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Filed pursuant to 424(b)(3)
SEC File No. 333-94459
HERITAGE BANK LOGO FOR LETTERHEAD
The Board of Directors of Old National Bancorp and Heritage Financial
Services, Inc. have agreed that Old National will acquire Heritage in a merger.
Your Board of Directors enthusiastically supports the proposed merger between
Old National and Heritage and believes that the merger is in the best interests
of Heritage as a whole, including the interests of shareholders, customers and
employees of Heritage. The merger will allow the subsidiaries of Heritage to
offer more products and services to their customers.
If the merger is approved by the shareholders of Heritage and all other
closing conditions are satisfied, you will receive 3.3075 shares of Old National
common stock, as adjusted for the 5% stock dividend declared by Old National on
December 9, 1999, for each share of Heritage common stock you own on the date
the merger is completed. If this exchange results in you owning a fractional
share of Old National common stock, Old National will pay you cash for the
fractional share. Old National's common stock is traded on the Nasdaq National
Market System under the symbol "OLDB."
Heritage's financial advisor, Professional Bank Services, Inc., has issued
its opinion to the Board of Directors of Heritage that the 3.3075 exchange ratio
in the proposed merger is fair, from a financial point of view, to Hertiage's
shareholders. Your Board of Directors unanimously approved the merger agreement
and recommends that the shareholders of Heritage approve it. The merger cannot
be completed unless the holders of at least a majority of the outstanding shares
of Heritage approve it. The special meeting of Heritage shareholders to vote on
the merger will be held on:
Monday, February 28, 2000
1:00 p.m., local time
Heritage Bank
25 Jefferson Street
Clarksville, Tennessee 37040
Your vote is very important. Whether or not you plan to attend the special
meeting, please take the time to vote by completing and mailing the enclosed
proxy card to us. This document provides you with detailed information about the
meeting and the merger. We encourage you to read this entire document carefully.
Sincerely
EARL O. BRADLEY SIGNATURE
Earl O. Bradley, III
President and CEO
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OF THE SECURITIES TO BE ISSUED UNDER THIS PROXY
STATEMENT-PROSPECTUS OR DETERMINED IF THIS PROXY STATEMENT-PROSPECTUS IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SHARES OF OLD NATIONAL COMMON STOCK ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER
OBLIGATIONS OF ANY BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
---------------------
THE DATE OF THIS PROXY STATEMENT-PROSPECTUS IS JANUARY 28, 2000
AND IS BEING MAILED TO HERITAGE SHAREHOLDERS ON THE SAME DATE.
ADDRESS FOR HERITAGE BANK LETTERHEAD
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HERITAGE FINANCIAL SERVICES, INC.
25 JEFFERSON STREET
CLARKSVILLE, TENNESSEE 37041-1348
(931) 553-0500
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 28, 2000
To Our Shareholders:
We will hold a special meeting of shareholders of Heritage Financial
Services, Inc. on:
Monday, February 28, 2000
1:00 p.m., local time
Heritage Bank
25 Jefferson Street
Clarksville, Tennessee 37040
The purposes of the special meeting are:
1. To consider and vote upon the Agreement of Affiliation and Merger, dated as
of September 8, 1999, by and between Old National Bancorp and Heritage,
pursuant to which Heritage will merge with Old National. Under the terms of
the merger agreement, each outstanding share of Heritage common stock will be
converted into the right to receive 3.3075 shares of Old National common
stock, as adjusted for the 5% stock dividend declared by Old National on
December 9, 1999, and subject to adjustment, as described in the merger
agreement. The merger agreement, which describes the terms of the merger in
great detail, is attached as Appendix A to the accompanying Proxy
Statement-Prospectus; and
2. To transact such other business which may properly be presented at the
special meeting or any adjournment thereof.
We have fixed the close of business on January 26, 2000 as the record date
for determining those shareholders who are entitled to notice of, and to vote
at, the special meeting and any adjournment or postponement of it. Approval and
adoption of the merger agreement requires the affirmative vote of the holders of
at least the majority of the outstanding shares of Heritage common stock.
Please do not send your stock certificates at this time. If the merger is
completed, we will send you instructions regarding the surrender of your stock
certificates.
BY ORDER OF THE BOARD OF DIRECTORS
John T. Halliburton
Secretary
January 28, 2000
DISSENTING SHAREHOLDERS WHO COMPLY WITH THE PROCEDURES REQUIRED BY THE TENNESSEE
BUSINESS CORPORATION ACT WILL BE ENTITLED TO RECEIVE PAYMENT OF THE FAIR CASH
VALUE OF THEIR SHARES. WE HAVE ATTACHED A COPY OF THIS LAW AS AN APPENDIX TO THE
ACCOMPANYING PROXY STATEMENT-PROSPECTUS. HERITAGE SHAREHOLDERS CONSIDERING THE
EXERCISE OF THEIR DISSENTERS' RIGHTS SHOULD CAREFULLY REVIEW THESE MATERIALS AND
INFORMATION BEFORE VOTING AT THE SPECIAL MEETING.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
APPROVAL OF THE MERGER AGREEMENT.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU
ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE
PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Questions and Answers About the Heritage/Old National
Merger.................................................... iii
Summary..................................................... 1
The Parties to the Merger................................. 1
The Merger................................................ 1
Interests of Certain Persons in the Merger................ 3
Special Shareholders' Meeting............................. 4
Comparative Per Share Market Price Information............ 5
Recent Developments....................................... 5
Comparative Per Share Data................................ 6
Summary of Selected Financial Data -- Old National.......... 7
Summary of Selected Financial Data -- Heritage.............. 9
Special Meeting............................................. 11
General................................................... 11
Matters to be Considered.................................. 11
Proxies................................................... 11
Solicitation of Proxies................................... 11
Record Date and Voting Rights............................. 11
Recommendation of Heritage Board of Directors............. 12
Proposed Merger............................................. 12
General................................................... 12
Description of the Merger................................. 13
Background of the Merger.................................. 13
Reasons for the Merger.................................... 14
Fairness Opinion of Heritage's Financial Advisor.......... 15
Recommendation of the Heritage Board of Directors......... 19
Conversion of Heritage Common Stock....................... 19
Treatment of Heritage Stock Options....................... 19
Exchange of Certificates; Fractional Shares............... 20
Dissenters' Rights........................................ 20
Resale of Old National Common Stock by Affiliates of
Heritage............................................... 23
Conditions to the Completion of the Merger................ 24
Break-up Fee.............................................. 24
Termination of the Merger Agreement....................... 24
Restrictions Affecting Heritage........................... 26
Regulatory Approvals Required for the Merger.............. 27
Accounting Treatment for the Merger....................... 28
Effective Time............................................ 29
Management, Personnel and Employee Benefits After the
Merger................................................. 29
Employment Agreements..................................... 31
Indemnification; Directors' and Officers' Liability
Insurance.............................................. 32
Federal Income Tax Consequences............................. 33
Tax Opinion............................................... 33
Tax Consequences to Old National and Heritage............. 33
Tax Consequences to Heritage Shareholders................. 33
Comparative Per Share Data.................................. 34
Nature of Trading Market.................................. 34
Dividends................................................. 35
Existing and Pro Forma Per Share Information.............. 36
Pro Forma Condensed Combined Financial Information.......... 38
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Notes to Pro Forma Condensed Combined Financial
Information............................................... 44
Description of Old National................................. 45
Overview.................................................. 45
Supervision and Regulation................................ 45
Recent Developments....................................... 46
Incorporation of Certain Information by Reference......... 46
Description of Heritage..................................... 46
Business.................................................. 46
Incorporation of Certain Information by Reference......... 47
Comparison of Common Stock.................................. 47
Authorized But Unissued Shares............................ 47
Preemptive Rights......................................... 48
Dividend Rights........................................... 48
Voting Rights............................................. 49
Dissenters' Rights........................................ 49
Liquidation Rights........................................ 50
Redemption and Assessment................................. 50
Anti-Takeover Provisions.................................. 51
Director Liability........................................ 54
Director Nominations...................................... 54
Legal Opinions.............................................. 55
Experts..................................................... 55
Other Matters............................................... 55
Forward-Looking Statements.................................. 55
Where You Can Find More Information......................... 56
APPENDIX A.................................................. A-1
APPENDIX B.................................................. B-1
APPENDIX C.................................................. C-1
</TABLE>
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QUESTIONS AND ANSWERS ABOUT THE HERITAGE/OLD NATIONAL MERGER
Q: WHAT DO I NEED TO DO NOW?
A: After you carefully read this document, indicate on your proxy card how you
want to vote, sign it and mail it in the enclosed envelope as soon as
possible. The instructions on the accompanying proxy card will give you
more information on how to vote by mail. This will enable your shares to be
represented at the Heritage special meeting.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will not be able to vote your shares without instructions from
you. You should instruct your broker to vote your shares, following the
directions your broker provides. Your failure to instruct your broker to
vote your shares will result in your shares not being voted. If you fail to
return a proxy card or abstain from voting, the effect will be a vote
against the merger.
Q: CAN I CHANGE MY VOTE AFTER I SUBMIT MY PROXY WITH VOTING INSTRUCTIONS?
A: Yes. There are three ways you can change your vote. First, you may send a
written notice to the person to whom you submitted your proxy stating that
you would like to revoke your proxy. Second, you may complete and submit a
new proxy card by mail or submit your proxy with new voting instructions.
Your shares will be voted in accordance with the latest proxy actually
received by Heritage prior to the shareholders' meeting. Any earlier
proxies will be revoked. Third, you may attend the Heritage special
meeting, and vote in person. Any earlier proxies will be revoked. Simply
attending the meeting without voting, however, will not revoke your proxy.
If you have instructed a broker to vote your shares, you must follow
directions you will receive from your broker to change or revoke your
proxy.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. You should not send in your stock certificates at this time.
Heritage shareholders will exchange their Heritage common stock
certificates for Old National common stock certificates after Old National
and Heritage complete the merger. Old National will send you instructions
for exchanging your Heritage common stock certificates promptly after the
merger is completed.
Q: WHAT IS THE "EXCHANGE RATIO?"
A: The exchange ratio is the number of shares of Old National common stock
into which each share of Heritage common stock will be converted when the
merger is completed. The exchange ratio is 3.3075 shares of Old National
common stock for each share of Heritage common stock. Please note that the
share price of Old National common stock may fluctuate before and after the
merger is completed. As a result of the exchange ratio being fixed, you
will not be sure of the market value of the Old National common stock you
will receive until the time the merger is completed.
Q: WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER?
A: For U.S. federal income tax purposes, the conversion of your Heritage
common stock into Old National common stock will not cause you to recognize
any gain or loss. You will, however, recognize gain or loss in connection
with any cash received for fractional shares of Old National common stock.
Your tax basis for the Old National common stock received in the merger,
including the fractional shares you are deemed to have received and then
are redeemed for cash, will be the same as the tax basis for your Heritage
common stock and your holding period for the Old National common stock
received in the merger, including the fractional shares you are deemed to
have received and then are redeemed for cash, generally, will include the
holding period of your Heritage common stock exchanged in the merger. For a
more complete description of federal income tax considerations, see page
33.
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This tax treatment may not apply to certain Heritage shareholders,
including shareholders who are non-U.S. persons or dealers in securities.
Determining the actual tax consequences of the merger to you may be
complex. The tax consequences will depend on your specific situation and on
variables not within your control. You should consult your own tax advisor
for a full understanding of the merger's tax consequences.
Q: WHAT OTHER MATTERS WILL BE VOTED ON AT THE MEETING?
A: Heritage does not expect that any matter other than the merger will be
voted on at the meeting.
Q: WILL MY SHAREHOLDER RIGHTS CHANGE AS A RESULT OF THE MERGER?
A: Yes. Currently, your rights as a Heritage shareholder are governed by
Heritage's Charter and ByLaws. Old National shareholder rights are governed
by Old National's Articles of Incorporation and By-Laws. After the merger,
you will become an Old National shareholder, and therefore your rights will
be governed by Old National's Articles of Incorporation and By-Laws. For a
summary of some of the differences between the rights of Heritage
shareholders and the rights of Old National shareholders, see page 47.
Q: WHOM SHOULD I CALL WITH QUESTIONS?
A: You should call John T. Halliburton, Secretary of Heritage, at (931)
553-0500.
iv
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SUMMARY
This summary highlights some of the information contained in this document.
Because this is a summary, it does not contain all the information that may be
important to you. To understand the merger fully and for a more complete
description of the legal terms of the merger, you should read carefully this
entire document and the documents to which we have referred you.
THE PARTIES TO THE MERGER
OLD NATIONAL BANCORP
420 Main Street
Evansville, Indiana 47708
(812) 464-1434
Old National is a bank holding company, incorporated under Indiana law and
headquartered in Evansville, Indiana. Through its full-service banking
subsidiaries Old National operates a general banking business from 119 banking
offices and 174 ATM locations located throughout Indiana, Illinois and Kentucky.
In addition, Old National provides trust services and other financial services
through additional subsidiaries. At September 30, 1999, on a consolidated basis,
Old National had assets of approximately $6.963 billion, deposits of
approximately $5.025 billion, and shareholders' equity of approximately $514.9
million. Old National's common stock is traded on the Nasdaq National Market
under the symbol "OLDB."
HERITAGE FINANCIAL SERVICES, INC.
25 Jefferson Street
Clarksville, Tennessee 37041-1348
(931) 553-0500
Heritage is a bank holding company, incorporated under Tennessee law and
headquartered in Clarksville, Tennessee. Heritage owns and operates one
affiliate bank, an investment brokerage services provider, an insurance company,
a finance company and an investment corporation, each located in Tennessee. At
September 30, 1999, Heritage, on a consolidated basis, had assets of
approximately $234.03 million, deposits of approximately $198.86 million and
shareholders' equity of approximately $18.94 million. Heritage's common stock is
not traded on a national exchange system.
THE MERGER
Description of the merger. We propose a merger in which Heritage will merge
with Old National, and Old National will survive the merger. Old National will
issue shares of its common stock to shareholders of Heritage in exchange for
their shares of Heritage common stock.
Recommendation of the Board of Directors of Heritage. The Board of
Directors of Heritage believes that the merger is in the best interests of
Heritage as a whole, including your interests, and unanimously recommends that
you vote "FOR" the proposal to approve the merger. See "Special Meeting --
Recommendation of the Heritage Board of Directors" on page 12.
Heritage shareholders will receive Old National common stock in the
merger. If the merger is completed, you will have the right to receive 3.3075
shares of Old National common stock for each share of Heritage common stock that
you own as of the effective time of the merger. Because the number of shares of
common stock of Old National that you will receive in the merger is fixed at
3.3075, subject to adjustments that will not decrease the economic value of the
exchange ratio, the value of the shares of Old National common stock you will
receive in the merger will fluctuate as the price of Old National common stock
changes. Based upon the closing price of Old National common stock on The Nasdaq
National Market on January 24, 2000, the market value of shares of Old National
common stock you will receive in the merger would be $96.12 per share of
Heritage common stock.
You will have to surrender your Heritage common stock certificates to
receive new stock certificates representing Old National common stock. This will
not be necessary, however, until you receive written
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instructions after we complete the merger. See "Proposed Merger -- Conversion of
Heritage Common Stock" on page 19 and "Proposed Merger -- Exchange of
Certificates; Fractional Shares" on page 20.
Payments of dividends on shares of Heritage common stock. After the merger
becomes effective, your stock certificates for shares of Heritage common stock
will represent only the right to receive shares of Old National common stock and
cash for fractional shares. You will not receive payments of dividends declared
on shares of Old National common stock until you surrender your Heritage common
stock certificates to receive new stock certificates representing Old National
common stock.
Old National will not issue fractional shares. Old National will not issue
any fractional shares of its common stock as a result of the exchange ratio.
Instead, you will receive the value of any fractional share in cash, based upon
the market value of Old National's common stock.
Merger generally tax-free for Heritage shareholders. Heritage and Old
National expect that your exchange of shares of Heritage common stock for shares
of Old National common stock generally will not cause you to recognize any gain
or loss for U.S. federal income tax purposes. You will, however, have to
recognize income or gain for any cash received instead of fractional shares. The
expected material federal income tax consequences are set out in greater detail
on page 33.
Old National and Heritage will not be obligated to complete the merger
unless they receive legal opinions, dated as of the closing date, from their
respective legal counsel that the merger will be treated as a transaction of a
type that is generally tax-free for U.S. federal income tax purposes. In that
case, the U.S. federal income tax treatment of the merger will be as described
above. However, these legal opinions will not bind the Internal Revenue Service,
which could take a different view.
Tax matters are very complicated, and the tax consequences of the merger to
you will depend on the facts of your own situation. Old National and Heritage
urge you to consult with your tax advisor for a full understanding of the tax
consequences of the merger to you.
Dissenters' rights. Heritage shareholders have the right, under Chapter 23
of the Tennessee Business Corporation Act, to dissent from the merger. Certain
specific procedures must be followed to dissent from the merger. A Heritage
shareholder who complies with the required procedures will not receive Old
National common stock in the merger. Instead, if the merger is completed, a
dissenting shareholder will be entitled to demand payment of the fair cash value
of his Heritage shares. A copy of Chapter 23 of the Tennessee Business
Corporation Act ("TBCA") is attached as Appendix C to this proxy statement-
prospectus. See "Dissenter's Rights" on page 20.
Our reasons for the merger. Heritage and Old National are proposing to
merge because they believe that by combining the companies they can create a
stronger and more diversified company that will provide significant benefits to
Heritage's shareholders and customers. The Board of Directors of Heritage
believes that by bringing its customers and banking products together with those
of Old National, the companies can do a better job of growing their combined
revenue than if they did not merge. The Heritage Board of Directors also
believes that in the rapidly changing environment of the banking industry,
Heritage's long-term goal of enhancing shareholder value will be reached by
merging with Old National. You can find a more detailed discussion of the
background to the merger agreement and Heritage's and Old National's reasons for
the merger under "Proposed Merger -- Reasons for the Merger" on page 14.
Heritage's financial advisor believes the exchange ratio is fair, from a
financial point of view, to Heritage's shareholders. Among other factors
considered in deciding to approve the merger, the Heritage Board of Directors
received the oral opinion of its financial advisor, Professional Bank Services,
Inc., that, as of September 8, 1999, the exchange ratio was fair to the holders
of Heritage common stock from a financial point of view. Heritage has received a
written opinion from Professional Bank Services dated as of the date of this
document. The opinion is attached to this document as Appendix B. You should
read this opinion completely to understand the assumptions made, matters
considered and limitations of the review undertaken by Professional Bank
Services, Inc. See "Proposed Merger -- Fairness Opinion of Heritage's Financial
Advisor" on page 15.
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Conditions to completion of the merger. The completion of the merger
depends on a number of conditions being met. Some of the conditions are:
- The merger agreement is approved by the holders of at least a majority of
the outstanding shares of Heritage common stock.
- Regulatory approvals required under federal and state banking laws are
received and the waiting periods have expired.
- Old National has received a letter from its independent auditors stating
its opinion that the merger will qualify for pooling of interests
accounting treatment.
See "Proposed Merger -- Conditions to Completion of the Merger" on page 24.
We may decide not to complete the merger. Old National and Heritage can
agree at any time to not complete the merger, even if the shareholders of
Heritage have approved it. Also, either party can decide, without the consent of
the other, to terminate the merger agreement if, among other reasons:
- The other party breaches any representation or any warranty contained in
the merger agreement.
- The other party breaches any covenant contained in the merger agreement.
- Certain claims, proceedings or litigation are commenced or threatened.
- Old National experiences a material adverse change in financial condition
from March 31, 1999.
- Heritage experiences a material adverse change in financial condition
from September 8, 1999.
- The merger is not completed by June 30, 2000.
Additionally, Heritage may terminate the merger agreement if the price of
Old National common stock fluctuates sufficiently to cause the merger to no
longer be in the best interests of Heritage as a whole, including its
shareholders. If this occurs, Old National has the right to change the exchange
ratio. This right to terminate is based upon a complex formula that compares any
decrease in the value of Old National common stock to the change in value of an
index of bank stocks.
This formula provides that before Heritage may terminate the merger because
of a decline in the value of Old National common stock, the value of Old
National's common stock must have declined by approximately 20% since the
signing of the merger agreement and Old National's stock is valued approximately
15% less than the Nasdaq Bank Index during the period for valuing the stock.
Assuming the last regulatory approval was received on the date of this document,
Heritage would not have the right to terminate the merger agreement on the basis
of the price of Old National's common stock. See "Proposed Merger -- Termination
of the Merger Agreement" on page 24.
Effective time of the merger. Old National and Heritage anticipate that the
merger will be completed in February 2000. See "Proposed Merger -- Effective
Time" on page 29.
Comparative shareholder rights. If the merger is completed, you will become
a shareholder of Old National. As a result, your rights as a shareholder, which
are now governed by the Charter and By-laws of Heritage, will be governed by Old
National's Articles of Incorporation and By-laws. Additionally, Old National is
an Indiana corporation. Therefore, your rights as a shareholder will then be
governed by Indiana law. See "Comparison of Common Stock" on page 47.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Interest of Mr. Earl O. Bradley. Old National and Earl O. Bradley entered
into an employment agreement which provides for Mr. Bradley to serve as Chief
Executive Officer and President of Old National Bank, Clarksville, Tennessee
following the merger. The agreement is effective at the time the merger is
completed, is for a term of three years and provides for an annual salary of
$165,000, as well as
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a variety of other standard employee benefits. The agreement establishes, among
other things, non-compete and non-solicitation provisions. See "Proposed
Merger -- Employment Agreements" on page 31.
Interest of John T. Halliburton. Old National and John T. Halliburton
entered into an employment agreement which provides for Mr. Halliburton to serve
as Executive Vice President -- Lending, Old National Bank, Clarksville,
Tennessee following the merger. The agreement is effective at the time the
merger is completed, is for a term of three years and provides for an annual
salary of $140,000, as well as a variety of other standard employee benefits.
The agreement establishes, among other things, non-compete and non-solicitation
provisions. See "Proposed Merger -- Employment Agreements" on page 31.
Interest of Randy Clouser. Old National and Randy Clouser entered into an
employment agreement which provides for Mr. Clouser to serve as Senior Vice
President -- Commercial Loans, Old National Bank, Clarksville, Tennessee
following the merger. The agreement is effective at the time the merger is
completed, is for a term of three years and provides for an annual salary of
$90,000, as well as a variety of other standard employee benefits. The agreement
establishes, among other things, non-compete and non-solicitation provisions.
See "Proposed Merger -- Employment Agreements" on page 31.
Stock options. At the time the merger is effective, all outstanding options
to purchase Heritage common stock under Heritage's stock option plans become
options to purchase Old National common stock.
Break-up Fee. Heritage has agreed to pay to Old National a break-up fee in
the amount of $2,000,000, plus out-of-pocket expenses, upon the occurrence of
certain actions by Heritage or the Heritage Board. See "Break-up Fee" on page
24.
SPECIAL SHAREHOLDERS' MEETING
Date, time and place of special meeting. The special shareholders' meeting
will be held on Monday, February 28, 2000, at 1:00 p.m., local time, at Heritage
Bank, 25 Jefferson Street, Clarksville, Tennessee 37040.
Purposes of special meeting. At the Heritage special meeting, you will be
asked:
- to approve the merger agreement between Heritage and Old National; and
- to act upon any other items that may be submitted to a vote at the
special meeting.
As of the date of this document the Heritage Board of Directors does not
know of any other matters that will be presented at the special meeting.
See "Notice of Special Meeting of Shareholders" and the discussions under
the captions "Special Meeting" and "Proposed Merger" on pages 11 and 12,
respectively.
Required shareholder vote. In order to approve the merger, the holders of
at least a majority of the issued and outstanding shares of Heritage common
stock must vote in its favor.
Proxies. You can revoke your proxy at any time before it is exercised by
delivering a later dated proxy to Heritage, by written notice delivered to the
Secretary of Heritage, or by attending the special meeting and voting in person.
See "Special Meeting -- Proxies" on page 11.
Shares outstanding and entitled to vote. As of January 26, 2000, there were
606,559 shares of Heritage common stock outstanding. You can vote at the special
meeting of Heritage if you owned Heritage common stock at the close of business
on that date. You can cast one vote for each share of Heritage common stock you
owned on that date. See "Special Meeting -- Record Date and Voting Rights" on
page 11.
Old National and Heritage expect pooling of interests accounting
treatment. Old National and Heritage expect the merger to qualify as a pooling
of interests. This means that, for accounting and financial reporting purposes,
Old National will treat Old National and Heritage as if they had always been
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one. Old National is not required to complete the merger unless it receives a
letter from its independent accountants telling it that the merger will qualify
as a "pooling of interests." See "Proposed Merger -- Accounting Treatment for
the Merger" on page 28.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION
Old National common stock trades on the Nasdaq National Market System.
Heritage common stock is not traded on any national exchange system. Some
examples of recent closing prices for Old National common stock are as follows:
<TABLE>
<CAPTION>
OLD NATIONAL
------------
<S> <C>
September 9, 1999........................................... $28.51
January 24, 2000............................................ $29.06
</TABLE>
Based on the exchange ratio in the merger, which is 3.3075, the market
value of the consideration that Heritage shareholders will receive in the merger
for each share of Heritage common stock would be:
<TABLE>
<S> <C>
September 9, 1999........................................... $94.30
January 24, 2000............................................ $96.12
</TABLE>
In addition, recently declared per share dividend information for Old
National common stock and Heritage common stock is as follows:
<TABLE>
<CAPTION>
OLD NATIONAL HERITAGE
------------ --------
<S> <C> <C>
1st Quarter 1999............................................ $0.15 $0.00
2nd Quarter 1999............................................ $0.16 $0.00
3rd Quarter 1999............................................ $0.16 $0.00
4th Quarter 1999............................................ $0.16 $1.50
</TABLE>
Of course, the market price of Old National common stock will fluctuate
prior to the completion of the merger, while the exchange ratio is fixed. You
should obtain current stock price quotations for Old National common stock. You
can get these quotations from a newspaper, on the Internet or by calling your
broker.
RECENT DEVELOPMENTS
Old National registered $200 million of trust preferred securities.
Old National completed the acquisition of Sycamore Agency, Inc., a general
insurance agency, located in Terre Haute, Indiana.
Old National declared on December 9, 1999 a 5% stock dividend to its
shareholders payable on January 28, 2000. The exchange ratio has been adjusted
from 3.15 to 3.3075 pursuant to the merger agreement to give effect to the stock
dividend. Additionally, all references in this document to Old National's per
share information has been adjusted to give effect to the stock dividend.
On December 20, 1999, Old National agreed to acquire Permanent Bancorp,
Inc. and Permanent Bank, each of Evansville, Indiana, in a transaction valued at
approximately $92 million. Old National expects this acquisition to be completed
during the third quarter of 2000.
See "Description of Old National -- Recent Developments" on page 46.
5
<PAGE> 12
COMPARATIVE PER SHARE DATA
The table below shows historical information about Old National's and
Heritage's earnings per share, cash dividends per share and book value per
share, and similar information reflecting the merger, which is referred to as
pro forma information. In presenting the comparative pro forma information for
the time periods shown in the table, Old National and Heritage assumed that the
companies had been merged throughout those periods. See "Old National Bancorp
Pro Forma Condensed Combined Financial Information" on page 38.
Old National also assumed that it will treat Old National and Heritage as
if they had always been combined for accounting and financial reporting
purposes, a method known as pooling of interests accounting. The information
listed as equivalent share basis was obtained by multiplying the pro forma
amounts by the exchange ratio of 3.3075. Old National and Heritage present this
information to reflect the fact that Heritage shareholders will receive more
than one share of Old National common stock for each share of Heritage common
stock exchanged in the merger.
Old National expects that it will incur merger and restructuring expenses
as a result of combining the companies. Old National also anticipates that the
merger will provide Old National with financial benefits that include reduced
operating expenses and enhanced opportunities to earn more revenue. The pro
forma information, while helpful in illustrating the financial characteristics
of Old National under one set of assumptions, does not reflect these anticipated
financial benefits and, accordingly, does not attempt to predict or suggest
future results.
The information in the following table is based on the historical financial
information that Old National and Heritage have presented in their prior SEC
filings. Old National and Heritage are incorporating this material into this
document by reference. See "Where You Can Find More Information" on page 56.
<TABLE>
<CAPTION>
OLD NATIONAL HERITAGE
--------------------- -----------------------------
PRO EQUIVALENT SHARE
HISTORICAL FORMA(1) HISTORICAL BASIS(1)
---------- -------- ---------- ----------------
<S> <C> <C> <C> <C>
Earnings per share(2)
Nine months ended September 30, 1999........... $1.30 $1.34 $3.93 $4.10
Twelve months ended December 31:
1998........................................ $1.54 $1.49 $5.00 $4.95
1997........................................ 1.40 1.37 4.15 4.54
1996........................................ 1.25 1.22 3.93 4.03
</TABLE>
<TABLE>
<CAPTION>
OLD NATIONAL HERITAGE
--------------------- -----------------------------
PRO EQUIVALENT SHARE
HISTORICAL FORMA(1) HISTORICAL BASIS(1)
---------- -------- ---------- ----------------
<S> <C> <C> <C> <C>
Dividends declared per share
Nine months ended September 30, 1999........... $ 0.47 $ 0.47 $ 0.00 $ 1.54
Twelve months ended December 31:
1998........................................ $ 0.55 $ 0.55 $ 1.35 $ 1.83
1997........................................ 0.53 0.53 1.20 1.76
1996........................................ 0.50 0.50 1.00 1.67
Book value per share
At September 30, 1999.......................... $10.75 $10.64 $31.30 $35.19
At December 31, 1998........................... $10.86 $10.63 $27.25 $35.16
</TABLE>
- ---------------
(1) Considers the pending merger with Heritage as well as the pending merger as
of September 30, 1999 with ANB Corporation. See "Old National Bancorp Pro
Forma Condensed Combined Financial Information."
(2) Old National's and Heritage's basic earnings per share.
6
<PAGE> 13
SUMMARY OF SELECTED FINANCIAL DATA -- OLD NATIONAL
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
The following summary sets forth selected consolidated financial
information relating to Old National. This information should be read in
conjunction with the financial statements and notes incorporated herein by
reference.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest income..................... $ 470,915 $ 448,875 $ 419,483 $ 402,793 $ 353,983
Interest expense.................... 231,613 216,868 196,289 191,835 149,809
---------- ---------- ---------- ---------- ----------
Net interest income................. 239,302 232,007 223,194 210,958 204,174
Provision for loan losses........... 12,160 13,562 11,082 7,491 7,886
---------- ---------- ---------- ---------- ----------
Net interest income after provision
for loan losses................... 227,142 218,445 212,112 203,467 196,288
Noninterest income.................. 58,891 51,104 47,402 42,044 36,680
Noninterest expense................. 167,937 158,631 156,720 153,345 152,093
---------- ---------- ---------- ---------- ----------
Income before income taxes.......... 118,096 110,918 102,794 92,166 80,875
Income taxes........................ 43,961 42,835 40,107 35,222 29,550
---------- ---------- ---------- ---------- ----------
Net income from continuing
operation......................... 74,135 68,083 62,687 56,944 51,325
Discontinued operations............. (9,854) (5,005) 494 0 --
---------- ---------- ---------- ---------- ----------
Net income.......................... $ 64,281 $ 63,078 $ 63,181 $ 56,944 $ 51,325
========== ========== ========== ========== ==========
PERIOD-END BALANCES
Total assets........................ $6,416,611 $5,933,321 $5,602,460 $5,281,387 $5,081,088
Investment securities............... 1,636,674 1,606,930 1,573,708 1,481,267 1,419,378
Loans, net of unearned income....... 4,354,256 3,915,841 3,627,592 3,375,915 3,205,097
Deposits............................ 4,668,858 4,521,010 4,479,357 4,336,406 4,028,932
Shareholders' equity................ 519,645 500,609 480,435 481,511 457,971
PER SHARE DATA (on Continuing
Operations)(1)
Net income -- basic................. $ 1.54 $ 1.40 $ 1.25 $ 1.10 $ 0.97
Net income -- diluted(2)............ 1.49 1.36 1.22 1.08 0.95
Cash dividends paid................. 0.55 0.53 0.50 0.49 0.46
Book value at year-end.............. 10.86 10.41 9.77 9.43 8.72
SELECTED PERFORMANCE RATIOS (on
Continuing Operations)
Return on assets.................... 1.21% 1.19% 1.17% 1.11% 1.04%
Return on equity(3)................. 14.95 14.28 13.23 12.20 11.07
Net interest margin................. 4.17 4.31 4.42 4.38 4.38
Average equity to average assets.... 8.38 8.46 8.95 9.02 9.36
Dividend payout..................... 35.15 36.74 38.96 43.90 47.36
Primary capital to assets........... 9.22 9.27 9.77 9.88 10.26
Net charge-offs to average loans.... 0.23 0.21 0.30 0.25 0.27
End of period allowance for loan
losses to end of period loans..... 1.19 1.25 1.20 1.27 1.36
Non-performing loans to total
loans............................. 0.45 0.39 0.46 0.31 0.39
Leverage ratio...................... 7.72 7.95 8.28 8.83 9.13
Tier 1 capital to risk adjusted
assets............................ 11.40 12.17 12.90 13.92 14.20
Efficiency ratio(4)................. 56.32 56.03 57.92 60.61 63.15
</TABLE>
- ---------------
(1) Restated for all stock dividends.
(2) Assumes the conversion of Old National's subordinated debentures.
(3) Excludes unrealized gains (losses) on investment securities.
(4) Excludes One Bank related security gains (losses) and expenses.
7
<PAGE> 14
SUMMARY OF SELECTED FINANCIAL DATA -- OLD NATIONAL -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
RESULTS OF OPERATIONS
(Taxable equivalent basis)
Interest income........................................... $ 374,906 $ 351,426
Interest expense.......................................... 183,723 172,930
---------- ----------
Net interest income....................................... 191,183 178,496
Provision for loan losses................................. 8,437 9,189
---------- ----------
Net interest income after provision for loan losses....... 182,746 169,307
Noninterest income........................................ 50,186 42,879
Noninterest expense....................................... 134,695 122,442
---------- ----------
Income before income taxes................................ 98,237 89,744
Income taxes.............................................. 35,389 33,603
---------- ----------
Net income from continuing operation...................... 62,848 56,141
Discontinued operations................................... 3,483 (9,854)
---------- ----------
Net Income................................................ $ 66,331 $ 46,287
========== ==========
PERIOD-END BALANCES
Total assets.............................................. $6,963,307 $6,235,978
Investment securities..................................... 1,725,378 1,611,085
Loans, net of unearned income............................. 4,796,556 4,228,864
Deposits.................................................. 5,025,330 4,592,992
Shareholders' equity...................................... 514,935 518,083
PER SHARE DATA (on Continuing Operations)(1)
Net income -- basic....................................... $ 1.30 $ 1.16
Net income -- diluted(2).................................. 1.26 1.13
Cash dividends paid....................................... 0.47 0.42
Book value at period-end.................................. 10.75 10.76
SELECTED PERFORMANCE RATIOS (on Continuing Operations)
Return on assets.......................................... 1.25% 1.23%
Return on equity(3)....................................... 15.91 15.13
Net interest margin....................................... 4.02 4.19
Average equity to average assets.......................... 7.91 8.42
Dividend payout........................................... 36.03 36.07
Primary capital to assets................................. 8.73 9.26
Net charge-offs to average loans.......................... 0.09 0.21
End of period allowance for loan losses to end of period
loans.................................................. 1.21 1.23
Non-performing loans to total loans....................... 0.40 0.38
Leverage ratio............................................ 7.51 7.80
Tier 1 capital to risk adjusted assets.................... 11.58 11.58
Efficiency ratio(4)....................................... 55.03 55.31
</TABLE>
- ---------------
(1) Restated for all stock dividends.
(2) Assumes the conversion of Old National's subordinated debentures.
(3) Excludes unrealized gains (losses) on investment securities.
(4) Excludes One Bank related security gains (losses) and expenses.
8
<PAGE> 15
SUMMARY OF SELECTED FINANCIAL DATA -- HERITAGE
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
The following table presents financial data for Heritage. The financial
data below includes amounts previously reported by Heritage. This summary should
be read in conjunction with the consolidated financial statements and the notes
thereto of Heritage which are incorporated herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest income -- tax equivalent(1)... $ 16,919 $ 13,689 $ 10,925 $ 8,912 $ 6,682
Interest expense....................... 7,410 5,922 4,629 3,741 2,535
-------- -------- -------- -------- -------
Net interest income -- tax
equivalent(1)....................... 9,509 7,767 6,296 5,171 4,147
Tax equivalent adjustment(1)........... (106) (73) (79) (102) (87)
-------- -------- -------- -------- -------
Net interest income.................... 9,403 7,694 6,217 5,069 4,060
Provision for loan losses.............. 1,325 676 485 374 307
-------- -------- -------- -------- -------
Net interest income after provision for
loan losses......................... 8,078 7,018 5,732 4,695 3,753
Noninterest income..................... 3,951 3,475 3,372 2,530 2,226
Noninterest expense.................... 7,553 6,868 5,780 4,598 4,133
-------- -------- -------- -------- -------
Income before income taxes............. 4,476 3,625 3,324 2,627 1,846
Income taxes........................... 1,624 1,323 1,219 940 645
-------- -------- -------- -------- -------
Net income............................. $ 2,852 $ 2,302 $ 2,105 $ 1,687 $ 1,201
======== ======== ======== ======== =======
BALANCE SHEET DATA
Total assets........................... $208,211 $166,083 $132,783 $111,961 $94,674
Total loans, net....................... 161,594 132,942 102,233 79,302 62,307
Total deposits......................... 176,618 134,380 115,312 100,058 85,085
Federal Home Loan Bank advances........ 9,732 8,886 183 221 260
Shareholders' equity................... 15,795 13,253 11,263 9,347 7,456
PER SHARE DATA
Net income -- basic.................... $ 5.00 $ 4.15 $ 3.93 $ 3.23 $ 2.49
Net income -- diluted.................. 4.98 4.11 3.84 3.12 2.37
Cash dividends paid.................... 778 680 547 397 301
Book value at year-end................. 27.25 23.31 20.43 17.65 14.50
SELECTED PERFORMANCE RATIOS
Return on assets....................... 1.53% 1.55% 1.76% 1.66% 1.39%
Return on equity....................... 19.35 18.65 20.27 19.79 17.38
Equity to assets....................... 7.59 7.98 8.48 8.35 7.88
Net charge-offs to average loans....... 0.41 0.26 0.22 0.18 0.13
Allowance for loan losses to average
loans............................... 1.78 1.59 1.65 1.75 1.75
</TABLE>
- ---------------
(1) Net interest income has been presented on both a tax equivalent and non-tax
equivalent basis. The tax equivalent basis was calculated using a 34% tax
rate for all periods presented. The tax equivalent adjustment reverses the
tax equivalent basis in order to present net interest income in accordance
with GAAP, as reflected in the consolidated financial statements.
9
<PAGE> 16
SUMMARY OF SELECTED FINANCIAL DATA -- HERITAGE -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1999 1998
-------- --------
<S> <C> <C>
RESULTS OF OPERATIONS
Interest income -- tax equivalent(1)...................... $ 14,004 $ 12,352
Interest expense.......................................... 5,930 5,433
-------- --------
Net interest income -- tax equivalent(1).................. 8,074 6,919
Tax equivalent adjustment(1).............................. (99) (75)
-------- --------
Net interest income....................................... 7,975 6,844
Provision for loan losses................................. 1,079 803
-------- --------
Net interest income after provision for loan losses....... 6,896 6,041
Noninterest income........................................ 3,063 3,136
Noninterest expense....................................... 6,464 5,759
-------- --------
Income before income taxes................................ 3,495 3,418
Income taxes.............................................. 1,209 1,253
-------- --------
Net income................................................ $ 2,286 $ 2,165
======== ========
BALANCE SHEET DATA
Total assets.............................................. $234,034 $200,061
Total loans, net.......................................... 177,724 156,950
Total deposits............................................ 198,861 170,430
Federal Home Loan Bank advances........................... 13,701 10,746
Shareholders' equity...................................... 18,939 15,595
PER SHARE DATA
Net income -- basic....................................... $ 3.93 $ 3.80
Net income -- diluted..................................... 3.92 3.75
Cash dividends paid....................................... 0.00 0.00
Book value at period-end.................................. 31.30 27.37
SELECTED PERFORMANCE RATIOS
Return on assets.......................................... 1.42% 1.60%
Return on equity.......................................... 18.07 20.04
Equity to assets.......................................... 8.09 7.80
Net charge-offs to average loans.......................... 0.90 0.35
Allowance for loan losses to average loans................ 1.56 1.58
</TABLE>
- ---------------
(1) Net interest income has been presented on both a tax equivalent and non-tax
equivalent basis. The tax equivalent basis was calculated using a 34% tax
rate for all periods presented. The tax equivalent adjustment reverses the
tax equivalent basis in order to present net interest income in accordance
with GAAP, as reflected in the consolidated financial statements.
10
<PAGE> 17
SPECIAL MEETING
GENERAL
This document is first being mailed by Heritage to the holders of Heritage
common stock on January 28, 2000 and is accompanied by the notice of the
Heritage special meeting and a form of proxy that is solicited by the Board of
Directors of Heritage for use at the special meeting. The special meeting will
be held on Monday, February 28, 2000 at 1:00 p.m., local time, at Heritage Bank,
25 Jefferson Street, Clarksville, Tennessee 37040.
MATTERS TO BE CONSIDERED
The purposes of the special meeting are to consider and vote upon the
merger agreement, dated September 8, 1999, between Old National Bancorp and
Heritage, which provides for the merger of Heritage into Old National, and to
consider and vote upon any other matters that may properly come before the
special meeting.
PROXIES
The accompanying form of proxy is for your use at the special meeting if
you are unable or do not wish to attend the meeting in person. You may revoke
your proxy at any time before it is exercised by delivering to the Secretary of
Heritage a written notice of revocation, a properly executed proxy having a
later date, or by attending the special meeting and voting in person. Written
notices of revocation should be addressed to Heritage Financial Services, Inc.,
25 Jefferson Street, Clarksville, Tennessee 37040, Attn: John T. Halliburton,
Secretary. To be effective, Heritage must receive the revocation before the
shares are voted. The shares represented by proxies properly signed and returned
will be voted at the special meeting as instructed by the shareholders of
Heritage giving the proxies. If you make no specification as to your vote on the
proxy, your proxy will be voted in favor of approval of the merger agreement.
The Heritage Board is unaware of any other matters that may be presented
for action at the special meeting. However, if other matters do properly come
before the special meeting, the shares represented by properly executed proxies
will be voted in accordance with the best judgment of the person named in the
proxy.
SOLICITATION OF PROXIES
Heritage will bear the entire cost of soliciting proxies from shareholders.
In addition to the solicitation of proxies by mail, Heritage will request that
banks, brokers and other record holders send proxies and proxy material to the
beneficial owners of stock held by them and secure their voting instructions, if
necessary. Additionally, proxies may be solicited personally or by telephone by
directors, officers and certain employees of Heritage, who will not be
specifically compensated for such soliciting.
RECORD DATE AND VOTING RIGHTS
Heritage has fixed January 26, 2000 as the record date for determining
those Heritage shareholders entitled to notice of, and to vote at, the special
meeting. Accordingly, only Heritage shareholders of record at the close of
business on January 26, 2000 will be entitled to notice of and to vote at the
special meeting. Each share of Heritage common stock you own on the record date
entitles you to one vote on each matter presented for a vote at the special
meeting. At the close of business on the record date, there were 606,559 shares
of Heritage common stock outstanding held by approximately 914 holders of
record. The presence, in person or by proxy, of shares of Heritage common stock
representing a majority of those shares outstanding and entitled to vote on the
record date is necessary to constitute a quorum at the special meeting.
11
<PAGE> 18
Shares of Heritage common stock held by persons attending the special
meeting but not voting, and shares of Heritage common stock for which Heritage
has received proxies but with respect to which the holders have abstained from
voting, will be counted as present at the special meeting for purposes of
determining the presence or absence of a quorum for the transaction of business
at the special meeting. Brokers who hold shares of Heritage common stock in
nominee or "street" name for customers who are the beneficial owners of those
shares are prohibited from giving a proxy to vote shares held for those
customers on matters to be considered and voted upon at the special meeting
without specific instructions from those customers. These so-called "broker
non-votes" will be counted for purposes of determining whether a quorum exists.
The merger agreement must be approved by the affirmative vote of the
holders of at least a majority of the outstanding shares of Heritage common
stock entitled to vote at the special meeting.
BECAUSE APPROVAL OF THE MERGER AGREEMENT REQUIRES THE AFFIRMATIVE VOTE OF
THE HOLDERS OF AT LEAST A MAJORITY OF THE OUTSTANDING SHARES OF HERITAGE COMMON
STOCK ENTITLED TO VOTE AT THE SPECIAL MEETING, ABSTENTIONS AND BROKER NON-VOTES
WILL HAVE THE SAME EFFECT AS VOTES AGAINST APPROVAL OF THE MERGER AGREEMENT.
ACCORDINGLY, THE HERITAGE BOARD URGES YOU TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED, POSTAGE-PAID
ENVELOPE.
As of the record date, directors and executive officers of Heritage owned
approximately 212,610 shares of Heritage common stock, entitling them to
exercise 35.05% of the voting power of the Heritage common stock entitled to
vote at the special meeting. On the basis of the unanimous approval of the
merger agreement by the Heritage Board, we currently expect that each director
and executive officer of Heritage will vote the shares of Heritage common stock
owned by him or her for approval of the merger agreement and the transactions
contemplated by the merger agreement. As of the record date, the banking, trust
and investment management subsidiaries of Heritage, as fiduciaries, custodians
or agents, held a total of 25,140 shares of Heritage common stock. These
entities maintained sole or shared voting power with respect to 25,140 of these
shares of Heritage common stock.
Additional information with respect to the beneficial ownership of Heritage
common stock by individuals and entities owning more than 5% of that stock and
more detailed information with respect to beneficial ownership of Heritage
common stock by directors and executive officers of Heritage is incorporated by
reference to the Annual Report on Form 10-KSB of Heritage for the year ended
December 31, 1998. See "Where You Can Find More Information."
RECOMMENDATION OF HERITAGE BOARD OF DIRECTORS
The Heritage Board has unanimously approved the merger agreement and the
transactions contemplated by the merger agreement. The Heritage Board believes
that the merger agreement is in the best interests of Heritage as a whole,
including the interests of Heritage shareholders, and recommends that the
Heritage shareholders vote "FOR" approval of the merger agreement. See "Proposed
Merger -- Background of the Merger, -- Reasons for the Merger, -- Recommendation
of the Heritage Board of Directors."
PROPOSED MERGER
At the special meeting, the shareholders of Heritage will consider and vote
upon approval of the merger, certain features of which are summarized below. The
following summary of aspects of the merger is not a complete description of the
terms and conditions of the merger and is qualified in its entirety by reference
to the merger agreement, which is attached to this document as Appendix A and is
incorporated herein by reference.
GENERAL
The Board of Directors of Old National and Heritage each have unanimously
approved the merger agreement, which provides for the merger. Old National and
Heritage expect to complete the merger in February 2000. Each share of Heritage
common stock issued and outstanding at the effective time of the merger will be
converted into the right to receive 3.3075 shares of Old National common stock,
as
12
<PAGE> 19
adjusted for the 5% stock dividend declared by Old National on December 9, 1999,
and subject to adjustment as discussed in this document.
DESCRIPTION OF THE MERGER
In the merger, Heritage will merge with Old National. Old National will be
the surviving corporation in the merger and the separate corporate existence of
Heritage will cease.
As of September 30, 1999, Heritage had consolidated assets of approximately
$234.03 million, consolidated deposits of approximately $198.86 million,
consolidated shareholders' equity of approximately $18.94 million and
consolidated net income for the nine months then ended of approximately $2.286
million. Based upon the pro forma financial information included elsewhere in
this document and assuming that the merger had been consummated on September 30,
1999, Heritage represented as of such date 3.36% of the consolidated assets of
Old National, 3.96% of its consolidated deposits, 3.68% of its consolidated
shareholders' equity and, for the nine month period then ended, 3.45% of its
consolidated net income. See "Pro Forma Condensed Combined Financial
Information".
BACKGROUND OF THE MERGER
Historically, banking laws in Tennessee and many other states prohibited
banks from expanding outside of their home counties. Many changes to Tennessee's
law have occurred since 1985, first permitting in-state acquisitions by bank
holding companies, then permitting regional interstate acquisitions and
currently permitting virtual nationwide and international expansion
opportunities. These developments stimulated aggressive acquisition activity
among financial institutions located in Tennessee and neighboring states,
resulting in the entry of large bank holding companies into virtually every
attractive market in the Midwestern United States. Moreover, developments and
deregulation in the financial services industry generally have led to further
increases in competition for bank services. Compounded by the significant
increase in bank regulatory burdens over the past several years, these
competitive factors have created an environment in which it is increasingly
difficult for small bank holding companies to compete effectively.
In analyzing how to address the increasing competition and continuing
consolidation in the banking industry, the Heritage Board considered several
strategic alternatives including remaining independent, growing through
acquisitions, and seeking a merger partner. After evaluation of financial,
economic, legal and market considerations, the Heritage Board concluded that
seeking a potential merger partner was in the best interests of the
shareholders.
In 1998, Heritage management began assessing the future of Heritage Bank to
determine the methods of operation necessary to maintain shareholder
expectations and to continue to provide quality banking services throughout the
local market.
Heritage considered a strategy of acquiring other financial institutions
and began informal discussions with other banks regarding a possible
affiliation. Heritage was unsuccessful in its acquisition attempts, primarily
because the directors of other institutions, in seeking a potential target
company, preferred a more liquid stock than that of Heritage. Heritage stock has
a limited marketability because it is not publicly traded.
In late 1998 and early 1999, Heritage management attended various seminars
where long-term strategies and the current economic and operating environment
for banks were discussed. In March of 1999, Heritage management made the
decision, after careful consideration and discussion, to obtain the advice of
investment bankers and other trusted advisors to validate concerns regarding the
course of action which would be in the best interest of shareholders.
Several investment bankers were interviewed and in May of 1999, the
Heritage Board met with Investment Bank Services, a subsidiary of Professional
Bank Services, Inc., to discuss strategic alternatives for the future. The
alternatives considered included remaining independent, growing through
acquisitions, and seeking a merger partner. Investment Bank Services provided
the directors with an array of ideas on the future of banking and answered
questions concerning the positives and negatives of possible
13
<PAGE> 20
alternatives. Heritage's Board agreed through consensus to engage Investment
Bank Services to explore potential merger candidates.
On May 4, 1999, Heritage's Board further evaluated future strategy and
concluded that seeking a potential merger partner was in the best interest of
long-term value to shareholders. Several factors were considered in making this
decision, including: (i) the maximization of long-term shareholder interest;
(ii) the increased competition from bank and non-bank entities creating a trend
toward narrower net interest margins; (iii) the ability to compete with the
efficiencies of scale of larger institutions, making it more difficult to price
loans and deposits competitively while meeting shareholder profit expectations;
(iv) the regulatory environment and the relative imminent changes occurring, as
mentioned above; (v) the liquidity of the stock, considering the 900 or more
shareholders and a limited number of potential buyers in the local market; and
(vi) the change in consumer attitudes, tending to require large investments in
technology in order to develop products and services necessary to meet the
future consumer demands.
On July 6, 1999, Investment Bank Services reported to the Heritage Board
solicitations of indications of interest from 12 banks, in addition to
non-binding indications from 3 financial institutions. The Heritage Board
reviewed the proposals, discussing the value of each proposal as it related to
Heritage shareholders. After meeting with management of Old National and
evaluating all possible strategic alternatives and partners, the Heritage Board
voted on August 30, 1999 to pursue affiliation discussions with Old National.
Heritage and Old National management entered into continued discussions
regarding the possible affiliation, conducted due diligence, and negotiated a
proposed merger agreement. Upon review of the proposed merger agreement, the
Heritage Board concluded that affiliation with Old National was in the best
interest of the Heritage shareholders. Shortly thereafter, Heritage and Old
National signed a definitive merger agreement.
The Heritage Board believes that the merger is fair and equitable to, and
in the best interest of, Heritage and its shareholders. After considerable
discussions by and between Heritage and Old National, the Heritage Board
concluded that Heritage and Old National had similar operating philosophies
which would allow Heritage to continue serving the market in a "community
banking manner", yet having the resources of a strong regional bank. The
Heritage Board also reviewed and agreed with the fairness opinion prepared by
Professional Bank Services as to the value of the exchange ratio and underlying
value of Old National common stock as an investment. The Heritage Board
considered, among other factors,: (i) the history, financial condition, results
of operations and dividend record of Old National; (ii) the market value of Old
National common shares at various times; and (iii) the prospects of Heritage and
Old National, both separately and as a combined entity. The Heritage Board also
considered: (i) that the value of the consideration to be delivered in exchange
for the Heritage shares represents a premium over the book value of Heritage
common shares; (ii) that the Heritage shareholders receiving Old National common
shares in the merger will acquire securities having greater liquidity than the
Heritage shares; and (iii) the dividends historically paid on the equivalent
number of Heritage shares.
REASONS FOR THE MERGER
In reaching its decision to approve the merger agreement, the Heritage
Board consulted with management of Heritage, as well as its financial and legal
advisors, and it considered a variety of factors, including the following:
- The Heritage Board's knowledge and analysis of the current environment of
the financial services industry, which is characterized by rapid
consolidation, increased opportunities for cross-industry expansion,
evolving trends in technology and increasing nationwide and Internet
competition;
- The Heritage Board's belief that the financial terms of the merger are
fair to and in the best interests of Heritage as a whole and Heritage's
shareholders and are consistent with Heritage's long term strategy of
maximizing shareholder value;
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- The business, operations, financial condition, earnings and prospects of
Heritage and Old National. In making its determination, the Heritage
Board took into account the results of Heritage's due diligence review of
Old National;
- The scale, scope, strength and diversity of operations, product lines and
delivery systems that can be achieved by combining Heritage and Old
National;
- The complimentary nature of the businesses of Heritage and Old National
and the anticipated improved stability of Old National's businesses and
earnings in varying economic and market climates relative to Heritage on
a stand-alone basis as a result of greater geographic, asset and
line-of-business diversification;
- The Heritage Board's belief that the merger represents:
- an opportunity to leverage Heritage's management, infrastructure,
products, marketing and business lines over a larger consumer, business
and corporate customer base through Old National's geographically
diverse network; and
- the possibility of achieving expense savings and operating efficiencies
through, among other things, the elimination of duplicative efforts;
- The structure of the merger and the terms of the merger agreement,
including the fact that the fixed exchange ratio provides certainty as to
the number of shares of common stock of Old National to be issued in the
merger, and that the merger is intended to qualify as a transaction of a
type that is generally tax-free for U.S. federal income tax purposes and
as a pooling of interests for accounting purposes;
- The opinion of Professional Bank Services, Inc. to the Heritage Board
that, based upon and subject to the considerations set forth in the
opinion, the exchange ratio was fair from a financial point of view to
Heritage shareholders (see "-- Fairness Opinion of Heritage's Financial
Advisor");
- The Heritage Board's belief that, while no assurances could be given, the
level of execution risk in completing the merger was minimal, and that
the business and financial advantages contemplated in connection with the
merger were likely to be achieved within a reasonable time frame;
- The likelihood of the merger being approved by the appropriate regulatory
authorities;
- Consideration of the effect of the merger on Heritage's other
constituencies, including Heritage's employees and the customers and
communities served by Heritage, including consideration of Old National's
historical practice of retaining employees of acquired institutions with
competitive salary and benefit programs, and the opportunity for
training, education and advancement of employees within Old National or
one of its affiliated companies; and
- The Heritage Board's analysis of alternatives to merging with Old
National, including merging with other potential acquirors and its
analysis of relevant price information from recent comparable bank
mergers which occurred in the Midwest and across the United States.
This discussion of the information and factors considered by the Heritage
Board is not intended to be exhaustive, but it does include all material factors
considered by the Heritage Board. In reaching its decision to approve and
recommend the merger, the Heritage Board of Directors did not assign any
relative or specific weights to these factors, and individual directors may have
given differing weights to different factors. Based upon the foregoing and other
factors, the Board of Directors of Heritage concluded that it was in the best
interests of Heritage and its shareholders to merge with Old National.
FAIRNESS OPINION OF HERITAGE'S FINANCIAL ADVISOR
Professional Bank Services, Inc. was engaged by Heritage to advise
Heritage's Board of Directors as to the fairness of the consideration, from a
financial perspective, to be paid by Old National to Heritage shareholders as
set forth in the merger agreement.
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Professional Bank Services is a bank consulting firm with offices in
Louisville, New York, Chicago, Nashville and Washington, D.C. As part of its
investment banking business, Professional Bank Services is regularly engaged in
reviewing the fairness of financial institution acquisition transactions from a
financial perspective and in the valuation of financial institutions and other
businesses and their securities in connection with mergers, acquisitions, estate
settlements, and other transactions. Neither Professional Bank Services nor any
of its affiliates has a material financial interest in Heritage or Old National.
Professional Bank Services was selected to advise Heritage's Board of Directors
based upon its familiarity with Tennessee financial institutions and knowledge
of the banking industry as a whole.
Professional Bank Services performed certain analyses described herein and
presented the range of values for Heritage resulting from such analyses to the
Board of Directors of Heritage in connection with its advice as to the fairness
of the consideration to be paid by Old National.
A Fairness Opinion of Professional Bank Services was delivered to the Board
of Directors of Heritage on September 8, 1999, at a special meeting of the Board
of Directors of Heritage and has been updated as of the date of this document. A
copy of the Fairness Opinion, which includes a summary of the assumptions made
and information analyzed in deriving the Fairness Opinion, is attached as
Appendix B to this document and should be read in its entirety.
In arriving at its Fairness Opinion, Professional Bank Services reviewed
certain publicly available business and financial information relating to
Heritage and Old National. Professional Bank Services considered certain
financial and stock market data of Heritage and Old National, compared that data
with similar data for certain other publicly-held bank holding companies and
considered the financial terms of certain other comparable bank transactions in
the state of Tennessee that had recently been effected. Professional Bank
Services also considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria that it deemed
relevant. In connection with its review, Professional Bank Services did not
independently verify the foregoing information and relied on such information as
being complete and accurate in all material respects. Financial forecasts
prepared by Professional Bank Services were based on assumptions believed by
Professional Bank Services to be reasonable and to reflect currently available
information. Professional Bank Services did not make an independent evaluation
or appraisal of the assets of Heritage or Old National. Professional Bank
Services took into consideration the results of Professional Bank Services'
wholly owned subsidiary Investment Bank Services, Inc. solicitation of
indications of interest from other financial institutions concerning their
interest in a possible affiliation with Heritage. Professional Bank Services
reviewed the correspondence and information received from interested financial
institutions that were contacted. Professional Bank Services reviewed all offers
received by Heritage.
As part of preparing this Fairness Opinion, Professional Bank Services
performed a due diligence review of Old National on September 2 and 3, 1999. As
part of the due diligence, Professional Bank Services reviewed the following
items: minutes of the Old National Board of Directors meetings from January 1998
through July 1999; reports filed with the Securities and Exchange Commission by
Old National on Forms 10-K, 8-K and 10-Q for the years ending December 31, 1996,
1997 and 1998 and year-to-date 1999; reports of independent auditors and
management letters and response thereto, for the year ending December 31, 1998;
the most recent analysis and calculation of allowance for loan and lease losses
for each subsidiary bank; internal loan review reports; investment portfolio
activity reports; asset quality reports; Uniform Holding Company Report for Old
National as of March 31, 1999; March 31, 1999 reports of Condition and Income
and March 31, 1999 Uniform Bank or Thrift Performance Reports for each
subsidiary bank; discussion of pending litigation and other issues with senior
management of Old National.
Professional Bank Services reviewed and analyzed the historical performance
of Heritage and Heritage's wholly owned subsidiary Heritage Bank, Clarksville,
Tennessee contained in: audited Annual Reports and financial statements dated
December 31, 1997 and 1998 of Heritage; June 30, 1999, March 31, 1999, December
31, 1998 and December 31, 1997 Consolidated Reports of Condition and Income
filed by Heritage with the Federal Reserve; July 31, 1999 consolidated unaudited
financial
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statements of Heritage; March 31, 1999 Uniform Bank and Holding Company
Performance Reports of the Bank and Heritage; historical common stock trading
activity of Heritage; and the premises and other fixed assets. Professional Bank
Services reviewed and tabulated statistical data regarding the loan portfolio,
securities portfolio and other performance ratios and statistics. Financial
projections were prepared and analyzed as well as other financial studies,
analyses and investigations as deemed relevant for the purposes of this opinion.
In review of the aforementioned information, Professional Bank Services took
into account its assessment of general market and financial conditions, its
experience in other similar transactions, and its knowledge of the banking
industry generally.
In connection with rendering the Fairness Opinion and preparing its written
and oral presentation to Heritage's Board of Directors, Professional Bank
Services performed a variety of financial analyses, including those summarized
herein. The summary does not purport to be a complete description of the
analyses performed by Professional Bank Services in this regard. The preparation
of a Fairness Opinion involves various determinations as to the most appropriate
and relevant methods of financial analysis and the application of these methods
to the particular circumstances and therefore, such an opinion is not readily
susceptible to summary description. Accordingly, notwithstanding the separate
factors summarized below, Professional Bank Services believes that its analyses
must be considered as a whole and that selecting portions of its analyses and of
the factors considered by it, without considering all analyses and factors,
could create an incomplete view of the evaluation process underlying its
opinion. In performing its analyses, Professional Bank Services made numerous
assumptions with respect to industry performance, business and economic
conditions and other matters, many of which are beyond Heritage's or Old
National's control. The analyses performed by Professional Bank Services are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses. In
addition, analyses relating to the values of businesses do not purport to be
appraisals or to reflect the process by which businesses actually may be sold.
Acquisition Comparison Analysis. In performing this analysis, Professional
Bank Services reviewed all bank acquisition transactions in the United States
since January 1, 1999. There were 147 bank acquisition transactions in the
United States announced since January 1, 1999 for which detailed financial
information was available. The purpose of the analysis was to obtain an
evaluation range based on these United States bank acquisition transactions.
Median multiples of earnings and book value implied by the comparable
transactions were utilized in obtaining a range for the acquisition value of
Heritage. In addition to reviewing recent United States bank transactions,
Professional Bank Services performed separate comparable analyses for
acquisitions of banks which, like Heritage, had an equity-to- asset ratio less
than 8.00% and had a return on average equity greater than 17%. In addition, all
Tennessee bank transactions since January 1, 1996 were analyzed. Median values
for the 147 United States acquisitions expressed as multiples of both book value
and earnings were 2.99 and 21.15, respectively. The median multiples of book
value and earnings for acquisitions of United States banks which, like Heritage,
had an equity-to-asset ratio less than 8.00% were 2.82 and 22.34, respectively.
For acquisitions of United States banks with a return on average equity greater
than 17%, the median multiples of book value and earnings were 3.10 and 18.66,
respectively. The median multiples of book value and earnings for acquisitions
of Tennessee banks since January 1, 1996, were 2.58 and 21.34, respectively.
In the proposed transaction, Company shareholders will receive 3.3075 Old
National common shares per Company common share. In addition, each of Heritage's
common stock options will be converted into options to purchase 3.3075, as
adjusted per the merger agreement, Old National shares at an exercise price
which is determined by dividing the current Company option strike price by the
exchange ratio of 3.3075, as further defined in the Agreement. On September 7,
1999 the closing price for Old National common stock on the National Association
of Securities Dealers Automated Quotation System was $29.9375 per share. Using
this average price of $29.9375 per Old National common share, the proposed
consideration to be received represents an aggregate value of $63,316,076 or
$94.30 per Company common share. The $94.30 per Company common share represents
a multiple of Heritage's June 30, 1999 adjusted book value and a multiple of
Heritage's 1999 Adjusted Earnings Value of 3.22X and 18.64 respectively.
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The market value of the proposed transaction's percentile ranking was
prepared and analyzed with respect to the above United States comparable
transactions group. Compared to all United States bank transactions, the
acquisition value ranked in the 83rd percentile as a multiple of book value and
in the 32nd percentile as a multiple of earnings. Compared to United States bank
transactions where the acquired institution had an equity-to-asset ratio less
than 8.00%, the acquisition value ranked in the 74th percentile as a multiple of
book value and the 21st percentile as a multiple of earnings. For United States
bank transactions where the acquired institution had a return on average equity
greater than 17%, the acquisition value ranked in the 60th percentile as a
multiple of book value and the 50th percentile as a multiple of earnings. For
Tennessee bank transactions effected since January 1, 1996, the acquisition
value ranked in the 76th percentile as a multiple of book value and in the 30th
percentile as a multiple of earnings.
Adjusted Net Asset Value Analysis. Professional Bank Services reviewed
Heritage's balance sheet data to determine the amount of material adjustments
required to the stockholders' equity of Heritage based on differences between
the market value of Heritage's assets and their value reflected on Heritage's
financial statements. Professional Bank Services determined that two adjustments
were warranted. Equity was reduced by $336,000 to reflect intangibles on
Heritage's balance sheet. Professional Bank Services also reflected a value of
the non-interest bearing demand deposits of approximately $6,578,000. The
aggregate adjusted net asset value of Heritage was determined to be $23,344,000
or $40.03 per Company common share.
Discounted Earnings Analysis. A dividend discount analysis was performed by
Professional Bank Services pursuant to which a range of values of Heritage was
determined by adding (i) the present value of estimated future dividend streams
that Heritage could generate over a five-year period and (ii) the present value
of the "terminal value" of Heritage's equity at the end of the fifth year. The
"terminal value" of Heritage's equity at the end of the five-year period was
determined by applying a multiple of 2.49 times the projected terminal year's
earnings. The 2.49 multiple represents the median price paid as a multiple of
earnings for all Tennessee bank transactions since 1996.
Dividend streams and terminal values were discounted to present values
using a discount rate of 14%. This rate reflects assumptions regarding the
required rate of return of holders or buyers of Heritage's common stock. The
aggregate value of Heritage, determined by adding the present value of the total
cash flows, was $46,739,000 or $80.16 per share. In addition, using the
five-year projection as a base, a twenty-year projection was prepared assuming
an annual growth rate of 15% in Years 1 and 2 and 10% in Year 3 and beyond, and
a return on assets of 1.53% in Year 1 and 1.55% in Year 2 and beyond would
remain in effect. Dividends were assumed to consistently equal 50.0% of net
income in all projected years. This long-term projection resulted in an
aggregate value of $51,002,000 or $87.47 per Company common share.
Specific Acquisition Analysis. Professional Bank Services valued Heritage
based on an acquisition analysis assuming a "break-even" earnings scenario to an
acquiror as to price, current interest rates and amortization of the premium
paid. Based on this analysis, an acquiring institution would pay in aggregate
$43,990,000, or $64.09 per share, assuming they were willing to accept no impact
to their net income in the initial year. This analysis was based on a funding
cost of 7.0% adjusted for taxes, amortization of the acquisition premium over 15
years and a projected December 31, 1999 earnings level of $3,397,000. This
analysis was repeated assuming a potential acquiror would attain non-interest
expense reductions of 10% in the transaction. Based on this analysis an
acquiring institution would pay in aggregate $47,990,000 or $71.48 per Heritage
share.
Pro Forma Merger Analysis. Professional Bank Services compared the
historical performance of Heritage to that of Old National and other regional
holding companies. This analysis included, among other things, a comparison of
profitability, asset quality and capital measures. In addition, the contribution
of Heritage and Old National to the income statement and balance sheet of the
pro forma combined company was analyzed.
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The effect of the affiliation on the historical and pro forma financial
data of Heritage was prepared and analyzed. Heritage's historical financial data
was compared to the pro forma combined historical and projected earnings, book
value and dividends per share.
The Fairness Opinion is directed only to the question of whether the
consideration to be received by Heritage's shareholders under the Agreement is
fair and equitable from a financial perspective and does not constitute a
recommendation to any Company shareholder to vote in favor of the affiliation.
No limitations were imposed on Professional Bank Services regarding the scope of
its investigation or otherwise by Heritage.
Based on the results of the various analyses described above, Professional
Bank Services concluded that the consideration to be received by Heritage's
shareholders under the Agreement is fair and equitable from a financial
perspective to the shareholders of Heritage.
Based on an Old National stock price of $29.9375 Professional Bank Services
and Investment Bank Services will receive fees of approximately $191,000 for all
services performed in connection with the sale of Heritage and the rendering of
the Fairness Opinion. In addition, Heritage has agreed to indemnify Professional
Bank Services and Investment Bank Services and its directors, officers and
employees, from liability in connection with the transaction, and to hold
Professional Bank Services and Investment Bank Services harmless from any
losses, actions, claims, damages, expenses or liabilities related to any of
Professional Bank Services' or Investment Bank Services' acts or decisions made
in good faith and in the best interest of Heritage.
RECOMMENDATION OF THE HERITAGE BOARD OF DIRECTORS
The Board of Directors of Heritage has carefully considered and unanimously
approved the merger agreement and the merger and unanimously recommends that the
shareholders of Heritage vote "FOR" approval of the merger agreement and the
transactions contemplated by the agreement.
CONVERSION OF HERITAGE COMMON STOCK
Under the terms of the merger agreement, shareholders of Heritage of record
when the merger is completed will be entitled to receive 3.3075, as adjusted per
the merger agreement, shares of Old National common stock, as adjusted for the
5% stock dividend declared by Old National on December 9, 1999 and subject to
adjustment, if any, for stock splits, stock dividends or any similar
recapitalization of Old National or if Old National elects to adjust the
exchange ratio following Heritage's exercise of its right to terminate the
merger agreement due to a decline in the value of Old National common stock.
Because the exchange ratio is fixed and because the market price of Old National
common stock prior to the effective time of the merger may fluctuate, the value
of the shares of Old National common stock that you will receive if and when the
merger is completed may increase or decrease prior to and following the merger.
As of January 24, 2000, the closing price of Old National common stock was
$29.06 per share, as reported by the Nasdaq National Market System. If the
merger had been consummated on that date, the number of shares of Old National
common stock exchanged in the merger (disregarding any fractional shares) would
have been 2,006,193, with an aggregate market value of approximately
$58,299,968.
TREATMENT OF HERITAGE STOCK OPTIONS
Each stock option to acquire Heritage common stock granted under Heritage's
stock option and incentive plans outstanding and unexercised immediately prior
to the effective time of the merger will be converted automatically at the
effective time into a stock option to purchase Old National common stock on the
same terms that were applicable to the stock option at the effective time of the
merger. Old National will assume the obligations of Heritage with respect to
each outstanding option to purchase Heritage common stock. The number of shares
of Old National common stock subject to the new Old
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National options will be equal to the product of the number of shares of
Heritage common stock subject to the Heritage stock options times the exchange
ratio as then in effect, rounded to the nearest whole share. The exercise price
per share of Old National common stock subject to the new Old National stock
options will be equal to the aggregate exercise price for shares of Heritage
common stock divided by the number of shares of Old National common stock,
rounded to the nearest whole share, deemed purchasable pursuant to the stock
options. Additionally, stock options that are incentive stock options under the
Internal Revenue Code will be adjusted in the manner required by the Code.
EXCHANGE OF CERTIFICATES; FRACTIONAL SHARES
Immediately after the effective time of the merger, Old National will mail
a letter of transmittal to Heritage shareholders. This transmittal letter will
contain instructions with respect to the surrender of certificates representing
shares of Heritage common stock. YOU SHOULD NOT RETURN YOUR HERITAGE STOCK
CERTIFICATES WITH THE ENCLOSED PROXY AND SHOULD NOT FORWARD THEM TO OLD NATIONAL
UNTIL YOU RECEIVE A LETTER OF TRANSMITTAL FROM OLD NATIONAL.
If your certificate for your shares of Heritage common stock has been lost,
stolen or destroyed, Old National will issue the Old National common stock and
pay cash for any fractional shares after Old National receives from you an
agreement to indemnify Old National against loss from such lost, stolen or
destroyed certificate and appropriate evidence of the loss, theft or
destruction, such as an affidavit.
After the effective time of the merger, stock certificates previously
representing Heritage common stock will represent only the right to receive
shares of Old National common stock and cash for any fractional shares.
Following the effective time of the merger and prior to the surrender by holders
of Heritage of their stock certificates to Old National in exchange for Old
National common stock, the holders will not be entitled to receive payment of
dividends or other distributions declared on shares of Old National common
stock. Upon the subsequent exchange of such certificates, however, Old National
will pay, without interest, any accumulated dividends or other distributions
previously declared and withheld on the shares of Old National common stock.
After the effective time of the merger, there will be no transfers on the stock
transfer books of Heritage of shares of Heritage issued and outstanding
immediately prior to the effective time. If, after the effective time of the
merger, you present certificates representing shares of Heritage common stock
for registration or transfer, the certificates will be canceled and exchanged
for shares of Old National common stock.
No fractional shares of Old National common stock will be issued to
shareholders of Heritage in connection with the merger. Each shareholder of
Heritage who otherwise would be entitled to a fractional interest in a share of
Old National common stock as a result of the exchange ratio will be paid a cash
amount equal to the fractional interest multiplied by the average of the per
share closing price of Old National common stock as reported on the Nasdaq
National Market System for the five days on which shares of Old National common
stock were traded immediately before the effective time of the merger.
Old National will distribute stock certificates representing shares of Old
National common stock and will pay any cash payment for fractional shares
(without interest) to each former shareholder of Heritage as soon as practical
following the shareholder's delivery to Old National of his or her
certificate(s) representing shares of Heritage common stock.
DISSENTERS' RIGHTS
Tennessee law generally provide dissenters' rights for mergers and share
exchanges that would require shareholder approval, sales of substantially all
the assets (other than sales that are in the usual and regular course of
business and certain liquidations and court-ordered sales), and certain
amendments to the charter that materially and adversely affect rights in respect
of a dissenter's shares.
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Any holder of Heritage common stock has the right to dissent from the
merger by complying with the procedures described in this Section. Such a person
is sometimes referred to as a Dissenting Shareholder herein. The following
summary does not purport to be a complete statement of dissenters' rights of
appraisal, and such summary is qualified in its entirety by reference to Chapter
23 of the TBCA, which is reproduced in full as Appendix C to this document.
Under the TBCA, any holder of Heritage common stock has the right to object
to the merger and demand payment of the fair value of his or her shares upon
compliance with Sections 48-23-202 and 48-23-204 of the TBCA. A shareholder may
not dissent as to less than all of the shares that he or she holds at the close
of business on the record date. A nominee or fiduciary may not dissent on behalf
of a beneficial owner as to less than all of the shares of such beneficial owner
held of record by such nominee or fiduciary. A beneficial owner asserting
dissenters' rights to rights to shares held on his or her behalf must notify
Heritage in writing of the name and address of the record holder of the shares,
if known to him or her.
Any Heritage shareholder intending to enforce his or her dissenter's rights
may not vote in favor of the merger agreement (either personally or by proxy)
and must deliver to Heritage before the time of the vote a written notice of
intent to demand payment for his or her shares (the "Objection Notice"). The
Objection Notice must state that the shareholder intends to demand payment for
his or her shares of Heritage common stock if the merger is completed. A vote
against approval of the merger agreement will not, in and of itself, constitute
an Objection Notice satisfying the requirements of Section 48-23-202 of the
TBCA.
If the merger agreement is approved by Heritage's shareholders at the
special meeting, each shareholder who has filed an Objection Notice will be
notified by Heritage of such approval no later than ten days after the special
meeting (the "Dissenter's Notice"). The Dissenter's Notice will (i) state where
the payment demand must be sent and where and when certificates of certificated
shares of Heritage common stock (the "Certificates") must be deposited, (ii)
inform holders of uncertificated shares (if any) to what extent transfer of the
shares will be restricted after the payment demand is receive, (iii) supply a
form for demanding payment that includes the date of the first announcement to
news media or to shareholders of the principal terms of the proposed corporate
action and requires that the person asserting the dissenters' rights certify
whether or not he or she acquired beneficial ownership of the shares before that
date, (iv) set a date by which Heritage must receive payment demand, which date
may not be fewer than one nor more than two months after the date of the
Dissenter's Notice was delivered, and (v) be accompanied by a copy of Chapter 23
of Title 48 of the TBCA. Within the time prescribed in the Dissenter's Notice, a
Heritage shareholder electing to dissent must make demand for payment (the
"Payment Demand"), certify whether he (or the beneficial shareholder on whose
behalf he is asserting dissenters' rights) acquired beneficial ownership of the
shares of Heritage common stock before September 9, 1999 (the date of the first
public announcement of the terms of the merger agreement), and deposit all
Certificates in accordance with the terms of the Dissenter's Notice. Upon
delivering the Payment Demand and depositing the Certificates in accordance with
the terms of the Dissenter's Notice, the Dissenting Shareholder will retain all
other rights of a Heritage shareholder until these rights are canceled or
modified by consummation of the merger. Failure to comply substantially with
these procedures will cause the Dissenting Shareholder to lose his or her
dissenter's rights to payment of the shares. Consequently, any Heritage
shareholder who desires to exercise his or her rights to payment for his or her
shares is urged to consult his or her legal advisor before attempting to
exercise such rights.
As soon as the merger is completed, or upon later receipt of a timely
Payment Demand, Heritage shall, pursuant to Section 48-23-206 of the TBCA, pay
to each Dissenting Shareholder who has complied with the requirements of Section
48-23-204 of the TBCA the amount which Heritage estimates to be fair value of
the shares of Heritage common stock, plus accrued interest. Such payment must be
accompanied by (i) certain of Heritage's financial statements, (ii) a statement
of Heritage's estimate of the fair value of the shares, (iii) an explanation of
how the interest was calculated, (iv) a statement of the Dissenting
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Shareholder's right to demand payment under Section 48-23-209 of the TBCA, and
(v) a copy of Sections 48-23-101 through 48-23-302 of the TBCA if not previously
furnished. As authorized by Section 48-23-208 of the TBCA, Heritage intends to
delay any payments with respect to any shares (the "after-acquired shares") held
by Dissenting Shareholders which were not held by such shareholder on September
9, 1999, the date of the first public announcement of the terms of the merger
agreement. To the extent Heritage should elect to withhold payment, after
effecting the merger, Old National as the surviving corporation in the merger
must estimate the fair value of the shares, plus accrued interest, and pay such
amount to each Dissenting Shareholder who agrees to accept it in full
satisfaction of this demand. Old National shall send with such payment a
statement of its estimate of the fair value of the shares, an explanation of how
the interest was calculated and a statement of the Dissenting Shareholder's
right to demand additional payment under Section 48-23-209 of the TBCA.
If (i) a Dissenting Shareholder believes that the amount paid with respect
to his or her shares under Section 48-23-206 or offered under Section 48-23-208
of the TBCA is less than the fair value of his or her shares or that the
interest due is incorrectly calculated, (ii) Old National fails to make payment
under Section 48-23-206 within two months after the date set for demanding
payment, or (iii) Heritage, having failed to effect the merger, does not return
the depositing Certificates or release the transfer restrictions imposing on
uncertificated shares within two months after the date set for demanding
payment, the Dissenting Shareholder may notify Heritage within one month after
Heritage made or offered payment for such shareholders' shares) of his or her
own estimate of the fair value of the shares and the amount of interest due and
may demand payment of the difference between his or her estimate of the fair
value and the amount of any payment in respect to such shares already received
by the shareholder, or, in the alternative, if no payment has yet been made by
Heritage, reject Heritage's offer made under Section 48-23-208 of the TBCA and
demand payment of the fair value of his or her shares and interest due.
If Old National (as the surviving corporation) cannot agree with such
Dissenting Shareholder as to fair value within two months after Old National
receives the Payment Demand, Old National will institute judicial proceedings in
either the Chancery or Circuit Court of Montgomery County, Tennessee (the
"Court"), naming all Dissenting Shareholders (whether or not Tennessee
residents) whose demands remain unsettled as party to the proceeding and serving
such parties with a copy of the petition. The Court will then undertake to
establish the fair value of the shares immediately before the completion of the
merger, excluding any appreciation or depreciation in anticipation of the merger
and will determine the interest owing on the disputed amount. The fair value of
the Dissenting Shareholder's shares of Heritage common stock may be more than,
less than or the same as the consideration provided in the merger agreement. The
Court may, in its discretion, appoint one or more persons as appraisers to
receive evidence and render a decision on the question of fair value of his or
her shares, plus accrued interest, exceeds the amount paid by Heritage or the
fair value, plus accrued interest, or his or her after acquired shares for which
Heritage or the fair value, plus accrued interest, or his or her after acquired
shares for which Heritage elected to withhold payment under Section 48-23-208 of
TBCA.
The Court shall assess costs and expenses of such proceeding (including
reasonable compensation for and expense of the appraiser but excluding fees and
expenses of counsel and experts) against Heritage (or Old National as its
successor in the merger), except that the Court may assess such costs and
expenses as it deems appropriate against any and all of the Dissenting
Shareholders if it finds that their demand for additional payment was arbitrary,
vexatious or not in good faith. The Court may award fees and expenses of counsel
and experts in amounts the Court finds equitable: (i) against Heritage, if the
Court find that Heritage did not comply substantially with the relevant
requirements of the TBCA or (ii) against Heritage or any Dissenting Shareholder,
if the Court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously, or not in good faith.
The foregoing summary of the applicable provision of Chapter 23 of Title 48
of the TBCA is not intended to be a complete statement of such provisions, and
is qualified in its entirety by reference to such Chapter, a copy of which is
attached as Appendix C. Any Heritage shareholder who intends to dissent from the
merger should review the text of Appendix C carefully and should also consult
with an attorney.
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Any shareholder who fails to strictly follow the procedures described in the
statute will forfeit dissenters' rights.
RESALE OF OLD NATIONAL COMMON STOCK BY AFFILIATES OF HERITAGE
Shares of Old National common stock to be issued to Heritage shareholders
in the merger have been registered under the Securities Act of 1933, as amended.
Shares of Old National common stock issued in the merger may be traded freely
and without restriction by those shareholders not considered to be affiliates
(as that term is defined by the Securities Act) of Heritage. However, shares by
any person who is an affiliate of Heritage at the time of the merger is
submitted for a vote at the special meeting will, under existing law, require:
- the further registration under the Securities Act of the shares of Old
National common stock to be transferred;
- compliance with Rule 145 promulgated under the Securities Act, which
permits limited sales in certain circumstances; or
- the availability of another exemption from registration.
An "affiliate" of Heritage is a person who directly, or indirectly through
one or more intermediaries, controls, is controlled by, or is under common
control with, Heritage. These restrictions are expected to apply to the
directors and executive officers of Heritage and the holders of 10% or more of
the Heritage common stock. The same restrictions apply to certain relatives or
the spouse of those persons and any trusts, estates, corporations or other
entities in which those persons have a 10% or greater beneficial or equity
interest. Old National will give stop transfer instructions to the transfer
agent with respect to the shares of Heritage common stock to be received by
persons subject to these restrictions, and the certificates for their shares may
contain a legend indicating the resale restrictions.
SEC guidelines regarding qualifying for the pooling of interests method of
accounting also limit sales of shares of the acquiring and acquired company by
affiliates of either company in a business combination. SEC guidelines indicate
that the pooling of interests method of accounting will generally not be
challenged on the basis of sales by affiliates of the acquiring or acquired
company if those affiliates do not dispose of any of the shares of the
corporation they own or shares of a corporation they receive in connection with
a merger during the period beginning 30 days before the merger and ending when
financial results covering at least 30 days of post-merger operations of the
combined entity have been published.
Each affiliate of Heritage delivered to Old National on September 8, 1999,
a written agreement to the effect that the affiliate (1) will not sell, pledge,
transfer, dispose of or otherwise reduce the affiliate's market risk with
respect to the shares of Heritage common stock directly or indirectly owned or
held by such person during the thirty day period prior to the effective time of
the merger, and (2) will not sell, pledge, transfer or otherwise dispose of or
reduce the affiliate's market risk with respect to the shares of Old National
common stock to be received by such person pursuant to the merger agreement (i)
until such time as financial results covering at least thirty days of combined
operations of Heritage and Old National have been published within the meaning
of Section 201.01 of the Securities and Exchange Commission's Codification of
Financial Reporting Policies and (ii) 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 merger agreement requires that any person who becomes an affiliate of
Heritage after September 8, 1999 deliver a similar agreement to Old National,
and that all persons who have delivered these agreements confirm, at the
effective time of the merger, that they have complied with the terms of the
agreements.
This is only a general statement of certain restrictions regarding the sale
or transfer of the shares of Old National common stock to be issued in the
merger. Therefore, those shareholders of Heritage who may be deemed to be
affiliates of Heritage should consult with their legal counsel regarding the
resale restrictions that may apply to them.
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CONDITIONS TO THE COMPLETION OF THE MERGER
Heritage's and Old National's obligations to complete the merger are
subject to the satisfaction of the following conditions at or prior to the
effective time of the merger:
- The merger agreement has been approved by the affirmative vote of the
holders of at least a majority of the outstanding shares of Heritage
common stock;
- Old National and Heritage have received all regulatory approvals required
for the merger;
- Old National and Heritage have received the opinion of counsel dated as
of the effective time of the merger, with respect to the fact that the
merger will be treated as tax-free for U.S. federal income tax purposes;
- The registration statement of which this document is a part is effective
and no stop order suspending its effectiveness is issued or threatened;
- Old National and Heritage have received certain officers' certificates
and other closing documents;
- The representations and warranties contained in the merger agreement are
accurate at the effective time of the merger; and
- Certain covenants set forth in the merger agreement have been fulfilled.
Old National's obligation to complete the merger also is subject to the
condition that it has received an opinion from its independent auditors dated as
of the effective time of the merger, to the effect that the merger will qualify
for pooling of interests accounting treatment.
The conditions to consummation of the merger, which are more fully
enumerated in the merger agreement, are requirements subject to waiver by the
party entitled to the benefit of such conditions, as set forth in the merger
agreement. See "Proposed Merger -- Resale of Old National Common Stock by
Affiliates of Heritage," "-- Regulatory Approvals Required for the Merger",
"Federal Income Tax Consequences" and Appendix A.
BREAK-UP FEE
Heritage has agreed to pay Old National a break-up fee in the amount of
$2,000,000.00, plus out-of-pocket expenses, in the event that (i) the Heritage
Board fails to recommend to Heritage shareholders approval of the merger
agreement; (ii) the Heritage Board withdraws, modifies or conditions its
recommendation of approval of the merger agreement to the Heritage shareholders;
(iii) Heritage approves, enters into or executes a definitive agreement, letter
of intent, term sheet or understanding relating to an acquisition transaction
with a party other than Old National or an affiliate of Old National; or (iv)
Heritage terminates the merger agreement as a result of contemporaneously
entering into a definitive agreement with a third party.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement contains provisions allowing Old National and Heritage
to terminate the merger agreement and the merger for various reasons. The merger
may be terminated by Old National or Heritage before or after the shareholders
of Heritage have approved the merger if one of the events which gives a party
the right to terminate occurs. The merger agreement may be terminated:
- by the mutual, written consent of the Board of Directors of Old National
and Heritage;
- by either Old National or Heritage if the merger has not been completed
by June 30, 2000;
- by either the Old National Board or the Heritage Board if there has been
a breach of any representation or warranty contained in the merger
agreement by Heritage, in the case of termination by Old National, or by
Old National, in the case of termination by Heritage, and the breach has
not been cured within 30 days after written notice to the breaching party
of the breach;
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- by either the Old National Board or the Heritage Board if there has been
a breach of any of the covenants or agreements contained in the merger
agreement by Heritage, in the case of termination by Old National, or by
Old National, in the case of termination by Heritage, and (1) the breach
has not been cured within 30 days written notice to the breach party of
the breach; and (2) the breach will be likely, individually or in the
aggregate with other breaches, to result in a material adverse effect;
- by either Old National or Heritage if the terminating party reasonably
determines that the merger has become impracticable because of (1) the
commencement or threat of any claim or litigation against Old National,
Heritage, any subsidiary of Old National or Heritage, or any director or
officer of any of these companies relating to the merger or merger
agreement, if Old National is the terminating party or (2) the
commencement, a threat of any material claim, litigation or proceeding
against Old National which relates to the merger or merger agreement or
which is likely to have a material adverse effect on Old National, if the
terminating party is Heritage; or
- by either Old National or Heritage if the shareholders of Heritage do not
approve the merger and the merger agreement and Heritage has satisfied
its obligation to obtain shareholder approval.
Additionally, Old National may terminate the merger if:
- the merger will not qualify for pooling of interests accounting
treatment;
- there has been a material adverse change in the business, assets,
capitalization, financial condition or results of operations of Heritage
and its subsidiaries (considered as a whole) as of the effective time of
the merger compared to that in existence as of September 8, 1999 (the
date of the merger agreement) other than changes that occur as a result
of changes in banking laws, accounting principles, actions approved by
Old National, changes such as interest rates that affect the banking
industry generally and changes and charges that are a result of the
merger; or
- in the event that dissenters' rights are exercised pursuant to the merger
agreement, and the aggregate amount of cash payable to dissenting
shareholders exceeds ten percent (10%) of the value of the total
consideration to be paid with respect to the merger.
Further, Heritage may terminate the merger if:
- there has been a material adverse change in the financial condition,
results of operations, business, assets or capitalization of Old National
on a consolidated basis as of the effective time as compared to that in
existence on June 30, 1999 other than changes that occur as a result of
changes in banking laws, accounting principles, changes such as interest
rates that affect the banking industry generally and changes and charges
that are a result of the merger;
- prior to approval of the shareholders of Heritage of the merger, without
breaching its covenant relating to negotiations with other potential
acquirors, Heritage enters into a definitive agreement with a third party
that provides for an acquisition of Heritage or a subsidiary of Heritage
on terms determined in good faith by the Heritage Board to be more
favorable to the shareholders of Heritage than the merger with Old
National and that the Heritage Board has determined that to proceed with
the merger with Old National would violate their fiduciary duties to
Heritage's shareholders; or
- at any time during the five-day period beginning on the date on which the
last required regulatory approval is obtained, both of the following
conditions are satisfied:
(1) the number obtained by dividing the average of the closing price of a
share of Old National common stock on the Nasdaq National Market
System for the 20 consecutive trading days ending on the day prior to
the day the last required regulatory approval is obtained by $28.63
(the "ONB Ratio") is less than 0.80; and
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(2) the ONB Ratio is less than a number obtained by dividing two index
numbers derived from the Nasdaq Bank Index as reported in the
Bloomberg News Service ("the Index Ratio"). The Index Ratio is
calculated by dividing the average of the index value of the Nasdaq
Bank Index for the 20 consecutive trading days ending on the trading
day prior to the day the last regulatory approval is obtained by
$28.63 and then subtracting 0.15.
If Heritage elects to terminate the merger for this reason, it must
give written notice to Old National of its desire to terminate the
merger within a five day period, which begins on the day the last
regulatory approval is received. After Old National receives the notice
of termination, Old National has five days to determine, at its option,
to increase the consideration to be received by Heritage shareholders
by adjusting the exchange ratio of 3.3075. The exchange ratio would be
adjusted to equal the lesser of:
(a) a number obtained by dividing the product of $28.63, 0.80 and the
exchange ratio by the average of the closing price of a share of
Old National common stock on the Nasdaq National Market System
during the period of 20 consecutive trading days ending on the day
before the day the last regulatory approval is obtained; and
(b) a number obtained by dividing the product of the Index Ratio by the
exchange ratio (as then in effect) by the ONB Ratio.
If Old National elects to adjust the exchange ratio, it must give
Heritage prompt notice of this election and of the revised exchange
ratio.
If the last regulatory approval was received on January 25, the average
of the closing price of a share of Old National common stock for the
above calculation would be $29.83. The ONB Ratio would equal 1.04
($29.83 divided by $28.63). As a result of the ONB Ratio being greater
than .80, Heritage would not have the right to terminate the merger
agreement as the result of the price of Old National's common stock.
Upon termination for any of these reasons, the merger agreement will be of no
further force or effect.
RESTRICTIONS AFFECTING HERITAGE
The merger agreement contains a number of restrictions regarding the
conduct of business of Heritage until the merger is completed. Among other
items, Heritage or any subsidiary of Heritage may not, without the prior written
consent of Old National:
- change its capital stock accounts, except for the issuance of up to
87,969 shares of Heritage common stock under the Heritage 1989 Stock
Option Plan, the Heritage 1998 Outside Director Stock Option Plan, and
the Heritage 1998 Stock Option Plan;
- authorize any additional class of stock or issue securities other than or
in addition to the securities which were issued and outstanding as of the
date of the merger agreement;
- distribute or pay any dividends or make any other distributions to its
shareholders except that (1) Heritage Bank may pay cash dividends to
Heritage in the ordinary course of business for payment of reasonable and
necessary business and operating expenses of Heritage and to provide
funds for Heritage's dividends to its shareholders in accordance with the
merger agreement; and (2) Heritage may pay to its shareholders its usual
and customer annual cash dividend of no greater than One and 50/100
Dollars ($1.50) per share to be paid to shareholders of Heritage prior to
December 31, 1999, and (3) if Old National declares a cash dividend in
the first quarter of 2000 and the merger has not been completed prior to
the record date of such cash dividend, the Heritage may declare and pay a
cash dividend for each issued and outstanding share of Heritage common
stock in an amount equal to the Old National cash dividend (on a per
share of Old National Bancorp common stock basis) multiplied by the
exchange ratio.
- redeem any of its outstanding shares of common stock;
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- merge, consolidate or sell its assets or securities to any other person
or entity;
- purchase any assets or securities or assume any liabilities of another
bank, bank holding company or other entity, except in the ordinary course
of business;
- make any loan or commitment to lend money or accept any deposit except in
accordance with existing banking practices;
- amend or restate its Charter or By-Laws or the Charter or By-Laws of any
of its subsidiaries;
- open, close or alter any of its offices or facilities;
- fail to maintain the reserve for loan and lease losses of its
subsidiaries financial institutions;
- elect or appoint any new executive officers or directors of Heritage or
any of its subsidiaries;
- hire or employ additional employees of Heritage or any subsidiary, except
those which are reasonably necessary for the proper operation of their
businesses; or
- negotiate or discuss with third parties a possible sale, merger or
combination of Heritage, unless the failure to do so would be breach of
the fiduciary duties of the Heritage Board.
This discussion of the restrictions imposed by the merger agreement is not
intended to be exhaustive, but includes the material restrictions imposed on
Heritage. Please refer to Appendix A for a complete listing of the restrictions.
REGULATORY APPROVALS REQUIRED FOR THE MERGER
Old National and Heritage have agreed to use their best efforts to obtain
all regulatory approvals required to complete the transactions contemplated in
the merger agreement. The merger requires the prior approval of the Board of
Governors of the Federal Reserve System ("Federal Reserve") and the Tennessee
Department of Financial Institutions. The merger cannot be completed without
these approvals.
As of the date of this document, only the Federal Reserve has approved the
merger.
Approval of the merger by the Federal Reserve and the state regulator is
not to be interpreted as the opinion of the regulatory authorities that the
merger is favorable to the shareholders of Heritage from a financial point of
view or that the regulatory authorities have considered the adequacy of the
terms of the merger. An approval by the Federal Reserve or a state regulatory
agency in no way constitutes an endorsement or a recommendation of the merger by
such regulatory authority.
- FEDERAL RESERVE
The merger is subject to approval by the Federal Reserve. Old National has
filed the required application and notification with the Federal Reserve for
approval of the merger. Assuming the Federal Reserve approves the merger, Old
National and Heritage may not complete the merger until 30 days after that
approval. During that time, the Department of Justice may challenge the merger
on antitrust grounds. With the approval of the Federal Reserve and the
Department of Justice, the waiting period may be reduced to no fewer than 15
days. The commencement of an antitrust action by the Department of Justice would
stay the effectiveness of Federal Reserve approval of the merger, unless a court
specifically orders otherwise.
In reviewing a transaction under the applicable statutes, the Federal
Reserve will consider the financial and managerial resources of the companies
and their subsidiary banks and the convenience and needs of the communities to
be served. As part of, or in addition to, consideration of these facts, Old
National and Heritage anticipate that the Federal Reserve will consider the
regulatory status of Old National and Heritage, current and projected economic
conditions in the areas of the Midwestern United States where Old National and
Heritage operate, and the overall capital and safety and soundness
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standards established by the Federal Deposit Insurance Corporation Improvement
Act of 1991 (the "FDICIA") and the regulations promulgated under the FDICIA.
Furthermore, the Federal Reserve will assess the degree to which Old
National and Heritage and their subsidiaries have taken appropriate steps to
assure that electronic data processing systems and those of their vendors are
year 2000 compliant. Additional information about Old National's and Heritage's
year 2000 compliance efforts to date may be found in each company's Annual
Report on Form 10-K for the year ended December 31, 1998. See "Where You Can
Find More Information."
Under the Community Reinvestment Act of 1977, as amended (the "CRA"), the
Federal Reserve must take into account the record of performance of each Old
National and Heritage in meeting the credit needs of the entire community,
including low and moderate-income neighborhoods, served by each company and
their subsidiaries. Each of Old National's and Heritage's subsidiary depository
institutions has either an outstanding or satisfactory CRA rating with the
appropriate federal regulator. None of the subsidiary banks of Old National or
Heritage received any negative comments from its respective federal regulator in
its last CRA examination relating to those ratings that were material and remain
unresolved.
The BHC Act and Federal Reserve regulations require publication or notice
of, and the opportunity for public comment on, the application submitted by Old
National for approval of the merger, and authorize the Federal Reserve to hold a
public meeting in connection with the application if the Federal Reserve
determines that a meeting would be appropriate. Any meeting or comments provided
by third parties could prolong the period during which the application is
subject to review by the Federal Reserve.
Old National's rights to exercise its options under the option agreement
are also subject to the prior approval of the Federal Reserve, to the extent
that the exercise of the options under the option agreement would result in Old
National owning more than 5% of the outstanding shares of Heritage common stock.
In considering whether to approve Old National's right to exercise its option,
including its right to purchase more than 5% of the outstanding shares of
Heritage common stock, the Federal Reserve would generally apply the same
statutory criteria it will apply to its consideration of the merger.
- TENNESSEE DEPARTMENT OF FINANCIAL INSTITUTIONS
The merger requires the approval of the Tennessee Department of Financial
Institutions pursuant to Tennessee Department of Financial Institution Rule
018.0-15. The Tennessee Department of Financial Institutions will consider,
among other factors, whether the merger would result in a monopoly in any of the
markets served by Heritage in Tennessee and whether the financial condition of
Old National might jeopardize the financial stability of Heritage, in
determining whether to approve the merger. Old National has filed a copy of the
Federal Reserve notice with the Tennessee Department of Financial Institutions
in satisfaction of its application requirements.
ACCOUNTING TREATMENT FOR THE MERGER
Old National and Heritage anticipate that the merger will be accounted for
as a pooling of interests transaction under GAAP. Under this method of
accounting, shareholders of Old National and Heritage will be deemed to have
combined their existing voting common stock interests by virtue of the exchange
of shares of Heritage common stock for shares of Old National common stock.
Accordingly, the book value of the assets, liabilities and shareholders' equity
of each of Heritage, as reported on its consolidated balance sheet, will be
carried over to the balance sheet of Old National and no goodwill will be
created. The parties have prepared the unaudited, pro forma financial
information contained in this document using the pooling of interests accounting
method to account for the merger. See "Old National Bancorp Pro Forma Condensed
Combined Financial Information".
In order for the merger to qualify for pooling of interests accounting
treatment, among other requirements, 90% or more of the outstanding shares of
Heritage common stock must be exchanged for Old National common stock. In the
event the holders representing more than 10% of the outstanding shares of
Heritage common stock become entitled to receive cash instead of Old National
common stock,
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the merger would not qualify for pooling of interests method of accounting and
Old National would have the right to terminate the merger. See "Proposed
Merger -- Termination of the Merger Agreement."
EFFECTIVE TIME
The merger will become effective at the close of business on the day and at
the time specified in the Articles of Merger of Heritage with and into Old
National as filed with the Indiana Secretary of State and Tennessee Secretary of
State. The effective time of the merger will occur on the later of (1) January
31, 2000 or (2) the last business day of the month following (a) the fulfillment
of all conditions precedent to the merger set forth in the merger agreement and
(b) the expiration of all waiting periods in connection with the bank regulatory
applications filed for approval of the merger, unless, in each case, otherwise
mutually agreed to by Old National and Heritage.
Old National and Heritage currently anticipate that merger will be
consummated during February 2000. However, completion of the merger could be
delayed if there is a delay in obtaining the required regulatory approvals or in
satisfying other conditions to the merger.
MANAGEMENT, PERSONNEL AND EMPLOYEE BENEFITS AFTER THE MERGER
Old National will be the surviving corporation in the merger and, upon
consummation of the merger, the separate corporate existence of Heritage will
cease. Consequently, the directors and officers of Heritage will no longer serve
in such capacities after the effective time of the merger.
Heritage Bank will become a wholly-owned subsidiary of Old National.
Heritage Investment Center, Inc., Central Life Insurance Company, Advance Credit
Company, Inc., and Heritage Investment Corporation will each remain wholly-owned
subsidiaries of Heritage Bank. The Boards of Directors and officers of all of
Heritage's subsidiaries serving at the effective time of the merger will
continue as the Boards of Directors and officers of the respective subsidiary
after the effective time of the merger. Following the effective time of the
merger, Old National, as the sole shareholder of each of the subsidiaries, will
have the ability to elect the Boards of Directors and officers of the
subsidiaries. The current officers of the subsidiaries of Heritage will continue
in their respective positions after the merger, until the Board of Directors of
each of the subsidiaries determines otherwise. Additionally, Old National has
agreed to honor and abide by the terms of the employment agreements of Heritage
or its subsidiaries, which were in effect as of the date of the merger
agreement.
Those persons who are full-time officers or employees of the subsidiaries
of Heritage as of the effective time of the merger, provided that these persons
continue as full-time officers or employees of the former subsidiaries of
Heritage or any other subsidiary of Old National after the effective time of the
merger, will receive substantially the same employee benefits on substantially
the same terms and conditions that Old National may offer to similarly situated
officers and employees of its banking subsidiaries from time to time. In
addition, years of service of an employee of Heritage or any of its subsidiaries
prior to the effective time of the merger will be credited to each such employee
for purposes of eligibility under Old National's employee welfare benefit plans
and for purposes of eligibility and vesting, but not for accrual or
contributions, under the Old National Employees' Retirement Plan ("Old National
Pension Plan"), the Old National Employees' Savings and Profit Sharing Plan
("Old National Profit Sharing Plan"), and the Old National Employee Stock
Ownership Plan ("Old National ESOP").
Those officers and employees of Heritage or any of its subsidiaries who
otherwise meet the eligibility requirements of the Old National Pension Plan,
Old National Profit Sharing Plan and the Old National ESOP, based upon their age
and years of service to Heritage or any of its subsidiaries, will become
participants under the Old National Pension Plan on the January 1st which
coincides with or next follows the effective time of the merger, and will become
participants under the Old National Profit Sharing Plan and the Old National
ESOP on the first day of the calendar month which coincides with or next follows
the effective time of the merger. Those officers and employees who do not meet
the eligibility requirements of the Old National Pension Plan, Old National
Profit Sharing Plan or the Old National ESOP on such date will become
participants in these plans on the first "plan entry date" (as defined in
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the Old National Pension Plan, the Old National Profit Sharing Plan or the Old
National ESOP, as the case may be) which coincides with or next follows the date
on which such eligibility requirements are satisfied.
The assets and liabilities under the Heritage Bank Profit Sharing, 401(K)
Savings and Employee Stock Ownership Plan and Trust ("Heritage 401(K)/ESOP")
will merge with the Old National Savings Plan. All account balances maintained
under the Heritage 401(k) Plan will become fully vested at the effective time of
the merger. As soon as administratively feasible after the effective time of the
merger, the assets and liabilities under the Heritage Bank Profit Sharing,
401(k) Savings and Employee Stock Ownership Plan and Trust ("Heritage
401(k)/ESOP") attributable to the 401(k) portion of such plan shall be merged
with and into the ONB Savings Plan. All account balances maintained under the
Heritage 401(k)/ESOP shall become fully vested and nonforfeitable at the
effective time of the merger. Until such 401(k) plans are merged, Heritage and
its subsidiaries may continue to make contributions to the Heritage 401(k)/ESOP
so long as such contributions are comparable in amount, on a prorated basis, to
recent past contributions to that plan in comparable amounts to past
contributions to such plan.
The Heritage Bank Group Health Plan will terminate as of the last day of
the calendar month in which the effective time of the merger occurs. Until such
time when the Heritage Group Health Plan terminates, Heritage and its
subsidiaries shall continue to pay the insurance premiums necessary to continue
the Heritage Group Health Plan benefits.
The Heritage Bank Group Dental Plan will terminate as of the last day of
the calendar month in which the effective time of the merger occurs. Until such
time when the Heritage Dental Plan terminates, Heritage and its subsidiaries
shall continue to pay the insurance premiums necessary to continue the Heritage
Dental Plan benefits.
The Heritage Bank Group Long Term Disability Plan will terminate as of the
effective time of the merger, or as soon as administratively feasible
thereafter, but such termination shall not affect the benefits payable to any
covered former Heritage employee who became entitled to a disability benefit
under the Heritage Long Term Disability Plan prior to the termination of said
plan. Until such time when the Heritage Long Term Disability Plan terminates,
Heritage and its subsidiaries shall continue to pay the insurance premiums
necessary to continue the Heritage Long Term Disability Plan benefits.
The Heritage Fringe Benefit Plan will terminate as of same date the
Heritage Bank Group Health Plan is terminated. Until such time when the Heritage
Fringe Benefit Plan terminates, Heritage and its subsidiaries shall continue to
contribute to such plan the pre-tax amounts which the Heritage Fringe Benefit
Plan participants elect to defer from compensation. As of the date of
termination, the balances in the health and dependent care flexible spending
accounts under the Heritage Fringe Benefit Plan shall be transferred to the Old
National "cafeteria" plan. Elections in effect at that time shall be continued
under the Old National "cafeteria" plan, subject to change as provided in the
Old National "cafeteria" plan. All benefit payments relating to the transferred
balances shall be made in accordance with the Old National "cafeteria" plan.
The Heritage Bank Group Term Life and ADD Insurance Plan will terminate as
of the end of the month coincident with or next following the effective time of
the merger. Until such time when the Heritage Bank Group Term Life and ADD
Insurance Plan terminates, Heritage and its subsidiaries shall continue to pay
the insurance premiums necessary to continue the death benefits provided by such
plan.
The payment of premiums to provide voluntary cancer insurance shall cease
as of the effective time of the merger.
The payment of premiums to provide executives of Heritage and/or its
subsidiaries with individual life and/or disability insurance coverage shall
cease as of the effective time of the merger. The executives may then exercise
at their discretion whatever conversion rights they may have, if any, with
respect to those insurance policies.
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The Heritage Financial Services, Inc. Directors' Unfunded Deferred
Compensation Plan (the "Heritage Directors' Deferred Compensation Plan") and all
participation agreements in effect thereunder, will terminate as of the
effective time of the merger. Until such time when the Heritage Directors'
Deferred Compensation Plan is terminated, Heritage and its subsidiaries may
continue to allow participants thereunder to elect to defer the receipt of all
or a portion of the director fees he or she would otherwise receive and to
credit such fees to the director's individual account under the plan. Upon the
termination of the Heritage Directors' Plan, the balance in each individual
account thereunder shall be distributed in a lump sum payment to the participant
entitled thereto. The Board of Directors of Heritage, and the Board of Directors
of each of its subsidiaries which is participating in the Heritage Directors'
Deferred Compensation Plan, shall, prior to the day on which the effective time
of the merger occurs, amend or cause the amendment of such plan to provide that
upon the termination of such plan the accrued benefits thereunder shall be
immediately paid in a lump sum payment to the individuals entitled to such
accrued benefits. Notwithstanding the foregoing, if Old National adopts a
deferred compensation plan for its directors and/or the directors of its
subsidiaries, then the Heritage Directors' Deferred Compensation Plan shall be
"frozen" as of the effective time of the merger and the accumulated benefit
obligations under the Heritage Directors' Deferred Compensation Plan shall be
transferred to, and become benefit obligations under, the Old National plan.
Such transferred benefits shall thereafter accrue "earnings," be paid and
generally be administered pursuant to the terms of the Old National plan. Prior
to the effective time of the merger, Heritage shall use its best efforts to
obtain acknowledgments and consents from each Heritage Directors' Deferred
Compensation Plan participant as to the foregoing disposition of his or her plan
benefit.
The Heritage Bank Severance Policy will terminate as of the effective time
of the merger. With respect to an individual covered by such severance policy on
the date of its termination, in the event that he or she incurs, within twelve
months from the effective time of the merger, an involuntary termination of
employment for reasons other than cause, he or she shall be entitled to receive
a severance benefit. The severance benefit shall be a salary continuation the
amount of which shall be the amount payable to such individual under the salary
continuation provisions of the Old National Severance Policy, if any, then
applicable to such individual. An individual who is entitled to a benefit under
the Old National Severance Policy shall also be entitled to a continuation of
employee benefits as determined solely by the applicable provisions of the Old
National Severance Policy.
At or prior to the effective time of the merger, Heritage shall use its
best efforts, including using its best efforts to obtain any necessary consents
from optionees, with respect to the Heritage Bank 1989 Employees Stock Option
Plan and the Heritage Financial Services, Inc. 1998 Stock Option Plan ("Heritage
Stock Option Plans") to permit the conversion of each outstanding option to
acquire shares of common stock of Heritage which was properly granted pursuant
to a stock option agreement executed in accordance with the provisions of a
Heritage Stock Option Plan by Old National, and to permit Old National to assume
the sponsorship and administration of the Heritage Stock Option Plans. Heritage
shall amend the Heritage Bank 1989 Employees Stock Option Plan, or cause such
plan to be amended, to eliminate any rights to receive cash in lieu of stock
under the plan. Finally, Heritage shall take all actions needed to terminate the
Heritage Financial Services, Inc. 1998 Outside Directors' Stock Option Plan as
of the effective time of the merger. In addition, all unexercised options
previously granted under that plan shall lapse and become unexercisable on and
after the effective time of the merger.
EMPLOYMENT AGREEMENTS
Earl O. Bradley, Chief Executive Officer and President of Heritage Bank,
entered into a three-year employment agreement which becomes effective at the
time the merger is completed. The agreement provides for Mr. Bradley to serve as
of Chief Executive Officer and President of Old National Bank, Clarksville,
Tennessee following the merger. The agreement provides for an annual salary of
$165,000. Additionally, Old National will grant to Mr. Bradley executive
performance awards, stock options, stock appreciation rights, bonuses and other
incentive grants at least in equal amounts and substantially the same as those
awarded to other executives of Old National during the term of Mr. Bradley's
employment agreement.
31
<PAGE> 38
Under the terms of the employment agreement, Mr. Bradley agrees not solicit
any of Old National's customers or employees for a term of eighteen months after
his employment with Old National ends or the expiration of the term of the
employment agreement. Additionally, Mr. Bradley agrees not to compete with Old
National or be employed by Old National's competitors within Montgomery County,
Tennessee and those counties contiguous to Montgomery County, Tennessee. This
restriction is for a period of eighteen months after Mr. Bradley's employment
with Old National ends or the term of the employment agreement ends.
John T. Halliburton, Executive Vice President -- Lending of Heritage Bank,
entered into a three-year employment agreement which becomes effective at the
time the merger is completed. The agreement provides for Mr. Halliburton to
serve as Executive Vice President -- Lending of Old National Bank, Clarksville,
Tennessee following the merger. The agreement provides for an annual salary of
$140,000. Additionally, Old National will grant to Mr. Halliburton executive
performance awards, stock options, stock appreciation rights, bonuses and other
incentive grants at least in equal amounts and substantially the same as those
awarded to other executives of Old National during the term of Mr. Halliburton's
employment agreement.
Under the terms of the employment agreement, Mr. Halliburton agrees not
solicit any of Old National's customers or employees for a term of eighteen
months after his employment with Old National ends or the expiration of the term
of the employment agreement. Additionally, Mr. Halliburton agrees not to compete
with Old National or be employed by Old National's competitors within Montgomery
County, Tennessee and those counties contiguous to Montgomery County, Tennessee.
This restriction is for a period of eighteen months after Mr. Halliburton's
employment with Old National ends or the term of the employment agreement ends.
Randy Clouser, Senior Vice President -- Commercial Loans of Heritage Bank,
entered into a three-year employment agreement which becomes effective at the
time the merger is completed. The agreement provides for Mr. Clouser to serve as
Executive Vice President -- Lending of Old National Bank, Clarksville, Tennessee
following the merger. The agreement provides for an annual salary of $90,000.
Additionally, Old National will grant to Mr. Clouser executive performance
awards, stock options, stock appreciation rights, bonuses and other incentive
grants at least in equal amounts and substantially the same as those awarded to
other executives of Old National during the term of Mr. Clouser's employment
agreement.
Under the terms of the employment agreement, Mr. Clouser agrees not solicit
any of Old National's customers or employees for a term of eighteen months after
his employment with Old National ends or the expiration of the term of the
employment agreement. Additionally, Mr. Clouser agrees not to compete with Old
National or be employed by Old National's competitors within Montgomery County,
Tennessee and those counties contiguous to Montgomery County, Tennessee. This
restriction is for a period of eighteen months after Mr. Clouser's employment
with Old National ends or the term of the employment agreement ends.
INDEMNIFICATION; DIRECTORS' AND OFFICERS' LIABILITY INSURANCE
The merger agreement provides that Old National will indemnify, defend and
hold harmless any person who is or has been a director or officer of Heritage or
was serving at the request of Heritage as a director or officer of any
corporation, joint venture, trust employee benefit plan or other enterprise
against all losses arising out of any claim that is based upon or in any way
relates to any act or omission occurring at or prior to the effective time of
the merger in the person's capacity as a director or officer. Old National will
indemnify officers and directors of the subsidiaries of Heritage following the
effective time of the merger to the same extent it indemnifies other persons
working in similar capacities for Old National or its subsidiaries. The merger
agreement also provides that Old National will maintain in effect for not less
than two years from the effective time of the merger the directors' and
officers' liability insurance policies carried by Heritage. However, Old
National may substitute other liability insurance policies if the policies
provide substantially similar coverage.
32
<PAGE> 39
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
to holders of Heritage common stock who hold such stock as a "capital asset"
within the meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended. Special tax consequences may be applicable to particular classes of
taxpayers, such as financial institutions, insurance companies, tax-exempt
organizations, broker-dealers, traders in securities that elect to apply a
mark-to-market method of accounting, persons that hold Heritage common stock as
part of a hedge, straddle or conversion transaction, persons who are not
citizens or residents of the United States and shareholders who acquired their
shares of Heritage common stock through the exercise of an employee stock option
or otherwise received as compensation. The following represents general
information only and is based on the Code, its legislative history, existing and
proposed regulations thereunder, published rulings and decisions, all as
currently in effect as of the date hereof, and all of which are subject to
change possibly with retroactive effect. Tax considerations under state, local
and foreign laws are not addressed in this document.
TAX OPINION
Old National has requested the law firm of Krieg DeVault Alexander &
Capehart, LLP to render an opinion that the merger, for federal income tax
purposes, and the merger to be effected pursuant to the merger agreement
constitutes a tax-free reorganization under the Code to each party thereto and
to the shareholders of Heritage, except with respect to cash received by
Heritage's shareholders for fractional share interests of Old National common
stock.
In rendering its opinion, Krieg DeVault Alexander & Capehart, LLP may
require and rely upon representations contained in letters received from Old
National and Heritage, respectively, and may rely on customary assumptions of
certain facts stated in the opinion. Under the merger agreement, the obligations
of each of Old National and Heritage to consummate the merger is conditioned
upon the receipt of an opinion of their respective counsel substantially to the
effect as set forth above. However, these legal opinions will not bind the
Internal Revenue Service, which could take a different view.
TAX CONSEQUENCES TO OLD NATIONAL AND HERITAGE
Assuming the merger of Heritage with and into Old National is consummated
as described in the merger agreement and constitutes a statutory merger under
Indiana law, then for United States federal income tax purposes, the merger of
Heritage with and into Old National will constitute a tax-free reorganization.
As a result, Old National and Heritage will recognize neither gain nor loss as a
result of the merger for federal income tax purposes.
TAX CONSEQUENCES TO HERITAGE SHAREHOLDERS
- HERITAGE SHAREHOLDERS RECEIVING SOLELY OLD NATIONAL COMMON STOCK
An Heritage shareholder who receives solely Old National common stock in
exchange for shares of Heritage common stock owned by the shareholder will not
recognize any gain or loss upon such exchange for federal income tax purposes.
See the later paragraph for a discussion of the tax consequences of the receipt
of cash in lieu of fractional share interests of Old National common stock.
- CASH RECEIVED FOR FRACTIONAL SHARE
An Heritage shareholder who receives cash for a fractional share interest
of Old National common stock will be treated as having received such fraction of
a share of Old National 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. That deemed redemption will be treated as a sale of the
fractional share, unless it is both "essentially equivalent to a dividend" and
is not "substantially disproportionate" with respect to the Heritage
shareholder. If treated as a sale and not a dividend, the Heritage shareholder
will recognize capital gain or loss equal to the difference between the amount
of cash received and the portion of the
33
<PAGE> 40
basis of the shares of Heritage common stock allocable to the fractional
interest. This capital gain or loss will be long term gain or loss if, as of the
date of the merger, the holding period for the shares of Heritage common stock
is greater than one year.
THE INTERNAL REVENUE SERVICE HAS NOT VERIFIED THE FEDERAL INCOME TAX
CONSEQUENCES DISCUSSION SET FORTH ABOVE. THE DISCUSSION IS INCLUDED FOR GENERAL
INFORMATION ONLY AND IS BASED UPON THE FEDERAL INTERNAL REVENUE CODE AS IN
EFFECT ON THE DATE OF THIS DOCUMENT WITHOUT CONSIDERATION OF ANY STATE LAWS OR
THE PARTICULAR FACTS OR CIRCUMSTANCES OF ANY SHAREHOLDER OF HERITAGE. THE ABOVE
DISCUSSION MAY NOT BE APPLICABLE WITH RESPECT TO SHARES ACQUIRED PURSUANT TO THE
EXERCISE OF STOCK OPTIONS OR OTHERWISE RECEIVED AS COMPENSATION. HERITAGE URGES
SHAREHOLDERS TO CONSULT WITH THEIR TAX ADVISOR WITH RESPECT TO ALL TAX
CONSEQUENCES OF THE MERGER 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
- OLD NATIONAL
Shares of Old National 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 September 9, 1999, the business day immediately preceding
the public announcement of the merger, the closing price of Old National common
stock reported by the Nasdaq National Market System was $28.63 per share. On
January 24, 2000, the closing price of Old National common stock reported by the
Nasdaq National Market System was $29.06 per share. The following table sets
forth, for the periods indicated, the high and low per share closing prices of
Old National 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 Old National.
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
---------------
HIGH LOW
------ ------
<S> <C> <C>
1997
First Quarter............................................... $21.74 $20.88
Second Quarter.............................................. 25.63 21.59
Third Quarter............................................... 26.21 25.19
Fourth Quarter.............................................. 28.65 25.63
1998
First Quarter............................................... $28.87 $27.22
Second Quarter.............................................. 29.63 28.87
Third Quarter............................................... 33.70 28.91
Fourth Quarter.............................................. 35.37 30.39
1999
First Quarter............................................... $35.00 $28.57
Second Quarter.............................................. 33.57 28.57
Third Quarter............................................... 30.00 26.43
Fourth Quarter.............................................. 30.55 26.19
</TABLE>
- HERITAGE
Shares of Heritage common stock are not traded publicly on a national
exchange system. There is no established trading market for Heritage common
stock, and trading in such shares is sporadic and
34
<PAGE> 41
generally confined to Clarksville, Tennessee. The quarterly high and low sale
prices in the following table were obtained by Heritage from parties to the
transactions. Heritage does not have information relating to the sale price in
all transactions, and the prices provided may not be indicative of the actual
high and low sale prices.
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
----------------
HIGH LOW
------- ------
<S> <C> <C>
1997
First Quarter............................................... $ 42.00 $32.00
Second Quarter.............................................. 49.00 44.00
Third Quarter............................................... 49.00 44.00
Fourth Quarter.............................................. 75.00 62.00
1998
First Quarter............................................... $ 75.00 $75.00
Second Quarter.............................................. 95.00 65.00
Third Quarter............................................... 100.00 85.00
Fourth Quarter.............................................. 95.00 82.00
1999
First Quarter............................................... $100.00 $95.00
Second Quarter.............................................. 100.00 95.00
Third Quarter............................................... 100.00 95.00
Fourth Quarter.............................................. 95.00 95.00
</TABLE>
DIVIDENDS
The following table sets forth the per share cash dividends paid on shares
of Old National common stock and Heritage common stock since January 1, 1997.
All dividends have been adjusted to give effect to their respective stock
dividends and stock splits (if any).
<TABLE>
<CAPTION>
OLD NATIONAL HERITAGE
COMMON COMMON
STOCK(1) STOCK(2)
------------ --------
<S> <C> <C>
1997
First Quarter............................................... $0.13 $0.00
Second Quarter.............................................. 0.13 0.00
Third Quarter............................................... 0.13 0.00
Fourth Quarter.............................................. 0.14 1.20
1998
First Quarter............................................... $0.13 $0.00
Second Quarter.............................................. 0.14 0.00
Third Quarter............................................... 0.14 0.00
Fourth Quarter.............................................. 0.14 1.35
1999
First Quarter............................................... $0.15 $0.00
Second Quarter.............................................. 0.16 0.00
Third Quarter............................................... 0.16 0.00
Fourth Quarter.............................................. 0.16 1.50
</TABLE>
- ---------------
(1) The timing and amount of future dividends will depend upon earnings, cash
requirements, the financial condition of Old National and its subsidiaries,
applicable government regulations and other factors the Old National Board
considers relevant. The dividend policies are subject to the discretion of
the Old National Board. For certain restrictions on the payment of dividends
on shares of Old National common stock, see "Comparison of Common
Stock -- Dividend Rights."
35
<PAGE> 42
(2) The merger agreement provides that Heritage may pay its customary annual
dividends of up to $1.50 share prior to December 31, 1999. Certain
subsidiaries may pay cash dividends to Heritage in the ordinary course of
business for payment of reasonable and necessary business and operating
expenses of Heritage and to provide funds for Heritage's dividends to
Heritage shareholders in accordance with the merger agreement.
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 38 through 44 and has been
restated to give effect to all stock dividends, including the 5% stock dividend
issued by Old National on January 28, 1999, the 5% stock dividend declared by
Old National on December 9, 1999 and a three-for-two stock split paid on May 24,
1999. Equivalent per share data is calculated by multiplying the pro forma Old
National information by the exchange ratio of 3.3075 shares of Old National
common stock for each share of Heritage common stock.
<TABLE>
<CAPTION>
AS REPORTED
---------------------------------------
CASH BOOK VALUE
HERITAGE NET INCOME DIVIDENDS AT PERIOD END
- -------- ---------- ---------- -------------
<S> <C> <C> <C>
Nine months ended September 30, 1999...................... $3.93 $0.00 $31.30
Year ended December 31,
1998.................................................... 5.00 1.35 27.25
1997.................................................... 4.15 1.20 23.31
1996.................................................... 3.93 1.00 20.43
</TABLE>
<TABLE>
<CAPTION>
NET INCOME(1)
-----------------------------------------------------------
OLD NATIONAL HERITAGE OLD NATIONAL HERITAGE
PRO FORMA(2) EQUIVALENT(2) PRO FORMA(3) EQUIVALENT(3)
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Nine months ended September 30, 1999...... $1.29 $4.27 $1.24 $4.10
Year ended December 31,
1998.................................... 1.54 5.09 1.49 4.93
1997.................................... 1.40 4.63 1.37 4.53
1996.................................... 1.25 4.13 1.22 4.04
</TABLE>
<TABLE>
<CAPTION>
CASH DIVIDENDS
-----------------------------------------------------------
OLD NATIONAL HERITAGE OLD NATIONAL HERITAGE
PRO FORMA(2) EQUIVALENT(2) PRO FORMA(3) EQUIVALENT(3)
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Nine months ended September 30, 1999...... $0.47 $1.55 $0.47 $1.55
Year ended December 31,
1998.................................... 0.55 1.82 0.55 1.82
1997.................................... 0.53 1.75 0.53 1.75
1996.................................... 0.50 1.65 0.50 1.65
</TABLE>
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
-----------------------------------------------------------
OLD NATIONAL HERITAGE OLD NATIONAL HERITAGE
PRO FORMA(2) EQUIVALENT(2) PRO FORMA(3) EQUIVALENT(3)
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
As of September 30, 1999.................. $10.70 $35.39 $10.64 $35.19
As of December 31, 1998................... 10.73 35.49 10.63 35.16
</TABLE>
<TABLE>
<CAPTION>
MARKET VALUE OF COMMON STOCK
----------------------------------
OLD NATIONAL HERITAGE EQUIVALENT
------------ -------------------
<S> <C> <C>
As of September 9, 1999(4).................................. $28.51 $94.30
</TABLE>
- ---------------
(1) Only includes net income from continuing operations for Old National.
(2) Considers the pending merger with Heritage. See "Pro Forma Condensed
Combined Financial Information."
36
<PAGE> 43
(3) Considers the pending merger with Heritage and the pending merger as of
September 30, 1999 with ANB Corporation. See "Pro Forma Condensed Combined
Financial Information."
(4) Represents the last business day prior to the public announcement of the
proposed merger of ANB and Old National.
37
<PAGE> 44
OLD NATIONAL BANCORP
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(UNAUDITED)
The accompanying financial statements present a Pro Forma Condensed
Combined Balance Sheet of Old National as of September 30, 1999 and Pro Forma
Condensed Combined Statements of Income for the nine months ended September 30,
1999 and for the years ended December 31, 1998, 1997, and 1996.
The Pro Forma Condensed Combined Statements of Income for the nine months
ended September 30, 1999 and the years ended December 31, 1998, 1997 and 1996
are presented giving effect to the pending merger as of January 1 of each of the
years presented.
The pro forma information is based upon historical financial statements.
The assumptions give effect to the proposed merger under the pooling of
interests method of accounting. The information has been prepared in accordance
with the rules and regulations of the SEC 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 merger been effected on January 1 of
the years presented.
38
<PAGE> 45
OLD NATIONAL BANCORP
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(UNAUDITED -- DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
ANB
OLD NATIONAL HERITAGE ADJUSTMENTS PRO FORMA CORPORATION ADJUSTMENTS PRO FORMA
------------ -------- ----------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and due from
banks................. $ 156,439 $ 9,063 $ 165,502 $ 27,104 $ 192,606
Money market
investments........... 11,917 2,040 13,957 5,877 19,834
Investment securities... 1,725,378 27,649 1,753,027 116,832 1,869,859
Loans................... 4,796,556 182,777 4,979,333 653,678 5,633,011
Reserve for loan
losses................ (58,117) (2,650) (60,767) (5,532) (66,299)
Excess cost over assets
acquired.............. 14,077 16 14,093 11,220 25,313
Other intangibles....... 0 412 412 0 412
Premises and
equipment............. 90,880 11,187 102,067 13,601 115,668
Other assets............ 226,177 3,540 229,717 11,096 240,813
---------- -------- ----- ---------- -------- ------- ----------
$6,963,307 $234,034 $ 0 $7,197,341 $833,876 $ 0 $8,031,217
========== ======== ===== ========== ======== ======= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits................ $5,025,330 $198,861 $5,224,191 $676,642 $5,900,833
Medium term notes....... 96,300 0 96,300 0 96,300
Subordinated
debentures............ 17,808 0 17,808 0 17,808
Other borrowings........ 1,220,824 13,701 1,234,525 77,991 1,312,516
Other liabilities....... 88,110 2,533 90,643 5,668 96,311
---------- -------- ---------- -------- ------- ----------
Total
liabilities... 6,448,372 215,095 0 6,663,467 760,301 0 7,423,768
---------- -------- ----- ---------- -------- ------- ----------
Common stock............ 45,635 1,210 791(a) 47,636 5,485 1,714(b) 54,835
Capital surplus......... 331,711 6,671 (791)(a) 337,591 13,622 (1,714)(b) 349,499
Retained earnings....... 154,632 11,305 165,937 55,097 221,034
Net unrealized gain..... (17,043) (247) (17,290) (629) (17,919)
---------- -------- ----- ---------- -------- ------- ----------
Total
shareholders'
equity........ 514,935 18,939 0 533,874 73,575 0 607,449
---------- -------- ----- ---------- -------- ------- ----------
$6,963,307 $234,034 $ 0 $7,197,341 $833,876 $ 0 $8,031,217
========== ======== ===== ========== ======== ======= ==========
Outstanding common
shares................ 47,917 49,918 57,117
========== ========== ==========
Shareholders' equity per
share................. 10.75 10.70 10.64
========== ========== ==========
</TABLE>
See "Notes to Pro Forma Condensed Combined Financial Information."
39
<PAGE> 46
OLD NATIONAL BANCORP
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED -- DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
AS REPORTED AS REPORTED
------------------- -----------
OLD ANB
NATIONAL HERITAGE PRO FORMA CORPORATION PRO FORMA
-------- -------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Interest income......................... $362,574 $13,905 $376,479 $41,947 $418,426
Interest expense........................ 183,722 5,930 189,652 18,402 208,054
-------- ------- -------- ------- --------
Net interest income..................... 178,852 7,975 186,827 23,545 210,372
Provision for loan losses............... 8,437 1,079 9,516 1,090 10,606
-------- ------- -------- ------- --------
Net interest income after provision for
loan losses........................... 170,415 6,896 177,311 22,455 199,766
Noninterest income...................... 50,186 3,063 53,249 8,299 61,548
Noninterest expense..................... 134,696 6,464 141,160 20,941 162,101
-------- ------- -------- ------- --------
Income before income taxes.............. 85,905 3,495 89,400 9,813 99,213
Provision for income taxes.............. 23,057 1,209 24,266 3,568 27,834
-------- ------- -------- ------- --------
Net income from continuing operations... 62,848 2,286 65,134 6,245 71,379
Discontinued operations................. 3,483 0 3,483 0 3,483
-------- ------- -------- ------- --------
Net income.............................. $ 66,331 $ 2,286 $ 68,617 $ 6,245 $ 74,862
======== ======= ======== ======= ========
Net income from continuing operations
per common share:(b)
Assuming no dilution.................. $ 1.30 $ 1.29 $ 1.24
======== ======== ========
Assuming full dilution................ $ 1.26 $ 1.26 $ 1.21
======== ======== ========
Weighted average common shares
outstanding:(b)
Assuming no dilution.................. 48,393 50,317 57,450
======== ======== ========
Assuming full dilution................ 50,232 52,159 59,413
======== ======== ========
</TABLE>
See "Notes to Pro Forma Condensed Combined Financial Information."
40
<PAGE> 47
OLD NATIONAL BANCORP
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED -- DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
AS REPORTED AS REPORTED
------------------- -----------
OLD ANB
NATIONAL HERITAGE PRO FORMA CORPORATION PRO FORMA
-------- -------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Interest income...................... $456,528 $16,813 $473,341 $50,174 $523,515
Interest expense..................... 231,614 7,411 239,025 22,665 261,690
-------- ------- -------- ------- --------
Net interest income.................. 224,914 9,402 234,316 27,509 261,825
Provision for loan losses............ 12,160 1,325 13,485 1,502 14,987
-------- ------- -------- ------- --------
Net interest income after provision
for loan losses.................... 212,754 8,077 220,831 26,007 246,838
Noninterest income................... 58,891 3,952 62,843 10,282 73,125
Noninterest expense.................. 167,937 7,553 175,490 23,628 199,118
-------- ------- -------- ------- --------
Income before income taxes........... 103,708 4,476 108,184 12,661 120,845
Provision for income taxes........... 29,573 1,624 31,197 4,205 35,402
-------- ------- -------- ------- --------
Net income from continuing
operations......................... 74,135 2,852 76,987 8,456 85,443
Discontinued operations.............. (9,854) 0 (9,854) 0 (9,854)
-------- ------- -------- ------- --------
Net income........................... $ 64,281 $ 2,852 $ 67,133 $ 8,456 $ 75,589
======== ======= ======== ======= ========
Net income from continuing operations
per common share:(b)
Assuming no dilution............... $ 1.54 $ 1.54 $ 1.49
======== ======== ========
Assuming full dilution............. $ 1.49 $ 1.49 $ 1.46
======== ======== ========
Weighted average common shares
outstanding:(b)
Assuming no dilution............... 48,204 50,091 57,161
======== ======== ========
Assuming full dilution............. 50,373 52,268 59,489
======== ======== ========
</TABLE>
See "Notes to Pro Forma Condensed Combined Financial Information."
41
<PAGE> 48
OLD NATIONAL BANCORP
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED -- DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
AS REPORTED AS REPORTED
------------------- -----------
OLD ANB
NATIONAL HERITAGE PRO FORMA CORPORATION PRO FORMA
-------- -------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Interest income......................... $435,038 $13,616 $448,654 $46,862 $495,516
Interest expense........................ 216,868 5,922 222,790 20,785 243,575
-------- ------- -------- ------- --------
Net interest income..................... 218,170 7,694 225,864 26,077 251,941
Provision for loan losses............... 13,562 676 14,238 1,027 15,265
-------- ------- -------- ------- --------
Net interest income after provision for
loan losses........................... 204,608 7,018 211,626 25,050 236,676
Noninterest income...................... 51,104 3,476 54,580 7,944 62,524
Noninterest expense..................... 158,631 6,869 165,500 20,851 186,351
-------- ------- -------- ------- --------
Income before income taxes.............. 97,081 3,625 100,706 12,143 112,849
Provision for income taxes.............. 28,998 1,323 30,321 4,102 34,423
-------- ------- -------- ------- --------
Net income from continuing operations... 68,083 2,302 70,385 8,041 78,426
Discontinued operations................. (5,005) 0 (5,005) 0 (5,005)
-------- ------- -------- ------- --------
Net income.............................. $ 63,078 $ 2,302 $ 65,380 $ 8,041 $ 73,421
======== ======= ======== ======= ========
Net income from continuing operations
per common share:(b)
Assuming no dilution.................. $ 1.40 $ 1.40 $ 1.37
======== ======== ========
Assuming full dilution................ $ 1.36 $ 1.36 $ 1.33
======== ======== ========
Weighted average common shares
outstanding:(b)
Assuming no dilution.................. 48,488 50,321 57,343
======== ======== ========
Assuming full dilution................ 51,135 52,988 60,143
======== ======== ========
</TABLE>
See "Notes to Pro Forma Condensed Combined Financial Information."
42
<PAGE> 49
OLD NATIONAL BANCORP
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED -- DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
AS REPORTED AS REPORTED
----------------------- -----------
OLD ANB
NATIONAL HERITAGE PRO FORMA CORPORATION PRO FORMA
------------ -------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Interest income............................ $405,669 $10,846 $416,515 $44,431 $460,946
Interest expense........................... 196,289 4,629 200,918 19,848 220,766
-------- ------- -------- ------- --------
Net interest income........................ 209,380 6,217 215,597 24,583 240,180
Provision for loan losses.................. 11,082 485 11,567 1,156 12,723
-------- ------- -------- ------- --------
Net interest income after provision for
loan
losses................................... 198,298 5,732 204,030 23,427 227,457
Noninterest income......................... 47,402 3,372 50,774 7,362 58,136
Noninterest expense........................ 156,720 5,780 162,500 20,344 182,844
-------- ------- -------- ------- --------
Income before income taxes................. 88,980 3,324 92,304 10,445 102,749
Provision for income taxes................. 26,293 1,219 27,512 3,375 30,887
-------- ------- -------- ------- --------
Net income from continuing operations...... 62,687 2,105 64,792 7,070 71,862
Discontinued operations.................... 494 0 494 0 494
-------- ------- -------- ------- --------
Net income................................. $ 63,181 $ 2,105 $ 65,286 $ 7,070 $ 72,356
======== ======= ======== ======= ========
Net income from continuing operations
per common share:(c)
Assuming no dilution..................... $ 1.25 $ 1.25 $ 1.22
======== ======== ========
Assuming full dilution................... $ 1.22 $ 1.21 $ 1.19
======== ======== ========
Weighted average common shares
outstanding:(c)
Assuming no dilution..................... 50,134 51,905 58,982
======== ======== ========
Assuming full dilution................... 52,772 54,584 61,785
======== ======== ========
</TABLE>
See "Notes to Pro Forma Condensed Combined Financial Information."
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OLD NATIONAL BANCORP
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(a) Exchange of 100% of ANB Corporation common stock for 7,198,671 shares
of Old National common stock.
(b) Exchange of 100% of Heritage common stock for 2,001,166 of Old National
common stock.
(c) Net income per share on a fully diluted basis assumes the conversion of
Old National's convertible subordinated debentures.
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<PAGE> 51
DESCRIPTION OF OLD NATIONAL
OVERVIEW
Old National is a bank holding company that operates 119 banking offices
and 174 ATM locations in Indiana, Illinois and Kentucky through its bank
subsidiaries. These banks provide a wide range of financial services, including:
- commercial, consumer and real estate loans;
- deposit products;
- issuing and servicing credit cards;
- leasing;
- letters of credit; and
- safe deposit facilities.
Old National also owns nonbank subsidiaries which provide additional
financial services incidental to its operations, including:
- securities brokerage services;
- fiduciary and trust services;
- investment services; and
- issuance and reinsurance of credit life, accident, health, life, property
and casualty insurance.
Old National was incorporated in 1982 in the State of Indiana. It began its
acquisition program in 1985 and has acquired 38 financial institutions since
that time. Old National continues to explore opportunities to acquire banks,
savings associations and nonbank companies and is currently reviewing and
analyzing potential acquisitions, as well as engaging in discussions or
negotiations concerning potential acquisitions. It is possible that none of
these discussions or negotiations will result in definitive agreements or
consummated acquisitions. Any acquisitions may be pending or completed prior to
the completion of the merger.
Old National's principal office is located at 420 Main Street, Evansville,
Indiana 47708. Its telephone number is (812) 464-1434.
SUPERVISION AND REGULATION
As a bank holding company, Old National is subject to regulation,
supervision and examination by the Board of Governors of the Federal Reserve
System under the Bank Holding Company Act of 1956, as amended. For a discussion
of certain of the material elements of the regulatory framework applicable to
bank holding companies and their subsidiaries and certain specific information
relevant to Old National, see Old National's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 which is incorporated by referenced into
this document.
This regulatory framework is intended primarily for the protection of
depositors and the federal deposit insurance funds and not for the protection of
security holders or creditors. The various government rules, regulations and
requirements that apply to Old National impact its business and activities. A
change in applicable statutes, rules, regulations and requirements that apply to
Old National impact its business and activities may have a material effect on
Old National's business and earnings. In addition, Old National's business and
earnings are affected by general economic conditions, legislation and actions of
regulatory authorities.
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Under policy of the Federal Reserve, a bank holding company is expected to
act as a source of financial strength for its bank subsidiaries and to commit
resources to support such banks. As a result, the Federal Reserve may require
Old National to commit resources to its bank subsidiaries.
On November 12, 1999, The President signed into law comprehensive
legislation that modernizes the financial services industry for the first time
in decades. The legislation permits bank holding companies to conduct
essentially unlimited securities and insurance activities, in addition to other
activities determined by the Federal Reserve to be related to financial
services. As a result, Old National would be able to underwrite and sell
securities and insurance. It would also be able to acquire, or be acquired by,
brokerage firms and insurance underwriters. Old National has not had an
opportunity to assess the impact of the legislation on its operations, but at
the present time does not anticipate significant changes in its products or
services.
RECENT DEVELOPMENTS
On September 22, 1999, Old National registered $200 million of capital
securities of wholly-owned business trusts. Following the effective date of the
registration statement related to those securities, Old National may begin
selling these securities.
On December 9, 1999, Old National declared a 5% stock dividend to its
shareholders of record on January 7, 2000 and payable on January 28, 2000.
References to the exchange ratio contained in this document have been adjusted
from 3.15 to 3.3075 pursuant to the merger agreement to give effect to the stock
dividend and references to Old National's per share information have been
adjusted to give effect to the stock dividend.
On December 20, 1999, Old National announced that it had agreed to acquire
Permanent Bancorp and Permanent Bank, each located in Evansville, Indiana, in a
stock exchange for stock transaction valued at approximately $92 million.
Permanent Bancorp has assets of approximately $500 million.
On December 31, 1999, Old National through a subsidiary bank acquired
Sycamore Agency, located in Terre Haute, Indiana, through a share exchange
valued at approximately $10.8 million. Sycamore operates a general insurance
agency with a focus on commercial property and casualty business.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The foregoing information concerning Old National does not purport to be
complete. Certain information relating to the executive compensation, various
benefit plans (including stock option plans), voting securities, including the
principal holders of those securities, certain relationships and related
transactions and other matters as to Old National is incorporated by reference
from or set forth in Old National's Annual Report on Form 10-K for the year
ended December 31, 1998 and other documents filed by Old National and listed
under "Where You Can Find More Information" in this document, which are
specifically incorporated herein by reference. If you desire copies of any of
these documents, you may contact Old National at its address or telephone number
indicated under "Where You Can Find More Information."
DESCRIPTION OF HERITAGE
BUSINESS
Heritage is a bank holding company with one affiliate bank located in
Tennessee. Heritage engages in the business of commercial banking, investment
management and insurance services, providing such products and services through
its subsidiaries, Heritage Investment Center, Inc., Central Life Insurance
Company, Advance Credit Company, Inc., and Heritage Investment Corporation, all
located in offices throughout Tennessee. These subsidiaries provide a broad
range of financial services to their customers. As of September 30, 1999,
Heritage had consolidated assets of approximately $234.03 million. Heritage's
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<PAGE> 53
principal office is located at 25 Jefferson Street, Clarksville, Tennessee
37040. Its telephone number is (931) 553-0500.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The foregoing information concerning Heritage does not purport to be
complete. Certain information relating to the executive compensation, various
benefit plans (including stock option plans), voting securities, including the
principal holders of those securities, certain relationships and related
transactions and other matters as to Heritage is incorporated by reference from
or set forth in Heritage's Annual Report on Form 10-KSB for the year ended
December 31, 1998 and other documents filed by Heritage and listed under "Where
You Can Find More Information" in this document, which are specifically
incorporated herein by reference. If you desire copies of any of these
documents, you may contact Heritage at its address or telephone number indicated
under "Where You Can Find More Information."
COMPARISON OF COMMON STOCK
Following the merger, the rights of former Heritage shareholders will be
governed by the laws of the State of Indiana, the state in which Old National is
incorporated, and by Old National's Articles of Incorporation, as amended and
Old National's By-Laws, as amended. The rights of the shareholders of Heritage
are presently governed by the laws of the State of Tennessee, the state in which
Heritage is incorporated, and by Heritage's Charter, as amended and By-Laws, as
amended. The rights of the shareholders of Heritage differ in certain respects
from the rights they will have as Old National shareholders, including for
anti-takeover measures and the vote required for the amendment of significant
provisions of the articles of incorporation and for the approval of significant
corporate transactions. The following summary comparison of Old National common
stock and Heritage common stock includes all material differences in the rights
accruing to holders of such shares but does not purport to be complete and is
qualified in its entirety by reference to Old National's and Heritage's Articles
of Incorporation and ByLaws and Heritage's Charter and By-Laws.
AUTHORIZED BUT UNISSUED SHARES
- OLD NATIONAL
Old National's Articles of Incorporation authorize the issuance of
75,000,000 shares of Old National Common Stock, of which approximately 47.9
million shares were outstanding as of September 30 1999. The remaining
authorized but unissued shares of common stock may be issued upon authorization
of the Board of Directors of Old National without prior shareholder approval.
Old National 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 Old National. No shares of preferred stock are presently
outstanding.
The Board of Directors of Old National has authorized a series of preferred
stock designated as Series A preferred stock. The Board of Directors of Old
National has designated 200,000 shares of Series A preferred stock in connection
with the shareholder rights plan of Old National. The Old National 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 -- Old National's
Shareholder Rights Plan" below.
As of September 30, 1999, Old National had approximately 500,000 shares of
Old National common stock reserved for issuance under Old National's Stock
Purchase and Discounted Dividend Reinvestment Plan and 1.4 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 Old National
common stock at a conversion rate of 81.39 shares
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<PAGE> 54
per $1,000 principal amount of debentures (equivalent to a conversion price of
approximately $12.29 per share), subject to adjustment in certain events.
The issuance of additional shares of Old National common stock or the
issuance of Old National preferred stock may adversely affect the interests of
Old National shareholders.
- HERITAGE
Heritage's Charter authorizes the issuance of 3,000,000 shares of Heritage
common stock, of which 605,039 were issued and outstanding as of September 30,
1999. Heritage has 1,000,000 shares of preferred stock authorized. No shares of
preferred stock are presently outstanding. Following the merger, each
outstanding share of Heritage common stock will convert to the right to receive
3.3075 shares of Old National common stock, as adjusted for the 5% stock
dividend declared by Old National on December 9, 1999 subject to further
adjustment for stock dividends and stock splits. See "Proposed Merger Conversion
of Heritage Common Stock."
PREEMPTIVE RIGHTS
As permitted by Indiana law, Old National's Articles of Incorporation do
not provide for preemptive rights to subscribe for any new or additional Old
National common stock or other securities. Preemptive rights may be granted to
Old National's shareholders if Old National's Articles of Incorporation are
amended accordingly. As permitted by Tennessee law, Heritage's Charter do not
provide for preemptive rights to subscribe for any new or additional Heritage
common stock or other securities.
DIVIDEND RIGHTS
The holders of common stock of Old National and Heritage are entitled to
dividends and other distributions when, as and if declared by their respective
boards of directors out of funds legally available therefor. Old National or
Heritage may not pay a dividend if, after giving it effect, (1) Old National or
Heritage, respectively, would not be able to pay its debts as they become due in
the usual course of business, or (2) Old National's or Heritage's respective
total assets would be less than the sum of its total liabilities plus, unless
Old National's Articles of Incorporation or Heritage's Charter 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 Old National or Heritage respectively were to be
dissolved at the time of the dividend.
The amount of dividends, if any, that may be declared by Old National in
the future will necessarily depend upon many factors, including, without
limitation, future earnings, capital requirements, business conditions and
capital levels of subsidiaries (since Old National is primarily dependent upon
dividends paid by its subsidiaries for its revenues), the discretion of Old
National's Board of Directors and other factors that may be appropriate in
determining dividend policies.
Cash dividends paid to Old National 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 Old National 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.
Old National's national affiliate banks and Indiana-chartered 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.
Cash dividends paid to Heritage by Heritage Bank, as a Tennessee-chartered bank,
are limited by Tennessee law to the undivided profits of Heritage Bank. However,
prior to the declaration of any dividend, the Bank must have made all required
allocations to reserves for losses or contingencies. In addition, the approval
of the Tennessee Department of Financial Institutions is required
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<PAGE> 55
if the total dividends declared by Heritage Bank in any year exceeds the total
of its net income for that year combined with its retained net income of the
preceding two years.
Dividends paid by Old National's affiliate banks will ordinarily be
restricted to a lesser amount than is legally permissible because of the need
for the banks to maintain adequate capital consistent with the capital adequacy
guidelines promulgated by the banks' principal federal regulatory authorities.
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 Old National's affiliate banks are currently
subject to such a restriction.
VOTING RIGHTS
The holders of the outstanding shares of Old National common stock and
Heritage common stock are entitled to one vote per share on all matters
presented for shareholder vote. Shareholders of Old National and Heritage do not
have cumulative voting rights in the election of directors. Under cumulative
voting, the number of shares a shareholder is entitled to vote is multiplied by
the number of directors to be elected to the Board, which number represents the
number of votes a shareholder may cast at such election. A shareholder may cast
all his or her 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 make it more difficult for a minority shareholder to elect a nominee as a
director.
Indiana law generally require 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. Old National's Articles of
Incorporation and Heritage's Charter provide that certain business combinations
may, under certain circumstances, require approval of more than a simple
majority of the issued and outstanding shares of Old National common stock. See
"Comparison of Common Stock -- Anti-Takeover Provisions".
Indiana law requires shareholder approval 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) for most amendments to a corporation's
articles of incorporation. Indiana law permits a corporation in its articles of
incorporation to prescribe a higher shareholder vote for certain amendments to
the articles of incorporation. Old National's Articles of Incorporation require
a super-majority shareholder vote of eighty percent (80%) of the outstanding
shares of Old National common stock for the amendment of certain significant
provisions.
DISSENTERS' RIGHTS
The holders of shares of Indiana business corporations possess dissenters'
rights in connection with certain mergers and other significant corporate
actions. Under Indiana law, a shareholder is entitled to dissent from and obtain
payment of the fair value of the shareholder's shares in the event of (1)
consummation of a plan of merger, if shareholder approval is required and the
shareholder is entitled to vote thereon, (2) consummation of a plan of share
exchange by which the shareholder's shares will be acquired, if the shareholder
is entitled to vote thereon, (3) consummation of a sale or exchange of all, or
substantially all, the property of the corporation other than in the usual
course of business, if the shareholder is entitled to vote thereon, (4) approval
of a control share acquisition under Indiana law, and (5) any corporate action
taken pursuant to a shareholder vote to the extent the articles of
incorporation, by-laws or a resolution of the board of directors provides that
voting or non-voting shareholders are entitled to dissent and obtain payment for
their shares.
The dissenters' rights provisions described above do not apply, however, to
the holders of shares of any class or series with respect to a merger, share
exchange or sale or exchange of property if the shares of that class or series
were registered on a United States securities exchange registered under the
Exchange Act or traded on the Nasdaq National Market System or a similar market.
As of the date of this Proxy
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<PAGE> 56
Statement, shares of Old National common stock are traded on the Nasdaq National
Market System and, therefore, Old National shareholders presently are not
entitled to assert dissenters' rights under Indiana law with respect to any of
the transactions discussed above.
Under the TBCA, a shareholder is generally entitled to dissent from a
corporate action and obtain payment of the fair value of his shares in certain
events. These events generally include:
- mergers, share exchanges and sales of substantially all of the
corporation's assets other than in the usual and regular course of
business, if the shareholder is entitled to vote on certain transactions;
- certain types of amendments of the corporation's charter that materially
and adversely affects a shareholder's rights; or
- other corporate actions taken pursuant to a shareholder vote, to the
extent the Charter, ByLaws, or a resolution of the board of directors
provide for dissenters' rights.
Heritage's Charter and By-Laws do not provide for any such additional
dissenters' rights. Under the TBCA, a shareholder will not have the right to
dissent as to any shares which are listed on a national securities exchange
registered under Section 6 of the Exchange Act or are national market system
securities under the Exchange Act rules. Heritage common stock is not currently
so listed. Accordingly, shareholders of Heritage will be able to asset
dissenters' rights with respect to their shares of Heritage common stock. See
"Dissenters' Rights" on page 20.
LIQUIDATION RIGHTS
In the event of any liquidation or dissolution of Old National, the holders
of shares of Old National 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 Old National's liabilities and any
rights of creditors and holders of shares of Old National preferred stock then
outstanding. Shareholders of Heritage have similar liquidation rights.
REDEMPTION AND ASSESSMENT
Under Indiana law, shares of Old National common stock are not liable to
further assessment. Old National may redeem or acquire shares of Old National
common stock with funds legally available therefor, and shares so acquired
constitute authorized but unissued shares. The Old National Board of Directors
authorized the purchase or redemption of up to the number of shares to be issued
to the shareholders of Permanent Bancorp relating to Old National's acquisition
of Permanent Bancorp. Old National may not redeem or acquire shares of Old
National common stock if, after giving such redemption or acquisition effect,
Old National would not be able to pay its debts as they become due in the usual
course of business, or Old National's total assets would be less than the sum of
its total liabilities plus, unless Old National'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 Old National were to be
dissolved at the time of the redemption or acquisition.
Under Tennessee law, shares of Heritage common stock are not liable to
further assessment. Heritage may redeem or acquire shares of Heritage common
stock with funds legally available therefor, and shares so acquired constitute
authorized but unissued shares.
In addition, Old National and Heritage must give prior notice to the
Federal Reserve if the consideration to be paid by them for any redemption or
acquisition of their respective shares, when aggregated with the consideration
paid for all redemptions or acquisitions for the preceding twelve (12) months,
equals or exceeds 10% of their respective consolidated net worth.
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ANTI-TAKEOVER PROVISIONS
The anti-takeover measures applicable to Old National as described below,
may have the effect of discouraging or rendering it more difficult for a person
or other entity to acquire control of Old National. These measures may have the
effect of discouraging certain tender offers for shares of Old National 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. Old National is subject to the business combinations
provision of Indiana law, but such provision does not apply to the merger
between Old National and Heritage. The constitutional validity of the business
combinations provision of Indiana law has in the past been challenged and has
been upheld by the United States Supreme Court.
In addition to the business combinations provision, Indiana law also
contains a "control share acquisition" provision which, although different in
structure from the business combinations provision, may have a similar effect of
discouraging or making more difficult a hostile takeover of an Indiana
corporation. This provision also may have the effect of discouraging premium
bids for outstanding shares. Indiana law provides that, unless otherwise
provided in an Indiana corporation's articles of incorporation or by-laws,
certain acquisitions of shares of the corporation's common stock will be
accorded voting rights only if a majority of the disinterested shareholders
approves a resolution granting the potential acquiror the ability to vote such
shares. Upon disapproval of the resolution, the shares held by the acquiror
shall be redeemed by the corporation at the fair value of the shares as
determined by the control share acquisition provision.
This provision does not apply to a plan of affiliation and merger, if the
corporation complies with the applicable merger provisions and is a party to the
plan of merger or plan of share exchange. Old National and Heritage are subject
to the control share acquisition provision, but such provision does not apply to
the merger between Old National and Heritage.
Tennessee Law. Tennessee's Business Combination Act (the "Tennessee
Business Combination Act") provides that an interested stockholder (defined as
person beneficially owning, either directly or indirectly, ten percent or more
of the voting securities in a Tennessee corporation) cannot engage in a business
combination with that corporation unless the transaction takes place at least
five (5) years after the interested stockholder first became an interested
stockholder, and unless either the transaction (a) is approved by at least
two-thirds of the shares of the corporation not beneficially owned by an
interested stockholder (b) satisfies certain fairness conditions specified in
the Tennessee Business Combination Act relating to be paid to the non-interested
stockholders in such transactions.
These provisions apply to Tennessee corporations unless one of two events
occurs. A business combination with an entity can proceed without the five year
moratorium if the business combination or the transaction resulting in the
stockholder becoming an interested stockholder is approved by the target
corporation's board of directors before that entity becomes an interested
stockholder. Alternatively, the corporation may enact a charter amendment or
bylaw to remove itself entirely from the Tennessee
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Business Combination Act. This charter amendment or bylaw must be approved by a
majority of the stockholders who have held shares for more than one year prior
to the vote and may not take effect for at least two years after the vote.
Heritage has not adopted such a provision in its Charter or By-Laws removing
Heritage from coverage under the Tennessee Business Combination Act. The merger
is not governed by the Tennessee Business Combination Act because the Heritage
board of directors approved the merger agreement before it was executed.
In addition to the Tennessee Business Combination Act, Tennessee law also
contains the Tennessee Control Share Acquisition Act ("TCSAA"), which, although
different in structure from the Tennessee Business Combination Act, may have a
similar affect of discouraging or making more difficult a hostile take over of a
Tennessee corporation. The TCSAA takes away the voting rights of a purchaser's
shares any time an acquisition of shares in a Tennessee corporation brings the
purchaser's voting power to 20%, 33 1/3% or more than 50% of all voting power in
such corporation (a "control share"). The purchaser's voting rights can be
maintained or re-established only by a majority vote of all the shares entitled
to vote generally with respect to the election of directors other than those
shares owned by the acquiror and the officers and inside directors of the
corporation.
After acquiring a control share, the TCSAA provides a procedure by which a
purchase may demand a special meeting of stockholders to conduct such a vote.
The purchaser can demand such a meeting before acquiring a control share, but,
can do so only if it holds at least 10% of outstanding shares and announces a
good faith intention to make the control share acquisition. The TCSAA applies
only to a corporation that has adopted a provision in its charter or bylaw
declaring that the TCSAA will apply. Heritage has not adopted any such provision
in its Charter or By-Laws electing protection under the TCSAA and therefore is
not subject to the TCSAA.
The Tennessee Investor Protection Act (the "TIPA") provides that unless a
Tennessee corporation's board of directors has recommended a take over offer to
stockholders, no offeror beneficially owning 5% or more of any class of equity
securities of the offeree company, any of which was purchased within the
preceding year, may make a tender offer for a class of equity security of the
offeree company if after completion the offeror would be a beneficial owner of
more than 10% of any class of outstanding equity securities of the company
unless the offeror, before making such purchase:
- A public announcement of his or her intention with respect to changing or
influencing the management or control of the offeree company;
- Makes a full, fair and effective disclosure of such intentions to the
person from whom he or she intends to acquire such securities; and
- Files with the Tennessee Commissioner of Commerce and Insurance (the
"Commissioner") and the offeree company a statement signifying such
intentions and containing such additional information as may be
prescribed by the Commissioner.
The offeror must provide that any equity securities of an offeree company
deposited or tendered pursuant to a take over offer may be withdrawn by an
offeree at any time within seven days from the date the offer has become
effective following filing with the Commission and offeree company and public
announcement of the terms or after 60 days from the date the offer has become
effective. If the take over offer is for less than all the outstanding equity
securities of any class, such an offer must also accept securities pro rata if
the number of securities tendered is greater than the number the offeror has
offered to accept and pay for. Such an offeror varies the terms of the take over
offer before its expiration date by increasing the consideration offered to
offerees, the offeror must pay the increased consideration for equity securities
accepted whether accepted before or after the variation in the terms of the
offer.
Any person making a take over offer involving a Tennessee corporation shall
file a registration statement with the Commissioner and send a copy of the
registration statement by certified mail to the offeree company. The
registration statement shall contain such information as set forth in the
statute. The TIPA dos not apply to an offer involving a vote by holders of
equity securities of the offeree company,
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pursuant to its charter, on a merger, consolidation or sale of corporate assets
in consideration of the issuance of securities of another corporation, or on a
sale of its securities in exchange for cash or securities of another
corporation. The TIPA does not apply to the merger because the Heritage Board of
Directors has recommended acceptance of the merger to its stockholders. The
merger therefor does not involve a "takeover offer" within the meaning of the
TIPA.
Old National's Articles of Incorporation. In addition to the protections
provided by Indiana law, Old National'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 of Old National. For purposes of Old National's Articles of
Incorporation, "business combination" is defined to include: (1) a merger or
consolidation of Old National with or into any other corporation, (2) any sale,
lease, exchange or other disposition of any material part of the assets of Old
National, or (3) any liquidation or dissolution of Old National or any material
subsidiary of Old National. 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 Old National common stock
entitled to vote thereon.
Old National'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 Old
National 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 Old National common stock entitled
to vote thereon in order to be altered, amended or repealed.
Old National Preferred Stock. The shares of Old National 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 Old National. Each share of Old National 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 Old National common stock. In
addition, the Old National Series A preferred stock is entitled to 100 times any
non-cash dividends (other than dividends payable in equity securities) declared
on the Old National common stock, in like kind. In the event of liquidation, the
holders of Old National 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 Old National common stock.
Each share of Old National Series A preferred stock will have 100 votes, subject
to adjustment, voting together with the Old National common stock and not as a
separate class unless otherwise required by law or Old National's Articles of
Incorporation. In the event of any merger, consolidation or other transaction in
which common shares are exchanged, each share of Old National Series A preferred
stock will be entitled to receive 100 times the amount received per share of Old
National common stock. The rights of the Old National Series A preferred stock
as to dividends, voting rights and liquidation are protected by antidilution
provisions.
Old National's Shareholder Rights Plan. On January 25, 1990, the Board of
Directors of Old National declared a dividend of one (1) right for each issued
and outstanding share of Old National 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 Old National common stock at the close of
business on March 1, 1990. Each Right entitles the registered holder to purchase
from Old National one-hundredth ( 1/100) of a share of Old National 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 Old National and Old National Bank in Evansville, as Rights Agent.
The foregoing information concerning Old National's shareholder Rights Plan
does not purport to be complete. For additional information, see The Rights
Agreement, dated March 1, 1990, between Old National and Old National Bank in
Evansville, as Trustee, which is specifically incorporated herein by
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reference. See "Incorporation of Certain Documents by Reference." The shares of
Old National common stock to be received by Heritage shareholders in the merger
will be subject to the rights under the Old National Shareholder Rights Plan.
Heritage's Charter. In addition to the protections provided by Tennessee
law, Heritage's Charter require the affirmative vote of the holders of at least
two-thirds of the outstanding voting stock of Heritage for any business
combination which is not recommended by a majority vote of the members of the
Board of Directors of Heritage. For purposes of Heritage's Charter, "business
combination" is defined to include: (i) a merger or consolidation of Heritage
with or into any other corporation; (ii) any sale, exchange or lease of all or
substantially all of the assets of Heritage to any person or entity. Further,
this provision cannot be amended or repealed without the affirmative vote of the
holders of not less than two-thirds of the outstanding voting stock of Heritage.
Heritage's Charter also includes provisions requiring the Board of
Directors of Heritage to consider non-financial factors in the evaluation of
business combinations in tender or exchange offers. This provision requires the
affirmative vote of the holders of not less than two-thirds of the outstanding
voting stock of Heritage to amend or repeal the provision.
DIRECTOR LIABILITY
Under Indiana law, a director of Old National 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.
Under Tennessee law, a director is not liable for any action taken as a
director, or any failure to take any action, if the director has performed the
duties of the office: (i) in good faith; (ii) with the care an ordinarily
prudent person in a like position would exercise under similar circumstances;
and (iii) in a manner the director reasonably believes to be in the best
interest of the corporation.
DIRECTOR NOMINATIONS
Old National's By-Laws require that all nominations for election as
directors of Old National shall be made by the Board of Directors of Old
National in accordance with the By-Laws. Under the By-Laws, the Nominating
Committee of the Board of Directors of Old National ("Nominating Committee") is
required to submit to the entire Board of Directors its recommendation of
nominees for election as directors of Old National 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 Old
National, none of whom is an officer or employee of Old National. 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.
Heritage's By-Laws do not set forth a specific way for nominating
directors. The By-Laws do specify that each director shall own at least 1,000
shares of Heritage and at least three-fourths of the directors shall be citizens
of the United States and at least two-thirds shall be residents of Tennessee or
reside within twenty-five miles of the main office of Heritage. The majority of
the directors shall reside within a hundred miles of the main office of
Heritage.
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LEGAL OPINIONS
The validity of the shares of Old National common stock to be issued in the
merger will be passed upon by Krieg DeVault Alexander & Capehart, LLP, One
Indiana Square, Suite 2800, Indianapolis, Indiana 46204. Certain tax
consequences of the merger will be passed upon by Krieg DeVault Alexander &
Capehart, LLP.
EXPERTS
The consolidated financial statements of Old National and affiliates
incorporated into this document have been audited by Arthur Andersen, LLP,
independent public accountants, to the extent and for the years indicated in
their report thereon, and have been so incorporated into this document in
reliance upon the report of Arthur Andersen and upon the authority of such firm
as experts in auditing and accounting.
The consolidated financial statements of Heritage incorporated into this
document have been audited by Heathcott & Mulloly, P.C., independent auditors,
to the extent and for the year indicated in their report thereon. Such
consolidated financial statements have been so incorporated into this document
in reliance upon the report of Heathcott & Mulloly and upon the authority of
such firm as experts in auditing and accounting.
Representatives of Heathcott & Mulloly 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 Heritage knows of no
other matters for action by shareholders at the special meeting other than the
matters described in the Notice. However, the enclosed proxy will confer
discretionary authority to the persons named therein with respect to any such
matters, none of which are known to the Board of Directors of Heritage 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 best judgment of the person named
in the proxy.
FORWARD-LOOKING STATEMENTS
This document (including information included or incorporated by reference
herein) contains certain forward-looking statements with respect to the
financial condition, results of operations, plans, objectives, future
performance and business of each of Old National and Heritage, as well as
certain information relating to the merger, including, without limitation
statements preceded by, followed by or that include the words "believes,"
"expects," "anticipates," "estimates" or similar expressions. These
forward-looking statements involve certain risks and uncertainties. Actual
results may differ materially from those contemplated by such forward-looking
statements due to, among others, the following factors: (a) expected cost
savings from the merger may not be fully realized or realized within the
expected time frame; (b) revenues following the merger may be lower than
expected, or deposit attrition, operating costs or customer loss and business
disruption following the merger may be greater than expected; (c) competitive
pressures among depository and other financial institutions may increase
significantly; (d) changes in the interest rate environment may reduce margins;
(e) general economic or business conditions, either nationally or in the states
in which Old National is doing business, may be less favorable than expected
resulting in, among other things, a deterioration in credit quality or a reduced
demand for credit; (f) legislative or regulatory changes may adversely affect
the business in which Old National is engaged; (g) technological changes
(including "Year 2000" data systems compliance issues) may be more difficult or
expensive than anticipated; and (h) changes may occur in the securities markets.
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WHERE YOU CAN FIND MORE INFORMATION
Old National and Heritage are subject to the reporting requirements of the
Exchange Act and in accordance therewith file reports, proxy statements and
other information with the SEC. Such reports, proxy statements and other
information may be inspected and copied at prescribed rates at the following
locations of the SEC:
<TABLE>
<S> <C>
Public Reference Room Midwest Regional Office
450 Fifth Street, N.W. 500 West Madison Street
Room 1024 Suite 1400
Washington, D.C. 20549 Chicago, IL 60661-2511
</TABLE>
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. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an
Internet site that contains reports, proxy and information statements, and other
information regarding Old National and Heritage, and the address of that site is
http://www.sec.gov. You may obtain information about Old National on its
Internet site. The address of the site is http://www.oldnational.com. Old
National's common stock is quoted on the Nasdaq National Market System and
reports, proxy statements and other information concerning Old National are
available for inspection and copying at prescribed rates at the office of the
National Association of Securities Dealers, Inc., 1735 K Street, Washington,
D.C. 20006.
Old National has filed with the SEC a Registration Statement on Form S-4
under the Securities, with respect to the shares of Old National common stock to
be issued in connection with its merger with Heritage. This Proxy
Statement -- Prospectus 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.
The SEC allows Old National and Heritage to "incorporate by reference"
information into this document. This means that the companies can disclose
important information to you by referring you to another document filed
separately with the SEC. The information incorporated by reference is considered
to be a part of this document, except for any information that is superseded by
information that is included directly in this document. This document
incorporates by reference the documents listed below that Old National and
Heritage have previously filed with the SEC. They contain important information
about the companies and their financial condition.
The following documents previously filed by Old National (SEC File No.
0-10888) with the SEC pursuant to the Exchange Act are incorporated herein by
reference:
- Old National's Quarterly Report on Form 10-Q for the quarters ended March
31, 1999, June 30, 1999 and September 30, 1999.
- Old National's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.
- Old National's Annual Report to Shareholders for the fiscal year ended
December 31, 1998.
- The description of Old National's common stock contained in Old
National's Current Report on Form 8-K, dated January 6, 1983, and the
description of Old National's Preferred Stock Purchase Rights contained
in Old National's Form 8-A, dated March 1, 1990, including the Rights
Agreement, dated March 1, 1990, between Old National and Old National
Bank in Evansville, as Trustee.
- The Current Report on Form 8-K filed on July 29, 1999.
- The Current Report on Form 8-K filed on December 1, 1999.
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The following documents previously filed by Heritage (SEC File No.
33-45240) with the SEC pursuant to the Exchange Act are incorporated herein by
reference:
- Heritage's Quarterly Report on Form 10-QSB for the quarters ended March
31, 1999, June 30, 1999 and September 30, 1999.
- Heritage's Annual Report on Form 10-KSB, as amended, for the fiscal year
ended December 31, 1998.
- Heritage's Annual Report to Shareholders for the fiscal year ended
December 31, 1998.
Old National and Heritage incorporate by reference additional documents
that either company may file with the SEC between the date of this document and
the dates of the Heritage special meeting. These documents include periodic
reports, such as Annual Reports on Form 10-KSB, Quarterly Reports on Form 10-Q
or 10-QSB and Current Reports on Form 8-K, as well as proxy statements.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein will be deemed to be modified or superseded for
purposes of this document 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 document.
Old National has supplied all information contained or incorporated by
reference in this Old National Proxy Statement-Prospectus relating to Old
National, as well as all pro forma financial information, and Heritage has
supplied all relevant information relating to Heritage.
You can obtain any of the documents incorporated by reference in this
document through Old National or Heritage, as the case may be, or from the SEC
through the SEC's Internet world wide web site at the address listed above.
Documents incorporated by reference are available from the companies without
charge, excluding any exhibits to those documents, unless the exhibit is
specifically incorporated by reference as an exhibit in this document. You can
obtain documents incorporated by reference in this document by requesting them
in writing or by telephone from the appropriate company at the following
addresses:
<TABLE>
<S> <C>
Old National Bancorp Heritage Financial Services, Inc.
420 Main Street 25 Jefferson Street
P. O. Box 718 Clarksville, Tennessee 37040
Evansville, Indiana 47705 Attn: Earl O. Bradley, III
Attn: Jeffrey L. Knight, Corporate President and Chief Executive Officer
Secretary and General Counsel (931) 553-0500
(812) 464-1363
</TABLE>
If you would like to request documents, please do so by February 21, 2000 to
receive them before the special meeting. If you request any incorporated
documents from us, we will mail them to you by first class mail, or another
equally prompt means, promptly after we receive your request.
Old National and Heritage have not authorized anyone to give any
information or make any representation about the merger or our companies that is
different from, or in addition to, that contained in this document or any of the
materials that we have incorporated into this document. Therefore, if anyone
does give you information of this sort, you should not rely on it. If you are in
a jurisdiction where offers to exchange or sell, or solicitations of offers to
exchange or purchase, the securities offered by this document or the
solicitation of proxies is unlawful, or if you are a person to whom it is
unlawful to direct these types of activities, then the offer presented in this
document does not extend to you. The information contained in this document
speaks only as of the date of this document unless the information specifically
indicates that another date applies.
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LIST OF APPENDICES
<TABLE>
<S> <C>
Agreement of Affiliation and Merger, dated September 8,
1999, between Old National Bancorp and Heritage Financial
Services, Inc. ........................................... Appendix A
Fairness Opinion of Professional Bank Services, Inc. ....... Appendix B
Chapter 23, Tennessee Business Corporation Act.............. Appendix C
</TABLE>
<PAGE> 65
APPENDIX A
AGREEMENT OF AFFILIATION AND MERGER
THIS AGREEMENT OF AFFILIATION AND MERGER ("Agreement") is made and entered
into effective as of the 8th day of September, 1999, by and between OLD NATIONAL
BANCORP ("ONB") and HERITAGE FINANCIAL SERVICES, INC. ("Heritage").
WITNESSETH:
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, Heritage is a Tennessee corporation registered as a bank holding
company under the BHC Act, with its principal office located in Clarksville,
Montgomery County, Tennessee; and
WHEREAS, Heritage is the sole owner, directly or indirectly, of all of the
outstanding capital stock of: (i) Heritage Bank (the "Bank") and (ii) Heritage
Investment Center, Inc. (the "Investment Center"), Central Life Insurance
Company ("CLIC"), Advance Credit Company, Inc. (the "Finance Company") and
Heritage Investment Corporation (the "Investment Corporation") (collectively,
the "Subsidiaries"); and
WHEREAS, ONB and Heritage seek to affiliate through a corporate
reorganization whereby Heritage will merge with and into ONB and the Bank will
thereby become a wholly-owned subsidiary of ONB; and
WHEREAS, ONB and Heritage intend that the Merger (as hereinafter defined)
constitute a tax-free reorganization pursuant to Section 368 of the Internal
Revenue Code of 1986, as amended ("Code"); and
WHEREAS, the Board of Directors of each of ONB and Heritage has determined
that it is in the best interests of its respective corporation to consummate the
strategic business combination provided for herein and has approved this
Agreement, authorized its execution and designated this Agreement a plan of
reorganization and a plan of merger.
NOW, THEREFORE, in consideration of the foregoing premises, the
representations, warranties, covenants and agreements herein contained and other
good and valuable consideration, the sufficiency of which is hereby
acknowledged, ONB and Heritage hereby make this Agreement and prescribe the
terms and conditions of the affiliation of ONB and Heritage and the mode of
carrying such merger into effect as follows:
SECTION 1
THE MERGER
1.01. General Description. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time (as defined in Section 10 hereof),
Heritage shall merge with and into and under the Articles of Incorporation of
ONB ("Merger"). ONB shall survive the Merger ("Surviving Corporation") and shall
continue its corporate existence under the laws of the State of Indiana pursuant
to the provisions of and with the effect provided in the Indiana Business
Corporation Law, as amended. Upon consummation of the Merger, the Bank shall
become a wholly-owned subsidiary of ONB.
1.02. Name, Officers, Directors and Management. (a) The name of the
Surviving Corporation shall be "Old National Bancorp." Its principal office
shall be located at 420 Main Street, Evansville, Indiana 47708.
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(b) The officers of ONB serving at the Effective Time shall continue to
serve as the officers of the Surviving Corporation, until such time as their
successors shall have been duly elected and have qualified or until their
earlier resignation, death or removal from office.
(c) The directors of ONB as of the Effective Time shall be the directors of
the Surviving Corporation, until such time as their successors have been duly
elected and have been qualified or until their earlier resignation, death or
removal from office.
1.03. Capital Structure. The capital of the Surviving Corporation shall be
not less than the capital of ONB immediately prior to the Effective Time.
1.04. Articles of Incorporation and By-Laws. The Articles of Incorporation
and By-Laws of ONB in existence at the Effective Time shall remain the Articles
of Incorporation and By-Laws of the Surviving Corporation following the
Effective Time, until such Articles of Incorporation and By-Laws shall be
further amended as provided by applicable law.
1.05. Assets and Liabilities. At the Effective Time, the title to all
assets, real estate and other property owned by Heritage shall vest in ONB
without reversion or impairment. At the Effective Time, all liabilities of
Heritage shall be assumed by ONB.
1.06. Tax-Free Reorganization and Accounting Treatment. ONB and Heritage
intend for the Merger to qualify as a reorganization within the meaning of
Section 368 and related sections of the Code, and for the Merger to be accounted
for as a pooling of interests transaction. ONB and Heritage agree to cooperate
and to take such action as may be reasonably necessary to achieve such results.
SECTION 2
MANNER AND BASIS OF EXCHANGE OF STOCK
2.01. Exchange Ratio. Upon and by virtue of the Merger becoming effective
at the Effective Time, each issued and outstanding share of Heritage Common
Stock (as defined in Section 4.03 hereof) shall be converted into the right to
receive Three and Fifteen One-Hundredths (3.15) shares of ONB common stock
("Exchange Ratio"), subject to adjustment, if any, pursuant to the provisions of
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 Heritage 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 of the per share closing price of ONB common stock as
reported on the Nasdaq National Market System for the final five (5) business
days on which shares of ONB common stock were traded immediately preceding the
Effective Time.
2.03. Recapitalization. If, between the date of this Agreement and the
Effective Time, the record date occurs for the distribution or issuance by ONB
of a stock dividend with respect to its shares of common stock, or a
combination, subdivision, reclassification or split of ONB's issued and
outstanding shares of common stock, such that the number of issued and
outstanding shares of ONB common stock is increased or decreased, then the
Exchange Ratio shall be adjusted so that Heritage's shareholders shall receive,
in the aggregate, such number of shares of ONB common stock representing the
same percentage of outstanding shares of ONB common stock at the Effective Time
as would have been represented by the number of shares of ONB common stock such
shareholders would have received if any of the foregoing actions had not
occurred.
2.04. Distribution of ONB Common Stock and Cash. (a) In a reasonable period
of time following the Effective Time, ONB shall mail to each Heritage
shareholder a letter of transmittal providing instructions as to the transmittal
to ONB of certificates representing shares of Heritage Common Stock and the
issuance of shares of ONB common stock in exchange therefor pursuant to the
terms of this Agreement.
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(b) Following the Effective Time, distribution of stock certificates
representing shares of ONB common stock and any cash payment, without interest,
for fractional shares, if any, shall be made by ONB to each former shareholder
of Heritage as soon as practical following delivery to ONB of the shareholder's
certificate(s) representing its shares of Heritage Common Stock accompanied by a
properly completed and executed letter of transmittal, all in form and substance
reasonably satisfactory to ONB.
(c) As of the Effective Time, stock certificates representing shares of
Heritage 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
Heritage shareholder entitled to receive the same until such shareholder has
surrendered to ONB his or her certificate or certificates representing Heritage
Common Stock in exchange for a certificate or certificates representing ONB
common stock. Upon surrender of the certificates representing shares of Heritage
Common Stock, there shall be paid in cash to the record holder of the new
certificate or certificates evidencing shares of ONB common stock the amount of
all dividends and other distributions, without interest thereon, withheld with
respect to such shares of ONB common stock.
(d) ONB shall be entitled to rely upon the stock transfer books of Heritage
to establish the persons entitled to receive shares of ONB common stock pursuant
to this Agreement, which books shall be conclusive with respect to the ownership
of shares of Heritage Common Stock.
(e) With respect to any certificate for shares of Heritage Common Stock
which has been lost, stolen or destroyed, ONB shall be authorized to issue
common stock (and to pay cash as to fractional shares) to the registered owner
of such certificate upon receipt by ONB of an agreement to indemnify ONB against
loss from such lost, stolen or destroyed certificate and an affidavit of lost,
stolen or destroyed stock certificate, both in form and substance reasonably
satisfactory to ONB, and upon compliance by the Heritage shareholder with all
other reasonable requirements of ONB in connection with lost, stolen or
destroyed stock certificates.
SECTION 3
DISSENTING SHAREHOLDERS
Shareholders of Heritage who properly exercise and perfect statutory
dissenters' rights shall have the rights accorded to dissenting shareholders
under Chapter 23 of the Tennessee Business Corporation Act, as amended.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF HERITAGE
On or prior to the date hereof, Heritage has delivered to ONB a schedule
(the "Disclosure Schedule") setting forth, among other things, items the
disclosure of which is necessary or appropriate either in response to an express
disclosure requirement contained in a provision hereof or as an exception to one
or more representations or warranties contained in this Section 4 or to one or
more of its covenants contained in Section 6; provided, that the mere inclusion
of an item in the Disclosure Schedule as an exception to a representation or
warranty shall not be deemed an admission by Heritage that such item represents
a material exception or fact, event or circumstance or that such item is
reasonably likely to result in a Material Adverse Effect (as defined below).
For the purpose of this Agreement, and in relation to Heritage and the
Subsidiaries, a "Material Adverse Effect" means any effect that (i) is material
and adverse to the financial position, results of operations or business of
Heritage and the Subsidiaries taken as a whole, or (ii) would materially impair
the ability of Heritage to perform its obligations under this Agreement or
otherwise materially threaten or materially impede the consummation of the
Merger and the other transactions contemplated by this Agreement; provided,
however, that Material Adverse Effect shall not be deemed to include the impact
of
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(a) changes in banking and similar laws of general applicability or
interpretations thereof by courts or governmental authorities, (b) changes in
generally accepted accounting principles or regulatory accounting requirements
applicable to banks and their holding companies generally, (c) any modifications
or changes to valuation policies and practices in connection with the Merger or
restructuring charges taken in connection with the Merger, in each case in
accordance with generally accepted accounting principles, (d) effects of any
action taken with the prior written consent of ONB and (e) changes in general
level of interest rate or conditions or circumstances that affect the banking
industry generally.
No representation or warranty of Heritage contained in this Section 4,
except Section 4.03, shall be deemed untrue, incomplete or incorrect, and
Heritage shall not be deemed to have breached a representation or warranty, as a
consequence of the existence of any fact, event or circumstance unless such
fact, circumstance or event, individually or taken together with all other
facts, events or circumstances inconsistent with any representation or warranty
contained in this Section 4, has had or is reasonably likely to have a Material
Adverse Effect on Heritage.
Heritage accordingly hereby represents and warrants to ONB as follows:
4.01. Organization and Authority. (a) Heritage is a corporation duly
organized and validly existing under the laws of the State of Tennessee.
Heritage 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. Heritage has a class of
stock registered pursuant to Section 12, and is subject to the reporting
requirements, of the Securities Exchange Act of 1934, as amended ("1934 Act").
Except as set forth in the Disclosure Schedule, Heritage's only direct
subsidiary is the Bank and Heritage has no other subsidiaries and owns no voting
stock or equity securities of any corporation, partnership, association or other
entity.
(b) The Bank is a Tennessee state-chartered bank duly organized and validly
existing under the laws of the State of Tennessee. The Bank has no subsidiaries,
except the Bank owns all of the capital stock of: (i) the Investment Center;
(ii) CLIC; (iii) the Finance Company; and (iv) the Investment Corporation. The
Bank is subject to primary regulatory supervision and examination by the
Tennessee Department of Financial Institutions ("TDFI"). The Bank 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.
(c) The Investment Center is an investment brokerage services provider duly
organized and validly existing under the laws of the State of Tennessee. The
Investment Center has no subsidiaries. The Investment Center is subject to
primary regulatory supervision and examination by the Tennessee Department of
Commerce and Insurance ("TDCI"). The Investment Center 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.
(d) CLIC is a corporation duly organized and validly existing under the
laws of the State of Tennessee. The Insurance Company has no subsidiaries. The
Insurance Company is subject to primary regulatory supervision and examination
by the TDCI. The Insurance Company 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.
(e) The Finance Company is a corporation duly organized and validly
existing under the laws of the State of Tennessee. The Finance Company has no
subsidiaries. The Finance Company is subject to primary regulatory supervision
and examination by the TDCI. The Finance Company 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.
(f) The Investment Corporation is a Tennessee corporation duly organized
and validly existing under the laws of the State of Tennessee. The Investment
Corporation currently has no business operations and has no subsidiaries. The
Investment Corporation has full power and authority (corporate and otherwise) to
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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.
4.02. Authorization. (a) Heritage 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(e) and (f) hereof. As of the date hereof, Heritage is not aware of any
reason why the approvals set forth in Section 8.02(e) will not be received in a
timely manner and without the imposition of a condition, restriction or
requirement of the type described in Section 8.02(e). This Agreement, and its
execution and delivery by Heritage, have been duly authorized and approved by
the Board of Directors of Heritage and, assuming due execution and delivery by
ONB, constitutes a valid and binding obligation of Heritage, subject to the
fulfillment of the conditions precedent set forth in Section 8.02 hereof, and is
enforceable in accordance with its terms, except to the extent limited by
general principles of equity and public policy and by bankruptcy, insolvency,
fraudulent transfer, reorganization, liquidation, moratorium, readjustment of
debt or other laws of general application relating to or affecting the
enforcement of creditors' rights.
(b) Except as set forth in the Disclosure Schedule, neither the execution
of this Agreement nor consummation of the Merger contemplated hereby: (i)
conflicts with or violates Heritage's Charter or ByLaws; (ii) conflicts with or
violates any local, state, federal or foreign law, statute, ordinance, rule or
regulation (provided that the approvals of or filings with applicable government
regulatory agencies or authorities required for consummation of the Merger are
obtained) or any court or administrative judgment, order, injunction, writ or
decree; (iii) conflicts with, results in a breach of or constitutes a default
under any note, bond, indenture, mortgage, deed of trust, license, lease,
contract, agreement, arrangement, commitment or other instrument to which
Heritage or any Subsidiary is a party or by which Heritage or any Subsidiary is
subject or bound; (iv) results in the creation of or gives any person,
corporation or entity the right to create any lien, charge, claim, encumbrance
or security interest, or results in the creation of any other rights or claims
of any other party (other than ONB) or any other adverse interest, upon any
right, property or asset of Heritage or any Subsidiary; or (v) terminates or
gives any person, corporation or entity the right to terminate, accelerate,
amend, modify or refuse to perform under any note, bond, indenture, mortgage,
agreement, contract, lease, license, arrangement, deed of trust, commitment or
other instrument to which Heritage or any Subsidiary is bound or with respect to
which Heritage or any Subsidiary is to perform any duties or obligations or
receive any rights or benefits.
(c) Other than in connection or in compliance with the provisions of the
applicable federal and state banking, securities, 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 of the Merger by
Heritage or any Subsidiary.
4.03. Capitalization. (a) The authorized capital stock of Heritage as of
the date hereof consists, and at the Effective Time will consist, of 1,000,000
shares of preferred stock, no par value, none of which shares are issued or
outstanding and 3,000,000 shares of common stock, $2.00 par value per share,
583,439 of which shares are issued and outstanding, which number of issued
shares of Heritage Common Stock is subject to increase to a total of 671,408
shares pursuant to the exercise of options (collectively, the "Stock Options")
granted under the Heritage 1989 Stock Option Plan, the Heritage 1998 Outside
Director Stock Option Plan, and the Heritage 1998 Stock Option Plan
(collectively, the "Stock Option Plans") to purchase an aggregate of 87,969
shares of common stock of Heritage (such issued and outstanding shares are
referred to herein as "Heritage Common Stock"). Such issued and outstanding
shares of Heritage Common Stock have been duly and validly authorized by all
necessary corporate action of Heritage, are validly issued, fully paid and
nonassessable and have not been issued in violation of any pre-emptive rights of
any present or former Heritage shareholder. Heritage 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 or any additional shares of Heritage Common Stock.
(b) The authorized capital stock of the Bank as of the date hereof
consists, and at the Effective Time will consist, of 1,000,000 shares of common
stock, $2.00 par value per share, 415,099 of which
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shares are issued and outstanding (such issued and outstanding shares are
referred to herein as "Bank Common Stock"). Such issued and outstanding shares
of Bank Common Stock have been duly and validly authorized by all necessary
corporate action of the Bank, are validly issued, fully paid and nonassessable,
and have not been issued in violation of any pre-emptive rights of any present
or former Bank shareholder. All of the issued and outstanding shares of the Bank
Common Stock are owned by Heritage 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. The Bank 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 or any additional shares of Bank Common Stock.
(c) The authorized capital stock of the Investment Center as of the date
hereof consists, and at the Effective Time will consist, of 100 shares of common
stock, $2.00 par value per share, 25 of which shares are issued and outstanding
(such issued and outstanding shares are referred to herein as "Investment Center
Common Stock"). Such issued and outstanding shares of the Investment Center
Common Stock have been duly and validly authorized by all necessary corporate
action of the Investment Center, are validly issued, fully paid and
nonassessable, and have not been issued in violation of any pre-emptive rights
of any present or former Investment Center shareholder. All of the issued and
outstanding shares of Investment Center Common Stock are owned by the Bank 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. The
Investment Center 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 the
Investment Center Common Stock.
(d) The authorized capital stock of CLIC as of the date hereof consists,
and at the Effective Time will consist, of 1,000,000 shares of common stock,
$1.00 par value per share, 150,000 of which shares are issued and outstanding
(such issued and outstanding shares are referred to herein as "CLIC Common
Stock"). Such issued and outstanding shares of CLIC Common Stock have been duly
and validly authorized by all necessary corporate action of CLIC, are validly
issued, fully paid and nonassessable, and have not been issued in violation of
any pre-emptive rights of any present or former CLIC shareholder. All of the
issued and outstanding shares of CLIC Common Stock are owned by the Bank 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. CLIC has
no capital stock authorized, issued or outstanding other than as described in
this Section 4.03(d) and has no intention or obligation to authorize or issue
any other capital stock or any additional shares of CLIC Common Stock.
(e) The authorized capital stock of the Finance Company as of the date
hereof consists, and at the Effective Time will consist, of 10,000 shares of
common stock, no par value, 1,000 of which shares are issued and outstanding
(such issued and outstanding shares are referred to herein as "Finance Company
Common Stock"). Such issued and outstanding shares of the Finance Company Common
Stock have been duly and validly authorized by all necessary corporate action of
the Finance Company, are validly issued, fully paid and nonassessable, and have
not been issued in violation of any pre-emptive rights of any present or former
Finance Company shareholder. All of the issued and outstanding shares of Finance
Company Common Stock are owned by the Bank 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. The Finance Company has no capital
stock authorized, issued or outstanding other than as described in this Section
4.03(e) and has no intention or obligation to authorize or issue any other
capital stock or any additional shares of Finance Company Common Stock.
(f) The authorized capital stock of the Investment Corporation as of the
date hereof consists, and at the Effective Time will consist, of 100 shares of
common stock, $2.00 par value, 25 of which shares are issued and outstanding
(such issued and outstanding shares are referred to herein as "Investment
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Corporation Common Stock"). Such issued and outstanding shares of Investment
Corporation Common Stock have been duly and validly authorized by all necessary
corporate action of the Investment Corporation, are validly issued, fully paid
and nonassessable, and have not been issued in violation of any pre-emptive
rights of any present or former Investment Corporation shareholder. All of the
issued and outstanding shares of Investment Corporation Common Stock are owned
by the Bank 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. The Investment Corporation has no capital stock authorized, issued or
outstanding other than as described in this Section 4.03(f) and has no intention
or obligation to authorize or issue any other capital stock or any additional
shares of Investment Corporation Common Stock.
(g) Except as set forth in the Disclosure Schedule and except for options
granted under the Stock Option Plans, there are no options, warrants,
commitments, calls, puts, agreements, understandings, arrangements or
subscription rights relating to any shares of Heritage Common Stock, or any
securities convertible into or representing the right to purchase or otherwise
acquire any common stock or debt securities of Heritage, by which Heritage is or
may become bound. Heritage does not have any outstanding contractual or other
obligation to repurchase, redeem or otherwise acquire any of the issued and
outstanding shares of Heritage Common Stock.
(h) There are no options, warrants, commitments, calls, puts, agreements,
understandings, arrangements or subscription rights relating to any shares of
common stock of the Subsidiaries, or any securities convertible into or
representing the right to purchase or otherwise acquire any common stock or debt
securities of a Subsidiary, by which a Subsidiary is or may become bound. None
of the Subsidiaries has any outstanding contractual or other obligation to
repurchase, redeem or otherwise acquire any of the issued and outstanding shares
of its common stock.
(i) Except as set forth in the Disclosure Schedule, Heritage has no
knowledge of any person or entity which beneficially owns 5% or more of its
outstanding shares of Heritage Common Stock.
(j) Set forth in the Disclosure Schedule is a listing of each affiliate of
Heritage as described in Section 6.05 hereof setting forth the number of shares
of Heritage Common Stock beneficially owned by each affiliate and the manner in
which such shares are owned.
4.04. Organizational Documents. The respective Charter and By-Laws of
Heritage and each of the Subsidiaries, representing true, accurate and complete
copies of such corporate documents in effect as of the date of this Agreement,
have been delivered to ONB.
4.05. Compliance with Law. (a) Neither Heritage nor any Subsidiary has
engaged in any activity nor 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 are they in
violation of any order, injunction, judgment, writ or decree of any court or
government agency or body. Heritage and each Subsidiary possess and hold all
licenses, franchises, permits, certificates and other authorizations necessary
for the continued conduct of their business without interference or
interruption, and such licenses, franchises, permits, certificates and
authorizations are transferable (to the extent required) to ONB 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) Except as set forth in the Disclosure Schedule, neither Heritage nor
any of the Subsidiaries or their property is a party to or is subject to any
order, decree, agreement, memorandum of understanding or similar arrangement
with, or a commitment letter or similar submission to, or extraordinary
supervisory letter from, any federal or state governmental agency or authority
charged with the supervision or regulation of financial institutions or issuers
of securities or engaged in the insurance of deposits (including, without
limitation, the TDFI, the Federal Reserve Board and Federal Deposit Insurance
Corporation) or the supervision or regulation of Heritage or any of its
Subsidiaries. There are no uncured violations, or violations with respect to
which refunds or restitutions may be required, cited in any
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examination report of Heritage or any Subsidiary as a result of an examination
by any regulatory agency or body, or set forth in any accountant's or auditor's
report to Heritage or any Subsidiary.
4.06. Accuracy of Statements Made and Materials Provided to ONB. No
representation, warranty in this Section 4 or other statement made, or any
information provided, by Heritage or any Subsidiary in this Agreement or the
Disclosure Schedule (and any update thereto), and no written report, statement,
list, certificate, materials or other information furnished or to be furnished
by Heritage or any Subsidiary to ONB through and including the Effective Time in
connection with this Agreement or the Merger contemplated hereby (including,
without limitation, any written information which has been or shall be supplied
by Heritage and the Subsidiaries with respect to their financial condition,
results of operations, business, assets, capital or directors and officers for
inclusion in the proxy statement-prospectus and registration statement relating
to the Merger), contains or shall contain (in the case of information relating
to the proxy statement-prospectus at the time it is mailed to Heritage's
shareholders) any untrue 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.
4.07. Litigation and Pending Proceedings. (a) Except as set forth in the
Disclosure Schedule and lawsuits involving collection of delinquent accounts,
there are no claims, actions, suits, proceedings, mediations, arbitrations or
investigations pending or to the best knowledge of Heritage after due inquiry,
threatened in any court or before any government agency or authority,
arbitration panel or otherwise (nor does Heritage have any knowledge of a basis
for any claim, action, suit, proceeding, litigation, arbitration or
investigation) against, by or affecting Heritage or any Subsidiary or which
would prevent the performance of this Agreement, declare the same unlawful or
cause the rescission hereof.
(b) Except as set forth in the Disclosure Schedule, neither Heritage nor
any Subsidiary is: (i) subject to any outstanding judgment, order, writ,
injunction or decree of any court, arbitration panel or governmental agency or
authority; (ii) presently charged with or, to the best knowledge of Heritage
after due inquiry, 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 Heritage after due
inquiry, threatened proceeding by any government regulatory agency or authority
having jurisdiction over its respective business, assets, capital, properties or
operations.
4.08. Financial Statements and Reports. Heritage has delivered to ONB
copies of the following financial statements and reports of Heritage and the
Subsidiaries, including the notes thereto (collectively, the "Heritage Financial
Statements"):
(a) Consolidated Balance Sheets and the related Consolidated Statements of
Income and Consolidated Statements of Changes in Shareholders' Equity of
Heritage as of and for the years ended December 31, 1996, 1997 and 1998, and as
of and for the fiscal quarter ended June 30, 1999;
(b) Consolidated Statements of Cash Flows of Heritage for the years ended
December 31, 1996, 1997 and 1998, and for the fiscal quarter ended June 30,
1999;
(c) Consolidated Statements of Changes in Financial Position of Heritage
for the years ended December 31, 1997 and 1998, and for the fiscal quarter ended
June 30, 1999.
(d) Reports of Condition and Income ("Call Reports") for the Bank as of
close of business on December 31, 1995, 1996, 1997 and 1998; and
(e) Financial Statements of Heritage on Form FRY-9LP and Form FRY-9C filed
with the Board of Governors of the Federal Reserve System at the close of
business on December 31, 1997 and 1998.
The Heritage Financial Statements present fairly the consolidated financial
position of Heritage as of and at the dates shown and the consolidated results
of operations for the periods covered thereby. The Heritage Financial Statements
described in clauses (a), (b) and (c) above for completed fiscal years 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
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reports with respect to such financial statements. The Heritage 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 Heritage
Financial Statements false, misleading or inaccurate in any respect.
4.09. Properties, Contracts, Employees and Other Agreements. (a) Set forth
in the Disclosure Schedule are a true, accurate and complete copy of the
following:
(i) A brief description and the location of all real property owned by
Heritage and the Subsidiaries and the principal buildings and structures
located thereon and each lease of real property to which Heritage or any
Subsidiary is a party, identifying the parties thereto, the annual rental
payable, the expiration date of the lease and a brief description of the
property covered;
(ii) a list of all agreements, contracts, leases, licenses, lines of
credit, understandings, commitments or obligations of Heritage or any
Subsidiary which individually or in the aggregate:
(A) involve payment or receipt by Heritage or any Subsidiary (other
than as disbursements of loan proceeds to customers, loan payments by
customers or customer deposits) of more than $50,000;
(B) involve payments based on profits of Heritage or any
Subsidiary;
(C) relate to the purchase of goods, products, supplies or services
in excess of $50,000;
(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
(iii) The name and current annual salary of each director, officer and
employee of Heritage or any Subsidiary whose current annual salary is in
excess of $50,000, and the profit sharing, bonus or other form of
compensation (other than salary) paid or payable by Heritage or any
Subsidiary to or for the benefit of each such person for the year ended
December 31, 1998, and any employment, severance or deferred compensation
agreement or arrangement with respect to each such person.
(b) 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, except to the extent limited
by general principles of equity and public policy or by bankruptcy, insolvency,
fraudulent transfer, readjustment of debt or other laws of general application
relative to or affecting the enforcement of creditor's rights, and Heritage and
the Subsidiaries are, and, to the best knowledge of Heritage after due inquiry,
all other parties thereto are, in compliance with the provisions thereof, and
Heritage and the Subsidiaries are not in default in the performance, observance
or fulfillment of any obligation, covenant or provision contained therein. None
of the foregoing requires the consent of any party to its assignment in
connection with the Merger contemplated by this Agreement. Other than as
disclosed pursuant to this Section 4.09, to the best knowledge of Heritage after
due inquiry, no circumstances exist resulting from transactions effected or to
be effected, from events which have occurred or may occur or from any action
taken or omitted to be taken which could reasonably be expected to result in the
creation of any agreement, contract, obligation, commitment, arrangement, lease
or document described in or contemplated by this Section 4.09.
(c) Neither Heritage nor any Subsidiary is, to the best knowledge of
Heritage after due inquiry, in default under or in breach of or, alleged to be
in default under or in breach of, any loan or credit agreement, conditional
sales contract or other title retention agreement, security agreement, bond,
indenture, mortgage, license, contract, lease, commitment or any other
instrument or obligation.
4.10. Absence of Undisclosed Liabilities. Except as provided in the
Heritage Financial Statements, Subsequent Heritage Financial Statements and in
the Disclosure Schedule, except for unfunded loan commitments and obligations on
letters of credit to customers of the Bank and trade payables incurred in
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the ordinary course of the Bank's business, and except for the transaction
contemplated by this Agreement, neither Heritage nor any Subsidiary has, nor
will have at the Effective Time, any obligation, agreement, contract,
commitment, liability, lease or license which exceeds $50,000 individually, or
any obligation, agreement, contract, commitment, liability, lease or license
made outside of the ordinary course of business, nor does there exist any
circumstances resulting from transactions effected or events occurring on or
prior to the date of this Agreement or from any action omitted to be taken
during such period which could reasonably be expected to result in any such
obligation, agreement, contract, commitment, liability, lease or license.
4.11. Title to Assets. Except as described in this Section 4.11: (a)
Heritage or 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 Heritage Financial Statements as of June 30, 1999; good title
to all personal property reflected in the Heritage Financial Statements as of
June 30, 1999, other than personal property disposed of in the ordinary course
of business since June 30, 1999; good 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 Heritage and the Subsidiaries purports
to own or which Heritage or any Subsidiary uses in its business; good title to,
or right to use by terms of a valid and enforceable lease or contract, all other
property used in their respective businesses; and good title to all property and
assets acquired and not disposed of or leased since June 30, 1999. All of such
properties and assets are owned by Heritage or a Subsidiary free and clear of
all land or conditional sales contracts, mortgages, liens, pledges,
restrictions, security interests, charges, claims, rights of third parties or
encumbrances of any nature except: (i) as set forth in the Disclosure Schedule;
(ii) as specifically noted in the Heritage Financial Statements; (iii) statutory
liens for taxes not yet delinquent or being contested in good faith by
appropriate proceedings; (iv) pledges or liens required to be granted in
connection with the acceptance of government deposits or granted in connection
with repurchase or reverse repurchase agreements; and (v) easements,
encumbrances and liens of record, imperfections of title and other limitations
which are not material in amounts to Heritage on a consolidated basis and which
do not materially detract from the value or materially interfere with the
present or contemplated use of any of the properties subject thereto or impair
the use thereof for the purposes for which they are held or used. All real
property owned or leased by Heritage or any Subsidiary is in compliance with all
applicable zoning and land use laws.
All real property, machinery, equipment, furniture and fixtures owned or
leased by Heritage or any of the Subsidiaries is structurally sound, in good
operating condition and has been and is being maintained and repaired in the
ordinary condition of business.
(b) Heritage and the Subsidiaries have conducted their respective
businesses in compliance with all federal, state, county and municipal laws,
statutes, regulations, rules, ordinances, orders, directives, restrictions and
requirements relating to, without limitation, responsible property transfer,
underground storage tanks, petroleum products, air pollutants, water pollutants
or storm water or process waste water or otherwise relating to the environment,
air, water, soil 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 the rules and
regulations of the Environmental Protection Agency, the Nuclear Regulatory
Agency, the Army Corp of Engineers, the Department of Interior, the United
States Fish and Wildlife Service and any state department of natural resources
or state environmental protection agency now in effect (collectively,
"Environmental Laws"). Except as set forth in the Disclosure Schedule, there are
no pending or, to the best knowledge of Heritage after due inquiry, threatened,
claims, actions or proceedings by any local municipality, sewage district or
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other governmental entity against Heritage or any Subsidiary with respect to the
Environmental Laws. No environmental clearances or other governmental approvals
are required for the conduct of the business of Heritage or any Subsidiary as
presently conducted. Neither Heritage nor any Subsidiary 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 released, which substances if known to be present
on, at or under such property would require clean-up, removal, treatment,
abatement, response costs or any other remedial action under any Environmental
Law, and there is no reasonable basis or grounds for any such claim, action or
proceeding. Heritage and the Subsidiaries own, operate, lease, use and control,
and have owned, operated, leased, used and controlled, all real property in
compliance with the Environmental Laws. Neither Heritage nor any Subsidiary has
any liability for any clean-up or remediation under any of the Environmental
Laws with respect to any real property.
4.12. Loans. (a) Except as set forth in the Disclosure Schedule, there is
no loan by the Bank in excess of $50,000 that has been classified by bank
regulatory management as "Other Loans Specially Mentioned," "Substandard,"
"Doubtful" or "Loss" or in excess of $50,000 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 the Bank and a list of all
loans in excess of $50,000 which the Bank has determined to be thirty (30) days
or more past due with respect to principal or interest payments or has placed on
nonaccrual status has been provided to ONB.
(b) All loans reflected in the Heritage Financial Statements as of June 30,
1999 and which have been made, extended, renewed, restructured, approved,
amended or acquired since June 30, 1999: (i) to the best knowledge of Heritage
after due inquiry, 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; (ii) are evidenced by notes, instruments or other evidences
of indebtedness which are true, genuine and what they purport to be; and (iii)
are secured, to the extent that Heritage or any Subsidiary has a security
interest in collateral or a mortgage securing such loans, by perfected security
interests or recorded mortgages naming Heritage or a Subsidiary as the secured
party or mortgagee (unless by written agreement to the contrary).
(c) The reserves, the allowance for possible loan and lease losses and the
carrying value for real estate owned which are shown on the Heritage Financial
Statements are 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.
4.13. Shareholder Rights Plan. Except as otherwise provided in this
Agreement, the Disclosure Schedule and Heritage's Charter and By-Laws, Heritage
has no shareholder rights plan or any other plan, program or agreement
involving, restricting, prohibiting or discouraging a change in control or
merger of Heritage or which may be considered an anti-takeover mechanism.
4.14. Employee Benefit Plans. (a) With respect to the employee benefit
plans, as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), sponsored or otherwise maintained by Heritage or
any Subsidiary, whether written or oral, in which Heritage or any Subsidiary
participates as a participating employer; to which Heritage or any Subsidiary
contributes and including any such plans which within the preceding six years
have been terminated, merged into another plan of Heritage or any Subsidiary,
frozen or discontinued (collectively, "Heritage Plans") except as set forth on
the Disclosure Schedule: (i) all such Heritage Plans have been, in all respects,
maintained in compliance with the requirements prescribed by all applicable
statutes, orders and governmental rules or regulations, including, without
limitation, ERISA, the Code, and Treasury and Labor Regulations promulgated
thereunder, (ii) all Heritage Plans intended to constitute tax-qualified plans
under Section 401(a) of the Code have received favorable determination letters
from the Internal
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Revenue Service ("Service") with respect to "TRA" (as defined in Section 1 of
Rev. Proc. 93-39), and Heritage is not aware of any circumstances likely to
result in revocation of any such favorable determination letter; (iii) except
for the Heritage Common Stock held by its trustee as an asset of the Heritage
ESOP, no Heritage Plan (or its related trust) holds any stock or other
securities of Heritage or any related or affiliated person or entity; (iv)
Heritage has not engaged in any transaction that may subject Heritage, or any
Heritage Plan, to a civil penalty imposed by Section 502 of ERISA; (v) 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 Heritage Plan;
(vi) there are no actions, suits, proceedings or claims pending (other than
routine claims for benefits) or, to the best knowledge of Heritage after due
inquiry, threatened, against Heritage, any Subsidiary, any Heritage Plan, any
fiduciary of any Heritage Plan or the assets of any Heritage Plan as to which
Heritage or any Subsidiary would have liability.
(b) Heritage has made available to ONB true, accurate and complete copies
of the following (including all plans and programs which have been terminated):
(i) pension, retirement, profit-sharing, savings, stock purchase, stock bonus,
stock ownership, stock option and stock appreciation right plans and all
amendments thereto and all summary plan descriptions thereof (including any
modifications thereto); (ii) all employment, deferred compensation (whether
funded or unfunded), salary continuation, consulting, bonus, severance and
collective bargaining agreements, arrangements or understandings; (iii) all
executive and other incentive compensation plans, programs and agreements; (iv)
all group insurance and health insurance contracts, policies or plans; and (v)
all other incentive, welfare, fringe or benefit plans, or agreements, maintained
or sponsored, participated in, or contributed to by Heritage or any Subsidiary
for its current or former directors, officers or employees.
(c) Except as set forth on the Disclosure Schedule, no current or former
director, officer or employee of Heritage or any Subsidiary is entitled to any
benefit under any welfare benefit plans (as defined in Section 3(1) of ERISA)
after termination of employment with Heritage, except that such individuals may
be entitled to continue their group health care coverage pursuant to the retiree
health coverage provisions of the Heritage Group Health Plan or pursuant to
Section 4980B of the Code if they pay the cost of such coverage pursuant to the
applicable requirements of that plan or the Code with respect thereto, whichever
is applicable.
(d) With respect to any group health plan (as defined in Section 607(1) of
ERISA) sponsored or maintained by Heritage or any Subsidiary, in which Heritage
or any Subsidiary participates as a participating employer or to which Heritage
or any Subsidiary contributes, no director, officer, employee or agent of
Heritage or any Subsidiary has engaged in any action or failed to act in such a
manner that, as a result of such action or failure to act, would cause a tax to
be imposed on Heritage or any Subsidiary under Code Section 4980B(a). With
respect to all such plans, all applicable provisions of Section 4980B of the
Code and Section 601 of ERISA have been complied with in all respects by
Heritage and the Subsidiaries.
(e) Except as set forth on the Disclosure Schedule, there are no collective
bargaining, employment, management, consulting, deferred compensation,
reimbursement, indemnity, retirement, early retirement, severance or similar
plans or agreements, 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. All contributions required to be made under
the terms of any Heritage Plan have been timely made or have been reflected on
the Heritage Financial Statements. Neither any Heritage Plan which is an
"employee pension benefit plan" within the meaning of Section 3(2) of ERISA (a
"Pension Plan") nor any single-employer plan or any entity which is considered
one employer with Heritage under Section 4001 of ERISA or Section 414 of the
Code (an "ERISA Affiliate") has an "accumulated funding deficiency" (whether or
not waived) within the meaning of Section 412 of the Code or Section 302 of
ERISA and no ERISA Affiliate has an outstanding funding waiver. Neither Heritage
nor any of its Subsidiaries have provided, or is required to provide, security
to any Pension Plan or to any single-employer plan of any ERISA Affiliate
pursuant to Section 401(a)(29) of the Code.
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4.16. Taxes, Returns and Reports. Except as set forth in the Disclosure
Schedule, Heritage and each Subsidiary has since January 1, 1995: (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
respects; (b) paid or otherwise adequately reserved in accordance with generally
accepted accounting principles for all taxes, assessments and other governmental
charges due or claimed to be due upon Heritage or any Subsidiary 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). Heritage has established, and
shall establish in the Subsequent Heritage Financial Statements, in accordance
with generally accepted accounting principles, a reserve for taxes in the
Heritage Financial Statements adequate to cover all of Heritage's and the
Subsidiaries' tax liabilities (including, without limitation, income taxes,
payroll taxes and withholding, and franchise fees) for the periods then ending.
Neither Heritage nor any Subsidiary has, nor 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
Heritage Financial Statements (as hereinafter defined) or as accrued or reserved
for on the books and records of Heritage. Neither Heritage nor any Subsidiary is
currently under audit by any state or federal taxing authority. No federal,
state or local tax returns of Heritage have been audited by any taxing authority
during the past five (5) years.
4.17. Deposit Insurance. The deposits of the Bank are insured by the FDIC
in accordance with the Federal Deposit Insurance Act, as amended, and Heritage
and the Bank have paid or properly reserved or accrued for all current premiums
and assessments with respect to such deposit insurance.
4.18. Insurance. Set forth in the Disclosure Schedule is a list and brief
description of all policies of insurance (including, without limitation,
bankers' blanket bond, directors' and officers' liability insurance, property
and casualty insurance, group health or hospitalization insurance and insurance
providing benefits for employees) owned or held by Heritage or any Subsidiary on
the date hereof or with respect to which Heritage or any Subsidiary pays any
premiums. Each such policy is in full force and effect and all premiums due
thereon have been paid when due, and a true, accurate and complete copy thereof
has been made available to ONB prior to the date hereof.
4.19. Books and Records. The books and records of Heritage and the
Subsidiaries have been fully, properly and accurately maintained.
4.20. Broker's, Finder's or Other Fees. Except for reasonable fees of
Heritage's attorneys, accountants and investment bankers, all of which shall be
paid by Heritage prior to the Effective Time, no agent, broker or other person
acting on behalf of Heritage or any Subsidiary or under any authority of
Heritage or any Subsidiary is or shall be entitled to any commission, broker's
or finder's fee or any other form of compensation or payment from any of the
parties hereto relating to this Agreement and the Merger contemplated hereby.
4.21. Interim Events. (a) Except as set forth in the Disclosure Schedule,
between the period from June 30, 1999 to the date of this Agreement, no event
has occurred and no fact or circumstance shall have come to exist or come to be
known which, directly or indirectly, individually or taken together with all
other facts, circumstances and events, has had, or is reasonably likely to have,
a Material Adverse Effect.
(b) Except as set forth in the Disclosure Schedule, between the period from
June 30, 1999 to the date of this Agreement, Heritage and the Subsidiaries have
carried on their businesses in the ordinary and usual course consistent with
their past practices (excluding the incurrence of fees and expenses of
professional advisors related to this Agreement and the transactions
contemplated hereby) and there has not been:
(i) any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to Heritage
Common Stock; or
(ii) any split, combination or reclassification of any capital stock
of Heritage or any Subsidiary or any issuance or the authorization of any
issuance of any other securities in respect of, or in lieu of
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or in substitution for shares of Heritage Common Stock, except for
issuances of Heritage Common Stock upon the exercise of the Options awarded
prior to the date hereof in accordance with the terms of the Stock Option
Plans.
4.22. Regulatory Filings. Heritage and the Subsidiaries have filed and will
continue to file in a timely manner all required filings with the Securities and
Exchange Commission ("SEC"), including, but not limited to, all reports on Form
8-K, Form 10-KSB and Form 10-QSB and proxy statements, and with all appropriate
federal and state regulatory agencies and authorities as required by applicable
law. All such filings with the SEC and with all other appropriate federal and
state regulatory agencies were and will be true, accurate and complete as of the
dates of the filings and have been complied or will comply in all respects as to
form with the applicable requirements and prepared in conformity with generally
accepted regulatory accounting principles applied on a consistent basis, and no
such filing contained or will contain 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. Indemnification Agreements. (a) Neither Heritage nor any Subsidiary
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 Charter or
By-Laws of Heritage, the Investment Center, CLIC, the Finance Company and the
Investment Corporation.
(b) No claims have been made against or filed with Heritage or any
Subsidiary nor have, to the best knowledge of Heritage after due inquiry, any
claims been threatened against Heritage or any Subsidiary, 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 Heritage or any Subsidiary.
4.24. Year 2000. (a) All devices, systems, machinery, information
technology, computer software and hardware, and other date sensitive technology
(collectively, the "Systems") necessary for Heritage to carry on its business as
presently conducted and as contemplated to be conducted in the future are Year
2000 Compliant or will be Year 2000 Compliant within a period of time calculated
to result in no disruption of any of Heritage's business operations. Neither
Heritage nor any Subsidiary has received, or reasonably expects to receive, a
deficiency notice for any federal or state regulator relating to their failure
to be Year 2000 Compliant. For purposes of this Section 4.24, "Year 2000
Compliant" means that such Systems are designed to be used prior to, during and
after the Gregorian calendar year 2000 A.D. and will operate during each such
time period without error relating to date data, specifically including any
error relating to, or the product of, date data which represents or references
different centuries or more than one century.
(b) Heritage has:
(i) undertaken a detailed inventory, review, and assessment of all
areas within its business and operations that could be adversely affected
by the failure of Heritage to be Year 2000 Compliant on a timely basis;
(ii) developed a detailed plan and timeline for becoming Year 2000
Compliant on a timely basis; and
(iii) to date, implemented that plan in accordance with that
timetable.
4.25. Shareholder Approval. The affirmative vote of the holders of a
majority of the Heritage Common Stock (which are issued and outstanding on the
record date relating to the meeting of shareholders) is required for shareholder
approval of this Agreement and the Merger.
4.26. Nonsurvival of Representations and Warranties. The representations
and warranties of Heritage contained in this Agreement shall expire at the
earlier of the termination of this Agreement and the
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Effective Time, and thereafter Heritage and all directors, officers and
employees of Heritage shall have no further liability with respect thereto,
except for fraud or for false or misleading statements made intentionally or
knowingly in connection with such representations and warranties.
SECTION 5
REPRESENTATIONS AND WARRANTIES OF ONB
On or prior to the date hereof, ONB has delivered to Heritage a schedule
(the "ONB Disclosure Schedule") setting forth, among other things, items the
disclosure of which is necessary or appropriate as an exception to one or more
representations or warranties contained in this Section 5 or to one or more of
its covenants contained in Section 7; provided, that the mere inclusion of an
item in the ONB Disclosure Schedule as an exception to a representation or
warranty shall not be deemed an admission by ONB that such item represents a
material exception or fact, event or circumstance or that such item is
reasonably likely to result in a Material Adverse Effect (as defined below). The
items set forth in the Disclosure Schedule establish only those items that
constitute an exception to a representation or warranty which constitutes, or is
reasonably likely to result in, a Material Adverse Effect.
For the purpose of this Agreement, and in relation to ONB and its
subsidiaries, a Material Adverse Effect means any effect that (i) is material
and adverse to the financial position, results of operations or business of ONB
and its subsidiaries taken as a whole, or (ii) would materially impair the
ability of ONB to perform its obligations under this Agreement or otherwise
materially threaten or materially impede the consummation of the Merger and the
other transactions contemplated by this Agreement; provided, however, that
Material Adverse Effect shall not be deemed to include the impact of (a) changes
in banking and similar laws of general applicability or interpretations thereof
by courts or governmental authorities, (b) changes in generally accepted
accounting principles or regulatory accounting requirements applicable to banks
and their holding companies generally, (c) any modifications or changes to
valuation policies and practices in connection with the Merger or restructuring
charges taken in connection with the Merger, in each case in accordance with
generally accepted accounting principles, and (d) changes in general level of
interest rate or conditions or circumstances that affect the banking industry
generally.
No representation or warranty of ONB contained in this Section 5, shall be
deemed untrue or incorrect, and ONB shall not be deemed to have breached a
representation or warranty, as a consequence of the existence of any fact, event
or circumstance unless such fact, circumstance or event, individually or taken
together with all other facts, events or circumstances inconsistent with any
representation or warranty contained in this Section 5, has had or is reasonably
likely to have a Material Adverse Effect on ONB.
ONB accordingly hereby represents and warrants to Heritage as follows:
5.01. Organization and Authority. 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. Each of ONB's direct
subsidiaries has been duly organized and is validly existing in good standing
under the laws of the jurisdiction of its organization, and has full power and
authority 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.
5.02. Authorization. (a) ONB 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 (d), (e) and (f) hereof. As of the date hereof, ONB is not aware of
any reason why the approvals set forth in Section 8.01(e) will not be received
in a timely manner and without the imposition of a condition, restriction or
requirement of the type described in Section 8.01(e). This Agreement and its
execution and delivery by ONB have been duly authorized by its Board of
Directors.
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Assuming due execution and delivery by Heritage, this Agreement constitutes a
valid and binding obligation of ONB, subject to the conditions precedent set
forth in Section 8.01 hereof, and is enforceable in accordance with its terms,
except to the extent limited by general principles of equity and public policy
and by bankruptcy, insolvency, reorganization, liquidation, moratorium,
readjustment of debt or other laws of general application relating to or
affecting the enforcement of creditors' rights.
(b) Neither the execution of this Agreement nor consummation of the Merger
contemplated hereby: (i) conflicts with or violates ONB's Articles of
Incorporation or By-Laws; (ii) conflicts with or violates in any respect any
local, state, federal or foreign law, statute, ordinance, rule or regulation
(provided that the approvals of or filings with applicable government regulatory
agencies or authorities required for consummation of the Merger are obtained) or
any court or administrative judgment, order, injunction, writ or decree; (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 is a party or by which
ONB is subject or bound; (iv) results in the creation of or gives any person,
corporation or entity the right to create any lien, charge, claim, encumbrance
or security interest, or results in the creation of any other rights or claims
of any other party (other than Heritage) or any other adverse interest, upon any
right, property or asset of ONB; or (v) terminates or gives any person,
corporation or entity the right to terminate, accelerate, amend, modify or
refuse to perform under any note, bond, indenture, mortgage, agreement,
contract, lease, license, arrangement, deed of trust, commitment or other
instrument to which ONB is bound or with respect to which ONB is to perform any
duties or obligations or receive any rights or benefits.
(c) Other than in connection or in compliance with applicable federal and
state banking, securities and corporation statutes, all as amended, and the
rules and regulations promulgated thereunder, no notice to, filing with,
exemption by or consent, authorization or approval of any governmental agency or
body is necessary for the consummation by ONB of the Merger contemplated by this
Agreement.
5.03. Capitalization. (a) The authorized capital stock of ONB as of the
date hereof consists of (i) 75,000,000 shares of common stock, no par value per
share, of which approximately 46,158,663 shares were issued and outstanding as
of June 30, 1999, and (ii) 2,000,000 shares of preferred stock, no shares of
which have been or are presently intended to be issued, other than in connection
with any obligations of ONB to issue such preferred stock under its
shareholders' rights plan. Such issued and outstanding shares of ONB capital
stock have been duly and validly authorized by all necessary corporate action of
ONB, are validly issued, fully paid and nonassessable, and have not been issued
in violation of any pre-emptive rights of any present or former ONB shareholder.
All of the issued and outstanding shares of common stock of ONB's subsidiaries
are owned by ONB free and clear of all liens, pledges, charges, claims,
encumbrances, restrictions, security interests, options and pre-emptive rights
and of all other rights or claims of any other person, corporation or entity
with respect thereto. Except as described in this Section 5.03, ONB has no other
authorized capital stock. Except for shares of ONB common stock to be issued in
connection with: (i) ONB's dividend reinvestment and stock purchase plan; (ii)
ONB's outstanding convertible subordinated debentures; (iii) acquisitions by ONB
of other financial institutions or holding companies; and (iv) ONB's restricted
stock plan and other employee benefit plans, ONB has no intention or obligation
to authorize or issue any other capital stock or any additional shares of ONB
capital stock.
(b) Except for shares of ONB common stock beneficially owned by its trust
affiliates, ONB has no knowledge of any person or entity who beneficially owns
5% or more of its issued and outstanding shares of common stock.
5.04. Organizational Documents. The Articles of Incorporation and By-Laws
of ONB in force as of the date of this Agreement have been delivered to Heritage
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 nor 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. ONB and each of its
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subsidiaries possesses and holds all licenses, franchises, permits, certificates
and other authorizations necessary for the continued conduct of their business
without interference or interruption.
5.06. Regulatory Filings. ONB and each of its subsidiaries have filed and
will continue to file in a timely manner all required filings with the SEC,
including, but not limited to, all reports on Form 8-K, Form 10-K and Form 10-Q
and proxy statements, and with all other federal and state regulatory agencies
as required by applicable law. All filings by ONB with the SEC and with all
other federal and state regulatory agencies complied or will comply in all
respects as to form with the applicable requirements and were and will be true,
accurate and complete in all respects as of the dates of the filings, and no
such filings contained or will contain any untrue statement of a material fact
or omitted to state a material fact necessary in order to make the statements,
at the time and in the light of the circumstances under which they were made,
not false or misleading.
5.07. Litigation and Pending Proceedings. (a) There are no claims, actions,
suits, proceedings, investigations or arbitrations pending or, to the best
knowledge of ONB after due inquiry, threatened in any court or before or by any
government agency or authority, arbitration panel or otherwise (nor is there any
basis for any claim, action, suit, proceeding, litigation, investigation or
arbitration) against, by or affecting ONB or its subsidiaries 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; (ii) presently charged
with or, to the best knowledge of ONB, under governmental investigation with
respect to any actual or alleged violations of any law, statute, rule,
regulation or ordinance; or (iii) the subject of any pending or, to the best
knowledge of ONB after due inquiry, threatened proceeding by any government
regulatory agency or authority having jurisdiction over its business, assets,
capital, properties or operations.
5.08. Financial Statements and Reports. (a) ONB or its agents have
delivered to Heritage copies of the following financial statements and reports
of ONB and its subsidiaries, including the notes thereto (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, 1996, 1997 and 1998, and for
the fiscal quarter ended June 30, 1999; and
(ii) Consolidated Statements of Cash Flows of ONB for the years ended
December 31, 1996, 1997 and 1998 and for the fiscal quarter ended June 30,
1999.
(b) The ONB Financial Statements present fairly the consolidated financial
position of ONB and its subsidiaries as of and at the dates shown and the
consolidated results of operations for the periods covered thereby. The ONB
Financial Statements described in clauses (i) and (ii) above, which consist of
fiscal year-end information, are audited financial statements and have been
prepared in conformance with generally accepted accounting principles applied on
a consistent basis except as may otherwise be indicated in any accountants'
notes or reports with respect to such financial statements. The ONB Financial
Statements do not include any assets, liabilities or obligations or omit to
state any assets, liabilities or obligations, absolute or contingent, or any
other facts, which inclusion or omission would render any of the ONB Financial
Statements false, misleading or inaccurate in any respect.
5.09. Shares to be Issued in Merger. The shares of ONB common stock which
Heritage shareholders will be entitled to receive upon consummation of the
Merger pursuant to this Agreement will, at the Effective Time, be duly
authorized and will, when issued in accordance with this Agreement, be validly
issued, fully paid and nonassessable and will have been registered under the
Securities Act of 1933, as amended ("1933 Act") and listed for trading on the
Nasdaq National Market System.
5.10. Shareholder Approval. Approval by ONB's shareholders of the Merger or
for any other actions contemplated by this Agreement is not required.
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5.11. Accuracy of Statements Made to Heritage. No representation, warranty
or other statement made, or any information provided or to be provided, by ONB
in this Agreement, and no written report, statement, list, certificate,
materials or other information furnished or to be furnished by ONB to Heritage
through and including the Effective Time in connection with this Agreement or
the Merger contemplated hereby (including, without limitation, any written
information which has been or shall be supplied by ONB with respect to its
financial condition, results of operations, business, assets, capital or
directors and officers for inclusion in the proxy statement-prospectus and
registration statement relating to the Merger), contains or shall contain (in
the case of information relating to the proxy statement-prospectus at the time
it is mailed to Heritage's shareholders) any untrue or misleading statement of
material fact or omits or shall omit to state a material fact necessary to make
the statements contained herein or therein, in light of the circumstances in
which they are made, not false or misleading.
5.12. Broker's, Finder's or Other Fees. Except for reasonable fees of ONB's
attorneys and accountants and investment bankers, no agent, broker or other
person acting on behalf of ONB or under any authority of ONB is or shall be
entitled to any commission, broker's or finder's fee or any other form of
compensation or payment from any of the parties hereto relating to this
Agreement and the Merger contemplated hereby.
5.13. Employee Benefit Plans. (a) With respect to the employee benefit
plans, as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), sponsored or otherwise maintained by ONB or any
of its subsidiaries, whether written or oral, in which ONB or any of its
subsidiaries participates as a participating employer; to which ONB or any of
its subsidiaries contributes and including any such plans which within the
preceding six years have been terminated, merged into another plan of ONB or any
of its subsidiaries, frozen or discontinued (collectively, "ONB Plans"): (i) all
such ONB Plans have been, in all respects, maintained in compliance with the
requirements prescribed by all applicable statutes, orders and governmental
rules or regulations, including, without limitation, ERISA, the Code, and
Treasury and Labor Regulations promulgated thereunder, (ii) all ONB Plans
intended to constitute tax-qualified plans under Section 401(a) of the Code have
received favorable determination letters from the Internal Revenue Service
("Service") with respect to "TRA" (as defined in Section 1 of Rev. Proc. 93-39),
and ONB is not aware of any circumstances likely to result in revocation of any
such favorable determination letter; (iii) except for the ONB common stock held
by its trustee as an asset of the ONB Employee Stock Ownership Plan and the ONB
Employees' Retirement Plan, no ONB Plan (or its related trust) holds any stock
or other securities of ONB or any related or affiliated person or entity; (iv)
ONB has not engaged in any transaction that may subject ONB, or any ONB Plan, to
a civil penalty imposed by Section 502 of ERISA; (v) 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 ONB Plan; (vi) to the best knowledge of
ONB, there are no actions, suits, proceedings or claims pending (other than
routine claims for benefits) or threatened, against ONB, any of its
subsidiaries, any ONB Plan, any fiduciary of any ONB Plan or the assets of any
ONB Plan as to which ONB would have liability.
(b) ONB has made available to Heritage true, accurate and complete copies
of the following (including all plans and programs which have been terminated):
(i) pension, retirement, profit-sharing, savings, stock purchase, stock bonus,
stock ownership, stock option and stock appreciation right plans and all
amendments thereto and all summary plan descriptions thereof (including any
modifications thereto); (ii) all employment, deferred compensation (whether
funded or unfunded), salary continuation, consulting, bonus, severance and
collective bargaining agreements, arrangements or understandings; (iii) all
executive and other incentive compensation plans, programs and agreements; (iv)
all group insurance and health insurance contracts, policies or plans; and (v)
all other incentive, welfare or employee benefit plans, or agreements,
maintained or sponsored, participated in, or contributed to by ONB or any of its
subsidiaries for its current or former directors, officers or employees.
(c) No current or former director, officer or employee of ONB or any of its
subsidiaries is entitled to any benefit under any welfare benefit plans (as
defined in Section 3(1) of ERISA) after termination of employment with ONB,
except that such individuals may be entitled to continue their group health care
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coverage pursuant to the retiree health coverage provisions of the ONB
Corporation Group Health Plan or pursuant to Section 4980B of the Code if they
pay the cost of such coverage pursuant to the applicable requirements of the
Plan or the Code with respect thereto, whichever is applicable.
(d) With respect to any group health plan (as defined in Section 607(1) of
ERISA) sponsored or maintained by ONB or any of its subsidiaries, in which ONB
or any of its subsidiaries participates as a participating employer or to which
ONB or any of its subsidiaries contributes, no director, officer, employee or
agent of ONB or any of its 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 on ONB or any of its subsidiaries under Code Section
4980B(a). With respect to all such plans, all applicable provisions of Section
4980B of the Code and Section 601 of ERISA have been complied with in all
respects by ONB and its subsidiaries.
5.14. Nonsurvival of Representations and Warranties. The representations
and warranties of ONB contained in this Agreement shall expire at the earlier of
the termination of this Agreement and the Effective Time and, thereafter, ONB
and all directors, officers and employees of ONB shall have no further liability
with respect thereto, except for fraud or for false or misleading statements
made intentionally or knowingly in connection with such representations and
warranties.
SECTION 6
COVENANTS OF HERITAGE
Heritage covenants and agrees with ONB, and covenants and agrees to cause
the Subsidiaries, to act as follows:
6.01. Shareholder Approval. Subject to Section 6.06 hereof, Heritage shall
submit this Agreement to its shareholders for approval and adoption at a meeting
to be called and held in accordance with applicable law and the Charter and
By-Laws of Heritage at the earliest possible reasonable date. Subject to Section
6.06 hereof, the Board of Directors of Heritage shall recommend to Heritage's
shareholders that such shareholders approve and adopt this Agreement and the
Merger contemplated hereby and shall solicit proxies voting in favor of this
Agreement from Heritage's shareholders.
6.02. Other Approvals. (a) Heritage and the Subsidiaries shall proceed
expeditiously, cooperate fully and use its best efforts to assist ONB in
procuring upon reasonable terms and conditions all consents, authorizations,
approvals, registrations and certificates, in completing all filings and
applications and in satisfying all other requirements prescribed by law which
are necessary for consummation of the Merger on the terms and conditions
provided in this Agreement at the earliest possible reasonable date.
(b) Any materials or information provided by Heritage or any Subsidiary to
ONB for use by ONB in any filing with any state or federal regulatory agency or
authority shall not contain any untrue or misleading statement of material fact
or shall omit to state a material fact necessary to make the statements
contained therein, in light of the circumstances in which they are made, not
false or misleading.
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 Heritage nor any Subsidiary 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), except for the issuance of up to 87,969 shares of
Heritage Common Stock under the Stock Option Plans;
(ii) authorize a class of stock or issue, or authorize the issuance
of, securities other than or in addition to the issued and outstanding
common stock as set forth in Section 4.03 hereof;
(iii) distribute or pay any dividends on its shares of common stock,
or make any other distribution to its shareholders except that (A) the Bank
may pay cash dividends to Heritage in the
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ordinary course of business for payment of reasonable and necessary
business and operating expenses of Heritage and to provide funds for
Heritage's dividends to its shareholders in accordance with this Agreement,
(B) Heritage may pay to its shareholders its usual and customary annual
cash dividend of no greater than One Dollar and 50/100 Dollars ($1.50) per
share to be paid to shareholders of Heritage prior to December 31, 1999,
and (C) if ONB declares a cash dividend in the first quarter of 2000 and
the Merger has not been consummated prior to the record date of such cash
dividend, then Heritage may declare and pay a cash dividend for each issued
and outstanding share of Heritage Common Stock in an amount equal to the
ONB cash dividend (on a per share of ONB common stock basis) multiplied by
the Exchange Ratio.
(iv) redeem any of its outstanding shares of common stock;
(v) merge, combine or consolidate or effect a share exchange with or
sell its assets or any of its securities to any other person, corporation
or entity or enter into any other similar transaction not in the ordinary
course of business;
(vi) purchase any assets or securities or assume any liabilities of
another bank holding company, bank, corporation or other entity, except in
the ordinary course of business necessary to manage their investment
portfolios;
(vii) make any loan or commitment to lend money, issue any letter of
credit or accept any deposit, except in the ordinary course of business in
accordance with its existing banking practices;
(viii) except for the acquisition or disposition in the ordinary
course of business of other real estate owned, acquire or dispose of any
real or personal property (excluding the investment portfolio of the Bank)
or fixed asset constituting a capital investment in excess of $50,000
individually or $100,000 in the aggregate;
(ix) subject any of its properties or assets to a mortgage, lien,
claim, charge, option, restriction, security interest or encumbrance,
except for tax and other liens which arise by operation of law and with
respect to which payment is not past due or is being contested in good
faith by appropriate proceedings and except for pledges or liens: (i)
required to be granted in connection with acceptance by Heritage or any
Subsidiary of government deposits; (ii) granted in connection with
repurchase or reverse repurchase agreements; or (iii) otherwise incurred in
the ordinary course of the conduct of its business;
(x) promote to a new position or increase the rate of compensation or
enter into any agreement to promote to a new position or increase the rate
of compensation, of any director, officer or employee of Heritage or any
Subsidiary (except for promotions and compensation increases in the
ordinary course of business and in accordance with past practices and
established employment policies of Heritage and the Subsidiaries and other
than pursuant to an employee retention program, which has been disclosed to
ONB);
(xi) execute, create, institute, modify, amend or terminate (except
with respect to any amendments to the Heritage Plans required by law, rule
or regulation) any pension, retirement, savings, stock purchase, stock
bonus, stock ownership, stock option, stock appreciation or depreciation
rights or profit sharing plans; any employment, deferred compensation,
consulting, bonus or collective bargaining agreement; any group insurance
or health contract or policy; or any other incentive, retirement, welfare
or employee welfare benefit plan, agreement or understanding for current or
former directors, officers or employees of Heritage or any Subsidiary; or
change the level of benefits or payments under any of the foregoing or
increase or decrease any severance or termination of pay benefits or any
other fringe or employee benefits other than as required by law or
regulatory authorities or the terms of any of the foregoing;
(xii) modify, amend or institute new employment policies or practices,
or enter into, renew or extend any employment, indemnity, reimbursement,
consulting, compensation or severance agreements with respect to any
present or former directors, officers or employees of Heritage or any
Subsidiary;
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(xiii) hire or employ any new or additional employees of Heritage or
any Subsidiary, except those which are reasonably necessary for the proper
operation of their respective businesses;
(xiv) elect or appoint any executive officers or directors of Heritage
or any Subsidiary who are not presently serving in such capacities;
(xv) amend, modify or restate Heritage's or any of the Charters 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 to or right
to acquire any shares of common stock or substantially all of the assets of
Heritage or any Subsidiary, or enter into any agreement or commitment
relative to the foregoing;
(xvii) fail to continue to make additions to in accordance with the
Bank's past practices and to otherwise maintain in all respects the Bank'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) except for obligations disclosed within this Agreement or the
Disclosure Statement, trade payables and similar liabilities and
obligations incurred in the ordinary course of business and the payment,
discharge or satisfaction in the ordinary course of business of liabilities
reflected in the Heritage Financial Statements or the Subsequent Heritage
Financial Statements, (A) borrow any money (except for capital purposes
related to the Subsidiaries), (B) incur any indebtedness including, without
limitation, through the issuance of debentures, or (C) incur any liability
or obligation (whether absolute, accrued, contingent or otherwise), in an
aggregate amount exceeding $50,000 (other than as contemplated by Section
6.03(a)(vii) hereof and legal, accounting and fees related to the Merger);
(xx) open, close, move or, in any material respect, expand, diminish,
renovate, alter or change any of its offices or branches; or
(xxi) pay or commit to pay any management or consulting or other
similar type of fees other than in the ordinary course of business.
(b) Heritage and the Subsidiaries shall maintain, or cause to be
maintained, in full force and effect, insurance on their assets, properties and
operations, fidelity coverage and directors' and officers' liability insurance
on their directors, officers and employees in such amounts and with regard to
such liabilities and hazards as are currently insured by Heritage 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, Heritage and the Subsidiaries shall: (a) carry on their business
substantially in the manner as is presently being conducted and in the ordinary
course of business; (b) use their reasonable best efforts to preserve their
business organization intact, keep available the services of the present
officers and employees and preserve their present relationships with customers
and persons having business dealings with it; (c) maintain all of the properties
and assets that each of them 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 their 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 them and to the conduct of their business; and (e) not
knowingly do or fail to do anything which will cause a breach of, or default in,
any contract, agreement, commitment, obligation, understanding, arrangement,
lease or license to which any one of them is a party or by which any one of them
is or may be subject or bound.
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6.05. Restrictions Regarding Affiliates. Heritage shall, within thirty (30)
days after the date of this Agreement and promptly thereafter until the
Effective Time to reflect any changes, provide ONB with a list identifying each
person who may be deemed to be an affiliate of Heritage for purposes of Rule 145
under the 1933 Act. On or prior to the date of this Agreement, and thereafter as
may be required for a person who may be deemed an affiliate of Heritage
following the date of this Agreement, Heritage shall obtain from each director,
executive officer and other person who may be deemed to be such an affiliate of
Heritage to deliver to ONB on or prior to the date of this Agreement, and
thereafter as may be required for any other person who may be deemed an
affiliate of Heritage following the date of this Agreement, a written agreement,
substantially in the form as attached hereto as Exhibit A. On or prior to the
Effective Time, Heritage shall use its best efforts to obtain from each
director, executive officer and other person who may be deemed to be an
affiliate of Heritage for purposes of Rule 145 under the 1933 Act to deliver to
ONB at the Effective Time a certificate signed by each such person certifying to
the effect that such person has complied with the terms and conditions of their
written agreement delivered to ONB pursuant to this Section 6.05.
6.06. Other Negotiations. (a) 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, neither Heritage nor
any Subsidiary shall permit nor authorize their respective directors, officers,
employees, agents or representatives to, directly or indirectly, initiate,
solicit or encourage, or provide information to, any corporation, association,
partnership, person or other entity or group concerning any merger,
consolidation, share exchange, combination, purchase or sale of substantial
assets, sale of shares of common stock (or securities convertible or
exchangeable into or otherwise evidencing, or any agreement or instrument
evidencing the right to acquire, capital stock) or similar transaction relating
to Heritage or any Subsidiary or to which Heritage or any Subsidiary may become
a party (all such transactions are hereinafter referred to as "Acquisition
Transactions").
(b) Heritage and the Subsidiaries shall promptly communicate to ONB the
terms of any proposal or offer which any one of them may receive with respect to
an Acquisition Transaction. Heritage or any Subsidiary may, in response to an
unsolicited written proposal with respect to an Acquisition Transaction from a
third party, furnish information to, and negotiate, explore or otherwise engage
in substantive discussions with such third party, and enter into any such
agreement, arrangement or understandings, in each case, only if Heritage's Board
of Directors determines in good faith by majority vote, after consultation with
its financial advisors and outside legal counsel, that failing to take such
action would be a breach of the fiduciary duties of Heritage's Board of
Directors in connection with seeking an Acquisition Transaction, and that is
substantially more favorable to the shareholders of Heritage than the terms of
the Merger.
(c) This Section 6.06 shall not authorize Heritage or any Subsidiary, or
any of their directors, officers, employees, agents or representatives, to
initiate any discussions or negotiations with respect to an Acquisition
Transaction with a third party.
6.07. Press Releases. Except as required by law, neither Heritage nor any
Subsidiary shall issue any news or press releases or make any other public
announcements or disclosures relating to the Merger without the prior consent of
ONB, which consent shall not be unreasonably withheld.
6.08. Disclosure Schedule Update. Heritage shall promptly supplement, amend
and update, upon the occurrence of any change prior to the Effective Time, and
as of the Effective Time, the Disclosure Schedule with respect to any matters or
events hereafter arising which, if in existence or having occurred as of the
date of this Agreement, would have been required to be set forth or described in
the Disclosure Schedule or this Agreement and including, without limitation, any
fact which, if existing or known as of the date hereof, would have made any of
the representations or warranties of Heritage contained herein incorrect, untrue
or misleading.
6.09. Information, Access Thereto, Confidentiality. ONB and its respective
representatives and agents shall, on reasonable notice and during normal
business hours prior to the Effective Time, have full and continuing access to
the properties, facilities, operations, books and records of Heritage and the
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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 Heritage and the Subsidiaries
and of their financial and legal condition as deemed necessary or advisable to
familiarize themselves with such operations, books, records, properties and
other matters; provided, however, that such access or investigation shall not
interfere with the normal business operations of Heritage and the Subsidiaries.
Upon request, Heritage and the Subsidiaries shall furnish ONB or its respective
representatives or agents, their attorneys' responses to external auditors
requests for information, management letters received from their external
auditors and such financial, loan and operating data and other information
reasonably requested by ONB which has been or is developed by Heritage or any
Subsidiary, their auditors, accountants or attorneys (provided with respect to
attorneys, such disclosure would not result in the waiver by Heritage or any
Subsidiary of any claim of attorney-client privilege), and will permit ONB and
its respective representatives or agents to discuss such information directly
with any individual or firm performing auditing or accounting functions for
Heritage and 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 respective representatives or agents. No investigation by ONB
shall affect the representations and warranties made by Heritage herein. ONB
shall not use any such information obtained pursuant to this Agreement for any
purpose unrelated to the Merger. Any confidential information or trade secrets
received by ONB or its representatives or agents in the course of such
examination (whether conducted prior to or after the date of this Agreement)
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 Heritage's request, returned to Heritage 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 Heritage Financial Statements. As soon as reasonably
available after the date of this Agreement, Heritage shall deliver to ONB the
monthly unaudited consolidated balance sheets and profit and loss statements of
Heritage prepared for its internal use, Call Reports of the Banks for each
quarterly period completed prior to the Effective Time, and all other financial
reports or statements submitted to regulatory authorities after the date hereof,
to the extent permitted by law (collectively, "Subsequent Heritage Financial
Statements"). The Subsequent Heritage Financial Statements shall be prepared on
a basis consistent with past accounting practices and generally accepted
accounting principles applied on a consistent basis to the extent applicable and
shall present fairly the financial condition and results of operations as of the
dates and for the periods presented, subject to year end audit adjustments and
the absence of footnotes for interim statements. The Subsequent Heritage
Financial Statements, including the notes thereto, will not include any assets,
liabilities or obligations or omit to state any assets, liabilities or
obligations, absolute or contingent, or any other facts, which inclusion or
omission would render such financial statements inaccurate, incomplete or
misleading in any respect.
6.11. Employee Benefits. Neither the terms of Section 7.03 hereof nor the
provision of any employee benefits by ONB or any of its subsidiaries to
employees of Heritage shall: (a) create any employment contract, agreement or
understanding with or employment rights for, or constitute a commitment or
obligation of employment to, any of the officers or employees of Heritage; or
(b) prohibit or restrict ONB or its subsidiaries, whether before or after the
Effective Time, from changing, amending or terminating any employee benefits
provided to its employees from time to time.
6.12. Transition of Heritage 401(k)/ESOP. As soon as administratively
feasible after the Effective Time, the assets and liabilities under the Heritage
Bank Profit Sharing, 401(k) Savings and Employee Stock Ownership Plan and Trust
("Heritage 401(k)/ESOP") attributable to the 401(k) portion of such plan shall
be merged with and into the ONB Savings Plan. All account balances maintained
under the Heritage 401(k)/ESOP shall become fully vested and nonforfeitable at
the Effective Time. From the date of this Agreement through the Effective Time,
Heritage and the Subsidiaries may continue to make contributions to the Heritage
401(k)/ESOP (including participant "deferral" contributions and discretionary
employer contributions), so long as such contributions are comparable in amount,
on a prorated basis,
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to recent past contributions to that plan. In addition, Heritage shall take, or
cause to be taken, all actions necessary to cause the fiduciaries of the
401(k)/ESOP to take all of the following actions:
(i) Implement a written confidential pass through voting procedure
pursuant to which the participants under the Heritage 401(k)/ESOP and their
beneficiaries shall direct the trustee under the Heritage 401(k)/ESOP to
vote the shares of Heritage Common Stock allocated to their Heritage
401(k)/ESOP accounts with respect to the Merger;
(ii) Provide the Heritage 401(k)/ESOP participants and their
beneficiaries with a written notice regarding the existence of and
provisions for such confidential pass through voting procedures, as well as
the same written materials to be provided to the shareholders of Heritage
in connection with the Merger;
(iii) Obtain a written opinion from a qualified, independent financial
advisor to the trustee of the Heritage 401(k)/ESOP to the effect that the
shares of ONB common stock to be received by the Heritage 401(k)/ESOP in
the Merger in exchange for the shares of Heritage Common Stock will
constitute "adequate consideration" as defined in Section 3(18) of ERISA,
and that the Merger, including the disposition of the Heritage 401(k)/ESOP
in connection therewith, are fair to the Heritage 401(k)/ESOP and its
participants from a financial point of view. The identity of the financial
advisor and the contents of its written opinion referred to in the
preceding sentence must be acceptable in form and content to ONB and its
counsel; and
(iv) Take any and all additional actions necessary to satisfy the
requirements of ERISA applicable to the Heritage 401(k)/ESOP fiduciaries in
connection with the Merger.
Effective as of the last day of the month in which the Effective Time occurs,
the "employee stock ownership plan" portion of the Heritage 401(k)/ESOP (that
is, the portion of that plan that (i) is not attributable to the 401(k) portion
and therefore (ii) is not being merged into the ONB Savings Plan) shall be
terminated and all benefits thereunder distributed as soon as practicable
following that date. Prior to the distribution of any ESOP accounts in
connection with such termination, Heritage shall have obtained a determination
letter from the Service to the effect that the termination will not affect the
tax qualified status of the ESOP.
6.13. Termination of Group Health Plan. The Heritage Bank Group Health Plan
("Heritage Group Health Plan") shall be terminated as of the last day of the
calendar month in which the Effective Time occurs. From the date of this
Agreement through the date as of which the Heritage Group Health Plan
terminates, Heritage and the Subsidiaries shall continue to pay the insurance
premiums necessary to continue the Heritage Group Health Plan benefits.
6.14. Termination of Group Dental Plan. The Heritage Bank Group Dental Plan
("Heritage Dental Plan") shall be terminated as of the last day of the calendar
month in which the Effective Time occurs. From the date of this Agreement
through the date as of which the Heritage Dental Plan terminates, Heritage and
the Subsidiaries shall continue to pay the insurance premiums necessary to
continue the Heritage Dental Plan benefits.
6.15. Termination of Group LTD Plan. The Heritage Bank Group Long Term
Disability Plan ("Heritage LTD Plan") shall be terminated as of the Effective
Time, or as soon as administratively feasible thereafter, but such termination
shall not affect the benefits payable to any covered former Heritage employee
who became entitled to a disability benefit under the Heritage LTD Plan prior to
the termination of said plan. From the date of this Agreement through the date
as of which the Heritage LTD Plan terminates, Heritage and the Subsidiaries
shall continue to pay the insurance premiums necessary to continue the Heritage
LTD Plan benefits.
6.16. Termination of Cafeteria Plan. The Heritage Fringe Benefit Plan
("Heritage Cafeteria Plan") shall be terminated as of same date the Heritage
Health Plan is terminated. From the date of this Agreement through the date as
of which the Heritage Cafeteria Plan terminates, Heritage and the Subsidiaries
shall continue to contribute to such plan the pre-tax amounts which the Heritage
Cafeteria
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Plan participants elect to defer from compensation As of the date of
termination, the balances in the health and dependent care flexible spending
accounts under the Heritage Cafeteria Plan shall be transferred to the ONB
"cafeteria" plan. Elections in effect at that time shall be continued under the
ONB plan, subject to change as provided in the ONB plan. All benefit payments
relating to the transferred balances shall be made in accordance with the ONB
plan.
6.17. Termination of Group Life and ADD Plan. The Heritage Bank Group Term
Life and ADD Insurance Plan ("Heritage Life Plan") shall be terminated as of the
end of the month coincident with or next following the Effective Time. From the
date of this Agreement through the date on which the Heritage Life Plan
terminates, Heritage and the Subsidiaries shall continue to pay the insurance
premiums necessary to continue the death benefits provided by such plan.
6.18. Termination of Cancer Policies. The payment of premiums to provide
voluntary cancer insurance shall cease as of the Effective Time.
6.19. Termination of Executive Life and Disability Policies. The payment of
premiums to provide executives of Heritage and/or its Subsidiaries with
individual life and/or disability insurance coverage shall cease as of the
Effective Time. The executives may then exercise at their discretion whatever
conversion rights they may have, if any, with respect to those insurance
policies.
6.20. Termination of the Heritage Directors' Deferred Compensation
Plan. The Heritage Financial Services, Inc. Directors' Unfunded Deferred
Compensation Plan (the "Heritage Directors' Deferred Compensation Plan"), and
all participation agreements in effect thereunder, shall be terminated as of the
Effective Time. From the date of this Agreement through the date on which the
Heritage Directors' Deferred Compensation Plan is terminated, Heritage and the
Subsidiaries may continue to allow participants thereunder to elect to defer the
receipt of all or a portion of the director fees he or she would otherwise
receive and to credit such fees to the director's individual account under the
plan. Upon the termination of the Heritage Directors' Plan, the balance in each
individual account thereunder shall be distributed in a lump sum payment to the
participant entitled thereto. The Board of Directors of Heritage, and the Board
of Directors of each of the Subsidiaries which is participating in the Heritage
Directors' Deferred Compensation Plan, shall, prior to the day on which the
Effective Time occurs, amend or cause the amendment of such plan to provide that
upon the termination of such plan the accrued benefits thereunder shall be
immediately paid in a lump sum payment to the individuals entitled to such
accrued benefits. Notwithstanding the foregoing, if ONB adopts a deferred
compensation plan for its directors and/or the directors of its subsidiaries,
then the Heritage Directors' Deferred Compensation Plan shall be "frozen" as of
the Effective Time and the accumulated benefit obligations under the Heritage
Directors' Deferred Compensation Plan shall be transferred to, and become
benefit obligations under, the ONB plan. Such transferred benefits shall
thereafter accrue "earnings," be paid and generally be administered pursuant to
the terms of the ONB plan. Prior to the Effective Time, Heritage shall use its
best efforts to obtain acknowledgments and consents from each Heritage
Directors' Deferred Compensation Plan participant as to the foregoing
disposition of his or her plan benefit.
6.21. Termination of Heritage Severance Policy. The Heritage Bank Severance
Policy, shall be terminated as of the Effective Time. With respect to an
individual covered by such severance policy on the date of its termination, in
the event that he or she incurs, within twelve months from the Effective Time,
an involuntary termination of employment for reasons other than cause he or she
shall be entitled to receive a severance benefit. The severance benefit shall be
a salary continuation the amount of which shall be the amount payable to such
individual under the salary continuation provisions of the ONB Severance Policy,
if any, then applicable to such individual. An individual who is entitled to a
benefit under the ONB Severance Policy shall also be entitled to a continuation
of employee benefits as determined solely by the applicable provisions of the
ONB Severance Policy.
6.22. Disposition of Heritage Stock Option Plans. At or prior to the
Effective Time, Heritage shall use its best efforts, including using its best
efforts to obtain any necessary consents from optionees, with respect to the
Heritage Bank 1989 Employees Stock Option Plan and the Heritage Financial
Services, Inc. 1998 Stock Option Plan ("Heritage Stock Option Plans") to permit
the conversion of each outstanding
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option to acquire shares of common stock of Heritage which was properly granted
pursuant to a stock option agreement executed in accordance with the provisions
of a Heritage Stock Option Plan by ONB pursuant to Section 7.04 of this
Agreement, and to permit ONB to assume the sponsorship and administration of the
Heritage Stock Option Plans. Heritage shall not grant any additional options
under a Heritage Stock Option Plans after the date of this Agreement and shall
also take all actions necessary to amend the Heritage Stock Option Plans to
eliminate additional automatic or discretionary grants or awards under such
plans subsequent to the Effective Time. Heritage shall amend the Heritage Bank
1989 Employees Stock Option Plan, or cause such plan to be amended, to eliminate
any rights to receive cash in lieu of stock under the plan. Finally, Heritage
shall take all actions needed to terminate the Heritage Financial Services, Inc.
1998 Outside Directors' Stock Option Plan as of the Effective Time. No grants of
options shall be made under that plan on or after the date of this Agreement. In
addition, all unexercised options previously granted under that plan shall lapse
and become unexercisable on and after the Effective Time.
6.23. Break-up Fee. (a) Heritage hereby acknowledges and agrees that ONB
has committed and will commit substantial time, effort, resources and expenses,
and will forgo other acquisition opportunities, in pursuing the Merger. Heritage
further agrees that it shall pay to ONB a break-up fee in the amount of Two
Million Dollars ($2,000,000), plus out-of-pocket expenses (collectively, the
"Break-up Fee"), in the event that:
(i) The Board of Directors of Heritage fails to recommend to
shareholders of Heritage that such shareholders should approve this
Agreement and the Merger; or
(ii) The Board of Directors of Heritage withdraws, modifies or
conditions its recommendation to shareholders of Heritage to approve this
Agreement and the Merger or is silent with respect to the approval of this
Agreement and the Merger; or
(iii) Heritage approves, enters into or executes a definitive
agreement, letter of intent (whether binding or non-binding), term sheet or
understanding relating to an Acquisition Transaction with a party other
than ONB or an affiliate of ONB; or
(iv) Heritage terminates this Agreement pursuant to Section
9.01(c)(vi) hereof.
(b) The Break-up Fee shall be paid to ONB within thirty (30) days of the
occurrence of any of the events specified in Section 6.23(a) hereof. If the
Break-up Fee is not paid as provided, then ONB shall be entitled to recover
interest at the highest prime rate set forth in The Wall Street Journal (Midwest
Edition) under the section entitled "Money Rates" on the unpaid amount of the
Break-up Fee from the time the Break-up Fee is due until paid-in-full, together
with all costs of collection thereof, including reasonable attorneys' fees and
expenses.
(c) ONB and Heritage hereby acknowledge and agree that the Break-up Fee
shall compensate ONB for (i) the value of the lost business opportunity which
would have inured to ONB if the Merger had been consummated, (ii) expenses
incurred for attorneys, accountants, financial advisors and consultants of ONB
in developing the Merger and drafting this Agreement, (iii) ONB's management
time and expense in investigating, analyzing, developing and pursuing the
Merger, (iv) expenses relating to ONB's due diligence efforts and (v) the value
of the acquisition opportunities lost by ONB in pursuing the Merger instead of
other acquisitions. Heritage further acknowledges and agrees that the amount of
the Break-up Fee is fair, reasonable and not a penalty and that its obligation
to pay the Break-up Fee shall survive any termination of this Agreement by ONB.
6.24. Year 2000. Heritage shall:
(a) Additional Information. Furnish such additional information, statements
and other reports with respect to Heritage's Year 2000 compliance (and its
approach to and progress towards achieving compliance) discussed in Section 4.24
hereof as ONB may reasonably request from time to time.
(b) Notice of Changes. In the event of any change in circumstances that
causes or will likely cause any of Heritage's representations and warranties set
forth in Section 4.24 hereof ("Year 2000
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Compliance") to no longer be true and would result in a Material Adverse Effect
(hereinafter referred to as a "Change in Circumstances"), then Heritage shall
promptly, and in any event within ten (10) days of receipt of information
regarding a Change in Circumstances, provide ONB with written notice ("Notice")
that describes in reasonable detail the Change in Circumstances and how such
Change in Circumstances caused or will likely cause Heritage's representations
and warranties set forth in Section 4.24 hereof to no longer be true. Heritage
shall, within ten (10) days of a request, also provide ONB with any additional
information ONB reasonably requests of Heritage in connection with the Notice
and/or a Change in Circumstances.
(c) Audits. Give any representative of ONB reasonable access during all
business hours to, and permit such representative to examine, copy or make
excerpts from, any and all books, records and documents in the possession of
Heritage and the Subsidiaries and relating to their affairs, and to inspect any
of the properties and Systems of Heritage and the Subsidiaries, and to project
test the Systems to determine if they are Year 2000 Compliant in an integrated
environment, all at the sole cost and expense of ONB.
6.25. Reports. Promptly upon its becoming available, furnish to ONB one (1)
copy of each financial statement, report, notice, or proxy statement sent by
Heritage to its shareholders generally and of each regular or periodic report,
registration statement or prospectus filed by Heritage with the SEC or any
successor agency, and of any order issued by any Governmental Authority in any
proceeding to which Heritage is a party. For purposes of this provision,
"Governmental Authority" shall mean any government (or any political subdivision
or jurisdiction thereof), court, bureau, agency or other governmental entity
having or asserting jurisdiction over Heritage or any of its business,
operations or properties.
6.26. Adverse Actions. Heritage shall not (a) take any action while knowing
that such action would, or is reasonably likely to, prevent or impede the Merger
from qualifying (i) for "pooling of interests" accounting treatment or (ii) as a
reorganization within the meaning of Section 368 of the Code; or (b) knowingly
take any action that is intended or is reasonably likely to result in (i) any of
its representations and warranties set forth in this Agreement being or becoming
untrue, subject to the standard set out in the second paragraph to Section 4, in
any respect at any time at or prior to the Effective Time, (ii) any of the
conditions to the Merger set forth in Section 8 not being satisfied, (iii) a
material violation of any provision of this Agreement or (iv) a delay in the
consummation of the Merger except, in each case, as may be required by
applicable law or regulation.
SECTION 7
COVENANTS OF ONB
ONB covenants and agrees with Heritage as follows:
7.01. Approvals. ONB shall have primary responsibility for the preparation,
filing and costs of all bank holding company and bank regulatory applications
required for consummation of the Merger. ONB shall file all bank holding company
and bank regulatory applications as soon as practicable after the execution of
this Agreement. ONB shall provide to Heritage's legal counsel a reasonable
opportunity to review such applications prior to their filing and shall provide
to Heritage's legal counsel copies of all applications filed and copies of all
material written communications with all state and federal bank regulatory
agencies relating to such applications. ONB shall proceed expeditiously,
cooperate fully and use its best efforts to procure, upon terms and conditions
reasonably acceptable to ONB, all consents, authorizations, approvals,
registrations and certificates, to complete all filings and applications and to
satisfy all other requirements prescribed by law which are necessary for
consummation of the Merger on the terms and conditions provided in this
Agreement at the earliest possible reasonable date.
7.02. SEC Registration. (a) 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
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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 Heritage, prepared for use in connection with the meeting
of shareholders of Heritage 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 Heritage and its counsel with a copy of the Registration
Statement and each such other filing and provide an opportunity to comment
thereon.
(b) Any materials or information provided by ONB in any filing with any
state or federal regulatory agency or authority shall not contain any untrue or
misleading statement of material fact or shall omit to state a material fact
necessary to make the statements contained therein, in light of the
circumstances in which they are made, not false or misleading.
(c) All filings by ONB with the SEC and with all other federal and state
regulatory agencies shall be true, accurate and complete in all material
respects as of the dates of the filings, and no such filings shall contain any
untrue statement of a material fact or omit 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.
(d) ONB will use reasonable best efforts to list for trading on the Nasdaq
National Market System (subject to official notice of issuance) prior to the
Effective Time, the shares of ONB common stock to be issued in the Merger.
7.03. Employee Benefit Plans. (a) As of the Effective Time, ONB will make
available to the employees of Heritage and the Subsidiaries who continue as
employees of ONB or any subsidiary of ONB after the Effective Time, subject to
Section 7.03(b) and (c) hereof, substantially the same employee benefits on
substantially the same terms and conditions as ONB offers to similarly situated
officers and employees. Until such time as the employees of Heritage and the
Subsidiaries become covered by the ONB welfare benefit plans, the employees of
Heritage and the Subsidiaries shall remain covered by the Heritage Plans which
cover such employees, subject to the terms of such plans. Except as otherwise
provided in Sections 6.11 through 6.22, ONB will honor in accordance with their
terms (i) all employee benefit obligations to current and former officers and
employers and employees of Heritage and the Subsidiaries accrued as of the
Effective Time and (ii) to the extent set forth in the Disclosure Schedule, all
employee severance plans in existence on the date hereof and all employment or
severance agreements entered into prior to the date hereof to the extent set
forth in the Disclosure Schedule.
(b) Subject to the provisions of subsection (c) hereof, years of service
(as defined in the applicable ONB plan) of an officer or employee of Heritage or
any Subsidiary prior to the Effective Time shall be credited, effective as of
the date on which such employees become covered by a particular ONB plan, to
each such officer or employee eligible for coverage under Section 7.03(a) hereof
for purposes of: (i) eligibility under ONB's employee welfare benefit plans;
(ii) eligibility and vesting, but not for purposes of benefit accrual or
contributions, under the ONB Employees' Retirement Plan ("ONB Pension Plan") or
under the ONB Employees' Savings and Profit Sharing Plan ("ONB Profit Sharing
Plan"); and (iii) eligibility and vesting, but not for purposes of benefit
accrual or contributions, under the ONB Employee Stock Ownership Plan ("ESOP").
Those officers and employees of Heritage or any Subsidiary who otherwise meet
the eligibility requirements of the ONB Profit Sharing Plan and ESOP, based on
their age and years of service to Heritage or any Subsidiary, shall become
participants thereunder at the Effective Time. Those officers and employees of
Heritage or any Subsidiary who otherwise meet the eligibility requirements of
the ONB Pension Plan, based upon their age and years of Heritage or any
Subsidiary service, shall become participants thereunder no later than the
January 1st which coincides with or next follows the Effective Time. Those
officers or employees who do not meet the eligibility requirements of the ONB
Pension Plan, ONB Profit Sharing Plan or ESOP on such dates shall become
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participants thereunder on the first plan entry date under the ONB Pension Plan,
the ONB Profit Sharing Plan or ESOP, as the case may be, which coincides with or
next follows the date on which such eligibility requirements are satisfied.
(c) In accordance with the provisions of the Health Insurance Portability
and Accountability Act ("HIPAA") and the terms of the ONB group health plan,
officers and employees of Heritage or any Subsidiary who become participants in
the ONB group health plan will be given "creditable coverage" credit for their
coverage under the Heritage Group Health Plan under the ONB group health plan's
pre-existing condition limitation provisions. In addition, if a condition was
not a "pre-existing condition" for a participant in the Heritage Group Health
Plan, it shall not be considered to be a pre-existing condition under the ONB
group health plan.
(d) Neither the terms of this Section 7.03 nor the provision of any
employee benefits by ONB or any of its subsidiaries to employees of Heritage or
any Subsidiary 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 Heritage or any
Subsidiary; or (ii) prohibit or restrict ONB or its subsidiaries, whether before
or after the Effective Time, from changing, amending or terminating any employee
benefits provided to its employees from time to time.
(e) ONB shall take any and all actions reasonably necessary to effectuate
the disposition of the Heritage Plans provided by Section 6.12 through 6.22.
7.04. Stock Options. (a) At the Effective Time, the obligations of Heritage
with respect to each outstanding option to purchase shares of Heritage Common
Stock ("Stock Options") which was properly granted pursuant to a stock option
agreement executed in accordance with a Heritage 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 Merger had such holder exercised such Option in full (after giving effect
to accelerated vesting) immediately prior to the Effective Time and, immediately
thereafter, exchanged such shares solely for ONB common stock based upon the
Exchange Ratio at an exercise price per share equal to (A) the aggregate
exercise price for Heritage 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;
provided, however, that in the case of any Stock Option to which Section 422 of
the Code applies, the option price, the number of shares purchasable pursuant to
such option and the terms and conditions of exercise of such option shall be
determined in accordance with the foregoing, subject to such adjustments as are
necessary in order to satisfy the requirements of Section 424(a) of the Code. By
way of example and illustration only, if any option holder has been granted and
is vested in options to acquire 1,000 shares of Heritage Common Stock for $10.00
per share, then after the Effective Time, such option holder's same option would
be converted into the option to acquire, 3,154 shares of ONB common stock at
$3.17 per share. In no event shall ONB be required to issue fractional shares of
ONB common stock pursuant to the Stock Options.
(b) 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 required by this Section 7.04
after giving effect to the Merger and the assumption by ONB as set forth above);
provided, however, to the extent necessary to effectuate the provisions of this
Section 7.04, ONB may deliver new or amended Stock Option 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 7.04 and as a result of the grant and exercise of such Stock Options.
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(c) 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.
7.05. Press Releases. Except as required by law, ONB shall not issue any
news or press releases or make any other public announcements or disclosures
relating primarily to Heritage with respect to the Merger without the prior
consent of Heritage, which consent shall not be unreasonably withheld.
7.06. Indemnification. (a) From and after the Effective Time, ONB shall
indemnify, defend and hold harmless to the fullest extent permitted by
applicable federal and state law 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 Heritage or was serving at the request of
Heritage as a director or officer of any domestic or foreign corporation, joint
venture, trust, employee benefit plan or other enterprise (collectively, the
"Indemnitees") arising out of Heritage'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 Heritage. Indemnification of officers and directors of the Subsidiaries
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) In the event ONB or any of its successors or assigns (i) consolidates
with or merges into any other corporation or entity and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers or conveys all or substantially all of its properties and
assets to any person or entity, then, and in each case, to the extent necessary,
proper provision shall be made so that the successors and assigns of ONB assume
the obligations set forth in this Section 7.06.
(c) ONB shall maintain in effect for not less than two (2) years from the
Effective Time the policies of directors' and officers' liability insurance most
recently maintained by Heritage; provided, however, that ONB may substitute
therefor policies with reputable and financially sound carriers for
substantially similar coverage containing terms and conditions which are no less
advantageous for so long as such substitution does not result in gaps or lapses
in coverage with respect to claims arising from or relating to matters occurring
prior to the Effective Time. ONB shall pay all expenses, including attorneys'
fees, that may be incurred by any Indemnitee in enforcing the indemnity and
other obligations provided for in this Section 7.06.
(d) The provisions of this Section 7.06 are intended to be for the benefit
of, and shall be enforceable by, each Indemnitee and their respective heirs and
representatives.
7.07. Adverse Actions. ONB shall not (a) take any action while knowing that
such action would, or is reasonably likely to, prevent or impede the Merger from
qualifying (i) for "pooling of interests" accounting treatment or (ii) as a
reorganization within the meaning of Section 368 of the Code; or (b) knowingly
take any action that is intended or is reasonably likely to result in (i) any of
its representations and warranties set forth in this Agreement being or becoming
untrue, subject to the standard set out in the second paragraph to Section 5, in
any respect at any time at or prior to the Effective Time, (ii) any of the
conditions to the Merger set forth in Section 8 not being satisfied, (iii) a
material violation of any provision of this Agreement or (iv) a delay in the
consummation of the Merger except, in each case, as may be required by
applicable law or regulation.
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SECTION 8
CONDITIONS PRECEDENT TO THE MERGER
8.01. ONB. The obligation of ONB to consummate the Merger is subject to the
satisfaction and fulfillment of each of the following conditions on or prior to
the Effective Time, unless waived in writing by ONB:
(a) Representations and Warranties at Effective Time. Each of the
representations and warranties of Heritage with respect to itself and the
Subsidiaries contained in this Agreement shall, subject to the standard set out
in the second paragraph to Section 4, be true, and correct 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 Heritage 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 Heritage 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 Heritage 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. All regulatory approvals required to consummate
the transactions contemplated hereby, shall have been obtained and shall remain
in full force and effect and all statutory waiting periods in respect thereof
shall have expired and no such approvals shall contain any conditions,
restrictions or requirements which the board of directors of ONB reasonably
determines in good faith would (i) following the Effective Time, have a Material
Adverse Effect on ONB and its subsidiaries taken as a whole or (ii) reduce the
benefits of the transactions contemplated hereby to such a degree that ONB would
not have entered into this Agreement had such conditions, restrictions or
requirements been known at the date hereof.
(f) Shareholder Approval. The shareholders of Heritage shall have approved
and adopted this Agreement as required by applicable law and its Charter.
(g) Officers' Certificate. Heritage shall have delivered to ONB a
certificate signed by its Chairman or President and its Secretary, dated as of
the Effective Time, certifying: (i) to the effect set out in Section 8.01(a);
(ii) that all the covenants of Heritage have been complied with from the date of
this Agreement through and as of the Effective Time; and (iii) that Heritage has
satisfied and fully complied with all conditions necessary to make this
Agreement effective as to Heritage.
(h) Tax Opinion. The Board of Directors of ONB shall have received a
written opinion of the law firm of Krieg DeVault Alexander & Capehart, LLP,
dated as of the Effective Time, in form and content satisfactory to ONB, to the
effect that the Merger to be effected pursuant to this Agreement will constitute
a tax-free reorganization under the Code (as described in Section 1.06 hereof)
to each party hereto and to the shareholders of Heritage, except with respect to
cash received by Heritage's shareholders for fractional shares resulting from
application of the Exchange Ratio. In rendering such opinion, counsel may
require and rely upon customary representation letters of ONB and Heritage and
rely upon customary assumptions.
(i) Pooling of Interests Opinion. The Board of Directors of ONB shall have
received a written opinion from its independent auditors, dated as of the
Effective Time, in form and content satisfactory to ONB, to the effect that the
Merger to be effected pursuant to this Agreement will qualify for pooling of
interests accounting treatment for ONB.
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(j) Fairness Opinion. Heritage's investment banker shall have issued (as of
the date not later than the mailing date of the proxy statement-prospectus
relating to the Merger to be mailed to the shareholders of Heritage) its
fairness opinion stating that the Exchange Ratio relating to the Merger is fair
to the shareholders of Heritage from a financial point of view; provided, that
this condition precedent shall apply only in the event that Heritage waives its
condition precedent in Section 8.02(i) hereof.
8.02. Heritage. The obligation of Heritage to consummate the Merger is
subject to the satisfaction and fulfillment of each of the following conditions
on or prior to the Effective Time, unless waived in writing by Heritage:
(a) Representations and Warranties at Effective Time. Each of the
representations and warranties of ONB contained in this Agreement shall, subject
to the standards set out in the second paragraph of Section 5, be true and
correct on and as of the Effective Time as though the representations and
warranties had been made or given at and as of the Effective Time.
(b) Covenants. Each of the covenants and agreements of ONB shall have been
fulfilled or complied with from the date of this Agreement through and as of the
Effective Time.
(c) Deliveries at Closing. Heritage shall have received from ONB at the
Closing the items and documents, in form and content reasonably satisfactory to
Heritage, 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 Heritage in accordance with this
Agreement with the SEC pursuant to the 1933 Act, and all state securities and
Blue Sky approvals, authorizations and exemptions required to offer and sell
such shares shall have been received by ONB. The Registration Statement with
respect thereto shall have been declared effective by the SEC and no stop order
shall have been issued or threatened. In addition, such shares of ONB common
stock shall be listed on the Nasdaq National Market System.
(e) Regulatory Approvals. All regulatory approvals required to consummate
the transactions contemplated hereby, shall have been obtained and shall remain
in full force and effect and all statutory waiting periods in respect thereof
shall have expired and no such approvals shall contain any conditions,
restrictions or requirements which the board of directors of Heritage reasonably
determines in good faith would (i) following the Effective Time, have a Material
Adverse Effect on Heritage or (ii) reduce the benefits of the transactions
contemplated hereby to such a degree that Heritage would not have entered into
this Agreement had such conditions, restrictions or requirements been known at
the date hereof.
(f) Shareholder Approval. The shareholders of Heritage shall have approved
and adopted this Agreement as required by applicable law and its Charter.
(g) Officers' Certificate. ONB shall have delivered to Heritage a
certificate signed by its Chairman or President and its Secretary, dated as of
the Effective Time, certifying that: (i) to the effect set out in Section
8.02(a); (ii) that 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 Opinion. The Board of Directors of Heritage shall have received a
written opinion of the law firm of Krieg DeVault Alexander & Capehart, LLP,
dated as of the Effective Time, in form and content satisfactory to Heritage, to
the effect that the Merger to be effected pursuant to this Agreement will
constitute a tax-free reorganization under the Code (as described in Section
1.06 hereof) to each party hereto and to the shareholders of Heritage, except
with respect to cash received by Heritage's shareholders for fractional shares
resulting from application of the Exchange Ratio. In rendering such opinion,
counsel may require and rely upon customary representation letters of ONB and
Heritage and rely upon customary assumptions.
(i) Fairness Opinion. Heritage's investment banker shall have issued (as of
a date not later than the mailing date of the proxy statement-prospectus
relating to the Merger to be mailed to the shareholders of Heritage) its
fairness opinion stating that the Exchange Ratio relating to the Merger is fair
to the shareholders of Heritage from a financial point of view.
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SECTION 9
TERMINATION OF MERGER
9.01. Manner of Termination. This Agreement and the Merger may be
terminated at any time prior to the Effective Time by written notice delivered
by ONB to Heritage, or by Heritage to ONB as follows:
(a) By ONB or Heritage, if:
(i) the Merger contemplated by this Agreement has not been consummated
by June 30, 2000; or
(ii) the respective Boards of Directors of ONB and Heritage mutually
agree to terminate this Agreement.
(b) By ONB, if:
(i) the Merger will not qualify for pooling of interests accounting
treatment for ONB; or
(ii) at any time prior to the Effective Time, ONB's Board of Directors
so determines, in the event of either
(A) a breach by Heritage of any representation or warranty
contained herein, which breach cannot be or has not been cured within
thirty (30) days after the giving of written notice to Heritage of such
breach; provided, however, that any such cure may not result in a
Material Adverse Effect; or
(B) a breach by Heritage of any of the covenants or agreements
contained herein, which breach cannot be or has not been cured within
thirty (30) days after the giving of written notice to Heritage of such
breach; provided that a breach under this clause (B) would be reasonably
likely, individually or in the aggregate with other breaches, to result
in a Material Adverse Effect; provided, however, that any such cure may
not result in a Material Adverse Effect; or
(iii) it shall reasonably determine that the Merger contemplated by
this Agreement has become impracticable by reason of commencement or threat
of any claim, litigation or proceeding against ONB, Heritage, any
Subsidiary, or any subsidiary of ONB, or any director or officer of any of
such entities relating to this Agreement or the Merger; or
(iv) there has been a material adverse change in the business, assets,
capitalization, financial condition or results of operations of Heritage
and its Subsidiaries taken as a whole as of the Effective Time as compared
to that in existence as of the date of this Agreement other than any change
resulting primarily by reason of changes in banking laws or regulations (or
interpretations thereof), changes in banking laws of general applicability
or interpretations thereof by courts or governmental authorities, changes
in generally accepted accounting principles or regulatory accounting
requirements applicable to banks and their holding companies generally, any
modifications or changes to valuation policies and practices in connection
with the Merger or restructuring charges taken in connection with the
Merger, in each case in accordance with generally accepted accounting
principles, effects of any action taken with the prior written consent of
ONB and changes in the general level of interest rate or conditions or
circumstances that affect the banking industry generally; or
(v) Heritage fulfills the requirements of Section 6.01 hereof but the
shareholders of Heritage do not approve and adopt the Merger and this
Agreement; or
(vi) in the event that dissenters' rights are exercised pursuant to
Section 3 hereof, and the aggregate amount of cash payable to dissenting
shareholders exceeds ten percent (10%) of the value of the total
consideration to be paid with respect to the Merger.
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(c) By Heritage, if:
(i) at any time prior to the Effective Time, Heritage's Board of
Directors so determines, in the event of either
(A) a breach by ONB of any representation or warranty contained
herein, which breach cannot be or has not been cured within thirty (30)
days after the giving of written notice to ONB of such breach; or
(B) a breach by ONB of any of the covenants or agreements contained
herein, which breach cannot be or has not been cured within thirty (30)
days after the giving of written notice to ONB of such breach; provided
that a breach under this clause (B) would be reasonably likely,
individually or in the aggregate with other breaches, to result in a
Material Adverse Effect; or
(ii) there has been a material adverse change in the financial
condition, results of operations, business, assets or capitalization of ONB
on a consolidated basis as of the Effective Time as compared to that in
existence on June 30, 1999, other than any change resulting primarily by
reason of changes in banking laws or regulations (or interpretations
thereof), changes in banking and similar laws of general applicability or
interpretations thereof by courts or governmental authorities, changes in
generally accepted accounting principles or regulatory accounting
requirements applicable to banks and their holding companies generally, any
modifications or changes to valuation policies and practices in connection
with the Merger or restructuring charges taken in connection with the
Merger, in each case in accordance with generally accepted accounting
principles, effects of any action taken with the prior written consent of
Heritage and changes in the general level of interest rate or conditions or
circumstances that affect the banking industry generally; or
(iii) it shall reasonably determine that the Merger contemplated by
this Agreement has become impracticable by reason of commencement or threat
of any material claim, litigation or proceeding against ONB (A) relating to
this Agreement or the Merger or (B) which is likely to have a Material
Adverse Effect on ONB; or
(iv) Heritage fulfills the requirements of Section 6.01 hereof but the
shareholders of Heritage do not approve and adopt the Merger and this
Agreement; or
(v) at any time during the five-day period commencing with the
Determination Date if both of the following conditions are satisfied:
(A) the number obtained by dividing the Average Closing Price by
the Starting Price (the "ONB Ratio") shall be less than 0.80; and
(B) the ONB Ratio shall be less than the number obtained by
dividing the Final Index Value by the Index Value on the Starting Date
and subtracting 0.15 from the quotient in this clause (B) (such number
being referred to herein as the "Index Ratio");
subject, however, to the following three sentences. If Heritage elects to
exercise its termination right pursuant to this Section 9.01(c)(v), it shall
give written notice to ONB (provided that such notice of election to terminate
may be withdrawn at any time within the below-mentioned five-day period). During
the five-day period commencing with its receipt of such notice, ONB shall have
the option to increase the consideration to be received by the holders of
Heritage Common Stock hereunder, by adjusting the Exchange Ratio (calculated to
the nearest one one-thousandth) to equal the lesser of (x) a number (rounded to
the nearest thousandth) obtained by dividing (A) the product of the Starting
Price, 0.80 and the Exchange Ratio (as then in effect) by (B) the Average
Closing Price and (y) a number (rounded to the nearest one one-thousandth)
obtained by dividing (A) the product of the Index Ratio and the Exchange Ratio
(as then in effect) by (B) the ONB Ratio. If ONB so elects within such five-day
period, it shall give prompt written notice to Heritage of such election and the
revised Exchange Ratio. Whereupon no termination shall have occurred pursuant to
this Section 9.01(c)(v) and this Agreement
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shall remain in effect in accordance with its terms (except as the Exchange
Ratio shall have been so modified).
For purposes of Section 9.01(c)(v), the following terms shall have the
meanings indicated:
"Average Closing Price" shall mean the average of the closing price of
a share of ONB Common Stock on the Nasdaq National Market System (as
reported in The Wall Street Journal, or if not reported therein, in another
authoritative source) during the period of 20 consecutive trading days
ending on the trading day prior to the Determination Date, rounded to the
nearest whole cent.
"Determination Date" shall mean the date on which the last required
approval required under Section 8.01(e) and 8.02(e) hereof is obtained,
without regard to any requisite waiting period in respect thereof.
"Final Index Value" shall mean the average of the Index Value for the
20 consecutive trading days ending on the trading day prior to the
Determination Date.
"Index Value," on a given date, shall mean the index value on such
date of the Nasdaq Bank Index, as such index value is reported by Bloomberg
News Service on such date.
"Starting Date" shall mean the last trading day immediately preceding
the date of the first public announcement of entry to this Agreement.
"Starting Price" shall mean the closing price of a share of ONB common
stock on the Nasdaq National Market System (as reported in The Wall Street
Journal, or if not reported therein, in another authoritative source) on
the Starting Date.
(vi) prior to the approval by the shareholders of Heritage of the
Merger contemplated by this Agreement, if, without breaching 6.06, Heritage
shall contemporaneously enter into a definitive agreement with a third
party providing for an Acquisition Transaction on terms determined in good
faith by the Board of Directors of Heritage, after consulting with and
considering the advice of Heritage's independent counsel and financial
advisors, to be substantially more favorable to the shareholders of
Heritage than the Merger and with respect to which the Board of Directors
has determined after such consultation and consideration that to proceed
with the Merger would violate the fiduciary duties of the Board of
Directors to the Heritage shareholders.
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 or Heritage
and their respective directors, officers, employees, agents and shareholders,
except as provided in compliance with: (i) the confidentiality provisions of
this Agreement set forth in Section 6.09 hereof and the Confidentiality
Agreement dated June 10, 1999 by and between ONB and Heritage (the
"Confidentiality Agreement"); (ii) the payment of expenses set forth in Section
12.09 hereof; and (iii) the payment of the Break-Up Fee as provided by Section
6.23 hereof; provided, however, that termination will not in any way release a
breaching party from liability for any willful breach of this Agreement giving
rise to such termination. The obligation to pay the Break-Up Fee in accordance
with Section 6.23 hereof will survive any termination of this Agreement.
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SECTION 10
EFFECTIVE TIME OF THE MERGER
Upon the terms and subject to the conditions specified in this Agreement,
the Merger shall become effective at the close of business on the day and at the
time specified in the Articles of Merger of Heritage with and into ONB as filed
with the Indiana Secretary of State and the Tennessee Secretary of State
("Effective Time"). Unless otherwise mutually agreed to by the parties hereto,
the Effective Time shall occur on the later of (i) January 31, 2000 or (ii) the
last business day of the month following (a) the fulfillment of all conditions
precedent to the Merger set forth in Section 8 of this Agreement and (b) the
expiration of all waiting periods in connection with the bank regulatory
applications filed for the approval of the Merger.
SECTION 11
CLOSING
11.01. Closing Date and Place. So long as all conditions precedent set
forth in Section 8 hereof have been satisfied and fulfilled, the closing of the
Merger ("Closing") shall take place on the Effective Time at the law offices of
Krieg DeVault Alexander & Capehart, LLP, One Indiana Square, Suite 2800,
Indianapolis, Indiana 46204.
11.02. Deliveries. (a) At the Closing, ONB shall deliver to Heritage the
following:
(i) the officers' certificate contemplated by Section 8.02(g) hereof;
(ii) copies of all approvals by government regulatory agencies
necessary to consummate the Merger;
(iii) copies of the resolutions of the Board of Directors of ONB
certified by the Secretary of ONB, relative to the approval of this
Agreement and the Merger;
(iv) an opinion of its counsel dated as of the Effective Time and
substantially in form set forth in Exhibit B attached hereto; and
(v) such other documents as Heritage or its legal counsel may
reasonably request.
(b) At the Closing, Heritage shall deliver to ONB the following:
(i) the officers' certificate contemplated by Section 8.01(g) hereof;
(ii) a list of Heritage's shareholders as of the Effective Time
certified by the President and Secretary of Heritage;
(iii) copies of the resolutions adopted by the Board of Directors of
Heritage certified by the Secretary of Heritage, relative to the approval
of this Agreement and the Merger;
(iv) an opinion of its counsel dated as of the Effective Time and
substantially in form set forth in Exhibit C attached hereto; and
(v) 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;
provided, further, that no such extension, waiver or amendment agreed to after
authorization of this
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Agreement by the shareholders of Heritage shall affect the rights of such
shareholders in any manner which is materially adverse to such shareholders. The
representations, warranties, covenants and agreements contained in this
Agreement are for the sole benefit of the parties hereto and their successors
and assigns, and they shall not be construed as conferring any rights on any
other persons except as specifically set forth in Sections 7.03, 7.04, and 7.06
hereof.
12.02. Waiver; Amendment. (a) The parties hereto may by an instrument in
writing: (i) extend the time for the performance of or otherwise amend any of
the covenants, conditions or agreements of the other parties under this
Agreement, except that the consideration to be received by the Heritage
shareholders shall not be decreased by such an amendment following the adoption
and approval of the Merger and this Agreement by the Heritage shareholders; (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 party of any of the covenants
or agreements to be performed by it or them under this Agreement; or (iv) waive
the satisfaction or fulfillment of any condition, the nonsatisfaction or
nonfulfillment of which is a condition to the right of the party so waiving to
consummate the Merger. The waiver by any party hereto of a breach of or
noncompliance with any provision of this Agreement shall not operate or be
construed as a continuing waiver or a waiver of any other or subsequent breach
or noncompliance hereunder.
(b) This Agreement may be amended, modified or supplemented only by a
written agreement executed by the parties hereto.
12.03. Notices. All notices, requests and other communications hereunder
shall be in writing (which shall include telecopier communication) and shall be
deemed to have been duly given if delivered by hand and receipted for, sent by
certified United States Mail, return receipt requested, first class postage pre-
paid, delivered by overnight express receipted delivery service or telecopied if
confirmed immediately thereafter by also mailing a copy of such notice, request
or other communication by certified United States Mail, return receipt
requested, with first class postage pre-paid as follows:
<TABLE>
<S> <C>
If to ONB: with a copy to (which shall not
constitute notice):
Old National Bancorp
420 Main Street Krieg DeVault Alexander &
P.O. Box 718 Capehart, LLP
Evansville, Indiana 47705 One Indiana Square, Suite 2800
ATTN: Jeffrey L. Knight, Indianapolis, Indiana 46204-2017
Secretary ATTN: Nicholas J. Chulos, Esq.
and General Counsel Telephone: (317) 238-6224
Telephone: (812) 464-1363 Telecopier: (317) 636-1507
Telecopier: (812) 464-1567
If to Heritage: with a copy to (which shall not
constitute notice):
Heritage Financial Services, Inc.
25 Jefferson Street Stokes and Bartholomew, P.A.
P.O. Box 1348 2800 SunTrust Financial Center
Clarksville, Tennessee 37041-1348 Nashville, Tennessee 37219
ATTN: Earl O. Bradley, III, ATTN: Carter R. Todd, Esq.
President and Chief Telephone: (615) 259-1427
Executive Officer Telecopier: (615) 259-1470
Telephone: (931) 553-0500
Telecopier: (931) 906-0231
</TABLE>
or such substituted address or person as any of them have given to the other in
writing. All such notices, requests or other communications shall be effective:
(a) if delivered by hand, when delivered; (b) if mailed in the manner provided
herein, five (5) business days after deposit with the United States Postal
Service; (c) if delivered by overnight express delivery service, on the next
business day after deposit with
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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,
without regard to principles of conflicts of law.
12.08. Entire Agreement. This Agreement supersedes, terminates and renders
of no further force or effect all other prior or contemporaneous understandings,
commitments, representations, negotiations or agreements, whether oral or
written, among the parties hereto relating to the Merger or matters contemplated
herein and constitutes the entire agreement between the parties hereto, except
for the Confidentiality Agreement, which shall continue in full force and effect
following the date hereof. The parties hereto agree that each party and its
counsel reviewed and revised this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement or
any amendments or exhibits hereto.
12.09. Expenses. ONB shall pay its expenses incidental to the Merger
contemplated hereby. Heritage shall pay its expenses incidental to the Merger
contemplated hereby.
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.
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IN WITNESS WHEREOF, ONB and Heritage have made and entered into this
Agreement as of the day and year first above written and have caused this
Agreement to be executed, attested in counterparts and delivered by their duly
authorized officers.
OLD NATIONAL BANCORP
By: /s/ RONALD B. LANKFORD
----------------------------------
Ronald B. Lankford, President
and Chief Operating Officer
ATTEST:
By: /s/ JEFFREY L. KNIGHT
--------------------------------
Jeffrey L. Knight, Corporate
Secretary
HERITAGE FINANCIAL SERVICES, INC.
By: /s/ EARL O. BRADLEY, III
----------------------------------
Earl O. Bradley, III, President
and Chief Executive Officer
ATTEST:
By: /s/ JOHN T. HALLIBURTON
--------------------------------
John T. Halliburton, Secretary
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<PAGE> 104
HERITAGE BANK LOGO FOR LETTERHEAD
APPENDIX B
January 28, 2000
Board of Directors
Heritage Financial Services, Inc.
25 Jefferson Street
Clarksville, Tennessee 37041-1348
Dear Members of the Board:
You have requested our opinion as investment bankers as to the fairness,
from a financial perspective, to the common shareholders of Heritage Financial
Services, Inc., Clarksville, Tennessee (the "Company") of the proposed merger of
the Company with Old National Bancorp, Evansville, Indiana ("OLDB"). In the
proposed merger, Company shareholders will receive 3.3075 OLDB common shares for
each Company common share outstanding as further defined in the Agreement of
Affiliation and Merger between OLDB and the Company (the "Agreement"). In
addition, each Company option currently outstanding will be exchanged for a like
OLDB option as further defined in the Agreement. On September 7, 1999, the
proposed consideration to be received represents an aggregate value of
$63,316,076 or $94.30 per Company common share based on the closing price for
OLDB common stock of $29.9375 as quoted on the National Association of
Securities Dealers Automated Quotation System.
Professional Bank Services, Inc. ("PBS") is a bank consulting firm and as
part of its investment banking business is continually engaged in reviewing the
fairness, from a financial perspective, of bank acquisition transactions and in
the valuation of banks and other businesses and their securities in connection
with mergers, acquisitions, estate settlements and other purposes. We are
independent with respect to the parties of the proposed transaction.
For purposes of this opinion, PBS performed a review and analysis of the
historic performance of the Company and its wholly owned subsidiary, Heritage
Bank (the "Bank") contained in: (i) December 31, 1998, March 31, 1999 and June
30, 1999 Consolidated Reports of Condition and Income filed by the Bank with the
FDIC and filed by the Company with the Federal Reserve System; (ii) reports
filed on Form 10-K for December 31, 1998 and Form 10-Q for March 31, 1999 and
June 30, 1999 with the Securities and Exchange Commission; (iii) December 31,
1997 and 1998 audited annual reports of the Company; and (iv) December 31, 1998
and March 31, 1999 Uniform Bank Performance Reports of the Bank and the Company.
We have reviewed and tabulated statistical data regarding the loan portfolio,
securities portfolio and other performance ratios and statistics. Financial
projections were prepared and analyzed as well as other financial studies,
analyses and investigations as deemed relevant for the purposes of this opinion.
In review of the aforementioned information, we have taken into account our
assessment of general market and financial conditions, our experience in other
transactions, and our knowledge of the banking industry generally. We have also
taken into consideration other offers received by the Company.
For the purposes of this opinion, PBS reviewed and analyzed the historic
performance of OLDB contained in: (i) December 31, 1996, 1997 and 1998 audited
annual reports of OLDB, (ii) June 30, 1998, September 30, 1998, December 31,
1998, March 31, 1999 and June 30, 1999 unaudited financial data and reports
filed on Form 10-K for December 31, 1997 and 1998 and 10-Q for March 31, 1999
and June 30, 1999 with the Securities and Exchange Commission.
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We have not compiled, reviewed or audited the financial statements of the
Company or OLDB nor have we independently verified any of the information
reviewed; we have relied upon such information as being complete and accurate in
all material respects. We have not made independent evaluation of the assets of
the Company or OLDB.
Based on the foregoing and all other factors deemed relevant, it is our
opinion as investment bankers, that, as of the date hereof, the consideration
proposed to be received by the shareholders of the Company under the Agreement
is fair and equitable from a financial perspective.
Very truly yours,
PROFESSIONAL BANK, SERVICES, INC.
SIG
PROFESSIONAL BANK SERVICES, INC.
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APPENDIX C
PROVISIONS OF TENNESSEE BUSINESS CORPORATION ACT
GOVERNING THE EXERCISE OF DISSENTERS' RIGHTS
DISSENTER'S RIGHTS
PART 1 -- RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
48-23-101. DEFINITIONS -- (1) "Beneficial shareholder" means the person who
is a beneficial owner of shares held by a nominee as the record shareholder;
(2) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer;
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under sec. 48-23-102 and who exercises that right when and in
the manner required by sec.sec. 48-23-201- 48-23-209;
(4) "Fair Value", with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action;
(5) "Interest" means interest from the effective date of the corporate
action that gave rise to the shareholder's right to dissent until the date of
payment, at the average auction rate paid on United States treasury bills with a
maturity of six (6) months (or the closest maturity thereto) as of the auction
date for such treasury bills closest to such effective date;
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation; and
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
48-23-102. RIGHT TO DISSENT -- (a) A shareholder is entitled to dissent
from, and obtain payment of the fair value of his shares in the event of, any of
the following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a
party:
(A) If shareholder approval is required for the merger by
sec. 48-21-103 or the charter and the shareholder is entitled to vote on
the merger; or
(B) If the corporation is a subsidiary that is merged with its
parent under sec. 48-21-104;
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to
the shareholders within one (1) year after the date of sale;
(4) An amendment of the charter that materially and adversely affects
rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
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(D) Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution
through issuance of shares or other securities with similar voting
rights; or
(E) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share is to be acquired for cash
under sec. 48-16-104; or
(5) Any corporate action taken pursuant to a shareholder vote to the
extent the charter, bylaws, or a resolution of the board of directors
provides that voting or nonvoting shareholders are entitled to dissent and
obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this chapter may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
(c) Notwithstanding the provisions of subsection (a), no shareholder may
dissent as to any shares of a security which, as of the date of the effectuation
of the transaction which would otherwise give rise to dissenters' rights, is
listed on an exchange registered under sec. 6 of the Securities Exchange Act of
1934, as amended, or is a "national market system security," as defined in rules
promulgated pursuant to the Securities Exchange Act of 1934, as amended.
48-23-103. DISSENT BY NOMINEES AND BENEFICIAL OWNERS -- (a) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in his name only if he dissents with respect to all shares
beneficially owned by any one (1) person and notifies the corporation in writing
of the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares of
any one (1) or more classes held on his behalf only if:
(1) He submits to the corporation the record shareholders s written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and
(2) He does so with respect to all shares of the same class of which
he is the beneficial shareholder or over which he has power to direct the
vote.
PART 2 -- PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
48-23-201. NOTICE OF DISSENTERS' RIGHTS -- (a) If proposed corporate action
creating dissenters' rights under sec. 48-23-102 is submitted to a vote at a
shareholders' meeting, the meeting notice must state that shareholders are or
may be entitled to assert dissenters' rights under this chapter and be
accompanied by a copy of this chapter.
(b) If corporate action creating dissenters' rights under sec. 48-23-102 is
taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in sec. 48-23-203.
(c) A corporation's failure to give notice pursuant to this section will
not invalidate the corporate action.
48-23-202. NOTICE OF INTENT TO DEMAND PAYMENT -- (a) If proposed corporate
action creating dissenters' rights under sec. 48-23-102 is submitted to a vote
at a shareholders' meeting, a shareholder who wishes to assert dissenters'
rights:
(1) Must deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed
action is effectuated; and
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(2) Must not vote his shares in favor of the proposed action. No such
written notice of intent to demand payment is required of any shareholder
to whom the corporation failed to provide the notice required by
sec. 48-23-201.
(b) A shareholder who does not satisfy the requirements of subsection (a)
is not entitled to payment for his shares under this chapter.
48-23-203. DISSENTERS' NOTICE -- (a) If proposed corporate action creating
dissenters' rights under sec. 48-23-102 is authorized at a shareholders'
meeting, the corporation shall deliver a written dissenters' notice to all
shareholders who satisfied the requirements of sec. 48-23-202.
(b) The dissenters' notice must be sent no later than ten (10) days after
the corporate action was authorized by the shareholders or effectuated,
whichever is the first to occur, and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the principal terms
of the proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not he acquired beneficial ownership
of the shares before that date;
(4) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than one (1) nor more than two (2)
months after the date the subsection (a) notice is delivered; and
(5) Be accompanied by a copy of this chapter if the corporation has
not previously sent a copy of this chapter to the shareholder pursuant to
sec. 48-23-201.
48-23-204. DUTY TO DEMAND PAYMENT -- (a) A shareholder sent a dissenters'
notice described in sec. 48-23-203 must demand payment, certify whether he
acquired beneficial ownership of the shares before the date required to be set
forth in the dissenters' notice pursuant to sec. 48-23-203(b)(3), and deposit
his certificates in accordance with the terms of the notice.
(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) retains all other rights of a shareholder until these
rights are canceled or modified by the effectuation of the proposed corporate
action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this chapter.
(d) A demand for payment filed by a shareholder may not be withdrawn unless
the corporation with which it was filed, or the surviving corporation, consents
thereto.
48-23-205. SHARE RESTRICTIONS -- (a) The corporation may restrict the
transfer of uncertificated shares from the date the demand for their payment is
received until the proposed corporate action is effectuated or the restrictions
released under sec. 48-23-207.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the effectuation of the proposed corporate
action.
48-23-206. PAYMENT -- (a) Except as provided in sec. 48-23-208, as soon as
the proposed corporate action is effectuated, or upon receipt of a payment
demand, whichever is later, the corporation shall pay
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each dissenter who complied with sec. 48-23-204 the amount the corporation
estimates to be the fair value of his shares, plus accrued interest.
(b) The payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen (16) months before the date of payment, an
income statement for that year, a statement of changes in shareholders'
equity for that year, and the latest available interim financial
statements, if any;
(2) A statement of the corporation's estimate of the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under
sec. 48-23-209; and
(5) A copy of this chapter if the corporation has not previously sent
a copy of this chapter to the shareholder pursuant to sec. 48-23-201 or
48-23-203.
48-23-207. FAILURE TO TAKE ACTION -- (a) If the corporation does not
effectuate the proposed action that gave rise to the dissenters' rights within
two (2) months after the date set for demanding payment and depositing share
certificates, the corporation shall return the deposited certificates and
release the transfer restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation effectuates the proposed action, it must send a
new dissenters' notice under sec. 48-23-203 and repeat the payment demand
procedure.
48-23-208. AFTER-ACQUIRED SHARES -- (a) A corporation may elect to withhold
payment required by sec. 48-23-206 from a dissenter unless he was the beneficial
owner of the shares before the date set forth in the dissenters' notice as the
date of the first announcement to news media or to shareholders of the principal
terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a), after effectuating the proposed corporate action, it shall
estimate the fair value of the shares, plus accrued interest, and shall pay this
amount to each dissenter who agrees to accept it in full satisfaction of his
demand. The corporation shall send with its offer a statement of its estimate of
the fair value of the shares, an explanation of how the interest was calculated,
and a statement of the dissenter's right to demand payment under sec. 48-23-209.
48-23-209. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR
OFFER -- (a) A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of interest due, and demand
payment of his estimate (less any payment under sec. 48-23-206), or reject the
corporation's offer under sec. 48-23-208 and demand payment of the fair value of
his shares and interest due, if:
(1) The dissenter believes that the amount paid under sec. 48-23-206
or offered under sec. 48-23-208 is less than the fair value of his shares
or that the interest due is incorrectly calculated;
(2) The corporation fails to make payment under sec. 48-23-206 within
two (2) months after the date set for demanding payment; or
(3) The corporation, having failed to effectuate the proposed action,
does not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within two (2) months after
the date set for demanding payment.
(b) A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing under subsection (a)
within one (1) month after the corporation made or offered payment for his
shares.
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PART 3 -- JUDICIAL APPRAISAL OF SHARES
48-23-301. COURT ACTION -- (a) If a demand for payment under sec. 48-23-209
remains unsettled, the corporation shall commence a proceeding within two (2)
months after receiving the payment demand and petition the court to determine
the fair value of the shares and accrued interest. If the corporation does not
commence the proceeding within the two-month period, it shall pay each dissenter
whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in a court of record
having equity jurisdiction in the county where the corporation's principal
office (or, if none in this state, its registered office) is located. If the
corporation is a foreign corporation without a registered office in this state,
it shall commence the proceeding in the county in this state where the
registered office of the domestic corporation merged with or whose shares were
acquired by the foreign corporation was located.
(c) The corporation shall make all dissenters (whether or not residents of
this state) whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) is plenary and exclusive. The court may appoint one (1) or
more persons as appraisers to receive evidence and recommend decision on the
question of fair value. The appraisers have the powers described in the order
appointing them, or in any amendment to it. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment:
(1) For the amount, if any, by which the court finds the fair value of
his shares, plus accrued interest, exceeds the amount paid by the
corporation; or
(2) For the fair value, plus accrued interest, of his after-acquired
shares for which the corporation elected to withhold payment under
sec. 48-23-208.
48-23-302. COURT COSTS AND COUNSEL FEES -- (a) The court in an appraisal
proceeding commenced under sec. 48-23-301 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding
payment under sec. 48-23-209.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of sec.sec. 48-23-201-48-23-209; or
(2) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this chapter.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who were benefitted.
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