filing Fees................... 1.2
Contract Termination Fees...................... 0.8
Other.......................................... 0.7
-----
Total.......................................... $15.4
=====
</TABLE>
The estimates include assumptions about the timing of the consummation of the
Merger and the number of employees whose employment will terminate as a result
of the Merger. Changes in such assumptions could result in a change in the
estimated total charge.
29
<PAGE>
Year 2000 Issues
First Midwest and Heritage are currently in the process of addressing a
potential problem that is facing all users of automated information systems,
including personal computers, that is generally referred to as the Year 2000
Issue. The problem is the result of computer systems processing transactions
based upon 2 digits representing the year of the transaction rather than 4 full
digits (i.e., 97 for 1997). These computer systems may not operate properly
when the last two digits become "00", as will occur on January 1, 2000. In some
cases, this could result in a system failure, miscalculations causing
disruptions of operations, temporary inability to process transactions, send
invoices or engage in similar normal business activities. The problem could
affect a wide variety of automated information systems such as main frame
computer applications, personal computers, communications systems, including
telephone systems, and other information systems utilized by not only First
Midwest and Heritage but also their vendors and customers.
The most significant of First Midwest's automated information systems
affected by the Year 2000 Issue are the data processing systems used to process
transactions and information for loan, deposit and trust customers. First
Midwest currently purchases the services for these systems from three nationally
recognized data processing vendors. First Midwest currently plans to convert
Heritage's loan, deposit and trust systems to its vendors during 1998 in
conjunction with the integration of Heritage into First Midwest. Other
programs/applications used in First Midwest's and Heritage's operations that
will be affected by the Year 2000 Issue include building and security systems,
equipment such as proof machines, sorters and cash dispensers, hardware such as
routers, servers, printers, controllers and ATM modems and computer software.
The majority of these items have been purchased from outside vendors who are
responsible for maintenance of the systems and modifications to enable
uninterrupted usage. Additionally, First Midwest and Heritage both have some
in-house applications, interface equipment and interfaces that must be reviewed
and modified.
In April 1997, First Midwest began the process of developing a plan and
identifying internal resources to address the Year 2000 Issue. The plan
includes the identification of the extent of the problem by performing an
inventory of all potentially affected software, hardware, other equipment and
systems and initiating formal communications with all of First Midwest's
significant suppliers and vendors to obtain certification of Year 2000
compliance and the testing of all impacted applications (both third party
provided and internally developed). First Midwest's goals are to be fully
compliant by November 1998 and to conduct testing of all programs/applications
during the period January through October 1999.
First Midwest's plan to become Year 2000 compliant is being executed with
internal resources, primarily through its Information Systems staff.
Additionally, First Midwest expects to utilize contract consulting to supplement
its internal staff, as needed. Other costs to become compliant will include
updating and/or replacement of software and hardware, the cost of which will be
capitalized and depreciated. The payroll and payroll related costs and
consulting expenses for internal and external human resources will be expensed
as incurred.
30
<PAGE>
Based on currently available information, First Midwest does not anticipate
that the cost to address the Year 2000 issues will have a material adverse
impact on its financial condition, results of operations or liquidity.
FIRST MIDWEST MEETING
Place, Time, Date and Record Date
The Annual Meeting of the Stockholders of First Midwest will be held on
June 17, 1998, at the Oak Brook Hills Hotel, 3500 Midwest Road, Oak Brook,
Illinois, at 9:00 a.m., local time (and with any adjournments or postponements
thereof, the "First Midwest Meeting"). This Joint Proxy Statement/Prospectus is
being sent to First Midwest Stockholders and accompanies a form of proxy (the
"First Midwest Proxy") which is being solicited by the Board of Directors of
First Midwest (the "First Midwest Board") for use at the First Midwest
Meeting.
The First Midwest Board has fixed the close of business on April 20, 1998,
as the date for determining holders of First Midwest Common Stock who will be
entitled to notice of, and to vote at, the First Midwest Meeting (the "First
Midwest Record Date"). Only holders of record of shares of First Midwest Common
Stock at the close of business on the First Midwest Record Date are entitled to
notice of, and to vote at, the First Midwest Meeting. As of the First Midwest
Record Date, there were outstanding and entitled to be voted _______ shares of
First Midwest Common Stock.
Matters to be Considered
At the First Midwest Meeting, First Midwest Stockholders will vote on the
following proposals (the "First Midwest Proposals"): (i) in accordance with the
rules and regulations of the Nasdaq Stock Market, the approval of the issuance
of shares of First Midwest Common Stock (the "Issuance") to the Shareholders of
Heritage pursuant to an Agreement and Plan of Merger, dated January 14, 1998
(the "Merger Agreement"), by and between First Midwest and First Midwest
Acquisition Corporation, a wholly owned subsidiary of First Midwest
("Acquisition Corp"), and Heritage, and the transactions contemplated thereby,
including the merger of Heritage into Acquisition Corp (the "Merger"); (ii) the
approval and adoption of an amendment to First Midwest's Restated Certificate of
Incorporation to increase the number of authorized shares of First Midwest
Common Stock from 30,000,000 to 60,000,000 (the "Charter Amendment"); and (iii)
the election of C.D. Oberwortmann, John M. O'Meara and J. Stephen Vanderwoude to
serve as directors of First Midwest (the "First Midwest Director Election").
The Stockholders of First Midwest are being asked to vote on the Issuance
pursuant to the rules and regulations of the Nasdaq Stock Market because the
number of shares of First Midwest Common Stock to be issued in the Merger will
exceed 20% of the shares of First Midwest Common Stock outstanding immediately
prior to the consummation of the Merger. Under Delaware General Corporation
Law, First Midwest is not required to obtain the approval of the Stockholders of
First Midwest of the Merger Agreement because First Midwest is not a participant
in the Merger. Stockholders will also consider and vote upon such other matters
as may properly be brought before the First Midwest Meeting. As of the date
hereof, the First Midwest Board knows of no business that will be presented for
consideration at the First Midwest Meeting other than the matters described in
this Joint Proxy Statement/Prospectus.
31
<PAGE>
Vote Required
The affirmative vote of the holders of a majority of the shares of First
Midwest Common Stock represented at the First Midwest Meeting and entitled to
vote thereon is required for the approval of the Issuance. The First Midwest
Director Election requires the vote of the holders of a plurality of the shares
of First Midwest Common Stock represented at the First Midwest Meeting and
entitled to vote thereon. Because Stockholders who abstain from voting are
deemed to be present and eligible to vote on these two proposals
("abstentions"), abstentions will be counted and will have the same effect as a
vote against these two proposals. Because shares represented by proxies from
brokers or nominees indicating that such persons have not received instructions
from the beneficial owners or other persons as to certain proposals on which
such beneficial owners or persons are entitled to vote their shares but with
respect to which the brokers or nominees have no discretionary power to vote
without such instructions ("broker non-votes") are deemed to be present but not
eligible to vote, broker non-votes will not affect the vote on these two
proposals. The affirmative vote of the holders of a majority of the outstanding
shares of First Midwest Common Stock is required for approval of the Charter
Amendment. Abstentions and broker non-votes will have the same effect as votes
against the Charter Amendment.
Each holder of record of shares of First Midwest Common Stock on the First
Midwest Record Date will be entitled to cast one vote per share on the First
Midwest Proposals at the First Midwest Meeting. Such vote may be exercised in
person or by properly executed proxy. The presence, in person or by properly
executed proxy, of the holders of a majority of the outstanding shares of First
Midwest Common Stock entitled to vote at the First Midwest Meeting is necessary
to constitute a quorum. With a quorum, or in the absence of such, the
affirmative vote of the majority of shares of First Midwest Common Stock
represented at the First Midwest Meeting may authorize adjournment of the
meeting. Shares of First Midwest Common Stock represented by properly executed
proxies which are to be voted against the First Midwest Proposals will not be
voted for the adjournment of such meeting. Abstentions and broker non-votes
will be treated as shares present at the First Midwest Meeting for purposes of
determining the presence of a quorum.
Approval of the Issuance and the Charter Amendment by the Stockholders of
First Midwest is a condition to, and required for, consummation of the Merger.
See "THE MERGER -- Conditions to the Merger." The Election of Directors has no
effect on the consummation of the Merger. The approval of the Issuance is not a
condition to the adoption of the Charter Amendment. The approval of the Charter
Amendment, however, is a condition of the Issuance.
Proxies
Shares of First Midwest Common Stock represented by properly executed
proxies received prior to or at the First Midwest Meeting will, unless such
proxies have been revoked, be voted at the First Midwest Meeting and any
adjournments or postponements thereof, in accordance with the instructions
indicated in such proxies. If no instructions are indicated on a properly
executed First Midwest Proxy, the shares will be voted FOR the First Midwest
Proposals.
32
<PAGE>
Any First Midwest Proxy given pursuant to this solicitation or otherwise
may be revoked by the person giving it at any time before it is voted either (i)
by delivering to the Secretary of First Midwest at 300 Park Boulevard, Suite
405, Itasca, Illinois 60143-0459 on or before the taking of the vote at the
First Midwest Meeting, a written notice of revocation bearing a later date than
the date of the First Midwest Proxy or a later dated proxy relating to the same
shares or (ii) by attending the First Midwest Meeting and voting in person.
Attendance at the First Midwest Meeting will not in itself constitute the
revocation of a proxy.
If any matters are properly presented at the First Midwest Meeting for
consideration, the persons named in the First Midwest Proxy or acting thereunder
will have discretion to vote on such matters in accordance with their best
judgment. As of the date of this Joint Proxy Statement/Prospectus, the First
Midwest Board knows of no such other matters.
In addition to solicitation by mail, directors, officers and employees of
First Midwest, who will not be specifically compensated for such services, may
solicit First Midwest Proxies from the Stockholders of First Midwest, personally
or by telephone, telegram or other forms of communication. Brokerage houses,
nominees, fiduciaries and other custodians will be requested to forward
soliciting materials to beneficial owners and will be reimbursed for their
reasonable expenses incurred in sending proxy material to beneficial owners.
First Midwest will bear its own expenses in connection with the solicitation of
First Midwest Proxies for the First Midwest Meeting. See "THE MERGER --
Expenses."
Voting of Shares in the First Midwest Bancorp, Inc. Dividend Reinvestment
Plan. First Midwest's Stock Transfer Agent, as agent under the First Midwest
Bancorp, Inc. Dividend Reinvestment and Stock Purchase Plan (the "Reinvestment
Plan"), is the record owner of all shares of First Midwest Common Stock held by
participants in the Reinvestment Plan. Each such participant will receive a
single First Midwest Proxy covering those shares of First Midwest Common Stock
(i) credited to the participant's account under the Reinvestment Plan; and (ii)
registered in the participant's name that are not held by the Reinvestment Plan.
Direction Cards for Participants in the First Midwest Bancorp Employee
Stock Ownership Plan and the First Midwest Bancorp Savings and Profit Sharing
Plan. First Midwest Trust Company, N.A., as Trustee under the First Midwest
Bancorp Employee Stock Ownership Plan (the "ESOP") and the First Midwest Bancorp
Savings and Profit Sharing Plan (the "First Midwest Profit Sharing Plan"), is
the record owner, respectively, of all shares of First Midwest Common Stock held
by participants in the ESOP and the First Midwest Profit Sharing Plan. The
Trustee will vote the shares held for the account of each participant in the
ESOP and the First Midwest Profit Sharing Plan, in accordance with the
directions received from such participant. In order to obtain such voting
directions, the Trustee will forward this Joint Proxy Statement/Prospectus and a
direction card (buff-colored and blue-colored, respectively) to each participant
in the ESOP and First Midwest Profit Sharing Plan. The direction card(s) must
be executed and returned if the shares held pursuant to the ESOP and First
Midwest Profit Sharing Plan are to be voted, provided that shares held in the
First Midwest Profit Sharing Plan for which no directions are received will be
voted by the Trustee proportionally in the same manner as it votes shares for
which directions were received. If no instructions are indicated on a properly
executed direction card, the shares will be voted FOR the First Midwest
Proposals. All direction cards returned will be kept confidential by the Trustee
or its
33
<PAGE>
tabulating agent and will not be disclosed to First Midwest or any of its
employees. Because ESOP and First Midwest Profit Sharing Plan participants are
not the record owners of the related shares, such shares may not be voted in
person by participants in the ESOP or the First Midwest Profit Sharing Plan at
the First Midwest Meeting.
HOLDERS OF FIRST MIDWEST COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND
SIGN THE ACCOMPANYING FIRST MIDWEST PROXY AND RETURN IT PROMPTLY TO FIRST
MIDWEST IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
Security Ownership
As of the First Midwest Record Date, directors and executive officers of
First Midwest and their affiliates held in the aggregate ________ shares
(excluding option shares), or approximately __%, of the First Midwest Common
Stock. The directors and executive officers of First Midwest have indicated
that they intend to vote such shares of First Midwest Common Stock for approval
and adoption of the First Midwest Proposals at the First Midwest Meeting. As of
the First Midwest Record Date, directors and executive officers of Heritage and
their affiliates held no shares of First Midwest Common Stock.
The following table sets forth, as of the First Midwest Record Date,
certain information as to (i) those persons who were known by management of
First Midwest to be beneficial owners of more than 5% of the outstanding shares
of First Midwest Common Stock and (ii) the shares of First Midwest Common Stock
beneficially owned by each director of First Midwest, each person nominated to
serve as a director of First Midwest (a "Director Nominee") and each executive
officer of First Midwest named in the Summary Compensation Table of First
Midwest (see "FIRST MIDWEST DIRECTOR ELECTION -- Executive Officers and
Executive Compensation"), and by all directors, Director Nominees and executive
officers of First Midwest as a group:
<TABLE>
<CAPTION>
Number of Shares
of Common Stock
Beneficially Owned
as of the First Midwest Percent
5% Owner Record Date /(1)(2)(3)/ of Class
- -------- ----------------------- --------
<S> <C> <C>
Geraldine C. Cowlin 2,310,153 11.5%
41 North Virginia Street
Crystal Lake, Illinois 60014
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Number of Shares
of Common Stock Number of Vested,
Beneficially Owned Unexercised Stock
Directors, Director Nominees as of the First Midwest Percent Options Included in
and Executive Officers Record Date /(1)(2)(3)/ of Class Shares Listed to Left
- ---------------------- ----------------------- -------- ---------------------
<S> <C> <C> <C>
Andrew B. Barber 405,820 1.95% 0
Vernon A. Brunner 1,674 0.01% 0
Bruce S. Chelberg 8,750 0.04% 0
William J. Cowlin /(4)/ 8,689 0.04% 0
O. Ralph Edwards 1,976 0.01% 0
Joseph W. England 5,478 0.03% 0
Thomas M. Garvin 6,666 0.03% 0
C.D. Oberwortmann 426,304 2.06% 0
John M. O'Meara /(5)/ 460,587 2.22% 95,090
Robert P. O'Meara 511,443 2.47% 122,301
J. Stephen Vanderwoude 1,250 0.01% 0
Donald J. Swistowicz 89,991 0.43% 37,818
</TABLE>
As a group (twelve persons), all directors, Director Nominees and executive
officers own 1,928,628 shares (9.23%) of First Midwest Common Stock.
- -------------------
(1) The number of shares stated are based on information furnished by the
persons listed and include shares personally owned of record by each
person and shares which under applicable regulations are deemed to be
otherwise beneficially owned by each person including shares allocated
to directors and officers from the ESOP and the First Midwest Profit
Sharing Plan. Under these regulations, a beneficial owner of a
security includes any person who, directly or indirectly, through any
contract, arrangement, understanding, relationship or otherwise has or
shares voting power or investment power with respect to the security.
Voting power includes the power to vote or to direct the voting of the
security. Investment power includes the power to dispose or to direct
the disposition of the security. A person will also be considered the
beneficial owner of a security if the person has a right to acquire
beneficial ownership of the security within sixty days.
(2) The First Midwest Profit Sharing Plan and the ESOP own, respectively,
932,934 (or 4.45 %) and 85,825 (or 0.41%) shares of First Midwest
Common Stock. Pursuant to the First Midwest Profit Sharing Plan and
the ESOP, participants exercise voting rights with respect to the
portion of the shares of First Midwest Common Stock allocated to their
accounts, and also direct the Trustee with respect to the investment of
their accounts among the investment funds maintained under the First
Midwest Profit Sharing Plan. Accordingly, only those shares of First
Midwest Common Stock attributable to the First Midwest Profit Sharing
Plan and the ESOP accounts of the persons and groups listed are
included in the above table.
(3) Following the consummation of the Merger, three of the current
directors of Heritage (Richard T. Wojcik, Jack Payan and John L.
Sterling) will become directors of First Midwest. See "HERITAGE
MEETING -- Security Ownership," for a description of their ownership of
shares of First Midwest Common Stock following the consummation of the
Merger.
(4) The above amount does not include the 2,310,153 shares (11.5%) held by
Geraldine C. Cowlin, the spouse of William J. Cowlin.
(5) The amount shown for John M. O'Meara includes 126,482 shares of First
Midwest Common Stock which are owned by trusts over which Mr. O'Meara
exercises voting and investment rights. Beneficial ownership of such
shares is disclaimed by Mr. O'Meara.
Right of First Refusal Agreements. On June 22, 1994, First Midwest entered
into Right of First Refusal Agreements with certain of its Stockholders who
directly own approximately 12% of the outstanding Common Stock of First Midwest.
The Agreements provide that if a Stockholder dies and the Stockholder's
representative desires to sell any of the Stockholder's shares of First Midwest
35
<PAGE>
Common Stock, the representative must first offer such shares to First Midwest.
The Agreements impose no obligation on First Midwest to purchase any such
shares. If First Midwest elects to purchase such shares, the price to be paid
would be equal to the fair market value of such shares as determined by
reference to transactions reported for First Midwest Common Stock on the Nasdaq
Stock Market. The directors who are parties to, or are affected by, these
Agreements are: Andrew B. Barber; C.D. Oberwortmann; John M. O'Meara; and Robert
P. O'Meara. Former director Robert E. Joyce is a party to such an Agreement.
HERITAGE MEETING
Place, Time, Date and Record Date
A Special Meeting of the Shareholders of Heritage will be held on June 17,
1998, at Heritage Bank, 11900 S. Pulaski Road, Alsip, Illinois, at 2:00 P.M.,
local time (and with any adjournments or postponements thereof, the "Heritage
Meeting"). This Joint Proxy Statement/Prospectus is being sent to Heritage
Shareholders and accompanies a form of proxy (the "Heritage Proxy") which is
being solicited by the Board of Directors of Heritage (the "Heritage Board") for
use at the Heritage Meeting.
The Heritage Board has fixed the close of business on April 20, 1998 (the
"Heritage Record Date"), as the date for determining holders of Heritage Common
Stock who will be entitled to notice of, and to vote at, the Heritage Meeting.
Only holders of record of shares of Heritage Common Stock at the close of
business on the Heritage Record Date are entitled to notice of, and to vote at,
the Heritage Meeting. As of February 17, 1998, there were outstanding and
entitled to be voted 12,140,528 shares of Heritage Common Stock.
Matters to be Considered
At the Heritage Meeting, Heritage Shareholders will vote on the approval
and adoption of the Merger Agreement and the transactions contemplated thereby,
including the Merger of Heritage with and into Acquisition Corp and the
conversion of each share of Heritage Common Stock into 0.7695 of a share of
First Midwest Common Stock upon the consummation of the Merger. Shareholders
will also consider and vote upon such other matters as may properly be brought
before the Heritage Meeting. As of the date hereof, the Heritage Board knows of
no business that will be presented for consideration at the Heritage Meeting
other than the matters described in this Joint Proxy Statement/Prospectus.
Vote Required
The affirmative vote of the holders of a majority of the outstanding shares
of Heritage Common Stock is required for approval of the Merger Agreement.
Abstentions and broker non-votes will have the same effect as votes against this
proposal.
Each holder of record of shares of Heritage Common Stock on the Heritage
Record Date will be entitled to cast one vote per share on the Merger Agreement
at the Heritage Meeting. Such vote
36
<PAGE>
may be exercised in person or by properly executed proxy. The presence, in
person or by properly executed proxy, of the holders of a majority of the
outstanding shares of Heritage Common Stock entitled to vote at the Heritage
Meeting is necessary to constitute a quorum. With a quorum, or in the absence of
such, the affirmative vote of the majority of shares of Heritage Common Stock
represented at the Heritage Meeting may authorize adjournment of the meeting.
Shares of Heritage Common Stock represented by properly executed proxies which
are to be voted against the Merger Agreement will not be voted for the
adjournment of such meeting. Abstentions and broker non-votes will be treated as
shares present at the Heritage Meeting for purposes of determining the presence
of a quorum.
Approval of the Merger Agreement by the Shareholders of Heritage is a
condition to, and required for, consummation of the Merger. See "THE MERGER --
Conditions to the Merger."
Proxies
Shares of Heritage Common Stock represented by properly executed proxies
received prior to or at the Heritage Meeting will, unless such proxies have been
revoked, be voted at the Heritage Meeting and any adjournments or postponements
thereof, in accordance with the instructions indicated in such proxies. If no
instructions are indicated on a properly executed Heritage Proxy, the shares
will be voted FOR the Merger Agreement.
Any Heritage Proxy given pursuant to this solicitation or otherwise may be
revoked by the person giving it at any time before it is voted either: (i) by
delivering to the Secretary of Heritage at 12015 South Western Avenue, Blue
Island, Illinois 60406 on or before the taking of the vote at the Heritage
Meeting, a written notice of revocation bearing a later date than the date of
the Heritage Proxy or a later dated proxy relating to the same shares or (ii) by
attending the Heritage Meeting and voting in person. Attendance at the Heritage
Meeting will not in itself constitute the revocation of a proxy.
If any matters are properly presented at the Heritage Meeting for
consideration, the persons named in the Heritage Proxy or acting thereunder will
have discretion to vote on such matters in accordance with their best judgment.
As of the date hereof, the Heritage Board knows of no such other matters.
In addition to solicitation by mail, directors, officers and employees of
Heritage, who will not be specifically compensated for such services, may
solicit Heritage Proxies from the Shareholders of Heritage, personally or by
telephone, telegram or other forms of communication. Brokerage houses, nominees,
fiduciaries and other custodians will be requested to forward soliciting
materials to beneficial owners and will be reimbursed for their reasonable
expenses incurred in sending proxy material to beneficial owners. Harris Trust
and Savings Bank, Heritage's transfer agent, will perform certain of these
functions. Heritage will bear its own expenses in connection with the
solicitation of Heritage Proxies for the Heritage Meeting. See "THE MERGER --
Expenses."
The trustees of the Heritage Financial Services, Inc. Profit Sharing Plan
(the "Heritage Profit Sharing Plan") will vote the shares of Heritage Common
Stock held in the Heritage Profit Sharing Plan in accordance with their best
judgment.
37
<PAGE>
HOLDERS OF HERITAGE COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN
THE ACCOMPANYING HERITAGE PROXY AND RETURN IT PROMPTLY TO HERITAGE IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
Security Ownership
As of February 17, 1998, directors and executive officers of Heritage and
their affiliates held in the aggregate 2,275,665 shares (excluding option shares
and shares held in the Heritage Profit Sharing Plan), or approximately 18.7%, of
the Heritage Common Stock. The directors and executive officers of Heritage have
indicated that they intend to vote such shares of Heritage Common Stock for
approval and adoption of the Merger Agreement at the Heritage Meeting. These
individuals have entered into an Agreement of Affiliates with First Midwest
which requires them, among other matters, to vote their shares of Heritage
Common Stock in favor of the Merger Agreement. See "THE MERGER -- Agreement of
Affiliates."
As of February 17, 1998, First Midwest held 45,300 shares of Heritage
Common Stock, or less than 1% of such shares. First Midwest has indicated that
it intends to vote such shares of Heritage Common Stock for approval and
adoption of the Merger Agreement. First Midwest entered into a Stock Option
Agreement with Heritage on January 14, 1998, pursuant to which Heritage granted
to First Midwest an option to acquire, under certain limited circumstances, up
to 2,400,000 shares of Heritage Common Stock (19.9% of such shares as of January
14, 1998). This option has not been exercised as of the date of this Joint Proxy
Statement/Prospectus. See "THE MERGER -- Stock Option Agreement." As of February
17, 1998, directors and executive officers of First Midwest and their affiliates
held no shares of Heritage Common Stock.
The following tabulation shows, as of February 17, 1998 unless otherwise
indicated, the name, address and Common Share ownership for certain Shareholders
of Heritage including each person known by Heritage to be the beneficial owner
of more than five percent of Heritage's outstanding Common Shares (the only
class of voting securities outstanding). Information with respect to beneficial
ownership is based on information furnished to Heritage by such Shareholders or
contained in the records of Heritage.
Carl C. Greer has sole voting power over all of the 757,620 shares referred
to below under his heading, 390,315 as sole beneficial owner and 367,305 as
President of Martin Marketing Corporation ("Martin Marketing"), the sole general
partner of Martin Oil Marketing, Ltd. ("Martin Oil Marketing") which holds such
shares. Mr. Greer has sole dispositive power over all his own shares and
dispositive power (which may be shared with certain Martin Marketing officers)
over the Martin Oil Marketing shares.
Joyce M. Brown, Eloise W. Martin and Melinda M. Sullivan, as the three
trustees of each of five testamentary trusts under the Will of Harold T. Martin,
deceased, share voting and dispositive power over 725,730 shares held by the
trusts. In addition, Ms. Sullivan herself owns 13,256 shares, as to which she
has sole voting and dispositive power.
38
<PAGE>
<TABLE>
<CAPTION>
Names and Number of Percent of
Addresses of Common Shares Common
Beneficial Beneficially Shares
Owners Owned Outstanding
------------ ------------- -----------
<S> <C> <C>
Shares as to which Carl C. Greer has sole voting power (1):
Carl C. Greer.................................................. 390,315 3.2%
Martin Marketing Corporation................................... 367,305(2) 3.0%
------- ---
Total.......................................................... 757,620(3) 6.2%(3)
======= ===
Shares as to which the Trustees of the Harold T. Martin Trusts/Trust Funds have sole or
shared voting power (4):
Melinda M. Sullivan............................................ 13,256 *
Trusts/Trust Funds under
the Will of Harold T.
Martin, deceased............................................. 725,730 6.0%
------- ---
Total.......................................................... 738,986 6.1%
======= ===
Heritage Financial Services
Profit Sharing Trust (5)....................................... 712,818 5.9%
First Midwest Bancorp, Inc. (6)
</TABLE>
____________
* Not greater than 1%
(1) The address for the persons listed under the Greer heading in the table is
P.O. Box 298, Blue Island, Illinois 60406. The nature of their beneficial
ownership is sole voting and investment power, except as described above
and set forth in the footnotes below.
(2) All such shares are held by Martin Oil Marketing.
(3) Mr. Greer has sole voting power over such 757,620 shares, 390,315 as
beneficial owner and 367,305 as President of Martin Marketing.
(4) The address for the three trustees of the testamentary trusts created under
the Will of Harold T. Martin, deceased, is 4501 W. 127th Street, Alsip,
Illinois 60803.
(5) As of December 31, 1997. The address for the Trust is 17500 S. Oak Park
Avenue, Tinley Park, Illinois 60477. The nature of beneficial ownership is
sole voting power, with no investment power. The shares are voted by the
five trustees, Richard T. Wojcik, Frederick J. Sampias, Ronald P. Groebe,
John E. Barry and Susan G. Peterson, all executive officers of Heritage.
(6) Information as to First Midwest's ownership of Heritage Common Stock and
its option to acquire up to 2,400,000 shares of Heritage Common Stock is
set forth above.
The following tabulation shows the Common Share ownership (including
exercisable options) for each Heritage director and executive officer and all
directors and executive officers as a group.
39
<PAGE>
<TABLE>
<CAPTION>
Percent of
Common Outstanding
Shares Common
Beneficially Shares
Name of Beneficial Owner Owned(1) Owned
- ------------------------ ------------ -----------
<S> <C> <C>
Richard T. Wojcik ................................. 500,019(2) 4.1%
Frederick J. Sampias .............................. 320,355(3) 2.6%
Ronald P. Groebe .................................. 232,764(4) 1.9%
John J. Gallagher.................................. 82,017 *
Lael W. Mathis .................................... 131,475(5) 1.1%
Jack Payan......................................... 14,355(6) *
Arthur E. Sieloff.................................. 16,125(7) *
John L. Sterling................................... 146,706(8) 1.2%
Chester Stranczek ................................. 495,900(9) 4.1%
Arthur G. Tichenor................................. 557,344 4.6%
Dominick J. Velo .................................. 11,372(10) *
John E. Barry...................................... 140,147(11) 1.2%
Paul A. Eckroth.................................... 121,650(12) 1.0%
Ramesh L. Ajwani................................... 129,083(13) 1.1%
Susan G. Peterson.................................. 28,128(14) *
Albert A. Stroka................................... 43,286(15) *
All directors and
executive officers
as a group (16 persons)............................ 2,970,726(16) 24.4%
</TABLE>
- -------------------
* Not greater than 1%
(1) As of February 17, 1998, except as otherwise indicated. The nature of
beneficial ownership is sole voting and investment power, except as set
forth in the footnotes below. Information with respect to beneficial
ownership is based on information furnished to Heritage by the Shareholders
or contained in the records of Heritage. Fractional shares subject to
options are not reflected. All of the directors and executive officers have
entered into an Affiliate's Letter and an Agreement of Affiliates which
indicate that they will vote their shares in favor of the Merger and which
specify restrictions on the disposition of such shares.
(2) Includes 28,712 shares held in a self-directed IRA trust and Keogh trust
for the benefit of Mr. Wojcik, 314,584 shares held in trust by Mr. Wojcik
and 96,800 shares which may be acquired upon the exercise of stock options.
Includes 59,922 shares held for the benefit of Mr. Wojcik in the Heritage
Profit Sharing Trust as of December 31, 1997, but excludes the other shares
referred to in footnote 16 below.
(3) Includes 135,179 shares held in trust by Mr. Sampias, 8,364 shares held in
custody for the benefit of Mr. Sampias, 3,972 shares held in trust for the
benefit of Mr. Sampias, 110,044 shares which may be acquired upon the
exercise of stock options, 12,375 shares held in trust by his wife, 3,981
shares held in trust for the benefit of his wife, 2,250 shares held by his
wife as custodian for their son and 450 shares held by their son. Includes
43,739 shares held for the benefit of Mr. Sampias in the Heritage Profit
Sharing Trust as of December 31, 1997, but excludes the other shares
referred to in footnote 16 below.
(4) Includes 20,194 shares held in a self-directed IRA trust and Keogh Plan for
the benefit of Mr. Groebe, 2,046 shares held in trust for the benefit of
his wife and 68,962 shares which may be acquired upon the exercise of stock
options. Includes 41,563 shares held for the benefit of Mr. Groebe in the
Heritage Profit Sharing Trust as of December 31, 1997, but excludes the
other shares referred to in footnote 16 below.
(5) Includes 63,900 shares held in trust by Mr. Mathis and 67,575 shares held
in trust by his wife.
(6) Includes 4,230 shares held in trust by Mr. Payan, 8,625 shares held in
trust by his wife and 1,500 shares held by a corporation owned by Mr. Payan
and his wife.
(7) Includes 15,000 shares held in joint tenancy with Mr. Sieloff's wife.
(8) Includes 12,000 shares held in joint tenancy with his wife, 122,763 shares
held in trust for the benefit of Mr. Sterling and his wife and 11,643
shares held by Mr. Sterling's son.
40
<PAGE>
(9) Includes 379,500 shares held in trust by Mr. Stranczek, 108,150 shares held
in trust for the benefit of Mr. Stranczek and 7,500 shares held by Mr.
Stranczek's wife as trustee for a relative.
(10) Includes 1,372 shares held for the benefit of Mr. Velo by the D.J. Velo &
Company Profit Sharing Trust as of October 31, 1997, for which Mr. Velo is
the Trustee. Excludes the remaining 51,609 shares in such Trust voted by
Mr. Velo but held for the benefit of others. Includes 10,000 shares held in
joint tenancy with Mr. Velo's wife.
(11) Includes 74,887 shares which may be acquired upon the exercise of stock
options and 13,142 shares held for the benefit of Mr. Barry in the Heritage
Profit Sharing Trust as of December 31, 1997, but excludes the other shares
referred to in footnote 16 below.
(12) Includes 72,000 shares held by Mr. Eckroth in joint tenancy with his wife
and 49,650 shares which may be acquired upon the exercise of stock options.
(13) Includes 6,000 shares held as trustee for the benefit of Mr. Ajwani's son,
10,125 shares held as trustee for the benefit of Mr. Ajwani's daughter,
1,500 shares held by his wife as custodian for their son, 24,375 shares
held in trust by his wife, 75,300 shares which may be acquired upon the
exercise of stock options and 11,783 shares held for the benefit of Mr.
Ajwani in the Heritage Profit Sharing Trust as of December 31, 1997.
(14) Includes 5,136 shares held in trust by Ms. Peterson, 7,087 shares which may
be acquired upon the exercise of stock options and 10,842 shares held for
the benefit of Ms. Peterson in the Heritage Profit Sharing Trust as of
December 31, 1997, but excludes the other shares referred to in footnote 16
below.
(15) Includes 9,171 shares held in trust by Mr. Stroka, 2,775 shares held by his
wife as custodian for their sons, 4,013 shares which may be acquired upon
the exercise of stock options and 27,327 shares held for the benefit of Mr.
Stroka in the Heritage Profit Sharing Trust as of December 31, 1997.
(16) Excludes 712,818 shares as of December 31, 1997 voted by Messrs. Wojcik,
Sampias, Groebe and Barry and Ms. Peterson as the trustees of the Heritage
Profit Sharing Trust, except to the extent held for such named officers'
individual benefit and hence included as indicated in the foregoing
footnotes.
41
<PAGE>
THE MERGER
The information in this Joint Proxy Statement/Prospectus concerning the
terms of the Merger is qualified in its entirety by reference to the full text
of the Merger Agreement, a copy of which (excluding the Exhibits and Schedules
thereto) is attached hereto as Appendix A and incorporated by reference herein,
and the other information contained elsewhere in this Joint Proxy
Statement/Prospectus, including the Appendixes hereto and the documents
incorporated by reference herein. All Stockholders of First Midwest and
Shareholders of Heritage are urged to read carefully this entire Joint Proxy
Statement/Prospectus, including the Appendixes hereto and the documents
incorporated by reference herein.
General
Pursuant to the Merger Agreement, Heritage will be merged with and into
Acquisition Corp, with Acquisition Corp being the surviving entity. As soon as
possible after the conditions to consummation of the Merger described below have
been satisfied or waived, and unless the Merger Agreement has been terminated as
provided below, First Midwest and Heritage will file Articles of Merger with the
Secretary of State of the State of Illinois with respect to the Merger. The
Merger will become 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"). It is presently contemplated that the Effective
Time will be as soon as practicable following the fulfillment or waiver of each
of the conditions to the Merger. See "-- Effective Time; Closing Date,"
"-- Conditions to the Merger" and "--Waiver and Amendment; Termination."
Upon consummation of the Merger, the Shareholders of Heritage shall be
entitled to receive the Merger Consideration (as defined herein) in
consideration for their shares of Heritage Common Stock and thereupon shall
cease to be Shareholders of Heritage, and the separate existence and corporate
organization of Heritage shall cease. Acquisition Corp shall succeed to all the
rights and property of Heritage.
Merger Consideration
Subject to the terms, conditions and procedures set forth in the Merger
Agreement, each share of Heritage Common Stock issued and outstanding
immediately prior to the consummation of the Merger (except shares held by
Heritage or First Midwest or shares for which Shareholders of Heritage have
perfected dissenters' appraisal rights) will be converted into the right to
receive 0.7695 (the "Exchange Ratio") of a share of First Midwest Common Stock
(the "Merger Consideration"). The Merger Agreement provides that the Exchange
Ratio will be appropriately adjusted in the event of any split, combination,
stock dividend or stock distribution with respect to shares of First Midwest
Common Stock effected by First Midwest prior to the Effective Time.
Based on the $________ per share closing price of the First Midwest Common
Stock reported on the Nasdaq Stock Market for _______________, 1998, the market
value of the Merger Consideration would be $_________ per share of Heritage
Common Stock as of such date. The number of shares of First Midwest Common Stock
to be received for each share of Heritage Common
42
<PAGE>
Stock has been fixed at 0.7695. The market value of First Midwest Common Stock
to be received in the Merger is subject to fluctuation. Accordingly, an increase
in the market value of First Midwest Common Stock will increase the market value
of the Merger Consideration to be received in the Merger. A decrease in the
market value of First Midwest Common Stock will have the opposite effect.
Heritage will have the right to terminate the Merger Agreement (the
"Termination Right"), seek to renegotiate the Exchange Ratio with First Midwest
or proceed with the Merger, if (i) the First Midwest Common Stock Price Per
Share (as defined below) is less than $33.90 for the Pricing Period (as defined
below); and (ii) the percentage (the "First Midwest Ratio") determined by
dividing the First Midwest Common Stock Price Per Share by $42.37 (the closing
price of First Midwest Common Stock as of the close of business on January 14,
1998) is more than 20 percentage points less than the percentage (the
"Comparison Stocks Ratio") determined by dividing the Aggregate Purchase 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 close of business on January 14, 1998. The "First Midwest
Common Stock Price Per Share" means the dollar amount equal to the volume
weighted average of all transactions reported for First Midwest Common Stock 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 defined herein) as reported in the Wall Street
Journal (or an equivalent source) for each day in question. The "Comparison
Stocks" consist of a list of twenty-two bank holding companies, the common stock
of which is publicly traded. Under certain circumstances, a bank holding company
may be removed from this list.
Certain possible effects of the above provisions may be illustrated by the
following three scenarios:
(i) if the First Midwest Common Stock Price Per Share is at or more than
$33.90 for the Pricing Period, Heritage will not be permitted to
exercise the Termination Right;
(ii) if the First Midwest Common Stock Price Per Share is less than
$33.90 for the Pricing Period, but the difference between the
Comparison Stocks Ratio and the First Midwest Ratio is less than 20
percentage points, then Heritage will not be permitted to exercise
the Termination Right; or
(iii) if the First Midwest Common Stock Price Per Share is less than
$33.90 for the Pricing Period, and the difference between the
Comparison Stocks Ratio and the First Midwest Ratio is 20 percentage
points or more, then Heritage will be permitted to exercise the
Termination Right.
If the conditions described in subparagraph (iii) above exist as of the end of
the Pricing Period, Heritage may, at its sole option, exercise the Termination
Right, seek to renegotiate the Exchange Ratio with First Midwest or proceed with
the Merger. If Heritage elects to exercise the Termination
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Right, it must give written notice to First Midwest as of the close of business
on the second business day after the end of the Pricing Period. See "-- Waiver
and Amendment; Termination."
Whether Heritage will have the Termination Right pursuant to the preceding
paragraphs will not be known until the end of the Pricing Period. As of the date
of this Joint Proxy Statement/Prospectus, no such Termination Right would exist,
based on the prevailing market price of First Midwest Common Stock. The Heritage
Board has made no decision as to whether it would exercise the Termination Right
if such a right did arise. In the event such a situation occurs, the Heritage
Board would, consistent with its fiduciary duties, take into account all
relevant facts and circumstances as they exist at such time and would consult
with its financial advisors and legal counsel. Approval of the Merger Agreement
by the Heritage Shareholders at the Heritage Meeting will confer on the Heritage
Board, the power, should such an event occur, and consistent with the fiduciary
duties of such Board, to elect to terminate the Merger Agreement, seek to
renegotiate the Exchange Ratio or consummate the Merger without any further
action by, or resolicitation of the votes of, the Shareholders of Heritage.
No certificates or scrip representing fractional shares of First Midwest
Common Stock will be issued upon the surrender for exchange of certificates
representing Heritage Common Stock, no dividend or distribution of First Midwest
will relate to any fractional shares, and such fractional share interests will
not entitle the owner thereof to vote or to any rights of a Stockholder of First
Midwest. Each Shareholder of Heritage who would be entitled to a fractional
share in the Merger will receive a cash payment (without interest) determined by
multiplying $42.37 (the closing price for shares of First Midwest Common Stock
on January 14, 1998) by the fractional share interest to which the holder would
otherwise be entitled pursuant to the terms of the Merger Agreement.
Background of and Reasons for the Merger
Background of the Merger. Early in the fourth quarter of 1997, Heritage
received an unsolicited expression of interest from a large financial services
holding company. At the suggestion of Heritage's outside counsel, Joel S.
Corwin, Heritage engaged Barack Ferrazzano Kirschbaum Perlman & Nagelberg
("Barack Ferrazzano") in October, 1997 as special legal counsel to work with Mr.
Corwin, with respect to Heritage's strategic alternatives and fiduciary duties.
At a special meeting of the Heritage Board held on November 5, 1997, the
Heritage Board considered the expression of interest and developed a process to
investigate its strategic alternatives. At the meeting, Barack Ferrazzano
reviewed the fiduciary duties owed by the Heritage Board to Heritage and
Heritage's Shareholders in connection with the review of its strategic
alternatives. A Corporate Developments Committee consisting of two outside
directors and one management director was appointed to assist in the
investigation of Heritage's strategic options, including a possible sale. The
Corporate Developments Committee was specifically directed to participate in
retaining a financial advisor to assist in the process and to explore certain
executive compensation and benefits issues with Barack Ferrazzano and Arthur
Andersen LLP, Heritage's independent certified public accountants ("Arthur
Andersen"). Heritage's chief financial officer was instructed to serve on the
committee in an ex officio capacity.
On November 7, 1997 and on November 13, 1997, the Corporate Developments
Committee met with Barack Ferrazzano to discuss certain issues relating to the
possible sale process, to the
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engagement of a financial advisor and to the retention of Heritage's franchise
value in the possible sale process, including employee-related issues. On
November 10, 1997, McDonald & Company Securities, Inc. ("McDonald") was engaged
to serve as Heritage's financial advisor.
In recent years, the financial services industry has witnessed substantial
and rapid change characterized by increasing consolidation, intensifying
competition and acquisitive growth of many of the larger domestic banking
organizations. Based upon the terms of recently announced bank transactions,
substantial premiums are being paid and bank stock prices are at historically
high levels. During this period of changing regulatory and market conditions,
Heritage has regularly considered possible strategies and transactions to
enhance its profitability, competitive position and strategic focus, and thereby
increase shareholder value. As part of this ongoing process, on November 18,
1997, the Heritage Board met with McDonald and Barack Ferrazzano to review,
among other things, the short- and long-term strategic options available to
Heritage. The Heritage Board discussed with its advisors the advantages and
disadvantages of various alternatives, including continued growth as an
independent company, expansion of its operations through an acquisition, merger
of equals or strategic alliance transaction and pursuit of a transaction
involving the possible sale of Heritage.
At its November 18, 1997 meeting, after further review of the strategic
options available to Heritage and a review of the various contacts from
interested third parties, the Heritage Board authorized senior management and
McDonald to conduct exploratory discussions concerning a possible business
combination transaction. McDonald was instructed to contact a select group of
banking institutions, including First Midwest, that were deemed likely to be
interested in such a transaction based on earlier contacts or other information
obtained by Heritage's senior management and McDonald. Over the ensuing month,
McDonald conducted preliminary discussions with several potential merger
partners. Where necessary or appropriate, Heritage required such parties to
execute customary confidentiality agreements to preserve the confidential nature
of any proprietary information of Heritage disclosed during the course of such
preliminary discussions.
At the December 16, 1997 Heritage Board meeting, McDonald presented to the
Heritage Board the results of its preliminary conversations with certain
potential merger partners, including First Midwest. Through its exploratory
discussions with these various banking institutions, Heritage received
preliminary indications of interest in a possible business combination from four
institutions, with First Midwest's valuation being one of the two highest. These
indications of interest involved different combinations of cash and/or stock as
consideration. The Heritage Board authorized Heritage's senior management and
McDonald to continue discussions regarding the two highest proposals, including
discussions with First Midwest. McDonald was directed to concentrate on
developing those two proposals, allowing each organization to perform limited
due diligence. Final proposals would then be solicited for the Heritage Board's
analysis and consideration. Barack Ferrazzano was directed to prepare a draft of
a form of definitive agreement for submission to each organization for its
review and comment. The Heritage Board based its action on the perceived level
of interest by the two organizations in pursuing a transaction, the likelihood
that a transaction with one of them would be consummated if mutually acceptable
terms could be agreed upon, their prior records in making acquisitions, their
large market capitalizations and financial positions, their existing presence in
the Chicago area, the potential synergies resulting from a business combination
with either of them and the expectation that a negotiated transaction with one
of the organizations would result
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in the highest value per share for Heritage's Shareholders. During the following
weeks, having already executed confidentiality agreements, the two organizations
began conducting their limited due diligence reviews of Heritage and its
business operations.
The Corporate Developments Committee of the Heritage Board met on December
31, 1997 with McDonald and Barack Ferrazzano to review the status of the
proposals. McDonald reported at the meeting that only one of the two interested
parties submitted a final proposal. The Corporate Developments Committee
determined, with the assistance of McDonald, that First Midwest's proposal
should be pursued as the best strategic alternative for Heritage and its
Shareholders. Various factors were considered in reaching this conclusion,
including, among other things, the indicated levels of consideration from First
Midwest and the other organizations which had expressed interest in entering
into a possible transaction with Heritage; prevailing economic, market and
monetary conditions; Heritage's future prospects as an independent institution;
the future financial and operating prospects of the organizations that submitted
preliminary indications of value after giving effect to a business combination
involving an acquisition of Heritage; and the likely organizational and
operating structures of the business combinations contemplated by the
preliminary indications of interest submitted by the interested organizations.
McDonald, on behalf of Heritage, advised First Midwest on December 31,
1997, that the Corporate Developments Committee of the Heritage Board had
elected to pursue negotiations with First Midwest. First Midwest's preliminary
indication of interest was subject to a number of ordinary and customary
conditions regarding the negotiation of a definitive agreement and the receipt
of all relevant regulatory and shareholder approvals. Subsequent discussions and
negotiations over the next two weeks between First Midwest, its counsel and its
financial advisor, and Heritage, its counsel and its financial advisor, resulted
in First Midwest making a formal offer for Heritage as set forth in the Merger
Agreement. First Midwest's preliminary indication of interest contained an offer
of 0.7695 of a share of First Midwest Common Stock for each issued and
outstanding share of Heritage Common Stock. The parties negotiated a number of
issues during their subsequent discussions, including the list of the twenty-two
bank holding companies that comprised the Comparison Stocks and the conditions
under which the Termination Right would become exercisable (see " -- Merger
Consideration"), the terms and conditions under which First Midwest would be
permitted to exercise its rights under the Stock Option Agreement and the option
exercise price (see " -- Stock Option Agreement"), the terms and conditions of
the Agreement of Affiliates (see " -- Agreement of Affiliates"), and various
provisions of the Merger Agreement, including the representations and warranties
(see "-- Representations and Warranties"), operating covenants (see " --Business
Pending the Merger and other Comments"), closing conditions (see " -- Conditions
to the Merger") and the termination of rights of the parties (see " --Waiver and
Amendment; Termination").
During that period, Heritage and its advisors conducted a due diligence
review of First Midwest, which included, among other things: (i) meetings with
senior officers of First Midwest to review First Midwest's strategic plans and
objectives; (ii) a review of First Midwest's financial information and
projections; (iii) a review of lending reports and other management reports of
First Midwest; (iv) discussions with management of First Midwest regarding loan
policies, loan portfolios, delinquent and problem loans and loan loss reserves;
(v) a review of First Midwest's asset/liability and
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investment policies and its rate sensitivity position; and (vi) a review of
certain of First Midwest's pending litigation and employee policies and
handbook.
At a meeting of the Heritage Board held on January 13, 1998, management
presented the First Midwest proposal to the Heritage Board and reviewed with the
Heritage Board the events leading up to the First Midwest proposal, including
senior management's negotiations with and due diligence review of First Midwest.
McDonald reviewed the First Midwest proposal for the Heritage Board and provided
its analyses. McDonald also reviewed its draft fairness opinion with the
Heritage Board. Barack Ferrazzano reviewed the fiduciary duties owed by the
Heritage Board to Heritage's Shareholders in connection with the proposed
transaction and reviewed the terms of the Merger Agreement, the Stock Option
Agreement and the proposed resolutions concerning the Merger.
Following a review and discussion of the proposed terms of the transaction,
consideration of the fairness opinion of McDonald and numerous other relevant
factors, the Heritage Board, by a unanimous vote of all directors present at the
January 13, 1998 meeting, authorized and approved the Merger Agreement, the
Stock Option Agreement and the transactions contemplated thereby, subject to the
agreement by First Midwest to certain specific conditions and the receipt
thereafter by Heritage's Chairman of the oral fairness opinion of McDonald. The
Heritage Board also directed that the Merger Agreement be submitted to a vote of
the Heritage Shareholders and unanimously recommended that such Shareholders
approve the Merger Agreement. Following discussions between the parties on
January 13, 1998, the outstanding conditions specified by the Heritage Board
were each agreed to by First Midwest on January 14, 1998, after which McDonald
formally delivered its oral fairness opinion to Heritage's Chairman that the
consideration to be received was fair from a financial point of view to the
Heritage Shareholders. The parties executed the Merger Agreement and Stock
Option Agreement on January 14, 1998.
Heritage Board's Reasons for the Merger. After careful study and
evaluation, the Heritage Board has unanimously approved the Merger Agreement and
has determined that the Merger is fair to, and in the best interests of,
Heritage and the Heritage Shareholders. The Heritage Board believes that the
Merger will enable Heritage Shareholders to realize significant value on their
investment and also will enable them to participate in opportunities for growth
that Heritage believes the Merger makes possible.
In reaching its determination that the Merger is fair to, and in the best
interests of, Heritage and its Shareholders, the Heritage Board carefully
considered a variety of factors with the assistance of its legal and financial
advisors. Set forth below is a summary of all of the material factors
considered by the Heritage Board in reaching its determination:
(a) Heritage considered its business, financial condition, results of
operations and prospects, including, but not limited to, its potential
growth, development, productivity and profitability were it to remain
independent. In the Heritage Board's opinion, a business combination with a
larger bank holding company such as First Midwest would provide both
greater short-term and long-term value to Heritage Shareholders than other
alternatives available. Such a business combination would enhance
Heritage's competitiveness and its ability to serve its depositors,
customers and the communities in which it operates. The increased
competitive advantage would result primarily from the ability of Heritage
to offer
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new and enhanced products and services already developed and tested by
First Midwest, the cost savings from combining operations and support
functions, and the increased access to capital that First Midwest could
provide. Such an increased competitive advantage would be likely to result
in an increase in the value of First Midwest Common Stock that will be
received by Heritage Shareholders.
(b) The current and prospective environments in which Heritage
operates, including national and local economic conditions, the current
regulatory environment and the trend toward consolidation in the financial
services industry generally and in the Chicago metropolitan market,
specifically, were also factors in the Heritage Board's decision. The
increases in competition, together with increased bank regulatory reporting
and other requirements, have made it more difficult for independent
community banks to compete with the banking affiliates of much larger
institutions with respect to the range of products and services offered and
the costs at which such products and services can be offered. First
Midwest's philosophy of relationship banking and allowing each of its
banking centers to continue to operate as community banks within their own
local markets, focusing on servicing the needs of their particular
communities, should provide an opportunity for Heritage to compete more
effectively with larger institutions but still maintain its community
banking approach. This compatibility of businesses and management
philosophies of Heritage and First Midwest constituted a significant
additional factor in the Heritage Board's decision.
(c) The strategic, competitive advantage that First Midwest will have
through its combination with Heritage was considered by the Heritage Board.
As a result of the Merger, the resulting institution will have the largest
deposit market share in Will County, Illinois and will have a significant
presence in south and southwest Cook County, Illinois thereby enhancing the
value of First Midwest's franchise and the potential value to Heritage
Shareholders.
(d) The Heritage Board considered the business, results of
operations, financial condition and asset quality of First Midwest, as well
as its future growth prospects following the Merger. The Merger presents an
opportunity for potential synergies and cost savings by integrating the
responsibilities for functions such as the following: product development;
training in product sales and services which First Midwest has had in place
for several years; internal audit, loan review and compliance training; and
stockholder record keeping and communications. First Midwest's established
operational and training systems are expected to result in cost savings
from economies of scale as well as being able to provide Heritage employees
with a higher level of training to meet customer needs.
(e) The Heritage Board also determined that the Merger offered
Heritage Shareholders the prospects for higher dividends, and a higher
current trading value for their shares as a result of greater liquidity and
better prospects for future growth than if Heritage were to remain
independent.
(f) Based upon the financial terms of other recent business
combinations in the financial services industry and information concerning
the business, financial condition, results of operations and prospects of
First Midwest, the Heritage Board solicited an opinion from
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McDonald regarding the fairness of the Exchange Ratio, from a financial
point of view, to the Shareholders of Heritage. Based upon the opinion of
McDonald, the anticipated tax free nature of the Merger for federal income
tax purposes to Heritage Shareholders, and the likelihood that the proposed
transaction would be consummated, the Heritage Board determined that the
Merger was preferable to other alternatives available to Heritage, such as
being acquired by a different company or remaining independent and growing
internally.
While each member of the Heritage Board individually evaluated each of the
foregoing as well as other factors, the Heritage Board collectively did not
assign any specific or relative weights to the factors considered and did not
make any determination with respect to any individual factor. The Heritage Board
collectively made its determination with respect to the Merger based on the
unanimous conclusion reached by its members that the Merger, in light of the
factors that each director, individually, considered as appropriate, is fair and
in the best interests of the Heritage Shareholders.
In approving the Merger, the Heritage Board was aware that (i) the Merger
Agreement contains certain provisions prohibiting Heritage from soliciting,
facilitating or accepting other offers or agreements to acquire Heritage and
(ii) First Midwest would be able to exercise the Option granted by Heritage to
First Midwest in the Stock Option Agreement in certain circumstances generally
relating to a failure of First Midwest to consummate the Merger because of
another offer for Heritage or a material change or potential material change in
the ownership of Heritage. However, the Heritage Board was also aware that such
terms were specifically bargained for and insisted upon by First Midwest as
inducements to enter into the Merger Agreement. In addition, in connection with
its approval of the proposed Merger, the Heritage Board was advised by McDonald
that the indicated value of the Merger (i) exceeded the upper end of McDonald's
range of estimates of Heritage's stand-alone value and (ii) was at the upper end
of McDonald's range of estimates of Heritage's likely value in an acquisition
transaction. In presenting this advice, McDonald stated that these findings were
necessarily based upon economic, market, monetary and other conditions as they
existed and could be evaluated at the time, represented its best business
judgment under the circumstances and should not be construed in any way as a
financial fairness or other form of expert opinion. McDonald's fairness opinion
is described below and is included as Appendix B to this Joint Proxy
Statement/Prospectus. See "-- Opinion of Heritage Financial Advisor."
First Midwest Board's Reasons for the Merger. First Midwest's strategy for
increasing long-term value for First Midwest Stockholders has been to build a
banking organization primarily focused on the Chicago metropolitan suburban
banking market (consisting of the Illinois counties of Lake, McHenry, DuPage,
Kane and Will as well as suburban Cook County), that continuously gains
efficiency, spreads costs over a growing asset base and provides innovative
products and services over a growing customer base. Presently, First Midwest is
the second largest deposit based financial institution in Lake, McHenry and Will
Counties. In addition, First Midwest has expended a great deal of time and
effort to expand its technological capacities. First Midwest believes that by
doing so, First Midwest can enhance its future earnings potential and become a
financial services company capable of taking full advantage of technological
developments and changes in the financial services industry.
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By acquiring Heritage, First Midwest will significantly expand its
operations in southern and southwestern Cook County, Illinois and Will County,
Illinois. Heritage currently operates seventeen offices in these areas.
Following the consummation of the Merger, First Midwest will operate
approximately fifty-six offices in the Chicago suburban metropolitan banking
market. First Midwest's deposit base in the Chicago metropolitan suburban
banking market will increase from $2.3 billion to approximately $3.4 billion, or
by approximately 48%. Following the consummation of the Merger and the
subsequent merger of the subsidiaries, First Midwest will be the largest bank
(by deposits) in Will County and the fourteenth largest in Cook County. In
addition, First Midwest will continue to be the second largest bank (by
deposits) in Lake and McHenry Counties. The acquisition of Heritage is
consistent with First Midwest's strategy of focusing its growth primarily on the
Chicago metropolitan suburban banking market.
The First Midwest Board believes that the Merger and the Merger
Consideration is fair to, and in the best interests of, First Midwest and its
Stockholders. Accordingly, the First Midwest Board has unanimously approved the
Merger Agreement and recommends that the Stockholders of First Midwest vote FOR
the approval and adoption of the First Midwest Proposals.
In negotiating the terms of the Merger and in considering its
recommendation for approval of the First Midwest Proposals, the First Midwest
Board considered a number of factors. Set forth below is the summary of all of
the material factors considered by the First Midwest Board in reaching its
determination:
(i) The Merger Consideration to be paid to the Heritage Shareholders
in relation to the market value, book value, earnings per share and
dividend rates of the First Midwest Common Stock and Heritage Common Stock.
(ii) The expansion of First Midwest's services into a number of new
communities in Will County and southern and southwest Cook County.
(iii) The First Midwest Board's review, based in part on a
presentation by First Midwest management with respect to such management's
due diligence review of Heritage, of the business, operations and financial
condition of Heritage, the prospects of the combined institution, and the
increased market presence, economies of scale, cost savings opportunities
and enhanced opportunities for growth made possible by the Merger; in this
regard, the First Midwest Board noted that the combined institution: (a)
would create a $5.0 billion bank holding company with approximately $1.2
billion in market capitalization; (b) would have a significantly increased
presence in southern and southwest Cook County, where it currently has no
banking operations of consequence; and (c) would significantly increase its
deposit market share in Will County, giving it the largest market share in
Will County. The First Midwest Board took into account that: (w) there
would be some dilution in 1998 earnings per share before the Merger would
have an expected accretive effect in 1999 of approximately 1%; (x) there
may be some adverse impact on the First Midwest Common Stock price
following announcement of the transaction because of such dilution, the
activities of arbitrageurs and the investment objectives of certain First
Midwest Stockholders; (y) a one-time, pre-tax acquisition charge of $15.4
million would be taken in the quarter the Merger is
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closed; and (z) there would be some dilution to the book-value per share of
the First Midwest Common Stock.
(iv) The short-term and long-term impact the Merger is anticipated
to have on First Midwest's consolidated results of operations, including
anticipated cost savings resulting from consolidation in certain areas.
(v) The oral opinion of Goldman Sachs delivered to the First
Midwest Board to the effect that, as of January 12, 1998, the Exchange
Ratio pursuant to the Merger Agreement was fair to First Midwest from a
financial point of view (see "-- Opinion of First Midwest Financial
Advisor").
(vi) The impact of the Merger on depositors, employees, customers
and communities served by First Midwest and Heritage.
(vii) The expectation that the Merger will generally be a tax-free
transaction to First Midwest and its Stockholders and that the Merger will
be accounted for under the pooling of interests method of accounting
(see "--Federal Income Tax Consequences of the Merger" and "-- Accounting
Treatment").
(viii) The terms of the Merger Agreement, the Stock Option Agreement,
the Agreement of Affiliates and the other documents executed in connection
with the Merger. (see "-- Stock Option Agreement" and "--Agreement of
Affiliates").
(ix) The effectiveness of the Merger as a method of implementing and
accelerating First Midwest's strategy for long-term growth and enhanced
Stockholder value. This included (a) the strong Heritage banking franchise
with a corporate banking, retail and middle-market focus in important
markets in south and southwest suburban Cook County and in Will County, (b)
the fact that the Heritage franchise overlaps with First Midwest's Will
County banking franchise, (c) an opportunity for additional acquisitions
that could be negotiated by a company with First Midwest's post-merger
market capitalization, (d) a respected Heritage senior management team with
similar approaches to customer service, credit quality, expense reduction
and growth, (e) opportunities to leverage capacity in technology over a
larger asset and customer base and to realize other additional expense
savings, (f) the Merger as a significant contributor to building a
recognized name in the financial services area in the Chicago metropolitan
suburban banking market with a resulting institution that would have a
significant market share in one of the country's most attractive banking
markets, and (g) the expense savings as discussed in "RECENT DEVELOPMENTS."
(x) The likelihood of the Merger being approved by the appropriate
regulatory authorities. See "-- Regulatory Approvals."
In view of the wide variety of factors considered in connection with its
evaluation of the Merger, the First Midwest Board did not find it practicable
to, and did not quantify or otherwise attempt to, assign relative weights to the
specific factors considered in reaching its determination.
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Recommendations of the Boards of Directors
Heritage Board. The Heritage Board of Directors has unanimously approved
and adopted the Merger Agreement and the transactions contemplated thereby and
has determined that the Merger is fair to, and in the best interests of,
Heritage and its Shareholders. THE HERITAGE BOARD UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS OF HERITAGE VOTE FOR THE PROPOSAL TO APPROVE THE MERGER AGREEMENT.
First Midwest Board. The First Midwest Board has unanimously adopted and
approved the Merger Agreement and the transactions contemplated thereby,
including the Issuance and the Charter Amendment, and has determined that the
Merger and such transactions are fair to, and in the best interests of, First
Midwest and its Stockholders. THE FIRST MIDWEST BOARD UNANIMOUSLY RECOMMENDS
THAT STOCKHOLDERS OF FIRST MIDWEST VOTE FOR THE FIRST MIDWEST PROPOSALS.
Opinion of Heritage Financial Advisor
Merger - General. Pursuant to an engagement letter dated November 10,
1997, between Heritage and McDonald, Heritage retained McDonald to act as its
sole financial advisor in connection with the Merger and related matters. As
part of its engagement, McDonald agreed, if requested by Heritage, to render an
opinion with respect to the fairness, from a financial point of view, to
Heritage Shareholders of the consideration to be received by Heritage in the
Merger. McDonald is a nationally recognized specialist in the financial services
industry, in general and in Midwestern banks and thrifts in particular.
McDonald is regularly engaged in evaluations of similar businesses and in
advising institutions with regard to mergers and acquisitions, as well as
raising debt and equity capital for such institutions. Heritage selected
McDonald as its financial advisor based upon its qualifications, expertise and
reputation in such capacity.
Following the January 13, 1998 meeting of the Heritage Board, on January
14, 1998, McDonald delivered its oral opinion to Heritage's Chairman that the
consideration to be received by Heritage in the Merger (the amount of which was
determined by Heritage and First Midwest on the basis of arm's-length
negotiation between Heritage and First Midwest), was fair to Heritage
Shareholders, from a financial point of view, as of January 14, 1998. McDonald
subsequently delivered to the Heritage Board a written opinion dated as of the
date of this Joint Proxy Statement/Prospectus confirming its opinion. No
limitations were imposed by Heritage on McDonald with respect to the
investigations made or the procedures followed in rendering its opinion.
The full text of McDonald's written opinion to the Heritage Board, dated as
of the date of this Joint Proxy Statement/Prospectus, which sets forth the
assumptions made, matters considered and extent of review by McDonald, is
attached hereto as Appendix B and is incorporated herein by reference and should
be read carefully and in its entirety in conjunction with this Joint Proxy
Statement/Prospectus. The following summary of McDonald's opinion is qualified
in its entirety by reference to the full text of the opinion. McDonald's opinion
is addressed to the Heritage Board and does not constitute a recommendation to
any Shareholder of Heritage as to how such Shareholder should vote at the
Heritage Meeting.
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In connection with its opinion, McDonald has, among other things: (i)
reviewed the Merger Agreement and other related documents and this Joint Proxy
Statement/Prospectus; (ii) reviewed certain historical business and financial
information relating to Heritage and First Midwest; (iii) reviewed other
pertinent internally-generated reports with regard to the separate businesses
and prospects of Heritage and First Midwest including, among other things, the
strategic objectives of each corporation and the potential benefits which might
be realized through consummation of the Merger; (iv) participated in senior
management discussions between Heritage and First Midwest with regard to said
strategic objectives which might be realized through consummation of the Merger;
(v) reviewed public information regarding other selected comparable publicly
traded companies deemed relevant to the proposed business combination; (vi)
reviewed the financial terms and data of selected comparable combinations
between banks and bank holding companies deemed relevant to the proposed
business combination; (vii) reviewed the historical market performance and
trading volume of Heritage Common Stock and First Midwest Common Stock; (viii)
reviewed certain information pertaining to prospective cost savings and/or
revenue enhancements relative to the proposed business combination; (ix)
reviewed and evaluated the current stock distribution and ownership of Heritage
Common Stock and First Midwest Common Stock, as well as the pro forma
distribution and ownership following consummation of the Merger, based upon the
contribution of, among other things, Heritage's assets, liabilities,
shareholders' equity and earnings to the combined entity; and (x) conducted such
other financial studies, analyses and investigations as McDonald deemed
appropriate. The oral and written opinions provided by McDonald to Heritage
were necessarily based upon economic, monetary, financial market and other
relevant conditions as of the dates thereof.
In connection with its review and arriving at its opinion, McDonald relied
upon the accuracy and completeness of the financial information and other
pertinent information provided by Heritage to McDonald for purposes of rendering
its opinion. McDonald did not assume any obligation to independently verify any
of the provided information as being complete and accurate in all material
respects. With regard to the financial forecasts established and developed for
Heritage and First Midwest with the input of the respective managements, as well
as projections of cost savings, revenue enhancements and operating synergies,
McDonald assumed that these materials had been reasonably prepared on bases
reflecting the best available estimates and judgments of Heritage and First
Midwest as to the future performance of the separate and combined entities and
that the projections provided a reasonable basis upon which McDonald could
formulate its opinion. Neither Heritage nor First Midwest publicly discloses
such internal management projections of the type utilized by McDonald in
connection with McDonald's role as financial advisor to Heritage with respect to
review of the Merger. Therefore, such projections cannot be assumed to have
been prepared with a view toward public disclosure. The projections were based
upon numerous variables and assumptions that are inherently uncertain,
including, but notwithstanding, factors relative to the general economic and
competitive conditions facing Heritage and First Midwest. Accordingly, actual
results could vary significantly from those set forth in the respective
projections.
McDonald does not claim to be an expert in the evaluation of loan
portfolios or the allowance for loan losses with respect thereto and therefore
assumes that such allowances for Heritage and First Midwest are adequate to
cover such losses. In addition, McDonald does not assume responsibility for the
review of individual credit files, did not make an independent evaluation,
appraisal or physical inspection of the assets or individual properties of
Heritage or First Midwest, nor was McDonald
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provided with such appraisals. Furthermore, McDonald assumes that the Merger
will be consummated in accordance with the terms set forth in the Merger
Agreement, without any waiver of any material terms or conditions by Heritage
and that obtaining the necessary regulatory approvals for the Merger will not
have an adverse effect on either separate institution or combined entity.
Moreover, in each analysis that involves per share data for Heritage, McDonald
adjusted the data to reflect full dilution, i.e., the exercise of all
outstanding options and/or warrants (utilizing the treasury stock method). In
particular, McDonald assumes that the Merger will be recorded as a "pooling-of-
interests" in accordance with generally accepted accounting principles.
In connection with rendering its opinion to the Heritage Board, McDonald
performed a variety of financial and comparative analyses which are briefly
summarized below. Such summary of analyses does not purport to be a complete
description of the analyses performed by McDonald. Moreover, McDonald believes
that these analyses must be considered as a whole and that selecting portions of
such analyses and the factors considered by it, without considering all such
analyses and factors, could create an incomplete understanding of the scope of
the process underlying the analyses and, more importantly, the opinion derived
from them. The preparation of a financial advisor's opinion is a complex
process involving subjective judgments and is not necessarily susceptible to
partial analyses or a summary description of such analyses. In its full
analysis, McDonald also accounted for the assessment of general economic,
financial market and other financial conditions. Furthermore, McDonald drew from
its past experience in similar transactions, as well as its experience in the
valuation of securities and its general knowledge of the banking industry as a
whole. Any estimates in McDonald's analyses were not necessarily indicative of
future results or values which may significantly diverge more or less favorably
from such estimates. Estimates of company valuations do not purport to be
appraisals or necessarily reflect the prices at which companies or their
respective securities actually may be sold. Most notably, none of the analyses
performed by McDonald were assigned a greater significance by McDonald than any
other in deriving its opinion.
The following is a summary of the material analyses performed by McDonald
and presented to the Heritage Board on January 13, 1998, in connection with
McDonald's opinion dated the date hereof:
Comparable Company Analysis: McDonald reviewed and compared actual stock
market data and actual and estimated selected financial information for Heritage
with corresponding information for seventeen publicly traded Midwestern banks
with assets between $1 billion and $2 billion (the "Heritage Peer Group"). The
Heritage Peer Group included: Area Bancshares Corporation, Owensboro, Kentucky;
Community Trust Bancorp, Inc., Pikeville, Kentucky; Republic Bancorp Inc.,
Owosso, Michigan; Chemical Financial Corporation, Midland, Michigan; Brenton
Banks, Inc., Des Moines, Iowa; Grand Premier Financial, Inc., Wauconda,
Illinois; First Financial Corporation, Terre Haute, Indiana; F&M Bancorporation,
Inc., Kaukauna, Wisconsin; First Federal Financial Services Corp, Wooster, Ohio;
Mid-America Bancorp, Louisville, Kentucky; Mississippi Valley Bancshares, Inc.,
St. Louis, Missouri; National City Bancshares, Inc., Evansville, Indiana;
BancFirst Ohio Corp., Zanesville, Ohio; Citizens Bancshares, Inc., Salineville,
Ohio; CBT Corporation, Paducah, KY; Pinnacle Banc Group, Inc., Oak Brook,
Illinois; and First Merchants Corporation, Muncie, Indiana.
The analysis of the Heritage Peer Group indicated, among other things,
that, based on market prices as of January 9, 1998, and the latest publicly
available financial data based on September 30,
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1997: (i) the mean and median multiples of price to respective last twelve
months' earnings were 20.9 and 20.6, respectively, as compared to 20.7 for
Heritage; (ii) the mean and median multiples of price to estimated 1997 earnings
were 18.4 and 18.5, respectively, as compared to 20.6 for Heritage; (iii) the
mean and median multiples of price to estimated 1998 earnings were 17.2 and
16.4, respectively, as compared to 18.0 for Heritage; (iv) the mean and median
multiples of price to book value were 245% and 226%, respectively, as compared
to 290% for Heritage; (v) the mean and median multiples of price to tangible
book value were 269% and 243%, respectively, as compared to 339% for Heritage;
(vi) the mean and median dividend yields were 2.0% and 2.1%, respectively, as
compared to 1.4% for Heritage; (vii) the mean and median return on average
assets ("ROAA") ratios for the last twelve months were 1.14% and 1.10%,
respectively, as compared to 1.33% for Heritage; (viii) the mean and median
return on average equity ("ROAE") ratios for the last twelve months were 12.21%
and 11.72%, respectively, as compared to 15.50% for Heritage; (ix) the mean and
median ratios of tangible equity to tangible assets were 8.89% and 9.38%,
respectively, as compared to 7.83% for Heritage; (x) the mean and median ratios
of non-performing assets to assets were 0.41% and 0.35%, respectively, as
compared to 0.19% for Heritage; (xi) the mean and median ratios of loan loss
reserves to non-performing loans were 356% and 253%, respectively, as compared
to 539% for Heritage; and (xii) the mean and median efficiency ratios for the
last twelve months were 59.6% and 58.2%, respectively, as compared to 56.0% for
Heritage.
McDonald also reviewed and compared actual stock market data and actual and
estimated selected financial information for First Midwest with corresponding
information for fifteen publicly traded Midwestern banks with assets between $2
billion and $20 billion (the "First Midwest Peer Group"). The First Midwest Peer
Group included: Marshall & Ilsley Corporation, Milwaukee, Wisconsin; Old Kent
Financial Corporation, Grand Rapids, Michigan; Star Banc Corporation,
Cincinnati, Ohio; Associated Banc-Corp, Green Bay, Wisconsin; Commerce
Bancshares, Inc., Kansas City, Missouri; TCF Financial Corporation, Minneapolis,
Minnesota; Magna Group, Inc., St. Louis, Missouri; CNB Bancshares, Inc.,
Evansville, Indiana; FirstMerit Corporation, Akron, Ohio; Old National Bancorp,
Evansville, Indiana; Citizens Banking Corporation, Flint, Michigan; Community
First Bankshares, Inc., Fargo, North Dakota; Fort Wayne National Corporation,
Fort Wayne, Indiana; First Financial Bancorp, Hamilton, Ohio; and Park National
Corporation, Newark, Ohio.
The analysis of the First Midwest Peer Group indicated, among other things,
that, based on market prices as of January 9, 1998, and the latest publicly
available financial data based on
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September 30, 1997: (i) the mean and median multiples of price to respective
last twelve months' earnings were 20.5 and 20.0, respectively, as compared to
19.0 for First Midwest; (ii) the mean and median multiples of price to estimated
1997 earnings were 19.8 and 19.3, respectively, as compared to 18.6 for First
Midwest; (iii) the mean and median multiples of price to estimated 1998 earnings
were 17.4 and 17.3, respectively, as compared to 16.8 for First Midwest; (iv)
the mean and median multiples of price to book value were 305% and 288%,
respectively, as compared to 246% for First Midwest; (v) the mean and median
multiples of price to tangible book value were 357% and 325%, respectively, as
compared to 258% for First Midwest; (vi) the mean and median dividend yields
were both 2.0%, as compared to 2.2% for First Midwest; (vii) the mean and median
ROAA ratios for the last twelve months were 1.32% and 1.21%, respectively, as
compared to 1.23% for First Midwest; (viii) the mean and median ROAE ratios for
the last twelve months were 14.63% and 13.76%, respectively, as compared to
13.55% for First Midwest; (ix) the mean and median ratios of tangible equity to
tangible assets were 7.86% and 7.70%, respectively, as compared to 8.95% for
First Midwest; (x) the mean and median ratios of non-performing assets to assets
were both 0.39%, as compared to 0.51% for First Midwest; (xi) the mean and
median ratios of loan loss reserves to non-performing loans were 355% and 264%,
respectively, as compared to 263% for First Midwest; and (xii) the mean and
median efficiency ratios for the last twelve months were 58.9% and 59.8%,
respectively, as compared to 60.2% for First Midwest.
Comparable Transactions Analysis: McDonald reviewed and compared actual
information for comparable pending or closed transactions it deemed pertinent to
the Merger, including: (i) nineteen bank merger or/and acquisition transactions
with seller's assets between $500 million and $2 billion and ROAA greater than
1.25% (the "ROAA Transactions I"); (ii) ten bank merger or/and acquisition
transactions with seller's assets between $1 billion and $10 billion and ROAA
greater than 1.25% (the "ROAA Transactions II"); and (iii) nineteen bank merger
or/and acquisition transactions where the announced transaction as a percentage
of seller's assets exceeded 30% (the "Price-to-Assets Transactions").
The ROAA Transactions I were (seller in italics): Regions Financial,
Birmingham, Alabama/First State Corp, Albany, Georgia; F&M Bancorporation,
Kaukauna, Wisconsin/BancSecurity Corp., Marshalltown, Iowa; Commercial Federal,
Omaha, Nebraska/Liberty Financial, West Des Moines, Iowa; Fulton Financial Corp,
Lancaster, Pennsylvania/Keystone Heritage, Lebanon, Pennsylvania; Western
Bancorp, Laguna Niguel, California/Santa Monica Bank, Santa Monica, California;
Hibernia Corporation, New Orleans, Louisiana/ArgentBank, Thibodaux, Louisiana;
Wachovia Corp, Winston-Salem, North Carolina/1st United Bancorp, Boca Raton,
Florida; Keystone Financial, Harrisburg, Pennsylvania/Financial Trust Corp,
Carlisle, Pennsylvania; First Virginia Banks, Falls Church, Virginia/Premier
Bankshares, Bluefield, Virginia; Huntington Bancshares, Columbus,
Ohio/Citi-Bancshares, Inc, Leesburg, Florida; Summit Bancorp., Princeton, New
Jersey/BMJ Financial Corp., Bordentown, New Jersey; Regions Financial,
Birmingham, Alabama/Allied Bankshares, Thomson, Georgia; Hibernia Corporation,
New Orleans, Louisiana/C M Bank Holding Co., Lake Charles, Louisiana; Firstar
Corp, Milwaukee, Wisconsin/American Bancorp., St. Paul, Minnesota; HUBCO, Inc,
Mahwah, New Jersey/Lafayette American, Bridgeport, Connecticut; Peoples Heritage
Financial, Portland, Maine/Bank of NH Corp, Manchester, New Hampshire; Meridian
Bancorp, Reading, Pennsylvania/United Counties Bancorp, Cranford, New Jersey;
Washington Mutual, Seattle, Washington/Western Bank, Coos Bay, Oregon; and
Huntington Bancshares, Columbus, Ohio/Peoples Bank-Lakeland, Lakeland, Florida.
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The analysis of the ROAA Transactions I indicated, among other things,
that, based on the announced transaction value: (i) the mean and median
multiples of transaction value to respective last twelve months' earnings were
16.9 and 17.0, respectively, as compared to an implied valuation of 23.6 times
Heritage earnings in this transaction; (ii) the mean and median ratios of
transaction value to book value were 242% and 251%, respectively, as compared to
an implied valuation of 342% of Heritage book value; (iii) the mean and median
ratios of transaction value to tangible book value were 248% and 252%,
respectively, as compared to an implied valuation of 399% of Heritage tangible
book; and (iv) the mean and median ratios of transaction value to total assets
were 25.2% and 26.1%, respectively, as compared to an implied valuation of 30.9%
of Heritage total assets.
The ROAA Transactions II were (seller in italics): First American Corp,
Nashville, Tennessee/Deposit Guaranty, Jackson, Mississippi; Banc One
Corporation, Columbus, Ohio/First Commerce Corp, New Orleans, Louisiana;
Wachovia Corp, Winston-Salem, North Carolina/Jefferson Bankshares,
Charlottesville, Virginia; Allied Irish Banks, Dublin, Ireland/Dauphin Deposit
Corp, Harrisburg, Pennsylvania; Keystone Financial, Harrisburg,
Pennsylvania/Financial Trust Corp, Carlisle, Pennsylvania; Mercantile Bancorp,
St Louis, Missouri/Mark Twain Bancshares, St. Louis, Missouri; Firstar Corp,
Milwaukee, Wisconsin/American Bancorp., St. Paul, Minnesota; UJB Financial,
Princeton, New Jersey/Summit Bancorp, Chatham, New Jersey; Meridian Bancorp,
Reading, Pennsylvania/United Counties Bancorp, Cranford, New Jersey; and First
Bank System, Minneapolis, Minnesota/FirsTier Financial, Omaha, Nebraska.
The analysis of the ROAA Transactions II indicated, among other things,
that, based on the announced transaction value: (i) the mean and median
multiples of transaction value to respective last twelve months' earnings were
20.3 and 19.2, respectively, as compared to an implied valuation of 23.6 times
Heritage earnings in this transaction; (ii) the mean and median ratios of
transaction value to book value were 260% and 250%, respectively, as compared to
an implied valuation of 342% of Heritage book value; (iii) the mean and median
ratios of transaction value to tangible book value were 278% and 260%,
respectively, as compared to an implied valuation of 399% of Heritage tangible
book; and (iv) the mean and median ratios of transaction value to total assets
were 25.8% and 24.1%, respectively, as compared to an implied valuation of 30.9%
of Heritage total assets.
The Price-to-Assets Transactions were (seller in italics): BB&T Corp,
Winston-Salem, North Carolina/Franklin Bancorp, Washington, D.C.; Regions
Financial, Birmingham, Alabama/First State Corp, Albany, Georgia; First American
Corp, Nashville, Tennessee/Deposit Guaranty, Jackson, Mississippi; National City
Corp., Cleveland, Ohio/First of America, Kalamazoo, Michigan; Citizens
Bancshares, Salineville, Ohio/Century Financial, Rochester, Pennsylvania; First
Union Corp., Charlotte, North Carolina/CoreStates Financial, Philadelphia,
Pennsylvania; Community First Banks, Fargo, North Dakota/Pioneer Bank, Longmont,
Colorado; Banc One Corporation, Columbus, Ohio/First Commerce Corp, New Orleans,
Louisiana; Triangle Bancorp, Raleigh, North Carolina/Guaranty State Bancorp,
Durham, North Carolina; Wayne Bancorp, Wooster, Ohio/Chippewa Valley Bank,
Rittman, Ohio; WesBanco, Wheeling, West Virginia/Commercial Bancshares,
Parkersburg, West Virginia; Colonial BancGroup, Montgomery, Alabama/United
American Holdings, Orlando, Florida; NationsBank Corp., Charlotte, North
Carolina/Barnett Banks Inc., Jacksonville, Florida; Fulton Financial Corp,
Lancaster, Pennsylvania/Keystone Heritage, Lebanon, Pennsylvania; Hibernia
Corporation, New Orleans, Louisiana/ArgentBank, Thibodaux, Louisiana; First
Charter Corp, Concord, North Carolina/Carolina State Bank, Shelby, North
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Carolina; Keystone Financial, Harrisburg, Pennsylvania/Financial Trust Corp,
Carlisle, Pennsylvania; S&T Bancorp, Indiana, Pennsylvania/Peoples Bank of
Unity, Pittsburg, Pennsylvania; and Centura Banks, Rocky Mount, North
Carolina/First Commercial Holding, Asheville, North Carolina.
The analysis of the Price-to-Assets Transactions indicated, among other
things, that, based on the announced transaction value: (i) the mean and median
multiples of transaction value to respective last twelve months' earnings were
24.0 and 23.1, respectively, as compared to an implied valuation of 23.6 times
Heritage earnings in this transaction; (ii) the mean and median ratios of
transaction value to book value were 346% and 348%, respectively, as compared to
an implied valuation of 342% of Heritage book value; (iii) the mean and median
ratios of transaction value to tangible book value were 367% and 361%,
respectively, as compared to an implied valuation of 399% of Heritage tangible
book; and (iv) the mean and median ratios of transaction value to total assets
were 32.4% and 31.7%, respectively, as compared to an implied valuation of 30.9%
of Heritage total assets.
Contribution Analysis: McDonald analyzed the contribution of each of
Heritage and First Midwest to the pro forma assets, gross loans, deposits,
equity, tangible equity, earnings for the last twelve months, 1997 estimated
earnings, 1998 estimated earnings and market value. This analysis demonstrated
that Heritage contributed approximately 26.3% of assets, 23.0% of gross loans,
28.4% of deposits, 25.8% of equity, 23.6% of tangible equity, 27.4% of earnings
for the last twelve months, 27.2% of 1997 estimated earnings, 27.9% of 1998
estimated earnings, and 29.1% of current aggregate market value. The Exchange
Ratio implies that Heritage shareholders will own approximately 32.5% of pro
forma shares outstanding upon completion of the Merger.
Accretion/Dilution Analysis: On the basis of long-term financial
projections prepared by McDonald, with the assistance of both of the management
teams, and estimates of on-going cost savings accruing to the pro forma company
provided to McDonald by management, as well as estimated one-time costs related
to the transaction, McDonald compared pro forma earnings, cash dividends, book
value and tangible book value to the stand-alone projections of both Heritage
and First Midwest.
The accretion/dilution analysis demonstrated, among other things, that the
Merger would result in (i) zero dilution to pro forma company earnings from 1998
through 2001 and accretion to Heritage Shareholders ranging from 12.9% to 19.8%
over the same time period; (ii) zero dilution to pro forma company estimated
cash dividends from 1998 through 2001 and accretion to Heritage Shareholders
ranging from 45.3% to 55.0% over the same time period; (iii) dilution to pro
forma company book value ranging from 7.4% to 10.5% from 1998 through 2001 and
accretion to Heritage Shareholders ranging from 14.1% to 20.8% over the same
time period; and (iv) dilution to pro forma company tangible book value ranging
from 9.3% to 13.3% from 1998 through 2001 and accretion to Heritage Shareholders
ranging from 20.6% to 32.8% over the same time period.
Discounted Cash Flow Analysis: McDonald performed a discounted cash flow
analysis with regard to Heritage on a stand-alone basis, as based on the above-
mentioned long-term projections. This analysis utilized a discount rate of 15%
based on McDonald's prediction as to what gain an intelligent investor might
realize with a portfolio of banking company stocks, and a range of estimated
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terminal multiples from 18.0 to 24.0 as applied to calendar year 2002 projected
earnings. The analysis resulted in a range of present values of $24.90 to $32.68
per share for Heritage on a stand-alone basis.
Other Analyses: McDonald also reviewed certain other information including
selected pro forma industry rankings, pro forma estimated balance sheet
composition and pro forma financial performance.
No other company used as a comparison in the above analyses is identical to
Heritage, First Midwest or the combined entity and no other transaction is
identical to the Merger. Accordingly, an analysis of the results of the
foregoing is not purely mathematical; rather, it involves complex considerations
and judgments concerning differences in financial market and operating
characteristics of the companies and other factors that could affect the public
trading volume of the companies to which Heritage, First Midwest and the
combined entity are being compared.
McDonald's opinion is based on the current amount and form of consideration
set forth in the Agreement and Plan of Merger and will not cover any situation
in which the parties renegotiate the amount or form of such consideration.
Through the date of this Joint Proxy Statement/Prospectus, Heritage has
paid McDonald aggregate fees of $400,000 for its financial advisory services.
If the Closing of the Merger occurs, McDonald will be paid an additional
$100,000, plus 3% of the amount, if any, by which the total average value of the
First Midwest Common Stock (for the twenty trading days ending on the fifth
trading day immediately prior to the date of such Closing), including stock
issuable to Heritage officers pursuant to outstanding stock options, to be
received by Heritage Shareholders exceeds $370 million, plus 1.5% of the amount,
if any, by which such total value exceeds $400 million. In no event, however,
can the total amount payable under such percentage formula, exclusive of the
fixed cash amounts, exceed $2.6 million. In addition, Heritage has agreed to
reimburse McDonald for all reasonable out-of-pocket expenses, not to exceed
$10,000, incurred by it on Heritage's behalf, as well as indemnify McDonald
against certain liabilities, including any which may arise under the federal
securities laws.
McDonald is a member of all principal securities exchanges in the United
States; and in its conduct of its broker-dealer activities has from time to time
purchased securities from, and sold securities to, Heritage and/or First
Midwest. As a market maker, McDonald may also have purchased and sold the
securities of First Midwest for McDonald's own account and for the accounts of
its customers.
Opinion of First Midwest Financial Advisor
On January 12, 1998, Goldman Sachs delivered its oral opinion to the First
Midwest Board that, as of the date of such opinion, the Exchange Ratio pursuant
to the Merger Agreement was fair from a financial point of view to First
Midwest. Goldman Sachs subsequently confirmed its earlier oral opinion by
delivery of its written opinion dated as of the date of this Joint Proxy
Statement/Prospectus.
The full text of the written opinion of Goldman Sachs, dated as of the date
of this Joint Proxy Statement/Prospectus, which sets forth assumptions made,
matters considered and limitations on the review undertaken in connection with
the opinion, is attached hereto as Appendix C to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference.
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Holders of First Midwest Common Stock are urged to, and should, read such
opinion in its entirety.
In connection with its opinion, Goldman Sachs reviewed, among other things,
(i) the Merger Agreement; (ii) First Midwest's Registration Statement on Form S-
4, including this Joint Proxy Statement/Prospectus; (iii) Annual Reports to
Stockholders and Annual Reports on Form 10-K of First Midwest for the five years
ended December 31, 1997; (iv) Annual Reports to Shareholders of Heritage for the
four years ended December 31, 1996 and Annual Reports on Form 10-K of Heritage
for the five years ended December 31, 1997; (v) certain interim reports to
stockholders and Quarterly Reports on Form 10-Q of First Midwest and Heritage;
(vi) certain internal financial analyses and forecasts for First Midwest and
Heritage prepared by their respective managements; (vii) certain results of
First Midwest's financial due diligence of Heritage; and (viii) certain
estimates of cost savings and operating synergies that the management of First
Midwest expects will result from the Merger. Goldman Sachs also held discussions
with members of the senior management of First Midwest and Heritage regarding
the past and current business operations, regulatory relationships, financial
condition and future prospects of their respective companies and the strategic
rationale for, and benefits of, the Merger. In addition, Goldman Sachs
reviewed the reported price and trading activity for the shares of First Midwest
Common Stock and Heritage Common Stock, compared certain financial and stock
market information for First Midwest and Heritage with similar information for
certain other companies the securities of which are publicly traded, reviewed
the financial terms of certain recent business combinations in the commercial
banking industry and performed such other studies and analyses as it considered
appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and assumed such accuracy and
completeness for purposes of rendering its opinion. In that regard, Goldman
Sachs assumed, with First Midwest's consent, that the financial forecasts,
including, without limitation, estimated cost savings and operating synergies
resulting from the Merger and projections regarding under- performing and
non-performing assets and net charge-offs, have been reasonably prepared on a
basis reflecting the best currently available judgments and estimates of First
Midwest and Heritage and that such forecasts will be realized in the amounts and
at the times contemplated thereby.
Goldman Sachs is not an expert in the evaluation of loan and lease
portfolios for purposes of assessing the adequacy of the allowances for losses
with respect thereto and has assumed, with First
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Midwest's consent, that such allowances for each of First Midwest and Heritage
are in the aggregate adequate to cover all such losses. In addition, Goldman
Sachs did not review individual credit files nor did it make an independent
evaluation or appraisal of the assets and liabilities of First Midwest or
Heritage or any of their respective subsidiaries and was not furnished with any
such evaluation or appraisal. Goldman Sachs assumed, with First Midwest's
consent, that the Merger will be accounted for as a pooling of interests under
generally accepted accounting principles ("GAAP").
Goldman Sachs' advisory services and its opinion referred to herein were
provided for the information and assistance of the First Midwest Board in
connection with its consideration of the transaction contemplated by the Merger
Agreement and do not constitute a recommendation as to how any holder of First
Midwest Common Stock should vote with respect to such transaction. Goldman
Sachs' opinion referred to herein does not cover situations where the parties
renegotiate the amount of the consideration.
The following is a summary of the material financial analyses used by
Goldman Sachs in connection with providing its January 12, 1998 oral opinion to
the First Midwest Board. Goldman Sachs used substantially the same type of
financial analyses in connection with providing the written opinion attached
hereto as Appendix C.
(i) Selected Companies Analysis. Goldman Sachs reviewed and compared
certain financial information, ratios and public market multiples relating
to First Midwest and Heritage to corresponding financial information,
ratios and public market multiples for fourteen publicly traded banking
organizations: AMCORE Financial, Inc., Firstbank of Illinois Co., Corus
Bankshares, Inc., Grand Premier Financial, Inc., Pinnacle Banc Group, Inc.,
Old Second Bancorp, Inc., Beverly Bancorporation, Inc., First Oak Brook
Bancshares, Inc., CNB Bancshares, Inc., UMB Financial Corporation,
Community First Bankshares, Inc., Citizens Banking Corporation, First
Financial Bancorp. and Fort Wayne National Corporation (the "Selected
Companies"). The Selected Companies were chosen because they are publicly-
traded banking organizations with operations that, for purposes of
analysis, may be considered similar to certain operations of First Midwest
and Heritage. Goldman Sachs calculated financial multiples and ratios for
First Midwest, Heritage and the Selected Companies based on publicly
available market data and estimates provided by the Institutional Brokers
Estimate System ("IBES") as of January 9, 1998.
Goldman Sachs' analyses of price/earnings ("P/E") ratios indicated
that 1997 estimated P/E ratios ranged from 14.6x to 22.4x for the Selected
Companies, compared to 20.6x for Heritage and 18.6x for First Midwest and
1998 estimated P/E ratios ranged from 13.5x to 20.0x for the Selected
Companies, compared to 18.7x for Heritage and 16.9x for First Midwest.
Based on reported book values, Goldman Sachs calculated stockholders'
common equity as a percentage of total assets ranging from 6.4% to 12.3% for
the Selected Companies, compared to 9.0% for Heritage and 9.2% for First
Midwest and tangible stockholders' common equity as a percentage of tangible
assets ranging from 4.2% to 11.9% for the Selected Companies, compared to
7.8% for Heritage and 8.7% for First Midwest. Goldman Sachs also calculated
for the Selected Companies the return on average assets
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("ROAA") and the return on average equity ("ROAE"). Such calculations
indicated that ROAA ranged from 0.63% to 1.86% for the Selected Companies,
compared to 1.35% for Heritage and 1.19% for First Midwest and ROAE ranged
from 6.9% to 22.7% for the Selected Companies, compared to 15.8% for
Heritage and 13.7% for First Midwest.
Goldman Sachs' analyses indicated that market capitalization as a
multiple of book value ranged from 1.72x to 3.35x for the Selected
Companies, compared to 2.90x for Heritage and 2.48x for First Midwest, and
market capitalization as a multiple of tangible book value ranged from
1.88x to 5.20x for the Selected Companies, compared to 3.39x for Heritage
and 2.64x for First Midwest.
Goldman Sachs also analyzed for the Selected Companies the dividend
yield and, for the last twelve months ("LTM") ended September 30, 1997, the
non-interest income as a percentage of revenue and the efficiency ratio
(i.e., non-interest expense as a percentage of revenue). Such analyses
indicated that the dividend yield ranged from 1.0% to 3.2% for the Selected
Companies, compared to 1.4% for Heritage and 2.2% for First Midwest; LTM
non-interest income as a percentage of revenue ranged from 16% to 38% for
the Selected Companies, compared to 14% for Heritage and 20% for First
Midwest; and the efficiency ratio ranged from 37% to 71% for the Selected
Companies, compared to 49% for Heritage and 60% for First Midwest.
(ii) Selected Transactions Analysis. Goldman Sachs analyzed certain
information relating to selected transactions in the Midwest commercial
banking industry between 1995 and 1997 (the "Selected Midwest
Transactions"). Such analysis indicated that for the Selected Transactions:
(i) announced deal price as a multiple of book value ranged from 1.2x to
2.8x, (ii) announced deal price as a multiple of tangible book value ranged
from 1.4x to 3.1x, (iii) announced deal price as a multiple of LTM earnings
per share ("EPS") ranged from 12.7x to 24.4x, (iv) the premium (measured as
deal price less tangible common equity) as a percentage of core deposits
ranged from 5.9% to 22.4%, and (v) the premium of deal price to current
market capitalization ranged from 12.4% to 53.4%.
Goldman Sachs also analyzed certain information relating to recent
transactions throughout the United States in the commercial banking
industry since 1997, where the aggregate consideration exceeded $200
million (the "Selected Recent Transactions"). Such analysis indicated that
for the Selected Recent Transactions: (i) announced deal price as a
multiple of book value ranged from 1.5x to 5.4x, (ii) announced deal price
as a multiple of tangible book value ranged from 1.5x to 5.8x, (iii)
announced deal price as a multiple of LTM EPS ranged from 16.6x to 51.0x,
(iv) the premium (measured as deal price less tangible common equity) as a
percentage of core deposits ranged from 10.0% to 45.6%, and (v) the premium
of deal price to current market capitalization ranged from 5.5% to 69.1%.
(iii) Contribution Analysis. Goldman Sachs analyzed certain historical
and estimated balance sheet and net income financial information for First
Midwest, Heritage and the pro forma combined entity resulting from the
proposed transaction based on First Midwest and Heritage managements'
respective estimates. This analysis indicated that, based on the September
30, 1997 balance sheet, First Midwest and Heritage would contribute on a
pro
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forma basis, 74% and 26%, respectively, to combined assets; 74% and 26%,
respectively, to combined stockholders' common equity; and 76% and 24%,
respectively, to combined stockholders' tangible common equity. This
analysis further indicated that First Midwest and Heritage would contribute
to pro forma combined net income an estimated 71% and 29%, respectively, in
1997 and an estimated 72% and 28%, respectively, in 1998. Based on the
Exchange Ratio, the analysis further indicated that, on a pro forma basis,
the First Midwest Stockholders and the Heritage Shareholders would receive
68% and 32%, respectively, of the outstanding shares of the combined
entity.
(iv) Analysis at Various Prices. Goldman Sachs analyzed at various
price levels the aggregate consideration to be received by Heritage as a
multiple of estimated and actual net income, net income assuming the
achievement of synergies of 30%, and book value, for each of 1996, LTM, and
estimated years 1997, 1998 and 1999 (the "Estimated Periods"),
respectively. Goldman Sachs also calculated based on the various price
levels the premium as a percentage of total deposits.
Based on an exchange ratio of 0.7695x and a per share price of First
Midwest Common Stock ranging from $39.13 to $43.13, Goldman Sachs' analysis
indicated that: (i) consideration per share ranged from $30.11 to $33.18,
(ii) premium of consideration per share to current market price ranged from
7.5% to 18.5%, (iii) aggregate consideration as a multiple of net income
ranged from 25.4x to 28.0x for 1996; 22.4x to 24.7x for LTM; and from 18.8x
to 23.4x for the Estimated Periods, (iv) aggregate consideration as a
multiple of earnings assuming achievement of certain synergies ranged from
16.7x to 18.4x for LTM and from 14.6x to 17.7x for the Estimated Periods,
(v) aggregate consideration as a multiple of stated book value ranged from
3.08x to 3.40x; as a multiple of tangible book value ranged from 3.56x to
3.92x; and as a multiple of normalized adjusted tangible book value (i.e.,
tangible book value as adjusted to represent 6% tangible common equity to
tangible assets ratio) ranged from 4.82x to 5.32x, and (vi) the premium
(measured as deal price less tangible common equity) to total deposits
ranged from 24.4% to 27.8%.
(v) Pro Forma Merger Analysis. Goldman Sachs prepared pro forma
analyses of the financial impact of the transaction on EPS, book value per
share and capital ratios based on an exchange ratio of 0.7695x and using a
price of $41.13 per share, the closing price of First Midwest Common Stock
on the Nasdaq Stock Market on January 9, 1998. Assuming achievement of
certain synergies, such analyses indicated that, on a pro forma basis, the
transaction would be: (i) dilutive to GAAP EPS by 3.55% in 1998 and
accretive to GAAP EPS by 0.68% in 1999, and (ii) dilutive to book value per
share (on a fully-diluted basis) by 12.07% at announcement and dilutive
also to tangible book value per share (on a fully-diluted basis) by 14.30%
at announcement. In addition, the analyses estimated that First Midwest's
Stockholders' common equity as a percentage of total assets would decline
from 9.24% to 9.19% and First Midwest's tangible Stockholders' common
equity as a percentage of tangible assets would decline from 8.71% to
8.16%.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the
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processes underlying Goldman Sachs' opinion. In arriving at its fairness
determination, Goldman Sachs considered the results of all such analyses. No
company or transaction used in the above analyses as a comparison is directly
comparable to First Midwest or Heritage or the contemplated transaction. The
analyses were prepared for purposes of Goldman Sachs' providing its opinion to
the First Midwest Board as to the fairness from a financial point of view of the
Exchange Ratio and do not purport to be appraisals or necessarily reflect the
prices at which businesses or securities actually may be sold. Analyses based
upon forecasts of future results are not necessarily indicative of actual future
results, which may be significantly more or less favorable than suggested by
such analyses. Such analyses are inherently subject to uncertainty, being based
upon numerous factors or events beyond the control of Goldman Sachs. As
described above, Goldman Sachs' opinion to the First Midwest Board was one of
many factors taken into consideration by the First Midwest Board in making its
determination to approve the Merger Agreement. The foregoing summary does not
purport to be a complete description of the analysis performed by Goldman Sachs
and is qualified by reference to the written opinion of Goldman Sachs set forth
in Appendix C hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. First Midwest selected
Goldman Sachs as its financial advisor because it is a nationally recognized
investment banking firm that has substantial experience in transactions similar
to this one.
Goldman Sachs is familiar with First Midwest, having provided certain
investment banking services and received customary fees and reimbursement of
expenses from time to time, including having acted as First Midwest's financial
advisor in connection with its acquisition of an auto loan portfolio from Cole
Taylor Bank in January 1997, and having acted as First Midwest's financial
advisor in connection with its acquisition of SparBank, Incorporated in June
1997. In connection with these two engagements, which represent the only
engagements other than the Heritage acquisition that Goldman Sachs and First
Midwest have entered into in the last two years, First Midwest paid customary
fees and expenses to Goldman Sachs totaling approximately $235,000 and $278,000,
respectively. Goldman Sachs has also acted as First Midwest's financial advisor
in connection with, and participated in certain of the negotiations leading to,
the Merger Agreement. Goldman Sachs & Co. provides a full range of financial
advisory and securities services and, in the course of its normal trading
activities, may from time to time effect transactions and hold securities,
including derivative securities, of First Midwest for its own account and for
the accounts of customers.
Pursuant to a letter agreement dated November 26, 1997 (the "Engagement
Letter"), First Midwest engaged Goldman Sachs to act as its financial advisor in
connection with the possible acquisition of all or a portion of the stock or
assets of Heritage. Pursuant to the terms of the Engagement Letter, First
Midwest has agreed to pay Goldman Sachs a transaction fee of $1.5 million
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upon consummation of the Merger. First Midwest has agreed to reimburse Goldman
Sachs for its reasonable out-of-pocket expenses, including attorney's fees, and
to indemnify Goldman Sachs against certain liabilities, including certain
liabilities under the federal securities laws.
Effective Time; Closing Date
In order to consummate the Merger, First Midwest and Heritage must file
Articles of Merger with the Secretary of State of the State of Illinois. Such
filing will occur only after the receipt of all regulatory approvals and the
approval of the Issuance and the Charter Amendment by the Stockholders of First
Midwest and of the Merger Agreement by the Shareholders of Heritage and the
satisfaction or waiver of all other conditions to the Merger (see "-- Conditions
to the Merger"). The closing of the Merger (the "Closing") will take place on a
date mutually agreed upon by First Midwest and Heritage (the "Closing Date"). In
the absence of such agreement, the Closing shall be held on the 30th day after
the last to occur of: (i) the receipt of all approvals and consents of
government regulatory authorities as legally required to consummate the Merger
and the expiration of all statutory waiting periods; and (ii) the approval of
the Merger Agreement by the Shareholders of Heritage and the approval of the
Issuance and the Charter Amendment by the Stockholders of First Midwest. The
parties will execute, acknowledge and file with the Secretary of State of the
State of Illinois, in accordance with governing corporate law, the Articles of
Merger on the Closing Date upon the satisfaction of all conditions precedent to
the consummation of the transactions contemplated by the Merger Agreement. The
Effective Time of the Merger will be as of the close of business as of the day
on which the Certificate of Merger is issued by the Secretary of State of the
State of Illinois.
Exchange of Certificates by Heritage Shareholders
No later than ten business days after the date of the Heritage Meeting,
First Midwest will cause American Securities Transfer & Trust, Inc. (the
"Exchange Agent") to mail to each holder of record of Heritage Common Stock
transmittal materials for use in effecting the surrender of such holder's
Heritage Common Stock certificates (the "Heritage Certificates") for
certificates representing shares of First Midwest Common Stock (the "First
Midwest Certificates").
HERITAGE SHAREHOLDERS SHOULD NOT SEND IN THEIR HERITAGE CERTIFICATES UNTIL
THEY RECEIVE THE TRANSMITTAL MATERIALS FROM THE EXCHANGE AGENT.
Following the consummation of the Merger, upon the delivery by a Heritage
Shareholder to the Exchange Agent of all necessary transmittal materials and the
Heritage Certificates, there will be mailed to such Shareholder a First Midwest
Certificate or First Midwest Certificates to which such
Shareholder is entitled and, where applicable, a check for the amount
representing any fractional share. A First Midwest Certificate may be issued in
a name other than the name in which the surrendered Heritage Certificate is
registered only if the Heritage Certificate is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect a transfer to the
new name and by evidence that any applicable stock transfer taxes have been
paid.
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No dividends or other distributions declared after the Effective Time with
respect to First Midwest Common Stock payable to the holders of record thereof
after the Effective Time will be paid to the holder of any unsurrendered
Heritage Certificate (with respect to First Midwest Common Stock represented
thereby) until the holder of record shall deliver such Heritage Certificate,
along with the transmittal materials, to the Exchange Agent. Subject to the
effect, if any, of applicable law, after the subsequent delivery and exchange of
a Heritage Certificate, the holder thereof will be entitled to receive any such
dividends or distributions, without interest thereon, which theretofore became
payable with respect to First Midwest Common Stock represented by such Heritage
Certificate. All dividends or other distributions declared on or after the
Effective Time with respect to First Midwest Common Stock and payable to the
holders of record thereof on or after the Effective Time which are payable to
the holder of a Heritage Certificate not theretofore delivered and exchanged for
First Midwest Common Stock shall be paid or delivered by First Midwest to the
Exchange Agent, in trust, for the benefit of such holders.
All such dividends and distributions held by the Exchange Agent for payment
or delivery to the holders of undelivered Heritage Certificates unclaimed at the
end of one year from the Effective Time shall be repaid or redelivered by the
Exchange Agent to First Midwest, after which time any holder of Heritage
Certificates who has not theretofore delivered such Heritage Certificates to the
Exchange Agent shall, subject to applicable law, be treated as a general
creditor with respect to such amounts and shall look only to First Midwest for
payment or delivery of such dividends or distributions, as the case may be. Any
shares of First Midwest Common Stock delivered or made available to the Exchange
Agent and not exchanged for Heritage Certificates within one year after the
Effective Time shall be returned by the Exchange Agent to First Midwest which
will thereafter act as Exchange Agent subject to the rights of holders of
unsurrendered Heritage Certificates.
Dissenters' Appraisal Rights
Any Shareholder of Heritage who does not vote in favor of the Merger
Agreement and who gives written notice prior to the vote by the Shareholders of
Heritage on the Merger Agreement may demand dissenters' appraisal rights
pursuant to Sections 11.65 and 11.70 of the Illinois Business Corporation Act of
1983, as amended (the "IBCA"). Copies of these sections are attached as Appendix
D hereto. Dissenting Shareholders may elect to receive payment in cash in an
amount equal to the estimated "fair value" of their shares, which will be the
value of the shares immediately before the consummation of the Merger excluding
any appreciation or depreciation in anticipation of the Merger, unless such
exclusion would be inequitable. The following is a summary of the procedural
steps which must be taken to ensure that a dissenting Shareholder's appraisal
rights are recognized.
It is a condition to First Midwest's obligation to consummate the Merger,
that dissenters' appraisal rights not be perfected with respect to more than 5%
of the outstanding Heritage Common Stock. See "-- Conditions to the Merger."
A Heritage Shareholder desiring to perfect his or her right to payment for
his or her shares must mail or deliver to Heritage (Attention: Ronald P. Groebe,
Secretary, Heritage Financial Services, Inc., 12015 South Western Avenue, Blue
Island, Illinois 60406), a written demand for payment of his or her shares
before the vote on the Merger Agreement is taken, and such Shareholder must not
vote in favor of the Merger Agreement. The delivery of a
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proxy with instructions to vote the shares represented thereby AGAINST approval
of the Merger Agreement will NOT, by itself, satisfy the requirement of a
written demand.
Only a holder of record is entitled to request dissenters' appraisal rights
and payment for the shares registered in his or her name. A record owner of
shares may assert dissenters' appraisal rights as to fewer than all of the
shares recorded in such person's name only if such person dissents with respect
to all shares beneficially owned by any one person and notifies Heritage in
writing of the name and address of each person on whose behalf the record owner
asserts dissenters' appraisal rights. The rights of a partial dissenter are
determined as if the shares as to which dissent is made and the other shares
held by such holder of record are recorded in the names of different Heritage
Shareholders. A beneficial owner of shares who is not the record owner may
assert dissenters' appraisal rights as to shares held on such person's behalf
only if the beneficial owner submits to Heritage the record owner's written
consent to the dissent before or at the same time the beneficial owner asserts
dissenters' appraisal rights.
A demand must reasonably inform Heritage of the identity of the holder of
record of the Heritage Common Stock covered by the demand and that such holder
of record demands payment for such shares. The demand should be executed by or
for the Heritage Shareholder of record, fully and correctly, as such
Shareholder's name appears on the Heritage Certificate(s).
A Heritage Shareholder who makes written demand for payment retains all
other rights of a Shareholder until those rights are canceled or modified at the
Effective Time by the consummation of the Merger. Within ten days after the
Effective Time, First Midwest shall send each dissenting Heritage Shareholder
who has delivered a written demand for payment, a statement setting forth the
opinion of First Midwest as to the estimated fair value of the shares of
Heritage Common Stock, Heritage's 1997 financial statements and Heritage's
latest available interim financial statements, and a commitment to pay for the
shares of the dissenting Shareholder the estimated fair value thereof upon
transmittal to First Midwest of the Heritage Certificate or Certificates.
Upon consummation of the Merger, and given demand for payment by a
dissenting Shareholder, First Midwest shall, upon receipt of the Heritage
Certificate, pay the amount First Midwest estimates to be the fair value of the
shares, plus accrued interest, if any. An explanation of how the interest was
calculated will be provided by First Midwest to the dissenting Shareholder at
the time that First Midwest pays the amount it estimates to be the fair value of
the shares.
If the dissenting Heritage Shareholder does not agree with the opinion of
First Midwest as to the estimated fair value of the shares, or the amount of
interest due, he or she shall, within thirty days from the delivery of First
Midwest's statement of value, notify First Midwest in writing of such
Shareholder's determination of the estimated fair value and interest due
relating to the shares, and demand payment of the difference.
If within sixty days after delivery of such written notification by a
dissenting Heritage Shareholder, First Midwest and the dissenting Shareholder
are unable to agree as to the value of the shares, First Midwest shall either
pay the difference in value demanded by the Shareholder, with interest, or file
a petition in the Circuit Court of Cook County, Illinois requesting a
determination of the fair value of the shares and the interest due. All
Shareholders who have perfected their dissenters'
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appraisal rights and who have not settled with First Midwest will be made
parties to this proceeding. The cost of the proceedings may be assessed against
one or more parties to the proceedings as the court may consider equitable.
Failure of First Midwest to commence an action shall not limit or affect the
right of the dissenting Shareholder to otherwise commence an action as permitted
by law.
The foregoing is only a summary of the provisions of the IBCA and is
qualified in its entirety by reference to the text of Sections 11.65 and 11.70
of the IBCA which are set forth in Appendix D hereto and incorporated by
reference herein. ANY SHAREHOLDER OF HERITAGE WHO DESIRES TO EXERCISE HIS OR HER
DISSENTERS' APPRAISAL RIGHTS SHOULD CAREFULLY REVIEW APPENDIX D AND CONSULT A
LEGAL ADVISOR BEFORE ELECTING OR ATTEMPTING TO EXERCISE SUCH RIGHTS.
The holders of First Midwest Common Stock do not have dissenters' appraisal
rights in connection with the Merger because Heritage is merging with
Acquisition Corp. First Midwest is not a participant in the Merger and,
therefore, under the Delaware General Corporation Law (the "DGCL"), no
dissenters' appraisal rights are available.
Regulatory Approvals
The Merger is subject to the prior approval of the Board of Governors of
the Federal Reserve System ("Federal Reserve Board") and the Illinois
Commissioner of Banks and Real Estate (the "Illinois Commissioner"). First
Midwest filed applications for approval of the Merger with the Federal Reserve
Board and the Illinois Commissioner on February 13, 1998. The Federal Reserve
Board approved the Merger on April 13, 1998. First Midwest anticipates
obtaining the approval of the Illinois Commissioner during the second quarter of
1998. There can be no assurance as to the timing of such approval or that the
Illinois Commissioner will approve the Merger.
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Under federal law, a period of thirty days must expire following approval
by the Federal Reserve Board within which period the United States Department of
Justice (the "Department of Justice") may file objections to the Merger under
the federal antitrust laws. The Department of Justice could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the Merger, unless divestiture of an
acceptable number of branches to a competitively suitable purchaser could be
made. While First Midwest believes that the likelihood of such action by the
Department of Justice is remote in this case, there can be no assurance that the
Department of Justice will not initiate such a proceeding.
The Merger may not be consummated until the 30th day (or, with the consent
of the relevant agencies, the 15th day) following the date of the requisite
Federal Reserve Board approval, during which period the Department of Justice
may comment adversely on the Merger (which has the effect of extending the
waiting period to the 30th day following approval) or challenge the Merger on
antitrust grounds. The commencement of an antitrust action would delay the
effectiveness of such an approval unless a court specifically orders otherwise.
It is a condition to the consummation of the Merger that the Federal
Reserve Board and Illinois Commissioner approvals not contain any non-standard
conditions or restrictions. If First Midwest reasonably determines that any such
non-standard conditions or restrictions would be unduly burdensome to First
Midwest or its subsidiaries, First Midwest will not be obligated to consummate
the Merger. The Federal Reserve Board approval did not contain any non-standard
conditions or restrictions. There can be no assurance that the Illinois
Commissioner approval will not contain conditions or restrictions which cause
such approval to fail to satisfy such conditions to the consummation of the
Merger.
THE MERGER WILL NOT PROCEED IN THE ABSENCE OF THE REQUISITE REGULATORY
APPROVALS. THERE CAN BE NO ASSURANCE THAT THE APPROVAL OF THE ILLINOIS
COMMISSIONER WILL BE OBTAINED, AND IF THE MERGER IS APPROVED, THERE CAN BE NO
ASSURANCE AS TO THE DATE OF SUCH APPROVAL. THERE CAN ALSO BE NO ASSURANCE THAT
SUCH APPROVAL WILL NOT CONTAIN A CONDITION OR RESTRICTION WHICH CAUSES SUCH
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APPROVAL TO FAIL TO SATISFY THE CONDITIONS SET FORTH IN THE MERGER AGREEMENT.
THERE CAN LIKEWISE BE NO ASSURANCE THAT THE DEPARTMENT OF JUSTICE OR A STATE
ATTORNEY GENERAL WILL NOT CHALLENGE THE MERGER, OR IF SUCH A CHALLENGE IS MADE,
AS TO THE OUTCOME THEREOF.
Business Pending the Merger and Other Covenants
First Midwest and Heritage have agreed to conduct their respective
businesses in accordance with certain guidelines contained in the Merger
Agreement. Until the consummation of the Merger, Heritage and First Midwest have
each agreed, among other things, that each of them (and each of their respective
subsidiaries) will:
(a) conduct its businesses only in the ordinary course;
(b) use its best efforts to preserve intact its current business
organizations, keep available the services of its 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 each of First Midwest and Heritage will inform the other as soon as
it becomes aware of the potential loss or diminution in the relationship with
any consequential customer;
(c) confer with each other concerning operational matters that would
reasonably be expected to have a Material Adverse Effect (as defined in the
Merger Agreement and below, see "-- Conditions to the Merger") on either First
Midwest or Heritage;
(d) enter into loan and other business transactions only in
accordance with current credit and other internal policies (and not amend such
policies except as may be required by any bank regulatory authority) and only on
terms and conditions consistent with arm's-length transactions and conduct
investment and asset liability management activities only in accordance with
current investment and asset liability management policies (and not amend such
policies except as may be required by any bank 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 assets necessary for the conduct of 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 such
assets and with respect to the conduct of such business in amounts and kinds
comparable to that in effect on the date of the Merger Agreement 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 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 applicable to it.
The Merger Agreement also provides that prior to the Effective Time,
without the other party's prior written consent (and except as provided in the
Merger Agreement), each of First Midwest and Heritage may not, and may not allow
their respective subsidiaries to, among other things: (a) change its authorized
or issued capital stock; (b) grant any stock option or right to purchase shares
of capital stock; (c) issue or redeem any of its capital stock; (d) amend its
charter or bylaws; (e) pay or increase any bonuses, salaries or other
compensation to any Shareholder or Stockholder, director, officer or employee or
enter into any employment, severance or similar contract with any director,
officer or employee; (f) adopt or amend in any material manner (except in order
to comply with any legal requirements), or terminate, or increase the payments
to or benefits under, any employee benefit plan; (g) terminate any material
contract; (h) materially change any existing material lease of real or personal
property; (i) sell, lease or otherwise dispose of any material asset or property
or mortgage, pledge or impose any lien or otherwise encumber any material asset
or property; (j) incur any obligation or liability (fixed or contingent) other
than in the ordinary course of business; or (k) enter into any transaction
providing for the borrowing or loaning of monies, other than in the ordinary
course of business. In addition, Heritage has agreed that it will not merge or
consolidate with or into any other person, or acquire any stock, equity interest
or business of any other person.
Heritage has also agreed that prior to the Effective Time, neither Heritage
(nor its subsidiaries) nor any of their representatives will: (i) solicit,
initiate, participate in discussions of, or encourage or take any other action
to facilitate 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 its subsidiaries; or (ii) solicit,
initiate, participate in discussions of, or encourage or take any other action
to facilitate any inquiry or proposal or enter into any agreement, arrangement,
or understanding, regarding any proposal or transaction providing for or
requiring it to abandon, terminate or fail to consummate the Merger Agreement,
or compensating it or its subsidiaries under any of the instances described.
Heritage is to 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 is also obligated to cease and cause to
be terminated any activities, discussions, or negotiations with any persons
conducted before January 14, 1998 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 Heritage Board determines, in good
faith, that the exercise of its fiduciary duties to the Heritage Shareholders
under applicable law requires it to take such action. Heritage may not, in any
event, provide to such person any information which it has not provided to First
Midwest. Heritage must promptly notify First Midwest 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.
"Acquisition Transaction" as defined in the Merger Agreement shall, with
respect to Heritage, mean any of the following: (i) a merger or consolidation,
or any similar transaction of any company
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with either Heritage or a significant subsidiary, as defined by Rule 1.02 of
Regulation S-X of the Commission, of Heritage; (ii) a purchase, lease or other
acquisition of all or substantially all the assets of either Heritage or a
significant subsidiary of Heritage; (iii) a purchase or other acquisition of
beneficial ownership by any person or group 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 a significant subsidiary of Heritage;
(iv) a bona fide 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 the Merger
Agreement; (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 (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.
Heritage has also agreed to: (i) recommend to its Shareholders approval of
the Merger Agreement; and (ii) solicit proxies in favor of the Merger Agreement
from its Shareholders.
In the Merger Agreement, Heritage and First Midwest have agreed to use
their best efforts in good faith to satisfy the various covenants and conditions
to Closing applicable to First Midwest or Heritage, as the case may be,
contained in the Merger Agreement and to consummate the transactions
contemplated by the Merger Agreement as promptly as possible. Furthermore, the
Merger Agreement provides that neither First Midwest nor Heritage will
intentionally take or intentionally permit to be taken any action that would be
a breach of the terms or provisions of the Merger Agreement or would cause its
representations and warranties to be or become untrue. Between January 14, 1998
and the Closing Date, Heritage will, and will cause its subsidiaries to,
cooperate with First Midwest with respect to all filings that are contemplated
by the Merger Agreement or required to be made in connection with the
transactions contemplated by the Merger Agreement.
Between January 14, 1998 and the Closing Date, each of First Midwest or
Heritage will promptly notify the other in writing if it acquires knowledge of
any fact or condition that causes or constitutes a breach of any of its
representations and warranties as of the date of the Merger Agreement, or if it
acquires knowledge of the occurrence after the date of the Merger Agreement of
any fact or condition that would (except as expressly contemplated by the Merger
Agreement) cause or constitute a breach of any of its representations or
warranties had such representation or warranty been made as of the time of
occurrence or discovery of such fact or condition. During the same period, First
Midwest and Heritage will promptly notify the other of the occurrence of any
breach of any covenant in the Merger Agreement or of the occurrence of any event
that may make the satisfaction of the conditions to Closing impossible or
unlikely.
The Merger Agreement prohibits Heritage and First Midwest and their
subsidiaries from taking any voluntary 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. See
"-- Accounting Treatment" and "-- Federal Income Tax Consequences
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of the Merger." First Midwest is also obligated to use its best efforts to list
the First Midwest Common Stock to be issued in the Merger for trading on the
Nasdaq Stock Market.
Representations and Warranties
First Midwest and Heritage made a series of representations and warranties
to each other in the Merger Agreement which are customary for a transaction of
this type. It is a condition of the Closing that each party's representations
and warranties must be accurate in all material respects as
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of the Closing Date. See "-- Conditions to the Merger." As of the date of this
Joint Proxy Statement/Prospectus, neither First Midwest nor Heritage has any
knowledge that this condition will not be satisfied as of the Closing Date.
Conditions to the Merger
The obligations of First Midwest and Heritage to consummate the Merger are
subject to the satisfaction or waiver by First Midwest or Heritage, as the case
may be, of the following conditions, among others: (i) the representations and
warranties made by a party in the Merger Agreement (considered collectively)
must have been accurate in all material respects as of the date of the Merger
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; (ii) all of the covenants and obligations that a party is required to
perform or to comply with pursuant to the Merger Agreement at or prior to the
Closing (considered collectively) must have been duly performed and complied
with in all material respects; (iii) all proceedings, corporate or other, to be
taken by a party in connection with the transactions contemplated by the Merger
Agreement, and all documents incident thereto, shall be reasonably satisfactory
in form and substance to the other party and its counsel; (iv) since the date of
the Merger Agreement, there must not have been commenced or threatened against a
party, or against any affiliate of a party, any proceeding: (a) involving any
challenge to, or seeking damages or other relief in connection with, any of the
transactions contemplated by the Merger Agreement; or (b) that may have the
effect of preventing, delaying, making illegal or otherwise interfering with any
of the transactions contemplated by the Merger Agreement, in either case that
would reasonably be expected to have a Material Adverse Effect on such party;
(v) there shall be and have been no event or occurrence that had or would
reasonably be expected to have a Material Adverse Effect on First Midwest or
Heritage, as the case may be; (vi) any consents or approvals required to be
secured by a party by the terms of the Merger Agreement or otherwise reasonably
necessary in the opinion of the other party to consummate the transactions
contemplated by the Merger Agreement shall have been obtained and shall be
reasonably satisfactory to the other party, and all applicable waiting periods
shall have expired; (vii) neither the consummation nor the performance of any of
the transactions contemplated by the Merger Agreement will, directly or
indirectly (with or without notice or lapse of time), contravene, or conflict
with or result in a violation of, or cause a party or any affiliate of a party
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 First Midwest or Heritage, as the case may be; (viii) the Registration
Statement filed by First Midwest with the Commission with respect to the First
Midwest Common Stock to be issued pursuant to the Merger Agreement shall have
become effective and no stop order proceedings with respect thereto shall be
pending or threatened; (ix) in the case of First Midwest, the Merger Agreement
and the transactions contemplated thereby shall have been duly and validly
authorized as required by all applicable legal requirements by the Shareholders
of Heritage and the Stockholders of First Midwest; (x) in the case of First
Midwest, the total number of shares of Heritage Common Stock for which Heritage
Shareholders have perfected dissenters' appraisal rights shall be no greater
than 5% of the number of shares of Heritage Common Stock issued and outstanding
immediately prior to the Effective Time; (xi) the opinion received by First
Midwest from Goldman Sachs and the opinion received by Heritage from McDonald
shall not have been withdrawn or materially modified prior to the Closing (see
"-- Opinion of First Midwest
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Financial Advisor" and "-- Opinion of Heritage Financial Advisor"); (xii) in the
case of First Midwest, First Midwest shall have received an opinion from Ernst &
Young LLP to the effect that the Merger shall be accounted for on the pooling of
interests method of accounting (see "--Accounting Treatment"); (xiii) First
Midwest and Heritage shall have received a tax opinion (see "-- Federal Income
Tax Consequences of the Merger"); and (xiv) in the case of Heritage, First
Midwest shall have delivered to Heritage satisfactory evidence that commencing
immediately after the Effective Time, the officers and directors of Heritage and
its subsidiaries will be covered for events occurring after the Effective Time
under First Midwest's directors' and officers' liability insurance policy.
As of the date of this Joint Proxy Statement/Prospectus, neither First
Midwest nor Heritage has any knowledge that any of the aforementioned Closing
conditions will not be satisfied by the Closing Date. For purposes of the
Merger Agreement, a "Material Adverse Effect" means a material adverse effect on
the consolidated financial condition, assets or business of First Midwest and
its subsidiaries or Heritage and its subsidiaries, as the case may be. To the
extent an effect is quantifiable, a "Material Adverse Effect" shall also mean an
effect that would cause or would reasonably be likely to cause such party to
reduce its consolidated stockholders' equity by more than $3,000,000 in the case
of Heritage and $8,400,000 in the case of First Midwest.
Waiver and Amendment; Termination
Prior to the Effective Time, the First Midwest and Heritage Boards may
extend the time for performance of any obligation under the Merger Agreement,
waive any inaccuracies in the representations and warranties contained in the
Merger Agreement and waive compliance with any agreements or conditions
contained in the Merger Agreement. Subject to applicable law, the Merger
Agreement may be amended by action of the First Midwest and Heritage Boards at
any time before or after approval of the Merger Agreement by the Stockholders of
First Midwest and the Shareholders of Heritage.
The Merger Agreement may be terminated at any time prior to the Effective
Time by the mutual agreement of the parties. In addition, the Merger Agreement
may be terminated at any time prior to the Effective Time, (i) by a
non-breaching party, if a party commits a breach of the Merger Agreement which
will have, or would reasonably be expected to have, a Material Adverse Effect
upon the non-breaching party or its stockholders if the Closing were to occur,
such breach is not waived and such breach cannot be or is not cured within
thirty days after the delivery of a written notice by the non-breaching party;
(ii) by the party for whose benefit a Closing condition exists, if a Closing
condition has not been satisfied as of the Closing Date, or if satisfaction of
such condition becomes impossible (other than due to the failure of a party for
whose benefit the Closing condition exists, to comply with its obligations under
the Merger Agreement), the failure to satisfy such condition would reasonably be
expected to have a Material Adverse Effect on First Midwest or its Stockholders
or Heritage or its Shareholders if the Closing were to occur and such condition
is not waived by the Closing Date by the party for whose benefit such condition
exists; (iii) by either party, if the Closing has not occurred (other than
through the failure of the party seeking to terminate the Merger Agreement to
comply fully with its obligations under the Merger Agreement) by October 14,
1998 (or January 14, 1999, in the event a protest is filed with the bank
regulatory authorities
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alleging the failure of either First Midwest or Heritage to comply with the
CRA); and (iv) by Heritage, if it elects to exercise the Termination Right (see
also "-- Merger Consideration").
If (i) the First Midwest Common Stock Price Per Share is less than $33.90
for the Pricing Period; and (ii) the difference between the Comparison Stocks
Ratio and the First Midwest Ratio is 20 percentage points or more, then Heritage
will be permitted to exercise the Termination Right, renegotiate the Exchange
Ratio with First Midwest or proceed with the Merger. If Heritage elects to
exercise the Termination Right, it must give written notice to First Midwest as
of the close of business on the second business day after the end of the Pricing
Period (see "--Merger Consideration").
The Comparison Stocks consist of twenty-two bank holding companies selected
by First Midwest and Heritage as being directly relevant for purposes of
distinguishing changes in First Midwest's stock prices that are unique from
those reflective of general changes in comparable companies. These companies
(along with their weighted averages) are: First Citizens BancShares (6.78); UMB
Financial Corp. (5.48); Old National Bancorp (6.55); Valley National Bancorp
(7.94); Cullen/Frost Bankers Inc. (6.34); One Valley Bancorp Inc. (5.20);
Citizens Banking Corp. (4.40); Fulton Financial Corp. (6.54); Whitney Holding
Corp. (5.77); Bancorp South Inc. (5.02); Commerce Bancorp Inc. (3.70); AMCORE
Financial Inc. (3.36); Banknorth Group Inc. (2.44); First Commonwealth Financial
(3.33); United Bankshares Inc. (3.62); F&M National Corp. (3.40); Hancock
Holding Co. (3.38); TrustCo Bank Corp. of NY (3.29); Park National Corp.
(4.54); Corus Bankshares Inc. (3.05); Mid Am Inc. (3.42); and Chittenden Corp.
(2.44).
If in the event that the common stock of any such company ceases to be
publicly traded or there has been, between the date of the Merger Agreement and
the end of the Pricing Period, a publicly announced proposed merger, acquisition
or business combination of such company or a tender offer, exchange offer or
other transaction involving the acquisition of such company or the publicly
announced proposed merger, acquisition or business combination by such company
involving the acquisition of another company or companies in transactions with
an aggregate value exceeding 20% of the acquiring company's market
capitalization as of the date of the Merger Agreement, such company 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 the Merger Agreement) shall be redistributed proportionately for
purposes of determining the Aggregate Price Per Share of the Comparison Stocks
as of the date of the Merger Agreement and during the Pricing Period. Further,
if any of the companies comprising the Comparison Stocks declares or effects a
stock dividend, reclassification, recapitalization, split-up, combination,
exchange of shares or similar transaction between January 14, 1998 and the end
of the Pricing Period, the price for the common stock of such company shall be
appropriately adjusted.
Dividends
Under the Merger Agreement, Heritage will be permitted to declare regular
quarterly cash dividends of $0.11 per share. Heritage cannot make any changes
in its normal practice of establishing dividend record or dividend payment
dates. Heritage cannot pay a dividend during the quarter that the Merger is to
be consummated if Heritage Shareholders would be entitled to receive a dividend
from First Midwest during that quarter. The intent is to provide that the
holders of Heritage
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Common Stock will receive either the payment of cash dividends on their shares
of Heritage Common Stock or the payment of cash dividends as the holders of
shares of First Midwest Common Stock received in the Merger in exchange for the
shares of Heritage Common Stock for the calendar quarter in which the Effective
Time occurs.
First Midwest is permitted to pay its regular quarterly cash dividend in
accordance with its past practices.
Operations of Heritage after the Merger
In the Merger, Heritage will be merged into Acquisition Corp and the
separate corporate existence of Heritage will cease. First Midwest will thereby
acquire control of the subsidiaries of Heritage. After the Effective Time,
First National Bank of Lockport and Heritage Bank will be merged into First
Midwest's national bank subsidiary, which will retain Heritage Bank's existing
offices as branches, and Heritage Trust Company will be merged into First
Midwest Trust Company, N.A. Immediately following the Merger, Acquisition Corp
will be completely liquidated into First Midwest by means of a merger and
Acquisition Corp's existence will cease.
Interests of Certain Persons in the Merger
General. Certain members of Heritage's management and Heritage's Board may
be deemed to have certain interests in the Merger in addition to their interests
as Shareholders of Heritage generally. These material interests include, among
others, provisions in the Merger Agreement relating to indemnification,
maintenance of director and officer liability insurance coverage and the
appointment of three members of the Heritage Board (Richard T. Wojcik, Jack
Payan and John L. Sterling) to the First Midwest Board following the
consummation of the Merger. In addition, the consummation of the Merger will
affect certain compensation benefits payable to the executive officers of
Heritage and the Heritage stock options held by these officers. The Heritage
Board was aware of all of the interests discussed below and considered them,
among other matters, in approving the Merger Agreement and the transactions
contemplated thereby.
Employment Termination Benefits and Agreements. Eight of the executive
officers of Heritage are covered by employment agreements or employment
termination benefits agreements with Heritage (the "Heritage Employment
Agreements"), which provide that in the event of the termination of the
executive officer's employment (as defined in his or her Heritage Employment
Agreement) following a change in control of Heritage, the executive officer
(depending upon the terms of his or her Employment Agreement) would be eligible
to receive compensation equal to one, two or three times his or her applicable
compensation. In some cases, the applicable compensation is based on an average
of taxable compensation for the five most recent calendar years ending prior to
the occurrence of a change in control, while in others it is equal to an
officer's current compensation. The applicable compensation would be payable
over a one, two or three year period, depending on the particular agreement, and
in some cases, an executive officer who may be paid over three years may elect
to receive the payments over a two year period. In addition, Heritage is
obligated to provide coverage to such executive officers under its employee
group health/medical plans, at Heritage's expense, while such compensation
payments are being made by Heritage.
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First Midwest has advised Heritage and these executive officers that the
consummation of the Merger will constitute a change in control of Heritage and
result in the termination of the employment of these executive officers under
the terms of the Heritage Employment Agreements. Based on each executive
officer's applicable compensation, the maximum aggregate amount of cash
compensation payable to these officers of Heritage is approximately $4,950,000.
Under the terms of the Employment Agreements, these funds are to be deposited in
a trust established for the benefit of these executive officers. First Midwest
has agreed that it will deposit sufficient funds into the trust at the time of
the Closing to permit the trust to satisfy these compensation obligations. In
addition, First Midwest will extend coverage to such executive officers under
its employee group health/medical plans at its expense for the required period.
First Midwest may employ some or all of these officers following the
consummation of the Merger.
The estimated aggregate amount of the compensation payments that would be
due (and payable over one, two or three years) to each executive officer of
Heritage who is covered by an Employment Agreement following the consummation of
the Merger based on applicable compensation levels is as follows: Wojcik --
$1,642,300; Sampias -- $1,191,100; Groebe -- $695,600; Eckroth -- $481,900;
Barry-- $417,900; Ajwani -- $175,500; Peterson -- $175,000; and Stroka --
$168,000. The payments are to be made in equal monthly installments as follows:
(a) Wojcik, Sampias, Groebe and Eckroth -- payable over three years, unless the
executive officer elects to receive the payments over two years; (b) Barry --
payable over two years; and (c) Ajwani, Peterson and Stroka -- payable over one
year.
Directors and Officers Indemnification Rights. The Merger Agreement
provides that, upon consummation of the Merger, First Midwest will maintain,
except as may be limited by applicable law, all rights of indemnification
currently provided by Heritage and Heritage's subsidiaries in favor of their
current and former employees, directors, officers and agents on terms no less
favorable than those provided in the Articles of Incorporation or Bylaws of
Heritage or otherwise in effect on December 31, 1997, for a period of not less
than four (4) years from the Effective Time with respect to matters occurring
prior to the Effective Time. See "COMPARISON OF THE RIGHTS OF FIRST MIDWEST
STOCKHOLDERS AND HERITAGE SHAREHOLDERS -- Liability of Directors;
Indemnification." In addition, First Midwest has agreed that, prior to or at
the Effective Time, it will provide coverage under its directors' and officers'
liability insurance policy: (a) for acts and omissions occurring prior to the
Effective Time for current and former officers and directors of Heritage and
Heritage's subsidiaries for at least four (4) years; and (b) for events
occurring after the Effective Time, for the current directors and officers of
Heritage and its subsidiaries. First Midwest will secure such insurance
coverages prior to the Effective Time.
Heritage Stock Options. As of February 17, 1998, the executive officers of
Heritage held stock options covering an aggregate of 490,605 shares of Heritage
Common Stock ("Heritage Stock Options"), which were granted pursuant to
Heritage's 1987 Stock Option Plan and 1990 Executive Equity Incentive Plan (the
"Stock Option Plans"). These options include options intended to qualify as
"incentive stock options" under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), as well as nonqualified stock options. In
accordance with the terms of the Merger Agreement, Heritage will amend the Stock
Option Plans immediately prior to the Effective Time, if necessary, to provide
that each Heritage Stock Option outstanding under the Stock Option Plans as of
the Effective Time will be converted into an option to purchase shares of First
Midwest Common
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Stock and shall otherwise remain subject to the same terms and conditions of the
Stock Option Plans as in effect prior to the Effective Time. At the Effective
Time, each then outstanding Heritage Stock Option will be assumed and honored in
accordance with its terms by First Midwest and will be converted into and
represent an option solely to purchase a number of shares of First Midwest
Common Stock, 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) the Exchange Ratio, at a
per share exercise price achieved by dividing the per share exercise price under
such Heritage Stock Option by the Exchange Ratio and rounding down to the
nearest cent.
Set forth below is certain information with respect to Heritage Stock
Options held by Heritage's executive officers as of February 17, 1998 and the
effect of the Merger on such options. The information assumes that no options
will be exercised prior to the Effective Time.
<TABLE>
<CAPTION>
Equivalent
Options for Equivalent Shares First Midwest
Shares of Heritage of First Midwest Average Price
Executive Officers Common Stock Common Stock Per Share *
- ------------------ ------------------ ----------------- -------------
<S> <C> <C> <C>
Richard T. Wojcik 96,800 74,490 $ 9.05
Frederick J. Sampias 110,044 84,681 8.30
Ronald P. Groebe 68,962 53,069 8.79
John E. Barry 74,887 57,629 8.32
Paul A. Eckroth 49,650 38,209 8.54
Ramesh L. Ajwani 75,300 57,946 8.73
Susan G. Peterson 8,887 6,840 14.25
Albert A. Stroka 6,075 4,676 14.22
------- ------- ------
Total 490,605 377,540
======= =======
</TABLE>
*Based on the Heritage Stock Option exercise prices ($4.73 to $11.00)
divided by the Exchange Ratio.
As a result of transactions contemplated by the Merger Agreement, the
vesting of certain of the Heritage Stock Options held by two executive officers
covering an aggregate of 3,863 shares of Heritage Common Stock will be
accelerated and become immediately exercisable. Based on the closing price of
First Midwest Common Stock of $42.37 as of January 14, 1998, the value of such
options would be approximately $83,500 immediately following consummation of the
Merger.
Each of the Heritage Stock Options is accompanied by a limited stock
appreciation right (an "LSAR"). Each LSAR will be exercisable upon the
occurrence of a change in control of Heritage (which will occur upon the
approval of the Merger by the Heritage Shareholders) and will remain exercisable
for a period of sixty days following a change in control. The exercise of an
LSAR will result in the cancellation of the accompanying Heritage Stock Option.
Within three days of the exercise of an LSAR, Heritage must distribute to the
holder thereof for each LSAR exercised shares
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of Heritage Common Stock with a value as of the LSAR exercise date equal to the
difference between the fair market value of one share of Heritage Common Stock
on the date of the exercise of the LSAR and the purchase price per share under
the accompanying Heritage Stock Option (the "LSAR Benefit").
Following the consummation of the Merger, holders of LSARs, who exercise
such LSARs, will receive shares of First Midwest Common Stock rather than shares
of Heritage Common Stock upon such exercise. The number of LSARs, the LSAR
Benefit and the number of shares of First Midwest Common Stock to be received in
lieu of shares of Heritage Common Stock following the consummation of the Merger
will be adjusted by the Exchange Ratio.
Based on the closing market price of Heritage Common Stock on February 17,
1998, of $29.63 per share, the estimated number of shares of Heritage Common
Stock distributable as a result of the potential exercise of outstanding LSARs
as of such date was as follows: Wojcik -- 74,032; Sampias -- 86,305; Groebe --
53,207; Eckroth 38,634; Barry -- 58,689; Ajwani -- 58,225; Peterson --5,597; and
Stroka -- 3,830.
The shares of First Midwest Common Stock which will be acquired upon the
exercise of the Heritage Stock Options will be covered by an effective
registration statement filed by First Midwest with the Commission, and such
shares shall be duly authorized, validly issued, fully paid and nonassessable.
Stay Bonus Program. Prior to the execution of the Merger Agreement,
Heritage established a "stay bonus" program pursuant to which Heritage may offer
cash payments to certain employees of Heritage and its subsidiaries to induce
such employees to remain in the employment of Heritage or any of its
subsidiaries. The aggregate payments made by Heritage under this program may not
exceed $1,000,000. As of the date of this Joint Proxy Statement/Prospectus, stay
bonus agreements have been entered into with certain Heritage employees. No
executive officers of Heritage have entered into such agreements.
Directorships. The Merger Agreement provides that Richard T. Wojcik, Jack
Payan and John L. Sterling (current directors of Heritage) will be appointed to
serve as directors of First Midwest as soon as practicable after the Effective
Time. Their terms will expire at the Annual Meeting of First Midwest
Stockholders to be held in the year 2001. See "FIRST MIDWEST DIRECTOR ELECTION
- -- Election of Directors."
Effect on Employee Benefits
The Merger Agreement provides, among other things, that Heritage and First
Midwest will cooperate in effecting the following treatment of the Heritage
employee benefit plans, except as mutually agreed upon by First Midwest and
Heritage prior to the Effective Time: (a) at the Effective Time, First Midwest
will be substituted for Heritage as a sponsoring employer under those Heritage
employee benefit plans with respect to which Heritage or its subsidiary is a
sponsoring employer immediately prior to the Effective Time, and will assume and
be vested with all of the powers, including the power to amend or terminate such
plans consistent with applicable law, rights, duties, obligations and
liabilities previously vested in Heritage or its subsidiary with respect to each
such
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plan; and (b) at or as promptly as practicable after the Effective Time as First
Midwest will reasonably determine, First Midwest will provide, or cause any
First Midwest subsidiary to provide, to each employee of Heritage and any
Heritage subsidiary as of the Effective Time (a "Heritage Employee") the
opportunity to participate in each employee benefit plan and program maintained
by First Midwest or First Midwest's subsidiaries for similarly situated
employees (the "First Midwest Benefit Plans") provided that with respect to such
First Midwest Benefit Plans, a Heritage Employee will 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 benefit
accruals under First Midwest's pension plan. To the extent that the initial
period coverage for a Heritage Employee under any First Midwest Benefit Plan
that is an employee welfare benefit plan (as defined in the Merger Agreement) is
not a full 12-month period coverage, a Heritage Employee will be given credit
under the applicable First Midwest Benefit Plan for any deductibles and
coinsurance payments made by such a Heritage Employee under the Heritage
employee benefit plans during the balance of such 12-month period of coverage.
Agreement of Affiliates
In conjunction with the execution of the Merger Agreement, each of the
directors and executive officers of Heritage (the "Heritage Affiliates")
executed an Agreement of Affiliates. This agreement provides that each Heritage
Affiliate will use all reasonable efforts to cause the Merger Agreement to be
adopted by the Heritage Shareholders. It further obligates each Heritage
Affiliate to cause all shares owned or controlled by him or her to be voted in
favor of the Merger Agreement. The Heritage Affiliates own or control
approximately 2,275,665 shares (18.7%) of the Heritage Common Stock, other than
option shares and shares held by the Heritage Profit Sharing Plan. This
agreement prohibits a Heritage Affiliate from entering into negotiations or
discussions concerning a possible Acquisition Transaction and from selling or
agreeing to sell or dispose of in any manner any shares of his or her Heritage
Common Stock. The agreement, however, does permit a Heritage Affiliate to
dispose of his or her 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.
Stock Option Agreement
The Stock 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 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 shares of
Heritage Common Stock subject to the Option.
The issuance of the Option Shares is not subject to the approval of the
Shareholders of Heritage. The Stock Option Agreement and the Option may
discourage offers to acquire Heritage and are intended to increase the
likelihood that the Merger will be consummated. First Midwest advised Heritage
that First Midwest would not execute the Merger Agreement and proceed with the
Merger unless Heritage agreed to execute the Stock Option Agreement. A copy of
the Stock Option Agreement is attached hereto as Appendix E to this Joint Proxy
Statement/Prospectus.
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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 of the Option Shares 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 market
value of a share of Heritage Common Stock at the time of exercise, 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 and
outstanding before giving effect to the issuance of any shares of 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 defined below) has occurred and
prior to termination of the Option. To the best of the knowledge of First
Midwest and Heritage, no Purchase Event has occurred as of the date of this
Joint Proxy Statement/Prospectus. Any exercise of the Option shall be deemed to
occur on the date notice of exercise 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 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 (which, among other things, prohibits
Heritage from soliciting other offers); 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 be deemed to give rise
only to one Purchase Event, which Purchase Event shall be deemed continuing for
all purposes until all such transactions are abandoned.
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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 by the agreement of First
Midwest and Heritage; (iii) upon the termination of the Merger Agreement by
Heritage: (a) due to a breach of the Merger Agreement by First Midwest which
would have a Material Adverse Effect on Heritage or its Shareholders, (b) due to
a failure of a Closing condition applicable to Heritage which would have a
Material Adverse Effect on First Midwest or its Stockholders or Heritage or its
Shareholders, (c) because the Closing has not occurred within the time frames
specified in the Merger Agreement, or (d) because of Heritage's election to
exercise its Termination Right; (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 thereafter be
able to exercise the Option. Conversely, if First Midwest exercises the Option,
it will not thereafter be able to sue Heritage for damages because of Heritage's
breach of the Merger Agreement.
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 Heritage Board shall accept or publicly
recommend that the Heritage Shareholders accept an offer from a person, other
than First Midwest 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 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;
(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
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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 the
Merger Agreement; provided, however, that there will be no
duplication of the payment by Heritage of the expenses of
First Midwest under the Stock Option Agreement and 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 discussed in (iv) above.
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.
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 thirty days
following the date on which the Federal Reserve Board approves an application by
Grantee (as defined below) under the BHCA to acquire the shares of the Heritage
Common Stock subject to the Option, if such approvals are
84
<PAGE>
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 obligations 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 shares of Heritage Common Stock. First Midwest
intends to file applications for such approvals as soon as practicable.
Federal Income Tax Consequences of the Merger
THE FOLLOWING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF THE MATERIAL U.S.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A
COMPLETE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL TAX EFFECTS OF THE MERGER. THE
DISCUSSION MAY NOT APPLY TO SPECIAL SITUATIONS, SUCH AS HERITAGE SHAREHOLDERS,
IF ANY, (A) WHO RECEIVED HERITAGE COMMON STOCK UPON THE EXERCISE OF EMPLOYEE
STOCK OPTIONS OR OTHERWISE AS COMPENSATION, (B) THAT HOLD HERITAGE COMMON STOCK
AS PART OF A "STRADDLE" OR "CONVERSION TRANSACTION," OR (C) THAT ARE INSURANCE
COMPANIES, SECURITIES DEALERS, FINANCIAL INSTITUTIONS OR FOREIGN PERSONS. THIS
DISCUSSION DOES NOT COVER ANY ASPECT OF STATE, LOCAL OR FOREIGN TAXATION. THIS
DISCUSSION IS BASED UPON LAWS, REGULATIONS, RULINGS AND DECISIONS NOW IN EFFECT,
ALL OF WHICH ARE SUBJECT TO CHANGE (POSSIBLY WITH RETROACTIVE EFFECT) BY
LEGISLATION, ADMINISTRATIVE ACTION OR JUDICIAL DECISION. NO RULING HAS BEEN OR
WILL BE REQUESTED FROM THE INTERNAL REVENUE SERVICE ON ANY TAX MATTER RELATING
TO THE TAX CONSEQUENCES OF THE MERGER.
EACH HERITAGE SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX AND
FINANCIAL ADVISORS AS TO THE EFFECT OF SUCH FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER ON HIS OR HER OWN PARTICULAR FACTS AND CIRCUMSTANCES AND ALSO AS TO
ANY STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES ARISING OUT OF THE MERGER.
First Midwest and Heritage expect that the Merger, and the subsequent
liquidation and merger of Acquisition Corp with and into First Midwest, will
qualify as a tax-free reorganization under Section 368(a) of the Code.
Accordingly, Heritage and First Midwest will recognize no gain or loss for
federal income tax purposes as a result of the Merger and no gain or loss will
be recognized for federal income tax purposes by any Heritage Shareholder upon
receipt of First Midwest Common
85
<PAGE>
Stock in exchange for Heritage Common Stock pursuant to the Merger (except upon
the receipt of cash in lieu of fractional shares of First Midwest Common Stock).
The Internal Revenue Service ("Service") has not been asked to rule upon the tax
consequences of the Merger, and such request will not be made. Instead, First
Midwest and Heritage will rely upon the opinion of Hinshaw & Culbertson as to
federal income tax consequences of the Merger. The opinion of Hinshaw &
Culbertson is based entirely upon the Code, regulations now in effect
thereunder, current administrative rulings and practice, and judicial authority,
all of which are subject to change. Unlike a ruling from the Service, an opinion
of counsel is not binding on the Service and there can be no assurance, and none
is hereby given, that the Service will not take a position contrary to one or
more positions reflected herein or that the opinion of counsel will be upheld by
the courts if challenged by the Service.
Based upon the opinion of Hinshaw & Culbertson (which is dated as of the
date of this Joint Proxy/Prospectus), which in turn is based upon various
representations and subject to various assumptions and qualifications, the
following federal income tax consequences to the Heritage Shareholders will
result from the Merger:
(a) the Merger, and the subsequent liquidation and merger of
Acquisition Corp with and into First Midwest, will constitute a tax-
free reorganization within the meaning of Section 368(a) of the Code
and First Midwest and Heritage will each be a party to the
reorganization;
(b) the exchange in the Merger of First Midwest Common Stock for
Heritage Common Stock will not give rise to the recognition of any
income, gain or loss to First Midwest, or the Heritage Shareholders
with respect to such exchange, including the receipt by Heritage
Shareholders of Rights (as defined herein, see "COMPARISON OF THE
RIGHTS OF FIRST MIDWEST STOCKHOLDERS AND HERITAGE SHAREHOLDERS --
Stockholder Rights Plan"), except, with respect to the Shareholders of
Heritage to the extent of any cash paid in lieu of fractional shares;
(c) the aggregate adjusted tax basis of the First Midwest Common Stock
received by Heritage Shareholders who exchange all of their shares of
Heritage Common Stock in the Merger will be the same as the aggregate
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);
(d) the holding period of the shares of the First Midwest 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; and
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<PAGE>
(e) a Heritage Shareholder who receives cash in lieu of a fractional
share of First Midwest Common Stock will generally recognize gain or
loss equal to the difference, if any, between the amount of cash
received and such Heritage Shareholder's adjusted tax basis in the
fractional share interest.
The consummation of the Merger is conditioned, among other things, upon the
receipt by First Midwest and Heritage of an opinion from Hinshaw & Culbertson,
dated as of the Effective Time, to the foregoing effect. See "-- Conditions
to the Merger."
Accounting Treatment
The parties anticipate accounting for the Merger as a pooling of interests,
and it is a condition to First Midwest's obligation to consummate the Merger
that it shall have received a letter from Ernst & Young LLP to the effect that
the Merger will qualify for pooling of interests accounting treatment.
Under the pooling of interests method of accounting, the historical basis
of the assets and liabilities of First Midwest and Heritage will be combined as
of the Effective Time and carried forward at their previously recorded amounts.
The stockholders' equity accounts of First Midwest and Heritage will be combined
on First Midwest's consolidated balance sheet, and no goodwill or other
intangible assets will be created. Financial statements of First Midwest issued
after the Merger will be restated retroactively to reflect the consolidated
operations of First Midwest and Heritage as if the Merger had taken place prior
to the periods covered by such financial statements.
Expenses
All expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereby are to be paid by the party incurring such
expenses, except that First Midwest and Heritage shall bear equally (i) all
printing and mailing expenses associated with the Registration Statement and
this Joint Proxy Statement/Prospectus; and (ii) all expenses incurred in
conducting initial environmental inspections of, and securing title commitments
with respect to, Heritage's real estate.
Resale of First Midwest Common Stock
Shares of First Midwest Common Stock issued to Shareholders of Heritage
will be transferable without restriction upon disposition, except shares issued
to any person who may be considered an "Affiliate" of Heritage, as defined by
the rules and regulations of the Commission under the Securities Act. Pursuant
to the Merger Agreement, Heritage has delivered to First Midwest a written
undertaking from each Affiliate of Heritage to the effect that he or she will
not sell or dispose of First Midwest Common Stock, acquired by him or her in
connection with the Merger, other than in accordance with the Securities Act,
except under (i) a separate registration statement for distribution (which First
Midwest has not agreed to provide), or (ii) Rule 145 promulgated thereunder by
the Commission, or (iii) pursuant to some other exemption from registration.
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<PAGE>
In addition, Heritage Shareholders who become Affiliates of First Midwest
will be subject to similar sale restrictions for as long as they remain
Affiliates of First Midwest. Furthermore, Affiliates of Heritage and First
Midwest, subject to certain exceptions, will be subject to prohibitions on sales
of shares of First Midwest Common Stock or Heritage Common Stock commencing
thirty days prior to the Effective Time and ending when financial results
covering at least thirty days post-Merger combined operations of Heritage and
First Midwest have been published. First Midwest has agreed that it will use
its best efforts to cause such financial results to be published as soon as
possible after the Effective Time and that it will publish such financial
results within ninety days of the Effective Time. Generally, persons who are
not officers, directors or greater than 10% Shareholders of Heritage will not be
considered Affiliates of Heritage in the absence of other factors indicating a
control relationship.
CHARTER AMENDMENT
General
The First Midwest Board has approved the Charter Amendment which, if
approved by the First Midwest Stockholders, would increase the number of
authorized shares of First Midwest Common Stock from 30,000,000 to 60,000,000.
Approval of the Charter Amendment by the requisite vote of First Midwest
Stockholders is a condition to the consummation of the Merger. Approval of the
Issuance by the First Midwest Stockholders is not a condition to the adoption of
the Charter Amendment.
Increase in Authorized Stock
First Midwest is currently authorized to issue 30,000,000 shares of First
Midwest Common Stock. As of the First Midwest Record Date, ________ shares of
First Midwest Common Stock were issued and outstanding, ______ shares were
reserved for issuance pursuant to the First Midwest employee benefit plans,
_____ shares were reserved for issuance upon the consummation of the Merger to
the Heritage Shareholders (including shares to be issued upon First Midwest's
assumption of the Heritage Stock Options), and _____ shares were held in the
treasury of First Midwest. Following the consummation of the Merger, ____ shares
of First Midwest Common Stock will be issued and outstanding, ____ shares will
be reserved for issuance under First Midwest employee benefit plans (including
shares reserved for issuance pursuant to First Midwest's assumption of the
Heritage Stock Options), and _____ shares will be held in the treasury of First
Midwest. An increase in the number of authorized shares of First Midwest Common
Stock is, therefore, necessary so that First Midwest will have a sufficient
number of shares available for issuance upon the consummation of the Merger and
the exercise of Heritage Stock Options assumed by First Midwest.
The First Midwest Board also believes that the authorization of additional
shares of First Midwest Common Stock is advisable to provide First Midwest with
the flexibility to take advantage of opportunities to issue such stock in order
to obtain capital, as consideration for possible acquisitions or for other
purposes (including, without limitation, the issuance of additional shares of
First Midwest Common Stock through additional stock splits and stock dividends
in appropriate circumstances). There are, at present, no plans, understandings,
agreements or arrangements
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<PAGE>
concerning the issuance of additional shares of First Midwest Common Stock
except for the shares to be issued (i) pursuant to the Merger, (ii) upon the
exercise of Heritage Stock Options which have been converted into options to
acquire shares of First Midwest Common Stock, (iii) upon the exercise of First
Midwest stock options currently outstanding, and (iv) to First Midwest's
retirement plans, both ERISA qualified and nonqualified, its nonqualified stock
option gain deferred plan and its dividend reinvestment and optional cash
payment plan.
Uncommitted authorized but unissued shares of First Midwest Common Stock
may be issued from time to time to such persons and for such consideration as
the First Midwest Board may determine, and holders of the then-outstanding
shares of First Midwest Common Stock may or may not be given the opportunity to
vote with respect to such issuance, depending upon the nature of any such
transactions, applicable law, the rules and regulations of the Nasdaq Stock
Market and the judgment of the First Midwest Board regarding the submission of
such issuance to a vote of the First Midwest Stockholders. First Midwest
Stockholders have no preemptive rights to subscribe for newly issued shares.
Moreover, it is possible that additional shares of First Midwest Common
Stock would be issued for the purpose of making an acquisition by an unwanted
suitor of a controlling interest in First Midwest more difficult, time-consuming
or costly or to otherwise discourage an attempt to acquire control of First
Midwest. Under such circumstances the availability of authorized and unissued
shares of First Midwest Common Stock may make it more difficult for First
Midwest Stockholders to obtain a premium for their shares. Such authorized and
unissued shares could be used to create voting or other impediments or to
frustrate a person seeking to obtain control of First Midwest by means of a
merger, tender offer, proxy contest or other means. Such shares could be
privately placed with purchasers who might cooperate with the First Midwest
Board in opposing such an attempt by a third party to gain control of First
Midwest or could also be used to dilute ownership of a person or entity seeking
to obtain control of First Midwest. Although First Midwest does not currently
contemplate taking such action, shares of First Midwest Common Stock could be
issued for the purposes and effects described above and the First Midwest Board
reserves its rights (if consistent with its fiduciary responsibilities) to issue
such stock for such purposes.
Recommendation of First Midwest Board
Because First Midwest does not have sufficient uncommitted authorized but
unissued shares of First Midwest Common Stock to consummate the Merger without
approval of the Charter Amendment, approval of the Charter Amendment is required
for, and a condition to, consummation of the Merger, which the First Midwest
Board believes is in the best interests of First Midwest and its Stockholders.
In addition, as described above, the First Midwest Board believes that the
proposed increase in the number of authorized shares of First Midwest Common
Stock will provide flexibility needed to meet corporate objectives and is in the
best interests of First Midwest and its Stockholders. AS A CONSEQUENCE, THE
FIRST MIDWEST BOARD RECOMMENDS THAT THE STOCKHOLDERS OF FIRST MIDWEST VOTE FOR
THE APPROVAL OF THE CHARTER AMENDMENT.
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<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
Market Prices
First Midwest Common Stock is listed on the Nasdaq Stock Market under the
trading symbol "FMBI." As of the First Midwest Record Date, First Midwest Common
Stock was held of record by approximately _____ persons. Heritage Common Stock
is listed on the Nasdaq Stock Market under the trading symbol "HERS." As of
February 17, 1998, Heritage Common Stock was held of record by approximately 780
persons. The following table sets forth the high and low closing sale prices of
the First Midwest Common Stock and the Heritage Common Stock as reported on the
Nasdaq Stock Market for the periods indicated.
<TABLE>
<CAPTION>
FIRST MIDWEST HERITAGE
SALES PRICES(1) SALES PRICES(2)
--------------- ---------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
First Quarter .............................. $24.00 $21.38 $12.83 $12.17
Second Quarter ............................. 23.38 22.19 14.50 12.33
Third Quarter .............................. 24.38 21.38 14.50 13.83
Fourth Quarter ............................. 33.00 23.81 14.67 13.83
YEAR ENDED DECEMBER 31, 1997:
First Quarter .............................. $32.50 $29.38 $17.00 $14.33
Second Quarter ............................. 33.88 29.50 20.75 16.50
Third Quarter .............................. 37.75 31.25 21.25 19.13
Fourth Quarter ............................. 45.25 36.00 29.00 19.75
YEAR ENDING DECEMBER 31, 1998:
First Quarter .............................. $44.13 $38.53 $33.00 $27.75
Second Quarter (through _____, 1998) .......
</TABLE>
- --------------------
(1) Adjusted to reflect a five-for-four stock split paid in December 1996.
(2) Adjusted to reflect a three-for-two stock split paid in June 1997.
Dividends
The following table sets forth dividends declared per share of First
Midwest Common Stock and Heritage Common Stock, respectively, for the periods
indicated. The ability of either First Midwest or Heritage to pay dividends to
the respective holders of its Common Stock is subject to certain restrictions.
See "SUPERVISION AND REGULATION OF FIRST MIDWEST AND HERITAGE."
<TABLE>
<CAPTION>
FIRST MIDWEST HERITAGE
DIVIDENDS (1) DIVIDENDS (2)
------------- -------------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
First Quarter .................................. $0.168 $0.087
Second Quarter ................................. 0.168 0.087
Third Quarter .................................. 0.168 0.087
Fourth Quarter ................................. 0.20 0.087
YEAR ENDED DECEMBER 31, 1997:
First Quarter .................................. $0.20 $0.10
Second Quarter ................................. 0.20 0.10
Third Quarter .................................. 0.20 0.10
Fourth Quarter ................................. 0.225 0.10
YEAR ENDING DECEMBER 31, 1998:
First Quarter .................................. $0.225 $0.11
Second Quarter (through _________, 1998) .......
</TABLE>
- --------------------
(1) Adjusted to reflect a five-for-four stock split paid in December 1996.
(2) Adjusted to reflect a three-for-two stock split paid in June 1997.
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<PAGE>
PRO FORMA FINANCIAL INFORMATION
(dollars in thousands, except per share data)
The following unaudited Pro Forma Condensed Statement of Condition as of
December 31, 1997, combines, under the pooling of interests method of
accounting, the historical consolidated statements of condition of First Midwest
and Heritage as if the Merger had been effective on December 31, 1997. The
following unaudited Pro Forma Condensed Statements of Income for the years ended
December 31, 1997, December 31, 1996 and December 31, 1995 present the combined
results of operations of First Midwest and Heritage, under the pooling of
interests method of accounting, as if the Merger had been effective at January
1, 1995.
The pro forma combined information is not necessarily indicative of the
actual results that would have occurred had the Merger been consummated prior to
the periods indicated, or of the future operations of the combined entity. This
information should be read in conjunction with, and is qualified in its entirety
by, the historical financial statements of First Midwest and Heritage, including
the respective notes thereto, which are incorporated by reference herein, and
the comparative per common share data, including the notes thereto, appearing
elsewhere in this Joint Proxy Statement/Prospectus. Stockholders of First
Midwest and Shareholders of Heritage are urged to read such information
carefully. See "AVAILABLE INFORMATION," "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE," "CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION,"
"RECENT DEVELOPMENTS" and "COMPARATIVE PER COMMON SHARE DATA."
Under the pooling of interests method of accounting, the historical basis
of the assets and liabilities of First Midwest and Heritage will be combined as
of the Effective Time and carried forward at their previously recorded amounts.
The stockholders' equity accounts of First Midwest and Heritage will be combined
on First Midwest's consolidated balance sheet, and no goodwill or other
intangible assets will be created. Financial statements of First Midwest issued
after the Merger will be restated retroactively to reflect the consolidated
operations of First Midwest and Heritage as if the Merger had taken place prior
to the periods covered by such financial statements.
First Midwest and Heritage expect that the combined company will achieve
substantial benefits from the Merger in the form of operating cost savings.
However, the unaudited pro forma financial information does not reflect any
direct costs or potential savings which are expected to result from the
consolidation of operations of First Midwest and Heritage, and, therefore, do
not purport to be indicative of the results of future operations.
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<PAGE>
PROFORMA COMBINING FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Proforma Condensed Statement of Condition (Unaudited)
December 31, 1997
-----------------------------------------------------------
Historical
-------------------------- Proforma Proforma
First Midwest Heritage Adjustments Consolidated
------------- ---------- -------------- ------------
<S> <C> <C> <C> <C>
Assets
Cash and due from banks ................................. $ 117,974 $ 48,214 $(15,400)/(1)/ $ 150,788
Funds sold and other short-term investments ............. 31,055 2,864 -- 33,919
Mortgages held for sale ................................. 26,857 -- -- 26,857
Securities available for sale ........................... 974,467 407,087 -- 1,381,554
Securities held to maturity ............................. 20,323 113,101 -- 133,424
Trading account securities .............................. -- 450 -- 450
Loans ................................................... 2,333,252 711,541 -- 3,044,793
Reserve for loan losses ................................. (37,344) (9,621) -- (46,965)
---------- ---------- -------- ----------
Net Loans ........................................... 2,295,908 701,920 $ -- $2,997,828
---------- ---------- -------- ----------
Premises, furniture and equipment ....................... 59,219 19,585 -- 78,804
Accrued interest receivable and other assets ............ 88,370 26,100 -- 114,470
---------- ---------- -------- ----------
Total Assets ........................................ $3,614,173 $1,319,321 $(15,400) $4,918,094
========== ========== ======== ==========
Liabilities and Stockholders' Equity
Deposits ................................................ $2,795,975 $1,139,631 $ -- $3,935,606
Short-term borrowings ................................... 438,032 45,569 -- 483,601
Accrued interest payable and other liabilities .......... 42,654 11,915 (3,850)/(1)/ 50,719
---------- ---------- -------- ----------
Total liabilities ................................... 3,276,661 1,197,115 (3,850) 4,469,926
---------- ---------- -------- ----------
Stockholders' equity
Common stock ............................................ 201 -- 93 /(2)/ 294
Additional paid-in capital .............................. 63,049 24,181 (93)/(2)/ 87,137
Retained earnings ....................................... 281,770 93,346 (11,550)/(1)/ 363,566
Unrealized net appreciation on securities, net of tax ... 6,644 5,367 -- 12,011
Less: Treasury stock .................................... (14,152) (688) -- (14,840)
---------- ---------- -------- ----------
Total stockholders' equity .......................... 337,512 122,206 (11,550) 448,168
---------- ---------- -------- ----------
Total Liabilities and Stockholders' Equity .......... $3,614,173 $1,319,321 $(15,400) $4,918,904
========== ========== ======== ==========
</TABLE>
92
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Condensed Statement of Income (Unaudited)
December 31, 1997
---------------------------------------------------
Historical
----------------------------- Pro Forma
Interest Income First Midwest Heritage Consolidated
------------- -------- ------------
<S> <C> <C> <C>
Interest and fees on loans................................ $209,003 $57,772 $266,775
Interest on securities.................................... 59,005 32,960 91,965
Interest on funds sold and other short-term
investments.............................................. 2,498 424 2,922
-------- ------- --------
Total interest income.................................... 270,506 91,156 361,662
-------- ------- --------
Interest Expense
Interest on deposits...................................... 99,973 40,692 140,665
Interest on short-term borrowings......................... 25,809 2,044 27,853
-------- ------- --------
Total interest expense................................... 125,782 42,736 168,518
-------- ------- --------
Net interest income...................................... 144,724 48,420 193,144
Provision for Loan Losses................................. 8,765 600 9,365
-------- ------- --------
Net interest income after provision
for loan losses......................................... 135,959 47,820 183,779
Noninterest Income........................................ 37,222 9,607 46,829
Noninterest Expense....................................... 113,810 31,765 145,575
-------- ------- --------
Income before income tax expense......................... 59,371 25,662 85,033
Income Tax Expense........................................ 20,556 7,869 28,425
-------- ------- --------
Net Income............................................... $ 38,815 $17,793 $ 56,608
======== ======= ========
Net Income Per Share/(3)/................................ $ 1.94 $ 1.93
======== ========
Net Income Per Share, assuming dilution/(4)/............. $ 1.92 $ 1.90
======== ========
Average Shares Outstanding/(3)/.......................... 19,986 29,260
======== ========
Average Shares Outstanding,
assuming dilution/(4)/.................................. 20,238 29,828
======== ========
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Condensed Statement of Income (Unaudited)
December 31, 1996
---------------------------------------------------
Historical
----------------------------- Pro Forma
Interest Income First Midwest Heritage Consolidated
------------- -------- ------------
<S> <C> <C> <C>
Interest and fees on loans................................ $202,953 $52,907 $255,860
Interest on securities.................................... 62,397 30,223 92,620
Interest on funds sold and other short-term
investments.............................................. 3,443 694 4,137
-------- ------- --------
Total interest income.................................... 268,793 83,824 352,617
-------- ------- --------
Interest Expense
Interest on deposits...................................... 100,142 36,327 136,469
Interest on short-term borrowings......................... 30,226 2,279 32,505
-------- ------- --------
Total interest expense................................... 130,368 38,606 168,974
-------- ------- --------
Net interest income...................................... 138,425 45,218 183,643
Provision for Loan Losses................................. 7,790 400 8,190
-------- ------- --------
Net interest income after provision
for loan losses......................................... 130,635 44,818 175,453
Noninterest Income........................................ 34,335 7,724 42,059
Noninterest Expense....................................... 104,767 30,801 135,568
-------- ------- --------
Income before income tax expense......................... 60,203 21,741 81,944
Income Tax Expense........................................ 20,331 6,903 27,234
-------- ------- --------
Net Income............................................... $ 39,872 $14,838 $ 54,710
======== ======= ========
Net Income Per Share/(3)/................................ $ 1.96 $ 1.86
======== ========
Net Income Per Share, assuming dilution/(4)/............. $ 1.95 $ 1.82
======== ========
Average Shares Outstanding/(3)/.......................... 20,314 29,470
======== ========
Average Shares Outstanding,
assuming dilution/(4)/.................................. 20,467 30,076
======== ========
</TABLE>
93
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Condensed Statement of Income
(Unaudited)
December 31, 1995
---------------------------------------
Historical
------------------------ Pro Forma
First Midwest Heritage Consolidated
------------- -------- ------------
<S> <C> <C> <C>
Interest Income
Interest and fees on loans ............................... $203,884 $48,156 $252,040
Interest on securities ................................... 69,148 23,326 92,474
Interest on funds sold and other short-term investments .. 2,672 2,378 5,050
-------- ------- --------
Total interest income ................................ 275,704 73,860 349,564
-------- ------- --------
Interest Expense
Interest on deposits ..................................... 97,602 31,516 129,118
Interest on short-term borrowings ........................ 44,690 1,848 46,538
-------- ------- --------
Total interest expense ............................... 142,292 33,364 175,656
-------- ------- --------
Net interest income .................................. 133,412 40,496 173,908
Provision for Loan Losses ................................ 11,454 200 11,654
-------- ------- --------
Net interest income after provision for loan losses .. 121,958 40,296 162,254
Noninterest Income ....................................... 33,695 6,971 40,666
Noninterest Expense ...................................... 108,083 27,670 135,753
-------- ------- --------
Income before income tax expense ..................... 47,570 19,597 67,167
Income Tax Expense ....................................... 16,166 6,303 22,469
-------- ------- --------
Net Income ........................................... $ 31,404 $13,294 $ 44,698
======== ======= ========
Net Income Per Share/(3)/ ............................ $1.55 $1.52
======== =======
Net Income Per Share, assuming dilution/(4)/ ......... $1.53 $1.49
======== =======
Average Shares Outstanding/(3)/ ...................... 20,229 29,391
======== =======
Average Shares Outstanding assuming dilution/(4)/ .... 20,476 30,067
======== =======
</TABLE>
- -------------------------
Footnotes to Pro Forma Combining Financial Statements:
/(1)/ Reflects the estimated acquisition charge ($15,400) and related tax
benefit ($3,850) to be recorded incident to First Midwest's pending
acquisition of Heritage. Such estimated charge includes severance and
related personnel exit costs, contract termination fees, legal and
accountant fees and other costs necessary to consummate the acquisition.
These costs result directly from the Merger and are expected to be
incurred within 12 months of the consummation date.
/(2)/ Reflects the increase in First Midwest Common Stock, $.01 par value, and
related reduction in additional paid-in capital for the issuance of
approximately 9,303 shares in the exchange for Heritage's 12,090 shares
of Heritage Common Stock outstanding at December 31, 1997 upon
consummation of the Merger.
/(3)/ The pro forma combined net income per share and average shares
outstanding are based upon the historical net income for First Midwest
and Heritage divided by the total pro forma average shares of the
combined entity assuming conversion of the Heritage Common Stock at the
0.7695 Exchange Ratio (see "THE MERGER -- Merger Consideration").
/(4)/ The pro forma combined net income per share assuming dilution and average
shares outstanding assuming dilution are based upon the historical net
income of First Midwest and Heritage divided by the total pro forma
average shares of the combined entity, adjusted for the potential
dilutive effect of shares issued under the entities stock option plans,
assuming conversion of the Heritage Common Stock at the 0.7695 Exchange
Ratio (see "THE MERGER -- Merger Consideration").
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SUPERVISION AND REGULATION OF FIRST MIDWEST AND HERITAGE
As bank holding companies, First Midwest and Heritage are subject to
regulation under the BHCA. The following discussion sets forth certain of the
material elements of the regulatory framework applicable to bank holding
companies and their subsidiaries and provides certain specific information
relevant to First Midwest and Heritage. To the extent that the following
information describes statutory and regulatory provisions, it is qualified in
its entirety by reference to the applicable statutory and regulatory provisions.
A change in applicable statutes, regulations or regulatory policy may have a
material effect on the business of First Midwest and Heritage.
General
As registered bank holding companies, First Midwest and Heritage are
subject to the supervision of, and to regular inspection by, the Federal Reserve
Board. The bank subsidiary of First Midwest is organized as a national banking
association, which is subject to regulation, supervision and examination by the
OCC, and the principal bank subsidiary of Heritage is organized as an Illinois
state chartered bank, which is subject to regulation, supervision and
examination by the Illinois Commissioner. These banks are also subject to
regulation by either the Federal Reserve Board or the FDIC, and other federal
regulatory agencies. In addition to banking laws and regulations and the
supervisory policies of the bank regulatory agencies, First Midwest and Heritage
and their subsidiaries and affiliates are subject to various other laws and
regulations and supervision and examination by other regulatory agencies, all of
which directly or indirectly affect the operations and management of First
Midwest and Heritage and their ability to pay dividends. The following
discussion summarizes certain aspects of those laws and regulations that affect
First Midwest and Heritage.
The activities of First Midwest and Heritage and those of the companies
which each controls or in which either holds more than 5% of the voting stock
are limited to banking, managing or controlling banks, furnishing services to or
performing services for their subsidiaries or any other activity which the
Federal Reserve Board determines to be so closely related to banking or managing
or controlling banks as to be a proper incident thereto. In making such
determinations, the Federal Reserve Board is required to consider whether the
performance of such activities by a bank holding company or its subsidiaries can
reasonably be expected to produce benefits to the public such as greater
convenience, increased competition or gains in efficiency that outweigh possible
adverse effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest or unsound banking practices. Generally, bank
holding companies, such as First Midwest and Heritage, are required to obtain
prior approval of the Federal Reserve Board to engage in any new activity or to
acquire more than 5% of any class of voting stock of any company.
Bank holding companies are also required to obtain the prior approval of
the Federal Reserve Board before acquiring more than 5% of any class of voting
stock of any bank which is not already majority-owned by the bank holding
company. Pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the "Interstate Banking and Branching Act"), bank holding companies
became able to acquire banks in states other than their home state beginning
September 29, 1995, without regard to the permissibility of such acquisitions
under state law, but subject to any state requirement that the bank has been
organized and operating for a minimum period of time, not to exceed five years,
and the requirement that the bank holding company, prior to or following the
proposed acquisition, controls no more than 10% of the total amount of deposits
of insured
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depository institutions in the United States and less than 30% of such deposits
in that state (or such lesser or greater amount set by state law).
The Interstate Banking and Branching Act also authorizes banks to merge
across state lines, thereby creating interstate branches. This provision, which
was effective June 1, 1997, allowed each state, prior to the effective date, the
opportunity to "opt out" of this provision, thereby prohibiting interstate
branching within that state. Neither of the states in which First Midwest's
banking subsidiaries are located (Illinois and Iowa) has adopted legislation to
"opt out" of the interstate branching provisions. Furthermore, pursuant to the
Interstate Banking and Branching Act, a bank is now able to open new branches in
a state in which it does not already have banking operations if such state
enacts a law permitting such de novo branching.
Proposals to change the laws and regulations governing the banking industry
are frequently introduced in Congress, in the state legislatures and before the
various bank regulatory agencies. The likelihood and timing of any such
proposals or bills being enacted and the impact they might have on First
Midwest, Heritage and their subsidiaries cannot be determined at this time.
Capital and Operational Requirements
The Federal Reserve Board, the OCC and the FDIC have issued substantially
similar risk-based and leverage capital guidelines applicable to United States
banking organizations. In addition, those regulatory agencies may from time to
time require that a banking organization maintain capital above the minimum
levels, whether because of the nature of its operations, its financial condition
or its actual or anticipated growth. The Federal Reserve Board risk-based
guidelines define a two-tier capital framework. Tier 1 capital consists of
common and qualifying preferred shareholders' equity, less certain intangibles
and other adjustments. Tier 2 capital consists of subordinated and other
qualifying debt, and the allowance for possible loan and lease losses up to
1.25% of risk-weighted assets. The sum of Tier 1 and Tier 2 capital, less
investments in unconsolidated subsidiaries, represents qualifying total capital,
at least 50% of which must consist of Tier 1 capital. Risk-based capital ratios
are calculated by dividing Tier 1 and total capital by risk-weighted assets.
Risk-weighted assets are calculated by assigning assets and off-balance sheet
exposures to one of four categories of risk weights, based primarily on relative
credit risk. The minimum Tier 1 risk-based capital ratio is 4% and the minimum
total risk-based capital ratio is 8%. First Midwest's Tier 1 and total risk-
based capital ratios under these guidelines at December 31, 1997 were 11.7% and
12.9%, respectively, and Heritage's were 13.9% and 15.2%, respectively.
The leverage ratio is determined by dividing Tier 1 capital by adjusted
average total assets. Although the stated minimum ratio is 3%, most banking
organizations are required to maintain ratios of at least 100 to 200 basis
points above 3%. First Midwest's and Heritage's leverage ratios at December 31,
1997 were 8.9% and 7.8%, respectively.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), among other things, identifies five capital categories for insured
depository institutions (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized) and requires the respective Federal regulatory agencies to
implement systems for "prompt corrective action" for insured depository
institutions that do not meet minimum capital requirements within such
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categories. FDICIA imposes progressively more restrictive constraints on
operations, management and capital distributions, depending on the category in
which an institution is classified. Failure to meet the capital guidelines could
also subject a banking institution to capital raising requirements. An
"undercapitalized" bank must develop a capital restoration plan and its parent
holding company must guarantee that bank's compliance with the plan. The
liability of the parent holding company under any such guarantee is limited to
the lesser of 5% of the bank's assets at the time it became "undercapitalized"
or the amount needed to comply with the plan. Furthermore, in the event of the
bankruptcy of the parent holding company, such guarantee would take priority
over the parent's general unsecured creditors. In addition, FDICIA requires the
various regulatory agencies to prescribe certain non-capital standards for
safety and soundness related generally to operations and management, asset
quality and executive compensation and permits regulatory action against a
financial institution that does not meet such standards.
The various regulatory agencies have adopted substantially similar
regulations that define the five capital categories identified by FDICIA, using
the total risk-based capital, Tier 1 risk-based capital and leverage capital
ratios as the relevant capital measures. Such regulations establish various
degrees of corrective action to be taken when an institution is considered
undercapitalized. Under the regulations, a "well capitalized" institution must
have a Tier 1 capital ratio of at least 6%, a total capital ratio of at least
10% and a leverage ratio of a least 5% and not be subject to a capital directive
order. An "adequately capitalized" institution must have a Tier 1 capital ratio
of at least 4%, a total capital ratio of at least 8% and a leverage ratio of at
least 4%, or 3% in some cases. Under these guidelines, each of the banking
subsidiaries of First Midwest and Heritage is considered well capitalized.
The banking agencies have also adopted final regulations which mandate that
regulators take into consideration concentrations of credit risk and risks from
nontraditional activities, as well as an institution's ability to manage those
risks, when determining the adequacy of an institution's capital. This
evaluation will be made as a part of the institution's regular safety and
soundness examination. Banking agencies also have adopted final regulations
requiring regulators to consider interest rate risk (when the interest rate
sensitivity of an institution's assets does not match the sensitivity of its
liabilities or its off-balance sheet positions) in the determination of a bank's
capital adequacy.
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Dividends
First Midwest and Heritage both derive funds for cash dividends to their
respective stockholders from a variety of sources, including cash and temporary
investments. The primary source of such funds, however, is dividends received
from their banking subsidiaries. Each of their banking subsidiaries is subject
to various general regulatory policies and requirements relating to the payment
of dividends, including requirements to maintain capital above regulatory
minimums. The appropriate federal regulatory authority is authorized to
determine, under certain circumstances relating to the financial condition of
the bank or bank holding company, that the payment of dividends would be an
unsafe or unsound practice and to prohibit payment thereof.
A major portion of First Midwest's revenues results from dividends paid to
it by its national bank subsidiary. The prior approval of the OCC is required
for the payment of any dividend by a national bank if the total of all dividends
declared by the board of directors of such bank in any calendar year will exceed
the sum of such bank's year-to-date net profits for such year and its retained
net profits for the preceding two calendar years, less any required transfers to
surplus. Federal law also prohibits any national bank from paying dividends
which would be greater than such bank's undivided profits after deducting
statutory bad debt in excess of such bank's allowance for loan losses. Under
Illinois law, Illinois banks, such as Heritage Bank, are subject to similar
prohibitions.
Under the foregoing dividend restrictions and certain restrictions
applicable to certain of First Midwest's nonbanking subsidiaries, as of December
31, 1997, First Midwest's subsidiaries, without obtaining affirmative
governmental approvals, could pay aggregate dividends of approximately $35.8
million to First Midwest. During 1997, First Midwest's subsidiaries paid $33.4
million in cash dividends to First Midwest.
In addition to the foregoing, the ability of First Midwest, Heritage and
their respective banking subsidiaries to pay dividends may be affected by the
various minimum capital requirements and the capital and non-capital standards
established under FDICIA, as described above. The right of First Midwest,
Heritage, their respective Stockholders and Shareholders and their respective
creditors to participate in any distribution of the assets or earnings of their
respective subsidiaries is further subject to the prior claims of creditors of
the respective subsidiaries.
Source of Strength Policy
According to Federal Reserve Board policy, bank holding companies are
expected to act as a source of financial strength to each subsidiary bank and to
commit resources to support each such subsidiary bank. This support may be
required at times when a bank holding company may not be able to provide such
support. Similarly, under the cross-guarantee provisions of the Federal Deposit
Insurance Act, in the event of a loss suffered or anticipated by the FDIC --
either as a result of default of a banking or thrift subsidiary of a bank
holding company such as First Midwest or Heritage or the provision of FDIC
assistance to a subsidiary in danger of default -- the other banking
subsidiaries of such bank holding company may be assessed for the FDIC's loss,
subject to certain exceptions.
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FDIC Insurance Assessments; DIFA
As FDIC-insured institutions, First Midwest and Heritage Bank are required
to pay deposit insurance premium assessments to the FDIC. The FDIC has adopted a
risk-based assessment system under which all insured depository institutions are
placed into one of nine categories and assessed insurance premiums based upon
their respective levels of capital and results of supervisory evaluations.
Institutions classified as "well-capitalized" (as defined by the FDIC) and
considered healthy pay the lowest premium while institutions that are less than
"adequately capitalized" (as defined by the FDIC) and considered of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions is made by the FDIC for each semi-annual assessment period.
As of December 31, 1997, the subsidiary commercial banks of First Midwest
and Heritage were "well capitalized" banks for this purpose and their deposits
were insured by the Bank Insurance Fund ("BIF"). Certain deposits of First
Midwest and Heritage were also insured by the Savings Association Insurance Fund
("SAIF"). For the semi-annual assessment period beginning January 1, 1998, BIF
and SAIF assessment rates will range from 0% of deposits to 0.27% of deposits.
The subsidiary commercial banks of First Midwest and Heritage did not pay any
BIF or SAIF assessments during 1997 and are not expected to pay such assessments
during 1998.
The Deposit Insurance Funds Act of 1996, which was enacted on September 30,
1996 ("DIFA"), reduced the amount of semi-annual FDIC insurance premiums for
savings association deposits acquired by banks and insured by the SAIF to the
same levels assessed for deposits insured by BIF. DIFA also provided for a
special one-time assessment imposed on deposits insured by SAIF, including such
deposits held by banks, to bring the SAIF up to statutorily required levels.
First Midwest accrued for the one-time assessment in the third quarter of 1996
in the amount of $1.6 million in connection with the SAIF recapitalization.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution has
engaged or is engaging in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, order, or any condition imposed in writing by, or written agreement
with, the FDIC. The FDIC may also suspend deposit insurance temporarily during
the hearing process for a permanent termination of insurance if the institution
has no tangible capital. Management of First Midwest is not aware of any
activity or condition that could result in termination of the deposit insurance
of First Midwest Bank or Heritage Bank.
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DESCRIPTION OF FIRST MIDWEST COMMON AND PREFERRED STOCK
The information supplied herein outlines certain provisions of the Restated
Certificate of Incorporation and the Amended and Restated Bylaws of First
Midwest. This information does not purport to be complete and is qualified in
all respects by reference to such documents.
The authorized stock of First Midwest is divided into two classes,
Preferred Stock, $0.01 par value, of which First Midwest is authorized to issue
1,000,000 shares, and Common Stock, $0.01 par value, of which First Midwest is
authorized to issue 30,000,000 shares. Assuming the Stockholders of First
Midwest approve the Charter Amendment, First Midwest will be authorized to issue
60,000,000 shares of Common Stock. See "CHARTER AMENDMENT."
As of the First Midwest Record Date, First Midwest had _____ shares of
Common Stock issued and outstanding, _____ shares reserved for issuance under
its employee benefit plans, _____ shares reserved for issuance in connection
with the Merger (including shares to be issued upon First Midwest's assumption
of the Heritage Stock Options), and _____ shares held in treasury. Assuming the
Merger is consummated, it is anticipated that First Midwest will have _____
shares of Common Stock issued and outstanding, _____ shares reserved for
issuance under its employee benefit plans (including shares reserved for
issuance pursuant to First Midwest's assumption of the Heritage Stock Options),
and _____ shares held in treasury.
Preferred Stock. First Midwest is authorized to issue shares of Preferred
Stock from time to time in one or more series. Preferred Stock may have such
designations, powers, preferences and relative participating, optional or other
rights and such qualifications, limitations or restrictions as may be provided
for the issue of such series by resolution adopted by the First Midwest Board.
Such Preferred Stock may have priority over First Midwest Common Stock as to
dividends and as to distribution of First Midwest's assets upon any liquidation,
dissolution or winding up of First Midwest. Such Preferred Stock may be
redeemable for cash, property or rights of First Midwest, may be convertible
into shares of First Midwest Common Stock, and may have voting rights entitling
the holder to not more than one vote per share. See "COMPARISON OF THE RIGHTS OF
FIRST MIDWEST STOCKHOLDERS AND HERITAGE SHAREHOLDERS --Stockholder Rights Plan."
Common Stock. Holders of First Midwest Common Stock are entitled to
dividends out of funds legally available for that purpose when, as and if
declared by the First Midwest Board. The dividend rights of First Midwest
Common Stock are also subject to the rights of First Midwest Preferred Stock
which has been or may be issued.
Each holder of First Midwest Common Stock is entitled to one vote for each
share held. Generally, the presence of a majority of the issued and outstanding
shares of First Midwest Common Stock entitled to vote thereat is necessary for a
quorum at a meeting of Stockholders and a majority of the votes represented at
such a meeting and entitled to vote thereon is sufficient to authorize action
upon routine matters. First Midwest directors are elected by a plurality of the
votes present at a meeting and entitled to vote thereon. Generally speaking,
significant corporate actions (such as, business combinations and charter
amendments) must be approved by the holders of a majority of the
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issued and outstanding shares of First Midwest Common Stock. Certain corporate
actions may require a super-majority vote. See "COMPARISON OF THE RIGHTS OF
FIRST MIDWEST STOCKHOLDERS AND HERITAGE SHAREHOLDERS -- Stockholder Vote to
Approve Business Combinations" and "-- Delaware Law Affecting Business
Combinations." First Midwest Common Stock does not have any preemptive rights,
cumulative voting rights, conversion rights or redemption rights.
In the case of any liquidation, dissolution or winding up of the affairs of
First Midwest, holders of First Midwest Common Stock will be entitled to
receive, pro rata, any assets distributable to First Midwest Stockholders in
respect to the number of shares held by them. The liquidation rights of First
Midwest Common Stock are subject to the rights of holders of First Midwest
Preferred Stock which has been or may be issued.
All outstanding shares of First Midwest Common Stock are, and shares to be
issued pursuant to the Merger Agreement will be when issued, fully paid and
nonassessable.
American Securities Transfer & Trust, Inc. acts as the transfer agent and
registrar for the First Midwest Common Stock.
COMPARISON OF THE RIGHTS OF FIRST MIDWEST STOCKHOLDERS
AND HERITAGE SHAREHOLDERS
The information supplied herein outlines certain provisions of the Restated
Certificate of Incorporation and the Amended and Restated Bylaws of First
Midwest, the DGCL, and the Articles of Incorporation and Bylaws of Heritage and
the IBCA. The information does not purport to be complete and is qualified in
all respects by reference to such documents and statutes. The following summary
does not reflect any rules of the Nasdaq Stock Market that may apply to First
Midwest or Heritage in connection with the matters discussed.
General
First Midwest is incorporated under the laws of the State of Delaware and
Heritage is incorporated under the laws of the State of Illinois. Shareholders
of Heritage, whose rights are governed by the IBCA, and by Heritage's Articles
of Incorporation (the "Articles") and Bylaws (the "Heritage Bylaws") will, upon
consummation of the Merger, become Stockholders of First Midwest. Their rights
as First Midwest Stockholders will then be governed by the DGCL and by First
Midwest's Restated Certificate of Incorporation (the "Certificate") and First
Midwest's Amended and Restated Bylaws (the "Bylaws"). Set forth below are the
material differences between the rights of a Heritage Shareholder under the
Articles, the Heritage Bylaws and the IBCA, on the one hand, and the rights of a
First Midwest Stockholder under the Certificate, the First Midwest Bylaws and
the DGCL, on the other hand.
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Common and Preferred Stock
Common Stock. Each holder of First Midwest Common Stock and Heritage
Common Stock is entitled to one vote for each share held. First Midwest and
Heritage directors are elected by a plurality of the votes present at a meeting
and entitled to vote thereon. Generally speaking, significant corporate actions
(such as business combinations and charter amendments) must be approved by the
holders of a majority of the issued and outstanding shares of First Midwest
Common Stock or Heritage Common Stock, as the case may be. Certain corporate
actions, however, may require a super-majority vote. See "-- Stockholder Vote
to Approve Business Combinations" and "-- Delaware and Illinois Law Affecting
Business Combinations." Shares of First Midwest Common Stock and Heritage
Common Stock do not have any preemptive rights, cumulative voting rights,
conversion rights or redemption rights. The dividend, liquidation and
dissolution rights pertaining to the shares of First Midwest Common Stock and
Heritage Common Stock are similar. See "DESCRIPTION OF FIRST MIDWEST COMMON AND
PREFERRED STOCK."
Preferred Stock. Each of the First Midwest Board and the Heritage Board is
authorized to issue shares of their respective company's Preferred Stock with
such designations, powers, preferences and rights as such Board may determine.
See "DESCRIPTION OF FIRST MIDWEST COMMON AND PREFERRED STOCK."
Stockholder Rights Plan
On February 15, 1989, the First Midwest Board adopted a Stockholder Rights
Plan, which was amended and restated on November 15, 1995 and amended on June
18, 1997 (the "Rights Plan"). The Rights Plan is intended to ensure that all
First Midwest Stockholders receive fair treatment in the event of any proposed
acquisition of First Midwest and to guard against partial tender offers and
other abusive tactics aimed at gaining control of First Midwest without paying
all Stockholders a full and fair price.
The First Midwest Board declared a dividend of one right for each share of
First Midwest Common Stock outstanding as of March 1, 1989, and issued
thereafter (a "Right"). The Rights will expire on November 15, 2005. The Rights
are not currently exercisable and currently certificates evidencing First
Midwest Common Stock also evidence the Rights. When the Rights first become
exercisable, a holder of one Right will be entitled to buy from First Midwest
one one-hundredth of a share of Series A Preferred Stock of First Midwest for an
exercise price of $100.00. Each one one-hundredth of a share of Series A
Preferred Stock is designed to have economic and voting terms similar to those
of one share of First Midwest Common Stock. The Rights exercise price and the
number of Rights outstanding, or in certain circumstances the securities
purchasable upon the exercise of the Rights, are subject to adjustment upon the
occurrence of certain events.
The Rights currently trade automatically with the First Midwest Common
Stock. However, approximately ten business days (subject to extension by the
First Midwest Board) after a person or group acquires 10% or more of the
outstanding shares of First Midwest Common Stock, or
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announces an offer to acquire enough shares to give such person or group
ownership of 10% or more of such shares, the Rights will become exercisable and
separate certificates representing the Rights will be distributed. At no time
will the Rights have any voting power or dividend rights.
If any person or group acquires 10% or more of the First Midwest Common
Stock, then ten days thereafter (or such later date as the First Midwest Board
may determine) each Right (other than Rights beneficially owned by holders of
10% or more of the First Midwest Common Stock or transferees thereof, which
Rights become void) will entitle its holders to purchase, for the exercise
price, a number of shares of Series A Preferred Stock having a market value of
twice the exercise price. If any person or group acquires between 10% and 50%
of the First Midwest Common Stock, the First Midwest Board may, at its option,
exchange one share of Common Stock or one one- hundredth of a share of Series A
Preferred Stock for each Right. Also, if at any time prior to the expiration of
the Rights, First Midwest is involved in a merger or other business combination
or sells more than 50% of its assets or earning power, at a time when there is a
10% or greater holder of First Midwest Common Stock and such holder controls the
First Midwest Board, First Midwest must take action to ensure that the Rights
will entitle a holder of Rights to buy a number of the acquiring company's
common shares having a market value of twice the exercise price of each Right.
First Midwest is permitted to redeem the Rights for $0.01 per Right at any
time prior to the close of business on the tenth business day (or such later
date as may be fixed by the First Midwest Board) following the day of
announcement that a person has become a 10% or greater owner of Common Stock.
First Midwest may elect to pay the $0.01 redemption price in First Midwest
Common Stock rather than cash.
Pursuant to the Rights Plan, each share of First Midwest Common Stock
issued to Heritage Shareholders upon the consummation of the Merger will also
evidence one Right under the Rights Plan.
The Rights will not prevent a takeover of First Midwest. The Rights,
however, may cause substantial dilution to a person or group that acquires 10%
or more of the First Midwest Common Stock unless the Rights are first redeemed
or terminated by the First Midwest Board. Nevertheless, the Rights should not
interfere with a transaction that is in the best interests of First Midwest and
its Stockholders because the Rights can be redeemed or terminated, as herein
above described, before the consummation of such transaction.
The complete terms of the Rights are set forth in the Rights Agreement
entered into by First Midwest and First Midwest Trust Company. The foregoing
description of the Rights and the Rights Agreement is qualified in its entirety
by reference to such document. The Rights Agreement is incorporated by
reference as an exhibit to the Registration Statement.
Heritage does not have a rights plan or any comparable plan.
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Stockholder Action Without a Meeting; Power to Call Special Meetings and
Amendment of the Certificate and the Bylaws
The Certificate states that Stockholder action may be taken only at a
meeting of First Midwest Stockholders and that the power of Stockholders to take
action by written consent is specifically denied. The Certificate further
provides that special meetings of First Midwest Stockholders may only be called
by the First Midwest Board, the Chairman of the Board or the President of First
Midwest. However, the holders of at least 51% of the voting power of the then
outstanding shares of capital stock of First Midwest entitled to vote generally
in the election of directors (the "First Midwest Voting Stock") may call a
special meeting solely for the purpose of removing a director or directors for
"cause." The inability of Stockholders to take action by written consent or to
call special Stockholders' meetings may make it more difficult to take
Stockholder action opposed by the First Midwest Board.
The Heritage Articles state that Shareholder action may only be taken at a
meeting of Heritage Shareholders and that the power of Shareholders to take
action by written consent is specifically denied. The Heritage Bylaws provide
that special meetings of Shareholders may be called only pursuant to a
resolution adopted by a majority of the Heritage Board. Shareholders are not
authorized to call a special meeting.
The Certificate provides that it may only be amended by the affirmative
vote of the holders of at least 80% of the First Midwest Voting Stock, voting
together as a single class. However, if an amendment to the Certificate is
approved by the affirmative vote of at least 80% of all of the members of the
First Midwest Board, the amendment need only then be approved by the holders of
a majority of the outstanding shares of First Midwest Common Stock. The Charter
Amendment was approved unanimously by the First Midwest Board. The First
Midwest Board, by resolution adopted by the affirmative vote of at least a
majority of all members thereof, has concurrent power with the Stockholders to
adopt, amend or repeal the First Midwest Bylaws. The First Midwest Bylaws may
not be adopted, amended or repealed by the Stockholders except by the
affirmative vote of the holders of at least 67% of the First Midwest Voting
Stock, voting together as a single class.
The Heritage Articles provide that the adoption of any amendment,
alteration, change or repeal of any provision of the Articles requires the
affirmative vote of holders of at least 80% of all shares of Heritage stock
entitled to vote in the election of directors (the "Heritage Voting Stock"),
considered for this purpose as one class. If, however, such amendment is
approved by two-thirds of all of the members of the Heritage Board, then it need
only be approved by persons holding a majority of the Heritage Voting Stock,
considered for this purpose as one class. The Heritage Board, by resolution
adopted by a majority vote, has concurrent power with the Shareholders to adopt,
amend or repeal the Heritage Bylaws. The Articles provide that certain
provisions of the Heritage Bylaws may only be amended by a majority of the
Heritage Board or by the holders of at least 80% of the Heritage Voting Stock,
considered for this purpose as one class.
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Stockholder Vote Required to Approve Business Combinations
The Certificate requires the affirmative vote of the holders of not less
than 80% of the First Midwest Voting Stock (the "First Midwest Vote
Requirement") to authorize a Business Combination with an Interested
Stockholder. The definition of "Business Combination" includes virtually every
significant transaction between an Interested Stockholder and First Midwest or a
subsidiary of First Midwest, as well as reclassifications and recapitalizations
involving the Common Stock of First Midwest within two years after an Interested
Stockholder becomes an Interested Stockholder. Among the transactions included
in the definition of "Business Combination" are mergers, consolidations and
sales, leases, exchanges, transfers or other dispositions of assets having an
aggregate fair market value of $5,000,000 or more. Also included in the
definition of "Business Combinations" are the issuance or transfer of any
securities of First Midwest or a subsidiary in exchange for cash, securities or
other property which have an aggregate value of $5,000,000 or more, the adoption
of any plan or proposal of liquidation or dissolution of First Midwest or any
reclassification or recapitalization of First Midwest.
An "Interested Stockholder" is generally any person, other than First
Midwest and its subsidiaries, which together with such person's "affiliates" and
"associates," beneficially owns or has owned during the past two years 5% or
more of the Voting Stock. This definition is intended to encompass all forms of
ownership and all types of arrangements that give a person actual or potential
voting or investment rights with respect to the Common Stock of First Midwest.
The First Midwest Vote Requirement does not apply to the following
transactions: (i) a Business Combination which is approved by a majority of the
Disinterested Directors (Disinterested Directors, in general, are members of the
First Midwest Board who are unaffiliated with the Interested Stockholder), or
(ii) Business Combinations in which certain price and procedural requirements
have been met. The transactions described in this Joint Proxy Statement/
Prospectus were approved by more than a majority of the Disinterested Directors
of First Midwest.
The Heritage Articles require the affirmative vote of holders of 80% of the
Heritage Voting Stock (the "Heritage Vote Requirement"), with respect to certain
corporate actions, including (a) a merger or consolidation; (b) the transfer of
substantially all of Heritage's assets; (c) a share exchange; or (d) the
dissolution or liquidation of Heritage. The Heritage Vote Requirement does not
apply if such corporate action is approved by two- thirds of the members of the
Heritage Board. The transactions described in this Joint Proxy
Statement/Prospectus were approved by more than two-thirds of the members of the
Heritage Board.
Evaluation of Proposed Offer
Under the Certificate, in connection with the exercise of its judgment in
determining what is in the best interests of First Midwest and its Stockholders
when evaluating a proposal, by another person to make a tender or exchange offer
for any equity security of First Midwest or any subsidiary, to merge or
consolidate with First Midwest or any subsidiary or to purchase or otherwise
acquire all or substantially all of the assets of First Midwest or any
subsidiary, the First Midwest Board shall, in
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addition to considering the adequacy of the amount to be paid in connection with
any such transaction, consider all of the following factors and any other
factors which it deems relevant: (a) the social and economic effects of the
transaction on First Midwest and its subsidiaries, the employees, depositors,
loan and other customers and creditors of First Midwest and its subsidiaries and
the other elements of the communities in which First Midwest and its
subsidiaries operate or are located; (b) the business and financial condition
and earnings prospects of the acquiring person or persons, including, but not
limited to, debt service and other existing or likely financial obligations of
the acquiring person or persons, and the possible effect of such conditions upon
First Midwest and its subsidiaries and the other elements of the communities in
which First Midwest and its subsidiaries operate or are located; and (c) the
competence, experience and integrity of the acquiring person or persons and its
or their management.
The Heritage Articles provide that when evaluating an Acquisition Proposal
(as defined below), the Heritage Board may consider: (a) the best interests of
the Heritage Shareholders; and (b) such other factors as the Heritage Board
determines to be relevant, including, among other factors, the effects,
including, without limitation, the social, legal and economic effects, of any
action upon employees, suppliers, customers and business of Heritage,
communities in which offices or other establishments of Heritage are located and
all other pertinent factors. An "Acquisition Proposal" means any proposal of
any person (a) for a tender offer or exchange offer for any equity security of
Heritage, (b) to merge or consolidate Heritage with or into another corporation
or (c) to purchase or otherwise acquire all or substantially all of the
properties and assets of Heritage.
Delaware and Illinois Law Affecting Business Combinations
The DGCL prohibits First Midwest from engaging in a business combination
(as defined by the DGCL) with an Interested Stockholder (a person who owns,
directly or indirectly, 15% or more of First Midwest's voting stock) for a three
year period from the date (the "Acquisition Date") the person became an
Interested Stockholder unless: (a) prior to the Acquisition Date, the First
Midwest Board approved the business combination or the transaction which
resulted in the Stockholder becoming an Interested Stockholder; (b) upon
consummation of the transaction in which the Stockholder becomes an Interested
Stockholder, the Stockholder owns at least 85% of First Midwest's voting stock
(that is, a non-interested Stockholder must acquire at least 85% of the voting
stock in one transaction), excluding stock held by officers and directors and
employee stock plans in which participants do not have the right to determine
confidentially whether shares held by the plan will be tendered in an exchange
offer or a tender offer; or (c) on or after the Acquisition Date, the business
combination is approved: (i) by the First Midwest Board, and (ii) by the First
Midwest Stockholders, at a meeting duly called, provided that Stockholders
owning at least two-thirds of the First Midwest voting stock approve the
business combination. When determining whether the two-thirds vote requirement
has been satisfied, voting stock held by the Interested Stockholder is not
included.
The IBCA provides that certain business combinations (as defined therein)
with an Interested Shareholder (a Shareholder owning 15% or more of the
outstanding voting shares of Heritage) require the approval of the holders of at
least 80% of the Heritage Voting Stock and a majority of the shares of Heritage
Common Stock other than those held by the Interested Shareholder and its
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affiliates. The higher voting requirements of this provision are not applicable
to a business combination with an Interested Shareholder if either two-thirds of
the disinterested directors (as defined in the IBCA) approve the business
combination or certain fair price and procedural requirements are met.
Directors
As provided in the Certificate, the First Midwest Board consists of 11
directors, divided into three classes. Directors serve for terms of three
years, staggered by class with each class being substantially equal in size. The
classification of the First Midwest Board decreases the number of directors that
could otherwise be elected annually by anyone who obtains a controlling interest
in First Midwest Common Stock and thereby could impede a change in control of
First Midwest.
A director of First Midwest may be removed only for cause upon the vote of
persons owning 67% of First Midwest's Voting Stock. Since there is no
controlling definition of "cause," the resolution of any dispute as to what
constitutes "cause" may become a matter for the courts to resolve.
Under the Heritage Articles, Heritage's Board is divided into three Classes
with directors serving three year terms, staggered by class. A director of
Heritage may be removed only for "cause" upon the vote of persons owning 80% of
the Heritage Voting Stock.
Liability of Directors; Indemnification.
The Certificate provides that a director or officer shall be indemnified by
First Midwest to the fullest extent authorized by the DGCL. Under the DGCL,
First Midwest may indemnify any person who was or is a party to an action (other
than an action by or in the right of First Midwest) against all expenses,
liability and loss reasonably incurred or suffered by such person in connection
with his activities as a director or officer of First Midwest or as a director
or officer of another company, if the director or officer held such position at
the request of First Midwest. The DGCL requires that such director, officer,
employee or agent, in order to be indemnified, must have acted in good faith and
in a manner reasonably believed to be not opposed to the best interests of First
Midwest, and, with respect to any criminal action or proceeding, did not have
reasonable cause to believe his conduct would be unlawful. The DGCL permits
First Midwest to indemnify a person against expenses incurred in connection with
the defense or settlement of any action by or in the right of First Midwest if
such person acted in good faith and in a manner reasonably believed to be in or
not opposed to the best interests of First Midwest. However, if a person is
judged liable to First Midwest, indemnification is only permitted to the extent
the court deems proper.
The Certificate and the DGCL also provide that the indemnification
provisions are not exclusive of any other right which a person seeking
indemnification may have or later acquire under any statute, provision of the
Certificate, Bylaws, agreement, vote of Stockholders or disinterested directors
or otherwise.
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In addition, the Certificate and the DGCL provide that First Midwest may
maintain insurance, at its expense, to protect itself and any director, officer,
employee or agent of First Midwest or another corporation, partnership, joint
venture, trust or other enterprise against any expense, liability or loss,
whether First Midwest has the power to indemnify such person against such
expense, liability or loss under the DGCL.
The Heritage Bylaws contain substantially similar indemnification
provisions as permitted by the IBCA.
First Midwest currently provides its directors and certain of its officers
with explicit indemnification agreements as allowed by its Certificate and
Bylaws and maintains insurance on behalf of its directors and officers.
Heritage provides similar agreements to its directors and certain of its
officers and maintains insurance coverage on behalf of its directors and
officers.
The Certificate, as permitted by the DGCL, provides that directors of First
Midwest shall not be liable to First Midwest or its Stockholders for monetary
damages for breaches of their fiduciary duties, except to the extent that such a
limitation of liability contravenes the DGCL. These provisions eliminate the
personal liability of directors of First Midwest in their capacity as directors
(but not in their capacity as officers) to First Midwest and its Stockholders
for breaches of their fiduciary duties to the full extent permitted by the DGCL.
The Heritage Articles contain a substantially similar provision limiting
the personal liability of Heritage's directors as permitted by the IBCA.
Dissenters' Appraisal Rights
Under Section 262 of the DGCL, stockholders of a corporation who dissent
from a merger or consolidation of the corporation in the manner provided by the
DGCL are entitled to receive payment of the fair value of their stock, as
determined by the Delaware Court of Chancery. Generally speaking, such right is
not available to stockholders of a corporation involved in a merger or
consolidation if the shares of the corporation are listed on a national
exchange, quoted on the Nasdaq Stock Market or held of record by more than 2,000
stockholders. Such stockholders will have appraisal rights, however, if they
are required to accept in the merger or consolidation anything other than: (i)
stock of the surviving corporation; (ii) shares of stock of a corporation that
will be listed on a national exchange, traded on the Nasdaq Stock Market or held
of record by more than 2,000 stockholders; and (iii) cash for fractional shares.
Shares of First Midwest Common Stock are traded on the Nasdaq Stock Market. In
addition, the Common Stock of First Midwest is held by more than 2,000
Stockholders. Under the DGCL, stockholders do not have dissenters' appraisal
rights with respect to any transaction involving the sale, lease or exchange of
all or substantially all of the assets of the corporation.
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The holders of the Common Stock of First Midwest do not have dissenters'
appraisal rights in connection with the Merger because Heritage is merging with
Acquisition Corp. First Midwest is not a participant in the Merger and, under
the DGCL, no dissenters' appraisal rights are available.
The IBCA provides that Heritage Shareholders have dissenters' appraisal
rights with respect to mergers, consolidations and share exchanges in which
Heritage is a party if Shareholder authorization is required under the IBCA or
the Articles. Heritage Shareholders also have dissenters' appraisal rights with
respect to a sale, lease or exchange of all or substantially all of Heritage's
assets and amendments to its Articles if such amendments alter or abolish
certain rights. See also "THE MERGER -- Dissenters' Appraisal Rights."
Advance Notice of Stockholder Proposals and Nominations
The Certificate provides that at any meeting of Stockholders of First
Midwest, proposals by Stockholders and nominations by Stockholders of persons to
serve as directors will be considered only if advance notice thereof has been
timely given by a Stockholder of record. Notice of any proposal to be presented
or the nomination of any person to serve as a director of First Midwest must be
delivered to First Midwest not less than 120 nor more than 180 days prior to the
date of the meeting (the "Notice"). If the date of the meeting is first publicly
announced or disclosed (in a public filing or otherwise) less than 130 days
prior to the date of the meeting, such Notice must be given not more than ten
days after such date is first so announced or disclosed.
Any Stockholder of First Midwest submitting a proposal must deliver the
text of the proposal and a brief written statement of the reasons why such
Stockholder favors the proposal and setting forth such Stockholder's name and
address, the number and class of all shares of each class of stock of First
Midwest beneficially owned by such Stockholder and any material interest of such
Stockholder in the proposal (other than as a Stockholder). Any Stockholder
submitting a nomination must deliver with the Notice a statement in writing
setting forth: (a) the name of the person to be nominated; (b) the number and
class of all shares of each class of stock of First Midwest beneficially owned
by such person: (c) such other information as would be required to be disclosed
by the Commission for a person seeking to be elected to serve as a director of
First Midwest; (d) such person's signed consent to serve as a director of First
Midwest, if elected; (e) the nominating Stockholder's name and address; and (f)
the number and class of all shares of each class of stock of First Midwest
beneficially owned by the nominating Stockholder. The person presiding at the
meeting, in addition to making any other determinations that may be appropriate
to the conduct of the meeting, shall determine whether such Notice has been duly
given and shall direct that proposals and nominees not be considered if such
Notice has not been given.
Under the Articles of Heritage, any Heritage Shareholder may nominate one
or more persons for election as directors at a meeting only if written notice of
the Heritage Shareholder's intent to make such nomination or nominations has
been given to Heritage not later than (i) with respect to an election to be held
at an annual meeting, ninety days prior to the anniversary date of the
immediately preceding annual meeting, and (ii) with respect to an election to be
held at a special meeting, the close of business on the seventh day following
the date on which notice of such meeting is first given to Shareholders. Each
such notice shall set forth: (a) the name and address of (i) the
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Shareholder who intends to make the nomination and (ii) the person or persons to
be nominated; (b) a representation that the Shareholder is a record owner of
shares of Heritage and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the Shareholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the Shareholder; (d) such other
information regarding each nominee proposed by the Shareholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Commission; and (e) the executed consent of each such nominee to serve as
a director of Heritage if so elected. The presiding officer of the meeting may
refuse to acknowledge the nomination of any person not made in compliance with
the foregoing procedure, or applicable law.
There is no provision in the Heritage Articles or Bylaws which regulates
the submission of proposals by Shareholders at a meeting of Shareholders.
Anti-Takeover Effect
The Certificate and Bylaws contain a number of provisions which, when
coupled with the Rights Plan and the DGCL provision relating to takeovers, may
be deemed to have the effect of discouraging or delaying attempts to gain
control of First Midwest.
Furthermore, the Change in Bank Control Act prohibits a person or group of
persons from acquiring "control" of a bank holding company unless the Federal
Reserve Board has been given sixty days' prior written notice of such proposed
acquisition and within that time period the Federal Reserve Board has not issued
a notice disapproving the proposed acquisition or extending for up to thirty
additional days the period during which such a disapproval may be issued, or
unless the acquisition is subject to Federal Reserve Board approval under the
BHCA. An acquisition may be made prior to the expiration of the disapproval
period if the Federal Reserve Board issues written notice of its intent not to
disapprove the action. Under a rebuttable presumption established by the
Federal Reserve Board, the acquisition of more than 10% of a class of voting
stock of a bank holding company with a class of securities registered under
Section 12 of the Exchange Act, such as First Midwest, would, under the
circumstances set forth in the presumption, constitute the acquisition of
control.
In addition, any company would be required to obtain the approval of the
Federal Reserve Board under the BHCA before acquiring 25% (5% in the case of an
acquiror that is a bank holding company) or more of the outstanding shares of
First Midwest Common Stock, or otherwise obtaining control over First Midwest.
Under the BHCA, "control" generally means (i) the ownership or control of 25% or
more of any class of voting securities of the bank holding company, (ii) the
ability to elect a majority of the bank holding company's directors, or (iii)
the ability otherwise to exercise a controlling influence over the management
and policies of the bank holding company.
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In addition to the foregoing, in certain instances the ability of the First
Midwest Board to issue authorized but theretofore unissued shares of First
Midwest Common Stock or First Midwest Preferred Stock may have an anti-takeover
effect.
The existence of the foregoing provisions could (i) result in First Midwest
being less attractive to a potential acquiror, or (ii) result in First Midwest
Stockholders receiving less for their shares of First Midwest Common Stock than
otherwise might be available in the event of a takeover attempt.
FIRST MIDWEST DIRECTOR ELECTION
Election of Directors
At its regular meeting of November 21, 1997, the First Midwest Board was
formally advised by Director Sister Norma Janssen, O.S.F., of her resignation,
allowing her to dedicate a greater amount of time to her work within the health
care industry. Director Janssen has served with distinction since 1993 and First
Midwest thanks her for her advice, counsel and many contributions.
As a result of the foregoing, on February 18, 1998, the First Midwest Board
reduced the number of directors comprising the Board from twelve to eleven. The
directors are divided into three Classes, approximately equal in number. Each
year the Stockholders elect the members of a Class of directors for a term of
three years. The Director Nominees named below have been nominated for election
for a term to end at the Annual Meeting of Stockholders in the year 2001 or
until their successors are elected. The First Midwest Board has no reason to
believe that any of the Director Nominees will not be available for election.
However, if any of the Director Nominees is not available for election, proxies
may be voted for the election of other persons selected by the Nominating
Committee of the First Midwest Board. Proxies cannot, however, be voted for a
greater number of persons than the number of Director Nominees named. To be
elected as a director, each Director Nominee must receive the favorable vote of
a plurality of the shares present and entitled to vote at the First Midwest
Meeting.
As required by the Merger Agreement, three directors of Heritage (Richard
T. Wojcik, Jack Payan and John L. Sterling) will be appointed to the First
Midwest Board following the consummation of the Merger (the "Heritage
Directors"). Each Heritage Director will be appointed to serve for a term to
end at the Annual Meeting of Stockholders in the year 2001 or until their
successors are elected.
Certain biographical information (including principal occupation or
employment for the past five years) concerning each Director Nominee, Continuing
Director and Heritage Director, as of the First Midwest Record Date, is set
forth below:
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Director Nominees To Serve Until The Year 2001
C.D. Oberwortmann, 89 (Director since 1982). Mr. Oberwortmann is Chairman
of the Board of First Midwest and is Chairman of First Midwest's Executive
Committee.
John M. O'Meara, 52 (Director since 1982). Mr. O'Meara is Executive Vice
President and Chief Operating Officer of First Midwest. He is a member of First
Midwest's Executive Committee and is the brother of Robert P. O'Meara.
J. Stephen Vanderwoude, 54 (Director since 1991). Mr. Vanderwoude is
Chairman and Chief Executive Officer of Madison River Telephone Company
(telephone system acquiror and operator), Chapel Hill, North Carolina. From
1993 to 1995, he was President and Chief Executive Officer (retired, 1995) of
Video Lottery Technologies, Inc. From 1989 to 1993, he was President of Centel
Corporation; Centel Corporation was acquired by Sprint Corporation in 1993, at
which time he became President of Sprint's Local Telecomm Division. He is a
director of V-Band Corporation. Mr. Vanderwoude is a member of First Midwest's
Compensation Committee.
Continuing Directors Serving Until The Year 1999
Andrew B. Barber, 89 (Director since 1982). Mr. Barber is Vice Chairman of
the Board of First Midwest and is a member of First Midwest's Executive
Committee.
Vernon A. Brunner, 57 (Director since 1997). Mr. Brunner is Executive Vice
President-Marketing, Walgreen Co. (retail drug store chain), Deerfield,
Illinois. Mr. Brunner is a member of First Midwest's Executive Committee.
O. Ralph Edwards, 63 (Director since 1988). Mr. Edwards is Corporate Vice
President-Human Resources (retired, 1992) of Abbott Laboratories (health care
products manufacturer), Abbott Park, Illinois. Mr. Edwards is Chairman of First
Midwest's Compensation Committee and is a member of its Nominating Committee.
Thomas M. Garvin, 62 (Director since 1989). Mr. Garvin is Chairman and
Chief Executive Officer of G.G. Products Company (food business acquiror), Oak
Brook, Illinois. Prior to 1993, he was the President and Chief Executive
Officer of the Keebler Company. He is a director of Corporate Renaissance
Group, Inc. Mr. Garvin is a member of First Midwest's Executive and Audit
Committees.
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Continuing Directors Serving Until The Year 2000
Bruce S. Chelberg, 63 (Director since 1989). Mr. Chelberg is Chairman and
Chief Executive Officer of Whitman Corporation (diversified, multinational
holding company), Rolling Meadows, Illinois. He is a director of Whitman
Corporation, Snap-On Tools Corporation and Northfield Laboratories, Inc. Mr.
Chelberg is Chairman of First Midwest's Nominating Committee and is a member of
its Audit and Executive Committees.
William J. Cowlin, 67 (Director since 1997). Mr. Cowlin is Attorney and
Counselor at Law of William J. Cowlin, LTD., Crystal Lake, Illinois. Prior to
1997, Mr. Cowlin was Chairman of the Board and Chief Executive Officer of
SparBank which was acquired by First Midwest on October 1, 1997. Under the terms
of the acquisition agreement between First Midwest and SparBank, Mr. Cowlin was
appointed to serve as a director of First Midwest until the its Annual Meeting
of Stockholders in the year 2000. In addition, this agreement requires that Mr.
Cowlin (or such other nominee of Geraldine C. Cowlin, his spouse) will be
nominated to serve as a director of First Midwest upon the expiration of his
term in the year 2000 for a three year term expiring at the Annual Meeting of
Stockholders in the year 2003.
Joseph W. England, 57 (Director since 1986). Mr. England is Senior Vice
President of Deere & Company (mobile power equipment manufacturer), Moline,
Illinois. Mr. England is Chairman of First Midwest's Audit Committee.
Robert P. O'Meara, 60 (Director since 1982). Mr. O'Meara is President and
Chief Executive Officer of First Midwest. He is a member of First Midwest's
Executive Committee and is the brother of John M. O'Meara.
Heritage Directors Serving Until The Year 2001
Richard T. Wojcik, 59. Mr. Wojcik is Chairman and Chief Executive Officer
of Heritage. Mr. Wojcik has served as a director of Heritage since its inception
in 1981.
Jack Payan, 67. Mr. Payan is a senior executive of Payan, Alberts &
Thompson, Ltd., an independent insurance agency. Mr. Payan has served as a
director of Heritage since 1995.
John L. Sterling, 54. Mr. Sterling is the President and owner of Sterling
Lumber Company. Mr. Sterling has served as a director of Heritage since its
inception in 1981.
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Operations of the First Midwest Board
First Midwest Board and Committee Meetings. The First Midwest Board has
established Executive, Audit, Compensation and Nominating Committees, and may
periodically establish other Committees as deemed advisable.
The members of the Executive Committee are: C.D. Oberwortmann, Chairman;
Andrew B. Barber; Vernon A. Brunner; Bruce S. Chelberg; Thomas M. Garvin; John
M. O'Meara; and Robert P. O'Meara. The function of this Committee is to
exercise certain powers of the First Midwest Board, as defined by First
Midwest's ByLaws, between First Midwest Board meetings. The Executive Committee
met five times during 1997.
The members of the Compensation Committee during 1997 were: O. Ralph
Edwards, Chairman; Sister Norma Janssen until her resignation in November 1997,
and subsequent to her resignation, J. Stephen Vanderwoude. The functions of
this Committee are to determine and recommend to the First Midwest Board the
compensation of First Midwest's directors and to review the propriety of First
Midwest's compensation and benefits programs. The Compensation Committee met
four times in 1997. As of the First Midwest Record Date, the members of the
Compensation Committee were: O. Ralph Edwards, Chairman, and J. Stephen
Vanderwoude.
Audit Committee members during 1997 were: Joseph W. England, Chairman;
Bruce S. Chelberg; Thomas M. Garvin; and J. Stephen Vanderwoude. In order to
effect his appointment to the Compensation Committee, as discussed earlier, Mr.
Vanderwoude resigned from the Audit Committee in 1997. The functions of this
Committee are to: select and recommend the independent auditors to the First
Midwest Board; review the plans for, and the findings from, the independent and
internal audits; and review the results of the regulatory agency examinations of
First Midwest. The Audit Committee met four times in 1997. As of the First
Midwest Record Date, the members of the Audit Committee were: Joseph W. England,
Chairman, Bruce S. Chelberg and Thomas M. Garvin.
The members of the Nominating Committee are: Bruce S. Chelberg, Chairman;
and O. Ralph Edwards. The functions of this Committee are to establish criteria
for the nomination of directors and identify and recommend to the First Midwest
Board candidates for director nomination. The Nominating Committee did not meet
during 1997.
The First Midwest Board held four meetings during 1997. Each Director
attended at least 75% of the aggregate of the total number of meetings held by
the First Midwest Board and the various Committees of the First Midwest Board on
which he/she served.
First Midwest Board Compensation. Non-employee members of the First
Midwest Board are compensated by First Midwest through an annual $11,000
retainer, payable quarterly, and a $750 fee for each First Midwest Board meeting
attended. Non-employee Chairpersons of First Midwest Board Committees receive
an additional $1,500 annual retainer, payable quarterly. Non-employee Committee
members, including the Chairperson, also receive a $750 fee for each Committee
meeting attended. The median total compensation paid in 1997 to non-employee
directors was $17,750.
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Employee members of the First Midwest Board (i.e., C. D. Oberwortmann, John M.
O'Meara and Robert P. O'Meara) receive no First Midwest Board compensation.
Deferred Compensation Plan for Non-employee Directors. The Deferred
Compensation Plan for Non-employee Directors allows non-employee directors to
defer receipt of either 50% or 100% of any director fees and retainers due such
directors. The deferred director fees and retainers are payable at the
director's election either as a lump sum or in installments over a period not to
exceed ten years. Payments under this plan begin at the date specified by the
director or upon cessation of service as a director.
Non-Employee Directors' 1997 Stock Option Plan. During 1997, First
Midwest's Board established the Non-Employee Directors' 1997 Stock Option Plan
(the "Directors' Plan") to advance the interests of First Midwest and its
Stockholders by augmenting First Midwest's traditional compensation program for
non-employee directors with awards of non-qualified stock options. A maximum of
25,000 shares of Common Stock are available for the grant of options under the
Directors' Plan.
Under the Directors' Plan, each non-employee director receives an annual
non-qualified stock option grant. In connection with the inception of the
Directors' Plan, the grant date for 1997 was November 19, 1997. On that date, an
option to purchase 850 shares of Common Stock at a price per share of $37.75 was
granted to each of the non-employee directors. The value of each option granted
to a non-employee director as of December 31, 1997 was $5,104.25 (which
represents the difference between the closing price ($43.75) of the Common Stock
on December 31, 1997, and the exercise price of the options).
For 1998 and each year thereafter, the grant date will be the date of that
year's first regularly scheduled meeting of the First Midwest Board. The number
of shares covered by the option is determined by dividing the average cash
compensation paid to non-employee directors during the immediately preceding
calendar year by the fair market value of a share of First Midwest Common Stock
on the grant date. The first regularly scheduled meeting for 1998 was held
February 18, 1998 and on that date an option to purchase 455 shares of First
Midwest Common Stock at a price of $40.6875 per share was granted to each
non-employee director. In addition, for any individual who first becomes a
non-employee director after the date of the first First Midwest Board meeting in
1998, the date such individual becomes a director shall be a grant date.
The exercise price per share for all options under the Directors' Plan is
100% of the fair market value of a share of First Midwest Common Stock on the
grant date. The exercise price may be paid in cash or by surrendering
previously-acquired shares of First Midwest Common Stock, or a combination of
both, having a combined value equal to the aggregate exercise price for the
options being exercised. The options are not exercisable until the first
anniversary of the grant date, subject to accelerated vesting in the event of
death or disability, or a change in control of First Midwest. The option will
remain exercisable until the tenth anniversary of the grant date unless the
recipient ceases to be a director, in which case the option will expire on the
third anniversary of the termination of the individual's Board membership (the
first anniversary in the event of death).
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First Midwest Board Retirement Policy. The First Midwest Board Retirement
Policy requires a director to resign upon attainment of age seventy or upon the
occurrence of certain defined events. Directors Barber and Oberwortmann have
been deemed by the First Midwest Board to be "founding directors" of First
Midwest not subject to the retirement provisions until January 1, 1999, which
date may be extended as the First Midwest Board deems appropriate.
Retired directors may be considered for appointment as nonvoting "Emeritus
Directors" upon the recommendation of the Nominating Committee. Emeritus
Directors will be available for advice and counsel to First Midwest and will
receive an annual $1,000 retainer, payable quarterly. Robert E. Joyce is First
Midwest's only Emeritus Director.
Executive Officers and Executive Compensation
First Midwest's executive officers are elected annually by the First
Midwest Board. Certain information regarding First Midwest's executive officers
is set forth below.
<TABLE>
<CAPTION>
Executive
Name (Age as of Officer
First Midwest Record Date) Position or Employment for Past Five Years Since
- ----------------------------------------------------------------------------------- ---------
<S> <C> <C>
Clarence D. Oberwortmann (89) Chairman of the Board 1982
Andrew B. Barber (89) Vice Chairman of the Board 1982
Robert P. O'Meara (60) President & Chief Executive Officer 1982
John M. O'Meara (52) Executive Vice President & Chief Operating Officer 1987
Donald J. Swistowicz (46) Executive Vice President & Chief Financial Officer 1982
</TABLE>
Summary Compensation Table. The following table sets forth certain
information with respect to annual and other compensation paid to First
Midwest's chief executive officer and the other highest paid executive officers
of First Midwest whose annual base salary and bonus for the last fiscal year
exceeded $100,000:
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<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
Securities
Name and Fiscal Annual Compensation Underlying All Other
Principal Position Year Salary $ Bonus Options (#) Compensation ($)
- ------------------ ------ -------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
Robert P. O'Meara 1997 $433,000 $131,449 9,453 $56,052
President & Chief 1996 416,000 100,825 12,773 58,313
Executive Officer 1995 400,000 91,071 13,861 55,907
John M. O'Meara 1997 352,000 106,858 7,685 48,187
Executive Vice 1996 338,000 106,921 10,378 53,130
President & Chief 1995 325,000 123,996 11,263 45,433
Operating Officer
Donald J. Swistowicz 1997 172,000 45,304 3,219 21,638
Executive Vice 1996 165,000 34,079 4,343 22,852
President 1995 152,000 33,717 4,515 20,600
& Chief Financial and
Accounting Officer
</TABLE>
Note "All Other Compensation" represents contributions by First Midwest to
First Midwest's qualified and non-qualified defined contribution retirement
plans.
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Stock Option Grants in 1997
<TABLE>
<CAPTION>
Individual Grants
- --------------------------------------------------------------------------------------------------
# of
Securities
Underlying % of Total Per
Options Options Share
Granted in Granted to Exercise Grant Date
Name 1997 Employees Price ($) Exp. Date Present Value ($)
- -------------------- ---------- ---------- --------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Robert P. O'Meara 9,453 8.3% $32.06 Feb. 19, 2007 $72,505
John M. O'Meara 7,685 6.8% $32.06 Feb. 19, 2007 58,944
Donald J. Swistowicz 3,219 2.8% $32.06 Feb. 19, 2007 24,690
</TABLE>
Notes
The "Grant Date Present Value," above, was determined using the so-called
"Black-Scholes" option pricing model. The significant factors or
assumptions incorporated into the Black-Scholes model in estimating the
Grant Date Present Value were as follows:
. An exercise price of each option of $32.06, which is equal to the
fair market value of a share of First Midwest Common Stock on the
date of grant, and an option term of ten years.
. An interest rate of 6.3% that represents the interest rate on a
U.S. Treasury security on the date of grant with a maturity date
corresponding to that of the expected life of the option.
. Volatility of 18.1% calculated using monthly stock prices for a
four-year period.
. A dividend yield of 2.63%, reflecting a three-year average of
dividends paid with respect to a share of First Midwest Common
Stock.
. A six year expected life of the option to reflect the probability
of a shortened option term due to termination of employment prior
to the option expiration date.
The ultimate value of the options will depend on the future market price of
First Midwest Common Stock, which cannot be forecast with reasonable
accuracy. The actual value, if any, an executive may realize upon the
exercise of an option will depend on the excess of the market price of
First Midwest Common Stock, on the date the option is exercised, over the
exercise price of the option.
Aggregated Option Exercises in 1997 and Option Value Table as of December 31,
1997
<TABLE>
<CAPTION>
Number of Securities
Shares Underlying Unexercised Value of Unexercised In-the-
Acquired Options at Dec. 31, 1997 Money Options at Dec. 31, 1997
on Value ------------------------ ------------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- -------------------- -------- -------- -------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert P. O'Meara N/A N/A 115,371 29,156 $3,123,661 $541,282
John M. O'Meara N/A N/A 89,459 23,694 2,484,803 439,843
Donald J. Swistowicz N/A N/A 35,560 9,819 987,943 181,762
</TABLE>
Notes "N/A" denotes that, since the inception of the First Midwest Bancorp,
Inc. 1989 Omnibus Stock and Incentive Plan, no stock option exercises by
the named executives have occurred. Additionally, options are considered
"in-the-money" if the fair market value of the underlying First Midwest
Common Stock exceeds the exercise price of the related stock option. For
"in-the-money"
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<PAGE>
options, the "Value of Unexercised In-the-Money Options at December 31,
1997" represents the difference between the closing price ($43.75) of the
Common Stock on December 31, 1997 and the exercise price of the underlying
options, multiplied by the number of applicable options. Since the
inception of such Plan, no stock options have been repriced.
Defined Benefit or Actuarial Pension and Retirement Plans
<TABLE>
<CAPTION>
Consolidated Pension Plan
Average Years of Service
Final ----------------------------------------------------
Earnings 10 15 20 25 30 35
-------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
$125,000 $10,139 $15,209 $20,278 $25,348 $30,418 $35,487
150,000 12,589 18,884 25,178 31,473 37,768 44,062
175,000 15,039 22,559 30,078 37,598 45,118 52,637
200,000 17,489 26,234 34,978 43,723 52,468 61,212
225,000 19,939 29,909 39,878 49,848 59,818 69,787
</TABLE>
The table above illustrates the amount of annual retirement income,
computed on an actuarial basis using the "straight-life annuity method,"
provided by First Midwest's consolidated defined benefit pension plan at normal
retirement age (65) in specified average earnings and service classifications.
(Benefits are payable for life, or if spousal benefits are elected, a reduced
amount is payable for the life of the employee and of the surviving spouse.)
"Average Final Earnings" are determined substantially on the basis of the
annual compensation included in the Summary Compensation Table, subject to the
provisions of the Code limiting the amount of annual compensation which may be
taken into account. (The limitation for 1997 was $160,000. For the five years
prior to 1997, the limitations were as follows: 1996 - $150,000; 1995 -
$150,000; 1994 - $150,000; 1993 - $235,840; and 1992 - $228,860.) The amounts
shown in the pension table, above, are not offset by any available Social
Security benefits. At December 31, 1997, the years of credited service for
First Midwest's consolidated defined benefit pension plan for the individuals
named in the Summary Compensation Table were as follows: Robert P. O'Meara -
eighteen; John M. O'Meara - eighteen; and Donald J. Swistowicz - sixteen.
Nonqualified Pension Plan. Because benefits from First Midwest's
consolidated defined benefit pension plan are subject to limitations under the
Code, during 1989 the First Midwest Board authorized the establishment of a
nonqualified pension plan (the "nonqualified plan"). The nonqualified plan
provides for additional pension payments from the general assets of First
Midwest of amounts which would have been paid to participants under the
actuarially-based pension formula of First Midwest's consolidated defined
benefit pension plan absent the compensation limitations of the Code. In order
to reduce the administrative burden associated with the maintenance of a
nonqualified plan, the First Midwest Board approved the crediting as deferred
compensation, to all employees participating in the nonqualified plan, of the
present value of the nonqualified vested pension benefits accrued during the
year. Amounts credited in 1997 as deferred compensation for 1997 service to the
executives listed in the Summary Compensation Table were as follows: Robert P.
O'Meara -$70,807; John M. O'Meara - $38,066; and Donald J. Swistowicz - $6,328.
Executive Employment Agreements. In order to advance the interests of
First Midwest by enabling First Midwest to attract and retain the services of
key executives upon which the successful operations of First Midwest are largely
dependent, in 1990 the First Midwest Board authorized the Compensation Committee
to tender Employment/Change in Control Agreements to such key
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<PAGE>
executives (the "Agreements"). The Compensation Committee has determined that
the following executives are eligible for such Agreements: Class I Agreements --
Robert P. O'Meara and John M. O'Meara; Class II Agreements -- Donald J.
Swistowicz and thirteen other senior executives of First Midwest's subsidiaries;
and Class III Agreements -- twenty-four other senior executives of First Midwest
or its subsidiaries.
The Agreements are for a base term of two years for Classes I and II and
one year for Class III Agreements and automatically renew unless ninety days
notice of non-renewal is provided to the other party. If an executive's
employment is terminated prior to the expiration of the Agreement or by the
providing of notice of non-renewal, or if the executive is constructively
discharged (for example, as a result of a material reduction in responsibilities
or compensation, or other material breach of the Agreement by First Midwest),
the executive is entitled to a severance benefit of: twelve months base pay for
Class I executives and six months base pay for Class II and III executives; a
pro rata short-term bonus award; and a limited amount of health care and
outplacement counseling benefits. If the executive remains unemployed at the end
of such time periods, an additional amount of limited benefits may be provided
at the discretion of First Midwest.
Upon a change in control, as defined, the term of each of the Agreements is
extended three, two and one year(s) for Class I, II and III executives,
respectively, from the date of the change in control. An executive who is
terminated or constructively discharged after a change in control is entitled to
a lump sum payment of the aggregate value (three, two and one time(s) such value
for Classes I, II and III, respectively) of the following benefits: severance
pay (base salary and short-term bonus awards); perquisites to which the
executive was entitled on the date of the change in control; a limited amount of
group health care benefits; contributions for benefits expected to be made to
First Midwest's tax-qualified and nonqualified retirement plans; and a limited
amount of outplacement counseling.
Supplemental compensation will also be provided to mitigate the effects of
any excise taxes applicable to executive employment payments. Each executive is
subject to a confidentiality agreement, and if the executive voluntarily
terminates employment prior to a change in control, the executive will be
subject to noncompetition and nonsolicitation agreements.
Compensation Committee Report on Executive Compensation
General. The Compensation Committee (the "Committee") believes that First
Midwest's compensation strategy reflects the following: compensation should
focus executives on achieving performance objectives that enhance Stockholder
value; compensation should motivate executives, both individually and
collectively, to take actions that support the attainment of First Midwest's
mission and long and short-term objectives; and compensation should enable First
Midwest to attract and retain individuals who are in a position to contribute
materially to First Midwest's growth, development and financial success.
Executive compensation consists of three primary, variable elements: a base
salary; a potential cash bonus award under First Midwest's Short-Term Incentive
Plan; and a potential stock option or other award under First Midwest's 1989
Omnibus Stock and Incentive Plan. In determining
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<PAGE>
the appropriate mix among these elements, the Committee considers the results of
compensation comparisons performed by First Midwest itself, First Midwest's
independent compensation consultant, Hewitt Associates, and various industry
associations. Additionally, the specific factors considered by the Committee in
establishing executive compensation under each of these elements are discussed
below.
Base Salary. Executive base salaries are reviewed annually by the
Committee and presented to the full Board for approval; executives who are
members of the First Midwest Board do not participate in the approval process.
Executive base salaries are typically targeted at the competitive median for
services performed in similar capacities in similarly-sized financial
institutions, adjusted primarily for individual performance and also for other
factors, such as experience, responsibility and internal equity. Based upon the
foregoing, the annual base salaries of Robert P. O'Meara, John M. O'Meara and
Donald J. Swistowicz were fixed for 1997 as disclosed in the Summary
Compensation Table.
First Midwest Bancorp, Inc. Short-Term Incentive Plan. The First Midwest
Bancorp, Inc. Short-Term Incentive Plan (the "Incentive Plan"), established in
1989, is an integral element of the compensation mix because the Incentive Plan
specifically aligns the short-term performance goals of First Midwest and its
subsidiaries with the goals of the individual employees responsible for
achieving such goals. Approximately 279 employees were designated Incentive Plan
participants during 1997. Such employees are placed into one of eight
participant categories based upon salary grade. Target awards are expressed as a
percentage of base salary and range from 5% to 25%, depending upon participant
category. (The 1997 target award for Robert P. O'Meara and John M. O'Meara was
25% each, while the target award for Donald J. Swistowicz was 20%.) Based upon
the level of attainment of predetermined annual corporate performance goals as
well as predetermined individual performance goals, an award ranging between 0%
to 150% of the target can be earned. Based upon the foregoing criteria, Robert
P. O'Meara, John M. O'Meara and Donald J. Swistowicz earned the Incentive Plan
cash bonus awards for 1997 as disclosed in the Summary Compensation Table.
First Midwest Bancorp, Inc. 1989 Omnibus Stock and Incentive Plan. The
First Midwest Bancorp, Inc. 1989 Omnibus Stock and Incentive Plan (the "Omnibus
Plan") allows the granting of both incentive and nonstatutory stock options,
stock appreciation rights, restricted stock, performance units and performance
shares. To date, only nonstatutory stock options have been awarded. The Omnibus
Plan is administered by the Committee, and participants in the Omnibus Plan are
selected from those employees who are in a position to contribute materially to
First Midwest's long-term growth, development and financial success.
Approximately sixty-five employees were Omnibus Plan participants during 1997.
The exercise price of each stock option reflects the fair market value of a
share of First Midwest Common Stock on the date of grant. By featuring a long-
term vesting schedule, the Committee seeks to motivate Omnibus Plan participants
to enhance the long- term performance of First Midwest
The number of options awarded a participant is determined by taking a
Committee-established percentage of that participant's base salary and dividing
that amount by the fair market value of a share of First Midwest Common Stock on
the date of grant. (The percentage of base salary utilized in 1997 for Robert P.
O'Meara and John M. O'Meara was 70% while that for Donald
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<PAGE>
J. Swistowicz was 60%.) Such number of options, however, may be reduced through
application of a multiplier of 0% or 50% to reflect the Committee's assessment
of a participant's individual performance. Based upon the foregoing criteria,
Robert P. O'Meara, John M. O'Meara and Donald J. Swistowicz earned the Omnibus
Plan stock option awards as disclosed in the Summary Compensation Table.
Chief Executive Officer Compensation. Each element of Robert P. O'Meara's
compensation is determined on the same basis, as previously described in this
report, as the compensation of the other two named executives. Accordingly: his
base salary was fixed for 1997 as disclosed in the Summary Compensation Table;
his Incentive Plan cash bonus award for 1997 reflected First Midwest's
substantial attainment of the predetermined annual performance goals previously
described; and his 1997 stock option award under the Omnibus Plan reflected
utilization of the Committee-established percentage of his base salary with no
reduction based upon his performance.
Deductibility of Executive Compensation. The Committee does not believe
that the limitations on the deductibility of executive compensation imposed by
Section 162(m) of the Code will affect the deductibility of compensation
expected to be paid under First Midwest's existing plans and programs during
1998. The Committee will continue to evaluate any impact which Section 162(m)
may have and take such actions as it deems appropriate.
Responsibility for Report on Executive Compensation. This Compensation
Committee Report on Executive Compensation was prepared by the Committee, whose
members during 1997 were: O. Ralph Edwards, Chairman; Sister Norma Janssen,
until her resignation in November, 1997; and subsequent to her resignation, J.
Stephen Vanderwoude.
The Committee's Report on Executive Compensation and the following Stock
Performance Graph shall not be deemed incorporated by reference by any general
statement incorporating by reference this Joint Proxy Statement/Prospectus into
any filing under the Securities Act or under the Exchange Act, except to the
extent First Midwest specifically incorporates this information by reference,
and shall not otherwise be deemed "filed" under such Acts.
Compensation Committee Interlocks and Insider Participation
During 1997, none of the members of the Compensation Committee served, or
formerly served, as an officer or employee of First Midwest or any of its
subsidiaries. Furthermore, none of the executive officers of First Midwest
served as a Director or member of the Compensation Committee of any other
entity.
Stock Performance Graph
The graph below that follows, over a five-year period, the cumulative total
return (defined as stock price appreciation and dividends) to Stockholders for
First Midwest Common Stock against a broad-market total return equity index and
a commonly-published industry total return equity index. The broad-market total
return equity index utilized in this comparison is the Standard & Poor's 500
Stock Index (the "S & P 500"), which is a composite index of the equity
performance of 500
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<PAGE>
representative companies within those industry groups deemed significant by
Standard & Poor's. The published industry total return equity index utilized in
the comparison is the Keefe, Bruyette & Woods, Inc. KBW 50 Total Return Index
(the "KBW 50 TR"), which is a composite index of the equity performance of fifty
banking companies located throughout the United States which range in asset size
from $11 billion to $323 billion and are of a median asset size of $36 billion.
Comparison of Five Year Cumulative Total Return Among
First Midwest, the S & P 500 Index & the KBW 50 TR Index *
[GRAPH APPEARS HERE]
---------------------------------------------------------
1992 1993 1994 1995 1996 1997
=========================================================
First Midwest 100 133 129 160 233 319
---------------------------------------------------------
KBW 50 TR 100 106 100 160 227 332
---------------------------------------------------------
S&P 500 100 110 112 153 189 252
---------------------------------------------------------
* Assumes $100 invested on December 31, 1992 in First Midwest Common
Stock, the S & P 500 and the KBW 50 TR and the reinvestment of all
related dividends.
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<PAGE>
Ownership Reports
Section 16 of the Exchange Act requires directors, certain officers and
certain other owners to periodically file notices of changes in beneficial
ownership of Common Stock with the Commission. To the best of First Midwest's
knowledge, during 1997 all required filings were timely submitted.
Certain Relationships and Related Transactions
First Midwest, through certain of its subsidiaries, has made loans and had
transactions with certain of its executive officers and directors. However, all
such loans and transactions were made in the ordinary course of business on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons and did
not involve more than the normal risk of collectibility or present other
unfavorable features.
Independent Auditors
For 1997 and 1998, the First Midwest Board retained Ernst & Young LLP as
First Midwest's independent auditors. First Midwest expects that representatives
of Ernst & Young LLP will be present at the First Midwest Meeting, will have an
opportunity to make a statement, if desired, and will be available to respond to
appropriate questions.
On August 21, 1996, upon the unanimous recommendation of the Audit
Committee, the First Midwest Board engaged the accounting firm of Ernst & Young
LLP as First Midwest's independent auditors for 1996, replacing KPMG Peat
Marwick LLP. During First Midwest's two fiscal years prior to 1996 and any
interim period subsequent to December 31, 1995 through August 21, 1996, there
were no disagreements with KPMG Peat Marwick LLP on any matter of accounting
principles or practices, financial statement disclosure, auditing scope or
procedure, or any reportable events. KPMG Peat Marwick LLP's report on First
Midwest's consolidated statements of income, changes in stockholders' equity and
cash flows for the year ended December 31, 1995, contained no adverse opinion or
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principles.
OPINIONS
Certain legal matters in connection with the Merger will be passed upon for
Heritage by Barack Ferrazzano Kirschbaum Perlman & Nagelberg, 333 West Wacker
Drive, Suite 2700, Chicago, Illinois 60606, and the Law Offices of Joel S.
Corwin, Two First National Plaza, Suite 2200, Chicago, Illinois 60603, and for
First Midwest by Hinshaw & Culbertson, 222 North LaSalle Street, Suite 300,
Chicago, Illinois 60601-1081. Mr. Corwin or members of his immediate family are
directly or indirectly the beneficial owners of approximately 33,000 shares of
Heritage Common Stock.
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<PAGE>
EXPERTS
The consolidated financial statements of First Midwest at December 31, 1997
and 1996, and for each of the two years in the period ended December 31, 1997,
included in First Midwest's Annual Report (Form 10-K) and incorporated by
reference in this Joint Proxy Statement/Prospectus, which is referred to and
made a part of this Joint Proxy Statement/Prospectus and Registration Statement,
have been audited by Ernst & Young LLP, independent auditors, to the extent
indicated in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements have been incorporated herein
by reference in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
The consolidated financial statements of First Midwest for the year ended
December 31, 1995 have been incorporated by reference herein in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public accountants,
which report is incorporated by reference herein upon the authority of said firm
as experts in accounting and auditing.
The consolidated financial statements of SparBank as of December 31, 1996,
and for each of the two years in the period ended December 31, 1996, have been
incorporated in this Joint Proxy Statement/Prospectus by reference in reliance
upon the report of Grant Thornton LLP, independent certified public accountants,
which report is incorporated by reference herein upon the authority of such firm
as experts in accounting and auditing.
The consolidated financial statements of Heritage as of December 31, 1997
and for each of the years in the three-year period ended December 31, 1997 have
been incorporated by reference herein in reliance upon the report of Arthur
Andersen LLP, independent certified public accountants, which report is
incorporated by reference herein upon the authority of such firm as experts in
accounting and auditing.
First Midwest expects that representatives of Ernst & Young LLP will be
present at the First Midwest Meeting with the authority to make a statement if
they desire to do so and will be able to respond to appropriate questions.
Heritage expects that representatives of Arthur Andersen LLP will be present at
the Heritage Meeting with the authority to make a statement if they desire to do
so and will be able to respond to appropriate questions.
STOCKHOLDER PROPOSALS
If the Merger is effected, Shareholders of Heritage will become
Stockholders of First Midwest at the Effective Time. First Midwest welcomes
comments or suggestions from its Stockholders. First Midwest's 1999 Annual
Meeting of Stockholders will be held on or about April 14, 1999 (or on such
other date as may be fixed by the First Midwest Board), and for a Stockholder to
bring a matter before the annual meeting, the Stockholder must submit such
proposals by November 6, 1998. If a Stockholder desires to nominate any person
for election as a director at the meeting, the Stockholder must give First
Midwest notice of the nomination not fewer than 120 days nor more than 180 days
prior to the anticipated meeting date and in accordance with the requirements of
the Certificate.
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<PAGE>
APPENDIX B
April 24, 1998
Board of Directors
Heritage Financial Services, Inc.
17500 South Oak Park Avenue
Tinley Park, IL 60477
Ladies and Gentlemen:
You have requested our opinion with respect to the fairness, from a
financial point of view, as of the date hereof, to the holders of the common
stock, no par value ("Heritage Common"), of Heritage Financial Services,
Inc.("Heritage"), of the Exchange Ratio, as set forth in Section 3.2(a) of the
Agreement and Plan of Merger (the "Agreement"), between Heritage and First
Midwest Bancorp, Inc. ("First Midwest").
The Agreement provides for the merger (the "Merger") of Heritage with and
into First Midwest, pursuant to which, among other things, at the Closing (as
defined in the Agreement), each outstanding share of Heritage Common (other than
shares held in the treasury of Heritage), will be converted in the right to
receive 0.7695 shares of the common stock, $.01 par value ("First Midwest
Common") of First Midwest, as set forth in Section 3.2(a) of the Agreement. The
terms and conditions of the Merger are more fully set forth in the Agreement.
McDonald & Company Securities, Inc., as part of its investment banking
business, is customarily engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.
We have acted as Heritage's financial advisor in connection with, and have
participated in certain negotiations leading to, the Agreement. In
connection with rendering our opinion set forth herein, we have among other
things:
(i) Reviewed Heritage's Annual Reports to Shareholders and Annual Reports on
Form 10-K for each of the years ended December 31, 1996, December 31,
1995 and December 31, 1994, including the audited financial statements
contained therein, and Heritage's Quarterly Reports on Form 10-Q for
each of the first three quarters of 1997, including the unaudited
financial statements contained therein;
(ii) Reviewed First Midwest's Annual Reports to Shareholders and Annual
<PAGE>
Reports on Form 10-K for each of the years ended December 31, 1996,
December 31, 1995 and December 31, 1994, including the audited financial
statements contained therein, and First Midwest's Quarterly Reports on
Form 10-Q for each of the first three quarters of 1997, including the
unaudited financial statements contained therein;
(iii) Reviewed certain other public and non-public information, primarily
financial in nature, relating to the respective businesses, earnings,
assets and prospects of Heritage and First Midwest provided to us or
publicly available;
(iv) Participated in meetings and telephone conferences with members of
senior management of Heritage and First Midwest concerning the financial
condition, business, assets, financial forecasts and prospects of the
respective companies, as well as other matters we believed relevant to
our inquiry;
(v) Reviewed certain stock market information for Heritage Common and First
Midwest Common, and compared it with similar information for certain
companies, the securities of which are publicly traded;
(vi) Compared the results of operations and financial condition of Heritage
and First Midwest with that of certain companies which we deemed to be
relevant for purposes of this opinion;
(vii) Reviewed the financial terms, to the extent publicly available, of
certain acquisition transactions which we deemed to be relevant for
purposes of this opinion;
(viii) Reviewed the Agreement dated January 13, 1998 and its schedules and
exhibits and certain related documents; and
(ix) Performed such other reviews and analyses as we have deemed appropriate.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information reviewed by us and have relied upon the accuracy and completeness of
the representations, warranties and covenants of Heritage and First Midwest
contained in the Agreement. We have not been engaged to undertake, and have not
assumed any responsibility for, nor have we conducted, an independent
investigation or verification of such matters. We have not been engaged to and
we have not conducted a physical inspection of any of the assets, properties or
facilities of either Heritage or First Midwest, nor have we made or obtained or
been furnished with any independent valuation or appraisal of any of such
assets, properties or facilities or any of the liabilities of either Heritage or
First Midwest. With respect to financial forecasts used in our analysis, we have
assumed that such forecasts have been reasonably prepared by management of
Heritage and First Midwest, as the case may be, on a basis reflecting the best
currently available estimates and judgments of the management of Heritage and
First Midwest, as to the future performance of Heritage, First Midwest, and
Heritage and First Midwest combined, as the case may be. We have not been
engaged to and we have not assumed any responsibility for, nor have we conducted
any independent investigation or verification
<PAGE>
of such matters, and we express no view as to such financial forecasts or the
assumptions on which they are based. We have also assumed that all of the
conditions to the consummation of the Merger, as set forth in the Agreement,
including the tax-free treatment of the Merger to the holders of Heritage
Common, would be satisfied and that the Merger would be consummated on a timely
basis in the manner contemplated by the Agreement.
We will receive a fee for our services as financial advisor to Heritage, a
substantial portion of which is contingent upon closing of the Merger. We will
also receive a fee for our services in rendering this opinion.
In the ordinary course of business, we may actively trade securities of
First Midwest and Heritage for our own account and for the accounts of customers
and accordingly, we may at any time hold a long or short position in such
securities.
This opinion is based on economic and market conditions and other
circumstances existing on, and information made available as of, the date
hereof. In addition, our opinion is, in any event, limited to the fairness, as
of the date hereof, from a financial point of view, of the Exchange Ratio, to
the holders of Heritage Common, and does not address the underlying business
decision by Heritage's Board of Directors to effect the Merger, does not compare
or discuss the relative merits of any competing proposal or any other terms of
the Merger, and does not constitute a recommendation to any Heritage shareholder
as to how such shareholder should vote with respect to the Merger. This opinion
does not represent an opinion as to what the value of Heritage Common or First
Midwest Common may be at the Effective Time of the Merger or as to the prospects
of Heritage's business or First Midwest's business.
This opinion is directed to the Board of Directors of Heritage and may not
be reproduced, summarized, described or referred to or given to any other person
without our prior written consent. Notwithstanding the foregoing, this opinion
may be included in the proxy statement to be mailed to the holders of Heritage
Common in connection with the Merger, provided that this opinion will be
reproduced in such proxy statement in full, and any description of or reference
to us or our actions, or any summary of the opinion in such proxy statement,
will be in a form reasonably acceptable to us and our counsel.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair to the holders of Heritage Common from a
financial point of view.
Very truly yours,
McDONALD & COMPANY SECURITIES, INC.
<PAGE>
APPENDIX C
PERSONAL AND CONFIDENTIAL
- -------------------------
April 27, 1998
Board of Directors
First Midwest Bancorp, Inc.
300 Park Boulevard, Suite 405
Itasca, IL 60143
Gentlemen:
You have requested our opinion as to the fairness from a financial point of view
to First Midwest Bancorp, Inc. (the "Company") of the exchange ratio (the
"Exchange Ratio") of 0.7695 shares of common stock, par value $0.01 per share,
of the Company (the "Company Common Stock") to be paid by the Company for each
share of common stock, no par value per share ("Heritage Common Stock"), of
Heritage Financial Services, Inc. ("Heritage"), pursuant to the merger (the
"Merger") contemplated by the Agreement and Plan of Merger dated January 14,
1998 between Heritage, First Midwest Acquisition Corporation, a wholly-owned
subsidiary of the Company, and the Company (the "Agreement").
Goldman, Sachs & Co., as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. We are familiar with
the Company, having provided certain investment banking services from time to
time, including having acted as the Company's financial advisor in connection
with its acquisition of an auto loan portfolio from Cole Taylor Bank in January
1997, having acted as the Company's financial advisor in connection with its
acquisition of SparBank, Incorporated in June 1997 and having acted as the
Company's financial advisor in connection with, and having participated in
certain of the negotiations leading to, the Agreement. Goldman, Sachs & Co.
provides a full range of financial advisory and securities services and, in the
course of its normal trading activities, may from time to time effect
transactions and hold securities, including derivative securities, of the
Company for its own account and for the accounts of customers.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Company's Registration Statement on Form S-4, including the Joint
Proxy Statement/Prospectus relating to the Annual Meeting of Stockholders of the
Company and the Special Meeting of Shareholders of Heritage to be held in
connection with the Agreement; Annual Reports to Stockholders and Annual Reports
on Form 10-K of the Company for the five years ended December 31, 1997; Annual
Reports to Shareholders and Annual Reports on Form 10-K of Heritage for the five
years ended December 31, 1997; certain interim reports to stockholders and
Quarterly Reports on Form 10-Q of the Company and Heritage; certain internal
financial analyses and forecasts for the Company and Heritage prepared by their
respective managements; certain results of the Company's financial due diligence
of Heritage; and certain estimates of cost savings and operating synergies that
the management of the Company expects will result from the Merger. We also have
held discussions with members of the senior management of the Company and
Heritage regarding the past and current business operations, regulatory
relationships, financial condition and future prospects of their respective
companies and the strategic rationale for, and benefits of, the Merger. In
addition, we have reviewed the reported price and trading activity for the
shares of Company Common Stock and Heritage Common Stock, compared certain
financial and stock market information for the Company and Heritage with similar
information for certain other companies the securities of which are publicly
traded, reviewed the financial terms of certain recent business combinations in
the commercial banking industry and performed such other studies and analyses as
we considered appropriate.
<PAGE>
We have relied upon the accuracy and completeness of all of the financial and
other information reviewed by us and have assumed such accuracy and completeness
for purposes of rendering this opinion. In that regard, we have assumed, with
your consent, that the financial forecasts, including, without limitation, the
estimated cost savings and operating synergies resulting from the Merger and
projections regarding under-performing and non-performing assets and net charge-
offs have been reasonably prepared on a basis reflecting the best currently
available judgments of the Company and Heritage and that such forecasts will be
realized in the amounts and at the times contemplated thereby. We are not
experts in the evaluation of loan and lease portfolios for purposes of assessing
the adequacy of the allowances for losses with respect thereto and have assumed,
with your consent, that such allowances for each of the Company and Heritage are
in the aggregate adequate to cover all such losses. In addition, we have not
reviewed individual credit files nor have we made an independent evaluation or
appraisal of the assets and liabilities of the Company or Heritage or any of
their subsidiaries and we have not been furnished with any such evaluation or
appraisal. We have assumed with your consent that the Merger will be accounted
for as a pooling of interests under generally accepted accounting principles.
Our advisory services and the opinion expressed herein are provided for the
information and assistance of the Board of Directors of the Company in
connection with its consideration of the transaction contemplated by the
Agreement and such opinion does not constitute a recommendation as to how any
holder of Company Common Stock should vote with respect to such transaction.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that as of the date hereof the Exchange
Ratio pursuant to the Agreement is fair from a financial point of view to the
Company.
Very truly yours,
GOLDMAN, SACHS & CO.
C-2
<PAGE>
APPENDIX D
DISSENTERS' APPRAISAL RIGHTS UNDER SECTIONS 11.65
AND 11.70 OF THE ILLINOIS BUSINESS CORPORATION
ACT OF 1983, AS AMENDED
Section 11.65. Right to Dissent
Section 11.65. Right to Dissent. (a) A shareholder of a corporation is
entitled to dissent from, and obtain payment for his or her shares in the event
of any of the following corporate actions:
(1) consummation of a plan of merger or consolidation or a plan of share
exchange to which the corporation is a party if (i) shareholder authorization is
required for the merger or consolidation or the share exchange by Section 11.20
or the articles of incorporation or (ii) the corporation is a subsidiary that is
merged with its parent or another subsidiary under Section 11.30;
(2) consummation of a sale, lease or exchange of all, or substantially
all, of the property and assets of the corporation other than in the usual and
regular course of business;
(3) an amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(i) alters or abolishes a preferential right of such shares;
(ii) alters or abolishes a right in respect of redemption, including
a provision respecting a sinking fund for the redemption or repurchase, of
such shares;
(iii) in the case of a corporation incorporated prior to January 1,
1982, limits or eliminates cumulative voting rights with respect to such
shares; or
(4) any other corporate action taken pursuant to a shareholder vote if the
articles of incorporation, by-laws, or a resolution of the board of directors
provide that shareholders are entitled to dissent and obtain payment for their
shares in accordance with the procedures set forth in Section 11.70 or as may be
otherwise provided in the articles, by-laws or resolution.
(b) A shareholder entitled to dissent and obtain payment for his or her
shares under this Section may not challenge the corporate action creating his or
her entitlement unless the action is fraudulent with respect to the shareholder
or the corporation or constitutes a breach of a fiduciary duty owed to the
shareholder.
(c) A record owner of shares may assert dissenters' rights as to fewer
than all the shares recorded in such person's name only if such person dissents
with respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf
the record owner asserts dissenters' rights. The rights of a partial dissenter
D-1
<PAGE>
are determined as if the shares as to which dissent is made and the other shares
were recorded in the names of different shareholders. A beneficial owner of
shares who is not the record owner may assert dissenters' rights as to shares
held on such person's behalf only if the beneficial owner submits to the
corporation the record owner's written consent to the dissent before or at the
same time the beneficial owner asserts dissenters' rights.
Section 11.70. Procedure to Dissent
Section 11.70. Procedure to Dissent. (a) If the corporate action giving
rise to the right to dissent is to be approved at a meeting of shareholders, the
notice of meeting shall inform the shareholders of their right to dissent and
the procedure to dissent. If, prior to the meeting, the corporation furnishes to
the shareholders material information with respect to the transaction that will
objectively enable a shareholder to vote on the transaction and to determine
whether or not to exercise dissenters' rights, a shareholder may assert
dissenters' rights only if the shareholder delivers to the corporation before
the vote is taken a written demand for payment for his or her shares if the
proposed action is consummated, and the shareholder does not vote in favor of
the proposed action.
(b) If the corporate action giving rise to the right to dissent is not to
be approved at a meeting of shareholders, the notice to shareholders describing
the action taken under Section 11.30 or Section 7.10 shall inform the
shareholders of their right to dissent and the procedure to dissent. If, prior
to or concurrently with the notice, the corporation furnishes to the
shareholders material information with respect to the transaction that will
objectively enable a shareholder to determine whether or not to exercise
dissenters' rights, a shareholder may assert dissenter's rights only if he or
she delivers to the corporation within 30 days from the date of mailing the
notice a written demand for payment for his or her shares.
(c) Within 10 days after the date on which the corporate action giving
rise to the right to dissent is effective or 30 days after the shareholder
delivers to the corporation the written demand for payment, whichever is later,
the corporation shall send each shareholder who has delivered a written demand
for payment a statement setting forth the opinion of the corporation as to the
estimated fair value of the shares, the corporation's latest balance sheet as of
the end of a fiscal year ending not earlier than 16 months before the delivery
of the statement, together with the statement of income for that year and the
latest available interim financial statements, and either a commitment to pay
for the shares of the dissenting shareholder at the estimated fair value thereof
upon transmittal to the corporation of the certificate or certificates, or other
evidence of ownership, with respect to the shares, or instructions to the
dissenting shareholder to sell his or her shares within 10 days after delivery
of the corporation's statement to the shareholder. The corporation may instruct
the shareholder to sell only if there is a public market for the shares at which
the shares may be readily sold. If the shareholder does not sell within that 10
day period after being so instructed by the corporation, for purposes of this
Section the shareholder shall be deemed to have sold his or her shares at the
average closing price of the shares, if listed on a national exchange, or the
average of the bid and asked price with respect to the shares quoted by a
principal market maker, if not listed on a national exchange, during that 10 day
period.
D-2
<PAGE>
(d) A shareholder who makes written demand for payment under this Section
retains all other rights of a shareholder until those rights are canceled or
modified by the consummation of the proposed corporate action. Upon consummation
of that action, the corporation shall pay to each dissenter who transmits to the
corporation the certificate or other evidence of ownership of the shares the
amount the corporation estimates to be the fair value of the shares, plus
accrued interest, accompanied by a written explanation of how the interest was
calculated.
(e) If the shareholder does not agree with the opinion of the corporation
as to the estimated fair value of the shares or the amount of interest due, the
shareholder, within 30 days from the delivery of the corporation's statement of
value, shall notify the corporation in writing of the shareholder's estimated
fair value and amount of the interest due and demand payment for the difference
between the shareholder's estimate of fair value and interest due and the amount
of the payment by the corporation or the proceeds of sale by the shareholder,
whichever is applicable because of the procedure for which the corporation opted
pursuant to subsection (c).
(f) If, within 60 days from delivery to the corporation of the shareholder
notification of estimate of fair value of the shares and interest due, the
corporation and the dissenting shareholder have not agreed in writing upon the
fair value of the shares and interest due, the corporation shall either pay the
difference in value demanded by the shareholder, with interest, or file a
petition in the circuit court of the county in which either the registered
office or the principal office of the corporation is located, requesting the
court to determine the fair value of the shares and interest due. The
corporation shall make all dissenters, whether or not residents of this State,
whose demands remain unsettled parties to the proceeding as an action against
their shares and all parties shall be served with a copy of the petition.
Nonresidents may be served by registered or certified mail or by publication as
provided by law. Failure of the corporation to commence an action pursuant to
this Section shall not limit or affect the right of the dissenting shareholders
to otherwise commence an action as permitted by law.
(g) The jurisdiction of the court in which the proceeding is commenced
under subsection (f) by a corporation is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the power described
in the order appointing them, or in any amendment to it.
(h) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds that the fair value of his or
her shares, plus interest, exceeds the amount paid by the corporation or the
proceeds of sale by the shareholder, whichever amount is applicable.
(i) The court, in a proceeding commenced under subsection (f), shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of the appraisers, if any, appointed by the court under subsection (g),
but shall exclude the fees and expenses of counsel and experts for the
respective parties. If the fair value of the shares as determined by the court
materially exceeds the amount which the corporation estimated to be the fair
value of the shares or if no estimate was made in accordance with subsection
(c), then all or any part of the costs may be assessed against the corporation.
If the amount which any dissenter estimated to be the fair value of the shares
materially exceeds the fair value of the shares as determined by the court, then
all or any part of the
D-3
<PAGE>
costs may be assessed against that dissenter. The court may also assess the fees
and expenses of counsel and experts for the respective parties, in amounts the
court finds equitable, as follows:
(1) Against the corporation and in favor of any or all dissenters if the
court finds that the corporation did not substantially comply with the
requirements of subsections (a), (b), (c), (d), or (f).
(2) Against either the corporation or a dissenter and in favor of any
other party if the court finds that the party against whom the fees
and expenses are assessed acted arbitrarily, vexatiously, or not in
good faith with respect to the rights provided by this Section.
If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated and that the fees for
those services should not be assessed against the corporation, the court may
award to that counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who are benefitted. Except as otherwise provided in this Section,
the practice, procedure, judgment and costs shall be governed by the Code of
Civil Procedure.
(j) As used in this Section:
(1) "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the consummation of the corporate action
to which the dissenter objects excluding any appreciation or
depreciation in anticipation of the corporate action, unless exclusion
would be inequitable.
(2) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid
by the corporation on its principal bank loans or, if none, at a rate
that is fair and equitable under all the circumstances.
D-4
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Under Delaware law, a corporation may indemnify any person who was or is a
party or is threatened to be made a party to an action (other than an action by
or in the right of the corporation) by reason of his service as a director or
officer of the corporation, or his service, at the corporation's request, as a
director, officer, employee or agent of another corporation or other enterprise,
against expenses (including attorneys' fees) that are actually and reasonably
incurred by him ("Expenses"), and judgments, fines and amounts paid in
settlement that are actually and reasonably incurred by him, in connection with
the defense or settlement of such action, provided that he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, with respect to any criminal action or
proceeding, he had no reasonable cause to believe that his conduct was unlawful.
Although Delaware law permits a corporation to indemnify any person referred to
above against Expenses in connection with the defense or settlement of an action
by or in the right of the corporation, provided that he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the corporation's
best interests, if such person has been judged liable to the corporation,
indemnification is only permitted to the extent that the Court of Chancery (or
the court in which the action was brought) determines that, despite the
adjudication of liability, such person is entitled to indemnity for such
Expenses as the court deems proper. The determination as to whether a person
seeking indemnification has met the required standard of conduct is to be made
(1) by a majority vote of a quorum of disinterested members of the board of
directors, or (2) by independent legal counsel in a written opinion, if such a
quorum does not exist or if the disinterested directors so direct, or (3) by the
stockholders. The General Corporation Law of the State of Delaware also provides
for mandatory indemnification of any director, officer, employee or agent
against Expenses to the extent such person has been successful in any proceeding
covered by the statute. In addition, the General Corporation Law of the State of
Delaware provides the general authorization of advancement of a director's or
officer's litigation expenses in lieu of requiring the authorization of such
advancement by the board of directors in specific cases, and that
indemnification and advancement of expenses provided by the statute shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any by-law, agreement or
otherwise.
First Midwest's Restated Certificate of Incorporation (the "Certificate")
and its Amended and Restated Bylaws (the "Bylaws") provide for indemnification
of First Midwest's directors, officers, employees and other agents to the
fullest extent not prohibited by Delaware law.
First Midwest has entered into agreements to indemnify its directors and
executive officers, in addition to the indemnification provided for in First
Midwest's Restated Certificate and its Bylaws. These agreements, among other
things, will indemnify First Midwest's directors and executive officers for all
direct and indirect expenses and costs (including, without limitation, all
reasonable attorneys' fees and related disbursements, other than out of pocket
costs and reasonable compensation for time spent by such persons for which they
are not otherwise compensated by First Midwest or any third party) and
liabilities of any type whatsoever (including, but not limited to, judgments,
fines and settlement fees) actually and reasonably incurred by such person in
connection
II-1
<PAGE>
with either the investigation, defense, settlement or appeal of any threatened,
pending or completed action, suit or other proceeding, including any action by
or in the right of First Midwest, arising out of such person's services as a
director, officer, employee or other agent of First Midwest, any subsidiary of
First Midwest or any other company or enterprise to which the person provides
services at the request of First Midwest. First Midwest believes that these
provisions and agreements are necessary to attract and retain talented and
experienced directors and officers.
First Midwest's Certificate is consistent with Section 102(b)(7) of the
Delaware General Corporation Law, which generally permits a company to include a
provision limiting the personal liability of a director in the company's
certificate of incorporation. With limitations, this provision eliminates the
personal liability of First Midwest's directors to First Midwest or its
stockholders for monetary damages for breach of fiduciary duty as a director.
However, this provision does not eliminate director liability: (1) for breaches
of the duty of loyalty to First Midwest and its stockholders; (2) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (3) for transactions from which a director derives improper
personal benefit; or (4) under Section 174 of the Delaware General Corporation
Law ("Section 174"). Section 174 makes directors personally liable for unlawful
dividends and stock repurchases or redemptions and expressly sets forth a
negligence standard with respect to such liability. While this provision
protects the directors from awards for monetary damages for breaches of their
duty of care, it does not eliminate their duty of care. The limitations in this
provision have no effect on claims arising under the federal securities laws.
First Midwest maintains liability insurance for the benefit of its
directors and officers.
Item 21. Exhibits and Financial Statement Schedules.
The exhibits filed pursuant to this Item 21 immediately follow the Exhibit
Index. The following is a description of the applicable exhibits required for
Form S-4 as provided by Item 601 of Regulation S-K.
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated January 14, 1998, between First
Midwest Bancorp, Inc. ("First Midwest"), First Midwest Acquisition
Corporation and Heritage Financial Services, Inc. ("Heritage"). This
document is filed as Appendix A to the Proxy Statement/Prospectus
forming a part of this Registration Statement.*
2.2 Stock Option Agreement, dated January 14, 1998, between First Midwest
and Heritage. This document is filed as Appendix E to the Proxy
Statement/Prospectus forming a part of this Registration Statement.*
2.3 Agreement of Affiliates, dated as of January 14, 1998, between First
Midwest and certain of the directors and executive officers of
Heritage.*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
3.1 Restated Certificate of Incorporation of First Midwest is incorporated
herein by reference to Exhibit 3 to First Midwest's Quarterly Report
on Form 10-Q for the quarter ended on March 31, 1996.
3.2 Restated Bylaws of First Midwest are incorporated herein by reference
to Exhibit 3.1 to First Midwest's Annual Report on Form 10-K for the
year ended December 31, 1994.
4.1 Amended and Restated Rights Agreement, Form of Rights Certificate and
Designation of Series A Preferred Stock of First Midwest dated
November 15, 1995, are incorporated herein by reference to Exhibits
(1) through (3) of First Midwest's Registration Statement on Form 8-A
filed with the Securities and Exchange Commission on November 21,
1995, and the First Amendment to Rights Agreement, dated June 18,
1997, is incorporated herein by reference to Exhibit (4) of First
Midwest's Amendment No. 2 to the Registration Statement on Form 8-A
filed with the Securities and Exchange Commission on June 30, 1997.
4.2 Certificate of Amendment of Certificate of Designation of Series A
Preferred Stock is incorporated herein by reference to Exhibit 4.1 to
First Midwest's Annual Report on Form 10-K for the year ended December
31, 1997.
5.1 Opinion of Hinshaw & Culbertson regarding legality of First Midwest
Common Stock to be issued in the Merger.*
8.1 Opinion of Hinshaw & Culbertson regarding certain tax matters.*
23.1 Consent of Ernst & Young LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Arthur Andersen LLP.
23.4 Consent of Grant Thornton LLP.
23.5 Consent of Hinshaw & Culbertson (included in Exhibits 5.1 and 8.1).*
23.6 Consent of Barack Ferrazzano Kirschbaum Perlman & Nagelberg.*
23.7 Consent of Joel S. Corwin.*
23.8 Consent of McDonald & Company Securities, Inc.
23.9 Consent of Goldman, Sachs & Co.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
23.10 Consents of Richard T. Wojick, Jack Payan and John L. Sterling
pursuant to Rule 438.
24. Power of Attorney (contained on the Signature page).*
99.1 Form of Letter to Shareholders of Heritage.*
99.2 Form of Notice of Special Meeting of Shareholders of Heritage.*
99.3 Form of Proxy to be delivered to the Shareholders of Heritage.*
99.4 Form of Letter to Stockholders of First Midwest.*
99.5 Form of Notice of Annual Meeting of Stockholders of First Midwest.*
99.6 Form of Proxy to be delivered to the Stockholders of First Midwest.*
</TABLE>
*Previously filed.
Item 22. Undertakings.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933 (the "Act"), each
filing of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities and Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to, and meeting the
requirements of, Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
II-4
<PAGE>
The undersigned registrant hereby undertakes that every prospectus: (i)
that is filed pursuant to the immediately preceding paragraph, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Act, each such post- effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Proxy
Statement/Prospectus pursuant to items 4, 10(b), 11, or 13 of this form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in the documents filed subsequent to the effective date of
this registration statement through the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
this registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
First Midwest Bancorp, Inc., has duly caused this Pre-Effective Amendment No. 1
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Village of Itasca, State of Illinois, this
27th day of April, 1998.
FIRST MIDWEST BANCORP, INC.
By: /s/ Robert P. O'Meara
-----------------------------------
Robert P. O'Meara
President and Chief Executive Officer
Signature Capacity
- ---------------------------------- Chairman of the Board of Directors
Clarence D. Oberwortmann
*
- ---------------------------------- Vice Chairman of the Board of Directors
Andrew B. Barber
/s/ Robert P. O'Meara President, Principal Executive Officer
- ---------------------------------- and Director
Robert P. O'Meara
*
- ---------------------------------- Executive Vice President, Principal
John P. O'Meara Operating Officer and Director
/s/ Donald J. Swistowicz Executive Vice President, Principal
- ---------------------------------- Financial and Accounting Officer
Donald J. Swistowicz
*
- ---------------------------------- Director
Vernon A. Brunner
*
- ---------------------------------- Director
Bruce S. Chelberg
*
- ---------------------------------- Director
William J. Cowlin
*
- ---------------------------------- Director
O. Ralph Edwards
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<PAGE>
*
- --------------------------------------- Director
Joseph W. England
*
- --------------------------------------- Director
Thomas M. Garvin
*
- --------------------------------------- Director
J. Stephen Vanderwoude
- ---------------------------------------
* By Robert P. O'Meara and Donald J. Swistowicz, as attorneys-in-fact.
II-7
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the Joint
Proxy Statement that is made a part of Amendment No. 2 to the Registration
Statement (Form S-4 Registration No. 33-47381) and related Prospectus of First
Midwest Bancorp, Inc. for the registration of 9,719,657 shares of its common
stock and to the incorporation by reference therein of our report dated January
20, 1998, with respect to the consolidated financial statements of First Midwest
Bancorp, Inc. included in its Annual Report (Form 10-K) for the year ended
December 31, 1997, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
April 27, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
First Midwest Bancorp, Inc.:
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
Chicago, Illinois
April 27, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of our report dated January 19, 1998 on
Heritage Financial Services, Inc.'s consolidated financial statements for the
year ended December 31, 1997, included in Heritage Financial Services, Inc.'s
1997 Amendment #1 to the Annual Report on Form 10-K, and to all references to
our Firm included in this Registration Statement.
/s/ ARTHUR ANDERSEN LLP
Chicago, Illinois
April 27, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We have issued our report dated May 23, 1997, on the consolidated financial
statements of SparBank, Incorporated and subsidiary as of December 31, 1996 and
for each of the two years in the period ended December 31, 1996, included in the
Annual Report on Form 10-K of First Midwest Bancorp, Inc. for the year ended
December 31, 1997. We hereby consent to the incorporation by reference of our
report in Amendment No. 2 to the Registration Statement and Joint Proxy
Statement/Prospectus of First Midwest Bancorp on Form S-4, (File No. 333-47381),
and to the use of our name as it appears under the caption "EXPERTS."
/s/ GRANT THORNTON LLP
Chicago, Illinois
April 27, 1998
<PAGE>
EXHIBIT 23.8
CONSENT OF McDONALD & COMPANY SECURITIES, INC.
We hereby consent to the use in the Joint Proxy Statement/Prospectus
constituting part of this Registration Statement on Form S-4 of our fairness
opinion dated January 13, 1998. Our consent should not be construed as an
admission that this firm is a person from whom a consent is required under
Section 7 of the Securities Act of 1933, as amended.
McDONALD & COMPANY SECURITIES, INC.
Chicago, Illinois
April 24, 1998
<PAGE>
Exhibit 23.9
PERSONAL AND CONFIDENTIAL
- -------------------------
April 27, 1998
Board of Directors
First Midwest Bancorp, Inc.
300 Park Boulevard, Suite 405
Itasca, IL 60143
Re: Registration Statement (File No. 333-47381)
of First Midwest Bancorp, Inc.
-------------------------------------------
Gentlemen:
Attached is our opinion letter dated April 27, 1998 with respect to the fairness
from a financial point of view to First Midwest Bancorp, Inc. (the "Company") of
the exchange ratio of 0.7695 shares of common stock, par value $0.01 per share,
of the Company to be paid by the Company for each share of common stock, no par
value per share, of Heritage Financial Services, Inc. ("Heritage"), pursuant to
the merger contemplated by the Agreement and Plan of Merger dated January 14,
1998 between Heritage, First Midwest Acquisition Corporation, a wholly-owned
subsidiary of the Company, and the Company.
The foregoing opinion letter is provided for the information and assistance of
the Board of Directors of the Company in connection with its consideration of
the transaction contemplated therein and is not be used, circulated, quoted or
otherwise referred to for any other purpose, nor is it to be filed with,
included in or referred to in whole or in part in any registration statement,
proxy statement or any other document, except in accordance with our prior
written consent. We understand that the company has determined to include our
opinion in the above referenced Registration Statement.
In that regard we hereby consent to the reference to the opinion of our Firm
under the captions "SUMMARY - Opinions of Financial Advisors" and "THE MERGER -
Opinion of First Midwest Financial Advisor" and to the inclusion of the
foregoing opinion in the Joint Proxy Statement/Prospectus included in the above
mentioned Registration Statement, as amended. In giving such consent, we do not
thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
GOLDMAN, SACHS & CO.
<PAGE>
Exhibit 23.10
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
--------------------------------------------
Pursuant to (S)230.438 of Regulation C promulgated under the Securities Act of
1933, as amended, the undersigned hereby consents to his being named in the
Proxy Statement-Prospectus which forms a part of the Registration Statement on
Form S-4 relating to the proposed merger of Heritage Financial Services, Inc.
with and into Midwest Acquisition Corporation, a subsidiary of First Midwest
Bancorp, Inc., as a person who is expected to become a director of First Midwest
Bancorp, Inc. upon the consummation of such merger.
By: /s/ Richard T. Wojcik
---------------------
Richard T. Wojcik
By: /s/ Jack Payan
--------------
Jack Payan
By: /s/ John L. Sterling
--------------------
John L. Sterling
April 9, 1998
Blue Island, Illinois
