AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
DECEMBER 17, 1998
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
OLD NATIONAL BANCORP
------------------------------------------------------
(Exact name of registrant as specified in its charter)
INDIANA 6021
------------------------------- ----------------------------
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
35-1539838
------------------------------------
(I.R.S. Employer Identification No.)
420 MAIN STREET, EVANSVILLE, INDIANA 47708, (812) 464-1434
---------------------------------------------------------------------------
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
JEFFREY L. KNIGHT, ESQ. TIMOTHY M. HARDEN, ESQ.
CORPORATE SECRETARY & GENERAL COUNSEL ANDREW B. BUROKER, ESQ.
ONE NATIONAL BANCORP KRIEG DEVAULT ALEXANDER & CAPEHART, LLP
420 MAIN STREET ONE INDIANA SQUARE, SUITE 2800
EVANSVILLE, INDIANA 47708 INDIANAPOLIS, INDIANA 46204-2017
(812) 464-1363 (317) 636-4341
(AGENT FOR SERVICE) (COPY TO)
- --------------------------------------------------------------------------------
(Name, address, including zip code, and telephone number, including area code,
or agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
======================================================================================================
Title of each class Amount Proposed maximum Proposed maximum Amount of
of securities to be offering price aggregate offering registration
to be registered registered per unit price fee
- ------------------------------------------------------------------------------------------------------
COMMON STOCK, UP TO $ N/A $16,888,248 $4,695
NO PAR VALUE 315,116 SHARES
======================================================================================================
----------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
DULANEY BANCORP, INC.
415 ARCHER AVENUE
MARSHALL, ILLINOIS 62441
_______________, 1998
Dear Shareholders:
I am pleased to invite you to attend a special meeting of
shareholders of Dulaney Bancorp, Inc. on:
_______________, _______________, 1999
_____:_____ __.m.
_________________________
Marshall, Illinois 62441
The purpose of the Special Meeting is to consider and vote upon the
proposed merger between Dulaney Bancorp and Old National Bancorp pursuant to the
Agreement of Affiliation and Merger, dated November 5, 1998, by and between
Dulaney Bancorp and ONB. Under the terms of the Agreement, Dulaney Bancorp will
merge with and into ONB, and each outstanding share of Dulaney Bancorp Common
Stock will be converted into the right to receive 10.683 shares of ONB Common
Stock, as described in the Agreement, a copy of which is attached to the
accompanying Proxy Statement-Prospectus. The exchange ratio will be adjusted if,
among other reasons, ONB issues a stock dividend prior to closing the merger.
The Board of Directors of Dulaney Bancorp believes that the proposed
merger between ONB and Dulaney Bancorp is in the best interests of the
shareholders of Dulaney Bancorp and the customers and employees of Dulaney
National Bank and the communities which the Bank serves. Your Board of Directors
has unanimously approved the Agreement and recommends that the shareholders
approve it.
We have enclosed a Notice of Special Meeting of Shareholders and a
Proxy Statement-Prospectus containing information about the Special Meeting and
the proposed merger. We encourage you to read this document carefully. Also
enclosed is a proxy card so you can vote on the merger without attending the
special meeting. Please complete, sign and date the enclosed proxy card and
return it to us as soon as possible in the envelope we have provided. If you
decide to come to the special meeting, you may vote your shares in person
whether or not you have mailed us a proxy.
Please give this matter your careful consideration.
Sincerely,
William F. George
Secretary-Treasurer
DULANEY BANCORP, INC.
415 ARCHER AVENUE
MARSHALL, ILLINOIS 62441
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
to be held on _______________, 1999
To Our Shareholders:
A Special Meeting of Shareholders of Dulaney Bancorp, Inc. ("Dulaney
Bancorp") will be held on:
________, ____________, 1999
_____ __.m.
___________________________________
_________________________
Marshall, Illinois 62441
The purposes of the Special Meeting are:
1. To consider and vote upon the proposed merger between Dulaney
Bancorp and Old National Bancorp, Evansville, Indiana ("ONB"),
pursuant to the Agreement of Affiliation and Merger ("Agreement"),
dated November 5, 1998, by and between ONB and Dulaney Bancorp.
Dulaney Bancorp will merge with and into ONB. Under the terms of
the merger, each outstanding share of Dulaney Bancorp Common Stock
will be converted into the right to receive 10.683 shares of ONB
Common Stock, as described in the Agreement. The 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.
Only shareholders of record at the close of business on
____________, 1998 are entitled to notice of, and to vote at, the Special
Meeting and any adjournment thereof.
Notice is also given that Dulaney Bancorp shareholders are entitled
to assert dissenters' rights under Illinois law with respect to the proposed
merger with ONB, provided that they comply with the provisions of Sections 11.65
and 11.70 of the Illinois Business Corporation Act of 1983, as amended, a copy
of which is attached as Appendix B to the accompanying Proxy
Statement-Prospectus.
Please do not send your stock certificates at this time. If the
merger is consummated, you will be sent instructions regarding the surrender of
your stock certificates.
BY ORDER OF THE BOARD OF DIRECTORS
____________, 1998 WILLIAM F. GEORGE
SECRETARY-TREASURER
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.
PROXY STATEMENT
PROSPECTUS FOR
OF SPECIAL MEETING OF
OLD NATIONAL BANCORP SHAREHOLDERS
FOR UP TO OF
315,116 SHARES OF COMMON STOCK DULANEY BANCORP, INC.
(NO PAR VALUE) TO BE HELD ON ____________, 1999
------------------------------------
The Board of Directors of Old National Bancorp and Dulaney Bancorp,
Inc. have agreed that ONB will acquire Dulaney Bancorp in a merger transaction
("Affiliation"). After the Affiliation, Dulaney Bancorp will no longer exist,
but Dulaney National Bank will become a wholly-owned subsidiary of ONB. The
Affiliation will enable the Bank to offer more products and services to its
customers. Dulaney Bancorp's Board of Directors believes the Affiliation is in
the best interests of the shareholders of Dulaney Bancorp.
As a Dulaney Bancorp shareholder, you will receive 10.683 shares of
ONB Common Stock for each share of Dulaney Bancorp stock you own on the date of
the Affiliation. If this exchange results in you owning a fractional share of
ONB Common Stock, ONB will pay you cash for the fractional share. The number of
shares of ONB Common Stock you receive as a result of the Affiliation will be
proportionally increased or decreased if ONB issues a stock dividend or stock
split between now and the closing date of the Affiliation, or if the average
price per share of ONB Common Stock on certain dates preceding the effective
date of the Affiliation is greater than $52.525 per share or less than $42.975
per share as reported on the NASDAQ National Market System (see "PROPOSED
AFFILIATION -- Exchange of Dulaney Bancorp Common Stock"). ONB's Common Stock is
traded on the NASDAQ National Market System under the symbol OLDB.
YOUR VOTE IS VERY IMPORTANT. The Affiliation cannot be completed
unless the holders of at least a majority of the outstanding shares of Dulaney
Bancorp approve it. The special meeting of shareholders to vote on the
Affiliation will be held on:
__________, ____________, 1999
_____ __.m.
Dulaney National Bank
415 Archer Avenue
Marshall, Illinois 62441
This Proxy Statement-Prospectus provides you with detailed
information about the meeting and the Affiliation and the stock options. In
addition, you may obtain information about ONB from documents it has filed with
the Securities and Exchange Commission. We encourage you to read this entire
document carefully.
------------------------------------
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 ONB 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 IS ____________, 1998
AND IS MAILED TO SHAREHOLDERS ON ____________, 1998.
TABLE OF CONTENTS
PAGE
----
SUMMARY.......................................................................iv
SUMMARY OF SELECTED FINANCIAL DATA..........................................viii
GENERAL INFORMATION............................................................1
PROPOSED AFFILIATION...........................................................2
Description of the Affiliation.....................................2
Background of and Reasons for the Affiliation......................3
Recommendation of the Board of Directors...........................5
Exchange of Dulaney Bancorp Common Stock...........................5
Rights of Dissenting Shareholder of Dulaney Bancorp................6
Resale of ONB Common Stock by Affiliates of Dulaney Bancorp........8
Conditions to the Affiliation......................................9
Termination .......................................................9
Restrictions Affecting Dulaney Bancorp............................10
Regulatory Approvals..............................................11
Accounting Treatment for the Affiliation..........................11
Effective Time....................................................12
Management, Personnel and Employee Benefits After the Affiliation.12
FEDERAL INCOME TAX CONSEQUENCES...............................................13
Tax Opinion ......................................................14
Tax Consequences to ONB and Dulaney Bancorp.......................14
Tax Consequences to Dulaney Bancorp Shareholders..................14
COMPARATIVE PER SHARE DATA....................................................16
Nature of Trading Market..........................................16
Dividends ......................................................17
Existing and Pro Forma Per Share Information......................18
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION............................21
DESCRIPTION OF ONB............................................................28
Business ......................................................28
Acquisition Policy and Pending Transactions.......................29
Incorporation of Certain Information by Reference.................29
DESCRIPTION OF DULANEY BANCORP................................................30
Business ......................................................30
i
Properties ......................................................30
Litigation ......................................................31
Employees ......................................................31
Management ......................................................31
Security Ownership of Management..................................32
Certain Transactions..............................................33
MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION OF DULANEY BANCORP...........................34
Basis of Presentation.............................................34
Results of Operations.............................................34
Financial Condition...............................................40
Year 2000 Issues..................................................49
REGULATORY CONSIDERATIONS.....................................................52
Bank Holding Company Regulation...................................52
Capital Adequacy Guidelines for Bank Holding Companies............53
Bank Regulation...................................................53
Bank Capital Requirements.........................................54
Branches and Affiliates...........................................55
FDICIA ......................................................56
Deposit Insurance.................................................57
Additional Matters................................................57
COMPARISON OF COMMON STOCK....................................................58
Authorized But Unissued Shares....................................58
Preemptive Rights.................................................59
Dividend Rights...................................................60
Voting Rights.....................................................61
Dissenters' Rights................................................62
Liquidation Rights................................................63
Redemption ......................................................63
Anti-Takeover Provisions..........................................64
Director Liability................................................67
Director Nominations..............................................67
LEGAL OPINIONS................................................................68
EXPERTS ..................................................................68
OTHER MATTERS.................................................................69
FORWARD-LOOKING STATEMENTS....................................................69
ii
AVAILABLE INFORMATION.........................................................70
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...............................71
INDEX TO FINANCIAL STATEMENTS............................................... F-1
iii
SUMMARY
This summary highlights some of the information contained in this
Proxy Statement-Prospectus. Because this is a summary, it does not contain all
the information that may be important to you. To understand the Affiliation
fully and for a more complete description of the legal terms of the Affiliation,
you should read carefully this entire document and the documents we have
referred you to.
THE PARTIES TO THE AFFILIATION
OLD NATIONAL BANCORP
420 Main Street
Evansville, Indiana 47708
(812) 464-1434
ONB is the second largest independent bank holding company headquartered in the
State of Indiana. We own and operate 17 affiliate banks with 112 offices located
in the three state area of Indiana, Illinois, and Kentucky. As of September 30,
1998, our total assets were approximately $6.0 billion and our ratio of total
capital to risk-adjusted assets was 13.27%. This capital ratio is well in excess
of applicable regulatory requirements. See "DESCRIPTION OF ONB."
DULANEY BANCORP, INC.
415 Archer Avenue
Marshall, Illinois 62441
(217) 826-2392
Dulaney Bancorp is an Illinois corporation and a bank holding company located in
Marshall, Illinois. It owns all of the outstanding shares of common stock of
Dulaney National Bank ("Bank"), which is organized as a national banking
association. As of September 30, 1998, Dulaney Bancorp had total assets of
approximately $42.4 million and its ratio of total capital to risk-adjusted
assets was 31.89%. See "DESCRIPTION OF DULANEY BANCORP."
THE AFFILIATION
Description of the Affiliation. We propose an affiliation in which Dulaney
Bancorp merges into ONB. When the Affiliation is completed, Dulaney Bancorp will
cease to exist. Following the Affiliation, the Bank will be a wholly owned
subsidiary of ONB.
Exchange of Dulaney Bancorp Common Stock. As a Dulaney Bancorp shareholder, each
of your shares of Dulaney Bancorp Common Stock automatically will become
exchangeable for 10.683 shares of ONB's common stock, subject to adjustment if,
among other reasons, ONB issues a stock dividend prior to closing the
Affiliation or if the average price per share of ONB Common Stock on certain
dates preceding the effective date of the Affiliation is greater than $52.525
per share or less than $42.975 per share as reported on the NASDAQ National
Market System. See "PROPOSED AFFILIATION -- Exchange of Dulaney Bancorp Common
Stock." The total number of shares of ONB common stock you will receive
therefore (absent any required adjustment) will be equal to 10.683 times the
number of shares of Dulaney Bancorp Common Stock you own. ONB will not issue
fractional shares. Instead, you will receive the value of any fractional share
in cash, based upon the market value of ONB's common stock. Following the
Affiliation, you will be entitled to exchange your shares of Dulaney Bancorp
Common Stock by sending your share certificates and a form we will send you to
iv
ONB, which will then exchange them for shares of ONB's common stock. For
example, if you owned ten shares of Dulaney Bancorp Common Stock, after the
Affiliation you will send in the letter of transmittal and your old Dulaney
Bancorp certificates and in exchange you will receive 106 shares of ONB's common
stock and check for the market value of 0.83 of one share. The price at which
ONB Common Stock traded on ____________, 1998, as reported by the NASDAQ
National Market System, was $_____ per share. See "PROPOSED AFFILIATION --
Exchange of Dulaney Bancorp Common Stock" and Appendix A to this Proxy
Statement.
Reasons for the Affiliation. In considering the Affiliation with ONB, the Board
of Directors of Dulaney Bancorp collected and evaluated a variety of economic,
financial and market information regarding ONB and its affiliate banks, their
respective businesses and ONB's reputation and future prospects. In the opinion
of the Board of Directors of Dulaney Bancorp, favorable factors included ONB's
strong earnings and stock performance, its management, the compatibility of its
markets to those of the Bank and the attractiveness of ONB's offer from a
financial perspective. The Board also considered the potential benefits of
owning ONB Common Stock. ONB's Common Stock is traded in the over-the-counter
market and reported on the NASDAQ National Market System, as compared to Dulaney
Bancorp Common Stock which has no established public trading market. The Board
of Directors of Dulaney Bancorp also determined that the Affiliation would have
a positive, long-term impact on the Bank's customers and employees and the
communities served by the Bank. See "PROPOSED AFFILIATION -- Background of and
Reasons for the Affiliation."
Recommendation of the Board of Directors of Dulaney Bancorp. The Board of
Directors of Dulaney Bancorp believes that the Affiliation is fair to you and in
your best interests, and unanimously recommends that you vote "FOR" the proposal
to approve the Affiliation. See "PROPOSED AFFILIATION -- Recommendation of the
Board of Directors."
Conditions to the Affiliation. The completion of the Merger depends on a number
of conditions being met. In addition to our compliance with the Agreement of
Affiliation and Merger, these include:
- - Approval of the Agreement of Affiliation and Merger by the holders of at
least a majority of the outstanding shares of Dulaney Bancorp Common
Stock.
- - Receipt of a legal opinion that, for federal income tax purposes, ONB,
Dulaney Bancorp and Dulaney Bancorp's shareholders who exchange their
shares for shares of ONB Common Stock will not recognize any gain or loss
as a result of the Affiliation, except in connection with the payment of
cash instead of fractional shares. This opinion will be subject to
various limitations and we recommend that you read the fuller description
of tax consequences provided in this document beginning at page 13.
See "PROPOSED AFFILIATION -- Conditions to Consummation."
Termination of the Affiliation. ONB and Dulaney Bancorp can agree at any time to
terminate the Agreement of Affiliation and Merger without completing the
Affiliation, even if the shareholders of Dulaney Bancorp have approved it. Also,
either of such parties can decide, without the consent of the other, to
terminate the merger agreement if, among other reasons:
v
- - The other party has breached or misrepresented any warranty contained in
the merger agreement.
- - The other party has breached or failed to comply with any covenant
contained in the merger agreement.
- - Certain claims, proceedings or litigation have been commenced or
threatened.
- - ONB, Dulaney Bancorp or the Bank experience a material adverse change
since September 30, 1998.
- - The Affiliation has not been completed by July 31, 1999.
See "PROPOSED AFFILIATION -- Termination."
Effective Time of the Affiliation. ONB and Dulaney Bancorp anticipate that the
Affiliation will be completed during the first quarter of 1999. See "PROPOSED
AFFILIATION -- Effective Time."
Management, Personnel and Operations After the Affiliation. After the
Affiliation takes place, Dulaney Bancorp will no longer exist. The Board of
Directors and officers of the Bank will remain unchanged following the
Affiliation. The employees of the Bank will receive the benefits under the
current policies and employee benefit plans of ONB. See "PROPOSED AFFILIATION --
Description of the Affiliation", "-- Management, Personnel and Operations After
the Affiliation" and "DESCRIPTION OF DULANEY BANCORP -- Management."
Federal Income Tax Consequences to Shareholders of Dulaney Bancorp. In general,
we expect that for federal income tax purposes you will not recognize gain or
loss as a result of the exchange of your shares of Dulaney Bancorp Common Stock
for shares of ONB Common Stock. However, if you receive cash in exchange for
your shares of Dulaney Bancorp Common Stock (in lieu of fractional shares), you
will recognize capital gain or loss on such exchange. We urge you to consult
with your tax advisors with respect to the tax consequences of the Affiliation
to you. See "FEDERAL INCOME TAX CONSEQUENCES."
Dissenters' Rights. You have dissenters' rights established by Illinois law
which entitle you to receive cash for your shares of Dulaney Bancorp Common
Stock. In the event that holders of greater than 10% of the outstanding shares
of Dulaney Bancorp Common Stock become entitled, by exercise of dissenters'
rights or otherwise, to receive cash instead of ONB Common Stock, the
Affiliation will not qualify as a pooling-of-interests transaction for
accounting purposes and ONB would have the right to terminate the Agreement. In
order to exercise your dissenter's rights, you must follow certain procedures,
including filing certain notices and not voting your shares in favor of the
Affiliation. You will not receive any shares of ONB Common Stock if you dissent
and follow all of the required procedures. Instead, you will only receive the
value of your stock in cash. The relevant sections of Illinois law governing
this process are attached to this document as Appendix B. See "PROPOSED
AFFILIATION -- Rights of Dissenting Shareholders of Dulaney Bancorp."
Resale of ONB Common Stock. Certain resale restrictions apply to the sale or
transfer of shares of ONB Common Stock issued to directors, executive officers
and 10% shareholders of Dulaney Bancorp in exchange for their shares of Dulaney
Bancorp Common Stock. See "PROPOSED AFFILIATION -- Resale of ONB Common Stock by
Affiliates of Dulaney Bancorp."
Comparative Shareholder Rights. If the Affiliation is completed, and you have
not exercised your dissenter's rights, you will
vi
become a shareholder of ONB. As a result, your rights as a shareholder, which
are now governed by Illinois law and the Articles of Incorporation and Bylaws of
Dulaney Bancorp, will be governed by Indiana law and ONB's Articles of
Incorporation and Bylaws. See "COMPARISON OF COMMON STOCK."
Trading Market for Common Stock. There is presently no established public
trading market for shares of Dulaney Bancorp Common Stock. Shares of ONB Common
Stock are traded in the over-the-counter market and stock prices are reported on
the NASDAQ National Market System. The closing price of ONB Common Stock as
reported by the NASDAQ National Market System was $52 7/8 per share on November
13, 1998, the business day before the Affiliation was publicly announced, and
was $_____ per share on ____________, 1998. Assuming the Affiliation had been
completed on ____________, 1998, you and the other Dulaney Bancorp would have
received, in exchange for all of the shares of Dulaney Bancorp Common Stock,
shares of ONB Common Stock having a total market value of $____________, which
represents $_____ per share of Dulaney Bancorp Common Stock (including cash
received in lieu of any fractional share interest). See "COMPARATIVE PER SHARE
DATA."
SPECIAL MEETING
Date, Time and Place of Special Meeting. __________, ____________, 1999, at
_____ __.m., local time, at the Bank located at 415 Archer Avenue, Marshall,
Illinois 62441.
Purposes of Special Meeting. At the Dulaney Bancorp special meeting, you will
be asked:
- - to approve the merger of our company with ONB; and
- - to act upon any other items that may be submitted to a vote at the special
meeting.
See "NOTICE OF SPECIAL MEETING OF SHAREHOLDERS" and the discussions under the
captions "GENERAL INFORMATION" and "PROPOSED AFFILIATION."
Required Shareholder Vote. In order to approve the Affiliation, the holders of
at least a majority of the issued and outstanding shares of Dulaney Bancorp
Common Stock must vote in its favor.
Directors and executive officers of Dulaney Bancorp beneficially own in the
aggregate, directly and indirectly, approximately 16.88% of the outstanding
shares of Dulaney Bancorp Common Stock. See "GENERAL INFORMATION", "PROPOSED
AFFILIATION -- Conditions to Affiliation" and "DESCRIPTION OF DULANEY BANCORP --
Security Ownership of Management."
Shares Outstanding and Entitled to Vote. As of September 30, 1998, there were
29,497 shares of Dulaney Bancorp Common Stock outstanding. You can vote at the
special meeting of Dulaney Bancorp if you owned Dulaney Bancorp Common Stock at
the close of business on ____________, 1998. See "GENERAL INFORMATION."
Proxies. You can revoke your proxy at any time before it is exercised by
delivering a later dated proxy to Dulaney Bancorp or by written notice delivered
to the Secretary of Dulaney Bancorp. See "GENERAL INFORMATION."
vii
SUMMARY OF SELECTED FINANCIAL DATA -- ONB
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
The following summary sets forth selected consolidated financial
information relating to ONB. This information should be read in conjunction with
the financial statements and notes incorporated herein by reference.
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
RESULTS OF OPERATIONS
(Taxable equivalent basis)
Interest income $ 430,318 $ 404,514 $ 389,131 $ 343,852 $ 336,890
Interest expense 207,935 189,574 186,500 146,152 144,427
---------- ---------- ---------- ---------- ----------
Net interest income 222,383 214,940 202,631 197,700 192,463
Provision for loan losses 12,022 10,711 7,135 7,754 10,359
---------- ---------- ---------- ---------- ----------
Net interest income after provision for loan
losses 210,361 204,229 195,496 189,946 182,104
Noninterest income 46,707 44,357 39,594 34,876 33,993
Noninterest expense 150,021 150,495 147,315 147,295 135,259
---------- ---------- ---------- ---------- ----------
Income from continuing operations before
income taxes 107,047 98,091 87,775 77,527 80,838
Income taxes 41,382 38,406 33,836 28,524 30,268
---------- ---------- ---------- ---------- ----------
Net income from continuing operations 65,665 59,685 53,939 49,003 50,570
Discontinued operations (5,005) 494 0 0 0
---------- ---------- ---------- ---------- ----------
Net income $ 60,660 $ 60,179 $ 53,939 $ 49,003 $ 50,570
========== ========== ========== ========== ==========
YEAR-END BALANCES
==========
Total assets $5,688,215 $5,365,657 $5,103,195 $4,909,804 $4,748,112
Total loans, net of
unearned income 3,730,202 3,466,909 3,261,746 3,098,820 2,810,453
Total deposits 4,298,730 4,268,024 4,183,082 3,875,752 3,898,967
Shareholders' equity 477,203 458,526 461,424 440,671 435,406
PER SHARE DATA (ON CONTINUING OPERATIONS)(1)
Net income - basic $ 2.37 $ 2.08 $ 1.82 $ 1.61 $ 1.66
Net income - diluted (2) 2.29 2.02 1.77 1.57 1.62
Cash dividends paid 0.88 0.84 0.80 0.76 0.66
Book value at year-end 17.38 16.31 15.78 14.62 14.25
SELECTED PERFORMANCE RATIOS (ON CONTINUING OPERATIONS)
Return on assets 1.20% 1.16% 1.09% 1.03% 1.09%
Return on equity (3) 14.47 13.18 12.01 10.92 11.38
Equity to assets 8.43 8.90 8.99 9.35 9.58
Primary capital to assets 9.23 9.71 9.85 10.25 10.43
Net charge-offs to average loans 0.20 0.30 0.26 0.28 0.25
Allowance for loan losses to average loans 1.30 1.24 1.28 1.43 1.57
- --------------------------------------------------------
(1) Restated for all stock dividends and stock splits.
(2) Assumes the conversion of ONB's subordinated debentures.
(3) Excludes unrealized gains (losses) on investment securities.
viii
SUMMARY OF SELECTED FINANCIAL DATA -- ONB (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
Nine Months ended September 30,
-------------------------------
1998 1997
----------- -----------
RESULTS OF OPERATIONS
(Taxable equivalent basis)
Interest income $ 337,329 $ 319,851
Interest expense 166,417 153,650
----------- -----------
Net interest income 170,912 166,201
Provision for loan losses 8,947 8,631
----------- -----------
Net interest income after provision for loan losses 161,965 157,570
Noninterest income 40,192 34,154
Noninterest expense 116,574 112,710
----------- -----------
Income from continuing operations before income taxes 85,583 79,014
Income taxes 32,076 30,399
----------- -----------
Net income from continuing operations 53,507 48,615
Discontinued operations (9,854) 395
----------- -----------
Net income $ 43,653 $ 49,010
=========== ===========
YEAR-END BALANCE
Total assets $ 5,987,432 $ 5,613,559
Total loans, net of unearned income 4,037,555 3,642,188
Total deposits 4,371,549 4,263,681
Shareholders' equity 493,194 469,644
PER SHARE DATA (ON CONTINUING OPERATIONS) (1)
Net income - basic $ 1.94 $ 1.75
Net income - diluted (2) 1.88 1.70
Cash dividends paid 0.69 0.66
Book value at period-end 17.90 17.09
SELECTED PERFORMANCE RATIOS (ON CONTINUING OPERATIONS)
(based on averages)
Return on assets 1.22 % 1.19 %
Return on equity (3) 15.17 14.33
Equity to assets 8.45 8.36
Primary capital to assets 9.19 9.25
Net charge-offs to average loans 0.18 0.21
Allowance for loan losses to average loans 1.28 1.28
- --------------------------------------------------------------
(1) Restated for all stock dividends.
(2) Assumes the conversion of ONB's subordinated debentures.
(3) Excludes unrealized gains (losses) on investment securities.
ix
SUMMARY OF SELECTED FINANCIAL DATA -- DULANEY BANCORP
The following table presents financial data for Dulaney Bancorp. This
summary should be read in conjunction with the consolidated financial statements
and the notes thereto of Dulaney Bancorp contained elsewhere herein.
This historical financial data as of and for the three years ended December
31, 1997 have been derived from the audited financial statements of Dulaney
Bancorp included elsewhere in this Proxy Statement-Prospectus. The historical
financial data as of and for the two years ended December 31, 1994 have been
derived from the audited financial statements of Dulaney Bancorp not included
herein. The financial data as of and for nine months ended September 30, 1998
and 1997 have been derived from Dulaney Bancorp unaudited financial statements,
included herein. The results for the nine months ended September 30, 1998 are
not necessarily indicative of the results to be expected for the entire year.
Year ended December 31,
------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(Dollars in Thousands, except per share data)
STATEMENT OF INCOME DATA:
Interest income $ 2,996 $ 2,976 $ 2,754 $ 2,407 $ 2,290
Interest expense (1,155) (1,184) (1,107) (984) (1,091)
------- ------- ------- ------- -------
Net interest income 1,841 1,792 1,647 1,423 1,199
Provision for possible loan losses --- --- --- --- ---
------- ------- ------- ------- -------
Net interest income after provision for possible loan losses 1,841 1,792 1,647 1,423 1,199
Noninterest income 48 52 70 34 57
Noninterest expense 864 836 877 841 837
------- ------- ------- ------- -------
Income before income taxes 1,025 1,008 840 616 419
Income tax expense 250 215 165 110 65
------- ------- ------- ------- -------
Net income $ 775 793 $ 675 506 $ 354
======= ======= ======= ======= =======
PER SHARE DATA:
Net income-basic $ 26.28 26.89 $ 22.89 17.16 $ 12.01
Net income-fully diluted 26.28 26.89 22.89 17.16 12.01
Dividends declared 45.67% 35.46% 39.26% 29.05% 24.97%
Book value per common share 246.41 233.40 219.33 190.31 181.06
BALANCE SHEET DATA:
Total assets 40,986 42,150 40,685 39,656 39,708
Investment in debt securities:
Available-for-sale 16,862 18,380 19,345 5,620
Held-to-maturity --- --- --- 14,557 20,010
------- ------- ------- ------- -------
Total investments in debt securities 16,862 18,380 19,345 20,177 20,010
Loans, net of unearned interest 19,382 17,962 15,819 13,833 13,726
Allowance for possible loan losses 471 487 536 497 486
Deposits:
Noninterest-bearing 4,348 4,776 4,267 4,428 4,735
Interest-bearing 29,018 30,156 29,598 29,391 29,480
Total deposits 33,366 34,932 33,865 33,819 34,215
Stockholders' equity 7,268 6,885 6,470 5,614 5,341
EARNINGS PERFORMANCE RATIOS:
Return on average assets 1.80% 1.91% 1.68% 1.28% 1.23%
Return on average equity 7.89% 7.97% 8.87% 9.07% 9.33%
x
Year ended December 31,
------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(Dollars in Thousands, except per share data)
ASSET QUALITY RATIOS:
Net loan charge-offs (recoveries) to average loans 0.09% 0.29% -0.26% -0.08% -0.03%
Allowance for possible loan losses to loans 2.43% 2.17% 3.39% 3.59% 3.54%
Allowance for possible loan losses to non performing loans 2.89% 2.99% 3.08% 3.16% 4.28%
Non performing loans to loans 2.53% 2.77% 1.99% 2.50% 0.39%
Non performing assets to loans plus foreclosed property and
repossessions 2.53% 2.77% 1.99% 2.50% 0.39%
CAPITAL RATIOS:
Tier 1 capital to risk-adjusted assets 31.37% 30.51% 30.46% 31.42% 29.21%
Total capital to risk-adjusted assets 32.63% 31.77% 31.73% 32.69% 30.48%
Leverage ratio 17.10% 15.75% 14.92% 14.14% 13.31%
xi
SUMMARY OF SELECTED FINANCIAL DATA -- DULANEY BANCORP (CONTINUED)
Nine months ended September 30,
-------------------------------
1998 1997
--------- ---------
(Dollars in Thousands, except per share data)
STATEMENT OF INCOME DATA:
Interest income $ 2,199 $ 2,213
Interest expense 878 854
--------- ---------
Net interest income 1,321 1,359
Provision for possible loan losses -0- -0-
--------- ---------
Net interest income after provision for possible loan losses 1,321 1,359
Noninterest income 55 46
Noninterest expense 669 632
--------- ---------
Income before income taxes 707 773
Income tax expense 175 210
--------- ---------
Net income $ 532 $ 563
========= =========
PER SHARE DATA:
Net income-basic $ 18.03 19.08
Net income-fully diluted 18.03 19.08
Dividends declared 3.54% 3.54%
Book value per common share 253.58 239.14
BALANCE SHEET DATA:
Total assets 42,413 42,223
Investment in debt securities:
Available-for-sale 14,899 16,999
Held-to-maturity -0- -0-
Trading account -0- -0-
--------- ---------
Total investments in debt securities 14,899 16,999
Loans, net of unearned interest 20,111 19,059
Allowance for possible loan losses (w/Rex Loan) 488 498
Deposits:
Noninterest-bearing 5,502 5,403
Interest-bearing 29,129 29,395
--------- ---------
Total deposits 34,631 34,798
Stockholders' equity 7,480 7,054
EARNINGS PERFORMANCE RATIOS:
Return on average assets 1.70% 1.87%
Return on average equity 10.04% 10.83%
ASSET QUALITY RATIOS:
Net loan charge-offs (recoveries) to average loans -0.09% -0.07%
Allowance for possible loan losses to loans 2.43% 2.61%
Allowance for possible loan losses to non performing loans 323.18% 82.59%
Non performing loans to loans 0.75% 3.16%
Non performing assets to loans plus foreclosed property and
repossessions 0.75% 3.16%
CAPITAL RATIOS:
Tier 1 capital to risk-adjusted assets 30.63% 30.76%
Total capital to risk-adjusted assets 31.89% 32.02%
Leverage ratio 17.35% 16.34%
xii
PROSPECTUS PROXY STATEMENT
OF OF
OLD NATIONAL DULANEY BANCORP, INC.
BANCORP
-----------------------------------------------
SPECIAL MEETING OF SHAREHOLDERS
OF
DULANEY BANCORP, INC.
TO BE HELD ON ____________, 1999
-----------------------------------------------
GENERAL INFORMATION
This Proxy Statement is furnished to the shareholders of Dulaney
Bancorp in connection with the solicitation by its Board of Directors of proxies
for use at the Special Meeting of Shareholders to be held on __________,
____________, 1999, at _____ __.m., local time, at Dulaney National Bank,
located at 415 Archer Avenue, Marshall, Illinois 62441. This Proxy Statement is
first being mailed to shareholders of Dulaney Bancorp on ____________, 1998.
The purposes of the Special Meeting of Shareholders is to consider
and vote upon the proposed merger ("Affiliation") between Dulaney Bancorp and
Old National Bancorp ("ONB") and transact such other business which may properly
be presented at the Special Meeting or any adjournment thereof. In the
Affiliation, Dulaney Bancorp will merge into ONB and the separate existence of
Dulaney Bancorp will cease. Each share of Dulaney Bancorp Common Stock will
convert into the right to receive 10.683 shares of ONB Common Stock, subject to
adjustment. See "PROPOSED AFFILIATION."
The affirmative vote of the holders of at least a majority of the
outstanding shares of Dulaney Bancorp Common Stock is required for approval of
the Affiliation. Only holders of Dulaney Bancorp Common Stock of record at the
close of business on ____________, 1998 ("Record Date") are entitled to notice
of, and to vote at, the Special Meeting. There were 29,497 shares of Dulaney
Bancorp Common Stock outstanding on the Record Date, which were held of record
by approximately 70 shareholders. For each matter to be voted on at the Special
Meeting, each share of Dulaney Bancorp Common Stock is entitled to one vote.
1
The cost of soliciting proxies will be borne by Dulaney Bancorp. In
addition to use of the mails, proxies may be solicited personally or by
telephone or telegraph by directors, officers and certain employees of Dulaney
Bancorp who will not be specially compensated for such soliciting.
The shares represented by proxies properly signed and returned will
be voted at the Special Meeting as instructed by the shareholders of Dulaney
Bancorp giving the proxies. In the absence of specific instructions to the
contrary, proxies will be voted FOR approval of the Affiliation, all as
described in this Proxy Statement and in accordance with the recommendation of
the Board of Directors of Dulaney Bancorp with respect to any other matter which
may properly be presented at the Special Meeting. Dissenting Dulaney Bancorp
shareholders are entitled to certain appraisal rights with respect to the
Affiliation. See "PROPOSED AFFILIATION -- Rights of Dissenting Shareholders of
Dulaney Bancorp." Any shareholder giving a proxy has the right to revoke it at
any time before it is exercised. Therefore, execution of a proxy will not affect
a shareholder's right to vote in person if he or she attends the Special
Meeting. Revocation may be made by a later dated proxy delivered to Dulaney
Bancorp, by written notice received by the Secretary of Dulaney Bancorp prior to
the Special Meeting, or by written notice delivered to the Secretary of Dulaney
Bancorp at the Special Meeting. To be effective, any revocation must be received
before the proxy is voted.
PROPOSED AFFILIATION
At the Special Meeting, the shareholders of Dulaney Bancorp will
consider and vote upon approval of the Affiliation, certain features of which
are summarized below. The following summary of certain aspects of the
Affiliation does not purport to be a complete description of the terms and
conditions of the Affiliation and is qualified in its entirety by reference to
the Agreement, which is attached to this Proxy Statement as Appendix A and is
incorporated herein by reference.
DESCRIPTION OF THE AFFILIATION
In the Affiliation, Dulaney Bancorp will merge with and into ONB.
ONB will be the surviving corporation in the Affiliation and the separate
corporate existence of Dulaney Bancorp will cease. As a result, Dulaney National
Bank (the "Bank") will become a wholly-owned subsidiary of ONB.
2
As of September 30, 1998, Dulaney Bancorp had consolidated assets of
$42.413 million, consolidated deposits of $34.631 million, consolidated
shareholders' equity of $7.480 million and consolidated net income for the nine
months then ended of $532,000. Based upon the pro forma financial information
included elsewhere in this Proxy Statement and assuming that the Affiliation had
been consummated on September 30, 1998, Dulaney Bancorp represented as of such
date 0.70% of the consolidated assets of ONB, 0.75% of its consolidated
deposits, 1.42% of its consolidated shareholders' equity and, for the nine month
period then ended, 1.14% of its consolidated net income. See "PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION".
BACKGROUND OF AND REASONS FOR THE AFFILIATION
Historically banking laws in Illinois and many other states
prohibited banks from expanding outside of their home counties. Many changes
have occurred in recent years, first permitting in-state acquisitions by bank
holding companies, then permitting regional interstate acquisitions and
currently permitting virtual nationwide expansion opportunities. These
developments stimulated aggressive acquisition activity among financial
institutions located in Illinois 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 community banks
such as the Bank to achieve the economies of scale necessary to compete
effectively.
The Board of Directors also 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 Board of Directors concluded that seeking a potential
merger partner was in the best interests of the shareholders. Beginning in May,
1998, representatives of Dulaney Bancorp discussed with representatives of ONB a
possible Affiliation. On June 25, 1998, ONB sent a letter to Dulaney Bancorp
explaining its intention to affiliate with Dulaney Bancorp. After continued
discussions, due diligence and the negotiation of a definitive agreement, the
Board of Directors of Dulaney Bancorp determined that the Affiliation with ONB
was in the best interests of Dulaney Bancorp and its shareholders
3
and voted to approve the Affiliation on October 15, 1998. The definitive
Agreement of Affiliation and Merger was signed November 5, 1998.
In determining to pursue the Affiliation with ONB, the Board of
Directors specifically considered financial, managerial and other information
regarding ONB and its affiliate banks. In particular, the Board of Directors
considered, evaluated and compared ONB's and Dulaney Bancorp's respective
businesses, financial condition, reputation and future prospects. The earnings
history and stock performance of ONB were carefully reviewed with a view towards
the investment potential for shareholders of Dulaney Bancorp.
Among other items considered in this evaluation were the prospects
of Dulaney Bancorp and the Bank, as separate institutions and as combined with
ONB: the compatibility of ONB's affiliate bank's markets to those of Bank's
market; the price offered by ONB to Dulaney Bancorp shareholders and the
anticipated tax-free nature of the Affiliation to the shareholders of Dulaney
Bancorp receiving solely ONB Common Stock in exchange for their shares of
Dulaney Bancorp Common Stock; the possibility of increased liquidity through
ownership of ONB Common Stock as compared to Dulaney Bancorp Common Stock
because ONB Common Stock is traded in the over-the-counter market and share
prices are reported on the NASDAQ National Market System; regulatory
requirements; relevant price information involving recent comparable bank
acquisitions which occurred in the Midwest United States; and an analysis of
alternatives to affiliating with ONB, including other potential acquirors.
The Board of Directors of Dulaney Bancorp also considered the impact
of the Affiliation on the Bank's customers and employees and the communities
served by the Bank. ONB's historical practice of retaining employees of acquired
institutions with competitive salary and benefit programs was considered, as was
the opportunity for training, education, growth and advancement of the Bank's
employees within ONB or one of its affiliates. The Board of Directors of Dulaney
Bancorp examined ONB's continuing commitment to the communities served by
institutions previously acquired by ONB. Further, from the standpoint of the
Bank's customers, it was anticipated that more products and services would
become available because of ONB's greater resources.
Based upon the foregoing factors, the Board of Directors of Dulaney
Bancorp concluded that it was in the best interests of Dulaney Bancorp and its
shareholders to merge with ONB.
4
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF DULANEY BANCORP HAS CAREFULLY CONSIDERED
AND UNANIMOUSLY APPROVED THE AGREEMENT AND THE AFFILIATION AND UNANIMOUSLY
RECOMMENDS THAT THE SHAREHOLDERS OF DULANEY BANCORP APPROVE THE AFFILIATION.
EXCHANGE OF DULANEY BANCORP COMMON STOCK
Under the terms of the Agreement, shareholders of Dulaney Bancorp of
record upon consummation of the Affiliation will be entitled to receive 10.683
shares of ONB Common Stock ("Exchange Ratio"), subject to adjustment, if any,
for stock splits, stock dividends or any similar recapitalization of ONB and
subject to further adjustment as follows: If the Average Price Per Share of ONB
Common Stock exceeds $52.525, then the Exchange Ratio shall be adjusted such
that each share of Dulaney Common Stock shall be converted into the number of
shares of ONB Common Stock resulting from the following formula: (i) $561.12
divided by Average Price Per Share; (ii) if the Average Price Per Share of ONB
Common Stock is less than $42.972, then the Exchange Ratio shall be adjusted
such that each share of Dulaney Common Stock shall be converted into the number
of shares of ONB Common Stock resulting from the following formula: $459.10
divided by Average Price Per Share; and (iii) if the Average Price Per Share of
ONB Common Stock is not less than $42.975 nor more than $52.525, then there
shall be no adjustment to the Exchange Ratio. For purposes of the foregoing, the
Average Price Per Share of ONB Common Stock shall mean and be calculated based
upon the average of the per share closing prices of ONB Common Stock as reported
on the NASDAQ National Market System for the first five (5) business days on
which trades of shares of ONB Common Stock are reported on the NASDAQ National
Market System within the ten (10) calendar days immediately preceding the
Effective Time.
As of ____________, 1998, the closing price of ONB Common Stock was
$_____ per share, as reported by the NASDAQ National Market System. If the
Affiliation had been consummated on that date, the number of shares of ONB
Common Stock and cash exchanged in the Affiliation would have been __________,
with an aggregate value of approximately $__________.
No fractional shares of ONB Common Stock will be issued to
shareholders of Dulaney Bancorp in connection with the Affiliation. Each
shareholder of Dulaney Bancorp who
5
otherwise would be entitled to a fractional interest in a share of ONB Common
Stock as a result of the Exchange Ratio will be paid a cash amount equal to such
fractional interest multiplied by the market value of ONB Common Stock.
After the effective time of the Affiliation, stock certificates
previously representing Dulaney Bancorp Common Stock will represent only the
right to receive shares of ONB Common Stock and cash for any fractional shares.
Following the effective time of the Affiliation and prior to the surrender by
holders of Dulaney Bancorp of their stock certificates to ONB in exchange for
ONB Common Stock, such holders will not be entitled to receive payment of
dividends or other distributions declared on shares of ONB Common Stock. Upon
the subsequent exchange of such certificates, however, any accumulated dividends
or other distributions previously declared and withheld on the shares of ONB
Common Stock will be paid, without interest. At the effective time of the
Affiliation, the stock transfer book of Dulaney Bancorp will be closed and no
transfers of shares of Dulaney Bancorp Common Stock will thereafter be made. If,
after the effective time of the Affiliation, certificates representing shares of
Dulaney Bancorp Common Stock are presented for registration or transfer, they
will be canceled and exchanged for shares of ONB Common Stock.
Stock certificates representing shares of ONB Common Stock and any
cash payment for fractional shares (without interest) will be made, after the
effective time of the Affiliation, to each former shareholder of Dulaney Bancorp
within twenty (20) business days following the shareholder's delivery to ONB of
his or her certificate(s) representing shares of Dulaney Bancorp Common Stock.
Instructions as to delivery of stock certificates of Dulaney Bancorp to ONB will
be sent to each shareholder of Dulaney Bancorp shortly after the effective time
of the Affiliation.
RIGHTS OF DISSENTING SHAREHOLDERS OF DULANEY BANCORP
The Illinois Business Corporation Act of 1983, as amended ("IBCA"),
provides shareholders of merging corporations with certain dissenters' rights.
The dissenters' rights of shareholders of Dulaney Bancorp are set forth in
Sections 11.65 and 11.70 of the IBCA, a copy of which is attached to this Proxy
Statement as Appendix B. Shareholders will not be entitled to assert dissenters'
rights absent strict compliance with the procedures of Illinois law.
6
Section 11.65 of the IBCA provides that shareholders of Dulaney
Bancorp have the right to demand payment for the "fair value" of their shares of
Dulaney Bancorp Common Stock immediately before the Affiliation becomes
effective. To claim this right, the shareholder must first:
(a) deliver to Dulaney Bancorp before the vote is taken at the
Special Meeting a written demand for payment for the shareholder's shares if the
Affiliation is consummated; and
(b) not vote in favor of the Affiliation in person or by proxy.
Dissenting shareholders may send their written notice to Dale H.
Murphy, President, Dulaney Bancorp, Inc., 415 Archer Avenue, Marshall, Illinois
62441.
If the Affiliation is approved by the shareholders of Dulaney
Bancorp, ONB will send a statement to those shareholders satisfying the above
conditions within ten (10) days of the effective date of the Affiliation or
thirty (30) days after the shareholder delivers his/her written demand for
payment, whichever is later. The statement shall set forth the opinion of ONB as
to the estimated value of shares, Dulaney Bancorp's latest balance sheet as of
the end of the fiscal year ending not earlier than 16 months before delivery of
the statement, together with the statement of income for that year and the
latest available interim financial statements, and a commitment to pay for the
shares of the dissenting shareholder at the estimated value thereof upon
transmittal to ONB of the share certificates or other evidence of ownership with
respect to such shares. The notice will state the procedures the dissenting
shareholder thereafter must follow to exercise dissenters' rights in accordance
with Illinois law.
A Dulaney Bancorp shareholder who is sent such a statement and does
not agree with the opinion of ONB as to the estimated value of the Dulaney
Bancorp shares must notify ONB in writing of the shareholder's estimate of value
of the Dulaney Bancorp shares and demand payment for the difference between the
shareholder's estimated value of the Dulaney Bancorp shares and the amount of
the payment offered by ONB. Dulaney Bancorp shareholders who do not notify ONB
of their fair value estimate and demand payment as required and within
applicable time periods are considered to have voted the shareholders' shares of
Dulaney Bancorp Common Stock in favor of the Affiliation and are not entitled to
receive payment for the shareholder's shares under Section 11.65 of the IBCA.
7
THE FOREGOING SUMMARY OF THE RIGHTS OF DISSENTING SHAREHOLDERS
ADDRESSES ALL MATERIAL FEATURES OF THE APPLICABLE DISSENTERS' RIGHTS STATUTES
UNDER THE LAWS OF THE STATE OF ILLINOIS BUT DOES NOT PURPORT TO BE COMPLETE AND
IS QUALIFIED IN ITS ENTIRETY BY THE STATUTORY PROVISIONS ATTACHED HERETO AS
APPENDIX B.
A SHAREHOLDER'S FAILURE TO COMPLY WITH THE STATUTORY REQUIREMENTS
FOR EXERCISING DISSENTERS' RIGHTS WILL RESULT IN A LOSS OF SUCH RIGHTS, AND
SHAREHOLDERS WHO MAY WISH TO EXERCISE DISSENTERS' RIGHTS SHOULD CONSIDER SEEKING
LEGAL COUNSEL.
RESALE OF ONB COMMON STOCK BY AFFILIATES OF DULANEY BANCORP
No restrictions on the sale or transfer of the shares of ONB Common
Stock issued pursuant to the Affiliation will be imposed solely as a result of
the Affiliation, other than restrictions on the transfer of such shares issued
to any shareholder of Dulaney Bancorp who may be deemed to be an "affiliate" of
Dulaney Bancorp for purposes of Rule 145 under the Securities Act. Directors,
executive officers and 10% shareholders are deemed to be affiliates for purposes
of Rule 145.
The Agreement provides that Dulaney Bancorp will provide ONB with a
list identifying each affiliate of Dulaney Bancorp. The Agreement also requires
that each affiliate of Dulaney Bancorp deliver to ONB, prior to the effective
time of the Affiliation, a written agreement to the effect that such affiliate
(1) has not sold, pledged, transferred, disposed of or otherwise reduced the
affiliate's market risk with respect to the shares of Dulaney Bancorp Common
Stock directly or indirectly owned or held by such person during the thirty (30)
day period prior to the effective time, and (2) will not sell, pledge, transfer
or otherwise dispose of or reduce the affiliate's market risk with respect to
the shares of ONB Common Stock to be received by such person pursuant to the
Agreement (i) until such time as financial results covering at least thirty (30)
days of combined operations of Dulaney Bancorp and ONB 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 of 1933. The certificates representing ONB Common Stock issued to affiliates
of Dulaney Bancorp in the Affiliation may contain a legend indicating these
resale restrictions.
8
This is only a general statement of certain restrictions regarding
the sale or transfer of the shares of ONB Common Stock to be issued in the
Affiliation. Therefore, those shareholders of Dulaney Bancorp who may be deemed
to be affiliates of Dulaney Bancorp should consult with their legal counsel
regarding the resale restrictions that may apply to them.
CONDITIONS TO THE AFFILIATION
Consummation of the Affiliation is conditioned upon, among other
items:
- approval of the Affiliation by the affirmative vote of
the holders of at least a majority of the outstanding
shares of Dulaney Bancorp Common Stock;
- receipt by ONB and Dulaney Bancorp of all applicable
regulatory approvals required for the Affiliation;
- receipt of an opinion of counsel with respect to certain
federal income tax matters;
- receipt by ONB of certain undertakings from affiliates
of Dulaney Bancorp;
- receipt by ONB and Dulaney Bancorp of certain officers'
certificates and other legal opinions;
- the accuracy at the effective time of the Affiliation of
representations and warranties contained in the
Agreement; and
- the fulfillment of certain covenants set forth in the
Agreement.
The conditions to consummation of the Affiliation, which are more fully
enumerated in the Agreement, are requirements subject to unilateral waiver by
the party entitled to the benefit of such conditions, as set forth in the
Agreement. See "PROPOSED AFFILIATION -- Resale of ONB Common Stock by Affiliates
of Dulaney Bancorp," "-- Regulatory Approvals", "FEDERAL INCOME TAX
CONSEQUENCES" and Appendix A.
TERMINATION
Either ONB or Dulaney Bancorp may terminate the Agreement before it
is consummated (as set forth in the Agreement) if, among other reasons:
- there has been a misrepresentation or a breach of any
warranty set forth in the Agreement by Dulaney Bancorp
or ONB which has had or could be expected to
9
have a material adverse effect on the financial
condition, results of operations, business, assets or
capitalization of Dulaney Bancorp, the Bank or ONB;
- ONB or Dulaney Bancorp has breached or failed to comply
with any covenant set forth in the Agreement;
- consummation of the Affiliation has become inadvisable
or impracticable due to the commencement or threat of
any claim, litigation or proceeding against ONB or
Dulaney Bancorp or any subsidiary of ONB relating to the
Agreement or which is likely to have a material adverse
effect on the financial condition, results of
operations, business, assets or capitalization of ONB or
Dulaney Bancorp;
- there has been a material adverse change in the
financial condition, results of operations, business,
assets or capitalization of ONB or Dulaney Bancorp, as
of the effective time of the Affiliation as compared to
that in existence as of June 30, 1998;
- ONB cannot utilize the pooling-of-interests method of
accounting for the Affiliation; or
- consummation of the Affiliation has not occurred by July
31, 1999.
Upon termination for any of these reasons, the Agreement will be of no further
force or effect. See Appendix A.
RESTRICTIONS AFFECTING DULANEY BANCORP
The Agreement contains a number of restrictions regarding the
conduct of business of Dulaney Bancorp pending consummation of the Affiliation.
Among other items, Dulaney Bancorp and the Bank may not, without the prior
written consent of ONB:
- change its capital stock accounts;
- distribute or pay any dividends, except that (A) the
Bank may pay cash dividends to Dulaney Bancorp in the
ordinary course of business for payment of reasonable
and necessary business and operating expenses of Dulaney
Bancorp and to provide funds for Dulaney Bancorp
dividends and (B) Dulaney Bancorp may pay to its
shareholders its usual and customary semi-annual cash
dividend of up to $6.00 per share for the semi-annual
period ending December 31, 1998 and up to $3.00 per
share for any quarter other than the quarter in which
the Affiliation is completed;
10
- amend its Articles of Incorporation or By-Laws;
- carry on their business other than substantially in the
manner as conducted as of the date of the Agreement and
in the ordinary course of business; or
- negotiate or discuss with third parties relative to a
merger, combination or sale of Dulaney Bancorp, except
under certain limited circumstances.
See Appendix A.
REGULATORY APPROVALS
The Affiliation requires the prior approval of the Board of
Governors of the Federal Reserve System ("Federal Reserve") under the Bank
Holding Company Act of 1956, as amended ("BHC Act"). ONB filed an application
with the Federal Reserve for its prior approval of the Affiliation. The Federal
Reserve has not approved the application as of the date of this Proxy Statement.
Approval of the Affiliation by the Federal Reserve is not to be
interpreted as the opinion of this regulatory authority that the Affiliation is
favorable to the shareholders of Dulaney Bancorp from a financial point of view
or that the regulatory authority has considered the adequacy of the terms of the
Affiliation. An approval by the Federal Reserve in no way constitutes an
endorsement or a recommendation of the Affiliation by such regulatory authority.
ACCOUNTING TREATMENT FOR THE AFFILIATION
It is anticipated that the Affiliation will be accounted for as a
"pooling-of-interests" transaction. Under this method of accounting,
shareholders of ONB and Dulaney Bancorp will be deemed to have combined their
existing voting common stock interests. See "OLD NATIONAL BANCORP PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION".
In order for the Affiliation to qualify for pooling-of-interests
accounting treatment, among other items, 90% or more of the outstanding shares
of Dulaney Bancorp Common Stock must be exchanged for ONB Common Stock. In the
event the holders representing more than 10% of the outstanding shares of
Dulaney Bancorp Common Stock become entitled by the exercise of dissenters'
rights or otherwise to receive cash instead of ONB Common Stock, the
11
Affiliation would not qualify for pooling-of-interests method of accounting and
ONB would have the right to terminate the Affiliation. See "PROPOSED AFFILIATION
- -- Rights of Dissenting Shareholders of Dulaney Bancorp" and "PROPOSED
AFFILIATION -- Termination."
EFFECTIVE TIME
The Affiliation will become effective at the close of business on
the day specified in the Articles of Merger of Dulaney Bancorp with and into ONB
as filed with both the Indiana Secretary of State and the Illinois Secretary of
State. The effective time of the Affiliation will occur on the last business day
of the month following (1) the fulfillment of all conditions precedent to the
Affiliation set forth in the Agreement and (2) the expiration of all waiting
periods in connection with the bank regulatory applications filed for approval
of the Affiliation, unless in each case otherwise mutually agreed to by ONB and
Dulaney Bancorp.
ONB and Dulaney Bancorp currently anticipate that Affiliation will
be consummated during the first quarter of 1999.
MANAGEMENT, PERSONNEL AND EMPLOYEE BENEFITS AFTER THE AFFILIATION
ONB will be the surviving corporation in the Affiliation and, upon
consummation of the Affiliation, the separate corporate existence of Dulaney
Bancorp will cease. Consequently, the directors and officers of Dulaney Bancorp
will no longer serve in such capacities after the effective time of the
Affiliation.
The Bank will become a wholly-owned subsidiary of ONB. The Board of
Directors and officers of the Bank serving at the effective time of the
Affiliation will continue as the Board of Directors and officers of Bank after
the effective time of the Affiliation. Following the effective time of the
Affiliation, ONB, as the sole shareholder of Bank, will have the ability to
elect the Board of Directors and officers of the Bank. The current officers of
Bank will continue in their respective positions after the Affiliation, until
the Board of Directors of Bank determines otherwise.
Those persons who are full-time officers or employees of the Bank as
of the effective time of the Affiliation, provided that these persons continue
as full-time officers or employees of
12
Bank or any other subsidiary of ONB after the effective time of the Affiliation,
will receive substantially the same employee benefits on substantially the same
terms and conditions that ONB 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 the Bank prior to the effective time of the
Affiliation will be credited to each such employee for purposes of eligibility
under ONB's employee welfare benefit plans and for purposes of eligibility and
vesting, but not for accrual or contributions, under the ONB Employees'
Retirement Plan ("ONB Pension Plan"), the ONB Employees' Savings and Profit
Sharing Plan ("ONB Profit Sharing Plan"), and the ONB Employee Stock Ownership
Plan ("ONB ESOP").
Those officers and employees of the Bank who otherwise meet the
eligibility requirements of the ONB Pension Plan, the ONB Profit Sharing Plan
and the ONB ESOP, based upon their age and years of service to the Bank, shall
become participants under the ONB Pension Plan on the January 1st which
coincides with or next follows the effective time of the Affiliation, and shall
become participants under the ONB Profit Sharing Plan and the ONB ESOP on the
first day of the calendar month which coincides with or next follows the
effective time of the Affiliation. Those officers and employees who do not meet
the eligibility requirements of the ONB Pension Plan or ONB Profit Sharing Plan
on such date shall become participants thereunder on the on the first "plan
entry date" (as defined in the ONB Pension Plan, the ONB Profit Sharing Plan or
the ONB ESOP, as the case may be) which coincides with or next follows the date
on which such eligibility requirements are satisfied.
The Dulaney Bancorp 401(k) Profit Sharing Plan ("Dulaney 401(k)
Plan") shall be merged with the ONB Profit Sharing Plan, with all account
balances maintained under the Dulaney 401(k) Plan becoming fully vested on the
day on which the effective time of the Affiliation occurs. Until such Plans are
merged, Dulaney Bancorp and the Bank may continue to make contributions to the
Dulaney 401(k) Plan with contributions in comparable amounts to past
contributions to such Plan.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain federal income tax
aspects of the Affiliation. This discussion does not purport to cover all
federal income tax consequences relating to the Affiliation and does not contain
any information with respect to state, local or other tax laws.
13
TAX OPINION
ONB and Dulaney Bancorp have requested the law firm of Krieg DeVault
Alexander & Capehart, LLP to render an opinion that the Affiliation constitutes
a tax-free reorganization and, with respect to certain federal income tax
consequences of the Affiliation, substantially to the effect that the merger to
be effected pursuant to the Affiliation constitutes a tax-free reorganization
under the Internal Revenue Code of 1986, as amended ("Code") to each party
thereto and to the shareholders of Dulaney Bancorp, except with respect to cash
received by Dulaney Bancorp's shareholders for fractional share interests of ONB
Common Stock or pursuant to the exercise of dissenters' rights.
The opinion rendered by Krieg DeVault Alexander & Capehart, LLP will
be based upon the assumption of certain facts to be stated in the opinion. Under
the Agreement, the obligations of each of ONB and Dulaney Bancorp to consummate
the Affiliation is conditioned upon the receipt of an opinion of counsel
substantially to the effect as set forth above.
TAX CONSEQUENCES TO ONB AND DULANEY BANCORP
The merger of Dulaney Bancorp with and into ONB constitutes a
statutory merger under applicable law. Consequently, based upon the assumption
of certain facts to be stated in the opinion, the merger of Dulaney Bancorp with
and into ONB should constitute a tax-free reorganization. As a result, ONB and
Dulaney Bancorp will recognize neither gain nor loss as a result of the
Affiliation for federal income tax purposes.
TAX CONSEQUENCES TO DULANEY BANCORP SHAREHOLDERS
A. Dulaney Bancorp Shareholders Receiving Solely ONB Common Stock
--------------------------------------------------------------
A Dulaney Bancorp shareholder who receives solely ONB Common Stock
in exchange for all of the shares of Dulaney Bancorp Common Stock actually owned
by the shareholder will not recognize any gain or loss upon such exchange for
federal income tax purposes. See paragraph C. following for a discussion of the
tax consequences of the receipt of cash in lieu of fractional share interests of
ONB Common Stock.
14
B. Dissenting Dulaney Bancorp Shareholders Receiving Solely Cash
-------------------------------------------------------------
The transaction will result in income being recognized for federal
income tax purposes for Dulaney Bancorp shareholders who dissent to the
Affiliation and receive solely cash in exchange for their shares of Dulaney
Bancorp Common Stock. A shareholder who receives solely cash for the
shareholder's shares of Dulaney Bancorp Common Stock pursuant to the Affiliation
through the exercise of dissenters' rights and, as a result of the surrender of
all of the shareholder's shares of Dulaney Bancorp Common Stock, owns no Dulaney
Bancorp Common Stock either directly or through the constructive ownership rules
of Section 318 of the Code, would recognize capital gain or loss (assuming that
the Dulaney Bancorp Common Stock is held by such shareholder as a capital asset)
equal to the difference between the amount of the cash received and the
shareholder's tax basis of its shares of Dulaney Bancorp Common Stock.
C. Cash Received in Lieu of Fractional Shares
------------------------------------------
A Dulaney Bancorp shareholder who receives cash in lieu of a
fractional share interest of ONB Common Stock will be treated as having received
such fraction of a share of ONB Common Stock and then as having received cash in
redemption of the fractional share interest, subject to the provisions of
Section 302 of the Code.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE HAS NOT BEEN
VERIFIED WITH THE INTERNAL REVENUE SERVICE, IS INCLUDED FOR GENERAL INFORMATION
ONLY AND IS BASED UPON THE FEDERAL INTERNAL REVENUE CODE AS IN EFFECT ON THE
DATE OF THIS PROXY STATEMENT WITHOUT CONSIDERATION OF ANY STATE LAWS OR THE
PARTICULAR FACTS OR CIRCUMSTANCES OF ANY SHAREHOLDER OF DULANEY BANCORP. THE
ABOVE DISCUSSION MAY NOT BE APPLICABLE WITH RESPECT TO SHARES ACQUIRED PURSUANT
TO THE EXERCISE OF STOCK OPTIONS OR OTHERWISE RECEIVED AS COMPENSATION.
SHAREHOLDERS ARE URGED TO CONSULT WITH THEIR TAX ADVISOR WITH RESPECT TO ALL TAX
CONSEQUENCES OF THE AFFILIATION TO THEM, INCLUDING THE EFFECT OF FEDERAL, STATE
AND LOCAL TAX LAWS AND ANY OTHER TAX CONSEQUENCES.
15
COMPARATIVE PER SHARE DATA
NATURE OF TRADING MARKET
Shares of ONB Common Stock are traded in the over-the-counter market
and share prices are reported by the NASDAQ National Market System under the
symbol OLDB. On ____________, 1998, the business day immediately preceding the
public announcement of the Affiliation, the closing price of ONB Common Stock
reported by the NASDAQ National Market System was $_____ per share. On
____________, 1998, the closing price of ONB Common Stock reported by the NASDAQ
National Market System was $_____ per share. The following table sets forth, for
the periods indicated, the high and low per share closing prices of ONB Common
Stock as reported by the NASDAQ National Market System. The prices shown below
have been adjusted for all stock splits and stock dividends paid by ONB.
HIGH LOW
1995 ---- ---
----
First Quarter $ 30 63/64 $ 29 19/32
Second Quarter 30 1/64 29 3/8
Third Quarter 29 51/64 29 19/32
Fourth Quarter 30 1/64 29 5/32
1996
----
First Quarter $ 30 24/64 $ 29 19/32
Second Quarter 34 1/64 30 5/32
Third Quarter 34 1/8 32 7/8
Fourth Quarter 35 19/32 32 49/64
1997
----
First Quarter $ 35 61/64 $ 34 17/32
Second Quarter 42 3/8 35 23/32
Third Quarter 43 21/64 41 43/64
Fourth Quarter 47 31/32 42 17/64
1998
----
First Quarter $ 47 3/4 45
Second Quarter 49 47 3/4
Third Quarter 55 3/4 47 3/4
16
There is no established public trading market for shares of Dulaney
Bancorp Common Stock. Shares of Dulaney Bancorp Common Stock are traded in
limited quantities in private transactions. Since there are no market makers for
Dulaney Bancorp Common Stock and no recognized exchanges on which shares of
Dulaney Bancorp Common Stock are traded, there is no published source of prices
relating to transactions in Dulaney Bancorp Common Stock. Most trades occur as a
result of private negotiations in isolated transactions, with the result that
management of Dulaney Bancorp is not directly informed of the number of trades
or prices at which shares of Dulaney Bancorp Common Stock are traded.
The table below sets forth, for the periods indicated, the high and
low trade prices for shares of Dulaney Bancorp Common Stock, the number of
shares traded and the number of trades of Dulaney Bancorp Common Stock, based
upon information received by management of Dulaney Bancorp. The last trade of
Dulaney Bancorp Common Stock, the terms of which management of Dulaney Bancorp
are aware, occurred in December, 1997 and involved the sale of Forty-four (44)
shares at a price of $208.00 per share.
DULANEY BANCORP
---------------
NUMBER OF TOTAL
SHARES NUMBER OF
HIGH LOW TRADED TRADES
--------- --------- ----------- -----------
1995 --- --- --- ---
----
1996 $ 201.00 $ 200.00 1,426 7
----
1997 208.00 201.00 215 2
----
1998 --- --- --- ---
----
As of the Record Date, there were 70 holders of record of Dulaney
Bancorp Common Stock.
DIVIDENDS
The following table sets forth the per share cash dividends paid on
shares of ONB Common Stock and Dulaney Bancorp Common Stock since January 1,
1996. All dividends have been adjusted to give effect to their respective stock
dividends and stock splits (if any).
17
ONB DULANEY BANCORP
COMMON STOCK (1) COMMON STOCK (2)
---------------- -----------------
1996
----
First Quarter $ .21 $ 4.50
Second Quarter .21 ---
Third Quarter .21 4.50
Fourth Quarter .21 ---
1997
----
First Quarter $ .22 $ 6.00
Second Quarter .22 ---
Third Quarter .22 6.00
Fourth Quarter .22 ---
1998
----
First Quarter $ .23 $ 6.00
Second Quarter .23 ---
Third Quarter .23 6.00
Fourth Quarter .23 ---
- -------------------------
(1) There can be no assurance as to the amount of future dividends that
may be declared or paid on shares of ONB Common Stock since dividend
policies are subject to the discretion of the Board of Directors of
ONB, general business conditions and dividends paid to ONB by its
affiliate banks. For certain restrictions on the payment of
dividends on shares of ONB Common Stock, see "COMPARISON OF COMMON
STOCK -- Dividend Rights".
(2) The Agreement provides that Dulaney Bancorp may continue to pay its
customary dividends. The Bank may pay cash dividends to Dulaney
Bancorp in the ordinary course of business for payment of reasonable
and necessary business and operating expenses of Dulaney Bancorp and
to provide funds for Dulaney Bancorp's dividends. See "DESCRIPTION
OF DULANEY BANCORP -- Business".
EXISTING AND PRO FORMA PER SHARE INFORMATION
The following table sets forth certain historical, pro forma and
equivalent information. The data is based on historical financial statements and
the pro forma financial information included on pages 21 through 27 and has been
restated to give effect to all stock dividends, including the 5% stock dividend
issued by ONB on January 29, 1998. Equivalent per
18
share data is calculated by multiplying the pro forma ONB information by the
Exchange Ratio under the Agreement.
As Reported
---------------------------------------
Cash Book Value at
ONB Net Income Dividends Period End
- ------------------------------------ ---------- --------- --------------
Nine Months Ended September 30, 1998 $ 1.94 $ 0.69 $ 17.90
Year Ended December 31,
1997 2.37 0.88 17.38
1996 2.08 0.84 16.31
1995 1.82 0.80 15.78
As Reported
---------------------------------------
Cash Book Value at
Dulaney Bancorp Net Income Dividends Period End
- ------------------------------------ ---------- --------- --------------
Nine Months Ended September 30, 1998 $ 18.03 $ 12.00 $ 233.58
Year Ended December 31,
1997 26.28 12.00 246.41
1996 26.89 9.00 233.40
1995 22.89 9.00 219.33
Net Income From Continuing Operations
------------------------------------------------------------------
Dulaney ONB Dulaney
ONB Bancorp Pro Forma Bancorp
Pro Forma (1) Equivalent (1) (2) Equivalent (2)
--------------- ---------------- ------------ ----------------
Nine Months Ended September 30, 1998 $ 1.94 $ 20.73 $ 1.92 $ 20.51
Year Ended December 31,
1997 2.37 25.32 2.32 24.78
1996 2.08 22.22 2.07 22.11
1995 1.83 19.55 1.82 19.44
Cash Dividends
------------------------------------------------------------------
Dulaney ONB Dulaney
ONB Bancorp Pro Forma Bancorp
Pro Forma (1) Equivalent (1) (2) Equivalent (2)
--------------- ---------------- ------------ ----------------
Nine Months Ended September 30, 1998 $ 0.69 $ 7.37 $ 0.69 $ 7.37
Year Ended December 31,
1997 0.88 9.40 0.88 9.40
1996 0.84 8.97 0.84 8.97
1995 0.80 8.55 0.80 8.55
19
Shareholders' Equity
------------------------------------------------------------------
Dulaney ONB Dulaney
ONB Bancorp Pro Forma Bancorp
Pro Forma (1) Equivalent (1) (2) Equivalent (2)
--------------- ---------------- ------------ ----------------
As of September 30, 1998 $ 17.97 $ 191.97 $ 17.81 $ 190.26
As of December 31, 1997 17.44 186.31 17.23 184.07
Market Value of Common Stock
----------------------------
Dulaney
Bancorp
ONB Equivalent
-------- ----------
As of ____________, 1998 (2) $ 52.88 $ 564.86
- ------------------------
(1) Considers the pending merger with Dulaney Bancorp. See "PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION".
(2) Considers the pending merger with Dulaney Bancorp as well as the
pending merger as of September 30, 1998 with Southern Bancshares.
See PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION.
(3) Represents the last business day prior to the public announcement of
the proposed merger with Dulaney Bancorp.
20
OLD NATIONAL BANCORP
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(UNAUDITED)
The accompanying financial statements present a Pro Forma Condensed
Combined Balance Sheet of ONB as of September 30, 1998 and Pro Forma Condensed
Combined Statements of Income for the nine months ended September 30, 1998 and
for the years ended December 31, 1997, 1996 and 1995.
The Pro Forma Condensed Combined Statements of Income for the nine
months ended September 30, 1998 and the years ended December 31, 1997, 1996 and
1995 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 mergers 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.
21
OLD NATIONAL BANCORP
PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of September 30, 1998
(Unaudited---Dollars in Thousands)
ASSETS ONB Dulaney Adjustments Pro Forma
--------------- --------------- ---------------- ---------------
Cash and due from banks............................ $ 131,690 $ 1,891 $ $ 133,581
Money market investments........................... 14,742 5,050 19,792
Investment securities.............................. 1,570,566 14,899 1,585,465
Loans.............................................. 4,037,555 20,111 4,057,666
Reserve for loan losses............................ (49,194) (488) (49,682)
Excess cost over assets acquired................... 11,921 0 11,921
Other intangibles.................................. 0 0 0
Premises and equipment............................. 76,541 191 76,732
Other assets....................................... 193,611 759 194,370
--------------- --------------- ---------------- ---------------
$ 5,987,432 $ 42,413 $ 0 $ 6,029,845
=============== =============== ================ ===============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits........................................... $ 4,371,549 $ 34,631 $ $ 4,406,180
Medium term notes.................................. 96,300 0 96,300
Subordinated debentures............................ 21,963 0 21,963
Other borrowings................................... 917,418 0 917,418
Other liabilities.................................. 88,008 301 88,309
--------------- --------------- ---------------- ---------------
Total liabilities.............................. $ 5,495,238 $ 34,932 $ 0 $ 5,530,170
Common stock....................................... $ 27,495 $ 800 $ (485)(a) $ 27,810
Capital surplus.................................... 285,384 800 485(a) 286,669
Retained earnings.................................. 157,864 5,620 163,484
Net unrealized gain................................ 21,451 261 21,712
--------------- --------------- ---------------- ---------------
Total shareholders' equity....................... 492,194 7,481 0 499,675
--------------- --------------- ---------------- ---------------
$ 5,987,432 $ 42,413 $ 0 $ 6,029,845
=============== =============== ================ ===============
Outstanding common shares.......................... 27,495,208 27,810,324
=============== ===============
Shareholders' equity per share..................... $ 17.90 $ 17.97
=============== ===============
ASSETS Bancshares Adjustments Pro Forma
--------------- ---------------- ---------------
Cash and due from banks............................ $ 9,731 $ $ 143,312
Money market investments........................... 37 19,829
Investment securities.............................. 40,561 1,626,026
Loans.............................................. 191,004 4,248,670
Reserve for loan losses............................ (2,609) (52,291)
Excess cost over assets acquired................... 1,323 13,244
Other intangibles.................................. 2,145 2,145
Premises and equipment............................. 5,552 82,284
Other assets....................................... 3,272 197,642
--------------- ---------------- ---------------
$ 251,016 $ 0 $ 6,280,861
=============== ================ ===============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits........................................... $ 221,455 $ $ 4,627,635
Medium term notes.................................. 0 96,300
Subordinated debentures............................ 0 21,963
Other borrowings................................... 1,687 919,105
Other liabilities.................................. 1,982 90,291
--------------- ---------------- ---------------
Total liabilities.............................. $ 225,124 $ 0 $ 5,755,294
Common stock....................................... $ 698 $ 1,004 (b) $ 29,512
Capital surplus.................................... 1,200 (1,004)(b) 286,865
Retained earnings.................................. 23,662 187,146
Net unrealized gain................................ 332 22,044
--------------- ---------------- ---------------
Total shareholders' equity....................... 25,892 0 525,567
--------------- ---------------- ---------------
$ 251,016 $ 0 $ 6,280,861
=============== ================ ===============
Outstanding common shares.......................... 29,511,948
===============
Shareholders' equity per share..................... $ 17.81
===============
22
OLD NATIONAL BANCORP
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(Unaudited -- Dollars in Thousands, Except Share and Per Share Data)
As Reported As Reported
------------------------ -----------
ONB Dulaney Pro Forma Southern Pro Forma
------------ --------- ----------- -------- -----------
Interest income.......................................... $ 326,802 $ 2,199 $ 329,001 $ 13,829 $ 342,830
Interest expense......................................... 166,417 878 167,295 6,486 173,781
------------ --------- ----------- -------- -----------
Net interest income...................................... 160,385 1,321 161,706 7,343 169,049
Provision for loan losses................................ 8,947 0 8,947 225 9,172
------------ --------- ----------- -------- -----------
Net interest income after provision for loan losses...... 151,438 1,321 152,759 7,118 159,877
Noninterest income....................................... 40,192 55 40,247 4,233 44,480
Noninterest expense...................................... 116,574 669 117,243 7,279 124,522
------------ --------- ----------- -------- -----------
Income before income taxes............................... 75,056 707 75,763 4,072 79,835
Provision for income taxes............................... 21,549 175 21,724 1,436 23,160
------------ --------- ----------- -------- -----------
Net income from continuing operations.................... 53,507 532 54,039 2,636 56,675
Discontinued operations.................................. (9,854) 0 0 0 0
------------ --------- ----------- -------- -----------
Net income............................................... $ 43,653 $ 532 $ 44,185 $ 2,636 $ 46,821
============ ========= =========== ======== ===========
Net income from continuing operations per common
share: (c)
Assuming no dilution......................... $ 1.94 $ 1.94 $ 1.92
============ =========== ===========
Assuming full dilution....................... $ 1.88 $ 1.88 $ 1.86
============ =========== ===========
Weighted average common shares outstanding: (c)
Assuming no dilution......................... 27,575,431 27,890,547 29,592,171
============ =========== ===========
Assuming full dilution....................... 28,874,475 29,189,591 30,891,215
============ =========== ===========
See Notes to Pro Forma Financial Information.
23
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)
As Reported As Reported
------------------------ -----------
ONB Dulaney Pro Forma Southern Pro Forma
----------- --------- ----------- -------- -----------
Interest income.......................................... $ 416,611 $ 2,996 $ 419,607 $ 19,083 $ 438,690
Interest expense......................................... 207,936 1,155 209,091 8,979 218,070
----------- -------- ----------- -------- -----------
Net interest income...................................... 208,675 1,841 210,516 10,104 220,620
Provision for loan losses................................ 12,022 0 12,022 1,539 13,561
----------- -------- ----------- -------- -----------
Net interest income after provision for loan losses...... 196,653 1,841 198,494 8,565 207,059
Noninterest income....................................... 46,707 48 46,755 4,913 51,668
Noninterest expense...................................... 150,021 864 150,885 9,781 160,666
----------- -------- ----------- -------- -----------
Income before income taxes............................... 93,339 1,025 94,364 3,697 98,061
Provision for income taxes............................... 27,674 250 27,924 1,283 29,207
----------- -------- ----------- -------- -----------
Net income from continuing operations.................... 65,665 775 66,440 2,414 68,854
Discontinued operations.................................. (5,005) 0 (5,005) 0 (5,005)
----------- -------- ----------- -------- -----------
Net income............................................... $ 60,660 $ 775 $ 61,435 $ 2,414 $ 63,849
=========== ======== =========== ======== ===========
Net income from continuing operations per common
share: (c)
Assuming no dilution......................... $ 2.37 $ 2.37 $ 2.32
=========== =========== ===========
Assuming full dilution....................... $ 2.29 $ 2.29 $ 2.29
=========== =========== ===========
Weighted average common shares outstanding: (c)
Assuming no dilution......................... 27,699,484 28,014,600 29,716,224
=========== =========== ===========
Assuming full dilution....................... 29,290,595 29,605,711 31,307,335
=========== =========== ===========
See Notes to Pro Forma Financial Information.
24
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)
As Reported As Reported
------------------------ -----------
ONB Dulaney Pro Forma Southern Pro Forma
----------- --------- ----------- -------- -----------
Interest income.......................................... $ 390,857 $ 2,976 $ 393,833 $ 15,334 $ 409,167
Interest expense......................................... 189,576 1,184 190,760 6,721 197,481
----------- ------- ----------- -------- -----------
Net interest income...................................... 201,281 1,792 203,073 8,613 211,686
Provision for loan losses................................ 10,711 0 10,711 371 11,082
----------- ------- ----------- -------- -----------
Net interest income after provision for loan losses...... 190,570 1,792 192,362 8,242 200,604
Noninterest income....................................... 44,357 52 44,409 3,925 48,334
Noninterest expense...................................... 150,495 836 151,331 7,659 158,990
----------- ------- ----------- -------- -----------
Income before income taxes............................... 84,432 1,008 85,440 4,508 89,948
Provision for income taxes............................... 24,747 215 24,962 1,503 26,465
----------- ------- ----------- -------- -----------
Net income from continuing operations.................... 59,685 793 60,478 3,005 63,483
Discontinued operations.................................. 494 0 494 0 494
----------- ------- ----------- -------- -----------
Net income............................................... $ 60,179 $ 793 $ 60,972 $ 3,005 $ 63,977
=========== ======= =========== ======== ===========
Net income from continuing operations per common
share: (c)
Assuming no dilution......................... $ 2.08 $ 2.08 $ 2.07
=========== =========== ===========
Assuming full dilution....................... $ 2.02 $ 2.02 $ 2.01
=========== =========== ===========
Weighted average common shares outstanding: (c)
Assuming no dilution......................... 28,695,294 29,010,410 30,712,034
=========== =========== ===========
Assuming full dilution....................... 30,290,022 30,605,138 32,306,762
=========== =========== ===========
See Notes to Pro Forma Financial Information.
25
OLD NATIONAL BANCORP
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(Unaudited -- Dollars in Thousands, Except Share and Per Share Data)
As Reported As Reported
------------------------ -----------
ONB Dulaney Pro Forma Southern Pro Forma
----------- --------- ----------- -------- -----------
Interest income.......................................... $ 375,736 $ 2,976 $ 378,712 $ 13,661 $ 392,373
Interest expense......................................... 186,500 1,184 187,684 5,335 193,019
----------- ------- ----------- -------- -----------
Net interest income...................................... 189,236 1,792 191,028 8,326 199,354
Provision for loan losses................................ 7,135 0 7,135 356 7,491
----------- ------- ----------- -------- -----------
Net interest income after provision for loan losses...... 182,101 1,792 183,893 7,970 191,863
Noninterest income....................................... 39,594 52 39,646 2,450 42,096
Noninterest expense...................................... 147,315 836 148,151 6,030 154,181
----------- ------- ----------- -------- -----------
Income before income taxes............................... 74,380 1,008 75,388 4,390 79,778
Provision for income taxes............................... 20,441 215 20,656 1,386 22,042
----------- ------- ----------- -------- -----------
Net income from continuing operations.................... 53,939 793 54,732 3,004 57,736
Discontinued operations.................................. 0 0 0 0 0
----------- ------- ----------- -------- -----------
Net income............................................... $ 53,939 $ 793 $ 54,732 $ 3,004 $ 57,736
=========== ======= =========== ======== ===========
Net income from continuing operations per common
share: (c)
Assuming no dilution......................... $ 1.82 $ 1.83 $ 1.82
=========== =========== ===========
Assuming full dilution....................... $ 1.77 $ 1.78 $ 1.78
=========== =========== ===========
Weighted average common shares outstanding: (c)
Assuming no dilution......................... 29,630,820 29,945,936 31,647,560
=========== =========== ===========
Assuming full dilution....................... 31,269,741 31,584,857 33,286,481
=========== =========== ===========
See Notes to Pro Forma Financial Information.
26
OLD NATIONAL BANCORP
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(a) Exchange of 100% of Dulaney Bancorp for 315,116 shares of ONB Common
Stock.
(b) Exchange of 100% of Southern Bancshares for 1,701,624 shares of ONB
Common Stock.
(c) Net income per share on a fully diluted basis assumes the conversion
of ONB's convertible subordinated debentures.
27
DESCRIPTION OF ONB
BUSINESS
ONB is a multi-bank holding company with 17 affiliate banks located
in the tri-state area comprised of southwestern Indiana and neighboring portions
of Illinois and Kentucky. With total consolidated assets of $6.0 billion as of
September 30, 1998, ONB is the second largest independent bank holding company
headquartered in the State of Indiana. Since 1985, ONB has acquired 36 financial
institutions, 9 of which were combined with existing affiliate banks, and has
increased its banking offices to 112.
ONB anticipates that it will continue its policy of geographic
expansion through strategic affiliations with additional commercial banks and
thrifts. See "DESCRIPTION OF ONB -- Acquisition Policy and Pending
Affiliations".
The principal activity of ONB is to own, manage and supervise its
affiliate banks and its non-bank subsidiaries, each of which is held by ONB as a
separate wholly-owned subsidiary. The primary sources of ONB's revenues are
dividends and fees received from its subsidiaries. There are various legal
limitations on the extent to which the affiliate banks may finance, pay
dividends to or otherwise supply funds to ONB. See "REGULATORY CONSIDERATIONS"
and "COMPARISON OF COMMON STOCK -- Dividend Rights".
ONB's affiliate banks engage in a wide range of commercial and
consumer banking activities and provide other services relating to the general
banking business. Set forth below is a list of ONB's affiliate banks by state.
Indiana
-------
Bank of Western Indiana (Covington)
Dubois County Bank (Jasper)
First-Citizens Bank & Trust Company (Greencastle)
Merchants National Bank (Terre Haute)
Old National Bank (Evansville)
Orange County Bank (Paoli)
Security Bank & Trust Company (Vincennes)
United Southwest Bank (Washington)
ONB Bloomington
Kentucky
--------
Farmers Bank & Trust Company (Madisonville)
First State Bank (Greenville)
Morganfield National Bank
City National Bank (Fulton)
28
Illinois
--------
First National Bank (Harrisburg)
First National Bank of Oblong
Palmer National Bank (Danville)
Peoples National Bank (Lawrenceville)
In addition to these affiliate banks, ONB has the following seven
(7) non-bank affiliates:
- Indiana Old National Insurance Company reinsures credit
life, accident and health insurance of installment
consumer borrowers of ONB's affiliate banks;
- Old National Realty Company, Inc. owns real properties
which are incidental to ONB's operations;
- Old National Service Corporation provides data
processing services to ONB's affiliate banks and to
third parties; and
- ONB Finance Corporation, a consumer finance company.
- Old National Trust Company;
- Old National Trust Company -- Illinois; and
- Old National Trust Company -- Kentucky.
ACQUISITION POLICY AND PENDING TRANSACTIONS
ONB anticipates that it will continue its policy of geographic
expansion through consideration of acquisitions of financial institutions
located in Indiana, Kentucky and Illinois. Management of ONB currently is
reviewing and analyzing potential acquisitions, as well as engaging in
discussions or negotiations preliminary to letters of intent or agreements in
principle concerning potential acquisitions. There can be no assurance that any
of these discussions or negotiations will result in definitive agreements or
consummated transactions.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The foregoing information concerning ONB does not purport to be
complete. For additional information, see the documents filed by ONB and listed
under "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" in this Proxy Statement
which are specifically incorporated herein by reference.
29
DESCRIPTION OF DULANEY BANCORP
BUSINESS
Dulaney Bancorp is an Illinois corporation and a bank holding
company headquartered in Marshall, Illinois. Dulaney Bancorp owns 100% of the
issued and outstanding shares of Dulaney National Bank ("Bank"), and its
business consists primarily of the ownership, supervision and control of the
Bank. The common stock of the Bank is Dulaney Bancorp's principal asset and
dividends paid by the Bank is Dulaney Bancorp's primary source of income. At
September 30, 1998 and December 31, 1997, Dulaney Bancorp had consolidated
assets of $42,413,000 and $40,986,000, respectively.
The Bank was originally organized on April 5, 1879 and was chartered
as a national banking association on September 7, 1922. The Bank has been in
continuous operation since its organizations. The Bank is a full-service
commercial bank, offering banking services to the commercial and residential
areas which it serves throughout Clark County, Illinois. The Bank's services
include commercial, real estate and personal loans, money market accounts,
checking, savings and time deposit accounts, and trust services.
The Bank has no subsidiaries.
Dulaney Bancorp and the Bank are subject to vigorous competition
from national and regional banking institutions, as well as other financial
institutions in its principal service area, such as savings and loan
associations, insurance companies and finance companies.
Dulaney Bancorp and the Bank are headquartered at 415 Archer Avenue,
Marshall, Illinois 62441. Their telephone number is (217) 826-2392.
PROPERTIES
Dulaney Bancorp and the Bank's principal banking office is located
at 415 Archer Avenue, Marshall, Illinois 62441. The Bank does not operate any
branch operations.
The Bank owns its principal office.
30
LITIGATION
There is no pending litigation of a material nature to which Dulaney
Bancorp or the Bank is a party to or which any of their respective property is
subject. None of the ordinary routine litigation in which Dulaney Bancorp or the
Bank is involved is expected to have a material adverse effect on the financial
condition, results of operations, business, assets or capitalization of Dulaney
Bancorp or the Bank.
EMPLOYEES
Dulaney Bancorp has no full-time and three part-time employees. As
of September 30, 1998, the Bank had 16 full-time and two part-time employees.
Management of the Bank considers relations with its employees to be good.
MANAGEMENT
The following table contains certain information about each director
and executive officer of Dulaney Bancorp and the Bank as of the date of this
Proxy Statement:
NAME AGE POSITION HELD AND PRINCIPAL OCCUPATION
- ----------------------- ------- ------------------------------------------
William F. George 71 Secretary, Treasurer and Director of Dulaney
Bancorp since 1988; Chairman and Director of
the Bank; Secretary and Treasurer of Nichols
Investment Corporation, an investment
management company since 1951; Secretary,
Treasurer and General Manager of Clinton
Cable TV Co., Inc. since 1965
Charles G. Hosch 47 Director of Dulaney Bancorp and the Bank
since 1989; Owner of Prust-Hosch Funeral
Chapel since 1982; Clark County, Illinois
Coroner since 1985
Dale H. Murphy 61 Vice President and Director of Dulaney
Bancorp since 1988; President, Chief
Executive Officer and Director of the Bank
since 1974
John E. Nichols 52 President and Director of Dulaney Bancorp
since 1988; Vice Chairman and Director of the
Bank since 1988; President of Nichols
Investment Corporation since 1982
31
NAME AGE POSITION HELD AND PRINCIPAL OCCUPATION
- ----------------------- ------- ------------------------------------------
Owen T. Shawler 71 Director of Dulaney Bancorp and the Bank
since 1988; Attorney-at-Law since 1950
Dwight Shore 49 Director of Dulaney Bancorp and the Bank
since 1994; Owner of Shore-Parker Insurance
Agency since 1976; Owner of Shore Farms since
1991; Owner of KZ International, a farm
implement dealer, since 1995
Warren A. Strohm 71 Director of Dulaney Bancorp and the Bank
since 1988; Majority owner of Strohm Oil Co.,
Inc. from 1950 to 1997
Joe Welsh 73 Director of Dulaney Bancorp and the Bank
since 1988; Farmer since 1950
There are no arrangements or understandings between any of the
directors, executive officers or any other persons pursuant to which any of
Dulaney Bancorp's directors or executive officers have been selected for their
respective positions.
SECURITY OWNERSHIP OF MANAGEMENT
The table below sets forth as of September 30, 1998 the total number
of shares of Dulaney Bancorp Common Stock beneficially owned by each director
and executive officer of Dulaney Bancorp and the Bank, by all directors and
executive officers as a group and by each person known to management to own more
than 5% of the outstanding shares of Dulaney Bancorp.
NAME NUMBER OF SHARES (1) PERCENT
- --------------------------------- ----------------------- ---------
Charles Gregory Hosch 300 1.01%
Ashley F. Nichols 1,898.5 (a) 6.43%
Donna S. Nichols 1,972.5 (b) 6.69%
John E. Nichols 3,600 12.2%
Steven Nichols 3,781 (c) 12.81%
Katherine T. Nichols 3,613 (d) 12.24%
32
NAME NUMBER OF SHARES (1) PERCENT
- --------------------------------- ----------------------- ---------
William F. George 50 0.17%
Dale H. Murphy 250 0.84%
Omer T. Shawler 60 0.20%
Dwight Shore 50 0.17%
Warren Strohm 570 1.93%
Joe Welsh 100 0.34%
All directors and executive officers and 16,245 55.07%
each person known to own more than 5% as
a group (10 persons)
(a) Ashley F. Nichols disclaims beneficial ownership of 6571/2shares held in
trust for her by Donna S. Nichols
(b) Includes 657 1/2 shares held by Donna S. Nichols in trust for Ashley F.
Nichols
(c) Includes 1,241 shares held by Steven Nichols as trustee for Melissa Nichols
(d) Includes 1,241 shares held by Katherine T. Nichols as custodian for
Alexander T. Nichols, 1,241 shares held by Katherine T. Nichols as custodian
for Ann Stewart Nichols and 1,131 shares held by Katherine T. Nichols as
custodian for Trevor McKinley Nichols
CERTAIN TRANSACTIONS
From time to time, the Bank has made loans to one or more its
directors and executive officers. Such transactions have been made on
substantially the same terms, including interest rates and collateral on loans,
as those prevailing at the time for comparable transactions with other persons
and did not involve more than the normal risk of collectibility or present other
unfavorable features.
33
MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION OF DULANEY BANCORP
BASIS OF PRESENTATION
The following is management's discussion and analysis of the
historical financial condition and the results of operations of Dulaney Bancorp
and Bank. Dulaney Bancorp began operations in 1988 and is a bank holding company
for Bank. The Bank primarily serves consumers and small to mid-sized businesses
in West Central Illinois.
The following discussion and analysis is intended to provide greater
details of the results of operations and financial condition of Dulaney Bancorp
and Bank. The following discussion should be read in conjunction with the
information under "Dulaney Bancorp's Selected Financial Data" and Dulaney's
consolidated financial statements and notes thereto and other financial data
included elsewhere in this Proxy Statement - Prospectus. Certain statements
under this caption constitute "forward-looking statements" which involve risks
and uncertainties. Dulaney Bancorp's actual results may differ significantly
from the results discussed in such forward-looking statements. Factors that
might cause such a difference include, but are not limited to, economic
conditions, competition in the geographic and business areas in which Dulaney
Bancorp conducts its operations, fluctuations in interest rates, credit quality
and government regulation.
RESULTS OF OPERATIONS
NET INCOME ANALYSIS. For the nine months ended September 30, 1998,
net income decreased 5.51% to $532,000 from $563,000 in the same period in 1997.
The decrease is primarily a result of decreased net interest margin at September
30, 1998 from the same period in 1997. Net income decreased by 2.29% from
$793,298 in fiscal 1996 to $775,110 in fiscal 1997, primarily due to higher
effective federal income tax rate.
34
The following is a condensed summary of the consolidated statement
of operations, along with selected profitability ratios:
ANALYSIS OF NET INCOME
----------------------
(Dollars in Thousands, except percentage data)
Nine months ended
September 30, Year ended December 31,
------------------ -----------------------
1998 1997 1997 1996 1995
------- -------- -------- -------- --------
Net interest income $ 1,321 $ 1,358 $ 1,841 $ 1,792 $ 1,647
Provision for loan losses -0- -0- -0- -0- -0-
Other operating income 55 40 48 52 70
Other operating expense 844 835 1,114 1,051 1,042
Net income 532 563 775 793 675
Return on average assets 1.75% 1.84% 1.90% 1.94% 1.72%
Return on average equity 10.04% 11.24% 11.51% 12.68% 11.63%
NET INTEREST INCOME. Net interest income is the largest component of
earnings and is affected by the volume of the sources and uses of funds, the
respective rates earned and paid on those funds, the mix of those funds, and the
volume of non-performing assets. Net interest income was $1,320,900 for the
first nine months of 1998, a 2.72% decrease from the same period in 1997.
Interest income decreased $36,900 for the first nine months of 1998 and interest
expense increased $23,600. These changes were due to lower rates on taxable
investments and higher interest expense on time deposits.
In fiscal 1997, the Bank's net interest income increased 2.73% to
$1,840,649 compared to 1996 and increased 8.81% in 1996 over 1995. The net
interest margin, which is calculated by dividing tax-equivalent net interest
income by average interest-earning assets, was 4.75% in 1997 as compared to
4.68% and 4.48% in 1996 and 1995, respectively. The increase in the net interest
margin during 1997 primarily resulted from an increase in loan balances. The
Bank decreased its overall yield on interest earning assets from 7.76% in 1996
to 7.74% in 1997. The change in these yields was negligible as rates on loans
and deposits were stable during these time frames.
35
ANALYSIS OF AVERAGE RATES, BALANCES AND YIELDS
----------------------------------------------
(Dollars in Thousands)
Nine Months Ended September 30,
----------------------------------------------------------------
1998
----------------------------------------------------------------
Percent Interest Average
Average of Total Income/ Yield/
Balance Assets Expense Rate
------------- ------------ ------------- ------------
ASSETS:
Interest-earning assets:
Loans $ 19,463 48.11% $ 1,308 8.96%
Taxable investment securities 8,943 22.10% 460 6.85%
Nontaxable investment securities 6,490 16.04% 279 5.73%
Federal funds sold 3,739 9.24% 152 5.43%
------------- ------------ ------------- ------------
Total interest earnings assets $ 38,635 95.49% $ 2,199 7.59%
Non interest earning assets:
- ---------------------------
Cash and due from banks $ 1,688 4.17%
Premises and equipment 202 0.50%
Other assets 411 1.02%
Allowance for possible loan losses (476) -1.18%
------------- ------------
Total assets $ 40,460 100.00%
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Interest-bearing demand deposits $ 10,603 26.21% $ 200 2.52%
Savings deposits 3,301 8.16% 77 3.11%
Time deposits 14,977 37.01% 600 5.34%
Fed funds borrowed 0 0.00% 0 0.00%
------------- ------------ ------------- ------------
Total interest-bearing liabilities $ 28,881 71.38% $ 877 4.05%
Noninterest bearing liabilities:
- -------------------------------
Demand deposits $ 4,236 10.47%
Other liabilities 281 0.69%
-------------
Total liabilities $ 33,398 82.54%
Stockholders' equity 7,062 17.45%
------------- ------------
Total liabilities and stockholders'
equity $ 40,460 100.00%
Net interest income $ 1,322
Interest rate spread 3.54%
Net interest rate margin 4.56%
Nine Months Ended September 30,
-----------------------------------------------------------------
1997
-----------------------------------------------------------------
Percent Interest Average
Average of Total Income/ Yield/
Balance Assets Expense Rate
------------- ------------ ------------ ------------
ASSETS:
Interest-earning assets:
Loans $ 18,453 45.15% $ 1,229 8.88%
Taxable investment securities 12,355 30.23% 628 6.77%
Nontaxable investment securities 4,829 11.82% 230 6.35%
Federal funds sold 2,978 7.29% 126 5.64%
------------- ------------ ------------- ------------
Total interest earnings assets $ 38,615 94.49% $ 2,213 7.64%
Non interest earning assets:
- ---------------------------
Cash and due from banks $ 2,123 5.20%
Premises and equipment 210 0.51%
Other assets 409 1.00%
Allowance for possible loan losses (490) -1.20%
------------- ------------
Total assets $ 40,867 100.00%
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Interest-bearing demand deposits $ 11,458 28.04% $ 222 2.59%
Savings deposits 3,623 8.86% 73 2.68%
Time deposits 14,455 35.37% 558 5.15%
Fed funds borrowed 0 0.00% 0 0.00%
------------- ------------ ------------- ------------
Total interest-bearing liabilities $ 29,536 72.27% $ 853 3.85%
Noninterest bearing liabilities:
- -------------------------------
Demand deposits $ 4,309 10.54%
Other liabilities 345 0.85%
------------- ------------
Total liabilities $ 34,190 83.66%
Stockholders' equity 6,677 16.34%
------------- ------------
Total liabilities and stockholders'
equity $ 40,867 100.00%
Net interest income $ 1,360
Interest rate spread 3.79%
Net interest rate margin 4.70%
36
ANALYSIS OF AVERAGE RATES, BALANCES AND YIELDS
(Dollars in Thousands)
Year ended December 31,
----------------------------------------------------------
1997
----------------------------------------------------------
Percent Interest Average
Average of total income/ yield/
balance assets expense rate
------------- ------------ ------------- ------------
ASSETS:
Interest-earning assets:
- ------------------------
Loans (1) $ 18,627 45.62% $ 1,692 9.08%
Taxable investment securities 11,951 29.26% 814 6.81%
Nontaxable investment securities (2) 5,085 12.45% 319 6.27%
Federal funds sold 2,979 7.30% 167 5.61%
------------- ------------ ------------- ------------
Total interest earnings assets $ 38,642 94.63% $ 2,996 7.74%
Non interest earning assets:
- ---------------------------
Cash and due from banks $ 2,059 5.04%
Premises and equipment 211 0.52%
Other assets 412 1.01%
Allowance for possible loan losses (491) -1.20%
------------- ------------
Total assets $ 40,833 100.00%
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
- -----------------------------
Interest-bearing demand deposits $ 11,328 27.74% $ 298 2.63%
Savings deposits 3,570 8.74% 99 2.77%
Time deposits 14,519 35.56% 758 5.22%
Fed funds borrowed 0 0.00% 0 0.00%
------------- ------------ ------------- ------------
Total interest-bearing liabilities $ 29,417 72.04% $ 1,155 3.93%
Noninterest bearing liabilities:
- -------------------------------
Demand deposits $ 4,335 10.62%
Other liabilities 348 0.85%
------------- ------------
Total liabilities $ 34,100 83.51%
Stockholders' equity 6,733 16.49%
------------- ------------
Total liabilities and stockholders' equity $ 40,833 100.00%
Net interest income $ 1,841
Interest rate spread 3.81%
Net interest rate margin 4.75%
Year ended December 31,
----------------------------------------------------------
1996
----------------------------------------------------------
Percent Interest Average
Average of total income/ yield/
balance assets expense rate
------------- ------------ ------------- ------------
ASSETS:
Interest-earning assets:
- ------------------------
Loans (1) $ 16,369 40.01% $ 1,552 9.48%
Taxable investment securities 14,484 35.41% 965 6.66%
Nontaxable investment securities (2) 4,312 10.54% 285 6.61%
Federal funds sold 3,182 7.78% 173 5.44%
------------- ------------ ------------- ------------
Total interest earnings assets $ 38,347 93.74% $ 2,975 7.76%
Non interest earning assets:
- ---------------------------
Cash and due from banks $ 1,803 4.41%
Premises and equipment 231 0.56%
Other assets 1,043 2.55%
Allowance for possible loan losses (515) -1.26%
------------- ------------
Total assets $ 40,909 100.00%
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
- -----------------------------
Interest-bearing demand deposits $ 11,841 28.94% $ 318 2.69%
Savings deposits 3,995 9.77% 127 3.18%
Time deposits 14,258 34.85% 739 5.17%
Fed funds borrowed 0 0.00% 0 0.00%
------------- ------------ ------------- ------------
Total interest-bearing liabilities 30,094 73.56% $ 1,184 3.93%
Noninterest bearing liabilities:
- -------------------------------
Demand deposits $ 4,172 10.20%
Other liabilities 389 0.95%
------------- ------------
Total liabilities $ 34,655 84.71%
Stockholders' equity 6,254 15.29%
------------- ------------
Total liabilities and stockholders' equity $ 40,909 100.00%
Net interest income $ 1,792
Interest rate spread 3.83%
Net interest rate margin 4.68%
Year ended December 31,
-----------------------------------------------------------
1995
-----------------------------------------------------------
Percent Interest Average
Average of total income/ yield/
balance assets expense rate
------------- ------------ ------------ ------------
ASSETS:
Interest-earning assets:
- ------------------------
Loans (1) $ 15,135 38.51% $1,377 9.10%
Taxable investment securities 15,036 38.25% 959 6.38%
Nontaxable investment securities (2) 4,600 11.70% 309 6.72%
Federal funds sold 1,970 5.01% 109 5.53%
------------- ------------ ------------ ------------
Total interest earnings assets $ 36,741 93.47% $2,754 7.50%
Non interest earning assets:
- ---------------------------
Cash and due from banks $ 2,292 5.83%
Premises and equipment 257 0.65%
Other assets 558 1.42%
Allowance for possible loan losses (540) -1.37%
------------- ------------
Total assets $ 39,308 100.00%
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
- -----------------------------
Interest-bearing demand deposits $ 11,148 28.36% $ 294 2.64%
Savings deposits 4,198 10.68% 131 3.12%
Time deposits 13,355 33.98% 682 5.11%
Fed funds borrowed 0 0.00% 0 0.00%
------------- ------------ ------------ ------------
Total interest-bearing liabilities $ 28,707 73.03% $ 1,107 3.86%
Noninterest bearing liabilities:
- -------------------------------
Demand deposits $ 4,214 10.72%
Other liabilities 581 1.48%
------------- ------------
Total liabilities $ 33,502 85.23%
Stockholders' equity 5,806 14.77%
------------- ------------
Total liabilities and stockholders' equity $ 39,308 100.00%
Net interest income $ 1,647
Interest rate spread 3.64%
Net interest rate margin 4.48%
- -----------------------------------------
(1) Interest income only reflects actual interest earned on assets, without
regards to loan fees. Loan fees were $605,000, $450,000, and $685,000 for
December 31, 1997, 1996, and 1995, respectively.
(2) Nontaxable investment income is presented on a fully tax-equivalent basis
assuming a tax rate of 34%.
During the first nine months of 1998, loan interest increased
$78,100 as a result of higher average loan balances in 1998 over 1997. Interest
expense for the first nine months of 1998 was up $23,600 due to an increase in
time deposits. Rates on average time deposit balances increased from 5.05% to
5.36%
PROVISION FOR POSSIBLE LOAN LOSSES. There has been no provision for
loan losses charged to expense in 1995, 1996, 1997 nor 1998. This is the result
of low net charge offs during these periods.
The allowance for possible loan losses is maintained at a level
considered adequate to provide for potential losses. The provision for possible
loan losses is based on a periodic analysis, which considers among other
factors, current economic conditions, loan portfolio composition, past loan loss
experience, independent appraisals, loan collateral, and payment experience. The
allowance for loan losses consists of estimated losses on identified problem
loans and an unallocated allowance for unidentified credit losses inherent in
the portfolio. As adjustments become necessary, they are reflected in the
results of operations in the periods in which they become known.
Management believes the allowance for possible loan losses is
adequate to absorb losses in the loan portfolio. While management uses available
information to recognize loan losses, future additions to the allowance may be
necessary based on changes in economic conditions both generally and for
specific loan customers. In addition, various regulatory agencies, as an
integral part of the examination process, periodically review the allowance for
possible loan losses. Such agencies may require Dulaney Bancorp to increase the
allowance for possible loan losses based on their judgments and interpretations
about information available to them at the time of their examinations.
37
NONINTEREST INCOME. The following table presents a summary of
noninterest income:
NONINTEREST INCOME
------------------
(Dollars in Thousands)
Nine months ended
September 30, Year ended December 31,
-------------------- --------------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
Service charges $ 31 $ 30 $ 34 $ 32 $ 31
Trust fees 2 2 3 2 2
Gain (loss) on securities 8 (6) (6) (5) 17
Other 15 20 17 23 20
-------- -------- -------- -------- --------
Total $ 55 $ 46 $ 48 $ 52 $ 70
Noninterest income for the first nine months of 1998 increased
30.77% or $8,000 compared to the same period in 1997, mainly attributable to an
$8,000 increase in gain on securities sales.
For 1997, 1996 and 1995 there was no material change in dollar
amounts of Noninterest Income. Fluctuations were mainly the result of
differences in gain or loss on securities sales.
NONINTEREST EXPENSE. The following table presents a summary of
noninterest expense:
NONINTEREST EXPENSE
-------------------
(Dollars in Thousands)
Nine months ended
September 30, Year ended December 31,
-------------------- --------------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
Employee compensation and benefits $ 308 $ 292 $ 465 $ 432 $ 403
Net occupancy 42 42 93 95 102
FDIC insurance 18 18 24 22 59
Data processing 57 54 72 71 69
Other 244 226 210 216 244
-------- -------- -------- -------- --------
Total $ 669 $ 632 $ 864 $ 836 $ 877
38
Noninterest expense increased by 7.20% to $670,000 in the first nine
months of 1998 compared to $625,000 in the first nine months of 1997. Salaries
and employee benefits increased 8.68% or $19,000 between periods.
In 1997, the Bank's noninterest expense increased 3.35% compared to
1996. In 1996, noninterest expense decreased 4.6% compared to 1995. In 1997,
salaries and employee benefits, the largest component of noninterest expense,
increased $33,000, or 7.64% compared to 1996. In 1996, salaries and employee
benefits increased $29,000, or 7.20%, compared to 1995. These increases are
attributable to normal salary increases
INCOME TAXES. The Bank recorded income tax expense of $175,000 for
the first nine months of 1998 representing a decrease of $35,000 compared to the
same period in 1997. This results from the decrease of net income in 1998
compared to 1997
FINANCIAL CONDITION
OVERVIEW. In the first nine months of 1998, total assets increased
$1,427,000 or 3.48%. Deposits increased $1,265,000 or 3.79%. Loans increased
$734,010 or 3.76%.
LOANS. Loans totaling $20,259,000 at September 30, 1998 represent
47.76% of the Bank's total assets. There is no concentration of loans by
employers. There is a concentration of agriculture related loans. As of
September 30, 1998 agriculture related loans totaled $7,614,000.
ANALYSIS OF LOANS
-----------------
(Dollars in Thousands)
September 30, December 31,
------------------------------------- ----------------------------------------------------------
1998 1997 1997 1996 1995
----------------- ------------------ ----------------- ------------------- ------------------
Percent Percent Percent Percent Percent
of total of total of total of total of total
Amount loans Amount loans Amount loans Amount loans Amount loans
----------------- ------------------ ----------------- ------------------- ------------------
Commercial, financial, and
agricultural $ 8,693 43% $ 7,846 41% $ 7,972 41% $ 8,181 46% $ 7,873 49%
Real estate 10,152 50% 10,088 52% 10,277 53% 8,635 48% 7,029 44%
Consumer 1,414 7% 1,290 7% 1,276 6% 1,160 6% 1,032 7%
----------------- ------------------ ----------------- ------------------- ------------------
Total $ 20,259 100% $ 19,224 100% $ 19,525 100% $ 17,976 100% $ 15,934 100%
39
NON-PERFORMING ASSETS. The Bank follows regulatory guidelines with
respect to placing loans on non-accrual status. The Bank does not return a loan
to accrual status until it is brought current with respect to both principal and
interest and future principal payments are no longer in doubt. When a loan is
placed on non-accrual status, all previously accrued and uncollected interest is
reversed. Certain non-performing assets of the Bank are summarized in the
following table:
NONACCRUAL, RESTRUCTURED AND PAST DUE LOANS
-------------------------------------------
(Dollars in Thousands)
September 30, December 31,
------------------- ------------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
Nonaccrual loans $ 152 $ 163 $ 163 $ 0 $ 0
Loans past due 90 days or more 505 445 345 330 317
Restructured loans 0 0 0 0 0
-------- -------- -------- -------- --------
Total non-performing loans $ 657 $ 608 $ 508 $ 330 $ 317
Foreclosed property $ 0 $ 0 $ 0 $ 0 $ 0
Repossessions 0 0 0 0 0
-------- -------- -------- -------- --------
Total non-performing assets $ 657 $ 608 $ 508 $ 330 $ 317
Non-performing loans to loans 3.38% 3.16% 2.60% 1.67% 1.99%
Non-performing assets to loans plus
foreclosed property and repossessions 3.38% 3.16% 2.60% 1.67% 1.99%
Non-performing assets to total assets 1.62% 1.49% 1.24% 0.78% 0.78%
NONACCRUAL, RESTRUCTURED AND PAST DUE CONSUMER LOANS
----------------------------------------------------
(Dollars in Thousands)
Consumer Loans
----------------------------------------------------
September 30, December 31,
------------------- ------------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
Nonaccrual loans $ 0 $ 0 $ 0 $ 0 $ 0
Loans past due 90 days or more 38 25 10 20 19
Restructured loans 0 0 0 0 0
-------- -------- -------- -------- --------
Total non performing loans $ 38 $ 25 $ 10 $ 20 $ 19
Foreclosed property 0 0 0 0 0
Repossessions 0 0 0 0 0
-------- -------- -------- -------- --------
Total non performing assets $ 38 $ 25 $ 10 $ 20 $ 19
40
ALLOWANCE FOR LOAN LOSSES. The Bank's loan loss reserve is available
to absorb future loan losses. The current level of the loan loss reserve is a
result of managements's assessment of the risk within the loan portfolio based
on the information revealed in the credit reporting processes. The Bank utilizes
a risk-rating system on loans and a monthly credit review and reporting process
which results in the calculation of the guideline reserves based on the risk
within the portfolio. The assessment of risk takes into account the composition
of the loan portfolio, previous loan experience, current economic conditions and
other factors that, in management's judgment, deserve recognition.
The following table sets forth changes in the Bank's loan loss
reserve as of the dates indicated:
SUMMARY OF LOAN LOSS EXPERIENCE
-------------------------------
(Dollars in Thousands)
September 30, December 31,
-------------------- --------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- -------- ---------
Balance at beginning of period $ 478 $ 488 $ 487 $ 536 $ 497
Loans charged-off:
Commercial, financial, and agriculture 1 4 12 27 25
Real estate 0 0 0 0 0
Consumer 9 6 27 55 11
--------- --------- --------- -------- ---------
Total charge-offs $ 10 $ 10 $ 39 $ 82 $ 36
Recoveries of loans previously charged-off:
Commercial, financial, and agriculture $ 0 $ 13 $ 16 $ 27 $ 74
Real estate 0 0 0 0 0
Consumer 20 7 7 6 1
--------- --------- --------- -------- ---------
Total Recoveries $ 20 $ 20 $ 23 $ 33 $ 75
Additions (reductions) to reserve charged to
operations 0 0 0 0 0
--------- --------- --------- -------- ---------
Balance at end of period $ 488 $ 498 $ 471 $ 487 $ 536
Net loan charge-offs (recoveries) to average loans (0.05%) (0.05%) 0.09% 0.30% (0.26%)
Allowance for possible loan losses to loans 2.41% 2.59% 2.43% 2.71% 3.39%
Allowance for possible loan losses to non
performing loans 74.28% 81.91% 92.72% 1.48% 1.69%
The loan loss reserve at September 30, 1998 is an amount which
management believes is adequate given the level of non-performing assets and
management's assessment of loan risk.
INVESTMENT PORTFOLIO. The investment activities of the Bank are
designed to provide an investment alternative for funds not presently required
to meet loan demand, assist the Bank in meeting potential liquidity
requirements, assist in maximizing income consistent with quality and liquidity
requirements, supply collateral to secure public funds, provide a means for
balancing market and credit risks, and provide consistent income and market
value throughout changing economic times.
The Bank's portfolio consists primarily of obligations of the U.S.
government and its agencies, obligations of state and local governments, and
mortgage-backed securities. The Bank's investment portfolio does not contain
concentration of investments in any one issuer in excess of 10% of the Bank's
total investment portfolio. Exempt from this calculation are securities of the
U.S. government and U.S. government agencies.
The following table sets forth the composition of the Bank's
investment portfolio at the dates indicated:
INVESTMENT PORTFOLIO
--------------------
(Dollars in Thousands)
September 30, December 31,
--------------------------------------- --------------------------------------------------------
1998 1997 1997 1996 1995
------------------- ------------------- ------------------ ------------------ ------------------
% of total % of total % of total % of total % of total
Amount securities Amount securities Amount securities Amount securities Amount securities
------------------- ------------------- ------------------ ------------------ ------------------
US Treasury and other US
government agencies and
corporations $6,415 44.64% $10,119 61.00% $7,045 43.04% $13,263 73.94% $14,240 73.79%
Obligations of state and political
subdivisions 6,936 42.47% 5,490 33.00% 6,290 38.43% 3,559 19.85% 4,561 23.67%
Other debt securities 1,019 7.09% 955 6.00% 3,033 18.53% 1,114 6.21% 496 2.54%
------------------ ----------------- ------------------ ----------------- -----------------
Total $14,370 100.0% $16,564 100.0% $16,368 100.0% $17,936 100.0% $19,297 100.0%
41
For the investment portfolio as of September 30, 1998, the following
tables set forth a summary of yield and maturities:
INVESTMENT PORTFOLIO'S MATURITIES AND YIELDS
--------------------------------------------
(Dollars in Thousands)
September 30, 1998
------------------------------------------------------------------------------
After one through After five through
In one year or less five years ten years After ten years
------------------- ----------------- ------------------- --------------------
Amount Yield(1) Amount Yield(1) Amount Yield(1) Amount Yield(1)
------------------- ----------------- ------------------- --------------------
US Treasury and other US government
agencies and corporations $1,021 7.84% $3,503 7.33% $1,891 6.56% $0 0.00%
Obligations of state and political
subdivisions 562 7.36% 1,450 6.67% 3,484 5.15% 0 0.00
Other debt securities 199 7.33% 820 7.10% 0 0.00% 1,440 4.73%
------------------- ----------------- ------------------- --------------------
Total $1,782 6.84% $5,773 7.03% $5,375 5.86% $1,440 4.73%
For the investment portfolio as of December 31, 1997, the following
tables set forth a summary of yield and maturities:
INVESTMENT PORTFOLIO'S MATURITIES AND YIELDS
--------------------------------------------
(Dollars in Thousands)
December 31, 1997
------------------------------------------------------------------------------
After one through After five through
In one year or less five years ten years After ten years
------------------- ----------------- ------------------- --------------------
Amount Yield(1) Amount Yield(1) Amount Yield(1) Amount Yield(1)
------------------- ----------------- ------------------- --------------------
US Treasury and other US government
agencies and corporations $0 0.00% $6,463 7.30% $580 6.03% $0 0.00%
Obligations of state and political
subdivisions 1,179 6.88% 1,673 6.77% 2,793 5.28% 646 5.01%
Other debt securities 446 6.80% 2,587 6.77% 0 0.00% 0 0.00%
------------------- ----------------- ------------------- --------------------
Total $1,625 6.84% $10,723 6.95% $3,373 5.66% $6463 5.01%
(1) Presented on a fully tax-equivalent basis assuming a tax rate of 34%
42
DEPOSITS. The following table sets forth a summary of the Bank's
deposits as of the dates indicated:
DEPOSITS
--------
(Dollars in Thousands)
September 30, December 31,
-------------------- ----------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
Non-interest bearing demand deposits $5,365 $5,298 $4,249 $4,171 $4,137
Interest bearing demand deposits 10,828 11,398 11,047 11,703 11,376
Savings deposits 3,177 3,376 3,389 3,792 4,127
Time deposits 13,816 13,354 14,583 14,340 14,095
-------- -------- -------- -------- --------
Total $33,186 $33,426 $33,268 $34,006 $33,735
MATURITIES OF TIME DEPOSITS OVER $100,000
-----------------------------------------
(Dollars in Thousands)
September 30, December 31,
1998 1997
------------- ------------
Three months or less $959 $431
Over three through six months 650 804
Over six through twelve months 420 113
Over twelve months 100 100
------- ------
$2,129 $1,448
Deposits decreased by 0.58% from $34.8 million at September 30, 1997
to $34.6 million at September 30, 1998. Deposits decreased 2.06% from $34.0
million at December 31, 1996 to $33.3 million at December 31, 1997. Deposits
also increased from $33.7 million at December 31, 1995 to $34.0 million at
December 31, 1996.
REGULATORY CAPITAL. The Board of Governors of the Federal Reserve
System has adopted risk based capital guidelines. Under these guidelines,
different categories of assets are assigned different risk weights ranging from
zero percent (such as cash) to 100 percent for relatively high-risk assets (such
as loans). Certain off-balance sheet items (such as letters of credit) are also
included in the capital adequacy computations.
43
The table below sets forth the Bank's risk-based capital levels as
of September 30, 1998 and December 31, 1997:
RISK BASED CAPITAL RATIOS
-------------------------
September 30, 1998 December 31, 1997
---------------------- ------------------------
Required to Required to
be well be well
Actual Capitalized Actual Capitalized
-------- ------------ -------- --------------
Total risk based capital ratio 30.63% 10.00% 32.63% 10.00%
Tier 1 risk based capital ratio 31.89% 6.00% 31.37% 6.00%
Leverage ratio 17.35% 5.00% 17.10% 5.00%
As the table indicates, the Bank has a capital level well in excess
of the "well capitalized" requirement.
LIQUIDITY AND FUNDS MANAGEMENT. Liquidity management requires the
Bank to meet, in a timely fashion, contractual commitments and to respond to
other requirements for funds. The Bank has an Asset/Liability Management
Committee ("ALCO") responsible for managing balance sheet and off-balance sheet
commitments to meet the needs of customers while achieving financial objectives.
The Bank's ALCO meets regularly to review funding capacities, current and
forecasted loan demand and investment opportunities.
Asset liquidity is provided by regular maturities of loans and by
maintaining relatively liquid marketable investments securities and federal
funds. The Bank's investment securities due within one year, cash flow from
mortgage backed securities, and federal funds sold have historically been
adequate for funding needs. The Bank has a stable core deposit base with a
relatively small percentage of volatile funding. Jumbo CD's (over $100,000) of
$2.129 million at September 30, 1998 comprised 6.41% of total deposits. Jumbo
CD's (over $100,000) of $1.448 million at December 31, 1997 comprised only 4.35%
of total deposits.
INTEREST RATE SENSITIVITY RISK. Significant changes in interest
rates affect the composition, yields and costs of balance sheet components. The
rate sensitivity of these assets and liabilities is monitored and matched to
control the risks associated with movement in rates. The ALCO meets regularly to
monitor and formulate strategies and policies to provide maximum
44
levels of net interest income while maintaining acceptable levels of
interest-rate sensitivity, risk and liquidity. The primary object of rate
sensitivity management is to ensure earnings stability by minimizing the
sensitivity of net interest income to fluctuations in interest rates.
The following table sets forth the Bank's interest rate sensitivity
analysis by contractual repricing or maturity at September 30, 1998:
REPRICING OF INTEREST-SENSITIVE ASSETS/LIABILITIES
--------------------------------------------------
(Dollars in Thousands)
September 30, 1998
-----------------------------------------------------------------------
Over 3 months Over one year
3 Months or through 12 through five After five
less months years years Total
----------- ------------- ------------- -------------- ------------
ASSETS:
Investment in debt securities $ 417 $ 1,365 $ 5,773 $ 6,815 $ 14,370
Loans 2,817 5,482 10,114 1,846 20,259
Federal funds sold 5,050 -0- -0- -0- 5,050
-------- ---------- ------- -------- --------
Total interest-sensitive
assets $ 8,284 $ 6,847 $15,887 $ 8,661 $ 39,679
LIABILITIES:
NOW deposits $ 8,080 $ -0- $ -0- $ -0- $ 8,080
Savings and Money Market
deposits 5,963 -0- -0- -0- 5,963
Time deposits 3,389 7,805 3,392 -0- 14,586
-------- ---------- ------- -------- --------
Total interest-sensitive
liabilities $ 17,432 $ 7,805 $ 3,392 $ -0- $ 28,629
INTEREST-SENSITIVE GAP AT SEPTEMBER 30, 1998:
Incremental $(9,148) $ (958) $12,495 $ 8,661 $ 11,050
Cumulative $(9,148) $ (10,106) $ 2,389 $ 11,050
45
The following table sets forth the Bank's interest rate sensitivity
analysis by contractual repricing or maturity at December 31, 1997:
REPRICING OF INTEREST-SENSITIVE ASSETS/LIABILITIES
--------------------------------------------------
(Dollars in Thousands)
December 31, 1998
-----------------------------------------------------------------------
Over 3 months Over one year
3 Months or through 12 through five After five
less months years years Total
----------- ------------- ------------- -------------- ------------
ASSETS:
Investment in debt securities $ 515 $ 1,110 $ 10,724 $ 4,019 $11,368
Loans 2,809 5,399 9,513 1,804 19,525
Federal funds sold 2,150 -0- -0- -0- 2,150
--------- --------- -------- ------- -------
Total interest-sensitive
assets $ 5,474 $ 6,509 $ 20,237 $ 5,823 $38,043
LIABILITIES:
NOW deposits $ 7,735 $ -0- $ -0- $ -0- $ 7,735
Savings and Money Market
deposits 6,706 -0- -0- -0- 6,706
Time deposits 3,524 7,974 3,076 -0- 14,574
--------- --------- -------- ------- -------
Total interest-sensitive
liabilities $ 17,965 $ 7,974 $ 3,076 $ -0- $29,015
INTEREST-SENSITIVE GAP AT DECEMBER 31, 1997:
Incremental $(12,491) $ (1,465) $ 17,161 $ 5,823 $ 9,028
Cumulative $(12,491) $(13,956) $ 3,205 $ 9,028
46
The following tables set forth the Bank's interest rate sensitivity
analysis at the dates indicated with respect to individual categories of loans
and provides separate analyses with respect to fixed interest rate loans and
floating interest rate loans:
LOAN REPRICING
--------------
(Dollars in Thousands)
December 31, 1998
-----------------------------------------------------------------------
Over 3 months Over one year
3 Months or through 12 through five After five
less months years years Total
----------- ------------- ------------- -------------- ------------
Fixed rate loans $ 1,374 $ 4,181 $ 9,513 $ 1,804 $ 16,872
Floating rate loans 1,435 1,218 -0- -0- 2,653
------- -------- -------- -------- ---------
Total Loans $ 2,809 $ 5,399 $ 9,513 $ 1,804 $ 19,525
YEAR 2000 ISSUES
Dulaney Bancorp and the Bank and its subsidiaries are evaluating the
potential impact of what is commonly referred to as the "Year 2000" issue,
concerning the inability of certain information systems to properly recognize
and process dates containing the year 2000 and beyond. If not corrected, these
systems could fail or create erroneous results. The Bank has established a
dedicated Year 2000 committee which is working with every operational area
throughout the Bank. This committee has worked with management to commence the
following steps: (i) implementing a Year 2000 Action Plan for all items that may
be affected by the Year 2000 date change; (ii) communicating with customers to
help them understand the impact of the Year 2000 on their business with the
Bank; (iii) communicating with third parties that interact with the Bank to
ensure they are addressing the Year 2000 issue; (iv) communicating with hardware
and software suppliers to ensure Year 2000 compliance among their products; (v)
implementing hardware and software changes and replacements deemed necessary to
address the Year 2000 issue and (vi) developing a Contingency Plan including a
Year 2000 Disaster Recovery Plan.
Hardware testing of end-user computers of Dulaney Bancorp has been
completed and documented. Dulaney Bancorp expects to complete testing and
establish compliance with respect to all of its computer software by December
31, 1998, subject to possible equipment upgrades during 1999 and ongoing
communications with third parties. The software programs used by Dulaney Bancorp
have been prioritized based upon how critical they will be to the
47
functioning of Dulaney Bancorp on January 1, 2000 and this prioritization will
be used to develop the final testing schedule to determine Year 2000 compliance.
Additionally, as a result of the Affiliation with ONB, ONB has
informed Dulaney Bancorp that it expects to convert Dulaney Bancorp and the Bank
to ONB's computer systems. Therefore, ONB's Year 2000 compliance is also
significant for Dulaney Bancorp and the Bank and has been discussed in periodic
reports that ONB has filed with the Securities and Exchange Commission.
Regardless of the expected Year 2000 compliance of Dulaney Bancorp's
systems, there can be no assurance that Dulaney Bancorp will not be adversely
affected by the failure of others to become Year 2000 compliant. Such risks may
include potential losses related to loans made to third parties whose businesses
are adversely affected by the Year 2000 issue, the disruption or inaccuracy of
data provided by non-Year 2000 compliant third parties and business disruption
caused by the failure of service providers, such as security and data processing
companies, to become Year 2000 compliant. Dulaney Bancorp has identified
critical third parties and is monitoring and tracking their Year 2000 readiness.
This process will determine third parties' abilities to continue as a supplier,
vendor or business partner of Dulaney Bancorp as the Year 2000 approaches.
Statements in this section which are not historical or current facts
are "forward-looking statements" made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995, including statements
regarding the timetable for Year 2000 compliance, Dulaney Bancorp's costs and
capital expenditures, the success of Dulaney Bancorp's and others' efforts to
achieve compliance, and the effects of the Year 2000 issue on Dulaney Bancorp's
future financial condition and results of operations. These statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from historical results and those presently anticipated or
projected. The following important factors, among others, could affect the
accuracy of these statements: (i) the inherent uncertainty of the costs and
timing of achieving compliance on the wide variety of systems used by Dulaney
Bancorp and the Bank, (ii) the reliance on the efforts of vendors, customers,
government agencies and other third parties to achieve adequate compliance and
avoid disruption of Dulaney Bancorp's business in early 2000; (iii) the
uncertainty of the ultimate costs and consequences of any unanticipated
disruption in Dulaney Bancorp's business resulting from the failure of one of
Dulaney Bancorp's applications or of a third party's systems; and (iv) any Year
2000 issues that may arise in
48
connection with the conversion of the information systems of Dulaney Bancorp and
the Bank to ONB's information systems. The foregoing list is not exhaustive, and
Dulaney Bancorp disclaims any obligation subsequently to revise any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
49
REGULATORY CONSIDERATIONS
BANK HOLDING COMPANY REGULATION
ONB and Dulaney Bancorp are registered as bank holding companies and
are subject to the regulations of the Federal Reserve under the BHC Act. Bank
holding companies are required to file periodic reports with and are subject to
periodic examination by the Federal Reserve. The Federal Reserve has issued
regulations under the BHC Act requiring a bank holding company to serve as a
source of financial and managerial strength to its subsidiary banks. It is the
policy of the Federal Reserve that, pursuant to this requirement, a bank holding
company should stand ready to use its resources to provide adequate capital
funds to its subsidiary banks during periods of financial stress or adversity.
Additionally, under the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA"), a bank holding company is required to guarantee the compliance
of any insured depository institution subsidiary that may become
"undercapitalized" (as defined in the statute) with the terms of any capital
restoration plan filed by such subsidiary with its appropriate federal banking
agency up to the lesser of (i) an amount equal to 5% of the institution's total
assets at the time the institution became undercapitalized, or (ii) the amount
that is necessary (or would have been necessary) to bring the institution into
compliance with all applicable capital standards as of the time the institution
fails to comply with such capital restoration plan. Under the BHC Act, the
Federal Reserve has the authority to require a bank holding company to terminate
any activity or relinquish control of a nonbank subsidiary (other than a nonbank
subsidiary of a bank) upon the Federal Reserve's determination that such
activity or control constitutes a serious risk to the financial soundness and
stability of any bank subsidiary of the bank holding company.
ONB and Dulaney Bancorp are prohibited by the BHC Act from acquiring
direct or indirect control of more than 5% of the outstanding shares of any
class of voting stock or substantially all of the assets of any bank or savings
association or merging or consolidating with another bank holding company
without prior approval of the Federal Reserve. Additionally, ONB and Dulaney
Bancorp are prohibited by the BHC Act from engaging in or from acquiring
ownership or control of more than 5% of the outstanding shares of any class of
voting stock of any company engaged in a nonbanking business unless such
business is determined by the Federal Reserve to be so closely related to
banking as to be a proper incident thereto. The BHC Act does not place
territorial restrictions on the activities of such nonbanking-related
activities.
50
CAPITAL ADEQUACY GUIDELINES FOR BANK HOLDING COMPANIES
Bank holding companies are required to comply with the Federal
Reserve's risk-based capital guidelines which require a minimum ratio of total
capital to risk-weighted assets (including certain off-balance sheet activities
such as standby letters of credit) of 8%. At least half of the total required
capital must be "Tier 1 capital," consisting principally of common shareholders'
equity, noncumulative perpetual preferred stock, a limited amount of cumulative
perpetual preferred stock and minority interest in the equity accounts of
consolidated subsidiaries, less certain goodwill items. The remainder ("Tier 2
capital") may consist of a limited amount of subordinated debt and
intermediate-term preferred stock, certain hybrid capital instruments and other
debt securities, cumulative perpetual preferred stock, and a limited amount of
the general loan loss allowance. In addition to the risk-based capital
guidelines, the Federal Reserve has adopted a Tier 1 (leverage) capital ratio
under which the bank holding company must maintain a minimum level of Tier 1
capital to average total consolidated assets of 3% in the case of bank holding
companies which have the highest regulatory examination ratings and are not
contemplating significant growth or expansion. All other bank holding companies
are expected to maintain a ratio of at least 1% to 2% above the stated minimum.
The following are ONB's and Dulaney Bancorp's regulatory capital
ratios as of September 30, 1998:
ONB DULANEY BANCORP
---------- --------------------
Tier 1 Capital: 11.49% 30.63%
Total Capital: 13.27% 31.89%
Leverage Ratio: 7.74% 17.35%
BANK REGULATION
The affiliate banks of ONB which are national banks and the Bank are
supervised, regulated and examined by the OCC. The affiliate banks of ONB which
are state banks chartered in Indiana, are supervised, regulated and examined by
the Indiana Department of Financial Institutions. ONB's affiliate banks
chartered in Kentucky are supervised, regulated and examined by the Kentucky
Department of Financial Institutions and those affiliate banks chartered in
Illinois are supervised, regulated and examined by the Illinois Commissioner. In
51
addition, those ONB affiliate banks which are state banks and members of the
Federal Reserve are supervised and regulated by the Federal Reserve, and those
which are not members of the Federal Reserve are supervised and regulated by the
FDIC. The Bank is a national bank and is supervised, regulated and examined by
the OCC and will continue to be supervised, regulated and examined by this bank
regulatory agency following consummation of the Affiliation. Each regulator has
the authority to issue cease-and-desist orders if it determines that activities
of the bank regularly represent an unsafe and unsound banking practice or a
violation of law.
Both federal and state law extensively regulate various aspects of
the banking business such as reserve requirements, truth-in-lending and
truth-in-savings disclosure, equal credit opportunity, fair credit reporting,
trading in securities and other aspects of banking operations. Current federal
law also requires banks, among other things to make deposited funds available
within specified time periods.
Insured state-chartered banks are prohibited under FDICIA from
engaging as principal in activities that are not permitted for national banks,
unless (i) the FDIC determines that the activity would pose no significant risk
to the appropriate deposit insurance fund, and (ii) the bank is, and continues
to be, in compliance with all applicable capital standards.
BANK CAPITAL REQUIREMENTS
The FDIC and the OCC have adopted risk-based capital ratio
guidelines to which state-chartered banks and national banks under their
respective supervision are subject. The guidelines establish a systematic
analytical framework that makes regulatory capital requirements more sensitive
to differences in risk profiles among banking organizations. Risk-based capital
ratios are determined by allocating assets and specified off-balance sheet
commitments to four risk weighted categories, with higher levels of capital
being required for the categories perceived as representing greater risk.
Like the capital guidelines established by the Federal Reserve,
these guidelines divide a bank's capital into two tiers. Banks are required to
maintain a total risk-based capital ratio of 8%. The FDIC or OCC may, however,
set higher capital requirements when a bank's particular circumstances warrant.
Banks experiencing or anticipating significant growth are expected to maintain
capital ratios, including tangible capital positions, well above the minimum
levels.
52
In addition, the FDIC and OCC established guidelines prescribing a
minimum Tier 1 leverage ratio (Tier 1 capital to adjusted total assets as
specified in the guidelines). These guidelines provide for a minimum Tier 1
leverage ratio of 3% for banks that meet certain specified criteria, including
that they have the highest regulatory rating and are not experiencing or
anticipating significant growth. All other banks are required to maintain a Tier
1 leverage ratio of 3% plus an additional 100 to 200 basis points.
All of ONB's affiliate banks as well as the Bank exceed the
risk-based capital guidelines of the FDIC and OCC as of September 30, 1998.
FDICIA requires each federal banking agency to revise its risk-based
capital standards within 18 months of their enactment to ensure that those
standards take adequate account of interest rate risk, concentration of credit
risk and the risk of nontraditional activities, as well as reflect the actual
performance and expected risk of loss on multifamily mortgages. Banking
regulators continue to indicate their desire to raise capital requirements
applicable to banking organizations beyond their current levels. Neither ONB nor
Dulaney Bancorp is able to predict whether and when higher capital requirements
would be imposed and, if so, to what levels and on what schedule.
BRANCHES AND AFFILIATES
Branching by ONB affiliate banks in Indiana, Kentucky and Illinois
is subject to the jurisdiction, and requires the prior approval of, the bank's
primary federal regulatory authority and, if the branching bank is a state bank,
of the Indiana Department of Financial Institutions, Kentucky Department of
Financial Institutions or the Illinois Commissioner (depending upon the location
of the principal office of the bank).
ONB's affiliate banks and the Bank are subject to the Federal
Reserve Act, which restricts financial transactions between banks and affiliated
companies. The statute limits credit transactions between a bank and its
executive officers and its affiliates, prescribes terms and conditions for bank
affiliate transactions deemed to be consistent with safe and sound banking
practices, and restricts the types of collateral security permitted in
connection with a bank's extension of credit to an affiliate.
53
FDICIA
FDICIA requires, among other things, federal bank regulatory
authorities to take "prompt corrective action" with respect to banks which do
not meet minimum capital requirements. For these purposes, FDICIA establishes
five capital tiers: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized.
The FDIC has adopted regulations to implement the prompt corrective
action provisions of FDICIA. Among other things, the regulations define the
relevant capital measures for the five capital categories. An institution is
deemed to be "well capitalized" if it has a total risk-based capital ratio of
10% or greater, a Tier 1 risk-based capital ratio of 6% or greater, and a
leverage ratio of 5% or greater, and is not subject to a regulatory order,
agreement or directive to meet and maintain a specific capital level for any
capital measure. An institution is deemed to be "adequately capitalized" if it
has a total risk-based capital ratio of 8% or greater, a Tier 1 risk-based
capital ratio of 4% or greater, and generally a leverage ratio 4% or greater. An
institution is deemed to be "undercapitalized" if it has a total risk-based
capital ratio of less than 8%, a Tier 1 risk-based capital ratio of less than
4%, or generally a leverage ratio of less than 4%, and "significantly
undercapitalized" if it has a total risk-based capital ratio of less than 6%, a
Tier 1 risk-based capital ratio of less than 3%, or a leverage ratio of less
than 3%. An institution is deemed to be "critically undercapitalized" if it has
a ratio of tangible equity (as defined in the regulations) to total assets that
is equal to or less than 2%.
"Undercapitalized" banks are subject to growth limitations and are
required to submit a capital restoration plan. A bank's compliance with such
plan is required to be guaranteed by any company that controls the
undercapitalized institution as described above. If an "undercapitalized" bank
fails to submit an acceptable plan, it is treated as if it is significantly
undercapitalized. "Significantly undercapitalized" banks are subject to one or
more of a number of requirements and restrictions, including an order by the
FDIC to sell sufficient voting stock to become adequately capitalized,
requirements to reduce total assets and cease receipt of deposits from
correspondent banks, and restrictions on compensation of executive officers.
"Critically undercapitalized" institutions may not, beginning 60 days after
becoming "critically undercapitalized", make any payment of principal or
interest on certain subordinated debt or extend credit for a highly leveraged
transaction or enter into any transaction outside the ordinary course of
business. In addition, "critically undercapitalized" institutions are subject to
appointment of a receiver or conservator.
54
DEPOSIT INSURANCE
The deposits of each of ONB's affiliate banks and Bank are insured
up to regulatory limits by the FDIC and, accordingly, are subject to deposit
insurance assessments to maintain the Bank Insurance Fund ("BIF") and the
Savings Association Insurance Fund ("SAIF") administered by the FDIC. The FDIC
has adopted regulations establishing a permanent risk-related deposit insurance
assessment system. Under this system, the FDIC places each insured bank in one
of nine risk categories based on (i) the bank's capitalization and (ii)
supervisory evaluations provided to the FDIC by the institution's primary
federal regulator. Each insured bank's insurance assessment rate is then
determined by the risk category in which it is classified by the FDIC.
Effective January 1, 1997, the annual insurance premiums on bank
deposits insured by the BIF and the SAIF vary between $0.00 per $100 of deposits
for banks classified in the highest capital and supervisory evaluation
categories to $0.27 per $100 of deposits for banks classified in the lowest
capital and supervisory evaluation categories.
The Deposit Insurance Funds Act of 1996 provides for assessments to
be imposed on insured depository institutions with respect to deposits insured
by the BIF and the SAIF (in addition to assessments currently imposed on
depository institutions with respect to BIF- and SAIF-insured deposits) to pay
for the cost of financing corporation ("FICO") funding. The FDIC established the
FICO assessment rates effective January 1, 1997 at $0.013 per $100 annually for
BIF-assessable deposits and $0.0648 per $100 annually for SAIF-assessable
deposits. The FICO assessments does not vary depending upon a depository
institution's capitalization or supervisory evaluations.
ADDITIONAL MATTERS
In addition to the matters discussed above, ONB's affiliate banks
and the Bank are subject to additional regulation of their activities, including
a variety of consumer protection regulations affecting their lending, deposit
and collection activities and regulations affecting secondary mortgage market
activities.
55
The earnings of financial institutions are also affected by general
economic conditions and prevailing interest rates, both domestic and foreign and
by the monetary and fiscal policies of the United States Government and its
various agencies, particularly the Federal Reserve.
Additional legislation and administrative actions affecting the
banking industry may be considered by the United States Congress, state
legislatures and various regulatory agencies, including those referred to above.
It cannot be predicted with certainty whether such legislation of administrative
action will be enacted or the extent to which the banking industry in general or
ONB and its affiliate banks in particular would be affected thereby.
COMPARISON OF COMMON STOCK
The rights of holders of Dulaney Bancorp Common Stock who receive
ONB Common Stock in the Affiliation will be governed by the laws of the State of
Indiana, the state in which ONB is incorporated, and by ONB's Amended and
Restated Articles of Incorporation ("ONB's Articles of Incorporation") and ONB's
By-Laws, as amended ("ONB's By-Laws"). The rights of the shareholders of Dulaney
Bancorp are presently governed by the laws of the State of Illinois, the state
in which Dulaney Bancorp is incorporated, and by Dulaney Bancorp's Articles of
Incorporation and By-Laws. The rights of the shareholders of Dulaney Bancorp
differ in certain respects from the rights they would have as ONB shareholders,
including for ONB anti-takeover measures and the vote required for the amendment
of significant provisions of the articles of incorporation and for the approval
of significant corporate transactions. The following summary comparison of ONB
Common Stock and Dulaney Bancorp Common Stock includes all material features of
such shares but does not purport to be complete and is qualified in its entirety
by reference to ONB's and Dulaney Bancorp's Articles of Incorporation and their
By-Laws.
AUTHORIZED BUT UNISSUED SHARES
ONB's Articles of Incorporation authorize the issuance of 50,000,000
shares of ONB Common Stock, of which approximately 27.5 million whole shares
were outstanding as of September 30, 1998. The remaining authorized but unissued
shares of common stock may be issued upon authorization of the Board of
Directors of ONB without prior shareholder approval. ONB has 2,000,000 shares of
preferred stock authorized. These shares are available to be issued, without
prior shareholder approval, in classes with relative rights, privileges and
preferences determined
56
for each class by the Board of Directors of ONB. No shares of preferred stock
are presently outstanding.
The Board of Directors of ONB has authorized a series of preferred
stock designated as Series A preferred stock. The Board of Directors of ONB has
designated 200,000 shares of Series A preferred stock in connection with the
shareholder rights plan of ONB. The ONB Series A preferred stock may not be
issued except upon exercise of certain rights ("Rights") pursuant to such
shareholder rights plan. No shares of Series A preferred stock have been issued
as of the date of this Proxy Statement. See "COMPARISON OF COMMON STOCK --
AntiTakeover Provisions -- ONB's Shareholder Rights Plan" below.
As of ____________, 1998, ONB had approximately [182,653] shares of
ONB Common Stock reserved for issuance under ONB's Stock Purchase and Discounted
Dividend Reinvestment Plan and [1.5] million shares of its common stock reserved
for issuance upon conversion of its outstanding 8% convertible subordinated
debentures. Such debentures are convertible at any time prior to maturity,
unless previously redeemed, into shares of ONB Common Stock at a conversion rate
of [49.218] shares per $1,000 principal amount of debentures (equivalent to a
conversion price of approximately [$20.31] per share), subject to adjustment in
certain events.
The issuance of additional shares of ONB Common Stock or the
issuance of ONB preferred stock may adversely affect the interests of ONB
shareholders.
Dulaney Bancorp's Articles of Incorporation authorizes the issuance
of 160,000 shares of Dulaney Bancorp Common Stock, $20.00 par value per share,
29,497 of which were issued and outstanding, as of September 30, 1998. Following
the Affiliation, all of the outstanding shares of Dulaney Bancorp Common Stock
will convert to the right to receive 315,116 shares of ONB Common Stock, subject
to adjustment for stock dividends and stock splits and for certain changes in
market price of ONB Common Stock. See "PROPOSED AFFILIATION -- Exchange of
Dulaney Bancorp Common Stock."
PREEMPTIVE RIGHTS
As permitted by Indiana law, ONB's Articles of Incorporation do not
provide for preemptive rights to subscribe for any new or additional ONB Common
Stock or other securities.
57
Preemptive rights may be granted to ONB's shareholders, respectively, if ONB's
Articles of Incorporation are amended accordingly. Under Dulaney Bancorp's
Articles of Incorporation, shareholders of Dulaney Bancorp do not have
preemptive rights to subscribe for any new or additional Dulaney Bancorp Common
Stock or other securities.
DIVIDEND RIGHTS
The holders of common stock of ONB and Dulaney Bancorp are entitled
to dividends and other distributions when, as and if declared by their
respective Boards of Directors out of funds legally available therefor. With
respect to ONB, a dividend may not be paid if, after giving it effect, (1) ONB
would not be able to pay its debts as they become due in the usual course of
business, or (2) ONB's total assets would be less than the sum of its total
liabilities plus, unless ONB's Articles of Incorporation permitted otherwise,
the amount that would be needed to satisfy the preferential rights upon
dissolution of shareholders whose preferential rights are superior to those
receiving the dividend if ONB were to be dissolved at the time of the dividend.
With respect to Dulaney Bancorp, a dividend may not be paid if, after giving it
effect, (i) Dulaney Bancorp would be insolvent, or (ii) the net assets of
Dulaney Bancorp would be less than zero or less than the maximum amount payable
at the time of distribution to shareholders having preferential rights in
liquidation if Dulaney Bancorp was then to be liquidated.
The amount of dividends, if any, that may be declared by ONB in the
future will necessarily depend upon many factors, including, without limitation,
future earnings, capital requirements, business conditions and capital levels of
subsidiaries (since ONB is primarily dependent upon dividends paid by its
subsidiaries for its revenues), the discretion of ONB's Board of Directors and
other factors that may be appropriate in determining dividend policies.
Cash dividends paid to ONB by its Illinois-chartered affiliate banks
are limited by Illinois law to the bank's net profits then on hand, less losses
and statutorily-defined bad debts. Cash dividends paid to ONB by its
Indiana-chartered affiliate banks are limited by Indiana law to the balance of
the bank's undivided profits account adjusted for statutorily-defined bad debts.
Cash dividends paid to ONB by its Kentucky-chartered affiliate banks are limited
by Kentucky law to so much of the net profits of the banks, after deducting all
expenses, losses, bad or suspended debts and interest and taxes accrued or due
from the banks, as the boards of directors of the banks deem expedient. In
addition, the approval of the Kentucky Commissioner of Banks is required if the
total of all dividends declared by a Kentucky bank in any calendar year exceeds
58
the bank's net profit for that year and the net retained profits from the
preceding two years, less any transfers to surplus or a fund for retirement of
preferred stock or debt. ONB's national affiliate banks may pay cash dividends
on their common stock only out of adjusted retained net profits for the year in
which the dividend is paid and the two preceding years.
Dividends paid by ONB's affiliate banks will ordinarily be
restricted to a lesser amount than is legally permissible because of the need
for the banks to maintain adequate capital consistent with the capital adequacy
guidelines promulgated by the banks' principal federal regulatory authorities.
See "REGULATORY CONSIDERATIONS". If a bank's capital levels are deemed
inadequate by the regulatory authorities, payment of dividends to its parent
holding company may be prohibited without prior regulatory approval. None of
ONB's affiliate banks are currently subject to such a restriction.
VOTING RIGHTS
The holders of the outstanding shares of ONB Common Stock and
Dulaney Bancorp Common Stock are entitled to one vote per share on all matters
presented for shareholder vote. Shareholders of ONB and Dulaney Bancorp do not
have cumulative voting rights in the election of directors.
Illinois law generally requires that a merger, consolidation, or
exchange of shares be approved by a shareholder vote of two-thirds of the votes
entitled to be cast at the shareholders meeting, subject to provisions in the
corporation's articles of incorporation requiring a lower or higher percentage
vote requirement not less than a majority of the outstanding shares entitled to
vote. 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. ONB's Articles of Incorporation
provide that certain business combinations may, under certain circumstances,
require approval of more than a simple majority of the issued and outstanding
shares of ONB Common Stock. See "COMPARISON OF COMMON STOCK -- Anti-Takeover
Provisions".
Both Indiana and Illinois law require shareholder approval for most
amendments to a corporation's articles of incorporation -- under Indiana law, by
a majority of a quorum present at
59
a shareholders' meeting (and, in certain cases, a majority of all shares held by
any voting group entitled to vote) and under Illinois law, by two-thirds of all
shares entitled to vote. Both Indiana and Illinois law permit a corporation in
its articles of incorporation to prescribe a higher shareholder vote for certain
amendments to the articles of incorporation and Illinois law permits a
corporation in its articles of incorporation to prescribe a lower shareholder
vote for certain amendments to the articles of incorporation, but not lower than
a majority of the outstanding shares entitled to vote. ONB's Articles of
Incorporation require a super-majority shareholder vote of eighty percent (80%)
of the outstanding shares of ONB Common Stock for the amendment of certain
significant provisions.
DISSENTERS' RIGHTS
The holders 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 Statement, shares of ONB
Common Stock are traded on the NASDAQ National Market System and, therefore, ONB
shareholders presently are not entitled to assert dissenters' rights under
Indiana law with respect to any of the transactions discussed above.
60
With respect to dissenters' rights of the shareholders of Dulaney
Bancorp under Illinois law in connection with Affiliation, see the discussion
under the caption "PROPOSED AFFILIATION -- Rights of Dissenting Shareholders of
Dulaney Bancorp" and Appendix B.
LIQUIDATION RIGHTS
In the event of any liquidation or dissolution of ONB, the holders
of shares of ONB Common Stock are entitled to receive pro rata with respect to
the number of shares held by them any assets distributable to shareholders,
subject to the payment of ONB's liabilities and any rights of creditors and
holders of shares of ONB preferred stock then outstanding. In the event of any
liquidation, dissolution or winding up of Dulaney Bancorp, the holders of shares
of Dulaney Bancorp 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 Dulaney Bancorp's liabilities and any rights of
creditors.
REDEMPTION
Under Indiana law, ONB may redeem or acquire shares of ONB Common
Stock with funds legally available therefor, and shares so acquired constitute
authorized but unissued shares. ONB may not redeem or acquire shares of ONB
Common Stock if, after giving such redemption or acquisition effect, ONB would
not be able to pay its debts as they become due in the usual course of business,
or ONB's total assets would be less than the sum of its total liabilities plus,
unless ONB's Articles of Incorporation permitted otherwise, the amount that
would be needed to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those whose stock is
being redeemed or acquired if ONB were to be dissolved at the time of the
redemption or acquisition. Dulaney Bancorp has similar redemption rights under
Illinois law.
In addition, ONB and Dulaney Bancorp 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.
61
ANTI-TAKEOVER PROVISIONS
The shares of ONB Series A preferred stock are nonredeemable and,
unless otherwise provided in connection with the creation of a subsequent series
of preferred stock, are subordinate to all other series of preferred stock of
ONB. Each share of ONB Series A preferred stock will be entitled to receive,
when, as and if declared, a quarterly dividend in an amount equal to the greater
of $1.00 per share or 100 times the quarterly cash dividend declared on ONB
Common Stock. In addition, the ONB Series A preferred stock is entitled to 100
times any non-cash dividends (other than dividends payable in equity securities)
declared on the ONB Common Stock, in like kind. In the event of liquidation, the
holders of ONB Series A preferred stock will be entitled to receive a
liquidation payment in an amount equal to the greater of $100.00 per share or
100 times the liquidation payment made per share of ONB Common Stock. Each share
of ONB Series A preferred stock will have 100 votes, subject to adjustment,
voting together with the ONB Common Stock and not as a separate class unless
otherwise required by law or ONB's Articles of Incorporation. In the event of
any merger, consolidation or other transaction in which common shares are
exchanged, each share of ONB Series A preferred stock will be entitled to
receive 100 times the amount received per share of ONB Common Stock. The rights
of the ONB Series A preferred stock as to dividends, voting rights and
liquidation are protected by antidilution provisions. See "COMPARISON OF COMMON
STOCK -- Anti-Takeover Provisions".
The anti-takeover measures applicable to ONB as described below, may
have the effect of discouraging or rendering it more difficult for a person or
other entity to acquire control of ONB. These measures may have the effect of
discouraging certain tender offers for shares of ONB 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
62
business combination unless all provisions of the articles of incorporation of
the corporation are complied with and a majority of disinterested shareholders
approve the transaction or all shareholders receive a price per share determined
in accordance with the business combinations provision of Indiana law.
An Indiana corporation may elect to remove itself from the
protection provided by the Indiana business combinations provision, but such an
election remains ineffective for eighteen (18) months and does not apply to a
combination with a shareholder who acquired a 10% ownership position prior to
the effective time of the election. ONB is covered by the business combinations
provision of Indiana law and Dulaney Bancorp is not covered. The constitutional
validity of the business combinations provision of Indiana law has in the past
been challenged and has been upheld by the United States Supreme Court.
In addition to the business combinations provision, Indiana law also
contains a "control share acquisition" provision which, although different in
structure from the business combinations provision, may have a similar effect of
discouraging or making more difficult a hostile takeover of an Indiana
corporation. This provision also may have the effect of discouraging premium
bids for outstanding shares. Indiana law provides that, unless otherwise
provided in an Indiana corporation's articles of incorporation or by-laws,
certain acquisitions of shares of the corporation's common stock will be
accorded voting rights only if a majority of the disinterested shareholders
approves a resolution granting the potential acquiror the ability to vote such
shares. Upon disapproval of the resolution, the shares held by the acquiror
shall be redeemed by the corporation at the fair value of the shares as
determined by the control share acquisition provision.
This provision does not apply to a plan of affiliation and merger,
if the corporation complies with the applicable merger provisions and is a party
to the agreement of merger or plan of share exchange. ONB is subject to the
control share acquisition provision.
ONB's Articles of Incorporation. In addition to the protections
provided by Indiana law, ONB's Articles of Incorporation require the affirmative
vote of the holders of at least eighty percent (80%) of the issued and
outstanding shares of capital stock for any business combination which is not
recommended by the vote of two-thirds or more of the members of the Board of
Directors. For purposes of ONB's Articles of Incorporation, "business
combination" is defined to include: (1) a merger or consolidation of ONB with or
into any other corporation, (2) any
63
sale, lease, exchange or other disposition of any material part of the assets of
ONB, or (3) any liquidation or dissolution of ONB or any material subsidiary of
ONB. Further, this provision cannot be altered, amended or repealed without the
affirmative vote of the holders of at least eighty percent (80%) of the issued
and outstanding shares of ONB Common Stock entitled to vote thereon.
ONB's Articles of Incorporation also include provisions requiring
(1) the Board of Directors to consider non-financial factors in the evaluation
of business combinations and tender or exchange offers, and (2) any person
acquiring fifteen percent (15%) of the then issued and outstanding stock of ONB
to pay equal consideration in connection with the acquisition of any further
shares. These provisions require an eighty percent (80%) affirmative vote of the
issued and outstanding shares of ONB Common Stock entitled to vote thereon in
order to be altered, amended or repealed.
ONB's Shareholder Rights Plan. On January 25, 1990, the Board of
Directors of ONB declared a dividend of one (1) right for each issued and
outstanding share of ONB Common Stock ("Right"). See "COMPARISON OF COMMON STOCK
- -- Authorized But Unissued Shares". The dividend was payable on March 15, 1990
to holders of record of ONB Common Stock at the close of business on March 1,
1990. Each Right entitles the registered holder to purchase from ONB
one-hundredth (1/100) of a share of ONB Series A preferred stock at an initial
Purchase Price of $60.00, subject to adjustment. The terms and conditions of the
Rights are contained in a Rights Agreement between ONB and Old National Bank in
Evansville, as Rights Agent.
The foregoing information concerning ONB's shareholder Rights Plan
does not purport to be complete. For additional information, see The Rights
Agreement, dated March 1, 1990, between ONB and Old National Bank in Evansville,
as Trustee, which is specifically incorporated herein by reference. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." The shares of ONB Common
Stock to be received by Dulaney Bancorp shareholders in the Affiliation will be
subject to the rights under the ONB Shareholder Rights Plan.
Illinois Law and Dulaney Bancorp's Articles of Incorporation. Under
the business combinations provision of the IBCA, any interested shareholder
(defined as a shareholder owning at least 15% of the outstanding shares of
common stock) of an Illinois corporation is
64
prohibited for a period of three (3) years following the date on which the
shareholder becomes an interested shareholder from engaging in any business
combination with the corporation unless (i) the board of directors approves the
business combination prior to the shareholder becoming an interested
shareholder, or (ii) upon consummation of the transaction which resulted in the
shareholder becoming an interested shareholder, the shareholder owned at least
85% of the voting shares of the corporation outstanding at the time the
transaction commenced, or (iii) the business combination is approved by the
board of directors and authorized in an annual or special meeting of
shareholders by at least a majority of the outstanding voting shares other than
those held by the interested shareholder.
Dulaney Bancorp is not covered by the IBCA's business combinations
provision, but it could elect to be covered through an amendment to Dulaney
Bancorp's Articles of Incorporation.
DIRECTOR LIABILITY
Under Indiana law, a director of ONB will not be liable to
shareholders for any action taken as a director, or any failure to take any
action, unless (1) the director has breached or failed to perform his duties as
a director in good faith with the care an ordinarily prudent person in a like
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 Illinois law, a director of Dulaney Bancorp may not be liable
by reason of serving as a director or for any action taken as a director if the
director acts in good faith and in a manner the director reasonably believed to
be in or not opposed to the best interests of the corporation, and, as to any
criminal action, had no reasonable cause to believe his conduct was unlawful. A
director may be liable for his negligence or misconduct in the performance of
his duty to the corporation.
DIRECTOR NOMINATIONS
ONB's By-Laws require that all nominations for election as directors
of ONB shall be made by the Board of Directors of ONB in accordance with the
By-Laws. Under the By-Laws, the Nominating Committee of the Board of Directors
of ONB ("Nominating Committee") is required to submit to the entire Board of
Directors its recommendation of nominees for election
65
as directors of ONB prior to each annual or special meeting of shareholders at
which directors will be elected.
The Nominating Committee is comprised of five (5) directors of ONB,
none of whom is an officer or employee of ONB. The Nominating Committee
maintains the responsibility to recruit potential director candidates, recommend
changes to the entire Board of Directors concerning the size, composition and
responsibilities of the Board of Directors, review proxy documents received from
shareholders relating to the Board of Directors and review suggestions of
shareholders regarding nominees for election as directors. All such suggestions
of shareholders with respect to director nominations must be submitted in
writing to the Nominating Committee not less than 120 days prior to the date of
the annual or special meeting of shareholders at which directors will be
elected.
LEGAL OPINIONS
Certain legal matters in connection with the Agreement will be
passed upon for ONB by the law firm of Krieg DeVault Alexander & Capehart, LLP,
One Indiana Square, Suite 2800, Indianapolis, Indiana 46204, and for Dulaney
Bancorp by the law firm of Duane Morris & Heckscher, LLP, One Liberty Place,
Philadelphia, Pennsylvania 19103.
EXPERTS
The consolidated financial statements of ONB and affiliates
incorporated into this Proxy Statement 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 Proxy Statement in
reliance upon the report of Arthur Andersen LLP and upon the authority of such
firm as experts in auditing and accounting.
The consolidated financial statements of Dulaney Bancorp as of and
for the calendar years ended December 31, 1997, 1996 and 1995 included in this
Proxy Statement have been audited by McGee Rice & Wheat, Inc., independent
auditors, to the extent and for the year indicated in their report thereon. Such
consolidated financial statements have been included in this Proxy Statement in
reliance upon such report and upon the authority of such firm as experts in
auditing and accounting.
66
Representatives of McGee Rice & Wheat, Inc. 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 Dulaney
Bancorp 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 Dulaney Bancorp as of the date hereof, which may properly come before the
Special Meeting. It is the intention of the persons named in the proxy to vote
pursuant to the proxy with respect to such matters in accordance with the
recommendation of the Board of Directors of Dulaney Bancorp.
FORWARD-LOOKING STATEMENTS
This Proxy Statement-Prospectus (including information included or
incorporated by reference herein) contains certain forward-looking statements
with respect to the financial condition, results of operations, plans,
objectives, future performance and business of each of ONB and Dulaney Bancorp,
as well as certain information relating to the Affiliation, including, without
limitation (i) statements relating to the cost savings estimated to result from
the Affiliation; (ii) statements relating to revenues estimated to result from
the Affiliation; (iii) statements relating to the restructuring charges
estimated to be incurred in connection with the Affiliation; and (iv) 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
Affiliation may not be fully realized or realized within the expected time
frame: (b) revenues following the Affiliation may be lower than expected, or
deposit attrition, operating costs or customer loss and business disruption
following the Affiliation 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 ONB 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;
67
(f) legislative or regulatory changes may adversely affect the business in which
ONB 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.
AVAILABLE INFORMATION
ONB is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and in accordance therewith
files reports, proxy statements and other information with the Securities and
Exchange Commission ("SEC"). Such reports, proxy statements and other
information may be inspected and copied at prescribed rates at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549. 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 ONB and the address of that site is
(http://www.sec.gov). You are encouraged to give your Internet address, if
available. ONB common stock is quoted on the NASDAQ National Market System and
reports, proxy statements and other information concerning ONB are available for
inspection and copying at prescribed rates at the office of the National
Association of Securities Dealers, Inc., 1735 K Street, Washington, D.C. 20006.
ONB has filed with the SEC a Registration Statement on Form S-4
under the Securities Act of 1933, as amended ("Securities Act"), with respect to
the shares of ONB Common Stock to be issued in connection with its merger with
Dulaney Bancorp. This Proxy Statement does not contain all of the information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the SEC. Reference is made to the
Registration Statement, including the exhibits filed as a part thereof or
incorporated therein by reference, which can be inspected and copied at
prescribed rates at the public reference facilities maintained by the SEC at the
addresses set forth above.
All information contained in this Proxy Statement with respect to
Dulaney Bancorp and the Bank has been supplied by Dulaney Bancorp and the Bank,
and all information contained in this Proxy Statement with respect to ONB has
been supplied by ONB.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by ONB (SEC File No.
0-10888) with the SEC pursuant to the Exchange Act are incorporated herein by
reference:
- ONB's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998.
- ONB's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997.
- ONB's Annual Report to Shareholders for the fiscal year
ended December 31, 1997.
- The description of ONB's common stock contained in ONB's
Current Report on Form 8-K, dated January 6, 1983, and
the description of ONB's Preferred Stock Purchase Rights
contained in ONB's Form 8-A, dated March 1, 1990,
including the Rights Agreement, dated March 1, 1990,
between ONB and Old National Bank in Evansville, as
Trustee.
All documents subsequently filed by ONB pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the date on which the Special
Meeting is held shall be deemed to be incorporated by reference into this Proxy
Statement and to be a part hereof from the date of filing such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT, AND IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROXY
69
STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
PURCHASE ANY OF THE SECURITIES OFFERED BY THIS PROXY STATEMENT, NOR THE
SOLICITATION OF A PROXY, IN ANY JURISDICTION TO ANY PERSON TO WHOM IT WOULD BE
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER OR PROXY SOLICITATION IN
SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT NOR ANY
DISTRIBUTION OF THE SECURITIES COVERED HEREBY AT ANY TIME SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF ONB OR DULANEY BANCORP SINCE THE DATE HEREOF OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROXY
STATEMENT.
70
INDEX TO FINANCIAL STATEMENTS
DULANEY BANCORP, INC.
PAGE
----
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995:
Independent Auditors' Report on the Consolidated Financial Statements
for the years ended December 31, 1997, 1996 and 1995..................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996............. F-3
Consolidated Statements of Income for the years ended December 31,
1997, 1996 and 1995......................................................
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995.........................................
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995...................................................... F-7
Notes to Consolidated Financial Statements............................... F-9
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED):
Condensed Consolidated Balance Sheets as of June 30, 1998 and 1997....... F-20
Condensed Consolidated Statements of Income for the Nine Months ended
September 30, 1998 and 1997.............................................. F-22
Condensed Consolidated Statements of Cash Flows for the Nine Months
ended September 30, 1998 and 1997........................................ F-23
[Notes to Consolidated Condensed Financial Statements]...................
[LETTERHEAD OF MCGEE, RICE & WHEAT, INC.]
INDEPENDENT AUDITORS' REPORT
-----------------------------
To the Shareholders of
Dulaney Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of DULANEY
BANCORP, INC. AND SUBSIDIARY as of December 31, 1997 and 1996, and the related
consolidated statements of operations, changes in undivided profits and cash
flows for the years ended December 31, 1997, 1996 and 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion of these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of DULANEY BANCORP, INC. AND
SUBSIDIARY, as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for the years ended December 31, 1997, 1996 and
1995 in conformity with generally accepted accounting principals.
/s/ McGee, Rice & Wheat, Inc.
January 16, 1998
F-2
DULANEY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
------
1997 1996
-------------------------------
CASH AND DUE FROM BANKS (NOTE 1) $ 2,201,865 $ 2,269,702
FEDERAL FUNDS SOLD (NOTE 1): 2,150,000 3,200,000
------------- -------------
Total cash and due from banks and federal funds sold 4,351,865 5,469,702
------------- -------------
INVESTMENT SECURITIES (NOTES 1 AND 2): Available for sale at market value:
U.S. Treasury and Agency obligations 9,419,494 13,067,858
Obligations of state and political subdivisions 6,479,671 4,150,048
Other securities 962,935 1,162,041
------------- -------------
Total investment securities 16,862,100 18,379,947
------------- -------------
LOANS (NOTES 1 AND 3): 19,540,581 18,107,467
Less -
Unearned income (158,922) (145,914)
Reserve for losses on loans (471,276) (487,463)
------------- -------------
Net loans 18,910,383 17,474,090
------------- -------------
BUILDING AND EQUIPMENT (NOTE 1):
Building and equipment 771,650 747,344
Less - allowance for depreciation (565,329) (532,248)
------------- -------------
Net building and equipment 206,321 215,096
------------- -------------
OTHER ASSETS:
Accrued interest receivable 652,206 608,315
Prepared insurance 3,457 3,669
------------- -------------
Total other assets 655,663 611,984
------------- -------------
$ 40,986,332 $ 42,150,819
============= =============
F-3
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
DULANEY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
LIABILITIES AND EQUITY CAPITAL
------------------------------
1997 1996
---------------------------
DEPOSITS:
Demand -
Certified and official checks $ 108,686 $ 186,027
Now accounts 7,659,083 8,391,367
Other demand 7,626,897 8,201,241
------------ ------------
Total demand deposits 15,394,666 16,768,635
------------ ------------
Time and savings -
Certificates of deposits of at least $100,000 1,948,185 1,625,551
Other 16,023,168 16,537,546
------------ ------------
Total time deposits 17,971,353 18,163,097
------------ ------------
Total deposits 33,366,019 34,931,732
------------ ------------
OTHER LIABILITIES:
Accrued interest on time deposits 149,605 179,676
Accrued federal income taxes (Note 5) 82,483 81,175
Accrued property taxes 11,586 11,584
Deferred tax liability (Note 5) 108,322 61,951
------------ ------------
Total other liabilities 351,996 334,386
------------ ------------
Total liabilities $ 33,718,015 $ 35,266,118
------------ ------------
EQUITY CAPITAL:
Common stock, par value $20 per share, 160,000 shares
authorized, 40,000 shares issued, 29,497 shares
outstanding $ 800,000 $ 800,000
Surplus 800,000 800,000
Treasury stock, 10,503 shares at cost (1,522,935) (1,522,935)
Undivided profits 6,980,980 6,559,834
Unrealized appreciation -
available for sale securities (Note 2) 210,272 247,802
------------ ------------
Total equity capital 7,268,317 6,884,701
------------ ------------
$ 40,986,332 $ 42,150,819
============ ============
F-4
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
DULANEY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
-------------------------------------------------
OPERATING INCOME:
Interest and fees on loans $ 1,692,343 $ 1,552,309 $ 1,376,753
Investment securities -
Federal funds sold 167,257 172,688 109,262
United States Treasury and Agency obligations 741,731 876,135 889,138
Municipal securities (exempt from Federal tax) 319,057 285,394 309,219
Other Investment securities 75,461 89,604 69,804
------------- ------------- -------------
Total interest income 2,995,849 2,976,130 2,754,176
Interest on deposits (1,155,200) (1,183,700) (1,106,813)
------------- ------------- -------------
Net interest income 1,840,649 1,792,430 1,647,363
Less: Provision for loan losses --- --- ---
------------- ------------- -------------
Net interest income after provision for loan
losses 1,840,649 1,792,430 1,647,363
Other operating income -
Trust department fees 3,000 2,022 1,899
Service charges on deposits 33,732 31,884 31,498
Safe deposit box rental fees 9,922 9,959 9,958
Net securities losses (6,203) (4,835) 16,611
Other commissions and fees 7,627 12,808 10,301
------------- ------------- -------------
Total operating income 1,888,727 1,844,268 1,717,630
------------- ------------- -------------
OPERATING EXPENSES:
Salaries and employee benefits 464,946 432,197 414,898
Occupancy expense 41,564 42,282 41,457
Equipment expense 42,744 43,298 51,580
Loan and deposit processing fees 72,361 71,437 69,274
FDIC Assessments 24,116 21,970 59,394
Other operating expenses 217,886 225,109 240,892
------------- ------------- -------------
Total operating expenses 863,617 836,293 877,495
------------- ------------- -------------
INCOME BEFORE PROVISION FOR INCOME
TAXES 1,025,110 1,007,975 840,135
PROVISION FOR INCOME TAXES (NOTE 5) (250,000) (214,677) 165,000
------------- ------------- -------------
NET INCOME $ 775,110 $ 793,298 $ 675,135
============= ============= =============
EARNINGS PER SHARE $ 26.28 $ 26.89 $ 22.89
============= ============= =============
F-5
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
DULANEY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN UNDIVIDED PROFITS
Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
-----------------------------------------
UNDIVIDED PROFITS, Beginning of Year $ 6,559,834 $ 6,032,009 $ 5,622,347
NET INCOME 775,110 793,298 675,135
DIVIDENDS ($12.00 per share in 1997 and $9.00
per share in 1996 and 1995) (353,964) (265,473) (265,473)
----------- ----------- -----------
UNDIVIDED PROFITS, End of Year $ 6,980,980 $ 6,559,834 $ 6,032,009
=========== =========== ===========
F-6
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
DULANEY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
------------------------------------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Interest received $ 2,998,329 $ 3,121,465 $ 2,832,970
Fees and commissions 54,281 56,673 53,656
Interest paid (1,185,271) (1,187,406) (1,086,847)
Cash paid to suppliers and employees (826,987) (798,643) (831,135)
Income taxes paid (248,692) (199,593) (148,224)
------------ ------------ ------------
Net cash provided by operating activities 791,660 992,496 820,420
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale ($1,738,228, $1,311,829, and $3,285,004
respectively) or maturity of investment securities 5,138,458 7,590,011 4,946,373
Purchase of investment securities (3,664,345) (6,887,292) (3,688,864)
Net increase in loans (1,436,293) (2,190,923) (1,947,050)
Additions to building and equipment (27,640) (11,083) (25,954)
------------ ------------ ------------
Net cash provided by (used in) investing
activities 10,180 (1,499,287) (715,495)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits (1,373,969) 1,126,422 (861,030)
Net decrease in time deposits (191,744) (59,195) 908,701
Dividends paid (353,964) (265,473) (265,473)
------------ ------------ ------------
Net cash provided by (used in) financing
activities (1,919,677) 801,754 (217,802)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
DUE FROM BANKS AND FEDERAL FUNDS
SOLD (1,117,837) 294,963 (112,877)
CASH AND DUE FROM BANKS AND FEDERAL
FUNDS SOLD, Beginning of Year 5,469,702 5,174,739 5,287,616
------------ ------------ ------------
CASH AND DUE FROM BANKS AND FEDERAL
FUNDS SOLD, End of Year $ 4,351,865 $ 5,469,702 $ 5,174,739
============ ============ ============
F-7
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
1997 1996 1995
---------------------------------------------
NET INCOME $ 775,110 $ 793,298 $ 675,135
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Depreciation and amortization 35,897 37,564 45,098
Amortization of premiums paid for securities, net of
discounts accredit 47,679 131,021 147,015
Net gains (losses) on securities and fixtures 6,722 4,835 (16,611)
(Increase) decrease in accrued interest receivable (43,891) 29,398 (68,221)
(Increase) decrease in prepaid insurance 212 (78) (26)
Decrease in interest payable (30,071) (3,706) 19,966
Increase (decrease) in federal income taxes
payable 0 0 16,776
Increase in other liabilities 2 164 1,236
---------- ----------- -----------
NET CASH PROVIDED BY OPERATING $ 791,660 $ 992,496 $ 820,420
ACTIVITIES
========== =========== ===========
F-8
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
DULANEY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
--------------------
Dulaney Bancorp, Inc. is a one bank holding company
which owns Dulaney National Bank. Dulaney National Bank
is a full service banking institution located in
Marshall, Clark County, Illinois. Its principal market
is in Clark and the contiguous Illinois counties.
Consolidation
-------------
The consolidated financial statements include the
accounts of Dulaney Bancorp, Inc. and Dulaney National
Bank, after elimination of all significant inter-company
accounts and transactions.
Trust Assets
------------
Assets of the Trust department, other than trust cash on
deposit at the Bank, are not included in these financial
statements because they are not assets of the Bank.
Cash and Due From Banks and Federal Funds Sold
----------------------------------------------
For purposes of the statements of cash flows, the
Company considers cash on hand, items in the process of
collection, amounts on deposit at correspondent banks
and federal funds sold to be cash equivalents. The Bank
is required to maintain certain liquidity ratios to meet
unanticipated deposit withdrawal requests which it
monitors on an ongoing basis.
Investment Securities
---------------------
"Available For Sale" securities are carried at market
value. Realized gains and losses on "available for sale"
securities are recorded in income using identified cost
on the trade date.
Loans and Allowance for Loan Losses
-----------------------------------
Loans are stated at the amount of unpaid principal,
reduced by unearned discount and an allowance for loan
losses. Unearned discount on installment loans is
recognized in income over the terms of the loans by the
interest method. Interest on other loans is calculated
by using the simple interest method on daily balances of
the principal amount outstanding. The allowance for loan
losses is established
F-9
DULANEY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
through a provision for loan losses charged to expense.
Loans are charged against the allowance for losses when
management believes the collectibility of the principal
is unlikely. The allowance is an amount management
believes will be adequate to absorb possible losses on
existing loans that may become uncollectible, based on
evaluations of the collectibility of loans and prior
loan loss experience. Accrual of interest is
discontinued on a loan when management believes, after
considering economic and business conditions and
collection efforts, the borrower's financial condition
is such that collection of interest is doubtful.
Dulaney National Bank grants agribusiness, commercial
and residential loans to customers throughout east
central Illinois. Although the Bank has a diversified
loan portfolio, a substantial portion of its debtors'
abilities to honor their contracts is dependent upon the
agribusiness economic sector. The Bank has no extensions
of credit to any single borrower or group of related
borrowers in excess of $850,000.
Building and Equipment
----------------------
Building and equipment is recorded at cost and is
depreciated using straight-line and accelerated methods
over the following estimated useful lives:
Building 31.5 years
Office equipment 5 to 7 years
Vehicles 5 years
Maintenance and repair costs are included in operating
expense as incurred, while improvements which
substantially increase the useful lives of existing
building and equipment are capitalized. For the years
ended December 31, 1997, 1996 and 1995 $35,897, $37,564,
$45,098 was expensed for depreciation, respectively.
Use of Estimates
----------------
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
F-10
DULANEY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE 2. INVESTMENT SECURITIES
On January 1, 1994, Dulaney National Bank adopted
Financial Accounting Standards No. 115 (SFAS No. 115)
"Accounting for Certain Investments in Debt and Equity
Securities." SFAS No. 115 requires entities to classify
debt and equity securities as either "held to maturity"
or "available for sale". Under SFAS No. 115, "held to
maturity" securities are recorded at amortized cost,
whereas "available for sale" securities are carried at
market value. SFAS No. 115 further requires that
unrealized gains and losses on "available for sale"
securities be reported, net of tax, as a separate
component of equity capital.
In response to the Financial Accounting Standards Board
FASB 115, reassessment allowance and in reliance on the
Comptroller of the Currency recommendation, the Bank
elected to classify all of their securities as
"available for sale" effective November 30, 1995. Thus,
all of the securities were adjusted to market value with
the net unrealized gain (net of income tax) shown as a
component of equity capital. A comparison of the market
value of "available for sale" securities as of December
31, 1997, 1996 and 1995 with their adjusted cost is as
follows:
1997 1996 1995
------------------------ ------------------------ ------------------------
MARKET ADJUSTED MARKET ADJUSTED MARKET ADJUSTED
VALUE COST VALUE COST VALUE COST
----------- ----------- ----------- ----------- ----------- -----------
U.S. Treasury and Agency $ 9,419,494 $ 9,293,985 $13,067,858 $12,952,636 $13,943,853 $13,788,716
obligations
Obligations of State and 6,479,671 6,290,448 4,150,048 3,955,384 4,851,172 4,560,848
political subdivisions
Other securities 962,935 959,073 1,162,041 1,162,174 542,620 544,112
----------- ----------- ----------- ----------- ----------- -----------
$16,862,100 $16,543,506 $18,379,947 $18,070,194 $19,344,645 $18,893,676
=========== =========== =========== =========== =========== ===========
Other securities includes $48,000 of Federal Reserve
Bank stock in all columns for 1997 and 1996.
F-11
DULANEY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
The gross unrealized depreciation or appreciation on
"available for sale" securities in 1997, 1996 and 1995
was as follows:
1997 1996 1995
---------- ---------- ----------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS-
Securities with gross unrealized appreciation $ 131,022 $ 133,797 $ 169,300
Securities with gross unrealized depreciation (5,513) (18,575) (14,163)
OBLIGATIONS OF STATE AND POLITICAL SUBDIVISIONS-
Securities with gross unrealized appreciation 189,225 195,067 290,324
Securities with gross unrealized depreciation (2) (403) -
OTHER SECURITIES-
Securities with gross unrealized appreciation 8,234 6,744 6,339
Securities with gross unrealized depreciation (4,372) (6,877) (831)
---------- ---------- ----------
Gross appreciation 318,594 309,753 450,969
Provision for taxes (108,322) (61,951) 90,201
---------- ---------- ----------
Amount included in equity capital (net of tax) $ 210,272 $ 247,802 $ 360,768
========== ========== ==========
Investment securities with a market value of $2,256,450,
$3,289,416, $1,527,816 were held as collateral for
public monies on deposit at December 31, 1997, 1996 and
1995 respectively.
Proceeds from the sale of "available for sale"
securities totaled $1,738,228 in 1997, 31,311,829 in
1996, $3,285,004 in 1995 resulting in realized losses of
$6,203, $4,835, 16,611 in 1997, 1996 and 1995
respectively.
F-12
DULANEY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
The maturity distribution of the security portfolio as
of December 31, 1997, 1996 and 1995 is as follows:
After One
Year But
Within One Within After Five
1997 Year Five Years Years
---- ---------- ----------- ----------
U.S. Treasury and agency obligations $4,495,560 $ 2,739,580 $2,184,354
Obligations of state and political subdivisions 1,787,936 3,881,866 809,869
Other securities -- 962,935 --
---------- ----------- ----------
$6,283,496 $ 7,584,381 $2,994,223
========== =========== ==========
1996
----
U.S. Treasury and agency obligations $3,715,676 $ 8,902,501 $ 449,681
Obligations of state and political subdivisions 85,749 3,668,682 395,617
Other securities 128,501 985,540 48,000
---------- ----------- ----------
$3,929,926 $13,556,723 $ 893,298
========== =========== ==========
1995
----
U.S. Treasury and agency obligations $2,686,620 $ 7,907,065 $3,350,168
Obligations of state and political subdivisions 1,148,559 2,730,043 972,570
Other securities 24,563 477,057 48,000
---------- ----------- ----------
$3,859,742 $11,114,165 $4,370,738
========== =========== ==========
NOTE 3. LOANS
Major classifications of loans are as follows:
1997 1996 1995
------------ ------------ ------------
Commercial $ 5,460,970 $ 5,315,275 $ 4,923,646
Agricultural 2,526,787 2,987,540 2,961,130
Mortgage 10,276,541 8,634,945 7,029,241
Installment 1,256,855 1,145,617 1,004,544
Student 19,428 24,090 27,091
------------ ------------ ------------
$ 19,540,581 $ 18,107,467 $ 15,945,652
============ ============ ============
F-13
DULANEY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
Maturity distributions of loans and rate sensitivity at
December 31, 1997 are as follows:
Fixed Rate Variable
Loans Rate Loans
------------ -------------
Three months or less $ 2,358,638 $ 1,288,117
Three months through one year 4,936,490 ---
One year through five years 9,690,172 ---
Over five years 1,267,104 ---
------------ -------------
$ 18,252,404 $ 1,288,177
============ =============
Loans on which the accrual of interest has been
discontinued amounted to $163,119 in 1997 and in 1996
and $-0- in 1995.
Changes in the reserve for losses on loans during 1997,
1996 and 1995 were as follows:
1997 1996 1995
--------- --------- ---------
Balance, beginning of year $ 487,463 $ 536,099 $ 497,224
Recovery of loans previously charged off 23,751 33,263 75,686
Loans charged off (39,938) (81,899) (36,811)
--------- --------- ---------
Balance, end of year $ 471,276 $ 487,463 $ 536,099
========= ========= =========
Unfunded loan commitments as of December 31, 1997 on
approved credit lines were $2,223,000.
NOTE 4. LOANS TO RELATED PARTIES
The subsidiary bank has approved a credit line to a
company, the shareholders of which are also shareholders
of Dulaney Bancorp, Inc. Related party loans are made on
substantially the same terms, including interest rates
and collateral, as those prevailing at the time for
comparable transactions with unrelated persons and do
not involve more than normal risk of collectibility. The
total amount of loans to related parties was $53,956 and
$47,204 at December 31, 1997 and 1996,
F-14
DULANEY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
respectively. In addition, the aggregate dollar amount
of approved credit lines to related parties was
$300,000, of which $-0- was outstanding at December 31,
1997, 1996 and 1995.
NOTE 5. INCOME TAXES
The Corporation files a consolidated income tax return
with its subsidiary, Dulaney National Bank. The combined
entities have a net operating loss carryforward of
approximately $313,000 for Illinois tax purposes, which
expires commencing in 2002. The loss carryforward is
primarily due to the fact that U.S. Treasury interest is
exempt from Illinois tax. A reconciliation of U.S. tax
provided compared to the statutory rate of 34% applied
to pretax profits is as follows:
1997 1996 1995
---------- --------- ----------
Computed income tax at 34% on income before
taxes $ 348,537 $ 342,712 $ 285,646
Reduction for tax exempt state and political
subdivision interest (108,479) (97,034) (105,134)
Other permanent differences between taxable
income and financial statement income (net) 9,942 (31,001) (15,512)
---------- --------- ----------
Federal Tax Provided $ 250,000 $ 214,677 $ 165,000
========== ========= ==========
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of
assets and liabilities for financial statement reporting
purposes and the amounts used for income tax purposes.
The items giving rise to deferred tax liabilities are:
1) $25,975 of historical loan loss deductions taken for
tax purposes in excess of the amounts charged against
book income and 2) the recording of unrealized holding
gains and losses on marketable debt securities
promulgated by the provisions of FASB Statement 115. The
Federal taxes accrued of $190,805 in 1997, $143,126 in
1996 and $156,283 in 1995 are sufficient to cover the
tax currently due as well as the deferred tax
liabilities for the unrealized net holding gains and the
timing difference caused by the reserve for loan loss
provisions.
F-15
DULANEY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE 6. PENSION PLAN
The Company established a qualified 40 1(k) plan
covering all full-time employees during 1993. The
Company matches 50% of a participant's voluntary
contributions up to a maximum of 4% of a participant's
compensation. The Company's cost of this plan was
$7,455, $6,980, $6,962 in 1997, 1996 and 1995
respectively.
NOTE 7. REGULATORY MATTERS
Banking laws and regulations limit the amount of
dividends that may be paid without prior approval of the
Bank's regulatory agency. The amount of retained
earnings available for dividends is principally equal to
the last three years profits less dividends previously
declared and less any required transfers to surplus.
Banking regulations also require the Bank to maintain
certain minimum capital levels in relation to Bank
assets. At December 31, 1997, regulations require a
ratio of capital to risk-weighted assets of 8.0 percent.
The Bank's capital at December 31, 1997, as defined by
the regulations, was 32.34 percent of risk-weighted
assets. In addition, banks are expected to maintain a
leverage ratio of at least 3.0 percent. At December 31,
1997, the Bank's leverage ratio was 17.1 percent.
NOTE 8. CREDIT RISKS
The Bank maintains deposits and sells federal funds to
correspondent banks in amounts which exceed federally
insured limits. Management believes these correspondent
banks represent high quality financial institutions. The
Bank invests in unguaranteed debt instruments of state
and political subdivisions and secured pools of mortgage
backed securities. The credit ratings of the securities
are reviewed at the date of purchase and periodically
thereafter. The Bank grants agribusiness, commercial,
and residential loans to customers throughout the
midwest. Although the Bank has a diversified loan
portfolio, a substantial portion of its debtors' ability
to honor their contracts is dependent upon the
agribusiness economic sector.
F-16
DULANEY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE 9. PARENT COMPANY ONLY FINANCIAL STATEMENTS
The following financial statements reflect the accounts
of Dulaney Bancorp, Inc. and how it accounts for its
investment in Dulaney National Bank.
DULANEY BANCORP. INC.
---------------------
BALANCE SHEETS
--------------
DECEMBER 31, 1997, 1996 AND 1995
--------------------------------
ASSETS
------
1997 1996 1995
------------ ------------ ------------
Cash $ 9,764 $ 5,353 $ 2,118
Investment in Dulaney National Bank 7,258,553 6,879,348 6,467,724
------------ ------------ ------------
$ 7,268,317 $ 6,884,701 $ 6,469,842
============ ============ ============
LIABILITIES AND EQUITY CAPITAL
------------------------------
Common stock, par value of $20 per share, 160,000 $ 800,000 $ 800,000 $ 800,000
shares authorized, 40,000 shares issued and
29,497 outstanding
Surplus 800,000 800,00 800,00
Treasury stock, 10,503 shares at cost (1,522,935) (1,522,935) (1,522,935)
Undivided profits 7,191,252 6,807,636 6,392,777
------------ ------------ ------------
Total equity capital 7,268,317 6,884,701 6,469,842
------------ ------------ ------------
$ 7,268,317 $ 6,884,701 $ 6,469,842
============ ============ ============
F-17
DULANEY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
DULANEY BANCORP, INC.
---------------------
STATEMENTS OF OPERATIONS
------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
1997 1996 1995
---------- ---------- ----------
OTHER INCOME (EXPENSE):
Other fees and licenses $ (1,625) $ (1,615) $ (1,615)
Other income, net -- 323 -
---------- ---------- ----------
LOSS BEFORE EQUITY IN UNDISTRIBUTED (1,625) (1,292) (1,615)
EARNINGS OF BANK SUBSIDIARY
EQUITY IN UNDISTRIBUTED EARNINGS OF 739,205 681,624 1,123,256
BANK SUBSIDIARY
---------- ---------- ----------
NET INCOME 737,580 680,332 1,121,641
UNDIVIDED PROFITS, Beginning of Year 6,807,636 6,392,777 5,536,609
DIVIDENDS DECLARED (353,964) (265,473) (265,473)
---------- ---------- ----------
UNDIVIDED PROFITS, End of Year $7,191,252 $6,807,636 $6,392,777
========== ========== ==========
F-18
DULANEY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
DULANEY BANCORP, INC.
---------------------
STATEMENTS OF CASH FLOWS
------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
Increase (Decrease) in Cash
1997 1996 1995
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from subsidiary $ 360,000 $ 270,323 $ 260,000
Cash paid to suppliers (1,625) (1,615) (1,615)
---------- ---------- ----------
Net cash provided by operating activities 358,375 268,708 258,385
---------- ---------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Dividends Paid (353,964) (265,473) (265,473)
---------- ---------- ----------
Net cash used in financing activities (353,964) (265,473) (265,473)
---------- ---------- ----------
NET INCREASE IN CASH 4,411 3,235 (7,088)
CASH, Beginning of Year 5,353 2,118 9,206
---------- ---------- ----------
CASH, End of Year $ 9,764 $ 5,353 $ 2,118
========== ========== ==========
Reconciliation of Net Income to Net Cash
Provided by Operating Activities
NET INCOME $ 737,580 $ 680,332 $1,121,641
ADJUSTMENTS TO RECONCILE NET
INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Undistributed earnings of bank subsidiary (379,205) (411,624) (863,256)
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES $ 358,375 $ 268,708 $ 258,385
========== ========== ==========
F-19
DULANEY BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, 1998 and 1997
1998 1997
-----------------------
(Dollars in Thousands)
ASSETS
Cash and due from banks $ 1,891 $ 2,199
Securities
Held to maturity -0- -0-
Available for sale (at estimated market value) 14,899 16,999
-------- --------
TOTAL INVESTMENTS $ 16,790 $ 19,198
Federal funds sold $ 5,050 $ 3,600
Loans 20,111 19,059
Less: Reserve for loan losses (488) (498)
-------- --------
NET LOANS $ 19,623 $ 18,561
Premises and equipment, net $ 191 $ 218
Other assets 759 646
-------- --------
TOTAL ASSETS $ 42,413 $ 42,223
======== ========
F-20
DULANEY BANCORP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(UNAUDITED)
September 30, 1998 and 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
1998 1997
-----------------------
(Dollars in Thousands)
LIABILITIES
Deposits $ 34,631 $ 34,798
Federal funds purchased -0- -0-
Borrowings -0- -0-
Other liabilities 301 371
-------- --------
TOTAL LIABILITIES $ 34,932 $ 35,169
SHAREHOLDERS' EQUITY
Common stock - $20.00 par value; 160,000 shares authorized; 40,000
shares issued; 29,497 shares outstanding $ 800 $ 800
Surplus 800 800
Retained earnings 7,143 6,758
Treasury stock at cost - 10,503 and 10,503 shares (1,523) (1,523)
Unrealized net appreciation, available for sale securities 261 219
-------- --------
TOTAL STOCKHOLDERS' EQUITY $ 7,481 $ 7,054
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 42,413 $ 42,223
======== ========
F-21
DULANEY BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Nine Months Ended September 30, 1998 and 1997
1998 1997
------------------------
(Dollars in Thousands)
INTEREST INCOME
Interest and fees on loans $ 1,308 $ 1,229
Investment securities
Taxable 460 627
Tax-exempt 279 231
Federal funds sold 152 126
------- -------
TOTAL INTEREST INCOME $ 2,199 $ 2,213
INTEREST EXPENSE
Deposits $ 878 $ 854
Borrowings -0- -0-
Federal funds purchased -0- -0-
------- -------
TOTAL INTEREST EXPENSE $ 878 $ 854
------- -------
NET INTEREST INCOME $ 1,321 $ 1,359
Provision for loan losses -0- -0-
------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES $ 1,321 $ 1,359
OTHER INCOME
Brokerage Revenue -0- -0-
Service charges 28 24
Trust fees 1 2
Gain (loss) on securities 8 (6)
Other 18 20
------- -------
$ 55 $ 40
OTHER EXPENSE
Employee compensation and benefits $ 356 $ 332
Net occupancy 67 67
FDIC Insurance 5 5
Data Processing 57 54
Other 184 168
------- -------
$ 669 $ 626
------- -------
INCOME BEFORE INCOME TAXES $ 707 $ 773
Income tax expense 175 210
------- -------
NET INCOME $ 532 $ 563
======= =======
F-22
DULANEY BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30, 1998 and 1997
1998 1997
----------------------
(Dollars in Thousands)
OPERATING ACTIVITIES:
NET INCOME $ 532 $ 563
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses -0- -0-
Depreciation expense 20 16
Realized securities gains 8 -0-
(Increase) decrease in other assets 104 34
Increase (decrease) in other liabilities (57) 36
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 607 $ 649
INVESTING ACTIVITIES:
Net (increase) decrease in federal funds sold $ 2,900 $ 100
Net (increase) decrease in loans 734 1,248
Proceeds from maturities of available-for-sale securities 584 85
Proceeds from sales of available-for-sale securities 608 988
Purchases of available-for-sale securities (3,007) (2,865)
Purchases of property and equipment -0- -0-
-------- --------
NET CASH USED IN INVESTING ACTIVITIES $(1,819) $ (444)
F-23
DULANEY BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
Nine Months Ended September 30, 1998 and 1997
1998 1997
----------------------
(Dollars in Thousands)
FINANCING ACTIVITIES:
Net increase in borrowings $ -0- $ -0-
Net increase (decrease) in federal funds purchased -0- -0-
Net increase (decrease) in deposits 1,255 601
Treasury stock purchased -0- -0-
Cash dividends paid (354) (354)
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 901 $ 247
Increase in cash and cash equivalents $ (311) $ 452
Cash and cash equivalents at beginning of period 2,202 1,747
------- -------
Cash and cash equivalents at end of period $ 1,891 $ 2,199
======= =======
F-24
APPENDIX A
AGREEMENT OF AFFILIATION AND MERGER
THIS AGREEMENT OF AFFILIATION AND MERGER ("Agreement") is made and
entered into effective as of the 5th day of November, 1998, by and between OLD
NATIONAL BANCORP ("ONB") and DULANEY BANCORP, INC. ("Dulaney").
W I T N E S S E T H:
--------------------
WHEREAS, ONB is an Indiana corporation registered as a bank holding
company under the federal Bank Holding Company Act of 1956, as amended ("BHC
Act"), with its principal office located in Evansville, Vanderburgh County,
Indiana; and
WHEREAS, Dulaney is an Illinois corporation registered as a bank
holding company under the BHC Act, with its principal office located in
Marshall, Clark County, Illinois, and is the sole owner of Dulaney National
Bank, a national banking association ("Bank"); and
WHEREAS, it is the desire of ONB and Dulaney to affiliate through a
corporate reorganization whereby Dulaney will be merged with and into ONB and
Dulaney National Bank ("Bank") will become a wholly-owned subsidiary of ONB; and
WHEREAS, a majority of the entire Board of Directors of each of ONB
and Dulaney 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 Dulaney hereby make this Agreement and prescribe the terms
and conditions of the affiliation of ONB and Dulaney 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), Dulaney shall be merged 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, Bank shall become a wholly-owned subsidiary of ONB.
A-1
1.02. Name, Officers and Management. The name of the Surviving
Corporation shall be "Old National Bancorp." Its principal office shall be
located at 420 Main Street, Evansville, Indiana 47708. The 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. The directors of Dulaney shall cease to be directors
of Dulaney as of the Effective Time and shall not become directors of ONB after
the Effective Time. The directors of ONB as of the Effective Time shall remain
the directors of the Surviving Corporation, until such time as their successors
have been duly elected and have been qualified.
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 ByLaws 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 Dulaney shall vest in ONB
without reversion or impairment. At the Effective Time, all liabilities of
Dulaney shall be assumed by ONB.
1.06. Tax-Free Reorganization. ONB and Dulaney intend for the Merger
to qualify as a reorganization within the meaning of Section 368 and related
sections of the Internal Revenue Code of 1986, as amended ("Code"), and for the
Merger to be accounted for as a pooling-of-interest transaction. ONB and Dulaney
agree to cooperate and to take such action as may be reasonably necessary to
achieve such results.
SECTION 2
MANNER AND BASIS
OF EXCHANGE OF STOCK
--------------------
2.01. Exchange Ratio. (a) Upon and by virtue of the Merger becoming
effective at the Effective Time, each issued and outstanding share of Dulaney
Common Stock (as defined in Section 5.03 hereof), other than shares as to which
statutory dissenters rights are exercised, shall be converted into the right to
receive ten and six hundred eighty three one thousandths (10.683) shares of ONB
common stock ("Exchange Ratio"), subject to adjustment, if any, pursuant to the
provisions of Sections 2.01 and 2.03 hereof.
(b) As the Exchange Ratio was calculated based upon a per share
value of ONB common stock of $47.75, if the Average Price Per Share (as
hereinafter defined) of ONB common stock is greater than $52.525 or less than
$42.975, then the Exchange Ratio shall be adjusted prior to the Effective Time
as provided by Section 2.01(c) hereof.
A-2
(c) The Average Price Per Share of ONB common stock shall mean and
be calculated based upon the average of the per share closing prices of ONB
common stock as reported on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") National Market System for the first five
(5) business days on which trades of shares of ONB common stock are reported on
NASDAQ within the ten (10) calendar days immediately preceding the Effective
Time ("Average Price Per Share"). The adjustment contemplated by Section 2.01(b)
hereof shall be applied in the following manner: (i) if the Average Price Per
Share of ONB common stock exceeds $52.525, then the Exchange Ratio shall be
adjusted such that each share of Dulaney Common Stock shall be converted into
the number of shares of ONB common stock resulting from the following formula:
$561.12 / Average Price Per Share; (ii) if the Average Price Per Share of ONB
common stock is less than $42.975, then the Exchange Ratio shall be adjusted
such that each share of Dulaney Common Stock shall be converted into the number
of shares of ONB common stock resulting from the following formula: $459.10 /
Average Price Per Share; and (iii) if the Average Price Per Share of ONB common
stock is not less than $42.975 nor more than $52.525, then there shall be no
adjustment to the Exchange Ratio.
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 Dulaney who would
otherwise have been entitled to a fraction of a share of ONB common stock shall
be paid in cash following the Effective Time an amount equal to such fraction
multiplied by the Average Price Per Share.
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 Dulaney'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) Following the
Effective Time, ONB shall mail to each Dulaney shareholder a letter of
transmittal providing instructions as to the transmittal to ONB of certificates
representing shares of Dulaney Common Stock and the issuance of shares of ONB
common stock in exchange therefor pursuant to the terms of this Agreement.
(b) Following the Effective Time, distribution of stock certificates
representing shares of ONB common stock and any cash payment, without interest,
for fractional shares, if any, shall be made by ONB to each former shareholder
of Dulaney within twenty (20) business days following delivery to ONB of the
shareholder's certificate(s) representing its shares of Dulaney Common Stock
accompanied by a properly completed and executed letter of transmittal, all in
form and substance reasonably satisfactory to ONB.
A-3
(c) Following the Effective Time, stock certificates representing
shares of Dulaney 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 Dulaney shareholder entitled to receive the same until such shareholder has
surrendered to ONB his or her certificate or certificates representing Dulaney
Common Stock in exchange for a certificate or certificates representing ONB
common stock. Upon surrender of the certificates representing shares of Dulaney
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
Dulaney 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 Dulaney Common Stock.
(e) With respect to any certificate for shares of Dulaney Common
Stock which has been lost, stolen or destroyed, ONB shall be authorized to issue
common stock (or to pay cash as to fractional shares) to the registered owner of
such certificate upon receipt by ONB of an agreement to indemnify ONB against
loss from such lost, stolen or destroyed certificate and an affidavit of lost,
stolen or destroyed stock certificate, both in form and substance reasonably
satisfactory to ONB, and upon compliance by the Dulaney shareholder with all
other reasonable requirements of ONB in connection with lost, stolen or
destroyed stock certificates.
SECTION 3
DISSENTING SHAREHOLDERS
-----------------------
Shareholders of Dulaney who properly exercise and perfect statutory
dissenters' rights shall have the rights accorded to dissenting shareholders
under Article 11 of the Illinois Business Corporations Act of 1983, as amended.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF DULANEY
-----------------------------------------
Dulaney hereby represents and warrants to ONB with respect to itself
and Bank, as its wholly-owned subsidiary, as follows:
4.01. Organization and Authority. Dulaney is a corporation duly
organized and validly existing under the laws of the State of Illinois. Bank is
a national banking association duly organized and validly existing under the
laws of the United States of America. Dulaney and Bank have full power and
authority (corporate and otherwise) to own and lease their properties
A-4
as presently owned and leased and to conduct their respective business in the
manner and by the means utilized as of the date hereof. Except as set forth in
the Disclosure Schedule (for purposes of this Agreement, "Disclosure Schedule"
shall mean the schedules referencing the applicable provisions of this Section 4
which are attached hereto and made a part of this Agreement), Dulaney's only
subsidiary is Bank and it has no other subsidiaries and owns no voting stock or
equity securities of any corporation, partnership, association or other entity.
Bank has no subsidiaries. Bank is subject to primary regulatory supervision and
examination by the Office of the Comptroller of the Currency ("OCC"). Dulaney
does not have a class of stock registered pursuant to Section 12, and is not
subject to the reporting requirements, of the Securities Exchange Act of 1934,
as amended ("1934 Act").
4.02. Authorization. (a) Dulaney 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. This Agreement and its execution and delivery by
Dulaney have been duly authorized and approved by the Board of Directors of
Dulaney and, assuming due execution and delivery by ONB, constitutes a valid and
binding obligation of Dulaney, subject to the fulfillment of the conditions
precedent set forth in Section 8.02 hereof, and is enforceable in accordance
with its terms, except to the extent limited by general principles of equity and
public policy and by bankruptcy, insolvency, fraudulent transfer,
reorganization, liquidation, moratorium, readjustment of debt or other laws of
general application relating to or affecting the enforcement of creditors'
rights.
(b) Neither the execution of this Agreement nor consummation of the
Merger contemplated hereby: (i) conflicts with or violates Dulaney's Certificate
of Incorporation 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 Dulaney or Bank is a party
or by which Dulaney or Bank 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 Dulaney or Bank which would be
material to Dulaney on a consolidated basis; 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 Dulaney or Bank is bound or with respect to which Dulaney or
Bank is to perform any duties or obligations or receive any rights or benefits.
(c) Other than in connection or in compliance with the provisions of
the 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,
A-5
authorization or approval of any governmental agency or body is necessary for
consummation of the Merger by Dulaney or Bank.
4.03. Capitalization. (a) The authorized capital stock of Dulaney as
of the date hereof consists, and at the Effective Time will consist, of 160,000
shares of common stock, $20.00 par value per share, 29,497 of which shares are
issued and outstanding (such issued and outstanding shares are referred to
herein as "Dulaney Common Stock"). Such issued and outstanding shares of Dulaney
Common Stock have been duly and validly authorized by all necessary corporate
action of Dulaney, are validly issued, fully paid and nonassessable and have not
been issued in violation of any pre-emptive rights of any present or former
Dulaney shareholder. Dulaney has no common stock authorized, issued or
outstanding other than as described in this Section 4.03(a) and has no intention
or obligation to authorize or issue any other capital stock or any additional
shares of Dulaney Common Stock. On a consolidated basis as of June 30, 1998,
Dulaney had total capital of approximately $7,409,000, which consisted of common
stock of $800,000, capital surplus of $800,000 and undivided profits of
$5,809,000, including unrealized gains or losses on available-for-sale
securities. Each share of Dulaney Common Stock is entitled to one vote per
share. A description of the Dulaney Common Stock is contained in the Certificate
of Incorporation of Dulaney, as amended, as set forth in the Disclosure Schedule
pursuant to Section 4.04 hereof.
(b) The authorized capital stock of Bank as of the date hereof
consists, and at the Effective Time will consist, of 40,000 shares of common
stock, $20.00 par value per share, all of which 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 Bank, are
validly issued, fully paid and nonassessable (except to the extent provided by
12 U.S.C. ss. 55, as amended), 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 common stock of Bank are owned by Dulaney 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. 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. On a
consolidated basis as of June 30, 1998, Bank had total capital of approximately
$7,398,000, which consisted of common stock of $800,000, capital surplus of
$800,000 and undivided profits of $5,798,000, including unrealized gains or
losses on available-for-sale securities. Each share of Bank Common Stock is
entitled to one vote per share. A description of the Bank Common Stock is
contained in the Articles of Association of Bank, as amended, as set forth in
the Disclosure Schedule pursuant to Section 4.04 hereof.
(c) There are no options, warrants, commitments, calls, puts,
agreements, understandings, arrangements or subscription rights relating to any
shares of Dulaney Common Stock, or any securities convertible into or
representing the right to purchase or otherwise acquire any common stock or debt
securities of Dulaney, by which Dulaney is or may become bound. Dulaney does not
have any outstanding contractual or other obligation to repurchase,
A-6
redeem or otherwise acquire any of the issued and outstanding shares of Dulaney
Common Stock.
(d) There are no options, warrants, commitments, calls, puts,
agreements, understandings, arrangements or subscription rights relating to any
shares of Bank Common Stock, or any securities convertible into or representing
the right to purchase or otherwise acquire any common stock or debt securities
of Bank, by which Bank is or may become bound. Bank does not have any
outstanding contractual or other obligation to repurchase, redeem or otherwise
acquire any of the issued and outstanding shares of Bank Common Stock.
(e) Except as set forth in the Disclosure Schedule, Dulaney has no
knowledge of any person or entity which beneficially owns 5% or more of its
outstanding shares of common stock.
4.04. Organizational Documents. The respective Certificate of
Incorporation and ByLaws of Dulaney, and the Articles of Association and By-Laws
of Bank, representing true, accurate and complete copies of such corporate
documents in effect as of the date of this Agreement, have been delivered to ONB
and are included in the Disclosure Schedule.
4.05. Compliance with Law. (a) Neither Dulaney nor Bank 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, the violation of which would reasonably be expected to have a
material adverse effect on the financial condition, results of operations,
business, assets or capital of Dulaney and Bank on a consolidated basis. Dulaney
and Bank 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) All agreements, understandings and commitments with, and all
orders and directives of, all government regulatory agencies or authorities with
respect to the financial condition, results of operations, business, assets or
capital of Dulaney or Bank which presently are binding upon or require action
by, or at any time during the last five (5) years have been binding upon or have
required action by, Dulaney or Bank, including, without limitation, all
correspondence, communications and commitments related thereto, are set forth in
the Disclosure Schedule. There are no uncured violations, or violations with
respect to which refunds or restitutions may be required, cited in any
examination report of Dulaney or Bank as a result of an examination by any
regulatory agency or body, or set forth in any accountant's or auditor's report
to Dulaney or Bank.
(c) All of the existing offices and branches of Dulaney and Bank
have been legally authorized and established in accordance with all applicable
federal, state and local laws,
A-7
statutes, regulations, rules, ordinances, orders, restrictions and requirements.
Bank has no approved but unopened offices or branches.
4.06. Accuracy of Statements Made and Materials Provided to ONB. (a)
No representation, warranty or other statement made, or any information
provided, by Dulaney or Bank 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 Dulaney or Bank
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 Dulaney and Bank 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 Dulaney'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.
(b) Any materials or information provided by Dulaney or Bank to ONB
for use by ONB in any filing with any state or federal regulatory agency or
authority shall not contain any untrue or misleading statement of material fact
or shall omit to state a material fact necessary to make the statements
contained therein, in light of the circumstances in which they are made, not
false or misleading.
4.07. Litigation and Pending Proceedings. (a) Except as set forth in
the Disclosure Schedule, there are no claims, actions, suits, proceedings,
arbitrations or investigations pending or, to the best knowledge of Dulaney and
Bank after due inquiry, threatened in any court or before any government agency
or authority, arbitration panel or otherwise (nor does Dulaney or Bank have any
knowledge of a basis for any claim, action, suit, proceeding, litigation,
arbitration or investigation) against, by or affecting Dulaney and Bank which
would reasonably be expected to have a material adverse effect on the financial
condition, results of operations, business, assets or capital of Dulaney and
Bank on a consolidated basis, or which would prevent the performance of this
Agreement, declare the same unlawful or cause the rescission hereof.
(b) Except as set forth in the Disclosure Schedule, neither Dulaney
nor Bank 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 Dulaney or Bank, 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 Dulaney or Bank 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. Dulaney has delivered to ONB
copies of the following financial statements and reports of Dulaney and Bank,
including the notes thereto (collectively, the "Dulaney Financial Statements"):
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(a) Consolidated Balance Sheets and the related Consolidated
Statements of Income and Consolidated Statements of Changes in Shareholders'
Equity of Dulaney as of and for the years ended December 31, 1995, 1996 and
1997, and as of and for the fiscal quarter ended June 30, 1998;
(b) Consolidated Statements of Cash Flows of Dulaney for the years
ended December 31, 1995, 1996 and 1997, and for the fiscal quarter ended June
30, 1998;
(c) Consolidated Statements of Changes in Financial Position of
Dulaney for the years ended December 31, 1996 and 1997, and for the fiscal
quarter ended June 30, 1998;
(d) Reports of Condition and Income ("Call Reports") for Bank as of
the close of business on December 31, 1994, 1995, 1996 and 1997; and
(e) Financial Statements of Dulaney 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, 1996 and 1997.
The Dulaney Financial Statements are true, accurate and complete in
all material respects and present fairly the consolidated financial position of
Dulaney and Bank as of and at the dates shown and the consolidated results of
operations for the periods covered thereby. The Dulaney 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 reports with respect
to such financial statements. The Dulaney 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 Dulaney Financial Statements false, misleading
or inaccurate in any material respect.
4.09. Properties, Contracts, Employees and Other Agreements. (a) Set
forth in the Disclosure Schedule are a true, accurate and complete copy of the
following:
(i) A brief description and the location of all real
property owned by Dulaney or Bank and the principal
buildings and structures located thereon, together with
a legal description of such real property and a title
insurance policy or abstract opinion insuring the same,
and each lease of real property to which Dulaney or Bank
is a party, identifying the parties thereto, the annual
rental payable, the expiration date of the lease and a
brief description of the property covered;
(ii) All conditional sales contracts or other title retention
agreements relating to Dulaney or Bank and agreements
for the purchase of federal funds;
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(iii) All agreements, contracts, leases, licenses, lines of
credit, understandings, commitments or obligations of
Dulaney or Bank which individually or in the aggregate:
(A) involve payment or receipt by Dulaney or
Bank (other than as disbursements of loan
proceeds to customers, loan payments by
customers or customer deposits) of more than
$10,000;
(B) involve payments based on profits of Dulaney
or Bank;
(C) relate to the purchase of goods, products,
supplies or services in excess of $10,000;
(D) were not made in the ordinary course of
business; or
(E) may not be terminated without penalty within
one (1) year from the date of this
Agreement; and
(iv) The name and current annual salary of each director,
officer and employee of Dulaney or Bank 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 Dulaney or Bank to or for the
benefit of each such person for the year ended December
31, 1997, and any employment, severance or deferred
compensation agreement or arrangement with respect to
each such person.
(b) Dulaney and Bank have, prior to the date of this Agreement,
provided or given access to ONB to the files and documentation of all borrowers
of Bank, or persons or entities that are or may become obligated to Bank under
an existing letter of credit, line of credit, loan transaction, loan agreement,
promissory note or other commitment of Bank, in excess of $10,000 individually
or in the aggregate, whether in principal, interest or otherwise, and including
all guarantors of such indebtedness.
(c) 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. Dulaney and Bank are, and to their respective best knowledge after due
inquiry, all other parties thereto are, in material compliance with the
provisions thereof, and Dulaney and Bank are not, and to their respective best
knowledge after due inquiry, no other party thereto is, in default in the
performance, observance or fulfillment of any material obligation, covenant or
provision contained therein. None of the foregoing requires the consent of any
party to its assignment in connection with the Merger contemplated by this
Agreement. Other than as disclosed pursuant to this Section 4.09, to the best
knowledge of Dulaney and Bank after due inquiry, no circumstances exist
resulting from transactions effected or to be effected, from events which
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have occurred or may occur or from any action taken or omitted to be taken which
could reasonably be expected to result in the creation of any agreement,
contract, obligation, commitment, arrangement, lease or document described in or
contemplated by this Section 4.09.
4.10. Absence of Undisclosed Liabilities. Except as provided in the
Dulaney Financial Statements and in the Disclosure Schedule, except for unfunded
loan commitments and obligations on letters of credit to customers of Bank,
except for trade payables incurred in the ordinary course of Dulaney's and
Bank's business (for purposes of this Section 4, all references to ordinary
course of business shall be deemed to be Dulaney's and Bank's ordinary course of
business), and except for the transaction contemplated by this Agreement,
neither Dulaney nor Bank has, nor will have at the Effective Time, any
obligation, agreement, contract, commitment, liability, lease or license which
exceeds $10,000 individually, or any obligation, agreement, contract,
commitment, liability, lease or license made outside of the ordinary course of
business, nor does there exist any circumstances resulting from transactions
effected or events occurring on or prior to the date of this Agreement or from
any action omitted to be taken during such period which could reasonably be
expected to result in any such obligation, agreement, contract, commitment,
liability, lease or license.
4.11. Title to Assets. Except as described in this Section 4.11: (a)
Dulaney and Bank have 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 Dulaney
Financial Statements as of June 30, 1998; good and marketable title to all
personal property reflected in the Dulaney Financial Statements as of June 30,
1998, other than personal property disposed of in the ordinary course of
business since June 30, 1998; good and marketable title to or right to use by
valid and enforceable lease or contract all other properties and assets (whether
real or personal, tangible or intangible) which Dulaney and Bank purports to own
or which Dulaney or Bank uses in its business; good and marketable 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 and marketable title to
all property and assets acquired and not disposed of or leased since June 30,
1998. All of such properties and assets are owned by Dulaney or Bank free and
clear of all land or conditional sales contracts, mortgages, liens, pledges,
restrictions, security interests, charges, claims, rights of third parties or
encumbrances of any nature except: (i) as set forth in the Disclosure Schedule;
(ii) as specifically noted in reasonable detail in the Dulaney 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 Dulaney 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
otherwise materially impair the use thereof for the purposes for which they are
held or used. All real property owned or leased by Dulaney or Bank is in
material compliance with all applicable zoning and land use laws.
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(b) Dulaney and Bank have conducted their respective business in
compliance with all federal, state, county and municipal laws, statutes,
regulations, rules, ordinances, orders, directives, restrictions and
requirements relating to, without limitation, responsible property transfer,
underground storage tanks, petroleum products, air pollutants, water pollutants
or storm water or process waste water or otherwise relating to the environment
or toxic or hazardous substances or to the manufacturing, recycling, handling,
processing, distribution, use, generation, treatment, storage, disposal or
transport of any hazardous or toxic substances or petroleum products (including
polychlorinated biphenyls, whether contained or uncontained, and
asbestos-containing materials, whether friable or not), including, without
limitation, the Federal Solid Waste Disposal Act, the Hazardous and Solid Waste
Amendments, the Federal Clean Air Act, the Federal Clean Water Act, the
Occupational Health and Safety Act, the Federal Resource Conservation and
Recovery Act, the Toxic Substances Control Act, the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980 and the Superfund
Amendments and Reauthorization Act of 1986, all as amended, and regulations of
the Environmental Protection Agency, the Nuclear Regulatory Agency, the Army
Corp of Engineers, the Department of Interior, the United States Fish and
Wildlife Service and any state department of natural resources or state
environmental protection agency now or at any time thereafter in effect
(collectively, "Environmental Laws"). There are no pending or, to the best
knowledge of Dulaney or Bank, threatened, claims, actions or proceedings by any
local municipality, sewage district or other governmental entity against Dulaney
or Bank with respect to the Environmental Laws, and there is no reasonable basis
or grounds for any such claim, action or proceeding. No environmental clearances
or other governmental approvals are required for the conduct of the business of
Dulaney or Bank or the consummation of the Merger contemplated hereby. Neither
Dulaney nor Bank is the owner, and has not been in the chain of title or the
operator or lessee, of any property on which any substances have been used,
stored, deposited, treated, recycled or disposed of, which substances if known
to be present on, at or under such property would require clean-up, removal or
any other remedial action under any Environmental Law. Dulaney and Bank owns,
operates, leases and controls, and has owned, operated, leased and controlled,
all real property in compliance with the Environmental Laws. Neither Dulaney nor
Bank has any liability for any clean-up or remediation under any of the
Environmental Laws with respect to any real property.
4.12. Loans and Investments. (a) Except as set forth in the
Disclosure Schedule, there is no loan by Dulaney or Bank in excess of $10,000
that has been classified by bank regulatory examiners or management as "Other
Loans Specially Mentioned," "Substandard," "Doubtful" or "Loss" or in excess of
$10,000 that has been identified by accountants or auditors (internal or
external) as having a significant risk of uncollectability. The most recent loan
watch list of Bank and a list of all loans in excess of $10,000 which 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 are set forth in the
Disclosure Schedule.
(b) All loans reflected in the Dulaney Financial Statements as of
June 30, 1998 and which have been made, extended, renewed, restructured,
approved, amended or acquired since June 30, 1998: (i) to the best knowledge of
Dulaney and Bank solely with respect to the authenticity of the signatures of
borrowers, obligors and guarantors thereon constitute the legal,
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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 Dulaney
or Bank has a security interest in collateral or a mortgage securing such loans,
by perfected security interests or recorded mortgages naming Bank 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 Dulaney
Financial Statements are adequate in all material respects under the
requirements of generally accepted accounting principles applied on a consistent
basis to provide for possible losses on items for which reserves were made, on
loans and leases outstanding and real estate owned as of the respective dates.
(d) Subject to the restrictions of Statement of Financial Accounting
Standards No. 115, none of the investments reflected in the Dulaney Financial
Statements as of and for the period ended June 30, 1998 and none of the
investments made by Dulaney since June 30, 1998 are subject to any restriction,
whether contractual or statutory, which materially impairs the ability of
Dulaney to dispose freely of such investment at any time. Neither Dulaney nor
Bank is a party to any repurchase agreements with respect to securities.
(e) Set forth in the Disclosure Schedule is a true, accurate and
complete list of all loans in which Bank has any participation interest or which
have been made with or through another financial institution on a recourse basis
against Bank.
(f) Except as set forth in the Disclosure Schedule, and except for
customer deposits and ordinary trade payables, neither Dulaney nor Bank has, nor
will they have at the Effective Time, any indebtedness for borrowed money.
4.13. Shareholder Rights Plan. Except as otherwise provided in this
Agreement, the Disclosure Schedule and Dulaney's Certificate of Incorporation
and By-Laws, Dulaney has no shareholder rights plan or any other plan, program
or agreement involving, restricting, prohibiting or discouraging a change in
control or merger of Dulaney 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
Dulaney or Bank, whether written or oral; in which Dulaney or Bank participates
as a participating employer; to which Dulaney or Bank contributes; with respect
to which Dulaney or Bank acts as administrator, trustee or fiduciary; whether
written or oral; and including any such plans which have been terminated, merged
into another plan, frozen or discontinued (collectively, "Dulaney Plans"): (i)
all such Dulaney Plans have, on a continuous basis since their adoption, been,
in all material respects, maintained in
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compliance with the requirements prescribed by all applicable statutes, orders
and governmental rules or regulations, including, without limitation, ERISA, the
Code, and the Department of Labor ("Department") and Treasury Regulations
promulgated thereunder, the breach of which would reasonably be expected to have
a material adverse effect on the financial condition, results of operations,
business, assets or capital of Dulaney on a consolidated basis; (ii) all Dulaney
Plans intended to constitute tax-qualified plans under Section 401(a) of the
Code have complied since their adoption or have been amended to comply in all
material respects with all applicable requirements of the Code and the Treasury
Regulations promulgated thereunder, and favorable determination letters have
been timely received from the Internal Revenue Service ("Service") with respect
to each such Dulaney Plan stating that each, in its current form (or at the time
of its disposition if it has been terminated, merged, frozen or discontinued),
is qualified under and satisfies all applicable provisions of the Code and
Treasury Regulations; (iii) except as set forth on the Disclosure Schedule, no
Dulaney Plan (or its related trust) holds any stock or other securities of
Dulaney or any related or affiliated person or entity; (iv) neither Dulaney nor
Bank has any liability to the Department or the Service with respect to any
Dulaney Plan; (v) Dulaney has not engaged in any transaction that may subject
Dulaney, or any Dulaney Plan, to a civil penalty imposed by Section 502 of
ERISA; (vi) no prohibited transaction (as defined in Section 406 of ERISA and as
defined in Section 4975(c) of the Code) has occurred with respect to any Dulaney
Plan; (vii) each Dulaney Plan subject to ERISA or intended to be qualified under
Section 401(a) of the Code has been and, if applicable, is being operated in all
material respects in accordance with the applicable provisions of ERISA and the
Code and the Department and Treasury Regulations promulgated thereunder; (viii)
no participant or beneficiary or non-participating employee has been denied any
benefit due or to become due under any Dulaney Plan or has been misled as to his
or her rights under any Dulaney Plan; (ix) all obligations required to be
performed by Dulaney or Bank under any provision of an Dulaney Plan have been
performed by them in all material respects and they are not in default under or
in violation of in any material respect any provision of an Dulaney Plan; (x) no
event has occurred which would constitute grounds for an enforcement action by
any party under Part 5 of Title I of ERISA under any Dulaney Plan; (xi) there
are no actions, suits, proceedings or claims pending (other than routine claims
for benefits) or, to the best knowledge of Dulaney and Bank after due inquiry,
threatened, against Dulaney, Bank, any Dulaney Plan or the assets of any Dulaney
Plan; and (xii) with respect to any Dulaney Plan sponsored, participated in or
contributed to by Dulaney or Bank, or with respect to which Dulaney or Bank is
responsible for complying with the reporting and disclosure requirements of
ERISA or the Code, there has been, no violation of the reporting and disclosure
requirements imposed either under ERISA or the Code for which a penalty has been
or may be imposed.
(b) With regard to any Dulaney Plan intended to be qualified under
Section 401(a) of the Code, no director, officer, employee or agent of Dulaney
or Bank has engaged in any action or failed to act in such a manner that, as a
result of such action or failure to act, the Service could revoke or deny that
plan's qualification under Section 401(a) of the Code or the exemption under
Section 501(a) of the Code for any trust related to such Plan.
(c) Dulaney has provided to ONB in the Disclosure Schedule true,
accurate and complete copies and, in the case of any plan or program which has
not been reduced to writing, a
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materially complete summary, of all of the following (including all plans and
programs which have been terminated): (i) pension, retirement, profit-sharing,
savings, stock purchase, stock bonus, stock ownership, stock option and stock
appreciation right plans and all summary plan amendments thereto and all summary
plan descriptions thereof (including any modifications thereto); (ii) all
employment, deferred compensation (whether funded or unfunded), salary
continuation, consulting, bonus, severance and collective bargaining agreements,
arrangements or 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, understandings, arrangements or agreements, maintained
or sponsored, participated in, or contributed to by Dulaney or Bank for its
current or former directors, officers or employees.
(d) Except as set forth on the Disclosure Schedule, no current or
former director, officer or employee of Dulaney or Bank is entitled to any
benefit under any welfare benefit plans (as defined in Section 3(1) of ERISA)
after termination of employment with Dulaney, except that such individuals may
be entitled to continue their group health care coverage pursuant to Section
4980B of the Code if they pay the cost of such coverage pursuant to the
applicable requirements of the Code with respect thereto.
(e) With respect to any group health plan (as defined in Section
607(1) of ERISA) sponsored or maintained by Dulaney or Bank, in which Dulaney or
Bank participates as a participating employer or to which Dulaney or Bank
contributes, no director, officer, employee or agent of Dulaney or Bank 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 Dulaney or
Bank under Code Section 4980B(a). With respect to all such plans, all applicable
provisions of Section 4980B of the Code and Section 601 of ERISA have been
complied with in all material respects by Dulaney and Bank.
(f) Except as otherwise provided in the Disclosure Schedule, there
are no collective bargaining, employment, management, consulting, deferred
compensation, reimbursement, indemnity, retirement, early retirement, severance
or similar plans or agreements, commitments or understandings, or any employee
benefit or retirement plan or agreement, binding upon Dulaney or Bank and no
such agreement, commitment, understanding or plan is under discussion or
negotiation by management with any employee or group of employees, any member of
management or any other person.
4.15. Obligations to Employees. All accrued obligations and
liabilities of and all payments by Dulaney and Bank, and all Dulaney Plans,
whether arising by operation of law, by contract or by past custom, for payments
to trusts or other funds, to any government agency or authority or to any
present or former director, officer, employee or agent (or his or her heirs,
legatees or legal representatives) have been and are being paid to the extent
required by applicable law or by the plan, trust, contract or past custom or
practice, and adequate actuarial accruals and reserves for such payments have
been and are being made by Dulaney and Bank in accordance with generally
accepted accounting principles and applicable law applied on a consistent basis
and actuarial methods with respect to the following: (a) withholding taxes,
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unemployment compensation or social security benefits; (b) all pension,
profit-sharing, savings, stock purchase, stock bonus, stock ownership, stock
option and stock appreciation rights plans and agreements; (c) all employment,
deferred compensation (whether funded or unfunded), salary continuation,
consulting, retirement, early retirement, severance, reimbursement, bonus or
collective bargaining plans and agreements; (d) all executive and other
incentive compensation plans, programs, or agreements; (e) all group insurance
and health contracts, policies and plans; and (f) all other incentive, welfare,
retirement or employee benefit plans or agreements maintained or sponsored,
participated in, or contributed to by Dulaney or Bank for its current or former
directors, officers, employees and agents, including, without limitation, all
liabilities and obligations to the Dulaney Plans (as defined in Section 4.14(a)
hereof). All obligations and liabilities of Dulaney and Bank, whether arising by
operation of law, by contract or by past custom or practice, for all other forms
of compensation which are or may be payable to their current or former
directors, officers, employees or agents have been and are being paid to the
extent required by applicable law or by the plan or contract, and adequate
actuarial accruals and reserves for payment therefor have been and are being
made by Dulaney and Bank in accordance with generally accepted accounting and
actuarial principles applied on a consistent basis. All accruals and reserves
referred to in this Section 4.15 are correctly and accurately reflected and
accounted for in all material respects in the Dulaney Financial Statements and
the books, statements and records of Dulaney and Bank.
4.16. Taxes, Returns and Reports. Except as set forth in the
Disclosure Schedule, Dulaney 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 material
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 it and Bank 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). Dulaney has established, and shall
establish in the Subsequent Dulaney Financial Statements, in accordance with
generally accepted accounting principles, a reserve for taxes in the Dulaney
Financial Statements adequate to cover all of Dulaney's and Bank's tax
liabilities (including, without limitation, income taxes, payroll taxes and
withholding, and franchise fees) for the periods then ending. Neither Dulaney
nor Bank has, nor will either of them 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 Dulaney
Financial Statements (as hereinafter defined) or as accrued or reserved for on
the books and records of Dulaney. Neither Dulaney nor Bank is currently under
audit by any state or federal taxing authority. No federal, state or local tax
returns of Dulaney have been audited by any taxing authority during the past
five (5) years.
4.17. Deposit Insurance. The deposits of Bank are insured by the
FDIC in accordance with the Federal Deposit Insurance Act, as amended, and
Dulaney and Bank have paid or properly reserved or accrued for all current
premiums and assessments with respect to such deposit insurance.
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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 Dulaney or Bank on the date
hereof or with respect to which Dulaney or Bank 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 Dulaney and Bank
are in all material respects complete and correct and accurately reflect the
basis for the financial condition, results of operations, business, assets and
capital of Dulaney and Bank set forth in the Dulaney Financial Statements.
4.20. Broker's, Finder's or Other Fees. Except for reasonable fees
of Dulaney's attorneys and accountants, all of which shall be paid by Dulaney
prior to the Effective Time, no agent, broker or other person acting on behalf
of Dulaney or Bank or under any authority of Dulaney or Bank is or shall be
entitled to any commission, broker's or finder's fee or any other form of
compensation or payment from any of the parties hereto relating to this
Agreement and the Merger contemplated hereby.
4.21. Disclosure Schedule and Documents. All written data,
documents, materials and information referred to in this Agreement and delivered
by Dulaney or Bank pursuant to or in connection with the Disclosure Schedule are
true, accurate and complete in all material respects as of the date hereof and
with respect to such items delivered subsequent to the date hereof or with any
update to the Disclosure Schedule, will be true, accurate and complete in all
material respects on the date of delivery thereof.
4.22. Interim Events. Except as otherwise permitted hereunder,
since June 30, 1998, neither Dulaney nor Bank has:
(a) Suffered any changes having an adverse impact on the financial
condition, results of operations, business, assets or capital of Dulaney or Bank
in excess of $5,000 individually or in the aggregate;
(b) Suffered any damage, destruction or loss to any of its
properties, not fully paid by insurance proceeds, in excess of $5,000
individually or in the aggregate;
(c) Declared, distributed or paid any dividend or other distribution
to its shareholders, except for payment of dividends as permitted by Section
6.03(a)(iii) hereof and a cash dividend of $6.00 per share paid by Dulaney in
July, 1998;
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(d) Repurchased, redeemed or otherwise acquired shares of its common
stock, issued any shares of its common stock or stock appreciation rights or
sold or agreed to issue or sell any shares of its common stock or any right to
purchase or acquire any such stock or any security convertible into such stock
or taken any action to reclassify, recapitalize or split its stock;
(e) Granted or agreed to grant any increase in benefits payable or
to become payable under any pension, retirement, profit sharing, health, bonus,
insurance or other welfare benefit plan or agreement to employees, officers or
directors of Dulaney or Bank except pursuant to the express terms thereof;
(f) Increased the salary of any director, officer or employee,
except for normal increases in the ordinary course of business and in accordance
with past practices, or entered into any employment contract, indemnity
agreement or understanding with any officer or employee or installed any
employee welfare, pension, retirement, stock option, stock appreciation, stock
dividend, profit sharing or other similar plan or arrangement;
(g) Leased, sold or otherwise disposed of any of its assets except
in the ordinary course of business or leased, purchased or otherwise acquired
from third parties any assets except in the ordinary course of business;
(h) Except for the Merger contemplated by this Agreement, merged,
consolidated or sold shares of its common stock, agreed to merge or consolidate
with or into any third party, agreed to sell any shares of its common stock or
acquired or agreed to acquire any stock, equity interest, assets or business of
any third party;
(i) Incurred, assumed or guaranteed any obligation or liability
(fixed or contingent) other than obligations and liabilities incurred in the
ordinary course of business;
(j) Mortgaged, pledged or subjected to a lien, security interest,
option or other encumbrance any of its assets except for tax and other liens
which arise by operation of law and with respect to which payment is not past
due and except for pledges or liens: (i) required to be granted in connection
with acceptance by Dulaney or Bank of government deposits; (ii) granted in
connection with repurchase or reverse repurchase agreements; or (iii) otherwise
incurred in the ordinary course of the conduct of its business;
(k) Except as set forth in the Disclosure Schedule, canceled,
released or compromised any loan, debt, obligation, claim or receivable other
than in the ordinary course of business;
(l) Entered into any transaction, contract or commitment other than
in the ordinary course of business;
(m) Agreed to enter into any transaction for the borrowing or
loaning of monies, other than in the ordinary course of its lending business; or
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(n) Conducted its business in any manner other than substantially as
it was being conducted through June 30, 1998.
4.23. Regulatory Filings. Dulaney and Bank have filed and will
continue to file in a timely manner all filings with all federal and state
regulatory agencies and authorities as required by applicable law. All such
filings with federal and state regulatory agencies were true, accurate and
complete in all material respects as of the dates of the filings and have been
prepared in conformity with generally accepted regulatory accounting principles
applied on a consistent basis, and no such filing contained any untrue statement
of a material fact or omitted to state a material fact necessary in order to
make the statements, at the time and in light of the circumstances under which
they were made, not false or misleading.
4.24. Contracts. Neither Dulaney nor Bank is in default under or in
breach of or, to the best knowledge of Dulaney or Bank after due inquiry,
alleged to be in default under or in breach of, any loan or credit agreement,
conditional sales contract or other title retention agreement, security
agreement, bond, indenture, mortgage, license, contract, lease, commitment or
any other instrument or obligation, which breach or default would reasonably be
expected to have a material adverse effect on the financial condition, results
of operation, business, assets or capital of Dulaney and Bank on a consolidated
basis.
4.25. No Third Party Options. There are no agreements, options,
commitments or rights with, of or to any third party to acquire any shares of
capital stock or assets of Dulaney or Bank.
4.26. Indemnification Agreements. (a) Neither Dulaney nor Bank 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 Certificate of
Incorporation or By-Laws of Dulaney and the Articles of Association and By-Laws
of Bank.
(b) No claims have been made against or filed with Dulaney or Bank
nor have, to the best knowledge of Dulaney and Bank after due inquiry, any
claims been threatened against Dulaney or Bank, 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 Dulaney or Bank.
4.27. Representations and Warranties at the Effective Time. All
representations and warranties of Dulaney and Bank contained herein shall be
true, accurate and complete in all material respects on and as of the Effective
Time as though made or given at such time.
4.28. Year 2000. (a) All devices, systems, machinery, information
technology, computer software and hardware, and other date sensitive technology
(collectively, the "Systems") necessary for Dulaney 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
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Compliant within a period of time calculated to result in no material disruption
of any of Dulaney's business operations. For purposes of this Section 4.28,
"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) Dulaney 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 Dulaney 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 in all material respects.
(c) Compliance by Third Parties. Dulaney has made written inquiry of
each of its key suppliers and vendors, and has obtained in writing confirmations
from all such persons, as to whether such persons have initiated programs to
become Year 2000 Compliant and on the basis of such confirmations, Dulaney
reasonably believes that all such persons will be or become so compliant. For
purposes here, "key suppliers and vendors," refers to those suppliers and
vendors of Dulaney whose business failure would, with reasonable probability,
result in a material adverse change in the business, properties, condition
(financial or otherwise) or prospects of Dulaney.
4.29. Nonsurvival of Representations and Warranties. The
representations and warranties of Dulaney and Bank contained in this Agreement
shall expire at the Effective Time, and thereafter Dulaney and Bank, and all
directors, officers and employees of Dulaney and Bank shall have no further
liability with respect thereto, except for fraud or for false or misleading
statements made intentionally or knowingly in connection with such
representations and warranties or except as otherwise provided by law, whether
statutory, common law or otherwise.
SECTION 5
REPRESENTATIONS AND WARRANTIES OF ONB
-------------------------------------
ONB represents and warrants to Dulaney 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
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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.
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. This Agreement and its execution and
delivery by ONB have been duly authorized by its Board of Directors. Assuming
due execution and delivery by Dulaney, 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 material
respect any local, state, federal or foreign law, statute, ordinance, rule or
regulation (provided that the approvals of or filings with applicable government
regulatory agencies or authorities required for consummation of the Merger are
obtained) or any court or administrative judgment, order, injunction, writ or
decree; (iii) conflicts with, results in a breach of or constitutes a material
default under any note, bond, indenture, mortgage, deed of trust, license,
contract, lease, agreement, arrangement, commitment or other instrument to which
ONB is a party or by which ONB is subject or bound and which is material to ONB
on a consolidated basis; (iv) results in the creation of or gives any person,
corporation or entity the right to create any lien, charge, claim, encumbrance
or security interest, or results in the creation of any other rights or claims
of any other party (other than Dulaney) or any other adverse interest, upon any
right, property or asset of ONB which would be material to ONB on a consolidated
basis; 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) 50,000,000 shares of common stock, no par value
per share, of which approximately 27,639,000 shares were issued and outstanding
as of June 30, 1998, 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
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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. On a consolidated basis as of June 30, 1998, ONB had total
shareholders' equity of approximately $485,395,000, which consisted of common
stock of $27,639,000, capital surplus of $334,525,000, retained earnings of
$107,583,000, and net unrealized gain on available-for-sale securities of
$15,648,000.
(b) 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
Dulaney 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, the violation of which could have a material
adverse effect on the financial condition, results of operations, business,
assets or capitalization of ONB and its subsidiaries on a consolidated basis.
ONB and each of its subsidiaries possesses and holds all licenses, franchises,
permits, certificates and other authorizations necessary for the continued
conduct of their business without interference or interruption.
5.06. Regulatory Filings. ONB and each of its subsidiaries have
filed and will continue to file in a timely manner all required filings with the
Securities and Exchange Commission ("SEC"), including, but not limited to, all
reports on Form 8-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 were true, accurate and complete in all material respects as of the
dates of the filings, and no such filings contained any untrue statement of a
material fact or omitted to state a material fact necessary in order to make the
statements, at the time and in the light of the circumstances under which they
were made, not false or misleading.
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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 does ONB
have any knowledge of a basis for any claim, action, suit, proceeding,
litigation, investigation or arbitration) against, by or affecting ONB or its
subsidiaries which would reasonably be expected to have a material adverse
effect on the financial condition, results of operations, business, assets or
capitalization of ONB on a consolidated basis, or which would prevent the
performance of this Agreement, declare the same unlawful or cause the rescission
hereof.
(b) Pending Proceedings. Neither ONB nor any of its subsidiaries is:
(i) subject to any outstanding judgment, order, writ, injunction or decree of
any court, arbitration panel or governmental agency or authority having a
material adverse effect on the financial condition, results of operations,
business, assets or capitalization of ONB on a consolidated basis; (ii)
presently charged with or, to the best knowledge of ONB, under governmental
investigation with respect to any actual or alleged violations of any law,
statute, rule, regulation or ordinance, the violation of which could have a
material adverse effect on the financial condition, results of operation,
business, assets or capitalization of ONB on a consolidated basis; or (iii) the
subject of any pending or, to the best knowledge of ONB after due inquiry,
threatened proceeding by any government regulatory agency or authority having
jurisdiction over its business, assets, capital, properties or operations, the
violation of which could have a material adverse effect on the financial
condition, results of operations, business, assets or capitalization of ONB on a
consolidated basis.
5.08. Financial Statements and Reports. (a) ONB or its agents have
delivered to Dulaney 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, 1995, 1996 and 1997, and for
the fiscal quarter ended June 30, 1998; and
(ii) Consolidated Statements of Cash Flows of ONB for the
years ended December 31, 1995, 1996 and 1997 and for the
fiscal quarter ended June 30, 1998.
(b) The ONB Financial Statements are true, accurate and complete in
all material respects and 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,
A-23
which inclusion or omission would render any of the ONB Financial Statements
false, misleading or inaccurate in any material respect.
5.09. Shares to be Issued in Merger. The shares of ONB common stock
which Dulaney 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 any other actions contemplated by this Agreement is not required.
5.11. Accuracy of Statements Made to Dulaney. 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 Dulaney
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 Dulaney's shareholders) any untrue or misleading statement of
material fact or omits or shall omit to state a material fact necessary to make
the statements contained herein or therein, in light of the circumstances in
which they are made, not false or misleading.
5.12. Contracts. ONB and each of its subsidiaries has performed in
all material respects all obligations required to be performed by them under all
agreements which are material to ONB on a consolidated basis, and neither ONB
nor any of its subsidiaries, to the best knowledge of ONB, is in default under
or in breach of, in any material respect, any agreement which is material to ONB
on a consolidated basis.
5.13. Environmental Compliance. To the best knowledge of ONB after
reasonable inquiry, ONB and its subsidiaries have conducted their respective
businesses in material compliance with the Environmental Laws.
5.14. Broker's, Finder's or Other Fees. Except for reasonable fees
of ONB's attorneys and accountants, 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.
5.15. Regulatory Approvals. To the best knowledge of ONB after
reasonable inquiry, there currently exists no reason why the granting of any of
the state or federal regulatory
A-24
approvals required for consummation of the Merger would reasonably be expected
to be denied or unduly delayed.
5.16. Representations and Warranties at the Effective Date. All
representations and warranties of ONB contained herein shall be true, accurate
and complete in all material respects on and as of the Effective Time as though
made or given at such time.
5.17. Nonsurvival of Representations and Warranties. The
representations and warranties of ONB contained in this Agreement shall expire
at the Effective Time and, thereafter, ONB and all directors, officers and
employees of ONB shall have no further liability with respect thereto, except
for fraud or for false or misleading statements made intentionally or knowingly
in connection with such representations and warranties or except as otherwise
provided by law, whether statutory, common law or otherwise.
SECTION 6
COVENANTS OF DULANEY
--------------------
Dulaney covenants and agrees with ONB, and covenants and agrees to
cause Bank, to act as follows:
6.01. Shareholder Approval. Subject to Section 6.06(b) hereof,
Dulaney 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 Certificate of Incorporation and By-Laws of Dulaney at the earliest
possible reasonable date. Subject to Section 6.06(b) hereof, the Board of
Directors of Dulaney shall recommend to Dulaney'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 Dulaney's
shareholders.
6.02. Other Approvals. Dulaney and Bank 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.
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 Dulaney nor Bank 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);
A-25
(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 5.03 hereof;
(iii) distribute or pay any dividends on its
shares of common stock, or make any other
distribution to its shareholders except that
(A) Bank may pay cash dividends to Dulaney
in the ordinary course of business for
payment of reasonable and necessary business
and operating expenses of Dulaney and to
provide funds for Dulaney's dividends to its
shareholders in accordance with this
Agreement, and (B) Dulaney may pay to its
shareholders its usual and customary
semi-annual cash dividend of no greater than
six dollars ($6.00) per share for the
semi-annual period ending December 31, 1998
and payable in January, 1999, and (C) the
lesser of $3.00 per share or the amount that
is legally permissible or permitted by
Dulaney's Articles of Incorporation to be
distributed for any quarterly period
thereafter, provided that no dividend may be
paid for the quarterly period in which the
Merger is consummated if, during such
period, Dulaney shareholders will become
entitled to receive dividends on their
shares of ONB common stock received pursuant
to this Agreement;
(iv) redeem any of its outstanding shares of
common stock;
(v) merge, combine or consolidate or effect a
share exchange with or sell its assets or
any of its securities to any other person,
corporation or entity or enter into any
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 disposition in the ordinary
course of business of other real estate
owned, acquire or dispose of any real or
personal property (excluding the Bank's
investment portfolio) or fixed asset
constituting a capital investment in excess
of $10,000 individually or $25,000 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
A-26
proceedings and except for pledges or liens:
(i) required to be granted in connection
with acceptance by Dulaney or Bank 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 (except for promotions
and compensation increases in the ordinary
course of business and in accordance with
past practices and established employment
policies of Dulaney and Bank), or enter into
any agreement to promote to a new position
or increase the rate of compensation, of any
director, officer or employee of Dulaney or
Bank;
(xi) execute, create, institute, modify, amend or
terminate (except with respect to any
amendments to the Dulaney 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 Dulaney
or Bank; 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 Dulaney or Bank;
(xiii) hire or employ any new or additional
employees of Dulaney or Bank, except those
which are reasonably necessary for the
proper operation of their respective
businesses;
(xiv) elect or appoint any officers or directors
of Dulaney or Bank who are not presently
serving in such capacities;
(xv) amend, modify or restate Dulaney's
Certificate of Incorporation or ByLaws or
Bank's Articles of Association 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
A-27
any shares of common stock or substantially
all of the assets, of Dulaney or Bank, or
enter into any agreement or commitment
relative to the foregoing;
(xvii) fail to continue to make additions to in
accordance with Dulaney's and Bank's past
practices and to otherwise maintain in all
respects Dulaney's or 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
Dulaney Financial Statements or the
Subsequent Dulaney Financial Statements,
borrow any money or incur any indebtedness
including, without limitation, through the
issuance of debentures, or incur any
liability or obligation (whether absolute,
accrued, contingent or otherwise), in an
aggregate amount exceeding $10,000;
(xx) open, close, move or, in any material
respect, expand, diminish, renovate, alter
or change any of its offices or branches;
(xxi) pay or commit to pay any management or
consulting or other similar type of fees; or
(xxii) enter into any contract, agreement, lease,
commitment, understanding, arrangement or
transaction or incur any liability or
obligation (other than as contemplated by
Section 6.03(a)(vii) hereof and legal,
accounting and fees related to the Merger)
requiring payments by Dulaney or Bank which
exceed $10,000, whether individually or in
the aggregate, or that is not a trade
payable or incurred in the ordinary course
of business.
(b) Dulaney and Bank 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 Dulaney and Bank as of the
date of this Agreement.
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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, Dulaney and Bank 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 commercially 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 it owns or utilizes in good operating condition and
repair, reasonable wear and tear excepted, and maintain insurance upon such
properties and assets in amounts and kinds comparable to that in effect on the
date of this Agreement; (d) maintain 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 either of them is a party or by which either of them
is or may be subject or bound.
6.05. Restrictions Regarding Affiliates. Dulaney 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 Dulaney for purposes of Rule
145 under the 1933 Act. On or prior to the date of this Agreement or within ten
(10) days thereafter, Dulaney shall use its commercially reasonable best efforts
to cause each director, executive officer and other person who may be deemed to
be such an affiliate of Dulaney to deliver to ONB on or prior to the date of
this Agreement a written agreement, substantially in the form as attached hereto
as Exhibit A, providing that such person: (a) shall not sell, pledge, transfer,
dispose of or otherwise reduce his or her market risk with respect to the shares
of Dulaney Common Stock directly or indirectly owned or held by such person
during the thirty (30) day period prior to the Effective Time; and (b) will not
sell, pledge, transfer, dispose of or otherwise reduce his or her market risk
with respect to the shares of ONB common stock to be received by such person
pursuant to this Agreement: (i) until such time as financial results covering at
least 30 days of combined operations of ONB and Dulaney have been published as
and when required and within the meaning of Section 201.01 of the SEC's
Codification of Financial Reporting Policies, and (ii) unless such sales are
pursuant to an effective Registration Statement under the 1933 Act or pursuant
to Rule 145 under the 1933 Act or another exemption from registration under the
1933 Act.
6.06. Other Negotiations. 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 Dulaney nor
Bank shall permit or 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 Dulaney or Bank or to which
Dulaney or Bank may become a party (all such transactions are hereinafter
referred to as
A-29
"Acquisition Transactions"). Dulaney and Bank shall promptly communicate to ONB
the terms of any proposal or offer which either of them may receive with respect
to an Acquisition Transaction. Dulaney or Bank may, in response to an
unsolicitated 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 Dulaney'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 Dulaney's Board of Directors
in connection with seeking an Acquisition Transaction, and that it is
substantially more favorable to the shareholders of Dulaney than the terms of
the Merger. This Section 6.06 shall not authorize Dulaney or Bank, or any of
their directors, officers, employees, agents or representatives, to initiate any
discussions or negotiations relative to an Acquisition Transaction with a third
party.
6.07. Press Releases. Except as required by law, neither Dulaney nor
Bank shall issue any press releases or make any other public announcements or
disclosures relating to the Merger without the prior consent of ONB, which
consent shall not be unreasonably withheld.
6.08. Disclosure Schedule Update. Dulaney 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 Dulaney contained herein
materially incorrect, untrue or misleading.
6.09. Information, Access Thereto, Confidentiality. ONB and its
respective representatives and agents shall, at all reasonable times during
normal business hours prior to the Effective Time, have full and continuing
access to the properties, facilities, operations, books and records of Dulaney
and Bank. 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 Dulaney and Bank 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 Dulaney and Bank. Upon request, Dulaney and
Bank 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 Dulaney or Bank, their auditors, accountants or attorneys
(provided with respect to attorneys, such disclosure would not result in the
waiver by Dulaney or Bank 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 Dulaney and Bank, and such auditors and accountants
shall be directed to furnish copies of any reports or financial information as
A-30
developed to ONB or its respective representatives or agents. No investigation
by ONB shall affect the representations and warranties made by Dulaney or Bank
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 Dulaney's request, returned to Dulaney 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 Dulaney Financial Statements. As soon as reasonably
available after the date of this Agreement, Dulaney shall deliver to ONB the
monthly unaudited consolidated balance sheets and profit and loss statements of
Dulaney prepared for its internal use, Bank's Call Reports for each quarterly
period completed prior to the Effective Time, and all other financial reports or
statements submitted to regulatory authorities after the date hereof, to the
extent permitted by law (collectively, "Subsequent Dulaney Financial
Statements"). The Subsequent Dulaney 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 Dulaney
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 Dulaney 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 Dulaney; 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. Disposition of Dulaney Tax-Qualified Plans. Dulaney and Bank
shall take all necessary corporate action to effectuate the disposition of the
tax-qualified Dulaney Plans sponsored by them as provided in this Section 6.12
and Section 7.03 hereof.
(a) Merger of Dulaney 401(k) Plan. The Dulaney 401(k) Profit Sharing
Plan ("Dulaney 401(k) Plan") shall be merged with and into the ONB Savings Plan
(as hereafter defined). All account balances maintained under the Dulaney 401(k)
Plan shall become fully vested on the day on which the Effective Time occurs.
From the date of this Agreement through the date on which the Dulaney 401(k)
Plan is merged into the ONB Savings Plan, Dulaney and
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Bank may continue to make contributions to the Dulaney 401(k) Plan so long as
such contributions are comparable in amount to any past contributions to such
plan.
(b) Effective Date of Disposition of Dulaney Plans. The disposition
of the Dulaney 401(k) Plan, as described in the preceding provisions of this
Section 6.12, shall be effective as of the last day of the month in which the
Effective Time occurs ("Disposition Date"). Effective on and after the
Disposition Date, the employees of Dulaney and Bank can become participants
under the ONB Savings Plan in accordance with the provisions of Section 7.03(b)
hereof.
(c) Conditions Precedent to Disposition of Dulaney Plans. Not less
than thirty (30) days prior to the Effective Time, ONB and Dulaney shall have
received the written opinion of counsel to Dulaney directed to both ONB and
Dulaney, in form and content satisfactory to ONB and its counsel, to the effect
that assuming that the ONB Savings Plan is qualified under Section 401(a) of the
Code on the date of the merger, the merger of the Dulaney 401(k) Plan with and
into the ONB Savings Plan, will not affect the tax qualified status of either
plan.
(d) Dulaney and Bank shall timely pay in full any early termination
fee or premium payable as a result of the merger of the Dulaney 401(k) Plan with
the ONB Savings Plans.
(e) Dulaney and Bank shall cooperate with ONB in and shall take all
necessary action to effectuate the disposition of the Dulaney Plans, as provided
in Section 7.03 hereof. Dulaney shall be responsible for and shall pay all costs
and expenses associated with such disposition.
6.13 Year 2000. Dulaney shall:
(a) Additional Information. Furnish such additional information,
statements and other reports with respect to Dulaney's Year 2000 compliance (and
its approach to and progress towards achieving compliance) with Section 4.28
hereof as ONB may 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 Dulaney's representations and warranties
set forth in Section 4.28 hereof ("Year 2000 Compliance") to no longer be true
(hereinafter referred to as a "Change in Circumstances"), then Dulaney 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 Dulaney's representations
and warranties set forth in Section 4.28 hereof to no longer be true. Dulaney
shall, within ten (10) days of a request, also provide ONB with any additional
information ONB requests of Dulaney in connection with the Notice and/or a
Change in Circumstances.
(c) SEC and Other Reports. Promptly upon its becoming available,
furnish to ONB one (1) copy of each financial statement, report, notice, or
proxy statement sent by Dulaney to its shareholders generally and of each
regular or periodic report, registration statement or prospectus filed by
Dulaney with any securities exchange or the Securities and Exchange
A-32
Commission or any successor agency, and of any order issued by any Governmental
Authority in any proceeding to which Dulaney 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 Dulaney or any of its
business, operations or properties.
(d) Audits. Give any representative of ONB 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
Dulaney and relating to its affairs, and to inspect any of the properties and
Systems of Dulaney, 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.
SECTION 7
COVENANTS OF ONB
----------------
ONB covenants and agrees with Dulaney 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 Dulaney's legal counsel a
reasonable opportunity to review such applications prior to their filing and
shall provide to Dulaney'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 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 Dulaney, prepared for use
in connection with the meeting of shareholders of Dulaney 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
A-33
Section 7.01 hereof, ONB shall provide Dulaney 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.
7.03. Employee Benefit Plans. (a) At such time as ONB shall
determine, in its sole discretion, but in no event later than January 1, 2000,
ONB will make available to the employees of Dulaney and Bank who continue as
employees of any subsidiary of ONB after the Effective Time and, further,
subject to Section 7.03(b), (c) and (d) hereof, substantially the same employee
benefits on substantially the same terms and conditions that ONB may offer to
similarly situated officers and employees of its banking subsidiaries from time
to time. Until such time as the employees of Dulaney and Bank become covered by
the ONB welfare benefit plans, the employees of Dulaney and Bank shall remain
covered by the Dulaney Plans which cover such employees, subject to the terms of
such plans.
(b) Subject to the provisions of subsection (c) hereof, years of
service (as defined in the applicable ONB plan) of an officer or employee of
Dulaney or Bank 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 Dulaney or Bank who otherwise meet the
eligibility requirements of the ONB Profit Sharing Plan and ESOP, based on their
age and years of service to Dulaney or Bank, shall become participants
thereunder on the first day of the calendar month which coincides with or next
follows the Effective Time. Those officers and employees of Dulaney or Bank who
otherwise meet the eligibility requirements of the ONB Pension Plan, based upon
their age and years of Dulaney or Bank 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 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.
A-34
(c) No full-time officer or employee of Dulaney or Bank serving as
of the Effective Time shall be subject to any pre-existing condition exclusions
under any of ONB's welfare benefit plans if such officer, employee or individual
was covered by the corresponding Dulaney welfare benefit plan for more than two
hundred seventy (270) days immediately preceding the Effective Time.
(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 Dulaney or
Bank 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 Dulaney or Bank; 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 necessary to effectuate the
disposition of the Dulaney Plans provided by Section 6.12 hereof.
7.04. Authorization of ONB Common Stock. The Board of Directors of
ONB shall, prior to the Effective Time, authorize the issuance of the required
number of shares of ONB common stock to be issued pursuant to this Agreement and
take all other necessary corporate action to consummate the Merger contemplated
hereby.
7.05. Press Releases. Except as required by law, ONB shall not issue
any press releases or make any other public announcements or disclosures
relating primarily to Dulaney with respect to the Merger without the prior
consent of Dulaney, which consent shall not be unreasonably withheld.
7.06. Indemnification. (a) From and after the Effective Time, ONB
shall assume and honor any obligations as provided for and permitted by
applicable federal and state law which Dulaney had immediately prior to the
Effective Time with respect to the indemnification of each person who is on the
date hereof, or has been at any time prior to the date hereof or who becomes
prior to the Effective Time, a director or officer of Dulaney or was serving at
the request of Dulaney 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 Dulaney's Certificate of
Incorporation or By-Laws in effect at the Effective Time against any and all
losses in connection with or arising out of any claim which is based upon,
arises out of or in any way relates to any actual or alleged act or omission
occurring at or prior to the Effective Time in the Indemnitee's capacity as a
director or officer (whether elected or appointed), of Dulaney. Indemnification
of officers and directors of Bank 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 (1)
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
A-35
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 one (1) year from
the Effective Time the policies of directors' and officers' liability insurance
most recently maintained by Dulaney; 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.
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 Dulaney and Bank contained in this Agreement
shall be true, accurate and correct in all material respects at and as of the
Effective Time as though such representations and warranties had been made or
given on and as of the Effective Time.
(b) Covenants. Each of the covenants and agreements of Dulaney and
Bank 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 Dulaney and
Bank 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 Dulaney 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.
A-36
(e) Regulatory Approvals. The Board of Governors of the Federal
Reserve System ("Federal Reserve") shall have authorized and approved or not
objected to the Merger on terms and conditions satisfactory to ONB. In addition,
all appropriate orders, consents, approvals and clearances from all other
regulatory agencies and governmental authorities whose orders, consents,
approvals or clearances are required by law for consummation of the Merger
contemplated by this Agreement shall have been obtained on terms and conditions
satisfactory to ONB.
(f) Shareholder Approval. The shareholders of Dulaney shall have
approved and adopted this Agreement as required by applicable law and its
Certificate of Incorporation.
(g) Officers' Certificate. Dulaney shall have delivered to ONB a
certificate signed by its Chairman or President and its Secretary, dated as of
the Effective Time, certifying that: (i) all the representations and warranties
of Dulaney and Bank are true, accurate and correct in all material respects on
and as of the Effective Time; (ii) all the covenants of Dulaney and Bank have
been complied with from the date of this Agreement through and as of the
Effective Time; and (iii) Dulaney and Bank have satisfied and fully complied
with all conditions necessary to make this Agreement effective as to them.
(h) Tax Opinion. The respective Boards of Directors of the parties
to this Agreement shall have received a written opinion of the law firm of Krieg
DeVault Alexander & Capehart, LLP, dated as of the Effective Time, in form and
content satisfactory to the parties hereto, to the effect that the Merger to be
effected pursuant to this Agreement 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 Dulaney, except with respect to cash received by Dulaney's
shareholders: (i) for fractional shares resulting from application of the
Exchange Ratio; or (ii) pursuant to the exercise of dissenters' rights as
described in Section 3 hereof.
(i) Affiliate Agreements. ONB shall have received from Dulaney: (i)
a list identifying each affiliate of Dulaney in accordance with Section 6.05
hereof dated as of the Effective Time; and (ii) from each affiliate of Dulaney,
the agreements dated as of the date of this Agreement contemplated by Section
6.05 hereof.
(j) Material Adverse Change. As of the Effective Time, no material
adverse change shall have occurred in the financial condition of Dulaney or
Bank, on a consolidated basis.
9.02. Dulaney. The obligation of Dulaney 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 Dulaney:
(a) Representations and Warranties at Effective Time. Each of the
representations and warranties of ONB contained in this Agreement shall be true,
accurate and correct in all material respects on and as of the Effective Time as
though the representations and warranties had been made or given at and as of
the Effective Time.
A-37
(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. Dulaney shall have received from ONB at
the Closing the items and documents, in form and content reasonably satisfactory
to Dulaney, 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 Dulaney in accordance
with this Agreement with the SEC pursuant to the 1933 Act, and all state
securities and Blue Sky approvals, authorizations and exemptions required to
offer and sell such shares shall have been received by ONB. The Registration
Statement with respect thereto shall have been declared effective by the SEC and
no stop order shall have been issued or threatened. In addition, such shares of
ONB common stock shall be listed on the NASDAQ National Market System.
(e) Regulatory Approvals. The Federal Reserve shall have authorized
and approved, or not objected to, the Merger. In addition, all appropriate
orders, consents, approvals and clearances from all other regulatory agencies
and governmental authorities whose orders, consents, approvals or clearances are
required by law for consummation of the Merger contemplated by this Agreement
shall have been obtained.
(f) Shareholder Approval. The shareholders of Dulaney shall have
approved and adopted this Agreement as required by applicable law and its
Certificate of Incorporation.
(g) Officers' Certificate. ONB shall have delivered to Dulaney a
certificate signed by its Chairman or President and its Secretary, dated as of
the Effective Time, certifying that: (i) all the representations and warranties
of ONB are true, accurate and correct in all material respects on and as of the
Effective Time; (ii) all the covenants of ONB have been complied with from the
date of this Agreement through and as of the Effective Time; and (iii) ONB has
satisfied and fully complied with all conditions necessary to make this
Agreement effective as to it.
(h) Tax Opinion. The respective Boards of Directors of the parties
to this Agreement shall have received a written opinion of the law firm of Krieg
DeVault Alexander & Capehart, LLP, dated as of the Effective Time, in form and
content satisfactory to the parties hereto, to the effect that the Merger to be
effected pursuant to this Agreement 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 Dulaney, except with respect to cash received by Dulaney's
shareholders: (i) for fractional shares resulting from application of the
Exchange Ratio; or (ii) pursuant to the exercise of dissenters' rights as
described in Section 3 hereof.
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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 Dulaney, or by Dulaney to ONB as follows:
(a) By ONB or Dulaney, if:
(i) the Merger contemplated by this Agreement
has not been consummated by July 31, 1999;
or
(ii) the respective Boards of Directors of ONB
and Dulaney mutually agree to terminate this
Agreement.
(b) By ONB, if:
(i) the Merger will not qualify for
pooling-of-interest accounting treatment for
ONB and such failure to qualify is the
result of actions taken or omitted to be
taken by Dulaney or its directors, officers
or shareholders other than as permitted
hereunder; or
(ii) any item, event or information set forth in
any supplement, amendment or update to the
Disclosure Schedule has had or would be
expected to have, in the reasonable
discretion of ONB, a material adverse effect
on the business, assets, capitalization,
financial condition or results of operations
of Dulaney and Bank on a consolidated basis;
or
(iii) there has been a misrepresentation or a
breach of any warranty by or on the part of
Dulaney or Bank in their representations and
warranties set forth in this Agreement which
has had or would be expected to have, in the
reasonable discretion of ONB, a material
adverse effect on the business, assets,
capitalization, financial condition or
results of operations of Dulaney and Bank on
a consolidated basis; provided, however,
that in the event of any inaccuracy in the
representations and warranties contained in
Section 4.03 hereof relative to the number
of issued and outstanding shares of capital
stock of Dulaney, ONB shall have the
absolute right to terminate this Agreement
without regard to the materiality of any
such inaccuracy; or
(iv) there has been a breach of or failure to
comply with any covenant set forth in this
Agreement by or on the part of Dulaney or
Bank; or
A-39
(v) it shall reasonably determine that the
Merger contemplated by this Agreement has
become inadvisable or impracticable by
reason of commencement or threat of any
claim, litigation or proceeding against ONB,
Dulaney, or any subsidiary of ONB or
Dulaney, or any director or officer of any
of such entities (A) relating to this
Agreement or the Merger or (B) which is
likely to have a material adverse effect on
the business, assets, capitalization,
financial condition or results of operations
of Dulaney or Bank; or
(vi) there has been a material adverse change in
the business, assets, capitalization,
financial condition or results of operations
of Dulaney or Bank as of the Effective Time
as compared to that in existence as of June
30, 1998 other than any change resulting
primarily by reason of changes in banking
laws or regulations (or interpretations
thereof), changes in the general level of
interest rate or changes in economic,
financial or market conditions affecting the
banking industry generally in Bank's market
area.
(c) By Dulaney, if:
(i) there has been a misrepresentation or a
breach of any warranty by or on the part of
ONB in its representations and warranties
set forth in this Agreement which has had or
would be expected to have, in the reasonable
discretion of Dulaney, a material adverse
effect on the business, assets,
capitalization, financial condition or
results of operation of ONB on a
consolidated basis; or
(ii) there has been a breach of or failure to
comply with any covenant set forth in this
Agreement by or on the part of ONB; or
(iii) there has been a material adverse change in
the financial condition, results of
operations, business, assets or
capitalization of ONB on a consolidated
basis as of the Effective Time as compared
to that in existence on June 30, 1998, other
than any change resulting primarily by
reason of changes in banking laws or
regulations (or interpretations thereof),
changes in the general level of interest
rate or changes in economic, financial or
market conditions affecting the banking
industry generally in the regions in which
ONB and its subsidiaries operate; or
(iv) it shall reasonably determine that the
Merger contemplated by this Agreement has
become inadvisable or impracticable by
reason of commencement or threat of any
material claim, litigation or proceeding
against ONB (A) relating to this Agreement
or the Merger or (B) which is likely to have
a material adverse effect on the business,
assets, capitalization, financial condition
or results of operations of ONB on a
consolidated basis; or
A-40
(v) Dulaney fulfills the requirements of Section
6.01 hereof but the shareholders of Dulaney
do not approve and adopt the Merger and this
Agreement.
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
Dulaney and their respective directors, officers, employees, agents and
shareholders, except as provided in compliance with the confidentiality
provisions of this Agreement set forth in Section 6.09 and Section 7.05 hereof
and the payment of expenses set forth in Section 6.09 hereof. Termination will
not in any way release a breaching party from liability for any willful breach
of this Agreement giving rise to such termination.
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 Dulaney with and into ONB
as filed with the Indiana and Illinois Secretary of State ("Effective Time").
Unless otherwise mutually agreed to by the parties hereto, the Effective Time
shall occur on the last business day of the month following (a) the fulfillment
of all conditions precedent to the Merger 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 9 hereof have been satisfied and fulfilled, the closing of
the Merger ("Closing") shall take place on the Effective Time at a location to
be reasonably determined by ONB.
11.02. Deliveries. (a) At the Closing, ONB shall deliver to Dulaney
the following:
(i) an opinion of its counsel dated as of the
Effective Time and substantially in the form
set forth in Exhibit B attached hereto;
(ii) the officers' certificate contemplated by
Section 8.02(h) hereof;
(iii) copies of all approvals by government
regulatory agencies necessary to consummate
the Merger;
A-41
(iv) 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; and
(v) such other documents as Dulaney or its legal
counsel may reasonably request.
(b) At the Closing, Dulaney shall deliver to ONB the
following:
(i) an opinion of its legal counsel dated as of
the Effective Time and substantially in the
form set forth in Exhibit C attached hereto;
(ii) the officers' certificate contemplated by
Section 8.01(g) hereof;
(iii) a list of Dulaney's shareholders as of the
Effective Time certified by the President
and Secretary of Dulaney;
(iv) copies of the resolutions adopted by the
Board of Directors of Dulaney certified by
the Secretary of Dulaney, relative to the
approval of this Agreement and the Merger;
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, however, that no such extension, waiver or amendment
agreed to after authorization of this Agreement by the shareholders of Dulaney
shall affect the rights of such shareholders in any manner which is materially
adverse to such shareholders. The representations, warranties, covenants and
agreements contained in this Agreement are for the sole benefit of the parties
hereto and their successors and assigns, and they shall not be construed as
conferring any rights on any other persons except as specifically set forth in
this Agreement, including, but not limited to, Sections 7.03, 7.05, 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 Dulaney
shareholders shall not be decreased by such an amendment following the adoption
and approval of the Merger and this Agreement by the Dulaney shareholders; (ii)
waive any inaccuracies in the representations or warranties of the other parties
contained in this Agreement or in any document delivered pursuant hereto or
thereto; (iii) waive the
A-42
performance by the other parties of any of the covenants or agreements to be
performed by it or them under this Agreement; or (iv) waive the satisfaction or
fulfillment of any condition, the nonsatisfaction or nonfulfillment of which is
a condition to the right of the party so waiving to consummate the Merger. The
waiver by any party hereto of a breach of or noncompliance with any provision of
this Agreement shall not operate or be construed as a continuing waiver or a
waiver of any other or subsequent breach or noncompliance hereunder.
(b) This Agreement may be amended, modified or supplemented only by
a written agreement executed by the parties hereto.
12.03. Notices. All notices, requests and other communications
hereunder shall be in writing (which shall include telecopier communication) and
shall be deemed to have been duly given if delivered by hand and receipted for,
sent by certified United States Mail, return receipt requested, first class
postage pre-paid, delivered by overnight express receipted delivery service or
telecopied if confirmed immediately thereafter by also mailing a copy of such
notice, request or other communication by certified United States Mail, return
receipt requested, with first class postage pre-paid as follows:
If to ONB: with a copy to (which shall not
constitute notice):
Old National Bancorp Krieg DeVault Alexander & Capehart, LLP
420 Main Street One Indiana Square, Suite 2800
P.O. Box 718 Indianapolis, Indiana 46204-2017
Evansville, Indiana 47705 ATTN: Andrew B. Buroker, Esq.
ATTN: Jeffrey L. Knight, Secretary Telephone: (317) 238-6242
and General Counsel Telecopier: (317) 636-1507
Telephone: (812) 464-1363
Telecopier: (812) 464-1567
If to Dulaney or Bank: with a copy to (which shall not
constitute notice):
Dulaney Bancorp, Inc. Stephen D. Teaford, Esq.
ATTN: John Nichols, President Duane Morris & Heckscher, LLP
5340 West Washington Street 1 Liberty Place
Indianapolis, Indiana 46240-1510 Philadelphia, Pennsylvania 19103
Telephone: (317) 243-8211 Telephone: (215) 979-1220
Telecopier: (317) 243-8214 Telecopier: (215) 979-1020
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
A-43
next business day after deposit with such service; and (d) if by telecopier, on
the next business day if also confirmed by mail in the manner provided herein.
12.04. Headings. The headings in this Agreement have been inserted
solely for ease of reference and should not be considered in the interpretation
or construction of this Agreement.
12.05. Severability. In case any one or more of the provisions
contained herein shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such invalid, illegal or unenforceable provision or
provisions had never been contained herein.
12.06. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but such counterparts shall
together constitute one and the same instrument.
12.07. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Indiana and applicable
federal laws, without regard to principles of conflicts of law.
12.08. Entire Agreement. This Agreement supersedes 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. Upon the execution of this Agreement by all the
parties hereto, the preliminary non-binding Indication of Interest letter, dated
June 23, 1998, from ONB and any and all other prior writings of either party
relating to the Merger, shall terminate and shall be rendered of no further
force or effect. The parties hereto agree that each party and its counsel
reviewed and revised this Agreement and that the normal rule of construction to
the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement or any amendments
or exhibits hereto.
12.09. Expenses. ONB shall pay its expenses incidental to the Merger
contemplated hereby. Dulaney shall pay its expenses incidental to the Merger
contemplated hereby; provided, however, that the expenses related to the tax
opinion contemplated by Sections 8.01(h) and 8.02(i) hereof shall be paid by
ONB.
12.10 Certain References. Whenever in this Agreement a singular word
is used, it also shall include the plural wherever required by the context and
vice-versa. Except expressly stated otherwise, all references in this Agreement
to periods of days shall be construed to refer to calendar, not business, days.
The term "business day" shall mean any day except Saturday and Sunday when Old
National Bank in Evansville, the lead bank of ONB, is open for the transaction
of business.
A-44
12.11 Disclosure Schedule. The Disclosure Schedule attached hereto
is intended to be and hereby is specifically made a part of this Agreement.
* * * * * * *
A-45
IN WITNESS WHEREOF, ONB and Dulaney 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
DULANEY BANCORP, INC.
By: /s/ John Nichols
-----------------------------------
John Nichols, President
ATTEST:
By: /s/ William F. George
--------------------------------------
William F. George, Corporate Secretary
A-46
APPENDIX B
ILLINOIS DISSENTERS' RIGHTS LAW
UNDER THE ILLINOIS BUSINESS CORPORATION ACT OF 1983
5/11.65. RIGHT TO DISSENT
s 11.65. Right to dissent. (a) A shareholder of a corporation is entitled
to dissent from, and obtain payment for his or her shares in the event of any of
the following corporate actions:
(1) consummation of a plan of merger or consolidation or a plan of
share exchange to which the corporation is a party if (i) shareholder
authorization is required for the merger or consolidation or the share
exchange by Section 11.20 or the articles of incorporation or (ii) the
corporation is a subsidiary that is merged with its parent or another
subsidiary under Section 11.30;
(2) consummation of a sale, lease or exchange of all, or
substantially all, of the property and assets of the corporation other
than in the usual and regular course of business;
(3) an amendment of the articles of incorporation that materially
and adversely affects rights in respect of a dissenter's shares because
it:
(i) alters or abolishes a preferential right of such shares;
(ii) alters or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the
redemption or repurchase, of such shares;
(iii) in the case of a corporation incorporated prior to
January 1, 1982, limits or eliminates cumulative voting
rights with respect to such shares; or
(4) any other corporate action taken pursuant to a shareholder vote
if the articles of incorporation, by-laws, or a resolution of the board of
directors provide that shareholders are entitled to dissent and obtain
payment for their shares in accordance with the procedures set forth in
Section 11.70 or as may be otherwise provided in the articles, by-laws or
resolution.
(b) A shareholder entitled to dissent and obtain payment for his or her
shares under this Section may not challenge the corporate action creating his or
her entitlement unless the action is fraudulent with respect to the shareholder
or the corporation or constitutes a breach of a fiduciary duty owed to the
shareholder.
(c) A record owner of shares may assert dissenters' rights as to fewer
than all the shares recorded in such person's name only if such person dissents
with respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf
the record owner asserts dissenters' rights. The rights of
B-1
a partial dissenter are determined as if the shares as to which dissent is made
and the other shares were recorded in the names of different shareholders. A
beneficial owner of shares who is not the record owner may assert dissenters'
rights as to shares held on such person's behalf only if the beneficial owner
submits to the corporation the record owner's written consent to the dissent
before or at the same time the beneficial owner asserts dissenters' rights.
5/11.70. PROCEDURE TO DISSENT
s 11.70. Procedure to Dissent. (a) If the corporate action giving rise to
the right to dissent is to be approved at a meeting of shareholders, the notice
of meeting shall inform the shareholders of their right to dissent and the
procedure to dissent. If, prior to the meeting, the corporation furnishes to the
shareholders material information with respect to the transaction that will
objectively enable a shareholder to vote on the transaction and to determine
whether or not to exercise dissenters' rights, a shareholder may assert
dissenters' rights only if the shareholder delivers to the corporation before
the vote is taken a written demand for payment for his or her shares if the
proposed action is consummated, and the shareholder does not vote in favor of
the proposed action.
(b) If the corporate action giving rise to the right to dissent is not to
be approved at a meeting of shareholders, the notice to shareholders describing
the action taken under Section 11.30 or Section 7.10 shall inform the
shareholders of their right to dissent and the procedure to dissent. If, prior
to or concurrently with the notice, the corporation furnishes to the
shareholders material information with respect to the transaction that will
objectively enable a shareholder to determine whether or not to exercise
dissenters' rights, a shareholder may assert dissenter's rights only if he or
she delivers to the corporation within 30 days from the date of mailing the
notice a written demand for payment for his or her shares.
(c) Within 10 days after the date on which the corporate action giving
rise to the right to dissent is effective or 30 days after the shareholder
delivers to the corporation the written demand for payment, whichever is later,
the corporation shall send each shareholder who has delivered a written demand
for payment a statement setting forth the opinion of the corporation as to the
estimated fair value of the shares, the corporation's latest balance sheet as of
the end of a fiscal year ending not earlier than 16 months before the delivery
of the statement, together with the statement of income for that year and the
latest available interim financial statements, and either a commitment to pay
for the shares of the dissenting shareholder at the estimated fair value thereof
upon transmittal to the corporation of the certificate or certificates, or other
evidence of ownership, with respect to the shares, or instructions to the
dissenting shareholder to sell his or her shares within 10 days after delivery
of the corporation's statement to the shareholder. The corporation may instruct
the shareholder to sell only if there is a public market for the shares at which
the shares may be readily sold. If the shareholder does not sell within that 10
day period after being so instructed by the corporation, for purposes of this
Section the shareholder shall be deemed to have sold his or her shares at the
average closing price of the shares, if listed on a national exchange, or the
average of the bid and asked price with respect to
B-2
the shares quoted by a principal market maker, if not listed on a national
exchange, during that 10 day period.
(d) A shareholder who makes written demand for payment under this Section
retains all other rights of a shareholder until those rights are cancelled or
modified by the consummation of the proposed corporate action. Upon consummation
of that action, the corporation shall pay to each dissenter who transmits to the
corporation the certificate or other evidence of ownership of the shares the
amount the corporation estimates to be the fair value of the shares, plus
accrued interest, accompanied by a written explanation of how the interest was
calculated.
(e) If the shareholder does not agree with the opinion of the corporation
as to the estimated fair value of the shares or the amount of interest due, the
shareholder, within 30 days from the delivery of the corporation's statement of
value, shall notify the corporation in writing of the shareholder's estimated
fair value and amount of interest due and demand payment for the difference
between the shareholder's estimate of fair value and interest due and the amount
of the payment by the corporation or the proceeds of sale by the shareholder,
whichever is applicable because of the procedure for which the corporation opted
pursuant to subsection (c).
(f) If, within 60 days from delivery to the corporation of the shareholder
notification of estimate of fair value of the shares and interest due, the
corporation and the dissenting shareholder have not agreed in writing upon the
fair value of the shares and interest due, the corporation shall either pay the
difference in value demanded by the shareholder, with interest, or file a
petition in the circuit court of the county in which either the registered
office or the principal office of the corporation is located, requesting the
court to determine the fair value of the shares and interest due. The
corporation shall make all dissenters, whether or not residents of this State,
whose demands remain unsettled parties to the proceeding as an action against
their shares and all parties shall be served with a copy of the petition.
Nonresidents may be served by registered or certified mail or by publication as
provided by law. Failure of the corporation to commence an action pursuant to
this Section shall not limit or affect the right of the dissenting shareholders
to otherwise commence an action as permitted by law.
(g) The jurisdiction of the court in which the proceeding is commenced
under subsection (f) by a corporation is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the power described
in the order appointing them, or in any amendment to it.
(h) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds that the fair value of his or
her shares, plus interest, exceeds the amount paid by the corporation or the
proceeds of sale by the shareholder, whichever amount is applicable.
(i) The court, in a proceeding commenced under subsection (f), shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of the appraisers, if any, appointed by the court under subsection (g),
but shall exclude the fees and expenses of counsel and experts for the
respective parties. If the fair value of the shares as determined by the court
B-3
materially exceeds the amount which the corporation estimated to be the fair
value of the shares or if no estimate was made in accordance with subsection
(c), then all or any part of the costs may be assessed against the corporation.
If the amount which any dissenter estimated to be the fair value of the shares
materially exceeds the fair value of the shares as determined by the court, then
all or any part of the costs may be assessed against that dissenter. The court
may also assess the fees and expenses of counsel and experts for the respective
parties, in amounts the court finds equitable, as follows:
(1) Against the corporation and in favor of any or all dissenters if
the court finds that the corporation did not substantially comply with the
requirements of subsections (a), (b), (c), (d), or (f).
(2) Against either the corporation or a dissenter and in favor of
any other party if the court finds that the party against whom the fees
and expenses are assessed acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by this Section.
If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated and that the fees for
those services should not be assessed against the corporation, the court may
award to that counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who are benefited. Except as otherwise provided in this Section,
the practice, procedure, judgment and costs shall be governed by the Code of
Civil Procedure.
(j) As used in this Section:
(1) "Fair value", with respect to a dissenter's shares, means the
value of the shares immediately before the consummation of the corporate
action to which the dissenter objects excluding any appreciation or
depreciation in anticipation of the corporate action, unless exclusion
would be inequitable.
(2) "Interest" means interest from the effective date of the
corporate action until the date of payment, at the average rate currently
paid by the corporation on its principal bank loans or, if none, at a rate
that is fair and equitable under all the circumstances.
B-4
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Articles of Incorporation provide that the Registrant
will indemnify any person who is or was a director, officer or employee of the
Registrant or of any other corporation for which he is or was serving in any
capacity at the request of the Registrant against all liability and expense that
may be incurred in connection with any claim, action, suit or proceeding with
respect to which such director, officer or employee is wholly successful or
acted in good faith in a manner he reasonably believed to be in, or not opposed
to, the best interests of the Registrant or such other corporation and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
that his conduct was unlawful. A director, officer or employee of the Registrant
is entitled to be indemnified as a matter of right with respect to those claims,
actions, suits or proceedings where he has been wholly successful. In all other
cases, such director, officer or employee will be indemnified only if the Board
of Directors of the Registrant or independent legal counsel finds that he has
met the standards of conduct set forth above.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following Exhibits are being filed as part of this Registration
Statement:
2 Agreement of Affiliation and Merger (included as Appendix A to
Prospectus)
3(i) Articles of Incorporation of the Registrant (incorporated by
reference to Registrant's Registration Statement on Form S-4, File
No. 33-57207, dated January 22, 1993)
3(ii) By-Laws of the Registrant (incorporated by reference to Registrant's
Registration Statement on Form S-4, File No. 33-80670, dated June
23, 1994)
4 (a) the description of Registrant's common stock contained in its
Current Report on Form 8-K, dated January 6, 1983 (incorporated by
reference thereto), and (b) the description of Registrant's
Preferred Stock Purchase Rights contained in Registrant's Form 8-A,
dated March 1, 1990, including the Rights Agreement, dated March 1,
1990, between the Registrant and Old National Bank in Evansville, as
Trustee (incorporated by reference thereto)
5 Opinion of Krieg DeVault Alexander & Capehart, LLP re: legality
8 Tax Opinion of Krieg DeVault Alexander & Capehart, LLP copy re:
certain federal income tax matters
II-1
10 Material Contracts (incorporated by reference to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1997 and to the Distribution Agreement set forth in Exhibit 1 of the
Registrant's Registration Statement on Form S-3, File No. 33-55222,
dated December 2, 1992)
21 Subsidiaries of the Registrant
23.01 Consent of Krieg DeVault Alexander & Capehart, LLP (included in
Opinion of Krieg DeVault Alexander & Capehart, LLP re: legality at
Exhibit 5)
23.02 Consent of Arthur Andersen LLP
23.03 Consent of McGee Rice & Wheat, Inc.
24 Powers of Attorney
99.01 Form of Proxy
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) (1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
the use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(2) The undersigned registrant hereby undertakes that every
prospectus (i) that is filed pursuant to paragraph (b)(1) immediately preceding
or (ii) that purports to meet the requirements of Section 10(a)(3) of the Act,
and is used in connection with an offering of securities subject to Rule 415,
will be filed as a part of an amendment to the registration statement and will
not be used until such amendment is effective, and that, for purposes of
determining any liability under the Act, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Evansville,
State of Indiana, on December 17, 1998.
OLD NATIONAL BANCORP
By: /s/ RONALD B. LANKFORD
------------------------------
Ronald B. Lankford, President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities indicated below as of December 17, 1998.
Name Title
- ---- -----
/s/ JAMES A. RISINGER Chairman of the Board, Director and Chief
- ----------------------------- Executive Officer (Chief Executive Officer)
James A. Risinger
/s/ JOHN POELKER Senior Vice President (Chief Financial
- ----------------------------- Officer and Principal Accounting Officer
John Poelker
DAVID L. BARNING* Director
- -----------------------------
David L. Barning
RICHARD J. BOND* Director
- -----------------------------
Richard J. Bond
ALAN W. BRAUN * Director
- -----------------------------
Alan W. Braun
WAYNE A. DAVIDSON* Director
- -----------------------------
Wayne A. Davidson
LARRY E. DUNIGAN* Director
- -----------------------------
Larry E. Dunigan
DAVID E. ECKERLE* Director
- -----------------------------
David E. Eckerle
THOMAS B. FLORIDA* Director
- -----------------------------
Thomas B. Florida
II-4
PHELPS L. LAMBERT* Director
- -----------------------------
Phelps L. Lambert
RONALD B. LANKFORD* President and Director
- -----------------------------
Ronald B. Lankford
LUCIEN H. MEIS* Director
- -----------------------------
Lucien H. Meis
LOUIS L. MERVIS* Director
- -----------------------------
Louis L. Mervis
LAWRENCE D. PRYBIL* Director
- -----------------------------
Lawrence D. Prybil
JOHN N. ROYSE* Director
- -----------------------------
John N. Royse
MARJORIE Z. SOYUGENC* Director
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Marjorie Z. Soyugenc
CHARLES D. STORMS* Director
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Charles D. Storms
*By: /s/ JEFFREY L. KNIGHT
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Attorney-in-Fact
Print Name: Jeffrey L. Knight
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