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Registration No. 33-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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: [_]
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE* OFFERING PRICE* FEE
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Common Stock, $0.01 Par Value.............
Preferred Share Purchase Rights**....... 9,719,657 $41.59 $404,196,256 $122,484
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* Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) based on the average of the bid and asked price
of Heritage Financial Services, Inc. Common Shares on March 2, 1998.
** The registrant is also registering Preferred Share Purchase Rights which
are evidenced by the certificates for the Common Stock being registered in
a ratio of one Preferred Share Purchase Right for each share of Common
Stock.
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 ____________, 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 Proxy
Statement/Prospectus is first being mailed to First Midwest Stockholders, along
with the First Midwest 1997 Annual Report, on or about _____________, 1998, and
this Joint Proxy Statement/Prospectus is first being mailed to the Heritage
Shareholders on or about __________, 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 ___________, local time, on __________, 1998, at
______________________________________________________, and at any and all
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 __________ a.m., local time, on
________________, 1998 at the ___________________________________________, and
at any and all 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 ________ 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........................................................... 9
First Midwest Meeting................................................. 10
Heritage Meeting...................................................... 11
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.......................................... 13
Effective Time; Closing Date.......................................... 14
Interests of Certain Persons in the Merger............................ 14
Regulatory Approvals.................................................. 16
Conditions to the Merger.............................................. 16
Waiver and Amendment; Termination..................................... 17
Conduct of Business Pending the Merger................................ 17
Expenses.............................................................. 17
Accounting Treatment.................................................. 18
Certain Federal Income Tax Consequences of the Merger................. 18
Stock Option Agreement................................................ 18
Resales of First Midwest Common Stock................................. 19
Charter Amendment..................................................... 19
Effects of the Merger on Rights of Shareholders of Heritage........... 20
Preferred Share Purchase Rights....................................... 20
Nasdaq Stock Market Listing........................................... 20
Market and Market Prices.............................................. 20
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SELECTED FINANCIAL DATA OF FIRST MIDWEST BANCORP, INC.................... 21
SELECTED FINANCIAL DATA OF HERITAGE FINANCIAL SERVICES, INC.............. 23
COMPARATIVE PER COMMON SHARE DATA........................................ 25
RECENT DEVELOPMENTS...................................................... 27
FIRST MIDWEST MEETING.................................................... 28
Place, Time, Date and Record Date..................................... 28
Matters to Be Considered.............................................. 28
Vote Required......................................................... 29
Proxies............................................................... 29
Security Ownership.................................................... 31
HERITAGE MEETING......................................................... 33
Place, Time, Date and Record Date..................................... 33
Matters to Be Considered.............................................. 33
Vote Required......................................................... 33
Proxies............................................................... 34
Security Ownership.................................................... 35
THE MERGER............................................................... 39
General............................................................... 39
Merger Consideration.................................................. 39
Background of and Reasons for the Merger.............................. 41
Recommendations of the Boards of Directors............................ 49
Opinion of Heritage Financial Advisor................................. 49
Opinion of First Midwest Financial Advisor............................ 57
Effective Time; Closing Date.......................................... 62
Exchange of Certificates by Heritage Shareholders..................... 62
Dissenters' Appraisal Rights.......................................... 63
Regulatory Approvals.................................................. 65
Business Pending the Merger and Other Covenants....................... 67
Environmental Investigation........................................... 70
Representations and Warranties........................................ 71
Conditions to the Merger.............................................. 71
Waiver and Amendment; Termination..................................... 73
Dividends............................................................. 74
Operations of Heritage After the Merger............................... 74
Interests of Certain Persons in the Merger............................ 75
Effect on Employee Benefits........................................... 78
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Agreement of Affiliates............................................... 79
Stock Option Agreement................................................ 79
Certain Federal Income Tax Consequences of the Merger................. 83
Accounting Treatment.................................................. 85
Expenses.............................................................. 85
Resale of First Midwest Common Stock.................................. 85
CHARTER AMENDMENT........................................................ 86
General............................................................... 86
Increase in Authorized Stock.......................................... 86
Recommendation of First Midwest Board................................. 87
PRICE RANGE OF COMMON STOCK AND DIVIDENDS................................ 88
Market Prices......................................................... 88
Dividends............................................................. 88
PRO FORMA FINANCIAL INFORMATION.......................................... 89
SUPERVISION AND REGULATION............................................... 93
General............................................................... 93
Capital and Operational Requirements.................................. 94
Dividends............................................................. 96
Source of Strength Policy............................................. 96
FDIC Insurance Assessments; DIFA...................................... 97
DESCRIPTION OF FIRST MIDWEST COMMON AND PREFERRED STOCK.................. 98
COMPARISON OF THE RIGHTS OF FIRST MIDWEST
STOCKHOLDERS AND HERITAGE SHAREHOLDERS................................ 99
General............................................................... 99
Common and Preferred Stock............................................100
Stockholder Rights Plan...............................................100
Stockholder Action Without a Meeting; Power to Call Special Meetings
and Amendment of the Certificate and the Bylaws...................102
Stockholder Vote Required to Approve Business Combinations............103
Evaluation of Proposed Offer..........................................103
Delaware and Illinois Law Affecting Business Combinations.............104
Directors.............................................................105
Liability of Directors; Indemnification...............................105
Dissenters' Appraisal Rights..........................................106
Advance Notice of Stockholder Proposals and Nominations...............107
Anti-Takeover Effect..................................................108
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FIRST MIDWEST DIRECTOR ELECTION..........................................109
Election of Directors.................................................109
Operations of the First Midwest Board.................................111
Executive Officers and Executive Compensation.........................114
Compensation Committee Report on Executive Compensation...............117
Stock Performance Graph...............................................119
Ownership Reports.....................................................120
Certain Relationships and Related Transactions........................121
Independent Auditors..................................................121
OPINIONS.................................................................121
EXPERTS..................................................................121
STOCKHOLDER PROPOSALS....................................................122
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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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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. Each such
statement is qualified in its entirety by such reference.
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 (No. 33-8693) on Form S-1, 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 SPECIFICALLY INCORPORATED
BY REFERENCE) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY
BENEFICIAL
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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 _______________, 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; and (h) 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
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employment rate in the State of Illinois, with the employment growth rate
estimated to be 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;
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collections; safe deposit box operations; and other banking services tailored
for individual, commercial, industrial and 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 APPEARS HERE]
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FIRST MIDWEST MEETING
Meeting and Record Dates. The Annual Meeting of the Stockholders of First
Midwest will be held on _______________, 1998, at the ________________________,
at 10:00 a.m., local time, and 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 ______________, 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.
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 Charter Amendment; however,
approval of the Charter Amendment is a condition to the Issuance. See "FIRST
MIDWEST MEETING -- VOTE REQUIRED."
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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 ________, 1998 at the ______________________________,
at ________ a.m., local time, and any and all adjournments or postponements
thereof (the "Heritage Meeting"). Only holders of record of Heritage Common
Stock at the close of business on ______________, 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.
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 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
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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 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.
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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 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."
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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."
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
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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 control 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
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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 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.
Each such 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 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.
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 (including executive officers
of Heritage) to induce such employees to remain in the employment of Heritage or
any of its subsidiaries. The aggregate payments made by Heritage under
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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.
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. First Midwest
anticipates obtaining the approval of the Federal Reserve Board and the Illinois
Commissioner during the second quarter of 1998. There can be no assurance as to
the timing of such approvals or that the Federal Reserve Board and 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. There can be no assurance that the Federal Reserve Board approval
or 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."
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."
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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); (iv) by First Midwest, if certain environmental conditions are
discovered with respect to Heritage's properties (see "THE MERGER --
ENVIRONMENTAL INSPECTION"); and (v) by Heritage, if it elects to exercise the
Termination Right (see "THE MERGER -- MERGER CONSIDERATION" and "-- WAIVER AND
AMENDMENT; TERMINATION").
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
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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."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
It is a condition to the obligation of First Midwest and Heritage to
consummate the Merger that First Midwest and Heritage shall have received an
opinion of Hinshaw & Culbertson, First Midwest's counsel, 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 -- CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER" and "-- CONDITIONS TO THE MERGER."
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
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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 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.
19
<PAGE>
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"):
<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.
20
<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,
------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
OPERATING RESULTS
<S> <C> <C> <C> <C> <C>
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
- -------------------------------------------------------------------------------
<CAPTION>
PER SHARE DATA
<S> <C> <C> <C> <C> <C>
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
- -------------------------------------------------------------------------------
<CAPTION>
PERFORMANCE RATIOS
<S> <C> <C> <C> <C> <C>
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%
Pro-forma return on average
assets-before special items/(3)/.. 1.25% 1.11% .96% .93% 1.01%
</TABLE>
21
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
BALANCE SHEET HIGHLIGHTS
<S> <C> <C> <C> <C> <C>
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)/ Excludes the after-tax unrealized net appreciation/depreciation of
securities available for sale existent as of the end of the year
indicated.
22
<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,
------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
SUMMARY OF OPERATIONS
<S> <C> <C> <C> <C> <C>
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
======= ======= ======= ======= =======
- -------------------------------------------------------------------------------
<CAPTION>
PER COMMON SHARE DATA
<S> <C> <C> <C> <C> <C>
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
- -------------------------------------------------------------------------------
<CAPTION>
FINANCIAL RATIOS
<S> <C> <C> <C> <C> <C>
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>
- -------------------------------------------------------------------------------
23
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------
1997 1996 1995 1994 1993
------ ------ ------ ----- -----
LOAN QUALITY
<S> <C> <C> <C> <C> <C>
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%
- -------------------------------------------------------------------------------
<CAPTION>
1997 1996 1995 1994 1993
------ ------ ------ ----- -----
YEAR END BALANCES (IN MILLIONS)
<S> <C> <C> <C> <C> <C>
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
- -------------------------------------------------------------------------------
<CAPTION>
1997 1996 1995 1994 1993
------ ------ ------ ----- -----
AVERAGE BALANCES (IN MILLIONS)
<S> <C> <C> <C> <C> <C>
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>
- -------------------------------------------------------------------------------
24
<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.
The pro forma financial statements do not take into account the effect of
the special charge for acquisition costs and related expenses and the effect of
such charge on the financial condition, results of operations and reported per
share amounts of the combined company.
25
<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
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
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
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
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").
26
<PAGE>
RECENT DEVELOPMENTS
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:
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
=====
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.
27
<PAGE>
FIRST MIDWEST MEETING
PLACE, TIME, DATE AND RECORD DATE
The Annual Meeting of the Stockholders of First Midwest will be held on
__________, 1998, at the __________________________, at 10:00 a.m., local time,
and any and all 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 and at any and all
adjournments or postponements thereof.
The First Midwest Board has fixed the close of business on ________,
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.
28
<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. 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 Merger Agreement
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.
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
29
<PAGE>
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
30
<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>
31
<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 1,911,311 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
32
<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
_____________, 1998, at the ________________________________________________, at
_______ a.m., local time, and any and all 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 and at any and all adjournments or
postponements thereof.
The Heritage Board has fixed the close of business on ________, 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.
33
<PAGE>
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 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. 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."
34
<PAGE>
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.
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.
35
<PAGE>
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.
<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. Wocjik, 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.
36
<PAGE>
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.
<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.
37
<PAGE>
/(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.
/(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.
38
<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
39
<PAGE>
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 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.
40
<PAGE>
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 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
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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 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
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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 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.
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 investment policies and its
rate sensitivity position; and (vi) a review of certain of First Midwest's
pending litigation and employee policies and handbook.
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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. Among the factors it considered were the following:
(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 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
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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
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from 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 including, without limitation, the following:
(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; (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
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of $15.4 million would be taken in the quarter the Merger is 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 "-
- CERTAIN 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."
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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.
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
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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.
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
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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 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.
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.,
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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, 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,
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Cranford, New Jersey; Washington Mutual, Seattle, Washington/Western Bank, Coos
Bay, Oregon; and Huntington Bancshares, Columbus, Ohio/Peoples Bank-Lakeland,
Lakeland, Florida.
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,
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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 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
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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
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.
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.
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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. 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 Registration Statement, including this Joint Proxy Statement/Prospectus;
(ii) the Merger Agreement; (iii) Annual Reports to Stockholders and Annual
Reports on Form 10-K of First Midwest for the five years ended December 31,
1996; (iv) certain interim reports to Stockholders and Quarterly Reports on Form
10-Q of First Midwest; and (v) certain internal financial analyses and forecasts
for First Midwest prepared by its management. In addition, Goldman Sachs
reviewed financial and operational information for Heritage which included,
among other things, (i) Annual Reports to Shareholders and Annual Reports on
Form 10-K for the three years ended December 31, 1996, and unaudited full-year
financial statements for 1997; (ii) Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1997, June 30, 1997 and September 30, 1997; and (iii)
certain internal financial analyses and forecasts for Heritage prepared by its
management. 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. Goldman Sachs also reviewed with members of the senior management
of First Midwest the results of First Midwest's due diligence examination of
Heritage. 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 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, projected 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
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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 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 expressed 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.
The following is a summary of certain of the 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.
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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
("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
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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 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
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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 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 solely 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. Because such analyses are inherently subject to uncertainty,
being based upon numerous factors or events beyond the control the parties or
their respective advisors, none of First Midwest, Heritage, Goldman Sachs or any
other person assumes responsibility if future results are materially different
from those forecast. 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 from time to time, including having acted as First
Midwest's financial advisor in connection with a Stockholder protection review
in 1991, 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,
having acted as First Midwest's financial advisor in connection with its
acquisition of SparBank, Incorporated in June 1997, and having also acted as
First Midwest's financial advisor in connection with, and having participated in
certain of the negotiations leading to, the Merger Agreement. Goldman Sachs is a
full service securities firm and in the course of its trading activities may
from time to time effect transactions and hold positions in securities of First
Midwest.
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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 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
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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.
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.
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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 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 cancelled 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.
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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' 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. First Midwest
anticipates obtaining the approval of the Federal Reserve Board and the Illinois
Commissioner during the second quarter of 1998. There can be no assurance as to
the timing of such approvals or that the Federal Reserve Board and the Illinois
Commissioner will approve the Merger.
The Merger is subject to prior approval by the Federal Reserve Board under
Section 3 of the Bank Holding Company Act of 1956, as amended (the "BHCA").
Section 3 of the BHCA requires the Federal Reserve Board, when considering a
transaction such as the Merger, to take into consideration the financial and
managerial resources (including the competence, experience and integrity of the
officers, directors and principal stockholders), and the future prospects of the
existing
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and proposed institutions and the convenience to and the needs of the
communities to be served. In considering financial resources and future
prospects, the Federal Reserve Board will, among other things, evaluate the
adequacy of the capital levels of the parties to a proposed transaction and of
the resulting institutions.
The BHCA prohibits the Federal Reserve Board from approving a merger (i) if
it would result in a monopoly or be in furtherance of any combination or
conspiracy to monopolize or to attempt to monopolize the business of banking in
any part of the United States, or (ii) if its effect in any section of the
country would be to substantially lessen competition or to tend to create a
monopoly, or if it would in any other respect result in a restraint of trade,
unless the Federal Reserve Board finds that the anti-competitive effects of the
merger are clearly outweighed by the probable effect of the transaction in
meeting the convenience and needs of the communities to be served. In addition,
under the Community Reinvestment Act of 1977, as amended (the "CRA"), the
Federal Reserve Board must take into account the record of performance of the
existing institutions in meeting the credit needs of the entire community,
including low- and moderate-income neighborhoods, served by such institutions.
The Federal Reserve Board will furnish notice and a copy of the application
for approval of the Merger to the FDIC and the Office of the Comptroller of the
Currency (the "OCC"). These agencies have thirty days to submit their views
and recommendations to the Federal Reserve Board. The Federal Reserve Board is
required to hold a public hearing in the event it receives a written
recommendation of disapproval of the application from the FDIC or the OCC within
such thirty day period. Furthermore, applicable federal law provides for the
publication of notice and public comment on applications filed with the Federal
Reserve Board and authorizes such agency to permit interested parties to
intervene in the proceedings. If an interested party is permitted to intervene,
such intervention could delay the regulatory approvals required for consummation
of the Merger.
In addition, 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.
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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. There can be no assurance that the Federal Reserve Board approval
or 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 SUCH REGULATORY APPROVALS WILL BE
OBTAINED, AND IF THE MERGER IS APPROVED, THERE CAN BE NO ASSURANCE AS TO THE
DATE OF ANY SUCH APPROVAL. THERE CAN ALSO BE NO ASSURANCE THAT SUCH APPROVALS
WILL NOT CONTAIN A CONDITION OR RESTRICTION WHICH CAUSES SUCH APPROVALS 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
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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
(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
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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 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.
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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 "-- CERTAIN FEDERAL INCOME TAX CONSEQUENCES 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.
ENVIRONMENTAL INVESTIGATION
The Merger Agreement provides that Heritage must engage an environmental
consultant acceptable to First Midwest to conduct a preliminary ("Phase I")
environmental assessment of each of the parcels of real estate used in the
operation of the businesses of Heritage and any Heritage subsidiary and any
other real estate owned by Heritage or a Heritage Subsidiary (other than single
family residences). The fees and expenses of the consultant with respect to the
Phase I assessments will be shared equally by First Midwest and Heritage. If
any environmental conditions are found, suspected, or would tend to be indicated
by the report of the consultant which may be contrary to the representations and
warranties of Heritage set forth in the Merger Agreement, then the parties shall
obtain from one or more mutually acceptable consultants or contractors, as
appropriate, an estimate of the cost of any further environmental investigation,
sampling, analysis, remediation or other follow-up work that may be necessary to
address those conditions in accordance with applicable laws and regulations.
Upon receipt of the estimate of the costs of all follow-up work to the
Phase I assessments or any subsequent investigation phases that may be
conducted, the parties will attempt to agree upon a course of action for further
investigation and remediation of any environmental condition suspected, found to
exist, or that would tend to be indicated by the Phase I assessments. All post-
Phase I investigations or assessments (the cost of which will be paid by
Heritage), all work plans for any post-Phase I assessments or remediation, and
any removal or remediation actions that may be
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performed, will be mutually satisfactory to First Midwest and Heritage. If such
work plans or removal or remediation actions would cost more than $3,000,000
(individually or in the aggregate on a tax affected basis) to complete, First
Midwest and Heritage shall discuss a mutually acceptable modification of the
Merger Agreement. First Midwest and Heritage will cooperate in the review,
approval and implementation of all work plans.
If the parties are unable to agree upon a course of action for further
investigation and remediation of an environmental condition or issue raised by
an environmental assessment and/or a mutually acceptable modification to the
Merger Agreement, and the condition or issue is not one for which it can be
determined to a reasonable degree of certainty that the risk and expense to
which the Acquisition Corp and its subsidiaries would be subject as owner of the
property involved can be quantified, in good faith, and limited to an amount
less than $3,000,000 (on a tax affected basis), then First Midwest may terminate
the Merger Agreement by the earlier to occur of (i) 120 days after the receipt
of the Phase I assessments, or (ii) the receipt of all consents and approvals of
government regulatory authorities as legally required to consummate the Merger
and the expiration of all statutory waiting periods.
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 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
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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 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 "-- CERTAIN 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.
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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 alleging the failure of either First Midwest or Heritage
to comply with the CRA); (iv) by First Midwest, if certain environmental
conditions are discovered with respect to Heritage's properties (see "--
ENVIRONMENTAL INVESTIGATION"); and (v) 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);
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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 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
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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.
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.
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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 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.
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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 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
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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 (including
executive officers of Heritage) 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.
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 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
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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.
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
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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.
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
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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 number of shares so purchased, but only if the
market/tender offer price is greater than such
exercise price;
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<PAGE>
(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 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
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<PAGE>
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.
CERTAIN 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 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 certain federal income tax
consequences of the Merger. The opinion
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<PAGE>
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
(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.
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<PAGE>
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.
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
85
<PAGE>
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 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
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<PAGE>
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>
HERITAGE
FIRST MIDWEST SALES
SALES PRICES(1) 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................................
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
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
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.
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
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<PAGE>
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.
The pro forma financial statements do not take into account the effect of
the special charge for acquisition costs and related expenses and the effect of
such charge on the financial condition, results of operations and reported per
share amounts of the combined company.
<TABLE>
<CAPTION>
PRO FORMA CONDENSED STATEMENT OF CONDITION (UNAUDITED)
DECEMBER 31, 1997
------------------------------------------------------
Historical Pro Forma
-------------------------
<S> <C> <C> <C>
ASSETS First Midwest Heritage Consolidated
------------- -------- -------------
Cash and due from banks.............................. $ 117,974 $ 48,214 $ 166,188
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 $4,933,494
========== ========== ==========
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 54,569
---------- ---------- ----------
Total liabilities................................. 3,276,661 1,197,115 4,473,776
---------- ---------- ----------
Stockholders' equity................................. 337,512 122,206 459,718
---------- ---------- ----------
Total Liabilities and Stockholders' Equity........ $3,614,173 $1,319,321 $4,933,494
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED STATEMENT OF INCOME (UNAUDITED)
DECEMBER 31, 1997
--------------------------------------------------
Historical Pro Forma
-------------------------
<S> <C> <C> <C>
ASSETS First Midwest Heritage Consolidated
------------- -------- -------------
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
---------- ---------- ----------
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C>
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/(1)/......................... $1.94 $1.93
========== ==========
Net Income Per Share, assuming dilution/(2)/...... $1.92 $1.90
========== ==========
Average Shares Outstanding/(1)/................... 19,986 29,260
========== ==========
Average Shares Outstanding,
assuming dilution/(2)/........................... 20,238 29,828
========== ==========
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED STATEMENT OF INCOME (UNAUDITED)
DECEMBER 31, 1996
--------------------------------------------------
Historical Pro Forma
--------------------------
<S> <C> <C> <C>
INTEREST INCOME First Midwest Heritage Consolidated
------------- -------- ------------
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/(1)/......................... $1.96 $1.86
========== ==========
Net Income Per Share, assuming dilution/(2)/...... $1.95 $1.82
========== ==========
Average Shares Outstanding/(1)/................... 20,314 29,470
========== ==========
Average Shares Outstanding,
assuming dilution/(2)/........................... 20,467 30,076
========== ==========
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED STATEMENT OF INCOME (UNAUDITED)
DECEMBER 31, 1995
---------------------------------------------------
Historical Pro Forma
--------------------------
<S> <C> <C> <C>
INTEREST INCOME First Midwest Heritage Consolidated
------------- ---------- ------------
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
---------- ---------- ----------
</TABLE>
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<TABLE>
<S> <C> <C> <C>
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.............................. $1.55 $1.52
========== ==========
Net Income Per Share, assuming dilution/(2)/...... $1.53 $1.49
========== ==========
Average Shares Outstanding/(1)/................... 20,229 29,391
========== ==========
Average Shares Outstanding
assuming dilution/(2)/........................... 20,476 30,067
========== ==========
</TABLE>
_______________________________
FOOTNOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS:
/(1)/ The pro forma combined net income per share and average shares
outstanding is 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").
/(2)/ The pro forma combined net income per share assuming dilution and average
shares outstanding assuming dilution is 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
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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 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,
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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 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
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subsidiaries of such bank holding company may be assessed for the FDIC's loss,
subject to certain exceptions.
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,
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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.
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 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
hereinabove 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,
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in 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
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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 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:
Director Nominees To Serve Until The Year 2001
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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.
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.
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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.
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
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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. 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
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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).
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.
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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:
<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 $56,052
President & Chief 1996 416,000 100,825 12,773 58,313
Executive Officer 1995 400,000 91,071 13,861 55,907
John M. O'Meara 1997 352,000 106,858 7,685 48,187
Executive Vice 1996 338,000 106,921 10,378 53,130
President & Chief 1995 325,000 123,996 11,263 45,433
Operating Officer
Donald J. Swistowicz 1997 172,000 45,304 3,219 21,638
Executive Vice President 1996 165,000 34,079 4,343 22,852
& Chief Financial and 1995 152,000 33,717 4,515 20,600
Accounting Officer
</TABLE>
NOTE "All Other Compensation" represents contributions by First Midwest to
First Midwest's qualified and non-qualified defined contribution retirement
plans.
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<PAGE>
Stock Option Grants in 1997
<TABLE>
<CAPTION>
Individual Grants
- ----------------------------------------------------------------------------------------------------------------
# of
Securities
Underlying % of Total Per
Options Options Share
Granted in Granted to Exercise Grant Date
Name 1997 Employees Price ($) 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>
Shares Number of Securities
Acquired Underlying Unexercised Value of Unexercised In-the-
on Value Options at Dec. 31, 1997 Money Optins at Dec. 31, 1997
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"
options, the "Value of Unexercised In-the-Money Options at December 31, 1997"
represents the difference between the closing
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<PAGE>
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
CONSOLIDATED PENSION PLAN
<TABLE>
<CAPTION>
Average
Final Years of Service
------------------------------------------------------------------------
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
117
<PAGE>
option or other award under First Midwest's 1989 Omnibus Stock and Incentive
Plan. In determining 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
118
<PAGE>
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 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.
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 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 &
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<PAGE>
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]
<TABLE>
<CAPTION>
---------------------------------------------------------------------
1992 1993 1994 1995 1996 1997
=====================================================================
<S> <C> <C> <C> <C> <C> <C>
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
---------------------------------------------------------------------
</TABLE>
* 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.
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.
120
<PAGE>
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.
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
121
<PAGE>
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 ___, 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 ____________, 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 A
AGREEMENT AND PLAN OF MERGER
AMONG
FIRST MIDWEST BANCORP, INC.,
FIRST MIDWEST ACQUISITION CORPORATION
AND
HERITAGE FINANCIAL SERVICES, INC.
JANUARY 14, 1998
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into this
14th day of January, 1998, by and among FIRST MIDWEST BANCORP, INC., a Delaware
corporation ("Acquiror"), HERITAGE FINANCIAL SERVICES, INC., an Illinois
corporation ("Heritage"), and FIRST MIDWEST ACQUISITION CORPORATION, an Illinois
corporation and a wholly-owned subsidiary of Acquiror ("Acquisition Corp").
RECITALS
A. The parties hereto desire to effect a reorganization whereby Acquiror
desires to acquire control of Heritage through the merger (the "Merger") of
Heritage with and into Acquisition Corp with Acquisition Corp being the
surviving corporation (the "Surviving Corporation").
B. Pursuant to the terms of this Agreement, each common share of
Heritage, no par value per share ("Heritage Common Stock"), issued and
outstanding at the time of the closing of the Merger (the "Closing") shall be
converted into the right to receive the number of common shares of Acquiror,
$0.01 par value per share ("Acquiror Common Stock"), as provided in Section 3.2,
and each outstanding common share of Acquisition Corp shall be converted into
and thereafter represent one common share of the Surviving Corporation, $0.01
par value per share.
C. Pursuant to the terms of this Agreement, at the time of the Closing
each then-outstanding right to acquire shares of Heritage Common Stock shall be
converted into the right to acquire shares of Acquiror Common Stock.
D. The parties desire to effect the Merger as a "pooling of interests"
for accounting purposes and as a tax-free "reorganization" under Section 368 of
the Code.
AGREEMENTS
In consideration of the foregoing premises and the mutual promises,
covenants and agreements hereinafter set forth, the parties hereto hereby agree
as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1 DEFINITIONS. In addition to those terms defined throughout
-----------
this Agreement, the following terms, when used herein, shall have the following
meanings.
(a) "Affiliate" means with respect to:
(i) a particular individual: (A) each other member of such
individual's Family; (B) any Person that is directly or indirectly controlled by
such individual or one or more
<PAGE>
members of such individual's Family; (C) any Person in which such individual or
members of such individual's Family hold (individually or in the aggregate) a
Material Interest; and (D) any Person with respect to which such individual or
one or more members of such individual's Family serves as a director, officer,
partner, executor, or trustee (or in a similar capacity); and
(ii) a specified Person other than an individual: (A) any Person
that directly or indirectly controls, is directly or indirectly controlled by,
or is directly or indirectly under common control with such specified Person;
(B) any Person that holds a Material Interest in such specified Person; (C) each
Person that serves as a director, officer, partner, executor, or trustee of such
specified Person (or in a similar capacity); (D) any Person in which such
specified Person holds a Material Interest; (E) any Person with respect to which
such specified Person serves as a general partner or a trustee (or in a similar
capacity); and (F) any Affiliate of any individual described in clause (B) or
(C) of this subsection (ii).
(b) "Applicable Contract" means any Contract: (i) under which a
Person has or may acquire any rights; (ii) under which such Person has or may
become subject to any obligation or liability; or (iii) by which such Person or
any of the assets owned or used by such Person is or may become bound.
(c) "Bank" means Heritage Bank, an Illinois state bank with its main
office located in Blue Island, Illinois, and a wholly-owned subsidiary of
Heritage.
(d) "Best Efforts" means the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to ensure that such result
is achieved as expeditiously as possible, provided, however, that an obligation
to use Best Efforts under this Agreement does not require the Person subject to
that obligation to take actions that would result in a materially adverse change
in the benefits to be received by such Person under this Agreement and the
Contemplated Transactions.
(e) "Breach" means with respect to a representation, warranty,
covenant, obligation, or other provision of this Agreement or any instrument
delivered pursuant to this Agreement: (i) any inaccuracy in or breach of, or
any failure to perform or comply with, such representation, warranty, covenant,
obligation or other provision; or (ii) any claim (by any Person) or other
occurrence or circumstance that is or was inconsistent with such representation,
warranty, covenant, obligation or other provision, and the term "Breach" means
any such inaccuracy, breach, failure, claim, occurrence, or circumstance.
(f) "Business Day" means any day except Saturday, Sunday and any day
on which the Bank is authorized or required by law or other government action to
close.
(g) "Code" means the Internal Revenue Code of 1986, as amended.
(h) "Contemplated Transactions" means all of the transactions
contemplated by this Agreement, including: (i) the merger of Heritage and
Acquisition Corp; (ii) the performance by
2
<PAGE>
Acquiror, Acquisition Corp and Heritage of their respective covenants and
obligations under this Agreement; (iii) Acquiror's acquisition of control of
Heritage and all of Heritage's Subsidiaries; (iv) Acquiror's issuance of
registered shares of Acquiror Common Stock in exchange for shares of Heritage
Common Stock; (v) the merger of the Bank, the Trust Bank and the Trust Company
into Subsidiaries of the Acquiror following the Effective Time, as contemplated
in Section 3.6; and (vi) approval by Acquiror's stockholders of an amendment to
Acquiror's certificate of incorporation increasing the number of authorized
shares of Acquiror Common Stock to not less than 60,000,000 shares.
(i) "Contract" means any agreement, contract, obligation, promise or
understanding (whether written or oral and whether express or implied) that is
legally binding.
(j) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(l) "Family" means with respect to an individual: (i) the individual;
(ii) the individual's spouse and former spouses; (iii) any other natural person
who is related to the individual or the individual's spouse within the second
degree; and (iv) any other natural person who resides with such individual.
(m) "Heritage Stock Option Plan" means any of the Heritage Employee
Benefit Plans under which Heritage grants options to purchase shares of Heritage
Common Stock.
(n) "Knowledge" with respect to:
(i) an individual means that such person will be deemed to have
"Knowledge" of a particular fact or other matter if such individual is actually
aware of such fact or other matter; and
(ii) a Person (other than an individual) means that such Person
will be deemed to have "Knowledge" of a particular fact or other matter if any
individual who is serving as a director, officer, partner, executor or trustee
of such Person (or in any similar capacity) has, or at any time had, Knowledge
of such fact or other matter.
(o) "Legal Requirement" means any federal, state, local, municipal,
foreign, international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, regulation, statute, or
treaty.
(p) "Material Adverse Effect" with respect to a Person (other than an
individual) means a material adverse effect on the consolidated financial
condition, assets or business of such Person and its Subsidiaries, if any,
provided, however, that with respect to a party to this Agreement, means, to the
extent the effect is quantifiable, any Material Adverse Effect that would cause
or would reasonably be likely to cause such party to reduce its consolidated
stockholders' equity by more than
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$3,000,000 in the case of Heritage and $8,400,000 in the case of First Midwest.
(q) "Material Interest" means the direct or indirect beneficial
ownership (as currently defined in Rule 13d-3 under the Exchange Act) of voting
securities or other voting interests representing at least 10% of the
outstanding voting power of a Person or equity securities or other equity
interests representing at least 10% of the outstanding equity securities or
equity interests in a Person.
(r) "Merger" means the merger of Acquisition Corp and Heritage
provided for in this Agreement.
(s) "Order" means any award, decision, injunction, judgment, order,
ruling, subpoena or verdict entered, issued, made or rendered by any court,
administrative or other governmental agency, including any Regulatory Authority,
or by any arbitrator.
(t) "Ordinary Course of Business" shall include any action taken by a
Person only if such action:
(i) is consistent with the past practices of such Person and is
taken in the ordinary course of the normal day-to-day operations of such Person;
(ii) is not required to be authorized by the board of directors
of such Person (or by any Person or group of Persons exercising similar
authority), other than loan approvals for customers of a financial institution
or purchases or sales of loan pools; and
(iii) is similar in nature and magnitude to actions customarily
taken, without any authorization by the board of directors (or by any Person or
group of Persons exercising similar authority), other than loan approvals for
customers of a financial institution, in the ordinary course of the normal day-
to-day operations of other Persons that are in the same line of business as such
Person.
(u) "Person" means any individual, corporation (including any non-
profit corporation), general or limited partnership, limited liability company,
joint venture, estate, trust, association, organization, labor union or other
entity or Regulatory Authority.
(v) "Proceeding" means any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal, administrative,
investigative or informal) commenced, brought, conducted or heard by or before,
or otherwise involving, any judicial or governmental authority, including a
Regulatory Authority, or arbitrator.
(w) "Regulatory Authorities" means any federal, state or local
governmental body, agency or authority which under applicable statutes and
regulations: (i) has supervisory, judicial, administrative, police, taxing or
other power or authority over Heritage or Acquiror or any of their respective
Subsidiaries; (ii) is required to approve, or give its consent to, the
Contemplated Transactions; or (iii) with which a filing must be made in
connection therewith, including in any case,
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the Securities and Exchange Commission (the "SEC"), the Board of Governors of
the Federal Reserve System (the "Federal Reserve") and the Office of the
Commissioner of Banks and Real Estate of the State of Illinois (the
"Commissioner").
(x) "Representative" means with respect to a particular Person, any
director, officer, employee, agent, consultant, advisor or other representative
of such Person, including legal counsel, accountants and financial advisors.
(y) "Securities Act" means the Securities Act of 1933, as amended.
(z) "Subsidiary" means, with respect to any Person (the "Owner"), any
corporation or other Person of which securities or other interests representing
10% or more of the power of that corporation's voting stock or other equity
interests or other Person's board of directors or similar governing body, or
otherwise having the power to direct the business and policies of that
corporation or other Person (other than securities or other interests having
such power only upon the happening of a contingency that has not occurred) are
held by the Owner or one or more of its Subsidiaries.
(aa) "Tax" means any tax (including any income tax, capital gains tax,
value-added tax, sales tax, property tax, gift tax or estate tax), levy,
assessment, tariff, duty (including any customs duty), deficiency or other fee,
and any related charge or amount (including any fine, penalty, interest, or
addition to tax), imposed, assessed, or collected by or under the authority of
any Regulatory Authority or payable pursuant to any tax-sharing agreement or any
other Contract relating to the sharing or payment of any such tax, levy,
assessment, tariff, duty, deficiency or fee.
(bb) "Tax Return" means any return (including any information return),
report, statement, schedule, notice, form, or other document or information
filed with or submitted to, or required to be filed with or submitted to, any
Regulatory Authority in connection with the determination, assessment,
collection, or payment of any Tax or in connection with the administration,
implementation, or enforcement of or compliance with any Legal Requirement
relating to any Tax.
(cc) "Threatened" means a claim, Proceeding, dispute, action or other
matter for which any demand or statement has been made (orally or in writing) or
any notice has been given (orally or in writing), or if any other event has
occurred or any other circumstances exist, that would lead a prudent Person to
conclude that such a claim, Proceeding, dispute, action or other matter is
likely to be asserted, commenced, taken or otherwise pursued in the future.
(dd) "Trust Bank" means the First National Bank of Lockport, a
national banking association with business limited to the operation of a trust
department and an insurance agency business and activities incidental thereto,
with its main office located in Monee, Illinois, and a wholly owned-subsidiary
of Heritage.
(ee) "Trust Company" means Heritage Trust Company, an Illinois trust
company with its main office located in Tinley Park, Illinois, and a wholly-
owned subsidiary of Heritage.
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SECTION 1.2 PRINCIPLES OF CONSTRUCTION. (a) In this Agreement, unless
--------------------------
otherwise stated or the context otherwise requires, the following uses apply:
(i) actions permitted under this Agreement may be taken at any time and from
time to time in the actor's sole discretion; (ii) references to a statute shall
refer to the statute and any successor statute, and to all regulations
promulgated under or implementing the statute or successor, as in effect at the
relevant time; (iii) in computing periods from a specified date to a later
specified date, the words "from" and "commencing on" (and the like) mean "from
and including," and the words "to," "until" and "ending on" (and the like) mean
"to, but excluding"; (iv) references to a governmental or quasi-governmental
agency, authority or instrumentality shall also refer to a regulatory body that
succeeds to the functions of the agency, authority or instrumentality; (v)
indications of time of day mean Blue Island, Illinois time; (vi) "including"
means "including, but not limited to"; (vii) all references to sections,
schedules and exhibits are to sections, schedules and exhibits in or to this
Agreement unless otherwise specified; (viii) all words used in this Agreement
will be construed to be of such gender or number as the circumstances require;
and (ix) the captions and headings of articles, sections, schedules and exhibits
appearing in or attached to this Agreement have been inserted solely for
convenience of reference and shall not be considered a part of this Agreement
nor shall any of them affect the meaning or interpretation of this Agreement or
any of its provisions.
(b) The Schedules of each of Heritage and Acquiror referred to in
this Agreement shall consist of the information, agreements and other
documentation described and referred to in this Agreement as being included in
the Schedules with respect to such party, which Schedules were delivered by each
of Heritage and Acquiror to the other not less than one calendar day before the
date of this Agreement. Disclosure of any fact or item in any Schedule or
Exhibit hereto referenced by a particular paragraph or section in this Agreement
shall, should the existence of the fact or item or its contents be relevant to
any other paragraph or section, be deemed to be disclosed with respect to that
other paragraph or section whether or not an explicit cross-reference appears.
(c) All accounting terms not specifically defined herein shall be
construed in accordance with generally accepted accounting principles in the
United States, consistently applied.
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ARTICLE 2
THE MERGER
SECTION 2.1 MANNER OF MERGER. Upon the terms and subject to the
----------------
conditions of this Agreement, at the Effective Time (as defined below), Heritage
shall be merged with and into Acquisition Corp pursuant to the provisions of,
and with the effect provided in, the Illinois Business Corporation Act of 1983,
as amended (the "Illinois BCA"), and Acquisition Corp shall be the corporation
resulting from such merger (the "Surviving Corporation"). As a result of the
Merger, each share of Heritage Common Stock issued and outstanding immediately
prior to the Effective Time, other than Dissenting Shares (as defined below),
will be converted into the right to receive the number of shares of Acquiror
Common Stock as provided in Section 3.2. Each right to acquire shares of
Heritage Common Stock outstanding immediately prior to the Effective Time shall
be converted into the right to acquire shares of Acquiror Common Stock as
provided in Section 6.12. The parties agree that they will cooperate and
restructure the method of the Merger so as to prevent the recognition of the
deferred inter-company tax liability relating to the purchase and assumption
transaction consummated by the Bank and the Trust Bank, provided, however, that
any such restructuring shall have no adverse effect on the consideration to be
received pursuant to the terms of this Agreement by, or the tax effect on,
holders of Heritage Common Stock.
SECTION 2.2 EFFECT OF MERGER. (a) At the Effective Time, Heritage shall
----------------
be merged with and into Acquisition Corp and Acquisition Corp shall be the
Surviving Corporation. Heritage and Acquisition Corp are sometimes referred to
collectively herein as the "Merging Corporations."
(b) Without limiting the generality of the foregoing, at the
Effective Time, the Surviving Corporation shall thereupon and thereafter possess
all the rights, privileges, immunities and franchises, as of a public or a
private nature, of each of the Merging Corporations, and all property, real,
personal and mixed, and all debts due on whatever account, including
subscriptions to shares, and all other choses in action, and all and every other
interest, of or belonging to or due to each of the Merging Corporations, shall
be taken and deemed to be transferred to and vested in the Surviving Corporation
without further act or deed; and the title to any real estate, or any interest
therein, vested in any of such corporations shall not revert or be in any way
impaired by reason of the Merger. Upon the terms and subject to the conditions
of this Agreement, the Surviving Corporation shall assume and thenceforth be
responsible and liable for all the liabilities and obligations (including all
obligations of indemnification, if any) of each of the Merging Corporations, and
any claim existing or action or proceeding pending by or against any of the
Merging Corporations may be prosecuted to judgment as if the Merger had not
taken place, or the Surviving Corporation may be substituted in its place.
Neither rights of creditors nor any liens upon the property of any of the
Merging Corporations shall be impaired by the Merger.
SECTION 2.3 ARTICLES OF INCORPORATION. From and after the Effective
-------------------------
Time and until amended as provided by law, the articles of incorporation of the
Surviving Corporation shall be the articles of incorporation of Acquisition Corp
as in effect immediately prior to the Effective Time.
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SECTION 2.4 BYLAWS. From and after the Effective Time and until amended
------
as provided by law, the bylaws of the Surviving Corporation shall be the bylaws
of Acquisition Corp as in effect immediately prior to the Effective Time.
SECTION 2.5 DIRECTORS AND OFFICERS. The directors and officers of
----------------------
Acquisition Corp immediately prior to the Effective Time shall serve as the
directors and officers of the Surviving Corporation until their successors shall
have been elected or appointed and shall have qualified in accordance with the
Illinois BCA and the articles of incorporation and bylaws of the Surviving
Corporation.
SECTION 2.6 CLOSING. (a) The closing of the Merger (the "Closing")
-------
shall occur at the offices of Hinshaw & Culbertson, at 222 N. LaSalle Street,
Chicago, Illinois, on a date which is mutually acceptable to Acquiror and
Heritage, but if they fail to agree, at 10:00 a.m. on the date which is 30
calendar days after the latest to occur of the receipt of all required approvals
or consents of the Regulatory Authorities for the Contemplated Transactions, the
expiration of all statutory waiting periods relating to such regulatory
approvals and the receipt of the approvals of the shareholders of Heritage and
the stockholders of Acquiror, or at such other time and place as Acquiror and
Heritage may agree in writing (the "Closing Date"). Subject to the provisions
of Article 10, failure to consummate the Merger on the date and time and at the
place determined pursuant to this Section will not result in the termination of
this Agreement and will not relieve any party of any obligation under this
Agreement.
(b) The parties hereto agree to file on the Closing Date
appropriate articles of merger, as contemplated by Section 11.25 of the Illinois
BCA, with the Secretary of State of the State of Illinois. The Merger shall be
effective upon the close of business on the day when a certificate of merger has
been issued by the Secretary of State of the State of Illinois (the "Effective
Time").
SECTION 2.7 ACQUIROR'S DELIVERIES AT CLOSING. At the Closing, Acquiror
--------------------------------
shall deliver the following items to Heritage:
(a) evidence of the delivery by Acquiror or its agents to the
Exchange Agent (as defined below) of:
(i) certificates representing the number of shares of
Acquiror Common Stock to be issued in exchange for the shares of Heritage Common
Stock pursuant to the terms of this Agreement; and
(ii) an aggregate amount of cash equal to the total fractional
shares of Acquiror Common Stock which former holders of Heritage Common Stock
would be entitled to receive;
(b) a good standing certificate for Acquiror issued by each of the
Secretary of State of the States of Delaware and Illinois, and dated in each
case not more than ten Business Days prior to the Closing Date, as defined
below;
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(c) a good standing certificate for Acquisition Corp issued by the
Secretary of State of the State of Illinois, and dated not more than ten
Business Days prior to the Closing Date;
(d) a copy of the certificate of incorporation of Acquiror
certified not more than ten Business Days prior to the Closing Date by the
Secretary of State of the State of Delaware;
(e) a copy of the articles of incorporation of Acquisition Corp
certified not more that ten Business Days prior to the Closing Date by the
Secretary of State of the State of Illinois;
(f) a certificate of the Secretary or any Assistant Secretary of
Acquiror dated the Closing Date certifying a copy of the bylaws of Acquiror;
(g) copies of resolutions of the board of directors and
stockholders of Acquiror authorizing and approving this Agreement and the
consummation of the Contemplated Transactions, certified as of the Closing Date
by the Secretary or any Assistant Secretary of Acquiror;
(h) a certificate of the Secretary or any Assistant Secretary of
Acquisition Corp dated the Closing Date certifying a copy of the bylaws of
Acquisition Corp;
(i) a certificate executed by the President of Acquiror dated the
Closing Date stating that: (i) all of the representations and warranties of
Acquiror set forth in this Agreement are true and correct in all material
respects with the same force and effect as if all of such representations and
warranties were made at the Closing Date, except to the extent such
representations and warranties expressly relate to an earlier date, in which
case such representations and warranties shall be true and correct on and as of
such earlier date and giving full effect to any supplements that were delivered
by Acquiror to Heritage prior to the Closing Date in accordance with Section
7.8; and (ii) Acquiror has performed or complied in all material respects with
all of the covenants and obligations to be performed or complied with by
Acquiror under the terms of this Agreement on or prior to the Closing Date;
(j) a legal opinion of Acquiror's counsel dated the Closing Date
to the effect set forth in Exhibit A attached hereto; and
(k) such other documents as Heritage may reasonably request.
All of such items shall be reasonably satisfactory in form and substance to
Heritage and its counsel.
SECTION 2.8 HERITAGE'S DELIVERIES AT CLOSING. At the Closing, Heritage
--------------------------------
shall deliver the following items to Acquiror:
(a) a good standing certificate for Heritage issued by the
Secretary of State of the State of Illinois and dated not more than ten Business
Days prior to the Closing Date;
(b) a copy of the articles of incorporation of Heritage certified
not more than ten
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Business Days prior to the Closing Date by the Secretary of State of the State
of Illinois;
(c) a certificate of the Secretary or any Assistant Secretary of
Heritage dated the Closing Date certifying a copy of the bylaws of Heritage;
(d) copies of resolutions of the board of directors and
shareholders of Heritage authorizing and approving this Agreement and the
consummation of the Contemplated Transactions, certified as of the Closing Date
by the Secretary or any Assistant Secretary of Heritage;
(e) a good standing certificate for the Bank issued by the
Commissioner dated not more than ten Business Days prior to the Closing Date;
(f) a copy of the charter of the Bank certified by the
Commissioner not more than ten Business Days prior to the Closing Date;
(g) a certificate of the Secretary of the Bank dated the Closing
Date certifying a copy of the bylaws of the Bank and stating that there have
been no further amendments to the charter of the Bank delivered pursuant to
subsection (f) of this Section;
(h) a good standing certificate for the Trust Company issued by
the Secretary of State of the State of Illinois dated not more than ten Business
Days prior to the Closing Date;
(i) a copy of the articles of incorporation of the Trust Company
certified by the Secretary of State of the State of Illinois not more than ten
Business Days prior to the Closing Date;
(j) a certificate of the Secretary of the Trust Company dated the
Closing Date certifying a copy of the bylaws of the Trust Company and stating
that there have been no further amendments to the articles of incorporation of
the Trust Company delivered pursuant to subsection (i) of this Section;
(k) a good standing certificate for the Trust Bank issued by the
Office of the Comptroller of the Currency (the "OCC") dated not more than ten
Business Days prior to the Closing Date;
(l) a copy of the articles of association of the Trust Bank
certified by the OCC not more than ten Business Days prior to the Closing Date;
(m) a certificate of the Secretary of the Trust Bank dated the
Closing Date certifying a copy of the bylaws of the Trust Bank and stating that
there have been no further amendments to the articles of association of the
Trust Bank delivered pursuant to subsection (l) of this Section;
(n) a certificate executed by the President of Heritage stating
that: (i) all of the representations and warranties of Heritage set forth in
this Agreement are true and correct in all material respects with the same force
and effect as if all of such representations and warranties were
10
<PAGE>
made at the Closing Date, except to the extent such representations and
warranties expressly relate to an earlier date, in which case such
representations and warranties shall be true and correct and as of such earlier
date and giving full effect to any supplements that were delivered by Heritage
to Acquiror prior to the Closing Date in accordance with Section 6.6; and (ii)
Heritage has performed and complied in all material respects with all of the
covenants and obligations to be performed or complied with by it under the terms
of this Agreement on or prior to the Closing Date;
(o) a list of Heritage's shareholders as of three Business Days
prior to the Closing Date certified by the Secretary or any Assistant Secretary
of Heritage;
(p) a legal opinion of Heritage's counsel dated the Closing Date
and to the effect set forth in Exhibit B; and
(q) such other documents as Acquiror may reasonably request.
All of such items shall be reasonably satisfactory in form and substance to
Acquiror and its counsel.
ARTICLE 3
TREATMENT OF AND PAYMENT FOR SHARES
SECTION 3.1 TREATMENT OF ACQUISITION CORP STOCK. Each common share, $.01
-----------------------------------
par value per share, of Acquisition Corp issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding at the Effective
Time, shall be unaffected by the Merger and shall thereafter represent all of
the issued and outstanding stock of the Surviving Corporation.
SECTION 3.2 TREATMENT OF HERITAGE COMMON STOCK. The conversion of each
----------------------------------
issued and outstanding share of Heritage Common Stock into the right to receive
Acquiror Common Stock shall be governed by the provisions of this Section, and
the replacement of each outstanding right to acquire shares of Heritage Common
Stock with the right to acquire shares of Acquiror Common Stock shall be
governed by the provisions of Section 6.12.
(a) Each share of Heritage Common Stock which is issued and
outstanding immediately prior to the Effective Time (other than shares of
Heritage Common Stock held in the treasury of Heritage or held by Acquiror,
which shares shall be cancelled, and shares held by persons seeking appraisal
rights under the provisions of Sections 11.65 and 11.70 of the Illinois BCA)
shall be converted into and represent the right to receive 0.7695 shares of
Acquiror Common Stock (the "Exchange Ratio"). Pursuant to the First Midwest
Shareholder Rights Plan, which was adopted on February 15, 1989, and amended on
November 15, 1995 and June 18, 1997 (the "Rights Plan"), each share of Acquiror
Common Stock issued pursuant to this Section 3.2(a) shall be accompanied by a
Right (as defined in the Rights Plan).
(b) Heritage shall not be obligated to consummate the Merger when
both of the following conditions exist:
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(i) the Acquiror Common Stock Price Per Share (as defined
below) is less than $33.90 (the "Lower Limit"); and
(ii) the percentage determined by dividing the Acquiror Common
Stock Price Per Share by $42.37 (the "Acquiror Base Price Per Share") is more
than 20 percentage points less than the percentage determined by dividing the
Aggregate Price Per Share of the Comparison Stocks (as defined below) for each
of the ten trading days immediately preceding the fifth trading day prior to the
Closing Date (the "Pricing Period") by the Aggregate Price Per Share of the
Comparison Stocks as of the date of this Agreement ("Comparison Stocks Base
Price Per Share").
(c) The "Acquiror Common Stock Price Per Share" shall be the
dollar amount equal to the volume weighted average price of all transactions for
Acquiror Common Stock as reported on the Nasdaq Stock Market for the Pricing
Period. The "Aggregate Price Per Share of the Comparison Stocks" means the
weighted average of the closing prices of all of the Comparison Stocks as
reported in the Wall Street Journal (or an equivalent source) for each day in
question.
(d) The "Comparison Stocks" mean the most widely held class of
common stock of each of the following corporations listed below, the common
stock of which is publicly traded and as to which there shall not have been,
between the date of this Agreement and the end of the Pricing Period, a publicly
announced proposed merger, acquisition or business combination of such
corporation or a tender offer, exchange offer or other transaction involving the
acquisition of such corporation or the publicly announced proposed merger,
acquisition or business combination by such corporation involving the
acquisition of another company or companies in transactions with an aggregate
value exceeding 20% of the acquiring corporation's market capitalization as of
the date of this Agreement. In the event that common stock of any such
corporation ceases to be publicly traded or any such announcement is made, as
described above, with respect to any such corporation, such corporation shall be
removed from the Comparison Stocks, and the weights (which have been determined
based on the publicly reported number of outstanding shares of common stock on
the date of this Agreement) redistributed proportionately for purposes of
determining the Aggregate Price Per Share of the Comparison Stocks as of the
date of this Agreement and during the Pricing Period. Further, if any of the
corporations comprising the Comparison Stocks declares or effects a stock
dividend, reclassification, recapitalization, split-up, combination, exchange or
shares or similar transaction between the date of the Agreement and the end of
the Pricing Period, the price for the common stock of such corporation shall be
appropriately adjusted for the purposes of applying this Section 3.2(d).
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CORPORATION WEIGHTING (%)
----------- -------------
First Citizens BancShares 6.58
UMB Financial Corp. 5.33
Old National Bancorp 6.36
Valley National Bancorp 7.71
Cullen/Frost Bankers Inc. 6.16
One Valley Bancorp Inc. 5.05
Citizens Banking Corp. 4.28
Fulton Financial Corp. 6.36
Whitney Holding Corp. 5.61
BancorpSouth Inc. 4.88
Commerce Bancorp Inc. 3.59
AMCORE Financial Inc. 3.26
Banknorth Group Inc. 2.37
First Commonwealth Financial 3.23
United Bankshares Inc. 3.52
F&M National Corp. 3.31
Hancock Holding Co. 3.28
TrustCo Bank Corp. of NY 3.19
Park National Corp. 4.41
Corus Bankshares Inc. 2.96
Mid Am Inc. 3.32
Firstbank of Illinois Co. 2.87
Chittenden Corp. 2.37
(e) If the conditions set forth in Section 3.2(b) exist, Heritage
may, at its sole option: (i) terminate this Agreement; (ii) renegotiate with
Acquiror over the payment terms described herein; or (iii) proceed with the
Merger pursuant to the terms of this Agreement. If Heritage elects to exercise
this termination right, it will give prompt written notice to Acquiror as of the
close of business on the second Business Day after the end of the Pricing
Period.
(f) After the Effective Time, no holder of Heritage Common Stock
which is issued and outstanding immediately prior to the Effective Time will
have any rights in respect of such Heritage Common Stock except to receive
shares of Acquiror Common Stock for the shares of Heritage Common Stock
converted as provided in this Section, or to receive payment for such shares of
Heritage Common Stock in the manner and to the extent provided in Sections 11.65
and 11.70 of the Illinois BCA.
SECTION 3.3 ADJUSTMENTS. The Exchange Ratio and related amounts and
-----------
related computations described in Section 3.2 shall be adjusted in the manner
provided in this Section upon the occurrence of any of the following events:
(a) If Acquiror declares a stock dividend, stock split or other
general distribution
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of Acquiror Common Stock to holders of Acquiror Common Stock and the ex-dividend
or ex-distribution date for such stock dividend, stock split or distribution
occurs after the date of this Agreement or at any time through and including the
last day of the Pricing Period, then the Lower Limit, Acquiror Base Price Per
Share and, if necessary, the Acquiror Stock Price Per Share, shall be adjusted
by multiplying them by that ratio (i) the numerator of which shall be the total
number of shares of Acquiror Common Stock outstanding immediately prior to such
dividend, split, or distribution, and (ii) the denominator of which shall be the
total number of shares of Acquiror Common Stock outstanding immediately after
such dividend, split or distribution.
(b) If Acquiror declares a stock dividend, stock split or other
general distribution of Acquiror Common Stock to holders of Acquiror Common
Stock and the ex-dividend or ex-distribution date for such stock dividend, stock
split or distribution occurs at any time after the date of this Agreement and
prior to the Closing, then the Exchange Ratio shall be adjusted by multiplying
them by that ratio (i) the numerator of which shall be the total number of
shares of Acquiror Common Stock outstanding immediately after such dividend,
split or distribution, and (ii) the denominator of which shall be the total
number of shares of Acquiror Common Stock outstanding immediately prior to such
dividend, split, or distribution.
(c) Acquiror and Heritage agree not to convene the Closing at any
time which would result in there being an ex-dividend or ex-distribution date
for any transaction described in Section 3.3(a) during the Pricing Period.
(d) If prior to the last day of the Pricing Period there occurs
with respect to one or more of the Comparison Stocks any stock dividend, stock
split, distribution of stock with respect to stock or similar transactions
changing the number and value of issued and outstanding shares of that stock,
then an adjustment shall be made to the price of that Comparison Stock that was
used in computing the Comparison Stocks Base Price Per Share in the manner of
the adjustment described in Section 3.3(a) (unless such transaction results in
excluding that Comparison Stock from the definition of "Comparison Stocks").
(e) Notwithstanding the foregoing subsections of this Section 3.3,
no adjustment shall be made to the Exchange Ratio, the Lower Limit or the
Acquiror Base Price Per Share in the event of the issuance of additional shares
of Acquiror Common Stock pursuant to the grant or sale of shares to, or for the
account of, employees of Acquiror pursuant to Acquiror's (i) stock option, (ii)
qualified and non-qualified retirement and (iii) dividend reinvestment plans.
(f) Notwithstanding the other provisions of this Section 3.3, no
adjustment shall be made to the Exchange Ratio, the Lower Limit or the Acquiror
Base Price Per Share in the event of the issuance of additional shares of
Acquiror Common Stock or other securities pursuant to a public offering, private
placement, or an acquisition of one or more banks, corporations, or business
assets for consideration which the Board of Directors, or a duly authorized
committee of the Board of Directors, of Acquiror in its reasonable business
judgment determines to be fair and reasonable.
(g) Subject only to making any adjustment to the Exchange Ratio
and related
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computations prescribed by this Section 3.3, nothing contained in this Agreement
is intended to preclude Acquiror from amending its restated certificate of
incorporation to change its capital structure or from issuing additional shares
of Acquiror Common Stock, preferred stock, shares of other capital stock or
securities which are convertible into shares of capital stock.
(h) In the event that the number of shares of Heritage Common
Stock outstanding is greater than 12,090,402 for any reason whatsoever (whether
such increase constitutes a breach of this Agreement), other than as a result of
the exercise of Heritage Stock Options identified in Section 6.12, then the
Exchange Ratio shall be adjusted to that ratio determined by multiplying the
Exchange Ratio by a fraction (i) the numerator of which shall be 12,090,402 (the
total number of shares of Heritage Common Stock outstanding as of the date of
this Agreement), and (ii) the denominator of which shall be the total number of
shares of Heritage Common Stock outstanding as of the Effective Time of the
Merger, excluding not more than 548,336 shares, if any, issued after the date of
this Agreement upon exercise of Heritage Stock Options identified in Section
6.12.
SECTION 3.4 STEPS OF TRANSACTION.
--------------------
(a) No later than ten Business Days after the date of the special
and/or annual meeting of shareholders (the "Meeting Date") to be held pursuant
to Section 6.10 (the "Heritage Special Meeting"), Acquiror shall mail or cause
to be mailed to each then current holder of record of a certificate or
certificates representing outstanding shares of Heritage Common Stock (the
"Certificates") transmittal materials for use in surrendering such Certificates
in exchange for certificates representing shares of Acquiror Common Stock (the
Certificates with all properly completed transmittal materials, collectively
referred to as the "Transmittal Materials"). The instructions for completion of
the Transmittal Materials shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon delivery of the
Certificates (or a lost certificate affidavit and/or indemnity bond in a form or
forms reasonably acceptable to Acquiror). Pursuant to the terms of an exchange
agent agreement in the form of Exhibit C, the parties hereto agree to appoint
American Securities Transfer & Trust, Inc., Lakewood, Colorado, as exchange
agent (the "Exchange Agent"), for the parties to effect the surrender of the
Certificates in exchange for Acquiror Common Stock. Acquiror shall use all
reasonable efforts to mail or cause to be mailed the appropriate transmittal
materials to all persons who become holders of Heritage Common Stock subsequent
to the Meeting Date and no later than the close of business on the Business Day
which is ten Business Days prior to the Closing Date.
(b) The Exchange Agent may, in the exercise of its reasonable
discretion, disregard any defects in Transmittal Materials submitted to it that
it determines are immaterial. Acquiror shall cause the Exchange Agent to use
its Best Efforts promptly to notify any person of any defect in Transmittal
Materials submitted to the Exchange Agent. Acquiror and Heritage or their duly
authorized Representatives shall make and approve all computations contemplated
by Section 3.2, and all such computations shall be conclusive and binding on the
Exchange Agent.
(c) As promptly as practicable, but in no event later than five
Business Days after the submission by a holder of Heritage Common Stock of all
necessary Transmittal Materials (but in
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no event earlier than five Business Days after the Effective Time), Acquiror
shall cause the Exchange Agent to deliver to each such holder certificates
representing the number of whole shares of Acquiror Common Stock into which the
shares of Heritage Common Stock represented by the Certificates so surrendered
were converted, plus cash as hereinafter provided for any fractional share of
Acquiror Common Stock which such holder would have been entitled to receive.
(d) As promptly as practicable, but in no event later than 60 days
after the Effective Time, Acquiror shall send to each holder of record of
Heritage Common Stock immediately prior to the Effective Time who has not
previously submitted his or her Certificates, additional transmittal materials
for use in surrendering such Certificates to the Exchange Agent.
(e) No dividends or other distributions declared after the
Effective Time with respect to Acquiror Common Stock which are payable to
shareholders of record of Acquiror after the Effective Time shall be paid to a
shareholder of Heritage who is entitled to receive shares of Acquiror Common
Stock pursuant to this Agreement and who holds any unsurrendered Certificate
with respect to Acquiror Common Stock represented thereby, until such
shareholder shall surrender such Certificate (or an appropriate lost certificate
affidavit and/or indemnity bond). Until so surrendered and exchanged, each such
outstanding Certificate shall for all purposes, other than the payment of
dividends or other distributions, if any, to holders of record of shares of
Acquiror Common Stock, represent the shares of Acquiror Common Stock into and
for which such shares have been so converted; provided, however, that upon
surrender of a Certificate, there shall be paid to the record holder or holders
of the Certificate, the amount, without interest thereon, of such dividends and
other distributions, if any, which theretofore have become payable with respect
to the number of whole shares of Acquiror Common Stock represented by such
Certificate.
(f) No fractional shares of Acquiror Common Stock shall be issued
upon the surrender for exchange of Certificates; no dividend or distribution of
Acquiror shall relate to any fractional share interest; and such fractional
share interests will not entitle the owner thereof to vote or to any rights of a
shareholder of Acquiror. Instead, each holder of shares of Heritage Common Stock
who has a fractional interest in shares of Acquiror Common Stock arising upon
the conversion or exchange of shares of Heritage Common Stock for Acquiror
Common Stock shall, at the time of surrender of the Certificates theretofore
representing Heritage Common Stock, be paid by Acquiror an amount in cash,
without interest, determined by multiplying such fractional share of Acquiror
Common Stock by the Acquiror Base Price Per Share.
(g) All rights to receive shares of Acquiror Common Stock into and
for which shares of Heritage Common Stock shall have been converted and
exchanged pursuant to this Agreement, shall be deemed to have been paid or
issued, as the case may be, in full satisfaction of all rights pertaining to
such converted and exchanged shares of Heritage Common Stock.
(h) If any certificate representing shares of Acquiror Common
Stock is to be issued in the name of a Person other than the Person in whose
name the Certificate surrendered in exchange therefor is registered, it shall be
a condition of the issuance thereof that the Certificate so surrendered shall be
properly endorsed, accompanied by all documents required to evidence and
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effect such transfer and otherwise in proper form for transfer.
SECTION 3.5 DISSENTING SHARES. Notwithstanding anything to the contrary
-----------------
contained in this Agreement, to the extent appraisal rights are available to
Heritage shareholders pursuant to the Illinois BCA, any shares held by a person
who objects to the Merger, whose shares either were not entitled to vote or were
not voted in favor of the Merger and who complies with all of the provisions of
the Illinois BCA concerning the rights of such person to dissent from the Merger
and to require appraisal of such person's shares and who has not withdrawn such
objection or waived such rights prior to the Closing Date ("Dissenting Shares")
shall not be converted pursuant to Section 3.2 but shall become the right to
receive such consideration as may be determined to be due to the holder of such
Dissenting Shares pursuant to the Illinois BCA; provided, however, that each
Dissenting Share held by a person at the Effective Time who shall, after the
Effective Time, withdraw the demand for appraisal or lose the right of
appraisal, in either case pursuant to the Illinois BCA, shall be deemed to be
converted, as of the Effective Time, into the right to receive Acquiror Common
Stock as provided in this Article.
SECTION 3.6 MERGER OF HERITAGE SUBSIDIARIES. The parties understand
-------------------------------
that it is the present intention of Acquiror to merge the Bank, the Trust Bank
and the Trust Company at or after the Effective Time into one or more of
Acquiror's Subsidiaries. Heritage shall take all such actions as are reasonably
requested by Acquiror so that Acquiror may accomplish such mergers as aforesaid,
provided, however, that: (a) any such merger will be effective no earlier than
the Effective Time; (b) none of Acquiror's actions in connection with any such
merger will unreasonably interfere with any of the operations of Heritage or any
of its Subsidiaries prior to the Effective Time; (c) none of Heritage or any of
its Subsidiaries will be required to take any irrevocable action prior to the
Closing in connection with any such merger; and (d) no action taken or caused to
be taken by Heritage or any of its Subsidiaries pursuant to this Section will
result in any unreimbursed cost or expense to Heritage or any of its
Subsidiaries. Nothing contained in this Section is intended to impose an
obligation on Heritage or any of its Subsidiaries to alter the manner in which
they conduct their respective businesses.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF HERITAGE
Heritage hereby represents and warrants to Acquiror as follows:
SECTION 4.1 HERITAGE ORGANIZATION. Heritage: (a) is a corporation duly
---------------------
organized, validly existing and in good standing under the laws of the State of
Illinois and in each other jurisdiction in which the nature of the business
conducted or the properties or assets owned or leased by it makes such
qualification necessary and where the failure to be so qualified would
reasonably be expected to have a Material Adverse Effect on Heritage; (b) is
registered with the Federal Reserve as a bank holding company under the federal
Bank Holding Company Act of 1956, as amended (the "BHCA"); (c) has full power
and authority, corporate and otherwise, to operate as a bank holding company and
to own, operate and lease its properties as presently owned, operated and
leased, and to carry on its business as it is now being conducted; and (d)
except as set forth on Schedule 4.1, owns no voting stock or equity securities
of any corporation, association, partnership or other entity, other than all of
the issued and outstanding stock of the Bank, the Trust Company and the Trust
Bank.
SECTION 4.2 BANK ORGANIZATION. The Bank is an Illinois state bank duly
-----------------
organized, validly existing and in good standing under the laws of the State of
Illinois and is not required to qualify to do business in any other jurisdiction
where the failure to be so qualified would reasonably be expected to have a
Material Adverse Effect on Heritage. The Bank has full power and authority,
corporate and otherwise, to own, operate and lease its properties as presently
owned, operated and leased, and to carry on its business as it is now being
conducted, the deposits of which are insured to the extent allowed by applicable
law by the FDIC under the Bank Insurance Fund or the Savings and Loan Insurance
Fund. The copies of the charter and bylaws of the Bank and all amendments
thereto are substantially complete and correct and set forth on Schedule 4.2.
SECTION 4.3 TRUST COMPANY AND TRUST BANK ORGANIZATION. (a) The Trust
-----------------------------------------
Company is an Illinois trust company duly organized, validly existing and in
good standing under the laws of the State of Illinois and is not required to
qualify to do business in any other jurisdiction where the failure to be so
qualified would reasonably be expected to have a Material Adverse Effect on
Heritage. The Trust Company has full power and authority, corporate and
otherwise, to own, operate and lease its properties as presently owned, operated
and leased, and to carry on its business as it is now being conducted. The
copies of the articles of incorporation and bylaws of the Trust Company and all
amendments thereto are complete and correct and set forth on Schedule 4.3(a).
(b) The Trust Bank is a national banking association duly
organized, validly existing and in good standing under the laws of the United
States and is not required to qualify to do business in any other jurisdiction
where the failure to be so qualified would reasonably be expected to have a
Material Adverse Effect on Heritage. The Trust Bank has full power and
authority, corporate and otherwise, to own, operate and lease its properties as
presently owned, operated and leased, and to carry on its business as it is now
being conducted. The copies of the articles of association and bylaws of the
Trust Bank and all amendments thereto are substantially complete and
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correct and set forth on Schedule 4.3(b).
SECTION 4.4 AUTHORIZATION; ENFORCEABILITY. (a) Heritage has the
-----------------------------
requisite corporate power and authority to enter into and perform its
obligations under this Agreement and the Stock Option Agreement (as defined
below). The execution, delivery and performance of this Agreement and the Stock
Option Agreement by Heritage, and the consummation by it of its obligations
under this Agreement and the Stock Option Agreement, have been authorized by all
necessary corporate action (except for approval by the shareholders of
Heritage), and this Agreement, subject to the receipt of such shareholder
approval and all required regulatory approvals, constitutes a legal, valid and
binding obligation of Heritage enforceable in accordance with its terms, except
as such enforcement may be limited by bankruptcy, insolvency, reorganization or
other laws and subject to general principles of equity.
(b) Except as set forth on Schedule 4.4 and except for ordinary
corporate requirements, no "business combination," "moratorium," "control share"
or other state anti-takeover statute or regulation or any provision contained in
the articles of incorporation or bylaws of Heritage: (i) prohibits or restricts
Heritage's ability to perform its obligations under this Agreement or the Stock
Option Agreement, or its ability to consummate the transactions contemplated
hereby and thereby; (ii) would have the effect of invalidating or voiding this
Agreement or the Stock Option Agreement, or any provision hereof or thereof; or
(iii) would subject Acquiror to any material impediment or condition in
connection with the exercise of any of its rights under this Agreement or the
Stock Option Agreement. Not less than 66-2/3% of the members of the Board of
Directors of Heritage has approved the execution of this Agreement and the Stock
Option Agreement.
SECTION 4.5 NO CONFLICT. Except as set forth on Schedule 4.5 and where
-----------
the occurrence of any of the following would not reasonably be expected to have
a Material Adverse Effect on Heritage, neither the execution nor delivery of
this Agreement nor the consummation or performance of any of the Contemplated
Transactions or the Stock Option Agreement will, directly or indirectly (with or
without notice or lapse of time): (a) contravene, conflict with, or result in a
violation of any provision of the articles of incorporation or charter, and the
bylaws, of Heritage or any of its Subsidiaries, or any resolution adopted by the
board of directors or shareholders of Heritage or any of its Subsidiaries; (b)
contravene, conflict with, or result in a violation of, or give any Regulatory
Authority or other Person the valid and enforceable right to challenge any of
the Contemplated Transactions or to exercise any remedy or obtain any relief
under, any Legal Requirement or any Order to which Heritage or any of its
Subsidiaries, or any of their respective assets that are owned or used by them,
may be subject, other than any of the foregoing that would be satisfied by
compliance with the provisions of the BHCA, the Illinois Bank Holding Company
Act of 1957, as amended (the "IBHCA"), the Securities Act, the Exchange Act, the
Illinois Banking Act (the "Illinois Act") and the Illinois BCA; (c) contravene,
conflict with, or result in a violation or breach of any provision of, or give
any Person the right to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel, terminate, or modify,
any material Applicable Contract to which Heritage or any of its Subsidiaries is
a party or by which any of their respective assets is bound; or (d) result in
the creation of any lien, charge or encumbrance upon or with respect to any of
the assets owned or used by Heritage or any of its Subsidiaries. Except as
contemplated
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by clause (b) of this Section and as set forth in Schedule 4.5, and except for
notice to and the approval of Heritage's shareholders, neither Heritage nor any
of its Subsidiaries is or will be required to give any notice to or obtain any
consent from any Person in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the Contemplated
Transactions.
SECTION 4.6 HERITAGE CAPITALIZATION. The authorized capital stock of
-----------------------
Heritage consists exclusively of: (a) 16,000,000 common shares, no par value
per share, of which (i) 12,090,402 shares were duly issued and outstanding,
fully paid and non-assessable; (ii) 548,336 shares (the "Heritage Stock
Options") were issuable under the outstanding option agreements described on
Schedule 4.6; and (iii) 37,911 shares were held by Heritage as treasury stock,
all as of December 31, 1997; and (b) 12,000,000 preferred shares, no par value
per share, none of which shares is issued or outstanding. Except as set forth
in this Section: (x) there are no unexpired or pending preemptive rights with
respect to any shares of capital stock of Heritage; (y) there are no outstanding
securities of Heritage which are convertible into or exchangeable for any shares
of Heritage's capital stock; and (z) Heritage is not a party to any Contract
relating to the issuance, sale or transfer of any equity securities or other
securities of Heritage. None of the shares of Heritage Common Stock were issued
in violation of any federal or state securities laws or any other Legal
Requirement. Heritage does not own or have any Contract to acquire, any equity
securities or other securities of any Person or any direct or indirect equity or
ownership interest in any other business except as set forth on Schedule 4.6.
SECTION 4.7 SUBSIDIARY CAPITALIZATION. The authorized capital stock of
-------------------------
the Bank consists, and immediately prior to the Closing will consist,
exclusively of 1,231,241 shares of capital stock, $5.00 par value per share, all
of which shares are, and immediately prior to the Closing will be, duly
authorized, validly issued and outstanding, fully paid and nonassessable (the
"Bank Shares"). The authorized capital stock of the Trust Company consists, and
immediately prior to the Closing will consist, exclusively of 1,000 common
shares, no par value per share, all of which shares are, and immediately prior
to the Closing will be, duly authorized, validly issued and outstanding, fully
paid and nonassessable (the "Trust Company Shares"). The authorized capital
stock of the Trust Bank consists, and immediately prior to the Closing will
consist, exclusively of 20,000 shares of capital stock, $5.00 par value per
share, all of which shares are, and immediately prior to the Closing will be,
duly authorized, validly issued and outstanding, fully paid and nonassessable
(the "Trust Bank Shares," and collectively with the Bank Shares and the Trust
Company Shares, the "Heritage Subsidiary Shares"). Except as set forth on
Schedule 4.7, Heritage is and will be on the Closing Date the record and
beneficial owner of 100% of the Heritage Subsidiary Shares, free and clear of
any lien or encumbrance whatsoever. The Heritage Subsidiary Shares are and will
be on the Closing Date freely transferable and are and will be on the Closing
Date subject to no claim of right except pursuant to this Agreement. There are
no unexpired or pending preemptive rights with respect to any shares of capital
stock of Heritage's Subsidiaries. There are no outstanding securities of
Heritage's Subsidiaries which are convertible into or exchangeable for any
shares of the capital stock of any of Heritage's Subsidiaries, and none of
Heritage's Subsidiaries is a party to any Contract relating to the issuance,
sale or transfer of any equity securities or other securities of any of
Heritage's Subsidiaries. None of the Heritage Subsidiary Shares was issued in
violation of any federal or state securities laws
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or any other Legal Requirement. None of Heritage's Subsidiaries owns or has any
Contract to acquire, any equity securities or other securities of any Person or
any direct or indirect equity or ownership interest in any other business except
as set forth on Schedule 4.7.
SECTION 4.8 FINANCIAL STATEMENTS AND REPORTS. True, correct and
--------------------------------
complete copies of the following financial statements of Heritage are included
in Schedule 4.8:
(a) for each of the years ended December 31, 1994, 1995 and 1996,
Consolidated Balance Sheets and the related Statements of Income, Statements of
Changes in Shareholders' Equity and Statements of Cash Flows, and the footnotes
thereto; and
(b) for each of the quarters ended March 31, June 30 and September 30,
1997, the Consolidated Balance Sheets and the related Statements of Income,
Statements of Changes in Shareholders' Equity and Statements of Cash Flows, and
the footnotes thereto.
The financial statements described in clause (a) above are audited
statements and have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis. The financial statements
described in clause (b) above have been prepared on a basis consistent with past
accounting practices and as required by applicable rules or regulations and
fairly present the consolidated financial condition and results of operations at
the dates and for the periods presented, subject to year-end audit adjustments
(which changes in the aggregate would not reasonably be expected to have a
Material Adverse Effect on Heritage). Taken together, the financial statements
described in clauses (a) and (b) above (collectively, the "Heritage Financial
Statements") fairly and accurately present in all material respects the
respective financial position, assets, liabilities and results of operations of
Heritage and its Subsidiaries as at the respective dates of and for the periods
referred to in the Heritage Financial Statements.
SECTION 4.9 BOOKS AND RECORDS. The books of account, minute books,
-----------------
stock record books and other records of Heritage and its Subsidiaries are
complete and correct in all material respects, and have been maintained in
accordance with sound business practices and all material applicable Legal
Requirements, including the maintenance of any adequate system of internal
controls. The minute books of Heritage and its Subsidiaries contain accurate and
complete records in all material respects of all meetings held of, and corporate
action taken by, the shareholders, the board of directors, and committees of the
board of directors of Heritage and its Subsidiaries, respectively. At the
Closing, all of those books and records will be in the possession of Heritage or
its Subsidiaries.
SECTION 4.10 TITLE TO PROPERTIES. Each of Heritage and its Subsidiaries
-------------------
has good and marketable title to all assets and properties, whether real or
personal, tangible or intangible, which it purports to own and which it
depreciates or amortizes for purposes of its federal Tax Returns (including
other real estate owned), subject to no liens, mortgages, security interests,
encumbrances or charges of any kind except: (a) as noted in the most recent
Heritage Financial Statement or on Schedule 4.10; (b) statutory liens for Taxes
not yet delinquent or being contested in good faith by appropriate Proceedings
and for which appropriate reserves have been established and reflected on the
Heritage Financial Statements; (c) pledges or liens required to be granted in
connection with the acceptance of government deposits, granted in connection
with repurchase or reverse repurchase
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agreements or otherwise incurred in the Ordinary Course of Business; and (d)
minor defects and irregularities in title and encumbrances which do not
materially impair the use thereof for the purposes for which they are held and
which would not reasonably be expected to have a Material Adverse Effect on
Heritage. Each of Heritage and its Subsidiaries as lessee has the right under
valid and existing leases to occupy, use, possess and control any and all of the
respective material property leased by it. All buildings and structures owned by
each of Heritage and its Subsidiaries lie wholly within the boundaries of the
real property owned or validly leased by it and do not encroach upon the
property of, or otherwise conflict with the property rights of, any other
Person, except where any such encroachment would not reasonably be expected to
have a Material Adverse Effect on Heritage.
SECTION 4.11 CONDITION AND SUFFICIENCY OF ASSETS. The material
-----------------------------------
buildings, structures and equipment of Heritage and its Subsidiaries are
structurally sound, are in good operating condition and repair, and are adequate
for the uses to which they are being put, and none of such buildings, structures
or equipment is in need of maintenance or repairs except for ordinary, routine
maintenance and repairs that are not material in the aggregate in nature or in
cost. The buildings, structures and equipment of Heritage and its Subsidiaries
are sufficient for the continued conduct of the business of Heritage and its
Subsidiaries after the Closing in substantially the same manner as conducted
prior to the Closing.
SECTION 4.12 UNDISCLOSED LIABILITIES; ADVERSE CHANGES. Except as set
----------------------------------------
forth in Schedule 4.12, neither Heritage nor any of its Subsidiaries has any
material liabilities or obligations of any nature (whether known or unknown and
whether absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against in the Heritage Financial Statements
and current liabilities incurred in the Ordinary Course of Business since the
respective dates thereof. Since the date of the latest Heritage Financial
Statement, no event has occurred or circumstance exists that would reasonably be
expected to result in a Material Adverse Effect on Heritage and no facts or
circumstances have been discovered by Heritage from which it appears that there
is a significant risk and reasonable probability that Heritage will suffer a
Material Adverse Effect.
SECTION 4.13 TAXES. (a) Each of Heritage and its Subsidiaries has duly
-----
filed or will duly file all Tax Returns required to be filed by it for all
periods prior to the Closing Date, and each such Tax Return is complete and
accurate in all material respects. Each of Heritage and its Subsidiaries has
paid, or made adequate provision for the payment of, all Taxes (whether or not
reflected in Tax Returns as filed or to be filed) due and payable by Heritage or
any of its Subsidiaries, or claimed to be due and payable by any Regulatory
Authority, by setting up adequate reserves therefor, and is not delinquent in
the payment of any Tax, except such Taxes as are being contested in good faith
and as to which adequate reserves have been provided. There is no material
claim or assessment pending or, to the Knowledge of Heritage, Threatened against
Heritage or any of its Subsidiaries for any material Taxes owed by any of them.
No audit, examination or investigation related to Taxes paid or payable by
Heritage or any of its Subsidiaries is presently being conducted or, to the
Knowledge of Heritage, Threatened by any Regulatory Authority. Heritage has
delivered to Acquiror true, correct and complete copies of all Tax Returns
previously filed by each of Heritage and its Subsidiaries and any tax
examination reports and statements of deficiencies assessed or agreed to for any
of Heritage or its Subsidiaries with respect to the last three fiscal years.
Deferred taxes of
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Heritage have been accounted for in accordance with generally accepted
accounting principles. Neither Heritage nor any of its Subsidiaries is, or has
been, a party to any tax allocation agreement or arrangement pursuant to which
it has any contingent or outstanding liability to any Person other than Heritage
or any of its Subsidiaries.
(b) Except where any of the following would not reasonably be expected
to result in a Material Adverse Effect on Heritage, each of Heritage and its
Subsidiaries has withheld amounts from its employees, shareholders or holders of
public deposit accounts in compliance with the tax withholding provisions of
applicable federal, state and local laws, has filed all federal, state and local
returns and reports for all years for which any such return or report would be
due with respect to employee income tax withholding, social security,
unemployment taxes, income and other taxes and all payments or deposits with
respect to such taxes have been timely made and, except as set forth in Schedule
4.13, has notified all employees, shareholders and holders of public deposit
accounts of their obligations to file all forms, statements or reports with it
in accordance with applicable federal, state and local tax laws and has taken
reasonable steps to insure that such employees, shareholders and holders of
public deposit accounts have filed all such forms, statements and reports with
it.
SECTION 4.14 COMPLIANCE WITH ERISA. (a) Except as set forth on Schedule
---------------------
4.14, all employee benefit plans (as defined in Section 3(3) of ERISA)
established or maintained by Heritage or any of its Subsidiaries or to which
Heritage or any of its Subsidiaries contributes, are in compliance in all
material respects with all applicable requirements of ERISA, and are in
compliance in all material respects with all applicable requirements (including
qualification and non-discrimination requirements in effect as of the Closing)
of the Code for obtaining the tax benefits the Code thereupon permits with
respect to such employee benefit plans. For purposes of this Section, non-
compliance with the Code and ERISA is material if such non-compliance would
reasonably be expected to have a Material Adverse Effect on Heritage. No such
employee benefit plan has, or as of the Closing will have, any amount of
unfunded benefit liabilities (as defined in Section 4001(a)(18) of ERISA) for
which Heritage or any of its Subsidiaries would be liable to any Person under
Title IV of ERISA if any such employee benefit plan were terminated as of the
Closing, which amounts would be material to Heritage or its Subsidiaries. Such
employee benefit plans are funded in accordance with Section 412 of the Code (if
applicable). There would be no obligations which would be material to Heritage
or any of its Subsidiaries under Title IV of ERISA relating to any such employee
benefit plan that is a multi-employer plan if any such plan were terminated or
if Heritage or any of its Subsidiaries withdrew from any such plan as of the
Closing.
(b) Except as set forth in Schedule 4.14, Heritage neither maintains
nor has entered into any Heritage Employee Benefit Plan (as defined below) which
contains any change in control provisions which would cause an increase or
acceleration of benefits or benefit entitlements to employees or former
employees of Heritage or any of its Subsidiaries or their respective
beneficiaries, or other provisions, which would cause an increase in the
liability of Heritage or any of its Subsidiaries or of Acquiror as a result of
the Contemplated Transactions or any related action thereafter. All payments
and other compensation paid or payable by Heritage or any of its Subsidiaries
under this Agreement, any Heritage Employee Benefit Plan or otherwise, to or for
the benefit of any employee or director of Heritage or any of its Subsidiaries,
are in compliance with all
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applicable rules, regulations and bulletins promulgated by the Federal Deposit
Insurance Corporation.
(c) Except as set forth in Schedule 4.14, each of the Heritage
Employee Benefit Plans that is intended to be a pension, profit sharing, stock
bonus, thrift, savings or employee stock ownership plan that is qualified under
Section 401(a) of the Code ("Heritage Qualified Plans") has been determined by
the Internal Revenue Service to qualify under Section 401(a) of the Code, or an
application for determination of such qualification has been timely made to the
Internal Revenue Service prior to the end of the applicable remedial amendment
period under Section 401(b) of the Code (a copy of each such determination
letter or pending application has been provided to Acquiror), and, to the
Knowledge of Heritage, there exist no circumstances (other than circumstances
caused by transactions contemplated in this Agreement or any related actions)
likely to materially adversely affect the qualified status of any such Heritage
Qualified Plan.
(d) There is no pending or, to the Knowledge of Heritage, threatened
litigation or pending claim (other than benefit claims made in the ordinary
course) by or on behalf of or against any of the Heritage Employee Benefit Plans
(or with respect to the administration of any of such plans) now or heretofore
maintained by Heritage or any of its Subsidiaries which allege violations of
applicable state or federal law which are reasonably likely to result in a
Material Adverse Effect on Heritage or any such plan.
(e) Schedule 4.14 describes any obligation that Heritage or any of its
Subsidiaries has to provide health or welfare benefits to retirees or other
former employees, directors or their dependents (other than rights under Section
4980B of the Code or Section 601 of ERISA), including information as to the
number of retirees, other former employees or directors and dependents entitled
to such coverages and their ages.
(f) Except as set forth in Schedule 4.14, all accrued contributions
and other payments required to be made by Heritage to any Heritage Employee
Benefit Plan through the Closing Date have been made or reserves adequate for
such purposes have been set aside therefor and reflected on the Heritage
Financial Statements.
(g) Heritage has filed, and will continue to file in a timely manner,
all returns/reports and etc. pertaining to each Heritage Employee Benefit plan
with the Internal Revenue Service, the Pension Benefit Guaranty Corporation and
the Department of Labor. All such filings, as amended, were and will be
complete and accurate in all material respects.
SECTION 4.15 COMPLIANCE WITH LEGAL REQUIREMENTS. Each of Heritage and
----------------------------------
its Subsidiaries is, and at all times since January 1, 1994, has been, in
compliance with each Legal Requirement that is or was applicable to it or to the
conduct or operation of its respective businesses or the ownership or use of any
of its respective assets where the failure to so comply had, or would reasonably
be expected to have, a Material Adverse Effect on Heritage. No event has
occurred or circumstance exists that (with or without notice or lapse of time):
(a) may constitute or result in a violation by Heritage or any of its
Subsidiaries of, or a failure on the part of Heritage or any of its Subsidiaries
to comply with, any Legal Requirement; or (b) may give rise to any obligation on
the part
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of Heritage or any of its Subsidiaries to undertake, or to bear all or any
portion of the cost of, any remedial action of any nature, in either case of
such clauses (a) or (b) above, that would reasonably be expected to have a
Material Adverse Effect on Heritage. Except as set forth on Schedule 4.15,
neither Heritage nor any of its Subsidiaries has received, at any time since
January 1, 1994, any notice or other communication (whether oral or written)
from any Regulatory Authority or any other Person regarding: (x) any actual,
alleged, possible, or potential violation of, or failure to comply with, any
Legal Requirement; or (y) any actual, alleged, possible, or potential obligation
on the part of Heritage or any of its Subsidiaries to undertake, or to bear all
or any portion of the cost of, any remedial action of any nature, in either case
of such clauses (x) or (y) above, that would reasonably be expected to have a
Material Adverse Effect on Heritage.
SECTION 4.16 LEGAL PROCEEDINGS; ORDERS. Schedule 4.16 is a true and
-------------------------
correct list of all Proceedings and Orders pending, entered into or, to the
Knowledge of Heritage, Threatened against or affecting Heritage or any of its
Subsidiaries or any of their respective assets or businesses or the Contemplated
Transactions, during the past three years which had, or would reasonably be
expected to have, a Material Adverse Effect on Heritage, and there is no fact
known to Heritage which would provide a basis for any Proceeding or Order which
could have such an effect. To the Knowledge of Heritage, no officer, director,
agent, or employee of Heritage or any of its Subsidiaries is subject to any
Order that prohibits such officer, director, agent, or employee from engaging in
or continuing any conduct, activity or practice relating to the businesses of
Heritage or any of its Subsidiaries. Neither Heritage nor any of its
Subsidiaries has received, at any time since January 1, 1994, any notice or
other communication (whether oral or written) from any Regulatory Authority or
any other Person regarding any actual, alleged, possible, or potential violation
of, or failure to comply with, any Legal Requirement to which Heritage or any of
its Subsidiaries or any of their respective businesses or the assets owned or
used by them, is or has been subject where such violation or failure would
reasonably be expected to have a Material Adverse Effect on Heritage.
SECTION 4.17 ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set forth
-------------------------------------
in Schedule 4.17, since December 31, 1996, each of Heritage and its Subsidiaries
has conducted its business only in the Ordinary Course of Business and with
respect to each there has not been any:
(a) change in the authorized or issued capital stock (except as
otherwise contemplated by this Agreement); grant of any stock option or right to
purchase shares of capital stock of Heritage or its Subsidiaries (except
pursuant to the Stock Option Agreement); issuance of any security convertible
into such capital stock or evidences of indebtedness (except in connection with
customer deposits); grant of any registration rights; purchase, redemption,
retirement or other acquisition by Heritage or any of its Subsidiaries of any
shares of any such capital stock; or declaration or payment of any dividend or
other distribution or payment in respect of shares of the capital stock of
Heritage or any of its Subsidiaries (other than dividends paid by any of the
Subsidiaries solely to Heritage);
(b) amendment to the articles of incorporation, charter or
bylaws of Heritage or any of the Subsidiaries (except as otherwise contemplated
by this Agreement);
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(c) payment or increase by Heritage or any of its Subsidiaries of any
bonuses, salaries or other compensation to any shareholder, director, officer or
employee (except for periodic payments or increases in the Ordinary Course of
Business or otherwise in accordance with past compensation practices) or entry
by Heritage or any of its Subsidiaries into any employment, severance or similar
Contract with any director, officer or employee;
(d) adoption, material amendment (except for any amendment necessary
to comply with any Legal Requirement) or termination of, or increase in the
payments to or benefits under, any Heritage Employee Benefit Plan (as defined
below);
(e) damage to or destruction or loss of any asset or property of
Heritage or any of its Subsidiaries not covered by insurance that had, or would
reasonably be expected to have, a Material Adverse Effect on Heritage;
(f) entry into, termination or extension of, or receipt of notice of
termination of any joint venture or similar agreement, or any material Contract
(other than relating to a loan made by the Bank in the Ordinary Course of
Business) or transaction involving a total remaining commitment by or to
Heritage or any of its Subsidiaries of at least $800,000;
(g) material change in any existing material lease of real or personal
property;
(h) sale (other than any sale in the Ordinary Course of Business),
lease or other disposition of any material asset or property of Heritage or any
of its Subsidiaries or mortgage, pledge or imposition of any lien or other
encumbrance on any material asset or property of Heritage or any of its
Subsidiaries except for tax and other liens which arise by operation of law and
with respect to which payment is not past due, and except for pledges or liens:
(i) required to be granted in connection with the acceptance by the Bank of
government deposits; (ii) granted in connection with repurchase or reverse
repurchase agreements; or (iii) otherwise incurred in the Ordinary Course of
Business;
(i) incurrence of any obligation or liability (fixed or contingent)
other than in the Ordinary Course of Business;
(j) cancellation or waiver of any claims or rights with a value to
Heritage or any of its Subsidiaries in excess of $200,000 other than in the
Ordinary Course of Business;
(k) any investment in, or purchase of, a depreciable or amortizable
capital asset exceeding $200,000, or aggregate investments of a capital nature
exceeding $400,000 (other than in the Ordinary Course of Business);
(l) except for the Contemplated Transactions, merger or consolidation
with or into any other Person, or acquisition of any stock, equity interest or
business of any other Person;
(m) transaction for the borrowing or loaning of monies, other than in
the Ordinary
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Course of Business;
(n) material change in the accounting methods used by Heritage
or any of its Subsidiaries; or
(o) agreement, whether oral or written, by Heritage or any of
its Subsidiaries to do any of the foregoing.
SECTION 4.18 PROPERTIES, CONTRACTS, EMPLOYEE BENEFIT PLANS AND OTHER
-------------------------------------------------------
AGREEMENTS. Schedule 4.18 lists or describes the following:
- ----------
(a) All real property owned by each of Heritage and its
Subsidiaries and the principal buildings and structures located thereon,
together with a legal description of such real estate, and each lease of real
property to which each of Heritage and its Subsidiaries is a party, identifying
the parties thereto, the annual rental payable, the expiration date thereof and
a brief description of the property covered, and in each case of either owned or
leased real property, the proper identification, if applicable, of each such
property as a branch or main office or other office of Heritage or its
Subsidiaries;
(b) each Applicable Contract (other than with respect to a loan
made in the Ordinary Course of Business) that involves performance of services
or delivery of goods or materials by Heritage or any of its Subsidiaries of an
amount or value in excess of $100,000;
(c) each Applicable Contract that was not entered into in the
Ordinary Course of Business and that involves expenditures or receipts of
Heritage or any of its Subsidiaries in excess of $100,000;
(d) each lease, rental, license, installment and conditional
sale agreement and other Applicable Contract affecting the ownership of, leasing
of, title to, use of, or any personal property (except financing leases entered
into in the Ordinary Course of Business, and except for personal property leases
and installment and conditional sales agreements having a value per item or
aggregate payments of less than $100,000 and with terms of less than one year);
(e) each licensing agreement or other Applicable Contract with
respect to patents, trademarks, copyrights, or other intellectual property, but
not including any software commercially available from retail outlets
(collectively, "Heritage Intellectual Property Assets"), including agreements
with current or former employees, consultants or contractors regarding the
appropriation or the non-disclosure of any of the Heritage Intellectual Property
Assets of Heritage or any of its Subsidiaries;
(f) each collective bargaining agreement and other Applicable
Contract to or with any labor union or other employee representative of a group
of employees;
(g) each joint venture, partnership, and other Applicable
Contract (however named) involving a sharing of profits, losses, costs or
liabilities by Heritage or any of its Subsidiaries
27
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with any other Person;
(h) each Applicable Contract containing covenants that in any way
purport to restrict the business activity of Heritage or any of its Subsidiaries
or limit the freedom of Heritage or any of its Subsidiaries to engage in any
line of business or to compete with any Person;
(i) each Applicable Contract providing for payments to or by any
Person based on sales, purchases, or profits, other than direct payments for
goods;
(j) any employment agreement or arrangement with any director,
officer or employee of each of Heritage and its Subsidiaries;
(k) each profit sharing, group insurance, hospitalization, stock
option, pension, retirement, bonus, deferred compensation, stock bonus, stock
purchase or other employee welfare or benefit agreements, plans or arrangements
established, maintained, sponsored or undertaken by Heritage or any of its
Subsidiaries for the benefit of the officers, directors or employees of Heritage
or any of its Subsidiaries, including each trust or other agreement with any
custodian or any trustee for funds held under any such agreement, plan or
arrangement, and all other Contracts or arrangements under which pensions,
deferred compensation or other retirement benefits are being paid or may become
payable by Heritage or any of its Subsidiaries for the benefit of the employees
of Heritage or any of its Subsidiaries (collectively, the "Heritage Employee
Benefit Plans"), and, in respect to any of them, the latest reports or forms, if
any, filed with the Department of Labor and Pension Benefit Guaranty Corporation
under ERISA, any current financial or actuarial reports and any currently
effective IRS private rulings or determination letters obtained by or for the
benefit of Heritage or any of its Subsidiaries;
(l) each Applicable Contract entered into other than in the
Ordinary Course of Business that contains or provides for an express undertaking
by Heritage or any of its Subsidiaries to be responsible for special or
consequential damages;
(m) each Applicable Contract for the purchase of a depreciable or
amortizable capital asset with a purchase price in excess of $250,000;
(n) each written warranty, guaranty or other similar undertaking
with respect to contractual performance extended by Heritage or any of its
Subsidiaries other than in the Ordinary Course of Business; and
(o) each amendment, supplement and modification (whether oral or
written) in respect of any of the foregoing.
Copies of each document, plan or Contract listed and described on Schedule
4.18 are appended to such Schedule.
SECTION 4.19 NO DEFAULTS. Except as set forth in Schedule 4.19, each
-----------
material Contract
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identified or required to be identified in Schedule 4.18 is in full force and
effect and is valid and enforceable in accordance with its terms. Each of
Heritage and its Subsidiaries is, and at all times since January 1, 1994, has
been, in full compliance with all applicable terms and requirements of each
Contract under which any of Heritage or its Subsidiaries has or had any
obligation or liability or by which Heritage or any of its Subsidiaries or any
of the respective assets owned or used by them is or was bound where the failure
to be in such full compliance had, or would reasonably be expected to have, a
Material Adverse Effect on Heritage. To the Knowledge of Heritage, each other
Person that has or had any obligation or liability under any Contract under
which Heritage or any of its Subsidiaries has or had any rights is, and at all
times since January 1, 1994, has been, in full compliance with all applicable
terms and requirements of such Contract where the failure to be in such full
compliance had, or would reasonably be expected to have, a Material Adverse
Effect on Heritage. No event has occurred or circumstance exists that (with or
without notice or lapse of time) may contravene, conflict with, or result in a
violation or breach of, or give Heritage, any of its Subsidiaries or any other
Person the right to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel, terminate, or modify,
any Applicable Contract, any of which would reasonably be expected to have a
Material Adverse Effect on Heritage. Neither Heritage nor any of its
Subsidiaries has given to or received from any other Person, at any time since
January 1, 1994, any notice or other communication (whether oral or written)
regarding any actual, alleged, possible, or potential violation or breach of, or
default under, any Contract where such violation, breach or default had, or
would reasonably be expected to have, a Material Adverse Effect on Heritage.
Other than in the Ordinary Course of Business in connection with workouts and
restructured loans, there are no renegotiations of, attempts to renegotiate, or
outstanding rights to renegotiate any material amounts paid or payable to
Heritage or any of the Subsidiaries under current or completed Contracts with
any Person and no such Person has made written demand for such renegotiation.
SECTION 4.20 INSURANCE. Schedule 4.20 lists and briefly describes the
---------
policies of insurance (including bankers blanket bond and insurance providing
benefits for employees) owned or held by Heritage or any of its Subsidiaries on
the date hereof. Each such policy is, and Heritage will use its Best Efforts to
keep each such policy, in full force and effect (except for any expiring policy
which is replaced by coverage at least as extensive) until the Closing. All
premiums due on such policies have been paid.
SECTION 4.21 COMPLIANCE WITH ENVIRONMENTAL LAWS. (a) Except as set forth
----------------------------------
on Schedule 4.21, there are no actions, suits, investigations, liabilities,
inquiries, Proceedings or Orders involving Heritage or any of its Subsidiaries
or any of their respective assets that are pending or, to the Knowledge of
Heritage, Threatened, nor to the Knowledge of Heritage is there any factual
basis for any of the foregoing, as a result of any asserted failure of Heritage
or any of its Subsidiaries, or any predecessor thereof, to comply (or the
assertion of liability even if in compliance) with any Legal Requirements
designed to minimize, prevent, punish or remedy the consequences of actions that
damage or threaten the soil, land surface or subsurface strata, surface waters
(including navigable waters, oceans waters, streams, ponds, drainage basins and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life and any other environmental medium
or natural resource, any of which would reasonably be expected to have a
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Material Adverse Effect on Heritage.
(b) With respect to the real estate owned (including other real estate
owned) or leased by Heritage or any of its Subsidiaries (the "Heritage
Premises"), to the Knowledge of Heritage: (i) no part of the Heritage Premises
has been used for the generation, manufacture, handling, storage or disposal of
Hazardous Substances (as defined below); (ii) except as disclosed in Schedule
4.21, the Heritage Premises do not contain, and have never contained, an
underground storage tank; and (iii) the Heritage Premises do not contain and are
not contaminated by any material quantity of a Hazardous Substance from any
source. For purposes of this Agreement, "Hazardous Substance" has the meaning
set forth in Section 9601 of the Comprehensive Environmental Response
Compensation and Liability Act of 1980, 42 U.S.C.A., (S)9601 et seq., and also
includes any substance now or hereafter regulated by or subject to any
Environmental Laws (as defined below) and any other pollutant, contaminant or
waste, including, petroleum, asbestos, fiberglass, radon and polychlorinated
biphenyls. For purposes of this Agreement, "Environmental Laws" means all laws
(civil or common), ordinances, rules, regulations, guidelines and orders that:
(w) regulate air, water, soil and solid waste management, including the
generation, release, containment, storage, handling, transportation, disposition
or management of any Hazardous Substance; (x) regulate or prescribe requirements
for air, water or soil quality; (y) are intended to protect public health or the
environment; or (z) establish liability for the investigation, removal or
cleanup of, or damage caused by, any Hazardous Substance.
SECTION 4.22 REGULATORY FILINGS. Since January 1, 1996, each of Heritage
------------------
and its Subsidiaries has filed in a timely manner all required filings with all
Regulatory Authorities, including the Securities and Exchange Commission (the
"SEC"), the Federal Reserve, the Federal Deposit Insurance Corporation and the
Commissioner. To the Knowledge of Heritage, all such filings were accurate and
complete in all material respects as of the dates of the filings, and no such
filing has made any untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading.
SECTION 4.23 FIDUCIARY POWERS. Each of the Subsidiaries of Heritage has
----------------
properly administered all accounts for which it acts as fiduciary, including
accounts for which it serves as trustee, agent, custodian or investment advisor,
in accordance with the terms of the governing documents and applicable state and
federal law and regulations and common law where the failure to so administer
such accounts would reasonably be expected to have a Material Adverse Effect.
None of the Subsidiaries of Heritage or any of its respective directors,
officers or employees has committed any breach of trust with respect to any such
fiduciary account, and the accountings for each such fiduciary account are true
and correct in all material respects and accurately reflect the assets of such
fiduciary account, where any such failures or inaccuracies would reasonably be
expected to have a Material Adverse Effect.
SECTION 4.24 DISCLOSURE. No representation or warranty of Heritage in
----------
this Agreement omits to state a material fact necessary to make the statements
herein or therein, in light of the circumstances in which they were made, not
misleading. No notice given pursuant to Section 6.6 will contain any untrue
statement or omit to state a material fact necessary to make the statements
therein or in this Agreement, in light of the circumstances in which they were
made, not misleading.
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SECTION 4.25 BROKERAGE COMMISSIONS. Except as set forth on Schedule
---------------------
4.25, none of Heritage or any of its Subsidiaries or any of their respective
Representatives has incurred any obligation or liability, contingent or
otherwise, for brokerage or finders' fees or agents' commissions or other
similar payment in connection with this Agreement.
SECTION 4.26 APPROVAL DELAYS. To the Knowledge of Heritage, there is no
---------------
reason why the granting of any of the regulatory approvals referred to in
Section 7.4 would be denied or unduly delayed.
SECTION 4.27 ALLOWANCE FOR LOAN AND LEASE LOSSES. The allowance for loan
-----------------------------------
and lease losses shown on the Heritage Financial Statement, dated as of December
31, 1996 (and as shown on any Subsequent Heritage Financial Statement), to the
Knowledge of Heritage, as of such date was (and will be as of the date of each
such Subsequent Heritage Financial Statement) adequate in all material respects
to provide for possible or specific losses, net of recoveries relating to loans
previously charged off, on loans outstanding, and contained an additional amount
of unallocated reserves for unanticipated future losses at a level considered
adequate under the standards applied by applicable Regulatory Authorities and
based upon generally accepted accounting practices applicable to financial
institutions. To the Knowledge of Heritage, the aggregate principal amount of
loans contained (or that will be contained) in the loan portfolio of Heritage as
of December 31, 1996 (and as of the date of any Subsequent Heritage Financial
Statement), in excess of such reserve, was (and will be) fully collectible.
SECTION 4.28 INDEMNIFICATION. To the Knowledge of Heritage, except as
---------------
set forth in Schedule 4.28, no action or failure to take action by any director,
officer, employee or agent of Heritage or any of its Subsidiaries has occurred
which would give rise to a claim or a potential claim by any such person for
indemnification from Heritage or any of its Subsidiaries under the corporate
indemnification provisions of Heritage or any of its Subsidiaries in effect on
the date of this Agreement.
SECTION 4.29 INSIDER INTERESTS. All outstanding loans and other
-----------------
contractual arrangements (including deposit relationships) between Heritage or
any of its Subsidiaries and any officer, director or employee of Heritage or any
of its Subsidiaries conform in all material respects to the applicable rules and
regulations and requirements of all Regulatory Authorities which were in effect
when such loans and other contractual arrangements were entered into. Except as
disclosed in Heritage's most recent proxy statement to its shareholders, no
officer, director or employee of Heritage or any of its Subsidiaries has any
Material Interest in any property, real or personal, tangible or intangible,
used in or pertaining to the business of Heritage or any of its Subsidiaries.
SECTION 4.30 POOLING AND TAX. To the Knowledge of Heritage, neither it
---------------
nor any of its Subsidiaries has engaged in any act that would preclude or
adversely affect the Merger from qualifying for pooling of interests accounting
treatment or as a tax-free reorganization under Section 368(a) of the Code, and,
to the Knowledge of Heritage, there is no basis or reason why the conditions set
forth in Sections 8.12 and 9.11 will not be satisfied.
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SECTION 4.31 STAY BONUS PLAN. Heritage has established a "stay bonus"
---------------
plan pursuant to which Heritage may offer cash payments to such employees of
Heritage and its Subsidiaries as it may choose in an effort to induce such
employees to remain in the employment of Heritage or any of its Subsidiaries,
but under the terms of which the aggregate payments made by Heritage may not
exceed $1,000,000 (the "Stay Bonus Plan").
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror hereby represents and warrants to Heritage as follows:
SECTION 5.1 ACQUIROR ORGANIZATION. Acquiror: (a) is a corporation duly
---------------------
organized, validly existing and in good standing under the laws of the State of
Delaware, and in good standing under the laws of the State of Illinois and in
each other jurisdiction in which the nature of the business conducted or the
properties or assets owned or leased by it makes such qualification necessary
and where the failure to be so qualified would reasonably be expected to have a
Material Adverse Effect on Acquiror; (b) is registered with the Federal Reserve
as a bank holding company under the BHCA; (c) has full power and authority,
corporate and otherwise, to operate as a bank holding company and to own,
operate and lease its properties as presently owned, operated and leased, and to
carry on its business as it is now being conducted; and (d) owns no voting stock
or equity securities of any corporation, association, partnership or other
entity, other than all of the issued and outstanding stock of the entities
listed on Schedule 5.1.
SECTION 5.2 SUBSIDIARIES' ORGANIZATION. Each of Acquiror's Subsidiaries
--------------------------
is duly organized, validly existing and in good standing under the laws of the
respective jurisdiction of their incorporation or formation. Each of Acquiror's
Subsidiaries has full power and authority, corporate and otherwise, to own,
operate and lease its respective properties as presently owned, operated and
leased, and to carry on its respective business as it is now being conducted.
The copies of the certificate or articles of incorporation or charter, bylaws or
any other document of formation or governance of Acquiror's Subsidiaries and all
amendments thereto are complete and correct and set forth on Schedule 5.2.
SECTION 5.3 AUTHORIZATION; ENFORCEABILITY. (a) Each of Acquiror and
-----------------------------
Acquisition Corp has the requisite corporate power and authority to enter into
and perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement by Acquiror and Acquisition Corp, and the
consummation by each of them of their respective obligations under this
Agreement, have been authorized by all necessary corporate action (except for
the approval by the stockholders of Acquiror), and this Agreement, subject to
the receipt of such stockholder approval and all required regulatory approvals,
constitutes a legal, valid and binding obligation of Acquiror and Acquisition
Corp enforceable in accordance with its terms, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization or other laws and subject to
general principles of equity.
(b) Except as set forth on Schedule 5.3 and except for ordinary corporate
requirements,
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no "business combination," "moratorium," "control share" or other state anti-
takeover statute or regulation or any provision contained in the certificate of
incorporation or bylaws of Acquiror: (i) prohibits or restricts Acquiror's
ability to perform its obligations under this Agreement or its ability to
consummate the transactions contemplated hereby; (ii) would have the effect of
invalidating or voiding this Agreement or any provision hereof; or (iii) would
subject Acquiror to any material impediment or condition in connection with the
exercise of any of its rights under this Agreement. Not less than 66-2/3% of the
members of the Board of Directors of Acquiror has approved the execution of this
Agreement.
SECTION 5.4 NO CONFLICT. Except as set forth on Schedule 5.4 and except
-----------
where the occurrence of any of the following would not reasonably be expected to
have a Material Adverse Effect on Acquiror, neither the execution nor delivery
of this Agreement nor the consummation or performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time): (a) contravene, conflict with, or result in a violation of any provision
of the articles of incorporation or charter, and the bylaws, of Acquiror or any
of its Subsidiaries, or any resolution adopted by the board of directors or
shareholders of Acquiror or any of its Subsidiaries; (b) contravene, conflict
with, or result in a violation of, or give any Regulatory Authority or other
Person the valid and enforceable right to challenge any of the Contemplated
Transactions or to exercise any remedy or obtain any relief under, any Legal
Requirement or any Order to which Acquiror or any of its Subsidiaries, or any of
their respective assets that are owned or used by them, may be subject, other
than any of the foregoing that would be satisfied by compliance with the
provisions of the BHCA, the IBHCA, the Securities Act, the Exchange Act, the
Illinois Act and the Illinois BCA; (c) contravene, conflict with, or result in a
violation or breach of any provision of, or give any Person the right to declare
a default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any material Applicable
Contract to which Acquiror or any of its Subsidiaries is a party or by which any
of their respective assets is bound; or (d) result in the creation of any lien,
charge or encumbrance upon or with respect to any of the assets owned or used by
Acquiror or any of its Subsidiaries. Except as contemplated by clause (b) of
this Section and as set forth in Schedule 5.4, neither Acquiror nor any of its
Subsidiaries is or will be required to give any notice to or obtain any consent
from any Person in connection with the execution and delivery of this Agreement
or the consummation or performance of any of the Contemplated Transactions.
SECTION 5.5 ACQUIROR CAPITALIZATION. The authorized capital stock of
-----------------------
Acquiror consists exclusively of: (a) 30,000,000 common shares, $.01 par value
per share, of which (i) 20,072,442 shares were duly issued and outstanding,
fully paid and non-assessable; (ii) 964,935 shares were issuable under the
outstanding option agreements described on Schedule 5.5; and (iii) 664,707
shares were held by Acquiror as treasury stock, all as of December 31, 1997; and
(b) 1,000,000 preferred shares, no par value per share, none of which shares is
issued or outstanding, but 300,000 of which are reserved for issuance under the
Rights Plan. Except as set forth in this Section: (x) there are no unexpired
or pending preemptive rights with respect to any shares of capital stock of
Acquiror; (y) there are no outstanding securities of Acquiror which are
convertible into or exchangeable for any shares of Acquiror's capital stock; and
(z) Acquiror is not a party to any Contract relating to the issuance, sale or
transfer of any equity securities or other securities of Acquiror. None of the
shares
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of Acquiror Common Stock were issued in violation of any federal or state
securities laws or any other Legal Requirement. Acquiror does not own or have
any Contract to acquire, any equity securities or other securities of any Person
or any direct or indirect equity or ownership interest in any other business
except as set forth on Schedule 5.5.
SECTION 5.6 SUBSIDIARY CAPITALIZATION. All of the issued and
-------------------------
outstanding shares of capital stock of Acquiror's Subsidiaries are, and
immediately prior to the Closing will be, duly authorized, validly issued and
outstanding, fully paid and nonassessable (collectively, the "Acquiror
Subsidiary Shares"). Except as set forth on Schedule 5.6, Acquiror is and will
be on the Closing Date the record and beneficial owner of 100% of the Acquiror
Subsidiary Shares, free and clear of any lien or encumbrance whatsoever. The
Acquiror Subsidiary Shares are and will be on the Closing Date freely
transferable and are and will be on the Closing Date subject to no claim of
right except pursuant to this Agreement. There are no unexpired or pending
preemptive rights with respect to any shares of capital stock of Acquiror's
Subsidiaries. There are no outstanding securities of any of Acquiror's
Subsidiaries which are convertible into or exchangeable for any shares of the
capital stock of any of Acquiror's Subsidiaries nor is any of Acquiror's
Subsidiaries a party to any Contract relating to the issuance, sale or transfer
of any equity securities or other securities of any of Acquiror's Subsidiaries.
None of the Acquiror Subsidiary Shares was issued in violation of any federal or
state securities laws or any other Legal Requirement. None of Acquiror's
Subsidiaries owns or has any Contract to acquire, any equity securities or other
securities of any Person or any direct or indirect equity or ownership interest
in any other business except as set forth on Schedule 5.6.
SECTION 5.7 FINANCIAL STATEMENTS AND REPORTS. True, correct and
--------------------------------
complete copies of the following financial statements of Acquiror are included
in Schedule 5.7:
(a) for each of the years ended December 31, 1994, 1995 and
1996, Consolidated Balance Sheets and the related Statements of Income,
Statements of Changes in Stockholders' Equity and Statements of Cash Flows, and
the footnotes thereto; and
(b) for each of the quarters ended March 31, June 30 and
September 30, 1997, the Consolidated Balance Sheets and the related Statements
of Income, Statements of Changes in Stockholders' Equity and Statements of Cash
Flows, and the footnotes thereto.
The financial statements described in clause (a) above are audited
statements and have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis. The financial statements
described in clause (b) above have been prepared on a basis consistent with past
accounting practices and as required by applicable rules or regulations and
fairly present the consolidated financial condition and results of operations at
the dates and for the periods presented, subject to year-end audit adjustments
(which changes in the aggregate would not reasonably be expected to have a
Material Adverse Effect on Acquiror). Taken together, the financial statements
described in clauses (a) and (b) above (collectively, the "Acquiror Financial
Statements") fairly and accurately present in all material respects the
respective financial position, assets, liabilities and results of operations of
Acquiror and its Subsidiaries as at the respective dates of and for the periods
referred to in the Acquiror Financial Statements.
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SECTION 5.8 BOOKS AND RECORDS. The books of account, minute books,
-----------------
stock record books and other records of Acquiror and its Subsidiaries are
complete and correct in all material respects, and have been maintained in
accordance with sound business practices and all material applicable Legal
Requirements, including the maintenance of any adequate system of internal
controls. The minute books of Acquiror and its Subsidiaries contain accurate and
complete records in all material respects of all meetings held of, and corporate
action taken by, the shareholders, the board of directors, and committees of the
board of directors of Acquiror and its Subsidiaries, respectively. At the
Closing, all of those books and records will be in the possession of Acquiror or
its Subsidiaries.
SECTION 5.9 TITLE TO PROPERTIES. Each of Acquiror and its Subsidiaries
-------------------
has good and marketable title to all assets and properties, whether real or
personal, tangible or intangible, which it purports to own and which it
depreciates or amortizes for purposes of its federal Tax Returns (including the
other real estate owned), subject to no liens, mortgages, security interests,
encumbrances or charges of any kind except: (a) as noted in the most recent
Acquiror Financial Statement or on Schedule 5.9; (b) statutory liens for Taxes
not yet delinquent or being contested in good faith by appropriate Proceedings
and for which appropriate reserves have been established and reflected on the
Acquiror Financial Statements; (c) pledges or liens required to be granted in
connection with the acceptance of government deposits, granted in connection
with repurchase or reverse repurchase agreements or otherwise incurred in the
Ordinary Course of Business; and (d) minor defects and irregularities in title
and encumbrances which do not materially impair the use thereof for the purposes
for which they are held and which would not reasonably be expected to have a
Material Adverse Effect on Acquiror. Each of Acquiror and its Subsidiaries as
lessee has the right under valid and existing leases to occupy, use, possess and
control any and all of the respective material property leased by it. All
buildings and structures owned by each of Acquiror and its Subsidiaries lie
wholly within the boundaries of the real property owned or validly leased by it
and do not encroach upon the property of, or otherwise conflict with the
property rights of, any other Person, except where any such encroachment would
not reasonably be expected to have a Material Adverse Effect on Acquiror.
SECTION 5.10 CONDITION AND SUFFICIENCY OF ASSETS. The material
-----------------------------------
buildings, structures and equipment of Acquiror and its Subsidiaries are
structurally sound, are in good operating condition and repair, and are adequate
for the uses to which they are being put, and none of such buildings, structures
or equipment is in need of maintenance or repairs except for ordinary, routine
maintenance and repairs that are not material in the aggregate in nature or in
cost. The buildings, structures and equipment of Acquiror and its Subsidiaries
are sufficient for the continued conduct of the business of Acquiror and its
Subsidiaries after the Closing in substantially the same manner as conducted
prior to the Closing.
SECTION 5.11 UNDISCLOSED LIABILITIES; ADVERSE CHANGES. Except as set
----------------------------------------
forth in Schedule 5.11, neither Acquiror nor any of its Subsidiaries has any
material liabilities or obligations of any nature (whether known or unknown and
whether absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against in the Acquiror Financial Statements
and current liabilities incurred in the Ordinary Course of Business since the
respective dates thereof. Since the date of the latest Acquiror Financial
Statement, no event has occurred or circumstance
35
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exists that would reasonably be expected to result in a Material Adverse Effect
on Acquiror and no facts or circumstances have been discovered by Acquiror from
which it appears that there is a significant risk and reasonable probability
that Acquiror will suffer a Material Adverse Effect.
SECTION 5.12 TAXES. (a) Each of Acquiror and its Subsidiaries has duly
-----
filed or will duly file all Tax Returns required to be filed by it for all
periods prior to the Closing Date, and each such Tax Return is complete and
accurate in all material respects. Each of Acquiror and its Subsidiaries has
paid, or made adequate provision for the payment of, all Taxes (whether or not
reflected in Tax Returns as filed or to be filed) due and payable by Acquiror or
any of its Subsidiaries, or claimed to be due and payable by any Regulatory
Authority, by setting up adequate reserves therefor, and is not delinquent in
the payment of any Tax, except such Taxes as are being contested in good faith
and as to which adequate reserves have been provided. There is no material
claim or assessment pending or, to the Knowledge of Acquiror, Threatened against
Acquiror or any of its Subsidiaries for any material Taxes owed by any of them.
No audit, examination or investigation related to Taxes paid or payable by
Acquiror or any of its Subsidiaries is presently being conducted or, to
Acquiror's Knowledge, Threatened by any Regulatory Authority. Acquiror has
delivered to Acquiror true, correct and complete copies of all Tax Returns
previously filed by each of Acquiror and its Subsidiaries and any tax
examination reports and statements of deficiencies assessed or agreed to for
Acquiror or any of its Subsidiaries with respect to the last three fiscal years.
Deferred taxes of Acquiror have been accounted for in accordance with generally
accepted accounting principles. Neither Acquiror nor any of its Subsidiaries is,
or has been, a party to any tax allocation agreement or arrangement pursuant to
which it has any contingent or outstanding liability to any Person other than
Acquiror or any of its Subsidiaries.
(b) Except where any of the following would not reasonably be
expected to result in a Material Adverse Effect on Acquiror, each of Acquiror
and its Subsidiaries has withheld amounts from its employees, shareholders or
holders of public deposit accounts in compliance with the tax withholding
provisions of applicable federal, state and local laws, has filed all federal,
state and local returns and reports for all years for which any such return or
report would be due with respect to employee income tax withholding, social
security, unemployment taxes, income and other taxes and all payments or
deposits with respect to such taxes have been timely made and, except as set
forth in Schedule 5.12, has notified all employees, stockholders and holders of
public deposit accounts of their obligations to file all forms, statements or
reports with it in accordance with applicable federal, state and local tax laws
and has taken reasonable steps to insure that such employees, shareholders and
holders of public deposit accounts have filed all such forms, statements and
reports with it.
SECTION 5.13 COMPLIANCE WITH ERISA. (a) Except as set forth on Schedule
---------------------
5.13, all employee benefit plans (as defined in Section 3(3) of ERISA)
established or maintained by Acquiror or any of its Subsidiaries or to which
Acquiror or any of its Subsidiaries contributes, are in compliance in all
material respects with all applicable requirements of ERISA, and are in
compliance in all material respects with all applicable requirements (including
qualification and non-discrimination requirements in effect as of the Closing)
of the Code for obtaining the tax benefits the Code thereupon permits with
respect to such employee benefit plans. For purposes of this Section, non-
compliance with the Code and ERISA is material if such non-compliance would
reasonably be
36
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expected to have a Material Adverse Effect on Acquiror. No such employee benefit
plan has, or as of the Closing will have, any amount of unfunded benefit
liabilities (as defined in Section 4001(a)(18) of ERISA) for which Acquiror or
any of its Subsidiaries would be liable to any Person under Title IV of ERISA if
any such employee benefit plan were terminated as of the Closing, which amounts
would be material to Acquiror or its Subsidiaries. Such employee benefit plans
are funded in accordance with Section 412 of the Code (if applicable). There
would be no obligations which would be material to Acquiror or any of its
Subsidiaries under Title IV of ERISA relating to any such employee benefit plan
that is a multi-employer plan if any such plan were terminated or if Acquiror or
any of its Subsidiaries withdrew from any such plan as of the Closing.
(b) Except as set forth in Schedule 5.13, Acquiror neither maintains
nor has entered into any Acquiror Employee Benefit Plan (as defined below) which
contains any change in control provisions which would cause an increase or
acceleration of benefits or benefit entitlements to employees or former
employees of Acquiror or any of its Subsidiaries or their respective
beneficiaries, or other provisions, which would cause an increase in the
liability of Acquiror or any of its Subsidiaries or of Acquiror as a result of
the Contemplated Transactions or any related action thereafter. All payments
and other compensation paid or payable by Acquiror or any of its Subsidiaries
under this Agreement, any Acquiror Employee Benefit Plan or otherwise, to or for
the benefit of any employee or director of Acquiror or any of its Subsidiaries,
are in compliance with all applicable rules, regulations and bulletins
promulgated by the Federal Deposit Insurance Corporation.
(c) Except as set forth in Schedule 5.13, each of the Acquiror
Employee Benefit Plans that is intended to be a pension, profit sharing, stock
bonus, thrift, savings or employee stock ownership plan that is qualified under
Section 401(a) of the Code ("Acquiror Qualified Plans") has been determined by
the Internal Revenue Service to qualify under Section 401(a) of the Code, or an
application for determination of such qualification has been timely made to the
Internal Revenue Service prior to the end of the applicable remedial amendment
period under Section 401(b) of the Code (a copy of each such determination
letter or pending application has been provided to Acquiror), and, to the
Knowledge of Acquiror, there exist no circumstances (other than circumstances
caused by transactions contemplated in this Agreement or any related actions)
likely to materially adversely affect the qualified status of any such Acquiror
Qualified Plan.
(d) There is no pending or, to the Knowledge of Acquiror, threatened
litigation or pending claim (other than benefit claims made in the ordinary
course) by or on behalf of or against any of the Acquiror Employee Benefit Plans
(or with respect to the administration of any of such plans) now or heretofore
maintained by Acquiror or any of its Subsidiaries which allege violations of
applicable state or federal law which are reasonably likely to result in a
Material Adverse Effect on Acquiror or any such plan.
(e) Schedule 5.13 describes any obligation that Acquiror or any of its
Subsidiaries has to provide health or welfare benefits to retirees or other
former employees, directors or their dependents (other than rights under Section
4980B of the Code or Section 601 of ERISA), including information as to the
number of retirees, other former employees or directors and dependents entitled
to such coverages and their ages.
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(f) All accrued contributions and other payments required to be
made by Acquiror to any Acquiror Employee Benefit Plan through the Closing Date
have been made or reserves adequate for such purposes have been set aside
therefor and reflected on the Acquiror Financial Statements.
(g) Acquiror has filed, and will continue to file in a timely
manner, all returns/reports and etc. pertaining to each Acquiror Employee
Benefit plan with the Internal Revenue Service, the Pension Benefit Guaranty
Corporation and the Department of Labor. All such filings, as amended, were and
will be complete and accurate in all material respects.
SECTION 5.14 COMPLIANCE WITH LEGAL REQUIREMENTS. Each of Acquiror and
----------------------------------
its Subsidiaries is, and at all times since January 1, 1994, has been, in
compliance with each Legal Requirement that is or was applicable to it or to the
conduct or operation of its respective businesses or the ownership or use of any
of its respective assets where the failure to so comply had, or would reasonably
be expected to have, a Material Adverse Effect on Acquiror. No event has
occurred or circumstance exists that (with or without notice or lapse of time):
(a) may constitute or result in a violation by Acquiror or any of its
Subsidiaries of, or a failure on the part of Acquiror or any of its Subsidiaries
to comply with, any Legal Requirement; or (b) may give rise to any obligation on
the part of Acquiror or any of its Subsidiaries to undertake, or to bear all or
any portion of the cost of, any remedial action of any nature, in either case of
such clauses (a) or (b) above, that would reasonably be expected to have a
Material Adverse Effect on Acquiror. Except as set forth on Schedule 5.14,
neither Acquiror nor any of its Subsidiaries has received, at any time since
January 1, 1994, any notice or other communication (whether oral or written)
from any Regulatory Authority or any other Person regarding: (x) any actual,
alleged, possible, or potential violation of, or failure to comply with, any
Legal Requirement; or (y) any actual, alleged, possible, or potential obligation
on the part of Acquiror or any of its Subsidiaries to undertake, or to bear all
or any portion of the cost of, any remedial action of any nature, in either case
of such clauses (x) or (y) above, that would reasonably be expected to have a
Material Adverse Effect on Acquiror.
SECTION 5.15 LEGAL PROCEEDINGS; ORDERS. Schedule 5.15 is a true and
-------------------------
correct list of all Proceedings and Orders pending, entered into or, to the
Knowledge of Acquiror, Threatened against or affecting Acquiror or any of its
Subsidiaries or any of their respective assets or businesses, or the
Contemplated Transactions, during the past three years which had, or would
reasonably be expected to have, a Material Adverse Effect on Acquiror, and there
is no fact known to Acquiror which would provide a basis for any Proceeding or
Order which could have such an effect. To the Knowledge of Acquiror, no
officer, director, agent, or employee of Acquiror or any of its Subsidiaries is
subject to any Order that prohibits such officer, director, agent, or employee
from engaging in or continuing any conduct, activity or practice relating to the
businesses of Acquiror or any of its Subsidiaries. Neither Acquiror nor any of
its Subsidiaries has received, at any time since January 1, 1994, any notice or
other communication (whether oral or written) from any Regulatory Authority or
any other Person regarding any actual, alleged, possible, or potential violation
of, or failure to comply with, any Legal Requirement to which Acquiror or any of
its Subsidiaries or any of their respective businesses or the assets owned or
used by them, is or has been subject where such violation or failure would
reasonably be expected to have a Material Adverse Effect on Acquiror.
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SECTION 5.16 ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set forth
-------------------------------------
in Schedule 5.16, since December 31, 1996, each of Acquiror and its Subsidiaries
has conducted its business only in the Ordinary Course of Business and with
respect to each there has not been any:
(a) change in the authorized or issued capital stock (except as
otherwise contemplated by this Agreement); grant of any stock option or right to
purchase shares of capital stock of Acquiror or its Subsidiaries (except in the
Ordinary Course of Business or otherwise in accordance with past compensation
practices); issuance of any security convertible into such capital stock or
evidences of indebtedness (except in connection with customer deposits); grant
of any registration rights; purchase, redemption, retirement or other
acquisition by Acquiror or any of its Subsidiaries of any shares of any such
capital stock; or declaration or payment of any dividend or other distribution
or payment in respect of shares of the capital stock of Acquiror or any of its
Subsidiaries (other than dividends paid by any of the Subsidiaries solely to
Acquiror or dividends paid by Acquiror to its stockholders in accordance with
past practice);
(b) amendment to the certificate or articles of incorporation or
charter, bylaws or any other document of formation or governance of Acquiror or
any of its Subsidiaries (except as otherwise contemplated by this Agreement);
(c) payment or increase by Acquiror or any of the Subsidiaries
of any bonuses, salaries or other compensation to any shareholder, director,
officer or employee (except for periodic payments or increases in the Ordinary
Course of Business or otherwise in accordance with past compensation practices)
or entry by Acquiror or any of its Subsidiaries into any employment, severance
or similar Contract with any director, officer or employee;
(d) adoption, material amendment (except for any amendment
necessary to comply with any Legal Requirement) or termination of, or increase
in the payments to or benefits under, any Acquiror Employee Benefit Plan (as
defined below);
(e) damage to or destruction or loss of any asset or property of
Acquiror or any of its Subsidiaries not covered by insurance that had, or would
reasonably be expected to have, a Material Adverse Effect on Acquiror;
(f) entry into, termination or extension of, or receipt of
notice of termination of any joint venture or similar agreement, or any material
Contract (other than relating to a loan made by any of Acquiror's banking
Subsidiaries in the Ordinary Course of Business) or transaction involving a
total remaining commitment by or to Acquiror or any of its Subsidiaries of at
least $2,000,000;
(g) material change in any existing material lease of real or
personal property;
(h) sale (other than any sale in the Ordinary Course of
Business), lease or other disposition of any material asset or property of
Acquiror or any of its Subsidiaries or mortgage, pledge or imposition of any
lien or other encumbrance on any material asset or property of Acquiror
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<PAGE>
or any of its Subsidiaries except for tax and other liens which arise by
operation of law and with respect to which payment is not past due, and except
for pledges or liens: (i) required to be granted in connection with the
acceptance by any of Acquiror's banking Subsidiaries of government deposits;
(ii) granted in connection with repurchase or reverse repurchase agreements; or
(iii) otherwise incurred in the Ordinary Course of Business;
(i) incurrence of any obligation or liability (fixed or
contingent) other than in the Ordinary Course of Business;
(j) cancellation or waiver of any claims or rights with a value
to Acquiror or any of its Subsidiaries in excess of $500,000 other than in the
Ordinary Course of Business;
(k) any investment in, or purchase of, a depreciable or
amortizable capital asset exceeding $500,000, or aggregate investments of a
capital nature exceeding $1,000,000 (other than in the Ordinary Course of
Business);
(l) transaction for the borrowing or loaning of monies, other
than in the Ordinary Course of Business;
(m) material change in the accounting methods used by Acquiror
or any of its Subsidiaries; or
(n) agreement, whether oral or written, by Acquiror or any of
its Subsidiaries to do any of the foregoing.
SECTION 5.17 PROPERTIES, CONTRACTS, EMPLOYEE BENEFIT PLANS AND OTHER
-------------------------------------------------------
AGREEMENTS. Schedule 5.17 lists or describes the following:
- ----------
(a) each Applicable Contract that was not entered into in the
Ordinary Course of Business and that involves expenditures or receipts of
Acquiror or any of its Subsidiaries in excess of $500,000;
(b) each collective bargaining agreement and other Applicable
Contract to or with any labor union or other employee representative of a group
of employees;
(c) each joint venture, partnership, and other Applicable
Contract (however named) involving a sharing of profits, losses, costs or
liabilities by Acquiror or any of its Subsidiaries with any other Person where
the investment of Acquiror or any of its Subsidiaries is in excess of $500,000;
(d) each Applicable Contract containing covenants that in any
way purport to restrict the business activity of Acquiror or any of its
Subsidiaries or limit the freedom of Acquiror or any of its Subsidiaries to
engage in any line of business or to compete with any Person;
40
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(e) any employment agreement or arrangement with any director,
officer or employee of each of Acquiror and its Subsidiaries;
(f) each profit sharing, group insurance, hospitalization, stock
option, pension, retirement, bonus, deferred compensation, stock bonus, stock
purchase or other employee welfare or benefit agreements, plans or arrangements
established, maintained, sponsored or undertaken by Acquiror or any of its
Subsidiaries for the benefit of the officers, directors or employees of Acquiror
or any of its Subsidiaries, including each trust or other agreement with any
custodian or any trustee for funds held under any such agreement, plan or
arrangement, and all other Contracts or arrangements under which pensions,
deferred compensation or other retirement benefits are being paid or may become
payable by Acquiror or any of its Subsidiaries for the benefit of the employees
of Acquiror or any of its Subsidiaries (collectively, the "Acquiror Employee
Benefit Plans"), and, in respect to any of them, the latest reports or forms, if
any, filed with the Department of Labor and Pension Benefit Guaranty Corporation
under ERISA, any current financial or actuarial reports and any currently
effective IRS private rulings or determination letters obtained by or for the
benefit of Acquiror or any of its Subsidiaries;
(g) each Applicable Contract entered into other than in the
Ordinary Course of Business that contains or provides for an express undertaking
by Acquiror or any of its Subsidiaries to be responsible for special or
consequential damages; and
(h) each amendment, supplement and modification (whether oral or
written) in respect of any of the foregoing.
SECTION 5.18 NO DEFAULTS. Except as set forth in Schedule 5.18, each
-----------
material Contract of Acquiror is in full force and effect and is valid and
enforceable in accordance with its terms. Each of Acquiror and its Subsidiaries
is, and at all times since January 1, 1994, has been, in full compliance with
all applicable terms and requirements of each Contract under which any of
Acquiror or its Subsidiaries has or had any obligation or liability or by which
Acquiror or any of its Subsidiaries or any of the respective assets owned or
used by them is or was bound where the failure to be in such full compliance
had, or would reasonably be expected to have, a Material Adverse Effect on
Acquiror. To the Knowledge of Acquiror, each other Person that has or had any
obligation or liability under any Contract under which Acquiror or any of its
Subsidiaries has or had any rights is, and at all times since January 1, 1994,
has been, in full compliance with all applicable terms and requirements of such
Contract where the failure to be in such full compliance had, or would
reasonably be expected to have, a Material Adverse Effect on Acquiror. No event
has occurred or circumstance exists that (with or without notice or lapse of
time) may contravene, conflict with, or result in a violation or breach of, or
give Acquiror, any of its Subsidiaries or any other Person the right to declare
a default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any Applicable Contract, any
of which would reasonably be expected to have a Material Adverse Effect on
Acquiror. Neither Acquiror nor any of its Subsidiaries has given to or received
from any other Person, at any time since January 1, 1994, any notice or other
communication (whether oral or written) regarding any actual, alleged, possible,
or potential violation or breach of, or default under, any Contract where such
violation, breach or default had, or would
41
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reasonably be expected to have, a Material Adverse Effect on Acquiror. Other
than in the Ordinary Course of Business in connection with workouts and
restructured loans, there are no renegotiations of, attempts to renegotiate, or
outstanding rights to renegotiate any material amounts paid or payable to
Acquiror or any of the Subsidiaries under current or completed Contracts with
any Person and no such Person has made written demand for such renegotiation.
SECTION 5.19 INSURANCE. Schedule 5.19 lists and briefly describes the
---------
policies of insurance (including bankers blanket bond and insurance providing
benefits for employees) owned or held by Acquiror or any of its Subsidiaries on
the date hereof. Each such policy is, and Acquiror will use its Best Efforts to
keep each such policy, in full force and effect (except for any expiring policy
which is replaced by coverage at least as extensive) until the Closing. All
premiums due on such policies have been paid.
SECTION 5.20 COMPLIANCE WITH ENVIRONMENTAL LAWS. (a) Except as set forth
----------------------------------
on Schedule 5.20, there are no actions, suits, investigations, liabilities,
inquiries, Proceedings or Orders involving Acquiror or any of its Subsidiaries
or any of their respective assets that are pending or, to the Knowledge of
Acquiror, Threatened, nor to the Knowledge of Acquiror is there any factual
basis for any of the foregoing, as a result of any asserted failure of Acquiror
or any of its Subsidiaries, or any predecessor thereof, to comply (or the
assertion of liability even if in compliance) with any Legal Requirements
designed to minimize, prevent, punish or remedy the consequences of actions that
damage or threaten the soil, land surface or subsurface strata, surface waters
(including navigable waters, oceans waters, streams, ponds, drainage basins and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life and any other environmental medium
or natural resource, any of which would reasonably be expected to have a
Material Adverse Effect on Acquiror.
(b) With respect to the real estate owned (including other real
estate owned) or leased by Acquiror or any of its Subsidiaries (the "Acquiror
Premises"), to the Knowledge of Acquiror: (i) no part of the Acquiror Premises
has been used for the generation, manufacture, handling, storage or disposal of
Hazardous Substances; (ii) except as disclosed in Schedule 5.20, the Acquiror
Premises do not contain, and have never contained, an underground storage tank;
and (iii) the Acquiror Premises do not contain and are not contaminated by any
material quantity of a Hazardous Substance from any source.
SECTION 5.21 REGULATORY FILINGS. Since January 1, 1996, each of Acquiror
------------------
and its Subsidiaries has filed in a timely manner all required filings with all
Regulatory Authorities, including the SEC, the Federal Reserve, the Federal
Deposit Insurance Corporation, the Office of the Comptroller of the Currency,
the Office of Thrift Supervision and the Commissioner. To the Knowledge of
Acquiror, all such filings were accurate and complete in all material respects
as of the dates of the filings, and no such filing has made any untrue statement
of a material fact or omitted to state a material fact necessary in order to
make the statements made, in light of the circumstances under which they were
made, not misleading.
SECTION 5.22 FIDUCIARY POWERS. Each of the Subsidiaries of Acquiror has
----------------
properly
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administered all accounts for which it acts as fiduciary, including accounts for
which it serves as trustee, agent, custodian or investment advisor, in
accordance with the terms of the governing documents and applicable state and
federal law and regulations and common law where the failure to so administer
such accounts would reasonably be expected to have a Material Adverse Effect.
None of the Subsidiaries of Acquiror or any of its respective directors,
officers or employees has committed any breach of trust with respect to any such
fiduciary account, and the accountings for each such fiduciary account are true
and correct in all material respects and accurately reflect the assets of such
fiduciary account, where any such failures or inaccuracies would reasonably be
expected to have a Material Adverse Effect.
SECTION 5.23 DISCLOSURE. No representation or warranty of Acquiror in
----------
this Agreement omits to state a material fact necessary to make the statements
herein or therein, in light of the circumstances in which they were made, not
misleading. No notice given pursuant to Section 7.8 will contain any untrue
statement or omit to state a material fact necessary to make the statements
therein or in this Agreement, in light of the circumstances in which they were
made, not misleading.
SECTION 5.24 BROKERAGE COMMISSIONS. None of Acquiror or any of its
---------------------
Subsidiaries or any of their respective Representatives has incurred any
obligation or liability, contingent or otherwise, for brokerage or finders' fees
or agents' commissions or other similar payment in connection with this
Agreement.
SECTION 5.25 APPROVAL DELAYS. To the Knowledge of Acquiror, there is no
---------------
reason why the granting of any of the regulatory approvals referred to in
Section 7.4 would be denied or unduly delayed.
SECTION 5.26 ALLOWANCE FOR LOAN AND LEASE LOSSES. The allowance for loan
-----------------------------------
and lease losses shown on the Acquiror Financial Statement, dated as of December
31, 1996 (and as shown on any Subsequent Acquiror Financial Statement), to the
Knowledge of Acquiror, as of such date was (and will be as of the date of each
such Subsequent Acquiror Financial Statement) adequate in all material respects
to provide for possible or specific losses, net of recoveries relating to loans
previously charged off, on loans outstanding, and contained an additional amount
of unallocated reserves for unanticipated future losses at a level considered
adequate under the standards applied by applicable Regulatory Authorities and
based upon generally accepted accounting practices applicable to financial
institutions. To the Knowledge of Acquiror, the aggregate principal amount of
loans contained (or that will be contained) in the loan portfolio of Acquiror as
of December 31, 1996 (and as of the date of any Subsequent Acquiror Financial
Statement), in excess of such reserve, was (and will be) fully collectible.
SECTION 5.27 INDEMNIFICATION. To the Knowledge of Acquiror, except as
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set forth in Schedule 5.27, no action or failure to take action by any director,
officer, employee or agent of Acquiror or any of its Subsidiaries has occurred
which would give rise to a claim or a potential claim by any such person for
indemnification from Acquiror or any of its Subsidiaries under the corporate
indemnification provisions of Acquiror or any of its Subsidiaries in effect on
the date of this Agreement.
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SECTION 5.28 INSIDER INTERESTS. All outstanding loans and other
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contractual arrangements (including deposit relationships) between Acquiror or
any of its Subsidiaries and any officer, director or employee of Acquiror or any
of its Subsidiaries conform in all material respects to the applicable rules and
regulations and requirements of all Regulatory Authorities which were in effect
when such loans and other contractual arrangements were entered into. Except as
disclosed in Acquiror's most recent proxy statement to its stockholders, no
officer, director or employee of Acquiror or any of its Subsidiaries has any
Material Interest in any property, real or personal, tangible or intangible,
used in or pertaining to the business of Acquiror or any of its Subsidiaries.
SECTION 5.29 POOLING AND TAX. To the Knowledge of Acquiror, neither it
---------------
nor any of its Subsidiaries has engaged in any act that would preclude or
adversely affect the Merger from qualifying for pooling of interests accounting
treatment or as a tax-free reorganization under Section 368(a) of the Code, and,
to the Knowledge of Acquiror, there is no basis or reason why the conditions set
forth in Sections 8.12 and 9.11 will not be satisfied.
ARTICLE 6
HERITAGE'S COVENANTS
SECTION 6.1 ACCESS AND INVESTIGATION. (a) Acquiror and its
------------------------
Representatives shall, at all times during normal business hours and with
reasonable advance notice prior to the Closing Date, have full and continuing
access to the facilities, operations, records and properties of Heritage and its
Subsidiaries in accordance with the provisions of this Section. Acquiror and its
Representatives may, prior to the Closing Date, make or cause to be made such
reasonable investigation of the operations, records and properties of each of
Heritage and its Subsidiaries and of their respective financial and legal
condition as Acquiror shall deem necessary or advisable to familiarize itself
with such records, properties and other matters; provided, that such access or
investigation shall not interfere unnecessarily with the normal operations of
Heritage and its Subsidiaries. Upon request, each of Heritage and its
Subsidiaries will furnish to Acquiror or its Representatives, attorneys'
responses to auditors' requests for information regarding Heritage or any of its
Subsidiaries, as the case may be, and such financial and operating data and
other information reasonably requested by Acquiror (provided with respect to
attorneys, such disclosure would not result in the waiver by Heritage or any of
its Subsidiaries of any claim of attorney-client privilege), and will permit
Acquiror or its Representatives to discuss such information directly with any
individual or firm performing auditing or accounting functions for Heritage or
any of its Subsidiaries, and such auditors and accountants shall be directed to
furnish copies of any reports or financial information as developed to Acquiror
or its Representatives. No investigation by Acquiror shall affect the
representations and warranties made by Heritage in this Agreement. This Section
shall not require the disclosure of any information the disclosure of which to
Acquiror would be prohibited by law.
(b) Heritage shall allow a representative of Acquiror to attend
as an observer: (i) all meetings of the Board of Directors of Heritage and its
Subsidiaries; and (ii) all meetings of the committees of each such Board,
including without limitation the audit and executive committees thereof, except
for any such meeting if and to the extent that any amendment to this
Agreement or
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the Stock Option Agreement or the merits of any Acquisition Transaction
described in Section 6.7 hereof is discussed. Heritage shall give reasonable
notice to Acquiror of any such meeting and, if known, the agenda for or business
to be discussed at such meeting. Heritage shall provide to Acquiror all
information provided to the directors on all such Boards and committees in
connection with all such meetings or otherwise provided to the directors. It is
understood by the parties that Acquiror's representative will not have any
voting rights with respect to matters discussed at these meetings and that
Acquiror is not managing the business or affairs of Heritage. All information
obtained by Acquiror at these meetings shall be treated in confidence as
provided in Section 11.6.
SECTION 6.2 OPERATIONS OF HERITAGE. Between the date of this Agreement
----------------------
and the Closing Date, Heritage will, and will cause each of its Subsidiaries, to
(a) conduct its respective business only in the Ordinary Course
of Business;
(b) use its Best Efforts to preserve intact its respective
current business organization, keep available the services of the current
officers, employees and agents and maintain the relations and goodwill with
suppliers, customers, landlords, creditors, employees, agents and others having
business relationships with it and will inform Acquiror as soon as it becomes
aware of the potential loss or diminution in the relationship with any
consequential customer, the term "consequential customer" to include the twenty
largest loan, depository or trust customers;
(c) confer with Acquiror concerning operational matters that
would reasonably be expected to have a Material Adverse Effect on Heritage;
(d) enter into loan and other business transactions only in
accordance with its current credit and other internal policies (and not amend
such policies except as may be required by any Regulatory Authority) and only on
terms and conditions consistent with arm's-length transactions and conduct its
investment activities and its asset liability management activities only in
accordance with Heritage's current investment policies and asset liability
management policies (and not amend such policies except as may be required by
any Regulatory Authority);
(e) consistent with past practice, maintain a reserve for
possible loan and lease losses which is adequate in all material respects under
the requirements of generally accepted accounting principles to provide for
possible losses, net of recoveries relating to loans previously charged off, on
loans outstanding (including accrued interest receivable);
(f) maintain all of its assets necessary for the conduct of its
business in good operating condition and repair, reasonable wear and tear and
damage by fire or unavoidable casualty excepted, and maintain policies of
insurance upon its assets and with respect to the conduct of its business in
amounts and kinds comparable to that in effect on the date hereof and pay all
premiums on such policies when due;
(g) file in a timely manner all required filings with all
Regulatory Authorities and cause such filings to be true and correct in all
material respects; and
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(h) maintain its books, accounts and records in the usual,
regular and ordinary manner, on a basis consistent with prior years and comply
in all material respects with all Legal Requirements.
SECTION 6.3 NEGATIVE COVENANT. Except as otherwise expressly permitted
-----------------
by this Agreement, as set forth on Schedule 6.3, pursuant to an existing
Contract disclosed in this Agreement or on Heritage's Schedules or pursuant to
the Stay Bonus Plan, between the date of this Agreement and the Closing Date,
Heritage will not, and will cause each of its Subsidiaries not to, without the
prior written consent of Acquiror, take any affirmative action, or fail to take
any reasonable action within its control, as a result of which any of the
changes or events listed in Section 4.17 is likely to occur other than those
occurring in the Ordinary Course of Business or in a manner consistent with past
practices.
SECTION 6.4 HERITAGE DIVIDENDS. Beginning with the first calendar
------------------
quarter of 1998 and for each succeeding calendar quarter thereafter prior to
that calendar quarter in which the Effective Time shall occur, Heritage: (a)
will not declare or pay any dividends or make any distributions with respect to
outstanding Heritage Common Stock, except quarterly cash dividends which shall
not exceed $0.11 per share; (b) except as provided below, will not declare or
pay any dividends or make any distributions in any amount on Heritage Common
Stock in the calendar quarter in which the Effective Time shall occur and in
which the holders of Heritage Common Stock are entitled to receive regular
quarterly dividends on the shares of Acquiror Common Stock into which the shares
of Heritage Common Stock have been converted. It is the intent of clause (b) of
this Section to provide that the holders of Heritage Common Stock will receive
either payment of dividends on their shares of Heritage Common Stock as
permitted under (a) of this Section or the payment of cash dividends as the
holders of shares of Acquiror Common Stock received in exchange for the shares
of Heritage Common Stock for the calendar quarter during which the Effective
Time shall occur, but will not receive and will not become entitled to receive
for the same calendar quarter both the payment of a permitted dividend as
shareholders of Heritage and the payment of a cash dividend as the holders of
the shares of Acquiror Common Stock received in exchange for the shares of
Heritage Common Stock. In the event that Heritage does not declare and pay
permitted dividends on its Heritage Common Stock in a particular calendar
quarter because of Heritage's expectation that the Effective Time would occur in
said calendar quarter wherein the holders of Heritage Common Stock would have
become entitled to receive cash dividends for such calendar quarter on the
shares of Acquiror Common Stock to have been exchanged for the shares of
Heritage Common Stock, and the Effective Time does not in fact occur in said
calendar quarter, then, as a result thereof, Heritage shall be entitled to
declare and pay a permitted dividend (within the limitations of this Section) on
said shares of Heritage Common Stock for said calendar quarter as soon as
reasonably practicable.
SECTION 6.5 SUBSEQUENT HERITAGE FINANCIAL STATEMENTS. As soon as
----------------------------------------
available after the date hereof, Heritage will furnish Acquiror copies of the
monthly unaudited consolidated balance sheets and profit and loss statements of
Heritage prepared for its internal use for each month completed after the date
of this Agreement and prior to the Closing, and all other financial reports or
statements submitted by Heritage or any of its Subsidiaries to Regulatory
Authorities after the date hereof, to the extent permitted by law (collectively,
the "Subsequent Heritage Financial Statements").
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The Subsequent Heritage Financial Statements shall be prepared on a basis
consistent with past accounting practices and shall fairly present the financial
condition and results of operations for the dates and periods presented. The
Subsequent Heritage Financial Statements will not include any material assets or
omit to state any material liabilities, absolute or contingent, or other facts,
which inclusion or omission would render such financial statements misleading in
any material respect.
SECTION 6.6 ADVICE OF CHANGES. Between the date of this Agreement and
-----------------
the Closing Date, Heritage will promptly notify Acquiror in writing if Heritage
acquires Knowledge of any fact or condition that causes or constitutes a Breach
of any of Heritage's representations and warranties as of the date of this
Agreement, or if Heritage acquires Knowledge of the occurrence after the date of
this Agreement of any fact or condition that would (except as expressly
contemplated by this Agreement) cause or constitute a Breach of any such
representation or warranty had such representation or warranty been made as of
the time of occurrence or discovery of such fact or condition. Should any such
fact or condition require any change in the Schedules if such Schedules were
dated the date of the occurrence or discovery of any such fact or condition,
Heritage will promptly deliver to Acquiror a supplement to the Schedules
specifying such change. During the same period, Heritage will promptly notify
Acquiror of the occurrence of any Breach of any covenant of Heritage in this
Agreement or of the occurrence of any event that may make the satisfaction of
the conditions in Article 8 impossible or unlikely.
SECTION 6.7 CERTAIN ACTIONS. (a) Neither Heritage (nor any of its
---------------
Subsidiaries): (i) shall solicit, initiate, participate in discussions of, or
encourage or take any other action to facilitate (including by way of the
disclosing or furnishing of any information that it is not legally obligated to
disclose or furnish) any inquiry or the making of any proposal relating to an
Acquisition Transaction (as defined below) or a potential Acquisition
Transaction with respect to itself or any of its Subsidiaries; or (ii) shall (A)
solicit, initiate, participate in discussions of, or encourage or take any other
action to facilitate any inquiry or proposal, or (B) enter into any agreement,
arrangement, or understanding (whether written or oral), regarding any proposal
or transaction providing for or requiring it to abandon, terminate or fail to
consummate this Agreement, or compensating it or any of its Subsidiaries under
any of the instances described in this clause. Heritage shall immediately
instruct and otherwise use its Best Efforts to cause its Representatives
(including any Representative of any of its Subsidiaries) to comply with such
prohibitions. Heritage shall immediately cease and cause to be terminated any
existing activities, discussions, or negotiations with any Persons conducted
heretofore with respect to such activities. Notwithstanding the foregoing,
Heritage may provide information at the request of or enter into discussions or
negotiations with a Person with respect to an Acquisition Transaction if the
Board of Directors of Heritage determines, in good faith, that the exercise of
its fiduciary duties to Heritage's shareholders under applicable law requires it
to take such action, provided further, that Heritage may not, in any event,
provide to such Person any information which it has not provided to Acquiror.
Heritage shall promptly notify Acquiror orally and in writing in the event it
receives any such inquiry or proposal and shall provide reasonable detail of all
relevant facts relating to such inquiries. This Section shall not prohibit
accurate disclosure by Heritage in any document, including the Proxy Statement-
Prospectus and the Registration Statement (as each such term is defined below),
or other disclosure to the extent required by applicable law if, in the opinion
of the Board of Directors of Heritage, disclosure is required under applicable
law as to transactions
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contemplated hereby.
(b) "Acquisition Transaction" shall, with respect to Heritage,
mean any of the following: (i) a merger or consolidation, or any similar
transaction (other than the Merger) of any company with either Heritage or any
significant subsidiary (as defined in Rule 1.02 of Regulation S-X of the SEC) (a
"Significant Subsidiary") of Heritage, (ii) a purchase, lease or other
acquisition of all or substantially all the assets of either Heritage or any
Significant Subsidiary of Heritage, (iii) a purchase or other acquisition of
"beneficial ownership" by any "person" or "group" (as such terms are defined in
Section 13(d)(3) of the Securities Exchange Act) (including by way of merger,
consolidation, share exchange, or otherwise) which would cause such person or
group to become the beneficial owner of securities representing 20% or more of
the voting power of either Heritage or any Significant Subsidiary of Heritage,
but excluding the acquisition of beneficial ownership by any employee benefit
plan maintained or sponsored by Heritage, (iv) a tender or exchange offer to
acquire securities representing 20% or more of the voting power of Heritage, (v)
a public proxy or consent solicitation made to shareholders of Heritage seeking
proxies in opposition to any proposal relating to any of the transactions
contemplated by this Agreement that has been recommended by the Board of
Directors of Heritage, (vi) the filing of an application or notice with the
Federal Reserve or any other Regulatory Authority seeking approval to engage in
one or more of the transactions referenced in clauses (i) through (iv) above, or
(vii) the making of a bona fide proposal to Heritage or its shareholders by
public announcement or written communication, that is or becomes the subject of
public disclosure, to engage in one or more of the transactions referenced in
clauses (i) through (v) above.
SECTION 6.8 BEST EFFORTS; COOPERATION. Heritage agrees to use its Best
-------------------------
Efforts in good faith to satisfy the various covenants and conditions to Closing
in this Article and Article 8, respectively, and to consummate the transactions
contemplated hereby as promptly as possible. Heritage will not intentionally
take or intentionally permit to be taken any action that would be a Breach of
the terms or provisions of this Agreement. Between the date of this Agreement
and the Closing Date, Heritage will, and will cause each of its Subsidiaries to,
cooperate with Acquiror with respect to all filings that Acquiror is required by
Legal Requirements to make in connection with the Contemplated Transactions.
SECTION 6.9 INFORMATION PROVIDED TO ACQUIROR. Heritage agrees that none
--------------------------------
of the information concerning Heritage or any of its Subsidiaries which is
provided or to be provided by Heritage or any of its Subsidiaries to Acquiror
for inclusion or which is included in the Registration Statement or Proxy
Statement-Prospectus and any other documents to be filed with any Regulatory
Authority in connection with the Contemplated Transactions will, at the
respective times such documents are filed and, in the case of the Registration
Statement, when it becomes effective and, with respect to the Proxy Statement-
Prospectus, when mailed, be false or misleading with respect to any material
fact, or omit to state any material fact necessary in order to make the
statements therein not misleading or, in the case of the Proxy Statement-
Prospectus, or any amendment thereof or supplement thereto, at the time of the
Heritage Special Meeting, be false or misleading with respect to any material
fact, or omit to state any material fact necessary to correct any statement in
any earlier communication with respect to the solicitation of any proxy for the
meeting in connection with which
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the Proxy Statement-Prospectus shall be mailed. Notwithstanding the foregoing,
Heritage shall have no responsibility for the truth or accuracy of any
information with respect to Acquiror or any of its Subsidiaries contained in the
Registration Statement or the Proxy Statement-Prospectus or in any document
submitted to, or other communication with, any Regulatory Authority.
SECTION 6.10 SHAREHOLDERS' MEETING. Heritage shall cause the Heritage
---------------------
Special Meeting to be held at the earliest practicable date after the
Registration Statement has become effective and the Proxy Statement-Prospectus
has been sent to Heritage's shareholders for the purpose of acting upon this
Agreement. In connection with the Heritage Special Meeting and in accordance
with the Illinois BCA, Heritage shall send to its shareholders at least 30 days
prior to such meeting, notice of the Heritage Special Meeting together with the
Proxy Statement-Prospectus which shall include a copy of this Agreement and a
copy of Section 11.70 of the Illinois BCA governing the procedures for
dissenting shareholders. Heritage shall recommend the approval of this
Agreement and the Merger and shall solicit proxies voting in favor thereof from
its shareholders.
SECTION 6.11 AFFILIATE LETTERS. Heritage shall use its Best Efforts to
-----------------
obtain and deliver to Acquiror within five Business Days after the date hereof a
signed representation letter substantially in the form of Exhibit D hereto from
each executive officer and director of Heritage and each shareholder of Heritage
who may reasonably be deemed an "affiliate" of Heritage within the meaning of
such term as used in Rule 145 under the Securities Act and for purposes of
qualifying for pooling of interests accounting treatment for the Merger, and
shall use its Best Efforts to obtain and deliver to Acquiror a signed
representation letter substantially in the form of Exhibit D from any person who
becomes an executive officer or director of Heritage or any shareholder who
becomes such an "affiliate" after the date hereof and shall use its Best Efforts
to obtain and deliver such letter within five Business Days after such person
achieves such status.
SECTION 6.12 HERITAGE STOCK OPTIONS. At the Effective Time, each
----------------------
Heritage Stock Option shall be converted into and represent an option solely to
purchase shares of Acquiror Common Stock (a "Converted Stock Option"), increased
to the nearest full share, determined by multiplying (i) the number of shares of
Heritage Common Stock subject to such Heritage Stock Option immediately prior to
the Effective Time by (ii) 0.7695, at a per share exercise price achieved by
dividing the per share exercise price under such Heritage Stock Option by 0.7695
and rounding down to the nearest cent; provided, however, that each Heritage
Stock Option shall, in accordance with its terms, be subject to further
adjustment as appropriate to reflect any stock split, stock dividend,
recapitalization or other similar transaction subsequent to the Effective Time,
and shall be exercisable on the same terms and conditions as were applicable to
the Heritage Stock Options. The number of shares of Acquiror Common Stock
issuable pursuant to any Converted Stock Option shall also be adjusted to
reflect any change made in the Exchange Ratio pursuant to Section 3.3 or
otherwise. The Board of Directors of Heritage and the committee or committees
established under the Heritage Stock Option Plans shall take such actions or
make such determinations as may be required under such plans, subject to the
approval of Acquiror, to effect the provisions of this Section.
SECTION 6.13 ENVIRONMENTAL INVESTIGATION. (a) Heritage shall engage an
---------------------------
environmental consultant acceptable to Acquiror to conduct a preliminary ("Phase
I") environmental assessment of
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each of the parcels of real estate used in the operation of the businesses of
Heritage and any Heritage Subsidiary and any other real estate owned by Heritage
or a Heritage Subsidiary (other than single family residences). The fees and
expenses of the consultant with respect to the Phase I assessments shall be
shared equally by Acquiror and Heritage. The consultant shall complete and
deliver the Phase I assessments not later than 60 days after the date of this
Agreement. If any environmental conditions are found, suspected, or would tend
to be indicated by the report of the consultant which may be contrary to the
representations and warranties of Heritage set forth herein without regard to
any exceptions that may be contained in Heritage's Schedules, then the parties
shall obtain from one or more mutually acceptable consultants or contractors, as
appropriate, an estimate of the cost of any further environmental investigation,
sampling, analysis, remediation or other follow-up work that may be necessary to
address those conditions in accordance with applicable laws and regulations.
(b) Upon receipt of the estimate of the costs of all follow-up
work to the Phase I assessments or any subsequent investigation phases that may
be conducted, the parties shall attempt to agree upon a course of action for
further investigation and remediation of any environmental condition suspected,
found to exist, or that would tend to be indicated by the report of the
consultant. All post-Phase I investigations or assessments (the cost of which
shall be paid by Heritage), all work plans for any post-Phase I assessments or
remediation, and any removal or remediation actions that may be performed, shall
be mutually satisfactory to Acquiror and Heritage. If such work plans or removal
or remediation actions would cost more than $3,000,000 (individually or in the
aggregate on a tax affected basis) to complete, Acquiror and Heritage shall
discuss a mutually acceptable modification of this Agreement. Acquiror and
Heritage shall cooperate in the review, approval and implementation of all work
plans.
(c) If the parties are unable to agree upon a course of action
for further investigation and remediation of an environmental condition or issue
raised by an environmental assessment and/or a mutually acceptable modification
to this Agreement, and the condition or issue is not one for which it can be
determined to a reasonable degree of certainty that the risk and expense to
which the Surviving Corporation and its Subsidiaries would be subject as owner
of the property involved can be quantified, in good faith, and limited to an
amount less than $3,000,000 (on a tax affected basis), then Acquiror may
terminate this Agreement by the earlier to occur of (i) 120 days after the
receipt of the Phase I assessments, or (ii) the receipt of all consents and
approvals of government regulatory authorities as legally required to consummate
the Merger and the expiration of all statutory waiting periods.
SECTION 6.14 EXECUTION OF THE STOCK OPTION AGREEMENT. Simultaneously
---------------------------------------
with the execution of this Agreement and as a condition thereto, Heritage shall
execute and deliver the Stock Option Agreement, which grants to Acquiror an
option to acquire up to 19.9% of the issued and outstanding shares of Heritage
Common Stock upon the occurrence of certain circumstances, substantially in the
form attached hereto as Exhibit E (the "Stock Option Agreement").
SECTION 6.15 CAPITAL STOCK. Except for or as otherwise permitted in or
-------------
contemplated by this Agreement, or the Stock Option Agreement, without the prior
written consent of Acquiror, from the date of this Agreement to the earlier of
the Effective Time or the termination of this Agreement,
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Heritage shall not, and shall not enter into any agreement to, issue, sell or
otherwise permit to become outstanding any additional shares of Heritage Common
Stock, preferred stock, or any other capital stock of Heritage, or any stock
appreciation rights, or any option, warrant, conversion or other right to
acquire any such stock, or any security convertible into any such stock, other
than pursuant to the Heritage Stock Option Plans, the aggregate number of shares
of Heritage Common Stock covered by all existing grants being no more than
548,336 shares. No additional shares of Heritage Common Stock shall become
subject to new grants of employee stock options, stock appreciation rights or
similar stock based employee compensation rights.
SECTION 6.16 TITLE TO REAL ESTATE. As soon as practical after the date
--------------------
hereof, but in any event no later than 60 days after the date hereof, Heritage
shall obtain and deliver to Acquiror, with respect to all real estate owned or
held pursuant to a ground lease by Heritage and its Subsidiaries, an owner's
preliminary report of title covering a date subsequent to the date hereof,
issued by Chicago Title Company or such other title insurance company as is
reasonably acceptable to Acquiror, showing fee simple title in Heritage or its
Subsidiaries in such real estate or the appropriate leasehold interest of
Heritage or its Subsidiaries subject only to liens, mortgages, security
interests, encumbrances or charges of any kind except: (a) liens, mortgages,
security interests or encumbrances or other charges as noted in the most recent
Heritage Financial Statement or on Schedule 4.10; (b) statutory liens for Taxes
not yet delinquent or being contested in good faith by appropriate Proceedings
and for which appropriate reserves have been established and reflected on the
Heritage Financial Statements; (c) pledges or liens required to be granted in
connection with the acceptance of government deposits, granted in connection
with repurchase or reverse repurchase agreements or otherwise incurred in the
Ordinary Course of Business; (d) minor defects and irregularities in title and
encumbrances which do not materially impair the use thereof for the purposes for
which they are held and which would not reasonably be expected to have a
Material Adverse Effect on Heritage; and (e) the standard exceptions to title
customarily contained in a policy on ALTA Owner's Form B. The cost of such
preliminary title reports shall be shared equally by Heritage and Acquiror.
SECTION 6.17 POOLING OF INTERESTS; TAX TREATMENT. Neither Heritage nor
-----------------------------------
any of its Subsidiaries shall voluntarily take any action that would disqualify
the Merger as a "pooling of interests" for accounting purposes or as a
"reorganization" that would be tax free or deferred to the shareholders of
Heritage pursuant to Section 368(a) of the Code; provided, however, that
Heritage, after consultation with Acquiror, may acquire additional treasury
shares, provided further, that Heritage acquires and disposes of such shares in
a manner that does not disqualify the Merger from being accounted for on a
"pooling of interests" method of accounting.
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ARTICLE 7
ACQUIROR'S COVENANTS
SECTION 7.1 ACCESS AND INVESTIGATION. Heritage and its Representatives
------------------------
shall, at all times during normal business hours and with reasonable advance
notice prior to the Closing Date, have full and continuing access to the
facilities, operations, records and properties of Acquiror and its Subsidiaries
in accordance with the provisions of this Section. Heritage and its
Representatives may, prior to the Closing Date, make or cause to be made such
reasonable investigation of the operations, records and properties of each of
Acquiror and its Subsidiaries and their respective financial and legal condition
as Heritage shall deem necessary or advisable to familiarize itself with such
records, properties and other matters; provided, that such access or
investigation shall not interfere unnecessarily with the normal operations of
Acquiror and its Subsidiaries. Upon request, Acquiror will furnish to Heritage
or its Representatives, attorneys' responses to auditors' requests for
information regarding Acquiror and its Subsidiaries and such financial and
operating data and other information reasonably requested by Heritage (provided
with respect to attorneys, such disclosure would not result in the waiver by
Acquiror or any of its Subsidiaries of any claim of attorney-client privilege),
and will permit Heritage or its Representatives to discuss such information
directly with any individual or firm performing auditing or accounting functions
for Acquiror or its Subsidiaries, and such auditors and accountants shall be
directed to furnish copies of any reports or financial information as developed
to Heritage or its Representatives. No investigation by Heritage shall affect
the representations and warranties made by Acquiror in this Agreement. This
Section shall not require the disclosure of any information the disclosure of
which to Heritage would be prohibited by law.
SECTION 7.2 OPERATIONS OF ACQUIROR. Between the date of this Agreement
----------------------
and the Closing Date, Acquiror will, and will cause each of its Subsidiaries, to
(a) conduct its respective business only in the Ordinary Course
of Business;
(b) use its Best Efforts to preserve intact its respective
current business organization, keep available the services of the current
officers, employees and agents and maintain the relations and goodwill with
suppliers, customers, landlords, creditors, employees, agents and others having
business relationships with it and will inform Heritage as soon as it becomes
aware of the potential loss or diminution in the relationship with any
consequential customer, the term "consequential customer" to include the twenty
largest loan, depository or trust customers;
(c) confer with Heritage concerning operational matters that
would reasonably be expected to have a Material Adverse Effect on Acquiror;
(d) enter into loan and other business transactions only in
accordance with its current credit and other internal policies (and not amend
such policies except as may be required by any Regulatory Authority) and only on
terms and conditions consistent with arm's-length transactions and conduct its
investment activities and its asset liability management activities only in
accordance with Acquiror's current investment policies and asset liability
management policies (and not amend
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such policies except as may be required by any Regulatory Authority);
(e) consistent with past practice, maintain a reserve for
possible loan and lease losses which is adequate in all material respects under
the requirements of generally accepted accounting principles to provide for
possible losses, net of recoveries relating to loans previously charged off, on
loans outstanding (including accrued interest receivable);
(f) maintain all of its assets necessary for the conduct of its
business in good operating condition and repair, reasonable wear and tear and
damage by fire or unavoidable casualty excepted, and maintain policies of
insurance upon its assets and with respect to the conduct of its business in
amounts and kinds comparable to that in effect on the date hereof and pay all
premiums on such policies when due;
(g) file in a timely manner all required filings with all
Regulatory Authorities and cause such filings to be true and correct in all
material respects; and
(h) maintain its books, accounts and records in the usual,
regular and ordinary manner, on a basis consistent with prior years and comply
in all material respects with all Legal Requirements.
SECTION 7.3 NEGATIVE COVENANT. Except as otherwise expressly permitted
-----------------
by this Agreement or as set forth on Schedule 7.3 or pursuant to existing
Contracts disclosed in this Agreement or on Acquiror's Schedules, between the
date of this Agreement and the Closing Date, Acquiror will not, and will cause
each of its Subsidiaries not to, without the prior written consent of Heritage,
take any affirmative action, or fail to take any reasonable action within its
control, as a result of which any of the changes or events listed in Section
5.16 is likely to occur other than those occurring in the Ordinary Course of
Business or in a manner consistent with past practices.
SECTION 7.4 REGULATORY APPROVALS. Except as otherwise provided in this
--------------------
Agreement, as promptly as practicable, but in no event later than 30 calendar
days after the date of this Agreement, Acquiror will make all filings required
by Legal Requirements to be made by it to consummate the Contemplated
Transactions (including all filings under the BHCA, the IHBCA and the Illinois
Act). Acquiror shall use its Best Efforts to pursue all necessary regulatory
approvals; provided, however, that Acquiror shall have no obligation to accept
non-standard conditions or restrictions with respect to the aforesaid approvals
of Regulatory Authorities if it shall reasonably determine that such conditions
or restrictions would be materially burdensome to Acquiror, the Surviving
Corporation and/or their respective Subsidiaries. In the event of an adverse or
unfavorable determination by any Regulatory Authority, or in the event the
Merger is challenged or opposed by any Proceeding brought by any Regulatory
Authority (including the Department of Justice), Acquiror shall use its Best
Efforts to reverse such determination or resolve any such Proceeding without the
imposition of any conditions or restrictions that would be materially burdensome
to Acquiror, the Surviving Corporation and/or their respective Subsidiaries. If
Acquiror is unsuccessful in such efforts, the determination of whether and to
what extent to seek appeal or review, administrative or otherwise, or other
appropriate remedies shall be made by Acquiror. In advance of filing any of the
documents
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required to be filed pursuant to this Section, Acquiror shall provide
Heritage and its counsel with a copy of such documents and provide Heritage and
its counsel a reasonable opportunity to comment thereon, and thereafter shall
promptly advise, and provide copies to, Heritage and its counsel of any material
communication received by Acquiror or its counsel from any Regulatory
Authorities with respect to any of such documents.
SECTION 7.5 SEC REGISTRATION. Acquiror shall file with the SEC as
----------------
promptly as practicable, but in no event later than 45 calendar days after the
execution of this Agreement, a Registration Statement on an appropriate form
under the Securities Act covering Acquiror Common Stock to be issued pursuant to
this Agreement and shall use its best efforts to cause the same to become
effective and thereafter, until the Effective Time or termination of this
Agreement, to keep the same effective and, if necessary, amend and supplement
the same. Such Registration Statement and any amendments and supplements
thereto are referred to herein as the "Registration Statement." The Registration
Statement shall include a Proxy Statement-Prospectus thereto reasonably
acceptable to Acquiror and Heritage (the "Proxy Statement-Prospectus"), prepared
by Acquiror and Heritage for use in connection with the Special Meeting, all in
accordance with the rules and regulations of the SEC. Acquiror shall, as
promptly as practicable, but in no event later than 45 calendar days after the
execution of this Agreement, make all filings required to obtain all Blue Sky
permits, authorizations, consents or approvals required for the issuance of
Acquiror Common Stock. In advance of filing any of the documents required to be
filed pursuant to this Section, Acquiror shall provide Heritage and its counsel
with a copy of such documents and provide Heritage and its counsel a reasonable
opportunity to comment thereon, and thereafter shall promptly advise, and
provide copies to, Heritage and its counsel of any material communication
received by Acquiror or its counsel from any Regulatory Authorities with respect
to any of such documents.
SECTION 7.6 AUTHORIZATION AND RESERVATION OF ACQUIROR COMMON STOCK;
-------------------------------------------------------
HERITAGE STOCK OPTIONS. (a) The board of directors of Acquiror shall, prior to
- ----------------------
the Effective Time, authorize and reserve the maximum number of shares of
Acquiror Common Stock to be issued pursuant to this Agreement and take all other
necessary corporate action to consummate the Contemplated Transactions.
(b) Acquiror agrees to assume and honor each of the Converted Stock
Options in accordance with their terms. Acquiror shall cause the shares of
Acquiror Common Stock covered by such Converted Stock Options to be covered by
an effective registration statement filed on Form S-8 with the SEC and such
shares of Acquiror Common Stock shall be duly authorized and validly issued in
compliance with all applicable federal and state securities laws, fully paid and
nonassessable and not subject to or in violation of any preemptive rights.
Acquiror shall at and after the Effective Time have reserved sufficient shares
of Acquiror Common Stock for issuance with respect to such options. Acquiror
shall also take any action required to be taken under any applicable state blue
sky or securities laws in connection with the issuance of such shares.
SECTION 7.7 INDEMNIFICATION. Except as may be limited by applicable
---------------
law, Acquiror hereby agrees to maintain all rights of indemnification currently
provided by Heritage and its Subsidiaries in favor of their current and former
employees, directors, officers and agents on terms
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no less favorable than those provided in the articles of incorporation or bylaws
of Heritage or any of its Subsidiaries or otherwise in effect on December 31,
1997 for a period of not less than four years from the Effective Time with
respect to matters occurring prior to the Effective Time. In the event Acquiror
or any of its successors or assigns (a) reorganizes or consolidates with or
merges into or enters into another business combination transaction with any
other person or entity and is not the resulting, continuing or surviving
corporation or entity of such reorganization, consolidation, merger or
transaction, or (b) liquidates, dissolves or transfers all or substantially all
of its properties and assets to any person or entity, then, and in each such
case, proper provision will be made so that such surviving corporation or
transferee and its successors and assigns assume the obligations set forth in
this Section. Acquiror agrees that, prior to or at the Effective Time, it will
provide under its directors' and officers' liability insurance prior acts and
omissions coverage for current and former officers and directors of Heritage and
its Subsidiaries for at least four years after the Effective Time.
SECTION 7.8 ADVICE OF CHANGES. Between the date of this Agreement and
-----------------
the Closing Date, Acquiror will promptly notify Heritage in writing if Acquiror
acquires Knowledge of any fact or condition that causes or constitutes a Breach
of any of Acquiror's or Acquisition Corp's representations and warranties as of
the date of this Agreement, or if Acquiror acquires Knowledge of the occurrence
after the date of this Agreement of any fact or condition that would (except as
expressly contemplated by this Agreement) cause or constitute a Breach of any
such representation or warranty had such representation or warranty been made as
of the time of occurrence or discovery of such fact or condition. If any such
fact or condition requires any change in the Schedules if such Schedules were
dated the date of the occurrence or discovery of any such fact or condition,
Acquiror will promptly deliver to Heritage a supplement to the Schedules
specifying such change. During the same period, Acquiror will promptly notify
Heritage of the occurrence of any Breach of any covenant of Acquiror or
Acquisition Corp in this Agreement or of the occurrence of any event that may
make the satisfaction of the conditions in Article 9 impossible or unlikely.
SECTION 7.9 RESOLUTION OF HERITAGE EMPLOYEE BENEFIT PLANS. Heritage and
---------------------------------------------
Acquiror shall cooperate in effecting the following treatment of the Heritage
Employee Benefit Plans, except as mutually agreed upon by Acquiror and Heritage
prior to the Effective Time:
(a) At the Effective Time, Acquiror shall be substituted for
Heritage as the sponsoring employer under those Heritage Employee Benefit Plans
with respect to which Heritage or any of its Subsidiaries is a sponsoring
employer immediately prior to the Effective Time, and shall assume and be vested
with all of the powers, rights, duties, obligations and liabilities previously
vested in Heritage or its Subsidiary with respect to each such plan. Except as
otherwise provided herein, each such plan and any Heritage Employee Benefit Plan
sponsored by Heritage or any Heritage Subsidiary shall be continued in effect by
Acquiror or any applicable Acquiror Subsidiary after the Effective Time without
a termination or discontinuance thereof as a result of the Merger, subject to
the power reserved to Acquiror or any applicable Acquiror Subsidiary under each
such plan to subsequently amend or terminate the plan, which amendments or
terminations shall comply with applicable law. Heritage, each Heritage
Subsidiary, and Acquiror will use all reasonable efforts (i) to effect said
substitutions and assumptions, and such other actions contemplated under this
Agreement, and (ii) to amend such plans as to the extent necessary to provide
for said substitutions
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and assumptions, and such other actions contemplated under this Agreement.
(b) At or as promptly as practicable after the Effective Time as
Acquiror shall reasonably determine, Acquiror shall provide, or cause any
Acquiror Subsidiary to provide, to each employee of Heritage and any Heritage
Subsidiary as of the Effective Time ("Heritage Employees") the opportunity to
participate in each employee benefit plan and program maintained by Acquiror or
the Acquiror Subsidiaries for similarly-situated employees (the "Acquiror
Benefit Plans") provided that with respect to such Acquiror Benefit Plans,
Heritage Employees shall be given credit for service with Heritage or any
Heritage Subsidiary in determining eligibility for, vesting in and accrual of,
benefits thereunder, but not for purposes of any benefit accruals under
Acquiror's pension plan; and provided further that to the extent that the
initial period of coverage for Heritage Employees under any Acquiror Benefit
Plan that is an "employee welfare benefit plan" as defined in Section 3(1) of
ERISA is not a full 12-month period of coverage, Heritage Employees shall be
given credit under the applicable Acquiror Benefit Plans for any deductibles and
co-insurance payments made by such Heritage Employees under the Heritage
Employee Benefit Plans during the balance of such 12-month period of coverage.
Nothing in the preceding sentence shall obligate Acquiror to provide or cause to
be provided any benefits duplicative to those provided under any Heritage
Employee Benefit Plan continued pursuant to subparagraph (a) above. Except as
otherwise provided in this Agreement, the power of Acquiror or any Heritage or
Acquiror Subsidiary to amend or terminate any benefit plan or program, including
any Heritage Employee Benefit Plan shall not be altered or affected. Moreover,
this Agreement shall not constitute a contract of employment or create any
rights, to be retained or otherwise, in employment at Acquiror, any Heritage
Subsidiary or any Acquiror Subsidiary.
SECTION 7.10 DATA PROCESSING AGREEMENT. As a result of the Contemplated
-------------------------
Transactions and Heritage's receipt of a letter dated July 14, 1997, from ALLTEL
Financial Information Services, Inc., the current provider to Heritage and its
Subsidiaries of data processing services ("ALLTEL"), Acquiror acknowledges and
agrees to the delivery by Heritage to ALLTEL on or before February 1, 1998, of
written notice by Heritage of its intent to terminate its current agreement with
ALLTEL effective on or before December 31, 1998. Acquiror further acknowledges
and agrees to the negotiation and execution by Heritage prior to March 31, 1998,
of a new agreement for the provision of data processing services to Heritage and
its Subsidiaries, which agreement shall be reasonably acceptable to Acquiror and
which agreement will provide for a conversion of Heritage and its Subsidiaries
to such new data processor on or before November 15, 1998, using a vendor
reasonably acceptable to Acquiror.
SECTION 7.11 APPOINTMENT OF DIRECTORS. As soon as practicable after the
------------------------
Effective Time, Acquiror shall take such steps as may be necessary to add each
Person named on Exhibit F as a director of Acquiror to serve for the longest
term possible under Acquiror's certificate of incorporation or bylaws, and
further, to cause each such Person to be nominated for re-election as a director
of Acquiror after the expiration of such Person's first term of office.
SECTION 7.12 BEST EFFORTS. Acquiror agrees to use its Best Efforts in
------------
good faith to satisfy the various covenants and conditions to Closing in this
Article and Article 9, respectively, and to
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consummate the transactions contemplated hereby as promptly as possible.
Acquiror will not intentionally take or intentionally permit to be taken any
action that would be in breach of the terms or provisions of this Agreement or
that would cause any of the representations or warranties contained herein to be
or become untrue.
SECTION 7.13 STOCK EXCHANGE LISTING. Acquiror shall use its Best Efforts
----------------------
to list on the Nasdaq Stock Market, subject to official notice of issuance, the
shares of Acquiror Common Stock to be issued in the Merger.
SECTION 7.14 STOCKHOLDERS' MEETING. Acquiror shall cause a special
---------------------
and/or annual meeting of its stockholders (the "Acquiror Special Meeting") to be
held at the earliest practicable date after the Registration Statement has
become effective and the Proxy Statement-Prospectus has been sent to Acquiror's
stockholders for the purpose of acting upon the actions contemplated by this
Agreement that require the approval of Acquiror's stockholders. In connection
with the Acquiror Special Meeting and in accordance with the Delaware General
Corporation Law, Acquiror shall send to its stockholders at least 30 days prior
to such meeting, notice of the Acquiror Special Meeting together with the Proxy
Statement-Prospectus which shall include a copy of this Agreement. Acquiror
shall recommend the approval of such actions required to be approved by its
stockholders and shall solicit proxies voting in favor thereof from its
stockholders.
SECTION 7.15 PUBLICATION OF COMBINED FINANCIAL RESULTS. Acquiror shall
-----------------------------------------
use its Best Efforts to publish as soon as practicable, and shall publish no
later than 90 days after the Effective Time, at least 30 days of post-Merger
combined operations, combined sales and net income figures and any other
financial information necessary as contemplated by and in accordance with the
terms of SEC Accounting Series Release No. 135 and any related accounting rules.
SECTION 7.16 POOLING OF INTERESTS; TAX TREATMENT. Neither Acquiror nor
-----------------------------------
any of its Subsidiaries shall voluntarily take any action that would disqualify
the Merger as a "pooling of interests" for accounting purposes or as a
"reorganization" that would be tax free or deferred to the shareholders of
Heritage pursuant to Section 368(a) of the Code; provided, however, that
Acquiror, after consultation with Heritage, may acquire additional treasury
shares, provided further, that Acquiror acquires and disposes of such shares in
a manner that does not disqualify the Merger from being accounted for on a
"pooling of interests" method of accounting. The exercise by Acquiror of its
rights under the Stock Option Agreement shall not be deemed to be a violation of
this Section.
ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIROR AND ACQUISITION CORP
The obligations of Acquiror and Acquisition Corp to consummate the Merger
and to take the other actions required to be taken by each of Acquiror and
Acquisition Corp at the Closing are subject to the satisfaction, at or prior to
the Closing, of each of the following conditions (any of which may be waived by
Acquiror, in whole or in part):
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SECTION 8.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. All of
------------------------------------------
Heritage's representations and warranties in this Agreement (considered
collectively) must have been accurate in all material respects as of the date of
this Agreement, and must be accurate in all material respects as of the Closing
Date as if made on the Closing Date, without giving effect to any supplement to
any Schedules.
SECTION 8.2 HERITAGE'S PERFORMANCE. All of the covenants and
----------------------
obligations that Heritage is required to perform or to comply with pursuant to
this Agreement at or prior to the Closing (considered collectively) must have
been duly performed and complied with in all material respects.
SECTION 8.3 DOCUMENTS SATISFACTORY. All proceedings, corporate or
----------------------
other, to be taken by Heritage in connection with the Contemplated Transactions,
and all documents incident thereto, shall be reasonably satisfactory in form and
substance to Acquiror and its counsel, and Heritage shall have made available to
Acquiror for examination the originals or true and correct copies of all records
and documents relating to the business and affairs of Heritage and its
Subsidiaries which Acquiror may reasonably request in connection with said
transactions.
SECTION 8.4 NO PROCEEDINGS. Since the date of this Agreement, there
--------------
must not have been commenced or Threatened against Heritage, or against any of
Heritage's Affiliates, any Proceeding: (a) involving any challenge to, or
seeking damages or other relief in connection with, any of the Contemplated
Transactions; or (b) that may have the effect of preventing, delaying, making
illegal or otherwise interfering with any of the Contemplated Transactions, in
either case that would reasonably be expected to have a Material Adverse Effect
on Heritage.
SECTION 8.5 ABSENCE OF MATERIAL ADVERSE CHANGES. From the date hereof
-----------------------------------
to the Closing, there shall be and have been no event or occurrence that had or
would reasonably be expected to have a Material Adverse Effect on Heritage.
SECTION 8.6 CONSENTS AND APPROVALS. Any consents or approvals required
----------------------
to be secured by either party by the terms of this Agreement or otherwise
reasonably necessary in the opinion of Acquiror to consummate the Contemplated
Transactions shall have been obtained and shall be reasonably satisfactory to
Acquiror, and all applicable waiting periods shall have expired.
SECTION 8.7 NO PROHIBITION. Neither the consummation nor the
--------------
performance of any of the Contemplated Transactions will, directly or indirectly
(with or without notice or lapse of time), contravene, or conflict with or
result in a violation of, or cause Heritage or any of Heritage's Affiliates to
suffer any adverse consequence under: (a) any applicable Legal Requirement or
Order; or (b) any Legal Requirement or Order that has been published,
introduced, or otherwise proposed by or before any Regulatory Authority, where
any of the foregoing would reasonably be expected to have a Material Adverse
Effect on Heritage.
SECTION 8.8 REGISTRATION STATEMENT. The Registration Statement filed by
----------------------
Acquiror with the SEC with respect to the Acquiror Common Stock to be issued
pursuant to this Agreement shall have become effective and no stop order
proceedings with respect thereto shall be pending or
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Threatened.
SECTION 8.9 CORPORATE APPROVALS. This Agreement and the Contemplated
-------------------
Transactions shall have been duly and validly authorized as required by all
applicable Legal Requirements by the shareholders of Heritage and the
stockholders of Acquiror. Such approvals shall have been obtained in conformity
with all applicable laws at meetings for which proxies are solicited in
compliance with applicable laws and requirements.
SECTION 8.10 DISSENTING SHARES. The total number of Dissenting Shares
-----------------
shall be no greater than 5% of the number of shares of Heritage Common Stock
issued and outstanding immediately prior to the Effective Time.
SECTION 8.11 FAIRNESS OPINION. Prior to distribution of the Proxy
----------------
Statement-Prospectus to the stockholders of Acquiror, an opinion shall have been
received by Acquiror from Goldman Sachs & Co. to the effect that the
consideration to be paid to Heritage's shareholders by Acquiror in connection
with the Merger, from a financial point of view, is fair to Acquiror's
stockholders and such opinion shall not have been withdrawn or materially
modified prior to the Closing.
SECTION 8.12 POOLING OPINION. Acquiror shall have received an opinion
---------------
paid for by Acquiror from Ernst & Young to the effect that the Merger shall be
accounted for on the "pooling of interests" method of accounting.
SECTION 8.13 TAX OPINION. Acquiror shall have received the opinion
-----------
described in Section 9.11 hereof.
ARTICLE 9
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF HERITAGE
Heritage's obligation to consummate the Merger and to take the other
actions required to be taken by Heritage at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by Heritage, in whole or in part):
SECTION 9.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. All of the
------------------------------------------
representations and warranties of Acquiror and Acquisition Corp in this
Agreement (considered collectively) must have been accurate in all material
respects as of the date of this Agreement, and must be accurate in all material
respects as of the Closing Date as if made on the Closing Date, without giving
effect to any supplement to any Schedules.
SECTION 9.2 ACQUIROR'S PERFORMANCE. All of the covenants and
----------------------
obligations that Acquiror and Acquisition Corp are required to perform or to
comply with pursuant to this Agreement at or prior to the Closing (considered
collectively) must have been duly performed and complied with in all material
respects.
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SECTION 9.3 DOCUMENTS SATISFACTORY. All proceedings, corporate or
----------------------
other, to be taken by Acquiror in connection with the Contemplated Transactions,
and all documents incident thereto, shall be reasonably satisfactory in form and
substance to Heritage and its counsel, and Acquiror shall have made available to
Heritage for examination the originals or true and correct copies of all records
and documents relating to the business and affairs of Acquiror and its
Subsidiaries which Heritage may reasonably request in connection with said
transactions.
SECTION 9.4 NO PROCEEDINGS. Since the date of this Agreement, there
--------------
must not have been commenced or Threatened against Acquiror, or against any of
Acquiror's Affiliates, any Proceeding: (a) involving any challenge to, or
seeking damages or other relief in connection with, any of the Contemplated
Transactions; or (b) that may have the effect of preventing, delaying, making
illegal or otherwise interfering with any of the Contemplated Transactions, in
either case that would reasonably be expected to have a Material Adverse Effect
on Acquiror.
SECTION 9.5 ABSENCE OF MATERIAL ADVERSE CHANGES. From the date hereof
-----------------------------------
to the Closing, there shall be and have been no event or occurrence that had or
would reasonably be expected to have a Material Adverse Effect on Acquiror.
SECTION 9.6 CONSENTS AND APPROVALS. Any consents or approvals required
----------------------
to be secured by either party by the terms of this Agreement or otherwise
reasonably necessary in the opinion of Heritage to consummate the Contemplated
Transactions shall have been obtained and shall be reasonably satisfactory to
Heritage, and all applicable waiting periods shall have expired.
SECTION 9.7 NO PROHIBITION. Neither the consummation nor the
--------------
performance of any of the Contemplated Transactions will, directly or indirectly
(with or without notice or lapse of time), contravene, or conflict with or
result in a violation of, or cause Acquiror or any of Acquiror's Affiliates to
suffer any adverse consequence under: (a) any applicable Legal Requirement or
Order; or (b) any Legal Requirement or Order that has been published,
introduced, or otherwise proposed by or before any Regulatory Authority, where
any of the foregoing would reasonably be expected to have a Material Adverse
Effect on Acquiror.
SECTION 9.8 REGISTRATION STATEMENT. The Registration Statement filed by
----------------------
Acquiror with the SEC with respect to the Acquiror Common Stock to be issued
pursuant to this Agreement shall have become effective and no stop order
proceedings with respect thereto shall be pending or Threatened.
SECTION 9.9 DIRECTORS' AND OFFICERS' INSURANCE COVERAGE. Acquiror shall
-------------------------------------------
have delivered to Heritage satisfactory evidence that commencing immediately
after the Effective Time the officers and directors of Heritage and its
Subsidiaries are covered for events occurring after the Effective Time under
Acquiror's directors' and officers' liability insurance policy, in a manner
consistent with Section 7.7.
SECTION 9.10 FAIRNESS OPINION. Prior to distribution of the Proxy
----------------
Statement-Prospectus to the shareholders of Heritage, an opinion shall have been
received by Heritage from McDonald &
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Company Securities, Inc. to the effect that the consideration to be received by
Heritage's shareholders from Acquiror in connection with the Merger, from a
financial point of view, is fair to Heritage's shareholders and such opinion
shall not have been withdrawn or materially modified prior to the Closing.
SECTION 9.11 TAX OPINION. At Acquiror's expense, Acquiror and Heritage
-----------
shall have received a written opinion of Hinshaw & Culbertson addressed to
Acquiror and Heritage, dated the Closing Date, subject to the customary
representations and assumptions referred to therein, and substantially to the
effect that: (a) the Merger will constitute a tax-free reorganization within
the meaning of Section 368(a) of the Code and that Acquiror and Heritage will
each be a party to the reorganization; (b) the exchange in the Merger of
Acquiror Common Stock for Heritage Common Stock will not give rise to the
recognition of any income, gain or loss to Acquiror, Heritage or the
shareholders of Heritage with respect to such exchange (except, with respect to
the shareholders of Heritage, to the extent of any cash paid in lieu of
fractional shares and except for treatment of the inter-company tax liability
referred to in Section 2.1); (c) the adjusted tax basis of the Acquiror Common
Stock received by Heritage shareholders who exchange all of their Heritage
Common Stock in the Merger will be the same as the adjusted tax basis of the
shares of the Heritage Common Stock surrendered in exchange therefor (reduced by
any amount allocable to a fractional share interest for which cash is received);
and (d) the holding period of the shares of Acquiror Common Stock received in
the Merger will include the period during which the shares of Heritage Common
Stock surrendered in exchange therefor were held, provided such shares of
Heritage Common Stock were held as capital assets at the Effective Time.
ARTICLE 10
TERMINATION
SECTION 10.1 REASONS FOR TERMINATION AND ABANDONMENT. This Agreement
---------------------------------------
may, by prompt written notice given to the other parties prior to or at the
Closing, be terminated:
(a) by mutual consent of the boards of directors of Heritage,
Acquiror and Acquisition Corp;
(b) by either Acquiror or Heritage if: (i) a Breach of any provision
of this Agreement has been committed by the other party; (ii) such Breach has
had, or would reasonably be expected to have, a Material Adverse Effect upon the
non-breaching party or its shareholders if the Closing were to occur; (iii) such
Breach has not been waived; and (iv) such Breach cannot be or is not cured
within 30 days after written notice is delivered to the breaching party,
provided, however, in no case shall Acquiror be permitted to terminate this
Agreement as a result of any Breach by Acquisition Corp, and provided further,
that the condition set forth in clauses (iii) and (iv) of this paragraph need
not be satisfied to terminate this Agreement if such Breach was the result of
any intentional or grossly negligent: (A) action, (B) failure to act or (C)
misrepresentation, of or by the breaching party;
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(c) by Acquiror if: (i) any of the conditions in Article 8 has not
been satisfied as of the Closing Date or if satisfaction of such a condition is
or becomes impossible (other than through the failure of Acquiror or Acquisition
Corp to comply with its respective obligations under this Agreement); (ii) the
failure to satisfy such condition would reasonably be expected to have a
Material Adverse Effect upon Acquiror or its stockholders or Heritage or its
shareholders if the Closing were to occur; and (iii) Acquiror has not waived
such condition on or before the Closing Date, provided, however, that the
condition set forth in clause (iii) of this paragraph need not be satisfied to
terminate this Agreement if such Breach was the result of any intentional or
grossly negligent: (A) action, (B) failure to act or (C) misrepresentation, of
or by Heritage;
(d) by Heritage if: (i) any of the conditions in Article 9 has not
been satisfied as of the Closing Date or if satisfaction of such a condition is
or becomes impossible (other than through the failure of Heritage to comply with
its obligations under this Agreement); (ii) the failure to satisfy such
condition would reasonably be expected to have a Material Adverse Effect upon
Acquiror or its stockholders or Heritage or its shareholders if the Closing were
to occur; and (iii) Heritage has not waived such condition on or before the
Closing Date, provided, however, that the condition set forth in clause (iii) of
this paragraph need not be satisfied to terminate this Agreement if such Breach
was the result of any intentional or grossly negligent: (A) action, (B) failure
to act or (C) misrepresentation, of or by Acquiror or Acquisition Corp;
(e) by either Acquiror or Heritage if the Closing has not occurred
(other than through the failure of any party seeking to terminate this Agreement
to comply fully with its obligations under this Agreement) on or before the date
which is nine months after the date of this Agreement, or twelve months after
the date of this Agreement in the event a protest is filed with the Regulatory
Authorities alleging the failure of either party to comply with the Community
Reinvestment Act of 1977, as amended, or such later date as the parties may
agree upon;
(f) by Acquiror pursuant to the provisions of Section 6.13; and
(g) by Heritage pursuant to the provisions of Section 3.2.
In the event either Acquiror or Heritage elects to effect any termination
pursuant to Sections 10.1(b) -10.1(g) above, it shall give written notice to the
other specifying the basis for such termination and certifying that such
termination has been approved by the vote of a majority of the members of its
Board of Directors.
SECTION 10.2 EFFECT OF TERMINATION. If this Agreement is terminated
---------------------
pursuant to Section 10.1, all further obligations of the parties under this
Agreement (except those set forth in Sections 10.3, 10.4 and 11.6 and any other
obligations set forth herein that are expressly stated to survive any such
termination) will terminate, provided, however, that if this Agreement is
terminated by a party because of the Breach of the Agreement by the other party
or because one or more of the conditions to the terminating party's obligations
under this Agreement is not satisfied as a result of the other party's failure
to comply with its obligations under this Agreement, the terminating party's
right to pursue all legal remedies will survive such termination unimpaired.
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SECTION 10.3 PAYMENT TO ACQUIROR. If the Merger contemplated herein is
-------------------
not consummated because Heritage willfully Breaches any of its representations,
warranties, covenants or obligations under this Agreement, unless such Breach is
a result of the failure by Acquiror or Acquisition Corp to perform and comply in
all material respects with any of its material obligations under this Agreement
which are to be performed or complied with by it prior to or on the date
required hereunder, then, in addition to any other legal remedies available to
Acquiror, Heritage shall pay to Acquiror, upon its written demand, an amount
equal to Acquiror's costs and expenses incurred in connection with this
Agreement, provided, however, that such amount shall in no event be greater than
$1,000,000. Notwithstanding anything contained herein or in the Stock Option
Agreement to the contrary, Acquiror agrees that it shall have no further legal
or equitable remedy available to it as a result of any Breach by Heritage if
Acquiror has exercised all or any part of the Option granted under the Stock
Option Agreement, provided, however, that the provisions of this Section shall
in no way limit Acquiror's rights against any third party who is neither an
Affiliate nor a Representative of Heritage.
SECTION 10.4 PAYMENT TO HERITAGE. If the Merger contemplated herein is
-------------------
not consummated because Acquiror willfully Breaches any of its representations,
warranties, covenants or obligations under this Agreement, unless such Breach is
a result of the failure by Heritage to perform and comply in all material
respects with any of its material obligations under this Agreement which are to
be performed or complied with by it prior to or on the date required hereunder,
then, in addition to any other legal remedies available to Heritage, Acquiror
shall pay to Heritage, upon its written demand, an amount equal to Heritage's
costs and expenses incurred in connection with this Agreement (including any
amounts paid in contemplation of the Closing), provided, however, that such
amount shall in no event be greater than $1,000,000.
ARTICLE 11
MISCELLANEOUS
SECTION 11.1 GOVERNING LAW. All questions concerning the construction,
-------------
validity and interpretation of this Agreement and the performance of the
obligations imposed by this Agreement shall be governed by the internal laws of
the State of Illinois applicable to Contracts made and wholly to be performed in
such state without regard to conflicts of laws.
SECTION 11.2 ASSIGNMENTS, SUCCESSORS AND NO THIRD PARTY RIGHTS. None of
-------------------------------------------------
the parties to this Agreement may assign any of its rights under this Agreement
without the prior consent of the other parties. Subject to the preceding
sentence, this Agreement and every representation, warranty, covenant, agreement
and provision hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. Except
with respect to those Persons who are clearly contemplated to receive the
benefits of Acquiror's covenants in Sections 7.6, 7.7 and 7.9, nothing expressed
or referred to in this Agreement will be construed to give any Person other than
the parties to this Agreement any legal or equitable right, remedy or claim
under or with respect to this Agreement or any provision of this Agreement.
SECTION 11.3 WAIVER. The rights and remedies of the parties to this
------
Agreement are
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cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power or privilege, and no single or partial exercise of any such right, power
or privilege will preclude any other or further exercise of such right, power or
privilege or the exercise of any other right, power or privilege. To the maximum
extent permitted by applicable law: (a) no claim or right arising out of this
Agreement or the documents referred to in this Agreement can be discharged by
one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
SECTION 11.4 EXPENSES. Except as otherwise expressly provided in this
--------
Agreement, each party to this Agreement will bear its respective expenses
incurred in connection with the preparation, execution, and performance of this
Agreement and the Contemplated Transactions, provided, however, that Acquiror
and Heritage agree to bear and pay one-half of the costs in connection with the
printing and mailing of the Registration Statement and the Proxy Statement-
Prospectus. In the event of termination of this Agreement, the obligation of
each party to pay its own expenses will be subject to any rights of such party
arising from a Breach of this Agreement by the other party.
SECTION 11.5 PUBLICITY. Any public announcement or similar publicity
---------
with respect to this Agreement or the Contemplated Transactions will be issued,
if at all, at such time and in such manner as Acquiror and Heritage shall
jointly determine. Unless consented to by the other in advance or required by
Legal Requirements, prior to the Closing neither Acquiror nor Heritage shall,
and shall cause each of its respective Subsidiaries to, keep this Agreement
strictly confidential and may not make any disclosure of this Agreement to any
Person. Heritage and Acquiror will consult with each other concerning the means
by which their respective employees, customers and suppliers and others having
dealings with either of them and their respective Subsidiaries will be informed
of the Contemplated Transactions.
SECTION 11.6 CONFIDENTIALITY. Between the date of this Agreement and the
---------------
Closing Date, each of Acquiror and Heritage will maintain in confidence, and
will cause each of its respective Representatives to maintain in confidence, and
not use to the detriment of the other or its Subsidiaries any written, oral, or
other information obtained in confidence from the other of any of its
Subsidiaries in connection with this Agreement or the Contemplated Transactions,
unless: (a) such information is already known to such party or to others not
bound by a duty of confidentiality or such information becomes publicly
available through no fault of such party; (b) the use of such information is
necessary or appropriate in making any filing or obtaining any consent or
approval required for the consummation of the Contemplated Transactions; or (c)
the furnishing or use of such information is required by or necessary or
appropriate in connection with any legal proceedings. If the Contemplated
Transactions are not consummated, each party will return or destroy as much of
such written information as the other party may reasonably request.
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SECTION 11.7 NOTICES. All notices, consents, waivers and other
-------
communications under this Agreement must be in writing (which shall include
telecopier communication) and will be deemed to have been duly given if
delivered by hand or by nationally recognized overnight delivery service
(receipt requested), mailed with first class postage prepaid or telecopied if
confirmed immediately thereafter by also mailing a copy of any notice, request
or other communication by mail with first class postage prepaid:
(a) If to Acquiror, to:
First Midwest Bancorp, Inc.
300 Park Boulevard, Suite 405
Itasca, Illinois 60143-0459
Telephone: (630) 875-7455
Telecopier: (630) 875-7474
Attention: Mr. Robert P. O'Meara
President
with copies to:
Hinshaw & Culbertson
222 North LaSalle Street, Suite 300
Chicago, Illinois 60603
Telephone: (312) 704-3852
Telecopier: (312) 704-3001
Attention: Timothy M. Sullivan, Esq.
(b) if to Heritage, to:
Heritage Financial Services, Inc.
12015 South Western Avenue
Blue Island, Illinois 60406
Attention: Richard T. Wojcik
Chairman and Chief Executive Officer
Telephone: (708) 385-2900
Telecopier: (708) 385-2926
with copies to:
Barack Ferrazzano Kirschbaum Perlman & Nagelberg
333 West Wacker
Suite 2700
Chicago, Illinois 60606
Attention: John E. Freechack, Esq.
Telephone: (312) 984-3100
65
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Telecopier: (312) 984-3193
and to:
Joel S. Corwin, Esq.
Two First National Plaza
20 South Clark Street, Suite 2200
Chicago, Illinois 60603
Telephone: (312) 357-0100
Telecopier: (312) 357-0333
or to such other Person or place as Heritage shall furnish to Acquiror or
Acquiror shall furnish to Heritage in writing. Except as otherwise provided
herein, all such notices, consents, waivers and other communications shall be
effective: (a) if delivered by hand, when delivered; (b) if mailed in the
manner provided in this Section, five Business Days after deposit with the
United States Postal Service; (c) if delivered by overnight express delivery
service, on the next Business Day after deposit with such service; and (d) if by
telecopier, on the next Business Day if also confirmed by mail in the manner
provided in this Section.
SECTION 11.8 ENTIRE AGREEMENT. This Agreement and any documents executed
----------------
by the parties pursuant to this Agreement and referred to herein constitute the
entire understanding and agreement of the parties hereto and supersede all other
prior agreements and understandings, written or oral, relating to such subject
matter between the parties, provided, however, that the provisions of that
certain Confidentiality Agreement dated as of November 19, 1997, between
McDonald & Company Securities, Inc., as agent for Heritage, and Acquiror shall
only terminate concurrently with the Closing, if any, and otherwise shall only
terminate in accordance with its terms.
SECTION 11.9 MODIFICATION. This Agreement may not be amended except by a
------------
written agreement executed by the party to be charged with the amendment.
SECTION 11.10 SEVERABILITY. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement unless the
consummation of the Contemplated Transactions is adversely affected thereby.
SECTION 11.11 FURTHER ASSURANCES. The parties agree: (a) to furnish upon
------------------
request to each other such further information; (b) to execute and deliver to
each other such other documents; and (c) to do such other acts and things, all
as the other party may reasonably request for the purpose of carrying out the
intent of this Agreement and the documents referred to in this Agreement.
SECTION 11.12 JURISDICTION AND SERVICE OF PROCESS. Any action or
-----------------------------------
proceeding seeking to enforce any provision of, or based on any right arising
out of, this Agreement may be brought against
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any of the parties in the courts of the State of Illinois, County of Cook or, if
it has or can acquire jurisdiction, in the United States District Court for the
Northern District of the State of Illinois, and each of the parties consents to
the jurisdiction of such courts (and of the appropriate appellate courts) in any
such action or proceeding and waives any objection to venue laid therein.
Process in any action or proceeding referred to in the preceding sentence may be
served on any party anywhere in the world.
SECTION 11.13 COUNTERPARTS. This Agreement and any amendments thereto may
------------
be executed in any number of counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same agreement.
[THIS SPACE LEFT INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers on the day and year first written above.
ATTEST HERITAGE FINANCIAL SERVICES, INC.
By: /s/ RONALD P. GROEBE By: /s/ RICHARD T. WOJCIK
---------------------------- ------------------------------
Ronald P. Groebe Richard T. Wojcik
Secretary Chairman and Chief Executive
Officer
ATTEST FIRST MIDWEST ACQUISITION
CORPORATION
By: /s/ JAMES M. ROOLF By: /s/ DONALD J. SWISTOWICZ
------------------------------ ------------------------------
Name: JAMES M. ROOLF Name: DONALD J. SWISTOWICZ
------------------------ ------------------------
Title: SR. V.P. & CORP. SEC Title: EXECUTIVE V.P.
--=-------------------- -----------------------
ATTEST FIRST MIDWEST BANCORP, INC.
By: /s/ JAMES M. ROOLF By: /s/ DONALD J. SWISTOWICZ
------------------------------ -------------------------------
Name: JAMES M. ROOLF Name: DONALD J. SWISTOWICZ
------------------------ -------------------------
Title: SR. V.P. & CORP. SEC Title: EXECUTIVE V.P.
----------------------- ------------------------
<PAGE>
EXHIBITS TO AGREEMENT AND PLAN OF MERGER DATED JANUARY 14, 1998 AMONG FIRST
MIDWEST BANCORP, INC., HERITAGE FINANCIAL SERVICES, INC. AND FIRST MIDWEST
------------------------------------------------------------------
ACQUISITION CORPORATION*
- ------------------------
EXHIBIT DESCRIPTION SECTION
- -----------------------------------------------------------------------
Exhibit A - Legal Opinion of First Midwest's Counsel 2.7(j)
Exhibit B - Legal Opinion of Heritage's Counsel 2.8(p)
Exhibit C - Exchange Agent Agreement 3.4(a)
Exhibit D - Affiliate's Representation Letter 6.11
Exhibit E - Stock Option Agreement 6.14
Exhibit F - List of Directors to be Appointed 7.11
___________
*Pursuant to Regulation S-K Item 601(b)(2), the exhibits listed on this page
(other than Exhibit E which is filed as a separate exhibit) have been omitted
from the filing of the Agreement and Plan of Merger with the Securities and
Exchange Commission ("Commission"). The Registrant agrees to furnish
supplementally a copy of any omitted exhibit to the Commission on request.
<PAGE>
APPENDIX B
______, 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 Acquisition Corporation, 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.
B-1
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Board of Directors
________, 1998
Page 2
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
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;
B-2
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Board of Director
_______, 1998
Page 3
(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 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,
B-3
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Board of Directors
_______, 1998
Page 4
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 Joint Proxy Statement/Prospectus to be mailed to the
holders of Heritage Common and First Midwest Common Stock 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.
B-4
<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
D-1
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person on whose behalf the record owner asserts dissenters' rights. The rights
of a partial dissenter 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 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
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(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
D-3
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the shares materially exceeds the fair value of the shares as determined by the
court, then all or any part of the 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 benefited. 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>
APPENDIX E
STOCK OPTION AGREEMENT
----------------------
THIS STOCK OPTION AGREEMENT (the "Agreement"), dated as of January 14,
1998, between First Midwest Bancorp, Inc. ("Acquiror"), a Delaware corporation
registered as a bank holding company under the Bank Holding Company Act of 1956,
as amended (the "BHCA"), and Heritage Financial Services, Inc. ("Heritage"), an
Illinois corporation registered as a bank holding company under the BHCA.
WITNESSETH
----------
WHEREAS, the Boards of Directors of Acquiror and Heritage have approved an
Agreement and Plan of Merger, dated as of the date hereof (the "Merger
Agreement"), providing for the merger of Heritage with and into a wholly owned
subsidiary of Acquiror (the "Merger"); and
WHEREAS, to induce Acquiror to enter into the Merger Agreement, Acquiror
has required that Heritage agree, and Heritage has agreed, to grant to Acquiror
the option set forth herein to purchase shares of Heritage's authorized but
unissued common stock, no par value per share ("Heritage Common Stock").
NOW, THEREFORE, in consideration of the premises herein contained, the
parties agree as follows:
1. DEFINITIONS. Capitalized terms defined in the Merger Agreement
------------
and used herein shall have the same meaning as in the Merger Agreement unless
otherwise specified herein.
2. OPTION.
------
(A) GRANT OF OPTION. Subject to the terms and conditions set
----------------
forth herein, Heritage hereby grants to Acquiror an unconditional, irrevocable
option (the "Option") to purchase up to 2,400,000 shares of Heritage Common
Stock (the "Option Shares") at an exercise price of $21.25 per share (with the
number of Option Shares and price per share being subject to adjustment pursuant
to Section 7 hereof), payable in cash as provided in Section 4 hereof; provided,
however, that in the event Heritage issues or agrees to issue any shares of
Heritage Common Stock (except for shares issued pursuant to Heritage Stock
Option Plans) after the date hereof at a price less than $21.25 per share (as
adjusted pursuant to Section 7 hereof), the exercise price shall be equal to
such lesser price; and provided further that in no event shall the aggregate
number of Option Shares issuable under the Option exceed 19.9 percent of the
number of shares of Heritage Common Stock then issued and outstanding before
giving effect to the issuance of the Option Shares.
<PAGE>
(B) EXERCISE PRICE. Upon any exercise of the Option, in the event
--------------
the "Aggregate Value" of the Option, as defined below, exceeds the Aggregate
Value Cap (as defined below), the exercise price shall be increased so that the
Aggregate Value is reduced to the amount of the Aggregate Value Cap. The term
"Aggregate Value" shall mean the amount arrived at by (i) subtracting the
exercise price from the then market value of a share of Heritage Common Stock
and (ii) multiplying the result by the total number of Option Shares purchasable
upon exercise of the Option. The market value of a share of Heritage Common
Stock shall be the most recent closing sale price for a share as reported on any
exchange or the Nasdaq Stock Market as of the close of the Business Day
preceding the date on which Acquiror consummates its purchase of the Option
Shares, or, if the shares of Heritage Common Stock are not traded on an exchange
or such market, the value of a share of Heritage Common Stock as determined as
of such Business Day by a nationally recognized investment banking firm selected
by Acquiror. The term "Aggregate Value Cap" means $12,000,000 reduced by the sum
of Aggregate Values of all previous Option exercises.
3. EXERCISE OF OPTION.
-------------------
(A) EXPIRATION OF OPTION. Subject to compliance with applicable
--------------------
provisions of law, Acquiror may exercise the Option, in whole or part, at any
time or from time to time upon the occurrence or during the continuance of a
Purchase Event (as defined below); provided that to the extent the Option shall
not have been exercised, it shall terminate and be of no further force and
effect (i) at the Effective Time of the Merger; (ii) upon a termination of the
Merger Agreement pursuant to Section 10.1(a) thereof; (iii) the acquisition by
upon a termination of the Merger Agreement by Heritage pursuant to Sections
10.1(b), 10.1(d), 10.1(e) or 10.l(f) of the Merger Agreement; (iv) on the 360th
day after the termination of the Merger Agreement (such 360-day period after
termination of the Merger Agreement is referred to herein as the "Post-
Termination Period") for any other reason if no Purchase Event has occurred or
continued during the term of the Merger Agreement or during the Post-Termination
Period; or (v) on the 360th day after the discontinuance of all Purchase Events
that occurred or continued during the term of the Merger Agreement or during the
Post-Termination Period if a Purchase Event occurred or continued during any
such term or period.
(B) PURCHASE EVENT. As used herein, "Purchase Event" shall mean:
--------------
(i) the Board of Directors of Heritage shall not have recommended that the
shareholders of Heritage reject a publicly disclosed offer to Heritage's
shareholders to engage in an Acquisition Transaction with any person other than
Acquiror or its Subsidiaries; (ii) Heritage, without having received Acquiror's
prior written consent, shall have entered into an agreement to engage in an
Acquisition Transaction with any person (other than Acquiror or its
Subsidiaries); (iii) Heritage or any of its Representatives shall have breached
Section 6.7 of the Merger Agreement; or (iv) a proposal is made by a third party
to Heritage or its shareholders to engage in an Acquisition Transaction and
Heritage shall have willfully breached any of its representations, warranties,
covenants or agreements contained in the Merger Agreement which breach would
entitle Acquiror to terminate the Merger Agreement (without regard to the cure
periods provided for therein) and such breach shall not have been cured prior to
the Notice Date (as defined below). If more than one of the transactions giving
rise to a Purchase Event under this Section 3(b) is undertaken or effected, then
2
<PAGE>
all such transactions shall give rise only to one Purchase Event, which Purchase
Event shall be deemed continuing for all purposes hereof until all such
transactions are abandoned. As used in this Agreement, "person" shall have the
meanings specified in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange
Act of 1934, as amended.
(C) NOTICE OF PURCHASE EVENT. Heritage shall notify Acquiror
------------------------
promptly in writing of the occurrence of any Purchase Event; provided, however,
that the giving of such notice by Heritage shall not be a condition to the right
of Acquiror to exercise the Option.
(D) NOTICE OF EXERCISE. In the event Acquiror wishes to exercise
------------------
the Option, it shall send to Heritage a written notice (the date of which being
herein referred to as the "Notice Date") specifying (i) the total number of
shares it will purchase pursuant to such exercise, and (ii) a place and date not
earlier than ten business days nor later than twenty business days from the
Notice Date for the closing of such purchase. Notwithstanding the foregoing, if
prior notification to or approval of the Federal Reserve or any other Regulatory
Authority is required in connection with such purchase, Acquiror shall promptly
file the required notice or application for approval and shall expeditiously
process the same and the period of time that otherwise would run pursuant to the
preceding sentence shall run instead from the date on which any required
notification periods have expired or been terminated or such approvals have been
obtained and any requisite waiting period or periods shall have passed. Any
exercise of the Option shall be deemed to occur on the Notice Date relating
thereto.
(E) ELECTION OF REMEDIES. First Midwest shall not be entitled to
--------------------
exercise the Option in the event it elects to sue Heritage for damages because
of Heritage's Breach of the Merger Agreement. The exercise of the Option by
First Midwest shall not be deemed to deprive First Midwest of any right to
pursue any remedies it might have against any Person who is neither Heritage nor
an Affiliate or Representative of Heritage.
4. PAYMENT AND DELIVERY OF CERTIFICATES.
-------------------------------------
(A) PAYMENT. At the closing referred to in Section 3(d) hereof,
-------
Acquiror shall pay to Heritage the aggregate purchase price for the shares
purchased pursuant to the exercise of the Option in immediately available funds
by a wire transfer to a bank account designated by Heritage; provided that the
failure or refusal of Heritage to designate such a bank account shall not
preclude Acquiror from exercising the Option.
(B) DELIVERY OF CERTIFICATES. At such closing, simultaneously
------------------------
with the delivery of cash as provided in subsection (a) above, Heritage shall
deliver to Acquiror a certificate or certificates representing the number of
shares of Heritage Common Stock purchased by Acquiror, which certificates may
bear the legend set forth in Section 4(c) below, and Acquiror shall deliver to
Heritage a letter agreeing that Acquiror will not offer to sell or otherwise
dispose of such shares in violation of this Agreement or applicable law or in a
manner that would result in Acquiror becoming an "underwriter" within the
meaning of that term under the Securities Act. Heritage shall pay all expenses
and any and all United States federal, state and local taxes (other than income
taxes) and other charges that may be payable in connection with the preparation,
3
<PAGE>
issuance and delivery of stock certificates under this Section 4 in the name of
Acquiror or its assignee, transferee or designee. Upon the giving by Acquiror to
Heritage of the written notice of exercise of the Option provided for under
Section 3(d) above and the tender of the applicable purchase price in
immediately available funds, Acquiror shall be deemed to be the holder of record
of the shares of Heritage Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of Heritage shall then be closed
or that certificates representing such shares of Heritage Common Stock shall not
then be actually delivered to Acquiror.
(C) RESTRICTIVE LEGEND. Certificates for Heritage Common Stock
------------------
delivered at a closing hereunder may be endorsed with a restrictive legend that
shall read substantially as follows:
"The transfer of the shares represented by this certificate is
subject to certain provisions of an agreement between the registered holder
hereof and the Issuer and to resale restrictions arising under the
Securities Act of 1933, as amended, and any applicable state securities
laws, a copy of which agreement is on file at the principal office of the
Issuer. A copy of such agreement will be mailed to the holder hereof
without charge within five days after the receipt by the Issuer of a
written request."
It is understood that (i) the reference to the resale restrictions of the
Securities Act in the above legend shall be removed by delivery of substitute
certificate(s) without reference if Acquiror shall have delivered to Heritage a
copy of a letter from the staff of the SEC, or an opinion of counsel, in form
and substance reasonably satisfactory to Heritage, to the effect that such
legend is not required for purposes of the Securities Act; (ii) the reference to
the provisions of this Agreement in the above legend shall be removed by
delivery of substitute certificate(s) without such reference if the shares have
been sold or transferred in compliance with the provisions of this Agreement and
under circumstances that do not require the retention of such reference; and
(iii) the legend shall be removed in its entirety if the conditions in the
preceding clauses (i) and (ii) are both satisfied. In addition, such
certificates shall bear any other legend as may be required by law.
5. HERITAGE REPRESENTATIONS. Heritage hereby represents and
------------------------
warrants to Acquiror as follows:
(A) RESERVATION OF SHARES. Heritage has taken all necessary
---------------------
corporate action to authorize and reserve for issuance a sufficient number of
shares of Heritage Common Stock to satisfy its obligations upon the exercise of
the Option without additional authorization of Heritage Common Stock after
giving effect to all other options, warrants, convertible securities and other
rights to purchase Heritage Common Stock. Heritage shall not, by charter
amendment or through reorganization, consolidation, merger, dissolution or sale
of assets or by any other voluntary act, avoid or seek to avoid the observance
or performance of any of the covenants, stipulations or conditions to be
observed or performed hereunder by Heritage.
(B) DULY AUTHORIZED SHARES. The shares of Heritage Common Stock
----------------------
to be issued upon exercise, in whole or in part, of the Option, when paid for as
provided herein,
4
<PAGE>
will be duly authorized, validly issued, fully paid and nonassessable, and will
be delivered free and clear of all claims, liens, encumbrances and security
interests and will not be subject to any preemptive rights.
(C) ADDITIONAL ACTIONS. Heritage shall promptly take all
------------------
reasonable action as may from time to time be required to be taken by it
(including (A) complying with all premerger notification, reporting and waiting
period requirements applicable to it specified in 15 U.S.C. Section 18a and
regulations promulgated thereunder, and (B) in the event, under the BHCA or a
state banking law, prior approval of or notice to the Federal Reserve or to any
other Regulatory Authority is necessary before the Option may be exercised,
cooperating fully with Acquiror in preparing such applications or notices and
providing such information to the applicable Regulatory Authority as may be
required) in order to permit Acquiror to exercise the Option and Heritage duly
and effectively to issue shares of Heritage Common Stock pursuant thereto.
Heritage shall promptly take all other reasonable action provided herein to
protect the rights of Acquiror against dilution.
(D) PRINCIPAL STOCKHOLDERS. To the Knowledge of Heritage, as of
----------------------
the date of this Agreement, no person owns beneficially more than ten percent of
the outstanding shares of its Common Stock, except as set forth on Heritage's
1997 Proxy Statement.
6. ACQUIROR REPRESENTATIONS. Acquiror hereby represents and
------------------------
warrants to Heritage that Acquiror will not transfer or otherwise dispose of any
shares purchased by Acquiror pursuant to this Agreement except in a transaction
registered or exempt from registration under the Securities Act, and otherwise
in accordance with the terms of this Agreement.
7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
-----------------------------------------
(A) STOCK DIVIDENDS. In the event of any change in the
---------------
outstanding Heritage Common Stock by reason of stock dividends, split-ups,
mergers, recapitalizations, combinations, exchanges of shares, or the like (but
excluding any exercise of stock options pursuant to any of the Heritage Stock
Option Plans), the type and number of shares subject to the Option, or the
purchase price per share, as the case may be, shall be adjusted appropriately,
and proper provision shall be made in the agreements governing any such
transaction so that Acquiror shall receive upon exercise of the Option the
number and class of shares, other securities or property that Acquiror would
have received in respect of the shares of Heritage Common Stock subject to the
Option if the Option had been exercised and the Heritage Common Stock subject to
the Option had been issued to Acquiror immediately prior to such event or the
record date therefor, as applicable.
(B) ISSUANCE OF ADDITIONAL SHARES. In the event that any
-----------------------------
additional shares of Heritage Common Stock are issued after the date of this
Agreement (other than pursuant to this Agreement or as provided in Section 7(a)
above or pursuant to any exercise of stock options pursuant to any of the
Heritage Stock Option Plans), the number of shares subject to the Option shall
be adjusted after such issuance, so that it equals 19.9 percent of the number of
shares of Heritage Common Stock then issued and outstanding before giving effect
to the issuance of the
5
<PAGE>
Option Shares; provided, however, that nothing contained in this Section 7 shall
be deemed to authorize Heritage to issue any shares of its Common Stock in
breach of the provisions of the Merger Agreement; and provided further that in
no event shall the number of shares subject to the Option exceed 19.9 percent of
Heritage's issued and outstanding Common Stock, before giving effect to the
issuance of the Option Shares.
8. REPURCHASE.
----------
(A) REPURCHASE PRICE. In the event that after the date hereof any
----------------
person, other than Acquiror or any of its Subsidiaries, acquires beneficial
ownership of 20% or more of the outstanding shares of Heritage Common Stock; or
the Board of Directors of Heritage shall accept or publicly recommend that the
shareholders of Heritage accept an offer from a person, other than Acquiror or
its Subsidiaries, to acquire 20% or more of either the outstanding shares of
Heritage Common Stock or the consolidated assets of Heritage (a "Repurchase
Event"), at the request of Acquiror and subject to any regulatory requirements,
Heritage shall repurchase the Option but only prior to the expiration thereof
from Acquiror together with any of the Option Shares purchased by Acquiror
pursuant thereto, at a price equal to the sum of:
(i) the exercise price paid by Acquiror for any of the Option
Shares;
(ii) the difference between the "market/tender offer price" (as
defined below) for shares of Heritage Common Stock and the exercise
price as determined pursuant to Section 2 hereof, multiplied by the
number of shares of Heritage Common Stock with respect to which the
Option has not been exercised, but only if the market/tender offer
price is greater than such exercise price;
(iii) the difference between the market/tender offer price (as
defined below) and the exercise price paid by Acquiror for any Option
Shares, multiplied by the number of shares so purchased, but only if
the market/tender offer price is greater than such exercise price;
(iv) Acquiror's costs and expenses as provided in Section
10.3(a) of the Merger Agreement; provided there shall be no
duplication of payment under this Agreement and the Merger Agreement.
Any payment under this Section 8(a)(iv) shall only be made if no
payment has been made under Section 10.3(a) of the Merger Agreement,
and any payment under this Section 8(a)(iv) shall discharge any and
all obligations to Heritage to make a payment under Section 10.3(a) of
the Merger Agreement; and
(v) Notwithstanding the foregoing, the maximum amount payable
by Heritage to Acquiror pursuant to the provisions of this Section
8(a) shall not exceed the sum of (i) the aggregate exercise price paid
by Acquiror to Heritage in connection with the actual purchase by
Acquiror of any Option Shares, (ii) $12,000,000, and (iii) the amount
specified in Section 8(a)(iv) above.
6
<PAGE>
As used herein, the phrase "market/tender offer price" shall mean the greater of
(x) the price per share at which a tender or exchange offer has been made if
such tender or exchange offer shall have given rise to the Repurchase Event, or
(y) the highest price paid by a person, whose actions shall have given rise to
the Repurchase Event, for shares of Heritage Common Stock at any time after the
date of this Agreement, or (z) the highest closing price for shares of Heritage
Common Stock within the four-month period immediately preceding the date
Acquiror gives notice of the required repurchase of the Option. In the event
the consideration used in a Repurchase Event is payable, in whole or in part, in
securities or other property, the value of such securities or other property
shall be determined by a nationally recognized investment banking firm selected
by Acquiror.
(B) REPURCHASE DATE. In the event Acquiror exercises its right to
---------------
require the repurchase of the Option and/or the Option Shares, Heritage shall,
within three business days thereafter, pay the required amount to Acquiror in
immediately available funds to an account designated by Acquiror and Acquiror
shall surrender the Option and the certificates evidencing the Option Shares.
(C) HERITAGE'S REPURCHASE RIGHT. At Heritage's option, Heritage
---------------------------
may repurchase the Option and the Option Shares from Acquiror at the price
specified in Section 8(a) (as limited by Section 8(a)(v)) at any time beginning
on the 360th day after the discontinuance of all Purchase Events that occurred
or continued during the term of the Merger Agreement or during the Post-
Termination Period if a Purchase Event occurred or continued during any such
term or period.
(D) HERITAGE'S FIRST RIGHT OF REFUSAL. If, at any time within
---------------------------------
eighteen months after the acquisition of Option Shares by Acquiror, it shall
desire to sell, assign, transfer or otherwise dispose of all or any of the
Option Shares, it shall give Heritage written notice of the proposed transaction
(an "Offeror's Notice"), identifying the proposed transferee, and setting forth
the terms of the proposed transaction. An Offeror's Notice shall be deemed an
offer by Acquiror to Heritage, which may be accepted within five business days
of the receipt of such Offeror's Notice, on the same terms and conditions and at
the same price at which Acquiror is proposing to transfer the Option Shares to a
third party. The purchase of the number of the Option Shares by Heritage
specified in the Offeror's Notice shall be closed within ten business days of
the date of the acceptance of the offer and the purchase price shall be paid to
Acquiror by wire transfer of immediately available funds to an account
designated by Acquiror. In the event of the failure or refusal of Heritage to
purchase all the Option Shares covered by the Offeror's Notice or if any
Regulatory Authority disapproves Heritage's proposed purchase of the Option
Shares, Acquiror may, within sixty days from the latter to occur of Heritage's
failure or refusal or the date of such disapproval, sell the number of Option
Shares specified in the Offeror's Notice to such third party at no less than the
price specified and on terms no more favorable to the purchaser than those set
forth in the Offeror's Notice. The requirements of this Section 8(d) shall not
apply to any disposition as a result of which the proposed transferee would
beneficially own not more than 2% of the voting power of Heritage.
7
<PAGE>
9. REGISTRATION RIGHTS.
-------------------
(A) REGISTRATION PROCEDURE. If a Purchase Event shall have
----------------------
occurred and be continuing, if requested by Acquiror at any time during the
three-year period beginning on the date of the acquisition of any of the Option
Shares, as expeditiously as possible, use its best efforts to effect the
registration of the Option Shares, on a form of general use under the Securities
Act, in order to permit the sale or other disposition of such shares in
accordance with the intended method of sale or other disposition requested by
Acquiror and by any underwriter selected by Acquiror; provided, however, that
Acquiror may effect only two registrations pursuant to this Section 9. The first
registration effected under this Section 9(a) shall be at Heritage's expense. If
a second registration is requested hereunder by Acquiror, it shall be paid for
equally by Acquiror and Heritage. In connection with such registrations, each
party shall pay the fees and expenses of its own legal counsel and Acquiror
shall pay all blue sky fees and any underwriting discounts and commissions
incurred in connection with such registrations. Acquiror shall provide such
information as may be necessary for Heritage's preparation of the registration
statement. Heritage will use its best efforts to cause such registration
statement first to become effective and then to remain effective for such period
not in excess of 180 days from the day such registration statement first becomes
effective or such shorter time as may be reasonably necessary to effect such
sales or other dispositions. The obligations of Heritage hereunder to file a
registration statement and to maintain its effectiveness may be suspended for
one or more periods of time that do not exceed 120 days in the aggregate if the
Board of Directors of Heritage shall have determined that the filing of such
registration statement or the maintenance of its effectiveness would require a
special audit of Heritage or any of its Subsidiaries or the disclosure of
nonpublic information that would materially and adversely affect Heritage. The
foregoing notwithstanding, if, at the time of any request by Acquiror for
registration of the Option Shares as provided above, Heritage is in registration
with respect to an underwritten public offering of shares of its Common Stock,
and if, in the good faith judgment of the managing underwriter or managing
underwriters, or, if none, the sole underwriter or underwriters, of such
offering, the inclusion of the Option Shares would interfere with the successful
marketing of the shares of Common Stock offered by Heritage, the number of
shares represented by Option Shares which are to be covered in the registration
statement contemplated hereby may be reduced; provided, however, that after any
such required reduction the number of Option Shares to be included in such
offering for the account of Acquiror shall constitute at least 25% of the total
number of shares to be sold by Acquiror and Heritage in such offering in the
aggregate; provided, further, however, that if such reduction occurs, then
Heritage shall file a registration statement for the balance as promptly as
practical and no reduction shall thereafter occur.
(B) REGISTRATION INDEMNIFICATION. In connection with the filing
----------------------------
of any such registration statement, Heritage shall indemnify and hold harmless
Acquiror or its transferee against any losses, claims, damages or liabilities,
joint or several, to which Acquiror or its transferee may become subject,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration statement,
including any prospectus included therein, or any amendment or supplement
thereto, or arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or necessary
8
<PAGE>
to make the statements therein not misleading; and Heritage shall reimburse
Acquiror or its transferee for any legal or other expense reasonably incurred by
Acquiror or its transferee in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that Heritage
shall not be liable in any case to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or omission or
an alleged untrue statement or omission made in such registration statement, and
any prospectus included therein, or any amendment or supplement thereto, in
reliance upon and in conformity with written information furnished by or on
behalf of Acquiror or its transferee specifically for use in the preparation
thereof. Acquiror or its transferee shall indemnify and hold harmless Heritage
to the same extent as set forth in the immediately preceding sentence but only
with reference to written information furnished by or on behalf of Acquiror or
its transferee for use in the preparation of such registration statement, and
any prospectus included therein, or any amendment or supplement thereto; and
Acquiror or its transferee shall reimburse Heritage for any legal or other
expenses reasonably incurred by Heritage in connection with investigation or
defense of any such loss, claim, damage, liability or action.
10. SEVERABILITY. If any term, provision, covenant or restriction
------------
contained in this Agreement is held by a court or a Regulatory Authority of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or Regulatory Authority determines
that the Option will not permit the holder to acquire the full number of Option
Shares of Heritage Common Stock provided in Section 2 hereof (as adjusted
pursuant to Section 7 hereof), it is the express intention of Heritage to allow
the holder to acquire such lesser number of shares as may be permissible,
without any amendment or modification hereof.
11. MISCELLANEOUS.
-------------
(A) EXPENSES. Except as otherwise provided herein, each of the
--------
parties hereto shall bear and pay all costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder, including
fees and expenses of its own financial consultants, investment bankers,
accountants and counsel.
(B) ENTIRE AGREEMENT. Except as otherwise expressly provided
----------------
herein, this Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereto, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and assigns. Nothing in
this Agreement, expressed or implied, is intended to confer upon any party,
other than the parties hereto, and their respective successors and assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided herein.
(C) ASSIGNMENT. Neither of the parties hereto may assign any of
----------
its rights or obligations under this Agreement or the Option created hereunder
to any other person, without the express written consent of the other party,
except that in the event a Purchase Event
9
<PAGE>
shall have occurred and be continuing Acquiror may assign in whole or in part
the Option, and its rights and obligations hereunder; provided, however, that
until the date thirty days following the date on which the Federal Reserve
approves an application by Grantee (as defined below) under the BHCA to acquire
the Option Shares, if such approvals are necessary, Grantee may not assign its
rights under the Option except in (i) a widely dispersed public distribution,
(ii) a private placement in which no one party acquires the right to purchase in
excess of two percent of the voting shares of Heritage, (iii) an assignment to a
single party (e.g., a broker or investment banker) for the purpose of conducting
a widely dispersed public distribution on Grantee's behalf, or (iv) any other
manner approved by the Federal Reserve. "Grantee" means Acquiror or any person,
corporation or other entity to which this Agreement or the Option created hereby
is assigned pursuant to this Section 11(c).
(D) NOTICES. All notices or other communications which are
-------
required or permitted hereunder shall be in writing and sufficient if delivered
personally or by reliable overnight courier or sent by registered or certified
mail, postage prepaid, addressed as follows:
IF TO ACQUIROR: First Midwest Bancorp, Inc.
300 Park Boulevard
Suite 405
Itasca, Illinois 60143-0459
Attention: Mr. Donald J. Swistowicz,
Executive Vice President
WITH A COPY TO: Timothy M. Sullivan, Esquire
Hinshaw & Culbertson
222 North LaSalle Street, Suite 300
Chicago, Illinois 60601
IF TO HERITAGE: Heritage Financial Services, Inc.
12015 South Western Avenue
Blue Island, IL 60406
Attention: Richard T. Wojcik, Chairman and Chief
Executive Officer
WITH A COPY TO: John E. Freechack, Esquire
Barack Ferrazzano Kirschbaum Perlman & Nagelberg
333 W. Wacker Drive
Suite 2700
Chicago, IL 60606
10
<PAGE>
Joel S. Corwin, Esquire
Two First National Plaza
20 South Clark Street
Suite 2200
Chicago, Illinois 60603
A party may change its address for notice purposes by written notice to the
other party hereto. All such notices and communications shall be deemed
delivered when received by all parties entitled to such receipt hereunder.
(E) EXTENSION OF TIME. All time periods specified herein shall be
-----------------
extended, if necessary, by the length of time required for any necessary
governmental approval to be sought and received or governmental notice to be
given and the waiting period to expire, provided that any governmental
application or notice shall be made or given promptly. All of the parties hereto
shall use their best efforts to secure any required governmental approval and to
give any required governmental notice. Notwithstanding anything to the contrary
contained herein, no party shall be required to proceed with any transaction
described herein if any required governmental approval is not obtained or if,
upon the giving of any required governmental notice, the notified governmental
agency prohibits any such transaction. If any required governmental approval is
not obtained or if a governmental agency prohibits any such transaction upon
receipt of a required notice, the decision to appeal such governmental action
shall be solely that of Acquiror; provided, however, that Acquiror shall bear
all of the costs and expenses, including legal and accounting fees, incurred by
any of the parties hereto in prosecuting such an appeal. Periods of time that
otherwise would run under the terms of this Agreement shall also be extended to
the extent necessary to avoid liability under Section 16(b) of the Securities
Exchange Act of 1934, as amended.
(F) COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
(G) SPECIFIC PERFORMANCE. The parties agree that damages would be
--------------------
an inadequate remedy for a breach of the provisions of this Agreement by
Heritage and that this Agreement may be enforced by Acquiror through injunctive
or other equitable relief.
(H) GOVERNING LAW. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware applicable to
agreements made and entirely to be performed within such state and such federal
laws as may be applicable.
11
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the day and year first above written.
FIRST MIDWEST BANCORP, INC.
By: DONALD J. SWISTOWICZ
---------------------------------
Its Executive Vice President
HERITAGE FINANCIAL SERVICES, INC.
By RICHARD T. WOJCIK
----------------------------------
Its President
12
<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,
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<PAGE>
judgments, fines and settlement fees) actually and reasonably incurred by such
person in connection 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.
Exhibit
Number Description
- ---------------------
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.
II-2
<PAGE>
2.3 Agreement of Affiliates, dated as of January 14, 1998, between First
Midwest and certain of the directors and executive officers of
Heritage.
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 Draft of Opinion of Hinshaw & Culbertson regarding certain tax
matters. Original to be filed by amendment.
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.
II-3
<PAGE>
23.8 Consent of McDonald & Company Securities, Inc.
23.9 Consent of Goldman, Sachs & Co.*
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.
*To be filed by amendment.
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
II-4
<PAGE>
may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
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 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
February, 1998.
FIRST MIDWEST BANCORP, INC.
By: /s/ Robert P. O'Meara
---------------------------------
Robert P. O'Meara
President and Chief Executive Officer
POWER OF ATTORNEY
The undersigned officers and directors of First Midwest Bancorp, Inc.,
do hereby constitute and appoint Robert P. O'Meara and Donald J. Swistowicz, and
either one of them, as their attorneys-in fact with power and authority to do
any and all acts and things and to execute any and all instruments which said
attorneys-in-fact, and either one of them, determine may be necessary or
advisable or required to enable said corporation to comply with the Securities
Act of 1933, as amended, and any rules or regulations or requirements of the
Securities and Exchange Commission in connection with this Registration
Statement. Without limiting the generality of the foregoing power and
authority, the powers granted include the power and authority to sign the names
of the undersigned officers and directors in the capacities indicated below to
the Registration Statement, to any and all amendments, both pre-effective and
post-effective, and supplements to this Registration Statement, and to any and
all instruments or documents filed as part of or in conjunction with this
Registration Statement or amendments or supplements thereto, and each of the
undersigned hereby ratifies and confirms all that said attorneys-in-fact or any
of them shall do or cause to be done by virtue hereof. This Power of Attorney
may be signed in several counterparts.
II-6
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and Power of Attorney has been signed on February 27,
1998 by the following persons in their capacities indicated.
SIGNATURE CAPACITY
Chairman of the Board of Directors
__________________________________
Clarence D. Oberwortmann
/s/ Andrew B. Barber Vice Chairman of the Board of Directors
- ----------------------------------
Andrew B. Barber
/s/ Robert P. O'Meara President, Principal Executive
- ----------------------------------
Robert P. O'Meara Officer and Director
/s/ John P. O'Meara Executive Vice President, Principal
- ----------------------------------
John P. O'Meara Operating Officer and Director
/s/ Donald J. Swistowicz Executive Vice President, Principal
- ----------------------------------
Donald J. Swistowicz Financial and Accounting Officer
/s/ Vernon A. Brunner Director
- ----------------------------------
Vernon A. Brunner
/s/ Bruce S. Chelberg Director
- ----------------------------------
Bruce S. Chelberg
/s/ William J. Cowlin Director
- ----------------------------------
William J. Cowlin
/s/ O. Ralph Edwards Director
- ----------------------------------
O. Ralph Edwards
/s/ Joseph W. England Director
- ----------------------------------
Joseph W. England
/s/ Thomas M. Garvin Director
- ----------------------------------
Thomas M. Garvin
/s/ J. Stephen Vanderwoude Director
- ----------------------------------
J. Stephen Vanderwoude
II-7
<PAGE>
Exhibit 2.3
AGREEMENT OF AFFILIATES
-----------------------
THIS AGREEMENT OF AFFILIATES (the "Agreement") is made as of January 14,
1998, between the undersigned officers, directors and stockholders (the
"Affiliates") of Heritage Financial Services, Inc. ("Heritage"), and First
Midwest Bancorp, Inc. ("Acquiror"), for the purpose of inducing Acquiror and
First Midwest Acquisition Corporation to enter into an Agreement and Plan of
Merger (the "Merger Agreement") with Heritage. Capitalized terms used in this
Agreement, and not otherwise defined, have the meanings ascribed to them in the
Merger Agreement.
1. So long as the Merger Agreement has not been terminated, in
consideration of the Merger, the parties agree as follows:
(a) Each Affiliate, as an individual, shall use all reasonable efforts to
cause the Merger Agreement to be adopted by the shareholders of
Heritage and consummated according to its terms.
(b) Each Affiliate agrees to cause all shares of capital stock of Heritage
("Heritage Shares") owned by him or her or with respect to which he or
she shall have the sole right to vote, and to use all reasonable
efforts to cause shares with respect to which he or she shall share
the right to vote, to be voted in favor of the approval of the Merger
and the adoption of the Merger Agreement; provided, however, that this
provision shall not apply to any Heritage Shares held by an Affiliate
as a trustee or in any other comparable fiduciary capacity.
(c) Each Affiliate agrees that until the Merger is consummated or
abandoned pursuant to the Merger Agreement, he or she shall not,
without Acquiror's written consent, voluntarily sell or dispose of any
Heritage Shares owned or controlled by him or her or solicit, invite,
negotiate, discuss or enter into any agreement concerning any
Acquisition Transaction. Acquiror's written consent shall not be
unreasonably withheld in the event of a disposition by gift to a
charity or to a family member of the Affiliate made for estate
planning purposes and not to avoid the restrictions hereof, or in the
event of a disposition necessary to discharge a fiduciary duty as a
trustee or comparable fiduciary capacity; provided such transferee
agrees to be bound by the terms and conditions of this Agreement.
2. This Agreement may be executed in multiple counterparts at different
times by Acquiror and different Affiliates, each of which shall be an original,
but all of which together constitute one and the same agreement. This
Agreement, including each of its counterparts, shall be effective with respect
to additional Affiliates as, when, and if executed by Acquiror and such
additional Affiliates. Neither Acquiror's nor any Affiliate's rights or
obligations under this Agreement
<PAGE>
are contingent upon the execution of this Agreement by any other Affiliate and
this Agreement shall be binding only with respect to each signatory to this
Agreement and any of its counterparts.
3. This Agreement sets forth the entire agreement and understanding
between Acquiror and the Affiliates in respect of the transactions contemplated
by this Agreement and supersedes all prior agreements, arrangements, and
understandings relating to the subject matter hereof.
4. This Agreement shall continue in effect until the Merger is
consummated or the Agreement is terminated in accordance with its terms.
IN WITNESS WHEREFORE, each of the undersigned Affiliates has executed this
Agreement in his or her individual capacity as of the date first written above.
RICHARD T. WOJCIK FREDERICK J. SAMPIAS
- ------------------------- --------------------------------
Richard T. Wojcik Frederick J. Sampias
RONALD P. GROCBE JOHN T. GALLAGHER
- ------------------------- --------------------------------
Ronald P. Grocbe John T. Gallagher
LEAL W. MATHIS JACK PAYAN
- ------------------------- --------------------------------
Lael W. Mathis Jack Payan
ARTHUR E. SIELOFF JOHN L. STERLING
- ------------------------- --------------------------------
Arthur E. Sieloff John L. Sterling
CHESTER STRANCZEK ARTHUR G. TICHENOR
- ------------------------- --------------------------------
Chester Stranczek Arthur G. Tichenor
DOMINICK J. VELO JOHN E. BARRY
- ------------------------- -------------------------------------------
Dominick J. Velo John E. Barry
PAUL A. ECKROTH
- ------------------------- ____________________________________________
Paul A. Eckroth Carl C. Greer, individually and as President
of Martin Marketing and as Voting Trustee
under a Voting Trust Agreement, dated
December 31, 1985, as amended on December
31, 1995
FIRST MIDWEST BANCORP, INC.
DONALD J. SWISTOWICZ
By:----------------------------------------
Its Executive Vice President
-2-
<PAGE>
EXHIBIT 5.1
A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
HINSHAW & CULBERTSON
Belleville, Illinois 222 North La Salle Street San Francisco, California
Bloomington, Illinois Chicago, Illinois 60601-1081 Ft. Lauderdale, Florida
Champaign, Illinois Jacksonville, Florida
Crystal Lake, Illinois 312.704.3000 Miami, Florida
Joliet, Illinois _______ Tampa, Florida
Lisle, Illinois Munster, Indiana
Peoria, Illinois Telefax 312.704.3001 Minneapolis, Minnesota
Rockford, Illinois St. Louis, Missouri
Springfield, Illinois Appleton, Wisconsin
Waukegan, Illinois March 2, 1998 Brookfield, Wisconsin
Lake Geneva, Wisconsin
Milwaukee, Wisconsin
Writer's Direct Dial No. File No.
(312) 704-3852 764359
VIA FACSIMILE & FEDERAL EXPRESS
- -------------------------------
First Midwest Bancorp, Inc.
300 Park Boulevard, Suite 405
P.O. Box 459
Itasca, Illinois 60143-0459
RE: REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
You have requested our opinion in connection with the above-referenced
registration statement (the "Registration Statement") for the registration of up
to 9,725,509 shares of Common Stock, $,01 par value per share, of the Company
(the "Shares") in connection with the Company's acquisition of Heritage
Financial Services, Inc.
In arriving at the opinion expressed below, we have examined the
Registration Statement and such other documents as we have deemed necessary to
enable us to express the opinion hereinafter set forth. In our examination, we
have assumed the authenticity of all documents submitted to us as originals, the
conformity to the original documents of all documents submitted to us as copies,
the genuineness of all signatures on documents reviewed by us and the legal
capacity of natural persons.
Based upon and subject to the foregoing, we are of the opinion that the
Shares have been duly authorized and, when issued in accordance with the terms
and conditions set forth in the Registration Statement, will be validly issued,
fully paid and non-assessable.
<PAGE>
First Midwest Bancorp, Inc.
March 2, 1998
Page 2
We hereby consent to the reference to our firm under the caption "Opinions"
in the Registration Statement and to the use of this opinion as an exhibit to
the Registration Statement.
Very truly yours,
/s/ Timothy M. Sullivan
Timothy M. Sullivan
TMS/mm
<PAGE>
EXHIBIT 8.1
HINSHAW & CULBERTSON
Belleville, Illinois Suite 300 Ft. Lauderdale, Florida
Bloomington, Illinois 222 North La Salle Street Jacksonville, Florida
Champaign, Illinois Chicago, Illinois 60601-1081 Miami, Florida
Joliet, Illinois Tampa, Florida
Lisle, Illinois 312.704.3000 Munster, Indiana
Peoria, Illinois _______ Minneapolis, Minnesota
Rockford, Illinois St. Louis, Missouri
Springfield, Illinois Telefax 312.704.3001 Appleton, Wisconsin
Waukegan, Illinois Brookfield, Wisconsin
March 3, 1998 Lake Geneva, Wisconsin
Milwaukee, Wisconsin
Writer's Direct Dial No. File No.
(312) 704-3712 764359
First Midwest Bancorp, Inc. Heritage Financial Services, Inc.
300 Park Boulevard 12015 South Western Avenue
Suite 405 Blue Island, Illinois 60406
Itasca, Illinois 60143-0459
Ladies and Gentlemen:
You have requested our opinion regarding certain federal income tax
consequences of the proposed merger (the "Merger") of Heritage Financial
Services, Inc., an Illinois corporation ("Heritage"), with and into First
Midwest Acquisition Corporation, an Illinois corporation ("Acquisition Corp"), a
wholly owned subsidiary of First Midwest Bancorp, Inc., a Delaware corporation
("First Midwest"), followed by the immediate liquidation by merger of
Acquisition Corp with and into First Midwest, as described in the Registration
Statement on Form S-4 to be filed by First Midwest with the Securities and
Exchange Commission (the "Registration Statement"). This opinion is being
rendered pursuant to the requirements of Item 21(a) of Form S-4 under the
Securities Act of 1933, as amended.
In connection with this opinion, we have examined and are familiar
with originals or copies, certified or otherwise identified to our satisfaction,
of the following:
(i) the Agreement and Plan of Merger, dated as of January 14, 1998
(the "Agreement");
(ii) the Registration Statement;
(iii) the Amended and Restated Rights Agreement between First
Midwest and First Midwest Trust Company as rights agent, dated as of November
15, 1995;
(iv) First Amendment to Amended and Restated Rights Agreement between
First Midwest and First Midwest Trust Company as rights agent, dated as of June
18, 1997; and
<PAGE>
First Midwest Bancorp, Inc.
Heritage Financial Services, Inc.
March 3, 1998
Page 2
(v) the Heritage 1987 Stock Option Plan and the Heritage 1990
Executive Equity Incentive Plan.
Our opinion is based solely upon applicable law and the factual
information and undertakings contained in the documents mentioned above. In
rendering our opinion, we have assumed the accuracy of all information and the
performance of all undertakings contained in each such document. We have also
assumed the genuineness of all signatures, the legal capacity of all natural
persons, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified,
conformed, or photostatic copies, and the authenticity of the originals of such
copies. We have not attempted to verify independently the accuracy of any
information in any such document and we have assumed that such documents
accurately and completely set forth all material facts relevant to this option.
If any fact or assumption described herein is incorrect, any or all of the
federal income tax consequences described herein may be in applicable.
This opinion is subject to our receipt prior to the Effective Time (as
defined in the Agreement) of certain written representations and undertakings of
First Midwest, Heritage, and certain officers and directors of Heritage.
Based on and subject to the limitations and conditions identified
herein, it is our opinion that the Merger would give rise to the following
federal income tax consequences under the Internal Revenue Code of 1986, as
amended to the date hereof (the "Code"):
1. The Merger of Heritage with and into Acquisition Corp
followed by the complete liquidation of Acquisition Corp by
merger with and into First Midwest will not be accorded
independent significance, but rather will be disregarded.
Instead, the Merger followed by the liquidation of Acquisition
Corp will be treated as an acquisition by First Midwest of
substantially all the assets of Heritage in exchange for First
Midwest Common Stock (as defined in the Agreement) and will
constitute a reorganization within the meaning of section
368(a)(1) of the Code. Heritage and First Midwest will each be a
"party to a reorganization" within the meaning of section 368(b)
of the Code.
2. No gain or loss will be recognized by the shareholders of
Heritage who receive shares of First Midwest Common Stock in
exchange for all of their shares of Heritage Common Stock (as
defined in the Agreement), except to the extent of any cash
received in lieu of a fractional share of First Midwest Common
Stock.
<PAGE>
First Midwest Bancorp, Inc.
Heritage Financial Services, Inc.
March 3, 1998
Page 3
3. No gain or loss will be recognized by First Midwest or
Heritage, as parties to a reorganization.
4. The aggregate adjusted basis of First Midwest Common Stock
to be received by shareholders of Heritage will, in each
instance, be the same as the aggregate adjusted basis of the
respective shares of Heritage Common Stock surrendered in
exchange therefor (reduced by any amount allocable to a
fractional share interest for which cash is received).
5. The holding period of the First Midwest Common Stock to be
received by shareholders of Heritage will, in each instance,
include the holding period of the respective shares of Heritage
Common Stock surrendered in exchange therefor, provided the
Heritage Common Stock was, in each instance, held as a capital
asset in the hands of the shareholder of Heritage on the
effective date of the Merger.
6. 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.
We express no opinion as to (1) the federal income tax consequences of
the Merger not addressed expressly by this opinion, including without limitation
(i) the tax consequences, if any, to those shareholders of Heritage who acquired
shares of Heritage Common Stock pursuant to the exercise of employee stock
options or otherwise as compensation, and (ii) the tax consequences to special
classes of shareholders, if any, including without limitation, foreign persons,
insurance companies, tax-exempt entities, retirement plans, and dealers in
securities; and (2) federal, state, local, or foreign taxes (or any other
federal, state, local, or foreign laws) not specifically referred to and
discussed herein. Further, we express no opinion as to the federal income tax
consequences of the Merger upon any deferred intercompany income or loss of any
member of the consolidated group of which Heritage is the common parent.
Our opinion is based the Code, Treasury regulations proposed or
promulgated thereunder, and administrative and judicial precedents relating
thereto, all of which are subject to change at any time, possibly with
retroactive effect, and we undertake no obligation to advise you of any
subsequent change thereto. If there is any change in the applicable law or
regulation, or if there is any new administrative or judicial interpretation of
the applicable law or regulations, any or all of the federal income tax
consequences described herein may be inapplicable.
This opinion reflects our legal judgment solely on the issues
presented and discussed herein. This opinion has no official status or binding
effect of any kind. Accordingly, we cannot
<PAGE>
First Midwest Bancorp, Inc.
Heritage Financial Services, Inc.
March 3, 1998
Page 4
assure you that the Internal Revenue Service or any court of competent
jurisdiction will agree with this opinion.
This opinion is being furnished to you solely for use in connection
with the Registration Statement. We hereby consent to the filing of this opinion
as an exhibit to the Registration Statement. We also consent to the references
to Hinshaw & Culbertson under the heading "Certain Federal Income Tax
Consequences of the Merger" in the Registration Statement and the Joint Proxy
Statement/Prospectus.
Very truly yours,
HINSHAW & CULBERTSON
<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 the Registration Statement (Form S-4) and
related Prospectus of First Midwest Bancorp, Inc. for the registration of 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
February 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
February 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 Annual Report on Form 10-K, and to all references to our Firm included in
this Registration Statement.
/s/ ARTHUR ANDERSEN LLP
Chicago, Illinois
March 4, 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 the Joint Proxy Statement/Prospectus of First Midwest Bancorp on Form
S-4 and to the use of our name as it appears under the caption "EXPERTS."
/S/ GRANT THORNTON LLP
Chicago, Illinois
February 27, 1998
<PAGE>
EXHIBIT 23.6
CONSENT OF COUNSEL
------------------
We hereby consent to the use in the Joint 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 a subsidiary of First
Midwest Bancorp, Inc. of our name, and the statements with respect to us, as
appearing in the Joint Proxy Statement/Prospectus.
BARACK FERRAZZANO KIRSCHBAUM
PERLMAN & NAGELBERG
By: /s/ John E. Freechack
---------------------------------------
John E. Freechack,
a partner
Date: March 3, 1998
<PAGE>
EXHIBIT 23.7
Consent of Counsel
I hereby consent to the use in the Joint 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 a subsidiary of First
Midwest Bancorp, Inc. of my name and firm name and the statements with respect
to me, as appearing in the Joint Proxy Statement/Prospectus.
/s/ Joel S. Corwin
March 2, 1998 Joel S. Corwin
Chicago, Illinois
<PAGE>
EXHIBIT 23.8
Consent of McDonald & Company Securities, Inc.
We consent to the inclusion in the First Midwest Bancorp, Inc./Heritage
Financial Services, Inc. Joint Proxy Statement/Prospectus of our opinion dated
as of January 14, 1998, and to the summarization of our opinion in the Joint
Proxy Statement/Prospectus under the caption "Opinion of Heritage Financial
Advisor". Further, we consent to all references to our firm in such Joint Proxy
Statement/Prospectus.
/s/ McDonald & Company Securities, Inc.
McDonald & Company Securities, Inc.
Chicago, Illinois
February 27, 1998
<PAGE>
EXHIBIT 99.1
__________, 1998
To the Shareholders of Heritage Financial Services, Inc.:
You are cordially invited to attend a Special Meeting of Shareholders of
Heritage Financial Services, Inc. (the "Meeting") to be held on the ____ day of
____________, 1998, at ______ p.m., local time, at
_________________________________________________________________________.
At the Meeting Shareholders will be asked to consider and vote upon the
approval and adoption of an Agreement and Plan of Merger, dated January 14, 1998
(the "Merger Agreement"), entered into by and between Heritage Financial
Services, Inc. ("Heritage"), and First Midwest Bancorp, Inc., a Delaware
corporation ("First Midwest"), and First Midwest Acquisition Corporation, an
Illinois corporation and wholly owned subsidiary of First Midwest ("Acquisition
Corp").
Pursuant to the Merger Agreement, Heritage will merge with and into
Acquisition Corp (the "Merger") and the separate existence of Heritage will
cease. If the Merger Agreement is approved by the Shareholders of Heritage, and
the Merger becomes effective, each outstanding Common Share of Heritage (except
for shares held by dissenting Heritage Shareholders) will be converted into
0.7695 of a share of First Midwest Common Stock. The consummation of the Merger
is subject to the satisfaction of certain conditions notwithstanding the
approval of the Merger by the Shareholders of Heritage at the Meeting.
First Midwest, an Illinois-based bank holding company, is the third largest
publicly traded bank holding company headquartered in Illinois, with assets of
approximately $3.6 billion as of December 31, 1997. First Midwest's
subsidiaries include a commercial bank and three nonbank affiliates that offer
trust, investment advisory, credit life insurance and mortgage banking related
services. First Midwest operates 55 offices with 39 of them located in the
Chicago metropolitan suburban banking market. Shareholders of Heritage who
receive First Midwest Common Stock will receive a security which is issued by a
larger, more diversified financial institution and which is traded on the Nasdaq
Stock Market under the symbol "FMBI."
AFTER CAREFULLY CONSIDERING THE MERGER, THE MERGER AGREEMENT AND THE
BENEFITS WHICH WILL RESULT TO THE SHAREHOLDERS OF HERITAGE, THE BOARD OF
DIRECTORS OF HERITAGE HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF
THE SHAREHOLDERS AND URGES THAT YOU VOTE IN FAVOR OF THE MERGER AGREEMENT.
Your vote is important. Approval of the proposed Merger requires the
affirmative vote of the holders of a majority of the issued and outstanding
Heritage Common Shares. Whether or not you expect to attend the meeting in
person, please sign and date the accompanying Proxy and mail it promptly in the
enclosed envelope.
Sincerely,
Richard T. Wojcik
Chairman and Chief Executive Officer
<PAGE>
EXHIBIT 99.2
HERITAGE FINANCIAL SERVICES, INC.
17500 SOUTH OAK PARK AVENUE
TINLEY PARK, ILLINOIS 60477
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that a Special Meeting of the Shareholders of
Heritage Financial Services, Inc. (the "Meeting") will be held at
__________________________________, on ______________, 1998, at ______ p.m.,
local time, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt an Agreement
and Plan of Merger, dated January 14, 1998, by and between Heritage
Financial Services, Inc. ("Heritage") and First Midwest Bancorp, Inc.
("First Midwest") and First Midwest Acquisition Corporation
("Acquisition Corp"), which provides for the merger of Heritage with
and into Acquisition Corp (the "Merger") and the conversion, upon the
consummation of the Merger, of each outstanding Heritage Common Share
(except for shares held by dissenting Heritage Shareholders) into
0.7695 of a share of First Midwest Common Stock; and
2. To transact such other business as may properly come before the
Meeting or any adjournments or postponements thereof.
The Board of Directors of Heritage has fixed the close of business on
__________, 1998, as the record date for the determination of Heritage
Shareholders entitled to notice of, and to vote at, the Meeting and any
adjournments or postponements thereof. Only Shareholders of record at the close
of business on the record date will be entitled to receive notice of, and to
vote at, the Meeting and any adjournments or postponements thereof.
Each Heritage Shareholder has the right to dissent and receive the fair
value of the Shareholder's shares if the Shareholder delivers to Heritage before
the vote is taken at the Special Meeting a written demand for payment for the
shares, does not vote in favor of the Merger and complies with the procedures
set forth in Sections 11.65 and 11.70 of the Illinois Business Corporation Act
of 1983, as amended, which are set forth in Appendix D to the 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 HERITAGE COMMON SHARES.
By Order of The Board of Directors,
Ronald P. Groebe
Secretary
_____________, 1998
Tinley Park, Illinois
THE BOARD OF DIRECTORS OF HERITAGE FINANCIAL SERVICES, INC. RECOMMENDS THAT YOU
VOTE FOR THE ABOVE PROPOSAL.
---
<PAGE>
EXHIBIT 99.3
[SMALL LOGO TO BE PLACED HERE]
HERITAGE FINANCIAL SERVICES
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ____ __, 1998
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, a shareholder of Heritage Financial Services, Inc., an
Illinois corporation (the "Company"), does hereby constitute and appoint RICHARD
T. WOJCIK, FREDERICK J. SAMPIAS AND RONALD P. GROEBE, or any of them, as
attorneys and proxies of the undersigned, with power of substitution, acting by
a majority of those present and voting, or if only one is present and voting,
then that one, to vote the Common Shares of the Company which the undersigned is
entitled to vote at the Special Meeting of Shareholders to be held at [Harris
Trust and Savings Bank, 111 West Monroe Street, Chicago,] Illinois on ____day,
_____ __, 1998 at _:00 _.m. local time, and at any adjournment or postponement
thereof, with all powers the undersigned would possess if present, hereby
revoking any proxy heretofore given:
(Please date and sign on reverse side)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - -
DETACH PROXY CARD
[LARGE LOGO TO BE PLACED HERE]
<PAGE>
EXHIBIT 99.3
HERITAGE FINANCIAL SERVICES
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" ITEM NUMBER 1 BELOW.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [_]
1. AGREEMENT AND PLAN OF MERGER: Proposal to approve and adopt Agreement and
Plan of Merger dated January 14, 1998, and the merger provided for therein,
whereby the Company will be merged with and into First Midwest Acquisition
Corporation, and the shareholders of the Company will receive 0.7695 of a share
of Common Stock of First Midwest Bancorp, Inc. for each Common Share of the
Company, all as set forth in the Proxy Statement for Special Meeting.
For Against Abstain
[_] [_] [_]
2. In their discretion, upon such other matters as may properly
come before the meeting or any adjournments thereof.
PLEASE DATE, SIGN AND RETURN THIS DATE:__________________________, 1998
PROXY PROMPTLY
_____________________________________
(Signature(s) of Shareholder(s))
_____________________________________
(Signature(s) of Shareholder(s))
Please date and sign exactly as your
name appears. Joint owners should each
sign. Where applicable, indicate your
official position or representative
capacity.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - -
DETACH PROXY CARD
[LARGE LOGO TO BE PLACED HERE]
<PAGE>
EXHIBIT 99.4
__________, 1998
To The Stockholders of First Midwest Bancorp, Inc.:
You are cordially invited to attend the Annual Meeting of Stockholders of
First Midwest Bancorp, Inc. (the "Meeting") to be held on the ____ day of
____________, 1998, at ______ p.m., local time, at
__________________________________.
At the Meeting, Stockholders will be asked to consider and vote upon the
issuance of shares of First Midwest Common Stock (the "Issuance") pursuant to
the Agreement and Plan of Merger, dated January 14, 1998 (the "Merger
Agreement"), entered into by and between First Midwest Bancorp, Inc. ("First
Midwest"), and First Midwest Acquisition Corporation, an Illinois corporation
and a wholly owned subsidiary of First Midwest ("Acquisition Corp"), and
Heritage Financial Services, Inc., an Illinois corporation ("Heritage"). The
Merger will not be consummated unless the Stockholders of First Midwest also
approve at the Meeting an 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 (the "Charter Amendment"). At the Meeting, you will
also be asked to elect C.D. Oberwortmann, John M. O'Meara and J. Stephen
Vanderwoude to serve as directors.
Pursuant to the Merger Agreement, Heritage will merge with and into
Acquisition Corp and the separate existence of Heritage will cease (the
"Merger"). If the Issuance and the Charter Amendment are approved by the
Stockholders of First Midwest, and the Merger becomes effective, each
outstanding share of Common Stock of Heritage (except for shares held by
dissenting Heritage Shareholders) will be converted into 0.7695 of a share of
First Midwest Common Stock. The consummation of the Merger is subject to the
satisfaction of certain conditions notwithstanding the approval of the Issuance
and the Charter Amendment by the Stockholders of First Midwest at the Meeting.
The Merger is important to First Midwest and its Stockholders. By
acquiring Heritage, First Midwest will significantly expand its operations in
southern and southwest Cook County, Illinois, and in Will County, Illinois.
Heritage is an Illinois-based bank holding company comprised of a commercial
bank and two affiliates that offer trust, investment advisory, and insurance,
and related services in the same markets served by Heritage's commercial bank.
Heritage operates seventeen offices in southern and southwest Cook County and in
Will and DuPage Counties, Illinois.
AFTER CAREFULLY CONSIDERING THE MERGER, THE MERGER AGREEMENT AND THE
BENEFITS WHICH WILL RESULT TO THE STOCKHOLDERS OF FIRST MIDWEST, THE BOARD OF
DIRECTORS OF FIRST MIDWEST HAS DETERMINED THAT THE MERGER IS IN THE BEST
INTERESTS OF THE STOCKHOLDERS AND URGES THAT YOU VOTE IN FAVOR OF THE ISSUANCE
AND THE CHARTER AMENDMENT.
Your vote is important. Approval of the proposed Issuance requires the
affirmative vote of the holders of a majority of the shares of First Midwest
Common Stock represented at the Meeting and entitled to vote thereon, and
approval of the Charter Amendment requires the affirmative vote of the holders
of a majority of the issued and outstanding shares of First Midwest Common
Stock. The election of directors requires the vote of the holders of a
plurality of the shares of First Midwest Common Stock represented at the Meeting
and entitled to vote thereon.
Whether you expect to attend the meeting in person, please sign and date
the accompanying Proxy and mail it promptly in the enclosed envelope.
Sincerely,
Robert P. O'Meara
President and Chief Executive Officer
<PAGE>
EXHIBIT 99.5
FIRST MIDWEST BANCORP, INC.
300 PARK BOULEVARD
SUITE 405
ITASCA, ILLINOIS 60143-0459
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Stockholders of First
Midwest Bancorp, Inc. (the "Meeting") will be held at _________________________,
on ______________, 1998, at ______ p.m., local time, for the following purposes:
1. To consider and vote upon the issuance of shares of Common Stock of
First Midwest Bancorp, Inc. ("First Midwest") pursuant to the
Agreement and Plan of Merger, dated January 14, 1998, by and between
Heritage Financial Services, Inc. ("Heritage") and First Midwest, and
First Midwest Acquisition Corporation ("Acquisition Corp"), which
provides for the merger of Heritage with and into Acquisition Corp
(the "Merger") and the conversion, upon the consummation of the
Merger, of each outstanding Heritage Common Share (except for shares
held by dissenting Heritage Shareholders) into 0.7695 of a share of
First Midwest Common Stock;
2. To consider and vote upon an amendment to the Restated Certificate of
Incorporation of First Midwest increasing the number of authorized
shares of Common Stock from 30,000,000 to 60,000,000;
3. To elect C.D. Oberwortmann, John M. O'Meara and J. Stephen Vanderwoude
to serve as directors; and
4. To transact such other business as may properly come before the
Meeting or any adjournments or postponements thereof.
The Board of Directors of First Midwest has fixed the close of business on
__________, 1998, as the record date for the determination of First Midwest
Stockholders entitled to notice of, and to vote at, the Meeting and any
adjournments or postponements thereof. Only Stockholders of record at the close
of business on the record date will be entitled to receive notice of, and to
vote at, the Meeting and any adjournments or postponements thereof.
By Order of The Board of Directors,
James R. Roolf
Senior Vice President and Corporate Secretary
THE BOARD OF DIRECTORS OF FIRST MIDWEST BANCORP, INC. RECOMMENDS THAT YOU VOTE
FOR THE ABOVE PROPOSALS.
<PAGE>
PROXY
FIRST MIDWEST BANCORP, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ______, 1998
I, the undersigned stockholder of First Midwest Bancorp, Inc. (the "Company"),
hereby appoint Donald J. Swistowicz, James M. Roolf and Barbara E. Briick, or
any of them, the true and lawful attorney of the undersigned, with full power of
substitution, to appear and act as proxies of the undersigned, and to vote, as
designated below, all the shares of Common Stock of the Company held of record
by the undersigned on ________, 1998 at the Annual Meeting of Stockholders of
the Company to be held on ________, 1998 or any adjournment(s) or
postponement(s) thereof as fully as the undersigned might or could do if
personally present.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSALS LISTED BELOW
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE.)
PLEASE MARK, SIGN AND DATE THIS PROXY CARD AND RETURN IT PROMPTLY USING THE
ENCLOSED ENVELOPE.
1. ISSUANCE OF SHARES OF COMPANY COMMON STOCK: To consider and vote upon the
issuance of shares of Company Common Stock (the "Issuance") pursuant to the
Agreement and Plan of Merger, dated January 14, 1998, by and between Heritage
Financial Services, Inc. ("Heritage"), and the Company, and First Midwest
Acquisition Corporation ("Acquisition Corp"), which provides for the merger of
Heritage with and into Acquisition Corp (the "Merger") and the conversion, upon
the consummation of the Merger, of each outstanding share of Heritage Common
Stock into 0.7695 of a share of Company Common Stock:
FOR AGAINST ABSTAIN
[_] [_] [_]
2. THE AMENDMENT OF THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION: To
consider and vote upon an amendment to the Restated Certificate of Incorporation
of the Company increasing the number of authorized shares of Common Stock from
30,000,000 to 60,000,000 (the "Charter Amendment"):
FOR AGAINST ABSTAIN
[_] [_] [_]
3. ELECTION OF DIRECTORS: C.D. Oberwortmann, John M. O'Meara and J. Stephen
Vandewoude.
FOR WITHHELD FOR, EXCEPT VOTE WITHHELD FROM THE FOLLOWING NOMINEE(S):
[_] [_] [_]
<PAGE>
4. In their discretion on any other item of business as may properly come
before the Annual Meeting or any adjournment(s) or postponement(s) thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE ISSUANCE, THE CHARTER AMENDMENT AND THE ELECTION OF ALL NOMINEES
FOR DIRECTOR, AND AS TO ANY OTHER ITEM OF BUSINESS AS MAY PROPERLY COME BEFORE
THE ANNUAL MEETING OR ANY ADJOURNMENT(S) OR POSTPONEMENT(S) THEREOF, IT WILL BE
VOTED IN THE DISCRETION OF THE NAMED PROXIES.
SIGNATURE(S) & DATE
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
<PAGE>
DIRECTION CARD (PROFIT SHARING PLAN)
FIRST MIDWEST BANCORP, INC.
FIRST MIDWEST BANCORP SAVINGS AND PROFIT SHARING PLAN AND TRUST
DIRECTION FOR VOTING SHARES OF THE COMPANY HELD IN THE TRUST
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD _______, 1998
I hereby direct the Trustee, First Midwest Trust Company, N.A. or any successor
Trustee, to vote, as designated below, all the shares of Common Stock of First
Midwest Bancorp, Inc. (the "Company") subject to voting direction by the
undersigned at the Annual Meeting of Stockholders of the Company to be held on
________, 1998 or any adjournment(s) or postponement(s) thereof.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE.)
Please mark, sign and date this Direction Card and return it promptly using the
enclosed envelope.
1. ISSUANCE OF SHARES OF COMPANY COMMON STOCK: To consider and vote upon the
issuance of shares of Company Common Stock (the "Issuance") pursuant to the
Agreement and Plan of Merger, dated January 14, 1998, by and between Heritage
Financial Services, Inc. ("Heritage"), and the Company, and First Midwest
Acquisition Corporation ("Acquisition Corp"), which provides for the merger of
Heritage with and into Acquisition Corp (the "Merger") and the conversion, upon
the consummation of the Merger, of each outstanding share of Heritage Common
Stock into 0.7695 of a share of Company Common Stock:
FOR AGAINST ABSTAIN
[_] [_] [_]
2. THE AMENDMENT OF THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION: To
consider and vote upon an amendment to the Restated Certificate of Incorporation
of the Company increasing the number of authorized shares of Common Stock from
30,000,000 to 60,000,000 (the "Charter Amendment"):
FOR AGAINST ABSTAIN
[_] [_] [_]
3. ELECTION OF DIRECTORS: C.D. Oberwortmann, John M. O'Meara and J. Stephen
Vandewoude.
FOR WITHHELD FOR, EXCEPT VOTE WITHHELD FROM THE FOLLOWING NOMINEE(S):
[_] [_] [_]
________________________________________
4. In their discretion on any other item of business as may properly come
before the Annual Meeting or any adjournment(s) or postponement(s) thereof.
THESE DIRECTIONS ARE REQUESTED BY THE TRUSTEE WITH REGARD TO THE VOTING OF A
PROXY SOLICITED BY THE COMPANY'S BOARD OF DIRECTORS FROM THE TRUSTEE AS THE
RECORD OWNER OF SHARES HELD PURSUANT TO THE FIRST MIDWEST BANCORP
<PAGE>
SAVINGS AND PROFIT SHARING PLAN AND TRUST. IF NO INSTRUCTION IS MADE ON THIS
DIRECTION CARD, THE SHARES REPRESENTED HEREBY WILL BE VOTED FOR THE ISSUANCE,
THE CHARTER AMENDMENT AND THE ELECTION OF ALL NOMINEES FOR DIRECTOR, AND AS TO
ANY OTHER ITEM OF BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY
ADJOURNMENT(S) OR POSTPONEMENT(S) THEREOF, IT WILL BE VOTED IN THE DISCRETION OF
THE TRUSTEE.
SIGNATURE & DATE
NOTE: Please sign exactly as name appears hereon.
<PAGE>
DIRECTION CARD (ESOP)
FIRST MIDWEST BANCORP, INC.
FIRST MIDWEST BANCORP EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
DIRECTION FOR VOTING SHARES OF THE COMPANY HELD IN THE TRUST
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ________, 1998
I hereby direct the Trustee, First Midwest Trust Company, N.A. or any successor
Trustee, to vote, as designated below, all the shares of Common Stock of First
Midwest Bancorp, Inc. (the "Company") subject to voting direction by the
undersigned at the Annual Meeting of Stockholders of the Company to be held on
_______, 1998 or any adjournment(s) or postponement(s) thereof.
1. ISSUANCE OF SHARES OF COMPANY COMMON STOCK: To consider and vote upon the
issuance of shares of Company Common Stock (the "Issuance") pursuant to the
Agreement and Plan of Merger, dated January 14, 1998, by and between Heritage
Financial Services, Inc. ("Heritage"), and the Company, and First Midwest
Acquisition Corporation ("Acquisition Corp"), which provides for the merger of
Heritage with and into Acquisition Corp (the "Merger") and the conversion, upon
the consummation of the Merger, of each outstanding share of Heritage Common
Stock into 0.7695 of a share of Company Common Stock:
FOR AGAINST ABSTAIN
[_] [_] [_]
2. THE AMENDMENT OF THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION: To
consider and vote upon an amendment to the Restated Certificate of Incorporation
of the Company increasing the number of authorized shares of Common Stock from
30,000,000 to 60,000,000 (the "Charter Amendment"):
FOR AGAINST ABSTAIN
[_] [_] [_]
3. ELECTION OF DIRECTORS: C.D. Oberwortmann, John M. O'Meara and J. Stephen
Vandewoude.
FOR WITHHELD FOR, EXCEPT VOTE WITHHELD FROM THE FOLLOWING NOMINEE(S):
[_] [_] [_]
____________________________________________
4. In their discretion on any other item of business as may properly come
before the Annual Meeting or any adjournment(s) or postponement(s) thereof.
<PAGE>
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE.)
Please mark, sign and date this Direction Card and return it promptly using the
enclosed envelope.
THESE DIRECTIONS ARE REQUESTED BY THE TRUSTEE WITH REGARD TO THE VOTING OF A
PROXY SOLICITED BY THE COMPANY'S BOARD OF DIRECTORS FROM THE TRUSTEE AS THE
RECORD OWNER OF SHARES HELD PURSUANT TO THE FIRST MIDWEST BANCORP EMPLOYEE STOCK
OWNERSHIP PLAN AND TRUST. IF NO INSTRUCTION IS MADE ON THIS DIRECTION CARD, THE
SHARES REPRESENTED HEREBY WILL BE VOTED FOR THE ISSUANCE, THE CHARTER AMENDMENT
AND THE ELECTION OF ALL NOMINEES FOR DIRECTOR, AND AS TO ANY OTHER ITEM OF
BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENT(S) OR
POSTPONEMENT(S) THEREOF, IT WILL BE VOTED IN THE DISCRETION OF THE TRUSTEE.
SIGNATURE & DATE
NOTE: Please sign exactly as name appears hereon.
