<PAGE>
Filed Pursuant to Rule 424(b)3
SEC File No.: 333-2473
THE NATIONAL BANK OF CARMI
116 WEST MAIN STREET
CARMI, ILLINOIS 62821
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
to be held on May 30, 1996
To Our Shareholders:
Notice is hereby given that, pursuant to the call of the Board of
Directors, a Special Meeting of Shareholders of The National Bank of Carmi
("Carmi") will be held on May 30, 1996 at 4:30 p.m., local time, at the main
office of Carmi, located at 116 West Main Street, Carmi, Illinois 62821.
The purposes of the Special Meeting are:
1. To consider and vote upon the Agreement of Affiliation and Merger, dated
March 15, 1996, as amended ("Agreement"), by and among Old National
Bancorp, Evansville, Indiana ("ONB"), Carmi and Carmi Merger Bank, N.A.
("Merger Bank"), pursuant to which Carmi will merge with and into Merger
Bank. Under the terms of the Agreement, each outstanding share of Carmi
common stock will be converted into the right to receive 3.885 shares of
ONB common stock, subject to adjustment, if any, all as described in the
Agreement, a copy of which is attached to the accompanying Proxy Statement-
Prospectus; and
2. To transact such other business which may properly be presented at the
Special Meeting or any adjournment thereof.
Only shareholders of record at the close of business on May 1, 1996 will be
entitled to notice of, and to vote at, the Special Meeting and any adjournment
thereof.
Notice is also given that Carmi shareholders are entitled to assert
dissenters' rights under the National Bank Act, as amended, with respect to the
proposed merger with Merger Bank, provided that they comply with the provisions
of 12 U.S.C. (S)215a, as amended, a copy of which is attached as Appendix C to
the accompanying Proxy Statement-Prospectus.
BY ORDER OF THE BOARD OF DIRECTORS
April 30, 1996
JOHN K. RICE
CHAIRMAN OF THE BOARD
YOUR VOTE IS IMPORTANT-PLEASE MAIL YOUR PROXY PROMPTLY.
THE AFFIRMATIVE VOTE OF THE HOLDERS OF AT LEAST
TWO-THIRDS OF THE OUTSTANDING SHARES OF CARMI
COMMON STOCK IS REQUIRED FOR APPROVAL OF THE AGREEMENT.
IN ORDER THAT THERE MAY BE PROPER REPRESENTATION AT THE MEETING,
YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN
THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED.
NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
<PAGE>
PROSPECTUS
OF
OLD NATIONAL BANCORP
FOR UP TO
388,500 SHARES OF COMMON STOCK
(NO PAR VALUE)
-------------------------------
THIS PROSPECTUS ALSO CONSTITUTES
THE PROXY STATEMENT
OF
THE NATIONAL BANK OF CARMI
FOR A
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 30, 1996
-------------------------------
This Proxy Statement-Prospectus ("Proxy Statement") constitutes the
Prospectus of Old National Bancorp ("ONB") with respect to a maximum of 388,500
shares of ONB common stock, no par value per share ("ONB Common Stock"), being
offered to the shareholders of The National Bank of Carmi ("Carmi") in
connection with the proposed affiliation of ONB and Carmi. It also serves as the
Proxy Statement of Carmi in connection with the solicitation of proxies by the
Board of Directors of Carmi for use at the Special Meeting of Shareholders to be
held on May 30, 1996, and at any adjournment thereof ("Special Meeting"), for
the purpose of considering and voting upon: (1) a proposal to approve the
Agreement of Affiliation and Merger, dated March 15, 1996, as amended
("Agreement"), by and among ONB, Carmi and Carmi Merger Bank, N.A. ("Merger
Bank"), and (2) any other business which may properly be presented at the
Special Meeting or any adjournment thereof.
As more fully discussed hereinafter, at the effective time of the proposed
affiliation of ONB with Carmi ("Affiliation"), Carmi will affiliate through a
merger with Merger Bank ("Merger") and each outstanding share of Carmi common
stock, $10.00 par value per share ("Carmi Common Stock"), will be converted into
the right to receive 3.885 shares of ONB Common Stock, subject to further
adjustment, if any, in accordance with the terms of the Agreement. ONB will pay
cash for any fractional share interests resulting from the exchange ratio in
accordance with the Agreement. The Merger is subject to approval by the holders
of at least two-thirds of the outstanding shares of Carmi Common Stock, receipt
of required regulatory approvals and the satisfaction of certain other
conditions as set forth in the Agreement attached hereto as Appendix A.
-------------------------------
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 DATE OF THIS PROXY STATEMENT IS APRIL 30, 1996.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
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<S> <C>
AVAILABLE INFORMATION................................................. iv
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................... iv
SUMMARY............................................................... vi
SUMMARY OF SELECTED FINANCIAL DATA.................................... xii
GENERAL INFORMATION................................................... 1
PROPOSED AFFILIATION.................................................. 2
Description of the Affiliation................................... 2
Background of and Reasons for the Affiliation.................... 2
Opinion of Financial Advisor to Carmi............................ 3
Recommendation of the Board of Directors......................... 8
Exchange of Carmi Common Stock................................... 8
Dissenters' Rights............................................... 10
Resale of ONB Common Stock by Carmi Affiliates................... 11
Conditions to Consummation....................................... 12
Termination...................................................... 12
Restrictions Affecting Carmi..................................... 12
Regulatory Approvals............................................. 13
Accounting Treatment for the Affiliation......................... 13
Effective Time................................................... 13
Management, Personnel and Operations After the Affiliation....... 14
Interests of Certain Persons in the Affiliation.................. 14
FEDERAL INCOME TAX CONSEQUENCES....................................... 15
Tax Opinion........................................................... 15
Tax Consequences to ONB and Carmi................................ 16
Tax Consequences to Carmi Shareholders........................... 16
COMPARATIVE PER SHARE DATA............................................ 17
Nature of Trading Market......................................... 17
Dividends........................................................ 18
Existing and Pro Forma Per Share Information..................... 19
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION.................... 21
DESCRIPTION OF ONB.................................................... 27
Business......................................................... 27
Acquisition Policy and Pending Affiliation....................... 28
Incorporation of Certain Information by Reference................ 28
</TABLE>
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
(CONTINUED)
PAGE
<S> <C>
DESCRIPTION OF CARMI.................................................. 29
Business......................................................... 29
Properties....................................................... 29
Litigation....................................................... 29
Employees........................................................ 29
Management....................................................... 29
Security Ownership of Management................................. 31
Principal Shareholders........................................... 31
Certain Relationships and Related Transactions................... 32
THE NATIONAL BANK OF CARMI MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995,
1994 AND 1993....................................................... 34
REGULATORY CONSIDERATIONS............................................. 46
Bank Holding Company Regulation.................................. 46
Capital Adequacy Guidelines for Bank Holding Companies........... 46
Bank Regulation.................................................. 47
Bank Capital Requirement......................................... 47
Branches and Affiliates.......................................... 48
FDICIA........................................................... 48
Deposit Insurance................................................ 49
Interstate Banking............................................... 50
Additional Matters............................................... 51
COMPARISON OF COMMON STOCK............................................ 51
Authorized But Unissued Shares................................... 51
Preemptive Rights................................................ 53
Dividend Rights.................................................. 53
Voting Rights.................................................... 54
Dissenters' Rights............................................... 54
Liquidation Rights............................................... 55
Assessment and Redemption........................................ 55
Anti-Takeover Provisions......................................... 56
Director Liability............................................... 57
Director Nominations............................................. 58
LEGAL OPINIONS........................................................ 58
EXPERTS............................................................... 58
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
(CONTINUED)
PAGE
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<S> <C>
OTHER MATTERS......................................................... 59
INDEX TO FINANCIAL STATEMENTS......................................... F-1
APPENDICES
A. Agreement of Affiliation and Merger, as amended............ A-1
B. The National Bank Act, as amended
(12 U.S.C. (S)215a(b)-(d)) (Dissenters' Rights).......... B-1
C. Banking Circular 259 of the Comptroller of the Currency.... C-1
D. Fairness Opinion of Prairie Capital Services, Inc.......... D-1
</TABLE>
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<PAGE>
AVAILABLE INFORMATION
ONB is subject to the reporting requirements of the Securities Exchange Act
of 1934, as amended ("Exchange Act"), and in accordance therewith files reports,
proxy statements and other information with the Securities and Exchange
Commission ("SEC"). Such reports, proxy statements and other information may be
inspected and copied at prescribed rates at the public reference facilities
maintained by the SEC at 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549, and may also be inspected and copied at prescribed rates at the
SEC's regional offices located at Seven World Trade Center, 13th Floor, New
York, New York 10048 and at Northwestern Atrium Center, Suite 1400, 500 West
Madison Street, Chicago, Illinois 60661-2511. Copies of such material may also
be obtained at prescribed rates from the Public Reference Section of the SEC,
450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. ONB Common
Stock is quoted on the Nasdaq National Market System and reports, proxy
statements and other information concerning ONB are available for inspection and
copying at prescribed rates at the office of the National Association of
Securities Dealers, Inc., 1735 K Street, Washington, D.C. 20006.
ONB has filed with the SEC a Registration Statement on Form S-4 under the
Securities Act of 1933, as amended ("Securities Act"), with respect to the
shares of ONB Common Stock to be issued in connection with its affiliation with
Carmi. This Proxy Statement does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the SEC. Reference is made to the Registration
Statement, including the exhibits filed as a part thereof or incorporated
therein by reference, which can be inspected and copied at prescribed rates at
the public reference facilities maintained by the SEC at the addresses set forth
above.
All information contained in this Proxy Statement with respect to Carmi has
been supplied by Carmi, and all information contained in this Proxy Statement
with respect to ONB has been supplied by ONB.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (EXCLUDING
UNINCORPORATED EXHIBITS) ARE AVAILABLE WITHOUT CHARGE TO EACH PERSON (INCLUDING
ANY BENEFICIAL OWNER) TO WHOM THIS PROXY STATEMENT IS DELIVERED UPON WRITTEN OR
ORAL REQUEST TO JEFFREY L. KNIGHT, SECRETARY AND GENERAL COUNSEL, OLD NATIONAL
BANCORP, 420 MAIN STREET, P.O. BOX 718, EVANSVILLE, INDIANA 47705, (812) 464-
1363. IN ORDER TO ASSURE TIMELY DELIVERY OF SUCH DOCUMENTS, ANY REQUESTS SHOULD
BE MADE BY MAY 22, 1996.
The following documents previously filed by ONB (SEC File No. 0-10888) with
the SEC pursuant to the Exchange Act are incorporated herein by reference:
1. ONB's Annual Report on Form 10-K for the fiscal year ended December
31, 1995.
2. ONB's Annual Report to Shareholders for the fiscal year ended December
31, 1995.
-iv-
<PAGE>
3. The description of ONB's common stock contained in ONB's Current
Report on Form 8-K, dated January 6, 1983, and the description of
ONB's Preferred Stock Purchase Rights contained in ONB's Form 8-A,
dated March 1, 1990, including the Rights Agreement, dated March 1,
1990, between ONB and Old National Bank in Evansville, as Trustee.
All documents subsequently filed by ONB pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act prior to the date on which the Special Meeting
is held shall be deemed to be incorporated by reference into this Proxy
Statement and to be a part hereof from the date of filing such documents.
Any statement 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 Proxy Statement 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
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT, AND IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO PURCHASE ANY OF THE SECURITIES OFFERED BY THIS PROXY
STATEMENT, NOR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT WOULD BE UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER OR
PROXY SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT NOR ANY DISTRIBUTION OF THE SECURITIES COVERED HEREBY AT ANY TIME
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF ONB OR CARMI SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF
THIS PROXY STATEMENT.
-v-
<PAGE>
SUMMARY
The following is a brief summary of certain information contained elsewhere
herein and was prepared to assist the shareholders of Carmi in their review of
the Proxy Statement. This summary does not purport to be complete and is
qualified in all respects by reference to the full text of this Proxy Statement
and the appendices hereto.
SPECIAL MEETING:
Date, Time and Place of May 30, 1996, at 4:30 p.m., local time, at the
Special Meeting main office of Carmi, located at 116 West Main
Street, Carmi, Illinois 62821.
Purpose of Special Meeting To consider and vote upon the Agreement, under the
terms of which Carmi will affiliate with ONB
through a merger of Carmi with and into Merger
Bank. A copy of the Agreement, which is
incorporated herein by reference, is attached to
this Proxy Statement as Appendix A. See "NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS" and the
discussions under the captions "GENERAL
INFORMATION" and "PROPOSED AFFILIATION".
Required Shareholder Vote The approval of the Agreement requires the
affirmative vote, in person or by proxy, of the
holders of at least two-thirds of the issued and
outstanding shares of Carmi Common Stock. Members
of the Board of Directors of Carmi beneficially own
in the aggregate, directly and indirectly,
approximately 11.37% of the outstanding shares of
Carmi Common Stock. See "GENERAL INFORMATION",
"PROPOSED AFFILIATION -- Conditions to
Consummation" and "DESCRIPTION OF CARMI --Security
Ownership of Management".
Shares Outstanding and As of December 31, 1995, there were 100,000 shares
Entitled to Vote of Carmi Common Stock outstanding. Shareholders of
Carmi of record at the close of business on
May 1, 1996 are entitled to notice of, and to vote
at, the Special Meeting. See "GENERAL INFORMATION".
Proxies Proxies are revocable at any time before they are
exercised by a later dated proxy delivered to Carmi
or by written notice delivered to the Cashier of
Carmi. See "GENERAL INFORMATION".
-vi-
<PAGE>
THE PARTIES TO THE
TRANSACTION:
Old National Bancorp As the largest independent bank holding company
420 Main Street headquartered in the State of Indiana, ONB owns
Evansville, Indiana 47708 and operates 25 affiliate banks with 118 offices
(812) 464-1434 located in the three state area of Indiana,
Illinois and Kentucky. As of December 31, 1995, ONB
had total assets of approximately $4.82 billion and
its ratio of total capital to risk-adjusted assets
was 13.39%. This capital ratio is well in excess of
applicable regulatory requirements. See
"DESCRIPTION OF ONB".
As of the date of this Proxy Statement, ONB is a
party to a definitive agreement to acquire
Workingmens Capital Holdings, Inc., Bloomington,
Indiana, and its wholly-owned subsidiary,
Workingmens Federal Savings Bank. See "DESCRIPTION
OF ONB -- Acquisition Policy and Pending
Affiliation".
The National Bank of Carmi Carmi is a national bank located in Carmi,
116 West Main Street Illinois. As of December 31, 1995, Carmi had
Carmi, Illinois 62821-0160 total assets of approximately $66.1 million and
(618) 382-4136 its ratio of total capital to risk-adjusted assets
was 18.25%. See "DESCRIPTION OF CARMI".
THE AFFILIATION:
Description of the The Affiliation involves the merger of Carmi with
Affiliation and into Merger Bank. Merger Bank will be the
surviving banking institution in the Merger under
the name "The National Bank of Carmi" and, upon
consummation of the Merger, the separate corporate
existence of Carmi will cease.
Exchange of Carmi At the effective time of the Affiliation, each
Common Stock outstanding share of Carmi Common Stock will be
converted into the right to receive 3.885 shares of
ONB Common Stock, subject to adjustment, if any, in
accordance with the terms of the Agreement. No
fractional shares of ONB Common Stock will be
issued and ONB will pay cash for any fractional
share interests resulting from the exchange ratio
in accordance with the terms of the Agreement. The
price at which ONB Common Stock traded on
April 25, 1996, as reported by the Nasdaq National
Market System, was $34.00 per share. See "PROPOSED
AFFILIATION -- Exchange of Carmi Common Stock" and
Appendix A to this Proxy Statement.
-vii-
<PAGE>
Reasons for the In considering the affiliation with ONB, the Board
Affiliation of Directors of Carmi collected and evaluated a
variety of economic, financial and market
information regarding ONB and its affiliates, their
respective businesses and ONB's reputation and
future prospects. In the opinion of the Board of
Directors of Carmi, favorable factors included
ONB's strong earnings and stock performance, its
management, the compatibility of its markets to
those of Carmi and the attractiveness of ONB's
offer from a financial perspective. Consideration
was further given to the potential benefits of
ownership of ONB Common Stock, which is traded in
the over-the-counter market and reported on the
Nasdaq National Market System, as compared to Carmi
Common Stock, which has no established public
trading market. In addition, the Board considered
the opinion of Prairie Capital Services, Inc.
("Prairie Capital"), the financial advisor to
Carmi, indicating that the consideration to be
received by Carmi's shareholders under the
Agreement is fair from a financial perspective. See
"PROPOSED AFFILIATION -- Background of and Reasons
for the Affiliation".
Recommendation of the In the opinion of the Board of Directors of Carmi,
Board of Directors of Carmi the Affiliation is in the best interests of the
shareholders of Carmi. Accordingly, the Board of
Directors of Carmi unanimously recommends that its
shareholders approve the Agreement and the
Affiliation provided for therein. See "PROPOSED
AFFILIATION -- Recommendation of the Board of
Directors".
Conditions to the Consummation of the Affiliation is subject to
Affiliation certain conditions which include, among others,
(1) approval of the Agreement by the affirmative
vote of the holders of at least two-thirds of the
outstanding shares of Carmi Common Stock, (2)
receipt of certain regulatory approvals, and (3)
receipt of an opinion of counsel of ONB with
respect to certain federal income tax matters. See
"PROPOSED AFFILIATION -- Conditions to
Consummation".
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<PAGE>
Termination of the The Agreement may be terminated before the
Affiliation Affiliation becomes effective upon the occurrence
of certain events which include, among others, (1)
a misrepresentation or breach of any warranty set
forth in the Agreement by ONB or Carmi, (2) a
breach of or failure to comply with any covenant
set forth in the Agreement by ONB or Carmi, (3) the
commencement or threat of certain claims,
proceedings or litigation, (4) a material adverse
change in ONB or Carmi since December 31, 1995
other than changes in banking laws or regulations,
general level of interest, or economic, financial
or market conditions in Carmi's and ONB's
affiliates' market area, and (5) the Affiliation
not having been consummated by November 30, 1996.
See "PROPOSED AFFILIATION -- Termination".
Effective Time of the ONB and Carmi anticipate that the Affiliation will
Affiliation be completed during the second or third quarter of
1996. See "PROPOSED AFFILIATION -- Effective Time".
Management, Personnel Merger Bank will be the surviving banking
and Operations After the institution in the Affiliation and, upon
Affiliation consummation, Carmi's separate corporate existence
will cease and the name of Merger Bank will be
changed to "The National Bank of Carmi". The Board
of Directors and officers of Carmi serving at the
effective time of the Affiliation will continue to
serve in their respective capacities for Merger
Bank following the effective time of the
Affiliation until otherwise determined by ONB.
Following the Affiliation, employees of Carmi will
continue as employees of Merger Bank and will
receive benefits in accordance with the current
policies and employee benefit plans of ONB. See
"PROPOSED AFFILIATION -- Description of the
Affiliation", "-- Management, Personnel and
Operations After the Affiliation" and "DESCRIPTION
OF CARMI -- Management".
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<PAGE>
Interest of Certain ONB has agreed to assume the existing written
Persons in the Affiliation employment agreement between Carmi and Mr. James
L. Whetstone, its President and Chief Executive
Officer. ONB will cause Merger Bank and First
National Insurance Agency, Inc. ("Insurance
Agency") to honor the indemnification obligations
of Carmi and Insurance Agency and to maintain for
one (1) year following consummation of the
Affiliation insurance coverage for directors and
officers liability. See "PROPOSED AFFILIATION --
Interests of Certain Persons in the Affiliation".
Federal Income Tax ONB and Carmi will receive an opinion of counsel
Consequences to to the effect that the Affiliation should
Shareholders of Carmi constitute a tax-free reorganization. In general,
shareholders of Carmi who receive solely ONB Common
Stock in exchange for their shares of Carmi Common
Stock will not recognize gain or loss as a result
of the exchange. Shareholders receiving cash in
exchange for their shares of Carmi Common Stock
will recognize capital gain or loss on such
exchange. Shareholders are urged to consult with
their tax advisors with respect to the tax
consequences of the Affiliation to them. See
"FEDERAL INCOME TAX CONSEQUENCES".
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<PAGE>
Dissenters' Rights Shareholders of Carmi have dissenters' rights
established by the National Bank Act, as amended,
which entitle them to receive cash for their shares
of Carmi Common Stock. In general, to exercise
these rights a shareholder must: (i) either vote
against the Agreement at the Special Meeting or
give written notice to the officer presiding at the
Special Meeting prior to or at the Special Meeting
that the shareholder dissents from approval of the
Agreement; (ii) submit a written request for
payment of the value of his or her shares of Carmi
Common Stock to Merger Bank at any time before
thirty (30) days after the consummation of the
Merger; and (iii) surrender to Merger Bank the
certificates representing his or her shares of
Carmi Common Stock at the time of making the
foregoing request. In the event that holders of
greater than 10% of the outstanding shares of Carmi
Common Stock become entitled, by exercise of
dissenters' rights or otherwise, to receive cash
instead of ONB Common Stock, the Affiliation will
not qualify as a pooling-of-interests transaction
for accounting purposes and ONB would have the
right to terminate the Agreement. Shareholders of
Carmi wishing to exercise such rights must follow
certain statutory procedures. See "PROPOSED
AFFILIATION -- Rights of Dissenting Shareholders of
Carmi" and Appendices B and C to this Proxy
Statement.
Resale of ONB Certain resale restrictions apply to the sale or
Common Stock transfer of shares of ONB Common Stock issued to
directors, executive officers and 10% shareholders
of Carmi in exchange for their shares of Carmi
Common Stock. See "PROPOSED AFFILIATION -- Resale
of ONB Common Stock by Affiliates of Carmi".
Comparative Shareholder The rights of shareholders of ONB and Carmi differ
Rights in some respects. Upon consummation of the
Affiliation, shareholders of Carmi who receive ONB
Common Stock will take such stock subject to its
terms and conditions. The Articles of Incorporation
of ONB contain certain anti-takeover measures which
may discourage or render more difficult a
subsequent takeover of ONB by another corporation.
Additionally, the shares of ONB Common Stock
entitle the shareholders thereof to purchase from
ONB under certain conditions ONB Series A preferred
stock. See "COMPARISON OF COMMON STOCK".
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<PAGE>
Trading Market for Common There is presently no established public trading
Stock market for shares of Carmi Common Stock. Shares of
ONB Common Stock are traded in the over-the-counter
market and stock prices are reported on the Nasdaq
National Market System. The closing price of ONB
Common Stock, as reported by the Nasdaq National
Market System, was $32.38 per share on December 11,
1995 (as adjusted for the 5% stock dividend issued
by ONB on February 20, 1996), the business day
before the Affiliation was publicly announced, and
was $34.00 per share on April 25, 1996. Assuming
the Affiliation had been consummated on April 25,
1996, Carmi shareholders entitled to receive ONB
Common Stock would have received, in exchange for
all of the shares of Carmi Common Stock, shares of
ONB Common Stock having a total cash value of
$13,209,000, which represents $132.09 per share of
Carmi Common Stock (including cash received in lieu
of any fractional share interest). See "COMPARATIVE
PER SHARE DATA".
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<PAGE>
SUMMARY OF SELECTED FINANCIAL DATA -- ONB
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
The following summary sets forth selected consolidated financial
information relating to ONB. This information should be read in conjunction with
the financial statements and notes incorporated herein by reference.
<TABLE>
<CAPTION>
Twelve Months ended December 31,
--------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Results of Operations
(Taxable equivalent basis)
Interest income $ 368,478 $ 324,857 $ 319,285 $ 332,868 $ 369,429
Interest expense 174,078 135,676 134,484 156,056 205,192
Net interest income 194,400 189,181 184,801 176,812 164,237
Provision for loan losses 6,657 7,682 10,189 11,859 11,885
Net interest income after
provision for loan losses 187,743 181,499 174,612 164,953 152,352
Noninterest income 39,170 34,809 33,598 29,153 26,496
Noninterest expense 142,777 142,842 131,223 119,611 114,102
Income before income taxes 84,136 73,466 76,987 74,495 64,746
Income taxes 32,442 26,994 28,955 28,519 24,302
Net income $ 51,694 $ 46,472 $ 48,032 $ 45,976 $ 40,444
Year-End Balances
Total assets $4,822,628 $4,642,723 $4,487,232 $4,195,633 $4,156,401
Total loans--net of
unearned income 3,037,733 2,890,313 2,616,046 2,431,357 2,407,090
Total deposits 3,973,675 3,669,186 3,694,577 3,533,882 3,444,129
Shareholders' equity 428,077 408,612 403,955 375,880 352,743
Per Share Data (1)
Net income--primary 2.04 1.78 1.84 1.75 1.53
Net income--fully diluted (2) 1.99 1.74 1.79 1.70 1.50
Cash dividends paid 0.88 0.84 0.72 0.69 0.66
Book value at year-end 17.15 15.86 15.37 14.17 13.31
Selected Performance Ratios
(based on averages)
Return on assets 1.10% 1.03% 1.10% 1.11% 1.00%
Return on equity 12.51 11.23 12.42 12.75 12.00
Equity to assets 8.81 9.18 8.82 8.67 8.31
Primary capital to assets 9.70 10.12 9.70 9.53 9.11
Net charge-offs to average loans 0.28 0.30 0.26 0.33 0.41
Allowance for loan losses
to average loans 1.34 1.52 1.67 1.55 1.39
</TABLE>
(1) Restated for all stock dividends and stock splits.
(2) Assumes the conversion of ONB's subordinated debentures.
-xiii-
<PAGE>
SUMMARY OF SELECTED FINANCIAL DATA - THE NATIONAL BANK OF CARMI
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
The following summary sets forth selected financial information relating to The
National Bank of Carmi. This information should be read in conjunction with the
financial statements and notes included elsewhere herein.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31,
------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Results of Operations
- ---------------------
(Taxable equivalent basis)
Interest income $ 4,727 $ 4,440 $ 3,892 $ 4,174 $ 5,142
Interest expense 2,215 1,885 1,686 2,161 3,135
------- ------- ------- ------- -------
Net interest income $ 2,512 $ 2,555 $ 2,206 $ 2,013 $ 2,007
Provision for loan losses 400 - 86 (140) 130
------- ------- ------- ------- -------
Net interest income after
provision $ 2,112 $ 2,555 $ 2,120 $ 2,153 $ 1,877
Noninterest income 265 214 182 196 195
Noninterest expenses 1,763 1,792 1,375 1,337 1,430
------- ------- ------- ------- -------
Income before income taxes $ 614 $ 977 $ 927 $ 1,012 $ 642
Income taxes 150 265 106 264 165
------- ------- ------- ------- -------
Net income $ 464 $ 712 $ 821 $ 748 $ 477
======= ======= ======= ======= =======
Year-End Balances
- -----------------
Total assets $66,058 $66,727 $71,364 $64,381 $62,565
Total loans--net of
unearned income 34,027 31,989 29,939 20,468 23,059
Total deposits 55,912 56,326 61,148 58,506 57,173
Stockholders equity 8,032 8,092 8,308 5,618 5,000
Per Share Data
- --------------
Net income--primary $ 4.64 $ 7.12 $ 8.21 $ 7.48 $ 4.77
Net income--fully diluted 4.64 7.12 8.21 7.48 4.77
Cash dividends paid 7.46 7.25 6.50 8.00 7.00
Book value at year-end 80.32 80.92 83.08 56.18 50.00
Dividend payout ratio 160.78% 101.83% 79.17% 106.95% 146.75%
Selected Performance Ratios
- ---------------------------
(based on averages)
Return on assets .70% 1.04% 1.26% .83% .53%
Return on equity 5.76% 8.68% 10.17% 9.77% 6.97%
Equity to assets 11.95% 11.86% 12.77% 10.73% 9.89%
Primary capital to asset
Net charge-offs to
average loans -.07% .17% 1.25% -.10% .91%
Allowance for loan losses
to end of period loans 2.28% 1.10% 1.35% .98% 1.24%
</TABLE>
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PROSPECTUS PROXY STATEMENT
OF OF
OLD NATIONAL BANCORP THE NATIONAL BANK OF CARMI
--------------------------
SPECIAL MEETING OF SHAREHOLDERS
OF
THE NATIONAL BANK OF CARMI
TO BE HELD ON MAY 30, 1996
--------------------------
GENERAL INFORMATION
This Proxy Statement is furnished to the shareholders of Carmi in
connection with the solicitation by the Board of Directors of proxies for use at
the Special Meeting of Shareholders to be held on May 30, 1996, at the main
office of Carmi, located at 116 West Main Street, Carmi, Illinois 62821. This
Proxy Statement is first being mailed to shareholders of Carmi on May 1, 1996.
The purposes of the Special Meeting of Shareholders are to (1) consider and
vote upon the Agreement, under the terms of which Carmi will affiliate with ONB
through a merger of Carmi into an interim national bank subsidiary of ONB, and
each outstanding share of the Carmi Common Stock will be converted into the
right to receive 3.885 shares of ONB Common Stock, subject to adjustment, if
any, in accordance with the terms of the Agreement, and (2) transact such other
business which may properly be presented at the Special Meeting or any
adjournment thereof. See "PROPOSED AFFILIATION - Exchange of Carmi Common
Stock".
The affirmative vote of the holders of at least two-thirds of the
outstanding shares of Carmi Common Stock is required for approval of the
Agreement. Only holders of Carmi Common Stock of record at the close of business
on May 1, 1996 ("Record Date") are entitled to notice of, and to vote at, the
Special Meeting. There were 100,000 shares of Carmi Common Stock outstanding on
the Record Date, which were held of record by approximately 101 shareholders.
For each matter to be voted on at the Special Meeting, each share of Carmi
Common Stock is entitled to one vote.
The cost of soliciting proxies will be borne by Carmi. In addition to use
of the mails, proxies may be solicited personally or by telephone or telegraph
by directors, officers and certain employees of Carmi, who will not be specially
compensated for such soliciting.
The shares represented by proxies properly signed and returned will be
voted at the Special Meeting as instructed by the shareholders of Carmi giving
the proxies. In the absence of specific instructions to the contrary, proxies
will be voted FOR approval of the Agreement described in this Proxy Statement
and in accordance with the recommendation of the Board of Directors of Carmi
with respect to any other matter which may properly be presented at the Special
Meeting. See "PROPOSED AFFILIATION -- Rights of Dissenting Shareholders of
Carmi". Any shareholder giving a proxy has the right to revoke it at any time
before it is exercised. Therefore, execution of
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a proxy will not affect a shareholder's right to vote in person if he or she
attends the Special Meeting. Revocation may be made by a later dated proxy
delivered to Carmi, by written notice received by the Cashier of Carmi prior to
the Special Meeting, or by written notice delivered to the Cashier of Carmi at
the Special Meeting. To be effective, any revocation must be received before the
proxy is exercised. Requests for proxy recordation should be mailed to William
Kent Fulkerson, Cashier, The National Bank of Carmi, 116 West Main Street,
Carmi, Illinois 62821.
PROPOSED AFFILIATION
At the Special Meeting, the shareholders of Carmi will consider and vote
upon the Agreement, certain features of which are summarized below. The
following summary of certain aspects of the Agreement does not purport to be a
complete description of the terms and conditions of the Agreement and is
qualified in its entirety by reference to the Agreement, which is attached to
this Proxy Statement as Appendix A and is incorporated herein by reference.
DESCRIPTION OF THE AFFILIATION
Under the terms of the Agreement, Carmi will affiliate with ONB through a
statutory merger of Carmi into Merger Bank under the laws of the United States
of America. Merger Bank will be the surviving banking institution in the Merger
and, at the effective time of the Merger, the separate corporate existence of
Carmi will cease. Merger Bank will continue as a wholly-owned subsidiary of ONB
and its name following consummation of the Merger will be "The National Bank of
Carmi".
As of December 31, 1995, Carmi had consolidated assets of $66.1 million,
consolidated deposits of $56.2 million, consolidated shareholders' equity of
$8.0 million and consolidated net income for the year then ended of $463,800.
Based upon the pro forma financial information included elsewhere in this Proxy
Statement and assuming that the Affiliation had been consummated on December 31,
1995, Carmi represented as of such date 1.37% of the consolidated assets of ONB,
1.41% of its consolidated deposits, 1.88% of its consolidated shareholders'
equity and, for the year then ended, 0.90% of its consolidated net income. See
"PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION".
BACKGROUND OF AND REASONS FOR THE AFFILIATION
Until recently, Indiana and Illinois banking laws prohibited banks located
in Indiana and Illinois from expanding outside of their home counties. The
changes since the prohibition was lifted have been swift, first permitting in-
state acquisitions by bank holding companies, then permitting regional
interstate acquisitions, and currently permitting virtual nationwide expansion
opportunities. These developments stimulated aggressive acquisition activity
among financial institutions located in Indiana and neighboring states,
resulting in the entry of large bank holding companies into virtually every
attractive market in the midwestern United States. Moreover, developments and
deregulation in the financial services industry generally have led to further
increases in competition for bank services. Compounded by the significant
increase in bank regulatory burdens over the past decade, these competitive
factors have created an environment in which it is increasingly difficult for
community banks such as Carmi to achieve the economies of scale necessary to
compete effectively.
In response to these competitive and regulatory factors and after
evaluation of financial, economic, legal and market considerations, the Board of
Directors of Carmi approved the Affiliation as being in the best interests of
Carmi and its shareholders. Discussions concerning
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<PAGE>
whether to remain independent or whether to pursue an affiliation with another
financial institution were a frequent topic among the directors of Carmi.
Discussions regarding a possible affiliation between ONB and Carmi began in
June, 1995, and continued intermittently through the following months. The Board
of Directors of Carmi met on a number of different occasions to consider a
merger proposal from ONB. On November 20, 1995, the parties executed a non-
binding written letter of intent. After a business investigation by ONB and
Carmi of each other, the parties executed a definitive merger agreement on March
15, 1996. In determining to pursue the Affiliation, the Board of Directors of
Carmi specifically considered financial, managerial and other information
regarding ONB and its affiliates. In particular, the Board of Directors of Carmi
evaluated ONB's and Carmi's respective businesses, financial condition,
reputation and future prospects. The earnings history and stock performance of
ONB were carefully reviewed and discussed with Prairie Capital with a view
toward the investment potential for shareholders of Carmi.
Among other items considered in this evaluation were the prospects of Carmi
and ONB, as separate institutions and as combined; the compatibility of ONB's
affiliate bank's markets to that of Carmi's market; the anticipated tax-free
nature of the Affiliation to the shareholders of Carmi receiving solely ONB
Common Stock in exchange for their shares of Carmi Common Stock; the possibility
of increased liquidity through ownership of ONB Common Stock as compared to
Carmi Common Stock because ONB Common Stock is traded in the over-the-counter
market and share prices are reported on the Nasdaq National Market System; the
timeliness of a merger given the state of the economy and the stock markets as
well as anticipated trends in both; regulatory requirements; relevant price
information involving recent comparable bank acquisitions which occurred in the
midwest United States; and an analysis of alternatives to affiliating with ONB,
including other potential acquirors. In addition, the Board considered the
opinion of Prairie Capital indicating that the consideration to be received by
Carmi's shareholders under the Agreement is fair from a financial perspective.
The Board of Directors of Carmi also considered the impact of the
Affiliation on Carmi's customers and employees and the communities served by
Carmi. ONB's historical practice of retaining employees of acquired institutions
with competitive salary and benefit programs was considered, as was the
opportunity for training, education, growth and advancement of Carmi's employees
within ONB or one of its affiliates. The Board of Directors of Carmi examined
ONB's continuing commitment to the communities served by institutions previously
acquired by ONB. Further, from the standpoint of Carmi's customers, it was
anticipated that more products and services would become available because of
ONB's greater resources.
Based upon the foregoing factors, the Board of Directors of Carmi concluded
that it was advantageous to affiliate with ONB. The importance of the various
factors relative to one another cannot be precisely determined or stated.
OPINION OF FINANCIAL ADVISOR TO CARMI
Prairie Capital has delivered its written opinion to the Board of Directors
of Carmi that as of April 9, 1996, the consideration provided for in the
Agreement is fair, from a financial point of view, to the holders of Carmi
Common Stock.
Prairie Capital was engaged by Carmi's Board of Directors to advise it as
to the fairness of the consideration, from a financial perspective, to be paid
by ONB to Carmi shareholders under the Agreement. Prairie Capital is an
investment banking firm based in Evanston, Illinois. As a part
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<PAGE>
of its investment banking business, Prairie Capital is regularly engaged in
reviewing the fairness of bank acquisitions from a financial perspective and in
the valuation of banks and other business and their securities in connection
with mergers, acquisitions, estate settlements and other transactions. Prairie
Capital was selected by the Board of Directors of Carmi based upon Prairie
Capital's familiarity with the market for stock of Illinois financial
institutions and their knowledge of the banking industry generally.
The full text of Prairie Capital's fairness opinion ("Opinion"), dated
April 9, 1996, which sets forth the assumptions made, matters considered and
limits on the review undertaken, is attached as Appendix D to this Proxy
Statement. Carmi shareholders are urged to read the Opinion in its entirety.
Prairie Capital has not made or sought to obtain appraisals of Carmi's assets in
rendering the Opinion. Neither Carmi nor ONB placed any limitations upon Prairie
Capital with respect to the investigations made or procedures followed by
Prairie Capital in rendering the Opinion. The Opinion is directed solely to the
Board of Directors of Carmi and concerns only the consideration provided for in
the Agreement and does not constitute a recommendation to any of Carmi's
shareholders as to how such shareholder should vote at the Special Meeting. The
summary of the Opinion set forth in this Proxy Statement is qualified in its
entirely by reference to the full text of the Opinion included in Appendix D
hereto.
Prairie Capital has provided the following disclosure to Carmi for
inclusion in this Proxy Statement:
Fairness Opinion The Carmi Board entered into an agreement with Prairie
Capital on October 26, 1995 to render an opinion as to the fairness, from a
financial point of view, of the consideration to be received by the holders of
Carmi Common Stock.
There were no limitations placed on the scope of Prairie Capital's
activities in obtaining and reviewing data, holding discussions with Carmi and
ONB managements and performing such analyses as it deemed necessary in order to
render a fairness opinion to the Carmi Board. Prior to the proposed Merger,
Prairie Capital has had no financial advisory or other business relationship
with Carmi or ONB in the last two years. Prairie Capital did provide some
analyses that were used by Carmi in negotiating the Merger consideration.
On January 25, 1996, Prairie Capital provided a written presentation to the
Carmi Board of Directors to the effect that the consideration to be received
from ONB in the Merger is fair, from a financial point of view, to the Carmi
shareholders. Prairie Capital delivered a written opinion to the Board on April
9, 1996.
In arriving at its opinion dated April 9, 1996, Prairie Capital had
discussions with certain officers of Carmi and ONB and reviewed and analyzed,
among other data: (i) the annual reports to shareholders of Carmi for the years
ended December 31, 1990 through 1994 with financial statements unaudited in 1990
through 1992 and audited in 1993 and 1994 and unaudited interim financial
statements as of and for the eleven months ended November 30, 1995; (ii) the
annual reports and 10-K SEC filings for ONB for the years ended December 31,
1990 through 1994, the quarterly reports and 10-Q filings for the first three
quarters of 1995, five proxy statement/prospectuses on transactions completed by
ONB in 1995 and a news release dated January 29, 1996 with the unaudited
financial statements for the year ended December 31, 1995; (iii) a copy of the
Agreement of Affiliation and Merger; (iv) draft copies of the Proxy
Statement/Prospectus; (v) publicly-available information on the common stock
prices and financial performance of selected Midwestern bank holding companies
and ONB; (vi) the
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<PAGE>
announced terms of selected small and medium-sized Midwestern bank merger and
acquisition transactions from September, 1994 through December, 1995; (vii)
other information Prairie Capital deemed relevant; and (viii) other internal
financial and operating information which was provided to Prairie Capital by
Carmi and ONB.
Prairie Capital also took into account its assessment of general economic,
market and financial conditions and its experience in other transactions, as
well as its experience in securities valuation and its knowledge of the banking
industry generally. Prairie Capital's opinion was necessarily based upon
conditions as they existed and could be evaluated on the date thereof and
information made available to Prairie Capital through the date thereof.
Prairie Capital assumed and relied upon, without independent verification,
the accuracy and completeness of the information reviewed by it for the purposes
of its opinion. Prairie Capital did not make any independent valuation or
appraisal of the assets or liabilities of Carmi and ONB, nor was Prairie Capital
furnished with any such appraisals. Prairie Capital assumed, without independent
verification, that the aggregate allowances and reserves for loan and lease
losses of Carmi and ONB were adequate to cover such losses.
Prairie Capital performed a variety of financial analyses which are
summarized below. The summary of such analyses set forth herein does not purport
to be a complete description of such analyses. Prairie Capital believes that its
analyses and the summary set forth herein must be considered as a whole and that
selecting portions of such analyses and the factors considered therein, without
considering all factors and analyses, could create an incomplete view of the
analyses and the processes behind Prairie Capital's opinion. The preparation of
a fairness opinion is a complex process involving subjective judgments and is
not necessarily susceptible to partial analysis or summary description. In its
analyses, Prairie Capital made numerous assumptions with respect to industry
performance, business and economic conditions and other matters, many of which
are beyond the control of Carmi and ONB. Any estimates and projections contained
in Prairie Capital's analyses are not necessarily indicative of future results,
which may be significantly more or less favorable than such estimates and
projections. Estimates and projections of values of companies do not purport to
be appraisals or necessarily reflect the prices at which companies or their
securities actually may be sold. No company or transaction utilized in Prairie
Capital's analyses was identical to Carmi, ONB or the Merger. Accordingly, such
analyses are not based solely on arithmetic calculations; rather, they involve
complex considerations and judgments concerning differences in financial and
operating characteristics of the relevant companies, the timing of the relevant
transactions and prospective buyer interest, as well as other factors that could
affect the public trading values of the company or companies to which they are
being compared. None of the analyses performed by Prairie Capital was assigned a
greater significance by Prairie Capital than any other.
The analyses performed by Prairie Capital related to rendering its opinions
to the Board of Directors of Carmi are summarized below:
(i) Summary of Merger Terms. Under the Agreement, each share of Carmi
Common Stock will be converted into 3.885 shares of ONB common
stock. Should the average of the closing prices of ONB Common Stock,
as quoted on the Nasdaq National Market System, be more that 10%
above or below $32.50 per share ($35.75 above and $29.25 below),
then the Exchange Ratio would be adjusted so as to permit no more
than a 10% deviation in the $32.50 value. Carmi shareholders will
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<PAGE>
receive as cash dividends the equivalent of the net income of Carmi
from January 1, 1996 to closing.
(ii) Review of Carmi and ONB. Carmi's total assets have increased from
$59.7 million at 1990 yearend to $66.7 million at 1994 yearend and
$66.6 million as of November 30, 1995. The increase in assets was
more than accounted for by the acquisition of The First National
Bank of Crossville ($13.5 million in assets) on December 17, 1993.
Net income excluding securities gains or losses increased from
$535,000 in 1989 to $569,000 in 1990, $828,000 in 1992 and $830,000
in 1993 before declining to $750,000 in 1994 and $718,000 for the
twelve months ended November 30, 1995. The recent decline in
earnings reflects a lower net interest margin, no offsetting
increase in earning assets and higher noninterest expenses including
goodwill amortization from the Crossville acquisition. The return on
average assets increased from 1.06% in 1990 to 1.51% in 1992 and
declined to 1.07% in 1994 and 1.04% for the twelve months ended
November 30, 1995. The return on average shareholders' equity ranged
from 7.98% in 1990 to 11.03% in 1992 and 8.80% in 1994 and 8.54% for
the twelve months ended November 30, 1995. Carmi has maintained a
very high capital ratio equal to 12.47% of assets at November 30,
1995 and 10.70% tangible capital to assets. (The capital accounts
were adjusted for the anticipated payment of dividends.) Reflecting
its high capital ratio and lack of growth, Carmi has paid out a high
proportion of earnings as dividends on the common stock.
For the five years ended 1994, ONB achieved annual earnings growth
of 9.1% and cash dividend growth of 7.6% compared to asset growth of
3.9%. Profitability has improved as the return on average assets has
increased from 0.93% in 1990 to 1.14% in 1994. Return on average
shareholders' equity has increased from 11.28% in 1990 to 12.65% in
1994 while the equity to assets ratio has gone from 8.39% to 9.02%
over the same period. For the full year 1995, ONB reported fully
diluted earnings per share of $2.04 compared to $1.78 the prior year
for a 14.6% increase. The per share figures have been adjusted for a
5% stock dividend payable on February 20, 1996. ONB management is
estimating earnings per share of $2.25 to $2.30 in 1996 and has a
goal for 1998 of about $2.85 per share. The current annual dividend
rate of $0.92 compares to $0.88 paid in 1995.
(iii) ONB Common Stock. Prairie Capital compared the common stocks and
financial performance of ten bank holding companies (collectively,
"BHCs") with ONB's. The BHCs are based in Indiana, Illinois,
Kentucky and Ohio and have total assets of between $1 billion and $5
billion.
It was noted that ONB's common stock was selling at 16.4 times the
latest twelve months earnings, 15.7 times the estimated 1995
earnings, 197.4% of stated book value and 204.5% of tangible book
value. The comparison group had a median price/earnings ratio based
on latest twelve months earnings of 13.8 times earnings, 13.3 times
earnings based on estimated 1995 earnings, a median price/stated
book value ratio of 173.4% and a price/tangible book value of
190.8%.
As to financial performance, ONB had ratios based on the latest
twelve months results virtually equal to the median of the
comparison group with return on average assets of 1.16%, return on
average stockholders' equity of 12.88%, an equity to assets ratio of
8.93% and a tangible equity to assets ratio of 8.64%. ONB's
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percentage of nonperforming assets to total assets at 0.34% was
lower that the group median while ONB's loan loss reserves as a
percentage of nonperforming assets at 268.63% was higher than the
group median. ONB's market capitalization for its common stock is
larger than that of any of the BHCs in the group.
(iv) Analysis of Recent Comparable Bank Mergers and Acquisition
Transactions. Prairie Capital reviewed bank merger and acquisition
transactions in the Midwest and selected 24 transactions that have
been announced since September, 1994. The selling banks/bank holding
companies were based in Indiana, Illinois and Kentucky and in all
but one transaction, the sellers had total assets under $200
million.
The average and median price/earnings ratios for the 24 transactions
were 15.5 times earnings and 14.5 times earnings. Based on a value
of the proposed Merger of about $12.7 million, the price/earnings
ratio for the proposed Merger would be 18.1 times earnings for the
twelve months ended November 30, 1995.
The price/book value ratios for the proposed Merger are 154.2% of
stated book value and 181.3% of tangible book value. These ratios
are below the average and median ratios of 180.4% and 168.4% for
stated book value and close to or above the ratios for tangible book
value of 183.3% and 170.8% for the 24 transactions. Carmi has stated
equity capital equal to 12.47% of assets compared to an average of
9.37% and a median of 8.83% for the selling banks/bank holding
companies in the 24 reviewed transactions. Prairie Capital excluded
from Carmi's capital any capital in excess of 7% of tangible capital
to assets (or 8.78% of stated capital to assets) in calculating the
price to stated and tangible book value ratios. After this
adjustment, Carmi's purchase price in relation to book value would
be 179.2% of stated book value and 229.3% of tangible book value.
(v) Present Value Analysis. Prairie Capital prepared two projections of
Carmi's results for five years. In the first projection, Prairie
Capital assumed that Carmi's net income would remain flat at
$750,000 over the five year period and all of the earnings would be
paid out to stockholders each year as cash dividends. The cash
dividends were discounted back to present value at 10%, 12% and 14%
discount rates. Also, it was assumed that Carmi would be valued at
15 times fifth year earnings in a sale transaction and that value
was discounted back to present value at the same discount rates. The
present values ranged from a low of $84.13 per Carmi share to a high
of $98.29 and compared to $126.72 per Carmi share in value of ONB
common stock in the proposed Merger.
In the second projection, Prairie Capital made the following
assumptions, among others, about Carmi: earning asset growth would
be 2% annually; the net interest margin would rise from 4.00%
currently to 4.10% the first and second years to 4.20% in the third
and fourth years and 4.30% in the fifth year; other income as a
percent of average assets would be 0.37%; noninterest expenses as a
percent of average assets would be 2.50%, down from about 2.60%
currently and the effective tax rate would be 25%. Again, Prairie
Capital assumed that the projected earnings would be all paid out to
stockholders as cash dividends on the common stock and that Carmi
would be sold at the end of the fifth year at 15 times fifth year
earnings. The projected dividends and fifth year sale value were
discounted back to present value at 10%, 12% and 14% discount rates.
The present values ranged from a low
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of $102.31 per Carmi share to a high of $119.71 compared to $126.72
per Carmi share in value of ONB common stock in the proposed Merger.
(vi) Comparison of Projected Financial Results and Values for ONB and for
Carmi on a stand alone basis. Prairie Capital prepared an analysis
that compared the dividends and fifth year values that were
projected for Carmi in the "Present Value Analysis" with projected
dividends and fifth year value that Carmi stockholders might receive
as ONB shareholders. The projections for ONB assumed earnings per
share of $2.44 the first year (before the recent 5% stock dividend)
and 8% earnings growth in the second through fifth years, projected
cash dividends on the ONB common stock equal to 40% of earnings, and
a range of fifth year values of ONB common stock equal to 12 times,
13 times, 14 times and 15 times fifth year earnings. The projected
combination of cash dividends and fifth year values for Carmi on a
stand alone basis were $150.00 and $184.11 per Carmi share. The
projected combination of cash dividends and fifth year values that
Carmi stockholders might realize from the ONB shares to be received
from the proposed Merger ranged from a low of $168.60 per Carmi
share to a high of $205.44. Prairie Capital noted that ONB common
stock has much better marketability and liquidity than Carmi common
stock.
Prairie Capital, as part of its investment banking business, is engaged in
the valuation of businesses, including banks and thrifts, and securities in
connection with mergers and acquisitions, public and private financings, thrift
stock conversions and valuations for estate, corporate and other purposes. Carmi
selected Prairie Capital on the basis of the reputations of its principals and
their experience in evaluating financial institutions such as Carmi and ONB and
in evaluating transactions such as the Merger.
For its services to Carmi in connection with the Merger, Prairie received
an aggregate cash fee of $9,600 and was reimbursed for all of its out-of-pocket
expenses relating to the Merger. In addition, Carmi has agreed to indemnify
Prairie Capital against certain liabilities, including liabilities which may
arise under the federal and state securities laws.
THE FULL TEXT OF PRAIRIE CAPITAL'S WRITTEN OPINION DATED APRIL 9, 1996,
WHICH SETS FOR THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON ITS
REVIEW, IS ATTACHED HERETO AS APPENDIX D. HOLDERS OF SHARES OF CARMI COMMON
STOCK ARE URGED TO AND SHOULD READ SUCH OPINION IN ITS ENTIRETY.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF CARMI HAS CAREFULLY CONSIDERED AND UNANIMOUSLY
APPROVED THE AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF CARMI
APPROVE THE AGREEMENT.
EXCHANGE OF CARMI COMMON STOCK
Under the terms of the Agreement, shareholders of record of Carmi upon
consummation of the Affiliation will be entitled to receive 3.885 shares of ONB
Common Stock for each share of Carmi Common Stock ("Exchange Ratio"), subject to
adjustment, if any, for stock splits, stock dividends or any similar
recapitalization
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of ONB and for changes in the price of ONB Common Stock as reported by the
Nasdaq National Market System below $29.25 or above $35.75, all as described in
the Agreement attached hereto as Appendix A.
If, between the date of the Agreement and the effective time of the
Affiliation, the record date occurs for the distribution or issuance by ONB of a
stock dividend with respect to the shares of ONB Common Stock, or the
combination, subdivision, reclassification or split of the issued and
outstanding shares of ONB Common Stock, such that the number of issued and
outstanding shares of ONB Common Stock is increased or decreased, then the
Exchange Ratio will be adjusted so that Carmi shareholders will receive, in the
aggregate, such number of shares of ONB Common Stock representing the same
percentage of outstanding shares of ONB Common Stock at the effective time of
the Affiliation as would have been represented by the number of shares such
shareholders would have received if any of the foregoing actions had not
occurred.
If the Average Price Per Share (as defined in the Agreement) of ONB Common
Stock is greater than $35.75 or less than $29.25, then the Exchange Ratio shall
be adjusted prior to the Effective Time. The adjustment would be applied in the
following manner: (i) if the Average Price Per Share of ONB Common Stock exceeds
$35.75, then the Exchange Ratio would be adjusted such that each share of Carmi
Common Stock would be converted into the number of shares of ONB Common Stock
resulting from the following formula: $126.72 / ($32.50 + (Average Price Per
Share - $35.75)); (ii) if the Average Price Per Share of ONB Common Stock is
less than $29.25, then the Exchange Ratio shall be adjusted such that each share
of Carmi Common Stock shall be converted into the number of shares of ONB Common
Stock resulting from the following formula: $126.72 / ($32.50 - ($29.25 -
Average Price Per Share)); and (iii) if the Average Price Per Share of ONB
Common Stock is not less than $29.25 nor more than $35.75, then there shall be
no adjustment to the Exchange Ratio.
In the event of a stock split, stock dividend or other recapitalization,
the Exchange Ratio will be adjusted so that Carmi shareholders will receive, in
the aggregate, the same percentage of the outstanding shares of ONB Common Stock
they would have received if the recapitalization had not occurred.
As of April 25, 1996, the closing price of ONB Common Stock was $34.00 per
share, as reported by the Nasdaq National Market System. If the Affiliation had
been consummated on that date, the number of shares of ONB Common Stock
exchanged in the Affiliation would have been 388,500, with an aggregate value of
approximately $13,209,000.
No fractional shares of ONB Common Stock will be issued to shareholders of
Carmi in connection with the Affiliation. Each shareholder of Carmi who
otherwise would be entitled to a fractional interest in a share of ONB Common
Stock as a result of the application of the Exchange Ratio will be paid a cash
amount equal to such fractional interest multiplied by the average of the per
share closing prices of ONB Common Stock as reported on the Nasdaq National
Market System for the first five (5) business days on which shares of ONB Common
Stock are traded within the ten (10) calendar days immediately preceding the
effective time of the Affiliation.
After the effective time of the Affiliation, stock certificates previously
representing Carmi Common Stock will represent only the right to receive shares
of ONB Common Stock and cash for any fractional shares. Following the effective
time of the Affiliation and prior to the surrender by holders of Carmi of their
stock certificates to ONB in exchange for ONB Common Stock, such holders will
not be entitled to receive payment of dividends or other distributions declared
on shares of ONB Common Stock. Upon the subsequent exchange of such
certificates, however, any accumulated dividends or other distributions
previously declared and withheld on the shares of ONB Common Stock will be paid,
without interest. At the effective time of the Affiliation, the stock transfer
books of Carmi will be closed and no transfers of shares of Carmi Common Stock
will thereafter be made. If, after the effective time of the Affiliation,
certificates representing shares of Carmi Common Stock are presented for
registration or transfer, they will be canceled and exchanged for shares of ONB
Common Stock or cash, as the case may be.
Distribution of stock certificates representing shares of ONB Common Stock
and any cash payment for fractional shares (without interest) will be made,
after the effective time of the Affiliation, to each former shareholder of Carmi
within twenty (20) business days following the shareholder's delivery to ONB of
his or her certificate(s) representing shares of Carmi Common Stock.
Instructions as to delivery of stock certificates of Carmi to ONB will be sent
to each shareholder of Carmi within twenty (20) days following the effective
time of the Affiliation.
DISSENTERS' RIGHTS
In accordance with Title 12, Section 215a of the United States Code, a copy
of which is attached hereto as Appendix B, shareholders of Carmi have the right
to dissent from the Merger and to receive the value of their Carmi Common Stock.
In order to perfect dissenters' rights, a shareholder must take the following
steps: (i) either vote against the Agreement at the Special Meeting or give
written notice to the officer presiding at the Special Meeting prior to or at
the Special Meeting that the shareholder dissents from approval of the
Agreement; (ii) submit a written request for payment of the value of his or her
shares of Carmi Common Stock to Merger Bank at any time before thirty (30) days
after the consummation of the Merger; and (iii) surrender to Merger Bank the
certificates representing his or her shares of Carmi Common Stock at the time of
making the foregoing request. ONB will mail notice of the date of consummation
of the Affiliation to each person listed as a shareholder of Carmi on such date.
-9-
<PAGE>
The "value" of a dissenting shareholder's shares of Carmi Common Stock
(determined as of the effective date of the Merger) will be determined in
accordance with the following procedure, which is contained in Title 12, Section
215a of the United States Code. Three appraisers will be appointed, one to be
elected by the vote of two-thirds of the shareholders of Carmi who have
perfected their right to dissent as set forth above, one to be selected by the
Board of Directors of Merger Bank, and the third to be selected by the other two
appraisers. The valuation agreed upon by any two of the three appraisers shall
govern. If the value of Carmi Common Stock established by the appraisers is not
satisfactory to any dissenting shareholder, such dissenting shareholder may,
within five (5) days after being notified of the appraised value of the shares,
appeal to the United States of America Office of the Comptroller of the Currency
("OCC"), which shall cause a reappraisal to be made, and such reappraisal will
be final and binding upon the dissenting shareholder so appealing. The value of
the shares as determined by the OCC shall be promptly paid by Merger Bank to the
dissenting shareholder. All expenses of the OCC in making an appraisal or a
reappraisal will be paid by Merger Bank.
If, within ninety (90) days of the date of consummation of the Merger, one
or more of the appraisers is not selected or the appraisers fail to determine
the value of the shares of Carmi Common Stock, then the OCC will upon written
request of any dissenting shareholder cause an appraisal to be performed, which
will be binding upon all parties. The value of the shares of Carmi Common Stock
determined by the appraisers or the OCC must be promptly paid by Merger Bank to
the dissenting shareholders. The expenses of the OCC in making the reappraisal
or the appraisal, as the case may be, must be paid by Merger Bank.
The shares of ONB Common Stock which would have been delivered to such
dissenting shareholders had they not dissented to the Merger will be sold at an
advertised public auction. Merger Bank may purchase any of such shares at such
public auction for the purpose of reselling such shares within thirty (30) days.
If the shares are sold at public auction at a price greater than the amount paid
by Merger Bank to the dissenting shareholders, the excess in such sale price
will be paid to such dissenting shareholders.
The OCC also has issued Banking Circular 259, dated March 5, 1992, relating
to its valuation methods used for appraisals in connection with mergers such as
the Merger. A copy of such Circular is attached hereto as Appendix C.
THE FOREGOING SUMMARY OF THE RIGHTS OF DISSENTING SHAREHOLDERS ADDRESSES
ALL MATERIAL FEATURES OF THE APPLICABLE DISSENTERS' RIGHTS STATUTES, UNDER THE
LAWS OF THE UNITED STATES OF AMERICA BUT DOES NOT PURPORT TO BE COMPLETE AND IS
QUALIFIED IN ITS ENTIRETY BY THE STATUTORY PROVISIONS ATTACHED HERETO AS
APPENDIX B. THE DISSENTERS' RIGHTS RELATING TO SHAREHOLDERS OF CARMI SHOULD BE
READ IN CONJUNCTION WITH THE OCC'S CIRCULAR ATTACHED HERETO AS APPENDIX C.
A SHAREHOLDER'S FAILURE TO COMPLY WITH THE STATUTORY REQUIREMENTS FOR
EXERCISING DISSENTERS' RIGHTS WILL RESULT IN A LOSS OF SUCH RIGHTS, AND
SHAREHOLDERS WHO MAY WISH TO EXERCISE DISSENTERS' RIGHTS SHOULD CONSIDER SEEKING
LEGAL COUNSEL.
-10-
<PAGE>
RESALE OF ONB COMMON STOCK BY AFFILIATES OF CARMI
No restrictions on the sale or transfer of the shares of ONB Common Stock
issued pursuant to the Affiliation will be imposed solely as a result of the
Affiliation, other than restrictions on the transfer of such shares issued to
any shareholder of Carmi who may be deemed to be an "affiliate" of Carmi for
purposes of Rule 145 under the Securities Act. Directors, executive officers
and 10% shareholders are generally deemed to be affiliates for purposes of Rule
145.
The Agreement provides that Carmi will provide ONB with a list identifying
each affiliate of Carmi. The Agreement also requires that each affiliate of
Carmi deliver to ONB, on or prior to the date of the Agreement, a written
agreement to the effect that such affiliate (i) will not sell, pledge, transfer,
dispose of or otherwise reduce the affiliate's market risk with respect to the
shares of Carmi Common Stock directly or indirectly owned or held by such person
during the thirty (30) day period prior to the effective time, and (ii) will not
sell, pledge, transfer or otherwise dispose of or reduce the affiliate's market
risk with respect to the shares of ONB Common Stock to be received by such
person pursuant to the Agreement (A) until such time as financial results
covering at least thirty (30) days of combined operations of Carmi and ONB have
been published within the meaning of Section 201.01 of the Commission's
Codification of Financial Reporting Policies and (B) unless done pursuant to an
effective registration statement under the Securities Act or pursuant to Rule
145 or another exemption from the registration requirements under the Securities
Act. The certificates representing ONB Common Stock issued to affiliates of
Carmi in the Affiliation may contain a legend indicating these resale
restrictions.
This is only a general statement of certain restrictions regarding the sale
or transfer of the shares of ONB Common Stock to be issued in the Affiliation.
Therefore, those shareholders of Carmi who may be deemed to be affiliates of
Carmi should consult with their legal counsel regarding the resale restrictions
that may apply to them.
CONDITIONS TO CONSUMMATION
Consummation of the Affiliation is conditioned upon, among other items, (1)
approval of the Agreement by the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Carmi Common Stock, (2) receipt by ONB
and Carmi of all applicable regulatory approvals required for the Affiliation,
(3) receipt of an opinion of counsel with respect to certain federal income tax
matters, (4) receipt by ONB of certain undertakings from affiliates of Carmi,
(5) receipt by ONB and Carmi of certain officers' certificates and other legal
opinions, (6) the accuracy at the effective time of the Affiliation of
representations and warranties contained in the Agreement, and (7) the
fulfillment of certain covenants set forth in the Agreement. The conditions to
consummation of the Affiliation, which are more fully enumerated in the
Agreement, are requirements subject to unilateral waiver by the party entitled
to the benefit of such conditions, as set forth in the Agreement. See "PROPOSED
AFFILIATION -- Resale of ONB Common Stock by Carmi Affiliates", "-- Regulatory
Approvals", "FEDERAL INCOME TAX CONSEQUENCES" and Appendix A.
TERMINATION
The Agreement may be terminated before consummation of the Affiliation by
either ONB or Carmi (as specified in the Agreement) if, among other reasons:
(1) there has been a misrepresentation or a breach of any warranty set forth in
the Agreement by Carmi or ONB which has had or could be expected to have a
material adverse effect on the financial condition, results
-11-
<PAGE>
of operations, business, assets or capitalization of Carmi or ONB, (2) ONB or
Carmi has breached or failed to comply with any covenant set forth in the
Agreement, (3) consummation of the Affiliation has become inadvisable or
impracticable due to the commencement or threat of any claim, litigation or
proceeding against ONB or Carmi, or any subsidiary of ONB relating to the
Agreement or which is likely to have a material adverse effect on the financial
condition, results of operations, business, assets or capitalization of ONB or
Carmi, (4) there has been a material adverse change in the financial condition,
results of operations, business, assets or capitalization of ONB or Carmi as of
the effective time of the Affiliation as compared to that in existence as of
December 31, 1995 other than changes resulting primarily by reason of changes in
banking laws or regulations (or interpretations thereof), changes in the general
level of interest rates or changes in economic, financial or market conditions
affecting the banking industry generally in Carmi's market or the regions in
which ONB and its affiliates operate, (5) ONB cannot utilize the pooling-of-
interests method of accounting for the Affiliation and such failure to qualify
is the result of actions taken or omitted to be taken by Carmi or its directors,
officers or shareholders other than as permitted by the Agreement, or (6)
consummation of the Affiliation has not occurred by November 30, 1996. Upon
termination for any of these reasons, the Agreement will be of no further force
or effect. See Appendix A to this Proxy Statement.
RESTRICTIONS AFFECTING CARMI
The Agreement contains a number of restrictions regarding the conduct of
business of Carmi pending consummation of the Affiliation. Among other items,
Carmi may not, without the prior written consent of ONB: (1) change its capital
stock accounts, (2) distribute or pay any dividends, except that Carmi may pay a
quarterly cash dividend to its shareholders until consummation of the
Affiliation in an aggregate amount not to exceed Carmi's undivided profits from
December 31, 1995 through and including the effective time of the Affiliation;
provided, however, that if Carmi's shareholders become entitled to receive a
cash dividend from ONB for the calendar quarter during which the Affiliation is
consummated, then the aggregate cash dividends permitted to be paid by Carmi to
its shareholders will be reduced by the aggregate cash dividend for such quarter
receivable by Carmi's shareholders from ONB, and if the amount of such dividend
from ONB is not yet determinable, such amount will be calculated based upon the
per share amount of the last cash dividend paid by ONB to its shareholders, (3)
amend its Articles of Association or By-Laws, (4) carry on its business other
than substantially in the manner as conducted as of the date of the Agreement
and in the ordinary course of business, or (5) merge, combine or sell Carmi,
except under certain limited circumstances. See Appendix A to this Proxy
Statement.
REGULATORY APPROVALS
The Affiliation requires the prior approval of the Board of Governors of
the Federal Reserve System ("Federal Reserve") under the Bank Holding Company
Act of 1956, as amended ("BHC Act"), the OCC under the National Bank Act, as
amended, and the Illinois Commissioner of Banks and Trust Companies ("ICBT")
under the Illinois Bank Holding Company Act of 1957. ONB has filed applications
with the Federal Reserve, the OCC and the ICBT for their prior approval of the
Affiliation.
Approval of the Affiliation by the Federal Reserve, the OCC and the ICBT is
not to be interpreted as the opinion of these regulatory authorities that the
Affiliation is favorable to the shareholders of Carmi from a financial point of
view or that those regulatory authorities have considered the adequacy of the
terms of the Affiliation. An approval by the Federal Reserve, the
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<PAGE>
OCC or the ICBT in no way constitutes an endorsement or a recommendation of the
Affiliation by such regulatory authorities.
ACCOUNTING TREATMENT FOR THE AFFILIATION
It is anticipated that the Affiliation will be accounted for as a "pooling-
of-interests" transaction. Under this method of accounting, shareholders of ONB
and Carmi will be deemed to have combined their existing voting common stock
interests. See "SUMMARY OF SELECTED FINANCIAL DATA" and "PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION".
In order for the Affiliation to qualify for pooling-of-interests accounting
treatment, among other items, 90% or more of the outstanding shares of Carmi
Common Stock must be exchanged for ONB Common Stock. In the event the holders
representing more than 10% of the outstanding shares of Carmi Common Stock
become entitled by the exercise of dissenters' rights or otherwise to receive
cash instead of ONB Common Stock, the Affiliation would not qualify for pooling-
of-interests method of accounting and ONB would have the right to terminate the
Agreement. See "PROPOSED AFFILIATION -- Rights of Dissenting Shareholders" and
"PROPOSED AFFILIATION -- Termination".
EFFECTIVE TIME
The Affiliation will become effective at the close of business on the day
specified in the Articles of Merger of Carmi with and into Merger Bank as filed
with the OCC. The effective time of the Affiliation will occur on the last
business day of the month following (1) the fulfillment of all conditions
precedent to the Affiliation set forth in the Agreement and (2) the expiration
of all waiting periods in connection with the bank regulatory applications filed
for approval of the Affiliation, unless otherwise mutually agreed to by ONB and
Carmi.
ONB and Carmi currently anticipate that Affiliation will be consummated
during the second or third quarter of 1996.
MANAGEMENT, PERSONNEL AND OPERATIONS AFTER THE AFFILIATION
Merger Bank will be the surviving banking institution in the Merger and,
upon consummation of the Merger, the separate corporate existence of Carmi will
cease.
Upon consummation of the Affiliation, Merger Bank will continue as a
wholly-owned subsidiary of ONB, and the name of Merger Bank will be changed to
"The National Bank of Carmi". The Board of Directors of Carmi serving at the
effective time of the Affiliation will serve as the Board of Directors of Merger
Bank after the effective time of the Affiliation. Following the effective time
of the Affiliation, ONB, as the sole shareholder of Merger Bank, will have the
ability to elect the Board of Directors of Merger Bank. The officers of Merger
Bank following consummation of the Affiliation will be the officers of Carmi
serving at the effective time of the Affiliation until the Board of Directors of
Merger Bank determines otherwise.
Those persons who are full-time officers or employees of Carmi as of the
effective time of the Affiliation, provided that these persons continue as full-
time officers or employees of Merger Bank or any other subsidiary of ONB after
the effective time of the Affiliation, will receive substantially the same
employee benefits on substantially the same terms and conditions that ONB
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<PAGE>
may offer to similarly situated officers and employees of its banking
subsidiaries from time to time. In addition, years of service of an employee of
Carmi prior to the effective time of the Affiliation will be credited to each
such employee for purposes of eligibility under ONB's employee welfare benefit
plans and for purposes of eligibility and vesting, but not for accrual or
contributions, under the ONB Employees' Retirement Plan ("ONB Pension Plan") and
the ONB Employees' Savings and Profit Sharing Plan ("ONB Profit Sharing Plan").
Those officers and employees of Carmi who otherwise meet the eligibility
requirements of the ONB Pension Plan and the ONB Profit Sharing Plan, based upon
their age and years of service to Carmi, shall become participants thereunder on
the January 1st which coincides with or next follows the effective time of the
Affiliation. Those officers and employees who do not meet the eligibility
requirements of the ONB Pension Plan or ONB Profit Sharing Plan on such date
shall become participants thereunder on the on the first "plan entry date" (as
defined in the ONB Pension Plan or ONB Profit Sharing Plan, as the case may be)
which coincides with or next follows the date on which such eligibility
requirements are satisfied.
No full-time officer or employee of Carmi serving as of the effective time
of the Affiliation will be subject to any pre-existing condition exclusions
under any of ONB's welfare benefit plans if such officer, employee or individual
was covered by the corresponding Carmi welfare benefit plan for more than two
hundred seventy (270) days immediately preceding the effective time of the
Affiliation.
INTERESTS OF CERTAIN PERSONS IN THE AFFILIATION
Carmi and James L. Whetstone, its President and Chief Executive Officer,
have entered into an employment agreement effective November 17, 1995 for a term
of three (3) years from such date, which term is automatically extended for one
(1) additional year unless terminated by either party as of the last day of the
then current three (3) year term. Pursuant to the terms of the Agreement, ONB
has agreed to assume Mr. Whetstone's employment agreement.
Under the Agreement, ONB has agreed to cause the Merger Bank and Insurance
Agency to assume and honor any obligations as provided for and permitted by
applicable federal and state law which Carmi and Insurance Agency had
immediately prior to the effective time of the Affiliation with respect to the
indemnification of each person who is a director or officer of Carmi or
Insurance Agency or was serving at the request of Carmi or Insurance Agency as a
director or officer of any domestic or foreign corporation, joint venture,
trust, employee benefit plan or other enterprise (collectively, the
"Indemnitees") arising out of Carmi's Articles of Association or By-Laws or
Insurance Agency's Certificate of Incorporation or By-Laws in effect at the
effective time of the Affiliation against any and all losses in connection with
or arising out of any claim which is based upon, arises out of or in any way
relates to any actual or alleged act or omission occurring at or prior to the
effective time of the Affiliation in the Indemnitee's capacity as a director or
officer (whether elected or appointed), of Carmi or Insurance Agency.
Indemnification of officers and directors of the Merger Bank and Insurance
Agency following the effective time of the Affiliation will be provided to the
same extent it is provided from time to time to other persons working in similar
capacities for ONB or its subsidiaries following the effective time of the
Affiliation.
For a period of one (1) year after the effective time of the Affiliation,
ONB shall use all reasonable efforts to cause to be maintained in effect the
current policies of directors' and officers' liability insurance maintained by
Carmi (provided that ONB may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions which are substantially no
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<PAGE>
less advantageous) with respect to claims arising from facts or events which
occurred before the effective time of the Affiliation. Following the effective
time of the Affiliation, ONB will provide any Carmi employees who become
officers of ONB or any of its subsidiaries with the same directors' and
officers' liability insurance coverage that ONB provides to other similarly
situated directors and officers of ONB and its bank subsidiaries.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain federal income tax aspects of
the Affiliation. This discussion does not purport to cover all federal income
tax consequences relating to the Affiliation and does not contain any
information with respect to state, local or other tax laws.
TAX OPINION
ONB and Carmi have requested the law firm of Krieg DeVault Alexander &
Capehart to render an opinion that the Affiliation constitutes a tax-free
reorganization and, with respect to certain federal income tax consequences of
the Affiliation, substantially to the effect that the merger to be effected
pursuant to the Affiliation constitutes a tax-free reorganization under the
Internal Revenue Code of 1986, as amended ("Code") to each party thereto and to
the shareholders of Carmi, except with respect to cash received by Carmi's
shareholders (i) for fractional share interests of ONB Common Stock or (ii)
pursuant to the exercise of dissenters' rights.
The opinion rendered by Krieg DeVault Alexander & Capehart will be based
upon the assumption of certain facts to be stated in the opinion, including,
among others, that there is no plan or intention by the shareholders of Carmi to
sell or dispose of their shares of ONB Common Stock received in the Merger or
sell or dispose of their shares of Carmi Common Stock prior to the effective
time of the Affiliation that would reduce their ownership of ONB Common Stock to
an aggregate value, as of the effective time of the Affiliation, of less than
fifty percent (50%) of the value of all of the formerly outstanding shares of
Carmi Common Stock as of the same date. Under the Agreement, the obligations of
each of ONB and Carmi to consummate the Affiliation is conditioned upon the
receipt of an opinion of counsel substantially to the effect as set forth above.
TAX CONSEQUENCES TO ONB AND CARMI
The merger of Carmi with and into Merger Bank constitutes a statutory
merger under applicable law. Consequently, based upon the assumption of
certain facts to be stated in the opinion, the merger of Carmi with and into
Merger Bank should constitute a tax-free reorganization. As a result, ONB,
Merger Bank and Carmi will recognize neither gain nor loss as a result of the
Affiliation for federal income tax purposes.
TAX CONSEQUENCES TO CARMI SHAREHOLDERS
A. Carmi Shareholders Receiving Solely ONB Common Stock
----------------------------------------------------
A Carmi shareholder who receives solely ONB Common Stock in exchange for
all of the shares of Carmi Common Stock actually owned by the shareholder will
not recognize any gain or loss upon such exchange for federal income tax
purposes. See paragraph C. below for a discussion of the tax consequences of
the receipt of cash in lieu of fractional share interests of ONB Common Stock.
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<PAGE>
B. Dissenting Carmi Shareholders Receiving Solely Cash
---------------------------------------------------
The transaction will result in income being recognized for federal income
tax purposes for Carmi shareholders who dissent to the Affiliation and receive
solely cash in exchange for their shares of Carmi Common Stock. A shareholder
who receives solely cash for the shareholder's shares of Carmi Common Stock
pursuant to the Affiliation through the exercise of dissenters' rights and, as a
result of the surrender of all of the shareholder's shares of Carmi Common
Stock, owns no Carmi Common Stock either directly or through the constructive
ownership rules of Section 318 of the Code, would recognize capital gain or loss
(assuming that the Carmi Common Stock is held by such shareholder as a capital
asset) equal to the difference between the amount of the cash received and the
shareholder's tax basis of its shares of Carmi Common Stock.
C. Cash Received in Lieu of Fractional Shares
------------------------------------------
A Carmi shareholder who receives cash in lieu of a fractional share
interest of ONB Common Stock will be treated as having received such fraction of
a share of ONB Common Stock and then as having received cash in redemption of
the fractional share interest, subject to the provisions of Section 302 of the
Code.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE HAS NOT BEEN VERIFIED
WITH THE INTERNAL REVENUE SERVICE, IS INCLUDED FOR GENERAL INFORMATION ONLY AND
IS BASED UPON THE FEDERAL INTERNAL REVENUE CODE AS IN EFFECT ON THE DATE OF THIS
PROXY STATEMENT WITHOUT CONSIDERATION OF ANY STATE LAWS OR THE PARTICULAR FACTS
OR CIRCUMSTANCES OF ANY SHAREHOLDER OF CARMI. THE ABOVE DISCUSSION MAY NOT BE
APPLICABLE WITH RESPECT TO SHARES ACQUIRED PURSUANT TO THE EXERCISE OF STOCK
OPTIONS OR OTHERWISE RECEIVED AS COMPENSATION. SHAREHOLDERS ARE URGED TO
CONSULT WITH THEIR TAX ADVISOR WITH RESPECT TO ALL TAX CONSEQUENCES OF THE
AFFILIATION TO THEM, INCLUDING THE EFFECT OF FEDERAL, STATE AND LOCAL TAX LAWS
AND ANY OTHER TAX CONSEQUENCES.
COMPARATIVE PER SHARE DATA
NATURE OF TRADING MARKET
Shares of ONB Common Stock are traded in the over-the-counter market and
share prices are reported by the Nasdaq National Market System under the symbol
OLDB. On December 11, 1995, the business day immediately preceding the public
announcement of the Affiliation, the closing price of ONB Common Stock reported
by the Nasdaq National Market System was $32.38 per share (as adjusted for the
5% stock dividend issued by ONB on February 20, 1996). On April 25, 1996, the
closing price of ONB Common Stock reported by the Nasdaq National Market System
was $34.00 per share. The following table sets forth, for the periods
indicated, the high and low per share closing prices of ONB Common Stock as
reported by the Nasdaq National Market System. The prices shown below have been
adjusted for all stock splits and stock dividends paid by ONB.
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<PAGE>
<TABLE>
<CAPTION>
1993 HIGH LOW
---- ------- -------
<S> <C> <C>
First Quarter $26 1/4 $28 7/8
Second Quarter 28 1/4 30
Third Quarter 29 3/8 32
Fourth Quarter 31 5/8 34 3/8
1994
----
First Quarter $34 1/8 $32 7/8
Second Quarter 33 1/8 32 5/8
Third Quarter 33 3/4 32 5/8
Fourth Quarter 33 5/8 33 1/8
1995
----
First Quarter $34 1/8 $32 5/8
Second Quarter 33 1/8 32 3/8
Third Quarter 32 7/8 32 5/8
Fourth Quarter 33 1/8 32 1/8
1996
----
First Quarter $33 1/2 $32 5/8
</TABLE>
There is no established public trading market for shares of Carmi Common
Stock and shares of Carmi Common Stock are traded in limited quantities in
private transactions. Since there are no market makers for Carmi Common Stock
and no recognized exchanges on which shares of Carmi Common Stock are traded,
there is no published source of prices relating to transactions in Carmi Common
Stock. Most trades occur as a result of private negotiations in isolated
transactions, with the result that management of Carmi Common Stock is not
directly informed of the number of trades or prices at which shares of Carmi
Common Stock are traded.
The table below sets forth, for the periods indicated, the high and low
trade prices for shares of Carmi Common Stock, the number of shares traded and
the number of trades of Carmi Common Stock, based upon information received by
management of Carmi. The last two trades of Carmi Common Stock, the terms of
which management of Carmi are aware, occurred on or about February 20, 1996 and
involved the sale of One Hundred Twenty-Five (125) shares each. Management of
Carmi is unaware of the price of these trades. As of the Record Date, there
were approximately 101 holders of Carmi Common Stock.
<TABLE>
<CAPTION>
NUMBER TOTAL
OF SHARES NUMBER
HIGH LOW TRADED OF TRADES
---- --- --------- ---------
<S> <C> <C> <C> <C>
1993 N/A N/A 16,081 28
1994 N/A N/A 8,460 25
1995 N/A N/A 6,290 24
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
1996 N/A N/A 250 2
(through
March 31, 1996)
</TABLE>
"N/A" means the information is not available to management of Carmi.
DIVIDENDS
The following table sets forth the per share cash dividends paid on shares
of ONB Common Stock and Carmi Common Stock since January 1, 1993. All dividends
have been adjusted to give effect to their respective stock dividends and stock
splits (if any).
<TABLE>
<CAPTION>
ONB CARMI
COMMON STOCK (1) COMMON STOCK (2)
---------------- ----------------
<S> <C> <C>
1993
----
First Quarter $0.18 $7.25
Second Quarter 0.18 0.25
Third Quarter 0.18 0.25
Fourth Quarter 0.18 0.25
1994
----
First Quarter $0.21 $5.75
Second Quarter 0.21 0.25
Third Quarter 0.21 0.25
Fourth Quarter 0.21 0.25
1995
----
First Quarter $0.22 $6.50
Second Quarter 0.22 0.25
Third Quarter 0.22 0.25
Fourth Quarter 0.22 0.25
1996
----
First Quarter $0.23 $6.71
</TABLE>
(1) There can be no assurance as to the amount of future dividends that may
be declared or paid on shares of ONB Common Stock since dividend policies
are subject to the discretion of the Board of Directors of ONB, general
business conditions and dividends paid to ONB by its affiliate banks.
For certain restrictions on the payment of dividends on shares of ONB
Common Stock, see "COMPARISON OF COMMON STOCK -- Dividend Rights".
(2) The Agreement provides Carmi may make quarterly cash dividends to its
shareholders until consummation of the Affiliation in an aggregate amount
not to exceed Carmi's undivided profits from December 31, 1995, through
and including the effective time of the Affiliation; provided, however,
that if Carmi's shareholders become entitled to receive a cash dividend
from ONB for the calendar quarter during which the Affiliation is
consummated, then the
-18-
<PAGE>
aggregate cash dividends permitted to be paid by Carmi to its shareholders
will be reduced by the aggregate cash dividend for such quarter receivable
by Carmi's shareholders from ONB, and if the amount of such dividend from
ONB is not yet determinable, such amount will be calculated based upon the
per share amount of the last cash dividend paid by ONB to its shareholders.
EXISTING AND PRO FORMA PER SHARE INFORMATION
The following table sets forth certain historical, pro forma and
equivalent information. The data is based on historical financial statements
and the pro forma financial information included on pages 21 through 26 and has
been restated to give effect to all stock dividends. Equivalent per share data
is calculated by multiplying the pro forma ONB information by the Exchange Ratio
under the Agreement.
-19-
<PAGE>
<TABLE>
<CAPTION>
As Reported
----------------------------------------------
Net Income Cash Book Value at
ONB (Loss) Dividends Period End
--- ---------- --------- -------------
<S> <C> <C> <C>
Year Ended December 31,
1995 2.04 0.88 17.15
1994 1.78 0.84 15.86
1993 1.84 0.72 15.37
Carmi
-----
Year Ended December 31,
1995 4.64 7.46 80.32
1994 7.12 7.25 80.92
1993 8.21 6.50 83.08
</TABLE>
<TABLE>
<CAPTION>
Net Income Cash Dividends
----------------------------- -----------------------------
ONB Carmi ONB Carmi
Pro Forma(1) Equivalent(1) Pro Forma(1) Equivalent(1)
----------- ------------- ----------- -------------
<S> <C> <C>
Year Ended December 31,
1995 2.02 7.85 0.88 3.42
1994 1.78 6.92 0.84 3.26
1993 1.84 7.15 0.72 2.80
Shareholders' Equity
-----------------------------
ONB Carmi
Pro Forma(1) Equivalent(1)
----------- -------------
As of December 31, 1995 17.21 66.86
Market Value of Common Stock
-----------------------------
Carmi
ONB Equivalent
----------- ----------
As of December 11, 1995 (2) $32.38 $132.09
</TABLE>
(1) Considers the pending merger with Carmi. See "PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION".
(2) Represents the last business day prior to the public announcement of the
proposed merger with Carmi. The market value of ONB Common Stock is
adjusted for the 5% stock dividend issued by ONB on February 20, 1996.
-20-
<PAGE>
OLD NATIONAL BANCORP
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(UNAUDITED)
The accompanying financial statements present a Pro Forma Condensed
Combined Balance Sheet of ONB as of December 31, 1995 and Pro Forma Condensed
Combined Statements of Income for the years ended December 31, 1995, 1994 and
1993.
The pro forma information is based upon historical financial statements.
The information has been prepared in accordance with the rules and regulations
of the SEC and is provided for comparative purposes only.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-21-
<PAGE>
OLD NATIONAL BANCORP
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1995
(UNAUDITED--DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS ONB Carmi Adjustments Pro Forma
--- ----- ----------- ---------
<S> <C> <C> <C> <C>
Cash and due from banks................ $ 175,116 $ 1,795 $ 176,911
Money market investments............... 85,961 $ 2,301 88,262
Investment securities.................. 1,390,180 25,180 1,415,360
Loans.................................. 3,037,733 34,027 3,071,760
Reserve for loan losses................ (39,806) (775) (40,581)
Excess cost over assets acquired....... 12,842 1,223 14,065
Other intangibles...................... 1,066 0 1,066
Premises and equipment................. 72,398 1,132 73,530
Other assets........................... 87,138 1,175 88,313
----------- ------- ----- -----------
$ 4,822,628 $66,058 $ 0 $ 4,888,686
=========== ======= ===== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits............................... $ 3,973,675 $56,163 $ 4,029,838
Medium term notes...................... 50,000 0 50,000
Subordinated debentures................ 31,515 0 31,515
Other borrowings....................... 280,281 700 280,981
Other liabilities...................... 59,080 1,163 60,243
----------- ------- ----- -----------
Total liabilities.................. 4,394,551 58,026 0 4,452,577
=========== ======= ===== ===========
Common stock........................... 24,955 1,000 (611)(a) 25,344
Capital surplus........................ 245,420 1,000 611 (a) 247,031
Retained earnings...................... 147,367 6,013 153,380
Net unrealized gain.................... 10,335 19 10,354
----------- ------- ----- -----------
Total shareholders' equity........... 428,077 8,032 0 436,109
----------- ------- ----- -----------
$ 4,822,628 $66,058 $ 0 $ 4,888,686
=========== ======= ===== ===========
Outstanding common shares.............. 24,955,395 25,343,895
=========== ===========
Shareholders' equity per share......... 17.15 17.21
=========== ===========
</TABLE>
Notes:
(a) Exchange of 100% of Carmi Common Stock for 388,500 shares of ONB Common
Stock.
-22-
<PAGE>
OLD NATIONAL BANCORP
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED--DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
As Reported
-----------
ONB CARMI PRO FORMA
--- ------ ---------
<S> <C> <C> <C>
Interest income......................... $ 355,272 $4,700 $ 359,972
Interest expense........................ 174,078 2,215 176,293
----------- -----------
Net interest income..................... 181,194 2,485 183,679
Provision for loan losses............... 6,657 400 7,057
----------- ------ -----------
Net interest income after provision for
loan losses........................... 174,537 2,085 176,622
Noninterest income...................... 39,170 265 39,435
Noninterest expense..................... 142,777 1,763 144,540
----------- ------ -----------
Income (loss) before income taxes....... 70,930 587 71,517
Provision for income taxes.............. 19,236 123 19,359
----------- ------ -----------
Net income (loss)....................... $ 51,694 $ 464 $ 52,158
=========== ====== ===========
Net income per common share: (b)
Assuming no dilution............... $2.04 $2.02
=========== ===========
Assuming full dilution............. $1.99 $1.98
=========== ===========
Weighted average common shares outstanding: (b)
Assuming no dilution............... 25,370,411 25,758,911
=========== ===========
Assuming full dilution............. 26,777,676 27,166,176
=========== ===========
</TABLE>
See Notes to Pro Forma Financial Information.
-23-
<PAGE>
OLD NATIONAL BANCORP
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
(UNAUDITED--DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
As Reported
-----------
ONB CARMI PRO FORMA
--- ----- ---------
<S> <C> <C> <C>
Interest income $ 312,244 $4,412 $ 316,656
Interest expense 135,676 1,885 137,561
----------- ------ -----------
Net interest income 176,568 2,527 179,095
Provision for loan losses 7,682 0 7,682
----------- ------ -----------
Net interest income after
provision for loan losses 168,886 2,527 171,413
Noninterest income 34,809 214 35,023
Noninterest expense 142,842 1,792 144,634
Income (loss) before income taxes 60,853 949 61,802
Provision for income taxes 14,381 237 14,618
----------- ------ -----------
Net income (loss) $ 46,472 $ 712 $ 47,184
=========== ====== ===========
Net income per common share: (b)
Assuming no dilution $1.78 $1.78
=========== ===========
Assuming full dilution $1.74 $1.74
=========== ===========
Weighted average common shares
outstanding: (b)
Assuming no dilution 26,096,332 26,484,832
=========== ===========
Assuming full dilution 27,794,954 28,183,454
=========== ===========
</TABLE>
See Notes to Pro Forma Financial Information.
-24-
<PAGE>
OLD NATIONAL BANCORP
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1993
(UNAUDITED--DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
As Reported
-----------
ONB CARMI PRO FORMA
--- ----- ---------
<S> <C> <C> <C>
Interest income $ 307,800 $3,864 $ 311,664
Interest expense 134,484 1,686 136,170
----------- ------ -----------
Net interest income 173,316 2,178 175,494
Provision for loan losses 10,189 86 10,275
----------- ------ -----------
Net interest income after
provision for loan losses 163,127 2,092 165,219
Noninterest income 33,598 182 33,780
Noninterest expense 131,223 1,375 132,598
----------- ------ -----------
Income (loss) before income taxes 65,502 899 66,401
Provision for income taxes 17,470 78 17,548
Net income (loss) $ 48,032 $ 821 $ 48,853
=========== ====== ===========
Net income per common share: (b)
Assuming no dilution $1.84 $1.84
=========== ===========
Assuming full dilution $1.79 $1.80
=========== ===========
Weighted average common shares
outstanding: (b)
Assuming no dilution 26,094,203 26,482,703
=========== ===========
Assuming full dilution 27,882,646 28,271,146
=========== ===========
</TABLE>
See Notes to Pro Forma Financial
Information.
-25-
<PAGE>
OLD NATIONAL BANCORP
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(a) Exchange of 100% of Carmi for 388,500 shares of ONB Common Stock.
(b) Net income per share on a fully diluted basis assumes the conversion of
ONB's convertible subordinated debentures.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-26-
<PAGE>
DESCRIPTION OF ONB
BUSINESS
ONB is a multi-bank holding company with 24 affiliate banks located in the
tri-state area comprised of southwestern Indiana and neighboring portions of
Illinois and Kentucky. With total consolidated assets of $4.82 billion as of
December 31, 1995, ONB is the largest independent bank holding company
headquartered in the State of Indiana. Since 1985, ONB has acquired 34 financial
institutions, 10 of which were combined with existing affiliate banks, and has
increased its banking offices to 118. ONB anticipates that it will continue its
policy of geographic expansion through strategic affiliations with additional
commercial banks and thrifts. See "DESCRIPTION OF ONB -- Acquisition Policy and
Pending Affiliations".
The principal activity of ONB is to own, manage and supervise its affiliate
banks and its non-bank subsidiaries, each of which is held by ONB as a separate
wholly-owned subsidiary. The primary source of ONB's revenue is dividends and
fees received from its subsidiaries. There are various legal limitations on the
extent to which the affiliate banks may finance, pay dividends to or otherwise
supply funds to ONB. See "REGULATORY CONSIDERATIONS" and "COMPARISON OF COMMON
STOCK -- Dividend Rights".
ONB's affiliate banks engage in a wide range of commercial and consumer
banking activities and provide other services relating to the general banking
business. Set forth below is a list of ONB's affiliate banks by state.
<TABLE>
<CAPTION>
Indiana Kentucky Illinois
------- -------- --------
<S> <C> <C>
Bank of Western Indiana City National Bank First National Bank
(Covington) (Fulton) (Harrisburg)
Citizens National Bank Farmers Bank & Trust First National Bank
(Tell City) Company (Henderson) (Oblong)
Clinton State Bank Farmers Bank & Trust Palmer-American
Dubois County Bank (Jasper) Company (Madisonville) National Bank
First-Citizens Bank & First State Bank (Danville)
Trust Company (Greencastle) (Greenville) Security Bank &
Gibson County Bank (Princeton) Morganfield National Bank Trust Company
Merchants National Bank (Mt. Carmel)
(Terre Haute) Peoples National Bank
Old National Bank (Lawrenceville)
(Evansville)
ONB Bank
(Bloomington)
Orange County Bank (Paoli)
People's Bank & Trust
Company (Mt. Vernon)
Rockville National Bank
Security Bank & Trust Company
(Vincennes)
United Southwest Bank (Washington)
</TABLE>
-27-
<PAGE>
In addition to these affiliate banks, ONB has seven (7) non-bank
affiliates. Indiana Old National Insurance Company reinsures credit life,
accident and health insurance of installment consumer borrowers of ONB's
affiliate banks; Old National Realty Company, Inc. owns real properties which
are incidental to ONB's operations; Old National Service Corporation provides
data processing services to ONB's affiliate banks and to third parties; and
Consumer Acceptance Corporation is a consumer finance company. ONB's other three
(3) non-banking subsidiaries include Old National Trust Company, Old National
Trust Company -- Illinois and Old National Trust Company -- Kentucky, all of
which provide trust services to ONB's affiliate banks in their respective
states.
ACQUISITION POLICY AND PENDING AFFILIATION
ONB anticipates that it will continue its policy of geographic expansion
through consideration of acquisitions of financial institutions located in
Indiana, Kentucky and Illinois. Management of ONB currently is reviewing and
analyzing potential acquisitions, as well as engaging in discussions or
negotiations preliminary to letters of intent or agreements in principle
concerning potential acquisitions. There can be no assurance that any of these
discussions or negotiations will result in definitive agreements or consummated
transactions.
As of the date of this Proxy Statement, ONB is a party to a definitive
agreement to acquire Workingmens Capital Holdings, Inc., Bloomington, Indiana,
and its wholly-owned subsidiary, Workingmens Federal Savings Bank. Pursuant to
the definitive agreement, Workingmens Federal Savings Bank will merge into ONB
Bank, an existing wholly-owned subsidiary of ONB located in Bloomington,
Indiana. As of December 31, 1995, Workingmens Capital Holdings, Inc. had total
assets of approximately $213.3 million. Under the definitive agreement, ONB
proposes to issue approximately 1,181,145 shares of ONB Common Stock to
shareholders of Workingmens Capital Holdings, Inc.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The foregoing information concerning ONB does not purport to be complete.
For additional information, see the documents filed by ONB and listed under
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" in this Proxy Statement which
are specifically incorporated herein by reference.
-28-
<PAGE>
DESCRIPTION OF CARMI
BUSINESS
Carmi is a national banking association with its main office located in
Carmi, Illinois. Carmi was organized in May, 1900. Carmi has been in continuous
operation since that date.
Carmi provides commercial and retail banking services to White County,
Illinois and the surrounding areas. These services include accepting demand,
savings and time deposits; making agricultural, commercial, industrial, consumer
and real estate loans; providing trust services; and providing other services
relating to the general commercial banking business.
Carmi is subject to vigorous competition from major banking institutions,
as well as other financial institutions in its principal service area, such as
savings and loan associations, insurance companies, and finance companies.
Carmi owns all of the issued and outstanding shares of common stock of
Insurance Agency. Insurance Agency has no assets or liabilities and engages in
no business operations.
PROPERTIES
Carmi's main banking office is located at 116 West Main Street, Carmi,
Illinois. Carmi operates a drive-in branch facility at 117 West Main Street,
Carmi, Illinois. Carmi also operates a branch facility in Crossville, Illinois.
Carmi owns a warehouse in Carmi, Illinois and an annex located in Crossville,
Illinois. Carmi owns the land and buildings of all of its offices free and clear
of any major encumbrances.
LITIGATION
There is no pending litigation of a material nature in which Carmi is a
party or to which any of its property is subject. Further, there is no material
legal proceeding in which any director, executive officer, principal shareholder
or affiliate of Carmi, or any associate of any such director, executive officer,
principal shareholder or affiliate is a party or has a material interest adverse
to Carmi. None of the ordinary routine litigation in which Carmi is involved is
expected to have a material adverse effect on the financial condition, results
of operations, business, assets or capitalization of Carmi.
EMPLOYEES
As of December 31, 1995, Carmi had twenty-six (26) full-time employees to
whom Carmi provides a variety of benefits. Management of Carmi considers
relations with its employees to be good. Carmi has no regular or seasonal part-
time employees.
MANAGEMENT
The following table contains certain information about each director and
executive officer of Carmi as of the date of this Proxy Statement:
-29-
<PAGE>
<TABLE>
<CAPTION>
DIRECTORS: SERVED AS
- ---------- DIRECTOR OF
CARMI
PRINCIPAL OCCUPATION CONTINUOUSLY
NAME AGE DURING PAST 5 YEARS SINCE
- ---- --- -------------------- ------------
<S> <C> <C> <C>
David M. Brown (1) 39 Farmer 1994
James R. Cantrell 45 President and General Manager 1994
of Royal Drilling and Producing,
Inc. (oil drilling and producing)
Rebecca A. Drone 54 Self-employed; Employee, 1982
Rebstock Oil Company
Donald R. Duvall 46 Farmer 1991
John K. Rice (1)(2) 60 Owner, Rice Motor Company 1970
(new and used car sales)
John D. Stanley (1) 34 Attorney 1991
Mark R. Stanley (1) 48 Attorney 1991
James L. Whetstone 39 President and Chief Executive 1991
Officer, Carmi
</TABLE>
(1) David M. Brown is married to the daughter of David L. and Rebecca R.
Stanley, each of whom beneficially own more than 5% of the outstanding
shares of Carmi Common Stock. John D. Stanley and Mark R. Stanley are the
sons of David L. and Rebecca R. Stanley, the brothers-in-law of David M.
Brown, and the nephews of John K. Rice.
(2) John K. Rice's sister, Rebecca R. Stanley, and brother-in-law, David L.
Stanley, each own more than 5% of the outstanding shares of Carmi Common
Stock.
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS:
- -------------------
NAME AGE OFFICE AND BUSINESS EXPERIENCE
---- --- ------------------------------
<S> <C> <C>
James L. Whetstone 39 President and Chief Executive Officer of Carmi since
December, 1991. Executive Vice President of Carmi
from July, 1991 to December, 1991. Vice President
of Carmi from August, 1989 to July, 1991
</TABLE>
All of the directors of Carmi hold office for a term of one (1) year and
the executive officers hold office for a term of one (1) year. There are no
arrangements or understandings between any of the directors, executive officers
or any other persons pursuant to which any of Carmi's directors or executive
officers have been selected for their respective positions, except the
employment agreement between Mr. James L. Whetstone and Carmi, pursuant to
which Mr. Whetstone is employed as the President of Carmi. See "PROPOSED
AFFILIATION -- Interests of Certain
-30-
<PAGE>
Persons in the Affiliation" and "DESCRIPTION OF CARMI -- Certain Relationships
and Related Transaction".
SECURITY OWNERSHIP OF MANAGEMENT
The table below sets forth as of the Record Date the total number of shares
of Carmi Common Stock beneficially owned by each director and executive officer
of Carmi and by all of its directors and executive officers as a group.
CARMI
COMMON STOCK
BENEFICIALLY PERCENT OF
NAME OF BENEFICIAL OWNER OWNED (1) CLASS (2)
- ------------------------ ------------ ----------
David M. Brown (3) 2,091.5 2.09%
James R. Cantrell 1,000 1.00
Rebecca A. Drone 2,550 2.55
Donald R. Duvall 250 0.25
John K. Rice (3) (4) 1,500 1.50
John D. Stanley (3) 1,935.75 1.94
Mark R. Stanley (3) 1,885.75 1.89
James L. Whetstone 160 0.16
11,373 11.38
All directors and executive
officers as a group
(8 individuals)
(1) The number of shares shown as being beneficially owned are those over which
the director or executive officer has either sole or shared voting or
investment power. The information contained in this column is based upon
shareholder records of Carmi and information furnished to Carmi by the
individuals listed.
(2) Calculated based upon 100,000 shares of Carmi Common Stock outstanding as
of the Record Date.
(3) David M. Brown is married to the daughter of David L. and Rebecca R.
Stanley, each of whom beneficially own more than 5% of the outstanding
shares of Carmi Common Stock. John D. Stanley and Mark R. Stanley are the
sons of David L. and Rebecca R. Stanley, the brothers-in-law of David M.
Brown, and the nephews of John K. Rice.
(4) Rebecca R. Stanley and John K. Rice are brother and sister.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of the Record Date, certain information
about each person known to the management of Carmi to be beneficial owners of
more than 5% of the outstanding shares of Carmi Common Stock. Carmi has no class
of stock authorized, issued or outstanding other than the Carmi Common Stock.
-31-
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) PERCENT OF CLASS (2)
- ------------------- ------------------------ --------------------
<S> <C> <C>
William H. Bayley 6,900 6.9%
501 West Main Street
Carmi, Illinois 62821
Richard Benneatt Bayley (3) 7,500 7.5
2805 West Lakeland
Berrian Springs, Michigan 49103
Rebstock Oil Company (4) 8,400 8.4
P.O. Box 357
Carmi, Illinois 62821
David L. Stanley (5) 7,500 7.5
411 West Main Street
Carmi, Illinois 62821
Rebecca R. Stanley (5)(6) 7,500 7.5
411 West Main Street
Carmi, Illinois 62821
</TABLE>
(1) The number of shares shown as being beneficially owned are those shares
over which the shareholder has either sole or shared voting or investment
power. The information contained in this column is based upon information
obtained from shareholder records of Carmi and information furnished to
Carmi by the person listed.
(2) Calculated based upon 100,000 shares of Carmi Common Stock outstanding as
of the Record Date.
(3) The shares are beneficially owned by the Richard Benneatt Bayley Revocable
Living Trust over which Mr. Bayley has sole voting and investment power.
(4) In his capacity as the Manager of Rebstock Oil Company, Daniel C. Drone
exercises voting power over these shares. In addition to the shares listed,
Mr. Drone beneficially owns 200 shares individually and 800 shares in joint
tenancy with his wife, and his wife beneficially owns 200 shares
individually.
(5) David L. and Rebecca R. Stanley are husband and wife. John D. Stanley and
Mark R. Stanley are the sons of David L. and Rebecca R. Stanley and David
M. Brown is married to their daughter.
(6) Rebecca R. Stanley and John K. Rice are brother and sister.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Directors and executive officers of Carmi and their associates are
customers of and have had transactions with Carmi from time to time in the
ordinary course of business. Such transactions have been made on substantially
the same terms, including interest rates and collateral on loans, 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. Similar
-32-
<PAGE>
transactions may be expected to take place in the ordinary course of business in
the future. See also "PROPOSED AFFILIATION -- Interests of Certain Persons in
the Affiliation."
David L. Stanley, who owns more than 5% of the outstanding shares of Carmi
Common Stock, John D. Stanley, a director of Carmi, and Mark R. Stanley, a
director of Carmi, are partners in the Stanley Law Office which serves as
general legal counsel to Carmi.
-33-
<PAGE>
THE NATIONAL BANK OF CARMI MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
GENERAL
Carmi provides commercial banking services to individuals and businesses through
its two facilities in Carmi and Crossville, Illinois. The area served by Carmi
is primarily White County. Carmi competes with other commercial banks, savings
institutions and financial institutions for all types of deposits, loans and
other financial services.
COMPARISON OF OPERATING RESULTS FOR THE YEARS 1995, 1994 AND 1993
Net Interest Income. Total interest income increased by $287,363 for 1995
compared to 1994 and by $547,794 for 1994 compared to 1993. The primary reason
for the increase was due to both increases in interest rates and volume. The
average yield on loans was 8.95%, 8.29% and 7.49%, for 1995, 1994 and 1993,
respectively. The average rate paid on interest-bearing deposits increased from
3.31% in 1993 to 3.53% in 1994 to 4.21% in 1995. The improved net interest rate
spread resulted in net interest income of $2,484,835, $2,527,442 and $2,178,477
for the years ended December 31, 1995, 1994 and 1993, respectively.
The changes in interest income and interest expense resulting from changes in
volume and changes in rates for the years ended December 31, 1995 and 1994 are
shown in the schedule captioned "Rate/Volume Analysis" included herein. The net
change in income on earning assets included the effect of taxable equivalent
adjustments using a marginal federal income tax rate of 34 percent for both
years.
Provision for Loan Losses. During 1995, Carmi recorded a provision for loan
losses in the amount of $400,000 compared to $ 0 for 1994 and $86,000 for 1993.
The increase in the provision for loan losses for 1995 compared to 1994 was due
to management's evaluation of the adequacy of the allowance for loan losses
based on reviews of specific loans, which consider the financial condition of
the borrower and the fair market value of the collateral, as well as other risk
factors. Management's evaluation of the loan portfolio resulted in its decision
to increase the allowance for loan losses to a level of 2.25% of total loans
outstanding at December 31, 1995 compared to 1.08% and 1.33% at December 31,
1994 and 1993, respectively.
Non-Interest Income. Carmi's principal source of non-interest income was
service charges on deposit accounts. Non-interest income totaled $264,868,
$213,884, and $181,503 for 1995, 1994 and 1993, respectively. The increase in
non-interest income for 1995 was due to less net investment securities losses of
$(3,002) for 1995 compared to $(38,344) for 1994 and $(4,327) in 1993 and
increases in service charges of $16,612 and $32,513 in 1995 and 1994,
respectively.
Non-Interest Expense. Total non-interest expense was $1,763,045 in 1995
compared to $1,792,214 for 1994 and $1,375,474 for 1993. The decrease in non-
interest expenses for 1995 compared to 1994 was $29,169 with primarily all the
decrease due to a refund and rate decrease in FDIC insurance. FDIC insurance
decreased $65,222 for 1995 compared to 1994.
The increase in non-interest expense for 1994 compared to 1993 was caused by
several factors.
-34-
<PAGE>
During 1994, salaries and employee benefits increased by $173,617 compared to
the prior year. This increase was due primarily to additional personnel
necessary to handle the acquisition of The First National Bank of Crossville.
Net occupancy expenses for 1994 increased by $50,655 compared to the prior year.
This increase was due primarily to increased cost in the operation of the
Crossville facility.
Amortization expense of $94,383.18 in 1994 resulted from the writeoff of
goodwill purchased in the acquisition of The First National Bank of Crossville
at the end of 1993.
Other operating expenses also increased during 1994 by $192,467 compared to the
prior year. This increase was a result of several factors including legal fees
increasing by $28,328 mainly due to the acquisition of the Crossville facility.
Other increases in 1994 over the prior year were FDIC insurance $19,201,
advertising $8,275, and $11,728 in supplies expense.
Income Tax Expense. For 1995, Carmi has an unused net operating loss carryover
of $165,412 and an AMT credit carryover of $9,990. Carmi reported income tax
expense for the years 1995, 1994 and 1993 of $122,858, $237,009 and $114,331,
respectively.
Carmi adopted FAS Statement 109 as of January 1, 1993 and the effect of this
adoption is shown as a separate item on the 1993 income statement.
ASSET AND LIABILITY MANAGEMENT
The primary goal of asset/liability management is the coordinated effort to
manage both assets and liabilities to maximize the net interest income with an
acceptable level of liquidity and interest rate risk. Management is responsible
for implementing proper policies and strategies to achieve this goal.
Interest rate sensitivity refers to the effect of changing interest rates on net
interest income. Management's objective, as it relates to interest rate
sensitivity, is to maximize net interest income while limiting exposure to the
risk associated with the volatility of interest rates. A widely accepted method
of measuring this exposure is the ratio of rate-sensitive assets to rate-
sensitive liabilities. A financial instrument is said to be rate sensitive if it
matures or otherwise reprices within a given time frame, usually six months or
one year. Management combines the analysis of this ratio with interest rate and
balance sheet forecasts to establish appropriate strategies.
As of December 31, 1995, management believes it effectively managed interest
rate risk by maintaining a cumulative ratio of rate-sensitive assets to rate-
sensitive liabilities of 49.97%.
LIQUIDITY IN CAPITAL RESOURCES
Effective liquidity management insures that the cash flow requirements of
depositors and borrowers, as well as the operating cash needs of Carmi, are met.
Liquidity is provided by cash flow from operations and a number of other
sources, including the securities portfolio, short-term and overnight
investments and funds from deposits. Carmi also has the ability to obtain funds
through short-term borrowings on its Treasury Tax and Loan note option account,
and the Federal Reserve Bank under a season borrowing line of credit. Liquidity
management is both a daily and long-term function of business management. Excess
liquidity is generally invested in short-term investments, such as federal funds
sold and interest bearing deposits in other financial institutions.
-35-
<PAGE>
Carmi adjusts its liquidity levels in order to meet funding needs for deposit
outflows and loan commitments. Carmi also adjusts liquidity as appropriate to
meet its asset/liability management objectives.
Risk-based capital standards were issued by banking regulatory authorities
during the first quarter of 1989. The standards call for minimum total capital
of 8 percent of risk-adjusted assets, as defined. At December 31, 1995, Carmi's
level of regulatory capital exceeded all applicable requirements at that date.
Management considers the present capital structure to be sufficient to support
on-going operations and normal growth.
ASSET QUALITY
Carmi has implemented a system to identify and monitor non-performing and
delinquent loans. To enhance loan monitoring and collection efforts, Carmi has
emphasized the accurate assessment of loss exposure and identification of such
loans in a timely manner.
Non-performing loans are defined as all loans which are accounted for on a
nonaccrual basis and loans 90 days or more past due and still accruing interest.
The accrual of interest is discontinued on a loan when it becomes 90 days past
due and is not in the process of collection or when management believes, after
considering economic conditions and collection efforts, that the borrower's
financial condition is such that collection of interest is doubtful. When loans
are placed on nonaccrual status, all unpaid accrued interest is written off and
while on nonaccrual status all future income is recorded only as cash payments
are received.
As of December 31, 1995, non-performing loans totaled approximately $101,200 or
.29% of total loans, as compared to approximately $52,200 or .16% of total loans
at December 31, 1994.
The allowance for loan losses totaled approximately $775,000 or 2.28% of total
loans as of December 31, 1995 as compared to approximately $350,800 or 1.10% of
total loans as of December 31, 1994. In addition, as of December 31, 1995, the
allowance for loan losses equaled 765% of non-performing loans as compared to
672% as of December 31, 1994.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data presented herein have been prepared in
accordance with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars without considering change in the relative purchasing power of money
over time due to inflation. The impact of inflation is reflected in the
increased cost of Carmi's operations. Unlike most industrial companies, nearly
all the assets and liabilities of Carmi are monetary. As a result, interest
rates have a greater impact on Carmi's performance than do the effects of
general levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the price of goods and services.
-36-
<PAGE>
RATE/VOLUME ANALYSIS
The following table sets forth the effects of changing rates and volumes on net
interest income of Carmi. Information is provided with respect to (i) effects of
interest income attributable to changes in volume (changes in volume multiplied
by prior rate); (ii) effects on interest income attributable to changes in rate
(changes in rate multiplied by prior volume); and (iii) changes in rate/volume
(change in rate multiplied by volume). The change in interest income is
presented on a fully taxable equivalent basis using a marginal federal income
tax rate of 34%.
-37-
<PAGE>
<TABLE>
<CAPTION>
1995 Compared to 1994 1994 Compared to 1993
Increase (Decrease) Increase (Decrease)
Due to Due to
----------------------------- ----------------------------
(In Thousands) Rate/ Rate/
Rate Volume Volume Net Rate Volume Volume Net
---- ------ ------ --- ---- ------ ------ ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Commercial loans $ 98 $ 212 $21 $ 331 $131 $ 20 $42 $376
Real Estate mortgage loans 49 13 1 63 75 24 2 101
Consumer installment loans 9 (22) 0 (13) 28 (1) 0 27
Credit cards 0 0 0 0 (1) 0 0 (1)
----- ----- --- ----- ---- ---- --- ----
Total Loans $ 156 $ 203 $22 $ 381 $233 $226 $44 $503
U.S. Treasury and agency
securities (115) (40) 5 (150) (27) 54 (1) 26
State and municipal securities (4) 3 0 (1) 6 (5) 0 1
Corporate securities 12 (5) (1) 6 27 1 12 40
Federal funds sold 19 23 10 52 (33) 16 (7) (24)
Interest bearing deposits in banks 0 0 0 0 2 0 0 2
----- ----- --- ----- ---- ---- --- ----
Total Net Change on
Interest Earning Assets $ 68 $ 184 $36 $ 288 $208 $292 $48 $548
Interest bearing liabilities:
Interest bearing demand deposits 12 (1) 0 11 101 43 20 164
Savings (28) 3 (6) (31) 9 (0) 0
Certificates of deposits (1) 313 0 12 (31) 49 1 19
Short-term borrowings 21 11 6 38 10 4 2 16
----- ----- --- ----- ---- ---- --- ----
Total Net Change in Expense
on Interest Bearing Liabilities $ 4 $ 326 $ 0 $ 330 $ 89 $ 87 $23 $199
----- ----- --- ----- ---- ---- --- ----
Net Change in Net
Interest Income $ 64 $(142) $36 $ (42) $119 $205 $25 $349
===== ===== === ===== ==== ==== === ====
</TABLE>
-38-
<PAGE>
AVERAGE BALANCE SHEETS
The following table sets forth certain information relating to Carmi's average
balance sheet and reflects the average yield on interest earning assets and
average rates paid on interest bearing liabilities for the period indicated.
Such yields and rates are derived by dividing income or expense by the average
balance of assets or liabilities, respectively, for the periods presented.
Yields are calculated on a fully taxable equivalent basis using the marginal
federal income tax rate of 34%.
<TABLE>
<CAPTION>
(In Thousands) 1995 1994 1993
---------------------------- ---------------------------- ----------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans:
Commercial & Other $14,527 $1,356 9.33% $13,260 $1,025 7.73% $11,033 $ 649 5.89%
Real Estate Mortgage 11,839 1,033 8.73% 11,266 970 8.61% 10,369 869 8.38%
Installment 6,567 558 8.50% 6,460 571 8.84% 6,149 544 8.85%
Credit Card 20 3 15.00% 18 3 16.67% 22 4 18.18%
------- ------ ----- ------- ------ ----- ------- ------ -----
Total Loans $32,953 $2,950 8.95% $31,004 $2,569 8.29% $27,573 $2,066 7.49%
Investments:
Treasury & Agency securities $20,344 $1,220 5.99% $22,209 $1,370 6.17% $22,658 $1,344 5.93%
Corporate securities 808 49 6.01% 633 43 6.79% 62 3 4.84%
Federal Funds Sold 1,727 100 5.79% 1,229 48 3.91% 2,258 72 3.19%
Interest bearing deposits in banks 100 5 5.00% 100 5 5.00% 65 3 4.62%
------- ------ ----- ------- ------ ----- ------- ------ -----
$29,566 $1,777 6.01% $30,827 $1,870 6.07% $31,608 $1,825 5.77%
Total Interest Earning Assets $62,519 $4,727 7.56% $61,831 $4,439 7.18% $59,181 $3,891 6.57%
Non-interest earning assets:
Cash and due from banks $ 1,665 $ 1,772 $ 1,365
Allowance for loan losses (577) (358) (512)
Premises and equipment 1,291 1,184 1,113
Other assets 2,313 3,778 3,896
------- ------- -------
Total Assets $67,211 $68,207 $65,043
======= ======= =======
</TABLE>
-39-
<PAGE>
AVERAGE BALANCE SHEETS (continued)
<TABLE>
<CAPTION>
(In Thousands) 1995 1994 1993
------------------------------ ------------------------------- ---------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
------- ---------- --------- ---------- ---------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest bearing liabilities:
Interest bearing demand deposits $11,263 $ 390 3.46% $10,920 $ 379 3.47 $ 7,422 $ 215 2.90%
Savings and Money market 8,732 189 2.16% 10,376 220 2.12% 10,808 220 2.04%
Certificates of deposit 31,301 1,562 4.99% 31,288 1,250 4.00% 32,100 1,231 3.83%
------- ------- ------ ------- ------- ------- ------- ------ -------
Total Deposits $51,296 $ 2,141 4.17% $52,584 $ 1,849 3.52% $50,330 $1,666 3.31%
Short Term Borrowings 1,353 74 5.47% 865 36 4.16% 575 20 3.48%
------- ------- ------ ------- ------- ------ ------- ------ -------
Total Interest Bearing
Liabilities $52,649 $ 2,215 4.21% 53,449 1,885 3.53% $50,905 $1,686 3.31%
Non-interest bearing liabilities:
Non-interest bearing demand
deposits $ 5,343 $ 5,607 $ 5,295
Other liabilities 1,157 950 773
------- ------- -------
Total Liabilities $59,149 $60,006 $56,973
Stockholders' Equity 8,062 8,201 8,070
------- ------- -------
$67,211 $68,207 $65,043
======= ======= =======
Net Interest Income $ 2,512 $ 2,554 $2,205
Interest rate spread 3.35% 3.65% 3.26%
Net interest margin 4.02% 4.13% 3.73%
Ratio of average interest
earning assets to average
interest bearing liabilities 118.75% 115.68% 116.26%
</TABLE>
-40-
<PAGE>
INVESTMENT SECURITIES ANALYSIS
Summary information with respect to the securities portfolio at
December 31 follows:
<TABLE>
<CAPTION>
1995
-----------------
(In Thousands) Weighted 1994 1993
Book Average Book Book
Value Yield Value Value
------- -------- ------- -------
<S> <C> <C> <C> <C>
Debt Securities, at amortized cost:
U.S. Treasury:
Due in one year or less $ 505 4.32% $ 3,014 $ 1,503
Due after one year through five years 2,518 4.97% 2,829 4,134
Due after five years through ten years - 0.00% - -
Due after ten years - 0.00% - -
------- ---- ------- -------
Total $ 3,023 4.86% $ 5,843 $ 5,637
Federal Agency:
Due in one year or less $ - 0.00% $ - $ 2,214
Due after one year through five years 1,090 5.64% 2,065 3,242
Due after five years through ten years 2,165 8.12% 300 1,372
Due after ten years - 0.00% - -
Mortgage-backed securities 11,705 5.06% 12,855 14,055
------- ---- ------- -------
Total $14,960 5.54% $15,220 $20,883
Municipal Bonds:
Due in one year or less $ 340 6.36% $ 227 $ 770
Due after one year through five years 3,612 5.58% 2,943 2,365
Due after five years through ten years 2,328 5.38% 2,701 3,396
Due after ten years 116 5.26% 360 340
------- ---- ------- -------
Total $ 6,396 5.54% $ 6,231 $ 6,871
Corporate Securities:
Due in one year or less $ - 0.00% $ - $ -
Due after one year through five years - 0.00% - -
Due after five years through ten years 741 6.19% 748 -
Due after ten years - 0.00% - -
------- ---- ------- -------
Total $ 741 6.19% $ 748 $ -
Total Debt Securities $25,120 $28,042 $33,391
Equity Securities:
Federal Reserve Bank Stock $ 60 $ 60 $ 67
------- ------- -------
Total Equity Securities $ 60 $ 60 $ 67
------- ------- -------
Total Investment Securities $25,180 $28,102 $33,458
======= ======= =======
</TABLE>
Yields are calculated on a fully taxable equivalent basis using a marginal
federal income tax rate of 34%. The expected maturities of mortgage-backed
securities may differ from contractual maturities because the mortgages
underlying the obligations may be prepaid without penalty.
-41-
<PAGE>
NONPERFORMING ASSETS
The following table sets forth information with respect to Carmi's nonperforming
assets and restructured loans for the years indicated.
<TABLE>
<CAPTION>
December 31,
----------------------
(In Thousands) 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Loans accounted for on a nonaccrual basis:
Real Estate mortgages $ 52 $ 2 $ 31
Commercial and other 34 25 157
Installments 15 25 41
Credit cards - - -
----- ----- -----
$ 101 $ 52 $ 229
Loans 90 days past due and accruing interest 379 203 204
----- ----- -----
Total nonperforming loans $ 480 $ 255 $ 433
Real estate held for sale 26 91 45
----- ----- -----
Total nonperforming assets $ 506 $ 346 $ 478
Allowance for loan losses to nonperforming loans 161.46% 137.65% 93.30%
Total nonperforming assets to total assets .77% .52% .67%
</TABLE>
-42-
<PAGE>
ALLOWANCE FOR LOAN LOSSES ANALYSIS
The following table sets forth information with respect to Carmi's allowance for
loan losses for the years indicated.
<TABLE>
<CAPTION>
December 31,
----------------------
(In Thousands) 1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Allowance at beginning of year $ 351 $ 404 $ 480
Addition from Crossville acquisition - - 183
Provision for loan losses 400 - 86
Charge-offs:
Real Estate Mortgages $ 12 $ 5 $ -
Commercial and other 2 83 423
Installments 19 15 7
Credit cards - 1 -
----- ----- -----
Total Charge-offs $ 33 $ 104 $ 430
Recoveries:
Real Estate Mortgages $ 5 $ 10 $ 3
Commercial and other 39 18 76
Installments 13 23 6
Credit cards - - -
----- ----- -----
Total Recoveries $ 57 $ 51 $ 85
Net Charge-offs 24 (53) (345)
----- ----- -----
Balance at end of year $ 775 $ 351 $ 404
Ratio of allowance to total loans outstanding
at the end of the year 2.25% 1.08% 1.33%
Ratio of net charge-offs to average loans
outstanding during the year .10% .34% 1.56%
</TABLE>
-43-
<PAGE>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The following allocation of the ending allowance for loan losses by major loan
type is made for analytical purposes. The total allowance is available to
absorb losses from any segment of the loan portfolio.
<TABLE>
<CAPTION>
1995 1994 1993
------------------ ------------------- -------------------
Percent of Percent of Percent of
Outstanding Outstanding Outstanding
Loans in Loans in Loans in
(In Thousands) Amount Category Amount Category Amount Category
------ ----------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Real estate mortgage $177 35.78% $138 27.69% $121 26.63%
Real estate mortgage -
Construction - 0.00% - 0.00% - 0.00%
Commercial & Other 517 45.21% 152 51.41% 230 52.66%
Consumer (Installment& term) 81 19.01% 61 20.90% 53 20.71%
Credit card - 0.00% - 0.00% - 0.00%
---- ------ ---- ------ ---- ------
Total Allowance for
Loan Losses $775 100.00% $351 100.00% 404 100.00%
==== ====== ==== ====== ==== ======
</TABLE>
-44-
<PAGE>
<TABLE>
<CAPTION>
LOAN PORTFOLIO ANALYSIS
The following table sets forth the composition of Carmi's loan portfolio by type
of loans as of December 31.
1995 1994 1993
----------------- --------------------- --------------------
Amount Percent Amount Percent Amount Percent
------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Classification:
Real Estate Mortgage -
Construction $ 216 0.63% $ 187 0.58% $ 117 .39%
Real Estate Mortgage 13,353 39.24% 12,923 40.40% 12,982 43.36%
Commercial & other 13,717 40.31% 12,151 37.98% 10,612 35.45%
Installment 7,127 20.95% 7,120 22.26% 6,589 22.01%
Credit card 20 .06% 21 .07% 24 .08%
------- ------- ------- ------ ------- -------
Total $34,433 101.19% $32,402 101.29% $30,324 101.29%
Less: Unearned income on
installment loans (406) -1.19% (413) -1.29% (385) -1.29%
------- ------- ------- ------ ------- -------
Total $34,027 100.00% $31,989 100.00% $29,939 100.00%
Loans by type
Real Estate
Construction $ 216 .63% $ 187 .58% $ 117 .39%
Farmland and farm
residential 2,729 8.02% 2,000 6.25% 2,527 8.44%
1 to 4 family residential 8,671 25.48% 8,858 27.69% 7,972 26.63%
Multi-family residential 202 .59% 197 .62% 233 .78%
Non-farm non-residential 1,751 5.15% 1,868 5.84% 2,250 7.52%
Agricultural production and other 7,211 21.19% 6,287 19.65% 5,913 19.75%
Commercial 6,428 18.89% 5,741 17.95% 4,506 15.05%
Credit cards 20 .06% 21 .07% 24 .08%
Consumer 7,106 20.89% 7,099 22.19% 6,586 22.00%
Other loans 99 .29% 144 .45% 196 .65%
Unearned Discount (406) -1.19% (413) -1.29% (385) -1.29%
------- ------- ------- ------ ------- -------
Total $34,027 100.00% $31,989 100.00% $29,939 100.00%
</TABLE>
<TABLE>
<CAPTION>
LOAN MATURITY DISTRIBUTION AND REPRICING
An analysis of the maturity and interest rate sensitivity of loans at December
31, 1995 follows:
One Year One to After
(In Thousands) or Less Five Years Five Years Total
------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Maturities of fixed rate loans $ 2,901 $15,950 $ 2,848 $21,699
Repricing frequency of adjustable rate loans 11,920 713 - 12,633
------- ------ ------- -------
Total Loans $14,821 $16,663 $ 2,848 $34,332
</TABLE>
Loans presented above are gross loans without reduction for unearned income on
installment loans and excludes loans in nonaccrual status.
-45-
<PAGE>
MATURITY DISTRIBUTION OF TIME DEPOSITS
The following table presents the maturity distribution of time deposits of
$100,000 or more as of December 31 of the indicated years.
<TABLE>
<CAPTION>
(In Thousands) 1995 1994
Maturity Period Balance Balance
- --------------- ------- -------
<S> <C> <C>
Three months or less $3,247 $1,997
Three through six months 2,122 2,461
Six through twelve months 1,028 1,000
Over twelve months - -
------ ------
Total $6,397 $5,458
====== ======
</TABLE>
INTEREST RATE SENSITIVITY ANALYSIS
The following table presents The National Bank of Carmi's interest sensitivity
gap between interest-earning assets and interest-bearing liabilities at December
31, 1995, which are expected to reprice or mature in each of the future time
periods shown.
<TABLE>
<CAPTION>
Within Three to One to Over
Three Twelve Five Five
Months Months Years Years Total
--------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Fixed-rate loans $ 1,255 $ 1,646 $15,950 $ 2,848 $21,699
Adjustable rate loans 9,615 2,305 713 - 12,633
Fixed rate debt securities 235 786 7,253 13,048 21,322
Adjustable rate debt securities 2,218 1,580 - - 3,798
Interest-bearing deposits in banks
and federal funds sold 2,301 - - - 2,301
-------- -------- ------- ------- -------
Total Rate Sensitive Assets $ 15,624 $ 6,317 $23,916 $15,896 $61,753
Interest-bearing liabilities:
Deposits:
Certificates of deposit $ 11,351 $ 12,428 $ 7,678 $ - $31,457
Other deposit accounts 19,433 - - - 19,433
Short-term borrowings 700 - - - 700
-------- -------- ------- ------- -------
Total Rate Sensitive Liabilities $ 31,484 $ 12,428 $ 7,678 $ - $51,590
Excess (deficiency) of interest sensitive
assets over interest sensitive liabilities (15,860) (6,111) 16,238 15,896
Cumulative excess (deficiency) of
interest sensitive assets $(15,860) $(21,971) $(5,733) $10,163
Cumulative ratio of interest-earning assets
to interest-bearing liabilities 49.63% 49.97% 88.89% 119.70%
Interest sensitivity gap to total assets -24.01% -9.25% 24.58% 24.06%
</TABLE>
-46-
<PAGE>
REGULATORY CONSIDERATIONS
BANK HOLDING COMPANY REGULATION
ONB is a registered bank holding company and is subject to the regulations
of the Federal Reserve under the BHC Act. Bank holding companies are required to
file periodic reports with and are subject to periodic examination by the
Federal Reserve. The Federal Reserve has issued regulations under the BHC Act
requiring a bank holding company to serve as a source of financial and
managerial strength to its subsidiary banks. It is the policy of the Federal
Reserve that, pursuant to this requirement, a bank holding company should stand
ready to use its resources to provide adequate capital funds to its subsidiary
banks during periods of financial stress or adversity. Additionally, under the
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), a bank
holding company is required to guarantee the compliance of any insured
depository institution subsidiary that may become "undercapitalized" (as defined
in the statute) with the terms of any capital restoration plan filed by such
subsidiary with its appropriate federal banking agency up to the lesser of (i)
an amount equal to 5% of the institution's total assets at the time the
institution became undercapitalized, or (ii) the amount that is necessary (or
would have been necessary) to bring the institution into compliance with all
applicable capital standards as of the time the institution fails to comply with
such capital restoration plan. Under the BHC Act, the Federal Reserve has the
authority to require a bank holding company to terminate any activity or
relinquish control of a nonbank subsidiary (other than a nonbank subsidiary of a
bank) upon the Federal Reserve's determination that such activity or control
constitutes a serious risk to the financial soundness and stability of any bank
subsidiary of the bank holding company.
ONB is prohibited by the BHC Act from acquiring direct or indirect control
of more than 5% of the outstanding shares of any class of voting stock or
substantially all of the assets of any bank or savings association or merging or
consolidating with another bank holding company without prior approval of the
Federal Reserve. Additionally, ONB is prohibited by the BHC Act from engaging in
or from acquiring ownership or control of more than 5% of the outstanding shares
of any class of voting stock of any company engaged in a nonbanking business
unless such business is determined by the Federal Reserve to be so closely
related to banking as to be a proper incident thereto. The BHC Act does not
place territorial restrictions on the activities of such nonbanking-related
activities.
CAPITAL ADEQUACY GUIDELINES FOR BANK HOLDING COMPANIES
Bank holding companies are required to comply with the Federal Reserve's
risk-based capital guidelines which require a minimum ratio of total capital to
risk-weighted assets (including certain off-balance sheet activities such as
standby letters of credit) of 8%. At least half of the total required capital
must be "Tier 1 capital," consisting principally of common shareholders' equity,
noncumulative perpetual preferred stock, a limited amount of cumulative
perpetual preferred stock and minority interest in the equity accounts of
consolidated subsidiaries, less certain goodwill items. The remainder ("Tier 2
capital") may consist of a limited amount of subordinated debt and intermediate-
term preferred stock, certain hybrid capital instruments and other debt
securities, cumulative perpetual preferred stock, and a limited amount of the
general loan loss allowance. In addition to the risk-based capital guidelines,
the Federal Reserve has adopted a Tier 1 (leverage) capital ratio under which
the bank holding company must maintain a minimum level of Tier 1 capital to
average total consolidated assets of 3% in the case of bank holding companies
which have the highest regulatory examination ratings and are not contemplating
significant growth or
-47-
<PAGE>
expansion. All other bank holding companies are expected to maintain a ratio of
at least 1% to 2% above the stated minimum.
The following is ONB's regulatory capital ratios as of December 31, 1995:
ONB
-----
Tier 1 Capital: 13.39%
Total Capital: 15.60%
Leverage Ratio: 8.37%
BANK REGULATION
Carmi and the affiliate banks of ONB which are national banks are
supervised, regulated and examined by the OCC. The affiliate banks of ONB which
are state banks chartered in Indiana, are supervised, regulated and examined by
the Indiana Department of Financial Institutions. ONB's affiliate banks
chartered in Kentucky are supervised, regulated and examined by the Kentucky
Department of Financial Institutions and those affiliate banks chartered in
Illinois are supervised, regulated and examined by the ICBT. In addition, those
ONB affiliate banks which are state banks and members of the Federal Reserve are
supervised and regulated by the Federal Reserve, and those which are not members
of the Federal Reserve are supervised and regulated by the FDIC. Carmi, as a
national banking association, is supervised, regulated and examined by the OCC
and will continue to be supervised, regulated and examined by the OCC following
consummation of the Affiliation. Each regulator has the authority to issue
cease-and-desist orders if it determines that activities of the bank regularly
represent an unsafe and unsound banking practice or a violation of law.
Both federal and state law extensively regulate various aspects of the
banking business such as reserve requirements, truth-in-lending and truth-in-
savings disclosure, equal credit opportunity, fair credit reporting, trading in
securities and other aspects of banking operations. Current federal law also
requires banks, among other things, to make deposited funds available within
specified time periods.
Insured state-chartered banks are prohibited under FDICIA from engaging as
principal in activities that are not permitted for national banks, unless (i)
the FDIC determines that the activity would pose no significant risk to the
appropriate deposit insurance fund, and (ii) the bank is, and continues to be,
in compliance with all applicable capital standards.
BANK CAPITAL REQUIREMENTS
The FDIC and the OCC have adopted risk-based capital ratio guidelines to
which state-chartered banks and national banks under their respective
supervision are subject. The guidelines establish a systematic analytical
framework that makes regulatory capital requirements more sensitive to
differences in risk profiles among banking organizations. Risk-based capital
ratios are determined by allocating assets and specified off-balance sheet
commitments to four risk weighted categories, with higher levels of capital
being required for the categories perceived as representing greater risk.
-48-
<PAGE>
Like the capital guidelines established by the Federal Reserve, these
guidelines divide a bank's capital into two tiers. Banks are required to
maintain a total risk-based capital ratio of 8%. The FDIC or OCC may, however,
set higher capital requirements when a bank's particular circumstances warrant.
Banks experiencing or anticipating significant growth are expected to maintain
capital ratios, including tangible capital positions, well above the minimum
levels.
In addition, the FDIC and OCC established guidelines prescribing a minimum
Tier 1 leverage ratio (Tier 1 capital to adjusted total assets as specified in
the guidelines). These guidelines provide for a minimum Tier 1 leverage ratio of
3% for banks that meet certain specified criteria, including that they have the
highest regulatory rating and are not experiencing or anticipating significant
growth. All other banks are required to maintain a Tier 1 leverage ratio of 3%
plus an additional 100 to 200 basis points.
All of ONB's affiliate banks, as well as Carmi, exceed the risk-based
capital guidelines of the FDIC and OCC as of December 31, 1995.
The capital requirements described above are minimum requirements. Higher
capital levels will be required by the federal banking regulators if warranted
by the particular circumstances or risk profiles of individual institutions. For
example, the regulations of both the FDIC and the OCC provide that additional
capital may be required to take adequate account of the risks posed by
concentrations of credit and nontraditional activities, interest rate risk and
the bank's ability to manage such risks. As of December 31, 1995, none of ONB's
affiliate banks or Carmi had been directed by its primary federal regulator to
maintain capital at a level in excess of the minimum regulatory requirements.
BRANCHES AND AFFILIATES
Branching by ONB affiliate banks in Indiana, Kentucky and Illinois is
subject to the jurisdiction, and requires the prior approval of, the bank's
primary federal regulatory authority and, if the branching bank is a state bank,
the Indiana Department of Financial Institutions, the Kentucky Department of
Financial Institutions or the ICBT (depending upon the location of the principal
office of the bank).
ONB's affiliate banks and Carmi are subject to the Federal Reserve Act,
which restricts financial transactions between banks and affiliated companies.
The statute limits credit transactions between a bank and its executive officers
and its affiliates, prescribes terms and conditions for bank affiliate
transactions deemed to be consistent with safe and sound banking practices, and
restricts the types of collateral security permitted in connection with a bank's
extension of credit to an affiliate.
FDICIA
FDICIA requires, among other things, federal bank regulatory authorities
to take "prompt corrective action" with respect to banks which do not meet
minimum capital requirements. For these purposes, FDICIA establishes five
capital tiers: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized.
The FDIC has adopted regulations to implement the prompt corrective action
provisions of FDICIA. Among other things, the regulations define the relevant
capital measures for the five capital categories. An institution is deemed to be
"well capitalized" if it has a total risk-based
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capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or
greater, and a leverage ratio of 5% or greater, and is not subject to a
regulatory order, agreement or directive to meet and maintain a specific capital
level for any capital measure. An institution is deemed to be "adequately
capitalized" if it has a total risk-based capital ratio of 8% or greater, a Tier
1 risk-based capital ratio of 4% or greater, generally a leverage ratio 4% or
greater and does not meet the definition of a well-capitalized institution. An
institution is deemed to be "undercapitalized" if it has a total risk-based
capital ratio of less than 8%, a Tier 1 risk-based capital ratio of less than
4%, or generally a leverage ratio of less than 4%, and "significantly
undercapitalized" if it has a total risk-based capital ratio of less than 6%, a
Tier 1 risk-based capital ratio of less than 3%, or a leverage ratio of less
than 3%. An institution is deemed to be "critically undercapitalized" if it has
a ratio of tangible equity (as defined in the regulations) to total assets that
is equal to or less than 2%.
"Undercapitalized" banks are subject to growth limitations and are required
to submit a capital restoration plan. A bank's compliance with such plan is
required to be guaranteed by any company that controls the undercapitalized
institution as described above. If an "undercapitalized" bank fails to submit an
acceptable plan, it is treated as if it is significantly undercapitalized.
"Significantly undercapitalized" banks are subject to one or more of a number of
requirements and restrictions, including an order by the FDIC to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets and cease receipt of deposits from correspondent banks, and restrictions
on compensation of executive officers. "Critically undercapitalized"
institutions may not, beginning 60 days after becoming "critically
undercapitalized", make any payment of principal or interest on certain
subordinated debt or extend credit for a highly leveraged transaction or enter
into any transaction outside the ordinary course of business. In addition,
"critically undercapitalized" institutions are subject to appointment of a
receiver or conservator.
On July 10, 1995, the federal banking regulators, including the FDIC and
the OCC, published final guidelines establishing operational and managerial
standards to promote the safety and soundness of federally insured depository
institutions. The guidelines, which took effect on August 9, 1995, establish
standards for internal controls, information systems, internal audit systems,
loan documentation, credit underwriting, interest rate exposure, asset growth,
and compensation, fees and benefits. In general, the guidelines prescribe the
goals to be achieved in each area, and each institution will be responsible for
establishing its own procedures to achieve those goals. If an institution fails
to comply with any of the standards set forth in the guidelines, the
institution's primary federal regulator may require the institution to submit a
plan for achieving and maintaining compliance. The preamble to the guidelines
states that the agencies expect to require a compliance plan from an institution
whose failure to meet one or more of the standards is of such severity that it
could threaten the safe and sound operation of the institution. Failure to
submit an acceptable compliance plan, or failure to adhere to a compliance plan
that has been accepted by the appropriate regulator, would constitute grounds
for further enforcement action. The federal banking agencies have also published
for comment proposed asset quality and earnings standards which, if adopted,
would be added to the safety and soundness guidelines. This proposal, like the
final guidelines discussed above, would establish the goals to be achieved with
respect to asset quality and earnings, and each institution would be responsible
for establishing its own procedures to meet such goals.
DEPOSIT INSURANCE
The deposits of ONB's affiliate banks and Carmi are insured up to $100,000
per insured account, by the Bank Insurance Fund ("BIF"), except for deposits
acquired in connection with
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affiliations with savings associations, which deposits are insured by the
Savings Association Insurance Fund ("SAIF"). Accordingly, deposit insurance
premiums are paid to both BIF and SAIF. If the FDIC believes that an increase in
the insurance rates is necessary, it may increase the insurance premiums
applicable to the BIF.
The amount each institution pays for FDIC deposit insurance coverage is
determined in accordance with a risk-based assessment under which all insured
depository institutions are placed into one of nine categories and assessed
insurance premiums based upon their level of capital and supervisory evaluation.
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. For the semi-annual assessment
period ended December 31, 1995, BIF assessments ranged from 0.04% to 0.31% of
deposits while SAIF assessments ranged from 0.23% to 0.31% of deposits. For the
semi-annual assessment period beginning January 1, 1996, BIF assessments will
range from nearly 0% (statutory minimum assessment of $1,000 paid to the BIF) to
0.27% of deposits while SAIF assessments will range from 0.23% to 0.31% of
deposits. Risk classification of all insured institutions is made by the FDIC
for each semi-annual assessment period.
The supervisory subgroup to which an institution is assigned by the FDIC is
confidential and may not be disclosed. Deposit insurance assessments may
increase or decrease depending upon the category and subcategory, if any, to
which the bank is assigned by the FDIC and upon regulatory changes. Any increase
in insurance assessments could have an adverse effect on the earnings of ONB's
affiliate banks and Carmi, and any decrease could have a positive effect on the
earnings of ONB's affiliate banks and Carmi.
INTERSTATE BANKING
In 1994, Congress enacted sweeping changes to the interstate branching and
expansion powers of depository institutions and their holding companies in The
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("Riegle-
Neal") which allows for interstate banking and interstate branching without
regard to whether such activity is permissible under state law. Beginning on
September 29, 1995, bank holding companies may acquire banks anywhere in the
United States subject to certain state restrictions. Beginning on June 1, 1997,
an insured bank may merge with an insured bank in another state without regard
to whether such merger is prohibited by state law. Additionally, an out-of-state
bank may acquire the branches of an insured bank in another state without
acquiring the entire bank; provided, however, that the law of the state where
the branch is located permits such an acquisition. States may permit interstate
branching earlier than June 1, 1997, where both states involved with the bank
merger expressly permit it by statute. Further, bank holding companies may merge
existing bank subsidiaries located in different states into one bank. Indiana
now permits interstate branching (both de novo and by acquisition) in accordance
with Riegle-Neal subject to certain conditions. Illinois enacted interstate
branching legislation which is effective on June 1, 1997. The Illinois
legislation does not permit de novo branching into Illinois by an out-of-state
bank or the acquisition of a branch in Illinois without the acquisition of the
entire bank.
Beginning on September 29, 1995, an insured bank subsidiary may act as an
agent for an affiliated bank or thrift in offering limited banking services
(receive deposits, renew time deposits, close loans, service loans and receive
payments on loans obligations) both within the same state and across state
lines.
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ADDITIONAL MATTERS
In addition to the matters discussed above, ONB's affiliate banks and Carmi
are subject to additional regulation of their activities, including a variety of
consumer protection regulations affecting their lending, deposit and collection
activities and regulations affecting secondary mortgage market activities.
The extensive regulation, supervision and examination of financial
institutions by the bank regulatory agencies is intended primarily for the
protection of the insurance fund and depositors. Moreover, such regulation
imposes substantial restrictions on the operations and activities of such
institutions, and grants to regulators broad discretion in connection with their
supervisory and enforcement activities and examination policies, including
policies with respect to classification of assets and establishment of adequate
loan loss reserves. Any changes in such regulations, whether by legislation or
regulatory action, could have a material impact on ONB's affiliate banks and
their operations. ONB cannot predict what, if any, future actions may be taken
by legislative or regulatory authorities or what impact any such actions may
have on the operations of its affiliates.
The earnings of financial institutions are also affected by general
economic conditions and prevailing interest rates, both domestic and foreign and
by the monetary and fiscal policies of the United States Government and its
various agencies, particularly the Federal Reserve.
Additional legislation and administrative actions affecting the banking
industry are being considered and in the future may be considered by the United
States Congress, state legislatures and various regulatory agencies, including
those referred to above. It cannot be predicted with certainty whether such
legislation of administrative action will be enacted or the extent to which the
banking industry in general or Carmi or ONB and its affiliate banks in
particular would be affected thereby.
COMPARISON OF COMMON STOCK
The rights of holders of Carmi Common Stock who receive ONB Common Stock in
the Affiliation will be governed by the laws of the State of Indiana, the state
in which ONB is incorporated, and by ONB's Amended and Restated Articles of
Incorporation ("ONB's Articles of Incorporation") and ONB's By-Laws, as amended
("ONB's By-Laws"). The rights of the shareholders of Carmi are presently
governed by the laws of the United States of America, and by Carmi's Articles of
Association ("Carmi's Articles") and By-Laws. The rights of the shareholders of
Carmi differ in certain respects from the rights they would have as ONB
shareholders, including ONB's anti-takeover measures and the vote required for
the amendment of significant provisions of the articles of incorporation and for
the approval of significant corporate transactions. The following summary
comparison of ONB Common Stock and Carmi Common Stock includes all material
features of such shares but does not purport to be complete and is qualified in
its entirety by reference to ONB's Articles and By-Laws and Carmi's Articles and
By-Laws.
AUTHORIZED BUT UNISSUED SHARES
ONB's Articles of Incorporation authorize the issuance of 30,000,000 shares
of ONB Common Stock, of which 24,835,361 whole shares were outstanding as of
February 29, 1996. The remaining authorized but unissued shares of common stock
may be issued upon authorization of the Board of Directors of ONB without prior
shareholder approval. ONB has 2,000,000 shares of
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preferred stock authorized. These shares are available to be issued, without
prior shareholder approval, in classes with relative rights, privileges and
preferences determined for each class by the Board of Directors of ONB. No
shares of preferred stock are presently outstanding.
The Board of Directors of ONB has concluded that it is in the best
interests of ONB and its shareholders to increase the amount of ONB's authorized
common stock from 30 million to 50 million shares. At ONB's annual shareholder
meeting held on April 18, 1996, the shareholders voted to adopt an amendment to
ONB's Articles of Incorporation increasing the number of shares of authorized
common stock. The amendment will be effective upon the filing of Articles of
Amendment to ONB's Articles of Incorporation with the Indiana Secretary of
State.
The Board of Directors of ONB has authorized a series of preferred stock
designated as Series A preferred stock. The Board of Directors of ONB has
designated 200,000 shares of Series A preferred stock in connection with the
shareholder rights plan of ONB. The ONB Series A preferred stock may not be
issued except upon exercise of certain rights pursuant to such shareholder
rights plan. No shares of Series A preferred stock have been issued as of the
date of this Proxy Statement. See "COMPARISON OF COMMON STOCK -- Anti-Takeover
Provisions -- ONB's Shareholder Rights Plan" below.
The shares of ONB Series A preferred stock are nonredeemable and, unless
otherwise provided in connection with the creation of a subsequent series of
preferred stock, are subordinate to all other series of preferred stock of ONB.
Each share of ONB Series A preferred stock will be entitled to receive, when, as
and if declared, a quarterly dividend in an amount equal to the greater of $1.00
per share or 100 times the quarterly cash dividend declared on ONB Common Stock.
In addition, the ONB Series A preferred stock is entitled to 100 times any non-
cash dividends (other than dividends payable in equity securities) declared on
the ONB Common Stock, in like kind. In the event of liquidation, the holders of
ONB Series A preferred stock will be entitled to receive a liquidation payment
in an amount equal to the greater of $100.00 per share or 100 times the
liquidation payment made per share of ONB Common Stock. Each share of ONB
Series A preferred stock will have 100 votes, subject to adjustment, voting
together with the ONB Common Stock and not as a separate class unless otherwise
required by law or ONB's Articles of Incorporation. In the event of any merger,
consolidation or other transaction in which common shares are exchanged, each
share of ONB Series A preferred stock will be entitled to receive 100 times the
amount received per share of ONB Common Stock. The rights of the ONB Series A
preferred stock as to dividends, voting rights and liquidation are protected by
antidilution provisions. See "COMPARISON OF COMMON STOCK -- Anti-Takeover
Provisions".
As of December 31, 1995, ONB had approximately 1,394,041 shares of ONB
Common Stock reserved for issuance under ONB's dividend reinvestment and stock
purchase plan and 1,406,919 million shares of its common stock reserved for
issuance upon conversion of its outstanding 8% convertible subordinated
debentures (as adjusted for the 5% stock dividend issued by ONB on February 20,
1996). Such debentures are convertible at any time prior to maturity, unless
previously redeemed, into shares of ONB Common Stock at a conversion rate of
44.643 shares per $1,000 principal amount of debentures (equivalent to a
conversion price of approximately $22.40 per share), subject to adjustment in
certain events.
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The issuance of additional shares of ONB Common Stock to persons who were
not holders of ONB Common Stock prior to such issuance or the issuance of ONB
preferred stock may adversely affect the interests of ONB shareholders.
Carmi's Articles authorize the issuance of 100,000 shares of Carmi Common
Stock, $10.00 par value per share, all of which were outstanding as of December
31, 1995. Following the Affiliation, all of the outstanding shares of Carmi
Common Stock will be held by ONB.
PREEMPTIVE RIGHTS
As permitted by Indiana law, ONB's Articles of Incorporation do not provide
for preemptive rights to subscribe for any new or additional ONB Common Stock or
other securities. Preemptive rights may be granted to ONB's shareholders if
ONB's Articles of Incorporation are amended accordingly. Under Carmi's
Articles, shareholders of Carmi have do not have preemptive rights to subscribe
for any new or additional shares of Carmi Common Stock or other securities or
indebtedness.
DIVIDEND RIGHTS
The holders of common stock of ONB and Carmi are entitled to dividends and
other distributions when, as and if declared by their respective Boards of
Directors out of funds legally available therefor. With respect to ONB, a
dividend may not be paid if, after giving it effect, (1) ONB would not be able
to pay its debts as they become due in the usual course of business, or (2)
ONB's total assets would be less than the sum of its total liabilities plus,
unless ONB's Articles of Incorporation permitted otherwise, the amount that
would be needed to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
dividend if ONB were to be dissolved at the time of the dividend. With respect
to Carmi, it may pay cash dividends on its shares of common stock only out of
adjusted retained net profits for the year in which the dividend is paid and the
two (2) preceding years.
The amount of dividends, if any, that may be declared by ONB in the future
will necessarily depend upon many factors, including, without limitation, future
earnings, capital requirements, business conditions and capital levels of
subsidiaries (since ONB is primarily dependent upon dividends paid by its
subsidiaries for its revenues), the discretion of ONB's Board of Directors and
other factors that may be appropriate in determining dividend policies.
Cash dividends paid to ONB by its Illinois-chartered affiliate banks are
limited by Illinois law to the bank's net profits then on hand, less losses and
statutorily-defined bad debts. Cash dividends paid to ONB by its Indiana-
chartered affiliate banks are limited by Indiana law to the balance of the
bank's undivided profits account adjusted for statutorily-defined bad debts.
Cash dividends paid to ONB by its Kentucky-chartered affiliate banks are limited
by Kentucky law to so much of the net profits of the banks, after deducting all
expenses, losses, bad or suspended debts and interest and taxes accrued or due
from the banks, as the boards of directors of the banks deem expedient. In
addition, the approval of the Kentucky Commissioner of Banks is required if the
total of all dividends declared by a Kentucky bank in any calendar year exceeds
the bank's net profit for that year and the net retained profits from the
preceding two years, less any transfers to surplus or a fund for retirement of
preferred stock or debt. ONB's national affiliate banks may pay cash dividends
on their common stock only out of adjusted retained net profits for the year in
which the dividend is paid and the two preceding years.
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Dividends paid by Carmi and ONB's affiliate banks will ordinarily be
restricted to a lesser amount than is legally permissible because of the need
for the banks to maintain adequate capital consistent with the capital adequacy
guidelines promulgated by the banks' principal federal regulatory authorities.
See "REGULATORY CONSIDERATIONS". If a bank's capital levels are deemed
inadequate by the regulatory authorities, payment of dividends to its parent
holding company may be prohibited without prior regulatory approval. None of
ONB's affiliate banks or Carmi is currently subject to such a restriction.
VOTING RIGHTS
The holders of the outstanding shares of ONB Common Stock and Carmi Common
Stock are entitled to one vote per share on all matters presented for
shareholder vote. Shareholders of ONB do not have cumulative voting rights in
the election of directors while shareholders of Carmi do have cumulative voting
rights in the election of directors.
Indiana law generally requires that mergers, consolidations, sales, leases,
exchanges or other dispositions of all or substantially all of the assets of a
corporation be approved by the affirmative vote, as specified in the
corporation's by-laws, of the issued and outstanding shares entitled to vote at
the shareholders meeting, subject in each case to provisions in the
corporation's articles of incorporation requiring a higher percentage vote for
certain transactions. ONB's Articles of Incorporation provide that certain
business combinations may, under certain circumstances, require approval of more
than a simple majority of the issued and outstanding shares of ONB Common Stock.
Indiana law permits a corporation in its articles of incorporation to prescribe
a higher shareholder vote for certain amendments to the articles of
incorporation. See "COMPARISON OF COMMON STOCK -- Anti-Takeover Provisions".
Under the National Bank Act, as amended, a national bank may merge or
consolidate with another national bank or state bank if such transaction is
approved by a majority of the directors of the national bank and the holders of
at least two-thirds of its voting shares.
Indiana law requires shareholder approval for most amendments to a
corporation's articles of incorporation by a majority of a quorum present at a
shareholders' meeting (and, in certain cases, a majority of all shares held by
any voting group entitled to vote). Indiana law permits a corporation in its
articles of incorporation to prescribe a higher shareholder vote for certain
amendments to the articles of incorporation. ONB's Articles of Incorporation
require a super-majority shareholder vote of eighty percent (80%) of the
outstanding shares of ONB Common Stock for the amendment of certain significant
provisions. Under the National Bank Act, as amended, an association's articles
of association may be amended by a majority of the voting shares of the stock of
the association.
DISSENTERS' RIGHTS
The shareholders of Indiana business corporations possess dissenters'
rights in connection with certain mergers and other significant corporate
actions. Under Indiana law, a shareholder is entitled to dissent from and
obtain payment of the fair value of the shareholder's shares in the event of (1)
consummation of a plan of merger, if shareholder approval is required and the
shareholder is entitled to vote thereon, (2) consummation of a plan of share
exchange by which the shareholder's shares will be acquired, if the shareholder
is entitled to vote thereon, (3) consummation of a sale or exchange of all, or
substantially all, the property of the corporation other than in the usual
course of business, if the shareholder is entitled to vote thereon, (4) approval
of a control share acquisition under Indiana law, and (5) any corporate action
taken pursuant to a shareholder vote to the extent
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the articles of incorporation, by-laws or a resolution of the Board of Directors
provides that voting or non-voting shareholders are entitled to dissent and
obtain payment for their shares.
The dissenters' rights provisions described above do not apply, however, to
the holders of shares of any class or series with respect to a merger, share
exchange or sale or exchange of property if the shares of that class or series
were registered on a United States securities exchange registered under the
Exchange Act or traded on the Nasdaq National Market System or a similar market.
As of the date of this Proxy Statement, shares of ONB Common Stock are traded on
the Nasdaq National Market System and, therefore, ONB shareholders presently are
not entitled to assert dissenters' rights under Indiana law with respect to any
of the transactions discussed above.
With respect to dissenters' rights of the shareholders of Carmi in
connection with the Affiliation, see the discussion under the caption "PROPOSED
AFFILIATION -- Rights of Dissenting Shareholders" and Appendices B and C.
LIQUIDATION RIGHTS
In the event of any liquidation or dissolution of ONB, the holders of
shares of ONB Common Stock are entitled to receive pro rata with respect to the
number of shares held by them any assets distributable to shareholders, subject
to the payment of ONB's liabilities and any rights of creditors and holders of
shares of ONB preferred stock then outstanding. In the event of any liquidation,
dissolution or winding up of Carmi, the holders of shares of Carmi Common Stock
are entitled to receive pro rata with respect to the number of shares held by
them any assets distributable to shareholders, subject to the payment of Carmi's
liabilities and any rights of creditors.
ASSESSMENT AND REDEMPTION
Under Indiana law, certain shares of ONB Common Stock are not liable to
further assessment. Under the National Bank Act, as amended, shares of Carmi
Common Stock are liable to further assessment under certain limited
circumstances.
Under Indiana law, ONB may redeem or acquire shares of ONB Common Stock
with funds legally available therefor, and shares so acquired constitute
authorized but unissued shares. ONB may not redeem or acquire shares of ONB
Common Stock if, after giving such redemption or acquisition effect, ONB would
not be able to pay its debts as they become due in the usual course of business,
or ONB's total assets would be less than the sum of its total liabilities plus,
unless ONB's Articles of Incorporation permitted otherwise, the amount that
would be needed to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those whose stock is
being redeemed or acquired if ONB were to be dissolved at the time of the
redemption or acquisition. Carmi has similar redemption rights under its
Articles.
Federal Reserve regulations generally require a bank holding company to
give prior notice to the Federal Reserve if the consideration to be paid by it
for any redemption or acquisition of its shares, when aggregated with the
consideration paid for all redemptions or acquisitions for the preceding twelve
(12) months, equals or exceeds 10% of its consolidated net worth. This
requirement does not, however, apply to a bank holding company which is deemed
to be "well-capitalized" as defined pursuant to FDICIA (see "Regulatory
Considerations -- FDICIA") and which received a composite rating of 1 or 2 at
its most recent Federal Reserve examination and
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which is not the subject of any unresolved supervisory issues. This requirement
does not apply to ONB.
ANTI-TAKEOVER PROVISIONS
The anti-takeover measures applicable to ONB and Carmi, as described below,
may have the effect of discouraging or rendering it more difficult for a person
or other entity to acquire control of ONB or Carmi. These measures may have the
effect of discouraging certain tender offers for shares of ONB Common Stock or
Carmi Common Stock which might otherwise be made at premium prices or certain
other acquisition transactions which might be viewed favorably by a significant
number of shareholders.
Indiana Law. Under the business combinations provision of Indiana law, any
10% shareholder of an Indiana corporation, with a class of voting shares
registered under Section 12 of the Exchange Act or which has specifically
adopted this provision in the corporation's articles of incorporation, is
prohibited for a period of five (5) years from completing a business combination
with the corporation unless, prior to the acquisition of such 10% interest, the
board of directors of the corporation approved either the acquisition of such
interest or the proposed business combination. Further, the corporation and a
10% shareholder may not consummate a business combination unless all provisions
of the articles of incorporation of the corporation are complied with and a
majority of disinterested shareholders approve the transaction or all
shareholders receive a price per share determined in accordance with the
business combinations provision of Indiana law.
An Indiana corporation may elect to remove itself from the protection
provided by the Indiana business combinations provision, but such an election
remains ineffective for eighteen (18) months and does not apply to a combination
with a shareholder who acquired a 10% ownership position prior to the effective
time of the election. ONB is covered by the business combinations provision of
Indiana law and Carmi is not covered. The constitutional validity of the
business combinations provision of Indiana law has in the past been challenged
and has been upheld by the United States Supreme Court.
In addition to the business combinations provision, Indiana law also
contains a "control share acquisition" provision which, although different in
structure from the business combinations provision, may have a similar effect of
discouraging or making more difficult a hostile takeover of an Indiana
corporation. This provision also may have the effect of discouraging premium
bids for outstanding shares. Indiana law provides that, unless otherwise
provided in an Indiana corporation's articles of incorporation or by-laws,
certain acquisitions of shares of the corporation's common stock will be
accorded voting rights only if a majority of the disinterested shareholders
approves a resolution granting the potential acquiror the ability to vote such
shares. Upon disapproval of the resolution, the shares held by the acquiror
shall be redeemed by the corporation at the fair value of the shares as
determined by the control share acquisition provision.
This provision does not apply to a plan of affiliation and merger if the
corporation complies with the applicable merger provisions and is a party to the
agreement of merger or plan of share exchange. ONB is subject to the control
share acquisition provision.
ONB's Articles of Incorporation. In addition to the protections provided
by Indiana law, ONB's Articles of Incorporation require the affirmative vote of
the holders of at least eighty percent (80%) of the issued and outstanding
shares of capital stock for any business combination which is
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not recommended by the vote of two-thirds or more of the members of the Board of
Directors. For purposes of ONB's Articles of Incorporation, "business
combination" is defined to include: (1) a merger or consolidation of ONB with or
into any other corporation, (2) any sale, lease, exchange or other disposition
of any material part of the assets of ONB, or (3) any liquidation or dissolution
of ONB or any material subsidiary of ONB. Further, this provision cannot be
altered, amended or repealed without the affirmative vote of the holders of at
least eighty percent (80%) of the issued and outstanding shares of ONB Common
Stock entitled to vote thereon.
ONB's Articles of Incorporation also include provisions requiring (1) the
Board of Directors to consider non-financial factors in the evaluation of
business combinations and tender or exchange offers, and (2) any person
acquiring fifteen percent (15%) of the then issued and outstanding stock of ONB
to pay equal consideration in connection with the acquisition of any further
shares. These provisions require an eighty percent (80%) affirmative vote of
the issued and outstanding shares of ONB Common Stock entitled to vote thereon
in order to be altered, amended or repealed.
ONB's Shareholder Rights Plan. On January 25, 1990, the Board of Directors
of ONB declared a dividend of one (1) right for each issued and outstanding
share of ONB Common Stock ("Right"). See "COMPARISON OF COMMON STOCK --
Authorized But Unissued Shares". The dividend was payable on March 15, 1990 to
holders of record of ONB Common Stock at the close of business on March 1, 1990.
Each Right entitles the registered holder, upon the occurrence of certain events
involving a change in control of ONB, to purchase from ONB one-hundredth (1/100)
of a share of ONB Series A preferred stock at an initial Purchase Price of
$60.00, subject to adjustment. The terms and conditions of the Rights are
contained in a Rights Agreement between ONB and Old National Bank in Evansville,
as Rights Agent.
The foregoing information concerning ONB's shareholder Rights Plan does not
purport to be complete. For additional information, see The Rights Agreement,
dated March 1, 1990, between ONB and Old National Bank in Evansville, as
Trustee, which is specifically incorporated herein by reference. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
Carmi's Articles. Certain of the corporate governance provisions which are
part of Carmi's Articles could discourage or frustrate future attempts to
acquire control of Carmi by possibly making it more difficult to change the
composition of the incumbent Board of Directors of Carmi. Article Fourth of
Carmi's Articles provides that a stockholder must furnish written notice to the
president of Carmi, not less than 14 nor more than 50 days prior to the meeting
as originally scheduled, of a stockholder's nomination of a candidate for
election to the Board of Directors. Article Fourth further provides that a
stockholders' notice with respect to the nomination of candidates to the Board
of Directors of Carmi must contain: (a) the name and residence address of the
stockholder who intends to make the nomination; (b) the name and residence
address, and principal occupation or employment of each nominee, and (c) the
number of shares of capital stock that will be voted for the nominee. The
procedures set for the in Article Fourth would prohibit last-minute attempts by
any stockholder to nominate an individual for election to the Board of Directors
of Carmi at a stockholders' meeting, even if such a nomination might be desired
by a majority of stockholders.
DIRECTOR LIABILITY
Under Indiana law, a director of ONB will not be liable to shareholders for
any action taken as a director, or any failure to take any action, unless (1)
the director has breached or failed to perform his duties as a director in good
faith with the care an ordinarily prudent person in a like
-58-
<PAGE>
position would exercise under similar circumstances and in a manner the director
reasonably believes to be in the best interests of the corporation and (2) such
breach or failure to perform constitutes willful misconduct or recklessness.
As permitted by the National Bank Act, as amended, a director of Carmi is
indemnified to the fullest extent provided allowed by Illinois law, provided,
however, that a director may not be indemnified for costs relating to a final
order assessing civil money penalties or requiring payments from the director to
Carmi.
DIRECTOR NOMINATIONS
ONB's By-Laws require that all nominations for election as directors of ONB
shall be made by the Board of Directors of ONB in accordance with the By-Laws.
Under the By-Laws, the Nominating Committee of the Board of Directors of ONB
("Nominating Committee") is required to submit to the entire Board of Directors
its recommendation of nominees for election as directors of ONB prior to each
annual or special meeting of shareholders at which directors will be elected.
The Nominating Committee is comprised of five (5) directors of ONB, none of
whom is an officer or employee of ONB. The Nominating Committee maintains the
responsibility to recruit potential director candidates, recommend changes to
the entire Board of Directors concerning the size, composition and
responsibilities of the Board of Directors, review proxy documents received from
shareholders relating to the Board of Directors and review suggestions of
shareholders regarding nominees for election as directors. All such suggestions
of shareholders with respect to director nominations must be submitted in
writing to the Nominating Committee not less than 120 days prior to the date of
the annual or special meeting of shareholders at which directors will be
elected.
Carmi's Articles of Association allow for the nomination for election to
the Board of Directors to be made by the existing Board of Directors or by any
of its shareholders.
LEGAL OPINIONS
Certain legal matters in connection with the Agreement will be passed upon
for ONB by the law firm of Krieg DeVault Alexander & Capehart, One Indiana
Square, Suite 2800, Indianapolis, Indiana 46204, and for Carmi by the law firm
of Barack, Ferrazzano, Kirschbaum & Perlman, Chicago, Illinois and the Stanley
Law Office, Carmi, Illinois. David L. Stanley, who owns more than 5% of the
outstanding shares of Carmi Common Stock, John D. Stanley, a director of Carmi,
and Mark R. Stanley, a director of Carmi, are partners in the Stanley Law
Office.
EXPERTS
The consolidated financial statements of ONB and affiliates incorporated by
reference in this Proxy Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and have been so incorporated into this Proxy Statement in reliance
upon the authority of such firm as experts in auditing and accounting in giving
said report.
The consolidated financial statements of Carmi as of and for the fiscal
year ended December 31, 1994 included in this Proxy Statement have been audited
by Gray Hunter Stenn, independent auditors, to the extent and for the years
indicated in their report thereon. Such consolidated
-59-
<PAGE>
financial statements have been included in this Proxy Statement in reliance upon
such report and upon the authority of such firm as experts in auditing and
accounting.
Representatives of Gray Hunter Stenn are not expected to be at the Special
Meeting.
OTHER MATTERS
The Special Meetings is called for the purposes set forth in the Notice
attached to this Proxy Statement. The Board of Directors of Carmi knows of no
other matters for action by shareholders at the Special Meeting other than the
matters described in the Notice. However, the enclosed proxy will confer
discretionary authority on the persons named therein with respect to any such
matters, none of which are known to the Board of Directors of Carmi as of the
date hereof, which may properly come before the Special Meeting. It is the
intention of the persons named in the proxy to vote pursuant to the proxy with
respect to such matters in accordance with the recommendation of the Board of
Directors of Carmi.
-60-
<PAGE>
INDEX TO THE NATIONAL BANK OF CARMI FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report............................................. F-2
Balance Sheets as of December 31, 1995 and 1994.......................... F-3
Statements of Income for the Years Ended December 31, 1995, 1994
and 1993................................................................. F-4
Statements of Changes in Stockholders' Equity for the Years Ended
December 31, 1995, 1994 and 1993......................................... F-5
Statements of Cash Flows for the Years Ended December 31, 1995, 1994
and 1993................................................................. F-6
Notes to Financial Statements for the Years Ended December 31, 1995,
1994 and 1993............................................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
The National Bank of Carmi
We have audited the accompanying balance sheets of The National Bank of Carmi,
Carmi, Illinois as of December 31, 1995 and 1994 and the related statements of
income, changes in stockholders' equity and cash flows each of the years in the
three-year period ended December 31, 1995. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The National Bank of Carmi,
Carmi, Illinois as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule of operating expenses on page 14 is
presented for the purposes of additional analysis and is not a required part of
the basic financial statements. Such information has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
/s/ GRAY HUNTER STENN
Marion, Illinois
January 16, 1996
F-2
<PAGE>
THE NATIONAL BANK OF CARMI
CARMI, ILLINOIS
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
---------------- ----------------
<S> <C> <C>
Cash and due from banks $ 1,795,252.83 $ 2,200,823.61
Interest bearing deposits 100,000.00 100,000.00
Securities held to maturity - 20,097,361.80
Securities available for sale 25,120,224.04 7,944,592.07
Other securities 60,000.00 60,000.00
Federal funds sold 2,201,000.00 963,000.00
Loans, less allowance for loan losses
of $775,127.16 and $350,759.76, respectively 33,252,300.63 31,638,547.00
Accrued interest receivable 928,896.77 794,721.43
Bank premises and equipment 1,132,009.04 1,239,337.01
Deferred income tax 189,375.91 241,537.54
Goodwill 1,223,262.51 1,317,073.55
Other real estate 26,446.38 91,089.15
Other assets 29,282.17 39,167.76
-------------- --------------
TOTAL ASSETS $66,058,050.28 $66,727,250.92
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS:
Demand $ 5,022,498.99 $ 5,725,873.40
Interest-bearing transaction accounts 15,854,331.08 16,381,201.70
Savings 3,578,448.93 3,578,375.15
Time, $100,000 and over 6,396,915.58 5,458,070.26
Other time 25,059,800.85 25,182,477.27
-------------- --------------
TOTAL DEPOSITS $55,911,995.43 $56,325,997.78
Securities sold under repurchase agreements 700,000.00 1,000,000.00
Outstanding official checks 251,190.90 186,468.78
Accrued interest payable 330,741.77 305,629.57
Other liabilities 149,171.00 141,310.51
Accrued income tax 12,377.00 26,078.87
Dividends payable 671,000.00 650,000.00
-------------- --------------
TOTAL LIABILITIES $58,026,476.10 $58,635,485.51
-------------- --------------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Common stock, par value $10.00; 100,000
shares authorized, issued and outstanding $ 1,000,000.00 $ 1,000,000.00
Paid in capital 1,000,000.00 1,000,000.00
Retained earnings 6,012,725.16 6,294,925.63
Net unrealized gain (loss) on securities
available for sale, net of deferred tax
of ($9,710.09) and $104,658.29 respectively 18,849.02 (203,160.22)
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY $ 8,031,574.18 $ 8,091,765.41
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $66,058,050.28 $66,727,250.92
============== ==============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
THE NATIONAL BANK OF CARMI
CARMI, ILLINOIS
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
INTEREST INCOME
Interest on loans $2,950,319.93 $2,568,810.84 $2,066,494.29
U.S. Government obligations 323,476.16 295,068.75 224,025.90
Agencies of the U.S. Government 895,955.90 1,077,151.66 1,118,566.59
State and political subdivisions 375,540.12 376,883.43 376,473.59
Other securities 54,483.12 46,152.25 7,498.03
Interest on federal funds sold 100,028.65 48,373.63 71,588.45
------------- ------------- -------------
TOTAL INTEREST INCOME $4,699,803.88 $4,412,440.56 $3,864,646.85
LESS INTEREST EXPENSE:
Interest on Deposits 2,214,969.01 1,884,998.43 1,686,169.41
------------- ------------- -------------
NET INTEREST INCOME $2,484,834.87 $2,527,442.13 $2,178,477.44
Provision for Loan Losses 400,000.00 - 86,000.00
------------- ------------- -------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES $2,084,834.87 $2,527,442.13 $2,092,477.44
------------- ------------- -------------
NON-INTEREST INCOME
Service charges $ 202,767.34 $ 186,155.44 $ 153,641.76
Gain (loss) on security sales (3,002.63) (38,344.84) (9,485.87)
Other income 65,103.07 66,073.04 37,347.25
------------- ------------- -------------
TOTAL NON-INTEREST INCOME $ 264,867.78 $ 213,883.64 $ 181,503.14
------------- ------------- -------------
NON-INTEREST EXPENSE
Salaries and employee benefits $ 872,820.21 $ 841,597.78 $ 667,981.18
Occupancy expense 275,667.20 256,435.13 205,779.59
Other expenses 614,557.33 694,180.63 501,713.64
------------- ------------- -------------
TOTAL NON-INTEREST EXPENSE $1,763,044.74 $1,792,213.54 $1,375,474.41
------------- ------------- -------------
INCOME BEFORE PROVISION FOR INCOME TAXES $ 586,657.91 $ 949,112.23 $ 898,506.17
Provision for Income Tax 122,858.38 237,009.24 114,331.29
------------- ------------- -------------
INCOME BEFORE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE $ 463,799.53 $ 712,102.99 $ 784,174.88
Cumulative Effect on Prior Years of
Accounting Change - - 36,843.00
------------- ------------- -------------
NET INCOME $ 463,799.53 $ 712,102.99 $ 821,017.88
============= ============= =============
EARNINGS PER SHARE $ 4.64 $ 7.12 $ 8.21
============= ============ =============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
THE NATIONAL BANK OF CARMI
CARMI, ILLINOIS
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
NET UNREALIZED
GAIN (LOSS)
COMMON PAID IN RETAINED AVAILABLE FOR
STOCK SURPLUS EARNINGS SALE SECURITIES TOTAL
------------- ------------ ------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE - JANUARY 1, 1993 $1,000,000.00 $1,000,000.00 $6,136,804.76 $ - $8,136,804.76
Net income - - 821,017.88 - 821,017.88
Dividends declared - - (650,000.00) - (650,000.00)
------------- ------------- ------------- --------------- -------------
($ 6.50 per share)
BALANCE - DECEMBER 31, 1993 $1,000,000.00 $1,000,000.00 $6,307,822.64 $ - $8,307,822.64
Net income - - 712,102.99 - 712,102.99
Dividends declared - - (725,000.00) - (725,000.00)
($ 7.25 per share)
Net change in unrealized
gain (loss) on securities - - - (203,160.22) (203,160.22)
------------- ------------- ------------- --------------- -------------
BALANCE - DECEMBER 31, 1994 $1,000,000.00 $1,000,000.00 $6,294,925.63 $ (203,160.22) $8,091,765.41
------------- ------------- ------------- --------------- -------------
Net income - - 463,799.53 - 463,799.53
Dividends declared - - (746,000.00) - (746,000.00)
($ 7.46 per share)
Net change in unrealized
gain (loss) on securities - - - 222,009.24 222,009.24
------------- ------------- ------------- --------------- -------------
BALANCE - DECEMBER 31, 1995 $1,000,000.00 $1,000,000.00 $6,012,725.16 $ 18,849.02 $8,031,574.18
------------- ------------- ------------- --------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
THE NATIONAL BANK OF CARMI
CARMI, ILLINOIS
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------------- ---------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $ 4,652,903.91 $ 4,399,084.66 $ 4,004,603.17
Interest paid on deposits (2,189,856.81) (1,847,623.53) (1,773,805.94)
Cash paid to suppliers and employees (1,530,747.49) (1,542,164.69) (1,274,900.52)
Other income received 248,439.55 252,228.48 190,989.01
Income taxes (paid) received (198,767.00) 40,276.00 (295,735.00)
-------------- -------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 981,972.16 $ 1,301,800.92 $ 851,150.72
-------------- -------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of other real estate $ 124,269.14 $ 9,569.96 $ 67,431.52
Proceeds from maturities of securities
held to maturity 6,332,531.83 8,705,549.95 9,384,278.68
Proceeds from sales of securities
available for sale 476,830.19 1,329,714.76 4,960,492.21
Purchase of securities (3,641,532.57) (5,114,681.78) (13,249,862.75)
Net (increase) decrease in loans (2,053,949.14) (2,164,532.98) (576,432.81)
Purchases of equipment (13,412.16) (148,086.74) (31,380.58)
Acquisition of First National - Crossville - (17,341.75) (2,584,026.03)
Cash received from First National -
Crossville - - 2,356,926.89
-------------- -------------- ---------------
NET CASH PROVIDED BY INVESTING ACTIVITIES $ 1,224,737.29 $ 2,600,191.42 $ 327,427.13
-------------- -------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits $ (649,280.23) $(4,592,473.76) $ (447,170.68)
Dividends paid (725,000.00) (650,000.00) (800,000.00)
-------------- -------------- ---------------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES $(1,374,280.23) $(5,242,473.76) $ (1,247,170.68)
-------------- -------------- ---------------
NET INCREASE (DECREASE) IN CASH AND
EQUIVALENTS $ 832,429.22 $(1,340,481.42) $ (68,592.83)
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 3,163,823.61 4,504,305.03 4,572,897.86
-------------- -------------- ---------------
CASH AND EQUIVALENTS AT END OF YEAR $ 3,996,252.83 $ 3,163,823.61 $ 4,504,305.03
============== ============== ===============
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
NET INCOME $ 463,799.53 $ 712,102.99 $ 821,017.88
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES
Provision for loan losses $ 400,000.00 $ - $ 86,000.00
Depreciation 120,740.13 114,965.42 100,824.80
Amortization of goodwill 93,811.04 94,383.18 -
Amortization of bond premium 99,485.59 103,262.54 61,707.89
Accretion of bond discount (12,210.22) (13,824.82) (63,888.04)
Net realized loss on securities
available for sale 3,002.63 38,344.84 9,485.87
Other real estate losses (19,430.86) 5,000.00 4,355.56
(Increase) decrease in interest receivable (134,175.34) (102,793.62) 142,136.47
(Increase) decrease in income taxes (75,908.62) 277,285.24 (218,246.71)
(Increase) decrease in other assets 9,885.59 2,393.40 (497.86)
Increase (decrease) in interest payable 25,112.20 37,374.90 (87,636.53)
Increase (decrease) in other liabilities 7,860.49 33,306.85 (4,108.61)
-------------- -------------- ---------------
TOTAL ADJUSTMENTS $ 518,172.63 $ 589,697.93 $ 30,132.84
-------------- -------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 981,972.16 $ 1,301,800.92 $ 851,150.72
============== ============== ===============
SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Other real estate transferred from loans $ 40,195.51 $ 61,000.00 $ -
============== ============== ===============
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
THE NATIONAL BANK OF CARMI
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The National Bank of Carmi provides a variety of banking services to
individuals and businesses through its two facilities in Carmi and
Crossville. Its primary deposit products are demand deposits and
certificates of deposit, and its primary lending products are commercial
business, real estate mortgage, and installment loans.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
INVESTMENT SECURITIES
The Bank adopted Financial Accounting Standard No. 115 "Accounting for
Certain Investments in Debt and Equity Securities" (FAS 115) as of the
beginning of 1994. This new accounting policy expands the use of fair
value accounting for securities for which there is not a positive intent
and ability to hold to maturity. At acquisition, FAS 115 requires that
securities be classified into one of three categories: trading,
available for sale or investment. Trading securities are bought and held
principally with the intention of selling them in the near term. The
Bank has no trading securities. Investment securities are those
securities for which the Bank has the ability and intent to hold until
maturity. All other debt securities are classified as available for
sale. Other securities include stock in the Federal Reserve Bank. There
was no effect of this change on 1994 net income.
Securities available for sale are stated at fair value. Fair value is
based on market prices quoted in financial publications or other
independent sources. Net unrealized gains or losses are excluded from
earnings and reported, net of deferred income taxes, as a separate
component of shareholders' equity until realized. The adjusted cost of
the specific security available for sale that is sold is used to compute
any gain or loss upon sale.
Investment securities are carried at cost, adjusted for amortization of
premiums and accretion of discounts, which are recognized as adjustments
to interest income on the level-yield method. Gain or loss is recorded
when realized on a specific identity basis or when, in the opinion of
management, an unrealized loss is other than temporary in nature.
LOANS
Loans are stated at the amount of unpaid principal, reduced by unearned
discount and allowance for loan losses. Unearned discount on installment
loans is recognized as income over the terms of the loans by a method
which approximates the level yield method. Interest on commercial and
real estate mortgage loans is accrued and credited to operations based
upon the principal amount outstanding, using the simple interest method.
Accrual of interest is discontinued on a loan when management believes,
after considering economic and business conditions and collection
efforts,
F-7
<PAGE>
that the borrower's financial condition is such that collection
of interest is doubtful.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level which, in
management's judgment, is adequate to absorb credit losses inherent in
the loan portfolio. The amount of the allowance is based on
management's evaluation of the collectibility of the loan portfolio,
including the nature of the portfolio, credit concentrations, trends in
historical loss experience, specific impaired loans, and economic
conditions. Allowances for impaired loans are generally determined based
on collateral values or the present value of estimated cash flows. The
allowance is increased by a provision for loan losses, which is charged
to expense and reduced by charge-offs, net of recoveries. Changes in the
allowance relating to impaired loans are charged or credited to the
provision for loan losses. Because of uncertainties inherent in the
estimation process, management's estimate of credit losses inherent in
the loan portfolio and the related allowance may change in the near term.
OTHER REAL ESTATE
Real estate acquired through foreclosure is carried at the lower of the
recorded investment in the loan for which the property previously served
as collateral or the current appraised value of the foreclosed property.
Any writedowns required prior to actual foreclosure are charged to the
reserve for loan losses. Subsequent to foreclosure, losses on the
periodic revaluation of the property are charged to current period
earnings as noninterest expense. Gains and losses resulting from the
sale of foreclosed property are credited or charged to current period
earnings. Costs of maintaining and operating foreclosed property are
expensed as incurred and expenditures to complete or improve foreclosed
properties are capitalized if the expenditures are expected to be
recovered upon ultimate sale of the property. Loans meeting in-substance
foreclosure criteria are reported and accounted for consistent with
treatment accorded foreclosed property.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed on the double declining and
straight-line methods over the estimated useful lives. Estimated useful
lives on bank premises range from ten to forty years and five to fifteen
years on equipment. Expenditures for major renewals and improvements of
premises and equipment are capitalized and those for maintenance and
repairs are expensed as incurred.
INCOME TAXES
Provisions for income taxes are based on taxes payable or refundable for
the current year (after exclusion of non-taxable income such as interest
on state and municipal securities) and deferred taxes on temporary
differences between the amount of taxable income and pretax financial
income and between the tax bases of assets and liabilities and their
reported amounts in the financial statements. Deferred tax assets and
liabilities are included in the financial statements at currently enacted
income tax rates applicable to the period in which the deferred tax
assets and liabilities are expected to be realized or settled as
prescribed in FASB Statement No. 109, Accounting for Income Taxes. As
changes in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
EARNINGS PER SHARE
Earnings per share are calculated on the basis of the weighted average of
common shares outstanding.
F-8
<PAGE>
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks and federal funds sold.
RECLASSIFICATIONS
Certain items for 1994 and 1993 have been reclassified to conform with
the 1995 presentation. Such reclassifications have no effect on net
earnings or stockholders' equity as previously reported.
2. CASH AND DUE FROM BANKS
The Bank is required to maintain certain reserve balances in accordance
with Federal Reserve Board requirements. The reserve balances maintained
as of December 31, 1995 and 1994 are $410,000.00 and $402,000.00,
respectively.
3. INVESTMENT SECURITIES
The book value and approximate fair value of the Bank's securities at
December 31, 1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Book Fair Unrealized Unrealized
Value Value Gain Loss
-------------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
HELD TO MATURITY -
December 31, 1995
U. S. Treasury securities $ - $ - $ - $ -
Securities of U. S.
Government Agencies - - - -
Obligations of state and
political subdivisions - - - -
-------------- -------------- ----------- -------------
Total $ - $ - $ - $ -
----- ============== ============== =========== =============
Gross Gross
Book Fair Unrealized Unrealized
Value Value Gain Loss
-------------- -------------- ----------- -------------
HELD TO MATURITY -
December 31, 1994
U. S. Treasury securities $ 4,832,894.19 $ 4,609,362.50 $ 11,296.79 $ 234,828.48
Securities of U. S.
Government Agencies 8,284,998.98 7,783,947.97 7,135.38 508,186.39
Obligations of state and
political subdivisions 6,231,052.03 6,057,809.85 57,574.04 230,816.22
CMO's 748,416.60 686,175.00 - 62,241.60
-------------- -------------- ----------- -------------
Total $20,097,361.80 $19,137,295.32 $ 76,006.21 $1,036,072.69
----- ============== ============== =========== =============
Gross Gross
Book Fair Unrealized Unrealized
Value Value Gain Loss
-------------- -------------- ----------- -------------
AVAILABLE FOR SALE -
December 31, 1995
U. S. Treasury securities $ 3,043,861.39 $ 3,022,645.00 $ - $ 21,216.39
Securities of U. S.
Government Agencies 14,984,550.62 14,960,034.41 80,391.42 104,907.63
Obligations of state and
political subdivisions 6,314,611.43 6,395,877.88 142,691.68 61,425.23
CMO's 748,641.49 741,666.75 - 6,974.74
-------------- -------------- ----------- -------------
Total $25,091,664.93 $25,120,224.04 $223,083.10 $ 194,523.99
----- ============== ============== =========== =============
</TABLE>
F-9
<PAGE>
<TABLE>
<CAPTION>
Gross Gross
Book Fair Unrealized Unrealized
Value Value Gain Loss
------------- -------------- ---------- -----------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE -
December 31, 1994
U. S. Treasury securities $1,009,898.10 $1,010,000.00 $ 101.90 $ -
Securities of U. S.
Government Agencies 7,242,512.48 6,934,592.07 7,517.25 315,437.66
Obligations of state and
political subdivisions - - - -
------------- ------------- --------- -----------
Total $8,252,410.58 $7,944,592.07 $7,619.15 $315,437.66
----- ============= ============= ========= ===========
Other Securities -
Federal Reserve Bank Stock $ 60,000.00 $ 60,000.00 $ - $ -
============= ============= ========= ===========
</TABLE>
At December 31, 1995 and 1994, securities with book values of
$2,701,509.39, and $2,767,516.30, respectively, and fair values of
$2,682,275.50 and $2,719,032.00, respectively, were pledged to secure
public fund deposits and for other purposes as required by law.
The contractual maturity distribution of debt securities at December 31,
1995 and 1994 is summarized as follows:
<TABLE>
<CAPTION>
Held to Maturity Available for Sale
------------------------------ ------------------------------
Book Fair Book Fair
Value Value Value Value
------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
December 31, 1995
Due in one year
or less $ - $ - $ 713,125.78 $ 717,457.63
Due from one year
to five years - - 8,287,185.26 8,356,777.89
Due from five to
ten years - - 9,041,530.16 8,997,216.54
Due after ten years - - 7,049,823.73 7,048,771.98
------------- -------------- -------------- --------------
$ - $ - $25,091,664.93 $25,120,224.04
============= ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Held to Maturity Available for Sale
------------------------------ ------------------------------
Book Fair Book Fair
Value Value Value Value
------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
December 31, 1994
Due in one year
or less $ 2,004,004.60 $ 2,000,501.61 $ 1,009,898.10 $ 1,010,000.00
Due from one year
to five years 7,595,086.69 7,300,264.67 1,581,860.07 1,537,584.80
Due from five to
ten years 6,647,990.62 6,285,814.51 1,252,364.17 1,175,260.54
Due after ten years 3,850,279.89 3,550,714.53 4,408,288.24 4,221,746.73
-------------- -------------- -------------- --------------
$20,097,361.80 $19,137,295.32 $ 8,252,410.58 $ 7,944,592.07
============== ============== ============== ==============
</TABLE>
Gross realized gains and gross realized losses on sales of
securities were:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- -----------
<S> <C> <C> <C>
Gross realized gains:
U.S. Treasury securities $ - $ - $ -
Securities of U.S.
Government Agencies 1,715.59 4,165.25 35,586.65
Obligations of state and
political subdivisions - - 1,239.79
Other securities - - 4.05
---------- ---------- -----------
$ 1,715.59 $ 4,165.25 $ 36,830.49
========== ========== ===========
</TABLE>
F-10
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993
--------- ---------- ----------
<S> <C> <C> <C>
Gross realized losses:
U.S. Treasury securities $ - $ - $ -
Securities of U.S.
Government Agencies 4,718.22 42,510.09 46,316.36
--------- ---------- ----------
Obligations of state and
political subdivisions - - -
Other securities - - -
--------- ---------- ----------
$4,718.22 $42,510.09 $46,316.36
========= ========== ==========
</TABLE>
4. LOANS
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Commercial $ 6,428,413.68 $ 5,741,380.44
Real estate 13,569,519.81 13,110,096.74
Agriculture 7,210,930.52 6,286,815.83
Installment 7,127,202.71 7,119,636.53
Other 99,545.54 144,021.91
-------------- --------------
Total Loans $34,435,612.26 $32,401,951.45
-----------
Unearned income (408,184.47) (412,644.69)
-------------- --------------
$34,027,427.79 $31,989,306.76
============== ==============
</TABLE>
<TABLE>
A summary of the changes in the allowance for loan losses is
as follows:
1995 1994
----------- ------------
<S> <C> <C>
Balance, Beginning of Year $350,759.76 $ 403,690.21
Provision charged to expense 400,000.00 -
Loans charged off (32,905.64) (103,896.51)
Recoveries of loans previously
charged off 57,273.04 50,966.06
----------- ------------
Balance, End of Year $775,127.16 $ 350,759.76
=========== ============
</TABLE>
Nonaccrual loans at December 31, 1995 and 1994 totaled $101,236.00 and
$52,232.00, respectively. Officers, directors and employees of The National
Bank of Carmi, and individuals related to such individuals incurred
indebtedness in the form of loans as customers. These loans were made on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other
customers and did not involve more than the normal risk of collectibility.
The balance of these loans at December 31, 1995 and 1994 totaled
$1,141,532.72 and $764,527.42, respectively.
A schedule of nonaccrual loans and loans over 90 days delinquent is as
follows:
<TABLE>
<CAPTION>
1995 1994
---------------------------- ---------------------------
Past Due Past Due
90 or More 90 or More
Days and Still Nonaccrual Days and Still Nonaccrual
Accruing Loans Accruing Loans
------------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
Commercial $345,987.00 $ 34,104.00 $165,959.00 $25,384.00
Real estate 24,102.00 51,823.00 24,743.00 2,005.00
Installment 9,020.00 15,309.00 11,881.00 24,843.00
----------- ----------- ----------- ----------
$379,109.00 $101,236.00 $202,583.00 $52,232.00
=========== =========== =========== ==========
</TABLE>
F-11
<PAGE>
<TABLE>
<CAPTION>
5. BANK PREMISES AND EQUIPMENT
A summary of premises and equipment is as follows:
1995 1994
------------- -------------
<S> <C> <C>
Land $ 195,820.00 $ 195,820.00
Buildings 1,293,876.13 1,293,876.13
Furniture and equipment 755,381.37 856,703.49
------------- -------------
$2,245,077.50 $2,346,399.62
Less - Accumulated depreciation 1,113,068.46 1,107,062.61
----- ------------- -------------
Net premises and equipment $1,132,009.04 $1,239,337.01
============= =============
</TABLE>
Depreciation charged to operating expense was $120,740.13 in 1995,
$114,965.42 in 1994 and $100,824.80 in 1993.
6. INCOME TAX
The provision for income taxes from continuing operations consists of the
following components:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Current tax expense $185,065.13 $170,336.39 $135,889.29
Deferred tax expense (benefit) (62,206.75) 66,672.85 (21,558.00)
----------- ----------- -----------
$122,858.38 $237,009.24 $114,331.29
=========== =========== ===========
</TABLE>
Temporary differences giving rise to the deferred tax asset consist
primarily of the excess of bad debt expense and accretion on investment
securities for financial reporting purposes over the amount for tax
purposes and net operating loss and alternative minimum tax credit
carryforwards.
The Bank has available at December 31, 1995, unused operating loss
carryforwards of $165,412.00 which expire in various years and an
alternative minimum tax credit carryforward of $9,990.00 which has no
expiration date.
7. PENSION PLAN
The Bank has a 401(k) plan covering substantially all of the employees.
The total expense was $475.00 in 1995, $425.00 in 1994 and $375.00 in
1993. Plan costs include current services which are funded on a current
basis.
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is, in the normal course of business, a party to certain off-
balance-sheet financial instruments with inherent credit risk. These
instruments, which include commitments to extend credit and standby
letters of credit, are used by the Bank to meet the financing needs of
its customers. These instruments involve, to varying degrees, credit
risk in excess of the amount recognized in the Bank's balance sheet.
Financial instruments with off-balance-sheet credit risk for which the
contract amounts represent potential risk were as follows:
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Commitments to extend credit $2,572,780.00 $2,427,920.00
============= =============
Standby letter of credit $ 196,326.90 $ 123,525.00
============= =============
</TABLE>
The Bank's maximum exposure to credit loss under commitments to extend
credit and standby letters of credit is the equivalent of the contractual
amount of those instruments. The same credit policies are used by the
Bank in granting commitments and conditional obligations as are used in
the extension of credit.
F-12
<PAGE>
Commitments to extend credit are legally binding agreements to lend to a
borrower as long as the borrower performs in accordance with the terms of
the contract. Commitments generally have fixed expiration dates or other
termination clauses. As many of the commitments are expected to expire
without being drawn upon, the total commitment amount does not
necessarily represent future cash requirements. Included in commitments
are the unused portions of lines of credit.
Standby letters of credit are commitments issued by the Bank to guarantee
specific performance of a customer to a third party.
Collateral may be required by both commitments and standby letters of
credit in accordance with the normal credit evaluation process based upon
the creditworthiness of the customer and the credit risk associated with
the particular transaction. Collateral held varies, but may include
commercial real estate, accounts receivable, inventory and equipment.
9. RETAINED EARNINGS
Banking regulations limit the amount of dividends that may be paid
without prior approval of the Bank's regulatory agency. National Banks
are prohibited from paying dividends in excess of the current year's net
income plus retained income from the preceding two years, unless prior
regulatory approval is obtained. At December 31, 1995, no retained
earnings were available for the payment of additional dividends without
regulatory approval.
10. ACQUISITION
On December 17, 1993, the Bank acquired The First National Bank of
Crossville, a $13.5 million asset bank in Crossville, Illinois. The
acquisition was accounted for as a purchase and, accordingly, the results
of operations were included in the financial statements from the
acquisition date. The total cost of the acquisition was $2,584,026.03,
which exceeded the fair value of the net assets by $1,411,456.73. The
excess is being amortized on the straight line method over 15 years.
Amortization expense charged to operations for 1995 and 1994 was
$93,811.04 and $94,383.18, respectively.
11. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Bank in estimating
fair values of financial instruments as disclosed herein:
Cash and cash equivalents - The carrying amounts of cash and short-term
instruments approximate their fair value.
Securities held to maturity and securities available for sale - Fair
values for investment securities, excluding restricted equity securities,
are based on quoted market prices. The carrying values of restricted
equity securities approximate fair values.
Loans receivable - For variable-rate loans that reprice frequently and
have no significant change in credit risk, fair values are based on
carrying values. Fair values for certain mortgage loans (e.g., one-to-
four family residential), credit card loans, other consumer loans,
commercial real estate and commercial loans are estimated using
discounted cash flow analyses, using interest rates currently being
offered for loans with similar terms to borrowers of similar credit
quality. Fair values for impaired loans are estimated using discounted
cash flow analyses or underlying collateral values, where applicable.
Deposit liabilities - The fair values disclosed for demand deposits are,
by definition, equal to the amount payable on demand at the reporting
date (that is, their carrying amounts). The carrying amounts of
variable-rate, fixed-term money market accounts and certificates of
deposit approximate their fair values at the reporting date. Fair values
for fixed-rate certificates of deposit are estimated using a discounted
cash flow calculation that applies interest rates currently being offered
on certificates to a schedule of aggregated expected monthly maturities
on time deposits.
F-13
<PAGE>
Short-term borrowings - The carrying amounts of borrowings under
repurchase agreements and other short-term borrowings maturing within 90
days approximate their fair values. Fair values of other short-term
borrowings are estimated using discounted cash flow analyses based on the
Bank's current incremental borrowing rates for similar types of borrowing
arrangements.
Accrued interest - The carrying amounts of accrued interest approximate
their fair values.
The Bank, in accordance with FAS No. 107, has estimated fair values of
financial instruments as follows:
<TABLE>
<CAPTION>
1995
-------------------------------
Carrying Fair
Amount Value
--------------- --------------
<S> <C> <C>
Financial Assets:
Cash and short-term investments $ 4,096,252.83 $ 4,096,252.83
Investment securities $25,120,224.04 $25,120,224.04
Loans $34,027,427.79 $33,487,022.70
Less: Allowance for loan losses (775,127.16) -
-------------- --------------
Loans, net of allowance $33,252,300.63 $33,487,022.70
Accrued interest receivable $ 928,896.77 $ 928,896.77
Financial Liabilities:
Deposits $55,911,995.43 $55,865,921.52
</TABLE>
12. CAPITAL RESTRICTIONS
Banking regulations require minimum ratios of capital to total "risk
weighted" assets. The Bank is required to have minimum Tier I and total
capital ratios of 4.00% and 8.00%, respectively. At December 31, 1995
and 1994, the Bank's actual capital ratios exceeded minimum requirements.
13. CONCENTRATION OF CREDIT RISK
Practically all of the Bank's loans, commitments, and commercial and
standby letters of credit have been granted to customers in the Bank's
market area. Practically all such customers are depositors of the Bank.
Investment in state and municipal securities also include governmental
entities within the Bank's market area. The concentration of credit by
type of loan are set forth in Note 4.
At December 31, 1995, the Bank's cash included one commercial bank
deposit account aggregating $299,545.48 in excess of the Federal Deposit
Insurance Corporation limit of $100,000.00 per institution.
14. SHORT-TERM BORROWINGS
Securities sold under agreements to repurchase mature within 90 days from
the transaction date.
15. SUBSEQUENT EVENT
The Board of Directors of The National Bank of Carmi have agreed, subject
to regulatory and stockholder approval, to merge with Old National
Bancorp during 1996.
F-14
<PAGE>
APPENDIX A
----------
AGREEMENT OF AFFILIATION AND MERGER
THIS AGREEMENT OF AFFILIATION AND MERGER ("Agreement") is made and entered
into effective as of the 15th day of March, 1996, by and between OLD NATIONAL
BANCORP ("ONB") and THE NATIONAL BANK OF CARMI ("Carmi").
W I T N E S S E T H:
-------------------
WHEREAS, ONB is an Indiana corporation registered as a bank holding company
under the federal Bank Holding Company Act of 1956, as amended, with its
principal office located in Evansville, Vanderburgh County, Indiana; and
WHEREAS, Carmi is a national banking association organized under the laws
of the United States of America, with its principal office located in Carmi,
White County, Illinois; and
WHEREAS, it is the desire of ONB and Carmi to affiliate through a corporate
reorganization whereby Carmi will be merged with and into a yet-to-be-formed
national bank subsidiary of ONB, to be known as Carmi Merger Bank, N.A.
("Merger Bank"); and
WHEREAS, ONB will cause Merger Bank to be organized as its wholly-owned
national bank subsidiary and to become a party to this Agreement in accordance
with the First Amendment to this Agreement ("First Amendment"), the form of
which is attached hereto as Exhibit A; and
WHEREAS, a majority of the entire Board of Directors of ONB and Carmi,
respectively, has approved this Agreement, authorized its execution and
designated this Agreement a plan of reorganization and a plan of merger.
NOW, THEREFORE, in consideration of the foregoing premises, the
representations, warranties, covenants and agreements herein contained and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, ONB and Carmi hereby make this Agreement and prescribe the terms
and conditions of the affiliation of Carmi and ONB and the mode of carrying such
merger into effect as follows:
SECTION 1
THE MERGER
----------
1.01. General Description. Upon the terms and subject to the conditions
of this Agreement, at the Effective Time (as defined in Section 10 hereof) Carmi
shall be merged with and into and under the Articles of Association of Merger
Bank ("Merger"). Merger Bank shall survive the Merger ("Surviving Bank") and
shall continue its corporate existence under the laws of the United States of
America pursuant to the provisions of and with the effect provided in the
National Bank Act, as amended, and particularly 12 U.S.C. (S)215a, as amended.
Upon consummation of the Merger, Merger Bank shall continue as a wholly-owned
subsidiary of ONB.
A-1
<PAGE>
1.02. Name, Offices and Management. The name of the Surviving Bank shall
be changed to "The National Bank of Carmi." Its principal office shall be
located at 116 West Main Street, Carmi, Illinois 62821-0160. The Board of
Directors of the Surviving Bank shall consist of the Board of Directors of Carmi
serving at the Effective Time, until such time as their successors shall have
been duly elected and have qualified. The officers of the Surviving Bank shall
consist of the officers of Carmi serving at the Effective Time, until such time
as their successors shall have been duly elected and have qualified.
1.03. Capital Structure. The capital of the Surviving Bank shall be not
less than the capital of Carmi immediately prior to the Effective Time.
1.04. Articles of Association and By-Laws. The Articles of Association
and By-Laws of Merger Bank in existence at the Effective Time, except as amended
hereby to reflect the name of the Surviving Bank in accordance with Section 2.02
hereof, shall remain the Articles of Association and By-Laws of the Surviving
Bank until such Articles of Association and By-Laws shall be further amended as
provided by applicable law.
1.05. Assets and Liabilities. At the Effective Time, the title to all
assets, real estate and other property owned by Carmi and Merger Bank shall vest
in the Surviving Bank without reversion or impairment. At the Effective Time,
all liabilities of Carmi and Merger Bank shall be assumed by the Surviving Bank.
1.06. Tax-Free Reorganization. ONB and Carmi intend for the Merger to
qualify as a reorganization within the meaning of Section 368 and related
sections of the Internal Revenue Code of 1986, as amended ("Code"), and for the
Merger to be accounted for as a pooling-of-interest transaction. ONB and Carmi
agree to cooperate and to take such action as may be reasonably necessary to
achieve such results.
SECTION 2
MANNER AND BASIS
OF EXCHANGE OF STOCK
--------------------
2.01. Exchange Ratio. (a) Upon and by virtue of the Merger becoming
effective at the Effective Time, each issued and outstanding share of Carmi
Common Stock (as defined in Section 4.03 hereof) shall be converted into the
right to receive three and 885/1000 (3.885) shares of ONB common stock
("Exchange Ratio"), subject to adjustment, if any, pursuant to the provisions of
this Section 2.01 and Section 2.03 hereof.
(b) If the Average Price Per Share (as hereinafter defined) of ONB
common stock is greater than $35.75 or less than $29.25, then the Exchange Ratio
shall be adjusted prior to the Effective Time as provided by Section 2.01(c)
hereof.
(c) The Average Price Per Share of ONB common stock shall mean and be
calculated based upon the average of the per share closing prices of ONB common
stock as reported on the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") National Market System for the first five (5)
business days on which trades of shares of ONB common stock are reported on
NASDAQ within the ten (10) calendar days immediately preceding the Effective
A-2
<PAGE>
Time ("Average Price Per Share"). The adjustment contemplated by Section
2.01(b) hereof shall be applied in the following manner: (i) if the Average
Price Per Share of ONB common stock exceeds $35.75, then the Exchange Ratio
shall be adjusted such that each share of Carmi Common Stock shall be converted
into the number of shares of ONB common stock resulting from the following
formula: $126.72 / ($32.50 + (Average Price Per Share - $35.75)); (ii) if the
Average Price Per Share of ONB common stock is less than $29.25, then the
Exchange Ratio shall be adjusted such that each share of Carmi Common Stock
shall be converted into the number of shares of ONB common stock resulting from
the following formula: $126.72 / ($32.50 - ($29.25 - Average Price Per Share));
and (iii) if the Average Price Per Share of ONB common stock is not less than
$29.25 nor more than $35.75, then there shall be no adjustment to the Exchange
Ratio.
(d) The Exchange Ratio set forth herein and the market values of ONB
common stock referenced in (b) and (c) hereof have been adjusted to reflect the
five percent (5%) stock dividend declared by ONB on December 15, 1995 and
payable on February 20, 1996. No further adjustment therefor shall be made as
provided in Section 2.03 hereof with respect to such stock dividend.
2.02. No Fractional Shares. Certificates for fractional shares of ONB
common stock shall not be issued for fractional interests resulting from
application of the Exchange Ratio. Each shareholder of Carmi who would
otherwise have been entitled to a fraction of a share of ONB common stock shall
be paid in cash following the Effective Time an amount equal to such fraction
multiplied by the Average Price Per Share of ONB common stock.
2.03. Recapitalization. If, between the date of this Agreement and the
Effective Time, the record date occurs for the distribution or issuance by ONB
of a stock dividend with respect to its shares of common stock, or the
combination, subdivision, reclassification or split of ONB's issued and
outstanding shares of common stock, such that the number of issued and
outstanding shares of ONB common stock is increased or decreased, then the
Exchange Ratio shall be adjusted so that Carmi's shareholders shall receive, in
the aggregate, such number of shares of ONB common stock representing the same
percentage of outstanding shares of ONB common stock at the Effective Time as
would have been represented by the number of shares such shareholders would have
received if any of the foregoing actions had not occurred.
2.04. Distribution of ONB Common Stock and Cash. (a) Following the
Effective Time and within twenty (20) days thereof, ONB shall mail to each Carmi
shareholder a letter of transmittal providing instructions as to the transmittal
to ONB of certificates representing shares of Carmi Common Stock and the
issuance of shares of ONB common stock in exchange therefor pursuant to the
terms of this Agreement.
(b) Following the Effective Time, distribution of stock certificates
representing shares of ONB common stock and any cash payment, without interest,
for fractional shares, if any, shall be made by ONB to each former shareholder
of Carmi within twenty (20) business days following delivery to ONB of the
shareholder's certificate(s) representing its shares of Carmi Common Stock
accompanied by a properly completed and executed letter of transmittal, all in
form and substance reasonably satisfactory to ONB.
(c) Following the Effective Time, stock certificates representing shares
of Carmi Common Stock shall be deemed to evidence ownership of ONB common stock
for all corporate purposes other than the payment of dividends or other
distributions. No dividends or other
A-3
<PAGE>
distributions otherwise payable subsequent to the Effective Time on shares of
ONB common stock shall be paid to any Carmi shareholder entitled to receive the
same until such shareholder has surrendered to ONB his or her certificate or
certificates representing Carmi Common Stock in exchange for a certificate or
certificates representing ONB common stock. Upon surrender of the certificates
representing shares of Carmi Common Stock, there shall be paid in cash to the
record holder of the new certificate or certificates evidencing shares of ONB
common stock the amount of all dividends and other distributions, without
interest thereon, withheld with respect to such shares of ONB common stock.
(d) ONB shall be entitled to rely upon the stock transfer books of Carmi
to establish the persons entitled to receive shares of ONB common stock pursuant
to this Agreement, which books shall be conclusive with respect to the ownership
of shares of Carmi Common Stock.
(e) With respect to any certificate for shares of Carmi Common Stock
which has been lost, stolen or destroyed, ONB shall be authorized to issue
common stock (or to pay cash as to fractional shares) to the registered owner of
such certificate upon receipt by ONB of an agreement to indemnify ONB against
loss from such lost, stolen or destroyed certificate and an affidavit of lost,
stolen or destroyed stock certificate, both in form and substance reasonably
satisfactory to ONB, and upon compliance by the Carmi shareholder with all other
reasonable requirements of ONB in connection with lost, stolen or destroyed
stock certificates.
SECTION 3
DISSENTING SHAREHOLDERS
-----------------------
Shareholders of Carmi who properly exercise and perfect statutory
dissenters' rights shall have the rights accorded to dissenting shareholders
under 12 U.S.C. (S)215a, as amended.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF CARMI
---------------------------------------
Carmi hereby represents and warrants to ONB with respect to itself and
First National Insurance Agency, Inc. ("Insurance Agency"), a Delaware
corporation and a wholly-owned subsidiary of Carmi, as follows:
4.01. Organization and Authority. (a) Carmi is a national banking
association duly organized and validly existing under the laws of the United
States of America. Carmi has full power and authority (corporate and otherwise)
to own and lease its properties as presently owned and leased and to conduct its
business in the manner and by the means utilized as of the date hereof. Except
as set forth in the Disclosure Schedule (for purposes of this Agreement,
"Disclosure Schedule" shall mean the schedules referencing the applicable
provisions of this Section 4 which are attached hereto and made a part of this
Agreement), Carmi has no subsidiaries and owns no voting stock or equity
securities of any corporation, partnership, association or other entity, other
than all of the issued and outstanding common stock of Insurance Agency. Carmi
is subject to primary federal regulatory supervision and examination by the
United States Office of the Comptroller of the Currency ("OCC"). Carmi does not
have a class of stock registered pursuant
A-4
<PAGE>
to Section 12, and is not subject to the reporting requirements, of the
Securities Exchange Act of 1934, as amended ("1934 Act").
(b) Insurance Agency is a corporation duly organized and validly
existing under the laws of the State of Delaware. Insurance Agency has full
power and authority (corporate and otherwise) to own and lease its properties as
presently owned and leased and to conduct its business in the manner and by the
means utilized as of the date hereof. Insurance Agency has no subsidiaries and
owns no voting stock or equity securities of any corporation, partnership,
association or other entity.
4.02. Authorization. (a) Carmi has the requisite corporate power and
authority to enter into this Agreement and to perform its obligations hereunder,
subject to the fulfillment of the conditions precedent set forth in Section 8.02
hereof. This Agreement and its execution and delivery by Carmi have been duly
authorized and approved by the Board of Directors of Carmi and constitutes a
valid and binding obligation of Carmi, subject to the fulfillment of the
conditions precedent set forth in Section 8.02 hereof, and is enforceable in
accordance with its terms, except to the extent limited by general principles of
equity and public policy and by bankruptcy, insolvency, fraudulent transfer,
reorganization, liquidation, moratorium, readjustment of debt or other laws of
general application relating to or affecting the enforcement of creditors'
rights.
(b) Neither the execution of this Agreement nor consummation of the
Merger contemplated hereby: (i) conflicts with or violates Carmi's Articles of
Association or By-Laws or Insurance Agency's Certificate of Incorporation or By-
Laws; (ii) conflicts with or violates any local, state, federal or foreign law,
statute, ordinance, rule or regulation (provided that the approvals of or
filings with applicable government regulatory agencies or authorities required
for consummation of the Merger are obtained) or any court or administrative
judgment, order, injunction, writ or decree; (iii) conflicts with, results in a
breach of or constitutes a default under any note, bond, indenture, mortgage,
deed of trust, license, lease, contract, agreement, arrangement, commitment or
other instrument to which Carmi or Insurance Agency is a party or by which Carmi
or Insurance Agency is subject or bound; (iv) results in the creation of or
gives any person, corporation or entity the right to create any lien, charge,
claim, encumbrance or security interest, or results in the creation of any other
rights or claims of any other party or any other adverse interest, upon any
right, property or asset of Carmi or Insurance Agency which would be material to
Carmi; or (v) terminates or gives any person, corporation or entity the right to
terminate, accelerate, amend, modify or refuse to perform under any note, bond,
indenture, mortgage, agreement, contract, lease, license, arrangement, deed of
trust, commitment or other instrument to which Carmi or Insurance Agency is
bound or with respect to which Carmi or Insurance Agency is to perform any
duties or obligations or receive any rights or benefits.
(c) Other than in connection or in compliance with the provisions of the
applicable federal and state banking, securities, insurance and corporation
statutes, all as amended, and the rules and regulations promulgated thereunder,
and except as set forth herein, to the best knowledge of Carmi after due inquiry
with respect to itself no notice to, filing with, exemption by or consent,
authorization or approval of any governmental agency or body is necessary for
consummation of the Merger by Carmi.
4.03. Capitalization. (a) The authorized capital stock of Carmi presently
consists and at the Effective Time will consist, of 100,000 shares of common
stock, $10 par value per share, all
A-5
<PAGE>
of which shares are issued and outstanding (such issued and outstanding shares
are referred to herein as "Carmi Common Stock"). Such issued and outstanding
shares of Carmi Common Stock have been duly and validly authorized by all
necessary corporate action of Carmi, are validly issued, fully paid and
nonassessable (except to the extent provided by 12 U.S.C. (S)55, as amended) and
have not been issued in violation of any pre-emptive rights of any present or
former Carmi shareholder. Carmi has no common stock authorized, issued or
outstanding other than as described in this Section 4.03(a) and has no intention
or obligation to authorize or issue any other capital stock or any additional
shares of Carmi Common Stock. On a consolidated basis as of December 31, 1995,
Carmi had total capital of approximately $8,031,574, which consisted of common
stock of $1,000,000, capital surplus of $1,000,000 and undivided profits of
$6,031,574, including unrealized gains or losses on available-for-sale
securities. Each share of Carmi Common Stock is entitled to one vote per share.
A description of the Carmi Common Stock is contained in the Articles of
Association of Carmi, as amended, as set forth in the Disclosure Schedule
pursuant to Section 4.04 hereof.
(b) The authorized common stock of Insurance Agency presently consists
and at the Effective Time will consist, of 10,000 shares of common stock, $1.00
par value per share (hereinafter referred to as "Insurance Agency Common
Stock"), 1,500 of which shares are outstanding and validly issued to Carmi and
8,500 shares of which are authorized but unissued. Such issued and outstanding
shares of Insurance Agency Common Stock have been duly and validly authorized by
all necessary corporate action of Insurance Agency, are validly issued, fully
paid and nonassessable and have not been issued in violation of any pre-emptive
rights of any present or former Insurance Agency shareholders. Insurance Agency
has no common stock authorized other than as described in this Section 4.03(b)
and has no intention or obligation to authorize or issue any other capital stock
or any additional shares of Insurance Agency Common Stock. All of the issued and
outstanding shares of Insurance Agency Common Stock are owned by Carmi free and
clear of all liens, pledges, charges, claims, encumbrances, restrictions,
security interests, options and pre-emptive rights and of all other rights or
claims of any other person, corporation or entity with respect thereto.
Insurance Agency has no assets or liabilities and engages in no business
operations.
(c) There are no options, warrants, commitments, calls, puts,
agreements, understandings, arrangements or subscription rights relating to any
shares of Carmi Common Stock, or any securities convertible into or representing
the right to purchase or otherwise acquire any common stock or debt securities
of Carmi, by which Carmi is or may become bound. Carmi does not have any
outstanding contractual or other obligation to repurchase, redeem or otherwise
acquire any of the issued and outstanding shares of Carmi Common Stock.
(d) There are no options, warrants, commitments, calls, puts,
agreements, understandings, arrangements or subscription rights relating to any
capital stock, or any securities convertible into or representing the right to
purchase or otherwise acquire any capital stock or debt securities, of Insurance
Agency by which Carmi or Insurance Agency is or may become bound. Insurance
Agency does not have any outstanding contractual or other obligation to
repurchase, redeem or otherwise acquire any of the issued and outstanding shares
of Insurance Agency Common Stock.
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(e) Except as set forth in the Disclosure Schedule, Carmi has no
knowledge of any person who beneficially owns 5% or more of the issued and
outstanding shares of Carmi Common Stock.
4.04. Organizational Documents. The Articles of Association and By-Laws
of Carmi and the Certificate of Incorporation and By-Laws of Insurance Agency,
representing true, accurate and complete copies of such corporate documents of
Carmi and Insurance Agency in effect as of the date of this Agreement, have been
delivered to ONB and are included in the Disclosure Schedule.
4.05. Compliance with Law. (a) Except as set forth in the Disclosure
Schedule, neither Carmi nor Insurance Agency has engaged in any activity or has
taken or omitted to take any action which has resulted in the violation of any
local, state, federal or foreign law, statute, regulation, rule, ordinance,
order, restriction or requirement nor is it in violation of any order,
injunction, judgment, writ or decree of any court or government agency or body,
the violation of which would reasonably be expected to have an adverse effect on
the financial condition, results of operations, business, assets or capital of
Carmi on a consolidated basis. To the best of their knowledge after due
inquiry, each of Carmi and Insurance Agency possesses and holds all licenses,
franchises, permits, certificates and other authorizations necessary for the
continued conduct of its business without interference or interruption, and such
licenses, franchises, permits, certificates and authorizations are transferable
to the Surviving Bank, as applicable, at the Effective Time without any
restrictions or limitations thereon or the need to obtain any consents of
government agencies or other third parties other than as set forth in this
Agreement.
(b) All agreements, understandings and commitments with, and all orders
and directives of, all government regulatory agencies or authorities with
respect to the financial condition, results of operations, business, assets or
capital of Carmi or Insurance Agency which presently are binding upon or require
action by, or at any time during the last five (5) years have been binding upon
or have required action by, Carmi or Insurance Agency including, without
limitation, all correspondence, communications and commitments related thereto,
are set forth in the Disclosure Schedule. Except as set forth in the Disclosure
Schedule, there are no uncured violations, or violations with respect to which
refunds or restitutions may be required, cited in any examination report of
Carmi or Insurance Agency as a result of an examination by any regulatory agency
or body, or set forth in any accountant's, auditor's or other report to Carmi or
Insurance Agency.
(c) All of the existing offices and branches of Carmi have been legally
authorized and established in accordance with all applicable federal, state and
local laws, statutes, regulations, rules, ordinances, orders, restrictions and
requirements. Carmi has no approved but unopened offices or branches.
4.06. Accuracy of Statements Made and Materials Provided to ONB. (a) No
representation, warranty or other statement made, or any information provided,
by Carmi in this Agreement, the Disclosure Schedule (and any update thereto) and
no written report, statement, list, certificate, materials or other information
furnished or to be furnished by Carmi or Insurance Agency to ONB through and
including the Effective Time in connection with this Agreement or the Merger
contemplated hereby (including, without limitation, any written information
which has been or shall be supplied by Carmi or Insurance Agency with respect to
its financial condition, results of operations, business, assets, capital or
directors and officers for inclusion in the proxy statement-prospectus and
registration statement relating to the Merger), contains or shall contain (in
the case
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of information relating to the proxy statement-prospectus at the time it is
mailed to Carmi's shareholders) any untrue or misleading statement of material
fact or omits or shall omit to state a material fact necessary to make the
statements contained herein or therein, in light of the circumstances in which
they are made, not false or misleading.
(b) Any materials or information provided by Carmi or Insurance Agency
to ONB for use by ONB in any filing with any state or federal regulatory agency
or authority shall not contain any untrue or misleading statement of material
fact or shall omit to state a material fact necessary to make the statements
contained therein, in light of the circumstances in which they are made, not
false or misleading.
4.07. Litigation and Pending Proceedings. (a) Except as set forth in the
Disclosure Schedule, there are no claims, actions, suits, proceedings,
arbitrations or investigations pending or, to the best knowledge of Carmi or
Insurance Agency after due inquiry, threatened in any court or before any
government agency or authority, arbitration panel or otherwise (nor does Carmi
or Insurance Agency have any knowledge of a basis for any claim, action, suit,
proceeding, litigation, arbitration or investigation) against, by or affecting
Carmi or Insurance Agency which would reasonably be expected to have a material
adverse effect on the financial condition, results of operations, business,
assets or capital of Carmi on a consolidated basis, or which would prevent the
performance of this Agreement, declare the same unlawful or cause the rescission
hereof.
(b) Except as set forth in the Disclosure Schedule, neither Carmi nor
Insurance Agency is: (i) subject to any outstanding judgment, order, writ,
injunction or decree of any court, arbitration panel or governmental agency or
authority; (ii) presently charged with or, to the best knowledge of Carmi and
Insurance Agency, under governmental investigation with respect to any actual or
alleged violations of any law, statute, rule, regulation or ordinance: or (iii)
the subject of any pending or, to the best knowledge of Carmi or Insurance
Agency after due inquiry, threatened proceeding by any government regulatory
agency or authority having jurisdiction over its business, assets, capital,
properties or operations.
4.08. Financial Statements and Reports. Carmi has delivered to ONB copies
of the following financial statements and reports of Carmi and Insurance Agency,
including the notes thereto (collectively, the "Carmi Financial Statements"):
(a) Consolidated Balance Sheets and the related Statements of Income and
Statements of Changes in Shareholders' Equity of Carmi as of and for the years
ended December 31, 1993, 1994 and 1995;
(b) Consolidated Statements of Cash Flows of Carmi for the years ended
December 31, 1993, 1994 and 1995;
(c) Consolidated Statements of Changes in Financial Position of Carmi
for the years ended December 31, 1994 and 1995; and
(d) Reports of Condition and Income ("Call Reports") for Carmi as of the
close of business on December 31, 1992, 1993, 1994 and 1995.
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The Carmi Financial Statements are true, accurate and complete in all
material respects and present fairly the financial position of Carmi and
Insurance Agency as of and at the dates shown and the results of operations for
the periods covered thereby. The Carmi Financial Statements described in
clauses (a), (b) and (c) above are audited financial statements and have been
prepared in conformance with generally accepted accounting principles applied on
a consistent basis, except as may otherwise be indicated in any accountants'
notes or reports with respect to such financial statements. The Carmi Financial
Statements do not include any assets, liabilities or obligations or omit to
state any assets, liabilities or obligations, absolute or contingent, or any
other facts which inclusion or omission would render any of the Carmi Financial
Statements false, misleading or inaccurate in any material respect.
4.09. Properties, Contracts, Employees and Other Agreements. (a) Set
forth in the Disclosure Schedule are a true, accurate and complete copy of the
following:
(i) A brief description and the location of all real property owned by
Carmi or Insurance Agency and the principal buildings and structures
located thereon, together with a legal description of such real
property, and each lease of real property to which Carmi or
Insurance Agency is a party, identifying the parties thereto, the
annual rental payable, the expiration date of the lease and a brief
description of the property covered;
(ii) All conditional sales contracts or other title retention agreements
relating to Carmi or Insurance Agency and agreements for the
purchase of federal funds;
(iii) All agreements, contracts, leases, licenses, lines of credit,
understandings, commitments or obligations of Carmi or Insurance
Agency which individually or in the aggregate:
(A) involve payment or receipt by Carmi or Insurance Agency (other
than as disbursements of loan proceeds to customers or loan
payments by customers) of more than $10,000;
(B) involve payments based on profits of Carmi or Insurance Agency;
(C) relate to the purchase of goods, products, supplies or services
in excess of $10,000;
(D) were not made in the ordinary course of business; or
(E) may not be terminated without penalty within one (1) year from
the date of this Agreement; and
(iv) The name and current annual salary of each director, officer and
employee of Carmi whose current annual salary from Carmi or
Insurance Agency is in excess of $50,000, and the profit sharing,
bonus or other form of compensation (other than salary) paid or
payable by Carmi or Insurance Agency to or for the benefit of each
such person for the year ended December 31, 1995, and any
employment, severance
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or deferred compensation agreement or arrangement with respect to
each such person.
(b) Carmi has, prior to the date of this Agreement, provided or given
access to ONB to the files and documentation of all borrowers of Carmi, or
persons or entities that are or may become obligated to Carmi under an existing
letter of credit, line of credit, loan transaction, loan agreement, promissory
note or other commitment of Carmi, in excess of $10,000 individually or in the
aggregate, whether in principal, interest or otherwise, and including all
guarantors of such indebtedness.
(c) To the best knowledge of Carmi and Insurance Agency after due
inquiry, each of the agreements, contracts, commitments, leases, instruments and
documents set forth in the Disclosure Schedule relating to this Section 4.09 is
valid and enforceable in accordance with its terms. Carmi and Insurance Agency
are, and to their best knowledge after due inquiry, all other parties thereto
are, in material compliance with the provisions thereof, and Carmi and Insurance
Agency are not, and to their best knowledge after due inquiry no other party
thereto is, in default in the performance, observance or fulfillment of any
material obligation, covenant or provision contained therein. None of the
foregoing requires the consent of any party to its assignment in connection with
the Merger contemplated by this Agreement. Other than as disclosed pursuant to
this Section 4.09, to the best knowledge of Carmi and Insurance Agency after due
inquiry, no circumstances exist resulting from transactions effected or to be
effected, from events which have occurred or may occur or from any action taken
or omitted to be taken which could reasonably be expected to result in the
creation of any agreement, contract, obligation, commitment, arrangement, lease
or document described in or contemplated by this Section 4.09.
4.10. Absence of Undisclosed Liabilities. Except as set forth in the
Disclosure Schedule, except as provided in the Carmi Financial Statements,
except for unfunded loan commitments and obligations on letters of credit to
customers of Carmi, except for obligations and expenses of Carmi and Insurance
Agency related to the Merger and except for trade payables incurred in the
ordinary course of business, Carmi and Insurance Agency have not, nor will have
at the Effective Time, any obligation, agreement, contract, commitment,
liability, lease or license which exceeds $10,000 individually, or any
obligation, agreement, contract, commitment, liability, lease or license made
outside of the ordinary course of business, nor does there exist any
circumstances resulting from transactions effected or events occurring on or
prior to the date of this Agreement or from any action omitted to be taken
during such period which could reasonably be expected to result in any such
obligation, agreement, contract, commitment, liability, lease or license.
4.11. Title to Assets. Except as described in this Section 4.11: (a)
Carmi or Insurance Agency, as the case may be, has good and marketable title in
fee simple absolute to all real property (including, without limitation, all
real property used as bank premises and all other real estate owned) which is
reflected in the Carmi Financial Statements as of December 31, 1995; good and
marketable title to all personal property reflected in the Carmi Financial
Statements as of December 31, 1995, other than personal property disposed of in
the ordinary course of business since December 31, 1995; good and marketable
title to or right to use by valid and enforceable lease or contract all other
properties and assets (whether real or personal, tangible or intangible) which
Carmi or Insurance Agency purports to own or which Carmi or Insurance Agency
uses in their respective businesses; good and marketable title to, or right to
use by terms of a valid and enforceable lease or contract all other property
used in Carmi's or Insurance Agency's business; and
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good and marketable title to all property and assets acquired and not disposed
of or leased since December 31, 1995. All of such properties and assets are
owned by Carmi or Insurance Agency free and clear of all land or conditional
sales contracts, mortgages, liens, pledges, restrictions, security interests,
charges, claims, rights of third parties or encumbrances of any nature except:
(i) as set forth in the Disclosure Schedule; (ii) as specifically noted in
reasonable detail in the Carmi Financial Statements; (iii) statutory liens for
taxes not yet delinquent or being contested in good faith by appropriate
proceedings; (iv) pledges or liens required to be granted in connection with the
acceptance of government deposits or granted in connection with repurchase or
reverse repurchase agreements; and (v) easements, encumbrances and liens of
record, imperfections of title and other limitations which are not material in
amounts to Carmi or Insurance Agency and which do not materially detract from
the value or materially interfere with the present or contemplated use of any of
the properties subject thereto or otherwise materially impair the use thereof
for the purposes for which they are held or used. All real property owned or
leased by Carmi or Insurance Agency is in material compliance with all
applicable zoning and land use laws.
(b) To the best knowledge of Carmi and Insurance Agency after due
inquiry, each has conducted its business in compliance with all federal, state,
county and municipal laws, statutes, regulations, rules, ordinances, orders,
directives, restrictions and requirements relating to, without limitation,
responsible property transfer, underground storage tanks, petroleum products,
air pollutants, water pollutants or storm water or process waste water or
otherwise relating to the environment or toxic or hazardous substances or to the
manufacturing, recycling, handling, processing, distribution, use, generation,
treatment, storage, disposal or transport of any hazardous or toxic substances
or petroleum products (including polychlorinated biphenyls, whether contained or
uncontained, and asbestos-containing materials, whether friable or not),
including, without limitation, the Federal Solid Waste Disposal Act, the
Hazardous and Solid Waste Amendments, the Federal Clean Air Act, the Federal
Clean Water Act, the Occupational Health and Safety Act, the Federal Resource
Conservation and Recovery Act, the Toxic Substances Control Act, the Federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980 and
the Superfund Amendments and Reauthorization Act of 1986, all as amended, and
regulations of the Environmental Protection Agency, the Nuclear Regulatory
Agency, the Army Corp of Engineers, the Department of Interior, the United
States Fish and Wildlife Service and any state department of natural resources
or state environmental protection agency now or at any time thereafter in effect
(collectively, "Environmental Laws"). There are no pending or, to the best
knowledge of Carmi and Insurance Agency after due inquiry, threatened claims,
actions or proceedings by any local municipality, sewage district or other
governmental entity against Carmi or Insurance Agency with respect to the
Environmental Laws, and, to the best knowledge of Carmi and Insurance Agency
after due inquiry, there is no basis or grounds for any such claim, action or
proceeding. No environmental clearances or other governmental approvals are
required for the conduct of the business of Carmi or Insurance Agency or the
consummation of the Merger contemplated hereby. Except as set forth in the
Disclosure Schedule, to the best of their knowledge after due inquiry, neither
Carmi nor Insurance Agency is the owner, and has not been in the chain of title
or the operator or lessee, of any property on which any substances have been
used, stored, deposited, treated, recycled or disposed of, which substances if
known to be present on, at or under such property would require clean-up,
removal or any other remedial action under any Environmental Law.
(c) Neither Carmi nor Insurance Agency: (i) is in default in any respect
under any agreements pursuant to which either leases real or personal property;
(ii) has any knowledge of any
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default under such agreements by any party thereto; and (iii) has any knowledge
of any event which, with notice or lapse of time or both, would constitute such
a default.
4.12. Loans and Investments. (a) Except as set forth in the Disclosure
Schedule, there is no loan by Carmi in excess of $10,000 that has been
classified by bank regulatory examiners or management of Carmi as "Other Loans
Specially Mentioned," "Substandard," "Doubtful" or "Loss" or in excess of
$10,000 that has been identified by accountants or auditors (internal or
external) as having a significant risk of uncollectability. The most recent
loan watch list of Carmi and a list of all loans in excess of $10,000 which
Carmi has determined to be thirty (30) days or more past due with respect to
principal or interest payments or has placed on nonaccrual status are set forth
in the Disclosure Schedule.
(b) All loans reflected in the Carmi Financial Statements as of December
31, 1995 and which have been made, extended, renewed, restructured, approved,
amended or acquired since December 31, 1995: (i) have been made for good,
valuable and adequate consideration in the ordinary course of business; (ii) to
the best knowledge of Carmi solely with respect to the authenticity of the
signatures of borrowers, obligors and guarantors thereon constitute the legal,
valid and binding obligation of the obligor and any guarantor named therein,
except to the extent limited by general principles of equity and public policy
or by bankruptcy, insolvency, fraudulent transfer, reorganization, liquidation,
moratorium, readjustment of debt or other laws of general application relative
to or affecting the enforcement of creditors' rights; (iii) are evidenced by
notes, instruments or other evidences of indebtedness which are true, genuine
and what they purport to be; and (iv) are secured, to the extent that Carmi has
a security interest in collateral or a mortgage securing such loans, by
perfected security interests or recorded mortgages naming Carmi as the secured
party or mortgagee.
(c) The reserves, the allowance for possible loan and lease losses and
the carrying value for real estate owned which are shown on the Carmi Financial
Statements are adequate in all material respects under the requirements of
generally accepted accounting principles applied on a consistent basis to
provide for possible losses on items for which reserves were made, on loans and
leases outstanding and real estate owned as of the respective dates. To the best
knowledge of Carmi after due inquiry, the aggregate loan balances outstanding as
of December 31, 1995 in excess of the reserve for loan losses as of such date
are collectible in accordance with their respective terms.
(d) Subject to the restrictions of Statement of Financial Accounting
Standards No. 115, none of the investments reflected in the Carmi Financial
Statements as of and for the period ended December 31, 1995 and none of the
investments made by Carmi since December 31, 1995 are subject to any
restriction, whether contractual or statutory, which materially impairs the
ability of Carmi to dispose freely of such investment at any time. Carmi is not
a party to any repurchase agreements with respect to securities.
(e) Set forth in the Disclosure Schedule is a true, accurate and
complete list of all loans in which Carmi has any participation interest or
which have been made with or through another financial institution on a recourse
basis against Carmi.
(f) Except as set forth in the Disclosure Schedule, and except for
customer deposits and ordinary trade payables, neither Carmi nor Insurance
Agency has, nor will have at the Effective Time, any indebtedness for borrowed
money.
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4.13. Shareholder Rights Plan. Except as otherwise provided in this
Agreement, the Disclosure Schedule, Carmi's Articles of Association and the
Employment Agreement (as defined in Section 6.12 hereof), Carmi has no
shareholder rights plan or any other plan, program or agreement involving,
restricting, prohibiting or discouraging a change in control or merger of Carmi
or which may be considered an anti-takeover mechanism.
4.14. Employee Benefit Plans. (a) With respect to the employee benefit
plans, as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), sponsored or otherwise maintained by Carmi or
Insurance Agency, whether written or oral; in which Carmi or Insurance Agency
participates as a participating employer; to which Carmi or Insurance Agency
contributes; with respect to which Carmi or Insurance Agency acts as
administrator, trustee or fiduciary; whether written or oral; and including any
such plans which have been terminated, merged into another plan, frozen or
discontinued (collectively, "Carmi Plans"): (i) all such Carmi Plans have, on a
continuous basis since their adoption, been maintained in compliance with the
requirements prescribed by all applicable statutes, orders and governmental
rules or regulations, including, without limitation, ERISA, the Internal Revenue
Code of 1986, as amended ("Code"), and the Department of Labor ("Department")
and Treasury Regulations promulgated thereunder, the breach of which would
reasonably be expected to have a material adverse effect on the financial
condition, results of operations, business, assets or capital of Carmi on a
consolidated basis; (ii) all Carmi Plans intended to constitute tax-qualified
plans under Section 401(a) of the Code have complied since their adoption or
have been amended to comply in all material respects with all applicable
requirements of the Code and the Treasury Regulations promulgated thereunder,
and favorable determination letters have been timely received from the Internal
Revenue Service ("Service") with respect to each such Carmi Plan stating that
each, in its current form (or at the time of its disposition if it has been
terminated, merged, frozen or discontinued), is qualified under and satisfies
all applicable provisions of the Code and Treasury Regulations; (iii) except as
set forth on the Disclosure Schedule, no Carmi Plan (or its related trust) holds
any stock or other securities of Carmi or any related or affiliated person or
entity; (iv) neither Carmi nor Insurance Agency has any liability to the
Department or the Service with respect to any Carmi Plan; (v) neither Carmi nor
Insurance Agency has engaged in any transaction that may subject Carmi or
Insurance Agency, or any Carmi Plan, to a civil penalty imposed by Section 502
of ERISA; (vi) no prohibited transaction (as defined in Section 406 of ERISA and
as defined in Section 4975(c) of the Code) has occurred with respect to any
Carmi Plan; (vii) each Carmi Plan subject to ERISA or intended to be qualified
under Section 401(a) of the Code has been and, if applicable, is being operated
in all material respects in accordance with the applicable provisions of ERISA
and the Code and the Department and Treasury Regulations promulgated thereunder;
(viii) no participant or beneficiary or non-participating employee has been
denied any benefit due or to become due under any Carmi Plan or has been misled
as to his or her rights under any Carmi Plan; (ix) all obligations required to
be performed by Carmi under any provision of a Carmi Plan have been performed by
them in all material respects and they are not in default under or in violation
of in any material respect any provision of a Carmi Plan; (x) no event has, to
the best knowledge of Carmi and Insurance Agency after due inquiry, occurred
which would constitute grounds for an enforcement action by any party under Part
5 of Title I of ERISA under any Carmi Plan; (xi) there are no actions, suits,
proceedings or claims pending (other than routine claims for benefits) or, to
the best knowledge of Carmi and Insurance Agency after due inquiry, threatened,
against Carmi or Insurance Agency, any Carmi Plan or the assets of any Carmi
Plan; and (xii) with respect to any Carmi Plan sponsored, participated in or
contributed to by Carmi or Insurance Agency or with respect to which Carmi or
Insurance Agency is responsible for complying with the
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reporting and disclosure requirements of ERISA or the Code, there has been, to
the best knowledge of Carmi and Insurance Agency after due inquiry, no violation
of the reporting and disclosure requirements imposed either under ERISA or the
Code for which a penalty has been or may be imposed.
(b) With regard to any Carmi Plan intended to be qualified under Section
401(a) of the Code, no director, officer, employee or agent of Carmi or
Insurance Agency has engaged in any action or failed to act in such a manner
that, as a result of such action or failure to act, the Service could revoke or
deny that plan's qualification under Section 401(a) of the Code or the exemption
under Section 501(a) of the Code for any trust related to such Plan.
(c) Carmi and Insurance Agency have provided to ONB in the Disclosure
Schedule true, accurate and complete copies, and, in the case of any plan or
program which has not been reduced to writing, a complete summary, of all of the
following (including all plans and programs which have been terminated): (i)
pension, retirement, profit-sharing, savings, stock purchase, stock bonus, stock
ownership, stock option and stock appreciation right plans and all summary plan
amendments thereto and all summary plan descriptions thereof (including any
modifications thereto); (ii) all employment, deferred compensation (whether
funded or unfunded), salary continuation, consulting, bonus, severance and
collective bargaining agreements, arrangements or understanding; (iii) all
executive and other incentive compensation plans, programs and agreements; (iv)
all group insurance and health contracts, policies or plans; and (v) all other
incentive, welfare or employee benefit plans, understandings, arrangements or
agreements, maintained or sponsored, participated in, or contributed to by Carmi
or Insurance Agency for its current or former directors, officers or employees.
(d) Except as set forth on the Disclosure Schedule, no current or former
director, officer or employee of Carmi or Insurance Agency is entitled to any
benefit under any welfare benefit plans (as defined in Section 3(1) of ERISA)
after termination of employment with Carmi or Insurance Agency, except that such
individuals may be entitled to continue their group health care coverage
pursuant to Section 4980B of the Code if they pay the cost of such coverage
pursuant to the applicable requirements of the Code with respect thereto.
(e) With respect to any group health plan (as defined in Section 607(1)
of ERISA) sponsored or maintained by Carmi or Insurance Agency, in which Carmi
or Insurance Agency participates as a participating employer or to which Carmi
or Insurance Agency contributes, no director, officer, employee or agent of
Carmi or Insurance Agency has engaged in any action or failed to act in such a
manner that, as a result of such action or failure to act, would cause a tax to
be imposed on Carmi or Insurance Agency under Code Section 4980B(a). With
respect to all such plans, all applicable provisions of Section 4980B of the
Code and Section 601 of ERISA have been complied with in all material respects
by Carmi and Insurance Agency.
(f) Except as otherwise provided in the Disclosure Schedule, there are
no collective bargaining, employment, management, consulting, deferred
compensation, reimbursement, indemnity, retirement, early retirement, severance
or similar plans or agreements, commitments or understandings, or any employee
benefit or retirement plan or agreement, binding upon Carmi or Insurance Agency
and no such agreement, commitment, understanding or plan is under discussion or
negotiation by management with any employee or group of employees, any member of
management or any other person.
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4.15. Obligations to Employees. All accrued obligations and liabilities
of and all payments by Carmi, Insurance Agency and all Carmi Plans, whether
arising by operation of law, by contract or by past custom, for payments to
trusts or other funds, to any government agency or authority or to any present
or former director, officer, employee or agent (or his or her heirs, legatees or
legal representatives) have been and are being paid to the extent required by
applicable law or by the plan, trust, contract or past custom or practice, and
adequate actuarial accruals and reserves for such payments have been and are
being made by Carmi or Insurance Agency in accordance with generally accepted
accounting principles and applicable law applied on a consistent basis and
actuarial methods with respect to the following: (a) withholding taxes,
unemployment compensation or social security benefits; (b) all pension, profit-
sharing, savings, stock purchase, stock bonus, stock ownership, stock option and
stock appreciation rights plans and agreements; (c) all employment, deferred
compensation (whether funded or unfunded), salary continuation, consulting,
retirement, early retirement, severance, reimbursement, bonus or collective
bargaining plans and agreements; (d) all executive and other incentive
compensation plans, programs, or agreements; (e) all group insurance and health
contracts, policies and plans; and (f) all other incentive, welfare, retirement
or employee benefit plans or agreements maintained or sponsored, participated
in, or contributed to Carmi or Insurance Agency for its current or former
directors, officers, employees and agents, including, without limitation, all
liabilities and obligations to the Carmi Plans (as defined in Section 4.14(a)
hereof). All obligations and liabilities of Carmi or Insurance Agency, whether
arising by operation of law, by contract or by past custom or practice, for all
other forms of compensation which are or may be payable to their current or
former directors, officers, employees or agents have been and are being paid to
the extent required by applicable law or by the plan or contract, and adequate
actuarial accruals and reserves for payment therefor have been and are being
made by Carmi or Insurance Agency in accordance with generally accepted
accounting and actuarial principles applied on a consistent basis. All accruals
and reserves referred to in this Section 4.15 are correctly and accurately
reflected and accounted for in all material respects in the Carmi Financial
Statements and the books, statements and records of Carmi.
4.16. Taxes, Returns and Reports. Except as set forth in the Disclosure
Schedule, Carmi and Insurance Agency have since 1993 (a) duly filed all federal,
state, local and foreign tax returns of every type and kind required to be
filed, and each such return is, to the best knowledge of Carmi and Insurance
Agency after due inquiry, true, accurate and complete in all material respects;
(b) paid all taxes, assessments and other governmental charges due or claimed to
be due upon each of them or any of its income, properties or assets; and (c) not
requested an extension of time for any such payments (which extension is still
in force). Except for taxes not yet due and payable, the reserve for taxes in
the Carmi Financial Statements as of December 31, 1995 is adequate to cover all
of Carmi's and Insurance Agency's tax liabilities (including, without
limitation, income taxes and franchise fees) that may become payable in future
years with respect to any transactions consummated prior to December 31, 1995.
Neither Carmi nor Insurance Agency has, nor will have, any liability for taxes
of any nature for or with respect to the operation of its respective businesses,
including the business of any subsidiary, or ownership of their assets,
including the assets of any subsidiary, from the date hereof up to and including
the Effective Time, except to the extent set forth in the Subsequent Carmi
Financial Statements (as hereinafter defined). Neither Carmi nor Insurance
Agency is currently under audit by any state or federal taxing authority. Other
than an audit by the Internal Revenue Service for the 1991 and 1992 tax years,
no federal, state or local tax returns of Carmi or Insurance Agency have been
audited by any taxing authority during the past five (5) years.
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4.17. Deposit Insurance. The deposits of Carmi are insured by the FDIC in
accordance with the Federal Deposit Insurance Act, as amended, and Carmi has
paid or properly reserved or accrued for all current premiums and assessments
with respect to such deposit insurance.
4.18. Insurance. Set forth in the Disclosure Schedule is a list and brief
description of all policies of insurance (including, without limitation,
bankers' blanket bond, directors' and officers' liability insurance, property
and casualty insurance, group health or hospitalization insurance and insurance
providing benefits for employees) owned or held by Carmi or Insurance Agency on
the date hereof or with respect to which Carmi or Insurance Agency pays any
premiums. Each such policy is in full force and effect and all premiums due
thereon have been paid when due, and a true, accurate and complete copy thereof
has been made available to ONB prior to the date hereof.
4.19. Books and Records. The books and records of Carmi and Insurance
Agency are in all material respects complete and correct and accurately reflect
the basis for the financial condition, results of operations, business, assets
and capital of Carmi and Insurance Agency set forth in the Carmi Financial
Statements.
4.20. Broker's, Finder's or Other Fees. Except for reasonable fees of
Carmi's attorneys, accountants and Prairie Capital Services, Inc. ("Prairie"),
all of which will be paid by Carmi or Insurance Agency prior to the Effective
Time, no agent, broker or other person acting on behalf of Carmi or Insurance
Agency or under any authority of Carmi or Insurance Agency is or shall be
entitled to any commission, broker's or finder's fee or any other form of
compensation or payment from any of the parties hereto relating to this
Agreement and the Merger contemplated hereby.
4.21. Disclosure Schedule and Documents. All written data, documents,
materials and information referred to in this Agreement and delivered by Carmi
or Insurance Agency pursuant to or in connection with the Disclosure Schedule
are true, accurate and complete in all material respects as of the date hereof
and with respect to such items delivered subsequent to the date hereof or with
any update to the Disclosure Schedule, will be true, accurate and complete in
all material respects on the date of delivery thereof.
4.22. Interim Events. Except as otherwise permitted hereunder, since
December 31, 1995, neither Carmi nor Insurance Agency has:
(a) Suffered any changes having an adverse impact on the financial
condition, results of operations, business, assets or capital of Carmi or
Insurance Agency in excess of $5,000 individually or in the aggregate;
(b) Suffered any damage, destruction or loss to any of its properties,
whether or not covered by insurance, in excess of $5,000 individually or in the
aggregate;
(c) Declared, distributed or paid any dividend or other distribution to
its shareholders, except for payment of dividends as permitted by Section
6.03(a)(iii) hereof and for the cash dividend paid to Carmi shareholders on
January 2, 1996;
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(d) Repurchased, redeemed or otherwise acquired shares of its common
stock, issued any shares of its common stock or stock appreciation rights or
sold or agreed to issue or sell any shares of its common stock or any right to
purchase or acquire any such stock or any security convertible into such stock
or taken any action to reclassify, recapitalize or split its stock;
(e) Granted or agreed to grant any increase in benefits payable or to
become payable under any pension, retirement, profit sharing, health, bonus,
insurance or other welfare benefit plan or agreement to employees, officers or
directors of Carmi or Insurance Agency;
(f) Increased the salary of any director, officer or employee, except
for normal increases in the ordinary course of business and in accordance with
past practices, entered into any employment contract, indemnity agreement or
understanding with any officer or employee or installed any employee welfare,
pension, retirement, stock option, stock appreciation, stock dividend, profit
sharing or other similar plan or arrangement;
(g) Leased, sold or otherwise disposed of any of its assets except in
the ordinary course of business or leased, purchased or otherwise acquired from
third parties any assets except in the ordinary course of business;
(h) Except for the Merger contemplated by this Agreement, merged,
consolidated or sold shares of its common stock, agreed to merge or consolidate
with or into any third party, agreed to sell any shares of its common stock or
acquired or agreed to acquire any stock, equity interest, assets or business of
any third party;
(i) Incurred, assumed or guaranteed any obligation or liability (fixed
or contingent) other than obligations and liabilities incurred in the ordinary
course of business;
(j) Mortgaged, pledged or subjected to a lien, security interest, option
or other encumbrance any of its assets 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
acceptance by Carmi of government deposits; (ii) granted in connection with
repurchase or reverse repurchase agreements; or (iii) otherwise incurred in the
ordinary course of the conduct of its business;
(k) Except as set forth in the Disclosure Schedule, cancelled, released
or compromised any loan, debt, obligation, claim or receivable other than in the
ordinary course of business;
(l) Entered into any transaction, contract or commitment other than in
the ordinary course of business;
(m) Agreed to enter into any transaction for the borrowing or loaning of
monies, other than in the ordinary course of its lending business; or
(n) Conducted its business in any manner other than substantially as it
was being conducted through December 31, 1995.
4.23. Regulatory Filings. Carmi and Insurance Agency have filed and will
continue to file in a timely manner all filings with all federal and state
regulatory agencies and authorities as
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required by applicable law. All such filings with federal and state regulatory
agencies were true, accurate and complete in all material respects as of the
dates of the filings and have been prepared in conformity with generally
accepted regulatory accounting principles applied on a consistent basis, and no
such filing contained any untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements, at the time and
in light of the circumstances under which they were made, not false or
misleading.
4.24. Contracts. Neither Carmi nor Insurance Agency is in default under
or in breach of or, to the best knowledge of Carmi and Insurance Agency after
due inquiry, alleged to be in default under or in breach of, any loan or credit
agreement, conditional sales contract or other title retention agreement,
security agreement, bond, indenture, mortgage, license, contract, lease,
commitment or any other instrument or obligation, which breach or default would
reasonably be expected to have a material adverse effect on the financial
condition, results of operation, business, assets or capital of Carmi or
Insurance Agency.
4.25. No Third Party Options. There are no agreements, options,
commitments or rights with, of or to any third party to acquire any shares of
capital stock or assets of Carmi or Insurance Agency.
4.26. Indemnification Agreements. (a) Neither Carmi nor Insurance Agency
is a party to any indemnification, indemnity or reimbursement agreement,
contract, commitment or understanding to indemnify any present or former
director, officer, employee, shareholder or agent against liability or hold the
same harmless from liability, other than as expressly provided in the Employment
Agreement, the Articles of Association or By-Laws of Carmi or the Certificate of
Incorporation or By-Laws of Insurance Agency.
(b) No claims have been made against or filed with Carmi or Insurance
Agency nor has, to the best knowledge of Carmi and Insurance Agency after due
inquiry, any claims been threatened against Carmi or Insurance Agency, for
indemnification against liability or for reimbursement of any costs or expenses
incurred in connection with any legal or regulatory proceeding by any present or
former director, officer, shareholder, employee or agent of either Carmi or
Insurance Agency.
4.27. Representations and Warranties at the Effective Time. All
representations and warranties of Carmi and Insurance Agency contained herein
shall be true, accurate and complete in all material respects on and as of the
Effective Time as though made or given at such time.
4.28. Nonsurvival of Representations and Warranties. The representations
and warranties of Carmi and Insurance Agency contained in this Agreement shall
expire at the Effective Time, and thereafter Carmi, Insurance Agency and all
directors, officers and employees of Carmi and Insurance Agency shall have no
further liability with respect thereto, except for fraud or for false or
misleading statements made intentionally or knowingly in connection with such
representations and warranties or except as otherwise provided by law, whether
statutory, common law or otherwise.
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SECTION 5
REPRESENTATIONS AND WARRANTIES OF ONB
-------------------------------------
ONB represents and warrants to Carmi with respect to itself and, at the
time it is formed and becomes a party to this Agreement, with respect to Merger
Bank as follows:
5.01. Organization and Authority. (a) ONB is a corporation duly
organized and validly existing under the laws of the State of Indiana, is a
registered bank holding company under the BHC Act, and has full power and
authority (corporate and otherwise) to own and lease its properties as presently
owned and leased and to conduct its business in the manner and by the means
utilized as of the date hereof. ONB's common stock is registered pursuant to
Section 12, and ONB is subject to the reporting requirements, of the 1934 Act.
(b) As of the Effective Time, Merger Bank shall be a national banking
association duly organized and validly existing under the laws of the United
States of America, and all of its issued and outstanding capital stock will be
owned by ONB.
5.02. Authorization. (a) Each of ONB and Merger Bank has the requisite
corporate power and authority to enter into this Agreement and to carry out its
obligations hereunder, subject to the fulfillment of the conditions precedent
set forth in Section 8.01 hereof. This Agreement and its execution and delivery
by ONB have been duly authorized by the Board of Directors of ONB and, at or
prior to the Effective Time, the First Amendment and its execution and delivery
by Merger Bank shall have been duly authorized by the Board of Directors of
Merger Bank. This Agreement constitutes a valid and binding obligation of ONB
and, upon execution of the First Amendment, of Merger Bank, subject to the
conditions precedent set forth in Section 8.01 hereof, and is enforceable in
accordance with its terms, except to the extent limited by general principles of
equity and public policy and by bankruptcy, insolvency, reorganization,
liquidation, moratorium, readjustment of debt or other laws of general
application relating to or affecting the enforcement of creditors' rights.
(b) Neither the execution of this Agreement nor consummation of the
Merger contemplated hereby: (i) conflicts with or violates ONB's Articles of
Incorporation or By-Laws or Merger Bank's Articles of Association or By-Laws
(when organized); (ii) conflicts with or violates in any material respect any
local, state, federal or foreign law, statute, ordinance, rule or regulation
(provided that the approvals of or filings with applicable government regulatory
agencies or authorities required for consummation of the Merger are obtained) or
any court or administrative judgment, order, injunction, writ or decree; or
(iii) conflicts with, results in a breach of or constitutes a material default
under any note, bond, indenture, mortgage, deed of trust, license, contract,
lease, agreement, arrangement, commitment or other instrument to which ONB is or
Merger Bank will be a party or by which ONB is or Merger Bank will be subject or
bound and which is material to ONB on a consolidated basis.
(c) Other than in connection or in compliance with applicable federal
and state banking, securities and corporation statutes, all as amended, and the
rules and regulations promulgated thereunder, no notice to, filing with,
exemption by or consent, authorization or approval of any
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governmental agency or body is necessary for the consummation by ONB and Merger
Bank of the Merger contemplated by this Agreement.
5.03. Capitalization. (a) The authorized capital stock of ONB as of the
date hereof consists of (i) 30,000,000 shares of common stock, no par value per
share, of which approximately 25,370,000 shares were issued and outstanding as
of December 31, 1995, and (ii) 2,000,000 shares of preferred stock, no shares of
which have been or are presently intended to be issued, other than in connection
with any obligations of ONB to issue such preferred stock under its
shareholders' rights plan. Such issued and outstanding shares of ONB capital
stock have been duly and validly authorized by all necessary corporate action of
ONB, are validly issued, fully paid and nonassessable, and have not been issued
in violation of any pre-emptive rights of any present or former ONB
shareholders. All of the issued and outstanding shares of common stock of ONB's
subsidiaries are owned by ONB free and clear of all liens, pledges, charges,
claims, encumbrances, restrictions, security interests, options and pre-emptive
rights and of all other rights or claims of any other person, corporation or
entity with respect thereto. Except as described in this Section 5.03, ONB has
no other authorized capital stock. Except for shares of ONB common stock to be
issued in connection with: (i) ONB's dividend reinvestment and stock purchase
plan; (ii) ONB's outstanding convertible subordinated debentures; (iii)
acquisitions by ONB of other financial institutions or holding companies; and
(iv) ONB's restricted stock plan and other employee benefit plans, ONB has no
intention or obligation to authorize or issue any other capital stock or any
additional shares of ONB capital stock. On a consolidated basis as of December
31, 1995, ONB had total shareholders' equity of approximately $428,077,000,
which consisted of common stock of $24,955,000, capital surplus of $245,420,000,
retained earnings of $147,367,000, and net unrealized gain on available-for-sale
securities of $10,335,000.
(b) ONB has no knowledge of any person who beneficially owns 5% or more
of its issued and outstanding shares of common stock.
5.04. Organizational Documents. The Articles of Incorporation and By-Laws
of ONB in force as of the date of this Agreement have been delivered to Carmi
and represent true, accurate and complete copies of such corporate documents of
ONB in effect as of the date of this Agreement.
5.05. Compliance With Law. Neither ONB nor any of its subsidiaries has
engaged in any activity or has taken or omitted to take any action which has
resulted or could result in the violation of any local, state, federal or
foreign law, statute, rule, regulation, ordinance, order, restriction or
requirement or of any order, injunction, judgment, writ or decree of any court
or government agency or body, the violation of which could have a material
adverse effect on the financial condition, results of operations, business,
assets or capitalization of ONB and its subsidiaries on a consolidated basis.
ONB and each of its subsidiaries possesses and holds all licenses, franchises,
permits, certificates and other authorizations necessary for the continued
conduct of their business without interference or interruption.
5.06. Regulatory Filings. ONB and each of its subsidiaries have filed and
will continue to file in a timely manner all required filings with the
Securities and Exchange Commission ("SEC"), including, but not limited to, all
reports on Form 8, Form 8-K, Form 10-K and Form 10-Q and proxy statements, and
with all other federal and state regulatory agencies as required by applicable
law. All filings by ONB with the SEC and with all other federal and state
regulatory
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agencies were true, accurate and complete in all material respects as of the
dates of the filings, and no such filings contained any untrue statement of a
material fact or omitted to state a material fact necessary in order to make the
statements, at the time and in the light of the circumstances under which they
were made, not false or misleading.
5.07. Litigation and Pending Proceedings. (a) There are no claims,
actions, suits, proceedings, investigations or arbitrations pending or, to the
best knowledge of ONB after due inquiry, threatened in any court or before any
government agency or authority, arbitration panel or otherwise (nor does ONB
have any knowledge of a basis for any claim, action, suit, proceeding,
litigation, investigation or arbitration) against, by or affecting ONB or its
subsidiaries which would reasonably be expected to have a material adverse
effect on the financial condition, results of operations, business, assets or
capitalization of ONB and its subsidiaries on a consolidated basis, or which
would prevent the performance of this Agreement, declare the same unlawful or
cause the rescission hereof.
(b) Pending Proceedings. Neither ONB nor any of its subsidiaries is: (i)
subject to any outstanding judgment, order, writ, injunction or decree of any
court, arbitration panel or governmental agency or authority having a material
adverse effect on the financial condition, results of operations, business,
assets or capitalization of ONB on a consolidated basis; (ii) presently charged
with or, to the best knowledge of ONB, under governmental investigation with
respect to any actual or alleged violations of any law, statute, rule,
regulation or ordinance, the violation of which could have a material adverse
effect on the financial condition, results of operation, business, assets or
capitalization of ONB on a consolidated basis; or (iii) the subject of any
pending or, to the best knowledge of ONB after due inquiry, threatened
proceeding by any government regulatory agency or authority having jurisdiction
over its business, assets, capital, properties or operations, the violation of
which could have a material adverse effect on the financial condition, results
of operations, business, assets or capitalization of ONB on a consolidated
basis.
5.08. Financial Statements and Reports. (a) ONB or its agents have
delivered to Carmi copies of the following financial statements and reports of
ONB and its subsidiaries (collectively, the "ONB Financial Statements"):
(i) Consolidated Balance Sheets and related Consolidated Statements of
Income and Consolidated Statements of Changes in Shareholders'
Equity of ONB as of and for the years ended December 31, 1993, 1994
and 1995; and
(ii) Consolidated Statements of Cash Flows of ONB for the years ended
December 31, 1993, 1994 and 1995.
(b) The ONB Financial Statements are true, accurate and complete in all
material respects and present fairly the consolidated financial positions of ONB
and its subsidiaries as of and at the dates shown and the consolidated results
of operations for the periods covered thereby. The ONB Financial Statements
described in clauses (i) and (ii) above which consist of fiscal year-end
information are audited financial statements and have been prepared in
conformance with generally accepted accounting principles applied on a
consistent basis except as may otherwise be indicated in any accountants' notes
or reports with respect to such financial statements. The ONB Financial
Statements do not include any assets, liabilities or obligations or omit to
state any assets,
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liabilities or obligations, absolute or contingent, or any other facts, which
inclusion or omission would render the ONB Financial Statements false,
misleading or inaccurate in any material respect.
5.09. Shares to be Issued in Merger. The shares of ONB common stock which
Carmi shareholders will be entitled to receive upon consummation of the Merger
pursuant to this Agreement will, at the Effective Time, be duly authorized and
will, when issued in accordance with this Agreement, be validly issued, fully
paid and nonassessable and will have been registered under the Securities Act of
1933, as amended ("1933 Act") and listed for trading on the NASDAQ National
Market System.
5.10. Shareholder Approval. The approval by ONB's shareholders of the
Merger or any other actions contemplated by this Agreement is not required.
5.11. Accuracy of Statements Made to Carmi. No representation, warranty
or other statement made, or any information provided, by ONB in this Agreement,
and no written report, statement, list, certificate, materials or other
information furnished or to be furnished by ONB to Carmi through and including
the Effective Time in connection with this Agreement or the Merger contemplated
hereby (including, without limitation, any written information which has been or
shall be supplied by ONB with respect to its financial condition, results of
operations, business, assets, capital or directors and officers for inclusion in
the proxy statement-prospectus and registration statement relating to the
Merger), contains or shall contain (in the case of information relating to the
proxy statement-prospectus at the time it is mailed to Carmi's shareholders) any
untrue or misleading statement of material fact or omits or shall omit to state
a material fact necessary to make the statements contained herein or therein, in
light of the circumstances in which they are made, not false or misleading.
5.12. Contracts. ONB and each of its subsidiaries has performed in all
material respects all obligations required to be performed by them under all
agreements which are material to ONB on a consolidated basis, and neither ONB
nor any of its subsidiaries, to the best knowledge of ONB, is in default under
or in breach of, in any material respect, any agreement which is material to ONB
on a consolidated basis.
5.13. Environmental Compliance. To the best knowledge of ONB after
reasonable inquiry, ONB and its subsidiaries have conducted their respective
businesses in material compliance with the Environmental Laws.
5.14. Regulatory Approvals. To the best knowledge of ONB after reasonable
inquiry, there currently exists no reason why the granting of any of the state
or federal regulatory approvals required for consummation of the Merger would
reasonably be expected to be denied or unduly delayed.
5.15. Representations and Warranties at the Effective Date. All
representations and warranties of ONB contained herein shall be true, accurate
and complete in all material respects on and as of the Effective Time as though
made or given at such time.
5.16. Nonsurvival of Representations and Warranties. The representations
and warranties of ONB contained in this Agreement shall expire at the Effective
Time and, thereafter, ONB and all directors, officers and employees of ONB shall
have no further liability with respect thereto,
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except for fraud or for false or misleading statements made intentionally or
knowingly in connection with such representations and warranties or except as
otherwise provided by law, whether statutory, common law or otherwise.
SECTION 6
COVENANTS OF CARMI
------------------
Carmi covenants and agrees, and covenants and agrees to cause Insurance
Agency to act, as follows:
6.01. Shareholder Approval. Subject to Section 6.06(b) hereof, Carmi
shall submit this Agreement to its shareholders for approval at a meeting to be
called and held in accordance with applicable law and the Articles of
Association and By-Laws of Carmi at the earliest possible reasonable date.
Subject to Section 6.06(b) hereof, the Board of Directors of Carmi shall
recommend to Carmi's shareholders that such shareholders approve this Agreement
and the Merger contemplated hereby and shall solicit proxies voting in favor of
this Agreement from Carmi's shareholders.
6.02. Other Approvals. (a) Carmi shall proceed expeditiously, cooperate
fully and use its best efforts to assist ONB in procuring upon reasonable terms
and conditions all consents, authorizations, approvals, registrations and
certificates, in completing all filings and applications and in satisfying all
other requirements prescribed by law which are necessary for consummation of the
Merger on the terms and conditions provided in this Agreement at the earliest
possible reasonable date.
(b) Carmi shall cooperate with ONB in and shall take all necessary
action to effectuate the disposition of the Carmi Plans, as provided in Section
7.03 hereof. Carmi shall be responsible for and shall pay all costs and expenses
associated with such dispositions.
(c) Carmi shall, upon the organization of Merger Bank, execute the First
Amendment and deliver it to ONB and Merger Bank.
6.03. Conduct of Business. (a) On and after the date of this Agreement
and until the Effective Time or until this Agreement shall be terminated as
herein provided, each of Carmi and Insurance Agency shall not, without the prior
written consent of ONB:
(i) make any changes in its capital stock accounts (including,
without limitation, any stock split, stock dividend,
recapitalization or reclassification);
(ii) authorize a class of stock or issue, or authorize the
issuance of, securities other than or in addition to the
issued and outstanding common stock as set forth in Section
4.03 hereof;
(iii) distribute or pay any dividends on its shares of common
stock, or make any other distribution to its shareholders,
except that Carmi may pay to its shareholders quarterly cash
dividends which in the aggregate shall not
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exceed Carmi's undivided profits (calculated in accordance
with generally accepted accounting principles) from December
31, 1995, through and including the Effective Time; provided,
however, that if Carmi's shareholders become entitled to
receive a cash dividend from ONB for the calendar quarter
during which the Merger is consummated, then the aggregate
cash dividends permitted to be paid by Carmi to its
shareholders shall be reduced by the aggregate cash dividend
for such quarter receivable by Carmi's shareholders from ONB,
and if the amount of such dividend from ONB is not yet
determinable, such amount shall be calculated based upon the
per share amount of the last cash dividend paid by ONB to its
shareholders.
(iv) redeem any of its outstanding shares of common stock;
(v) merge, combine or consolidate or effect a share exchange with
or sell its assets or any of its securities to any other
person, corporation or entity or enter into any other similar
transaction not in the ordinary course of business;
(vi) purchase any assets or securities or assume any liabilities
of another bank holding company, bank, corporation or other
entity, except in the ordinary course of business necessary
to manage its investment portfolio;
(vii) make any loan or commitment to lend money, issue any letter
of credit or accept any deposit, except in the ordinary
course of business in accordance with its existing banking
practices (and, with respect to loan transactions or
commitments, letters of credit and deposit accounts, only on
terms and conditions which are not materially more favorable
than those available to the borrower or customer from
competitive sources in transactions in the ordinary course of
business);
(viii) except for the disposition in the ordinary course of business
of other real estate owned, acquire or dispose of any
property or asset constituting a capital investment in excess
of $10,000 individually or $25,000 in the aggregate;
(ix) 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 acceptance by Carmi of government deposits;
(ii) granted in connection with repurchase or reverse
repurchase agreements; or (iii) otherwise incurred in the
ordinary course of the conduct of its business, subject any
of its properties or assets to a mortgage, lien, claim,
charge, option, restriction, security interest or
encumbrance;
(x) promote to a new position or increase the rate of
compensation (except for promotions and compensation
increases in the ordinary course of business and in
accordance with past practices and established employment
policies),
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or enter into any agreement to promote to a new position or
increase the rate of compensation, of any director, officer
or employee of Carmi or Insurance Agency;
(xi) execute, create, institute, modify, amend or terminate
(except with respect to any amendments to the Carmi Plans
required by law, rule or regulation) any pension, retirement,
savings, stock purchase, stock bonus, stock ownership, stock
option, stock appreciation or depreciation right or profit
sharing plans; any employment, deferred compensation,
consulting, bonus or collective bargaining agreement; any
group insurance or health contract or policy; or any other
incentive, retirement, welfare or employee welfare benefit
plan, agreement or understanding for current or former
directors, officers or employees of Carmi or Insurance
Agency; or change the level of benefits or payments under any
of the foregoing or increase or decrease any severance or
termination of pay benefits or any other fringe or employee
benefits other than as required by law or regulatory
authorities or the terms of any of the foregoing;
(xii) modify, amend or institute new employment policies or
practices, or enter into, renew or extend any employment,
indemnity, reimbursement, consulting, compensation or
severance agreements with respect to any present or former
directors, officers or employees of Carmi or Insurance
Agency;
(xiii) hire or employ any new or additional employees of Carmi or
Insurance Agency, except those which are reasonably necessary
for the proper operation of Carmi's or Insurance Agency's
business;
(xiv) elect or appoint any officers or directors of either Carmi or
Insurance Agency who are not presently serving in such
capacities;
(xv) amend, modify or restate Carmi's Articles of Association or
By-Laws or Insurance Agency's Certificate of Incorporation
and By-Laws from those in effect on the date of this
Agreement and as delivered to ONB hereunder;
(xvi) give, dispose of, sell, convey or transfer; assign,
hypothecate, pledge or encumber; or grant a security interest
in or option to or right to acquire any shares of common
stock or substantially all of the assets, of Carmi or
Insurance Agency, or enter into any agreement or commitment
relative to the foregoing;
(xvii) fail to continue to make additions to in accordance with past
practices and to otherwise maintain in all respects Carmi's
reserve for loan and lease losses, or any other reserve
account, in accordance with safe, sound, and prudent banking
practices and in accordance with generally accepted
accounting principles applied on a consistent basis;
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(xviii) fail to accrue, pay, discharge and satisfy all debts,
liabilities, obligations and expenses, including, but not
limited to, trade payables, incurred in the regular and
ordinary course of business as such debts, liabilities,
obligations and expenses become due;
(xix) issue, or authorize the issuance, of any securities
convertible into or exchangeable for shares of Carmi Common
Stock or Insurance Agency Common Stock;
(xx) except for obligations disclosed within this Agreement or the
Disclosure Statement, trade payables and similar liabilities
and obligations incurred in the ordinary course of business
and the payment, discharge or satisfaction in the ordinary
course of business of liabilities reflected in the Carmi
Financial Statements or the Subsequent Carmi Financial
Statements, borrow any money or incur any indebtedness
including, without limitation, through the issuance of
debentures, or incur any liability or obligation (whether
absolute, accrued, contingent or otherwise), in an aggregate
amount exceeding $10,000;
(xxi) open, close, move or, in any material respect, expand,
diminish, renovate, alter or change any of its offices or
branches;
(xxii) pay or commit to pay any management or consulting or other
similar type of fees; or
(xxiii) enter into any contract, agreement, lease, commitment,
understanding, arrangement or transaction or incur any
liability or obligation (other than as contemplated by
Section 6.03(a)(vii) hereof and legal, accounting and fees
related to the Merger) requiring payments by Carmi or
Insurance Agency which exceed $10,000, whether individually
or in the aggregate, or that is not a trade payable or
incurred in the ordinary course of business.
(b) Carmi and Insurance Agency shall maintain, or cause to be
maintained, in full force and effect, insurance on its assets, properties and
operations, fidelity coverage and directors' and officers' liability insurance
on its directors, officers and employees in such amounts and with regard to such
liabilities and hazards as are currently insured by Carmi and Insurance Agency
as of the date of this Agreement.
6.04. Preservation of Business. On and after the date of this Agreement
and until the Effective Time or until this Agreement is terminated as herein
provided, Carmi and Insurance Agency each shall: (a) carry on its business
diligently, substantially in the manner as is presently being conducted and in
the ordinary course of business; (b) use its best efforts to preserve its
business organization intact, keep available the services of the present
officers and employees and preserve its present relationships with customers and
persons having business dealings with it; (c) maintain all of the properties and
assets that it owns or utilizes in good operating condition and repair,
reasonable wear and tear excepted, and maintain insurance upon such properties
and assets in amounts and kinds comparable to that in effect on the date of this
Agreement; (d) maintain its books, records and accounts in the usual, regular
and ordinary manner, on a basis consistent with
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prior years and in compliance with all material respects with all statutes,
laws, rules and regulations applicable to it and to the conduct of its business;
and (e) not knowingly do or fail to do anything which will cause a breach of, or
default in, any contract, agreement, commitment, obligation, understanding,
arrangement, lease or license to which it is a party or by which it is or may be
subject or bound.
6.05. Restrictions Regarding Affiliates. Carmi shall, within thirty (30)
days after the date of this Agreement and promptly thereafter until the
Effective Time to reflect any changes, provide ONB with a list identifying each
person who may be deemed to be an affiliate of Carmi for purposes of Rule 145
under the 1933 Act. On or prior to the date of this Agreement, Carmi shall use
its best efforts to cause each director, executive officer and other person who
may be deemed to be such an affiliate of Carmi to deliver to ONB on or prior to
the date of this Agreement a written agreement, substantially in the form as
attached hereto as Exhibit B, providing that such person: (a) shall not sell,
pledge, transfer, dispose of or otherwise reduce his or her market risk with
respect to the shares of Carmi Common Stock directly or indirectly owned or held
by such person during the thirty (30) day period prior to the Effective Time;
and (b) will not sell, pledge, transfer, dispose of or otherwise reduce his or
her market risk with respect to the shares of ONB common stock to be received by
such person pursuant to this Agreement: (i) until such time as financial
results covering at least 30 days of combined operations of ONB and Carmi have
been published as and when required and within the meaning of Section 201.01 of
the SEC's Codification of Financial Reporting Policies; and (ii) unless such
sales are pursuant to an effective Registration Statement under the 1933 Act or
pursuant to Rule 145 under the 1933 Act or another exemption from registration
under the 1933 Act.
6.06. Other Negotiations. (a) Subject to Section 6.06(b) hereof, on and
after the date of this Agreement and until the Effective Time or until this
Agreement is terminated as herein provided, except with the prior written
approval of ONB, Carmi and Insurance Agency shall not, and shall not permit or
authorize their respective directors, officers, employees, agents or
representatives to, directly or indirectly, initiate, solicit, encourage or
engage in discussions or negotiations with, or provide information to, any
corporation, association, partnership, person or other entity or group
concerning any merger, consolidation, share exchange, combination, purchase or
sale of substantial assets, sale of shares of common stock (or securities
convertible or exchangeable into or otherwise evidencing, or any agreement or
instrument evidencing the right to acquire, capital stock) or similar
transaction relating to Carmi or Insurance Agency or to which Carmi or Insurance
Agency may become a party (all such transactions are hereinafter referred to as
"Acquisition Transactions"). Carmi and Insurance Agency shall promptly
communicate to ONB the terms of any proposal or offer which either of them may
receive with respect to an Acquisition Transaction and any request by or
indication of interest on the part of any third party with respect to the
initiation of any Acquisition Transaction or discussions with respect thereto.
(b) On and after the date of this Agreement and until the Effective Time
or until this Agreement is terminated as provided herein, Carmi may engage, and
may permit and authorize their respective directors, officers, employees, agents
or representatives to, directly or indirectly, engage in discussions or
negotiations with, or provide information to, any corporation, association,
partnership, person or other entity or group concerning an unsolicited offer by
such third party with respect to an Acquisition Transaction only with the prior
written approval of ONB, which approval shall be provided to Carmi promptly upon
receipt by ONB of a letter from Carmi signed by at least a majority of its Board
of Directors then in office indicating that Carmi has received an unsolicited
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offer regarding an Acquisition Transaction which the Board of Directors of
Carmi: (i) considers, in the exercise of its fiduciary duties as a Board, to be
substantially superior to the then current offer of ONB pursuant to this
Agreement; and (ii) concludes, after consultation with its counsel, that its
fiduciary duties as a Board require it to consider and, in light of such duties,
take such other actions with respect to such unsolicited offer as may be
necessary or appropriate; and such approval may, in all other instances, be
provided to Carmi when and if ONB shall, in its sole discretion, determine. This
Section 6.06 shall not authorize Carmi, or its directors, officers, employees,
agents or representatives, to initiate any discussions or negotiations relative
to an Acquisition Transaction with a third party.
6.07. Press Releases. Except as required by law, Carmi and Insurance
Agency shall not issue any press releases or make any other public announcements
or disclosures relating to the Merger without the prior consent of ONB, which
consent shall not be unreasonably withheld.
6.08. Disclosure Schedule Update. Carmi shall promptly supplement, amend
and update, upon the occurrence of any change prior to the Effective Time, and
as of the Effective Time, the Disclosure Schedule with respect to any matters or
events hereafter arising which, if in existence or having occurred as of the
date of this Agreement, would have been required to be set forth or described in
the Disclosure Schedule or this Agreement and including, without limitation, any
fact which, if existing or known as of the date hereof, would have made any of
the representations or warranties of Carmi or Insurance Agency contained herein
materially incorrect, untrue or misleading.
6.09. Information, Access Thereto, Confidentiality. ONB and its
respective representatives and agents shall, at all times during normal business
hours prior to the Effective Time, have full and continuing access to the
properties, facilities, operations, books and records of Carmi and Insurance
Agency. ONB and its respective representatives and agents may, prior to the
Effective Time, make or cause to be made such reasonable investigation of the
operations, books, records and properties of Carmi and Insurance Agency and of
their financial and legal condition as deemed necessary or advisable to
familiarize themselves with such operations, books, records, properties and
other matters; provided, however, that such access or investigation shall not
interfere unnecessarily with the normal operations of Carmi and Insurance
Agency. Upon request, Carmi and Insurance Agency shall furnish ONB or its
respective representatives or agents, their attorneys' responses to external
auditors requests for information, management letters received from their
external auditors and such financial, loan and operating data and other
information reasonably requested by ONB which has been or is developed by Carmi
or Insurance Agency, their auditors, accountants or attorneys (provided with
respect to attorneys, such disclosure would not result in the waiver by Carmi or
Insurance Agency of any claim of attorney-client privilege), and will permit ONB
and its respective representatives or agents to discuss such information
directly with any individual or firm performing auditing or accounting functions
for Carmi or Insurance Agency, and such auditors and accountants shall be
directed to furnish copies of any reports or financial information as developed
to ONB or its respective representatives or agents. No investigation by ONB
shall affect the representations and warranties made by Carmi or Insurance
Agency herein. Any confidential information or trade secrets received by ONB or
its representatives or agents in the course of such examination shall be treated
confidentially, and any correspondence, memoranda, records, copies, documents
and electronic or other media of any kind containing such confidential
information or trade secrets or both shall be destroyed by ONB or, at Carmi's
request, returned to Carmi in the event this Agreement is terminated as provided
in Section 9 hereof. This
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Section 6.09 shall not require the disclosure of any information to ONB which
would be prohibited by law.
6.10. Subsequent Carmi Financial Statements. As soon as reasonably
available after the date of this Agreement, Carmi shall deliver to ONB the
monthly unaudited consolidated balance sheets and profit and loss statements of
Carmi prepared for its internal use, Carmi's Call Reports for each quarterly
period completed prior to the Effective Time and all other financial reports or
statements submitted to regulatory authorities after the date hereof, to the
extent permitted by law (collectively, "Subsequent Carmi Financial Statements").
The Subsequent Carmi Financial Statements shall be prepared on a basis
consistent with past accounting practices and generally accepted accounting
principles applied on a consistent basis to the extent applicable and shall
present fairly the financial condition and results of operations as of the dates
and for the periods presented. The Subsequent Carmi Financial Statements,
including the notes thereto, will not include any assets, liabilities or
obligations or omit to state any assets, liabilities or obligations, absolute or
contingent, or any other facts, which inclusion or omission would render such
financial statements inaccurate, incomplete or misleading in any respect.
6.11. Employee Benefits. Neither the terms of Section 7.03 hereof nor the
provision of any employee benefits by ONB or any of its subsidiaries to
employees of Carmi shall: (a) create any employment contract, agreement or
understanding with or employment rights for, or constitute a commitment or
obligation of employment to, any of the officers or employees of Carmi; or (b)
prohibit or restrict ONB or its subsidiaries, whether before or after the
Effective Time, from changing, amending or terminating any employee benefits
provided to its employees from time to time.
SECTION 7
COVENANTS OF ONB
----------------
ONB covenants and agrees with Carmi as follows:
7.01. Approvals. (a) ONB shall have primary responsibility for the
preparation, filing and costs of all bank holding company and bank regulatory
applications required for consummation of the Merger. ONB shall file all bank
holding company and bank regulatory applications as soon as practicable after
the execution of this Agreement. ONB shall provide to Carmi's counsel copies of
all applications filed and copies of all material written communications with
all state and federal bank regulatory agencies relating to such applications.
ONB shall proceed expeditiously, cooperate fully and use its best efforts to
procure, upon terms and conditions reasonably acceptable to ONB, all consents,
authorizations, approvals, registrations and certificates, to complete all
filings and applications and to satisfy all other requirements prescribed by law
which are necessary for consummation of the Merger on the terms and conditions
provided in this Agreement at the earliest possible reasonable date.
(b) ONB shall: (i) cause Merger Bank to be organized and chartered under
the laws of the United States of America; (ii) upon Merger Bank's organization,
cause it to execute and deliver to Carmi the First Amendment; (iii) upon the
organization of Merger Bank, execute and deliver to Carmi the First Amendment;
and (iv) cause the Board of Directors of Merger Bank to vote, and shall vote all
of its shares of capital stock of Merger Bank, in favor of approval of this
Agreement.
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7.02. SEC Registration. ONB shall file with the SEC as soon as
practicable after the execution of this Agreement a Registration Statement on an
appropriate form under the 1933 Act covering the shares of ONB 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 in this Agreement as the "Registration
Statement". The Registration Statement shall include a proxy statement-
prospectus reasonably acceptable to ONB and Carmi, prepared for use in
connection with the meeting of shareholders of Carmi referred to in Section 6.01
of this Agreement, all in accordance with the rules and regulations of the SEC
and the OCC. ONB shall, as soon as practicable after filing the Registration
Statement, make all filings required to obtain all Blue Sky exemptions,
authorizations, consents or approvals required for the issuance of ONB common
stock. In advance of filing the Registration Statement and all other filings
described in Section 7.01 herein, ONB shall provide Carmi and its counsel with a
copy of the Registration Statement and each such other filing and provide an
opportunity to comment thereon.
7.03. Employee Benefit Plans. (a) At such time as ONB shall determine, in
its sole discretion, but in no event later than January 1, 1997, ONB will make
available to the employees of Carmi who continue as employees of any subsidiary
of ONB after the Effective Time and, further, subject to Section 7.03(b), (c)
and (d) hereof, substantially the same employee benefits on substantially the
same terms and conditions that ONB may offer to similarly situated officers and
employees of its banking subsidiaries from time to time. Until such time as the
employees of Carmi become covered by the ONB welfare benefit plans, the
employees of Carmi shall remain covered by the welfare benefit plans sponsored
by Carmi, subject to the terms of such plans.
(b) Subject to the provisions of subsection (c) hereof, years of service
(as defined in the applicable ONB plan) of an officer or employee of Carmi prior
to the Effective Time shall be credited, effective as of the date on which such
employees become covered by a particular ONB plan, to each such officer or
employee eligible for coverage under Section 7.03(a) hereof for purposes of: (i)
eligibility under ONB's employee welfare benefit plans; and (ii) eligibility and
vesting, but not for purposes of benefit accrual or contributions, under the ONB
Employees' Retirement Plan ("ONB Pension Plan") or under the ONB Employees'
Savings and Profit Sharing Plan ("ONB Profit Sharing Plan"). Those officers and
employees of Carmi who otherwise meet the eligibility requirements of the ONB
Pension Plan and the ONB Profit Sharing Plan, based upon their age and years of
Carmi service, shall become participants thereunder on the January 1st which
coincides with or next follows the Effective Time. Those officers or employees
who do not meet the eligibility requirements of the ONB Pension Plan or ONB
Profit Sharing Plan on such date shall become participants thereunder on the
first plan entry date under the ONB Pension Plan or the ONB Profit Sharing Plan,
as the case may be, which coincides with or next follows the date on which such
eligibility requirements are satisfied.
(c) Subject to the requirements and limitations of applicable law, ONB
shall take or cause to be taken the following actions regarding the disposition
of the following Carmi Plans:
(i) The Carmi defined contribution plan with the "401(k)" feature
("401(k) Plan"), and all assets and liabilities associated
therewith, shall be merged with and into the ONB Profit Sharing
Plan. Such merger shall be effective as of the December 31
which coincides with or immediately follows the
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Effective Time. Until the effective date of such merger,
eligible participants under the 401(k) Plan may continue to make
salary deferral contributions thereunder, subject to the terms
of such plan; and, Carmi may continue to make contributions
under such plan at substantially the same levels and at
substantially the same times as Carmi has historically
contributed to the 401(k) Plan. On the Effective Date, all
participants under the 401(k) Plan (and any Carmi employees who
become participants under the 401(k) Plan after the Effective
Time but before the merger of such plan with and into the ONB
Profit Sharing Plan) shall become fully vested in their account
balances regardless of their vested position under the 401(k)
Plan.
(ii) All expenses and costs associated with the disposition of all
Carmi Plans in connection with the Merger, if any, shall be
paid by Carmi.
(d) No full-time officer or employee of Carmi serving as of the Effective
Time shall be subject to any pre-existing condition exclusions under any of
ONB's welfare benefit plans if such officer, employee or individual was covered
by the corresponding Carmi welfare benefit plan for more than two hundred
seventy (270) days immediately preceding the Effective Time.
(e) Neither the terms of this Section 7.03 nor the provision of any
employee benefits by ONB or any of its subsidiaries to employees of Carmi shall:
(i) create any employment contract, agreement or understanding with or
employment rights for, or constitute a commitment or obligation of employment
to, any of the officers or employees of Carmi; or (ii) prohibit or restrict ONB
or its subsidiaries, whether before or after the Effective Time, from changing,
amending or terminating any employee benefits provided to its employees from
time to time.
7.04. Authorization of ONB Common Stock. The Board of Directors of ONB
shall, prior to the Effective Time, authorize the issuance of the required
number of shares of ONB common stock to be issued pursuant to this Agreement and
take all other necessary corporate action to consummate the Merger contemplated
hereby.
7.05 Press Releases. Except as required by law, ONB shall not issue any
press releases or make any other public announcements or disclosures relating
primarily to Carmi or Insurance Agency with respect to the Merger without the
prior consent of Carmi, which consent shall not be unreasonably withheld.
7.06. Information, Access Thereto, Confidentiality. Carmi and its
representatives and agents shall, at all times during normal business hours
prior to the Effective Time, have full and continuing access to the material
facilities, operations, books, records and properties of ONB. Carmi and its
respective representatives and agents may, prior to the Effective Time, make or
cause to be made such reasonable investigation of the material operations,
books, records and properties of ONB and of its financial and legal condition as
Carmi shall deem reasonable necessary or advisable to familiarize itself with
such books, records, properties and other matters; provided, however, that such
access or investigation shall not interfere unnecessarily with the normal
operations of ONB. No investigation by Carmi shall affect the representations
and warranties made by ONB. Any confidential information or trade secrets
received by Carmi or its respective employees or agents in the course of such
examination shall be treated confidentially, and any correspondence, memoranda,
records, copies, documents and electronic or other media of any kind
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containing such confidential information or trade secrets or both shall be
destroyed by Carmi or, at ONB's request, returned to ONB in the event this
Agreement is terminated as provided in Section 9 hereof. This Section 7.06 shall
not require the disclosure of any information to Carmi the disclosure of which
would be prohibited by law.
7.07. Name. It is ONB's intent as of the date of this Agreement and will
be its intent as of the Effective Time that following the Effective Time the
Surviving Bank shall operate under the name "The National Bank of Carmi."
Nothing in this Section 7.07 shall prohibit or restrict ONB or the Board of
Directors of the Surviving Bank from altering, changing or amending the name of
the Surviving Bank after the Effective Time.
7.08. Indemnification and Insurance. (a) Indemnification. From and after
the Effective Time, ONB shall cause the Surviving Bank and Insurance Agency to
assume and honor any obligations as provided for and permitted by applicable
federal and state law which Carmi and Insurance Agency had immediately prior to
the Effective Time with respect to the indemnification of each person who is on
the date hereof, or has been at any time prior to the date hereof or who becomes
prior to the Effective Time, a director or officer of Carmi or Insurance Agency
or was serving at the request of Carmi or Insurance Agency as a director or
officer of any domestic or foreign corporation, joint venture, trust, employee
benefit plan or other enterprise (collectively, the "Indemnitees") arising out
of Carmi's Articles of Association or By-Laws or Insurance Agency's Certificate
of Incorporation or By-Laws in effect at the Effective Time against any and all
losses in connection with or arising out of any claim which is based upon,
arises out of or in any way relates to any actual or alleged act or omission
occurring at or prior to the Effective Time in the Indemnitee's capacity as a
director or officer (whether elected or appointed), of Carmi or Insurance
Agency. Indemnification of officers and directors of the surviving Bank and
Insurance Agency following the Effective Time will be provided to the same
extent it is provided from time to time to other persons working in similar
capacities for ONB or its subsidiaries following the Effective Time.
(b) Insurance. For a period of one (1) year after the Effective Time, ONB
shall use all reasonable efforts to cause to be maintained in effect the current
policies of directors' and officers' liability insurance maintained by Carmi
(provided that ONB may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions which are substantially no
less advantageous) with respect to claims arising from facts or events which
occurred before the Effective Time. Following the Effective Time, ONB will
provide any Carmi employees who become officers of ONB or any of its
subsidiaries with the same directors' and officers' liability insurance coverage
that ONB provides to other similarly situated directors and officers of ONB and
its bank subsidiaries.
7.09. Employment Agreement. Following the Effective Time, ONB agrees to
assume and abide by the terms of the Employment Agreement, in the form which has
been included in the Disclosure Schedule, except as may be otherwise required by
law or any government regulatory agency or authority.
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SECTION 8
CONDITIONS PRECEDENT TO THE MERGER
----------------------------------
8.01. ONB. The obligation of ONB and Merger Bank to consummate the Merger
is subject to the satisfaction and fulfillment of each of the following
conditions on or prior to the Effective Time, unless waived in writing by ONB:
(a) Representations and Warranties at Effective Time. Each of the
representations and warranties of Carmi or Insurance Agency contained in this
Agreement shall be true, accurate and correct in all material respects at and as
of the Effective Time as though such representations and warranties had been
made or given on and as of the Effective Time.
(b) Covenants. Each of the covenants and agreements of Carmi and Insurance
Agency shall have been fulfilled or complied with from the date of this
Agreement through and as of the Effective Time.
(c) Deliveries at Closing. ONB shall have received from Carmi at the
Closing (as hereinafter defined) the items and documents, in form and content
reasonably satisfactory to ONB, set forth in Section 11.02(b) hereof.
(d) Registration Statement Effective. ONB shall have registered its shares
of common stock to be issued to shareholders of Carmi in accordance with this
Agreement with the SEC pursuant to the 1933 Act, and all state securities and
Blue Sky approvals, authorizations and exemptions required to offer and sell
such shares shall have been received by ONB. The Registration Statement with
respect thereto shall have been declared effective by the SEC and no stop order
shall have been issued or threatened.
(e) Regulatory Approvals. The Board of Governors of the Federal Reserve
System ("Federal Reserve"), the OCC and the Illinois Commissioner of Banks and
Trust Companies ("Illinois Commissioner") shall have authorized and approved or
not objected to the Merger on terms and conditions satisfactory to ONB. In
addition, all appropriate orders, consents, approvals and clearances from all
other regulatory agencies and governmental authorities whose orders, consents,
approvals or clearances are required by law for consummation of the Merger
contemplated by this Agreement shall have been obtained on terms and conditions
satisfactory to ONB.
(f) Shareholder Approval. The shareholders of Carmi shall have approved
and adopted this Agreement as required by applicable law and its Articles of
Association.
(g) Officers' Certificate. Carmi shall have delivered to ONB a certificate
signed by its Chairman or President and its Secretary, dated as of the Effective
Time, certifying that: (i) all the representations and warranties of Carmi are
true, accurate and correct in all material respects on and as of the Effective
Time; (ii) all the covenants of Carmi have been complied with from the date of
this Agreement through and as of the Effective Time; and (iii) Carmi has
satisfied and fully complied with all conditions necessary to make this
Agreement effective as to it.
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(h) Tax Opinion. The respective Boards of Directors of the parties to this
Agreement shall have received a written opinion of the law firm of Krieg DeVault
Alexander & Capehart, dated as of the Effective Time, in form and content
satisfactory to the parties hereto, to the effect that the Merger to be effected
pursuant to this Agreement should constitute a tax-free reorganization under the
Code (as described in Section 1.06 hereof) to each party hereto and to the
shareholders of Carmi, except with respect to cash received by Carmi's
shareholders: (i) for fractional shares resulting from application of the
Exchange Ratio; or (ii) pursuant to the exercise of dissenters' rights as
described in Section 3 hereof.
(i) Affiliate Agreements. ONB shall have received from Carmi: (i) a list
identifying each affiliate of Carmi in accordance with Section 6.05 hereof dated
as of the Effective Time; and (ii) from each affiliate of Carmi, the agreements
dated as of the date of this Agreement contemplated by Section 6.05 hereof.
(j) Fairness Opinion. Prairie shall have issued its written fairness
opinion to the Board of Directors of Carmi stating that the terms of the Merger
are fair to the shareholders of Carmi from a financial point of view. Such
written fairness opinion shall: (i) be in form and substance reasonably
satisfactory to Carmi; (ii) be dated as of a date not later than the mailing
date of the proxy statement-prospectus relating to the Merger to be mailed to
Carmi shareholders; (iii) be included as an exhibit to the proxy statement-
prospectus; and (iv) be updated and reissued to Carmi prior to the Effective
Time.
8.02. Carmi. The obligation of Carmi to consummate the Merger is subject
to the satisfaction and fulfillment of each of the following conditions on or
prior to the Effective Time, unless waived in writing by Carmi:
(a) Representations and Warranties at Effective Time. Each of the
representations and warranties of ONB contained in this Agreement shall be true,
accurate and correct in all material respects on and as of the Effective Time as
though the representations and warranties had been made or given at and as of
the Effective Time.
(b) Covenants. Each of the covenants and agreements of ONB shall have been
fulfilled or complied with from the date of this Agreement through and as of the
Effective Time.
(c) Deliveries at Closing. Carmi shall have received from ONB at the
Closing the items and documents, in form and content reasonably satisfactory to
Carmi, listed in Section 11.02(a) hereof.
(d) Registration Statement Effective. ONB shall have registered its shares
of common stock to be issued to shareholders of Carmi in accordance with this
Agreement with the SEC pursuant to the 1933 Act, and all state securities and
Blue Sky approvals, authorizations and exemptions required to offer and sell
such shares shall have been received by ONB. The Registration Statement with
respect thereto shall have been declared effective by the SEC and no stop order
shall have been issued or threatened. In addition, such shares of ONB common
stock shall be listed on the NASDAQ National Market System.
(e) Regulatory Approvals. The Federal Reserve, the OCC and the Illinois
Commissioner shall have authorized and approved or not objected to the Merger.
In addition, all appropriate
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orders, consents, approvals and clearances from all other regulatory agencies
and governmental authorities whose orders, consents, approvals or clearances are
required by law for consummation of the Merger contemplated by this Agreement
shall have been obtained.
(f) Shareholder Approval. The shareholders of Carmi and the sole
shareholder of Merger Bank shall have approved and adopted this Agreement as
required by applicable law and their respective Articles of Association.
(g) Action by Merger Bank. Merger Bank shall have been organized and
chartered under the laws of the United States of America and shall have approved
and joined this Agreement through the execution and delivery of the First
Amendment.
(h) Officers' Certificate. ONB shall have delivered to Carmi a certificate
signed by its Chairman or President and its Secretary, dated as of the Effective
Time, certifying that: (i) all the representations and warranties of ONB are
true, accurate and correct in all material respects on and as of the Effective
Time; (ii) all the covenants of ONB have been complied with from the date of
this Agreement through and as of the Effective Time; and (iii) ONB has satisfied
and fully complied with all conditions necessary to make this Agreement
effective as to it.
(i) Tax Opinion. The respective Boards of Directors of the parties to this
Agreement shall have received a written opinion of the law firm of Krieg DeVault
Alexander & Capehart, dated as of the Effective Time, in form and content
satisfactory to the parties hereto, to the effect that the Merger to be effected
pursuant to this Agreement should constitute a tax-free reorganization under the
Code (as described in Section 1.06 hereof) to each party hereto and to the
shareholders of Carmi, except with respect to cash received by Carmi's
shareholders: (i) for fractional shares resulting from application of the
Exchange Ratio; or (ii) pursuant to the exercise of dissenters' rights as
described in Section 3 hereof.
(j) Fairness Opinion. Prairie shall have issued its written fairness
opinion to the Board of Directors of Carmi stating that the terms of the Merger
are fair to the shareholders of Carmi from a financial point of view. Such
written fairness opinion shall: (i) be in form and substance reasonably
satisfactory to Carmi; (ii) be dated as of a date not later than the mailing
date of the proxy statement-prospectus relating to the Merger to be mailed to
Carmi shareholders; (iii) be included as an exhibit to the proxy statement-
prospectus; and (iv) be updated and reissued to Carmi prior to the Effective
Time. Carmi shall be deemed to have waived this condition if Prairie does not
issue, update or reissue its fairness opinion as a result of any action or
failure to act by or on the part of Carmi or any of its directors or officers.
SECTION 9
TERMINATION OF MERGER
---------------------
9.01. Manner of Termination. This Agreement and the Merger may be
terminated at any time prior to the Effective Time by written notice delivered
by ONB to Carmi, or by Carmi to ONB as follows:
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<PAGE>
(a) By ONB or Carmi, if:
(i) the Merger contemplated by this Agreement has not been
consummated by November 30, 1996; or
(ii) the respective Boards of Directors of ONB and Carmi mutually
agree to terminate this Agreement.
(b) By ONB, if:
(i) the Merger will not qualify for pooling-of-interest accounting
treatment for ONB and such failure to qualify is the result of
actions taken or omitted to be taken by Carmi or its directors,
officers or shareholders other than as permitted hereunder;
(ii) any item, event or information set forth in any supplement,
amendment or update to the Disclosure Schedule has had or would
be expected to have, in the reasonable discretion of ONB, a
material adverse effect on the business, assets,
capitalization, financial condition or results of operations of
Carmi and Insurance Agency, on a consolidated basis;
(iii) there has been a misrepresentation or a breach of any warranty
by or on the part of Carmi in its representations and
warranties set forth in this Agreement which has had or would
be expected to have, in the reasonable discretion of ONB, a
material adverse effect on the business, assets,
capitalization, financial condition or results of operations of
Carmi or Insurance Agency, on a consolidated basis; provided,
however, that in the event of any inaccuracy in the
representations and warranties contained in Section 4.03 hereof
relative to the number of issued and outstanding shares of
capital stock of Carmi, ONB shall have the absolute right to
terminate this Agreement without regard to the materiality of
any such inaccuracy;
(iv) there has been a breach of or failure to comply with any
covenant set forth in this Agreement by or on the part of Carmi
or Insurance Agency;
(v) it shall reasonably determine that the Merger contemplated by
this Agreement has become inadvisable or impracticable by
reason of commencement or threat of any claim, litigation or
proceeding against ONB, Carmi, Insurance Agency or any
subsidiary of ONB, or any director or officer of any of such
entities (A) relating to this Agreement or the Merger or (B)
which is likely to have a material adverse effect on the
business, assets, capitalization, financial condition or
results of operations of Carmi on a consolidated basis; or
(vi) there has been a material adverse change in the business,
assets, capitalization, financial condition or results of
operations of Carmi as of the Effective Time as compared to
that in existence as of December 31, 1995, other than any
change resulting primarily by reason of changes in banking
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<PAGE>
laws or regulations (or interpretations thereof), changes in
the general level of interest rate or changes in economic,
financial or market conditions affecting the banking industry
generally in Carmi's market area.
(c) By Carmi, if:
(i) there has been a misrepresentation or a breach of any warranty
by or on the part of ONB in its representations and warranties
set forth in this Agreement which has had or would be expected
to have, in the reasonable discretion of Carmi, a material
adverse effect on the business, assets, capitalization,
financial condition or results of operation of ONB on a
consolidated basis;
(ii) there has been a breach of or failure to comply with any
covenant set forth in this Agreement by or on the part of ONB;
(iii) there has been a material adverse change in the financial
condition, results of operations, business, assets or
capitalization of ONB on a consolidated basis as of the
Effective Time as compared to that in existence on December 31,
1995, other than any change resulting primarily by reason of
changes in banking laws or regulations (or interpretations
thereof), changes in the general level of interest rate or
changes in economic, financial or market conditions affecting
the banking industry generally in the regions in which ONB and
its subsidiaries operate; or
(iv) it shall reasonably determine that the Merger contemplated by
this Agreement has become inadvisable or impracticable by
reason of commencement or threat of any material claim,
litigation or proceeding against ONB (A) relating to this
Agreement or the Merger or (B) which is likely to have a
material adverse effect on the business, assets,
capitalization, financial condition or results of operations of
ONB on a consolidated basis.
9.02. Effect of Termination. Upon termination by written notice, this
Agreement shall be of no further force or effect, and there shall be no further
obligations or restrictions on future activities on the part of ONB, Carmi,
Merger Bank and their respective directors, officers, employees, agents and
shareholders, except as provided in compliance with the confidentiality
provisions of this Agreement set forth in Section 6.09 and Section 7.06 hereof
and the payment of expenses set forth in Section 12.09 hereof.
SECTION 10
EFFECTIVE TIME OF THE MERGER
----------------------------
Upon the terms and subject to the conditions specified in this Agreement,
the Merger shall become effective at the close of business on the day and at the
time specified in the Articles of Merger of Carmi with and into Merger Bank as
filed with the OCC ("Effective Time"). Unless otherwise mutually agreed to by
the parties hereto, the Effective Time shall occur on the last business day of
the month following (a) the fulfillment of all conditions precedent to the
Merger
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<PAGE>
set forth in Section 8 of this Agreement and (b) the expiration of all
waiting periods in connection with the bank regulatory applications filed for
the approval of the Merger.
SECTION 11
CLOSING
-------
11.01. Closing Date and Place. So long as all conditions precedent set
forth in Section 8 have been satisfied and fulfilled, the closing of the Merger
("Closing") shall take place on the Effective Time at a location to be
reasonably determined by ONB.
11.02. Deliveries. (a) At the Closing, ONB shall deliver to Carmi the
following:
(i) an opinion of its counsel dated as of the Effective Time and
substantially in the form set forth in Exhibit C attached
hereto;
(ii) the officers' certificate contemplated by Section 8.02(h)
hereof;
(iii) copies of all approvals by government regulatory agencies
necessary to consummate the Merger;
(iv) copies of the resolutions of the Board of Directors of ONB and
Merger Bank and ONB, as the sole shareholder of Merger Bank,
certified by the Secretary of ONB and the Cashier of Merger
Bank, respectively, relative to the approval of this Agreement
and the Merger; and
(v) such other documents as Carmi or its legal counsel may
reasonably request.
(b) At the Closing, Carmi shall deliver to ONB the following:
(i) an opinion of its special and general legal counsel dated as of
the Effective Time and substantially in the form set forth in
Exhibit D and Exhibit E attached hereto;
(ii) the officers' certificate contemplated by Section 8.01(g)
hereof;
(iii) a list of Carmi's shareholders as of the Effective Time
certified by the President and Cashier of Carmi;
(iv) copies of the resolutions adopted by the Board of Directors and
shareholders of Carmi, certified by the President or Cashier of
Carmi, relative to the approval of this Agreement and the
Merger; and
(v) such other documents as ONB or its legal counsel may reasonably
request.
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<PAGE>
SECTION 12
MISCELLANEOUS
-------------
12.01. Effective Agreement. This Agreement shall be binding upon and
inure to the benefit of the respective parties hereto and their respective
successors and assigns; provided, however, that this Agreement may not be
assigned by any party hereto without the prior written consent of the other
parties hereto; provided, however, that no such extension, waiver or amendment
agreed to after authorization of this Agreement by the shareholders of Carmi
shall affect the rights of such shareholders in any manner which is materially
adverse to such shareholders. The representations, warranties, covenants and
agreements contained in this Agreement are for the sole benefit of the parties
hereto and their successors and assigns, and they shall not be construed as
conferring any rights on any other persons except as specifically set forth in
this Agreement, including, but not limited to, Sections 7.03, 7.06, 7.08 and
7.09 hereof.
12.02. Waiver; Amendment. (a) The parties hereto may by an instrument in
writing: (i) extend the time for the performance of or otherwise amend any of
the covenants, conditions or agreements of the other parties under this
Agreement; (ii) waive any inaccuracies in the representations or warranties of
the other parties contained in this Agreement or in any document delivered
pursuant hereto or thereto; (iii) waive the performance by the other parties of
any of the covenants or agreements to be performed by it or them under this
Agreement; or (iv) waive the satisfaction or fulfillment of any condition, the
nonsatisfaction or nonfulfillment of which is a condition to the right of the
party so waiving to consummate the Merger. The waiver by any party hereto of a
breach of or noncompliance with any provision of this Agreement shall not
operate or be construed as a continuing waiver or a waiver of any other or
subsequent breach or noncompliance hereunder.
(b) This Agreement may be amended, modified or supplemented only by a
written agreement executed by the parties hereto.
12.03. Notices. All notices, requests and other communications hereunder
shall be in writing (which shall include telecopier communication) and shall be
deemed to have been duly given if delivered by hand and receipted for, sent by
certified United States Mail, return receipt requested, first class postage pre-
paid, delivered by overnight express receipted delivery service or telecopied if
confirmed immediately thereafter by also mailing a copy of such notice, request
or other communication by certified United States Mail, return receipt
requested, with first class postage pre-paid as follows:
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<PAGE>
If to ONB: with a copy to (which shall not
constitute notice):
Old National Bancorp Krieg DeVault Alexander & Capehart
420 Main Street One Indiana Square, Suite 2800
P.O. Box 718 Indianapolis, Indiana 46204-2017
Evansville, Indiana 47705 ATTN: Nicholas J. Chulos, Esq.
ATTN: Jeffrey L. Knight, Secretary Telephone: (317) 238-6224
and General Counsel Telecopier: (317) 636-1507
Telephone: (812) 464-1363
Telecopier: (812) 464-1567
If to Carmi: with a copy to (which shall not
constitute notice):
The National Bank of Carmi Barack, Ferrazzano, Kirschbaum
116 West Main Street & Perlman
P.O. Box 160 333 West Wacker Drive, Suite 2700
Carmi, Illinois 62821-0160 Chicago, Illinois 60606
ATTN: James L. Whetstone, President ATTN: Dennis R. Wendte, Esq.
Telephone: (618) 382-4136 Telephone: (312) 984-3100
Telecopier: (618) 382-3864 Telecopier: (312) 984-3150
or such substituted address or person as any of them have given to the other in
writing. All such notices, requests or other communications shall be effective:
(a) if delivered by hand, when delivered; (b) if mailed in the manner provided
herein, five (5) 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 herein.
12.04. Headings. The headings in this Agreement have been inserted solely
for ease of reference and should not be considered in the interpretation or
construction of this Agreement.
12.05. Severability. In case any one or more of the provisions contained
herein shall, for any reason, be held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement, but this Agreement shall be construed as
if such invalid, illegal or unenforceable provision or provisions had never been
contained herein.
12.06. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts shall
together constitute one and the same instrument.
12.07. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Indiana and applicable federal laws.
12.08. Entire Agreement. This Agreement supersedes all other prior or
contemporaneous understandings, commitments, representations, negotiations or
agreements, whether oral or written,
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<PAGE>
among the parties hereto relating to the Merger or matters contemplated herein
and constitutes the entire agreement between the parties hereto. Upon the
execution of this Agreement by all the parties hereto, the preliminary non-
binding letter of intent, dated November 20, 1995, executed by ONB and Carmi,
and any and all other prior writings of either party relating to the Merger,
shall terminate and shall be rendered of no further force or effect. The parties
hereto agree that each party and its counsel reviewed and revised this Agreement
and that the normal rule of construction to the effect that any ambiguities are
to be resolved against the drafting party shall not be employed in the
interpretation of this Agreement or any amendments or exhibits hereto.
12.09. Expenses. ONB shall pay its expenses incidental to the Merger
contemplated hereby. Carmi shall pay its expenses incidental to the Merger
contemplated hereby; provided, however, that the expenses related to the tax
opinion contemplated by Sections 8.01(h) and 8.02(i) hereof shall be paid by
ONB.
12.10 Certain References. Whenever in this Agreement a singular word is
used, it also shall include the plural wherever required by the context and
vice-versa. Except expressly stated otherwise, all references in this Agreement
to periods of days shall be construed to refer to calendar, not business, days.
The term "business day" shall mean any day except Saturday and Sunday when Old
National Bank in Evansville, the lead bank of ONB, is open for the transaction
of business.
12.11 Disclosure Schedule. The Disclosure Schedule attached hereto is
intended to be and hereby is specifically made a part of this Agreement.
* * * * * * *
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<PAGE>
IN WITNESS WHEREOF, ONB and Carmi have made and entered into this Agreement
as of the day and year first above written and have caused this Agreement to be
executed, attested in counterparts and delivered by their duly authorized
officers.
OLD NATIONAL BANCORP
By: /s/ RONALD B. LANKFORD
------------------------
Ronald B. Lankford, President and
ATTEST: Chief Operating Officer
By:/s/ JEFFREY L. KNIGHT
-----------------------
Jeffrey L. Knight, Secretary
THE NATIONAL BANK OF CARMI
By: /s/ JAMES L. WHETSTONE
------------------------
James L. Whetstone, President and
ATTEST: Chief Executive Officer
By:/s/ WILLIAM KENT FULKERSON
----------------------------
William Kent Fulkerson, Cashier
A majority of the Board of Directors of The National Bank of Carmi.
/s/ DAVID M. BROWN /s/ JOHN K. RICE
- ------------------------ -----------------------
David M. Brown John K. Rice, Chairman
/s/ JAMES R. CANTRELL /s/ JOHN D. STANLEY
- ------------------------ -----------------------
James R. Cantrell John D. Stanley
/s/ REBECCA A. DRONE /s/ MARK R. STANLEY
- ------------------------ -----------------------
Rebecca A. Drone Mark R. Stanley
/s/ DONALD R. DUVALL /s/ JAMES L. WHETSTONE
- ------------------------ -----------------------
Donald R. Duvall James L. Whetstone
A-42
<PAGE>
FIRST AMENDMENT
TO
AGREEMENT OF AFFILIATION AND MERGER
THIS FIRST AMENDMENT TO AGREEMENT OF AFFILIATION AND MERGER ("Amendment")
is made and entered into as of the 9th day of April, 1996, by and among OLD
NATIONAL BANCORP ("ONB"), THE NATIONAL BANK OF CARMI ("Carmi"), and CARMI MERGER
BANK, N.A. ("Merger Bank").
WHEREAS, ONB and Carmi are parties to that certain Agreement of Affiliation
and Merger dated March 15, 1996 ("Agreement"); and
WHEREAS, the Agreement contemplates that Merger Bank, upon its formation,
shall become a party thereto; and
WHEREAS, Merger Bank has been formed and desires to become a party to the
Agreement; and
WHEREAS, ONB and Carmi have previously authorized and approved this
Amendment to cause Merger Bank to become a party to the Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual
representations, warranties, covenants and undertakings contained in the
Agreement, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. Upon the execution of this Amendment by all of the parties hereto,
Merger Bank shall become a party to the Agreement, having all rights and
obligations granted to or imposed upon it therein.
2. The parties hereto shall have the right to restate the Agreement to
reflect the provisions set forth in this Amendment upon the due execution
hereof.
3. Upon execution of this Amendment by all of the parties hereto, the
Agreement, as amended hereby, shall constitute a plan of reorganization and a
plan of merger pursuant to the provisions of 12 U.S.C. (S)215, as amended.
4. This Amendment shall not amend, modify or supplement the terms,
conditions or provisions of the Agreement, the terms and provisions of which are
incorporated by reference herein, except as expressly provided herein and agreed
upon by the parties hereto. ONB, Carmi and Merger Bank agree that, except as
expressly provided herein, all of the representations, warranties, covenants and
provisions of the Agreement shall remain and continue in full force and effect
in accordance with their original terms.
5. Merger Bank represents and warrants to Carmi that its authorized
shares of capital stock at the Effective Time (as defined in the Agreement) will
consist of 20,000 shares of common stock, $5.00 par value per share, all of
which shares shall be outstanding and issued to ONB (such
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<PAGE>
issued and outstanding shares are referred to herein as "Merger Bank Common
Stock"). Such issued and outstanding shares of Merger Bank Common Stock will
have been duly and validly authorized by all necessary corporate action of
Merger Bank, will be validly issued, fully paid and nonassessable (except to the
extent provided by 12 U.S.C. (S)55, as amended), and will not have been issued
in violation of any pre-emptive rights of any present or former Merger Bank
shareholder. Merger Bank has no common stock authorized, issued or outstanding
other than as described in this Section 5 and has no intention or obligation to
authorize or issue any other capital stock or any additional shares of Merger
Bank Common Stock. As of the Effective Time, Merger Bank will have total capital
of approximately $120,000, which will consist of common stock of $100,000,
capital surplus of $20,000 and undivided profits of $-0-. Each share of Merger
Bank Common Stock is entitled to one vote per share.
6. This Amendment may be executed in any number of counterparts, each of
which shall be an original, but such counterparts shall together constitute one
and the same instrument.
7. This Amendment shall be governed by and construed in accordance with
the laws of the State of Indiana.
* * * * * * *
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<PAGE>
IN WITNESS WHEREOF, ONB, Carmi and Merger Bank have caused this First
Amendment to Agreement of Affiliation and Merger as of the day and year first
above written and have caused this Agreement to be executed, attested in
counterparts and delivered by their duly authorized officers.
OLD NATIONAL BANCORP
By: /s/ RONALD B. LANKFORD
---------------------------------
Ronald B. Lankford, President and
ATTEST: Chief Operating Officer
/s/ JEFFREY L. KNIGHT
- --------------------------------
Jeffrey L. Knight, Secretary
THE NATIONAL BANK OF CARMI
By: /s/ JAMES L. WHETSTONE
---------------------------------
James L. Whetstone, President and
ATTEST: Chief Executive Officer
/s/ WILLIAM KENT FULKERSON
- --------------------------------
William Kent Fulkerson, Cashier
A majority of the Board of Directors of The National Bank of Carmi.
/s/ DAVID M. BROWN /s/ JOHN K. RICE
- --------------------- -----------------------
David M. Brown John K. Rice, Chairman
/s/ JAMES R. CANTRELL /s/ JOHN D. STANLEY
- --------------------- -----------------------
James R. Cantrell John D. Stanley
/s/ REBECCA A. DRONE /s/ MARK R. STANLEY
- --------------------- -----------------------
Rebecca A. Drone Mark R. Stanley
/s/ DONALD R. DUVALL /s/ JAMES L. WHETSTONE
- --------------------- -----------------------
Donald R. Duvall James L. Whetstone
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<PAGE>
CARMI MERGER BANK, N.A.
By: /s/ RONALD B. LANKFORD
------------------------------
Ronald B. Lankford, President
ATTEST:
/s/ JEFFREY L. KNIGHT
- ---------------------------
Jeffrey L. Knight, Cashier
A majority of the Board of Directors of Carmi Merger Bank, N.A.:
/s/ RONALD B. LANKFORD
- ---------------------------
Ronald B. Lankford
/s/ THOMAS F. CLAYTON
- ---------------------------
Thomas F. Clayton
/s/ STEVE H. PARKER
- ---------------------------
Steve H. Parker
/s/ JEFFREY L. KNIGHT
- ---------------------------
Jeffrey L. Knight
/s/ RONALD W. SEIB
- ---------------------------
Ronald W. Seib
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<PAGE>
APPENDIX B
----------
NATIONAL BANK ACT
DISSENTERS' RIGHTS LAW
(S) 215A. MERGER OF NATIONAL BANKS OR STATE BANKS INTO NATIONAL BANKS
(B) DISSENTING SHAREHOLDERS
If a merger shall be voted for at the called meetings by the necessary
majorities of the shareholders of each association or State bank participating
in the plan of merger, and thereafter the merger shall be approved by the
Comptroller, any shareholder of any association or State bank to be merged into
the receiving association who has voted against such merger at the meeting of
the association or bank of which he is a stockholder, or has given notice in
writing at or prior to such meeting to the presiding officer that he dissents
from the plan of merger, shall be entitled to receive the value of the shares so
held by him when such merger shall be approved by the Comptroller upon written
request made to the receiving association at any time before thirty days after
the date of consummation of the merger, accompanied by the surrender of his
stock certificates.
(C) VALUATION OF SHARES
The value of the shares of any dissenting shareholder shall be ascertained,
as of the effective date of the merger, by an appraisal made by a committee of
three persons, composed of (1) one selected by the vote of the holders of the
majority of the stock, the owners of which are entitled to payment in cash; (2)
one selected by the directors of the receiving association; and (3) one
selected by the two so selected. The valuation agreed upon by any two of the
three appraisers shall govern. If the value so fixed shall not be satisfactory
to any dissenting shareholder who has requested payment, that shareholder may,
within five days after being notified of the appraised value of his shares,
appeal to the Comptroller, who shall cause a reappraisal to be made which shall
be final and binding as to the value of the shares of the appellant.
(D) APPLICATION TO SHAREHOLDERS OF MERGING ASSOCIATIONS: APPRAISAL BY
COMPTROLLER; EXPENSES OF RECEIVING ASSOCIATION; SALE AND RESALE OF SHARES;
STATE APPRAISAL AND MERGER LAW
If, within ninety days from the date of consummation of the merger, for any
reason one or more of the appraisers is not selected as herein provided, or the
appraisers fail to determine the value of such shares, the Comptroller shall
upon written request of any interested party cause an appraisal to be made which
shall be final and binding on all parties. The expenses of the Comptroller in
making the reappraisal or the appraisal, as the case may be, shall be paid by
the receiving association. The value of the shares ascertained shall be
promptly paid to the dissenting shareholders by the receiving association. The
shares of stock of the receiving association which would have been delivered to
such dissenting shareholders had they not requested payment shall be sold by the
receiving association at an advertised public auction, and the receiving
association shall have the right to purchase any of such shares at such public
auction, if it is the highest bidder therefor, for the purpose of reselling such
shares within thirty days thereafter to such person or persons and at such price
not less than par as its board of directors by resolution may determine. If the
shares are sold at public auction at a price greater than the amount paid to the
dissenting shareholders, the excess in such sale price shall be paid to such
dissenting
B-1
<PAGE>
shareholders. The appraisal of such shares of stock in any State
bank shall be determined in the manner prescribed by the law of the State in
such cases, rather than as provided in this section, if such provision is made
in the State law; and no such merger shall be in contravention of the law of
the State under which such bank is incorporated. The provisions of this
subsection shall apply only to shareholders of (and stock owned by them in) a
bank or association being merged into the receiving association.
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<PAGE>
APPENDIX C
----------
NOTICES
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
(Docket No. 92-3)
Stock Appraisals
Monday, March 16, 1992
To: Chief Executive Officers of National Banks, Deputy Comptrollers
(District), Department and Division Heads, and Examining Personnel.
PURPOSE
This Banking Circular informs all national banks of the valuation methods
used by the Office of the Comptroller of the Currency (OCC) to estimate the
value of a bank's shares when requested to do so by a shareholder dissenting to
the conversion, merger, or consolidation of its bank. The results of appraisals
performed by the OCC between January 1, 1985, and September 30, 1991 are
summarized.
REFERENCES: 12 U.S.C. 214a, 215 and 215a; 12 CFR 11.590 (item 2)
BACKGROUND
Under 12 U.S.C. 214a, a shareholder dissenting from a conversion,
consolidation, or merger involving a national bank is entitled to receive the
value of his or her shares from the resulting bank. A valuation of the shares
shall be made by a committee of three appraisers (a representative of the
dissenting shareholder, a representative of the resulting bank, and a third
appraiser selected by the other two). If the committee is formed and renders an
appraisal that is acceptable to the dissenting shareholder, the process is
complete and the appraised value of the shares is paid to the dissenting
shareholder by the resulting bank. If, for any reason, the committee is not
formed or if it renders an appraisal that is not acceptable to the dissenting
shareholder, an interested party may request an appraisal by the OCC. 12 U.S.C.
215 provides these appraisal rights to any shareholder dissenting to a
consolidation. Any dissenting shareholder of a target bank in a merger is also
entitled to these appraisal rights pursuant to 12 U.S.C. 215a.
The above provides only a general overview of the appraisal process. The
specific requirements of the process are set forth in the statutes themselves.
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<PAGE>
METHODS OF VALUATION USED
Through its appraisal process, the OCC attempts to arrive at a fair
estimate of the value of a bank's shares. After reviewing the particular facts
in each case and the available information on a bank's shares, the OCC selects
an appropriate valuation method, or combination of methods, to determine a
reasonable estimate of the shares' value.
Market Value
The OCC uses various methods to estimate the market value of shares being
appraised. If sufficient trading in the shares exists and the prices are
available from direct quotes from the Wall Street Journal or a market-maker,
those quotes are considered in determining the market value. If no market value
is readily available, or if the market value available is not well established,
the OCC may use other methods of estimating market value, such as the investment
value and adjusted book value methods.
Investment Value
Investment value requires an assessment of the value to investors of a
share in the future earnings of the target bank. Investment value is estimated
by applying an average price/earnings ratio of banks with similar earnings
potential to the earnings capacity of the target bank.
The peer group selection is based on location, size, and earnings patterns.
If the state in which the subject bank is located provides a sufficient number
of comparable banks using location, size and earnings patterns as the criteria
for selection, the price/earnings ratios assigned to the banks are applied to
the earnings per share estimated for the subject bank. In order to select a
reasonable peer group when there are too few comparable independent banks in a
location that is comparable to that of the subject bank, the pool of banks from
which a peer group is selected is broadened by including one-bank holding
company banks in a comparable location, and/or by selecting banks in less
comparable locations, including adjacent states, that have earnings patterns
similar to the subject bank.
Adjusted Book Value
The OCC also uses an "adjusted book value" method for estimating value.
Historically, the OCC has not placed any weight on the bank's "unadjusted book
value", since that value is based on historical acquisition costs of the bank's
assets, and does not reflect investors' perceptions of the value of the bank as
an ongoing concern. Adjusted book value is calculated by multiplying the book
value of the target bank's assets per share times the average market price to
book value ratio of comparable banking organizations. The average market price
to book value ratio measures the premium or discount to book value, which
investors attribute to shares of similarly situated banking organizations.
Both the investment value method and the adjusted book value method present
appraised values, which are based on the target bank's value as a going concern.
These techniques provide estimates of the market value of the shares of the
subject bank.
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<PAGE>
OVERALL VALUATION
The OCC may use more than one of the above-described methods in deriving
the value of shares of stock. If more than one method is used, varying weights
may be applied in reaching an overall valuation. The weight given to the value
by a particular valuation method is based on how accurately the given method is
believed to represent market value. For example, the OCC may give more weight
to a market value representing infrequent trading by shareholders than to the
value derived from the investment value method when the subject bank's earnings
trend is so irregular that it is considered to be a poor predictor of future
earnings.
Purchase Premiums
For mergers and consolidations, the OCC recognizes that purchase premiums
do exist and may, in some instances, be paid in the purchase of small blocks of
shares. However, the payment of purchase premiums depends entirely on the
acquisition or control plans of the purchasers, and such payments are not
regular or predictable elements of market value. Consequently, the OCC's
valuation methods do not include consideration of purchase premiums in arriving
at the value of shares.
STATISTICAL DATA
The chart below lists the results of appraisals the OCC performed between
January 1, 1985, and September 30, 1991. The OCC provides statistical data on
book value and price/earnings ratios for comparative purposes, but does not
necessarily rely on such data in determining the value of the banks' shares.
Dissenting shareholders should not view these statistics as determinative for
future appraisals.
In connection with disclosures given to shareholders under 12 CFR 11.590
(Item 2), banks may provide shareholders a copy of this Banking Circular or
disclose the information contained in the Banking Circular, including the
results of OCC appraisals. If the bank discloses the past results of the OCC
appraisals, it should advise shareholders that: (1) The OCC did not rely on all
the information set forth in the chart in performing each appraisal; and, (2)
the OCC's past appraisals are not necessarily determinative of its future
appraisals of a particular bank's shares.
APPRAISAL RESULTS
<TABLE>
<CAPTION>
Average price
Appraisal earnings ratio
Appraisal Date Value Price Offered Book Value of peer group
<S> <C> <C> <C> <C>
1/1/85 107.05 110.00 178.29 5.3
1/2/85 73.16 NA 66.35 6.8
1/15/85 53.41 60.00 83.95 4.8
1/31/85 22.72 20.00 38.49 5.4
2/1/85 30.63 24.00 34.08 5.7
</TABLE>
C-3
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
1/1/85 107.05 110.00 178.29 5.3
2/25/85 27.74 27.55 41.62 5.9
4/30/85 25.98 35.00 42.21 4.5
7/30/85 3,153.10 2,640.00 6,063.66 NC
9/1/85 17.23 21.00 21.84 4.7
11/22/85 316.74 338.75 519.89 5.0
11/22/85 30.28 NA 34.42 5.9
1/12/86 19.93 NA 26.37 7.0
3/14/86 59.02 200.00 132.20 3.1
4/21/86 40.44 35.00 43.54 6.4
5/2/86 15.50 16.50 23.69 5.0
7/3/86 405.74 NA 612.82 3.9
7/31/86 297.34 600.00 650.63 4.4
8/22/86 103.53 106.67 136.23 NC
12/26/86 16.66 NA 43.57 4.0
12/31/86 53.39 95.58 69.66 7.1
5/1/87 186.42 NA 360.05 5.1
6/11/87 50.46 70.00 92.35 4.5
6/11/87 38.53 55.00 77.75 4.5
7/31/87 13.10 NA 20.04 6.7
8/26/87 55.92 57.52 70.88 NC
8/31/87 19.55 23.75 30.64 5.0
8/31/87 10.98 NA 17.01 4.2
10/6/87 56.48 60.00 73.11 5.6
3/15/88 297.63 NA 414.95 6.2
6/2/88 27.26 NA 28.45 5.4
6/30/88 137.78 NA 215.36 6.0
8/30/88 768.62 677.00 1,090.55 10.7
3/31/89 773.62 NA 557.30 7.9
</TABLE>
C-4
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
5/26/89 136.47 180.00 250.42 4.5
5/29/90 9.87 NA 11.04 9.9
</TABLE>
- -----------------------------------------------------------------
*The "Appraisal Date" is the consummation date for the conversion,
consolidation, or merger.
NA--Not Available.
NC--Not Computed.
For more information regarding the OCC's stock appraisal process, contact
the Office of the Comptroller of the Currency, Bank Organization and Structure.
Dated: February 26, 1992.
Robert L. Clarke,
Comptroller of the Currency.
C-5
<PAGE>
APPENDIX D
April 9, 1996
Board of Directors
The National Bank of Carmi
116 West Main Street
Carmi, Illinois 62821
Members of the Board:
We understand that The National Bank of Carmi ("Carmi") has entered into an
Agreement of Affiliation and Merger dated March 15, 1996 (the "Agreement") with
Old National Bancorp ("ONB") pursuant to which Carmi will be merged into a
wholly-owned subsidiary of ONB (the "Merger"). Under the terms of the Agreement,
each outstanding share of Carmi Common Stock will be converted into 3.885 shares
of ONB Common Stock. Should the average of the closing prices of ONB Common
Stock, as quoted on the Nasdaq National Market System, be more than 10% above or
below $32.50 per share ($35.75 above or $29.25 below), then the exchange ratio
would be adjusted as provided in the Agreement so as to permit no more than a
10% deviation from the $32.50 value. In addition, Carmi shareholders will
receive as cash dividends the equivalent of the net income of Carmi from January
1, 1996 to closing. You have requested that we render to you our opinion, as
investment bankers, as to the fairness, from a financial point of view, of the
terms of the Merger to the stockholders of Carmi.
Prairie Capital Services, Inc. ("Prairie Capital") is an investment banking
firm that specializes in providing investment banking and financial advisory
services to banks, thrifts and related holding companies. The principals of
Prairie Capital have performed many independent valuations of bank and thrift
securities and rendered related fairness opinions. The principals of Prairie
Capital have significant experience in management and operations, strategic
planning, investment banking and investment research relating to banks and
thrifts.
In arriving at our opinion, we have reviewed and analyzed, among other
data: (1) the annual reports to shareholders of Carmi for the years ended
December 31, 1990 through 1994 with financial statements unaudited in 1990
through 1992 and audited in 1993 and 1994 and unaudited interim financial
statements as of and for the eleven months ended November 30, 1995; (2) the
annual reports and 10-K SEC filings for ONB for the years ended December 31,
1990 through 1994, the quarterly reports to stockholders and 10-Q filings for
the first three quarters of 1995, five proxy statements/prospectuses on
transactions completed by ONB in 1995 and a news release dated January 29, 1996
with the unaudited financial statements for the year ended December 31, 1995;
(3) copies of the Agreement of Affiliation and Merger dated March 15, 1996; (3)
draft copies of the S-4 Registration Statement and Proxy Statement/Prospectus;
(4) publicly-available information on the common stock prices and financial
performance of selected Midwestern bank holding companies and ONB; (5) the
announced terms of selected small and medium-sized Midwestern bank merger and
acquisition transactions from September, 1994 through December, 1995; (5) other
information Prairie Capital deemed relevant; and (5) other internal financial
and operating
D-1
<PAGE>
The National Bank of Carmi
April 9, 1996
Page 2
information which was provided to Prairie Capital by Carmi and ONB. In addition,
we have discussed the foregoing, as well as other matters we deemed relevant to
our inquiry, with members of Carmi and ONB senior managements.
Prairie Capital reviewed and analyzed ONB Common Stock and financial
performance in relation to the common stocks and financial performances of other
Midwestern bank holding companies. We also gathered information on other small
and medium-sized Midwestern bank merger and acquisition transactions and
compared those relevant transaction with the Merger. Several analyses were made
that compared projected values for Carmi shareholders from Carmi operating
independently and from the ONB Common Stock to be received in the Merger.
Prairie Capital also took into account its assessment of general economic,
market and financial conditions and its experience in other transactions, as
well as its experience in securities valuation and its knowledge of the banking
industry generally. Prairie Capital's opinion was necessarily based upon
conditions as they existed and could be evaluated on the date hereof and
information made available to Prairie Capital through the date thereof.
We assumed and relied upon, without independent verification, the accuracy
and completeness of the information reviewed by us for the purposes of our
opinion. Prairie Capital did not make any independent valuation or appraisal of
the assets or liabilities of Carmi and ONB, nor was Prairie Capital furnished
with any such appraisals. Prairie Capital assumed, without independent
verification, that the aggregate allowances and reserves for loan and lease
losses of Carmi and ONB were adequate to cover such losses.
Based on the foregoing and such other factors as we deem relevant, it is
our opinion as investment bankers that, as of the date hereof, the terms of the
Merger are fair, from a financial point of view, to the stockholders of Carmi.
Very truly yours,
/s/ PRAIRIE CAPITAL SERVICES, INC.
D-2
