Rule 424(b)(3)
Registration No. 333-09967
August 26, 1996
Dear Shareholder:
You are cordially invited to attend the Special Meeting of
Shareholders of Workingmens Capital Holdings, Inc. ("WCHI"), to be held
at the main office of WCHI located at 121 East Kirkwood Avenue in
Bloomington, Indiana, on September 24, 1996, at 1:00 p.m., local time.
The purpose of the Special Meeting is to consider and vote upon
the Agreement of Affiliation and Merger ("Agreement"), dated as of April
8, 1996, by and among Old National Bancorp ("ONB"), ONB Bank, WCHI and
Workingmens Federal Savings Bank ("WFSB"). Under the terms of the
Agreement, WCHI will merge with and into ONB, and each outstanding share
of WCHI common stock will be converted into the right to receive 0.64
shares of ONB common stock, subject to adjustment as described in the
Agreement, a copy of which is attached to the accompanying Proxy
Statement-Prospectus.
The Board of Directors of WCHI believes that the proposed
affiliation between ONB and WCHI is in the best interests of the
shareholders of WCHI and the customers and employees of WFSB and the
communities which WFSB serves. Your Board of Directors has unanimously
approved the Agreement and recommends that the shareholders approve it.
Enclosed with this letter are (i) a Notice of Special Meeting
of Shareholders, (ii) a Proxy Statement-Prospectus containing
information about the Special Meeting and the proposed affiliation,
(iii) a proxy card for you to complete, sign, date and return, and (iv)
a postage pre-paid envelope for your use to return your proxy card to
WCHI. We encourage you to read the enclosed materials carefully and in
their entirety.
Whether or not you attend the Special Meeting, your Board of
Directors requests that you complete, sign and date the enclosed proxy
card and return it in the enclosed postage pre-paid envelope at your
earliest convenience prior to the Special Meeting. If you desire, you
may cancel your proxy at any time before it is voted at the Special
Meeting.
Please give this matter your careful consideration.
Sincerely,
/s/ Richard R. Haynes
------------------------
Richard R. Haynes
President and Chief Executive Officer
<PAGE>
WORKINGMENS CAPITAL HOLDINGS, INC.
121 East Kirkwood Avenue
Bloomington, Indiana 47408
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
to be held on September 24, 1996
To Our Shareholders:
Notice is hereby given that, pursuant to the call of the Board of
Directors, the Special Meeting of Shareholders of Workingmens Capital
Holdings, Inc. ("WCHI") will be held on September 24, 1996, at 1:00
p.m., local time, at the main office of WCHI located at 121 East
Kirkwood Avenue in Bloomington, Indiana.
The purposes of the Special Meeting are:
1. Affiliation with Old National Bancorp. To consider and vote
upon the Agreement of Affiliation and Merger, dated as of April
8, 1996, among Old National Bancorp, Evansville, Indiana
("ONB"), ONB Bank, WCHI, and Workingmens Federal Saving Bank.
Under the terms of the Agreement, WCHI will affiliate with ONB
and each outstanding share of WCHI common stock will be
converted into the right to receive 0.64 shares of ONB common
stock, subject to adjustment, if any, as described in the
accompanying Proxy Statement-Prospectus; and
2. Other Business. 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 August
12, 1996, will be entitled to notice of, and to vote at, the Special
Meeting and any adjournment thereof.
August 26, 1996
BY ORDER OF THE BOARD OF DIRECTORS
RICHARD R. HAYNES
PRESIDENT AND CHIEF EXECUTIVE OFFICER
YOUR VOTE IS IMPORTANT ~ PLEASE MAIL YOUR PROXY PROMPTLY.
THE AFFIRMATIVE VOTE OF THE HOLDERS OF AT LEAST A MAJORITY
OF THE OUTSTANDING SHARES OF WCHI 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 REVOCABLE PROXY IN THE ENVELOPE PROVIDED.
NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
<PAGE>
PROSPECTUS
OF
OLD NATIONAL BANCORP
for up to
1,181,146 Shares of Common Stock
(No Par Value)
--------------------------------
This Prospectus also constitutes
the Proxy Statement
of
WORKINGMENS CAPITAL HOLDINGS, INC.
for the
Special Meeting of Shareholders
to be held on September 24, 1996
--------------------------------
This Proxy Statement-Prospectus ("Proxy Statement") constitutes
the Prospectus of Old National Bancorp ("ONB") with respect to a maximum
of 1,181,146 shares of ONB common stock, no par value per share ("ONB
Common Stock"), being offered to the shareholders of WCHI in connection
with the proposed affiliation of ONB and WCHI. It also serves as the
Proxy Statement of WCHI in connection with the solicitation of proxies
by the Board of Directors of WCHI for use at the Special Meeting of
Shareholders to be held on September 24, 1996, and at any adjournment
thereof, for the purposes of considering and voting upon (1) a proposal
to approve the Agreement of Affiliation and Merger ("Agreement"), dated
as of April 8, 1996, among ONB, ONB Bank, WCHI and Workingmens Federal
Savings Bank ("WFSB"), 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, WCHI will affiliate with ONB and each outstanding
share of WCHI common stock, no par value per share ("WCHI Common
Stock"), will be converted into the right to receive 0.64 shares of ONB
Common Stock ("Exchange Ratio"), subject to adjustment, if any, in the
event of certain changes in the market price of ONB Common Stock or a
recapitalization or similar transaction involving ONB Common Stock. ONB
will pay cash for any fractional share interests resulting from the
Exchange Ratio. The proposed affiliation is subject to approval by the
holders of at least a majority of the outstanding shares of WCHI Common
Stock, receipt of required regulatory approvals and certain other
conditions 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 August 26, 1996.
<PAGE>
TABLE OF CONTENTS
PAGE
----
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . i
INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . i
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
SUMMARY OF SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . viii
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 1
PROPOSED AFFILIATION . . . . . . . . . . . . . . . . . . . . . . . . . 2
Description of the Affiliation . . . . . . . . . . . . . . . . 2
Background of and Reasons for the Affiliation . . . . . . . . 2
Opinion of Financial Advisor to WCHI . . . . . . . . . . . . . 4
Recommendation of the Board of Directors . . . . . . . . . . . 9
Exchange of WCHI Common Stock . . . . . . . . . . . . . . . . 10
No Dissenters' or Appraisal Rights. . . . . . . . . . . . . . 12
Resale of ONB Common Stock by WCHI Affiliates . . . . . . . . 12
Conditions to Consummation . . . . . . . . . . . . . . . . . . 13
Termination . . . . . . . . . . . . . . . . . . . . . . . . . 13
Restrictions Affecting WCHI . . . . . . . . . . . . . . . . . 14
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . 14
Accounting Treatment for the Affiliation . . . . . . . . . . . 14
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . 14
Management, Personnel and Operations After the Affiliation . . 15
Interests of Certain Persons in the Affiliation . . . . . . . 17
FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . . . . . . . . . 18
Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . 18
Tax Consequences to ONB, ONB Bank, WCHI and WFSB . . . . . . . 18
Tax Consequences to WCHI Shareholders . . . . . . . . . . . . 18
COMPARATIVE PER SHARE DATA . . . . . . . . . . . . . . . . . . . . . . 19
Nature of Trading Market . . . . . . . . . . . . . . . . . . . 19
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Existing and Pro Forma Per Share Information . . . . . . . . . 21
PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . 23
DESCRIPTION OF ONB . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Acquisition Policy . . . . . . . . . . . . . . . . . . . . . . 31
Incorporation of Certain Information by Reference . . . . . . 31
<PAGE>
TABLE OF CONTENTS
(continued)
PAGE
----
DESCRIPTION OF WCHI . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Transactions with Certain Related Persons . . . . . . . . . . 31
Incorporation of Certain Information by Reference . . . . . . 32
REGULATORY CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . 32
Regulation of ONB and Affiliates . . . . . . . . . . . . . . . 32
Regulation of WCHI . . . . . . . . . . . . . . . . . . . . . . 33
Regulation of WFSB . . . . . . . . . . . . . . . . . . . . . . 35
Capital Adequacy Guidelines . . . . . . . . . . . . . . . . . 36
Branching and Acquisitions . . . . . . . . . . . . . . . . . . 38
Interstate Banking . . . . . . . . . . . . . . . . . . . . . . 39
FDICIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Deposit Insurance . . . . . . . . . . . . . . . . . . . . . . 40
Additional Matters . . . . . . . . . . . . . . . . . . . . . . 41
COMPARISON OF COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . 42
Authorized But Unissued Shares . . . . . . . . . . . . . . . . 42
Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . 43
Dividend Rights . . . . . . . . . . . . . . . . . . . . . . . 43
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . 44
Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . 45
Liquidation Rights . . . . . . . . . . . . . . . . . . . . . . 45
Assessment and Redemption . . . . . . . . . . . . . . . . . . 45
Anti-Takeover Provisions . . . . . . . . . . . . . . . . . . . 46
Director Liability . . . . . . . . . . . . . . . . . . . . . . 49
Director Nominations . . . . . . . . . . . . . . . . . . . . . 49
OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
APPENDICES:
A. Agreement of Affiliation and Merger . . . . . . . . . A-1
B. Fairness Opinion of Trident Financial Corporation . . B-1
C. Shareholder Annual Report of WCHI for 1995 . . . . . . C-1
D. Form 10-Q of WCHI for the fiscal quarter ended
June 30, 1996 . . . . . . . . . . . . . . . . . . . D-1
<PAGE>
AVAILABLE INFORMATION
ONB and WCHI are subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and in
accordance therewith ONB and WCHI file reports, proxy statements and
other information with the Securities and Exchange Commission ("SEC").
Such reports, proxy statements and other information filed by ONB and
WCHI 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 National Association of Securities
Dealers Automated Quotation ("NASDAQ") National Market System and WCHI
Common Stock is quoted on the NASDAQ National Market System. Reports,
proxy statements and other information concerning ONB and WCHI are also
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 the affiliation with WCHI. 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 WCHI has been supplied by WCHI, 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. DOCUMENTS RELATING TO ONB MAY BE
REQUESTED FROM, JEFFREY L. KNIGHT, CORPORATE SECRETARY AND GENERAL
COUNSEL, OLD NATIONAL BANCORP, 420 MAIN STREET, P.O. BOX 718,
EVANSVILLE, INDIANA 47705, (812) 464-1363. DOCUMENTS RELATING TO WCHI
MAY BE REQUESTED FROM RICHARD R. HAYNES, PRESIDENT, WORKINGMENS CAPITAL
HOLDINGS, INC., 121 EAST KIRKWOOD AVENUE, P.O. BOX 2689, BLOOMINGTON,
INDIANA 47402, (812) 332-9465. IN ORDER TO ASSURE TIMELY DELIVERY OF
SUCH DOCUMENTS, ANY REQUESTS SHOULD BE MADE BY SEPTEMBER 17, 1996.
The following documents previously filed by ONB (SEC File No.
0-10888) and WCHI (SEC File No. 0- 18469) with the SEC pursuant to the
Exchange Act are incorporated herein by reference:
1. ONB's Quarterly Report on Form 10-Q for the quarters ended
March 31, 1996 and June 30, 1996.
2. ONB's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.
3. ONB's Annual Report to Shareholders for the fiscal year ended
December 31, 1995.
4. 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 the Registrant and Old
National Bank, as Trustee.
5. WCHI's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 and WCHI's Quarterly Reports on Form 10-Q for
the quarters ended March 31, 1996 and June 30, 1996.
6. The following information under the captions contained in the
specified pages of WCHI's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995: (a) "Business" on pages 1
to 29, (b) "Legal Proceedings" on page 29, (c) "Properties" on
page 29; and (d) "Security Ownership of Certain Beneficial
Owners and Management" on page 31.
-i-
<PAGE>
7. The following information contained in the specified pages of
WCHI's Annual Report for its fiscal year ended December 31,
1995: (a) audited consolidated financial statements of WCHI,
the notes thereto and the Independent Auditor's Report on pages
13 to 29, (b) Common Stock Data on pages 3 and 12 (under the
captions, "Selected Consolidated Financial Data of Workingmens
Capital Holdings, Inc. and Subsidiary" and "Workingmens Capital
Holdings, Inc. Quarterly Results of Operations"), (c) Selected
Consolidated Financial Data of Workingmens Capital Holdings,
Inc. and Subsidiary on page 3, and (d) Management's Discussion
and Analysis of Financial Condition and Results of Operations
on pages 4 through 11.
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.
Copies of the Annual Report of WCHI for its fiscal year ended
December 31, 1995 and its Form 10-Q for the fiscal quarter ended June
30, 1996 are attached to this Proxy Statement as Appendices C and D,
respectively, and are incorporated herein by reference as specified
above.
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.
ANY STATEMENTS CONTAINED IN THIS PROXY STATEMENT INVOLVING MATTERS OF
OPINION, WHETHER OR NOT SO STATED, ARE INTENDED AS SUCH AND NOT AS
REPRESENTATIONS OF FACT. 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 WCHI
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROXY STATEMENT.
-ii-
<PAGE>
SUMMARY
The following is a brief summary of certain information
contained elsewhere herein and was prepared to assist WCHI shareholders
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.
THE SPECIAL MEETING:
Date, Time and Place of September 24, 1996, at 1:00 p.m.,
local time, at the main office of
Special Meeting WCHI, located at 121
East Kirkwood Avenue in Bloomington,
Indiana.
Purpose of Special Meeting To consider and vote upon the
Agreement, under the terms of which
WCHI will merge with and into ONB. 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 "GENERAL
INFORMATION."
Required Shareholder Vote The affirmative vote, in person or by
on Agreement proxy, of the holders of at least a
majority of the issued and outstanding
shares of WCHI Common Stock is
required for approval of the
Agreement. As of August 12, 1996,
members of the Board of Directors and
executive officers of WCHI
beneficially owned in the aggregate,
directly and indirectly, approximately
10.3% of the outstanding shares of
WCHI Common Stock, including shares
subject to options which may be
exercised before or following the
Affiliation (as hereinafter defined).
It is expected that the shares held by
members of the Board of Directors and
executive officers of WCHI will be
voted in favor of the Agreement. See
"GENERAL INFORMATION," "PROPOSED
AFFILIATION -- Conditions to
Consummation." The approval of the
Agreement by the shareholders of
ONB is not required.
Shares Outstanding and As of August 12, 1996, there were
Entitled to Vote 1,808,560 shares of WCHI Common Stock
issued and outstanding. Shareholders
of WCHI of record at the close of
business on August 12, 1996, are
entitled to notice of, and to vote at,
the Special Meeting. See "GENERAL
INFORMATION."
Revocable Proxies Proxies are revocable at any time
before they are exercised by means of
a later dated proxy delivered to WCHI,
by written notice delivered to the
Secretary of WCHI or in person at the
Special Meeting. See "GENERAL
INFORMATION."
THE PARTIES TO THE
AFFILIATION:
Old National Bancorp As the largest independent bank
420 Main Street holding company headquartered in the
Evansville, Indiana 47708 State of Indiana, ONB owns and
(812) 464-1434 operates 25 affiliate banks with 120
offices located in the three state
area of Indiana, Illinois and
Kentucky. As of June 30, 1996, ONB
had total assets of approximately
$4.93 billion and its ratio of total
capital to risk-adjusted assets was
15.8%. This capital ratio is well in
excess of applicable regulatory
requirements. See "DESCRIPTION OF
ONB."
ONB is currently analyzing a number of
potential acquisitions. See
"DESCRIPTION OF ONB -- Acquisition
Policy."
-iii-
<PAGE>
Workingmens Capital WCHI is an Indiana corporation
Holdings, Inc. operating as a savings and loan
121 East Kirkwood Avenue holding company. It directly owns one
Bloomington, Indiana 47408 operating subsidiary, WFSB, a
(812) 332-9465 federally chartered savings bank. As
of June 30, 1996, WCHI had total
assets of approximately $208.2 million
and its ratio of total capital to
risk-adjusted assets was 21.6%. WFSB
owns one corporation, Realty
Investment Service Corporation
("RISC"). RISC's sole business is the
marketing of tax-deferred annuities as
agent for WFSB's customers. See
"DESCRIPTION OF WCHI."
THE AFFILIATION:
Description of the Under the Agreement, the affiliation
Affiliation ("Affiliation") between WCHI and ONB
involves the merger of WCHI with and
into ONB ("Company Merger") and,
following immediately thereafter, the
merger of WFSB with and into ONB Bank
("Thrift Merger"), with ONB and ONB
Bank as the surviving entities in such
mergers. ONB Bank's name will be
changed to Workingmens/ONB Bank at the
effective time of the Affiliation.
Exchange of WCHI At the effective time of the
Common Stock Affiliation, each outstanding share of
WCHI Common Stock will be converted
into the right to receive 0.64 shares
of ONB Common Stock, subject to
adjustment, if any, in the event of
certain changes in the market price of
ONB Common Stock or a recapitalization
or similar transaction involving ONB
Common Stock. No fractional shares
will be issued and ONB will pay cash
for any fractional share interests
resulting from the Exchange Ratio.
Options to acquire shares of WCHI
Common Stock will, by the terms of the
Agreement, be converted into options
to acquire shares of ONB Common Stock
following consummation of the
Affiliation. The price at which ONB
Common Stock traded on August 21,
1996, as reported by the NASDAQ
National Market System, was $36.75 per
share. See "PROPOSED AFFILIATION --
Exchange of WCHI Common Stock."
Reasons for the Affiliation After careful review and
consideration, WCHI's Board of
Directors has determined that the
terms of the Affiliation are fair to,
and in the best interest of, WCHI and
its shareholders. WCHI's Board
believes that the Affiliation will
provide significant value to all WCHI
shareholders and, at the same time,
enable holders of WCHI Common Stock to
participate in the expanded
opportunities for growth that the
Affiliation will make possible.
WCHI's Board also determined that the
Affiliation would have a positive,
long-term impact on the customers and
employees of WFSB and the communities
it serves. See "PROPOSED AFFILIATION
-- Background of and Reasons for the
Affiliation."
-iv-
<PAGE>
Opinion of WCHI's WCHI has retained Trident Financial
Financial Advisor Corporation ("Trident") as its
financial advisor in the Affiliation.
Trident rendered its preliminary
written opinion to the Board of
Directors of WCHI on April 8, 1996,
that as of the date of such opinion,
the Exchange Ratio was fair, from a
financial point of view, to the
holders of WCHI Common Stock. The
opinion was updated and confirmed on
August 26, 1996. A copy of such
opinion is attached hereto as Appendix
B and should be read in its entirety
with respect to the assumptions made
and limitations on reviews undertaken
by Trident, and other matters
regarding the opinion. See "PROPOSED
AFFILIATION -- Opinion of Financial
Advisor to WCHI."
Recommendation of the The Board of Directors of WCHI has
Board of Directors of unanimously approved the Agreement and
WCHI recommends that WCHI shareholders
approve the Agreement. See "PROPOSED
AFFILIATION -- "Background of and
Reasons for the Affiliation" and
"Recommendation of the Board of
Directors."
Conditions to the Consummation of the Affiliation is
Affiliation subject to certain conditions which
include, among others, (1) approval of
the Agreement by the affirmative vote
of the holders of at least a majority
of the outstanding shares of WCHI
Common Stock, (2) receipt of
regulatory approvals for the
Affiliation, and (3) receipt of an
opinion of counsel with respect to
certain federal income tax matters.
See "PROPOSED AFFILIATION --
Conditions to Consummation."
Termination of the The Agreement may be terminated before
Affiliation the Affiliation becomes effective upon
the occurrence of certain events which
include, among others, (1) a
misrepresentation or breach of any
representation or warranty set forth
in the Agreement by ONB or WCHI, which
would result in material adverse
change in ONB, WCHI or WFSB or RISC on
a consolidated basis with WCHI, (2) a
breach of or failure to comply with
any covenant or mutual agreement set
forth in the Agreement by ONB or WCHI,
(3) the commencement or threat of
certain claims, proceedings or
litigation, (4) a material adverse
change in any of ONB, WCHI or WFSB or
RISC on a consolidated basis with WCHI
since December 31, 1995, and (5) the
Affiliation not having been
consummated by March 31, 1997. The
parties may also mutually agree to
terminate the Agreement. See
"PROPOSED AFFILIATION -- Termination."
Effective Time of the ONB and WCHI anticipate that the
Affiliation Affiliation will be completed in the
fourth calendar quarter of 1996. See
"PROPOSED AFFILIATION - - Effective
Time."
Management, Personnel ONB will be the surviving corporation
and Operations After in the Company Merger and, upon
the Affiliation consummation thereof, WCHI's separate
corporate existence will cease. ONB
Bank will be the surviving institution
in the Thrift Merger under the name
"Workingmens/ONB Bank" and, upon
consummation thereof, WFSB's separate
corporate existence will cease. The
Directors of ONB serving at the
effective time of the Affiliation will
serve as Directors of ONB following
the effective time of the Affiliation
until otherwise determined by the
shareholders of ONB. The officers of
ONB serving at the effective time will
continue to serve in their respective
capacities until otherwise determined
by the Board of Directors of ONB. The
Board of Directors of ONB Bank
-v-
<PAGE>
following consummation of the
Affiliation will consist of the
members of the Boards of Directors of
WFSB and ONB Bank serving at the
effective time, plus four (4) new
directors to be elected either prior
to or following consummation of the
Affiliation. As of July 11, 1996, one
new director, John S. Burnham,
President of Burnham Rentals, a real
estate rental company based in
Bloomington, Indiana, had been added
as a director to WFSB's Board.
Richard R. Haynes, President and Chief
Executive Officer of WFSB, will serve
as President and Chief Executive
Officer of ONB Bank following
consummation of the Affiliation.
Robert A. Shaffer, Chairman of WFSB,
will serve as Chairman of ONB Bank
following consummation of the
Affiliation. Following the
Affiliation, employees of WFSB will
receive benefits in accordance with
the current policies and employee
benefit plans of ONB, subject to the
continuation of certain of WCHI plans
through December 31st of the year in
which the consummation of the
Affiliation occurs. See "PROPOSED
AFFILIATION - - Description of the
Affiliation" and "Management,
Personnel and Operations After the
Affiliation."
Federal Income Tax ONB and WCHI will receive an opinion
Consequences to WCHI of counsel prior to or as of the
Shareholders effective time which states that, in
general, WCHI shareholders who receive
solely ONB Common Stock in exchange
for their shares of WCHI Common Stock
will not recognize gain or loss as a
result of such share 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."
No Dissenters' Rights Shareholders of WCHI have no
dissenters' or appraisal rights in
connection with the Affiliation under
state law applicable to WCHI. See
"PROPOSED AFFILIATION -- No
Dissenters' or Appraisal Rights."
Interests of Certain Persons Certain members of management and the
in the Affiliation Board of Directors of WCHI have
interests in the Affiliation that are
in addition to those of WCHI
shareholders generally. See "PROPOSED
AFFILIATION -- Interests of Certain
Persons in the Affiliation."
Resale of ONB Certain resale restrictions apply to
Common Stock the sale or transfer of shares of ONB
Common Stock issued to directors and
executive officers and any other
affiliates of WCHI in exchange for
their shares of WCHI Common Stock. See
"PROPOSED AFFILIATION -- Resale of ONB
Common Stock by WCHI Affiliates."
Comparitive Shareholder The current rights of shareholders of
Rights ONB and shareholders of WCHI differ in
a number of respects. Upon
consummation of the Affiliation, WCHI
shareholders 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. Further, ONB
has adopted a shareholder rights plan
which may have a similar effect. See
"COMPARISON OF COMMON STOCK."
-vi-
<PAGE>
Trading Market for Shares of ONB Common Stock are traded
Common Stock on the NASDAQ National Market System.
The closing price of ONB Common Stock
as reported by the NASDAQ National
Market System was $33.25 per share on
April 8, 1996, the business day before
the Affiliation was publicly
announced, and was $36.75 per share on
August 21, 1996.
Shares of WCHI Common Stock are traded
in the over-the-counter market and are
listed on the NASDAQ National Market
System. The high and low bid prices
of WCHI Common Stock as reported by
NASDAQ were:
- $16.25 per share on April 8,
1996, the day before the
Affiliation was publicly
announced, and
- $20.875 per share on August
21, 1996.
Assuming the Affiliation had been
consummated on August 21, 1996 and
that the Exchange Ratio had been
adjusted calculated with $36.75 as the
"Average Price Per Share" pursuant to
the Agreement, WCHI shareholders
entitled to receive ONB Common Stock
would have received, in exchange for
all of the shares of WCHI Common Stock
(including shares subject to options),
1,116,865.7 shares of ONB Common Stock
having an aggregate market value of
approximately $41.0 million, which
represents $22.24 per share of WCHI
Common Stock (including cash received
in lieu of any fractional share
interest). See "COMPARATIVE PER SHARE
DATA."
-vii-
<PAGE>
SUMMARY OF SELECTED FINANCIAL DATA -- ONB
(UNAUDITED -- DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
The following summary sets forth selected consolidated
financial information relating to ONB, giving effect to the consummated
affiliation with The National Bank of Carmi, Carmi, Illinois, which
occurred on May 31, 1996. This information should be read in
conjunction with the financial statements and notes incorporated herein
by reference. In the opinion of ONB's management, the consolidated
interim financial information and summaries of interim selected
financial data contain all of the normal and recurring adjustments
necessary to present fairly the financial position of ONB.
<TABLE>
<CAPTION>
Twelve Months ended December 31,
--------------------------------
Results of Operations 1995 1994 1993 1992 1991
- --------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(Taxable equivalent basis)
Interest income $373,205 $329,297 $323,177 $337,396 $374,540
Interest expense 176,293 137,561 136,170 158,177 208,118
-------- -------- -------- -------- --------
Net interest income 196,912 191,736 187,007 179,219 166,422
Provision for loan losses 7,057 7,682 10,275 11,871 11,885
-------- -------- -------- -------- --------
Net interest income after
provision for loan losses 189,855 184,054 176,732 167,348 154,537
Noninterest income 39,435 35,023 33,780 29,343 26,715
Noninterest expense 144,540 144,634 132,598 121,037 115,474
-------- -------- -------- -------- --------
Income before income taxes 84,750 74,443 77,914 75,654 65,778
Income taxes 32,592 27,259 29,061 28,784 24,522
-------- -------- -------- -------- --------
Net income $ 52,158 $ 47,184 $ 48,853 $ 46,870 $ 41,256
======== ======== ======== ======== ========
Year-End Balances
- -----------------
Total assets $4,888,686 $4,709,450 $4,558,596 $4,255,078 $4,215,787
Total loans--net of unearned income 3,071,760 2,922,302 2,645,985 2,456,661 2,429,431
Total deposits 4,029,587 3,725,512 3,755,725 3,583,842 3,494,128
Shareholders' equity 436,109 416,704 412,263 383,994 360,803
Per Share Data (1)
- ------------------
Net income - primary $ 2.02 $ 1.78 $ 1.84 $ 1.77 $ 1.54
Net income - fully diluted (2) 1.98 1.74 1.80 1.70 1.50
Cash dividends paid 0.88 0.84 0.72 0.69 0.66
Book value at year-end 17.41 16.11 15.62 14.42 13.56
Selected Performance Ratios (based on averages)
- ---------------------------
Return on assets 1.10% 1.03% 1.10% 1.11% 1.00%
Return on equity (3) 12.38 11.18 12.37 12.70 11.95
Equity to assets 8.85 9.22 8.88 8.74 8.39
Primary capital to assets 9.75 10.16 9.76 9.60 9.19
Net charge-offs to average loans 0.27 0.30 0.27 0.33 0.40
Allowance for loan losses to average loans 1.42 1.56 1.55 1.48 1.36
</TABLE>
(1) Restated for all stock dividends and stock splits.
(2) Assumes the conversion of ONB's subordinated debentures.
(3) Excludes unrealized gains (losses) on Investment securities.
-viii-
<PAGE>
SUMMARY OF SELECTED FINANCIAL DATA -- ONB (CONTINUED)
(UNAUDITED -- DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Six Months ended June 30,
-------------------------
Results of Operations 1996 1995
- --------------------- ---- ----
<S> <C> <C>
(Taxable equivalent basis)
Interest income $191,485 $181,871
Interest expense 88,529 84,684
------- -------
Net interest income 102,956 97,187
Provision for loan losses 4,063 2,402
------- -------
Net interest income after
provision for loan losses 98,893 94,785
Noninterest income 21,313 19,362
Noninterest expense 71,769 72,417
------- -------
Income before income taxes 48,437 41,730
Income taxes 19,350 15,626
------- -------
Net income $ 29,087 $ 26,104
======= =======
Period-End Balances
- -------------------
Total assets $4,930,136 $4,745,068
Total loans--net of unearned income 3,190,348 3,018,770
Total deposits 3,978,261 3,846,991
Shareholders' equity 421,874 423,096
Per Share Data (1)
- ------------------
Net income - primary $ 1.15 $ 1.00
Net income - fully diluted (2) 1.12 0.98
Cash dividends paid 0.46 0.44
Book value at period-end 16.94 16.44
Selected Performance Ratios
- ---------------------------
(based on averages)
Return on assets 1.20% 1.11%
Return on equity (3) 13.67 12.36
Equity to assets 8.90 8.88
Primary capital to assets 9.75 9.78
Net charge-offs to average loans 0.13 0.07
Allowance for loan losses to average loans 1.37 1.46
</TABLE>
(1) Restated for all stock dividends and stock splits.
(2) Assumes the conversion of ONB's subordinated debentures.
(3) Excludes unrealized gains (losses) on investment securities.
-ix-
<PAGE>
SUMMARY OF SELECTED FINANCIAL DATA -- WCHI
(UNAUDITED -- DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
The following summary sets forth selected consolidated
financial information relating to WCHI. This information should be read
in conjunction with the financial statements and notes incorporated
herein by reference. In the opinion of WCHI's management, the
consolidated interim financial information and summaries of interim
selected financial data contain all of the normal and recurring
adjustments necessary to present fairly the financial position of WCHI.
<TABLE>
<CAPTION>
Twelve Months ended December 31,
--------------------------------
Results of Operations 1995 1994 1993 1992 1991
- --------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(Taxable equivalent basis)
Interest income $ 16,000 $ 14,088 $ 13,713 $ 14,008 $ 15,317
Interest expense 10,231 8,596 8,257 8,814 10,218
------- ------- ------- ------- -------
Net interest income 5,769 5,492 5,456 5,194 5,099
Provision for loan losses 78 72 84 48 39
------- ------- ------- ------- -------
Net interest income after
provision for loan losses 5,691 5,420 5,372 5,146 5,060
Noninterest income 242 180 213 142 121
Noninterest expense 2,761 2,650 2,488 2,414 2,342
------- ------- ------- ------- -------
Income before income taxes 3,172 2,950 3,097 2,874 2,839
Income taxes 1,209 1,126 1,207 1,129 1,108
------- ------- ------- ------- -------
Net income $ 1,963 $ 1,824 $ 1,890 $ 1,745 $ 1,731
======= ======= ======= ======= =======
Year-End Balances
- -----------------
Total assets $213,254 $204,523 $189,516 $179,082 $169,893
Total loans - net of unearned income 189,661 181,269 164,278 149,762 141,382
Total deposits 152,141 149,353 143,242 139,197 135,909
Shareholders' equity 25,684 24,152 23,323 22,143 20,857
Per Share Data
- --------------
Net income - primary $ 1.11 $ 1.03 $ 1.05 $ 0.97 $ 0.96
Net income - fully diluted 1.11 1.03 1.05 0.97 0.96
Cash dividends paid 0.33 0.29 0.265 0.245 0.21
Book value at year-end 14.45 13.67 13.02 12.25 11.61
Selected Performance Ratios
- ---------------------------
(based on averages)
Return on assets 0.94% 0.92% 1.01% 1.01% 1.06%
Return on equity 7.85% 7.70% 8.27% 8.07% 8.49%
Equity to assets 12.00% 11.97% 12.23% 12.52% 12.47%
Net charge-offs to average loans * * 0.02% 0.01% 0.01%
Allowance for loan losses to
average loans 0.18% 0.14% 0.11% 0.10% 0.07%
</TABLE>
* Less than 0.01%
-x-
<PAGE>
SUMMARY OF SELECTED FINANCIAL DATA - WCHI (CONTINUED)
(UNAUDITED -- DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Six Months ended June 30,
-------------------------
Results of Operations 1996 1995
- --------------------- ---- ----
<S> <C> <C>
(Taxable equivalent basis)
Interest income $ 8,084 $ 7,865
Interest expense 5,201 4,926
------- -------
Net interest income 2,883 2,939
Provision for loan losses 42 36
------- -------
Net interest income after provision
for loan losses 2,841 2,903
------- -------
Noninterest income 157 131
Noninterest expense 1,525 1,385
------- -------
Income before income taxes 1,473 1,649
Income taxes 610 639
------- -------
Net income $ 863 $ 1,010
======= =======
Period-End Balances
- -------------------
Total assets $208,203 $209,713
Total loans - net of unearned income 183,401 184,148
Total deposits 149,721 154,637
Shareholders' equity 26,459 24,955
Per Share Data
- --------------
Net income - primary $ 0.48 $ 0.57
Net income - fully diluted 0.47 0.56
Cash dividends paid 0.18 0.16
Book value at period-end 14.63 14.12
Selected Performance Ratios
- ---------------------------
(based on averages)
Return on assets 0.82% 0.98%
Return on equity 6.60% 8.20%
Equity to assets 12.71% 11.72%
Net charge-offs to average loans * *
Allowance for loan losses to average loans 0.20% 0.16%
</TABLE>
* Less than 0.01%
-xi-
<PAGE>
PROSPECTUS PROXY STATEMENT
OF OF
OLD NATIONAL BANCORP WORKINGMENS CAPITAL
HOLDINGS, INC.
----------------------------------
SPECIAL MEETING OF SHAREHOLDERS OF
WORKINGMENS CAPITAL HOLDINGS, INC.
TO BE HELD ON SEPTEMBER 24, 1996
----------------------------------
GENERAL INFORMATION
This Proxy Statement is being furnished to the shareholders of
WCHI in connection with the solicitation by the Board of Directors of
WCHI of proxies for use at the Special Meeting of Shareholders, to be
held on September 24, 1996, at 1:00 p.m., local time, at the main office
of the WCHI located at 121 East Kirkwood Avenue in Bloomington, Indiana.
This Proxy Statement is first being mailed to WCHI shareholders on
August 26, 1996.
The purposes of the Special Meeting of Shareholders are to (1)
consider and vote upon the Agreement, under the terms of which WCHI will
merge with and into ONB and each outstanding share of WCHI Common Stock
will be converted into the right to receive 0.64 shares of ONB Common
Stock, subject to adjustment, if any, as described hereinafter, and (2)
transact such other business which may properly be presented at the
Special Meeting or any adjournment thereof.
Only holders of WCHI Common Stock of record at the close of
business on August 12, 1996 ("Record Date") are entitled to notice of,
and to vote at, the Special Meeting. There were 1,808,560 shares of
WCHI Common Stock outstanding on the Record Date, which were held of
record by approximately 466 shareholders. A majority of outstanding
shares of Common Stock of WCHI entitled to vote, represented in person
or by proxy, at the Special Meeting is necessary for a quorum.
Shareholders who abstain, cast broker non-votes or withhold authority to
vote on the Agreement will be deemed present at the Special Meeting for
purposes of determining whether a quorum is present.
The affirmative vote of the holders of at least a majority of
the outstanding shares of WCHI Common Stock is required for approval of
the Agreement, for which matter each share of WCHI Common Stock is
entitled to one vote. In this regard, it is expected that the members
of the Board of Directors and executive officers of WCHI will vote all
of their shares of WCHI Common Stock in favor of the Agreement. As of
August 12, 1996, they held 190,662 shares of WCHI Common Stock as a
group, including shares subject to options which may be exercised before
or following the Affiliation, which represents approximately 10.3% of
the outstanding shares of WCHI Common Stock.
The cost of soliciting proxies will be borne by WCHI. In
addition to use of the mails, proxies may be solicited personally or by
telephone or telegraph by directors, officers and certain employees of
WCHI, none of whom will 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 WCHI 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 WCHI with respect to any
other matter which may properly be presented at the Special Meeting.
<PAGE>
Any shareholder giving a proxy has the right to revoke it at
any time before it is exercised. Therefore, execution of 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 WCHI, by written notice delivered to the Secretary of WCHI
prior to the Special Meeting, or in person at the Special Meeting. To
be effective, any revocation must be received before the proxy is
exercised.
PROPOSED AFFILIATION
At the Special Meeting, shareholders of WCHI 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, WCHI will affiliate with ONB
through a statutory merger of WCHI with and into ONB under the laws of
the State of Indiana and, immediately thereafter, WFSB will merge with
and into ONB Bank under the laws of the United States of America. ONB
will be the surviving corporation in the Company Merger and, at the
effective time of the Company Merger, the separate corporate existence
of WCHI will cease. ONB Bank will be the surviving institution in the
Thrift Merger under the name "Workingmens/ONB Bank" and, at the
effective time of the Thrift Merger, the separate corporate existence of
WFSB will cease.
As of June 30, 1996, WCHI had consolidated assets of $208.2
million, consolidated deposits of $149.7 million, consolidated
shareholders' equity of $26.5 million and consolidated net earnings for
the six month period then ended of $863,000. Based upon the pro forma
financial information included elsewhere in this Proxy Statement and
assuming that the Affiliation had been consummated on June 30, 1996,
WCHI represented as of such date 4.22% of the consolidated assets of
ONB, 3.76% of its consolidated deposits, 6.28% of its consolidated
shareholders' equity and, for the six month period ended June 30, 1996,
2.97% of its consolidated net income. See "PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION."
BACKGROUND OF AND REASONS FOR THE AFFILIATION
Until 1985 Indiana banking laws prohibited banks located in
Indiana from expanding outside of their home counties. Moreover, until
1989 federal law prohibited affiliations between healthy savings and
loan associations and banks or bank holding companies. The changes
since that time have been swift, first permitting in-state acquisitions
of banks by bank holding companies, then permitting regional interstate
acquisitions, and currently permitting virtual nationwide expansion
opportunities, including cross-industry acquisitions. 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 financial institution services.
-2-
<PAGE>
Compounded by the significant increase in regulatory burdens over the
past decade, these competitive factors have created an environment in
which it is increasingly difficult for community organizations such as
WCHI to achieve the economies of scale necessary to compete effectively.
After an evaluation of the competitive and regulatory factors
described above and other financial, legal, economic and market
considerations, WCHI engaged Trident in November of 1995, to perform a
financial analysis and valuation of WCHI and to advise WCHI on its
strategic alternatives. On January 11, 1996, Trident advised the Board
of Directors of WCHI that WCHI had a value per share of between $17.00
and $21.00, and discussed with WCHI potential acquirors to approach
regarding a merger or other affiliation. The Board decided to authorize
Trident to contact ONB initially, because of ONB's recent acquisition of
another thrift in Bloomington, Indiana and the fact that ONB had
approached WCHI on several occasions regarding a possible combination.
In January and February, 1996, after ONB signed a confidentiality
agreement, ONB was provided information concerning WCHI and performed
certain due diligence investigations of WCHI and its operations. On
February 26, 1996, ONB provided WCHI with a proposal for an affiliation
with ONB. ONB was advised that the proposal was inadequate and on March
13, 1996, ONB provided WCHI with a revised proposal. This proposal was
above the high end of the WCHI valuation range which had previously been
provided by Trident to WCHI. At a meeting held on March 19, 1996, the
Board concluded that this revised proposal was in the best interests of
WCHI, its shareholders, customers, and employees. As a result, the
directors authorized Trident and its legal counsel to proceed with
negotiations on behalf of WCHI for a definitive agreement with ONB. On
March 29, 1996, the Board of Directors of WCHI met to discuss the status
of those negotiations and a draft of the definitive agreement.
On April 8, 1996, the Agreement was approved by both parties
and a press release regarding the execution of the Agreement was issued
that evening. At the April 8, 1996 meeting of the WCHI Board of
Directors, Trident rendered its preliminary written opinion to the Board
to the effect that, as of such date, the Exchange Ratio pursuant to the
Affiliation was fair, from a financial point of view, to the holders of
WCHI Common Stock.
After review of regulatory considerations regarding the
proposed transaction, ONB and WCHI determined that it was in the best
interests of the parties to structure the Affiliation through the merger
of WCHI with and into ONB, followed immediately thereafter by the merger
of WFSB with and into ONB Bank. See "PROPOSED AFFILIATION --
Description of the Affiliation."
In determining to pursue the Affiliation, the Board of
Directors of WCHI specifically considered financial, managerial and
other information regarding ONB and its affiliate banks. In particular,
the Board of Directors of WCHI evaluated the respective businesses,
financial conditions and future prospects of WCHI and ONB. The earnings
history and stock performance of ONB were carefully reviewed and
discussed with Trident with a view towards the investment potential for
shareholders of WCHI.
Among other items considered in this evaluation were the
prospects of WCHI and ONB, as separate institutions and as combined; the
compatibility of ONB's affiliate bank markets to those of WCHI; the
anticipated tax-free nature of the Affiliation to WCHI shareholders
receiving solely ONB Common Stock in exchange for their shares of WCHI
Common Stock; the timeliness of a merger given the state of the economy
and the stock markets, as well as anticipated trends in both; applicable
regulatory requirements; relevant price information involving recent
comparable bank acquisitions which occurred in the Midwestern United
States; an analysis of alternatives to affiliating with ONB, including
other potential acquirors; the fact that the consideration to be
received in the Affiliation by WCHI shareholders reflects a significant
premium for WCHI Common Stock over the market prices at which such stock
had traded in the weeks prior to the public announcement of the
Affiliation on April 9, 1996; the value implicit in the Exchange Ratio
in relation to the book value and earnings of WCHI and the dividend rate
that WCHI shareholders who become ONB shareholders would be expected to
enjoy as a result of the Affiliation; the terms of the Agreement; and
Trident's fairness opinion.
-3-
<PAGE>
The Board of Directors of WCHI also considered the impact of
the Affiliation on customers and employees of WFSB and the communities
it serves. 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 WCHI's employees within ONB or one of its affiliates.
The Board of Directors of WCHI examined ONB's continuing commitment to
the communities served by institutions previously acquired by ONB.
Further, from the standpoint of WFSB'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
WCHI 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 WCHI
WCHI retained Trident to act as its financial advisor and to
render a fairness opinion in connection with the Affiliation. As part
of its engagement, Trident performed a valuation analysis of WCHI in an
acquisition context. On January 11, 1996, Trident presented its
valuation report (the "Valuation Report") to WCHI's Board of Directors.
On April 8, 1996, Trident met with WCHI's Board of Directors to
review the proposed terms of the Agreement. At that time, Trident
presented a report (the "Affiliation Analysis and Due Diligence Report")
to WCHI's Board of Directors summarizing the financial terms of the
Affiliation and providing updated market information with respect to
thrift mergers and acquisitions. Trident also compared ONB's offer to
the valuation of WCHI set forth in the Valuation Report and analyzed the
advantages and disadvantages of the Affiliation. Trident further
reported on its financial analysis and on-site due diligence examination
of ONB. In addition, Trident rendered its written preliminary opinion
to WCHI's Board of Directors to the effect that, as of that date, the
consideration to be received by WCHI's shareholders pursuant to the
Agreement was fair to them from a financial point of view.
Trident delivered its updated written opinion to WCHI's Board
of Directors as of August 26, 1996 stating that, as of such date, the
consideration to be received by the shareholders of WCHI in the
Affiliation is fair from a financial point of view. Trident has
consented to the inclusion of such opinion and the related disclosure in
the Proxy Statement which will be circulated to WCHI's shareholders.
TRIDENT'S OPINION IS DIRECTED TO THE BOARD OF DIRECTORS OF WCHI
AND IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF
THE CONSIDERATION TO BE RECEIVED BY WCHI'S SHAREHOLDERS BASED ON
CONDITIONS AS THEY EXISTED AND COULD BE EVALUATED AS OF THE DATE OF THE
OPINION. TRIDENT'S OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
WCHI SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE SPECIAL
MEETING, NOR DOES TRIDENT'S OPINION ADDRESS THE UNDERLYING BUSINESS
DECISION TO EFFECT THE AFFILIATION. THIS SUMMARY OF TRIDENT'S OPINION IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION,
WHICH IS ATTACHED TO THIS PROXY STATEMENT AS APPENDIX B. SHAREHOLDERS
ARE URGED TO READ TRIDENT'S OPINION IN ITS ENTIRETY FOR A DESCRIPTION OF
THE ASSUMPTIONS MADE AND MATTERS CONSIDERED AND THE LIMITS ON THE REVIEW
UNDERTAKEN IN RENDERING SUCH OPINION.
-4-
<PAGE>
In connection with rendering its opinion, Trident reviewed and
analyzed, among other things, the following: (i) the Agreement; (ii)
this Proxy Statement; (iii) certain publicly available information
concerning WCHI, including the audited financial statements of WCHI for
each of the years in the three-year period ended December 31, 1995 and
the unaudited financial statements of WCHI for the three months ended
March 31, 1996; (iv) certain publicly available information concerning
ONB, including the audited financial statements of ONB for each of the
years in the three-year period ended December 31, 1995 and unaudited
financial statements of ONB for the three months ended March 31, 1996;
(v) certain other internal information, primarily financial in nature,
concerning the business and operations of WCHI and ONB furnished to
Trident by WCHI and ONB for purposes of Trident's analysis; (vi) certain
information with respect to the pricing and trading of WCHI Common
Stock; (vii) certain information with respect to the pricing and trading
of ONB Common Stock; (viii) certain publicly available information with
respect to other companies that Trident believed to be comparable to
WCHI and ONB and the trading markets for such other companies'
securities; and (ix) certain publicly available information concerning
the nature and terms of other transactions that Trident considered
relevant to its inquiry. Trident also met with certain officers and
employees of WCHI to discuss the foregoing, as well as other matters
which it believed relevant to its inquiry.
In its review and analysis, and in arriving at its opinion,
Trident assumed and relied upon the accuracy and completeness of all of
the financial and other information provided to it or that was publicly
available and did not attempt independently to verify any such
information. Trident did not conduct a physical inspection of the
properties or facilities of WCHI or ONB, nor did it make or obtain any
independent evaluations or appraisals of any of such properties or
facilities.
In conducting its analyses and arriving at its opinion as
expressed herein, Trident considered such financial and other factors as
it deemed appropriate under the circumstances including, among others,
the following: (i) the historical and current financial condition and
results of operations of WCHI and ONB, including interest income,
interest expense, net interest income, net interest margin, interest
sensitivity, non-interest expense, earnings, dividends, book value,
return on assets, return on equity, capitalization, the amount and type
of non-performing assets and the reserve for loan losses; (ii) the
business prospects of WCHI and ONB; (iii) the economies in WCHI's and
ONB's market areas; (iv) the historical and current market for WCHI
Common Stock and ONB Common Stock and for the equity securities of
certain other companies that Trident believed to be comparable to WCHI
and ONB; and (v) the nature and terms of certain other acquisition
transactions that Trident believed to be relevant. Trident also took
into account its assessment of general economic, market, financial and
regulatory conditions and trends, as well as its knowledge of the
financial institutions industry, its experience in connection with
similar transactions, and its knowledge of securities valuation
generally. Trident's opinion necessarily was based upon conditions in
existence and subject to evaluation on the respective dates of its
opinion. Trident's opinion is, in any event, limited to the fairness,
from a financial point of view, of the consideration to be received by
the holders of WCHI Common Stock in the Affiliation and does not address
WCHI's underlying business decision to effect the Affiliation.
Trident met with the Board of Directors of WCHI at various
times between January 11, 1996 and April 8, 1996 to present analyses
contained in a series of reports which serve as the basis for Trident's
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opinion. Two key reports presented by Trident were the Valuation Report
dated January 11, 1996 and the Affiliation Analysis and Due Diligence
Report dated April 8, 1996. The following is a brief summary of the
Valuation Report presented by Trident to the Board of Directors of WCHI
on January 11, 1996:
Financial Analysis of WCHI. Trident examined WCHI's financial
performance for the period December 31, 1990 through September
30, 1995 by analyzing the composition of its balance sheet,
adjusting and normalizing its earnings, and calculating a
variety of operating and financial ratios for WCHI. Trident
also studied the trading of WCHI Common Stock for the previous
twelve months, and compared the performance of its stock to
certain stock indices.
Peer Group Analysis. Trident evaluated WCHI's strengths and
weaknesses by comparing the financial performance of WCHI to
that of the following groups of SAIF-insured, OTS-regulated
thrift institutions: (i) all United States institutions; (ii)
all institutions in the Midwest; (iii) all Indiana
institutions; (iv) all United States institutions with total
assets between $100 million and $300 million; and (v) Midwest
institutions with total assets between $100 million and $300
million (the "Aggregates"). This analysis compared a number of
WCHI's historical financial ratios to those of the Aggregates,
including but not limited to: (i) the balance sheet composition
as a percentage of total assets at June 30, 1995; (ii) the loan
portfolio as a percentage of total assets at June 30, 1995;
(iii) the investment portfolio as a percentage of total assets
at June 30, 1995; and (iv) asset quality at June 30, 1995.
Trident also compared WCHI's growth rates between December 31,
1992 and June 30, 1995, its yields on assets and costs of
liabilities and its income and expense data for 1994 and the
six months ended June 30, 1995 to those of the Aggregates.
Comparison to Actively-Traded Thrifts. Trident compared WCHI
to the following groups of actively- traded thrifts as of
January 4, 1996: (i) all U.S. thrifts; (ii) U.S. thrifts with
assets between $100 million and $300 million; (iii) all Midwest
thrifts; (iv) all Indiana thrifts; and (v) sixteen
actively-traded thrifts Trident believed were most similar to
WCHI in terms of size, capital structure, profitability and
asset quality. Trident compared WCHI to the aforementioned
groups of actively-traded thrifts on the basis of its balance
sheet, GAAP capital, regulatory capital, asset quality, loan
loss reserves, asset and deposit growth, return on average
assets, return on average equity, and the components of
earnings during the trailing four quarters. Trident also
compared WCHI's pricing ratios to the pricing ratios for other
actively-traded thrifts.
Financial Projections. With input from WCHI's management,
Trident prepared six-year financial projections for WCHI
beginning September 30, 1995. The projections were based on
certain assumptions, including modest asset growth, modest loan
growth, modest deposit growth, a relatively even interest-rate
spread, a flat interest-rate environment, a $0.04 annual
increase in the cash dividend, and a 38.6% tax rate. These
financial projections were used to estimate WCHI's valuation in
an acquisition context at various future dates, and the
resulting returns to shareholders by continuing to remain an
independent financial institution.
Valuation of WCHI. Trident estimated the fair market value of
WCHI in an acquisition context. In valuing WCHI, Trident
considered three different approaches to value: the asset
approach, the income approach and the market approach.
The asset approach considers the market value of a company's
assets and liabilities, as well as any intangible value the
company may have. Trident estimated WCHI's net asset value by
adjusting the carrying value of its assets and liabilities to
reflect current market values (rather than liquidation values).
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In addition, the net asset value of WCHI was adjusted downward
based on the estimated one-time assessment on deposits to
recapitalize the Savings Association Insurance Fund ("SAIF"),
the estimated additional loan loss reserves an acquiror would
assume in its valuation of WCHI, benefit costs and contract
liabilities and estimated transaction and other costs.
Finally, Trident increased WCHI's net asset value for the
assumed exercise of outstanding options to purchase WCHI Common
Stock. Based on the adjustments discussed above, Trident
estimated WCHI's fully-diluted net asset value to be
approximately $24.7 million or $13.93 per share. After
determining WCHI's net asset value, Trident added an intangible
premium to reflect the estimated value of its customer
relationships. According to the asset approach, the total value
of WCHI is the sum of its net asset value and its intangible
value. Based on a branch purchase methodology and intangible
("core deposit") premiums observed in the market for thrift
acquisitions, as well as Trident's knowledge of WCHI, Trident
applied premiums between 3% and 6% of core deposits to WCHI's
estimated fully-diluted net asset value. Using the asset
approach, Trident established a reference range of $15.50 to
$18.00 per share of WCHI Common Stock.
Trident also used an income approach in its valuation of WCHI
by discounting WCHI's projected future earnings plus merger
cost savings of 30% to 50% as a result of an assumed
acquisition of WCHI. The projected earnings were discounted to
the present at rates of 13%, 15% and 17%. The discount rates
chosen were estimates of the required rates of return for
holders or prospective holders of shares of financial
institutions similar to WCHI, based on a number of factors
including prevailing interest rates, the pricing ratios of
publicly traded financial institutions, the financial condition
and operating results of WCHI, as well as Trident's general
knowledge of valuation, the securities markets, and acquisition
values in other mergers of financial institutions. Trident
adjusted the resulting values to reflect the cost of benefit
plans, contract liabilities, the estimated additional loan loss
reserves an acquiror would assume in its valuation of WCHI and
estimated certain merger- related and other expenses. Using
the income approach, Trident established a reference range of
$10.50 to $13.50 per share of WCHI Common Stock.
In the market approach, Trident analyzed certain median pricing
ratios (e.g., price to book value, price to tangible book
value, price to reported earnings, price to assets, and the
premium paid over tangible book value as a percentage of core
deposits) resulting from selected completed thrift merger
transactions, as well as recently announced pending
transactions. In applying the market approach, Trident
considered the pricing ratios for the following groups of
thrift merger transactions: (i) all pending thrift merger
transactions (57 transactions); (ii) all pending thrift mergers
announced during the 90 days prior to January 3, 1996 (the date
of the market data) (20 transactions); (iii) all pending thrift
mergers involving thrifts located in the Midwest (21
transactions); (iv) all pending thrift mergers in which the
aggregate consideration was between $25 million and $50 million
(8 transactions); (v) all pending thrift mergers in which the
target thrift had assets between $100 million and $300 million
(14 transactions); (vi) all pending thrift mergers in which the
target thrift had a return on assets of between 0.90% and 1.10%
(12 transactions); (vii) all pending thrift mergers in which
the target thrift had a return on equity of between 7% and 9%
(9 transactions); (viii) all pending thrift mergers in which
the target thrift had a tangible equity ratio of between 10%
and 14% of assets (12 transactions); and (ix) all pending
thrift mergers in which the target thrift had a nonperforming
assets to assets ratio of between 0.00% and 0.50% (26
transactions). Trident also considered the pricing ratios for
sixteen pending or completed thrift merger transactions in
which the target thrift was of similar size and capital
structure as WCHI, and in which the target thrift had similar
profitability and asset quality. Trident then performed a
comparison of a number of financial ratios for WCHI to those of
the target thrift institutions. Based on WCHI's financial
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condition and results of operations, as well as other factors,
relative to the groups of thrift mergers noted above, Trident
chose ranges of pricing ratios to apply to WCHI. Trident chose
price to book value ratios of 125% to 145%, resulting in per
share values of $17.75 to $20.75; price to tangible book value
ratios of 125% to 145%, resulting in per share values of $17.75
to $20.75; price to earnings multiples of 16.0 to 20.0 times
earnings, resulting in per share values of $17.75 to $22.25;
price to assets ratios of 16% to 19%, resulting in per share
values of $19.00 to $22.50; and premiums over tangible book
value as a percentage of core deposits of 4.5% to 8.0%,
resulting in per share values of $17.75 to $20.50. Based on
these derived ranges of value, Trident established a reference
range of $18.00 to $21.00 per share using the market approach.
Trident then reviewed the results from the three approaches,
and after consideration of all relevant facts, reconciled the
acquisition values generated by each approach and determined a
final range of $17.00 to $21.00 per share for the acquisition
value of WCHI. Trident did not apply specific weights to the
three individual approaches, but rather gave greater
consideration to the asset and market approaches which were
tempered by the income approach in reconciling the reference
ranges and estimating the final range of value for WCHI.
The following is a brief summary of the Affiliation Analysis
and Due Diligence Report presented to the Board of Directors of
WCHI on April 8, 1996:
Summary of Proposed Transaction. Trident presented a summary
of the financial terms of the Affiliation. Trident also
compared the pricing ratios for the Affiliation with the median
pricing ratios for selected groups of pending thrift mergers
and acquisitions. Trident discussed the advantages and
disadvantages of the Affiliation from a financial point of
view.
Review of Due Diligence Examination of ONB. Trident presented
a summary of its on-site due diligence examination of ONB.
ONB's historical balance sheets and income statements were
presented, along with a variety of financial ratios that
analyzed ONB's financial condition and operating results
through December 31, 1995. Trident discussed ONB's strengths
and weaknesses, peer group comparisons, profitability,
dividends, financial condition, loan portfolio composition,
asset quality, loan loss reserve coverage, stock price,
business strategy, growth, ONB's previous mergers and
acquisitions, its banking subsidiaries, recent regulatory
examinations of ONB, recent bank analysts' reports on ONB, and
other issues. Trident reported that during its investigation,
Trident did not discover any conditions that would prevent it
from rendering its fairness opinion to WCHI's Board of
Directors. As discussed above, Trident relied, without
independent verification, upon the accuracy and completeness of
all of the financial and other information provided by ONB.
ONB's Stock Pricing. Trident examined the trading of activity
of ONB Common Stock between April 3, 1995 and April 2, 1996,
and compared the performance of ONB's stock to certain stock
indices. Trident also compared ONB and the pricing of its
common stock to other regional commercial banks, commercial
banks of a similar size and all actively-traded commercial
banks as of April 2, 1996.
The summaries of Trident's Valuation Report, Affiliation
Analysis and Due Diligence Report, and opinion set forth above reflect
all the material analysis, factors and assumptions considered by Trident
and the material valuation methodologies used by Trident in arriving at
its opinion as to fairness described above. The preparation of a
fairness opinion is a complex process and is not necessarily susceptible
to partial or summary description. Trident believes that its analyses
and the summary set forth above must be considered as a whole and that
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selecting portions of its analyses, without considering all of the
analyses, or all of the above summary, without considering all factors
and analyses, would create an incomplete view of the processes
underlying the analyses set forth in Trident's reports and its opinion.
Therefore, the ranges of valuations resulting from any single analysis
described above should not be taken to be Trident's view of the actual
value of WCHI or the combined company. In performing its analyses,
Trident made numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of
which are beyond the control of WCHI or ONB. The results of the
specific analyses performed by Trident may differ from WCHI's actual
values or actual future results as a result of changing economic
conditions, changes in company strategy and policies, as well as a
number of other factors. Such individual analyses were prepared to
provide valuation guidance solely as part of Trident's overall valuation
analysis and the determination of the fairness of the consideration to
be received by WCHI's shareholders, and were provided to WCHI's Board of
Directors in connection with the delivery of Trident's opinion. The
analyses do not purport to be appraisals or to reflect the prices at
which a company might actually be sold or the prices at which any
securities may trade at the present time or at any time in the future.
Trident's opinion and presentations to WCHI's Board of Directors were
among the many factors taken into consideration by WCHI's Board of
Directors in making its determination to approve the Agreement.
Trident, as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities
in connection with mergers and acquisitions, negotiated underwriting,
and valuations for corporate and other purposes. Trident has extensive
experience with the valuation of financial institutions. WCHI's Board of
Directors selected Trident as its financial advisor because of its
previous experience with Trident, because Trident is a nationally
recognized investment banking firm specializing in financial
institutions and because of its substantial experience in transactions
similar to the Affiliation. Trident is not affiliated with either WCHI
or ONB.
For its services as financial advisor, WCHI paid Trident a
retainer of $5,000, a fee of $10,000 upon the delivery of the Valuation
Report, and a fee of $25,000 upon execution of the Agreement. An
additional fee equal to (i) 0.75% of the aggregate value of the
Affiliation if such value is less than $41,181,550; (ii) 0.825% of the
aggregate value of the Affiliation if such value is between $41,181,550
and $45,795,400; or (iii) 0.95% of the aggregate value if such value is
greater than $45,795,400, less $40,000, will be payable to Trident upon
consummation of the Affiliation (a balance due of approximately $259,000
based on a share price of $33.75 for ONB Common Stock). WCHI has also
agreed to reimburse Trident for its reasonable out-of- pocket expenses
and to indemnify Trident against certain liabilities, including certain
liabilities under federal securities laws.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF WCHI HAS CAREFULLY CONSIDERED AND
UNANIMOUSLY APPROVED THE AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS OF WCHI APPROVE THE AGREEMENT.
Certain members of management and the Board of Directors of
WCHI have interests in the Affiliation that are in addition to those of
WCHI shareholders generally. See "PROPOSED AFFILIATION -- Interests of
Certain Persons in the Affiliation" and " Management, Personnel and
Operations After the Affiliation."
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EXCHANGE OF WCHI COMMON STOCK
Under the terms of the Agreement, shareholders of WCHI of
record upon consummation of the Affiliation will be entitled to receive
0.64 shares of ONB Common Stock in exchange for each share of WCHI
Common Stock held, subject to adjustment if the Average Price Per Share
(as defined below) is above $34.75 or below $33.00 or in the event of a
recapitalization or similar transaction involving ONB Common Stock. The
Agreement may not be terminated solely due to changes in the Average
Price Per Share of ONB Common Stock. As a result of the occurrence of
the events discussed herein:
(1) Increase in Average Price Per Share. If the Average
Price Per Share of ONB Common Stock exceeds $34.75,
then the Exchange Ratio will be adjusted such that each
issued and outstanding share of WCHI Common Stock will
be converted into the right to receive such number of
shares of ONB Common Stock determined by dividing
$22.24 by the Average Price Per Share of ONB Common
Stock.
(2) Decrease in Average Price Per Share. If the Average
Price Per Share of ONB Common Stock is less than
$33.00, then the Exchange Ratio will be adjusted such
that each issued and outstanding share of WCHI Common
Stock will be converted into the right to receive such
number of shares of ONB Common Stock determined by
dividing $21.12 by the Average Price Per Share of ONB
Common Stock.
(3) No Adjustment to Exchange Ratio. If the Average Price
Per Share of ONB Common Stock is not less than $33.00
nor more than $34.75, then there will be no adjustment
to the Exchange Ratio.
The "Average Price Per Share" of ONB Common Stock is defined in
the Agreement as 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.
As of August 21, 1996 the closing price of ONB Common Stock was
$36.75 per share, as reported by the NASDAQ National Market System. If
the Affiliation had been consummated on such date and assuming that
$36.75 constituted the "Average Price Per Share", the Exchange Ratio
would have been adjusted to .6052 due to an increase in the market price
of ONB Common Stock, and the number of shares of ONB Common Stock
exchanged in the Affiliation would have been approximately 1,116,865.7
(including shares of ONB Common Stock represented by options), with an
aggregate market value of approximately $41.0 million, or $22.24 per
share of WCHI Common Stock. The shares of ONB Common Stock exchanged in
the merger will be newly issued shares of ONB Common Stock.
In connection with the Affiliation, each outstanding option to
purchase shares of WCHI Common Stock (a "Stock Option") held by
Directors and executive officers of WCHI will be deemed to constitute an
option to purchase such number of shares of ONB Common Stock, rounded to
the nearest whole share, as the holder of such option would have been
entitled to receive pursuant to the Affiliation had the holder exercised
the option in full immediately prior to the effective time of the
Affiliation and, immediately thereafter, exchanged such shares solely
for ONB Common Stock based upon the Exchange Ratio at a price equal to
(A) the aggregate exercise price of WCHI Common Stock otherwise
purchasable pursuant to the option divided by (B) the number of shares
of ONB Common Stock, rounded to the nearest whole share, deemed
purchasable pursuant to the option. Accordingly, such option shares will
be exchanged for options for ONB Common Stock at the effective time as
provided above.
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As soon as practicable after the effective time, ONB shall
deliver to each holder of a Stock Option an appropriate notice or
agreement which sets forth such holder's rights pursuant to the Stock
Option, and the agreements evidencing the grants of such Stock Options
shall continue in effect on the same terms and conditions (subject to
the conversion of the Stock Option to represent shares of ONB Common
Stock). ONB may deliver new or amended agreements which reflect the
terms of each Stock Option assumed by ONB. With respect to each Stock
Option, the optionee will be solely responsible for any and all tax
liability (other than the employer's one-half share of any employment
taxes) which may be imposed upon the optionee as a result of the
conversion of the Stock Option into options for shares of ONB Common
Stock and as a result of the grant and exercise of such Stock Options.
As soon as practicable after the effective time, ONB will file
with the SEC a registration statement on an appropriate form with
respect to the shares of ONB Common Stock subject to such options and
shall use its best efforts to maintain the effectiveness of such
registration statement or registration statements (and maintain the
current status of the prospectus or prospectuses with respect thereto)
for so long as such Stock Options remain outstanding.
In the event of a stock split, stock dividend or other
recapitalization, the Exchange Ratio will be adjusted so that WCHI
shareholders will receive, in the aggregate, the same percentage of the
outstanding shares of ONB Common Stock they would have received if the
recapitalization event had not occurred.
If, before the effective time of the Affiliation, ONB enters
into an agreement with another entity pursuant to which current
shareholders of ONB Common Stock will exchange their shares of ONB
Common Stock for stock of another entity ("Other Transaction"), then
upon consummation of the Other Transaction, the shareholders of WCHI
will be treated as though the Affiliation had been consummated prior to
the Other Transaction and will be entitled to receive the same per share
consideration as the shareholders of ONB in the Other Transaction. ONB
has agreed to take steps to include provisions in any agreement relating
to an Other Transaction to the foregoing effect.
No fractional shares of ONB Common Stock will be issued to
shareholders of WCHI in connection with the Affiliation. Each
shareholder of WCHI who otherwise would be entitled to a fractional
interest in a share of ONB Common Stock as a result of the Exchange
Ratio will be paid a cash amount equal to such fractional share interest
multiplied by the Average Price Per Share of ONB Common Stock.
After the effective time of the Affiliation, stock certificates
previously representing WCHI 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 WCHI of their stock certificates to ONB for
exchange, 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 WCHI will be closed and no transfers of shares of WCHI Common
Stock will thereafter be made. If, after the effective time,
certificates representing shares of WCHI Common Stock are presented for
registration or transfer, they will be canceled and exchanged for shares
of ONB Common Stock and any applicable cash payment for fractional
shares (without interest).
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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 WCHI within ten (10) business days following
the shareholder's delivery to ONB of his or her certificate(s)
representing shares of WCHI Common Stock. Instructions as to delivery
of WCHI stock certificates to ONB will be sent to each WCHI shareholder
shortly after the effective time of the Affiliation.
NO DISSENTERS' OR APPRAISAL RIGHTS
In connection with the Affiliation, shareholders of WCHI do not
have the statutory right to dissent and require appraisal of their
shares of WCHI Common Stock and to receive cash instead of ONB Common
Stock in exchange for their shares of WCHI Common Stock. Indiana law
applicable to WCHI excepts transactions from its dissenters' rights
provisions when the stock held by shareholders is listed on the NASDAQ
National Market System as of the Record Date. WCHI Common Stock meets
this test. Shareholders of WCHI who would otherwise dissent to the
Affiliation may sell their shares of WCHI Common Stock in the open
market at the market price prior to the effective time of the
Affiliation or sell their shares of ONB Common Stock in the open market
at the market price following the effective time.
RESALE OF ONB COMMON STOCK BY WCHI AFFILIATES
No restrictions on the sale or transfer of the shares of ONB
Common Stock issued in the Affiliation will be imposed solely as a
result of the Affiliation, other than restrictions on the transfer of
such shares issued to any WCHI shareholder who may be deemed to be an
"affiliate" of WCHI 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 WCHI will provide ONB with a list
identifying each affiliate of WCHI. The Agreement also requires that
each WCHI affiliate deliver to ONB within forty-five days following 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 WCHI
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 WCHI 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
WCHI 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 WCHI who
may be deemed to be affiliates of WCHI should consult with their legal
counsel regarding the resale restrictions that may apply to them.
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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 a majority of the outstanding shares of WCHI
Common Stock, (2) approval of the Agreement by ONB, as the sole
shareholder of ONB Bank, and by WCHI, as the sole shareholder of WFSB,
(3) receipt by ONB, WCHI, ONB Bank and WFSB of all applicable
regulatory approvals required for the Company Merger and the Thrift
Merger, (4) receipt of an opinion of counsel with respect to certain
federal income tax matters, (5) the issuance by Trident of a written
fairness opinion stating that the terms of the Affiliation are fair to
the shareholders of WCHI from a financial point of view and dated as of
a date on or prior to the date hereof and confirmed as of the effective
time, (6) receipt by ONB of certain undertakings from affiliates of
WCHI, (7) receipt by ONB and WCHI of certain officers' certificates and
legal opinions, (8) the accuracy at the effective time of the
Affiliation of representations and warranties contained in the Agreement
and (9) the fulfillment of certain covenants and mutual agreements 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 WCHI 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 WCHI (as specified in the Agreement) if,
among other reasons: (1) there has been a misrepresentation or a breach
of any representation or warranty set forth in the Agreement by WCHI
which has had or could be expected to have, in the reasonable discretion
of ONB, a material adverse effect on the financial condition, results of
operations, business, prospects, assets or capitalization of WCHI or
WFSB, individually or on a consolidated basis, or RISC on a consolidated
basis with WCHI, or in the number of issued and outstanding shares of
WCHI or its subsidiaries, (2) there has been a misrepresentation or a
breach of any representation or warranty set forth in the Agreement by
ONB which has had or could be expected to have, in the reasonable
discretion of WCHI, a material adverse effect on the financial
condition, results of operations, business, assets or capitalization of
ONB on a consolidated basis, (3) ONB or WCHI has breached or failed to
comply with any covenant or mutual agreement set forth in the Agreement,
(4) consummation of the Affiliation has become inadvisable or
impracticable due to the commencement or threat of any claim, litigation
or proceeding against ONB, WCHI or any subsidiary of ONB or of WCHI, or
any officer or director of either 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
WCHI, each on a consolidated basis, WFSB or RISC on a consolidated basis
with WCHI, (5) there has been a material adverse change in the financial
condition, results of operations, business, prospects, assets or
capitalization of WCHI, WFSB, or RISC on a consolidated basis with WCHI
as of the effective time of the Affiliation as compared to that in
existence as of December 31, 1995, (6) 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 of the Affiliation as compared to that in existence as of
December 31, 1995, (7) ONB's accountants conclude that ONB cannot
utilize the pooling-of-interests method of accounting for the
Affiliation, (8) consummation of the Affiliation has not occurred by
March 31, 1997, or (9) all joinder agreements under the WFSB Deferred
Compensation Plan have not been properly and validly amended within 45
days of the date of the Agreement. This latter deadline was extended to
August 31, 1996 by ONB and as so extended was met by WCHI. The parties
may also mutually agree to terminate the Affiliation. Upon termination
for any of these reasons, the Agreement will be of no further force or
effect. See Appendix A to this Proxy Statement.
-13-
<PAGE>
RESTRICTIONS AFFECTING WCHI
The Agreement contains a number of restrictions regarding the
conduct of business of WCHI, WFSB and RISC pending consummation of the
Affiliation. Among other items, WCHI, WFSB and RISC may not, without
the prior written consent of ONB: (1) change their capital stock
accounts, (2) distribute or pay any dividends, except that WCHI may pay
to its shareholders its normal and customary quarterly cash dividend in
an amount not to exceed $0.10 per share and WFSB may pay cash dividends
to WCHI in the ordinary course of business for payment of reasonable and
necessary business and operating expenses of WCHI and for expenses
incurred in connection with the Affiliation; provided, however, that no
dividend may be paid to shareholders of WCHI during the quarter in which
the Affiliation is consummated if, during such quarter, WCHI
shareholders will become entitled to receive dividends on their shares
of ONB Common Stock received pursuant to the Agreement, (3) amend their
respective Articles of Incorporation, Charter or By-Laws, (4) carry on
their 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)
negotiate or discuss with third parties relative to a merger,
combination or sale of WCHI, WFSB or RISC, except under certain limited
circumstances. See Appendix A to this Proxy Statement.
REGULATORY APPROVALS
The Affiliation requires regulatory approvals before the
Affiliation will become effective: the Thrift Merger requires the
approval of the Office of Thrift Supervision ("OTS"), while the Company
Merger requires the approvals of the Board of Governors of the Federal
Reserve System ("Federal Reserve") under the federal Bank Holding
Company Act of 1956, as amended ("BHC Act"), and the OTS. Although
applied for, such regulatory approval from the OTS has not been obtained
as of the date of this Proxy Statement. The Federal Reserve has
approved the Affiliation.
Approval of the Affiliation is not to be interpreted as the
opinion of such regulatory authorities that the Affiliation is favorable
to the shareholders of WCHI from a financial point of view or that such
regulatory authorities have considered the adequacy of the terms of the
Affiliation. Regulatory approval 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 and it is a condition precedent to
ONB's obligation to consummate the Affiliate that it be so treated.
Under this method of accounting, shareholders of ONB and shareholders of
WCHI 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 WCHI Common Stock must be exchanged
for ONB Common Stock. See "PROPOSED AFFILIATION -- Termination."
EFFECTIVE TIME
The Affiliation will become effective at the close of business
on the day specified in the articles of merger filed with the OTS with
respect to the Thrift Merger and the Indiana Secretary of State with
respect to the Company Merger. ONB and WCHI currently anticipate that
the Affiliation will be consummated in October, 1996.
-14-
<PAGE>
MANAGEMENT, PERSONNEL AND OPERATIONS AFTER THE AFFILIATION
ONB will be the surviving corporation in the Company Merger
and, upon consummation of the Company Merger, the separate corporate
existence of WCHI will cease. Consequently, the Directors and officers
of WCHI will no longer serve in such capacities after the effective time
of the Company Merger. The Directors of ONB serving at the effective
time of the Affiliation will serve as Directors of ONB following the
effective time of the Affiliation until otherwise determined by the
shareholders of ONB. The officers of ONB serving at the effective time
will continue to serve in their respective capacities until otherwise
determined by the Board of Directors of ONB.
The Directors of WFSB and ONB Bank serving at the effective
time of the Affiliation will be Directors of ONB Bank following
consummation of the Affiliation. Additionally, four (4) new directors
will be elected to the Board of Directors of ONB Bank. The identity of
these directors will be agreed upon by ONB and WCHI if they are elected
prior to the effective time of the Affiliation or by ONB and ONB Bank if
elected following the effective time of the Affiliation. As of July 11,
1996, one new director, John S. Burnham, President of Burnham Rentals, a
real estate rental company based in Bloomington, Indiana, had been added
as a director to WFSB's Board. Following the effective time of the
Affiliation, ONB, as the sole shareholder of ONB Bank, will have the
ability to elect the Board of Directors of ONB Bank; however, ONB has
agreed with WCHI and WFSB that each former Director of WCHI will
continue as a Director of ONB Bank until such director has reached the
age of seventy (70) years and that those directors already over the age
of seventy (70) and the four new directors will serve for two (2) years
following the effective time. Robert Shaffer, Chairman of WCHI, will
serve as Chairman of ONB Bank following consummation of the Affiliation,
until the Board of Directors of ONB Bank determines otherwise. Richard
R. Haynes, President and Chief Executive Officer of WCHI, will be the
President and Chief Executive Officer of ONB Bank following consummation
of the Affiliation, until the Board of Directors of ONB determines
otherwise. The remaining officers of ONB Bank will continue as officers
of ONB Bank after the effective time of the Affiliation until the Board
of Directors of ONB Bank determines otherwise.
In general, employees of WCHI will receive benefits in
accordance with policies of ONB following the Affiliation. In
particular, those persons who are full-time officers or employees of
WCHI as of the effective time of the Affiliation, who continue as
full-time officers or employees of ONB Bank or any other subsidiary of
ONB after the effective time, will receive 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, including participation in the
ONB Employees' Retirement Plan ("ONB Pension Plan") and the ONB
Employees' Savings and Profit Sharing Plan ("ONB Profit Sharing Plan").
In addition, years of service of an employee of WCHI prior to the
effective time of the Affiliation will be credited to each such employee
for purposes of eligibility to participate under ONB's employee welfare
benefit plans and for purposes of eligibility and vesting, but not for
purposes of benefit accrual or contributions, under the ONB Pension Plan
and the ONB Profit Sharing Plan.
Those employees of WFSB who otherwise meet the eligibility
requirements of the ONB Profit Sharing Plan, based upon their age and
years of service for WCHI, will become participants thereunder as of the
January 1st which coincides with or next follows the effective time of
the discontinuance of contributions (as described below) to the
Financial Institutions Thrift Plan sponsored by WFSB ("WFSB Thrift
Plan"). Those employees of WFSB who otherwise meet the eligibility
-15-
<PAGE>
requirements of the ONB Pension Plan, based upon their age and years of
service for WCHI or WFSB, will become participants thereunder on the
January 1st which coincides with or next follows the effective time of
the accrual of benefits (as described below) under the defined benefit
pension plan sponsored by WFSB ("WFSB Retirement Plan"). Those
employees who do not meet the eligibility requirements of the ONB
Pension Plan or ONB Profit Sharing Plan on such dates will become
participants thereunder on the first "plan entry date" (as defined in
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.
In connection with effecting the changes from the WCHI benefit
plans to ONB's benefit plans, the accrual of benefits under the WFSB
Retirement Plan and contributions under the WFSB Thrift Plan will be
frozen and terminated, respectively, as of December 31st in the year of
which consummation of the Affiliation occurs, and all accrued benefits
of participants therein will become fully vested at that time. To the
extent permitted by applicable law and the terms of the plan, benefits
under the WFSB Retirement Plan will be left in trust and payable at the
times and in the amounts provided for under that plan. Benefits under
the WFSB Thrift Plan will be fully vested upon December 31st of the year
in which the effective time occurs. The account balances of each
participant in the WFSB Thrift Plan shall be held in and remain under
the WFSB Thrift Plan and shall be payable at the time(s) and in the
forms provided for under such plan, to the extent permitted by the WFSB
Thrift Plan and applicable law.
Further, ONB has agreed to cause ONB Bank to assume all
obligations of WFSB under the Director Deferred Compensation Master
Agreement ("WFSB Deferred Compensation Plan") and to keep such plan in
effect, without any amendment which would decrease the percentage of the
directors fees that each director presently defers pursuant to such
plan, for two (2) years following the effective time of the Affiliation.
During such two (2) year period, ONB also has agreed to cause ONB Bank
to increase the amount deferred under the WFSB Deferred Compensation
Plan for each director of WFSB (other than the four (4) new directors of
WFSB elected pursuant to the Agreement) serving as a director of ONB
Bank by $500 per month over the amounts currently being deferred each
month by each director; provided, however, that during such two (2) year
period in no event shall the aggregate director's fees and additional
deferrals under the WFSB Deferred Compensation Plan for any director
exceed $1,000 per month. The WFSB Deferred Compensation Plan will be
terminated effective two (2) years after the effective time of the
Affiliation. WFSB has agreed to amend (effective as of the effective
time of the Affiliation) the WFSB Deferred Compensation Plan to provide
for its automatic termination and the termination of all the Director
Deferred Compensation Joinder Agreements thereunder ("Joinder
Agreements") on the date which is two (2) years following the effective
time of the Affiliation. The provisions of such amendments and the
transactions contemplated thereby, including the distribution of
participants' benefits under the WFSB Deferred Compensation Plan, will
contain such terms and conditions acceptable to ONB and WFSB, including
the requirement that each director who has executed a Joinder Agreement
will execute and deliver an appropriate amendment, effective as of the
effective time of the Affiliation, to provide for the automatic
termination of his Joinder Agreement on the date which is two (2) years
following the effective time of the Affiliation. Within ten (10)
business days of the date the Joinder Agreements are terminated,
Workingmens/ONB Bank will pay to each director, in the form of a single
lump sum in cash, less any applicable withholdings, the balance of his
elective contribution account accrued under the Joinder Agreement
through the date it is terminated. Each director's elective
contribution account will be credited with interest as provided for by
the Joinder Agreement.
The changes to the WFSB Deferred Compensation Plan discussed
above will enable the Directors of WCHI to receive approximately the
same level of director benefits (including director's fees) as they are
presently receiving from WCHI for two years following the Affiliation
and do not represent an increase in their current benefits.
-16-
<PAGE>
Effective as of the effective time of the Affiliation, the WFSB
Director Emeritus Program will be terminated; provided, however, that
within ten (10) calendar days after the termination of such program, ONB
will make, or will cause ONB Bank to make, a lump sum cash payment to
each director of WFSB who had satisfied the eligibility requirements for
benefits under such program as of the effective time of the Affiliation,
and to Richard R. Haynes, equal to the present value of the benefits
payable under such program as of the effective time of the Affiliation.
Present value is to be calculated based upon an interest rate equal to
the applicable federal rate as defined in Section 1274(d) of the Code,
compounded semi-annually as of the effective date. Based on current
rates of interest in effect on the date hereof, the amounts payable upon
termination of the plan to all participating directors will aggregate
approximately $356,919.
INTERESTS OF CERTAIN PERSONS IN THE AFFILIATION
Each of Richard R. Haynes, President and CEO of WFSB, Joseph A.
Walker, Chief Operating Officer of WFSB, Jerry L. Hays, Senior Vice
President of WFSB and R. William Richardson, Jr., Senior Vice President
of WFSB, is a party to an employment agreement with WFSB (collectively,
the "Employment Agreements"). ONB has agreed to cause the surviving
institution in the Thrift Merger to assume all obligations under the
Employment Agreements, as amended, in accordance with the Agreement, and
to guarantee the surviving institution's obligations under the
Employment Agreements, except as may be otherwise required by any
regulatory agency. Each Employment Agreement is for a term of three (3)
years which term is extended annually for an additional one-year term to
maintain its three-year term if the Board of Directors of WFSB
determines to so extend the Employment Agreement, unless notice not to
extend is properly given by either party to the Employment Agreement.
Further, ONB has agreed to, or to cause ONB Bank to, provide
extended indemnification to the same extent provided by WCHI and WFSB at
the effective time to Directors or officers of ONB Bank who previously
were Directors or officers of WCHI or any of its subsidiaries against
any and all losses in connection with or arising out of any claim which
is based upon any actual or alleged act or omission occurring at or
prior to the effective time. Indemnification of officers and Directors
following the effective time will be provided to the same extent it is
provided to individuals working in similar capacities for ONB or its
subsidiaries. In addition, ONB has agreed for a period of one year
after the effective time to use all reasonable efforts to cause to be
maintained in effect the policies of directors' and officers' liability
insurance maintained by WCHI and WFSB with respect to claims arising
from facts or events which occurred before the effective time of the
Affiliation. Following the effective time, ONB will provide WCHI and
WFSB 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.
ONB has agreed to provide health insurance at its cost to the
current Directors of WCHI, and to their dependents at the Directors'
cost, so long as the Directors serve ONB Bank in such capacity.
ONB has agreed to adopt supplemental retirement plans for
Richard R. Haynes and R. William Richardson, Jr. if such plans are
deemed necessary to assure that such individuals do not have a reduction
in retirement benefits as a result of the Affiliation and their
participation in the ONB Pension Plan and the ONB Profit Sharing Plan
compared to their participation in WCHI's defined benefit pension and
defined contribution plans.
For other interests of certain persons in the Affiliation, see
"PROPOSED AFFILIATION -- Exchange of WCHI Common Stock" and "--
Management, Personnel and Operations After the Affiliation."
-17-
<PAGE>
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 WCHI has 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 mergers to be effected pursuant to the Affiliation
constitute tax-free reorganizations under the Internal Revenue Code of
1986, as amended ("Code"), to each party thereto and to the shareholders
of WCHI, except with respect to cash received by WCHI's shareholders in
lieu of fractional share interests of ONB Common Stock.
The opinion rendered by Krieg DeVault Alexander & Capehart will
be based upon the assumption of certain facts to be stated in the
opinion. Under the Agreement, the obligations of each of ONB and WCHI
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, ONB BANK, WCHI AND WFSB
The merger of WCHI with and into ONB and the merger of WFSB
with and into ONB Bank constitute statutory mergers under applicable
law. Consequently, based upon the assumption of certain facts to be
stated in the opinion, the merger of WCHI with and into ONB and the
merger of WFSB with and into ONB Bank should constitute a tax-free
organization. As a result, ONB, ONB Bank, WCHI and WFSB will recognize
neither gain nor loss as a result of the Affiliation for federal income
tax purposes.
TAX CONSEQUENCES TO WCHI SHAREHOLDERS
A. WCHI Shareholders Receiving Solely ONB Common Stock
---------------------------------------------------
A WCHI shareholder who receives solely ONB Common Stock in
exchange for all of the shares of WCHI Common Stock actually owned by
the shareholder will not recognize any gain or loss upon such exchange
for federal income tax purposes. See paragraph B. following for a
discussion of the tax consequences of the receipt of cash in lieu of
fractional share interests of ONB Common Stock.
B. Cash Received in Lieu of Fractional Shares
------------------------------------------
A WCHI 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 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
-18-
<PAGE>
OF ANY WCHI SHAREHOLDER. 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 April 8, 1996, 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 $33.25 per share. On August 21, 1996, the closing price of
ONB Common Stock reported by the NASDAQ National Market System was
$36.75 per share. The following table sets forth, for the periods
indicated, the high and low per share bid 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.
<TABLE>
<CAPTION>
Year Ended December 31 HIGH LOW
---------------------- ---- ---
1994
----
<S> <C> <C>
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
Second Quarter 37 33
Third Quarter 37-1/2 36-3/4
(through August 21, 1996)
</TABLE>
Shares of WCHI Common Stock are traded in the over-the-counter
market and share prices are reported by NASDAQ National Market System
under the symbol WCHI. On April 8, 1996, the business day immediately
preceding the public announcement of the Affiliation, the high and low
bid prices of WCHI Common Stock reported by NASDAQ was $16.25. On
August 21, 1996, the high and low bid prices of WCHI Common Stock
reported by NASDAQ were each $20.875 per share.
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<PAGE>
The following table sets forth, for the periods indicated, the
high and low per share bid prices of WCHI Common Stock as reported by
NASDAQ, adjusted for all stock splits and stock dividends (if any).
<TABLE>
<CAPTION>
Year Ended December 31 HIGH LOW
---------------------- ---- ---
1994
----
<S> <C> <C>
First Quarter $ 13-1/8 $ 12-3/8
Second Quarter 15-1/4 11-7/8
Third Quarter 15-1/8 14-1/8
Fourth Quarter 14-7/8 13
1995
----
First Quarter $ 17 $ 13
Second Quarter 19 15-1/4
Third Quarter 18 15-3/4
Fourth Quarter 18 16
1996
----
First Quarter $ 18-1/4 $ 15
Second Quarter 20-1/2 16
Third Quarter 21-1/8 20-1/8
(through August 21, 1996)
</TABLE>
DIVIDENDS
The following table sets forth the per share cash dividends
paid on shares of ONB Common Stock and shares of WCHI Common Stock since
January 1, 1994. All dividends have been adjusted to give effect to
their respective stock dividends and stock splits (if any).
<TABLE>
<CAPTION>
ONB Common WCHI Common
Stock (1) Stock (2)
---------- -----------
Year Ended December 31
----------------------
1994
----
<S> <C> <C>
First Quarter $ .22 $ .07
Second Quarter .22 .07
Third Quarter .22 .07
Fourth Quarter .22 .08
-20-
<PAGE>
1995
----
First Quarter $ .23 $ .08
Second Quarter .23 .08
Third Quarter .23 .08
Fourth Quarter .23 .09
1996
----
First Quarter $ .23 $ .09
Second Quarter .23 .09
Third Quarter .23 .09
</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 per quarter, see "COMPARISON OF COMMON STOCK --
Dividend Rights."
(2) The Agreement provides that WCHI shareholders will not receive
in any quarter in which the proposed Affiliation is consummated
a cash dividend from both WCHI and ONB. Further, the Agreement
provides that WCHI may pay its normal and customary quarterly
cash dividend to its shareholders in an amount not to exceed
$0.10 per share of WCHI Common Stock. See "COMPARISON OF
COMMON STOCK -- Dividend Rights."
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 23
through 29 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.
<TABLE>
<CAPTION>
As Reported
------------------------------------------
Net Cash Book Value at
ONB Income Dividends Period End
- ---------------- ------ --------- -------------
<S> <C> <C> <C>
Six Months Ended
June 30, 1996 $ 1.15 $ 0.46 $ 16.94
Year Ended December 31,
1995 2.02 0.88 17.41
1994 1.78 0.84 16.11
1993 1.84 0.72 15.62
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<PAGE>
WCHI
- ----------------
Six Months Ended
June 30, 1996 $ 0.48 $ 0.18 $ 14.20
Year Ended December 31,
1995 1.11 0.33 14.45
1994 1.03 0.29 13.67
1993 1.05 0.27 13.02
</TABLE>
<TABLE>
<CAPTION>
Net Income
-----------------------------
ONB WCHI
Pro Forma(1) Equivalent(1)
------------ -------------
<S> <C> <C>
Six Months Ended
June 30, 1996 $ 1.13 $ 0.72
Year Ended December 31,
1995 2.01 1.29
1994 1.77 1.13
1993 1.84 1.18
Cash Dividends
-----------------------------
ONB WCHI
Pro Forma(1) Equivalent(1)
------------ -------------
Six Months Ended
June 30, 1996 $ 0.46 $ 0.29
Year Ended December 31,
1995 0.88 0.56
1994 0.84 0.54
1993 0.72 0.46
Shareholders' Equity
-----------------------------
ONB WCHI
Pro Forma(1) Equivalent(1)
------------ -------------
As of June 30, 1996 $ 17.20 $ 11.01
As of December 31, 1995 17.41 11.14
</TABLE>
<TABLE>
<CAPTION>
Market Value of Common Stock
---------------------------------------------
ONB WCHI
Historical Historical Equivalent(1)
---------- ---------- -------------
<S> <C> <C> <C>
As of April 8, 1996 (2) $ 33.25 $ 16.25 $21.28
</TABLE>
(1) Considers the pending merger with WCHI. See "PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION."
(2) Represents the last business day prior to the public
announcement of the Affiliation.
-22-
<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 June 30, 1996 and Pro
Forma Condensed Combined Statements of Income for the six months ended
June 30, 1996 and for the years ended December 31, 1995, 1994, and 1993.
The Pro Forma Condensed Combined Statements of Income for the
six months ended June 30, 1996 and the years ended December 31, 1995,
1994, and 1993 is presented giving effect to the affiliation with The
National Bank of Carmi as of January 1 of each of the years presented.
The pro forma information is based upon historical financial
statements. The Pro Forma Condensed Combined income statements have
been presented using ONB's fiscal year end of December 31 and the most
recent interim date. The assumptions give effect to the Affiliation
under the pooling-of-interests method of accounting. The information
has been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission and is provided for comparative
purposes only. The information does not purport to be indicative of the
results that actually would have occurred had the mergers been effected
on January 1 of the years presented.
-23-
<PAGE>
OLD NATIONAL BANCORP
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 1996
(Unaudited - Dollars in Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
ONB Workingmens Adjustments Pro Forma
--- ----------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $146,326 $1,002 $147,328
Money market investments 14,413 5,894 20,307
Investment securities 1,438,734 13,239 1,451,973
Loans 3,190,348 183,777 3,374,125
Reserve for loan losses (42,563) (376) (42,939)
Excess cost over assets acquired 13,494 13,494
Other intangibles 998 998
Premises and equipment 75,345 1,362 76,707
Other assets 93,041 3,305 96,346
----------- --------- ------- -----------
$4,930,136 $208,203 $0 $5,138,339
=========== ========= ======= ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits $3,978,261 $149,721 $4,127,982
Medium term notes 44,000 0 44,000
Subordinated debentures 30,570 0 30,570
Other borrowings 400,143 31,011 431,154
Other liabilities 55,288 1,012 56,300
----------- --------- ------- -----------
Total liabilities 4,508,262 181,744 0 4,690,006
----------- --------- ------- -----------
Common stock 24,908 8,341 (7,184) (a) 26,065
Capital surplus 230,755 0 7,184 (a) 237,939
Retained earnings 170,867 18,262 189,129
Net unrealized gain (4,656) (144) (4,800)
----------- --------- ------- -----------
Total shareholders' equity 421,874 26,459 0 448,333
----------- --------- ------- -----------
$4,930,136 $208,203 $0 $5,138,339
=========== ========= ======= ===========
Outstanding common shares 24,907,786 26,065,286
=========== ===========
Shareholders' equity per share 16.94 17.20
====== ======
</TABLE>
See Notes to Pro Forma Financial Information.
-24-
<PAGE>
OLD NATIONAL BANCORP
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(Unaudited -- Dollars in Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
ONB WORKINGMENS PRO FORMA
--- ----------- ---------
<S> <C> <C> <C>
Interest income $ 184,753 $ 8,084 $ 192,837
Interest expense 88,529 5,201 93,730
---------- -------- ----------
Net interest income 96,224 2,883 99,107
Provision for loan losses 4,063 42 4,105
---------- -------- ----------
Net interest income after provision
for loan losses 92,161 2,841 95,002
Noninterest income 21,313 157 21,470
Noninterest expense 71,769 1,525 73,294
---------- -------- ----------
Income (loss) before income taxes 41,705 1,473 43,178
Provision for income taxes 12,618 610 13,228
---------- -------- ----------
Net income (loss) $ 29,087 $ 863 $ 29,950
========== ======== ==========
Net income per common share: (b)
Assuming no dilution $ 1.15 $ 1.13
========== ==========
Assuming full dilution $ 1.12 $ 1.10
========== ==========
Weighted average common shares outstanding: (b)
Assuming no dilution 25,247,981 26,405,481
========== ==========
Assuming full dilution 26,615,616 27,773,116
========== ==========
</TABLE>
See Notes to Pro Forma Financial Information.
-25-
<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>
ONB WORKINGMENS PRO FORMA
--- ----------- ---------
<S> <C> <C> <C>
Interest income $ 359,972 $ 16,000 $ 375,972
Interest expense 176,293 10,231 186,524
---------- --------- ----------
Net interest income 183,679 5,769 189,448
Provision for loan losses 7,057 78 7,135
---------- --------- ----------
Net interest income after provision for
loan losses 176,622 5,691 182,313
Noninterest income 39,435 241 39,676
Noninterest expense 144,540 2,760 147,300
---------- --------- ----------
Income (loss) before income taxes 71,517 3,172 74,689
Provision for income taxes 19,359 1,209 20,568
---------- --------- ----------
Net income (loss) $ 52,158 $ 1,963 $ 54,121
========== ========= ==========
Net income per common share: (b)
Assuming no dilution $ 2.02 $ 2.01
========== ==========
Assuming full dilution $ 1.98 $ 1.96
========== ==========
Weighted average common shares outstanding: (b)
Assuming no dilution 25,758,911 26,916,411
========== ==========
Assuming full dilution 27,166,176 28,323,676
========== ==========
</TABLE>
See Notes to Pro Forma Financial Information.
-26-
<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>
ONB WORKINGMENS PRO FORMA
--- ----------- ---------
<S> <C> <C> <C>
Interest income $ 316,656 $ 14,088 $ 330,744
Interest expense 137,561 8,596 146,157
---------- --------- ----------
Net interest income 179,095 5,492 184,587
Provision for loan losses 7,682 72 7,754
---------- --------- ----------
Net interest income after provision for
loan losses 171,413 5,420 176,833
Noninterest income 35,023 180 35,203
Noninterest expense 144,634 2,650 147,284
---------- --------- ----------
Income (loss) before income taxes 61,802 2,950 64,752
Provision for income taxes 14,618 1,126 15,744
---------- --------- ----------
Net income (loss) $ 47,184 $ 1,824 $ 49,008
========== ========= ==========
Net income per common share: (b)
Assuming no dilution $ 1.78 $ 1.77
========== ==========
Assuming full dilution $ 1.74 $ 1.73
========== ==========
Weighted average common shares outstanding: (b)
Assuming no dilution 26,484,832 27,642,332
========== ==========
Assuming full dilution 28,183,454 29,340,954
========== ==========
</TABLE>
See Notes to Pro Forma Financial Information.
-27-
<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>
ONB WORKINGMENS PRO FORMA
--- ----------- ---------
<S> <C> <C> <C>
Interest income $ 311,664 $ 13,713 $ 325,377
Interest expense 136,170 8,257 144,427
---------- --------- ----------
Net interest income 175,494 5,456 180,950
Provision for loan losses 10,275 84 10,359
---------- --------- ----------
Net interest income after provision for
loan losses 165,219 5,372 170,591
Noninterest income 33,780 213 33,993
Noninterest expense 132,598 2,489 135,087
---------- --------- ----------
Income (loss) before income taxes 66,401 3,096 69,497
Provision for income taxes 17,548 1,206 18,754
---------- --------- ----------
Net income (loss) $ 48,853 $ 1,890 $ 50,743
========== ========= ==========
Net income per common share: (b)
Assuming no dilution $ 1.84 $ 1.84
========== ==========
Assuming full dilution $ 1.80 $ 1.79
========== ==========
Weighted average common shares outstanding: (b)
Assuming no dilution 26,482,703 27,640,203
========== ==========
Assuming full dilution 28,271,146 29,428,646
========== ==========
</TABLE>
See Notes to Pro Forma Financial Information.
-28-
<PAGE>
OLD NATIONAL BANCORP
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(a) Exchange of 100% of WCHI for 1,157,500 shares of ONB Common
Stock.
(b) Restated for all stock dividends. Net income per share on a
fully diluted basis assumes the conversion of ONB's convertible
subordinated debentures.
-29-
<PAGE>
DESCRIPTION OF ONB
BUSINESS
ONB is a multi-bank holding company with 25 affiliate banks
located in the tri-state area comprised of southwestern Indiana and
neighboring portions of Illinois and Kentucky. With total consolidated
assets of $4.93 billion as of June 30, 1996, ONB is the largest
independent bank holding company headquartered in the State of Indiana.
Since 1985, ONB has acquired 35 financial institutions, 10 of which were
combined with existing affiliate banks, and has increased its banking
offices to 120.
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 sources of
ONB's revenues are 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."
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.
Illinois Indiana Kentucky
-------- ------- --------
- -The National Bank of -Bank of Western Indiana -City National Bank
Carmi (Covington) (Fulton)
- -First National Bank -Citizens National Bank -Farmers Bank & Trust
(Oblong) (Tell City) Company (Henderson)
- -Palmer-American Nationa -Clinton State Bank (Clinton) -Farmers Bank & Trust
Bank (Danville) -Dubois County Bank (Jasper) Company
- -Peoples National Bank -First Citizens Bank & Trust (Madisonville)
(Lawrenceville) Company (Greencastle) -First State Bank
- -Security Bank & Trust -Gibson County Bank (Greenville)
Company (Mt. Carmel) (Princeton) -Morganfield National
- -First National Bank -Merchants National Bank Bank
(Harrisburg) (Terre Haute)
-Old National Bank
(Evansville)
-ONB Bank (Bloomington)
-Orange County Bank (Paoli)
-People s Bank & Trust
Company (Mt. Vernon)
-Rockville National Bank
(Rockville)
-Security Bank & Trust
Company (Vincennes)
-United Southwest Bank
(Washington)
In addition to these affiliate banks, ONB has eight 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 Investment Services,
Inc., a subsidiary of Old National Bank in Evansville and a registered
broker/dealer, provides brokerage services to a number of the customers
of ONB's affiliate banks. ONB's other three (3) non-banking affiliates
include Old National Trust Company, Old National Trust Company --
Illinois and Old National Trust Company -- Kentucky, all of which
provide trust services in their respective states.
-30-
<PAGE>
On May 31, 1996, ONB completed its acquisition of The National
Bank of Carmi, a national banking association located in Carmi,
Illinois. The acquisition of The National Bank of Carmi was
accomplished pursuant to the merger of The National Bank of Carmi into
an interim subsidiary of ONB and the exchange of shares of ONB Common
Stock for shares of common stock of The National Bank of Carmi.
ACQUISITION POLICY
ONB anticipates that it will continue its policy of geographic
expansion through consideration of acquisitions of financial
institutions and insurance agencies 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.
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.
DESCRIPTION OF WCHI
BUSINESS
WCHI, an Indiana corporation, became a unitary savings and loan
holding company upon the conversion of WFSB from a federal mutual
savings and loan institution to a federal stock savings bank in June,
1990. WCHI and WFSB conduct business from a single office in
Bloomington, Monroe County, Indiana, and WFSB operates a branch office
in Ellettsville, Indiana. WFSB is and historically has been among the
top real estate mortgage lenders in Monroe County and is one of the
largest independent financial institutions headquartered in Monroe
County. WFSB offers a variety of retail deposit and lending services.
WCHI has no other business activity than being the holding company for
WFSB. WCHI is the sole shareholder of WFSB. WFSB has one subsidiary,
RISC, an Indiana corporation engaged in the sale of tax-deferred
annuities as agent for WFSB's customers.
TRANSACTIONS WITH CERTAIN RELATED PERSONS
WCHI has followed the policy of offering loans to its Directors,
officers and employees for the financing of their principal residences
and for other personal loan purposes, including overdraft and credit
card lines of credit. All such loans made since the adoption of the
Financial Institutions Reform, Recovery and Enforcement Act of 1989 and
all such loans in excess of $60,000 were made in the ordinary course of
business on substantially the same terms and collateral as those of
comparable transactions prevailing at the time and do not involve more
than the normal risk of collectibility or present other unfavorable
features.
-31-
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The foregoing information concerning WCHI does not purport to be
complete. For additional information, see the documents filed by WCHI
and listed under "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" in
this Proxy Statement which are specifically incorporated herein by
reference.
REGULATORY CONSIDERATIONS
REGULATION OF ONB AND AFFILIATES
ONB Regulation. ONB is registered as a 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 and its affiliate banks are subject to the Federal Reserve
Act, which restricts financial transactions between banks and affiliated
companies. The statute limits credit transactions between a depository
institution and its executive officers and its affiliates, prescribes
terms and conditions for affiliate transactions deemed to be consistent
with safe and sound banking practice, and restricts the types of
collateral security permitted in connection with an institution's
extension of credit to an affiliate.
Affiliate Regulation. The affiliate banks of ONB which are
national banks are supervised, regulated and examined by the Office of
the Comptroller of the Currency ("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 Illinois Commissioner of Banks and Trust Companies. 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 Federal Deposit Insurance Corporation ("FDIC").
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.
-32-
<PAGE>
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.
Each affiliate of ONB has the power to engage in the business of
banking as provided by the law of its state of incorporation. These
laws differ from state to state and from federal law to state law.
However, insured state-chartered banks are prohibited under FDICIA from
engaging as principal in activities that are not permitted for national
banks under federal law, 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.
REGULATION OF WCHI
WCHI is regulated as a "non-diversified savings and loan
company" within the meaning of the Home Owners' Loan Act, as amended
("HOLA") and subject to regulatory oversight of the Director of the OTS.
As such, WCHI is registered with the OTS and thereby subject to OTS
regulations, examinations, supervision and reporting requirements. As a
subsidiary of a savings and loan holding company, WFSB is subject to
certain restrictions in its dealings with WCHI and with other companies
affiliated with WCHI.
HOLA generally prohibits a savings and loan company, without
prior approval of the Director of OTS, from (i) acquiring control of any
other savings association or savings and loan holding company or
controlling the assets thereof or (ii) acquiring or retaining more than
5 percent of the voting shares of a savings association or holding
company thereof which is not a subsidiary. Additionally, under certain
circumstances a savings and loan holding company is permitted to
acquire, with the approval of the Director of the OTS, up to 15 percent
of previously unissued voting shares of an under-capitalized savings
association for cash without that savings association being deemed
controlled by the holding company. Except with the prior approval of the
Director of the OTS, no director or officer of a savings and loan
holding company or person owning or controlling by proxy or otherwise
more than 25% of such company's stock, may also acquire control of any
savings institution, other than a subsidiary institution, or any other
savings and loan holding company.
WCHI is a unitary savings and loan holding company. There are
generally no restrictions on the permissible business activities of a
unitary savings and loan holding company. However, if the Director of
the OTS determines that there is reasonable cause to believe that the
continuation by a savings and loan holding company of an activity
constitutes a serious risk to the financial safety, soundness, or
stability of its subsidiary savings association, the Director of the OTS
may impose such restrictions as deemed necessary to address such risk
and limiting (i) payment of dividends by the savings association, (ii)
transactions between the savings association and its affiliates, and
(iii) any activities of the savings association that might create a
serious risk that the liabilities of the holding company and its
affiliates may be imposed on the savings association.
Notwithstanding the above rules as to permissible business
activities of unitary savings and loan holding companies, if the savings
association subsidiary of such a holding company fails to meet the
Qualified Thrift Lender ("QTL") test, then such unitary holding company
would become subject to the activities restrictions applicable to
multiple holding companies. (Additional restrictions on securing
advances from the Federal Home Loan Bank also apply.) See "REGULATORY
CONSIDERATIONS -- Regulation of WFSB, Qualified Thrift Lender
Requirement." At June 30, 1996, WFSB's asset composition was in excess
of that required to qualify WFSB as a Qualified Thrift Lender.
-33-
<PAGE>
If WCHI were to acquire control of another savings institution
other than through a merger or other business combination with WFSB,
WCHI would thereupon become a multiple savings and loan holding company.
Except where such acquisition is pursuant to the authority to approve
emergency thrift acquisitions and where each subsidiary savings
association meets the QTL test, the activities of WCHI and any of its
subsidiaries (other than WFSB or other subsidiary savings associations)
would thereafter be subject to further restrictions. HOLA provides
that, among other things, no multiple savings and loan holding company
or subsidiary thereof which is not a savings association shall commence
or continue for a limited period of time after becoming a multiple
savings and loan holding company or subsidiary thereof, any business
activity other than (i) furnishing or performing management services for
a subsidiary savings association, (ii) conducting an insurance agency or
escrow business, (iii) holding, managing, or liquidating assets owned by
or acquired from a subsidiary savings institution, (iv) holding or
managing properties used or occupied by a subsidiary savings
institution, (v) acting as trustee under deeds of trust, (vi) those
activities previously directly authorized by the FSLIC by regulation as
of March 5, 1987, to be engaged in by multiple holding companies or
(vii) those activities authorized by the Federal Reserve as permissible
for bank holding companies, unless the Director of the OTS by regulation
prohibits or limits such activities for savings and loan holding
companies. Those activities described in (vii) above must also be
approved by the Director of the OTS prior to being engaged in by a
multiple holding company.
The Director of the OTS may also approve acquisitions resulting
in the formation of a multiple savings and loan holding company which
controls savings associations in more than one state, if the multiple
savings and loan holding company involved controls a savings association
which operated a home or branch office in the state of the association
to be acquired as of March 5, 1987, or if the laws of the state in which
the institution to be acquired is located specifically permit
institutions to be acquired by state- chartered institutions or savings
and loan holding companies located in the state where the acquiring
entity is located (or by a holding company that controls such
state-chartered savings institutions). Also, the Director of the OTS
may approve an acquisition resulting in a multiple savings and loan
holding company controlling savings associations in more than one state
in the case of certain emergency thrift acquisitions.
Indiana law permits acquisitions of certain federal and state
Savings Association Insurance Fund ("SAIF")-insured savings associations
and their holding companies ("Savings Associations") located in Indiana,
Ohio, Kentucky, Illinois, and Michigan (the "Region") by other Savings
Associations located in the Region. Savings Associations with their
principal place of business in one of the states in the Region (other
than Indiana) may acquire Savings Associations with their principal
place of business in Indiana if, subject to certain other conditions,
the state of the acquiring association has reciprocal legislation
permitting the acquisition of Savings Associations and their holding
companies in that state by Indiana Savings Associations. Each of the
states in the Region has, at least to a certain degree, reciprocal
legislation. The Indiana statute also authorizes Indiana Savings
Associations to acquire other Savings Associations in the Region.
Following the acquisition, an acquired Indiana Savings Association and
any other Indiana Savings Association subsidiary owned by the acquiror
must hold no more than 15% of the total Savings Association deposits in
Indiana.
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<PAGE>
No subsidiary savings association of a savings and loan holding
company may declare or pay a dividend on its permanent or
nonwithdrawable stock unless it first gives the Director of the OTS 30
days advance notice of such declaration and payment. Any dividend
declared during such period or without giving notice shall be invalid.
REGULATION OF WFSB
General. As a SAIF-insured savings association, WFSB is subject
to supervision and regulation by the Director of the OTS, as is ONB
Bank. Following the Affiliation, ONB Bank will continue to be
supervised and regulated by the OTS. Under OTS regulations, WFSB is
required to obtain audits by independent auditors and to be examined
periodically by the Director of the OTS. WFSB is subject to assessments
by the OTS and the FDIC to cover the costs of such examinations. The
Director of the OTS also is authorized to promulgate regulations to
ensure the safe and sound operations of savings associations and may
impose various requirements and restrictions on the activities of
savings associations.
The activities of savings associations are governed by HOLA and,
in certain respects, the Federal Deposit Insurance Act, as amended ("FDI
Act").
Qualified Thrift Lender Requirement. In order for WFSB to
exercise the powers granted to federally-chartered savings associations
and maintain full access to Federal Home Loan Bank advances, it must be
a "qualified thrift lender" ("QTL"). A savings institution is a QTL if
its qualified thrift investments continue to equal or exceed 65% of the
savings institution's portfolio assets on a monthly average basis in 9
out of 12 months. As of June 30, 1996, WFSB's qualified thrift
investments represented 98.57% of its portfolio assets. Qualified
thrift investments generally consist of (i) various housing related
loans and investments (such as residential construction and mortgage
loans, home improvement loans, manufactured housing loans, home equity
loans and mortgage-backed securities), (ii) certain obligations of the
FSLIC, the FDIC, the FSLIC Resolution Fund and the Resolution Trust
Corporation (for limited periods), and (iii) shares of stock issued by
any Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation
or the Federal National Mortgage Association.
Liquidity. Under applicable federal regulations, savings
associations are required to maintain an average daily balance of liquid
assets (including cash, certain time deposits, certain banker's
acceptances, certain corporate debt securities and highly rated
commercial paper, securities of certain mutual funds and specified
United States government, state or federal agency obligations) of not
less than 5% of the average daily balance of the savings association's
net withdrawable deposits plus short-term borrowings during the
preceding calendar month. As of June 30, 1996, WFSB's liquid assets
represented 7.09% of its net withdrawable deposits plus short-term
borrowings during the preceding calendar month. Under HOLA, this
liquidity requirement may be changed from time to time by the Director
of the OTS to any amount within the range of four percent to ten
percent, depending upon economic conditions and the deposit flows of
member institutions. A savings institution is also required to maintain
an average daily balance of short-term liquid assets of not less than 1%
of the average daily balance of its net withdrawable deposits and
short-term borrowings during the preceding calendar month. At June 30,
1996, WFSB was in compliance with these liquidity requirements.
Loans-to-One-Borrower Limitations. HOLA generally requires
savings associations to comply with the loans-to-one-borrower
limitations applicable to national banks. In general, national banks
may make loans to one borrower in amounts up to 15% of the bank's
unimpaired capital and surplus, plus an additional 10% of capital and
surplus for loans secured by readily marketable collateral. At June 30,
1996, WFSB's loan-to-one-borrower limitation was approximately $3.8
-35-
<PAGE>
million. Under certain OTS regulations, a savings institution may make
loans to one borrower for residential housing developments in amounts up
to 30% of the bank's unimpaired capital and surplus upon prior notice to
and approval of the OTS and provided that all loans made in reliance
upon the increased lending limit do not, in the aggregate, exceed 150%
of the bank's unimpaired capital and surplus. At June 30, 1996, all of
WFSB's loans complied with these limits.
Commercial Real Property Loans. HOLA limits the aggregate
amount of commercial real estate loans that a federal savings
institution may make to an amount not in excess of 400% of the savings
institution's capital.
WFSB's Subsidiaries. The OTS regulations permit federal savings
associations to invest in the capital stock, obligations or specified
types of securities of subsidiaries (referred to as "service
corporations") and to make loans to such subsidiaries and joint ventures
in which such subsidiaries are participants in an aggregate amount not
exceeding three percent of an institution's assets, provided any
investment over two percent is used for specified community or
inner-city development purposes. In addition, federal regulations
permit institutions to make specified types of loans to such
subsidiaries, in which the institution owns more than ten percent of the
stock, in an aggregate amount not exceeding 50% of the institution's
regulatory capital if the institution's investment is in compliance with
applicable loans- to-one-borrower regulations. A savings institution
which acquires a non-savings institution subsidiary, or which elects to
conduct a new activity within a subsidiary, must give the FDIC and the
OTS at least 30 days' advance written notice. The FDIC may, after
consultation with the OTS, prohibit specific activities if it determines
such activities pose a serious threat to SAIF. WFSB's one such
subsidiary is RISC.
Branching. The rules of the OTS on branching by
federally-chartered savings associations permit nationwide branching to
the extent allowed by federal statute. This permits federal savings
associations with interstate networks to diversify their loan portfolio
and lines of business. The OTS authority pre-empts any state law
purporting to regulate branching by federal savings associations.
CAPITAL ADEQUACY GUIDELINES
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 expansion. All other bank holding companies are
expected to maintain a ratio of at least 1% to 2% above the stated
minimum.
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<PAGE>
The following are ONB's regulatory capital ratios as of June 30,
1996:
<TABLE>
<CAPTION>
<S> <C>
Tier 1 Capital: 13.04%
Total Capital: 15.18%
Leverage Ratio: 8.35%
</TABLE>
WFSB and depository institution affiliates of ONB are required
to meet similar capital adequacy ratios. The FDIC, OCC and OTS have
adopted risk-based capital ratio guidelines to which depository
institutions 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.
Like the capital guidelines established by the Federal Reserve,
these guidelines divide an institution's capital into two tiers.
Depository institutions are required to maintain a total risk-based
capital ratio of 8%. The agencies may, however, set higher capital
requirements when an institution's particular circumstances warrant.
Depository institutions experiencing or anticipating significant growth
are expected to maintain capital ratios, including tangible capital
positions, well above the minimum levels.
In addition, the agencies established guidelines prescribing a
minimum Tier 1 leverage ratio of 3% for depository institutions that
meet certain specified criteria, including that they have the highest
regulatory rating and are not experiencing or anticipating significant
growth. All other institutions 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 WFSB exceed the
risk-based capital guidelines as of June 30, 1996. For additional
information pertaining to WCHI's regulatory capital, see "Liquidity and
Capital Resources" under the caption "Management Discussion and Analysis
of Financial Condition and Results of Operations" contained in WCHI's
Annual Report to Shareholders for the fiscal year ended December 31,
1995.
The OTS has promulgated a rule which sets forth the methodology
for calculating an interest rate risk component to be incorporated into
the OTS regulatory capital rule, although it has delayed implementation
of the rule. Under the rule, only savings associations with "above
normal" interest rate risk (institutions whose portfolio equity would
decline in value by more than 2% of assets in the event of a
hypothetical 200- basis point move in interest rates) will be required
to maintain additional capital for interest rate risk under the
risk-based capital framework. An institution with an "above normal"
level of exposure will have to maintain additional capital equal to
one-half the difference between its measured interest rate risk (the
most adverse change in the market value of its portfolio resulting from
a 200-basis point move in interest rates divided by the estimated market
value of its assets) and 2%, multiplied by the market value of its
assets. That dollar amount of capital is in addition to an institution
s existing risk-based capital requirement. The OTS decided to delay
implementation of this rule, pending the testing of an OTS appeals
process for certain institutions subject to capital deductions under the
new rule. However, during this delay, the OTS has stated that it will
continue to closely monitor interest rate risk at individual
institutions and it retains the authority, on a case-by-case basis, to
impose additional capital requirements for individual institutions with
significant interest rate risk.
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<PAGE>
The OCC, Federal Reserve, and FDIC issued a joint policy
statement providing guidance in sound practices for managing interest
rate risk. This policy statement replaces a prior proposed policy
statement which the agencies had issued regarding a supervisory
framework for measuring and assessing bank's interest rate exposure.
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 June 30, 1996, none of ONB's
affiliate banks or WFSB had been directed by its primary federal
regulator to maintain capital at a level in excess of the minimum
regulatory requirements.
BRANCHING AND ACQUISITIONS
Branching. 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, of the Indiana Department of
Financial Institutions, Kentucky Department of Financial Institutions or
Illinois Commissioner of Banks and Trust Companies (depending upon the
location of the principal office of the bank). Under current law,
branches may be established by banks in Illinois and Indiana throughout
the state; whereas in Kentucky, branches may only be established in the
home county of the bank. As discussed below, Congress recently
authorized interstate branching, with certain limitations, beginning in
1997, and Indiana and Illinois have adopted legislation permitting
interstate branching under certain circumstances.
Acquisitions. Bank holding companies, such as ONB, are
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.
The BHC Act specifically authorizes a bank holding company, upon
receipt of appropriate approvals from the Federal Reserve and the
Director of the OTS, to acquire control of any savings association or
holding company thereof wherever located. Similarly, a savings and loan
holding company may acquire control of a bank. A savings association
acquired by a bank holding company cannot continue any non-banking
activities not authorized for bank holding companies. Savings
associations acquired by a bank holding company may, if located in a
state where the bank holding company is legally authorized to acquire a
bank, be converted to the status of a bank, but deposit insurance
assessments and payments continue to be paid by the association to the
SAIF. A savings association so converted to a bank becomes subject to
the branching restrictions applicable to banks. Also, any insured
depository institution may merge with, acquire the assets of, or assume
the liabilities of any other insured depository institution with the
appropriate regulatory approvals if (i) continued payments of deposit
insurance premiums are made on the acquired depository institution's
deposits (including an assumed rate of growth in such deposits) to SAIF
(if the acquired institution was a SAIF member) or to the Bank Insurance
Fund ("BIF") (if the acquired institution was a BIF member), (ii) the
acquiring institution and any holding company in control thereof meet
all applicable capital requirements at the time of the transaction, and
(iii) if the acquiring institution is a BIF member, the transaction
meets any limitations on geographic expansion.
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<PAGE>
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 were permitted to 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, unless
the state opts out of this new legislation before June 1, 1997.
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, as permitted under this new statute.
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
will be effective as of 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. Kentucky has not adopted legislation pertaining to
Riegle-Neal.
An insured bank subsidiary may act as an agent for an affiliated
bank or, subject to certain limitations, a savings association 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.
FDICIA
FDICIA accomplished a number of sweeping changes in the
regulation of depository institutions. 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 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%.
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<PAGE>
"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, the OCC and the OTS, 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 are insured up to $100,000
per insured account, by the BIF, except for deposits acquired in
connection with affiliations with savings associations, which deposits
are insured by the SAIF. WFSB's deposits are insured by SAIF.
Accordingly, ONB pays deposit insurance premiums to both BIF and SAIF
and will continue to pay SAIF premiums with respect to all deposits of
WFSB acquired in the Affiliation. If the FDIC believes that an increase
in the insurance rates is necessary, it may increase the insurance
premiums applicable to BIF or SAIF. Currently SAIF premiums are
significantly higher than BIF premiums; however, Congress is considering
a number of alternatives to address this issue and maintain relative
equality among premium payments, including a large one-time assessment
on savings associations, requiring banks to help finance the bonds
issued to recapitalize the thrift industry, and merging SAIF and BIF.
Some Congressional proposals also require savings associations to
convert to bank charters. It is difficult at this time to assess
whether Congress will address the SAIF/BIF premium differential and, if
so, what impact its legislative solution to that problem will have on
ONB and its subsidiaries, WCHI, and WFSB.
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<PAGE>
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 June 30, 1996, BIF assessments ranged from
nearly 0% (statutory minimum assessment of $1,000 paid to the BIF) to
0.27% of deposits while SAIF assessments ranged from 0.23% to 0.31% of
deposits. For the semi- annual assessment period beginning on July 1,
1996, the BIF and SAIF assessments will remain as provided above. 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 depending upon the category and subcategory, if
any, to which the bank is assigned by the FDIC. Any increase in
insurance assessments could have an adverse effect on the earnings of
ONB and its affiliate banks, WCHI and WFSB, and any decrease could have
a positive effect on the earnings of ONB and its affiliate banks, WCHI
and WFSB.
ADDITIONAL MATTERS
Legislation was recently signed into law which repeals Section
593 of the Internal Revenue Code of 1986, as amended, which is the
section dealing with the calculation and recapture of thrifts' bad debt
reserves. The new law eliminates any recapture of bad debt reserves
accumulated before 1988 and requires the recapture of post-1987 reserves
(over a 6-year period if the thrifts meet a home mortgage lending test).
This new law eliminates a significant tax penalty which previously
existed with respect to conversions of thrifts to commercial banks.
In addition to the matters discussed above, ONB's affiliate
banks and WFSB 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 affiliates 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 ONB and its affiliate banks, WCHI and WFSB in particular
would be affected thereby.
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<PAGE>
COMPARISON OF COMMON STOCK
The rights of holders of WCHI 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 WCHI shareholders are presently governed by the laws of the
State of Indiana, the state in which WCHI is incorporated, and by WCHI's
Articles of Incorporation and By-Laws. The rights of WCHI shareholders
differ in certain respects from the rights they would have as ONB
shareholders. The following summary comparison of ONB Common Stock and
WCHI 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 of Incorporation and By-Laws and the Articles of
Incorporation and By-Laws of WCHI.
AUTHORIZED BUT UNISSUED SHARES
ONB's Articles of Incorporation currently authorize the issuance
of 50,000,000 shares of ONB Common Stock, of which approximately
24,907,786 million shares were outstanding as of June 30, 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 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 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 ("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."
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<PAGE>
As of June 30, 1996, ONB had 1,540,053 million shares of ONB
Common Stock reserved for issuance under ONB's dividend reinvestment and
stock purchase plan and 1,339,923 million shares of its common stock
reserved for issuance upon conversion of its outstanding 8% convertible
subordinated debentures. 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.
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.
The Articles of Incorporation of WCHI authorizes the issuance of
5,000,000 shares of WCHI Common Stock, no par value per share, of which
1,808,560 shares were issued and outstanding as of the Record Date, and
options for 36,980 shares were outstanding on that date. Following the
Affiliation, all of the outstanding shares of WCHI Common Stock will be
cancelled, and any outstanding options at the effective time will be
converted into options for ONB Common Stock. See "PROPOSED AFFILIATION
- - Exchange of WCHI Common Stock."
WCHI has 2,000,000 shares of Preferred Stock, no par value,
authorized, of which none are issued. Such shares are available to be
issued without shareholder approval under the Articles of Incorporation
of WCHI; however, pursuant to the Agreement, WCHI is restricted in
issuing such shares.
PREEMPTIVE RIGHTS
Neither ONB's nor WCHI s shareholders have preemptive rights to
subscribe for any new or additional ONB Common Stock or WCHI Common
Stock, respectively, or other securities. Preemptive rights may be
granted to ONB's and WCHI's shareholders if their respective Articles of
Incorporation are amended accordingly.
DIVIDEND RIGHTS
The holders of ONB Common Stock and WCHI Common Stock are
entitled to dividends and other distributions when, as and if declared
by their respective Boards of Directors out of funds legally available
therefor. A dividend may not be paid by ONB 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. The same dividend
limitations apply to WCHI shareholders.
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.
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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 in excess of total
net profits for the year of declaration plus retained net profits for
the previous two (2) years may not be declared without approval of the
Indiana Department of Financial Institutions. 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. The ability of
ONB Bank, as a savings association, to pay dividends to ONB is limited
by OTS regulations, as is WFSB's ability to pay dividends. The OTS
regulations impose limitations on capital distributions by savings
associations, including ONB Bank and WFSB. Under the OTS's rule, a
savings institution is classified as a tier 1 institution, a tier 2
institution, or a tier 3 institution, depending upon its level of
regulatory capital both before and after giving effect to a proposed
capital distribution. A tier 1 institution may generally make capital
distributions in any calendar year up to 100% of its net income to date
during the calendar year plus the amount that would reduce by one-half
its "surplus capital ratio" (i.e., the percentage by which the
institution's capital-to-assets ratio exceeds the ratio of its capital
requirements to its assets) at the beginning of the calendar year. No
regulatory approval of the capital distribution is required, but prior
notice must be given to the OTS. Restrictions exist on the ability of
tier 2 and tier 3 institutions to make capital distributions. For
purposes of this regulation, ONB Bank and WFSB are each a tier 1
institution.
Dividends paid by ONB's affiliate banks and WFSB may 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 nor
WFSB is currently subject to such a restriction.
VOTING RIGHTS
The holders of the outstanding shares of ONB Common Stock and
WCHI Common Stock are entitled to one vote per share on all matters
presented for shareholder vote. ONB and WCHI shareholders do not have
cumulative voting rights in the election of directors. Under cumulative
voting, the number of shares a shareholder is entitled to vote
multiplied by the number of Directors to be elected represents the
number of votes a shareholder may cast at such election, and a
shareholder may cast all such votes for one candidate or distribute them
among any two or more candidates. The absence of cumulative voting
rights in the election of Directors may render it more difficult for a
minority shareholder to elect a nominee as a Director.
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
of a majority 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 and WCHI's Articles of
Incorporation provide that certain business combinations may, under
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certain circumstances, require approval of more than a simple majority
of its issued and outstanding shares. 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."
Indiana law requires shareholder approval for most amendments to
a corporation's articles of incorporation -- under Indiana law, 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. Amendments to WCHI's
Articles of Incorporation require a super-majority shareholder vote of
eighty percent (80%) of the outstanding shares of WCHI Common Stock for
the amendment of certain significant provisions.
DISSENTERS' RIGHTS
The holders of WCHI Common Stock and ONB Common Stock possess no
dissenters' rights in connection with the Affiliation. See "PROPOSED
AFFILIATION -- No Dissenters' on Appraisal Rights." ONB shareholders
would not have dissenters' rights for any future merger or acquisition
so long as ONB Common Stock is traded on the NASDAQ National Market
System.
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. Similar liquidation rights apply to
shareholders of WCHI.
ASSESSMENT AND REDEMPTION
Under Indiana law, shares of ONB Common Stock and WCHI Common
Stock are not liable to further assessment. 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. WCHI has similar redemption rights and
limitations under Indiana law.
In addition, ONB must give prior notice to the Federal Reserve
if the consideration to be paid by it for any redemption or acquisition
of its respective 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
which is not the subject of any unresolved supervisory issues. This
requirement does not currently apply to ONB.
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ANTI-TAKEOVER PROVISIONS
The anti-takeover measures applicable to ONB and WCHI, 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
WCHI, respectively. These measures may have the effect of discouraging
certain tender offers for shares of ONB Common Stock or WCHI 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 and
WCHI are covered by the business combinations provision of Indiana law,
but this law will not apply to the Affiliation since ONB is not a 10%
shareholder of WCHI.
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. The
constitutional validity of the control share acquisition provisions of
Indiana law has in the past been challenged and has been upheld by the
United States Supreme Court.
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 and WCHI are each subject to the control share
acquisition provision, but such provision will not apply to the
Affiliation because the statute excludes from its coverage transactions
such as the Affiliation.
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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 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 of Evansville, as Trustee, which is specifically incorporated
herein by reference. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
WCHI's Articles of Incorporation.
Directors. Certain provisions in the Articles of Incorporation
and By-Laws of WCHI will impede changes in majority control of the Board
of Directors of WCHI. The Articles of Incorporation provide that the
Board of Directors of WCHI is divided into three classes, with directors
in each class elected for three-year staggered terms. Therefore, it
would take two annual elections to replace a majority of WCHI's Board.
The Articles of Incorporation also provide that the size of the
Board of Directors shall range between five and fifteen directors, with
the exact number of directors to be fixed from time to time exclusively
by the Board of Directors pursuant to a resolution adopted by a majority
of the total number of directors of WCHI.
The Articles of Incorporation provide that any vacancy occurring
in the Board of Directors, including a vacancy created by an increase in
the number of directors, shall be filled for remainder of the unexpired
term only by a majority vote of the directors then in office. Finally,
the By-Laws impose certain notice and information requirements in
connection with the nomination by shareholders of candidates for
election to the Board of Directors or the proposal by shareholders of
business to be acted upon at an annual meeting of shareholders.
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The Articles of Incorporation provide that a director or the
entire Board of Directors may be removed only for cause and only by the
affirmative vote of at least 80% of the shares eligible to vote
generally in the election of directors. Removal for "cause" is limited
to the grounds for termination in the OTS regulation relating to
employment contracts of federally-insured savings associations.
Restrictions on Call of Special Meetings. The Articles of
Incorporation provide that a special meeting of shareholders may be
called only by the Chairman of the Board of WCHI or pursuant to a
resolution adopted by a majority of the total number of directors of
WCHI. Shareholders are not authorized to call a special meeting.
No Cumulative Voting. The Articles of Incorporation provide
that there shall be no cumulative voting rights in the election of
directors.
Authorization of Preferred Stock. The Articles of Incorporation
authorize 2,000,000 shares of preferred stock, without par value. WCHI
is authorized to issue preferred stock from time to time in one or more
series subject to applicable provisions of the law, and the Board of
Directors is authorized to fix the designations, powers, preferences and
relative participating, optional and other special rights of such
shares, including voting rights (if any and which could be as a separate
class) and conversion rights. In the event of a proposed merger, tender
offer or other attempt to gain control of WCHI not approved by the Board
of Directors, it might be possible for the Board of Directors to
authorize the issuance of a series of preferred stock with rights and
preferences that would impede the completion of such a transaction. An
effect of the possible issuance of preferred stock, therefore, may be to
deter a future takeover attempt. The Board of Directors has no present
plans or understanding for the issuance of any preferred stock.
Evaluation of Offers. The Articles of Incorporation of WCHI
provide that the Board of Directors of WCHI, when determining to take or
refrain from taking corporate action on any matter, including making or
declining to make any recommendation to WCHI's shareholders, may, in
connection with the exercise of its judgment in determining what is in
the best interest of WCHI, its subsidiaries and the shareholders of
WCHI, give due consideration to all relevant factors, including,
without limitation, the social and economic effects of acceptance of
such offer on WCHI's customers and WCHI's subsidiaries present and
future account holders, borrowers, employees and suppliers; the effect
on the communities in which WCHI and the institution operate or are
located; and the effect on the ability of WCHI to fulfill the objectives
of a holding company and of WCHI's subsidiaries or future financial
institution subsidiaries to fulfill the objectives of a stock savings
association under applicable statutes and regulations. The Articles of
Incorporation of WCHI also authorize the Board of Directors to take
certain actions to encourage a person to negotiate for a change of
control of WCHI or to oppose such a transaction deemed undesirable by
the Board of Directors including the adoption of so-called shareholder
rights plans. By having these standards and provisions in the Articles
of Incorporation of WCHI, the Board of Directors may be in a stronger
position to oppose such a transaction if the Board concludes that the
transaction would not be in the best interest of WCHI, even if the price
offered is significantly greater than the then market price of any
equity security of WCHI.
Procedures for Certain Business Combinations. The Articles of
Incorporation require that certain business combinations between WCHI
(or any majority-owned subsidiary thereof) and a 10% or greater
shareholder either be approved (i) by at least 80% of the total number
of outstanding voting shares of WCHI or (ii) by a majority of certain
directors unaffiliated with such 10% or greater shareholder or involve
consideration per share generally equal to the higher of (A) the highest
amount paid by such 10% shareholder or its affiliates in acquiring any
shares of the WCHI Common Stock or (B) the "Fair Market Value"
(generally, the highest closing bid paid for the WCHI Common Stock
during the thirty days preceding the date of the announcement of the
proposed business combination or on the date the 10% or greater
shareholder became such, whichever is higher).
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Amendments to Articles of Incorporation and By-Laws. Amendments
to the Articles of Incorporation must be approved by a majority vote of
WCHI's Board of Directors and also by a majority of the outstanding
shares of WCHI's voting shares; provided, however, that approval by at
least 80% of the outstanding voting shares is required for certain
provisions (i.e., provisions relating to number, classification, and
removal of directors; amendment of the By-Laws; call of special
shareholder meetings; criteria for evaluating certain offers; certain
business combinations; and amendments to provisions relating to the
foregoing). The provisions concerning limitations on the acquisition of
shares may be amended only by an 80% vote of WCHI's outstanding shares
unless at least two-thirds of WCHI's Continuing Directors (directors of
WCHI on February 13, 1990, or directors recommended for appointment or
election by a majority of such directors) approve such amendments in
advance of their submission to a vote of shareholders (in which case
only a majority vote of shareholders is required).
The By-Laws may be amended only by a majority vote of the actual
number of directors of WCHI.
DIRECTOR LIABILITY
Under Indiana law, a director of ONB or WCHI 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 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.
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.
With respect to WCHI, nominations of persons for election to the
Board of Directors may be made at a meeting of shareholders by or at the
direction of the Board of Directors, by any nominating committee or
person appointed by the Board of Directors or by any shareholder
entitled to vote for the election of directors at the meeting who
complies with the notice procedure set forth in WCHI's By-Laws.
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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 WCHI by the law firm of Barnes & Thornburg, 11 South Meridian
Street, Suite 1313, Indianapolis, Indiana 46240.
EXPERTS
The consolidated financial statements of ONB and affiliates
incorporated by reference into 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 by
reference into this Proxy Statement in reliance upon the authority of
said firm as experts in auditing and accounting in giving said report.
The consolidated financial statements of WCHI as of December
31, 1995 and 1994, and for each of the years in the three-year period
ended December 31, 1995, have been incorporated by reference into this
Proxy Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
Representatives of KPMG Peat Marwick LLP are not expected to be
at the Special Meeting.
OTHER MATTERS
The Special Meeting is called for the purposes set forth in the
Notice attached to this Proxy Statement. The Board of Directors of WCHI
knows of no other matters for action by shareholders at the Special
Meeting other than the matters described in the Notice. However, the
enclosed revocable proxy will confer discretionary authority to the
persons named therein with respect to any such matters, none of which
are known to the Board of Directors of WCHI 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 WCHI.
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APPENDIX A
AGREEMENT OF AFFILIATION AND MERGER
THIS AGREEMENT OF AFFILIATION AND MERGER ("Agreement"),
dated as of this 8th day of April, 1996, by and among OLD
NATIONAL BANCORP ("ONB"), ONB BANK ("ONB Bank"), WORKINGMENS
CAPITAL HOLDINGS, INC. ("Capital Holdings") and WORKINGMENS
FEDERAL SAVINGS BANK ("WFSB"),
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 ("BHC Act"), with its principal office located
in Evansville, Vanderburgh County, Indiana; and
WHEREAS, ONB Bank is a federally chartered savings bank and
a wholly-owned subsidiary of ONB with its principal office
located in Bloomington, Monroe County, Indiana; and
WHEREAS, Capital Holdings is an Indiana corporation
registered as a savings and loan holding company under the Home
Owners' Loan Act, as amended ("HOLA"), with its principal office
located in Bloomington, Monroe County, Indiana; and
WHEREAS, WFSB is a federally chartered savings bank and a
wholly-owned subsidiary of Capital Holdings with its principal
office located in Bloomington, Monroe County, Indiana; and
WHEREAS, a majority of the Executive Committee of the Board
of Directors of ONB, a majority of the Board of Directors of
Capital Holdings and at least two-thirds (2/3) of the entire
Board of Directors of each of ONB Bank and WFSB have approved
this Agreement and have authorized its execution and delivery.
NOW, THEREFORE, in consideration of the foregoing premises,
the representations, warranties, covenants and mutual obligations
herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, ONB,
ONB Bank, Capital Holdings and WFSB hereby agree as follows:
SECTION 1
THE MERGERS
1.01. The Company Merger.
(a) General Description. Upon the terms and subject to the
conditions of this Agreement, immediately prior to the Thrift
Merger (as hereinafter defined), Capital Holdings shall be merged
into and under the Articles of Incorporation of ONB ("Company
Merger"). ONB shall survive the Company Merger ("Surviving
Corporation") and shall continue its corporate existence under
the laws of the State of Indiana and pursuant to the provisions
of and with the effect provided in the Indiana Business
Corporation Law, as amended.
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(b) Name, Offices and Management. The name of the
Surviving Corporation shall be "Old National Bancorp" Its
principal office shall be located at 420 Main Street, Evansville,
Indiana 47708. The Board of Directors of the Surviving
Corporation, until such time as their successors have been
elected and have qualified, shall consist of the Board of
Directors of ONB serving at the Effective Time (as hereinafter
defined). The officers of ONB serving at the Effective Time
shall be the officers of the Surviving Corporation until the
Board of Directors of the Surviving Corporation shall determine
otherwise.
(c) Capital Structure. The capital of the Surviving
Corporation shall not be less than the capital of ONB immediately
prior to the Effective Time. The issued and outstanding shares
of common stock of ONB immediately prior to the Effective Time
shall remain issued and outstanding following the Effective Time.
(d) Articles of Incorporation and By-Laws. The Articles of
Incorporation and By-Laws of ONB in existence at the Effective
Time shall be the Articles of Incorporation and By-Laws of the
ONB until such Articles of Incorporation and By-Laws shall be
amended as provided by applicable law.
(e) Effect of Company Merger. The effect of the Company
Merger upon consummation thereof shall be as set forth in Indiana
Code Section 23-1-40-6, as amended.
(f) Tax-Free Reorganization. ONB, ONB Bank, Capital
Holdings and WFSB intend for the Company 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 agree to cooperate and to take such actions as may
be reasonably necessary to assure such result.
1.02. The Thrift Merger.
(a) General Description. Upon the terms and subject to the
conditions of this Agreement, immediately following the Company
Merger, WFSB shall be merged into and under the Charter of ONB
Bank ("Thrift Merger") (the Thrift Merger and the Company Merger
are hereinafter collectively referred to as the "Mergers"). ONB
Bank shall survive the Thrift Merger ("Surviving Bank") and shall
continue its corporate existence under the laws of the United
States of America and ONB Bank's Charter.
(b) Name, Offices and Management. The name of the
Surviving Bank shall be "Workingmens Bank" until such name may be
changed in accordance with applicable law. The Surviving Bank's
home office shall be located at 121 East Kirkwood Avenue,
Bloomington, Indiana 47404, which is the present home office of
WFSB. As of and following the Effective Time, the home office
and all branch offices of ONB Bank and the sole branch office of
WFSB shall become branch offices of the Surviving Bank.
The Board of Directors of the Surviving Bank, until such
time as their successors have been elected and have qualified,
shall consist of the members of the Boards of Directors of ONB
Bank and WFSB serving at the Effective Time, plus up to four (4)
additional directors (i) to be agreed upon by Capital Holdings
and ONB, if elected by Capital Holdings prior to the Effective
Time or (ii) to be agreed upon by the Surviving Bank and ONB, if
elected by ONB following the Effective Time. Each director of
WFSB serving at the Effective Time (other than the four (4)
additional directors elected pursuant to this Section 1.02(b))
will be elected by ONB as a director of the Surviving Bank until
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such director has reached the age of seventy (70) years, at which
time the director must retire from the Surviving Bank's Board of
Directors. Each director of WFSB serving at the Effective Time
who is over the age of seventy (70) years at the Effective Time
and the four (4) additional directors elected pursuant to this
Section 1.02(b) will be elected by ONB to serve as a director of
the Surviving Bank for a period of two (2) years following the
Effective Time. The four (4) additional directors elected by
Capital Holdings pursuant to this Section 1.02(b) shall not be
entitled to participate in or receive any payments or benefits
under the WFSB Deferred Compensation Plan (as hereinafter
defined), the WFSB Director Emeritus Program (as hereinafter
defined) or any health or hospitalization plan of WFSB. The
President and Chief Executive Officer of the Surviving Bank shall
be Mr. Richard R. Haynes, until the Board of Directors of the
Surviving Bank shall elect a successor to Mr. Haynes. The
Chairman of the Surviving Bank shall be Mr. Robert A. Shaffer,
until the Board of Directors of the Surviving Bank shall elect a
successor to Mr. Shaffer.
(c) Capital Structure. At the Effective Time, the capital
of the Surviving Bank shall not be less than the capital of ONB
Bank immediately prior to the Effective Time. At the Effective
Time, all issued and outstanding shares of capital stock of WFSB
shall be canceled and all issued and outstanding shares of
capital stock of ONB Bank shall be unchanged and shall remain
issued and outstanding. As of and following the Effective Time,
ONB shall continue to hold all of the issued and outstanding
shares of capital stock of ONB Bank, as the Surviving Bank in the
Thrift Merger.
(d) Charter and By-Laws. Except for appropriate amendments
to reflect the name of the Surviving Bank as "Workingmens Bank"
or such other name as may be agreed to prior to the Effective
Time by Capital Holdings and ONB, the Charter and By-Laws of ONB
Bank in existence at the Effective Time shall be the Charter and
By-Laws of the Surviving Bank, until such Charter and By-Laws
shall be further amended as provided by applicable law.
(e) Effect of Thrift Merger. At the Effective Time, title
to all assets, real estate and other property owned by WFSB and
ONB Bank shall vest in the Surviving Bank without reversion or
impairment. At the Effective Time, all liabilities and
obligations of WFSB and ONB Bank shall be assumed by the
Surviving Bank. Such liabilities shall include all of WFSB's
obligations with respect to the liquidation account that was
established at the time WFSB converted from mutual to stock form
of ownership.
(f) Tax-Free Reorganization. ONB, ONB Bank, Capital
Holdings and WFSB intend for the Thrift Merger to qualify as a
reorganization within the meaning of Section 368 and related
sections of the Code, and agree to cooperate and to take such
actions as may be reasonably necessary to assure such result.
SECTION 2
MANNER AND BASIS
OF EXCHANGE OF STOCK
2.01. Exchange Ratio. (a) Upon and by virtue of the
Company Merger becoming effective at the Effective Time, each
issued and outstanding share of Capital Holdings Common Stock (as
defined in Section 4.03(a) hereof) shall be converted into the
right to receive sixty-four one hundredths (0.64) of a share of
ONB common stock ("Exchange Ratio"), subject to adjustment, if
any, as set forth in Sections 2.01(c) and 2.03 hereof.
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(b) The "Average Price Per Share" of ONB common stock shall
be defined as 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.
(c) If the Average Price Per Share of ONB common stock is
less than $33.00, then the Exchange Ratio shall be adjusted such
that each share of Capital Holdings Common Stock shall be
converted into the right to receive such number of shares of ONB
common stock equal to the quotient arrived at by dividing (i)
$21.12 by (ii) the Average Price Per Share of ONB common stock,
subject to further adjustment, if any, pursuant to the provisions
of Section 2.03 hereof. If the Average Price Per Share of ONB
common stock is greater than $34.75, then the Exchange Ratio
shall be adjusted such that each issued and outstanding share of
Capital Holdings Common Stock shall be converted into the right
to receive such number of shares of ONB common stock equal to the
quotient arrived at by dividing (i) $22.24 by (ii) the Average
Price Per Share of ONB common stock, subject to further
adjustment, if any, pursuant to the provisions of Section 2.03
hereof. If the Average Price Per Share of ONB common stock is
not less than $33.00 or not greater than $34.75, then there shall
be no adjustment to the Exchange Ratio, other than as
contemplated by Section 2.03 hereof.
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 Capital Holdings 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, ONB distributes or issues a
stock dividend with respect to its shares of common stock, or
combines, subdivides, reclassifies or splits up its 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
Capital Holdings 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. If the Exchange Ratio is
adjusted pursuant to this Section 2.03, then all references to
the Average Price Per Share of ONB common stock in Section
2.01(c) hereof shall also be adjusted to give effect to the stock
dividend, stock split or other recapitalization causing the
Exchange Ratio to be adjusted.
2.04. Distribution of ONB Common Stock and Cash.
(a) Promptly following the Effective Time, ONB shall mail to each
Capital Holdings shareholder a letter of transmittal providing
instructions as to the transmittal to ONB of certificates
representing shares of Capital Holdings 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, ONB shall distribute
stock certificates representing shares of ONB common stock and
any cash payment, without interest, for fractional shares, if
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any, shall be made by ONB to each former shareholder of Capital
Holdings within ten (10) business days following delivery to ONB
of the shareholder's certificate(s) representing such
shareholder's shares of Capital Holdings Common Stock accompanied
by a properly completed and executed letter of transmittal, all
in form and substance reasonably satisfactory to ONB and Capital
Holdings.
(c) Following the Effective Time, stock certificates
representing Capital Holdings 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 distributions otherwise payable subsequent to
the Effective Time on shares of ONB common stock shall be paid to
any Capital Holdings shareholder entitled to receive the same
until such shareholder has surrendered to ONB his or her
certificate or certificate(s) representing Capital Holdings
Common Stock in exchange for a certificate representing ONB
common stock. Upon surrender of the certificate(s) representing
shares of Capital Holdings Common Stock, there shall be paid in
cash to the record holder of the new certificate 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 Capital Holdings to establish the persons entitled to
receive shares of ONB common stock pursuant to this Agreement,
which books, in the absence of actual knowledge by ONB of any
adverse claim thereto, shall be conclusive with respect to the
ownership of shares of Capital Holdings Common Stock.
(e) With respect to any certificate for shares of Capital
Holdings Common Stock which has been lost, stolen or destroyed,
ONB shall be authorized to issue its common stock (or to pay cash
as to fractional shares) to the registered owner of such
certificate upon ONB's receipt 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 Capital Holdings shareholder with all other
reasonable requirements of ONB in connection with lost, stolen or
destroyed stock certificates.
2.05. Subsequent Affiliation. If, between the date of
this Agreement and the Effective Time, ONB enters into an
agreement with another corporation, partnership, person or other
entity pursuant to which current shareholders of ONB common stock
will exchange their ONB common stock for stock of another entity
("Other Transaction"), then upon consummation of the Other
Transaction, the shareholders of Capital Holdings shall be
treated as though the Company Merger had been consummated prior
to an Other Transaction and shall be entitled to receive the same
per share consideration as will shareholders of ONB in the Other
Transaction. ONB shall take steps to include provisions in any
such agreement to the foregoing effect.
SECTION 3
DISSENTING SHAREHOLDERS
Shareholders of Capital Holdings are not entitled to
statutory dissenters' rights since Capital Holdings Common Stock
is listed on the NASDAQ National Market System. Capital Holdings
shall take no action which would result in the loss of such
listing on the NASDAQ National Market System prior to the
Effective Time.
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SECTION 4
REPRESENTATIONS AND WARRANTIES OF CAPITAL HOLDINGS
Capital Holdings hereby represents and warrants to ONB with
respect to itself, WFSB and Realty Investment Service Corporation
("RISC") as follows:
4.01. Organization and Authority. (a) Capital Holdings is
a corporation duly organized and validly existing under the laws
of the State of Indiana and is a savings and loan holding company
under the HOLA. Capital Holdings 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. Capital
Holdings has no direct subsidiaries and owns directly 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 WFSB. The Capital Holdings Common
Stock is the only class of Capital Holdings stock registered
pursuant to Section 12 the Securities Exchange Act of 1934, as
amended ("1934 Act").
(b) WFSB is a federally chartered savings bank duly
organized and validly existing under the laws of the United
States of America. WFSB 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 for shares of
common stock of the Federal Home Loan Bank of Indianapolis and
except as provided in the Disclosure Schedule, WFSB has no
subsidiaries and owns no voting stock or equity securities of, or
any interest in, any corporation, partnership, association or
other entity. WFSB is subject to primary federal regulatory
supervision and examination by the Office of Thrift Supervision
("OTS").
(c) RISC is an Indiana corporation duly organized and
validly existing under the laws of the State of Indiana. RISC's
sole business is the marketing of tax-deferred annuities as agent
for WFSB's customers. RISC 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. WFSB
owns all of the issued and outstanding shares of capital stock of
RISC. RISC has no subsidiaries and owns no voting stock or
equity securities of or any interest in, any corporation,
partnership, association or other entity. WFSB and RISC are
sometimes hereinafter referred to collectively as the
"Subsidiaries."
4.02. Authorization. (a) Each of Capital Holdings and
WFSB 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 Capital Holdings and WFSB have been duly authorized
and approved by the Board of Directors of Capital Holdings and
WFSB, respectively. The Agreement constitutes a valid and
binding obligation of Capital Holdings and WFSB 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.
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(b) Neither the execution of this Agreement nor
consummation of the Mergers (i) conflicts with or violates
Capital Holdings' Articles of Incorporation or By-Laws or WFSB's
Charter 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 Mergers 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 Capital Holdings or WFSB is a party or
by which WFSB or Capital Holdings is subject or bound and which
is material to Capital Holdings or WFSB, whether individually or
on a consolidated basis; (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
Capital Holdings or WFSB; 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, deed of trust, license, lease, contract, agreement,
arrangement, commitment or other instrument to which Capital
Holdings or WFSB is bound or with respect to which Capital
Holdings or WFSB 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, thrift,
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 governmental agency or body is necessary for the
consummation of the Mergers by Capital Holding and WFSB,
respectively.
4.03. Capitalization. (a) The authorized capital stock
of Capital Holdings consists, and at the Effective Time will
consist, of (i) 5,000,000 shares of common stock, no par value
per share, 1,806,560 of which shares are validly issued and
outstanding, which number of issued and outstanding shares of
Capital Holdings Common Stock is subject to increase to a total
of 1,845,540 shares pursuant to the exercise of options
(collectively, the "Stock Options") granted under the Workingmens
Capital Holdings, Inc. Stock Option Plan ("Stock Option Plan") to
purchase an aggregate of 38,980 shares of Capital Holdings Common
Stock (the outstanding shares of common stock of Capital Holdings
are referred to in this Agreement as the "Capital Holdings Common
Stock"), and (ii) 2,000,000 shares of preferred stock, no par
value, none of which shares are issued or outstanding ("Preferred
Stock"). The shares of Capital Holdings Common Stock presently
issued and outstanding have been (and with respect to the shares
of common stock of Capital Holdings to be issued upon exercise of
the Stock Options shall be) duly and validly authorized by all
necessary corporate action of Capital Holdings, are (and with
respect to the shares of common stock of Capital Holdings to be
issued upon exercise of the Stock Options shall be) validly
issued, fully paid and nonassessable and have not been (and with
respect to the shares of common stock of Capital Holdings to be
issued upon exercise of the Stock Options shall not be) issued in
violation of any pre-emptive rights of any present or former
Capital Holdings shareholders. Capital Holdings has no capital
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, any shares of
Preferred Stock or any additional shares of Capital Holdings
Common Stock, except for 38,980 shares of Capital Holdings Common
Stock pursuant to the exercise of the Stock Options. As of
December 31, 1995, Capital Holdings had total shareholders
equity of $25,684,519, which consisted of common stock of
$8,066,208, retained earnings of $17,721,628, and net unrealized
depreciation on securities available for sale of $(103,309). A
description of the terms, relative rights, preferences and
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limitations of the Capital Holdings Common Stock and Preferred
Stock is contained in the Articles of Incorporation of Capital
Holdings, a copy of which is set forth in the Disclosure Schedule
pursuant to Section 4.04 hereof (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).
(b) The authorized capital stock of WFSB consists, and at
the Effective Time will consist, of 1,000 shares of common stock,
$.01 par value per share, all of which shares are validly
outstanding and issued to Capital Holdings (such issued and
outstanding shares of common stock are referred to in this
Agreement as the "WFSB Common Stock"), and 1,000,000 shares of
preferred stock, $1.00 par value per share, none of which shares
are issued or outstanding ("WFSB Preferred Stock"). Such issued
and outstanding shares of WFSB Common Stock have been duly and
validly authorized by all necessary corporate action of WFSB, are
validly issued, fully paid and non-assessable and have not been
issued in violation of any pre-emptive rights of any present or
former WFSB shareholders. All of the issued and outstanding
shares of WFSB Common Stock are owned by Capital Holdings 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. WFSB has no capital
stock authorized, issued or outstanding other than as described
in this Section 4.03(b) and has no intention or obligation to
authorize or issue any other capital stock, any shares of WFSB
Preferred Stock or any additional shares of WFSB Common Stock.
As of December 31, 1995, WFSB had total assets of $213,254,491,
total liabilities of $189,008,200 and total capital of
$24,246,291, which capital consisted of common stock of $10,
capital surplus of $7,974,990, undivided profits of $16,374,600,
and unrealized depreciation on securities available for sale of
$(103,309).
(c) The authorized capital stock of RISC consists, and at
the Effective Time will consist, of 1,000 shares of common stock,
no par value per share, 210 of which shares are outstanding and
validly issued to WFSB (such issued and outstanding shares of
common stock are referred to in this Agreement as the "RISC
Common Stock"). The shares of RISC Common Stock have been duly
and validly authorized by all necessary corporate action of RISC,
are validly issued, fully paid and non-assessable and have not
been issued in violation of any pre-emptive rights of any present
or former RISC shareholders. All of the shares of RISC Common
Stock are owned by WFSB 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.
RISC has no capital stock authorized, issued or outstanding other
than as described in this Section 4.03(c) and has no intention or
obligation to authorize or issue any other capital stock or any
additional shares of RISC Common Stock. As of December 31, 1995,
RISC had total assets of $38,834, total liabilities of $84 and
total capital of $38,750, which capital consisted of common stock
of $21,000, capital surplus of $-0-, and undivided profits of
$17,750.
(d) Except for options to purchase 38,980 shares of Capital
Holdings Common Stock under the Stock Option Plan, 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 Capital Holdings by which
Capital Holdings is or may become bound. Capital Holdings does
not have any contractual or other obligation to repurchase,
redeem or otherwise acquire any of its issued and outstanding
shares of Capital Holdings Common Stock. Set forth in the
Disclosure Schedule is a true, accurate and complete (i) copy of
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an incentive stock option agreement and a non-qualified stock
option agreement that are identical in all material respects to
the presently outstanding stock option agreements (except as to
the number of shares subject to the option, the purchase price
per share and the duration of the option), (ii) copy of the Stock
Option Plan and (iii) a list of all optionees, including the
number of shares subject to each Stock Option.
(e) There are no options, warrants, commitments, calls,
puts, agreements, understandings, arrangements or subscription
rights relating to the capital stock, or any securities
convertible into or representing the right to purchase or
otherwise acquire the capital stock or any debt securities, of
the Subsidiaries by which either of the Subsidiaries are or may
become bound. The Subsidiaries do not have any contractual or
other obligation to repurchase, redeem or otherwise acquire any
of their respective outstanding shares of capital stock.
(f) Except as set forth in the Disclosure Schedule, Capital
Holdings has no knowledge of any person who beneficially owns 5%
or more of the issued and outstanding shares of Capital Holdings
Common Stock.
4.04. Organizational Documents. The Articles of
Incorporation and By-Laws of Capital Holdings and RISC and the
Charter and By-Laws of WFSB, representing true, accurate and
complete copies of such corporate documents of Capital Holdings,
RISC and WFSB, respectively, 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 provided in
the Disclosure Schedule, neither Capital Holdings nor either of
the Subsidiaries 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
could have a material adverse effect on the financial condition,
results of operations, business, assets or capital of Capital
Holdings and WFSB, whether individually or on a consolidated
basis, or RISC on a consolidated basis with Capital Holdings.
Capital Holdings and each of the Subsidiaries possess and hold
all licenses, franchises, permits, certificates and other
authorizations necessary for the continued conduct of their
respective businesses without interference or interruption, and
such licenses, franchises, permits, certificates and
authorizations held by Capital Holdings or the Subsidiaries are
transferable to Surviving Bank and Surviving Corporation, 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 Capital
Holdings or either of the Subsidiaries 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,
Capital Holdings or either of the Subsidiaries, including,
without limitation, all correspondence, communications and
commitments related thereto, are 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 provided to Capital Holdings or either
of the Subsidiaries as a result of an examination by any
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regulatory agency or body or set forth in any accountant's,
auditor's or other report to Capital Holdings or either of the
Subsidiaries.
(c) All of the existing offices and branches of WFSB have
been legally authorized and established in accordance with all
applicable federal, state and local laws, statutes, regulations,
rules, ordinances, orders, restrictions and requirements. WFSB
does not have any 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 Capital Holdings or either
of the Subsidiaries in this Agreement or in the Disclosure
Schedule (and any update thereto) and no written report,
statement, list, materials or other written information which has
previously been or which shall be provided subsequent to the date
hereof by any executive officer of Capital Holdings or either of
the Subsidiaries or any of their agents to ONB or any of its
agents in connection with this Agreement, the Mergers, ONB's due
diligence investigation or confidential review of Capital
Holdings and the Subsidiaries or otherwise, including, without
limitation, any written information with respect to Capital
Holdings' and the Subsidiaries' business, capital, assets,
financial condition, results of operations, and directors and
officers for inclusion in the Registration Statement (as defined
in Section 7.02 hereof) and proxy statement-prospectus relating
to the Mergers, contains or shall contain (with respect to
information relating to the Registration Statement at the time it
is declared effective and with respect to information relating to
the proxy statement-prospectus at the time it is mailed to
Capital Holdings 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) All materials or information provided by Capital
Holdings or either of the Subsidiaries to ONB for use by ONB in
any filing with any state or federal bank or thrift regulatory
agency or authority shall not, at the time such filings are made,
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, mediations or
investigations pending or, to the best knowledge of Capital
Holdings and the Subsidiaries after due inquiry, threatened in
any court or before any government agency or authority,
arbitration panel, mediator or otherwise (nor does Capital
Holdings or either of the Subsidiaries have any knowledge of a
basis for any claim, action, suit, proceeding, litigation,
arbitration, mediation or investigation) against, by or affecting
Capital Holdings or either of the Subsidiaries which could have a
material adverse effect on the financial condition, results of
operations, business, assets or capital of Capital Holdings or
either of the Subsidiaries, whether individually or on a
consolidated basis, or RISC on a consolidated basis with Capital
Holdings, or which would prevent the performance of this
Agreement, declare the same unlawful or cause the rescission
hereof.
(b) Neither Capital Holdings nor either of the Subsidiaries
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
under governmental investigation with respect to any actual or
alleged violations of any law, statute, rule, regulation or
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ordinance, or (iii) the subject of any pending or, to the best
knowledge of Capital Holdings and the Subsidiaries, threatened
proceeding by any government regulatory agency or authority
having jurisdiction over their respective businesses, properties
or operations.
4.08. Financial Statements and Reports. Capital
Holdings has delivered to ONB copies of the following financial
statements and reports, including the notes thereto, of Capital
Holdings and the Subsidiaries (collectively, the "Capital
Holdings Financial Statements"):
(a) Consolidated statements of condition as of December 31,
1994 and 1995 and the related statements of earnings and
statements of changes in shareholders' equity of Capital Holdings
as of and for the fiscal years ended December 31, 1993, 1994 and
1995; and
(b) Consolidated statements of cash flows of Capital
Holdings for the fiscal years ended December 31, 1993, 1994 and
1995.
Except as provided in the Disclosure Schedule, the Capital
Holdings Financial Statements are true, accurate and complete in
all material respects and present fairly the consolidated
financial positions of Capital Holdings and WFSB as of and at the
dates shown and the consolidated results of operations for the
periods covered thereby. The Capital Holdings Financial
Statements described in clauses (a) and (b) above are audited
financial statements and have been prepared in conformance with
generally accepted accounting principles applied on a consistent
basis. The Capital Holdings 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 Capital Holdings Financial Statements false, misleading or
inaccurate in any material respect as of the respective dates
thereof.
4.09. Properties, Contracts, Employees and Other
Agreements. (a) Set forth in the Disclosure Schedule is a true,
accurate and complete copy and, when applicable, a list or
description of the following:
(i) A brief description and the location of all real
property owned by Capital Holdings and each of the
Subsidiaries 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 Capital Holdings or
either of the Subsidiaries is a party (excluding
any exhibits thereto which are not material),
identifying the parties thereto, the annual rental
payable, the expiration date of the lease and a
brief description of the property covered;
(ii) All loan or credit agreements and promissory notes
relating to money borrowed by Capital Holdings and
the Subsidiaries, all land, conditional sales or
installment sales contracts or other title
retention agreements and all agreements for the
purchase of federal funds to which Capital
Holdings or either of the Subsidiaries is a
party;
(iii) All agreements, contracts, leases, licenses, lines
of credit, understandings, commitments or
obligations of Capital Holdings or either of the
Subsidiaries which individually or in the
aggregate:
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(A) involve payment or receipt by Capital Holdings or
either of the Subsidiaries (other than as
disbursements of loan proceeds to customers or
loan payments by customers) of more than $10,000
during any twelve (12) month period;
(B) involve payments based on profits of Capital
Holdings or either of the Subsidiaries;
(C) relate to the purchase of goods, products,
supplies or services in excess of $5,000;
(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 Capital Holdings
or either of the Subsidiaries whose current annual
salary and bonus or incentive compensation from
Capital Holdings or either of the Subsidiaries is
in excess of $50,000, and the profit sharing and
other form of compensation (other than salary)
paid or payable by Capital Holdings or either of
the Subsidiaries to or for the benefit of each
such person for the calendar years ended December
31, 1994 and 1995.
(b) WFSB has, prior to the date of this Agreement, provided
or given access to ONB to the files and documentation of all of
its borrowers, or persons or entities that are or may become
obligated to WFSB under a letter of credit, line of credit, loan
transaction, loan agreement, promissory note or other commitment
of WFSB, 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 Capital Holdings and the
Subsidiaries, 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. Capital Holdings and the
Subsidiaries are and, to their best knowledge, all other parties
thereto are in compliance with the provisions thereof, and
Capital Holdings and the Subsidiaries are not and, to their best
knowledge, 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 Mergers.
4.10. Absence of Undisclosed Liabilities. Except as set
forth in the Disclosure Schedule, except as provided in the
Capital Holdings Financial Statements, except for accounts
payable incurred and unfunded loan commitments made to customers
in the ordinary course of business, except for additional
borrowings from the Federal Home Loan Bank of Indianapolis
incurred in the ordinary course of business between the date
hereof and the Effective Time, neither Capital Holdings nor
either of the Subsidiaries has any obligation, agreement,
contract, commitment, liability, lease or license which exceeds
$5,000 individually or in the aggregate, or any obligation,
agreement, contract, commitment, liability, lease or license made
outside of the ordinary course of business.
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4.11. Title to Assets. (a) Capital Holdings or either
of the Subsidiaries, 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 Capital
Holdings Financial Statements as of December 31, 1995; good and
marketable title to all personal property reflected in the
Capital Holdings 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 Capital Holdings or either of the
Subsidiaries purports to own or which Capital Holdings or either
of the Subsidiaries uses in their respective businesses; and good
and marketable title to, or right to use by the terms of a valid
and enforceable lease or commitment all other property and assets
acquired and not disposed of or leased, as the case may be, since
December 31, 1995. All of such properties and assets owned by
Capital Holdings and the Subsidiaries are owned free and clear of
all land or conditional sales contracts, mortgages, encumbrances,
liens, pledges, restrictions, security interests, charges, claims
or rights of third parties of any nature except (i) as set forth
in the Disclosure Schedule; (ii) as specifically noted in
reasonable detail in the Capital Holdings 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, minor imperfections of title,
building or use restrictions, variations and other limitations
which are not substantial in amounts, 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 Capital Holdings and the Subsidiaries is in material
compliance with all applicable zoning and land use laws.
(b) To the best of their knowledge, Capital Holdings and
each of the Subsidiaries 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, 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 all 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 Capital Holdings and
the Subsidiaries, threatened claims, actions or proceedings by
any local municipality, sewage district or other federal, state
or local governmental agency or authority against Capital
Holdings' or either of the Subsidiaries with respect to any of
the Environmental Laws and, to the best of Capital Holdings' and
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the Subsidiaries' knowledge, there is no basis or grounds for any
such claim, action or proceeding. No environmental clearances or
other governmental environmental approvals are required for the
conduct of Capital Holdings' or either of the Subsidiaries'
business or consummation of the Mergers. To the best of Capital
Holdings' and the Subsidiaries' knowledge, neither Capital
Holdings nor either of the Subsidiaries 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 of the
Environmental Laws.
(c) Neither Capital Holdings nor either of the Subsidiaries
(i) is in default in any respect under any agreements pursuant to
which it leases real or personal property, (ii) has knowledge of
any default under such agreements by any party thereto and (iii)
has knowledge of any event which, with notice or lapse of time or
both, would constitute a default or a breach thereof.
4.12. Loans and Investments. (a) Except as set forth
in the Disclosure Schedule, WFSB has no loan in excess of $10,000
that has been classified by regulatory examiners or management of
WFSB as "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 WFSB and a
list of all loans in excess of $10,000 that WFSB has determined
to be ninety (90) 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 Capital Holdings 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 of WFSB's knowledge, 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 WFSB has a security
interest in collateral or a mortgage securing such loans, by
perfected security interests or recorded mortgages naming WFSB as
the secured party or mortgagee.
(c) Except as set forth in the Disclosure Schedule, the
reserves, the allowance for possible loan and lease losses and
the carrying value for real estate owned which are shown on the
Capital Holdings Financial Statements are, in the opinion of
management of WFSB, adequate in all 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 WFSB, 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) None of the investments reflected in the Capital
Holdings Financial Statements as of and for the year ended
December 31, 1995 and none of the investments made by Capital
Holdings or either of the Subsidiaries since December 31, 1995
are subject to any restriction, whether contractual or statutory,
which materially impairs the ability of Capital Holdings or
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either of the Subsidiaries to dispose freely of such investment
at any time. Neither Capital Holdings nor either of the
Subsidiaries is 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 WFSB has any
participation interest or which have been made with or through
another financial institution on a recourse basis against WFSB.
(f) The aggregate amount of WFSB's indebtedness to the
Federal Home Loan Bank of Indianapolis does not, and will not at
the Effective Time, exceed $40 Million.
4.13. Anti-takeover Provisions. Neither Capital
Holdings nor either of the Subsidiaries has a shareholder rights
plan or any other plan, program, agreement or arrangement
involving, restricting, prohibiting or discouraging a change in
control, merger or other combination of Capital Holdings or
either of the Subsidiaries or which may be considered an anti-
takeover mechanism, except for provisions in the Articles of
Incorporation and By-laws of Capital Holdings and in the Stock
Option Plan.
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"), whether written or oral, sponsored or otherwise
maintained by Capital Holdings or WFSB; in which Capital Holdings
or either of the Subsidiaries participates as a participating
employer; to which Capital Holdings or either of the Subsidiaries
contributes; with respect to which Capital Holdings or either of
the Subsidiaries 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, the "Capital Holdings Plans"): (i) all such
Capital Holdings Plans have, on a continuous basis since their
adoption, been maintained in compliance in all materials respects
with the requirements prescribed by all applicable statutes,
orders and governmental rules or regulations, including, without
limitation, ERISA, the Code, and the Department of Labor
("Department") and the Treasury Regulations promulgated
thereunder; (ii) all Capital Holdings Plans intended to
constitute tax-qualified plans under the Code have complied, in
form and in operation, since their adoption, or, with respect to
form, 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 with respect to the Tax Reform Act of 1986 have been
timely received from the Internal Revenue Service ("Service")
with respect to each such Capital Holdings 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) no Capital Holdings Plan (or
its related trust) holds any Capital Holdings Common Stock or any
stock of a related or affiliated person or entity, except as
provided in the Disclosure Schedule; (iv) neither Capital
Holdings nor either of the Subsidiaries has liability to the
Department or the Service with respect to any Capital Holdings
Plan; (v) neither Capital Holdings nor either of the Subsidiaries
has engaged in any transaction that may subject Capital Holdings,
either of the Subsidiaries or any Capital Holdings 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
Capital Holdings Plan; (vii) each Capital Holdings 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 accordance
with the applicable provisions of ERISA and the Code and the
Department and Treasury Regulations promulgated thereunder;
(viii) to the best of Capital Holdings' and the Subsidiaries'
knowledge, no participant or beneficiary or non-participating
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employee has been denied any benefit due or to become due under
any Capital Holdings Plan or has been misled as to his or her
rights under any Capital Holdings Plan; (ix) all obligations
required to be performed by Capital Holdings or either of the
Subsidiaries under any provision of a Capital Holdings Plan have
been performed by it and it is not in default under or in
violation of any provision of a Capital Holdings Plan; (x) no
event has occurred which would constitute grounds for an
enforcement action by any party under Part 5 of Title I of ERISA
under any Capital Holdings Plan; (xi) there are no actions,
suits, proceedings or claims pending (other than routine claims
for benefits) or, to the best knowledge of Capital Holdings and
either of the Subsidiaries, threatened against Capital Holdings,
either of the Subsidiaries, any Capital Holdings Plan or the
assets of any Capital Holdings Plan; and (xii) with respect to
any Capital Holdings Plan sponsored, participated in or
contributed to by Capital Holdings or either of the Subsidiaries
or with respect to which Capital Holdings or either of the
Subsidiaries is responsible for complying with the reporting and
disclosure requirements of ERISA or the Code, there has been 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 Capital Holdings Plan intended to be
a tax-qualified plan under Section 401(a) of the Code, to the
best knowledge of Capital Holdings and the Subsidiaries, no
director, officer, employee or agent of Capital Holdings or
either of the Subsidiaries 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 the Code or the exemption under
Section 501(a) of the Code for any trust or annuity contract
related to such Plan.
(c) Capital Holdings and the Subsidiaries have provided to
ONB in the Disclosure Schedule true, accurate and complete copies
or summaries and, in the case of any plan or program which has
not been reduced to writing, a complete summary, of all of the
following: (i) pension, retirement, profit-sharing, savings,
stock purchase, stock bonus, stock ownership, stock option and
stock appreciation or depreciation right plans and agreements and
all amendments thereto (except that, with respect to the stock
option agreements between Capital Holdings and certain employees
and directors of Capital Holdings and the Subsidiaries with
respect to the Stock Options, only a true, accurate and complete
copy of an incentive stock option agreement and a non-qualified
stock option agreement that are identical in all material
respects to the remaining outstanding stock option agreements
have been included in the Disclosure Schedule and with respect to
Capital Holdings' and the Subsidiaries' health insurance plan,
only a summary thereof has been included in the Disclosure
Schedule); (ii) all employment, deferred compensation (whether
funded or unfunded), salary continuation, consulting, bonus,
severance and collective bargaining agreements, arrangements or
understandings; (iii) all executive and other incentive
compensation plans and programs; (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 Capital Holdings or either of the Subsidiaries
for their current or former directors, officers or employees.
Except as otherwise provided in the Disclosure Schedule, all of
the foregoing have been, since their inception, drafted,
implemented, administered and, where applicable, amended or
terminated in accordance with their terms and with applicable
law.
(d) No current or former director, officer or employee of
Capital Holdings or either of the Subsidiaries is entitled to any
benefit under any welfare benefit plans (as defined in
Section 3(1) of ERISA) after termination of employment with
Capital Holdings or either of the Subsidiaries, except that such
individuals may be entitled to continue their group health care
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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 Capital
Holdings or either of the Subsidiaries, in which Capital Holdings
or either of the Subsidiaries participates as a participating
employer or to which Capital Holdings or either of the
Subsidiaries contributes, to the best knowledge of Capital
Holdings and either of the Subsidiaries, no director, officer,
employee or agent of Capital Holdings or either of the
Subsidiaries 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 upon Capital Holdings or either of the
Subsidiaries under Section 4980B(a) of the Code. 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 Capital Holdings and the Subsidiaries.
(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 welfare, benefit or retirement plan or agreement,
binding upon Capital Holdings or either of the Subsidiaries 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.
4.15. Obligations to Employees. Except as otherwise
provided in the Disclosure Schedule with respect to the director
emeritus program of WFSB ("WFSB Director Emeritus Program"), all
accrued obligations and liabilities of Capital Holdings, the
Subsidiaries and the Capital Holdings 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 of
Capital Holdings or either of the Subsidiaries (or his 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 Capital Holdings and the Subsidiaries 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 or bonus plans or
agreements; (d) all executive and other incentive compensation
plans, programs or agreements; (e) all group insurance and health
contracts and policies; and (f) all other incentive, welfare,
retirement or employee benefit plans or agreements maintained,
sponsored, participated in, or contributed to by Capital Holdings
or either of the Subsidiaries for their current or former
directors, officers, employees and agents, including, without
limitation, all liabilities and obligations to the Capital
Holdings Plans. All obligations and liabilities of Capital
Holdings and the Subsidiaries, 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
Capital Holdings and the Subsidiaries in accordance with
generally accepted accounting and actuarial principles applied on
a consistent basis. Except as otherwise provided in the
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Disclosure Schedule with respect to the WFSB Director Emeritus
Program, 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 Capital Holdings Financial
Statements and the books, statements and records of Capital
Holdings and the Subsidiaries.
4.16. Taxes, Returns and Reports. Capital Holdings and
the Subsidiaries have (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 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 their 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 Capital Holdings Financial
Statements as of December 31, 1995 is adequate to cover all of
Capital Holdings' and the Subsidiaries' tax liabilities
(including, without limitation, income taxes and franchise fees)
that may become payable in future periods with respect to any
transactions consummated prior to December 31, 1995. Neither
Capital Holdings nor either of the Subsidiaries has, or will
have, any liability for taxes of any nature for or with respect
to the operation of their 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 Capital Holdings Financial Statements (as
hereinafter defined). Neither Capital Holdings nor either of the
Subsidiaries is currently under audit by any state or federal
taxing authority. Except as set forth in the Disclosure
Schedule, no federal, state or local tax returns of Capital
Holdings or either of the Subsidiaries have been audited by any
taxing authority during the past five (5) years.
4.17. Deposit Insurance. The deposits of WFSB are
insured by the Federal Deposit Insurance Corporation in
accordance with the Federal Deposit Insurance Corporation Act, as
amended, and WFSB 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, 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 Capital Holdings or
either of the Subsidiaries on the date hereof or with respect to
which Capital Holdings or either of the Subsidiaries pays any
premiums. Each such policy is in full force and effect, 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
Capital Holdings and the Subsidiaries are in all material
respects complete and correct and accurately reflect the basis
for the respective financial condition, results of operations,
business, assets and capital of Capital Holdings and the
Subsidiaries set forth in the Capital Holdings Financial
Statements.
4.20. Broker's, Finder's or Other Fees. Except for the
reasonable fees of Capital Holdings' and the Subsidiaries'
attorneys, accountants and investment bankers and the printing
and mailing costs relating to the proxy statement pertaining to
the Mergers, all of which will be paid by Capital Holdings prior
to the Effective Time, no agent, broker or other person acting on
behalf of Capital Holdings or either of the Subsidiaries or
acting under any authority of Capital Holdings or either of the
Subsidiaries is or shall be entitled to any commission, broker's
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or finder's fee or any other form of compensation or payment from
any of the parties hereto relating to this Agreement or the
Mergers. A copy of Capital Holdings' agreement with its
investment banker relative to its fees in connection with the
Mergers is set forth in the Disclosure Schedule.
4.21. Interim Events. Except as otherwise permitted
hereunder, since December 31, 1995, neither Capital Holdings nor
either of the Subsidiaries has:
(a) Suffered any changes having a material adverse effect
on its financial condition, results of operations, assets,
capital or business, except as disclosed in the Disclosure
Schedule;
(b) Suffered any material damage, destruction or loss to
any of its properties not fully- covered by insurance;
(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 except for 38,980
shares of Capital Holdings Common Stock issued pursuant to the
exercise of the Stock Options;
(d) Repurchased, redeemed or otherwise acquired shares of
its capital stock, issued any shares of its capital stock or
stock appreciation rights or sold or agreed to issue or sell
(except for 38,980 shares of Capital Holdings Common Stock issued
pursuant to the exercise of the Stock Options) any shares of its
capital stock or any right or option to purchase or acquire any
such stock or any security convertible into such stock or taken
any action to reclassify, recapitalize or split up its stock;
(e) Granted or agreed to grant any increase in benefits
payable or to become payable under any pension, retirement,
profit-sharing, savings, bonus, deferred compensation, stock or
option plan or agreement; any employee welfare or benefit plan or
arrangement; or any other agreement, commitment or
understanding, to present or former employees, officers or
directors of Capital Holdings or either of the Subsidiaries,
except as provided in the Disclosure Schedule;
(f) Except as provided in the Disclosure Schedule,
increased the salary, compensation or fees 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 any other
agreement or understanding with any officer or employee or
installed any employee benefit plan;
(g) Leased, sold or otherwise disposed of any of its assets
except in the ordinary course of business or as provided in the
Disclosure Schedule or leased, purchased or otherwise acquired
from third parties any assets except in the ordinary course of
business;
(h) Merged, consolidated or sold shares of capital stock of
WFSB; except for the Mergers, agreed or committed to merge,
consolidate, combine or affiliate with or into any third party;
agreed or committed to sell the substantial assets or any shares
of capital stock of Capital Holdings or either of the
Subsidiaries; or except pursuant to foreclosure actions and
mortgages, liens or security interests securing loans, acquired
or agreed to acquire any securities, equity interest, assets or
business of any third party;
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(i) Incurred, assumed or guaranteed any obligation or
liability (fixed or contingent) other than obligations and
liabilities incurred in the ordinary course of business
(including borrowings in the ordinary course of business from the
Federal Home Loan Bank of Indianapolis);
(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 WFSB of government deposits; or (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) Canceled, 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 lending of monies, funds or securities, 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 on December 31, 1995,
except as otherwise provided in the Disclosure Schedule.
4.22. Regulatory Filings. Capital Holdings and the
Subsidiaries have filed and will continue to file in a timely
manner all filings and reports with all federal and state
regulatory agencies and authorities as required by applicable
law. All such filings with federal and state regulatory agencies
were true, accurate and complete in all 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.
4.23. Contracts. Neither Capital Holdings nor either of
the Subsidiaries is in default under or in breach of or, to the
best knowledge of Capital Holdings and the Subsidiaries, alleged
to be in default under or in breach of, any loan or credit
agreement, security agreement, bond, indenture, mortgage,
license, contract, lease, commitment or any other instrument or
obligation, which breach or default could have a material adverse
effect on the financial condition, results of operation,
business, assets or capital of Capital Holdings or WFSB, whether
individually or on a consolidated basis, or RISC on a
consolidated basis with Capital Holdings.
4.24. No Third Party Options. Except as provided in the
Disclosure Schedule with respect to the options to purchase
38,980 shares of Capital Holdings Common Stock under the Stock
Option Plan, 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 Capital Holdings or either of the
Subsidiaries which are binding upon Capital Holdings or either of
the Subsidiaries.
4.25. Disclosure Schedule and Documents. All written
data, documents, materials and information referred to in this
Agreement and delivered by Capital Holdings or either of the
Subsidiaries pursuant to or in connection with the Disclosure
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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.
4.26. Indemnification Agreements. (a) Neither Capital
Holdings nor either of the Subsidiaries 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 Agreements, the engagement
letter between Capital Holdings and its financial advisor,
Trident Financial Corporation ("Trident"), the Articles of
Incorporation or By-Laws of Capital Holdings or RISC or the
Charter or By-Laws of WFSB.
(b) No claims have been made against or filed with Capital
Holdings or either of the Subsidiaries nor has, to the best
knowledge of Capital Holdings and the Subsidiaries after due
inquiry, any claims been threatened against Capital Holdings or
either of the Subsidiaries, 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 Capital Holdings or either of the Subsidiaries.
4.27. Representations and Warranties at the Effective
Time. All representations and warranties of Capital Holdings
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, except as otherwise expressly contemplated
by this Agreement.
4.28. Nonsurvival of Representations and Warranties.
The representations and warranties of Capital Holdings contained
in this Agreement shall expire at the Effective Time, and
thereafter Capital Holdings and the Subsidiaries and all
directors, officers and employees thereof shall have no further
liability with respect thereto. Nothing in the foregoing shall
result in the termination of any of the covenants provided for in
this Agreement that shall survive by their terms the Effective
Time.
SECTION 5
REPRESENTATIONS AND WARRANTIES OF ONB
ONB represents and warrants to Capital Holdings and WFSB
with respect to itself and ONB 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) ONB Bank is a federally chartered savings bank duly
organized and validly existing under the laws of the United
States of America and has full power and authority (corporate and
otherwise) to own and lease its properties as presently owned and
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leased and to conduct its business in the manner and by the means
utilized as of the date hereof. ONB owns all of the issued and
outstanding shares of capital stock of ONB Bank.
5.02. Authorization. (a) Each of ONB and ONB Bank and
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 and ONB Bank have been duly authorized and
approved by the Board of Directors of ONB Bank and by the
Executive Committee of ONB, and will have been approved by the
Board of Directors of ONB prior to April 30, 1996. This
Agreement constitutes a valid and binding obligation of ONB and
ONB Bank 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 Mergers (i) conflicts with or violates ONB's
Articles of Incorporation or By-Laws or ONB Bank's Charter 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 Mergers 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,
contract, lease, agreement, arrangement, commitment or other
instrument to which ONB or ONB Bank is a party or by which ONB or
ONB Bank is subject or bound and which is material to ONB on a
consolidated basis; (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
ONB or ONB Bank; 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, deed of trust, license, lease, contract, agreement,
arrangement, commitment or other instrument to which ONB or ONB
Bank is bound or with respect to which ONB or ONB Bank 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 BHC Act and applicable federal and state
banking, thrift, 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 governmental agency or body is necessary for
consummation by ONB and ONB Bank of the Mergers.
5.03. Capitalization. (a) The authorized capital stock
of ONB as of the date of this Agreement consists of
(i) 30,000,000 shares of common stock (subject to the last
sentence of this Section), no par value per share, of which
approximately 24,835,361 shares were issued and outstanding as of
February 29, 1996, 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 shareholder rights plan.
Such issued and outstanding shares of ONB common 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
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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, other
than pursuant to the indentures governing its outstanding
subordinated debentures and medium term notes. 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 $428.1 million, which
consisted of common stock of $25.0 million, capital surplus of
$245.4 million, retained earnings of $147.4 million and $10.3
million of net unrealized gain on available for-sale securities.
The Board of Directors of ONB has approved an amendment to ONB's
Articles of Incorporation increasing the number of authorized
shares of common stock to 50,000,000, and such amendment will be
voted upon by shareholders at ONB's 1996 annual meeting of
shareholders to be held on April 18, 1996.
(b) 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, there are no
options, warrants, commitments, calls, puts, agreements,
understandings, arrangements or subscription rights relating to
any shares of ONB common stock, or any securities convertible
into or representing the right to purchase or otherwise acquire
any common stock or debt securities of ONB, by which ONB is or
may become bound. ONB does not have any contractual or other
obligation to repurchase, redeem or otherwise acquire any of its
issued and outstanding shares of common stock.
(c) 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 effect as of the date of this
Agreement have been delivered to Capital Holdings 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. Each of ONB and its
subsidiaries possesses and holds all licenses, franchises,
permits, certificates and other authorizations necessary for the
continued conduct of its business without interference or
interruption.
5.06. Regulatory Filings. ONB has filed and will
continue to file in a timely manner all required filings and
reports 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
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and state regulatory 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,
arbitrations or mediations 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, arbitration
or mediation) against, by or affecting ONB or its subsidiaries
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, or which would prevent the performance of this Agreement,
declare the same unlawful or cause the rescission hereof.
(b) 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 its business, assets,
capitalization, financial condition or results of operations on a
consolidated basis, (ii) presently charged with or 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
ONB, threatened proceeding by any government regulatory agency or
authority having jurisdiction over its business, properties or
operations.
5.08. Financial Statements and Reports. (a) ONB has
delivered to Capital Holdings 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 (a)(i) and (ii) 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
ONB 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 the ONB Financial Statements
false, misleading or inaccurate in any material respect.
5.09. Shares to be Issued in the Company Merger. The
shares of ONB common stock which Capital Holdings shareholders
will be entitled to receive upon consummation of the Company
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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 Mergers is not required.
5.11. Interim Events. Since December 31, 1995, ONB has
not entered into any agreement or contract or incurred any
obligation, commitment or liability which will 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.
5.12. Environmental Matters. To the best of ONB's
knowledge, each of ONB's subsidiaries has conducted its business
in compliance with the Environmental Laws. There are no pending
or, to the best knowledge of ONB, threatened claims, actions or
proceedings by any sewage district or other federal, state or
local governmental agency or authority against any of ONB's
subsidiaries with respect to any of the Environmental Laws and,
to the best of ONB's knowledge, 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 business by any of ONB's subsidiaries or the
consummation of the Mergers. To the best of ONB's knowledge, ONB
is not 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 of the Environmental Laws.
5.13. Regulatory Approvals. To the best knowledge of
ONB, there currently are no circumstances that would reasonably
be expected to cause the denial or undue delay of any of the
regulatory approvals required for consummation of the Mergers.
5.14. 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.
5.15. 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 ONB Bank and all directors, officers and employees of ONB and
ONB Bank shall have no further liability with respect thereto.
Nothing in the foregoing shall result in the termination of any
covenants provided for herein that shall survive by their terms
the Effective Time.
SECTION 6
COVENANTS OF CAPITAL HOLDINGS
Capital Holdings covenants and agrees with ONB, and
covenants and agrees with ONB to cause the Subsidiaries to act,
as follows:
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6.01. Shareholder Approval. (a) Subject to Section
6.06(b) hereof, Capital Holdings 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
Incorporation and By-Laws of Capital Holdings at a date
reasonably in advance of the Effective Time. Subject to Section
6.06(b) hereof, the Board of Directors of Capital Holdings shall
recommend to Capital Holdings' shareholders that such
shareholders approve this Agreement and the Company Merger and
shall solicit proxies voting in favor of this Agreement from such
shareholders.
(b) Subject to Section 6.06(b) hereof, WFSB shall submit
this Agreement to Capital Holdings, as its sole shareholder, for
approval by unanimous written consent without a meeting in
accordance with applicable law and the Charter and By-Laws of
WFSB at a date reasonably in advance of the Effective Time. The
Board of Directors of WFSB shall recommend approval of this
Agreement and the Thrift Merger to Capital Holdings, as the sole
shareholder of WFSB, and Capital Holdings, as the sole
shareholder of WFSB, shall approve this Agreement and the Thrift
Merger.
6.02. Other Approvals and Actions. (a) Capital Holdings
and WFSB shall proceed expeditiously, cooperate fully and use
their 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 Mergers on the
terms and conditions provided in this Agreement at the earliest
possible reasonable date.
(b) Capital Holdings and WFSB shall take all necessary
steps to (i) amend, within forty-five (45) days of the date of
this Agreement, the Stock Option Plan to terminate, effective on
or before the date hereof, any grants thereunder of additional
options to acquire shares of Capital Holdings Common Stock and
(ii) assist ONB in the disposition of the WFSB Retirement Plan
(as hereinafter defined), the WFSB Thrift Plan (as hereinafter
defined), the WFSB Director Emeritus Program, the WFSB Deferred
Compensation Plan (as hereinafter defined) and the Joinder
Agreements (as hereinafter defined) in accordance with Section
7.03 hereof. Capital Holdings shall pay all costs and expenses
associated with the disposition of such plans, to the extent
incurred prior to the Effective Time.
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, neither Capital
Holdings nor either of the Subsidiaries shall, 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 or options other than
or in addition to the issued and outstanding
shares of Capital Holdings Common Stock, WFSB
Common Stock or RISC Common Stock as set forth in
Section 4.03 hereof and other than the presently
outstanding options to purchase an aggregate of
38,980 shares of Capital Holdings Common Stock;
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(iii) distribute or pay any dividends on its shares
of common stock, or make any other
distribution to its shareholders, except that
Capital Holdings may pay to its shareholders
its normal and customary quarterly cash
dividend in an amount not to exceed ten cents
($0.10) per share of Capital Holdings Common
Stock for each such dividend until the
Effective Time and except that WFSB may pay
cash dividends to Capital Holdings in the
ordinary course of business in accordance
with past practices for payment of reasonable
and necessary business and operating expenses
of Capital Holdings; provided, however, that
no dividend may be paid to Capital Holdings'
shareholders during the quarterly period in
which the Company Merger is consummated if,
during such period, Capital Holdings'
shareholders will become entitled to receive
dividends on their shares of ONB common stock
received pursuant to this Agreement;
(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 similar transaction not
in the ordinary course of business;
(vi) purchase any assets or securities or assume any
liabilities of any bank or savings and loan
holding company, bank, savings association,
corporation or other entity, except in the
ordinary course of business;
(vii) except in the ordinary course of business in
accordance with sound 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) make any loan
commitment, payment or disbursement, accept
any deposit, enter into any lease, contract,
agreement understanding or arrangement, or
engage in any other transaction;
(viii) except for the acquisition or 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 $5,000 individually
or $10,000 in the aggregate;
(ix) except for the pledge of securities to secure
public funds deposits or except for additional
borrowings in the ordinary course of business from
the Federal Home Loan Bank of Indianapolis,
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), or enter into any agreement to promote to a new
position or increase the rate of compensation, of any
director, officer or employee of Capital Holdings
or either of the Subsidiaries;
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(xi) execute, create, institute, modify, amend or terminate
(except with respect to any amendments to the Capital
Holdings Plans required by law, rule or regulation and
except with respect to the termination of the WFSB Director
Emeritus Program, WFSB Retirement Fund and WFSB Thrift Plan
as described in Section 6.02(b) hereof and as contemplated
by Sections 7.03 and 6.12 hereof and the amendment of the
WFSB Deferred Compensation Plan and the Joinder Agreements
thereto as contemplated by Section 6.02 and 7.03 hereof)
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 or benefit plan, agreement or
understanding for current or former directors, officers or
employees of Capital Holdings or either of the
Subsidiaries; 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 as provided in the Disclosure
Schedule;
(xii) make any communication, disclosure or filing
concerning the amendments to or disposition
of the Capital Holdings Plans as provided in
Section 7.03 hereof to any employee of
Capitol Holdings or either of the
Subsidiaries or any third party, including
any regulatory authority;
(xiii) 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 Capital Holdings or either of
the Subsidiaries;
(xiv) hire or employ any new or additional
employees of Capital Holdings or either of
the Subsidiaries, except those which are
reasonably necessary for the proper operation
of Capital Holdings' or either of the
Subsidiaries' business;
(xv) amend, modify or restate Capital Holdings' and RISC's
Articles of Incorporation or By-Laws and WFSB's Charter or
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 or
right to acquire any shares of capital stock
of either Capital Holdings, WFSB or RISC or
substantially all of the assets of either
Capital Holdings, WFSB or RISC, or enter into
any agreement or commitment relative to the
foregoing;
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(xvii) fail to continue to make additions to in
accordance with past practices and to
otherwise maintain in all respects WFSB'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;
(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 Capital Holdings Common Stock, WFSB
Common Stock or RISC Common Stock;
(xx) except for accounts payable and similar liabilities and
obligations incurred in the ordinary course of business,
for the payment, discharge or satisfaction in the ordinary
course of business of liabilities reflected in the Capital
Holdings Financial Statements or the Subsequent Capital
Holdings Financial Statements and for additional borrowings
in the ordinary course of business from the Federal Home
Loan Bank of Indianapolis, 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 $5,000, other
than legal, accounting, and investment banker fees and
proxy printing and mailing costs relating to the Mergers or
the operation of Capital Holdings' and WFSB's business;
(xxi) open, close, move or, in any material
respect, expand, 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,
except for the fees paid to Capital Holdings'
investment banker which shall not exceed in
the aggregate the amount of fees set forth in
the agreement between Capital Holdings and
Trident set forth in the Disclosure Schedule;
(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) requiring
payments by Capital Holdings, WFSB or either
of the Subsidiaries which exceed $5,000,
whether individually or in the aggregate, or
that is not in the ordinary course of
business; or
(xxiv) except for the election by Capital Holdings
of four (4) persons to WFSB's Board of
Directors pursuant to Section 1.02(b) hereof,
elect or appoint any director or officer of
Capital Holdings or either of the
Subsidiaries in addition to or other than
those persons who were directors or officers
of Capital Holdings or either of the
Subsidiaries on March 27, 1996.
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(b) Capital Holdings and each of the Subsidiaries 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
Capital Holdings and the Subsidiaries 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, Capital Holdings and
each of the Subsidiaries 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 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 do or fail to do anything
which will cause a material breach of, or material 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. Capital
Holdings shall, on 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 Capital Holdings for purposes of Rule 145
under the 1933 Act. Capital Holdings shall use its best efforts
to cause each director, executive officer and other person who
may be deemed to be such an affiliate of Capital Holdings to
deliver to ONB on or prior to the date which is the earlier of
forty-five (45) days following the date of this Agreement or the
Effective Time, a written agreement, substantially in the form as
attached hereto as Exhibit A, substantially 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 Capital Holdings 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 Capital Holdings 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),
Capital Holdings and each of the Subsidiaries shall not, nor
shall it permit or authorize its 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, affiliation,
purchase or sale of substantial assets, sale of shares of common
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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 Capital Holdings or either of the Subsidiaries or to
which Capital Holdings or either of the Subsidiaries may become a
party (all such transactions are hereinafter referred to as
"Acquisition Transactions"). Capital Holdings and the
Subsidiaries 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 herein
provided, Capital Holdings may engage, and may permit and
authorize its directors, officers, employees, agents or
representatives to 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 Capital Holdings promptly upon receipt by ONB of a
letter from Capital Holdings signed by at least a majority of its
Board of Directors then in office indicating that Capital
Holdings has received an unsolicited offer regarding an
Acquisition Transaction which the Board of Directors of Capital
Holdings (i) considers, in the exercise of its fiduciary duties
as a Board, to be superior (in more than an insubstantial manner
and taking into account all relevant factors) 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 Capital Holdings when and if ONB shall,
in its sole discretion, determine. This Section 6.06 shall not
authorize Capital Holdings or either of the Subsidiaries or any
of their 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,
neither Capital Holdings nor either of the Subsidiaries shall
issue any press releases or make any other public announcements
or disclosures relating to the Mergers without the prior consent
of ONB, which consent shall not be unreasonably withheld.
6.08. Disclosure Schedule Update. Capital Holdings
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
agreements, documents, 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 Capital Holdings or WFSB 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 Capital Holdings and the
Subsidiaries. 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 Capital Holdings and the Subsidiaries and of their
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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 Capital Holdings or either of the
Subsidiaries; and provided further, that if ONB elects to conduct
or have conducted on its behalf an environmental review, study,
survey or assessment to verify the representations and warranties
given by Capital Holdings and the Subsidiaries with respect to
the environmental matters specified in Section 4.11(b) hereof,
such environmental review, study, survey or assessment shall be
completed and all reports and findings related thereto shall be
disclosed to Capital Holdings and the Subsidiaries within sixty
(60) days of the date thereof. Upon request, Capital Holdings
and the Subsidiaries shall furnish ONB or its representatives or
agents, their attorneys' responses to external auditors requests
for information, management letters received from its external
auditors and such financial, loan and operating data and other
information reasonably requested by ONB which has been or is
developed by Capital Holdings or either of the Subsidiaries or
their auditors, accountants or attorneys (provided with respect
to attorneys, such disclosure would not result in the waiver by
Capital Holdings or either of the Subsidiaries of any cl-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 Capital Holdings or either of the Subsidiaries, and
such auditors and accountants shall be directed to furnish copies
of any reports or financial information as developed to ONB or
its auditors or accountants. No investigation by ONB (whether
conducted before or after the date hereof) shall affect the
representations and warranties made by Capital Holdings or either
of the Subsidiaries herein or the information contained in any
document provided hereunder, and ONB shall be entitled to rely on
such representations, warranties and documents notwithstanding
any such investigation. 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 Capital Holdings' request, returned to
Capital Holdings in the event this Agreement is terminated as
provided in Section 9 hereof. This Section 6.09 shall not
require the disclosure of any information to ONB which would be
prohibited by law.
6.10. Subsequent Capital Holdings Financial Statements.
As soon as available after the date of this Agreement, Capital
Holdings shall deliver to ONB the monthly unaudited consolidated
balance sheets and profit and loss statements of Capital Holdings
prepared for its internal use, Capital Holdings' Forms 10-Q for
each quarterly period and Form 10-K for each fiscal year
completed prior to the Effective Time and all other financial
reports or statements, including the notes thereto, submitted to
regulatory authorities after the date hereof, to the extent
permitted by law (collectively, "Subsequent Capital Holdings
Financial Statements"). The Subsequent Capital Holdings
Financial Statements shall be prepared on a basis consistent with
past accounting practices and generally accepted accounting
principles applied on a consistent basis and shall present fairly
the financial condition and results of operations as of the dates
and for the periods presented. The Subsequent Capital Holdings
Financial Statements 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 material respect.
6.11. Employee Benefits. Neither the terms of Section
7.03 hereof (except as otherwise expressly provided therein) nor
the provision of any employee benefits by ONB or any of its
subsidiaries to employees of Capital Holdings and the
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Subsidiaries 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 Capital Holdings and the Subsidiaries or (ii) except
as expressly provided in this Agreement, 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; provided, however,
that any such change, amendment or termination applies to a broad
class of similarly situated employees and not only to former
employees of Capital Holdings or either of the Subsidiaries.
6.12. Employment Agreement. Prior to the Effective
Time, WFSB shall cause the employment agreements between WFSB and
Richard R. Haynes, Joseph A. Walker, Jerry L. Hays and R. William
Richardson, Jr. (each in the form set forth in the Disclosure
Schedule) (collectively referred to herein as the "Employment
Agreements") to be amended such that the requirement that each
participate in a stock option plan shall be deleted, that each
will receive employee benefits in accordance with ONB's employee
benefit plans and, with respect to Mr. Haynes' Employment
Agreement, that he shall serve as Chairman of the Board of the
Surviving Bank from and after the Effective Time until his
successor is selected. Other than the foregoing amendments, the
Employment Agreements shall not be amended or modified in any
respect, and none of the respective terms of the Employment
Agreements shall be extended.
6.13. Certain Actions. Neither Capital Holdings nor
either of the Subsidiaries shall intentionally or knowingly take,
cause to be taken or fail to take any action which will cause or
result in a misrepresentation or a breach of a covenant or
warranty of this Agreement that will give ONB the right to
terminate this Agreement pursuant to Section 9.01(b) hereof.
6.14. Restructure. Capital Holdings and WFSB
understand, acknowledge and agree that ONB, in its sole
discretion, may change the structure of the transactions
contemplated by this Agreement; provided, however, that any such
change in structure shall not change the Exchange Ratio or tax-
free nature of the transactions contemplated by this Agreement
and that the covenants of ONB set forth in Section 7 hereof will
be honored and assumed by any new resulting bank to the extent
not honored or assumed by ONB. Capital Holdings and WFSB shall
execute and deliver such amendments, agreements and instruments
and take such further actions as ONB may reasonably request in
connection with any such restructure of the transactions
contemplated by this Agreement.
SECTION 7
COVENANTS OF ONB
ONB covenants and agrees with Capital Holdings, and
covenants and agrees with Capital Holdings to cause ONB Bank to
act, as follows:
7.01. Approvals. (a) ONB shall have primary
responsibility for the preparation, filing and cost of all
holding company, bank and savings association regulatory
applications required for consummation of the Mergers. ONB shall
file all such applications as soon as practicable after the
execution of this Agreement; provided, however, that ONB shall
use its best efforts to file all applications and other filings
with the appropriate banking regulators within forty-five (45)
days of the date of this Agreement. ONB shall provide to Capital
Holdings' counsel copies of all applications filed and copies of
all material written communications with all state and federal
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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 Mergers on the
terms and conditions provided in this Agreement at the earliest
possible reasonable date.
(b) So long as this Agreement is submitted to Capital
Holdings' shareholders for a vote thereon, ONB Bank shall submit
this Agreement to ONB, as its sole shareholder, for approval by
unanimous written consent without a meeting in accordance with
applicable law and the Charter and By-Laws of ONB Bank, and the
Board of Directors of ONB Bank shall recommend to its sole
shareholder that such shareholder approve this Agreement and the
Thrift Merger.
(c) So long as the actions contemplated by Section 7.01(b)
hereof have occurred, ONB shall vote all of its shares of capital
stock of ONB Bank in favor of approval of this Agreement and the
Thrift Merger.
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 Capital
Holdings, prepared for use in connection with the meeting of
shareholders of Capital Holdings referred to in Section 6.01 hereof,
all in accordance with the rules and regulations of the SEC. 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 hereof, ONB shall provide
Capital Holdings and its counsel with a copy of the Registration
Statement and each such other filing and provide an opportunity for
them to comment thereon prior to filing.
7.03. Employee and Director Benefit Plans. (a) General.
ONB will make available to the employees of WFSB who continue
as employees of any subsidiary of ONB after the Effective Time
substantially the same employee benefits on substantially the
same terms and conditions that ONB may offer to similarly
situated employees of its banking subsidiaries from time to
time. Until such time as the employees of WFSB become covered
by the ONB welfare benefit plans, employees of WFSB shall
remain covered by the welfare benefit plans of Capital
Holdings, subject to the terms of such plans.
(b) Eligibility and Vesting. Years of service, as defined in
the applicable ONB employee welfare or pension benefit plan, of
an employee of WFSB prior to the Effective Time shall be
credited, effective as of the date on which such employee
becomes covered by a particular ONB employee welfare or pension
benefit plan, to each such 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
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Pension Plan") and under the ONB Employees' Savings and Profit
Sharing Plan ("ONB Profit Sharing Plan"); provided, however,
that the employees of WFSB shall become covered by ONB's
welfare benefit plans at such time(s) as shall be determined by
ONB in its sole discretion, subject to Section 7.03(a) hereof.
Those officers and employees of WFSB who otherwise meet the
eligibility requirements of the ONB Profit Sharing Plan, based
upon their age and years of service for WFSB, shall become
participants thereunder on the January 1st which coincides with
or next follows the effective date of the disposition of the
WFSB Thrift Plan as described in Section 7.03(e) hereof. Those
employees of WFSB who otherwise meet the eligibility
requirements of the ONB Pension Plan, based upon their age and
years of service for WFSB, shall become participants thereunder
on January 1st which coincides with or next follows the
effective date of the disposition of the WFSB Retirement Plan
as described in Section 7.03(d) hereof. Those officers and
employees of WFSB who do not meet the eligibility requirements
of the ONB Pension Plan or the ONB Profit Sharing Plan on such
date(s) 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) Pre-Existing Conditions. No full-time employee of WFSB
and none of the dependents of any such employee 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 employee or dependent was covered by the corresponding
Capital Holdings welfare benefit plan for more than two hundred
seventy (270) consecutive days immediately preceding the
Effective Time.
(d) Financial Institutions Retirement Fund. The accrual of
participants' benefits under WFSB's Financial Institutions
Retirement Fund ("WFSB Retirement Plan") shall be frozen
effective as of December 31st of the year in which the
Effective Time occurs, and all accrued benefits of participants
in the WFSB Retirement Plan shall thereupon become fully
vested. To the extent permitted by the WFSB Retirement Plan
and applicable law, the accrued benefit of each participant in
the WFSB Retirement Plan shall be held and remain under the
WFSB Retirement Plan and shall be payable at the time(s) and in
the forms provided for under that plan. ONB shall be
responsible for the withdrawal of WFSB from the WFSB Retirement
Plan and for making any required or appropriate application to
the Service for a determination letter to the effect that such
withdrawal does not adversely affect the tax-qualified status
of such plan and for providing any notices to the Pension
Benefit Guaranty Corporation or other governmental entity
regarding the withdrawal. WFSB shall make contributions to the
WFSB Retirement Plan through the date of such withdrawal only
to the extent required to maintain the plan's tax-qualified
status and avoid any federal income taxes or penalties
attributable to the plan's funding status.
(e) Financial Institutions Thrift Plan. All contributions to
WFSB's Financial Institutions Thrift Plan ("WFSB Thrift Plan")
shall be discontinued as of December 31st of the year in which
the Effective Time occurs, and the account balances of all
participants in the WFSB Thrift Plan shall thereupon become
fully vested. To the extent permitted by the WFSB Thrift Plan
and applicable law, the account balance of each participant in
the WFSB Thrift Plan shall be held and remain under the WFSB
Thrift Plan and shall be payable at the time(s) and in the
forms provided for under that plan. ONB shall be responsible
for the withdrawal of WFSB from the WFSB Thrift Plan and for
making any required or appropriate application to the Service
for a determination letter to the effect that the withdrawal
does not adversely affect the tax-qualified status of such
plan. WFSB shall make annual contributions to the WFSB Thrift
Plan through its date of termination at the same rate it made
contributions to such plan for the fiscal year ended December
31, 1995.
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(f) Deferred Compensation Plan and Directors' Fees. ONB
agrees to cause the Surviving Bank to assume all obligations of
WFSB under the Director Deferred Compensation Master Agreement
("WFSB Deferred Compensation Plan") and to keep such plan in
effect without any amendment which would decrease the
percentage of the directors fees that each director presently
defers pursuant to such plan for two (2) years following the
Effective Time. During such two (2) year period, ONB also
agrees to cause the Surviving Bank to increase the amount
deferred under the WFSB Deferred Compensation Plan for each
director of WFSB (other than the four (4) new directors of WFSB
elected pursuant to Section 1.02(b) hereof) serving as a
director of the Surviving Bank by $500 per month over the
amounts deferred each month by each director. Provided,
however, during such two (2) year period, in no event shall the
aggregate directors fees and additional deferrals under the
WFSB Deferred Compensation Plan for any director exceed on that
date $1,000 per month. The WFSB Deferred Compensation Plan
shall be terminated effective two (2) years following the
Effective Time. Within forty-five (45) days of the date of
this Agreement, WFSB agrees to amend (effective as of the
Effective Time) the WFSB Deferred Compensation Plan to provide
for its automatic termination (without the need for any further
action by WFSB) and the termination of all the Director
Deferred Compensation Joinder Agreements thereunder ("Joinder
Agreements") on the date which is two (2) years following the
Effective Time. The provisions of such amendments and the
transactions contemplated thereby, including the distribution
of participants' benefits under the WFSB Deferred Compensation
Plan, shall contain such terms and conditions acceptable to ONB
and WFSB, including, but not limited to, the requirement that
each director who has executed a Joinder Agreement also shall
have executed and delivered an appropriate amendment, within
forty-five (45) days of the date of this Agreement, but
effective as of the Effective Time, to provide for the
automatic termination (without the need for any further action
by each director) of his Joinder Agreement on the date which is
two (2) years following the Effective Time; provided, however,
that the benefit under each Joinder Agreement will begin to be
paid not later than the time specified therein. ONB and WFSB
agree to cooperate in making any amendments to the WFSB
Deferred Compensation Plan required to effectuate the foregoing
provisions of this Section 7.03(f).
(g) Director Emeritus Program. Effective as of the Effective
Time, the WFSB Director Emeritus Program shall be terminated;
provided, however, that within ten (10) calendar days after the
termination of such program, ONB shall make, or shall cause the
Surviving Bank to make, a lump sum cash payment to each
director of WFSB who had satisfied the eligibility requirements
for benefits under such program as of the Effective Time, and
to Richard R. Haynes, equal to the present value of the
benefits payable under such program as of the Effective Time.
For this purpose, present value shall be calculated based upon
an interest rate equal to the applicable federal rate as
defined in Section 1274(d) of the Code, compounded
semi-annually, as of the Effective Time, to such benefits.
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 Mergers
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 Capital
Holdings or either of the Subsidiaries with respect to the
Mergers without the prior consent of Capital Holdings, which
consent shall not be unreasonably withheld.
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7.06. Information, Access Thereto, Confidentiality.
Capital Holdings 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 facilities,
operations, books, records and properties of ONB. Capital
Holdings and its 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 ONB and of its financial and legal condition as Capital
Holdings 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. Upon request, ONB will furnish to Capital
Holdings or its representatives or agents, such financial and
operating data and other information reasonably requested by
Capital Holdings which has been or is developed by ONB or its
auditors, accountants or attorneys (provided with respect to
attorneys, such disclosure would not result in the waiver by
ONB of any claim of attorney-client privilege), and will permit
Capital Holdings and its representatives or agents to discuss
such information directly with any individual or firm
performing auditing or accounting functions for ONB so long as
a representative or agent of ONB participates in such
discussions. No investigation by Capital Holdings (whether
conducted before or after the date hereof) shall affect the
representations and warranties made by ONB or the information
contained in any document provided herein, and Capital Holdings
shall be entitled to rely on such representations, warranties
and documents notwithstanding any such investigation. Any
confidential information or trade secrets received by Capital
Holdings 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 containing such
confidential information or trade secrets or both shall be
destroyed by Capital Holdings 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 Capital Holdings which would
be prohibited by law.
7.07. Employment Agreement. Following the Effective Time,
ONB agrees to cause the Surviving Bank to assume all
obligations under the Employment Agreements, as amended
pursuant to Section 6.12 hereof, and to guarantee the Surviving
Bank's obligations thereunder, except as may be otherwise
required by any government regulatory agency.
7.08. Directors. Following the Effective Time, ONB agrees
to cause to be elected as directors of the Surviving Bank those
persons who are serving as directors of WFSB as of the
Effective Time (other than the four (4) additional directors of
WFSB elected pursuant to Section 1.02(b) hereof) until such
director has reached the age of seventy (70) years, at which
time the director must retire from the Surviving Bank's Board.
Each director of WFSB who is over the age of seventy (70) years
at the Effective Time and the four (4) additional directors of
WFSB elected pursuant to Section 1.02(b) hereof will be elected
to serve as a director of the Surviving Bank for a period of
two (2) years following the Effective Time. Thereafter, ONB
shall have no obligation to elect any particular person as a
director of the Surviving Bank.
7.09. Indemnification and Insurance. (a) Indemnification.
From and after the Effective Time, ONB will cause the Surviving
Corporation and the Surviving Bank to assume and honor any
obligations as provided for and permitted by applicable federal
and state law which Capital Holdings or WFSB 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 Capital Holdings or
WFSB or was serving at the request of Capital Holdings or WFSB
as a director or officer of any domestic or foreign
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corporation, joint venture, trust, employee benefit plan or
other enterprise (collectively, the "Indemnitees") arising out
of Capital Holdings' Articles of Incorporation or By-Laws or
WFSB's Charter 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
Capital Holdings or WFSB. Indemnification of employees,
officers and directors of Capital Holdings and WFSB for actions
or omissions 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 Capital
Holdings and WFSB (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 WFSB employees or
directors who become officers or directors 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.
7.10. Tax-Free Reorganization. ONB and ONB Bank shall take
no actions on or following the Effective Time which would cause
the Mergers to lose their status as reorganizations described
in Section 368 of the Code.
7.11. Stock Options.
(i) At the Effective Time, the obligations of Capital
Holdings with respect to each outstanding option to
purchase shares of Capital Holdings Common Stock (a
"Stock Option") which was properly granted pursuant
to a stock option agreement executed in accordance
with the Stock Option Plan shall be assumed by ONB as
hereinafter provided. In connection therewith, each
Stock Option shall be deemed to constitute an option
to acquire, on the same terms and conditions as were
applicable under such Stock Option at the Effective
Time, that number of shares of ONB common stock,
rounded to the nearest whole share, as the holder of
such Stock Option would have been entitled to receive
pursuant to the Company Merger had such holder
exercised such option in full immediately prior to
the Effective Time and, immediately thereafter,
exchanged such shares solely for ONB common stock
based upon the Exchange Ratio at a price per share
equal to (A) the aggregate exercise price for Capital
Holdings Common Stock otherwise purchasable pursuant
to such Stock Option divided by (B) the number of
shares of ONB common stock, rounded to the nearest
whole share, deemed purchasable pursuant to such
Stock Option. In no event shall ONB be required to
issue fractional shares of ONB common stock.
(ii) As soon as practicable after the Effective Time, ONB
shall deliver to each holder of a Stock Option an
appropriate notice or agreement which sets forth such
holder's rights pursuant to the Stock Option, and the
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agreements evidencing the grants of such Stock
Options shall continue in effect on the same terms
and conditions (subject to the conversion required by
this Section 7.11 after giving effect to the Company
Merger and the assumption by ONB as set forth above).
Provided, however, to the extent necessary to
effectuate the provisions of this Section 7.11, ONB
may deliver new or amended agreements which reflect
the terms of each Stock Option assumed by ONB. With
respect to each Stock Option, the optionee shall be
solely responsible for any and all tax liability
(other than the employer's one-half share of any
employment taxes) which may be imposed upon the
optionee as a result of the provisions of this
Section 7.11 and as a result of the grant and
exercise of such Stock Options.
(iii) As soon as practicable after the Effective Time,
ONB shall file with the SEC a registration
statement on an appropriate form with respect to
the shares of ONB common stock subject to such
options and shall use its best efforts to
maintain the effectiveness of such registration
statement or registration statements (and
maintain the current status of the prospectus or
prospectuses with respect thereto) for so long
as such options remain outstanding.
7.12. Board Approval. ONB shall present this Agreement to
its Board of Directors for approval at the Board's April, 1996
meeting.
SECTION 8
CONDITIONS PRECEDENT TO THE MERGER
8.01. ONB. The obligation of ONB and ONB Bank to
consummate the Mergers 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 Capital Holdings and WFSB
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
Capital Holdings and WFSB 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
Capital Holdings and WFSB 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 Capital Holdings 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
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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") and the OTS shall
have authorized and approved or not objected to the Mergers on
terms and conditions reasonably 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 Mergers shall have been
obtained on terms and conditions reasonably satisfactory to
ONB.
(f) Shareholder Approvals. The shareholders of Capital
Holdings and the sole shareholder of ONB Bank and WFSB shall
have approved and adopted this Agreement as required by
applicable law and their respective Charters or Articles of
Incorporation.
(g) Officers' Certificate. Capital Holdings 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
Capital Holdings are true, accurate and correct in all material
respects on and as of the Effective Time; (ii) all the
covenants of Capital Holdings have been complied with from the
date of this Agreement through and as of the Effective Time;
and (iii) Capital Holdings has satisfied and fully complied
with all conditions necessary to make this Agreement effective
as to it.
(h) Tax Matters. Legal counsel to ONB shall have rendered an
opinion to ONB and Capital Holdings, in form and content
reasonably satisfactory to the parties hereto, to the effect
that the Mergers will constitute tax-free reorganizations under
the Code (as described in Sections 1.01(f) and 1.02(e) hereof)
to each party hereto and to the shareholders of Capital
Holdings, except with respect to cash received by WFSB's
shareholders for fractional shares resulting from application
of the Exchange Ratio.
(i) Affiliate Agreements. ONB shall have received (i) from
Capital Holdings a list identifying each affiliate of Capital
Holdings in accordance with Section 6.05 hereof dated as of the
Effective Time and (ii) from each affiliate of Capital Holdings
the agreements dated as of the Effective Time contemplated by
Section 6.05 hereof.
(j) Fairness Opinion. Trident shall have issued its written
fairness opinion stating that the terms of the Company Merger
are fair to the shareholders of Capital Holdings from a
financial point of view. Such written fairness opinion shall
(i) be in form and substance reasonably satisfactory to ONB and
Capital Holdings; (ii) be dated as of a date not later than the
mailing date of the proxy statement-prospectus relating to the
Mergers to be mailed to Capital Holdings' shareholders; (iii)
be included as an exhibit to the proxy statement-prospectus;
and (iv) be updated and confirmed by Trident as of the
Effective Time.
8.02. Capital Holdings. The obligations of Capital
Holdings and WFSB to consummate the Mergers 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 Capital Holdings:
(a) Representations and Warranties at Effective Time. Each of
the representations and warranties of ONB contained in this
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Agreement shall be true, accurate and correct in all material
respects on and as of the Effective Time as though such
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. Capital Holdings shall have
received from ONB at the Closing the items and documents, in
form and content reasonably satisfactory to Capital Holdings,
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 Capital Holdings 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 Federal Reserve and the OTS
shall have authorized and approved or not objected to the
Mergers. 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 Mergers
shall have been obtained.
(f) Shareholder Approvals. The shareholders of Capital
Holdings and the sole shareholder ONB Bank and WFSB shall have
approved and adopted this Agreement as required by applicable
law and their respective Charters or Articles of Incorporation.
(g) Officers' Certificate. ONB shall have delivered to
Capital Holdings 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.
(h) Tax Matters. Legal counsel to ONB shall have rendered an
opinion to ONB and Capital Holdings, in form and content
satisfactory to the parties hereto, to the effect that the
Mergers will constitute tax-free reorganizations under the Code
(as described in Sections 1.01(f) and 1.02(e) hereof) to each
party hereto and to the shareholders of Capital Holdings,
except with respect to cash received by Capital Holdings'
shareholders for fractional shares resulting from application
of the Exchange Ratio.
(i) Fairness Opinion. Trident shall have issued its written
fairness opinion stating that the terms of the Company Merger
are fair to the shareholders of Capital Holdings from a
financial point of view. Such written fairness opinion shall
(i) be in form and substance reasonably satisfactory to ONB and
Capital Holdings; (ii) be dated as of a date not later than the
mailing date of the proxy statement-prospectus relating to the
Mergers to be mailed to Capital Holdings' shareholders; (iii)
be included as an exhibit to the proxy statement-prospectus;
and (iv) be updated and confirmed by Trident as of the
Effective Time.
A-41
<PAGE>
SECTION 9
TERMINATION OF MERGER
9.01. Manner of Termination. This Agreement and the
Mergers may be terminated at any time prior to the Effective
Time by written notice delivered by ONB to Capital Holdings, or
by Capital Holdings to ONB, as follows:
(a) By ONB or Capital Holdings, if:
(i) the Mergers contemplated by this Agreement have not
been consummated by March 31, 1997; or
(ii) the respective Boards of Directors of ONB and Capital
Holdings mutually agree to terminate this Agreement.
(b) By ONB, if:
(i) ONB's independent auditors determine that either of
the Mergers will not qualify for pooling-of-interest
accounting treatment for ONB; or
(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, prospects, assets,
capitalization, financial condition or results of
operations of Capital Holdings or WFSB, whether
individually or on a consolidated basis, or RISC on a
consolidated basis with Capital Holdings; or
(iii) there has been a misrepresentation or a breach of any
warranty by or on the part of Capital Holdings 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, prospects, assets, capitalization, financial
condition or results of operations of Capital Holdings or
WFSB, whether individually or on a consolidated basis, or
RISC on a consolidated basis with Capital Holdings;
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 Holdings Common Stock, WFSB Common Stock,
or RISC Common Stock, ONB shall have the absolute right to
terminate this Agreement without regard to the materiality
of any such inaccuracy; or
(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 Capital Holdings or WFSB; or
(v) ONB shall reasonably determine that either of the
Mergers have become inadvisable or impracticable by
reason of commencement or threat of any claim,
litigation or proceeding against ONB, Capital
Holdings, WFSB, RISC or any subsidiary of ONB, or any
director or officer of any of such entities (A)
relating to this Agreement or the Mergers or (B)
which is likely to have a material adverse effect on
A-42
<PAGE>
either of the business, prospects, assets,
capitalization, financial condition or results of
operations of Capital Holdings or WFSB, whether
individually or on a consolidated basis, or RISC on a
consolidated basis with Capital Holdings, or of ONB
on a consolidated basis; or
(vi) except as provided in the Disclosure Schedule (but
not including any updates or supplements thereto),
there has been a material adverse change in the
business, prospects, assets, capitalization,
financial condition or results of operations of
Capital Holdings or WFSB, whether individually or on
a consolidated basis, or RISC on a consolidated basis
with Capital Holdings, at the Effective Time as
compared to that in existence as of December 31,
1995; or
(vii) all Joinder Agreements under the WFSB Deferred Compensation
have not been properly and validly amended as provided in
Section 7.03(f) hereof within forty-five (45) days of the
date of this Agreement.
(c) By Capital Holdings, 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 Capital Holdings, a
material adverse effect on the business, assets,
capitalization, financial condition or results of
operation of ONB on a consolidated basis; or
(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; or
(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 at the
Effective Time as compared to that in existence on December
31, 1995.
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, ONB Bank, Capital
Holdings, WFSB 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 MERGERS
Upon the terms and subject to the conditions specified in this
Agreement, the Company Merger shall become effective at the
time specified in the Articles of Merger of Capital Holdings
A-43
<PAGE>
with and into ONB as filed with the Indiana Secretary of State
("Effective Time") and the Thrift Merger shall become effective
at the time specified in the Articles of Combination of WFSB
with and into ONB Bank as filed with the OTS. The Effective
Time shall occur not later than the last business day of the
month following (a) the fulfillment of all conditions precedent
to the Mergers set forth in Section 8 hereof, and (b) the
expiration of all waiting periods in connection with the bank
or thrift regulatory applications filed for the approval of the
Mergers.
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 Mergers ("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
Capital Holdings the following:
(i) an opinion of its counsel dated as of the Effective
Time and substantially in the form set forth in
Exhibit B attached hereto;
(ii) the officers' certificate contemplated by Section
8.02(g) hereof;
(iii) copies of all approvals by government regulatory
agencies necessary to consummate the Mergers;
(iv) copies of the resolutions of the Board of Directors
of ONB and ONB Bank of ONB, as the sole shareholder
of ONB Bank, certified by the President or Secretary
of ONB and ONB Bank, respectively, relative to the
approval of this Agreement and the Mergers; and
(v) such other documents as Capital Holdings or its legal
counsel may reasonably request.
(b) At the Closing, Capital Holdings shall deliver to ONB 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
8.01(g) hereof;
(iii) a list of Capital Holdings' shareholders as of
the Effective Time certified by the President
and Secretary of Capital Holdings;
(iv) copies of the resolutions adopted by the Board of
Directors and shareholders of Capital Holdings and
WFSB, certified by the Chairman or President and
Secretary of each, relative to the approval of this
Agreement and the Mergers;
A-44
<PAGE>
(v) the list of affiliates of Capital Holdings and the
affiliate agreements as set forth in Section 8.01(i)
hereof; and
(vi) such other documents as ONB or its legal counsel may
reasonably request.
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.
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 1.02(b), 7.03, 7.07, 7.08 and 7.09
hereof.
12.02. Waiver; Amendment. (a) ONB or Capital Holdings 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 party 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 Mergers. 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 and,
if such amendment, modification or supplement occurs after the
approval of the Agreement by the shareholders of Capital
Holdings, only in a manner that will not materially and
adversely affect the rights of Capital Holdings' shareholders
hereunder without obtaining their approval thereof.
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 prepaid as
follows:
A-45
<PAGE>
If to ONB or ONB Bank: with a copy to (which shall not
constitute notice):
Old National Bancorp Krieg DeVault Alexander & Capehart
ATTN: Jeffrey L. Knight, ATTN: Nicholas J. Chulos, Esq.
General Counsel and Corporate Secretary One Indiana Square, Suite 2800
420 Main Street Indianapolis, Indiana 46204-2017
P.O. Box 718 Telephone: (317) 238-6224
Evansville, Indiana 47705 Telecopier: (317) 636-1507
Telephone: (812) 464-1363
Telecopier: (812) 464-1567
If to Capital Holdings: with a copy to (which shall not
constitute notice):
Workingmens Capital Holdings, Inc. Barnes & Thornburg
ATTN: Richard R. Haynes, President ATTN: Claudia V. Swhier, Esq.
121 East Kirkwood Avenue 1313 Merchants Bank Building
P. O. Box 2689 11 South Meridian Street
Bloomington, Indiana 47408 Indianapolis, Indiana 46204
Telephone: (812) 332-9465 Telephone: (317) 638-1313
Telecopier: (812) 323-4246 Telecopier: (317) 231-7452
or such substituted address or person as any of them 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. Except for certain provisions
regarding the treatment of employees of WFSB contained in a
letter dated April 8, 1996, from ONB to Capital Holdings, this
Agreement supersedes all other prior or contemporaneous
understandings, commitments, representations, negotiations or
A-46
<PAGE>
agreements, whether oral or written, among the parties hereto
and thereto relating to the Mergers and the matters
contemplated herein and therein and constitute the entire
agreements between the parties hereto and thereto relating to
the subject matter hereof and thereof. 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. The parties hereto shall each pay their
respective expenses incidental to the Mergers.
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, and the information contained in
the Disclosure Schedule shall be deemed to be representations
and warranties of Capital Holdings.
* * * *
A-47
<PAGE>
IN WITNESS WHEREOF, ONB, ONB Bank, Capital Holdings and WFSB
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 and delivered by their duly authorized
officers.
OLD NATIONAL BANCORP
By: /s/ John N. Royse
------------------------
John N. Royse, President
ATTEST:
By: /s/ Jeffrey L. Knight
-----------------------------
Jeffrey L. Knight, Secretary
WORKINGMENS CAPITAL HOLDINGS, INC.
By: /s/ Richard R. Haynes
----------------------------
Richard R. Haynes, President
ATTEST:
By: /s/ Jerry L. Hayes
------------------------
Jerry L. Hays, Secretary
WORKINGMENS FEDERAL SAVINGS BANK
By: /s/ Richard R. Haynes
----------------------------
Richard R. Haynes, President
and Chief Executive Officer
ATTEST:
By: /s/ Jerry L. Hayes
------------------------
Jerry L. Hays, Secretary
ONB BANK
By: /s/ Dan L. Doan
-------------------------
Dan L. Doan, Chairman and
President
ATTEST:
By: /s/ Jeffrey L. Knight
--------------------------------------
Jeffrey L. Knight, Assistant Secretary
A-48
<PAGE>
APPENDIX B
August 26, 1996
Board of Directors
Workingmens Capital Holdings, Inc.
121 East Kirkwood Avenue
Bloomington, Indiana 47402
Gentlemen:
You have requested our opinion as to the fairness, from a
financial point of view, to the holders of shares of common
stock (the "Workingmens Common Stock"), of Workingmens Capital
Holdings, Inc. ("Workingmens") of the consideration to be
received by such stockholders in the proposed merger (the
"Proposed Merger") of Workingmens with Old National Bancorp
("Old National"), pursuant to the Agreement of Affiliation and
Merger dated April 8, 1996 (the "Agreement").
As more specifically set forth in the Agreement, and
subject to a number of conditions and procedures described in
the Agreement, in the Proposed Merger each of the issued and
outstanding shares of Workingmens Common Stock shall be
converted into 0.64 shares of Old National Common Stock (the
"Exchange Ratio"). All unexercised options for the right to
purchase shares of Workingmens Common Stock shall be converted
into options for the right to purchase shares of Old National
Common Stock using the Exchange Ratio as applicable to the
holders of Workingmens Common Stock.
Trident Financial Corporation ("Trident") is a financial
consulting and investment banking firm experienced in the
valuation of business enterprises with considerable experience
in the valuation of thrift institutions. Since 1975, Trident
has valued in excess of 400 thrift institutions in connection
with mutual-to-stock conversions, mergers and acquisitions, as
well as other transactions. Trident is not affiliated with
Workingmens or Old National.
In connection with rendering our opinion, we have reviewed
and analyzed, among other things, the following: (i) the
Agreement; (ii) certain publicly available information
concerning Workingmens, including the audited financial
statements of Workingmens for each of the years in the three
year period ended December 31, 1995 and unaudited financial
statements for the three months ended March 31, 1996; (iii)
certain publicly available information concerning Old National,
including the audited financial statements of Old National for
each of the years in the three year period ended December 31,
1995 and unaudited financial statements for the three months
ended March 31, 1996; (iv) certain other internal information,
primarily financial in nature, concerning the business and
operations of Workingmens and Old National furnished to us by
Workingmens and Old National for purposes of our analysis; (v)
information with respect to the trading market for Workingmens
Common Stock; (vi) information with respect to the trading
market for Old National Common Stock; (vii) certain publicly
available information with respect to other companies that we
believe to be comparable to Workingmens and Old National and
the trading markets for such other companies' securities; and
B-1
<PAGE>
Board of Directors
August 26, 1996
Page 2
(viii) certain publicly available information concerning the
nature and terms of other transactions that we believe relevant
to our inquiry. We have also met with certain officers and
employees of Workingmens and Old National to discuss the
foregoing as well as other matters we believe relevant to our
inquiry.
In our review and analysis and in arriving at our opinion,
we have assumed and relied upon the accuracy and completeness
of all of the financial and other information provided to us or
publicly available. We have not attempted independently to
verify any such information. We have not conducted a physical
inspection of the properties or facilities of Workingmens or
Old National, nor have we made or obtained any independent
evaluations or appraisals of any of such properties or
facilities. We did not specifically evaluate Workingmens' or
Old National's loan portfolio or the adequacy of Workingmens'
or Old National's reserves for possible loan losses.
In conducting our analysis and arriving at our opinion as
expressed herein, we have considered such financial and other
factors as we have deemed appropriate under the circumstances
including, among others, the following: (i) the historical and
current financial condition and results of operations of
Workingmens and Old National, including interest income,
interest expense, net interest income, net interest margin,
interest sensitivity, non-interest expenses, earnings,
dividends, book value, return on assets, return on equity,
capitalization, the amount and type of non-performing assets
and the reserve for loan losses; (ii) the business prospects of
Workingmens and Old National; (iii) the economies in
Workingmens' and Old National's market areas; (iv) the
historical and current market for Workingmens Common Stock and
Old National Common Stock and for the equity securities of
certain other companies that we believe to be comparable to
Workingmens and Old National; and (v) the nature and terms of
certain other acquisition transactions that we believe to be
relevant. We have also taken into account our assessment of
general economic, market, financial and regulatory conditions
and trends, as well as our knowledge of the thrift industry,
our experience in connection with similar transactions, and our
knowledge of securities valuation generally. Our opinion
necessarily is based upon conditions as they exist and can be
evaluated on the date hereof. Our opinion is, in any event,
limited to the fairness, from a financial point of view, of the
consideration to be received by the holders of Workingmens
Common Stock in the Proposed Merger and does not address
Workingmens' underlying business decision to effect the
Proposed Merger.
Based upon and subject to the foregoing, we are of the
opinion that the consideration to be received by the holders of
Workingmens Common Stock in the Proposed Merger is fair, as of
the date hereof, from a financial point of view, to such
holders.
Very truly yours,
/s/ TRIDENT FINANCIAL CORPORATION
---------------------------------
TRIDENT FINANCIAL CORPORATION
B-2
<PAGE>
APPENDIX C
WORKINGMENS
CAPITAL HOLDINGS, INC.
1995
ANNUAL
REPORT
<PAGE>
TABLE OF
CONTENTS
Page
President's Message to Shareholders ......................... 2
Selected Consolidated Financial Data ........................ 3
Management's Discussion and Analysis ........................ 4
Quarterly Results of Operations ............................. 12
Independent Auditors' Report ................................ 13
Consolidated Statements of Financial Condition .............. 14
Consolidated Statements of Earnings ......................... 15
Consolidated Statements of Shareholders' Equity ............. 16
Consolidated Statements of Cash Flows ....................... 17
Notes to Consolidated Financial Statements .................. 18
Shareholder Information ..................................... 30
Directors and Officers ...................................... 31
DESCRIPTION OF BUSINESS
Workingmens Capital Holdings, Inc. ("WCHI"), an Indiana corporation,
became a unitary savings and loan holding company upon the conversion of
Workingmens Federal Savings Bank ("WFSB") from a federal mutual savings
and loan institution to a federal stock savings bank in June, 1990. WCHI
and WFSB conduct business from a single office in Bloomington, Monroe
County, Indiana, and WFSB operates a branch office in Ellettsville,
Indiana. WFSB is and historically has been among the top real estate
mortgage lenders in Monroe County and is one of the largest independent
financial institutions headquartered in Monroe County. WFSB offers a
variety of retail deposit and lending services. WCHI has no other
business activity than being the holding company for WFSB. WCHI is the
sole shareholder of WFSB.
<PAGE>
TO OUR
SHAREHOLDERS
On behalf of your directors, I am pleased to report that in WFSB's
110th year of operation we have not wavered from our commitment to home
mortgage lending and to providing a safe place to invest money.
WCHI's assets grew to $213.3 million at December 31, 1995, up from
$204.5 million at December 31, 1994. Net earnings for the year ended
December 31, 1995 were $1,963,000 compared to $1,824,000 for the year
ended December 31, 1994.
We believe our continued success is attributable to our commitment to
financing predominately single-family homes and other real estate loans
in our market area. Residential mortgages accounted for approximately
90% of our assets at December 31, 1995. During 1995, WFSB closed $44.6
million in new loans which was down from the previous year largely due
to the decreasing number of refinancings in the rising interest rate
environment. However, the overall loan portfolio grew $8.4 million in
1995.
In addition to making a substantial number of loans during 1995, we
preserved the high quality of our loan portfolio. Nonperforming assets
as a percentage of total assets was only .09% as of December 31, 1995.
Savings deposits grew to $152.1 million as of December 31, 1995, an
increase of $2.8 million over year end 1994. Competition for insured
deposits in our market area has been intense, and we believe it will
remain so during 1996.
As of December 31, 1995, WCHI's capital increased to $25.7 million
which represents a capital-to-assets ratio of 12.04%. Book value
increased to $14.45 per share compared to $13.67 as of December 31,
1994.
During 1995, we continued our commitment to improve efficiency and to
maintain low operating expenses. Evidence of our cost control strategy
is the ratio of operating expenses to average assets which was 1.3% for
the year.
The financial industry is dramatically influenced by change:
consolidation, interstate banking, broader services, regulatory
differences and aggressive new competitors.
Among the uncertainties facing Workingmens this year is the
regulatory change within the Federal Deposit Insurance
Corporation/Savings Association Insurance Fund ("SAIF"). At the present
time, the FDIC insurance premiums of healthy commercial banks are only
four cents per $100 in deposits per year, while healthy savings banks
continue to pay 23 cents per $100 in deposits per year. To correct this
inequity, Congress is considering legislation to recapitalize the SAIF
and to eliminate the significant premium disparity between commercial
banks and savings banks. Congress proposes that SAIF-insured
institutions pay a one-time assessment of approximately 85 cents per
$100 in deposits and then reduce SAIF insurance premiums to that paid by
commercial banks thereafter. The one-time charge, due sometime in 1996,
would be approximately $1,275,000 based on deposits of $150 million as
of March 31, 1995, the date stipulated in the latest proposed
legislation. This legislation, if enacted as currently proposed, would
impact earnings this year, but should have the effect of reducing
deposit premiums and thereby increasing earnings' potential going
forward.
Despite challenges such as this, we remain convinced that Workingmens
delivers high quality service which will serve our customers and
shareholders well in this ever-changing environment.
With the help of our dedicated directors, officers and employees, we
will continue to build our 110-year history of success and reputation as
a premier provider of financial services.
RICHARD R. HAYNES
Richard R. Haynes
President
2
<PAGE>
SELECTED
CONSOLIDATED
FINANCIAL
DATA OF
WORKINGMENS
CAPITAL
HOLDINGS, INC.
AND SUBSIDIARY
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(Dollars in Thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Summary of Statement of
Financial Condition Data:
Total assets ...................... $213,254 $204,523 $189,516 $179,082 $169,893
Loans receivable, net ............. 189,661 181,269 164,278 149,762 141,382
Mortgage-backed securities ........ 5,807 6,698 7,605 9,806 5,082
Cash and interest-bearing deposits 4,529 2,205 3,005 2,295 9,446
Investments ....................... 8,817 9,975 10,555 14,629 11,395
Deposits .......................... 152,141 149,353 143,242 139,197 135,909
FHLB advances ..................... 34,200 29,700 21,700 16,350 11,850
Common stock ...................... 8,066 8,007 8,116 8,167 8,027
Retained earnings-substantially
restricted ...................... 17,618 16,145 15,207 13,976 12,830
Book value per share .............. $ 14.45 $ 13.67 $ 13.02 $ 12.25 $ 11.61
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(Dollars in Thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Summary of Operating Results:
Total interest income ............ $ 16,000 $ 14,088 $ 13,713 $ 14,008 $ 15,317
Total interest expense ........... 10,231 8,596 8,257 8,814 10,218
-------- -------- -------- -------- --------
Net interest income .............. 5,769 5,492 5,456 5,194 5,099
Provision for loan losses ........ 78 72 84 48 39
-------- -------- -------- -------- --------
Net interest income after provision
for loan losses ................ 5,691 5,420 5,372 5,146 5,060
-------- -------- -------- -------- --------
Total non-interest income ........ 242 180 213 142 121
Total non-interest expense ....... 2,761 2,650 2,488 2,414 2,342
-------- -------- -------- -------- --------
Earnings before income taxes ..... 3,172 2,950 3,097 2,874 2,839
Income taxes ..................... 1,209 1,126 1,207 1,129 1,108
-------- -------- -------- -------- --------
Net earnings ..................... 1,963 1,824 1,890 1,745 1,731
======== ======== ======== ======== ========
Per share:
Net earnings ................... $ 1.11 $ 1.03 $ 1.05 $ .97 $ .96
Cash dividends ................. $ .33 $ .29 $ .265 $ .245 $ .21
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE TEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Supplemental Data:
Interest rate spread during period ....... 2.17% 2.26% 2.39% 2.40% 2.34%
Net yield on interest-earning assets (1) . 2.82 2.82 2.98 3.08% 3.19
Return on assets (2) ..................... 0.94 0.92 1.01 1.01% 1.06
Return on equity (3) ..................... 7.85 7.70 8.27 8.07% 8.49
Equity-to-assets (4) ..................... 12.00 11.97 12.23 12.52% 12.47
Average interest-earning assets to
average interest-bearing liabilities ... 112.97 112.82% 112.95% 112.98% 113.17
Nonperforming assets to total assets (5) . 0.09 0.11% 0.11% 0.21 0.12
Operating expenses to average assets (6) . 1.32 1.34% 1.33% 1.40 1.43
One year cumulative interest-rate
gap to total assets (5) ................ (6.61) (4.16) 1.68% 3.80% (1.98)
Dividend payout ratio (7) ................ 29.80 28.15% 25.17% 25.41% 21.82
___________________________
</TABLE>
(1) Net interest income divided by average interest-earning assets.
(2) Net earnings divided by average total assets.
(3) Net earnings divided by average total equity.
(4) Average total equity divided by average total assets.
(5) At end of period.
(6) Other expense less state taxes divided by average total assets.
(7) Dividends paid divided by net earnings.
3
<PAGE>
MANAGEMENT'S
DISCUSSION
AND ANALYSIS
OF FINANCIAL
CONDITION AND
RESULTS OF
OPERATIONS
GENERAL
WCHI was formed as part of the conversion of Workingmens Federal
Savings and Loan Association from a federal mutual savings and loan
association to a federal stock savings bank known as Workingmens Federal
Savings Bank which was completed on June 7, 1990 (the "Conversion").
WCHI has no other business activity other than being the holding company
for WFSB.
The principal business of savings institutions, including WFSB, has
historically consisted of attracting deposits from the general public
and making loans secured by first mortgage liens on residential and
other real estate. WFSB and the entire savings institution industry are
significantly affected by prevailing economic conditions as well as by
government policies and regulations concerning, among other things,
monetary and fiscal affairs, housing and financial institutions. Deposit
flows are influenced by a number of factors, including interest rates
paid on money market funds and other competing investments, account
maturities and level of personal income and savings. Lending activities
are influenced by, among other things, the demand for and supply of
housing lenders and the availability and cost of funds. Sources of funds
for lending activities include deposits, amortization and prepayments of
loan principal, proceeds from sales of loans, borrowings, and funds
provided from operations.
WFSB's earnings in recent years have been affected by fundamental
changes that have occurred in the regulatory, economic, and competitive
environment in which savings institutions operate. As is the case with
most savings institutions, WFSB's earnings are primarily dependent upon
its net interest income. Interest income is a function of the balances
of loans and investments outstanding during a given period and the yield
earned on such loans and investments. Interest expense is a function of
the amount of deposits and borrowings outstanding during the period and
the rates paid on such deposits and borrowings. Net interest income is
the difference between the interest income and interest expense. Net
interest income increased from $5.1 million for the year ended December
31, 1991 to $5.8 million for the year ended December 31, 1995.
ASSET/LIABILITY MANAGEMENT
WFSB, like other savings institutions, is subject to interest rate
risk to the degree that its interest-bearing liabilities, primarily
deposits and borrowings with short- and medium-term maturities, mature
or reprice more rapidly, or on a different basis, than its
interest-earning assets. While having liabilities that mature or reprice
more frequently on average than assets will be beneficial in times of
declining interest rates, such an asset/liability structure will result
in lower net income or net losses during periods of rising interest
rates, unless offset by other factors such as non-interest income.
Therefore, a key element of WCHI's long-term strategic plan is to
protect net earnings from changes in interest rates by reducing the
maturity or repricing mismatch between its interest-earning assets and
rate-sensitive liabilities.
Principal elements of this strategy include the origination of
residential mortgage loans with adjustable interest rates, the
maintenance of assets in investments with short to medium terms, and
increasing the origination of consumer-related loans. For example,
WFSB's loans and mortgage-backed securities included approximately $83.8
million, or 42.3%, of adjustable-rate loans at December 31, 1995. At
that same date, WFSB's interest-bearing deposits in other institutions
and investment securities with terms of five years or less amounted to
$10.3 million, and its portfolio of consumer-related loans was $6.5
million.
As a result of these efforts, WFSB has maintained its one year
Interest-Rate Gap at between plus or minus 7.0% at each year end since
December 31, 1991. For 1995, WFSB targeted a one year Interest-Rate Gap
of plus or minus 10.0%. WFSB's one year Interest-Rate Gap as of December
31, 1995, was a negative 6.61%. A negative Interest-Rate Gap leaves
WFSB's earnings vulnerable to periods of rising interest rates because
during such periods the interest expense paid on liabilities will
generally increase more rapidly than the interest income earned on
assets. Conversely, in a falling interest rate environment, the total
expense paid on liabilities will generally decrease more rapidly than
the interest income earned on assets. A positive Interest-Rate Gap will
have the opposite effect. WFSB's management believes that its
Interest-Rate Gap in recent periods has generally been maintained within
an acceptable range in view of the prevailing interest rate environment.
4
<PAGE>
MANAGEMENT'S
DISCUSSION
AND ANALYSIS
OF FINANCIAL
CONDITION AND
RESULTS OF
OPERATIONS
(CONTINUED)
AVERAGE BALANCES AND INTEREST
The following table presents for the periods indicated the average
monthly balances of each category of interest-earning assets and
interest-bearing liabilities, and the interest earned or paid on such
amounts. Management believes that the use of month-end average balances
instead of daily average balances has not caused any material difference
in the information presented.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------
1995 1994 1993
---------------------- ---------------------- ----------------------
Average Interest Average Interest Average Interest
Balance Earned/Paid Balance Earned/Paid Balance Earned/Paid
------- ----------- ------- ----------- ------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net (1) .. $185,232 $14,775 $172,680 $12,924 $159,837 $12,323
Mortgage-backed
securities ............... 6,225 409 7,148 440 8,839 570
Investment securities ...... 7,305 450 8,442 471 10,948 616
Other interest-earning
assets (2) ............... 6,149 366 6,303 253 3,378 204
-------- ------- -------- ------- -------- -------
Total interest-earning
assets ............... 204,911 16,000 194,573 14,088 183,002 13,713
-------- ------- -------- ------- -------- -------
Interest-bearing liabilities:
Passbook accounts .......... 13,470 408 17,499 528 14,841 449
NOW and money market
accounts ................. 14,209 460 16,071 420 18,386 519
Certificates of deposit .... $123,837 7,269 112,445 5,841 109,259 5,895
-------- ------- -------- ------- -------- -------
Total deposits ........... 151,516 8,137 146,015 $ 6,789 142,486 $ 6,863
Borrowings ................. 29,867 2,094 26,454 $ 1,807 19,533 $ 1,394
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities ............ $181,383 10,231 172,469 $ 8,596 162,019 $ 8,257
-------- ------- -------- ------- -------- -------
Net interest-earning assets .. $ 23,528 $ 22,104 $ 20,983
======== ======== ========
Net interest income .......... $ 5,769 $ 5,492 $ 5,456
======= ======= =======
Average interest-earning assets
to average interest-bearing
liabilities ................ 112.97% 112.82% 112.95%
======== ======== ========
___________________________
</TABLE>
(1) Average balances include non-accrual loans.
(2) Other interest-earning assets consist of interest-bearing
deposits in other institutions, short-term investments and stock
in the FHLB of Indianapolis.
5
<PAGE>
MANAGEMENT'S
DISCUSSION
AND ANALYSIS
OF FINANCIAL
CONDITION AND
RESULTS OF
OPERATIONS
(CONTINUED)
Interest Rate Spread
WFSB's results of operations have been determined primarily by net
interest income and, to a lesser extent, fee income, miscellaneous
income and general and administrative expenses. Net interest income is
determined by the interest rate spread between the yields earned on its
interest-earning assets and the rates paid on interest-bearing
liabilities and by the relative amounts of interest-earning assets and
interest-bearing liabilities.
The following table sets forth the weighted average effective
interest rate earned on loan and investment portfolios, the weighted
average effective cost of deposits and borrowings, the interest rate
spread, and the net yield on weighted average interest-earning assets
for the periods and as of the date shown. Average balances are based on
average month-end balances.
<TABLE>
<CAPTION>
At
December 31, Year Ended December 31,
-----------------------
1995 1995 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average interest rate earned on:
Loans receivable, net .................... 8.00% 7.98% 7.48% 7.71%
Mortgage-backed securities ............... 6.35 6.56 6.16 6.45
Investment securities .................... 6.15 6.16 5.57 5.62
Other interest-earning assets (1) ........ 6.13 5.97 4.02 6.05
Total interest-earning assets .......... 7.85 7.81 7.24 7.49
Weighted average interest rate cost of:
Passbook accounts ........................ 3.00 3.03 3.02 3.02
NOW and money market accounts ............ 3.47 3.24 2.61 2.83
Certificates of deposit .................. 6.01 5.87 5.19 5.40
Total deposits ........................... 5.53 5.37 4.65 4.82
Borrowings ............................... 6.85 7.01 6.83 7.14
Total interest-bearing liabilities ..... 5.77 5.64 4.98 5.10
Interest rate spread (2) ................... 2.08 2.17 2.26 2.39
Net yield on weighted average interest-
earning assets (3) ....................... N/A 2.82 2.82 2.98
</TABLE>
___________________________
(1) Other interest-earning assets consist of interest-bearing
deposits in other institutions, short-term investments and stock
in the Federal Home Loan Bank of Indianapolis.
(2) Interest rate spread is calculated by subtracting combined
weighted average interest rate cost from combined weighted
average interest rate earned for the period indicated. Interest
rate spread figures must be considered in light of the
relationship between the amounts of interest-earning assets and
interest-bearing liabilities. Since interest-earning assets
exceeded interest-bearing liabilities for each of the three
years shown above, a positive interest rate spread resulted in
net interest income.
(3) The net yield on weighted average interest-earning assets is
calculated by dividing net interest income by weighted average
interest-earning assets for the period indicated. A net yield
figure is not presented at December 31, 1995, because the
computation of net yield is applicable only over a period rather
than at a specific date.
6
<PAGE>
MANAGEMENT'S
DISCUSSION
AND ANALYSIS
OF FINANCIAL
CONDITION AND
RESULTS OF
OPERATIONS
(CONTINUED)
The following table describes the extent to which changes in interest
rates and changes in volume of interest-related assets and liabilities
have affected interest income and expense during the periods indicated.
For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (1)
changes in rate (changes in rate multiplied by old volume) and (2)
changes in volume (changes in volume multiplied by old rate). Changes
attributable to both rate and volume that can not be segregated have
been allocated proportionally to the change due to volume and the change
due to rate.
<TABLE>
<CAPTION>
Increase (Decrease) in Net Interest Income
------------------------------------------
Total
Net Due to Due to
Change Rate Volume
------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C>
Year ended December 31, 1995 compared to
year ended December 31, 1994
Interest-earning assets:
Loans receivable $1,851 $ 880 $ 971
Mortgage-backed securities (32) 28 (60)
Investment securities (21) 46 (67)
Other interest-earning assets 114 120 (6)
------ ------ ------
Total $1,912 $1,074 $ 838
====== ====== ======
Interest-bearing liabilities:
Passbook accounts $ (120) $ 2 $ (122)
NOW and money market accounts 40 92 (52)
Certificates of deposit 1,428 803 625
Borrowings 287 49 238
------ ------ ------
Total $1,635 $ 946 $ 689
====== ====== ======
Change in net interest income $ 277
Year ended December 31, 1994 compared
to year ended December 31, 1993
Interest-earning assets:
Loans receivable $ 601 $ (369) $ 970
Mortgage-backed securities (130) (25) (105)
Investment securities (145) (5) (140)
Other interest-earning assets 49 (85) 134
------ ------ ------
Total $ 375 $ (484) $ 859
====== ====== ======
Interest-bearing liabilities:
Passbook accounts $ 80 $ (1) $ 81
NOW and money market accounts (99) (37) (62)
Certificates of deposit (54) (223) 169
Borrowings 412 (62) 474
------ ------ ------
Total $ 339 $ (323) $ 662
====== ====== ======
Change in net interest income $ 36
======
</TABLE>
7
<PAGE>
MANAGEMENT'S
DISCUSSION
AND ANALYSIS
OF FINANCIAL
CONDITION AND
RESULTS OF
OPERATIONS
(CONTINUED)
YEAR ENDED DECEMBER 31, 1995, COMPARED TO YEAR ENDED DECEMBER 31, 1994:
General. Net earnings for the year ended December 31, 1995, were $2.0
million, compared with $1.8 million for the year ended December 31,
1994, an increase of $139,000, or 7.6%. The increase in net earnings was
due to (i) an increase in net interest income after provision for loan
losses of $271,000 and (ii) an increase in total non-interest income of
$62,000. The increase in net earnings was offset by (i) an increase in
total non-interest expense of $111,000 and (ii) an increase in income
taxes of $83,000.
Asset size during 1995 increased compared to 1994. Total assets at
December 31, 1995, were $213.3 million as compared to $204.5 million at
December 31, 1994, an increase of $8.7 million, or 4.3%. The increase in
assets was primarily due to (i) an increase in loans receivable of $8.4
million, or 4.6%, from $181.3 million in 1994 to $189.7 million in 1995
and (ii) an increase in cash, interest-bearing deposits and investments
of $1.2 million, or 9.6%, from $12.2 million in 1994 to $13.3 million in
1995. The increase in assets was offset by a decrease in mortgage-backed
securities of $891,000, or 13.3% from $6.7 million in 1994 to $5.8
million in 1995.
Deposits increased $2.8 million, or 1.9%, from $149.4 million in 1994
to $152.1 million in 1995. Federal Home Loan Bank ("FHLB") advances
increased $4.5 million, or 15.2%, from $29.7 million in 1994 to $34.2
million in 1995. The additional advances were used for asset/liability
management in conjunction with fixed-rate loan production and for cash
flow purposes.
Loans funded net of collections in 1995 were $8.0 million and
exceeded deposit growth by $5.0 million. WFSB funded this loan growth by
an increase in FHLB advances of $4.5 million.
Shareholders' equity increased $1.5 million, or 6.3%, from $24.2
million in 1994 to $25.7 million in 1995. The increase was due to
current period earnings of $2.0 million reduced by $585,000 of cash
dividends paid. Additionally, shareholders' equity increased $96,000 due
to a reduction of the unrealized loss on securities available for sale,
$53,000 from proceeds from the exercise of stock options and $6,000 from
the income tax benefit of stock options exercised.
Interest Income. Total interest income for 1995 was $16.0 million
compared with $14.1 million in 1994, an increase of $1.9 million, or
13.6%. The increase predominantly resulted from an increase of $1.9
million, or 14.3%, in interest income from loans receivable from $12.9
million in 1994 to $14.8 million in 1995. The increase in interest
income from loans receivable resulted from a $971,000 increase
attributed to higher average balances and a $880,000 increase resulting
from a higher yield on loans. The increase in interest income from loans
receivable was offset by a decrease of (i) $32,000 in interest income
from mortgage-backed securities and (ii) $21,000 in interest income from
investment securities. The decrease in interest income from both
mortgage-backed securities and investment securities was the result of
lower average balance over an increase in yield. The weighted average
interest rate on interest-earning assets increased from 7.24% for 1994
to 7.81% for 1995.
Interest Expense. Interest expense for 1995 totaled $10.2 million, an
increase of $1.6 million, or 19.0%, compared with $8.6 million in 1994.
The increase was primarily the result of an increase of (i) $1.4
million, or 24.4%, in interest expense for certificates of deposits from
$5.8 million in 1994 to $7.3 million in 1995 and (ii) $287,000, or
15.9%, in interest expense for borrowings from $1.8 million in 1994 to
$2.1 million in 1995. The increase in interest expense from both
certificates of deposit and borrowings was the result of higher average
balances as well as an increase in rate. The weighted average interest
rate on interest-bearing liabilities increased from 4.98% for 1994 to
5.64% for 1995.
Provision for Loan Losses. The provision for loan losses was $78,000
for 1995 compared to $72,000 in 1994, an increase of $6,000, or 8.3%.
The 1995 provision exceeded net charge-offs of $1,000. Management
believes that this low level of net charge-offs is a result of its
underwriting guidelines and generally strong local economy. Also the
1995 provision resulted in an allowance for loan losses of $335,000 at
December 31, 1995, an amount management believes adequate to absorb
anticipated future loan losses.
Non-Interest Income. Total non-interest income for 1995 was $242,000
compared to $180,000 in 1994 resulting in a $62,000, or 34.4% increase.
The increase was primarily due to (i) a $17,000 gain on the sale of REO
in 1995 compared with a $3,000 loss in 1994 and (ii) a $10,000 gain on
the sale of loans originated for sale during 1995 compared to a $35,000
loss in 1994.
8
<PAGE>
MANAGEMENT'S
DISCUSSION
AND ANALYSIS
OF FINANCIAL
CONDITION AND
RESULTS OF
OPERATIONS
(CONTINUED)
Non-Interest Expense. Non-interest expense increased $111,000, or
4.2%, from $2.7 million in 1994 to $2.8 million in 1995. Compensation
and employee benefits increased from $1.3 million in 1994 to $1.4
million in 1995, an increase of $67,000, or 5.1%. These increases in
compensation and employee benefits were due to normal annual salary
increases, as well as increases in costs of employee benefits. Federal
deposit insurance premiums increased from $331,000 in 1994 to $345,000
in 1995, an increase of $13,000, or 4.0%. Other non-interest expense
increased from $660,000 in 1994 to $694,000 in 1995, an increase of
$35,000, or 5.2%.
Income Taxes. Income taxes increased $83,000, or 7.4%, from $1.1
million in 1994 to $1.2 million in 1995.
YEAR ENDED DECEMBER 31, 1994, COMPARED TO YEAR ENDED DECEMBER 31, 1993:
General. Net earnings for the year ended December 31, 1994, were $1.8
million, compared with $1.9 million for the year ended December 31,
1993, a decrease of $66,000, or 3.5%. The decrease in net earnings was
primarily due to (i) a decrease in total non-interest income of $33,000
and (ii) an increase in total non-interest expense of $162,000. The
decrease in net earnings was partially offset by (i) an increase in net
interest income after provision for loan losses of $48,000 and (ii) a
decrease in income taxes of $80,000.
Asset size during 1994 increased compared to 1993. Total assets at
December 31, 1994, were $204.5 million as compared to $189.5 million at
December 31, 1993, an increase of $15.0 million, or 7.9%. The increase
in assets was primarily due to an increase in loans receivable of $17.0
million, or 10.3%, from $164.3 million in 1993 to $181.3 million in
1994. The increase in loans was offset by (i) a decrease in cash,
interest-bearing deposits and investments of $1.4 million, or 10.2%,
from $13.6 million in 1993 to $12.2 million in 1994 and (ii) a decrease
in mortgage-backed securities of $907,000, or 11.9%, from $7.6 million
in 1993 to $6.7 million in 1994.
Deposits increased $6.1 million, or 4.3%, from $143.2 million in 1993
to $149.4 million in 1994. Federal Home Loan Bank ("FHLB") advances
increased $8.0 million, or 36.9%, from $21.7 million in 1993 to $29.7
million in 1994. The additional advances were used for asset/liability
management in conjunction with fixed-rate loan production and for cash
flow purposes.
Loans funded net of collections in 1994 were $17.5 million and
exceeded deposit growth by $11.4 million. WFSB funded loan growth by an
increase in FHLB advances of $8.0 million and a decrease in its
liquidity position.
Shareholders' equity increased $829,000, or 3.6%, from $23.3 million
in 1993 to $24.2 million in 1994. The increase was due to current period
earnings of $1.8 million reduced by $513,000 of cash dividends paid,
unrealized depreciation on investment available for sale of $181,000 and
by $301,000 to repurchase 24,000 shares of common stock. On August 12,
1994, WCHI approved a two-for-one stock split of its common stock for
shareholders of record as of September 30, 1994. A total of 883,710
shares of common stock were issued in connection with the split. All
share and per share amounts have been restated to retroactively reflect
the stock split.
Interest Income. Total interest income for 1994 was $14.1 million
compared with $13.7 million in 1993, an increase of $375,000, or 2.7%.
The increase predominately resulted from an increase of $601,000, or
4.9%, in interest income from loans receivable from $12.3 million in
1993 to $12.9 million in 1994. The increase in interest income from
loans receivable resulted from a $970,000 increase attributed to higher
average balances offset by a $369,000 decrease resulting from a lower
yield on loans. The increase in interest income from loans receivable
was partially offset by a decrease of (i) $130,000 in interest income
from mortgage-backed securities and (ii) $145,000 in interest income
from investment securities. The decrease in interest income from both
mortgage-backed securities and investment securities was the result of
both a decline in yields and lower average balances. The weighted
average interest rate on interest-earning assets decreased from 7.49%
for 1993 to 7.24% for 1994.
Interest Expense. Interest expense for 1994 totaled $8.6 million, an
increase of $339,000, or 4.1%, compared with $8.3 million in 1993. The
increase was predominately the result of an increase of $412,000, or
29.6%, in interest expense for borrowings from $1.4 million in 1993 to
$1.8 million in 1994. The interest expense for borrowings resulted from
a $474,000 increase attributed to higher average balances offset by a
$62,000 decrease resulting from lower rates paid on borrowings. The
weighted average interest rate on interest-bearing liabilities decreased
from 5.10% for 1993 to 4.98% for 1994.
9
<PAGE>
MANAGEMENT'S
DISCUSSION
AND ANALYSIS
OF FINANCIAL
CONDITION AND
RESULTS OF
OPERATIONS
(CONTINUED)
Provision for Loan Losses. The provision for loan losses was $72,000
for 1994 as compared to $84,000 in 1993, a decrease of $12,000, or
14.0%. The 1994 provision exceeded net charge-offs of $3,000. Management
believes that this low level of net charge-offs is a result of its
underwriting guidelines and generally strong local economy. Also the
1994 provision resulted in an allowance for loan losses of $258,000 at
December 31, 1994, an amount management believes adequate to absorb
anticipated future loan losses.
Non-Interest Income. Total non-interest income for 1994 was $180,000
compared to $213,000 in 1993 resulting in a $33,000, or 15.3% decrease.
The decrease was primarily due to a loss of $35,000 on sale of loans
originated for sale during 1994 as compared to a gain of $49,000 from
sale of loans originated for sale during 1993. This decrease of $84,000
from loan sales was partially offset by an increase of $60,000 from
fees, service charges and other non-interest income.
Non-Interest Expense. Non-interest expense increased $161,000, or
6.5%, from $2.5 million in 1993 to $2.7 million in 1994. Compensation
and employee benefits increased from $1.2 million in 1993 to $1.3
million in 1994, an increase of $100,000, or 8.2%. The increase in
salaries and benefits was due to normal annual salary increases, as well
as the increase in costs of employee benefits. Federal deposit insurance
premiums increased from $260,000 in 1993 to $331,000 in 1994, an
increase of $71,000, or 27.4%. The increase in deposit insurance was due
to a lack of a secondary reserve offset in 1994. WFSB's Secondary
Reserve offset for 1993 was approximately $61,200, all of which was used
during the first six months of 1993.
Income Taxes. Income taxes decreased $80,000, or 6.6%, from $1.2
million in 1993 to $1.1 million in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The standard measure of liquidity for the savings institution
industry is the ratio of cash and eligible investments to a certain
percentage of net withdrawable savings and borrowings due within one
year. The minimum required ratio is currently set by OTS regulation at
5%, of which 1% must be comprised of short-term investments (i.e.,
generally with a term of less than one year). At December 31, 1995,
WFSB's liquidity ratio was 5.76%, of which 3.49% was comprised of
short-term investments. Management believes that this liquidity level,
both on a short-term and a long-term basis, is sufficient for liquidity
needs.
Historically, WFSB has maintained its liquid assets that qualify for
purposes of the OTS liquidity regulations above the minimum requirements
imposed by such regulations and at a level believed by management
adequate to meet requirements of normal daily activities, funding loan
originations, repayment of maturing debt, and potential deposit
outflows. Cash flow projections are regularly reviewed by management and
updated to assure that adequate liquidity is maintained. Cash for
liquidity purposes is generated through the maturity of investment
securities, loan prepayments and repayments, increases in deposits and
may be generated through increases in FHLB advances. Loan payments are a
relatively stable source of funds, while deposit flows are influenced
significantly by the level of interest rates and general money market
conditions.
Borrowings may be used to compensate for reductions in other sources
of funds such as deposits and to assist in asset/liability management.
As a member of the FHLB System, WFSB may borrow from the FHLB of
Indianapolis. At December 31, 1995, WFSB had $34.2 million in borrowings
from the FHLB of Indianapolis, and could have borrowed an additional
$1.0 million from the FHLB of Indianapolis as of that date. These
borrowings were made to assist WFSB in its asset/liability management
and to strengthen WFSB's liquidity position. As of that date, WFSB had
commitments to fund loan originations of approximately $3.2 million, of
which 48.2% were adjustable rate and 51.8% were fixed rate. In the
opinion of management, WFSB has sufficient cash flow and borrowing
capacity to meet current and anticipated funding commitments.
10
<PAGE>
MANAGEMENT'S
DISCUSSION
AND ANALYSIS
OF FINANCIAL
CONDITION AND
RESULTS OF
OPERATIONS
(CONTINUED)
Pursuant to Office of Thrift Supervision ("OTS") capital regulations
savings associations must currently meet a 1.5% tangible capital
requirement, a 3% leverage ratio (or core capital) requirement, and a
total risk-based capital to risk-weighted assets ratio of 8%. WFSB is
classified as "well capitalized" under OTS regulations, the highest
classification.
The following is a summary of WFSB's regulatory capital and capital
requirements at December 31, 1995:
<TABLE>
<CAPTION>
Tangible Core Risk-based
capital capital capital
-------- ------- ----------
(Dollars in Thousands)
<S> <C> <C> <C>
Regulatory capital $24,244 $24,244 $24,578
Minimum capital requirement $ 3,198 $ 6,396 $ 9,454
------- ------- -------
Excess capital $21,046 $17,848 $15,124
======= ======= =======
Regulatory capital ratio 11.4% 11.4% 20.8%
======= ======= =======
</TABLE>
IMPACT OF INFLATION
The audited consolidated financial statements presented herein have
been prepared in accordance with generally accepted accounting
principles. These principles require the measurement of financial
position and operating results in terms of historical dollars, without
considering changes in the relative purchasing power of money over time
due to inflation.
The primary assets and liabilities of savings institutions such as
WFSB are monetary in nature. As a result, interest rates have a more
significant impact on WFSB's performance than the effects of general
levels of inflation. Interest rates, however, do not necessarily move in
the same direction or with the same magnitude as the price of goods and
services, since such prices are affected by inflation. In a period of
rapidly rising interest rates, the liquidity and maturity structures of
WFSB's assets and liabilities are critical to the maintenance of
acceptable performance levels. For a discussion of WFSB's efforts to
restructure its assets and to reduce its vulnerability to changes in
interest rates, see "- Asset/Liability Management."
The principal effect of inflation, as distinct from levels of
interest rates, on earnings is in the area of other expense. Such
expense items as employee compensation, employee benefits, and occupancy
and equipment costs may be subject to increases as a result of
inflation. An additional effect of inflation is the possible increase in
the dollar value of the collateral securing loans made by WFSB. WCHI is
unable to determine the extent, if any, to which properties securing
WFSB loans have appreciated in dollar value due to inflation.
CURRENT ACCOUNTING ISSUES
Statement of Financial Accounting Standards No. 121 ("SFAS 121"),
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, is effective for fiscal years beginning after
December 15, 1995. This statement establishes accounting standards for
the impairment of long-lived assets, certain liabilities, certain
intangibles and goodwill. Management does not believe the adoption of
SFAS 121 will have a material effect on the financial position or
results of operations of the Holding Company.
Statement of Financial Accounting Standards No. 122 ("SFAS 122"),
Accounting for Mortgage Servicing Rights - an Amendment of FASB
Statement No. 65, is effective for fiscal years beginning after December
15, 1995. This statement specifies conditions under which mortgage
servicing rights should be accounted for separately from the underlying
mortgage loans. Management does not believe the adoption of SFAS 122
will have a material effect on the financial position or results of
operations of the Holding Company.
Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
Accounting for Stock-Based Compensation, is effective for fiscal years
beginning after December 15, 1995. This statement establishes a fair
value based method for accounting for stock-based compensation. The
Holding Company will have the option of continuing the existing
intrinsic value based method or adopting the new method. If the
intrinsic valued based method is used, disclosures are required showing
the effects of the fair value based method. Management has not yet
determined which method will be used, but management does not believe
the adoption of SFAS 123 will have a material effect on the financial
position or results of operations of the Holding Company.
11
<PAGE>
WORKINGMENS
CAPITAL
HOLDINGS, INC.
QUARTERLY
RESULTS OF
OPERATIONS
The following table presents certain selected unaudited data relating
to results of operations for the three-month periods ending on the dates
indicated. Because this data reflects for quarterly periods only, it may
not be representative of the results of operations calculated annually.
This data has not been examined by independent accountants, but
reflects, in the opinion of management of WCHI, all adjustments
necessary for a fair presentation of the results of operations for the
periods presented.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------
December 31, September 30, June 30, March 31,
1995 1995 1995 1995
------------ ------------- -------- ---------
Fiscal 1995 (Dollars in Thousands)
<S> <C> <C> <C> <C>
Total interest income $4,093 $4,043 $3,977 $3,887
Total interest expense 2,670 2,635 2,527 2,399
------ ------ ------ ------
Net interest income 1,423 1,408 1,450 1,488
Provision for loan losses 21 21 18 18
------ ------ ------ ------
Net interest income after
provision for loan losses 1,402 1,387 1,432 1,470
Total non-interest income 53 57 68 64
Total non-interest expense 714 662 676 709
------ ------ ------ ------
Earnings before income taxes 741 782 824 825
Income taxes 287 283 319 320
------ ------ ------ ------
Net earnings $ 454 $ 499 $ 505 $ 505
====== ====== ====== ======
Earnings per common share $ .26 $ .28 $ .29 $ .29
Dividends per common share $ .09 $ .08 $ .08 $ .08
Stock bid price range (1):
High $18 $18 $19 $17
Low $16 $15 3/4 $15 1/4 $13
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------
December 31, September 30, June 30, March 31,
1994 1994 1994 1994
------------ ------------- -------- ---------
Fiscal 1994 (Dollars in Thousands)
<S> <C> <C> <C> <C>
Total interest income $3,740 $3,578 $3,422 $3,348
Total interest expense 2,321 2,190 2,057 2,028
------ ------ ------ ------
Net interest income 1,419 1,388 1,365 1,320
Provision for loan losses 18 18 18 18
------ ------ ------ ------
Net interest income after
provision for loan losses 1,401 1,370 1,347 1,302
Total non-interest income 53 53 39 35
Total non-interest expense 702 631 651 666
------ ------ ------ ------
Earnings before income taxes 752 792 735 671
Income taxes 291 298 281 256
------ ------ ------ ------
Net earnings $ 461 $ 494 $ 454 $ 415
====== ====== ====== ======
Earnings per common share $ .26 $ .28 $ 26 $ .23
Dividends per common share $ .08 $ .07 $ .07 $ .07
Stock bid price range (1)
High $14 7/8 $15 1/8 $15 1/4 $13 1/8
Low $13 $14 1/8 $11 7/8 $12 3/8
</TABLE>
___________________________
(1) The common stock of Workingmens Capital Holdings, Inc., is traded
on the National Association Securities Dealers Automated Quotation
System, National Market System, under the Symbol "WCHI."
12
<PAGE>
INDEPENDENT
AUDITOR'S
REPORT
The Board of Directors
Workingmens Capital Holdings, Inc.:
We have audited the accompanying consolidated statements of financial
condition of Workingmens Capital Holdings, Inc. and subsidiary as of
December 31, 1995 and 1994, and the related consolidated statements of
earnings, shareholders' equity, and cash flows for each of the years in
the three-year period ended December 31, 1995. These consolidated
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated
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 audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Workingmens Capital Holdings, Inc. and subsidiary at December 31,
1995 and 1994, and the results of their operations and their cash flows
for each of the years in the three-year period ended December 31, 1995,
in conformity with generally accepted accounting principles.
As discussed in note 1 to the financial statements, Workingmens
Capital Holdings, Inc. adopted the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting Standard
No. 115, Accounting for Certain Investments in Debt and Equity
Securities, in 1994.
KPMG PEAT MARWICK LLP
Indianapolis, Indiana
January 26, 1996
13
<PAGE>
WORKINGMENS
CAPITAL
HOLDINGS, INC.
AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF
FINANCIAL CONDITION
FOR THE YEARS ENDED
DECEMBER 31, 1995
AND 1994
<TABLE>
<CAPTION>
Assets 1995 1994
- ------ ------------ ------------
<S> <C> <C>
Cash and cash equivalents:
Cash $ 1,297,780 $ 918,123
Interest-bearing deposits 3,231,181 1,287,171
4,528,961 2,205,294
Investment securities held to maturity, at cost (market
value of $3,201,275 and $4,481,251) (notes 2 and 9) 3,165,453 4,541,177
------------ ------------
Mortgage-backed securities held to maturity,
at cost (market value of $4,579,219 and $6,306,257)
(notes 3 and 9) 4,550,405 6,698,068
Investment in mutual fund available for sale, at market
value (cost of $4,000,000) (note 4) 3,893,547 3,801,131
Mortgage-backed securities available for sale (note 4) 1,256,433 -
Loans receivable, net (notes 5, 6 and 9) 189,661,196 181,268,786
Accrued interest receivable:
Loans 1,052,391 918,478
Investment securities 68,508 78,923
Mortgage-backed securities 39,183 41,777
Stock in FHLB of Indianapolis (note 9) 1,758,200 1,632,600
Premises and equipment, net (note 7) 1,370,619 1,358,001
Real estate owned - 156,495
Prepaid expenses and other assets (note 11) 1,909,595 1,822,566
------------ ------------
$213,254,491 $204,523,296
------------ ------------
Liabilities and Shareholders' Equity
- ------------------------------------
Deposits (note 8) $152,141,187 $149,352,703
FHLB advances (note 9) 34,200,000 29,700,000
Advances by borrowers for taxes and insurance 421,762 684,910
Income taxes (note 10) 89,260 50,961
Deferred income taxes (note 10) 269,074 211,822
Accrued interest on deposits 61,206 52,034
Accrued expenses and other liabilities 387,483 318,952
------------ ------------
Total liabilities 187,569,972 180,371,382
------------ ------------
Shareholders' equity (notes 10, 11 and 12):
Preferred stock, no par value, 2,000,000
shares authorized, none issued - -
Common stock, no par value, shares authorized
of 5,000,000; shares issued and outstanding
of 1,777,920 and 1,767,420 8,066,200 8,007,313
Retained earnings-substantially restricted 17,721,628 16,343,470
Net unrealized depreciation on securities
available for sale (note 4) (103,309) (198,869)
------------ ------------
Total shareholders' equity 25,684,519 24,151,914
------------ ------------
Commitments (note 5)
$213,254,491 $204,523,296
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE>
WORKINGMENS
CAPITAL
HOLDINGS, INC.
AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF
EARNINGS
FOR THE YEARS ENDED
DECEMBER 31, 1995,
1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Interest income:
Loans receivable ............................. $14,775,087 $12,923,680 $12,323,212
Mortgage-backed securities ................... 408,623 440,328 570,348
Investment securities ........................ 449,686 470,617 615,488
Interest-bearing deposits .................... 230,903 160,693 79,356
Dividends from FHLB .......................... 135,996 92,542 124,909
----------- ----------- -----------
Total interest income ...................... 16,000,295 14,087,860 13,713,313
----------- ----------- -----------
Interest expense:
Deposits (note 8) ............................ 8,137,291 6,788,908 6,862,841
FHLB advances ................................ 2,084,435 1,802,069 1,393,676
Other ........................................ 9,533 4,548 499
----------- ----------- -----------
Total interest expense ..................... 10,231,259 8,595,525 8,257,016
----------- ----------- -----------
Net interest income ........................ 5,769,036 5,492,335 5,456,297
Provision for loan losses (note 6) ............. 78,000 72,250 84,000
----------- ----------- -----------
Net interest income after
provision for loan losses .................. 5,691,036 5,420,085 5,372,297
----------- ----------- -----------
Non-interest income:
Fees, service charges and other .............. 184,106 181,656 121,834
Commissions .................................. 30,760 32,589 42,321
Gain (loss) on sale of real estate owned ..... 17,038 (2,633) -
Gain (loss) on sale of loans ................. 9,995 (34,767) 48,866
Gain on sale of mortgage-backed securities ... - 3,557 -
----------- ----------- -----------
Total non-interest income .................. 241,899 $ 180,402 213,021
----------- ----------- -----------
Non-interest expense:
Compensation and employee benefits ........... 1,388,840 1,321,919 1,222,087
Occupancy and equipment ...................... 332,567 337,182 339,325
Federal deposit insurance premium ............ 344,768 331,426 260,166
Other ........................................ 694,297 659,772 667,315
----------- ----------- -----------
Total non-interest expense ................. 2,760,472 2,650,299 2,488,893
----------- ----------- -----------
Earnings before income taxes ................... 3,172,463 $ 2,950,188 3,096,425
Income taxes (note 10) ......................... 1,209,351 1,126,499 1,206,609
----------- ----------- -----------
Net earnings ............................... $ 1,963,112 $ 1,823,689 $ 1,889,816
=========== =========== ===========
Earnings per share (note 1) .................... $ 1.11 $ 1.03 $ 1.05
=========== =========== ===========
Weighted average number of common shares
outstanding .................................. 1,771,817 1,773,535 $ 1,797,210
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
WORKINGMENS
CAPITAL
HOLDINGS, INC.
AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF
SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED
DECEMBER 31, 1995,
1994 AND 1993
<TABLE>
<CAPTION>
Net unrealized
depreciation Total
Common Retained on securities shareholders'
stock earnings available for sale equity
------ -------- ------------------ -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1992 $8,166,500 $13,979,691 $ (3,099) $22,143,092
Issuance of 8,000 shares of
common stock at
$5.00 per share (note 11) ........ 40,000 - - 40,000
Repurchase and retirement of
24,280 shares of common stock
at $11.475 per share ............. (109,793) (168,830) - (278,623)
Tax benefit of stock options
exercised (note 10) .............. 19,338 - - 19,338
Change in net unrealized
appreciation on securities ....... - - (15,055) (15,055)
Net earnings for 1993 .............. - 1,889,816 - 1,889,816
Dividends ($.265 per share) ........ - (475,636) - (475,636)
---------- ----------- --------- -----------
Balance at December 31, 1993 ......... 8,116,045 15,225,041 (18,154) 23,322,932
Repurchase and retirement of
24,000 shares of common
stock at $12.525 per share ....... (108,732) (191,868) - (300,600)
Change in net unrealized
depreciation on securities ....... - - (180,715) (180,715)
Net earnings for 1994 .............. - 1,823,689 - 1,823,689
Dividends ($.29 per share) ......... - (513,392) - (513,392)
---------- ----------- --------- -----------
Balance at December 31, 1994 ......... 8,007,313 16,343,470 (198,869) 24,151,914
Issuance of 10,500 shares of
common stock at
$5.00 per share (note 11) ........ 52,500 - - 52,500
Tax benefit of stock options
exercised (note 10) .............. 6,387 - - 6,387
Change in net unrealized
depreciation on securities ....... - - 95,560 95,560
Net earnings for 1995 .............. - 1,963,112 - 1,963,112
Dividends ($.33 per share) ......... - (584,954) - (584,954)
---------- ----------- --------- -----------
Balance at December 31, 1995 ......... $8,066,200 $17,721,628 $(103,309) $25,684,519
========== =========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
WORKINGMENS
CAPITAL
HOLDINGS, INC.
AND SUBSIDIARY
CONSOLIDATED
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:
Net earnings $ 1,963,112 $ 1,823,689 $ 1,889,816
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Provision for loan losses 78,000 72,250 84,000
Depreciation 127,725 143,025 134,055
Deferred income taxes 60,427 43,476 (48,494)
Amortization of premiums (discounts), net 43,549 90,344 204,170
Net gain on sale of mortgage-backed
securities - (3,557) -
Net (gain) loss on sale of real estate owned (17,038) 2,633 -
(Increase) decrease in loans held for sale (459,750) 325,451 (284,771)
(Increase) decrease in other assets (207,931) (197,446) 78,933
Increase (decrease) in other liabilities 122,389 (11,691) (87,009)
----------- ----------- -----------
Net cash provided by operating activities 1,710,483 2,288,174 1,970,700
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from maturity of investment securities 3,000,000 2,000,000 5,000,000
Purchase of investment securities (1,778,647) (1,657,751) (1,100,600)
Loans funded net of collections (8,010,660) (17,544,865) (14,358,434)
Purchase of single premium life
insurance policies - - (1,570,699)
Proceeds from sale of real estate owned 173,533 40,378 -
Proceeds from sale of mortgage-backed securities - 298,279 -
Principal collected on mortgage-backed securities 876,419 1,590,110 2,155,500
Purchase of mortgage-backed securities - (1,010,910) -
Purchase of premises and equipment (140,343) (135,169) (81,299)
----------- ----------- -----------
Net cash used by investing activities (5,879,698) (16,419,928) (9,955,532)
----------- ----------- -----------
Cash flows from financing activities:
Net increase in deposits 2,788,484 6,110,673 4,045,449
Repayments of FHLB advances (17,000,000) (9,000,000) (11,150,000)
Borrowings of FHLB advances 21,500,000 17,000,000 16,500,000
Payments of dividends to common shareholders (584,954) (513,392) (475,636)
Proceeds from issuance of common stock 52,500 - 40,000
Repurchase of common stock - (300,600) (278,623)
Increase in advances by borrowers for
taxes and insurance (263,148) 35,522 13,986
----------- ----------- -----------
Net cash provided by financing
activities 6,492,882 13,332,203 8,695,176
----------- ----------- -----------
Net (decrease) increase in cash and
cash equivalents 2,323,667 (799,551) 710,344
Cash and cash equivalents at beginning of year 2,205,294 3,004,845 2,294,501
----------- ----------- -----------
Cash and cash equivalents at end of year $ 4,528,961 $ 2,205,294 $ 3,004,845
=========== =========== ===========
Supplemental disclosure of cash flow information:
Interest paid $10,202,614 $ 8,549,576 $ 8,264,489
=========== =========== ===========
Income taxes paid $ 1,109,476 $ 1,183,000 $ 1,263,000
=========== =========== ===========
Transfer of loans to real estate owned $ - $ 156,495 $ 42,772
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
WORKINGMENS
CAPITAL
HOLDINGS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 1995,
1994 AND 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation-The consolidated financial statements include
the accounts of Workingmens Capital Holdings, Inc. ("WCHI") and its
wholly-owned subsidiary Workingmens Federal Savings Bank ("WFSB"),
formerly Workingmens Federal Savings and Loan Association (the
"Association").
WFSB offers a variety of retail deposit and lending services through
its office and banking centers in Bloomington and Ellettsville, Indiana.
WFSB is subject to competition from other financial institutions and is
regulated by certain federal agencies and undergoes periodic
examinations by those regulatory authorities.
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
as of the date of the statement of financial condition and revenues and
expenses for the period. Actual results could differ from those
estimates.
Investment and Mortgage-Backed Securities Held to Maturity and Available
for Sale-On January 1, 1994, WCHI adopted Financial Accounting Standard
No. 115 ("FAS 115"), Accounting for Certain Investments in Debt and
Equity Securities. Prior to adoption of FAS 115, all securities were
carried at amortized cost (cost adjusted for amortization of premiums or
accretion of discounts), because management had the intent and ability
to hold them for the foreseeable future. Upon adoption of FAS 115,
securities were classified by management as available for sale or held
to maturity. The adoption of FAS 115 in 1994 had no effect on net
earnings or the statement of financial condition since the only
available-for-sale securities was an investment in an adjustable-rate
mortgage-backed mutual fund which was already recorded at market value.
The net unrealized depreciation on securities available for sale is
reflected separately as a component of shareholders' equity in the
consolidated statement of financial condition.
The securities classified as available for sale are securities that
WCHI intends to hold for an indefinite period of time, but not
necessarily until maturity, and include securities that management might
use as part of its asset-liability strategy, or that may be sold in
response to changes in interest rates, changes in prepayment risk, the
need to increase regulatory capital or other similar factors, and which
are carried at market value. Gains and losses are computed on a specific
identification basis. Securities classified as held to maturity are
securities that WCHI has both the ability and positive intent to hold to
maturity and are carried at cost adjusted for amortization of premium or
accretion of discount.
Real Estate Owned-Real estate owned, comprised of real estate acquired
in the settlement of loans, is recorded at the lower of cost (the unpaid
principal balance at the date of acquisition plus foreclosure and other
related costs) or fair value.
Loans Receivable-Loans receivable are considered long-term investments
and, accordingly, are carried at historical cost. WFSB has a mortgage
lien on all real estate on which mortgage, participation or purchased
loans are made. Substantially all loan originations are secured by
mortgages on property in Monroe County, Indiana. Interest receivable is
accrued only if deemed collectible. Generally, WFSB's policy is not to
accrue interest on loans delinquent over 90 days. Such interest
ultimately collected is credited to income in the period received.
Non-refundable fees and certain direct loan origination costs are being
deferred and the net amount is amortized over the contractual lives of
the related loans as an adjustment of the yield.
Allowance for Loan Losses-The allowance for loan losses is provided for
estimated losses on loans when any significant and permanent decline in
values occur. In estimating possible losses consideration is given to
delinquencies, value of collateral and other factors which in
management's opinion should be considered in estimating possible losses.
Management believes the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans,
future additions to the allowance may be necessary based on changes in
economic conditions and borrower circumstances. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review WFSB's allowance for loan losses. Such agencies may
require WFSB to recognize additions to the allowance based on their
judgment about information available to them at the time of their
examination.
18
<PAGE>
WORKINGMENS
CAPITAL
HOLDINGS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(CONTINUED)
As of January 1, 1995, WFSB adopted Statement of Financial Accounting
Standard No. 114, Accounting by Creditor for Impairment of a Loan. Under
this standard, loans considered to be impaired are reduced to the
present value of expected future cash flows or to fair value of
collateral by allocating a portion of the allowance for loan losses to
such loans. If these allocations cause the allowance for loan losses to
require an increase, allocations are considered in relation to the
overall adequacy of the allowance for loan losses and subsequent
adjustments to the loss provision. Adopting this standard did not have
an impact on the 1995 consolidated financial statements.
Loans Held for Sale-Fixed-rate first mortgage loans which meet certain
defined criteria are sold with servicing retained. First mortgage loans
held for sale are carried at the lower of cost or estimated market value
using the specific identification method. Gains and losses on loan sales
and valuation adjustments are charged or credited to gain (loss) on sale
of loans.
Premises and Equipment-Premises and equipment are carried at cost less
accumulated depreciation. Depreciation is provided on a straight-line
basis over the estimated useful lives of the related assets.
FHLB Stock-Federal law requires a member institution of the Federal Home
Loan Bank System to hold common stock of its district FHLB according to
a predetermined formula. This investment is stated at cost and may be
pledged to secure FHLB advances.
Income Taxes-WCHI and its wholly-owned subsidiary file consolidated
income tax returns. Deferred tax assets and liabilities are recognized
for the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Cash and Cash Equivalents-For purposes of reporting cash flows, WCHI
considers cash on hand and at banks and interest-bearing deposits
maturing within 90 days to be cash equivalents.
Earnings Per Share-Earnings per share is computed by dividing net
earnings by the average number of shares of common stock outstanding
during the period. The effects of outstanding stock options are not
included in the calculation as they are dilutive by less than three
percent.
Reclassifications-Certain amounts in the 1994 and 1993 financial
statements have been reclassified to conform to the 1995 presentation.
(2) INVESTMENT SECURITIES HELD TO MATURITY
The amortized cost and estimated market values of investment securities
held to maturity at December 31, are as follows:
<TABLE>
<CAPTION>
1995
--------------------------------------------------------
Amortized Unrealized Unrealized Market
cost gains losses value
---------- ------- ------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury and
government agencies $3,165,453 $35,822 $ - $3,201,275
========== ======= ======= ==========
1994
--------------------------------------------------------
Amortized Unrealized Unrealized Market
cost gains losses value
---------- ------- ------- ----------
U.S. Treasury and
government agencies $4,541,177 $ - $59,926 $4,481,251
========== ======= ======= ==========
</TABLE>
The weighted average yield on investment securities was 6.15% and 5.89%
at December 31, 1995 and 1994, respectively.
19
<PAGE>
WORKINGMENS
CAPITAL
HOLDINGS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(CONTINUED)
The amortized cost and estimated market value of investment securities
at December 31, 1995, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because the issuers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Amortized Market
Scheduled Maturities cost value
---------- ----------
<S> <C> <C>
Due in one year or less .............. $1,012,878 $1,012,500
Due after one year through five years 2,152,575 2,188,775
---------- ----------
$3,165,453 $3,201,275
========== ==========
</TABLE>
(3) MORTGAGE-BACKED SECURITIES HELD TO MATURITY
The amortized cost and estimated market values of mortgage-backed
securities held to maturity at December 31, are as follows:
<TABLE>
<CAPTION>
1995
--------------------------------------------------------
Amortized Unrealized Unrealized Market
cost gains losses value
---------- -------- -------- ----------
<S> <C> <C> <C> <C>
FHLMC ............... $3,176,398 $25,158 $ 10,712 $3,190,844
GNMA ................ 482,025 25,472 - 507,497
FNMA ................ 891,982 - 11,104 880,878
---------- -------- -------- ----------
$4,550,405 $50,630 $ 21,816 $4,579,219
========== ======= ======== ==========
1994
--------------------------------------------------------
Amortized Unrealized Unrealized Market
cost gains losses value
---------- -------- -------- ----------
FHLMC ............... $3,726,109 $1,805 $199,717 $3,528,197
GNMA ................ 556,210 8,133 6,982 557,361
FNMA ................ 2,415,749 - 195,050 2,220,699
---------- -------- -------- ----------
$6,698,068 $9,938 $401,749 $6,306,257
========== ======= ======== ==========
</TABLE>
The weighted average yield on mortgage-backed securities was 6.35% and
6.29% at December 31, 1995 and 1994, respectively. At December 31, 1995,
WCHI held no commitments to buy or sell mortgage-backed securities.
During 1994, WFSB sold the remaining portion of mortgage-backed
securities held to maturity with an initial cost of $3,000,000 and a
carrying value at the time of sale of $294,722 at a gross gain of
$3,557.
(4) SECURITIES AVAILABLE FOR SALE
In December 1995, WFSB transferred a FNMA mortgage-backed security from
the held to maturity portfolio to the available for sale portfolio in
accordance with the provisions established by the Financial Accounting
Standards Board in a special report, A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt Equity
Securities.
Securities available for sale consisted of the following at December 31,
1995:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Market
cost gains losses value
---------- -------- -------- ----------
<S> <C> <C> <C> <C>
Mortgage-backed securities:
FNMA ..................... $1,251,226 $5,207 $ - $1,256,433
========== ======= ======== ==========
Mutual funds:
Federated ARMs Fund ...... $4,000,000 $ - $106,453 $3,893,547
========== ======= ======== ==========
</TABLE>
There have been no sales of mortgage-backed securities available for sale.
20
<PAGE>
(5) LOANS RECEIVABLE
Loans receivable at December 31, consist of:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Real estate mortgage loans .......................... $181,364,641 $174,153,165
Real estate construction and land loans ............. 4,397,837 4,654,098
Equity line of credit loans ......................... 3,559,229 3,003,171
Consumer related loans .............................. 3,141,071 2,115,793
------------ ------------
192,462,778 183,926,227
Less:
Undisbursed construction loans .................... 1,978,396 1,834,059
Loans in process .................................. 146,434 130,942
Allowance for loan losses ......................... 335,449 258,056
Deferred loan fees ................................ 341,303 434,384
------------ ------------
$189,661,196 $181,268,786
============ ============
</TABLE>
Loans serviced for others amounted to $4,798,671 and $5,242,170 at
December 31, 1995 and 1994, respectively. Loans receivable at December
31, 1995 include $459,750 of real estate mortgage loans held for sale
with estimated market values of $464,872.
At December 31, 1995, WFSB had commitments to originate $1,631,360 of
fixed-rate and $1,520,316 of adjustable-rate real estate loans. The
interest rates on the fixed-rate loan commitments range from 7.25% to
9.25%. WFSB also had $7,417,031 of unused variable-rate equity line of
credit loans. WFSB does not expect to incur a loss on these commitments.
Certain officers, directors, and employees of WFSB 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
collectiblilty. Following is a summary of activity during the years
ended December 31 for such loans:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Balance at beginning of year ..................... $1,347,549 $1,076,069
Additions ...................................... 266,128 401,198
Repayments ..................................... (166,663) (129,718)
---------- ----------
Balance at end of year ........................... $1,447,014 $1,347,549
========== ==========
</TABLE>
(6) ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses for the years ended December
31, follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year ............... $258,056 $188,378 $140,807
Provision charged to operations ............ 78,000 72,250 84,000
Charge-offs, net of recoveries ............. (607) (2,572) (36,429)
-------- -------- --------
Balance at end of year ..................... $335,449 $258,056 $188,378
======== ======== ========
</TABLE>
(7) PREMISES AND EQUIPMENT
Premises and equipment at December 31, consist of:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Land ...................................... $ 487,125 $ 487,125
Building and parking lot improvements ..... 1,382,384 1,373,472
Furniture, fixtures and equipment ......... 931,598 801,454
---------- ----------
2,801,107 2,662,051
Less accumulated depreciation ............. 1,430,488 1,304,050
---------- ----------
$1,370,619 $1,358,001
========== ==========
</TABLE>
21
<PAGE>
WORKINGMENS
CAPITAL
HOLDINGS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(CONTINUED)
(8) DEPOSITS
Deposits at December 31, consist of:
<TABLE>
<CAPTION>
1995 1994
----------------------- ----------------------
Weighted Weighted
average average
Type Amount rate Amount rate
---- ------------ -------- ------------ --------
<S> <C> <C> <C> <C>
Passbook $ 12,065,454 3.00% $ 15,695,221 3.00%
Money Market 8,375,399 3.76 7,477,231 2.75
NOW 6,424,575 3.16 6,649,376 2.43
Non-interest bearing 140,860 - 110,274 -
Certificates 125,134,899 6.01 119,420,601 5.62
------------ -------- ------------ --------
$152,141,187 5.53% $149,352,703 5.06%
============ ============
</TABLE>
The contractual maturities of certificates at December 31, follow:
<TABLE>
<CAPTION>
1995 1994
-------------------- --------------------
Amount % Amount %
------------ ---- ------------ ----
<S> <C> <C> <C> <C>
Under 12 months $ 56,626,804 45% $ 52,633,093 44%
12 to 24 months $ 32,941,011 26 14,710,793 12
24 to 36 months $ 19,454,268 16 24,678,451 21
Over 36 months $ 16,112,816 13 27,398,264 23
------------ ---- ------------ ----
$125,134,899 100% $119,420,601 100%
============ ==== ============ ====
</TABLE>
Included in certificates at December 31, 1995 and 1994 are $19,604,871
and $14,296,414, respectively, in certificates greater than $100,000.
Interest expense by type of deposit for the years ended December 31,
follows:
<TABLE>
<CAPTION>
Type 1995 1994 1993
---- ---------- ---------- ----------
<S> <C> <C> <C>
Passbook $ 408,262 $ 528,280 $ 448,752
Money Market $ 259,476 261,862 363,731
NOW 200,816 158,243 155,682
Certificates $7,268,737 5,840,523 5,894,676
---------- ---------- ----------
$8,137,291 $6,788,908 $6,862,841
========== ========== ==========
</TABLE>
(9) FHLB ADVANCES
Each Federal Home Loan Bank (FHLB) is authorized to make advances to its
member institutions, subject to such regulations and limitations as the
FHLB may prescribe. FHLB advances at December 31, consisted of:
<TABLE>
<CAPTION>
Maturity Interest rates 1995 1994
-------- -------------- ----------- -----------
<C> <C> <C> <C>
1995 4.07 to 8.95% $ - $ 5,500,000
1996 5.80 to 8.40% 5,500,000 1,500,000
1997 6.71 to 9.20% 4,000,000 4,000,000
1998 5.41 to 8.68% 4,700,000 4,700,000
1999 6.08 to 7.26% 3,500,000 3,500,000
2000 5.36 to 6.82% 8,000,000 7,000,000
2001 7.54 to 8.80% 3,500,000 3,500,000
2002 6.09 to 7.59% $ 5,000,000 -
----------- -----------
$34,200,000 $29,700,000
=========== ===========
</TABLE>
The weighted average interest rate on advances was 6.845% and 7.004% at
December 31, 1995 and 1994, respectively.
WFSB, under a security agreement with the FHLB, is required to pledge
its FHLB stock, certain government and agency securities, and qualifying
mortgages, as defined, equal to 170 percent of FHLB advances.
22
<PAGE>
WORKINGMENS
CAPITAL
HOLDINGS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(CONTINUED)
(10) INCOME TAXES
Total income tax expense (benefit) for the years ended December 31,
1995, 1994 and 1993 was allocated as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Earnings $1,209,351 $1,126,499 $1,206,609
Shareholders' equity, for
compensation expense for tax
purposes in excess of amounts
recognized for financial reporting
purposes .......................... (6,387) - (19,338)
---------- ---------- ----------
$1,202,964 $1,126,499 $1,187,271
========== ========== ==========
</TABLE>
Income tax expense (benefit) related to earnings for the years ended
December 31, 1995, 1994 and 1993 consists of:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal ....... $ 891,973 $ 832,515 $ 964,231
State ......... 256,951 250,508 290,872
---------- ---------- ----------
1,148,924 1,083,023 1,255,103
---------- ---------- ----------
Deferred:
Federal ....... 66,104 50,195 (22,236)
State ......... (5,677) (6,719) (26,258)
---------- ---------- ----------
60,427 43,476 (48,494)
---------- ---------- ----------
$1,209,351 $1,126,499 $1,206,609
========== ========== ==========
</TABLE>
The effective income tax rate differs from the statutory federal
corporate rate as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Federal statutory rate ............... 34.0% 34.0% 34.0%
Increase (decrease) resulting from:
State income taxes ................. 5.3 5.5 5.6
Increase in cash surrender value
of life insurance ................ (.8) (.9) -
Other non-taxable income ........... (.4) (.4) (.6)
----- ----- -----
Effective rate ....................... 38.1% 38.2% 39.0%
===== ===== =====
</TABLE>
23
<PAGE>
WORKINGMENS
CAPITAL
HOLDINGS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1995, 1994 and 1993 are presented below:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Deferred tax assets:
Deferred loan fees $ 136,421 $ 173,261 $ 186,702
Allowance for loan losses for
financial reporting purposes 132,871 102,216 74,617
Premises and equipment, principally
due to differences in depreciation 20,854 7,773 9,646
Deferred directors' fees 47,718 27,045 8,021
Investment securities available for sale 40,437 79,500 -
--------- --------- ---------
Total deferred tax assets 378,301 389,795 278,986
Less valuation allowance (42,500) (79,500) -
--------- --------- ---------
Net deferred tax assets 335,801 310,295 278,986
--------- --------- ---------
Deferred tax liabilities:
Allowance for loan losses for tax purposes
in excess of the base year allowance (521,179) (438,421) (363,636)
Stock in FHLB of Indianapolis,
principally due to stock dividends (83,696) (83,696) (83,696)
--------- --------- ---------
Deferred tax liabilities (604,875) (522,117) (447,332)
--------- --------- ---------
Net deferred tax liability $(269,074) $(211,822) $(168,346)
========= ========= =========
</TABLE>
Under the Internal Revenue Code, WFSB is allowed a special bad debt
deduction for additions to tax bad debt reserves established for the
purpose of absorbing losses. The allowable deduction is currently 8% of
income subject to tax before such deduction. WFSB used the percentage of
taxable income method in computing Federal income tax expense. Retained
earnings at December 31, 1995 includes approximately $3,295,000 for
which no provision for Federal income taxes has been made. This amount
represents the base year allowance for loan losses for tax purposes.
Reduction of this amount for purposes other than tax bad debt losses
will create taxable income, which will be subject to the then current
corporate income tax rate. It is not contemplated that amounts allocated
to bad debt deductions will be used in any manner to create taxable
income.
(11) EMPLOYEE BENEFITS
WFSB is a participant in a defined benefit multi-employer pension fund
known as Financial Institutions Retirement Fund ("FIRF"). FIRF
administrators suspended employer contributions beginning July 1, 1987
through June 1994, because the plan had reached the Internal Revenue
Services "Full Funding Limit"; therefore, no pension expense was
recorded for the year ended December 31, 1993. Pension expense for the
years ended December 31, 1995 and 1994 was $48,296 and $26,313,
respectively.
During 1989, WFSB began participating in the Financial Institutions
Thrift Plan. Substantially all full-time employees of WFSB are eligible
to participate in this defined contribution plan, and WFSB's expense for
the years ended December 31, 1995, 1994 and 1993 amounted to $26,827,
$25,056 and $24,783, respectively.
WCHI adopted an Incentive Stock Option Plan whereby 180,000 shares of
authorized but unissued common stock were reserved for future issuance
upon the exercise of stock options granted to officers, directors and
key employees. Stock options for 136,620 shares were granted on June 7,
1990, at an option price of $5.00 per share, the market value at the
date of grant. The options are exercisable at any time within 10 years
from the grant date. During 1995, 1993 and 1992, 10,500, 8,000 and
42,940 shares of common stock were issued upon the exercise of stock
options. No options were exercised in 1994. At December 31, 1995, stock
options for 67,620 shares remain outstanding, and options for 43,380
remain available for future grant.
24
<PAGE>
WORKINGMENS
CAPITAL
HOLDINGS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(CONTINUED)
The Board of Directors approved a Directors Deferred Compensation
Agreement for members of the Board effective August 1, 1993. Under the
agreement, directors may elect to defer all or a portion of their
director fees with principal and accumulated interest paid out over a
specified period after retirement. In the event of a director's death
prior to commencement of the payout period, WFSB is obligated to pay the
director's beneficiary a survivor benefit based on the deferral amount
elected by the director. Concurrent with the approval of the agreement,
WFSB has purchased single premium life insurance, covering the eligible
directors. The cash value of the insurance acquired is $1,745,145 and
$1,668,030 at December 31, 1995 and 1994, respectively, and is included
in other assets.
(12) SHAREHOLDERS' EQUITY
WCHI is subject to regulation as a savings and loan holding company by
the Office of Thrift Supervision ("OTS"). WFSB, as a subsidiary of a
savings and loan holding company, is subject to certain restrictions in
its dealings with WCHI. WFSB is subject to the regulatory requirements
applicable to a federal savings bank.
During the fall of 1994, the Board of Directors declared a two-for-one
stock split whereby one additional share of common stock was issued for
each share held. All common share and per share amounts have been
retroactively restated to reflect this stock split.
Savings institutions are required to have risk-based capital of 8.0% of
risk-weighted assets. At December 31, 1995, WFSB's risk-based capital
exceeded the required amount. Risk weighting of assets is derived from
assigning one of four risk-weighted categories to an institution's
assets, based on the degree of credit risk associated with the asset.
The categories range from zero percent for low-risk assets (such as
United States Treasury securities) to 100% for high-risk assets (such as
real estate owned). The book value of each asset is then multiplied by
the risk weighting applicable to the asset category. The sum of the
products of the calculation equals total risk-weighted assets.
Savings institutions are also required to maintain a minimum leverage
ratio under which core capital must equal at least 3% of total assets,
but no less than the minimum required by the Office of the Comptroller
of the Currency ("OCC") for national banks, which minimum currently
stands at 4%. WFSB's primary regulator, the Office of Thrift
Supervision, is expected to adopt the OCC minimum. The components of
core capital are the same as those set by the OCC for national banks,
and consist of common equity plus non- cumulative preferred stock and
minority interests in consolidated subsidiaries, minus certain
intangible assets. At December 31, 1995, WFSB's core capital and
leverage ratio were in excess of the required amount. Savings
institutions must also maintain minimum tangible capital of 3% of total
assets. WFSB's tangible capital and tangible capital ratio at December
31, 1995 exceeded the required amount.
OTS has minimum capital standards that place savings institutions into
one of five categories, from "critically undercapitalized" to
"well-capitalized," depending on levels of three measures of capital. A
well-capitalized institution as defined by the regulations would have a
total risk-based capital ratio of at least 10 percent, a Tier 1 (core)
risk-based capital ratio of at least six percent, and a leverage (core)
risk-based capital ratio of at least five percent. At December 31, 1995,
WFSB was classified as well-capitalized.
The OTS has regulations governing dividend payments, stock redemptions,
and other capital distributions, including upstreaming of dividends by a
savings institution to a holding company. Under these regulations, WFSB
may, without prior OTS approval, make capital distributions to WCHI of
up to 100% of its net earnings during the calendar year, plus an amount
that would reduce by half its excess capital over its fully phased-in
capital requirement at the beginning of the calendar year. WCHI is not
subject to any regulatory restrictions on the payments of dividends to
its shareholders, other than restrictions under Indiana Law.
25
<PAGE>
WORKINGMENS
CAPITAL
HOLDINGS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(CONTINUED)
(13) PARENT COMPANY FINANCIAL INFORMATION
Following is parent company financial information of WCHI as of December
31, 1995 and 1994, and for each of the years in the three-year period
ended December 31, 1995.
<TABLE>
<CAPTION>
Statements of Financial Condition
---------------------------------
Assets 1995 1994
------ ---- ----
<S> <C> <C>
Cash .......................... $ 533,607 $ 244,486
Income taxes receivable ....... 4,621 4,357
Investment in subsidiary ...... 25,146,291 23,903,071
----------- -----------
$25,684,519 $24,151,914
=========== ===========
Liabilities and Shareholders' Equity
------------------------------------
Shareholders' equity .......... $25,684,519 $24,151,914
----------- -----------
$25,684,519 $24,151,914
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Statements of Earnings
----------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Operating expenses:
Management fees $ (140,004) $ (132,000) $ (132,000)
Applicable income tax benefit $ 55,456 52,285 52,286
---------- ---------- ----------
Loss before equity in
earnings of subsidiary (84,548) (79,715) (79,714)
Equity in earnings of subsidiary
including dividends of $900,000,
$900,000 and $750,000 2,047,660 1,903,404 1,969,530
---------- ---------- ----------
Net earnings $1,963,112 $1,823,689 $1,889,816
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Statements of Cash Flows
------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $1,963,112 $1,823,689 $1,889,816
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Income tax receivable applicable to
operations (55,456) (52,285) (52,286)
Payment from subsidiary for income
tax receivable 61,579 237,419 -
Increase in undistributed earnings of
subsidiary (1,147,660) (1,003,404) (1,219,528)
---------- ---------- ----------
Net cash provided by operating
activities 821,575 1,005,419 618,002
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock 52,500 - 40,000
Repurchase of common stock - (300,600) (278,623)
Payments of dividends to common
shareholders (584,954) (513,392) (475,636)
---------- ---------- ----------
Net cash used by financing
activities (532,454) (813,992) (714,259)
---------- ---------- ----------
Net increase in cash 289,121 191,427 (96,257)
Cash at beginning of year 244,486 53,059 149,316
---------- ---------- ----------
Cash at end of year $ 533,607 $ 244,486 $ 53,059
========== ========== ==========
</TABLE>
26
<PAGE>
WORKINGMENS
CAPITAL
HOLDINGS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(CONTINUED)
(14) FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures About
Fair Value of Financial Instruments (FAS No. 107) requires that WFSB
disclose estimated fair values for its financial instruments. Fair value
estimates, methods, and assumptions are set forth below for WFSB's
financial instruments.
Cash and Interest-Bearing Deposits
- ----------------------------------
The carrying amount of cash and interest-bearing deposits is a
reasonable estimate of fair value.
Investments and Mortgage-Backed Securities
- ------------------------------------------
The fair value of investments and mortgage-backed securities is
estimated based on bid prices published in financial newspapers or bid
quotations received from securities dealers.
Stock in FHLB of Indianapolis
- -----------------------------
Fair value of FHLB stock is based on the price at which it may be resold
to the FHLB of Indianapolis.
Loans Receivable
- ----------------
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type, such as owner-occupied
residential mortgage, non-owner-occupied residential mortgage,
construction, credit card, and other consumer. Each loan category is
further segmented into fixed- and adjustable-rate interest terms. The
fair value of loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining
maturities. For residential mortgage loans, contractual cash flows were
adjusted for prepayment estimates based on industry data.
Residential Loan Servicing
- --------------------------
Fair value of residential loan servicing is estimated based on sales of
similar portfolios adjusted for the characteristics of WFSB's
residential servicing portfolio.
Deposit Liabilities
- -------------------
The fair value of deposits with no stated maturity, such as savings, NOW
and money market accounts, is equal to the amount payable on demand as
of December 31, 1995. The fair value of certificates of deposit is based
on the discounted value of contractual cash flows using the rates
currently offered for deposits of similar remaining maturities.
FHLB Advances
- -------------
Rates available to WFSB at December 31, 1995, for FHLB advances with
similar terms and remaining maturities were used to estimate fair value
of existing FHLB advances.
27
<PAGE>
WORKINGMENS
CAPITAL
HOLDINGS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(CONTINUED)
The estimated fair values of financial instruments at December 31, 1995
and 1994, are as follows:
<TABLE>
1995 1994
---------------------------- ----------------------------
Carrying Estimated Carrying Estimated
Financial Instruments amount fair value amount fair value
- --------------------- ------------ ------------ ------------ ------------
Assets
- ------
<S> <C> <C> <C> <C>
Cash $ 1,297,780 $ 1,297,780 $ 918,123 $ 918,123
Interest-bearing deposits 3,231,181 3,231,181 1,287,171 1,287,171
Investment securities 3,165,453 3,201,275 4,541,177 4,481,251
Investment in mutual fund 3,893,547 3,893,547 3,801,131 3,801,131
Mortgage-backed securities 5,806,838 5,835,652 6,698,068 6,306,257
Stock in FHLB of
Indianapolis 1,758,200 1,758,200 1,632,600 1,632,600
Loans receivable, net 189,201,446 190,370,082 181,268,786 177,362,945
Residential loan servicing - 57,000 - 63,000
Loans held for sale 459,750 464,872 - -
Liabilities
- -----------
Deposits (152,144,187) (153,318,037) (149,352,703) (149,026,072)
FHLB advances (34,200,000) (35,455,102) (29,700,000) (28,448,500)
------------ ------------ ------------ ------------
22,470,008 $ 21,336,450 $ 21,094,353 $ 18,377,906
============ ============
Non-financial Instruments
- -------------------------
Assets 4,440,296 4,376,240
Liabilities (1,225,785) (1,318,679)
------------ ------------
Shareholders' equity $ 25,684,519 $ 24,151,914
============ ============
</TABLE>
The fair value estimates are made at a point in time based on relevant
market information and information about the financial instruments.
Because no market exists for a significant portion of WFSB's financial
instruments, fair value estimates are based on judgments regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and such other
factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot
be determined with precision. Changes in assumptions could significantly
affect the estimates.
The fair value estimates are based on existing financial instruments
without attempting to estimate the value of anticipated future business
and the value of assets and liabilities that are not considered
financial instruments.
28
<PAGE>
WORKINGMENS
CAPITAL
HOLDINGS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(CONTINUED)
(15) RECENT REGULATORY DEVELOPMENTS
The deposits of WFSB are presently insured by the Savings Association
Insurance Fund ("SAIF"), which together with the Bank Insurance Fund
("BIF"), which insures the deposits of commercial banks, are the two
deposit insurance funds administered by the Federal Deposit Insurance
Corporation ("FDIC"). On August 8, 1995, the FDIC revised the premium
schedule for BIF-insured banks to provide a range of .04% to .31% of
deposits (as compared to the former rate of .23% to .31% of deposits for
both BIF- and SAIF-insured institutions) in anticipation of the BIF
achieving its statutory reserve ratio. The lower premiums for BIF
members became effective in the third quarter of 1995 after FDIC
verification that the BIF had achieved the statutory reserve ratio on
June 30, 1995. As a result, BIF members generally will pay lower
premiums than the SAIF members.
The FDIC has indicated that the SAIF will not be adequately
recapitalized until 2002, absent a substantial increase in premium rates
or the imposition of special assessments. As a result of the disparity,
SAIF members could be placed at a significant, competitive disadvantage
to BIF members due to higher costs for deposit insurance. Proposed
legislation under consideration by the United States Congress provides
for a one-time assessment to be imposed on all deposits assessed at the
SAIF rates, as of March 31, 1995, in order to recapitalize the SAIF. The
special assessment rate is anticipated to be .75% to .85% of insured
deposits. If the legislation is enacted in its current form, it is
anticipated the assessment would be payable in the first calendar
quarter of 1996. Accordingly, this special assessment would
significantly increase non-interest expense and adversely affect the
WFSB's results of operations during 1996. Conversely, depending upon
WFSB's capital level and supervisory rating, and assuming, although
there can be no assurance, that the insurance premium levels for BIF and
SAIF members are again equalized, deposit insurance premiums could
decrease significantly in future periods.
29
<PAGE>
SHAREHOLDER
INFORMATION
Market Information
The common stock of Workingmens Capital Holdings, Inc. is traded on
the National Association of Securities Dealers Automated Quotation
System, National Market System, under the symbol "WCHI." WCHI's stock
appears in the Wall Street Journal under the abbreviation WorkmnCap. As
of March 1, 1996, there were 1,395 shareholders of record of WCHI's
Common Stock.
Transfer Agent and Registrar
Fifth Third Bank is WCHI's stock transfer agent and registrar. Fifth
Third Bank maintains WCHI's shareholder records. To change name, address
or ownership of stock, to report lost certificates, or to consolidate
accounts, contact:
Fifth Third Bank
Corporate Trust Operations
38 Fountain Square Plaza MD-1090F5
Cincinnati, OH 45202
(513) 579-5320 or (800) 837-2755
General Counsel
Barnes & Thornburg
1313 Merchants Bank Building
11 South Meridian Street
Indianapolis, Indiana 46204
Independent Auditor
KPMG Peat Marwick LLP
2400 First Indiana Plaza
135 North Pennsylvania Street
Indianapolis, Indiana 46204-2452
Shareholder & General Inquiries
WCHI is required to file an Annual Report on Form 10-K for its fiscal
year ended December 31, 1995 with the Securities and Exchange
Commission. Copies of this annual report may be obtained without charge
upon written request to:
Jane C. Thoma
Investor Relations
Workingmens Capital Holdings, Inc.
P.O. Box 2689
Bloomington, Indiana 47402-2689
(812) 332-9465
Office Location
121 East Kirkwood Avenue
Bloomington, Indiana 47408
(812) 332-9465
Branch Location
609 West Temperance
Ellettsville, Indiana 47429
(812) 876-6584
30
<PAGE>
DIRECTORS AND
OFFICERS
Directors
William E. Benckart has been a director of Stone Belt Freight Lines,
Inc. and East West Freight Brokers, Inc. since prior to 1988. In
December, 1991, he became Chairman of the Board of B&B Investments,
Inc., a motor carrier holding company.
Richard R. Haynes has been President of WCHI since its initial
organization in February, 1990. He has been employed by WFSB since 1961.
He served in various positions until 1984 when he was elected President
and Chief Operating Officer. In January, 1987, he was elected President
and Chief Executive Officer. Mr. Haynes was a director of the FHLB of
Indianapolis until January 1, 1992. Mr. Haynes has been active in both
the Savings and Loan League of Indiana and the U. S. League of Savings
Institutions, and is past Chairman of the Indiana League of Savings
Institutions. He also is active in community organizations and is past
President of the Bloomington Kiwanis Club and is a past member of the
Board of Directors of the Bloomington Chamber of Commerce. Mr. Haynes is
also a member of the appraisal institute MAI.
J. H. McCutchen was first employed by WFSB in 1946 and served as Chief
Executive Officer and President of WFSB from January, 1964 to January,
1984. From 1984 through 1986, Mr. McCutchen served as Chairman and Chief
Executive Officer. In 1987, he retired as Chief Executive Officer but
remained Chairman of its Board of Directors until January, 1990. Mr.
McCutchen has been Senior Vice President of One System, Inc. (an
annuities marketing firm) since January, 1991.
David Rogers was a partner in the Rogers & Jones law firm from 1955
until September, 1993, and is a former Indiana State Senator and past
President of the Monroe County Bar Association. Mr. Rogers currently
serves as an of-counsel with the law firm of Jones, McGlasson &
Benckart.
Robert H. Shaffer is Professor Emeritus of the schools of Business and
Education at Indiana University. Mr. Shaffer has served as an
educational consultant and lecturer in educational administration for
Indiana University since 1981. He became Chairman of the Board of WFSB
in January, 1990.
Joseph A. Walker has been Vice President/Treasurer of WCHI since
February, 1990. He has been employed by WFSB since 1975. He served as
Senior Vice President, Chief Financial Officer, and Secretary/Treasurer
from 1988 to January, 1996, when he became Chief Operating Officer,
Chief Financial Officer and Treasurer. Mr. Walker is a certified public
accountant.
Robert J. Wetnight has been a majority owner and manager of Bloomington
Paint & Wallpaper Co. since 1983.
WORKINGMENS CAPITAL
HOLDINGS, INC. WORKINGMENS FEDERAL SAVINGS BANK
Officers Officers
- -------- --------
RICHARD R. HAYNES RICHARD R. HAYNES JOHN E. FLEENER
President and Director President, Chief Executive Vice President
Officer and Director
JOSEPH A. WALKER MICHAEL S. POLLEY
Vice President/Treasurer JOSEPH A. WALKER Vice President
and Director Chief Operating Officer,
Chief Financial Officer, JANE C. THOMA
JERRY L. HAYS Treasurer and Director Assistant Vice President
Vice President/Secretary
JERRY L. HAYS JANET L. PATTERSON
R. WM. RICHARDSON, JR. Senior Vice President Assistant Vice President
Vice President and Secretary
STELLA M. BRUCE
R. WM. RICHARDSON, JR. Assistant Vice President
Senior Vice President
31
<PAGE>
APPENDIX D
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X]QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-18469
WORKINGMENS CAPITAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1791203
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
121 East Kirkwood Avenue, Bloomington, Indiana 47408
(Address of Principal Executive Offices)
(Zip Code)
(812) 332-9465
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES X NO _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of July 19, 1996:
Common Stock, without par value -- 1,808,560 shares outstanding
<PAGE>
WORKINGMENS CAPITAL HOLDINGS, INC.
FORM 10-Q
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Statements of Financial Condition
as of June 30, 1996 and December 31, 1995 .............. 1
Consolidated Statements of Earnings for the three months
and six months ended June 30, 1996 and 1995 ............ 2
Consolidated Statement of Shareholders' Equity
for the six months ended June 30, 1996 ................. 3
Consolidated Statements of Cash Flows for the six months
ended June 30, 1996 and 1995 ........................... 4
Notes to Consolidated Financial Statements ................ 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................. 6
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders ........ 9
Item 6. Exhibits and Reports on Form 8-K ........................... 9
Signatures .......................................................... 10
-i-
<PAGE>
WORKINGMENS CAPITAL HOLDINGS, INC.
AND SUBSIDIARY
Consolidated Statements of Financial Condition
(Unaudited and Dollars in Thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ -------------
Assets
<S> <C> <C>
Cash $1,002 $1,298
Interest-bearing deposits 2,021 3,231
Investment securities held to maturity 6,170 3,165
Investment in mutual fund available for sale 3,873 3,894
Mortgage-backed securities held to maturity 4,094 4,550
Mortgage-backed securities available for sale 1,137 1,256
Loans receivable 183,777 189,996
Less allowance for loan losses (376) (335)
-------- --------
Loans receivable, net 183,401 189,661
Accrued interest receivable:
Loans 1,109 1,052
Investment securities and interest-
bearing deposits 129 69
Mortgage-backed securities 36 39
Stock in FHLB of Indianapolis 1,838 1,758
Premises and equipment 1,362 1,371
Real estate owned - -
Prepaid expenses and other assets 2,031 1,910
-------- --------
Total Assets $208,203 $213,254
======== ========
Liabilities and Shareholders' Equity
Deposits $149,721 $152,141
FHLB advances 30,700 34,200
Advances by borrowers for taxes and insurance 311 422
Income taxes 183 89
Deferred income taxes 290 269
Accrued interest on deposits 53 61
Accrued expenses and other liabilities 486 387
Total Liabilities 181,744 187,569
-------- --------
Shareholders' Equity:
Preferred stock, no par value, 2,000,000
shares authorized, none issued - -
Common stock, no par value, shares authorized
of 5,000,000; shares issued and outstanding
of 1,808,560 and 1,777,920 8,341 8,066
Retained earnings - substantially restricted 18,262 17,722
Unrealized loss on securities available for sale (144) (103)
-------- --------
Total Shareholders' Equity 26,459 25,685
-------- --------
Total Liabilities and Shareholders' Equity $208,203 $213,254
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
-1-
<PAGE>
WORKINGMENS CAPITAL HOLDINGS, INC.
AND SUBSIDIARY
Consolidated Statements of Earnings
(Unaudited and Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ---------------------
1996 1995 1996 1995
Interest income:
<S> <C> <C> <C> <C>
Loans receivable $3,665 $3,663 $7,420 $7,245
Mortgage-backed securities 87 104 180 211
Investment securities 141 115 248 236
Interest-bearing deposits 82 61 167 108
Dividends from FHLB 34 34 69 65
----- ----- ----- -----
Total interest income 4,009 3,977 8,084 7,865
----- ----- ----- -----
Interest expense:
Deposits 2,031 2,008 4,105 3,912
FHLB advances 540 517 1,089 1,010
Other 3 2 7 4
Total interest expense 2,574 2,527 5,201 4,926
----- ----- ----- -----
Net interest income 1,435 1,450 2,883 2,939
Provision for loan losses 21 18 42 36
----- ----- ----- -----
Net interest income after
provision for loan losses 1,414 1,432 2,841 2,903
----- ----- ----- -----
Non-interest income:
Fees, service charges, and other 49 49 95 94
Commissions 4 4 20 22
Gain (loss) on sale of REO - 15 - 15
Gain (loss) on sale of loans 11 - 42 -
Gain (loss) on sale of investments - - - -
----- ----- ----- -----
Total non-interest income 64 68 157 131
----- ----- ----- -----
Non-interest expense:
Compensation and employee benefits 354 336 717 675
Occupancy and equipment 86 82 174 165
Federal deposit insurance premium 87 85 174 170
Merger related expenses 71 - 75 -
Other 167 173 385 375
----- ----- ----- -----
Total non-interest expense 765 676 1,525 1,385
----- ----- ----- -----
Earnings before income taxes 713 824 1,473 1,649
Income taxes 309 319 610 639
----- ----- ----- -----
Net earnings $404 $505 $863 $1,010
===== ===== ===== =====
Earnings per common share $0.22 $0.29 $0.48 $0.57
===== ===== ===== =====
Dividends per common share $0.09 $0.08 $0.18 $0.16
===== ===== ===== =====
Weighted average number of
common shares outstanding 1,807,219 1,767,420 1,793,215 1,767,420
</TABLE>
See Notes to Consolidated Financial Statements
-2-
<PAGE>
WORKINGMENS CAPITAL HOLDINGS, INC.
AND SUBSIDIARY
Consolidated Statement of Shareholders' Equity
(Unaudited and Dollars in Thousands)
Six Months ended June 30, 1996
<TABLE>
<CAPTION>
Net unrealized
depreciation
Number of on securities Total
Shares Common Retained available Shareholders'
Outstanding Stock Earnings for sale Equity
----------- ------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period 1,777,920 $8,066 $17,722 $(103) $25,685
Net earnings for the period 863 863
Dividends ($0.18 per share) (323) (323)
Issuance of shares of common
stock at $5.00 per share 30,640 153 153
Tax benefit of stock
options exercised 122 122
Change in net unrealized
depreciation on securities (41) (41)
--------- ------ ------- ----- -------
Balance at end of period 1,808,560 $8,341 $18,262 $(144) $26,459
========= ====== ======= ===== =======
</TABLE>
See Notes to Consolidated Financial Statements
-3-
<PAGE>
WORKINGMENS CAPITAL HOLDINGS, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited and Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30
------------------
1996 1995
------ -------
Cash flows from operating activities:
<S> <C> <C>
Net earnings $863 $1,010
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Provision for loan losses 42 36
Depreciation 62 66
Deferred Federal income taxes 35 43
Amortization of premiums (discounts), net 19 30
Net (gain) loss on sale of investments - -
Net (gain) loss on sale of REO - (15)
(Increase) decrease in loans held for sale 360 -
(Increase) decrease in other assets (234) (201)
Increase (decrease) in other liabilities 306 52
------ ------
Net cash provided by operating activities 1,453 1,021
------ ------
Cash flows from investing activities:
Proceeds from maturity of investment securities - 3,000
Purchase of investment securities (3,095) (1,125)
Loans funded net of collections 5,859 (2,916)
Proceeds from sale of REO - 135
Mortgage insurance collected on REO - 12
Proceeds from sale of mortgage-backed securities - -
Principal collected on mortgage-backed securities 532 426
Purchase of mortgage-backed securities -
Purchases of premises and equipment (54) (71)
------ ------
Net cash provided (used) by investing activities 3,242 (539)
------ ------
Cash flows from financing activities:
Net increase in deposits (2,420) 5,284
Proceeds from issuance of common stock 153 -
Repurchase of common stock - -
Payments of dividends to common shareholders (323) (282)
Repayments of FHLB Advances (3,500) (10,500)
Borrowings of FHLB advances - 9,500
Increase in advances by borrowers
for taxes and insurance (111) 7
------ ------
Net cash provided (used) by financing activities (6,201) 4,009
------ ------
Net increase (decrease) in cash and cash equivalents (1,506) 4,491
Cash and cash equivalents at beginning of period 4,529 2,205
------ ------
Cash and cash equivalents at end of period $3,023 $6,696
====== ======
Supplemental disclosure of cash flow information:
Interest paid $5,214 $4,916
Income taxes paid $359 $562
</TABLE>
See Notes to Consolidated Financial Statements
-4-
<PAGE>
WORKINGMENS CAPITAL HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1 - Basis of Presentation
The consolidated financial statements include the accounts of Workingmens
Capital Holdings, Inc. ("WCHI") and its subsidiary. The only direct subsidiary
of WCHI is Workingmens Federal Savings Bank ("WFSB"). A summary of WCHI's
significant accounting policies is set forth in Note 1 of Notes to Consolidated
Financial Statements of WCHI's 1995 Shareholder Annual Report.
The consolidated interim financial statements have been prepared in accordance
with instructions to Form 10-Q, and, therefore, do not include all information
and footnotes normally shown for full annual financial statements.
The consolidated interim financial statements at June 30, 1996 and for the three
months and six months ended June 30, 1996 and 1995 are unaudited, but reflect,
in the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flows, and changes in shareholders' equity for
such periods.
Earnings per share is computed by dividing net earnings by the average number of
shares of common stock outstanding during the period. The effects of the
outstanding stock options (for 36,980 shares) are dilutive by less than three
percent.
-5-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
(a) Results of Operations:
Three months ended June 30, 1996 compared to three months ended June 30, 1995:
The net earnings for the three months ended June 30, 1996, were $404,000
compared to $505,000 for the three months ended June 30, 1995, a decrease of
$101,000 or 20.0%.
Net interest income after provision for loan losses decreased $18,000, or
1.3%, from $1,432,000 for the three months ended June 30, 1995, to $1,414,000
for the same period in 1996. Total interest income for the three months ended
June 30, 1996 increased $32,000 compared to the three months ended June 30,
1995. The overall increase in total interest income is attributable to an
increase in volume in excess of a slight decline in interest rates. Total
interest expense for the three months ended June 30, 1996 increased $47,000
compared to the three months ended June 30, 1995. The increase in total interest
expense is attributable both to slight increases in volume and in interest
rates. The interest rate spread for the three months ended June 30, 1996, of
2.11% was down eleven basis points compared to 2.22% for the three months ended
June 30, 1995.
Total non-interest income for the three months ended June 30, 1996, was
$64,000, a decrease of $4,000, or 5.9%, from $68,000 for the three months ended
June 30, 1995. The decrease was due to a $15,000 decrease in gain on the sale of
REO, offset by an $11,000 increase in gain on the sale of loans.
Total non-interest expense for the three months ended June 30, 1996, was
$765,000, an increase of $89,000, or 13.2%, from $676,000 for the three months
ended June 30, 1995. The increase was due to increases in salaries and benefits
of $18,000 and merger related expenses of $71,000. The increase in salaries and
benefits was due to normal annual salary increases as well as the increase in
costs of employee benefits. The merger related expenses were due to cost
incurred in connection with the merger with Old National Bancorp which will be
accounted for under the pooling-of-interests method. The merger is expected to
be completed in the fourth quarter of 1996.
Income taxes decreased $10,000, or 3.1%, from $319,000 for the three months
ended June 30, 1995, to $309,000 for the same period in 1996 due to decreased
taxable income.
Six months ended June 30, 1996 compared to six months ended June 30, 1995:
The net earnings for the six months ended June 30, 1996, were $863,000
compared with $1,010,000 for the six months ended June 30, 1995, a decrease of
$147,000 or 14.6%.
Net interest income after provision for loan losses decreased $62,000, or
2.1%, from $2,903,000 for the six months ended June 30, 1995, to $2,841,000 for
the same period in 1996. Total interest income increased $219,000, or 2.8%, from
$7,865,000 for the six months ended June 30, 1995, to $8,084,000 for the same
period in 1996. The overall increase in total interest income is attributable to
increases in volume and in interest rates. Total interest expense increased
$275,000, or 5.6%, from $4,926,000 for the six months ended June 30, 1995, to
$5,201,000 for the same period in 1996. The increase in total interest expense
is attributable to increases in volume and in interest rates. The interest rate
spread for the six months ended June 30, 1996, of 2.12% was down sixteen basis
points compared to 2.28% for the six months ended June 30, 1995.
Total non-interest income for the six months ended June 30, 1996, was
$157,000, an increase of $26,000, or 19.8%, from $131,000 for the six months
ended June 30, 1995. The increase was due primarily to an increase of $42,000 in
gain on the sale of loans, offset by an decrease of $15,000 in gain on the sale
of REO.
-6-
<PAGE>
Total non-interest expense for the six months ended June 30, 1996, was
$1,525,000, an increase of $140,000, or 10.1%, from $1,385,000 for the six
months ended June 30, 1995. The increase was primarily due to an increase in
compensation and employee benefits of $42,000 and an increase of $75,000 in
merger related expenses. The increase in compensation and employee benefits was
due to normal annual salary increases as well as the increase in costs of
employee benefits. The merger related expenses were due to cost incurred in
connection with the merger with Old National Bancorp which will be accounted for
under the pooling-of-interests method. The merger is expected to be completed in
the fourth quarter of 1996.
Income taxes decreased $29,000, or 4.5%, from $639,000 for the six months
ended June 30, 1995, to $610,000 for the same period in 1996 due to decreased
taxable income.
(b) Financial Condition:
WCHI's total assets decreased $5.1 million, or 2.4%, to $208.2 million at
June 30, 1996, from $213.3 million at December 31, 1995. Cash, interest bearing
deposits, investment securities, and investment in mutual fund increased $1.5
million, or 12.8%, to $13.1 million at June 30, 1996, from $11.6 million at
December 31, 1995. Loans receivable, net, decreased $6.3 million, or 3.3%, to
$183.4 million at June 30, 1996, from $189.7 million at December 31, 1995.
During the first six months a substantial number of loans originated were
fixed-rate loans which WFSB sold. The cash generated was invested in
interest-bearing deposits. Mortgage-backed securities decreased $575,000, or
9.9%, to $5.2 million at June 30, 1996, from $5.8 million at December 31, 1995.
Deposits decreased $2.4 million, or 1.6%, to $149.7 million at June 30,
1996. FHLB advances decreased $3.5 million, or 10.2%, to $30.7 million at June
30, 1996, from $34.2 million at December 31, 1995, due to repayments of maturing
advances.
WCHI's shareholders' equity increased $774,000, or 3.0%, to $26.5 million at
June 30, 1996, from $25.7 million at December 31, 1995. The increase was
attributable to current period earnings of $863,000 reduced by $323,000 of cash
dividends paid. Additionally, shareholders' equity increased $153,000 from
proceeds from the exercise of stock options and $122,000 from the income tax
benefit of stock options exercised, while the change in net unrealized
depreciation on securities available for sale was a reduction of $41,000.
(c) Liquidity and Capital Resources:
The standard measure of liquidity for savings associations is the ratio of
cash and eligible investments to a certain percentage of net withdrawable
savings and borrowings due within one year. The minimum required ratio is
currently set by the OTS regulation at 5%, of which 1% must be comprised of
short-term investments (i.e., generally with a term of less than one year). At
June 30, 1996, WCHI's liquidity ratio was 7.09%, of which 3.63% was comprised of
short-term investments, each of which is above the regulatory requirement.
Borrowings may be used to compensate for reductions in other sources of
funds such as deposits and to assist in asset liability management. As a member
of the FHLB system, WFSB may borrow from the FHLB of Indianapolis. At June 30,
1996, WFSB had $30.7 million in borrowings from the FHLB of Indianapolis, and
could have borrowed an additional $6.0 million from the FHLB of Indianapolis as
of that date. These borrowings were made to assist WFSB in its asset liability
management and to strengthen WFSB's liquidity position. As of that date, WFSB
had commitments to fund loan originations of approximately $4.8 million, of
which 43.4% were adjustable rate and 56.6% were fixed rate. In the opinion of
management, WFSB has sufficient cash flow and borrowing capacity to meet current
and anticipated funding commitments.
-7-
<PAGE>
At June 30, 1996, based on the capital standards then in effect, WFSB was in
compliance with the capital requirements mandated by applicable law.
The following is a summary of WFSB's regulatory capital and capital
requirements at June 30, 1996:
Tangible Core Risk-based
capital capital capital
----------- ----------- -----------
Regulatory capital $25,180,000 $25,180,000 $25,556,000
Minimum capital requirement 3,122,000 6,245,000 9,486,000
----------- ----------- -----------
Excess capital $22,058,000 $18,935,000 $16,070,000
=========== =========== ===========
Regulatory capital ratio 12.1% 12.1% 21.6%
=========== =========== ===========
(d) Supplemental Data:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -----------------
1996 1995 1996 1995
---- ---- ---- -----
<S> <C> <C> <C> <C>
Interest rate spread ..................... 2.11% 2.22% 2.12% 2.28%
Net yield on interest-earning assets ..... 2.78% 2.86% 2.79% 2.90%
Return on average assets ................. 0.77% 0.98% 0.82% 0.98%
Return on average equity ................. 6.12% 8.13% 6.60% 8.20%
</TABLE>
At June 30,
----------------------
1996 1995
------- --------
Non-performing assets to total assets .... 0.32% 0.12%
Book value per share ..................... $14.63 $14.12
-8-
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On April 16, 1996, WCHI held its annual meeting of shareholders, the
results of which follow:
Report of proxies received and shares voted April 16, 1996.
Total Voted % of Total
--------- --------- ----------
Number of shares 1,778,480 1,588,886 89.34%
Election of Directors
<TABLE>
<CAPTION>
Director Expiration of Against or Broker
Nominees Term as Director For Withheld Abstain Non-votes
- ------------------ ---------------- --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Richard R. Haynes 1999 1,574,031 14,855 -0- -0-
J. H. McCutchen 1999 1,568,031 20,855 -0- -0-
David Rogers 1999 1,569,831 19,055 -0- -0-
Directors
Continuing in Office
Robert H. Shaffer 1997
Joseph A. Walker 1997
William E. Benckart 1998
Robert J. Wetnight 1998
</TABLE>
Approval and ratification of the appointment of KPMG Peat Marwick as
auditors for the year ending December 31, 1996.
Against or Broker
For Withheld Abstain Non-votes
---------- -------- ------- ---------
1,564,487 7,012 17,387 -0-
Item 6. Exhibits and Reports on Form 8-K
a) Not applicable.
b) The Registrant filed a Form 8-K dated April 8, 1996 which disclosed
an Agreement of Affiliation and Merger among Old National Bancorp,
ONB Bank, Workingmens Capital Holdings, Inc., and Workingmens
Federal Savings Bank.
-9-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
DATE: July 19, 1996 /s/ Richard R. Haynes
---------------------------------
Richard R. Haynes, President
DATE: July 19, 1996 /s/ Joseph A. Walker
---------------------------------
Joseph A. Walker, Vice President/
Treasurer
-10-
