As filed with the Securities and Exchange Commission on November 9, 2010

Registration No. 333-170151

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

 

Pre-effective Amendment No. 1 to the

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

 

 

Old National Bancorp

(Exact name of registrant as specified in its charter)

 

 

 

 

 

ONE MAIN STREET, EVANSVILLE, INDIANA 47708, (812) 464-1294

(Address, including zip code and telephone number, including area code, of principal executive offices)

 

 

 

 

Jeffrey L. Knight, Esq.

Executive Vice President,

Corporate Secretary and Chief Legal Counsel

Old National Bancorp

One Main Street

Evansville, Indiana 47708

(812) 464-1294

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

 

 

Copy to:

 

 

 

 

 

Approximate date of commencement of proposed sale of the securities to the public:  As soon as practicable after this Registration Statement becomes effective and upon the effective time of the merger of Monroe Bancorp with and into Registrant pursuant to the Agreement and Plan of Merger described in the proxy statement/prospectus included in Part I 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.  o

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

 

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  o

 

Exchange Act Rule 14d-1(d) (Cross-Border Third Party Tender Offer)  o

 

CALCULATION OF REGISTRATION FEE

 

 

 

 

 

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 Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

PROXY STATEMENT/PROSPECTUS
DATED NOVEMBER 10, 2010

 

 

PROXY STATEMENT FOR THE SPECIAL MEETING OF
MONROE BANCORP SHAREHOLDERS

 

and

 

PROSPECTUS OF
OLD NATIONAL BANCORP

 

The Boards of Directors of Monroe Bancorp (“Monroe”) and Old National Bancorp (“Old National”) have approved an agreement to merge (the “Merger”) Monroe with and into Old National (the “Merger Agreement”). If the Merger is approved by the shareholders of Monroe and all other closing conditions are satisfied, each shareholder of Monroe shall receive 1.275 shares of Old National common stock for each share of Monroe common stock owned before the Merger, subject to certain adjustments as described in the Merger Agreement. Each Monroe shareholder will also receive cash in lieu of any fractional shares of Old National common stock that such shareholder would otherwise receive in the Merger, based on the market value of Old National common stock determined shortly before the closing of the Merger. The board of directors of Monroe believes that the Merger is in the best interests of Monroe and its shareholders.

 

This document is a proxy statement that Monroe is using to solicit proxies for use at its special meeting of shareholders to be held on December 16, 2010, to vote on the Merger. It is also a prospectus relating to Old National’s issuance of up to 8,277,655 shares of Old National common stock in connection with the Merger.

 

Old National common stock is traded on the New York Stock Exchange under the trading symbol “ONB.” On October 5, 2010, the date of execution of the Merger Agreement, the closing price of a share of Old National common stock was $10.47. On November 5, 2010, the closing price of a share of Old National common stock was $10.33.

 

Monroe common stock is traded on the NASDAQ Global Market under the trading symbol “MROE.” On October 5, 2010, the date of execution of the Merger Agreement, the closing price of a share of Monroe common stock was $5.38. On November 5, 2010, the closing price of a share of Monroe common stock was $11.73.

 

For a discussion of certain risk factors relating to the Merger Agreement, see the section captioned “Risk Factors” beginning on page 13.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under this proxy statement/prospectus or determined if this proxy statement/prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The securities to be issued in connection with the Merger are not savings or deposit accounts or other obligations of any bank or nonbank subsidiary of any of the parties, and they are not insured by the Federal Deposit Insurance Corporation, the Deposit Insurance Fund or any other governmental agency.

 

This proxy statement/prospectus is dated November 10, 2010, and it
is first being mailed to Monroe shareholders on or about November 15, 2010.

AVAILABLE INFORMATION

 

As permitted by Securities and Exchange Commission rules, this document incorporates certain important business and financial information about Old National from other documents that are not included in or delivered with this document. These documents are available to you without charge upon your written or oral request. Your requests for these documents should be directed to the following:

 

Old National Bancorp

One Main Street

P.O. Box 718

Evansville, Indiana 47705

Attn: Jeffrey L. Knight, Executive Vice President,

Corporate Secretary and Chief Legal Counsel

(812) 464-1294

 

In order to ensure timely delivery of these documents, you should make your request by December 9, 2010, to receive them before the special meeting.

 

You can also obtain documents incorporated by reference in this document through the SEC’s website at www.sec.gov. See “Where You Can Find More Information.”

MONROE BANCORP
210 East Kirkwood Avenue
Bloomington, Indiana 47408
(812) 336-0201

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 16, 2010

 

To the Shareholders of Monroe Bancorp:

 

We will hold a special meeting of the shareholders of Monroe Bancorp (“Monroe”) on Thursday, December 16, 2010, at 10:00 a.m., Eastern Standard Time, at the Bloomington/Monroe County Convention Center, 302 South College Avenue, Bloomington, Indiana, to consider and vote upon:

 

1. Merger Proposal.  To approve the Agreement and Plan of Merger dated October 5, 2010 (the “Merger Agreement”), by and between Old National Bancorp (“Old National”) and Monroe, pursuant to which Monroe will merge with and into Old National (the “Merger”). As a result of the Merger, Monroe Bank will become a wholly-owned subsidiary of Old National. In connection with the Merger, you will receive in exchange for each of your shares of Monroe common stock:

 

 

2. Adjournment Proposal.  To approve a proposal to adjourn the special meeting, if necessary, to solicit additional proxies in the event there are not sufficient votes present at the special meeting in person or by proxy to approve the Merger.

 

3. Other Matters.  To vote upon such other matters as may properly come before the meeting or any adjournment thereof. The board of directors is not aware of any such other matters.

 

The enclosed proxy statement/prospectus describes the Merger Agreement and the proposed Merger in detail and includes, as Annex A, the complete text of the Merger Agreement. We urge you to read these materials for a description of the Merger Agreement and the proposed Merger. In particular, you should carefully read the section captioned “Risk Factors” beginning on page 13 of the enclosed proxy statement/prospectus for a discussion of certain risk factors relating to the Merger Agreement and the Merger.

 

The board of directors of Monroe recommends that Monroe shareholders vote “FOR” adoption of the Merger Agreement and “FOR” adjournment of the special meeting, if necessary.

 

The board of directors of Monroe fixed the close of business on November 3, 2010, as the record date for determining the shareholders entitled to notice of, and to vote at, the special meeting and any adjournments or postponements of the special meeting.

YOUR VOTE IS VERY IMPORTANT.  The Merger Agreement must be adopted by the affirmative vote of holders of a majority of the issued and outstanding shares of Monroe common stock in order for the proposed Merger to be consummated. If you do not vote your proxy or do not vote in person at the special meeting, the effect will be a vote against the proposed Merger. Whether or not you expect to attend the special meeting in person, Monroe urges you to submit your proxy as promptly as possible (1) by accessing the internet website specified on your enclosed proxy card, (2) by calling the telephone number specified on your enclosed proxy card or (3) by completing, signing and dating the enclosed proxy card and returning it in the postage-paid envelope provided. You may revoke your proxy at any time before the special meeting or by attending the special meeting and voting in person.

 

By Order of the Board of Directors

 

R. Scott Walters

Corporate Secretary

Bloomington, Indiana

 

November 10, 2010

 

TABLE OF CONTENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

shareholder’s adjusted basis in the surrendered stock. At the closing, Monroe is to receive an opinion confirming these tax consequences. See “Material Federal Income Tax Consequences” beginning on page 83.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

You may also contact:

 

Monroe Bancorp
210 East Kirkwood Avenue
Bloomington, Indiana 47408
(812) 331-3455
Attn: Mark D. Bradford

 

SUMMARY

	•	if the average closing price of a share of Old National common stock (computed in accordance with the terms of the Merger Agreement) exceeds $10.98 per share, then the Exchange Ratio will be decreased such that each share of Monroe common stock is converted into $14.00 of Old National common stock;
	•	if, as of end of the month prior to the effective time, the Monroe shareholders’ equity (computed in accordance with the terms of the Merger Agreement) is less than $55.64 million, the Exchange Ratio will be decreased;
	•	if, as of the tenth day prior to the effective time, the aggregate amount of Monroe delinquent loans (computed in accordance with the terms of the Merger Agreement) is $59.72 million or greater, the Exchange Ratio will be decreased; and
	•	if the average closing price of a share of Old National common stock (computed in accordance with the terms of the Merger Agreement) decreases, Monroe may have the right to terminate the Merger Agreement unless Old National elects to increase the Exchange Ratio.

	•	the business, earnings, operations, financial condition, management, prospects, capital levels, and asset quality of both Old National and Monroe;
	•	the increased regulatory burdens on financial institutions, the effects of the expected continued operation of Monroe Bank under the regulatory restrictions imposed by its memorandum of understanding, and the uncertainties in the regulatory climate going forward;
	•	challenges created by the restrictions on dividend declarations in the memorandum of understanding of Monroe Bank in light of the debt obligations of Monroe at the holding company level;

	•	the limited capital raising alternatives available to Monroe, especially because its shares were trading below book value and any likely equity raise would be very dilutive to Monroe’s shareholders;
	•	Old National’s access to capital and managerial resources relative to that of Monroe;
	•	the board’s desire to provide Monroe shareholders with the prospects for greater future appreciation on their investments in Monroe common stock than the amount the board of directors believes Monroe could achieve independently;
	•	the financial and other terms and conditions of the Merger Agreement, including the fact that the exchange ratio (assuming no adjustments) represents a premium of approximately 149% to Monroe’s tangible book value as of the date of the Merger Agreement; and
	•	the financial analyses prepared by Howe Barnes, Monroe’s financial advisor, and the opinion dated as of October 5, 2010, delivered to the Monroe board by Howe Barnes, to the effect that the Merger Consideration is fair, from a financial point of view, to Monroe’s shareholders.

	•	Monroe’s community banking orientation and its compatibility with Old National and its subsidiaries;
	•	a review of the demographic, economic, and financial characteristics of the markets in which Monroe operates, including existing and potential competition and the history of the market areas with respect to financial institutions;
	•	management’s review of regulatory restrictions affecting Monroe and Monroe Bank and management’s assessment of the conditions giving rise to such restrictions; and
	•	management’s review of the business, operations, earnings, and financial condition, including capital levels and asset quality, of Monroe and Monroe Bank.

	•	approval of the Merger Agreement at the special meeting by a majority of the issued and outstanding shares of Monroe common stock;
	•	approval of the transaction by the appropriate regulatory authorities;

	•	the representations and warranties made by the parties in the Merger Agreement must be true and correct in all material respects as of the effective date of the Merger or as otherwise required in the Merger Agreement unless the inaccuracies do not or will not result in a Material Adverse Effect (as defined below in “The Merger Agreement— Conditions to the Merger”);
	•	the covenants made by the parties must have been fulfilled or complied with in all material respects from the date of the Merger Agreement through and as of the effective time of the Merger;
	•	the parties must have received the respective closing deliveries of the other parties to the Merger Agreement;
	•	the Registration Statement on Form S-4, of which this proxy statement/prospectus is a part, relating to the Old National shares to be issued pursuant to the Merger Agreement, must have become effective under the Securities Act, and no stop order suspending the effectiveness of the Registration Statement shall have been issued or threatened by the Securities and Exchange Commission;
	•	Old National and Monroe must have received an opinion from Krieg DeVault LLP, counsel to Old National, dated as of the effective date, to the effect that the Merger constitutes a tax-free “reorganization” for purposes of Section 368 and related sections of the Internal Revenue Code, as amended;
	•	Old National must have received a letter of tax advice, in a form satisfactory to Old National, from Monroe’s independent certified public accounting firm to the effect that any amounts that are paid by Monroe or Monroe Bank before the effective time of the Merger, or required under Monroe’s employee benefit plans or the Merger Agreement to be paid at or after the effective time, to persons who are “disqualified individuals” under Section 280G of the Internal Revenue Code with respect to Monroe, Monroe Bank or their successors, and that otherwise should be allowable as deductions for federal income tax purposes, should not be disallowed as deductions for such purposes by reason of Section 280G of the Code;
	•	the shares of Old National common stock to be issued in the Merger shall have been approved for listing on the New York Stock Exchange;
	•	there shall be no legal proceedings initiated or threatened seeking to prevent completion of the Merger;
	•	Monroe shall not have delinquent loans (computed in accordance with the Merger Agreement) in excess of $76.72 million; and
	•	Monroe’s consolidated shareholders’ equity (computed in accordance with the Merger Agreement) shall not be less than $50.64 million.

	•	if Old National terminates the Merger Agreement because the Monroe board of directors fails to include its recommendation to approve the Merger in the proxy statement/prospectus delivered to shareholders, or makes an adverse recommendation as to the Merger, or approves or publicly recommends another acquisition proposal to the Monroe shareholders, or Monroe enters into or publicly announces its intent to enter into a written agreement in connection with another acquisition proposal;
	•	if either party terminates the Merger Agreement because the Monroe shareholders fail to approve the Merger Agreement or by Old National because a quorum could not be convened at Monroe’s shareholder meeting called to approve the Merger, and, within the twelve months following the termination, Monroe or any of its subsidiaries enters into another acquisition agreement or consummates another acquisition; or
	•	if either party terminates the Merger Agreement because the Merger is not consummated by April 30, 2011 and either prior to the date of termination an acquisition proposal was made for Monroe and within the next twelve months Monroe or any of its subsidiaries enters into another acquisition agreement or consummates another acquisition.

	•	Neither Monroe nor its shareholders will recognize gain or loss with respect to the shares of Old National common stock received in the merger; and

	•	a Monroe shareholder will recognize gain or loss, if any, on any fractional shares of Old National common stock for which cash is received equal to the difference between the amount of cash received and the Monroe shareholder’s allocable tax basis in the fractional shares.

		Old												Pro Forma
		National				Monroe				Pro Forma				Equivalent
		Historical				Historical				Combined				Monroe Share
Book value per share:
at September 30, 2010		$	10.27			$	8.98			$	10.29			$	13.12
at December 31, 2009		$	9.68			$	9.03			$	9.75			$	12.43
Cash dividends per share:
Nine months ended September 30, 2010		$	0.21			$	0.03			$	0.21			$	0.27
Year ended December 31, 2009		$	0.44			$	0.16			$	0.44			$	0.56
Diluted earnings (loss) per common share:
Nine months ended September 30, 2010		$	0.37			$	(0.08	)		$	0.41			$	0.52
Year ended December 31, 2009		$	0.14			$	0.32			$	0.26			$	0.33

		Old National Common Stock												Monroe Common Stock
		High				Low				Close				High				Low				Close
		(Dollars per share)
October 5, 2010			10.53				10.21				10.47				5.60				4.89				5.38
November 5, 2010			10.60				9.90				10.33				12.40				11.44				11.73

 

SELECTED CONSOLIDATED FINANCIAL DATA OF OLD NATIONAL

		September 30,								December 31,
		2010				2009				2009				2008				2007				2006				2005
		(unaudited)								(Dollar amounts in thousands except per share data)
Results of Operations
Net interest income		$	164,439			$	176,376			$	231,399			$	243,325			$	219,191			$	212,717			$	219,152
Provision for loan losses			23,681				41,459				63,280				51,464				4,118				7,000				23,100
Noninterest income			127,945				126,844				163,460				166,969				155,138				153,920				161,602
Noninterest expense			231,033				248,181				338,956				297,229				277,998				264,690				263,811
Income (loss) before income tax and discontinued operations			37,670				13,580				(7,377	)			61,601				92,213				94,947				93,843
Income tax (benefit)			5,182				(9,477	)			(21,114	)			(877	)			17,323				15,574				15,254
Net income			32,488				23,057				13,737				62,478				74,890				79,373				63,764
Net income available to common shareholders			32,488				19,165				9,845				62,180				74,890				79,373				63,764
Dividends paid on common stock			18,268				24,400				30,380				45,710				72,931				55,574				51,690
Per Common Share
Earnings per share (basic)			0.37				0.29				0.14				0.95				1.14				1.20				0.94
Earnings per share (diluted)			0.37				0.29				0.14				0.95				1.14				1.20				0.93
Dividends paid			0.21				0.37				0.44				0.69				1.11				0.84				0.76
Book value — end of period			10.27				9.93				9.68				9.56				9.86				9.66				9.61
Market value — end of period			10.50				11.20				12.43				18.16				14.96				18.92				21.64
At Period End
Total assets			7,506,114				7,973,492				8,005,335				7,873,890				7,846,126				8,149,515				8,492,022
Investment securities			2,944,639				2,924,353				2,882,228				2,224,687				2,267,410				2,337,301				2,466,865
Loans, excluding held for sale			3,703,140				4,035,666				3,835,486				4,760,359				4,686,356				4,700,003				4,893,827
Allowance for loan losses			72,149				69,551				69,548				67,087				56,463				67,790				78,847
Total deposits			5,439,437				5,694,355				5,903,488				5,422,287				5,663,383				6,321,494				6,465,636
Long-term debt			578,282				808,611				699,059				834,867				656,722				747,545				954,925
Shareholders’ equity			895,684				865,413				843,826				730,865				652,881				642,369				649,898
Financial Ratios
Return on average assets			0.57	%			0.38	%			0.17	%			0.82	%			0.94	%			0.97	%			0.74	%
Return on average common shareholders’ equity			5.02	%			4.00	%			1.41	%			9.49	%			11.67	%			12.43	%			9.31	%
Allowance for loan losses to total loans (period end) (excluding held for sale)			1.95	%			1.72	%			1.81	%			1.41	%			1.20	%			1.44	%			1.61	%
Shareholders’ equity to total assets (period end)			11.93	%			10.85	%			10.54	%			9.28	%			8.32	%			7.88	%			7.65	%
Average equity to average total assets			11.25	%			8.40	%			9.06	%			8.67	%			8.04	%			7.81	%			7.94	%
Dividend payout ratio			56.23	%			127.32	%			308.59	%			73.51	%			97.38	%			70.02	%			81.06	%

 

SELECTED CONSOLIDATED FINANCIAL DATA OF MONROE

		September 30,								December 31,
		2010				2009				2009				2008				2007				2006				2005
		{(unaudited)								(Dollar amounts in thousands except per share data)
Results of Operations
Net interest income		$	17,056			$	18,071			$	23,837			$	23,601			$	23,039			$	22,665			$	20,824
Provision for loan losses			10,900				7,000				11,850				8,880				2,035				1,200				1,140
Noninterest income			8,751				8,861				11,983				10,033				10,251				9,492				9,258
Noninterest expense			16,473				16,755				21,930				20,732				20,626				20,098				18,054
Income before income tax			(1,566	)			3,157				2,040				4,022				10,629				10,859				10,888
Income tax			(1,056	)			565				65				43				2,823				3,273				3,665
Net income			(510	)			2,592				1,975				3,979				7,806				7,586				7,223
Dividends paid on common stock			187				933				996				3,232				3,061				3,150				3,132
Per Common Share
Earnings per share (basic)			(0.082	)			0.417				0.317				0.640				1.240				1.154				1.094
Earnings per share (diluted)			(0.082	)			0.417				0.317				0.639				1.235				1.150				1.091
Dividends paid(1)			0.03				0.15				0.16				0.52				0.49				0.48				0.47
Book value — end of period			8.98				9.19				9.03				8.99				8.76				8.24				7.64
Market price — end of period			4.60				7.67				6.24				8.01				16.00				16.76				16.00
At Period End
Total assets			838,122				823,881				802,451				819,799				778,080				748,193				713,060
Total securities (not including trading securities)			127,541				104,989				117,865				118,549				122,011				116,693				115,836
Loans, excluding held for sale			539,454				604,942				584,139				629,702				581,857				556,918				524,158
Allowance for loan losses			16,082				13,181				15,256				11,172				6,654				6,144				5,585
Total deposits			666,201				654,807				634,254				665,179				619,717				589,328				576,181
Federal Home Loan Bank advances			17,272				17,430				17,371				25,523				18,273				19,430				33,781
Subordinated debentures			21,248				21,248				21,248				8,248				8,248				3,093				—
Other Borrowings			67,147				64,710				67,437				59,432				69,900				75,556				42,981
Shareholders’ equity			55,947				57,221				56,202				55,921				54,452				53,505				50,514
Financial Ratios
Return on average assets(2)			(0.08	)%			0.42	%			0.24	%			0.50	%			1.04	%			1.04	%			1.09	%
Return on average common shareholders’ equity(2)			(1.21	)%			6.14	%			3.49	%			7.11	%			14.79	%			14.59	%			14.93	%
Allowance for loan losses to total loans (period end) (excluding held for sale)			2.98	%			2.18	%			2.61	%			1.77	%			1.14	%			1.10	%			1.07	%
Shareholders’ equity to total assets (period end)			6.68	%			6.95	%			7.00	%			6.82	%			7.00	%			7.15	%			7.08	%
Average equity to average total assets			6.57	%			6.97	%			6.87	%			7.06	%			7.00	%			7.12	%			7.30	%
Dividend payout ratio(3)			(36.67	)%			36.00	%			50.43	%			81.23	%			39.21	%			41.52	%			43.36	%

(1)		Common shares are adjusted by unreleased ESOP shares.

(2)		September 30, 2010 and 2009 ratios have been annualized.

(3)		Dividends declared on common shares divided by net income available to shareholders.

 

In addition to the other information contained in or incorporated by reference into this proxy statement/prospectus (see “Where You Can Find More Information”), including the risk factors included in Old National’s Annual Report on Form 10-K for the year ended December 31, 2009, you should consider carefully the risk factors described below in deciding how to vote. You should keep these risk factors in mind when you read forward-looking statements in this document and in the documents incorporated by reference into this document. Please refer to the section of this proxy statement/prospectus titled “Caution About Forward-Looking Statements.”

 

Monroe shareholders cannot be certain of the value of the Merger Consideration they will receive, because the market price of Old National common stock will fluctuate and the Exchange Ratio is subject to adjustment as a result of changes in the price of Old National common stock and Monroe’s shareholders’ equity and delinquent loans.

 

Upon completion of the merger, each share of Monroe common stock will be converted into 1.275 shares of Old National common stock. This exchange ratio is subject to downward adjustment, as described in the Merger Agreement and in this document, in the event that Monroe’s delinquent loans are $59.72 million or greater as of the ten days prior to closing date of the Merger, or in the event that Monroe’s consolidated shareholders’ equity is less than $55.64 million. See “The Merger Agreement — Merger Consideration” for a more complete discussion of the Merger Consideration to be paid in this proposed transaction. The exchange ratio is also subject to downward adjustment if the average market price of Old National’s common stock during the ten trading days preceding the fifth calendar day prior to the effective time of the Merger exceeds $10.98 per share.

 

Additionally, the market value of the Merger Consideration may vary from the closing price of Old National common stock on the date it announced the merger, on the date that this document was mailed to Monroe shareholders, on the date of the special meeting of the Monroe shareholders and on the date it completes the Merger and thereafter. Any change in exchange ratio or the market price of Old National common stock prior to completion of the Merger will affect the amount of and the market value of the Merger Consideration that Monroe shareholders will receive upon completion of the merger. Accordingly, at the time of the special meeting, Monroe shareholders will not know or be able to calculate with certainty the amount nor the market value of the Merger Consideration they would receive upon completion of the merger. Stock price changes may result from a variety of factors, including general market and economic conditions, changes in its respective businesses, operations and prospects, and regulatory considerations. Many of these factors are beyond Old National’s or Monroe’s control. You should obtain current market quotations for shares of Old National common stock and for shares of Monroe common stock before you vote.

 

Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or cannot be met.

 

Before the transactions contemplated in the Merger Agreement may be completed, various approvals must be obtained from the Federal Reserve Board, the Office of the Comptroller of the Currency and the Indiana Department of Financial Institutions. These governmental entities may impose conditions on the completion of the Merger or require changes to the terms of the Merger Agreement. Although Old National and Monroe do not currently expect that any such conditions or changes would be imposed, there can be no assurance that they will not be, and such conditions or changes could have the effect of delaying completion of the transactions contemplated in the Merger Agreement or imposing additional costs on or limiting Old National’s revenues, any of which might have a material adverse effect on Old National following the Merger. There can be no assurance as to whether the regulatory approvals will be received, the timing of those approvals, or whether any conditions will be imposed.

The Merger Agreement may be terminated in accordance with its terms and the Merger may not be completed, which could have a negative impact on Monroe.

 

The Merger Agreement with Old National is subject to a number of conditions which must be fulfilled in order to close. Those conditions include: Monroe shareholder approval, regulatory approval, the continued accuracy of certain representations and warranties by both parties and the performance by both parties of certain covenants and agreements. In particular, Old National is not obligated to close the Merger transaction if Monroe has delinquent loans in excess of $76.72 million as of the tenth day prior to the effective date of the Merger, or if Monroe’s consolidated shareholders’ equity was less than $50.64 million, subject to adjustments in the Merger Agreement, as of the end of the month prior to the effective time of the Merger. As of September 30, 2010, Monroe’s delinquent loans were $53.12 million and its consolidated shareholders’ equity, as adjusted pursuant to the Merger Agreement, was approximately $56.99 million. In addition, certain circumstances exist where Monroe may choose to terminate the Merger Agreement, including the acceptance of a superior proposal or the decline in Old National’s share price to below $8.38 as of the first date when all regulatory approvals for the Merger have been received combined with such decline being at least 20% greater than a corresponding price decline of the Nasdaq Bank Index. Under such circumstances, Old National may, but is not required to, increase the exchange ratio in order to avoid termination of the Merger Agreement. Old National has not determined whether it would increase the exchange ratio in order to avoid termination of the Merger Agreement by Monroe. See “The Merger Agreement — Merger Consideration” for a more complete discussion of the Merger Consideration to be paid in this proposed transaction and “— Termination” for a more complete discussion of the circumstances under which the Merger Agreement could be terminated. There can be no assurance that the conditions to closing the Merger will be fulfilled or that the Merger will be completed.

 

If the Merger Agreement is terminated, there may be various consequences to Monroe, including:

 

 

If the Merger Agreement is terminated and Monroe’s board of directors seeks another merger or business combination, under certain circumstances Monroe may be required to pay Old National a $3 million termination fee, and Monroe shareholders cannot be certain that Monroe will be able to find a party willing to pay an equivalent or more attractive price than the price Old National has agreed to pay in the Merger.

 

Monroe shareholders will have a reduced ownership and voting interest after the Merger and will exercise less influence over management.

 

Monroe’s shareholders currently have the right to vote in the election of the Monroe board of directors and on other matters affecting Monroe. When the Merger occurs, each Monroe shareholder will become a shareholder of Old National with a percentage ownership of the combined organization that is much smaller than the shareholder’s percentage ownership of Monroe. Because of this, Monroe’s shareholders will have less influence on the management and policies of Old National than they now have on the management and policies of Monroe.

Old National may be unable to successfully integrate Monroe Bank’s operations and retain Monroe Bank’s employees.

 

Simultaneous with, or as soon as possible following, the closing of the Merger, Monroe Bank will be merged with and into Old National Bank. The difficulties of merging the operations of Monroe Bank with Old National Bank include:

 

 

The process of integrating operations could cause an interruption of, or loss of momentum in, the activities of one or more of Old National, Old National Bank and Monroe Bank, and the loss of key personnel. The merger of Monroe Bank with Old National Bank will require the experience and expertise of certain key employees of Monroe Bank who are expected to be retained by Old National. However, there can be no assurances that Old National will be successful in retaining these employees for the time period necessary to successfully merge Monroe Bank into Old National Bank. The diversion of management’s attention and any delays or difficulties encountered in connection with the merger of Monroe Bank into Old National Bank could have an adverse effect on the business and results of operations of Old National or Old National Bank.

 

The termination fee and the restrictions on solicitation contained in the Merger Agreement may discourage other companies from trying to acquire Monroe.

 

Until the completion of the Merger, with some exceptions, Monroe is prohibited from soliciting, initiating, encouraging, or participating in any discussion of, or otherwise considering, any inquiries or proposals that may lead to an acquisition proposal, such as a merger or other business combination transaction, with any person or entity other than Old National. In addition, Monroe has agreed to pay a termination fee of $3 million to Old National if the board of directors of Monroe withdraws, modifies or changes its approval or recommendation of the Merger Agreement and approves or recommends an acquisition transaction with a third party. These provisions could discourage other companies from trying to acquire Monroe even though such other companies might be willing to offer greater value to Monroe’s shareholders than Old National has offered in the Merger Agreement. The payment of the termination fee also could have a material adverse effect on Monroe’s financial condition.

 

Certain of Monroe’s officers and directors have interests that are different from, or in addition to, the interests of Monroe’s shareholders generally.

 

Certain of Monroe’s officers and directors have interests in the Merger that are in addition to, or different from, the interests of Monroe’s shareholders. Monroe’s board of directors was aware of these conflicts of interest when it approved the Merger Agreement. These interests include:

 

 

For a more detailed discussion of these interests, see “Interests of Certain Directors and Officers of Monroe in the Merger.”

The fairness opinion obtained by Monroe will not reflect changes in the relative values of Old National and Monroe between the time the opinion was obtained and the effective time of the Merger.

 

The fairness opinion of Howe Barnes was delivered as of October 5, 2010. Monroe does not intend to obtain any further update of the Howe Barnes fairness opinion. Changes in the operations and prospects of Old National and Monroe, general market and economic conditions, and other factors both within and outside of Old National’s and Monroe’s control, on which the opinion of Howe Barnes is based, may alter the relative value of the companies. Therefore, the Howe Barnes opinion does not address the fairness of the Merger Consideration as of the date hereof or at the time the Merger will be completed.

 

The Merger may fail to qualify as a reorganization for federal tax purposes, resulting in your recognition of taxable gain or loss in respect of your Monroe shares.

 

Monroe intends the Merger to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code. Although the Internal Revenue Service will not provide a ruling on the matter, Old National and Monroe will, as a condition to closing, obtain an opinion from Old National’s legal counsel that the Merger will constitute a reorganization for federal tax purposes. This opinion does not bind the IRS or prevent the IRS from adopting a contrary position. If the Merger fails to qualify as a reorganization, you generally would recognize gain or loss on each share of Monroe common stock surrendered in an amount equal to the difference between your adjusted tax basis in that share and the fair market value of the Old National common stock received in exchange for that share upon completion of the Merger.

 

The shares of Old National common stock to be received by Monroe shareholders as a result of the Merger will have different rights from the shares of Monroe common stock.

 

The rights associated with Monroe common stock are different from the rights associated with Old National common stock. See the section of this proxy statement/prospectus entitled “Comparison of the Rights of Shareholders” for a discussion of the different rights associated with Old National common stock.

 

This filing contains forward-looking statements, including statements about our financial condition, results of operations, earnings outlook, asset quality trends and profitability. Forward-looking statements express management’s current expectations or forecasts of future events and, by their nature, are subject to assumptions, risks and uncertainties. Certain statements contained in this filing that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”) notwithstanding that such statements are not specifically identified.

 

In addition, certain statements may be contained in the future respective filings of Old National and Monroe with the SEC, in press releases and in oral and written statements made by or with the approval of Old National that are not statements of historical fact and constitute forward-looking statements within the meaning of the Reform Act. Examples of forward-looking statements include, but are not limited to:

 

 

Words such as “believes,” “anticipates,” “expects,” “intends,” “targeted,” “continue,” “remain,” “will,” “should,” “may” and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

Forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

 

 

Additional factors that could cause Old National’s and Monroe’s results to differ materially from those described in the forward-looking statements can be found in Old National’s and Monroe’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the SEC. All subsequent written and oral forward-looking statements concerning the proposed transaction or other matters and attributable to Old National or Monroe or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements referenced above. Forward-looking statements speak only as of the date on which such statements are made. Old National and Monroe undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, or to reflect the occurrence of unanticipated events.

 

We caution you not to place undue reliance on the forward-looking statements.

 

Date, Place, Time, and Purpose

 

Old National’s and Monroe’s Boards of Directors are sending you this proxy statement/prospectus and proxy to use at the special meeting. At the special meeting, the Monroe board of directors will ask you to vote on a proposal to approve the Merger Agreement. The special meeting will be held on Thursday, December 16, 2010, at 10:00 a.m., Eastern Standard Time, at the Bloomington/Monroe County Convention Center, 302 South College Avenue, Bloomington, Indiana.

 

Record Date, Voting Rights, Quorum, and Required Vote

 

Monroe has set the close of business on November 3, 2010, as the record date for determining the holders of Monroe common stock entitled to notice of and to vote at the special meeting. Only Monroe shareholders at the close of business on the record date are entitled to notice of and to vote at the special meeting. As of the record date, there were 6,229,778 shares of Monroe common stock outstanding and entitled to vote at the special meeting. There must be a majority of Monroe’s issued and outstanding shares present in person or by proxy at the special meeting in order for the vote on the Merger Agreement to occur.

 

Approval of the Merger Agreement and the related Merger will require the affirmative vote of at least a majority of Monroe’s issued and outstanding shares. Broker non-votes and abstentions from voting will have the same effect as a vote against the Merger Agreement. The directors and officers of Monroe (and their affiliates), as a group, owned with power to vote 706,467 shares of Monroe common stock, representing approximately 11.3% of the outstanding shares of Monroe common stock as of the record date. In connection with the execution of the Merger Agreement, the directors of Monroe each executed a voting agreement pursuant to which they agreed to vote their shares, and to use reasonable efforts to cause all shares owned by such director jointly with another person or by such director’s spouse to be voted, in favor of the Merger.

 

The proposal to adjourn or postpone the special meeting for the purpose of allowing additional time for the solicitation of proxies from shareholders to approve the Merger Agreement requires more votes cast in favor of the proposal than are cast against it. Abstentions and broker non-votes will not be treated as “NO” votes and, therefore, will have no effect on this proposal.

 

Voting and Revocability of Proxies

 

You may vote in person at the special meeting or by proxy. To ensure your representation at the special meeting, we recommend you vote by proxy even if you plan to attend the special meeting. You may change your proxy vote at the special meeting.

 

Monroe shareholders whose shares are held in “street name” by their broker, bank, or other nominee must follow the instructions provided by their broker, bank, or other nominee to vote their shares.

 

Voting instructions are included on your proxy form. If you properly complete and timely submit your proxy, your shares will be voted as you have directed. You may vote for, against, or abstain with respect to the

approval of the Merger Agreement and the adjournment of the special meeting. If you are the record holder of your shares and submit your proxy without specifying a voting instruction, your shares will be voted “FOR” approval of the Merger Agreement and, if necessary, “FOR” adjournment of the special meeting.

 

You may revoke your proxy before it is voted by:

 

 

Attendance at the special meeting will not, in and of itself, constitute a revocation of a proxy. All written notices of revocation and other communication with respect to the revocation of proxies should be addressed to: Monroe Bancorp, 210 East Kirkwood Avenue, Bloomington, Indiana 47408, Attention: Corporate Secretary.

 

Participants in Monroe’s ESOP

 

If you participate in the Monroe Bancorp Employee Stock Ownership Plan (the “ESOP”), you will receive a confidential voting instruction card that reflects all shares you may instruct the ESOP trustee to vote under the ESOP. Under the ESOP’s terms, all shares held in the ESOP will be voted by the ESOP trustee, but each participant in the ESOP may confidentially instruct the ESOP trustee how to vote the shares of Monroe common stock allocated to his or her ESOP account. Shares of Monroe common stock held by the ESOP trust for which no timely voting instructions are received will be voted by the ESOP trustee, as directed by the Benefits Committee appointed by Monroe’s board of directors, in the same proportion as shares for which the ESOP trustee has timely received confidential voting instructions, subject to the exercise of its fiduciary duties. The deadline for submitting your confidential voting instructions to the ESOP trustee is December 9, 2010. Monroe has engaged an independent fiduciary to serve as the independent discretionary trustee of the ESOP. The trustee intends to obtain a written opinion from a qualified independent financial advisor that the Merger Consideration constitutes adequate consideration under the Employee Retirement Income Security Act of 1974 (“ERISA”) and is fair to the ESOP participants from a financial point of view.

 

Solicitation of Proxies

 

Monroe and Old National will divide the costs of the distribution of this proxy statement/prospectus. In addition to soliciting proxies by mail, directors, officers, and employees of Monroe may solicit proxies personally and by telephone. None of these persons will receive additional or special compensation for soliciting proxies. Monroe will, upon request, reimburse brokers, banks and other nominees for their expenses in sending proxy materials to their customers who are beneficial owners and obtaining their voting instructions.

 

In addition, Monroe has made arrangements with Phoenix Advisory Partners, LLC to assist in soliciting proxies for the special meeting and has agreed to pay them $6,000, plus out-of-pocket expenses, for these services. In addition to these charges, Phoenix Advisory Partners, LLC will be paid $4.50 per call placed to solicit proxies.

 

Recommendation of Monroe’s Board of Directors

 

The board of directors of Monroe unanimously voted in favor of the Merger Agreement and the Merger. The Monroe board of directors believes that these items and the transactions they contemplate are in the best interests of Monroe and its shareholders, and recommends that Monroe shareholders vote “FOR” adoption of the Merger Agreement and approval of the Merger and the transactions contemplated thereby. The board of directors of Monroe also recommends a vote “FOR” the adjournment of the special meeting, if such adjournment becomes necessary.

 

See “The Merger — Background of the Merger” and “Monroe’s Reasons for the Merger and Recommendation of the Board of Directors” for a more detailed discussion of the Monroe Board of Directors’ recommendation with regard to the Merger Agreement, the Merger and the transactions contemplated thereby.

 

Old National Bancorp
One Main Street
Evansville, Indiana 47708
(812) 464-1294

 

Old National Bancorp, which celebrated its 175th anniversary in 2009, is the largest financial services holding company headquartered in Indiana and, with $7.5 billion in assets, ranks among the top 100 banking companies in the United States. Since its founding in Evansville in 1834, Old National has focused on community banking by building long-term, highly valued partnerships with clients in its primary footprint of Indiana, Illinois and Kentucky. In addition to providing extensive services in retail and commercial banking, wealth management, investments and brokerage, Old National also owns one of the largest independent insurance agencies headquartered in Indiana, offering complete personal and commercial insurance solutions. Old National common stock is traded on the New York Stock Exchange under the trading symbol: “ONB”.

 

Additional information about Old National and its subsidiaries is included in documents incorporated by reference into this document. For more information, please see the section entitled “Where You Can Find More Information” beginning on page 96.

 

Monroe Bancorp
210 East Kirkwood Avenue
Bloomington, Indiana 47408
(812) 336-0201

 

Monroe Bancorp, headquartered in Bloomington, Indiana, is an Indiana bank holding company with Monroe Bank as its wholly owned subsidiary. Monroe Bank was established in Bloomington in 1892, and offers a full range of financial, trust and investment services through its locations in central and south central Indiana. Monroe’s common stock is traded on the NASDAQ Global Market under the trading symbol “MROE”.

 

Additional information about Monroe and Monroe Bank is included elsewhere in this proxy statement/prospectus.

 

As part of the ongoing consideration and evaluation of its long-term prospects and strategies, the board of directors of Monroe have periodically discussed and reviewed strategic opportunities as part of its goal to maximize value for its shareholders. These opportunities have included, among other alternatives, continuing as an independent institution, growing internally and through branch acquisitions, or acquiring, affiliating, or merging with other institutions.

 

Until 2010, Monroe’s board of directors had concluded that Monroe’s shareholders, customers, and employees were best served by Monroe remaining as an independent financial institution. However, due in large part to the continuing weakness in the regional and national economies and the related stress this has caused in residential housing and commercial real estate markets, during the fourth quarter of 2008 and through 2009, Monroe experienced deterioration in its loan portfolio leading to increased loan loss provisions, declining financial performance, a deteriorating liquidity position, and increased pressures on its capital adequacy. Recognizing the need to strengthen its capital position, Monroe began exploring potential public and private capital-raising transactions in the first three quarters of 2009, and completed a public offering of $13,000,000 original principal amount of 10-year subordinated debentures in July 2009.

 

For the balance of 2009 and into the first two quarters of 2010, the board of directors and management of Monroe continued to explore various methods to improve its capital position and financial performance. On April 29, 2010, the board of directors of Monroe Bank entered into an informal memorandum of understanding with the Federal Deposit Insurance Corporation and the Indiana Department of Financial Institutions addressing, among other things, the maintenance of prescribed capital levels, capital planning, and dealing with certain criticized assets. Additionally, on July 22, 2010, at the direction of the FRB, Monroe’s board adopted a resolution requiring Monroe to obtain the written approval of the FRB prior to the declaration or payment of dividends, any increase in debt, the issuance of trust preferred obligations, or the redemption of any of Monroe’s stock. In light of these regulatory actions and in response to Monroe’s challenging capital position, Monroe’s board of directors during the first three quarters of 2010 implemented initiatives to increase earnings and capital by decreasing operating expenses, including a reduction in executive officer and senior management salaries, while maintaining the quarterly dividend on Monroe’s common stock unchanged at $0.01 per share. Despite these efforts, the operating environment for Monroe continued to be challenging, and the directors and senior management of Monroe began to more closely consider potential strategic alternatives involving the merger of Monroe with another financial institution.

 

Howe Barnes, as part of its investment banking business, is regularly engaged in the evaluation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, and distributions of listed and unlisted securities. Howe Barnes is familiar with the market for common stocks of publicly and privately traded banks, thrifts, and bank and thrift holding companies. Howe Barnes also acted as the sole underwriter in Monroe’s subordinated debentures offering in July 2009.

 

As a result of Howe Barnes’ experience and capabilities related to business combinations of financial institutions and its familiarity with Monroe stemming from the July 2009 subordinated debentures offering, in July 2010 Monroe contacted Howe Barnes and requested that it review possible strategic alternatives and provide advice regarding a possible business combination with another entity. Initial discussions with Howe Barnes included an analysis of Monroe’s and Monroe Bank’s competition and the status of the merger market, the condition of the banking industry as a whole, possible prices that could be achieved in a sale of control, and a list of potential merger partners. All of these issues were analyzed in conjunction with Monroe’s goal to maximize shareholder value.

 

On August 5, 2010, Monroe formally retained Howe Barnes as its financial advisor in connection with a possible business combination with another financial institution. Howe Barnes, working with Monroe’s management and Monroe’s legal counsel, Krieg DeVault LLP (“Krieg DeVault”), then began a confidential inquiry and contacted potential business combination candidates. By mid-August, three financial institutions

submitted preliminary non-binding proposals to engage in a business combination with Monroe, one of which was Old National.

 

The first potential acquirer expressed interest to pay consideration within a range of 100% to 140% of Monroe’s tangible book value subject to further due diligence. Based on Monroe’s tangible book value per share of $8.93 as of June 30, 2010, this equated to consideration per share in the range of $8.93 to $12.50. The second potential acquirer expressed interest to pay consideration within a range of 90% to 120% of tangible book value. Based on Monroe’s tangible book value per share of $8.93 as of June 30, 2010, this equated to consideration per share in the range of $8.04 to $10.72. Alternatively, Old National indicated a willingness to pay consideration based on an exchange ratio of between 1.0-1.4 Old National shares for each share of Monroe. Based on Old National’s closing price of $10.16 on August 17, 2010, this exchange ratio range equated to consideration per share of between $10.16 to $14.22 and a tangible book value range of 114% to 159%. In connection with these initial proposals, Monroe exchanged mutual confidentiality agreements with each of the potential acquirers, including Old National, bearing customary terms.

 

Following up on Old National’s initial expression of interest, on August 13, 2010, Robert G. Jones, Jr., the President and Chief Executive Officer of Old National, submitted a letter to Howe Barnes describing in general terms why a combination with Old National may be the best alternative for Monroe to consider. Upon receipt of this letter and the other preliminary indications of interest, Monroe held a special meeting of its board of directors on August 19, 2010 at which representatives of Howe Barnes and Krieg DeVault were present. At this meeting, Howe Barnes reviewed the terms of the three initial proposals and provided the board with an update on the status of the merger and capital markets. Also at this meeting, the board noted that Krieg DeVault also served as legal counsel to Old National and determined that if Monroe was to pursue a transaction with Old National, Monroe would need to secure separate legal counsel for the transaction, with which Krieg DeVault concurred.

 

Subsequent to the August 19, 2010 meeting, Monroe’s management and Howe Barnes continued evaluating the benefits and drawbacks of the three preliminary proposals received, including the proposal submitted by Old National. After further discussion, Monroe’s board of directors and management concluded that Old National’s initial proposal was superior to the proposals of the other two interested parties and agreed to invite Old National to conduct an initial round of on-site due diligence in order to refine or strengthen its proposal, while at the same time holding open the possibility of considering additional indications of interest from the two other parties.

 

During the remainder of August, Old National engaged in documentary due diligence and performed extensive due diligence on Monroe Bank’s loan portfolio. As a result of its due diligence, on September 3, 2010, Old National refined its initial proposal and indicated to Monroe a willingness to pay consideration based on an exchange ratio of between 1.10-1.20 Old National shares for each share of Monroe. Following receipt of Old National’s refined proposal, Monroe’s management analyzed the proposal and, while determining that Old National’s offer still was superior to those of the other potential acquirers, deemed it inadequate to justify exclusive negotiations with Old National at that time and authorized Howe Barnes to contact Old National’s financial advisor, Sandler O’Neill & Partners, L.P. (“Sandler O’Neill”), to further negotiate the purchase price. Also on September 3, 2010, Monroe retained Barnes & Thornburg LLP (“Barnes & Thornburg”) as its legal counsel in connection with a potential business combination transaction.

 

After conducting additional due diligence between September 3-6, 2010, on September 7, 2010, Old National further refined its expression of interest and proposed an exchange ratio of between 1.15-1.20 Old National shares for each Monroe share, equating to a transaction value in the range of $10.87 to $11.34 per Monroe share, based on Old National’s closing price of $9.45 on September 7, 2010. Upon receipt of the refined proposal, on September 9, 2010, Monroe held a special meeting of its board of directors at which representatives of Barnes & Thornburg and Howe Barnes were present. At this meeting, Mark D. Bradford, Monroe’s President and Chief Executive Officer, provided the board with details regarding the revised informal expression of interest from Old National. Representatives of Barnes & Thornburg also advised the board regarding the legal standards and fiduciary duties applicable to dealing with acquisition offers, factors to consider when evaluating offers, actions that can be taken when responding to offers, and legal considerations

related to maintaining the confidentiality of any potential transaction being considered by the board. At this meeting, Howe Barnes also presented the board with a financial analysis of Old National’s revised proposal and contrasted it with the expressions of interest received from the other two potential acquirers and also with recent comparable merger transactions in the Midwest, South, and East. Howe Barnes also conveyed to the board that pursuant to discussions with Sandler O’Neill, Old National may further revise its offer by proposing a floating exchange ratio with price caps and collars and potentially introduce a cash consideration component. After further discussion, the board determined that Monroe should pursue further negotiations with Old National on the condition that, among other things, any transaction provide for consideration consisting of all stock with a fixed exchange ratio of 1.275 shares of Old National for each Monroe share, without price caps or collars, and that Old National document the terms of the transaction with a non-binding written indication of interest. The board authorized Howe Barnes and Barnes & Thornburg to communicate these terms to Old National’s legal and financial advisers as the conditions upon which Monroe would agree to negotiate exclusively with Old National on a business combination.

 

After these terms were communicated to Old National, on September 13, 2010 Old National’s board of directors held a special meeting to review the proposal resulting from Monroe’s September 9th board meeting. After discussion, Old National’s board authorized a written non-binding indication of interest to be delivered to Monroe proposing to offer an exchange ratio of 1.275 shares of Old National common stock for each share of Monroe common stock pursuant to a merger transaction in which Monroe would merge with Old National followed by the merger of Monroe Bank with Old National Bank. The indication of interest also would propose that the final exchange ratio and form of consideration would be mutually agreed upon by the parties subject to further due diligence. After the meeting, on September 13, 2010, Mr. Jones, on behalf of Old National, submitted the written non-binding letter of interest to Monroe, as instructed by the board. Old National’s written proposal represented a value of approximately $80 million for Monroe and a premium of approximately 143% to Monroe’s tangible book value. Along with the letter, Old National delivered a draft exclusivity agreement pursuant to which Monroe would be restricted from soliciting, negotiating, or encouraging any alternative proposals through October 22, 2010.

 

Following receipt of the written letter of interest from Old National, Old National and its advisors continued to conduct additional due diligence on Monroe, and Monroe and Barnes & Thornburg continued analyzing various issues relating to a potential transaction, including various employee benefits issues. After a thorough review of Old National’s written letter of interest, on September 15, 2010 Monroe presented changes to Old National’s letter providing for a fixed exchange ratio in an all-stock consideration deal with no price caps or collars, among other terms. Old National and its advisors reviewed this counter-proposal and sent a revised letter back to Monroe later that day proposing a fixed exchange ratio of 1.275 shares of Old National common stock for each share of Monroe common stock in an all-stock deal with no price caps or collars.

 

On September 16, 2010, Monroe’s board of directors held another special meeting to discuss Old National’s revised letter of interest, at which representatives of Barnes & Thornburg and Howe Barnes were present. At the meeting, Howe Barnes presented the board with an updated financial analysis of a Monroe-Old National combination and the financial terms of the proposed transaction, and provided an updated comparison of a possible transaction with Old National with recent comparable merger transactions. After further discussions, the Monroe board of directors determined that Old National’s revised proposal was acceptable and authorized Mr. Bradford and Monroe’s legal and financial advisors to pursue further negotiations with Old National and its legal counsel, on an exclusive basis, in an effort to reach a definitive merger agreement embodying the terms of Old National’s revised offer. In this regard, on September 16, 2010, Monroe and Old National executed the exclusivity agreement substantially in the form delivered to Monroe on September 13th.

 

Between September 16 and 27, 2010, Old National continued with additional due diligence and conducted additional interviews with management and directors of Monroe. At about the same time, Old National’s legal counsel, Krieg DeVault, began drafting a definitive merger agreement, and on September 24, 2010 delivered a first draft of the definitive merger agreement to Barnes & Thornburg. As a result of Old National’s additional due diligence, the first draft of the merger agreement provided for an exchange ratio of 1.275 shares of Old National stock for each Monroe share, subject to a cap of $14.00 per Monroe share. Additionally, the draft merger agreement contained exchange ratio adjustments based upon the level of Monroe’s delinquent loans

and shareholders’ equity prior to closing. Between September 24 and 27, 2010, Monroe, Barnes & Thornburg, and Howe Barnes conducted a thorough review of the first draft of the merger agreement. At this time, Monroe, Old National, and their respective legal counsels also began preparing the disclosure schedules to the merger agreement.

 

On September 27, 2010, Barnes & Thornburg delivered a revised draft of the definitive merger agreement to Krieg DeVault, reflecting negotiations between the parties and their legal counsel on a variety of issues, including the nature of the exchange ratio and the purchase price adjustment provisions, to name a few. Between September 27 and 29, Old National discussed the revised draft of the merger agreement with Krieg DeVault and proposed further revisions. On September 30, 2010, Monroe’s board of directors held another special meeting, at which Barnes & Thornburg and Howe Barnes participated. At this meeting, Barnes & Thornburg reviewed the terms of the current draft of the definitive merger agreement, and Howe Barnes provided the board with an update on negotiations regarding the financial terms of the transaction, including the exchange ratio. After a thorough discussion, the board of directors instructed Barnes & Thornburg and Howe Barnes to propose to Old National’s representatives, among other things, that the definitive agreement contain a fixed exchange ratio with no price caps or collars.

 

Between September 30 and October 3, 2010, Monroe, Old National, and their respective legal counsels, along with Howe Barnes and Sandler O’Neill continued to negotiate the terms of the final definitive agreement. Pursuant to these negotiations, the parties discussed a number of terms in the definitive agreement, including providing for an all-stock deal with an exchange ratio of 1.275 shares of Old National common stock for each share of Monroe common stock, subject to adjustment if the average of the per-share closing prices of Old National’s stock during the 10 trading days preceding the 5th day preceding the closing of the merger exceeds $10.98 per share, thus providing that the purchase price for each share of Monroe common stock would be capped at $14.00. The parties also discussed the concept of the exchange ratio being subject to further adjustment based on prescribed levels of Monroe’s delinquent loans and shareholder’s equity prior to closing, which was embodied in the original draft of the definitive agreement. The parties also discussed the possibility of an uncapped exchange ratio of 1.20 shares of Old National common stock for each share of Monroe common stock. On October 3, 2010, Monroe’s board of directors held a special meeting, at which representatives of Barnes & Thornburg and Howe Barnes were present, to discuss the status of these negotiations. After further discussions, the board authorized Monroe’s management and Barnes & Thornburg to proceed toward the execution of the definitive merger agreement on the basis of the 1.275 exchange ratio capped at $14.00 per share. On October 4, 2010, Barnes & Thornburg conferred with Krieg DeVault to finalize the terms of the definitive merger agreement and discuss a public announcement of the transaction, and both Monroe, Old National, and their respective legal counsels began finalizing their disclosure schedules.

 

On October 4, 2010, the board of directors of Old National met with legal counsel and its investment banker, Sandler O’Neill + Partners, L.P. (“Sandler O’Neill”), and reviewed and discussed the draft of the Merger Agreement that had been distributed to the Board prior to the meeting. Old National management and legal counsel summarized the terms of the Merger Agreement and responded to questions from the Board, and Sandler O’Neill discussed the consideration to be paid by Old National to Monroe. Following a lengthy discussion, the Board voted to approve management’s finalization and execution of the Merger Agreement and all related documents.

 

On October 5, 2010, Monroe’s board of directors held a special meeting, at which Barnes & Thornburg and Howe Barnes participated. Representatives of Barnes & Thornburg led a discussion regarding the provisions of the latest merger agreement draft and responded to numerous questions from directors. In addition, representatives of Howe Barnes provided a detailed analysis of the financial aspects of the proposed Merger and orally delivered its opinion (subsequently confirmed in writing) that the Merger Consideration was fair, from a financial point of view, to Monroe’s shareholders. After final discussion of the proposed transaction and the merger agreement terms, Monroe’s board of directors approved the Merger Agreement and authorized the execution of the Merger Agreement and all related documents.

Monroe and Old National executed the definitive Merger Agreement after the close of business on Tuesday, October 5, 2010. Old National and Monroe issued a joint press release publicly announcing the transaction prior to the opening of the financial markets on the morning of Wednesday, October 6, 2010.

 

Monroe’s board of directors determined that the Merger Agreement and the Merger were in the best interests of Monroe and its shareholders and recommends that Monroe’s shareholders vote “FOR” the approval of the Merger Agreement and the transactions contemplated by the Merger Agreement.

 

In its deliberations and in making its determination, Monroe’s board of directors considered many factors including, without limitation, the following:

 

 

 

The foregoing discussion of the factors considered by the Monroe board of directors is not intended to be exhaustive, but rather includes the material factors considered by the Monroe board of directors. In reaching its decision to approve the Merger Agreement, the Merger, and the other transactions contemplated by the Merger Agreement, the Monroe board of directors did not quantify or assign any relative weights to the factors considered, and individual directors may have given different weights to different factors. The Monroe board of directors considered all these factors as a whole, including discussions with, and questioning of, Monroe’s management and Monroe’s financial and legal advisors, and overall considered the factors to be favorable to, and to support, its determination. The Monroe board of directors also relied on the experience of Howe Barnes, as its financial advisor, for analyses of the financial terms of the Merger and for its opinion as to the fairness, from a financial point of view, of the Merger Consideration to be received by the holders of Monroe common stock.

 

For the reasons set forth above, the Monroe board of directors unanimously determined that the Merger, the Merger Agreement, and the transactions contemplated by the Merger Agreement are advisable and in the best interests of Monroe and its shareholders, and unanimously approved and adopted the Merger Agreement. The Monroe board of directors unanimously recommends that Monroe shareholders vote “FOR” approval of the Merger Agreement.

 

Old National’s board of directors concluded that the Merger Agreement is in the best interests of Old National and its shareholders. In deciding to approve the Merger Agreement, Old National’s board of directors considered a number of factors, including, without limitation, the following:

 

 

 

The respective Boards of Directors of Old National and Monroe believe that, over the long-term, the Merger will be beneficial to Old National shareholders, including the current shareholders of Monroe who will become Old National shareholders if the Merger is completed. The Old National board of directors believes that one of the potential benefits of the Merger is the cost savings that may be realized by combining the two companies and integrating Monroe Bank as a banking subsidiary of Old National, which savings are expected to enhance Old National’s earnings.

 

Old National expects to reduce expenses by consolidating certain locations and combining accounting, data processing, retail and lending support, and other administrative functions after the Merger, which will enable Old National to achieve economies of scale in these areas. Promptly following the completion of the Merger, which is expected to occur during the fourth quarter of 2010 or early in the first quarter of 2011, Old National plans to begin the process of eliminating redundant functions, and eliminating duplicative expenses.

 

The amount of any cost savings Old National may realize in 2011 will depend upon how quickly and efficiently Old National is able to implement the processes outlined above during the year.

 

Old National believes that it will achieve cost savings based on the assumption that it will be able to:

 

 

Old National has based these assumptions on its present assessment of where savings could be realized based upon the present independent operations of the two companies. Actual savings in some or all of these areas could be higher or lower than is currently expected.

 

Old National also believes that the Merger will be beneficial to the customers of Monroe as a result of the additional products and services offered by Old National and its subsidiary banks and because of the increased lending capability.

 

Monroe retained Howe Barnes to serve as its financial advisor and provide a fairness opinion in connection with the Merger. As part of its investment banking business, Howe Barnes is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, initial and secondary offerings of securities, and valuations for other purposes.

 

On October 5, 2010, the board of directors of Monroe met to evaluate the proposed Merger and the terms of the Merger Agreement. At this meeting, Howe Barnes rendered its oral opinion, which was subsequently confirmed in writing, that, as of that date and based upon and subject to various assumptions, matters considered, and limitations on Howe Barnes’ review described in the opinion, the Merger Consideration to be received by the holders of the outstanding common stock of Monroe, was fair, from a financial point of view, to the existing shareholders of Monroe. Howe Barnes’ opinion was based on their experience as investment bankers, their activities as described below, and all other factors Howe Barnes deemed relevant.

No limitations were imposed by Monroe on Howe Barnes with respect to the investigations made or the procedures followed in rendering its opinion. The opinion was approved by Howe Barnes’ fairness opinion committee.

 

The full text of Howe Barnes’ written opinion to Monroe’s board of directors, dated October 5, 2010, which sets forth the assumptions made, matters considered and extent of review by Howe Barnes, is attached as Annex B to this proxy statement/prospectus and is incorporated herein by reference. You should read the fairness opinion carefully and in its entirety. The following summary of Howe Barnes’ opinion is qualified in its entirety by reference to the full text of the opinion. Howe Barnes’ opinion is directed to Monroe’s board of directors and does not constitute a recommendation to any shareholder of Monroe as to how a shareholder should vote with regard to the Merger at the Monroe shareholders’ meeting described in this proxy statement/prospectus. The opinion addresses only the fairness to existing Monroe shareholders, from a financial point of view, of the Merger Consideration to be received by the holders of the outstanding common stock of Monroe in connection with the Merger. The opinion does not address the relative merits of the Merger or any alternatives to the Merger, the underlying decision of Monroe’s board of directors to approve or proceed with or effect the Merger, or any other aspect of the Merger. No opinion was expressed by Howe Barnes as to whether any alternative transaction might produce consideration for the holders of Monroe’s common stock in an amount in excess of that contemplated in the Merger.

 

Howe Barnes has consented to the inclusion of its opinion and to the inclusion of the summary of its opinion in this proxy statement/prospectus. In giving such consent, Howe Barnes does not concede that it comes within the category of persons whose consent is required under the Securities Act of 1933, as amended (“Securities Act”), or the rules and regulations of the Securities and Exchange Commission thereunder, nor does it concede that it is an expert within the meaning of the term “expert” as used in the Securities Act or the rules and regulations of the Securities and Exchange Commission thereunder with respect to any part of the registration statement on Form S-4 of which this proxy statement/prospectus forms a part.

 

In connection with rendering its opinion, Howe Barnes reviewed and considered, among all other things considered and deemed relevant:

 

 

 

The written opinion was necessarily based upon economic, financial market and other relevant conditions as of the date the opinion was rendered.

 

In connection with its review and arriving at its opinion, with the consent of Monroe’s board of directors, Howe Barnes assumed and relied upon the accuracy and completeness of the financial information and other pertinent information provided by Monroe to Howe Barnes and Howe Barnes relied on publicly available information of Old National as well as financial information provided by Old National and its representatives for purposes of rendering its opinion. Howe Barnes did not assume any obligation to independently verify any of the information discussed above, including, without limitation, information from published sources, as being complete and accurate. With regard to the financial information, including financial projections it received from Monroe, Howe Barnes assumed that this information reflected the best available estimates and good faith judgments of management as to Monroe’s future performance and that the projections provided a reasonable basis upon which Howe Barnes could formulate its opinion. Monroe does not publicly disclose internal management forecasts or projections of the type utilized by Howe Barnes in connection with Howe Barnes’ role in serving as financial advisor to Monroe, and those forecasts and projections were not prepared with a view towards public disclosure. The forecasts and projections were based upon numerous variables and assumptions that are inherently uncertain, including, among others, factors relative to the general economic and competitive conditions faced by Monroe. Accordingly, actual results could vary significantly from those set forth in the forecasts and projections.

 

Howe Barnes does not purport to be an expert in the evaluation of loan portfolios or the allowance for loan losses with respect to loan portfolios and, accordingly, assumes that Old National’s and Monroe’s allowances were adequate to cover any losses at June 30, 2010. Howe Barnes was not retained to and did not conduct a physical inspection of any of the properties or facilities of Old National or Monroe, did not make an independent evaluation, appraisal, or physical inspection of the assets, liabilities or prospects of Old National or Monroe and was not furnished with any such evaluation or appraisal.

 

In connection with rendering its opinion to Monroe’s board of directors, Howe Barnes performed a variety of financial and comparative analyses, which are summarized below. Such summaries do not purport to be a complete description of the analyses performed by Howe Barnes. The fact that any specific analysis has been referred to in the summaries below is not meant to indicate that the analysis was given greater weight than any other analysis. Accordingly, the ranges of values resulting from any particular analysis described below should not be taken to be Howe Barnes’ view of Monroe’s actual value. Moreover, Howe Barnes believes that the analyses must be considered as a whole and that selecting any portions of the analyses and the factors considered, including information presented in tabular form, without considering all of the analyses and factors, could create an incomplete understanding of the process underlying the analyses and, more importantly, a misleading or incomplete view of its opinion as to the fairness, from a financial point of view, of the Merger Consideration that is based on those analyses.

 

Transaction Overview

 

In providing an overview of the Merger, Howe Barnes noted that each share of Monroe common stock issued and outstanding immediately prior to the effective time of the Merger shall become and be converted into the right to receive 1.275 shares of common stock of Old National. The Merger Consideration is subject to adjustment if the Average Old National Closing Price at the effective time of the Merger exceeds $10.98 per share, in which case the Exchange Ratio will be reduced by such an amount that Monroe common stock shareholders receive $14.00 per share in Old National common stock. The Merger Consideration also is subject to adjustment if as of the end of the month prior to the effective time of the Merger, the Monroe consolidated shareholders’ equity, as adjusted pursuant to the Merger Agreement, is less than $55.64 million, in which case the Exchange Ratio (calculated after any adjustment pursuant to the preceding sentence) shall be decreased to a quotient determined by dividing the Adjusted Purchase Price by the total number of shares of Monroe common stock outstanding at closing, and further dividing that number by the Average Old

National Closing Price (as such terms are defined below on pages 33-34). The Merger Consideration is subject to further adjustment if the aggregate amount of Monroe delinquent loans as of the tenth day prior to the effective time of the Merger is $59.72 million or greater, in which case the Exchange Ratio shall be decreased, following any adjustments set forth above, by the percentages identified in the Merger Agreement. The terms of the Merger are more fully set forth in the Merger Agreement attached hereto as Annex A. Using the Average Old National Closing Price as of October 4, 2010 of $10.46, the Merger Consideration would equal $13.34 per share.

 

Howe Barnes calculated the following transaction multiples based on the June 30, 2010 financial data of Monroe:

 

 

 

 

Net Present Value Analysis

 

Howe Barnes performed a net present value analysis to generate a range of present values per share of Monroe common stock assuming continued independence. The range was determined by adding the present value of future Monroe dividends and the present value of the terminal value of Monroe common stock. Present value refers to the current value of future cash flows obtained by discounting such future cash flows by a discount rate that takes into account risk, the opportunity cost of capital, expected returns and other factors. Terminal value refers to the capitalized value of future earnings or tangible book value.

 

In this analysis, Howe Barnes used management projections for the full years of 2011 through 2014 as a basis for forecasting the future dividends and earnings capacity of Monroe. Howe Barnes applied price-to-earnings multiples of 8.0x to 20.0x to estimated 2014 earnings per share and price-to-tangible book multiples of 100.0% to 220.0% of year end 2014 estimated tangible book value per share to establish terminal values of Monroe. The range of terminal multiples applied was based on numerous factors, including the range of price-to-earnings and price-to-tangible book multiples of banks comparable to Monroe that would be expected to trade over the longer term, Monroe’s historic trading multiples, and its projected financial performance. The future dividends and terminal values of Monroe were then discounted using discount rates of 10.0% to 16.0%, which Howe Barnes viewed as an appropriate range of discount rates for banks with the risk characteristics of Monroe.

 

Based on these assumptions, the implied per share present value of Monroe common stock using a price-to-earnings multiple ranged from $4.23 to $12.53 and using a price-to-tangible book multiple ranged from $6.11 to $16.16. Howe Barnes noted that the net present value analysis was considered because it is a widely used valuation methodology, but that the results are highly dependent upon the numerous assumptions that must be made, including asset and earnings growth rates, discount rates, and projected terminal valuation multiples.

 

Pro Forma Merger Analysis

 

Howe Barnes analyzed certain pro forma effects of the Merger to determine the financial impact on Monroe’s shareholders once their shares are converted to Old National common stock. Specifically, Howe Barnes calculated the estimated accretion/dilution to earnings per share, tangible book value per share and dividends per share Monroe and Old National could potentially realize from 2011 through 2014. As part of its analysis, Howe Barnes assumed the following:

 

 

 

Based upon those assumptions, Howe Barnes’ analysis indicated that the Merger would be accretive to Old National’s earnings per share for the year ended December 31, 2011 and thereafter. Additionally, Howe Barnes’ analysis indicated that the Merger would be dilutive to Old National’s tangible book value per share for the years ended December 31, 2011 through December 31, 2013, but accretive thereafter.

 

From the perspective of Monroe’s shareholders, Howe Barnes’ analysis indicated that the Merger would be accretive to Monroe’s earnings per share for the year ended December 31, 2011 and thereafter. Howe Barnes’ analysis indicated that the Merger would be accretive to Monroe’s tangible book value per share for the year ended December 31, 2011 and thereafter. Additionally, Howe Barnes’ analysis indicated the Merger would be accretive to Monroe’s dividends per share for the year ended December 31, 2011 and thereafter. The estimates of cost savings and purchase accounting adjustments and the timing and realization of such cost savings and purchase accounting adjustments are based on numerous estimates, assumptions, and judgments and are subject to significant uncertainties. The actual results achieved by the combined company may vary from projected results and the variations may be material.

 

Pro Forma Net Present Value Analysis

 

Howe Barnes performed a pro forma net present value analysis to generate a range of present values per share of pro forma Monroe common stock as adjusted for the Exchange Ratio. The range was determined by adding the present value of future pro forma Monroe dividends as adjusted for the Exchange Ratio and the present value of the terminal value of pro forma Monroe common stock as adjusted for the Exchange Ratio.

 

In this analysis, Howe Barnes used Old National’s and Monroe’s management projections for the full years of 2011 through 2014 as a basis for forecasting the future dividends and earnings capacity of the pro forma organization. Howe Barnes applied price-to-earnings multiples of 8.0x to 20.0x to estimated 2014 earnings per share and price-to-tangible book multiples of 100.0% to 220.0% of year end 2014 estimated tangible book value per share to establish terminal values of the pro forma organization. The range of terminal multiples applied was based on numerous factors, including the range of price-to-earnings and price-to-tangible book multiples banks comparable to the pro forma organization would be expected to trade over the longer term and its projected financial performance. The future dividends and terminal values of the pro forma organization were then discounted using discount rates of 10.0% to 16.0%, which Howe Barnes viewed as an appropriate range of discount rates for banks with the risk characteristics of the pro forma organization.

 

Based on these assumptions, the implied per share present value of pro forma Monroe common stock as adjusted for the Exchange Ratio using a price-to-earnings multiple ranged from $5.85 to $15.50 and using a price-to-tangible book multiple ranged from $7.87 to $19.32. Again, Howe Barnes noted that the net present value analysis was considered because it is a widely used valuation methodology, but that the results are highly dependent upon the numerous assumptions that must be made, including asset and earnings growth rates, merger adjustments, discount rates, and projected terminal valuation multiples.

 

Comparable Precedent Transactions Analysis

 

Howe Barnes conducted a review of two groups of recent comparable precedent transactions. Howe Barnes then compared median pricing ratios for each group to those of the Merger. The two groups used in the analysis consisted of the following:

 

 

 

 

Comparable Public Company Analysis

 

Howe Barnes compared the financial and market performances of Monroe to those of comparable publicly traded banks deemed similar to Monroe. Howe Barnes then compared median pricing ratios of the group to the current valuation of Monroe as well as the proposed transaction. The comparable group used in the analysis consisted of publicly traded banks located in the Midwest with assets between $500 million and $1.5 billion and a ratio of non-performing assets to assets of between 3% and 6%.

 

 

Conclusion

 

Based on the above analyses, Howe Barnes concluded that, as of the date of the opinion, the Merger Consideration was fair, from a financial point of view, to the holders of Monroe common stock. In performing its various analyses, Howe Barnes made numerous assumptions with respect to industry performance, general business and economic conditions, and other matters, many of which are beyond Monroe’s and Old National’s control. The analyses performed by Howe Barnes are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than those suggested by those analyses. Accordingly, those analyses and estimates are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, and Howe Barnes does not assume any responsibility if future results are materially different from those projected.

 

The preparation of a fairness opinion is a complex process involving subjective judgment and is not necessarily susceptible to partial analyses or a summary description of such analyses. In its full analysis, Howe Barnes also included assumptions with respect to general economic, market, and other financial conditions. Furthermore, Howe Barnes drew from its past experience in similar transactions, as well as its experience in the valuation of securities and its general knowledge of the banking industry as a whole. Any estimates in Howe Barnes’ analyses are not necessarily indicative of actual future results or values, which may significantly diverge more or less favorably from those estimates. An estimate of Monroe’s valuation does not purport to be appraisals or to necessarily reflect the prices at which Monroe or their respective securities actually may be sold.

 

Howe Barnes’ opinion is limited to the fairness, from a financial point of view, of the Merger Consideration to be received by the holders of the outstanding common stock of Monroe in connection with the Merger. Howe Barnes does not express any opinion with respect to any other class of Monroe stock, warrant, or option issued and outstanding. In rendering the opinion, Howe Barnes expressed no opinions with respect to the amount or nature of any compensation to any officers, directors, or employees of Monroe, or any class of such persons, relative to the consideration to be received by the holders of the common stock of Monroe in the Merger or with respect to the fairness of any such compensation.

 

In rendering this fairness opinion, Howe Barnes acted on behalf of the board of directors of Monroe and received a fee for its services. Monroe also has agreed to reimburse Howe Barnes for certain reasonable out-of-pocket expenses incurred in connection with its engagement and to indemnify Howe Barnes and its affiliates and their respective directors, officers, employees, agents and controlling persons against certain expenses and liabilities, including liabilities under federal securities laws. Under the terms of its financial advisory agreement dated September 29, 2010, Howe Barnes will be paid 1.00% of the total consideration received by Monroe shareholders in connection with the Merger, or $820,508 based upon the value of the Merger Consideration as of November 5, 2010, with $150,000 having been previously paid upon the delivery of the fairness opinion.

 

During the two years preceding the date of the opinion, Howe Barnes has had a material relationship with Monroe in which compensation was received. In July 2009, Howe Barnes served as sole underwriter on Monroe’s offering of redeemable subordinated debentures, for which Howe Barnes received compensation in the amount of $377,525. Except as disclosed above, there are no other material relationships that existed during the two years prior to the date of the opinion or that are mutually understood to be contemplated in which any compensation was received or intended to be received as a result of the relationship between Howe Barnes and any party to the Merger. As a market maker in securities, Howe Barnes may also actively trade the equity securities of Monroe and Old National for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities.

 

As described above, Howe Barnes’ opinion and presentation to Monroe’s board of directors were among the many factors taken into consideration by Monroe’s board of directors in making its determination to approve the Merger Agreement, and to recommend that Monroe’s shareholders approve the Merger Agreement.

 

 

 

Subject to the terms and conditions of the Merger Agreement, at the completion of the Merger, Monroe will merge with and into Old National, with Old National as the surviving corporation of such Merger. The separate existence of Monroe will terminate and the Monroe common stock will cease to be listed on the NASDAQ Global Market and will be cancelled as a consequence of the Merger. The Old National common shares will continue to be listed on the NYSE under the symbol “ONB”. Simultaneous with the Merger or, if required regulatory approval has not been received as of the date of closing of the Merger, as soon thereafter as possible, Monroe Bank will be merged with and into Old National Bank, a wholly-owned subsidiary of Old National, with Old National Bank surviving.

 

Under the Merger Agreement, the officers and directors of Old National serving at the effective time of the Merger will continue to serve as the officers and directors of Old National after the Merger is consummated.

 

If the Merger is completed, your shares of Monroe common stock will be converted into the right to receive 1.275 shares of Old National common stock (the “Exchange Ratio”), subject to adjustment as provided below (as adjusted, the “Merger Consideration”). No fractional shares of Old National common stock will be issued in the Merger. Instead, Old National will pay to each holder of Monroe common stock who otherwise would be entitled to a fractional share of Old National common stock an amount in cash (without interest) determined by multiplying such fraction by the average of the per-share closing prices of a share of Old National common stock during the ten trading days preceding the fifth calendar day preceding the effective time of the Merger (the “Average Old National Closing Price”).

 

The Exchange Ratio is subject to adjustment as follows:

 

 

 

The Monroe consolidated shareholders’ equity shall be determined in accordance with generally accepted accounting principles, to which shall be added the following:

 

i. any accruals, reserves or charges taken by Monroe as a result of the anticipated termination of its data processing agreement with Fidelity National Information Services, Inc.;

 

ii. any accruals, reserves or charges resulting from expenses of the Merger; and

 

iii. any accruals, reserves or charges taken by Monroe at the request of Old National; and

 

iv. $1,000,000, representing the estimated built-in gains on two Monroe Bank parking lots located at two locations in Bloomington, Indiana.

 

As of September 30, 2010, the consolidated shareholders’ equity of Monroe, as adjusted pursuant to the Merger Agreement, was $56.99 million.

 

 

 

The term “Monroe delinquent loans” means the total of (i) all loans with principal or interest that are 30 to 89 days past due, (ii) all loans with principal or interest that are at least 90 days past due and still accruing, (iii) all loans with principal or interest that are nonaccruing, (iv) restructured and impaired loans, (v) other real estate owned, (vi) net charge offs from the date of the Merger Agreement through the last day of the month immediately preceding the closing date of the Merger, and (vii) write-downs of other real estate owned from the date of the Merger Agreement through the last day of the month immediately preceding the closing date of the Merger. As of September 30, 2010, the Monroe delinquent loans were $53.12 million.

 

 

 

If Monroe elects to exercise its termination right as described above, it must give prompt written notice thereof to Old National. During the five-business day period commencing with its receipt of such notice, Old National shall have the option to increase the consideration to be received by the holders of Monroe common stock by adjusting the exchange ratio to the lesser of (i) a quotient, the numerator of which is equal to the product of the Initial ONB Market Value, the exchange ratio (as then in effect), and the Index Ratio, minus 0.20, and the denominator of which is equal to ONB Market Value on the determination date; or (ii) the quotient determined by dividing the Initial ONB Market Value by the ONB Market Value on the determination date, and multiplying the quotient by the product of the exchange ratio (as then in effect) and 0.80. If Old National elects, it shall give, within such five-business day period, written notice to Monroe of such election and the revised exchange ratio, whereupon no termination shall be deemed to have occurred and the Merger Agreement shall remain in full force and effect in accordance with its terms (except as the exchange ratio shall have been so modified). Because the formula is dependent on the future price of Old National’s common stock and that of the index group, it is not possible presently to determine what the adjusted Merger Consideration would be at this time, but, in general, more shares of Old National common stock would be issued, to take into account the extent by which the average price of Old National’s common stock exceeded the decline in the average price of the common stock of the index group.

 

The Merger Agreement provides that each option to acquire shares of Monroe common stock outstanding as of the effective date of the Merger will be converted into an option to purchase a number of shares of Old National common stock equal to the product (rounded down to the nearest whole share) of (A) the number of shares of Monroe common stock subject to the Monroe stock option and (B) the Exchange Ratio, at an exercise price per share (rounded up to the nearest whole cent) equal to (1) the exercise price of such Monroe stock option divided by (2) the Exchange Ratio. Each Monroe stock option will become fully vested following the

effective time of the Merger and will otherwise continue to be governed by the same terms and conditions as were applicable under the related Monroe stock Option immediately prior to the effective time of the Merger.

 

The officers and directors of Monroe hold options to purchase 262,500 shares of Monroe common stock.

 

Prior to the effective time of the Merger, all Monroe employees and former employees who are participants in the ESOP will have the opportunity to complete a confidential voting instruction card to instruct the ESOP trustee to vote Monroe stock allocated to their ESOP accounts with respect to the Merger. Shares of Monroe common stock held by the ESOP for which no timely voting instructions are received will be voted by the ESOP trustee, as directed by the Benefits Committee appointed by Monroe’s board of directors, in the same proportion as shares for which the ESOP trustee has received confidential voting instructions, subject to the exercise of its fiduciary duties. The deadline for returning your confidential voting instructions to the ESOP trustee is December 9. Monroe has engaged an independent fiduciary to serve as the independent discretionary trustee of the ESOP. The trustee intends to obtain a written opinion from a qualified independent financial advisor that the Merger Consideration constitutes adequate consideration under ERISA and is fair to the ESOP participants from a financial point of view.

 

As soon as administratively feasible after the effective time of the Merger, the Monroe ESOP will be merged with and into the Old National ESOP.

 

The Monroe 401(k) plan (“Thrift Plan”) will be terminated no later than the day prior to the effective time of the Merger, and as soon as administratively feasible thereafter the individual account balances of all participants in the Thrift Plan will be distributed or rolled over to another eligible plan, or to an individual retirement account or annuity, as each participant elects.

 

At and after the effective time of the Merger, each certificate representing shares of Monroe common stock will represent only the right to receive the Merger Consideration in accordance with the terms of the Merger Agreement. Old National will reserve a sufficient number of shares of Old National common stock to be issued as a part of the Merger Consideration. Promptly after the effective time of the Merger, but in no event more than five business days thereafter, Old National will mail a letter of transmittal to each holder of Monroe common stock that will include detailed instructions on how such holder many exchange such holder’s Monroe common shares for the Merger Consideration.

 

Old National will cause a certificate representing the number of whole shares of Old National common stock that each holder of Monroe common stock has the right to receive and a check in the amount of any cash that such holder has the right to receive in lieu of fractional shares of Old National common stock to be delivered to such shareholder upon delivery to Old National of certificates representing such shares of Monroe common stock and a properly completed letter of transmittal. No interest will be paid on any Merger Consideration that any such holder shall be entitled to receive.

 

No dividends or other distributions on Old National common stock with a record date occurring after the effective time of the Merger will be paid to the holder of any unsurrendered old certificate representing shares of Monroe common stock converted into the right to receive shares of Old National common stock until the holder surrenders such old certificate in accordance with the Merger Agreement.

 

The stock transfer books of Monroe will be closed immediately at the effective time of the Merger and after the effective time there will be no transfers on the stock transfer records of Monroe of any shares of Monroe common stock. Old National will be entitled to rely on Monroe’s stock transfer books to establish the identity of those persons entitled to receive Merger Consideration. If any old certificate is lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming such old certificate to be lost, stolen, or destroyed and, if required by Old National, the posting by such person of a bond or other indemnity as Old National may reasonably

direct as indemnity against any claim that may be made with respect to the old certificate, Old National will issue the Merger Consideration in exchange for such lost, stolen or destroyed certificate.

 

Until Monroe common stock certificates are surrendered for exchange, any dividends or other distributions declared after the effective time of the Merger with respect to Old National common shares into which shares of Monroe common stock may have been converted will accrue but will not be paid. When such certificates have been duly surrendered, Old National will pay any unpaid dividends or other distributions, without interest. After the effective time of the Merger, there will be no transfers on the stock transfer books of Monroe of any shares of Monroe common stock. If certificates representing shares of Monroe common stock are presented for transfer after the completion of the Merger, they will be cancelled and exchanged for the Merger Consideration.

 

The Merger Agreement contains representations and warranties of Monroe, on the one hand, and Old National, on the other hand, to each other, as to, among other things:

 

 

 

 

In addition, the Merger Agreement contains representations and warranties of Monroe to Old National as to:

 

 

None of the representations and warranties of the parties will survive the consummation of the Merger. Additionally, the parties qualified many of the representations and warranties contained in the Merger Agreement with exceptions set forth in disclosure schedules which were separately delivered by each party to the other party to the Merger Agreement.

 

Monroe Restrictions

 

Under the Merger Agreement, Monroe has agreed to certain restrictions on its activities until the Merger is completed or terminated. In general, Monroe and its subsidiary, Monroe Bank, are required to conduct their business diligently, substantially in the manner as it is presently being conducted, and in the ordinary course of business.

 

The following is a summary of the more significant restrictions imposed upon Monroe, subject to the exceptions set forth in the Merger Agreement. Specifically, without the prior consent of Old National, Monroe and Monroe Bank may not:

 

 

 

 

Old National Restrictions

 

The following is a summary of the more significant restrictions imposed upon Old National, subject to the exceptions set forth in the Merger Agreement. In particular, Old National may not knowingly:

 

 

In addition to the restrictions noted above, Monroe and Old National have agreed to take several other actions, such as:

 

 

 

 

The Merger Agreement also contains certain additional covenants relating to employee benefits and other matters pertaining to officers and directors. See “The Merger Agreement — Employee Benefit Matters” and “Interests of Certain Directors and Officers of Monroe in the Merger.”

 

Until the Merger is completed or the Merger Agreement is terminated, Monroe has agreed that it, and its officers, directors and representatives, and those of Monroe Bank, will not:

 

 

Monroe may, however, furnish information regarding Monroe to, or enter into and engage in discussion with, any person or entity in response to a bona fide unsolicited written proposal by the person or entity

relating to an acquisition proposal, or change or withhold its recommendation to Monroe’s shareholders regarding the Merger if:

 

 

For purposes of the Merger Agreement, the term “superior proposal” means any acquisition proposal relating to Monroe or Monroe Bank, or to which Monroe or Monroe Bank may become a party, that the Monroe board of directors determines in good faith (after having received the advice of its financial advisors) to be (i) more favorable to the shareholders of Monroe from a financial point of view than the Merger (taking into account all the terms and conditions of the proposal and the Merger Agreement, including the $3 million termination fee) and (ii) reasonably capable of being completed without undue delay.

 

The obligation of Old National and Monroe to consummate the Merger is subject to the satisfaction or waiver, on or before the completion of the Merger, of a number of conditions, including:

 

 

 

The obligation of Old National to consummate the Merger also is subject to the fulfillment of other conditions, including:

 

 

The obligation of Monroe to consummate the Merger also is subject to the fulfillment of other conditions, including:

 

 

Except as otherwise provided in the Merger Agreement, Monroe and Old National will be responsible for their respective expenses incidental to the Merger.

 

The Merger Agreement requires Old National to make available to the officers and employees of Monroe and Monroe Bank who continue as employees of Old National or any subsidiary substantially the same employee benefits on substantially the same terms and conditions as Old National offers to similarly situated officers and employees. Monroe and Monroe Bank employees will receive full credit, after the Merger, for all prior service with Monroe, Monroe Bank, or their predecessors for purposes of any applicable eligibility and vesting service requirements under any of Old National’s employee benefit plans, and for determining benefits under Old National’s severance policy. Monroe and Monroe Bank employees who become employees of Old National or any of its subsidiaries will become eligible to participate in Old National’s employee benefit plans as soon as reasonably practicable after the effective time of the Merger, or if later, as of the termination of the corresponding Monroe benefit plan. Continuing employees, if they initially become covered under Old National’s medical, dental, and health plans for less than a full calendar year, will not be subject to any deductibles, co-pays, waiting periods or pre-existing condition limitations under such plans of Old National or its subsidiaries other than those to which they otherwise would have been subject under the medical, dental and health plans of Monroe or Monroe Bank for the calendar year in which they cease to be covered under such plan of Monroe or Monroe Bank.

 

As of the effective time, Old National shall amend the Old National Bancorp Employee Stock Ownership and Savings Plan (Old National KSOP) so that from and after the effective time continuing employees will accrue benefits pursuant to the Old National KSOP and continuing employees shall receive credit for eligibility and vesting purposes for the service of such employees with Monroe and its subsidiaries or their predecessors prior to the effective time, as if such service were with Old National or its subsidiaries.

 

After the effective time, Old National shall continue to maintain all fully insured employee welfare benefit and cafeteria plans currently in effect at the effective time until such time as Old National determines to modify or terminate any or all of those plans.

 

If the effective time of the Merger is on or before December 31, 2010, Monroe’s vacation policy shall terminate as of December 31, 2010 and all continuing employees shall be subject to Old National’s vacation policy as of January 1, 2011 and shall receive credit for prior service years with Monroe. If the effective time of the Merger is after December 31, 2010, Monroe employees will receive the pro rata amount of unused vacation days under Monroe’s vacation policy for the period before the closing of the Merger and the vacation days that would be credited under Old National’s vacation policy for the post-closing period in 2011. Additionally, at the effective time, continuing employees shall be entitled to reimbursement for business related travel pursuant to Old National’s reimbursement policy and sick time pursuant to Old National’s sick

time policy. Notwithstanding the foregoing, all accrued and unpaid sick time of Monroe employees at the effective time of the Merger, up to 160 hours per employee, will be carried over to ONB’s sick time policy.

 

At the effective time, Old National will assume all obligations under Monroe’s deferred compensation plans, and shall continue to maintain and administer those plans in accordance with their provisions, until such time as all benefits accrued under the plans have been paid or distributed to the participants or beneficiaries thereof. Also after the effective time Old National shall continue to maintain and administer Monroe’s stock option plans until such time as all options granted or awarded under such plans have been exercised or lapse.

 

After the Merger Old National shall provide COBRA continuation coverage for each qualified beneficiary entitled to such coverage under applicable federal law.

 

Subject to conditions and circumstances described in the Merger Agreement, either Old National or Monroe may terminate the Merger Agreement if, among other things, any of the following occur:

 

 

Additionally, Old National may terminate the Merger Agreement at any time prior to the effective time of the Merger if any of the following occur:

 

 

Monroe may terminate the Merger Agreement at any time prior to the effective time of the Merger if any of the following occur:

 

 

Additionally, Monroe may terminate the Merger Agreement if, at any time during the five-day period commencing on the first date on which all bank regulatory approvals (and waivers, if applicable) necessary for consummation of the Merger have been received (disregarding any waiting period) (the “determination date”), such termination to be effective the tenth day following such date if both of the following conditions are satisfied:

 

 

If Monroe elects to exercise its termination right as described above, it must give prompt written notice thereof to Old National. During the five business day period commencing with its receipt of such notice, Old National shall have the option to increase the consideration to be received by the holders of Monroe common stock by adjusting the exchange ratio to equal the lesser of (i) a quotient, the numerator of which is equal to the product of the Initial Old National Market Value, the exchange ratio (as then in effect), and the Index Ratio, minus 0.20, and the denominator of which is equal to Old National Market Value on the determination date; or (ii) the quotient determined by dividing the Initial Old National Market Value by the Old National Market Value on the determination date, and multiplying the quotient by the product of the exchange ratio (as then in effect) and 0.80. If Old National elects, it shall give, within such five business day period, written notice to Monroe of such election and the revised exchange ratio, whereupon no termination shall be deemed to have occurred and the Merger Agreement shall remain in full force and effect in accordance with its terms (except as the exchange ratio shall have been so modified). Because the formula is dependent on the future price of Old National’s common stock and that of the index group, it is not possible presently to determine what the adjusted Merger Consideration would be at this time, but, in general, more shares of Old National common stock would be issued, to take into account the extent by which the average price of Old National’s common stock exceeded the decline in the average price of the common stock of the index group.