This summary highlights selected information from this proxy statement and prospectus.Because this is a summary, it does not contain all of the information that is important to you. You should carefully read this entire document, including the documents incorporated herein by reference, and the other documents to which we have referred you before you decide how to vote. See “WHERE YOU CAN FIND ADDITIONAL INFORMATION”“Where You Can Find Additional Information” on page [●]71 for a description of documents that we incorporate by reference into this document. Each item in this summary includes a page reference that directs you to a more complete description in this document of the topic discussed.
Description of First Merchants Corporation (page [62●)])
First Merchants Corporation
200 East Jackson Street
Muncie, Indiana 47305
(765) 747-1500
First Merchants is a financial holding company headquartered in Muncie, Indiana and was organized in September 1982. First Merchants common stock is listed on The NASDAQ Global Select Market under the symbol “FRME.” First Merchants has one full-service Indiana commercial bank charter, First Merchants Bank, which opened for business in Muncie, Indiana, in March 1893. First Merchants Bank also operates Lafayette Bank and Trust and First Merchants Private Wealth Advisors as divisionsa division of First Merchants Bank. First Merchants Bank includes over 106 banking locationshas 116 full-service branch in 27thirty-one Indiana, two Illinois and two Ohio counties. First Merchants Bank’s business activities are currently limited to one significant business segment, which is community banking.
As of December 31, 2016,September 30, 2018, First Merchants had consolidated assets of $7.2$9.8 billion, consolidated deposits of $5.6$7.6 billion and shareholders’ equity of $902 million.$1.4 billion. As of December 31, 2016,2017, First Merchants and its subsidiaries had 1,4491,684 full-time equivalent employees. See “DESCRIPTION OF FIRST MERCHANTS” on page [●].
Description of Arlington BankMBT Financial Corp. (page [63●)])
The Arlington BankMBT Financial Corp.
10 Washington Street
Monroe, Michigan 46161
(734) 241-3431
2130 Tremont Center
Upper Arlington, Ohio 43221
(614) 486-9000
Arlington BankMBT is an Ohio savingsa bank holding company incorporated under Michigan law and headquartered in Upper Arlington, Ohio. ArlingtonMonroe, Michigan. MBT’s wholly-owned bank subsidiary is Monroe Bank & Trust, a Michigan commercial bank. MBT was organized in 2000 at the direction of the management of Monroe Bank & Trust. Monroe Bank & Trust was incorporated and chartered as Monroe State Savings Bank under the laws of the State of Michigan in 1905. In 1940, Monroe Bank & Trust consolidated with Dansard Bank and moved to the present address of its main office. Monroe Bank & Trust operated as a unit bank until 1950 when it opened its first branch office in Ida, Michigan. It then continued its expansion to its present total of 20 branch offices, including its main office. Monroe Bank & Trust changed its name from “Monroe State Savings Bank” to “Monroe Bank & Trust” in 1968. Monroe Bank & Trust operates 20 banking offices in Monroe and Wayne Counties in Michigan. In addition to Monroe Bank & Trust, MBT’s other direct subsidiary is MB&T Financial Services, Inc., a Michigan corporation. MBT has been operatingno employees other than its three officers, each of whom is also an employee and officer of Monroe Bank & Trust and who serve in the Columbus, Ohio market since 1999their capacity as officers of MBT without compensation. As of September 30, 2018, Monroe Bank & Trust had 286 full-time employees and now serves customers through three banking center locations. Arlington Bank employed 67 full-time equivalent employees at December 31, 2016.10 part-time employees.
At December 31, 2016, Arlington BankSeptember 30, 2018, on a consolidated basis, MBT had assets of approximately $309 million,$1.3 billion, deposits of approximately $262 million,$1.2 billion, and shareholders’ equity of approximately $34$121 million.
The Merger (page [34●)])
We have attached a copy of the Merger Agreement to this document asAnnex A. Please read the Merger Agreement in its entirety. It is the legal document that governs the Merger.
The Merger Agreement provides that, if all of the conditions are satisfied or waived, Arlington BankMBT will be merged with and into First Merchants Bank,and, immediately thereafter, ArlingtonMBT will cease to exist. Immediately following the Merger, Monroe Bank & Trust will be consolidated and merged with and into First Merchants Bank and Monroe Bank & Trust will cease to exist. We expect to complete the Merger during the secondfirst quarter of 2017.2019.
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Reasons for the Merger (pages [(page 38●)] and [●])
First MerchantsMerchants.. First Merchants’ Board of Directors considered a number of financial and nonfinancial factors in making its decision to merge with Arlington Bank,MBT, including its respect for the ability and integrity of the Arlington BankMBT’s Board of Directors, management and staff. The Board believes that expanding First Merchants’ operations in the market areas where Arlington BankMBT operates offers financial and strategic benefits to First Merchants and Arlington BankMBT as a combined company.
Arlington Bank.MBT. In considering the Merger with First Merchants, Arlington Bank’sMBT’s Board of Directors collected and evaluated a variety of economic, financial and market information regarding First Merchants and its subsidiaries, their respective businesses and First Merchants’ reputation and future prospects. In the opinion of Arlington Bank’sMBT’s Board of Directors, favorable factors included First Merchants’ strong earnings and stock performance, its management, the compatibility of its markets to those of Arlington Bank,MBT, the likelihood of regulatory approvals of the Merger, and the attractiveness of First Merchants’ offer from a financial perspective. In addition, the Board of Directors considered the fairness opinion of Boenning & Scattergood, Inc. (“Boenning”), described below.
Opinion of Boenning & Scattergood, Inc.MBT’s Financial Advisor (page [40●)])
The Arlington BankMBT’s Board of Directors retained BoenningSandler O’Neill & Partners, L.P. (“Sandler O’Neill”) to render a fairness opinion in connection with the proposed Merger. At the meeting of the Arlington BankMBT’s Board of Directors on January 24, 2017, BoenningOctober 8, 2018, Sandler O’Neill delivered to the Arlington BankMBT’s Board of Directors anits oral opinion, which was subsequently confirmed by delivery of a written opinion, dated January 24, 2017,October 9, 2018, to the effect that, as of the date of the written opinion and based upon and subject to the conditions, limitations, qualifications and assumptions set forth intherein, the opinion, the right ofExchange Ratio was fair to the holders of Arlington Bank common shares to receive 2.7245 shares (the “Exchange Ratio”) of First Merchants common stock (the “Merger Consideration”) was fair,MBT Common Stock from a financial point of view, to such holders of Arlington Bank common shares, other than any holders who properly perfect their right to dissent under applicable law (the “Excluded Holders”).view.
The full text of the written opinion of Boenning,Sandler O’Neill, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion of Boenning,Sandler O’Neill, is attached asAnnex CB to this proxy statement and prospectus and is incorporated herein by reference. Arlington Bankprospectus. MBT shareholders are urged to read Boenning’sSandler O’Neill’s written opinion carefully and in its entirety. Boenning’sSandler O’Neill’s opinion is limited solely to the fairness, from a financial point of view, of the Exchange Ratio to be received in the Merger by the holders of Arlington BankMBT common shares (other than any Excluded Holders)stock and does not address Arlington Bank’sMBT’s underlying business decision to effect the Merger or the relative merits of the Merger as compared to any alternative business strategies or transactions that might be available with respect to Arlington Bank. Boenning’sMBT. Sandler O’Neill’s opinion does not constitute a recommendation to any shareholder of Arlington BankMBT as to how such shareholder should vote or act with respect to any matter relating to the Merger or otherwise.
What Arlington BankMBT Shareholders Will Receive (page [34●)])
If the Merger Agreement is approved and the Merger is subsequently completed, each outstanding Arlington Bankshare of MBT common sharestock will be converted into the right to receive the Exchange Ratio of 2.7245 shares0.2750 share of First Merchants common stock. The number of shares of First Merchants common stock issuable to each Arlington Bank shareholder will be rounded to the nearest thousandth of a share. The Exchange Ratio is subject to adjustment election, allocation and proration procedures set forth in the Merger Agreement.for stock splits, stock dividends, recapitalization or similar transactions. Each Arlington BankMBT shareholder that would otherwise be entitled to receive a fractional share of First Merchants common stock will receive cash in lieu of such fractional share.
Because the Exchange Ratio is fixed (except for customary anti-dilution adjustments), the value of the Merger Consideration that you will receive will depend on the market price of First Merchants common stock when you receive your shares of First Merchants common stock. The implied per share value of the Merger Consideration, based upon First Merchants’ closing stock price on [●], 2017,December 18, 2018, the most recent practicable trading day before this proxy statement and prospectus was finalized, was $[●]$9.86 per share. No assurance can be given that the current market price of First Merchants common stock will be equivalent to the market price of First Merchants common stock on the date that shares of First Merchants common stock are received by an Arlington BankMBT shareholder or at any other time.
Within three (3) business days following the effective date of the Merger, First Merchants will cause the exchange agent to mail a letter of transmittal to each person who was, immediately prior to the effective time of the Merger, a holder of record of Arlington BankMBT common shares.stock. The letter of transmittal will contain instructions for use in effecting the surrender of Arlington BankMBT stock certificates (or shares held in book-entry form) in exchange for the consideration to which such person may be entitled pursuant to the Merger Agreement.
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What First Merchants Shareholders Will Receive (page [35●)])
First Merchants shareholders will not receive any consideration in the Merger. After the Merger, First Merchants shareholders will continue to own the same number of First Merchants shares owned before the Merger.
The Arlington BankMBT Special Shareholders Meeting (page [28●)])
The special meeting of Arlington BankMBT shareholders will be held on [●], 2017,February 14, 2019, at [●]:[●] [●].m.10:00 a.m., local time, at [●].10 Washington Street, Monroe, Michigan 48161.
At the special meeting, Arlington BankMBT shareholders will be asked:
| 1. | Merger Proposal.To consider and vote upon a proposal to approve the Merger Agreement and to approve the transactions contemplated |
| 2. |
| 3. | Adjournment Proposal. To approve one (1) or more adjournments of the |
| Other Matters.To vote upon such other matters which may properly be presented at the special meeting or any adjournment or postponement of the special meeting. |
Arlington BankMBT Recommendation to Shareholders (page [29●)])
Arlington Bank’sMBT’s Board of Directors unanimously approved and adopted the Merger Agreement and approved and authorized the proposed Merger. Arlington Bank’sMBT’s Board of Directors concluded that entering into the Merger Agreement and completing the Merger and the other transactions contemplated by the Merger Agreement are in the best interest of Arlington BankMBT and the Arlington BankMBT shareholders. Arlington Bank’sMBT’s Board of Directors unanimously recommends that Arlington BankMBT shareholders vote“FOR” (1) approval of the Merger Proposal, (2) approval of the Merger-Related Compensation Proposal, and (2)(3) approval of the Adjournment Proposal. In reaching its determination, Arlington Bank’sMBT’s Board of Directors considered a number of factors, which are described in the section captioned “THE MERGER—Arlington Bank’sMBT’s Reasons for the Merger” beginning on page [●]38. Because of the wide variety of factors considered, Arlington Bank’sMBT’s Board of Directors did not believe it practicable, nor did it attempt, to quantify or otherwise assign relative weight to the specific factors it considered in reaching its decision.
Arlington BankMBT Special Meeting Record Date; Vote Required (page [28●)])
Only Arlington BankMBT shareholders of record as of the close of business on [●], 2017,December 18, 2018, are entitled to notice of, and to vote at, the Arlington BankMBT special meeting and any adjournments or postponements of the special meeting. As of the record date, there were [●] Arlington Bank23,025,525 shares of MBT common sharesstock outstanding. Approval of the Merger Proposal requires the affirmative vote of holders of at least a majoritysixty-six and two-thirds percent (66 2/3%) of the outstanding Arlington Bankshares of MBT common sharesstock entitled to vote. The approval of the Merger-Related Compensation Proposal and the Adjournment Proposal requires more votes to be cast in favor of the proposal than are cast against it. As provided by the Michigan Business Corporation Act, an abstention is not a “vote cast.” Abstentions from voting and broker non-votes, if any, on Proposal 2 (Merger-Related Compensation Proposal) and Proposal 3 (Adjournment Proposal) are not treated as votes cast and, therefore, will have no effect on the outcome of the passage of the proposal. You can vote your shares by attending the Arlington BankMBT special meeting and voting in person, or you can vote by proxy by marking the enclosed proxy card with your vote, signing it and mailing it in the enclosed return envelope. You may also vote by internet or by phone by following the instructions on the proxy card. You can revoke your proxy at any time before the special meeting by sending a written notice of revocation, submitting a new proxy or by attending the special meeting and voting in person.
No approval by First Merchants shareholders is required.
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Voting Agreement (page [28●)])
EachOn the date the Merger Agreement was executed, each member of the Board of Directors of Arlington Bank, as of January 25, 2017, the date the Merger Agreement was executed,MBT, plus Patriot Financial Partners and Castle Creek Capital Partners, entered into a voting agreement with First Merchants to cause all Arlington BankMBT common sharesstock owned by each of them of record or beneficially on such date to be voted in favor of the Merger Proposal. See “THE MERGER AGREEMENT—Voting Agreement” on page [●]28. As of the record date, the members of the Arlington BankMBT’s Board of Directors, Patriot Partners, and their affiliates together with the other persons executing the Voting AgreementCastle Creek had power to vote, or caused to be voted, an aggregate of 276,258 Arlington Bank5,092,450 shares of MBT common sharesstock outstanding, representing 36.28%22.1% of the outstanding shares on that date.
What We Need to Do to Complete the Merger (page [54●)])
Completion of the Merger depends on a number of conditions being met or waived. In addition to our compliance with the Merger Agreement, these conditions include among others:
Under the Merger Agreement, receipt of the tax opinion and the reliance letter referred to above may be waived by First Merchants and MBT, respectively, prior to the closing of the Merger. However, if receipt of such opinion and reliance letter were waived, MBT would resolicit its shareholders if any change in the tax consequences were material and disclose the reasons for the waiver and the change in tax consequences. Such resolicitation would require an amendment to the Registration Statement on Form S-4, of which this proxy statement and prospectus is a part.
Regulatory Approvals (page [51●)])
The Merger cannot be completed until First Merchants Bank receives necessary regulatory approvals, which include the approval of the Indiana Department of Financial Institutions (the “Indiana DFI”) and the Federal Deposit Insurance Corporation (the “FDIC”). First Merchants Bank has filed an application with the Indiana DFI and the FDIC, but cannot be certain when or if such approval will be obtained. First Merchants Bank has also
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sent required notice to the Michigan Department of Insurance and Financial Services (the “Michigan DIFS”). First Merchants has also requested that the Federal Reserve Board of Governors (the “Federal Reserve”) waive its right to receive an application in connection with the Merger as permitted under Regulation Y of the Bank Holding Company Act.
Conduct of Business Pending Merger (page [57●)])
Under the terms of the Merger Agreement, Arlington BankMBT and First Merchants must carry on their business in the ordinary course and, subject to certain limited exceptions, may not take certain extraordinary actions without first obtaining the other party’s consent.
We have agreed that MBT will continue to pay quarterly dividends at no more than the current rate of $0.10 per share until the Merger closes. We will each cooperate to insure that MBT shareholders will receive only one (1) quarterly dividend for the quarter in which the Merger closes, and not a separate dividend from both First Merchants and MBT.
Agreements of First Merchants (pages [51●] and [59●)])
In the Merger Agreement, First Merchants has agreed, among other matters, to:
| • | Proceed and use its reasonable and diligent efforts to obtain any consents and approvals for the Merger. See “THE MERGER—Regulatory Approvals” on page 51. |
| • | Take action as may be necessary to allow MBT and its subsidiaries’ employees, as soon as reasonably practicable following the effective date of the Merger, to participate in benefit plans First Merchants maintains for its employees. Until such time as participation is implemented, First Merchants will assume, honor and continue the employee plans and benefit arrangements of MBT as in effect on the effective date of the Merger, subject to certain limitations set forth in the Merger Agreement. See “THE MERGER AGREEMENT—Employee Benefit Plans” on page 59. |
| • | Provide, or allow for, director and officer liability insurance and indemnification. See “THE MERGER AGREEMENT—Indemnification and Insurance of MBT Directors and Officers” on page 59. |
Dissenters’ Rights (page [●])
The shareholders of Arlington Bank are entitled to dissenters’ rights in connection with the Merger under Section 1701.85 of the OGCL, a copy of which is included asAnnex B to this proxy statement and prospectus.If you wish to assert dissenters’ rights, you must deliver to Arlington Bank a written demand for payment of the fair cash value of your shares before the vote on the Merger is taken at the special meeting. In addition, you must not vote in favor of the Merger either in person or by proxy. If the Merger Proposal is approved and the Merger is completed, and you have dissented and followed the required procedures, then you will not receive any shares of common stock of First Merchants. Instead, you will be entitled to receive the fair
cash value of your Arlington Bank common shares as determined through the dissenters’ rights procedures. The procedure for dissenting is explained more fully under “THE MERGER—Rights of Dissenting Shareholders” beginning on page [●] and inAnnex B to this proxy statement and prospectus.
Management and Operations After the Merger (page [58●)])
Arlington Bank’sMBT’s corporate existence will cease after the Merger. Accordingly, theexcept as otherwise described herein, directors and officers of Arlington BankMBT will not serve in such capacities after the effective date of the Merger. Upon completion of the Merger, the current officers and directors of First Merchants and First Merchants Bank will continue to serve in such capacities. All members of the Arlington Bank Board of Directors will be invited to serve on the Ohio regional advisory board of First Merchants Bank.
Interests of Directors and Officers in the Merger That Are Different From Your Interests (page [51● and 52])
You should be aware that some of the directors and executive officers of ArlingtonMBT and Monroe Bank & Trust may have interests in the Merger that are different from, or in addition to, their interests as shareholders. Arlington Bank’sBoth MBT’s Board of Directors and First Merchants’ Board of Directors were aware of these interests and took them into consideration in approving the Merger Agreement and the Merger. These interests are as follows:
| • | MBT Executive Officer Agreements. Certain executive officers of MBT and Monroe Bank & Trust are parties to change in control and severance agreements with MBT that under the terms of the Merger Agreement entitle them to certain cash payments in the aggregate amount equal to $3,278,020. In addition such executive officers hold restricted stock units (“RSUs”) and stock only stock appreciation rights (“SOSARs”) that pursuant to their terms and the terms of the Merger Agreement provide for acceleration of vesting and payment of benefits following a change in control of MBT. The total value of the acceleration of equity awards to such executive officers, based on the average closing market price of $43.63 of First Merchants common stock, over the five business days following the first public announcement of the Merger on October 10, 2018, is $668,784. The aggregate cash payments to be made to such MBT executive officers and the total value of the acceleration of equity awards to such executive officers is equal to $3,946,804. |
| • | MBT Director Death Benefit Only Plan. MBT Directors Peter H. Carlton, H. Douglas Chaffin, Joseph S. Daly, Michael J. Miller and Debra J. Shah are participants in a legacy death benefit only plan |
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that was frozen to new director participants in 2006 (“Director DBO Plan”). The Director DBO Plan provides death benefits to the participating director’s beneficiaries in the event of Thomas C. Westfall, President, Natalie Karas, Senior Vice President and Nona Durham, Treasurer, that provide for each such executive officer to receive, followingthe death of the director during service as a director. In the event of a change in control a multipleof MBT, the Director DBO Plan also provides those same death benefits during the director’s post retirement and for the life of the executive’s compensation priordirector. In connection with entering into the Merger Agreement, each of the participating directors in the Director DBO Plan executed agreements that terminate their respective rights under the Director DBO Plan upon the consummation of the Merger in exchange for a cash payment. The cash payment represents approximately 66 and two-thirds percent (662∕3%) of the projected actuarial net present value of the benefit arrangement to the change in control, subject to certain limitations. Under these agreements, such executive officers would be entitled to receive an aggregate of approximately $1,330,000.
| • | Continued Director and Officer Liability Coverage. First Merchants has agreed that for a period of six (6) years after the effective time of the Merger, it will maintain directors’ and officers’ liability insurance in force covering directors and officers of MBT and Monroe Bank & Trust, subject to certain conditions set forth in the Merger Agreement. |
| • | Board Appointments. The Merger Agreement obligates First Merchants to appoint one person who is currently a member of the MBT Board of Directors (chosen by First Merchants after consultation with MBT) to the First Merchants Board of Directors. Such person will be entitled to receive compensation from First Merchants for service to the Board. All members of the Board of Directors of Monroe Bank & Trust, who have agreed to serve in such capacity and would not otherwise be prohibited to serve under applicable law, will be appointed to First Merchants Bank’s Michigan regional advisory board, as soon as practicable after the effective time of the Merger. |
Termination of the Merger (page [55●)])
Both First Merchants and Arlington BankMBT can mutually agree to terminate the Merger Agreement before we complete the Merger. In addition, either Arlington BankMBT or First Merchants acting alone can terminate the Merger Agreement under the circumstances described on page [●]55.
Arlington BankMBT has agreed to pay First Merchants a termination fee of $3,000,000$12,680,000 if:
Either party may terminate the Merger Agreement if the Merger has not been completed by June 30, 2019, provided the terminating party is not then in material breach of any representation warranty or covenant and, provided, further, that if the sole impediment to closing is the lack of any necessary regulatory approval, then such termination date shall be extended to September 30, 2019. In the event of such termination, First Merchants has agreed to pay MBT a termination fee of $2,500,000 if the Merger Agreement is terminated by either party as a result of the failure to obtain any of the required regulatory approvals and such failure is a result of a regulatory issue directly and solely related to First Merchants.
Material U.S. Federal Income Tax Consequences (page [60●)])
It is a condition to the closing of the Merger that Bingham Greenebaum Doll LLP deliver an opinion, effective as of the date of the Merger,on or about this proxy statement and prospectus, to Arlington Bank and First Merchants substantially to the effect that, for United States federal income tax purposes, the Merger will be treated as a “reorganization” within
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the meaning of Section 368(a) of the Internal Revenue Code. Such opinion will comply with the regulations and guidance of the SEC with respect to the persons entitled to rely on tax opinions contained in the Registration Statement on Form S-4, of which this proxy and prospectus is a part. This opinion will not, however, bind the Internal Revenue Service (the “IRS”) which could take a different view.
Determining the actual tax consequences of the Merger to you can be complicated. We suggest you consult with your own tax advisors with respect to the tax consequences of the Merger to you.
For a more detailed description of the material federal income tax consequences of the Merger to First Merchants and Arlington BankMBT shareholders, see “MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES” on page [●]60.
Comparative Rights of First Merchants and Arlington BankMBT Shareholders (page [64●)])
The rights of shareholders of First Merchants and Arlington BankMBT differ in some respects. The rights of holders of First Merchants common stock are governed by the laws of the State of Indiana, including the Indiana Business Corporation Law, and First Merchants’ Articles of Incorporation and Bylaws. The rights of holders of Arlington BankMBT common sharesstock are governed by the laws of the State of Ohio,Michigan, including the state in which Arlington Bank is incorporated,Michigan Business Corporation Act, and by Arlington Bank’sMBT’s Articles of Incorporation Constitution and Bylaws. Upon completion of the Merger, Arlington BankMBT shareholders who receive First Merchants common stock will take such stock subject to First Merchants Articles of Incorporation and Bylaws.
Authorized But Unissued Shares11
Authorized But Unissued Shares | |||
First Merchants | MBT | ||
First Merchants’ Articles of Incorporation authorize the issuance of 2018. First Merchants’ Board of Directors may authorize the issuance of additional shares of common stock up to the amounts authorized in First Merchants’ Articles of Incorporation without | |||
| subject only to the restrictions of the Indiana Business Corporation Law and the Articles of Incorporation. First Merchants has 500,000 shares of preferred stock | ||
| ||
Restrictions on Transfer of Shares
Restrictions on Transfer of Shares | |||
First Merchants | MBT | ||
The holders of First Merchants common stock are generally not restricted on sales of their shares. The shares are also registered under Section 12 of the Securities and Exchange Act of 1934 (the “Exchange Act”) and listed for exchange on The NASDAQ Global Select | The holders of MBT common stock are generally not restricted on sales of their shares. The shares are | ||
Dividend Rights
| stock. | ||
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First Merchants | MBT | |
The holders of First Merchants common stock are entitled to dividends and other distributions when, as and if declared by its Boards of Directors.
| The holders of Dividends may be paid in cash, in property or in MBT’s stock.
Federal law also affects the ability of a Michigan commercial bank to pay dividends. The FDIC’s prompt corrective action regulations prohibit an insured depository institution from making capital distributions, including dividends, if the institution has a regulatory capital classification of “undercapitalized,” or if it would be undercapitalized after making the distribution. The FDIC may also prohibit the payment of dividends if it deems any such payment to constitute an unsafe and unsound banking practice. In addition, the Basel III capital rules include a capital conservation buffer that prohibits or limits the dividends a bank can pay if its risk-based capital ratios fall below certain thresholds. | |
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Effective DateCompletion of the Merger (page [51●)])
The Merger will become effective when we file Articles of Merger with the Secretary of the State of Indiana and the Certificate of Merger with the Corporations Division of the Michigan Department of Licensing and Regulatory Affairs (the “Michigan Corporations Division”), or at such later date and time as may be set forth in the Articles of Merger and Certificate of Merger. We expect the Merger to become effective during the secondfirst quarter of 2017.2019.
Comparative Market Price Information
Shares of First Merchants common stock are listed on The NASDAQ Global Select Market under the symbol “FRME.” Shares of MBT common stock are listed on The NASDAQ Global Select Market under the symbol “MBTF.” The following table presents quotation information for First Merchants common stock and for MBT common stock on January 24, 2017,October 9, 2018, the business day before the Merger was publicly announced, and [●], 2017,December 18, 2018, the last practicable trading day for which information was available prior to the date of this proxy statement and prospectus.
First Merchants Common Stock Price
(Per Share)
| High | Low | Close | ||||||||||
January 24, 2017 | $ | 36.54 | $ | 35.26 | $ | 36.46 | ||||||
[●], 2017 | $ | [● | ] | $ | [● | ] | $ | [● | ] | |||
First Merchants Common Stock | MBT Common Stock | |||||||||||||||||
(Dollars Per Share) | ||||||||||||||||||
High | Low | Close | High | Low | Close | |||||||||||||
October 9, 2018 | $ | 45.79 | $ | 45.33 | $ | 45.71 | $ | 11.73 | $ | 11.30 | $ | 11.50 | ||||||
December 18, 2018 | $ | 36.93 | $ | 34.93 | $ | 35.86 | $ | 10.25 | $ | 9.84 | $ | 9.86 | ||||||
The market value of the aggregate consideration that Arlington BankMBT shareholders will receive in the Merger is approximately $75.6$291.7 million (or $99.34$12.57 per Arlington Bankshare of MBT common share)stock) based on 761,528 Arlington Bank23,195,704 shares of MBT common stock outstanding (representing the sum of 22,990,430 shares of MBT common stock outstanding on October 9, 2018 and 205,274 shares of MBT common stock to be issued immediately prior to the effective time of the Merger pursuant to certain outstanding stock only stock appreciation rights (SOSARs) and restricted stock units (RSUs) awards), and First Merchants’ closing stock price of $36.46$45.71 on January 24, 2017,October 9, 2018, the business day before the Merger was publicly announced.
The market value of the aggregate consideration that Arlington BankMBT shareholders will receive in the Merger is approximately $[●]$227.1 million (or $[●]$9.86 per Arlington Bankshare of MBT common share)stock) based on 761,528 Arlington Bank23,025,525 shares of MBT common sharesstock outstanding (as described above) and First Merchants’ closing stock price of $[●]$35.86 on [●], 2017,December 18, 2018, the last practicable trading day prior to the date of this proxy statement and prospectus.
Also set forth below for the closing price of First Merchants common stock on January 24, 2017,October 9, 2018, and [●], 2017,December 18, 2018, is the equivalent pro forma price of Arlington BankMBT common shares,stock, which we determined by multiplying the applicable price of First Merchants common stock by the number of shares of First Merchants common stock we are issuing for each Arlington Bankshare of MBT common sharestock in the Merger, which is the Exchange Ratio of 2.7245.0.2750. The equivalent pro forma price of Arlington BankMBT common sharesstock shows the implied value to be received in the Merger by Arlington BankMBT shareholders who receive First Merchants common stock in exchange for an Arlington Banka share of MBT common sharestock on these dates.
| First Merchants Common Stock | Arlington Bank Equivalent Pro Forma | |||||||
January 24, 2017 | $ | 36.46 | $ | 99.34 | ||||
[●], 2017 | $ | [● | ] | $ | [● | ] | ||
First Merchants Common Stock | MBT Common Stock | MBT Equivalent Pro Forma | |||||||
October 9, 2018 | $ | 45.71 | $ | 11.50 | $ | 12.57 | |||
December 18, 2018 | $ | 35.86 | $ | 9.86 | $ | 9.86 | |||
We suggest you obtain a current market quotation for First Merchants common stock. We expect that the market price of First Merchants common stock will fluctuate between the date of this document and the date on which the Merger is completed and thereafter. Because the Exchange Ratio is fixed (except for customary anti-dilution adjustments) and the market price of First Merchants common stock is subject to fluctuation, the value of the shares of First Merchants common stock that Arlington BankMBT shareholders will receive in the Merger may increase or decrease prior to and after the Merger.
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Comparative Per Share Data
The following table shows historical information about our companies’sets forth the basic and diluted earnings per common share, book value per share and cash dividends per share for each of First Merchants and MBT on a historical basis, for First Merchants on a pro forma combined basis, and on a pro forma combined basis per MBT equivalent share.
The pro forma data gives effect to: (i) the proposed acquisition of MBT; and (ii) the proposed issuance of 6,378,818 shares of First Merchants common shares to MBT shareholders, which assumes 23,195,704 shares of MBT common stock are outstanding at the time of closing (representing the sum of 22,990,430 shares of MBT common stock outstanding on October 9, 2018 and 205,274 shares of MBT common stock to be issued immediately prior to the effective time of the Merger pursuant to certain outstanding SOSARs and RSUs awards). For purposes of presenting pro forma basic and diluted earnings per share, cash dividends per share, and book value per share, and similar information reflecting the Merger, which we refer to as “pro forma” information. In presenting the comparative pro forma information, we have assumeddata assumes that the two companiesFirst Merchants and MBT had been combined throughout the period shownshown. The data in the table. The pro forma information reflectscolumn “Pro Forma Equivalent Per MBT Share” shows the purchase methodeffect of accounting. The financial information presented under “Pro Forma”the Merger from the perspective of an owner of MBT common stock, and was compiled assuming 2,074,783 shares ofobtained by multiplying the Combined Pro Forma Amounts for First Merchants common shares are issued to Arlington Bank shareholders which assumes 761,528 Arlington Bank common shares are outstanding atby the timeExchange Ratio of closing (the number outstanding on January 25, 2017) and assuming no dissenters.0.2750.
We expect that we will incur reorganization and restructuring expenses as a result of combining our two companies. We also anticipate that the Merger will provide the combined company with financial benefits that include reduced operating expenses and the opportunity to earn more revenue. The pro forma information, while helpful in illustrating the financial characteristics of the combined company, does not take into account these expected expenses or these anticipated financial benefits, and does not attempt to predict or suggest future results. It also does not necessarily reflect what the historical results of the merged company would have been had our companies been merged during the periods presented.
Arlington Bank does not have a class of securities registered under Section 12 of the Exchange Act, is not subject to the reporting requirements of Section 13(a) or 15(d) of the Exchange Act, and accordingly does not file documents and reports with the SEC to be incorporated by reference.
The information in the following table is based on historical financial information of Arlington BankMBT and First Merchants. The information with respect to First Merchants isand MBT are included in its reporttheir respective annual and quarterly reports previously filed with the SEC. The historical financial information of First Merchants hasSEC, which have been incorporated into this document by reference. See “WHERE YOU CAN FIND ADDITIONAL INFORMATION” beginning on page [●]71 for a description of documents that weFirst Merchants and MBT incorporate by reference into this document and how to obtain copies of them.
15
FIRST MERCHANTS AND ARLINGTON BANKMBT
HISTORICAL AND PRO FORMA PER SHARE DATA
| First Merchants Historical | Arlington Bank Historical | Pro forma (1) | ||||||||||
Year ended December 31, 2016 | ||||||||||||
Net income per share | ||||||||||||
Basic | $ | 1.99 | $ | 5.46 | $ | 1.99 | ||||||
Diluted | $ | 1.98 | $ | 5.46 | $ | 1.98 | ||||||
Cash dividends per share | $ | 0.54 | $ | 3.00 | $ | 0.54 | ||||||
Book value per share (at December 31) | $ | 22.04 | $ | 43.97 | $ | 22.67 | ||||||
First Merchants Historical | MBT Historical | Combined Pro forma Amounts for First Merchants(1) | Pro forma Equivalent Per MBT Share | |||||||||
Net income per share | ||||||||||||
Nine months ended September 30, 2018 | ||||||||||||
Basic | $ | 2.38 | $ | 0.60 | $ | 2.32 | $ | 0.64 | ||||
Diluted | $ | 2.37 | $ | 0.60 | $ | 2.31 | $ | 0.64 | ||||
Twelve months ended December 31, 2017 | ||||||||||||
Basic | $ | 2.13 | $ | 0.46 | $ | 2.02 | $ | 0.56 | ||||
Diluted | $ | 2.12 | $ | 0.46 | $ | 2.01 | $ | 0.55 | ||||
Cash dividends per share | ||||||||||||
Nine months ended September 30, 2018 | $ | 0.62 | $ | 0.83 | $ | 0.62 | $ | 0.17 | ||||
Twelve months ended December 31, 2017 | $ | 0.69 | $ | 0.92 | $ | 0.69 | $ | 0.19 | ||||
Book value per share | ||||||||||||
At September 30, 2018 | $ | 27.61 | $ | 5.28 | $ | 29.52 | $ | 8.12 | ||||
At December 31, 2017 | $ | 26.51 | $ | 5.79 | $ | 28.55 | $ | 7.85 | ||||
| (1) | See |
16
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth certain summary historical consolidated financial data for each of our companies. First Merchants’ and Arlington Bank’sMBT’s balance sheet and income statement data as of and for the five years in the period ended December 31, 20162017 are taken from each of First Merchants’ and Arlington Bank’sMBT’s respective audited financial statements (which data and financial statements in the case of First Merchants, are presented on a consolidated basis). The financial data at and for the nine months ended September 30, 2018 and September 30, 2017 is derived from the unaudited financial statements of First Merchants and MBT and, in the opinion of each such company’s management, its respective statements and data reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such information at and for those dates. Ratios for the nine months ended September 30, 2018 and September 30, 2017 are annualized. Results for the nine months ended September 30, 2018 do not necessarily indicate results expected or anticipated for the entire year.
The following tables also set forth certain summary unaudited pro forma consolidated financial information for First Merchants and Arlington BankMBT reflecting the Merger. The pro forma disclosures are being presented to provide additional information in support of the pro forma data included under the “Comparative Per Share Data” section of this SUMMARY. As a result, this condensed pro forma presentation is not intended to comply with the disclosure requirements under Article 11 of Regulation S-X. The income statement information presented gives effect to the Merger as if it occurred on the first day of the period presented. The balance sheet information presented gives effect to the Merger as if it occurred on December 31, 2016.the last day of the period presented. The financial information was compiled assuming 2,074,783pro forma data gives effect to: (i) the proposed acquisition of MBT; and (ii) the proposed issuance of 6,378,818 shares of First Merchants common shares are issued to Arlington BankMBT shareholders, which assumes 761,528 Arlington Bank23,195,704 shares of MBT common sharesstock are outstanding at the time of closing (the number(representing the sum of 22,990,430 shares of MBT common stock outstanding on January 25, 2017)October 9, 2018 and assuming no dissenters.205,274 shares of MBT common stock to be issued immediately prior to the effective time of the Merger pursuant to certain outstanding SOSARs and RSUs awards).
The pro forma information reflects the purchase method of accounting, with Arlington Bank’sMBT’s assets and liabilities recorded at their estimated fair values as of December 31, 2016.the date presented. The actual fair value adjustments to the assets and the liabilities of Arlington BankMBT will be made on the basis of appraisals and evaluations that will be made as of the date the Merger is completed. Thus, the actual fair value adjustments may differ significantly from those reflected in these pro forma financial statements. In the opinion of First Merchants’ management, the estimates used in the preparation of these pro forma financial statements are reasonable under the circumstances.
We expect that we will incur reorganization and restructuring expenses as a result of combining our companies. We also anticipate that the Merger will provide the combined company with financial benefits that include reduced operating expenses and the opportunity to earn more revenue. The pro forma information, while helpful in illustrating the financial characteristics of the combined company under two sets of assumptions, does not take into account these expected expenses or anticipated financial benefits, and does not attempt to predict or suggest future results.
This selected financial data is only a summary and you should read it in conjunction with First Merchants’ consolidated financial statements and related notes incorporated into this document by reference. See “WHERE YOU CAN FIND ADDITIONAL INFORMATION” on page [●]71 for a description of documents that we incorporate by reference into this document and how to obtain copies of such documents.
17
FIVE YEAR SUMMARY OF SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(Dollars in Thousands, Except Per Share Amounts)
For the Nine Months Ended September 30, | For the Years Ended December 31, | ||||||||||||||||||||
2018 | 2017 | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
(unaudited) | |||||||||||||||||||||
Summary of Operations | |||||||||||||||||||||
Interest income | $ | 299,291 | $ | 224,548 | $ | 314,896 | $ | 253,312 | $ | 221,198 | $ | 208,879 | $ | 170,834 | |||||||
Interest expense | 48,318 | 26,029 | 37,612 | 26,839 | 24,794 | 21,842 | 16,569 | ||||||||||||||
Net interest income | 250,973 | 198,519 | 277,284 | 226,473 | 196,404 | 187,037 | 154,265 | ||||||||||||||
Provision for loan losses | 5,563 | 7,343 | 9,143 | 5,657 | 417 | 2,560 | 6,648 | ||||||||||||||
Net interest income after provision for loan losses | 245,410 | 191,176 | 268,141 | 220,816 | 195,987 | 184,477 | 147,617 | ||||||||||||||
Non-interest income | 57,279 | 51,948 | 71,009 | 65,203 | 69,868 | 61,816 | 51,831 | ||||||||||||||
Non-interest expenses | 162,213 | 149,123 | 205,556 | 177,359 | 174,806 | 164,008 | 139,034 | ||||||||||||||
Income before income tax expense | 140,476 | 94,001 | 133,594 | 108,660 | 91,049 | 82,285 | 60,414 | ||||||||||||||
Income tax expense | 23,050 | 22,314 | 37,524 | 27,609 | 25,665 | 22,123 | 15,884 | ||||||||||||||
Net Income | 117,426 | 71,687 | 96,070 | 81,051 | 65,384 | 60,162 | 44,530 | ||||||||||||||
Preferred stock dividends and discount accretion | — | — | — | — | — | — | (2,380 | ) | |||||||||||||
Net Income Available to Common Shareholders | $ | 117,426 | $ | 71,687 | $ | 96,070 | $ | 81,051 | $ | 65,384 | $ | 60,162 | $ | 42,150 | |||||||
Per Share Data | |||||||||||||||||||||
Net income | |||||||||||||||||||||
Basic | $ | 2.38 | $ | 1.64 | $ | 2.13 | $ | 1.99 | $ | 1.73 | $ | 1.66 | $ | 1.42 | |||||||
Diluted | $ | 2.37 | $ | 1.63 | $ | 2.12 | $ | 1.98 | $ | 1.72 | $ | 1.65 | $ | 1.41 | |||||||
Cash dividends | $ | 0.62 | $ | 0.51 | $ | 0.69 | $ | 0.54 | $ | 0.41 | $ | 0.29 | $ | 0.18 | |||||||
Balance End of Period | |||||||||||||||||||||
Total assets | $ | 9,787,282 | $ | 9,049,403 | $ | 9,367,478 | $ | 7,211,611 | $ | 6,761,003 | $ | 5,824,127 | $ | 5,437,262 | |||||||
Total loans | 7,091,093 | 6,487,962 | 6,758,415 | 5,142,574 | 4,703,716 | 3,932,100 | 3,637,740 | ||||||||||||||
Allowance for loan losses | 78,406 | 73,354 | 75,032 | 66,037 | 62,453 | 63,964 | 67,870 | ||||||||||||||
Total deposits | 7,633,152 | 6,911,019 | 7,172,530 | 5,556,498 | 5,289,647 | 4,640,694 | 4,231,468 | ||||||||||||||
Stockholders’ equity | 1,361,426 | 1,283,120 | 1,303,463 | 901,657 | 850,509 | 726,827 | 634,923 | ||||||||||||||
Selected Ratios | |||||||||||||||||||||
Return on average assets | 1.63 | % | 1.22 | % | 1.17 | % | 1.17 | % | 1.07 | % | 1.08 | % | 0.95 | % | |||||||
Return on average equity | 11.76 | % | 9.12 | % | 8.65 | % | 9.16 | % | 8.67 | % | 8.91 | % | 7.80 | % | |||||||
| For the Years Ended December 31, | ||||||||||||||||||||
| 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||
Summary of Operations | ||||||||||||||||||||
Interest income | $ | 253,312 | $ | 221,198 | $ | 208,879 | $ | 170,834 | $ | 175,949 | ||||||||||
Interest expense | 26,839 | 24,794 | 21,842 | 16,569 | 23,613 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net interest income | 226,473 | 196,404 | 187,037 | 154,265 | 152,336 | |||||||||||||||
Provision for loan losses | 5,657 | 417 | 2,560 | 6,648 | 18,534 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net interest income after provision | 220,816 | 195,987 | 184,477 | 147,617 | 133,802 | |||||||||||||||
Non-interest income | 65,203 | 69,868 | 61,816 | 51,831 | 63,699 | |||||||||||||||
Non-interest expenses | 177,359 | 174,806 | 164,008 | 139,034 | 136,307 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Income before income tax expense | 108,660 | 91,049 | 82,285 | 60,414 | 61,194 | |||||||||||||||
Income tax expense | 27,609 | 25,665 | 22,123 | 15,884 | 16,072 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net Income | 81,051 | 65,384 | 60,162 | 44,530 | 45,122 | |||||||||||||||
Preferred stock dividends and discount accretion | — | — | — | (2,380 | ) | (4,539 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net Income Available to Common Shareholders | $ | 81,051 | $ | 65,384 | $ | 60,162 | $ | 42,150 | $ | 40,503 | ||||||||||
|
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|
|
|
|
|
|
|
| |||||||||||
Per Share Data | ||||||||||||||||||||
Net income | ||||||||||||||||||||
Basic | $ | 1.99 | $ | 1.73 | $ | 1.66 | $ | 1.42 | $ | 1.42 | ||||||||||
Diluted | $ | 1.98 | $ | 1.72 | $ | 1.65 | $ | 1.41 | $ | 1.41 | ||||||||||
Cash dividends | $ | 0.54 | $ | 0.41 | $ | 0.29 | $ | 0.18 | $ | 0.10 | ||||||||||
Balance End of Period | ||||||||||||||||||||
Total assets | $ | 7,211,611 | $ | 6,761,003 | $ | 5,824,127 | $ | 5,437,262 | $ | 4,304,821 | ||||||||||
Total loans | 5,142,574 | 4,703,716 | 3,932,100 | 3,637,740 | 2,924,509 | |||||||||||||||
Allowance for loan losses | 66,037 | 62,453 | 63,964 | 67,870 | 69,366 | |||||||||||||||
Total deposits | 5,556,498 | 5,289,647 | 4,640,694 | 4,231,468 | 3,346,383 | |||||||||||||||
Stockholders’ equity | 901,657 | 850,509 | 726,827 | 634,923 | 552,236 | |||||||||||||||
Selected Ratios | ||||||||||||||||||||
Return on average assets | 1.17 | % | 1.07 | % | 1.08 | % | 0.95 | % | 0.96 | % | ||||||||||
Return on average equity | 9.16 | % | 8.67 | % | 8.91 | % | 7.80 | % | 7.58 | % | ||||||||||
18
FIVE YEAR SUMMARY OF SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(Dollars in Thousands, Except Per Share Amounts)
For the Nine Months Ended September 30, | For the Years Ended December 31, | ||||||||||||||||||||
2018 | 2017 | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
(unaudited) | |||||||||||||||||||||
Summary of Operations | |||||||||||||||||||||
Interest income | $ | 34,172 | $ | 31,010 | $ | 41,800 | $ | 39,859 | $ | 40,041 | $ | 38,539 | $ | 39,238 | |||||||
Interest expense | 1,586 | 1,320 | 1,737 | 2,236 | 3,066 | 3,838 | 6,037 | ||||||||||||||
Net interest income | 32,586 | 29,690 | 40,063 | 37,623 | 36,975 | 34,701 | 33,201 | ||||||||||||||
Provision for loan losses | (100 | ) | (200 | ) | (700 | ) | (2,200 | ) | (3,000 | ) | (500 | ) | 2,200 | ||||||||
Net interest income after provision for loan losses | 32,686 | 29,890 | 40,763 | 39,823 | 39,975 | 35,201 | 31,001 | ||||||||||||||
Non-interest income | 12,227 | 12,225 | 15,882 | 17,513 | 15,327 | 13,353 | 15,931 | ||||||||||||||
Non-interest expenses | 28,134 | 27,020 | 36,135 | 36,598 | 38,200 | 38,667 | 39,508 | ||||||||||||||
Income before income tax expense | 16,779 | 15,095 | 20,510 | 20,738 | 17,102 | 9,887 | 7,424 | ||||||||||||||
Income tax expense | 2,958 | 4,342 | 9,901 | 6,237 | 5,020 | 2,572 | (18,113 | ) | |||||||||||||
Net Income | 13,821 | 10,753 | 10,609 | 14,501 | 12,082 | 7,315 | 25,537 | ||||||||||||||
Preferred stock dividends and discount accretion | — | — | — | — | — | — | — | ||||||||||||||
Net Income Available to Common Shareholders | $ | 13,821 | $ | 10,753 | $ | 10,609 | $ | 14,501 | $ | 12,082 | $ | 7,315 | $ | 25,537 | |||||||
Per Share Data | |||||||||||||||||||||
Net income | |||||||||||||||||||||
Basic | $ | 0.60 | $ | 0.47 | $ | 0.46 | $ | 0.64 | $ | 0.53 | $ | 0.33 | $ | 1.43 | |||||||
Diluted | $ | 0.60 | $ | 0.47 | $ | 0.46 | $ | 0.63 | $ | 0.53 | $ | 0.33 | $ | 1.41 | |||||||
Cash dividends | $ | 0.83 | $ | 0.86 | $ | 0.92 | $ | 0.64 | $ | — | $ | — | $ | — | |||||||
Balance End of Period | |||||||||||||||||||||
Total assets | $ | 1,339,122 | $ | 1,347,352 | $ | 1,347,420 | $ | 1,357,283 | $ | 1,342,313 | $ | 1,278,657 | $ | 1,222,682 | |||||||
Total loans | 752,895 | 693,866 | 694,979 | 652,337 | 617,308 | 610,332 | 597,590 | ||||||||||||||
Allowance for loan losses | 7,986 | 8,010 | 7,666 | 8,458 | 10,896 | 13,208 | 16,209 | ||||||||||||||
Total deposits | 1,166,276 | 1,195,335 | 1,198,164 | 1,199,717 | 1,165,393 | 1,111,811 | 1,069,718 | ||||||||||||||
Stockholders’ equity | 121,351 | 135,969 | 132,658 | 141,114 | 147,341 | 134,536 | 110,608 | ||||||||||||||
Selected Ratios | |||||||||||||||||||||
Return on average assets | 1.39 | % | 1.09 | % | 0.79 | % | 1.08 | % | 0.93 | % | 0.59 | % | 2.12 | % | |||||||
Return on average equity | 15.21 | % | 10.85 | % | 8.04 | % | 10.13 | % | 8.67 | % | 6.00 | % | 28.78 | % | |||||||
| For the Years Ended December 31, | ||||||||||||||||||||
| 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||
Summary of Operations | ||||||||||||||||||||
Interest income | $ | 11,759 | $ | 11,212 | $ | 10,519 | $ | 10,433 | $ | 10,202 | ||||||||||
Interest expense | 1,417 | 1,277 | 1,285 | 1,318 | 1,685 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net interest income | 10,342 | 9,935 | 9,234 | 9,115 | 8,517 | |||||||||||||||
Provision for loan losses | — | — | 100 | 600 | 750 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net interest income after provision | 10,342 | 9,935 | 9,134 | 8,515 | 7,767 | |||||||||||||||
Non-interest income | 5,479 | 4,540 | 3,858 | 5,600 | 4,004 | |||||||||||||||
Non-interest expenses | 9,524 | 9,069 | 8,261 | 8,793 | 7,579 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Income before income tax expense | 6,297 | 5,406 | 4,731 | 5,322 | 4,192 | |||||||||||||||
Income tax expense | 2,150 | 1,849 | 1,687 | 1,821 | 1,415 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net Income | $ | 4,147 | $ | 3,557 | $ | 3,044 | $ | 3,501 | $ | 2,777 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Per Share Data | ||||||||||||||||||||
Net income | ||||||||||||||||||||
Basic | $ | 5.46 | $ | 4.70 | $ | 4.05 | $ | 4.74 | $ | 3.79 | ||||||||||
Diluted | $ | 5.46 | $ | 4.69 | $ | 4.04 | $ | 4.73 | $ | 3.77 | ||||||||||
Cash dividends | $ | 3.00 | $ | 3.00 | $ | 2.50 | $ | 2.50 | $ | 1.50 | ||||||||||
Balance End of Period | ||||||||||||||||||||
Total assets | $ | 308,994 | $ | 285,988 | $ | 279,334 | $ | 263,307 | $ | 262,098 | ||||||||||
Total loans | 235,286 | 239,513 | 223,339 | 220,923 | 225,004 | |||||||||||||||
Allowance for loan losses | 3,301 | 3,326 | 3,390 | 3,411 | 3,154 | |||||||||||||||
Total deposits | 261,870 | 240,683 | 235,655 | 214,827 | 219,914 | |||||||||||||||
Stockholders’ equity | 33,508 | 31,910 | 30,577 | 29,094 | 27,187 | |||||||||||||||
Selected Ratios | ||||||||||||||||||||
Return on average assets | 1.39 | % | 1.27 | % | 1.13 | % | 1.34 | % | 1.09 | % | ||||||||||
Return on average equity | 12.25 | % | 11.11 | % | 9.98 | % | 12.09 | % | 10.50 | % | ||||||||||
19
UNAUDITED PRO FORMA SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in Thousands, Except Per Share Amounts)
| For the Year Ended December 31, 2016 | ||||
Summary of Operations | ||||
Interest income | $ | 266,128 | ||
Interest expense | 28,256 | |||
|
| |||
Net interest income | 237,872 | |||
Provision for loan losses | 5,657 | |||
|
| |||
Net interest income after provision | 232,215 | |||
Non-interest income | 70,682 | |||
Non-interest expenses | 187,437 | |||
|
| |||
Income before income tax expense | 115,460 | |||
Income tax expense | 29,935 | |||
|
| |||
Net Income Available to Common Shareholders | $ | 85,525 | ||
|
| |||
Per Share Data (1) | ||||
Net income | ||||
Basic | $ | 1.99 | ||
Diluted | $ | 1.98 | ||
Cash dividends | $ | 0.54 | ||
Balance End of Period | ||||
Total assets | $ | 7,564,609 | ||
Earning assets | 6,952,648 | |||
Investment securities | 1,327,279 | |||
Loans | 5,370,060 | |||
Allowance for loan losses | 66,037 | |||
Total deposits | 5,818,368 | |||
Borrowings | 704,197 | |||
Stockholders’ equity | 974,611 | |||
For the Nine Months Ended September 30, 2018 | |||||||||
First Merchants Historical | MBT Historical | Combined Pro forma Amounts for First Merchants(1) | |||||||
Summary of Operations | |||||||||
Interest income | $ | 299,291 | $ | 34,172 | $ | 334,431 | |||
Interest expense | 48,318 | 1,586 | 50,668 | ||||||
Net interest income | 250,973 | 32,586 | 283,763 | ||||||
Provision for loan losses | 5,563 | (100 | ) | 5,463 | |||||
Net interest income after provision | 245,410 | 32,686 | 278,300 | ||||||
Non-interest income | 57,279 | 12,227 | 69,506 | ||||||
Non-interest expenses | 162,213 | 28,134 | 193,036 | ||||||
Income before income tax expense | 140,476 | 16,779 | 154,770 | ||||||
Income tax expense | 23,050 | 2,958 | 25,486 | ||||||
Net Income Available to Common Shareholders | $ | 117,426 | $ | 13,821 | $ | 129,284 | |||
Per Share Data | |||||||||
Net income | |||||||||
Basic | $ | 2.38 | $ | 0.60 | $ | 2.32 | |||
Diluted | 2.37 | 0.60 | 2.31 | ||||||
Cash dividends | 0.62 | 0.83 | 0.62 | ||||||
Balance End of Period | |||||||||
Total assets | $ | 9,787,282 | $ | 1,339,122 | $ | 11,305,391 | |||
Total loans | 7,091,093 | 752,895 | 7,822,380 | ||||||
Allowance for loan losses | 78,406 | 7,986 | 78,406 | ||||||
Total deposits | 7,633,152 | 1,166,276 | 8,798,069 | ||||||
Stockholders’ equity | 1,361,426 | 121,351 | 1,643,663 | ||||||
| (1) | See Note |
20
FIRST MERCHANTS
UNAUDITED PRO FORMA SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in Thousands, Except Per Share Amounts)
For the Year Ended December 31, 2017 | |||||||||
First Merchants Historical | MBT Historical | Combined Pro forma Amounts for First Merchants(1) | |||||||
Summary of Operations | |||||||||
Interest income | $ | 314,896 | $ | 41,800 | $ | 357,987 | |||
Interest expense | 37,612 | 1,737 | 40,368 | ||||||
Net interest income | 277,284 | 40,063 | 317,619 | ||||||
Provision for loan losses | 9,143 | (700 | ) | 8,443 | |||||
Net interest income after provision | 268,141 | 40,763 | 309,176 | ||||||
Non-interest income | 71,009 | 15,882 | 86,891 | ||||||
Non-interest expenses | 205,556 | 36,135 | 245,277 | ||||||
Income before income tax expense | 133,594 | 20,510 | 150,790 | ||||||
Income tax expense | 37,524 | 9,901 | 46,265 | ||||||
Net Income Available to Common Shareholders | $ | 96,070 | $ | 10,609 | $ | 104,525 | |||
Per Share Data | |||||||||
Net income | |||||||||
Basic | $ | 2.13 | $ | 0.46 | $ | 2.02 | |||
Diluted | 2.12 | 0.46 | 2.01 | ||||||
Cash dividends | 0.69 | 0.92 | 0.69 | ||||||
Balance End of Period | |||||||||
Total assets | $ | 9,367,478 | $ | 1,347,420 | $ | 10,893,885 | |||
Total loans | 6,758,415 | 694,979 | 7,431,786 | ||||||
Allowance for loan losses | 75,032 | 7,666 | 75,032 | ||||||
Total deposits | 7,172,530 | 1,198,164 | 8,369,335 | ||||||
Stockholders’ equity | 1,303,463 | 132,658 | 1,585,700 | ||||||
| (1) | See Note 1 in “Notes to Unaudited Pro Forma Summary of Selected Consolidated Financial Data on page 22 for information relating to the determination of the purchase price and application of the purchase method of accounting in estimating the fair values of MBT’s assets and liabilities. The actual fair value adjustments to the assets and the liabilities of MBT will be made on the basis of appraisals and evaluations that will be made as of the date the Merger is completed. |
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NOTES TO UNAUDITED PRO FORMA SUMMARY OF SELECTED
CONSOLIDATED FINANCIAL DATA
(Dollars in Thousands, Except Per Share Amounts)
To record goodwill generated from the acquisition | ||||
Purchase Price: | ||||
Arlington Bank shares outstanding | 761,528 | |||
Exchange Ratio | 2.7245 | |||
|
| |||
First Merchants shares issued | 2,074,783 | |||
First Merchants common stock price at 1/24/2017 | $ | 36.46 | ||
|
| |||
Purchase Price | $ | 75,646,588 | ||
|
| |||
Outstanding Arlington Bank stock options | 2,250 | |||
Average First Merchants stock price less exercise price | $ | 66.19 | ||
|
| |||
Cash paid for Arlington Bank stock options | $ | 148,928 | ||
|
| |||
Total Purchase Price | $ | 75,795,516 | ||
|
| |||
| (Dollars in thousands) | ||||
Total Purchase Price | $ | 75,796 | ||
Allocated to: | ||||
Historical book value of Arlington Bank assets and liabilities | 33,508 | |||
Arlington Bank estimated transaction costs, net of tax | (1,716 | ) | ||
|
| |||
Adjusted book value of Arlington Bank | $ | 31,792 | ||
|
| |||
Adjustments to record assets and liabilities at fair value: | ||||
Loans, fair value mark | $ | (7,800 | ) | |
Arlington Bank allowance for loan losses write-off | 3,301 | |||
Core deposits intangible | 3,600 | |||
Deferred taxes | 315 | |||
|
| |||
Total allocation | $ | (584 | ) | |
|
| |||
Goodwill | $ | 44,588 | ||
|
| |||
Note 1—Determination and Allocation of Purchase Price
Recent DevelopmentsEach share of First Merchants
On February 17, 2017, First Merchants and Independent Alliance Banks, Inc., an Indiana corporation (“IALB”), entered into an Agreement and Plan of Reorganization and Merger, pursuant to which IALB will merge with and into First Merchants. PursuantMBT common stock that is outstanding immediately prior to the transaction, the separate corporate existence of IALB will cease and First Merchants will survive. First Merchants currently holds 495,112 shares, or 12.1%, of IALB’s outstanding common stock, First Merchants having previously purchased such shares from an IALB shareholder for $19.8 million in November 2016.
Immediately following the IALB merger, IALB’s wholly-owned subsidiary, iAB Financial Bank (“IAB”), will be merged with and into First Merchants Bank, with First Merchants Bank as the surviving bank. Headquartered in Fort Wayne, Indiana, IAB operates 16 banking center locations in the Fort Wayne area. IAB has total assets of $1.1 billion, total loans of $753 million, and total deposits of $861 million (91% of which are core) and also earned a 0.94% return on average assets and 9.57% return on tangible common equity in 2016.
Upon the completion of the IALB merger, each share of outstanding IALB common stockMerger will be converted into 1.6530the right to receive a 0.2750 share of First Merchants common stock. The table below assumes (a) the issuance of 6,378,818 shares of First Merchants common stock. Basedshares to MBT shareholders, which assumes 23,195,704 shares of MBT common stock are outstanding at the time of closing (representing the sum of 22,990,430 shares of MBT common stock outstanding on October 9, 2018 and 205,274 shares of MBT common stock to be issued immediately prior to the closing priceeffective time of the Merger pursuant to certain outstanding SOSARs and RSUs awards) multiplied by the Exchange Ratio, and (b) that the amount payable to certain directors relating to the termination of their rights under the Director DBO Plan will be made in an aggregate cash payment of $2,899,894 (as opposed to the issuance of shares of First Merchants’Merchants common stock on February 16, 2017issuable at the election of $42.10 per share, the transaction value for the remainingeach such director, which shares of common stock, not owned by First Merchants, is approximately $251.3 million. Subject to IALB’s shareholders’ approval of the merger, regulatory approvals and other customary closing conditions, the parties anticipate completing the IALB mergerare included in the third quarteraggregate number of 2017. Itshares registered under the registration statement of which this proxy statement and prospectus is uncertain what, if any, conditions may be imposed with respect to the proposed merger by any regulator.a part).
To record goodwill generated from the acquisition | |||
Purchase Price: | |||
MBT shares outstanding | 23,195,704 | ||
Exchange Ratio | 0.2750 | ||
First Merchants shares issued | 6,378,818 | ||
First Merchants common stock price at 10/09/2018 | $ | 45.71 | |
Purchase Price | $ | 291,575,771 |
(Dollars in thousands) | |||
Total Purchase Price | $ | 291,576 | |
Allocated to: | |||
Historical book value of MBT assets and liabilities | 121,351 | ||
MBT estimated transaction costs, net of tax | (10,121 | ) | |
Adjusted book value of MBT | $ | 111,230 | |
Adjustments to record assets and liabilities at fair value: | |||
Loans, credit mark | $ | (14,509 | ) |
Loans, interest rate mark | (7,099 | ) | |
Eliminate MBT allowance for loan losses | 7,986 | ||
Other real estate owned, write-down | (100 | ) | |
Premises and equipment, write-down | (650 | ) | |
Time deposits, interest rate mark | 1,359 | ||
Core deposits intangible | 19,809 | ||
Deferred taxes | (1,427 | ) | |
Total allocation | $ | 5,369 | |
Goodwill | $ | 174,977 | |
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In addition to general investment risks and the other information contained in or incorporated by reference into this proxy statement and prospectus, including the matters addressed under the section “FORWARD-LOOKING STATEMENTS,“Forward-Looking Statements,” you should carefully consider the following risk factors in deciding how to vote for the Merger Proposal presented in this proxy statement and prospectus. You should also consider the other information in this proxy statement and prospectus and the other documents incorporated by reference into this proxy statement and prospectus. See “WHERE YOU CAN FIND“Where You Can Find ADDITIONAL INFORMATION”Information” on page [●]71.
Risk Factors Relating to the Merged Company and Its Industry
Combining the two (2) companies may be more difficult, costly or time consuming than expected and the anticipated benefits and costs savings of the Merger may not be realized.
Even though First Merchants has acquired other financial services businesses in the past, the success of the Merger with Arlington BankMBT will depend on a number of factors, including, but not limited to, the merged company’s ability to:
First Merchants’ failure to successfully integrate Arlington BankMBT into its business may adversely affect its financial condition and results of operations.
The value of the consideration to be received by Arlington BankMBT shareholders in the Merger will fluctuate.
If the Merger is completed, Arlington BankMBT shareholders will receive a number of shares of First Merchants common stock based on a fixed Exchange Ratio of 2.7245 shares0.2750 share of First Merchants common stock for each Arlington Bankshare of MBT common share.stock. Because the market value of First Merchants common stock may (and likely will) fluctuate, the value of the stock consideration you receive for your shares may also fluctuate. The market value of First Merchants common stock could fluctuate for any number of reasons, including those specific to First Merchants and those that influence trading prices of equity securities generally. As a result, you will not know the exact value of the shares of First Merchants common stock you will receive at the time you must vote your shares. The value of First Merchants common stock on the closing date of the Merger may be greater or less than the market price of First Merchants common stock on the record date, on the date of this proxy statement and prospectus or on the date of the special meeting. Moreover, the fairness opinion of Boenning is dated January 24, 2017. Changes in the operations and prospects of First Merchants and Arlington Bank, general market and economic conditions and other factors which are both within and outside of the control of First Merchants and Arlington Bank, on which the fairness opinion is based, may alter the relative value of the companies. The fairness opinion does not address the fairness of the Exchange Ratio at the time the Merger will be completed.
We encourage you to obtain a current market quotation for First Merchants common stock because the value of any First Merchants shares you receive may be more or less than the value of such shares as of the date of this document.
The merged company’s allowance for loan losses may not be adequate to cover actual loan losses.
The merged company’s loan customers may not repay their loans according to their terms, and the customers’ collateral securing the payment of their loans may be insufficient to assure repayment. As of December 31, 2016,September 30, 2018, approximately 66%67% of the merged company’s loans are comprised of commercial real estate and commercial lines of credit and term and development loans, which can result in higher loan loss experience than residential loans in economic downturns. The underwriting, review and monitoring that will be performed by the merged company’s officers and directors cannot eliminate all of the risks related to these loans.
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Each of First Merchants and Arlington BankMBT make various assumptions and judgments about the collectability of their respective loan portfolios and provide an allowance for loan losses based on a number of factors. If the assumptions are wrong or the facts and circumstances subsequently and materially change, the allowance for loan losses and Merger-related credit marks may not be sufficient to cover the merged company’s loan losses. The merged company may have to increase its allowance for loan losses in the future, which could decrease its net income.
Deterioration in loan quality will adversely affect the merged company’s results of operations and financial condition.
Each of First Merchants and Arlington BankMBT seek to mitigate the risks inherent in their respective loan portfolios by adhering to sound underwriting practices. Their lending strategies also include emphasizing diversification on a geographic, industry and customer level, regular credit quality reviews and management reviews of large credit exposures and loans experiencing deterioration of credit quality. There is continuous review of their loan portfolios, including internally administered loan “watch” lists and independent loan reviews. These evaluations take into consideration identified credit problems, as well as the possibility of losses inherent in the loan portfolio that are not specifically identified. Although First Merchants and Arlington BankMBT believe their underwriting and loan review procedures are appropriate for the various kinds of loans they make, the merged company’s results of operation and financial condition will be adversely affected in the event the quality of their respective loan portfolios deteriorates. As of December 31, 2016,September 30, 2018, First Merchants had $34.7$21.4 million and Arlington BankMBT had $626,638$11.4 million in non-performing loans, including restructured loans.
Changes in interest rates may reduce the merged company’s net interest income.
Like other financial institutions, the merged company’s net interest income is its primary revenue source. Net interest income is the difference between interest earned on loans and investments and interest expense incurred on deposits and other borrowings. The merged company’s net interest income will be affected by changes in market rates of interest, the interest rate sensitivity of its assets and liabilities, prepayments on its loans and investments and limits on increases in the rates of interest charged on its residential real estate loans.
The merged company will not be able to predict or control changes in market rates of interest. Market rates of interest are affected by regional and local economic conditions, as well as monetary policies of the Federal Reserve Board. The following factors also may affect market interest rates:
Each of First Merchants and Arlington BankMBT has policies and procedures designed to manage the risks from changes in market interest rates; however, despite risk management, changes in interest rates could adversely affect the merged company’s results of operations and financial condition.
Changes in economic conditions and the geographic concentration of the merged company’s markets could adversely affect the merged company’s financial condition.
The merged company’s success will depend to a great extent upon the general economic conditions of the Central and Northwestern Indiana and Central Ohio areas.Midwest Region of the United States. Unlike larger banks that are more geographically diversified, the merged company will provide banking and financial services to customers primarily located in these areas. Favorable economic conditions may not exist in the merged company’s markets.
A continued economic slowdown could have the following consequences:
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Anti-takeover defenses may delay or prevent future mergers.
Provisions contained in First Merchants’ Articles of Incorporation and Bylaws and certain provisions of Indiana law could make it more difficult for a third party to acquire First Merchants, even if doing so might be beneficial to First Merchants shareholders. See “COMPARISON OF COMMON STOCK—Anti-Takeover Provisions” on page [●]68. These provisions could limit the price that some investors might be willing to pay in the future for shares of First Merchants common stock and may have the effect of delaying or preventing a change in control.
If the Merger is not completed, the parties will have incurred substantial expenses without realizing the expected benefits.
First Merchants and Arlington BankMBT have incurred substantial expenses in connection with the transactions described in this proxy statement and prospectus. The completion of the Merger depends on the satisfaction of several conditions. We cannot guarantee that these conditions will be met. Arlington BankMBT expects to incur approximately $2.5$12.5 million in pre-tax Merger-related expenses and First Merchants expects to incur approximately $4.4$7.7 million in pre-tax Merger-related expenses, which include legal, accounting and financial advisory expenses and which excludes any contract termination fees, if applicable. Although some of these expenses will not be incurred if the Merger is not completed, others will and such expenses could have a material adverse impact on the financial condition of First Merchants and Arlington BankMBT because they would not have realized the expected benefits of the Merger. There can be no assurance that the Merger will be completed.
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 Arlington Bank.MBT.
The Merger Agreement with First Merchants is subject to a number of conditions which must be fulfilled in order to close. Those conditions include: Arlington BankMBT shareholder approval, regulatory approvals, the continued accuracy of certain representations and warranties by both parties and the performance by both parties of certain covenants and agreements. There can be no assurance that the Merger will be completed.
In addition, certain circumstances exist where Arlington BankMBT may choose to terminate the Merger Agreement, including the acceptance of a superior acquisition proposal. See “THE MERGER—Exchange of Arlington BankMBT Common Stock” for a more complete discussion of the consideration to be paid in the Merger and “THE MERGER AGREEMENT—Termination; Waiver; Amendment” 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 Arlington Bank,MBT, including:
If the Merger Agreement is terminated by Arlington BankMBT due to its acceptance of a superior acquisition proposal or by First Merchants due to the failure of Arlington Bank’sMBT’s Board of Directors to recommend approval of the Merger Agreement to its shareholders by reason of a superior acquisition proposal or for certain related reasons, then Arlington BankMBT has agreed pay to First Merchants a $3,000,000$12,680,000 termination fee. The payment of the termination fee could have a material adverse effect on Arlington Bank’sMBT’s financial condition, and there can be no assurance that Arlington BankMBT would be able to complete a transaction with a party willing to pay an equivalent or more attractive price than the price First Merchants has agreed to pay in the Merger.
25
The termination fee and the restrictions on solicitation contained in the Merger Agreement may discourage other companies from trying to acquire Arlington Bank.MBT.
Until the completion of the Merger, with some exceptions, Arlington BankMBT 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 other than First Merchants. In addition, Arlington BankMBT has agreed to pay a termination fee of $3,000,000$12,680,000 to First Merchants if the Arlington BankMBT Board of Directors does not recommend approval of the Merger Agreement to the Arlington BankMBT shareholders by reason of a superior acquisition proposal. These provisions could discourage other companies from trying to acquire Arlington BankMBT even though such other companies might be willing to offer greater value to Arlington Bank’sMBT’s shareholders than First Merchants has offered in the Merger Agreement. The payment of the termination fee also could have a material adverse effect on Arlington Bank’sMBT’s financial condition.
The market price of First Merchants common stock after the Merger may be affected by factors different from those affecting the shares of Arlington BankMBT or First Merchants currently.
Upon completion of the Merger, holders of Arlington BankMBT common sharesstock will become holders of First Merchants common stock. First Merchants’ business differs in important respects from that of Arlington Bank,MBT, and, accordingly, the results of operations of the combined company and the market price of First Merchants common stock after the completion of the Merger may be affected by factors different from those currently affecting the independent results of operations of each of First Merchants and Arlington Bank.MBT. First Merchants is, and will continue to be, subject to the risks described in First Merchants’ Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2017, as updated by subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, all of which are filed with the SEC and incorporated by reference into this proxy statement and prospectus. See the documents incorporated by reference in this proxy statement and prospectus and referred to under “WHERE YOU CAN FIND ADDITIONAL INFORMATION”“Where You Can Find Additional Information” on page [●]71.
Arlington BankMBT shareholders will have a reduced ownership and voting interest after the Merger and will exercise less influence over management.
Arlington Bank’sMBT’s shareholders currently have the right to vote in the election of the Arlington BankMBT Board of Directors and on other matters affecting Arlington Bank.MBT. When the Merger occurs, each Arlington BankMBT shareholder will become a shareholder of First Merchants with a percentage ownership of the combined organization that is smaller than the shareholder’s percentage ownership of Arlington Bank.MBT. Because of this, Arlington Bank’sMBT’s shareholders will have less influence over the management and policies of First Merchants than they now have over the management and policies of Arlington Bank.MBT.
The fairness opinion received by the MBT Board of Directors in connetion with the Merger prior to the signing of the Merger Agreement has not been updated to reflect changes in circumstances since the date of such opinion.
The written opinion rendered by Sandler O’Neill, financial advisor to MBT, on October 9, 2018, was based upon information available as of such date. Sandler O’Neill’s opinion has not been updated to reflect changes that may occur or may have occurred after the date on which it was delivered, including changes to the operations and prospects of MBT or First Merchants, changes in general market and economic conditions, or other changes. Any such changes may alter the relative value of MBT or First Merchants, or the prices of shares of MBT common stock or First Merchants common stock by the time the Merger is completed. The written opinion does not speak as of the date the Merger will be completed or as of any date other than the date of such written opinion. For a description of the opinion that MBT received from its financial advisor, please see “The Merger – Opinion of MBT’s Financial Advisor,” beginning on page 40.
Risk Factors Relating to the Merger
Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the Merger.
The transactions contemplated in the Merger Agreement cannot be completed until First Merchants receives necessary regulatory approvals, which include the approval of the Federal Deposit Insurance Corporation.Corporation and Indiana Department of Financial Institutions. In determining whether to grant these approvals, the regulators
26
consider a variety of factors, including the regulatory standing of each party and the factors described under “THE MERGER—Regulatory Approvals.” An adverse development in either party’s regulatory standing or these factors could result in an inability to obtain approval or delay its receipt. These regulators may impose conditions on the completion of the Merger or the Bank Merger or require changes to the terms of the Merger or the Bank Merger. Such conditions or changes could have the effect of delaying or preventing completion of the Merger or the Bank Merger or imposing additional costs on or limiting the revenues of the combined company following the Merger and the Bank Merger, any of which might have an adverse effect on the combined company following the Merger. Regulatory approvals could also be impacted based on the status of any ongoing investigation of either party or its customers, including subpoenas to provide information or investigations, by a federal, state or local governmental agency.
Certain of Arlington Bank’sMBT’s directors and executive officers have interests in the Merger that may differ from the interests of Arlington Bank’sMBT’s shareholders.
Arlington BankMBT shareholders should be aware that some of Arlington Bank’sMBT’s executive officers and directors have interests in the Merger and have arrangements that are different from, or in addition to, those of Arlington BankMBT shareholders generally. Arlington Bank’sMBT’s Board of Directors was aware of and considered these interests, among other matters, when making its decision to approve and adopt the Merger Agreement, and in recommending that Arlington BankMBT shareholders vote in favor of approving the Merger Agreement.
For a description of these interests, see “THE MERGER—Interests of Certain Persons in the Merger” on page [●]51.
Arlington BankMBT and First Merchants will be subject to business uncertainties and contractual restrictions while the Merger is pending.
Uncertainty about the effect of the Merger on employees and customers may have an adverse effect on Arlington BankMBT or First Merchants. These uncertainties may impair Arlington Bank’sMBT’s or First Merchants’ ability to attract, retain and motivate key personnel until the Merger is completed, and could cause customers and others that deal with Arlington BankMBT or First Merchants to seek to change existing business relationships with Arlington BankMBT or First Merchants. Retention of certain employees by Arlington BankMBT or First Merchants may be challenging while the Merger is pending, as certain employees may experience uncertainty about their future roles with Arlington BankMBT or First Merchants. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with Arlington BankMBT or First Merchants, Arlington Bank’sMBT’s and/or First Merchants’ business could be harmed. In addition, subject to certain exceptions, each of Arlington BankMBT and First Merchants has agreed to operate its business in the ordinary course prior to
closing. See “THE MERGER AGREEMENT—Restrictions Affecting the Parties Prior to Completion of the Merger” on page [●]57 for a description of the restrictive covenants applicable to Arlington BankMBT and First Merchants while the Merger is pending.
The shares of First Merchants common stock to be received by Arlington BankMBT shareholders as a result of the Merger will have different rights from the Arlington Bankshares of MBT common shares.stock.
Upon completion of the Merger, Arlington BankMBT shareholders will become First Merchants shareholders and their rights as shareholders will be governed by the First Merchants Articles of Incorporation and Bylaws. The rights associated with Arlington BankMBT common sharesstock may be different from the rights associated with First Merchants common stock. Please see “COMPARISON OF COMMON STOCK”“Comparison of Common Stock” beginning on page [●]64 for a discussion of the different rights associated with First Merchants common stock.
The Merger may fail to qualify as a tax-free reorganization for federal tax purposes, resulting in your recognition of taxable gain or loss in respect of your Arlington Bank shares.shares of MBT common stock.
Arlington BankMBT intends the Merger to qualify as a tax-free “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code. Although the IRS will not provide a ruling on the matter, First Merchants and Arlington Bank will, as a condition to closing, obtain an opinion from legal counsel that the Merger will constitute a “reorganization” for federal tax purposes. Such opinion will comply with the regulations and guidance of the SEC with respect to the persons entitled to rely on tax opinions contained in the Registration Statement on Form S-4, of which this proxy and prospectus is a part. 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 Arlington Bankshare of MBT common share surrendered in an amount equal to the difference between your adjusted tax basis in that share and the fair market value of the Merger consideration received in exchange for that share upon completion of the Merger. Furthermore, if the Merger fails to qualify as a reorganization, there may be additional tax consequences to shareholders of Arlington Bank common shares associated with the deemed sale by Arlington Bank of its assets to First Merchants, which could result in corporate level gains and associated taxes.
Arlington Bank shareholders will have dissenters’ rights in the Merger.
Dissenters’ rights are statutory rights that, if applicable under law, enable shareholders to dissent from an extraordinary transaction, such as a Merger, and to demand that the corporation pay the fair cash value for their shares as determined by a court in a judicial proceeding instead of receiving the consideration offered to shareholders in connection with the extraordinary transaction. The shareholders of Arlington Bank will have the rights accorded to dissenting shareholders under Section 1701.85 of the Ohio General Corporation Law. The fair cash value determined through a judicial proceeding may be more or less than the consideration offered under the Merger Agreement. As a result, First Merchants bears the risk that payments owed to dissenting shareholders may exceed the consideration outlined in this proxy statement and prospectus.27
THE ARLINGTON BANKMBT SPECIAL MEETING
Special Meeting of Shareholders of
MBT Financial Corp.
The Arlington Bank
We are furnishing this document to the shareholders of Arlington BankMBT in connection with the solicitation by the Board of Directors of Arlington BankMBT of proxies for use at the Arlington BankMBT special meeting of shareholders to be held on [●], 2017,February 14, 2019, at [●]:[●] [●].m.10:00 a.m., local time, at [●].10 Washington Street, Monroe, Michigan 48161. This document is first being mailed to Arlington BankMBT shareholders on [●[•], 2017,[•], and includes the notice of Arlington BankMBT special meeting, and is accompanied by a form of proxy.
The purposes of the special meeting are:
are as follows:
| 1. | Merger Proposal.To consider and vote upon a proposal to approve the Merger Agreement, pursuant to which |
| 2. |
| 3. | Adjournment Proposal. To approve one (1) or more adjournments of the |
| Other Matters.To vote upon such other matters which may properly be presented at the special meeting or any adjournment or postponement of the special meeting. The Board of Directors is not aware of any such other matters. |
Pursuant to the Merger Agreement, Arlington BankMBT will merge into First Merchants. The Merger Agreement is attached to this document asAnnex A and is incorporated in this document by reference. For a description of the Merger Agreement, see “THE MERGER AGREEMENT,” beginning on page [●]53.
Approval of the Merger Proposal requires the affirmative vote of at least a majoritysixty-six and two-thirds percent (66 2/3%) of the outstanding Arlington Bankshares of MBT common shares.stock. Approval of the Merger-Related Compensation Proposal and the Adjournment Proposal only requires the affirmative vote of at least a majority of the Arlington Bankshares of MBT common shares votingstock cast at the meeting, in person or by proxy, so long as a quorum is present. Arlington BankAs provided by the Michigan Business Corporation Act, an abstention is not a “vote cast.” Abstentions from voting and broker non-votes, if any, on Proposal 2 (Merger-Related Compensation Proposal) and Proposal 3 (Adjournment Proposal) are not treated as votes cast and, therefore, will have no effect on the outcome of the passage of the proposal. MBT has fixed [●], 2017,December 18, 2018, as the record date for determining those Arlington BankMBT shareholders entitled to notice of, and to vote at, the special meeting. Accordingly, if you were an Arlington BankMBT shareholder of record at the close of business on [●], 2017,December 18, 2018, you will be entitled to notice of and to vote at the special meeting. Each Arlington Bankshare of MBT common sharestock you own on the record date entitles you to one (1) vote on each matter presented at the special meeting. At the close of business on the record date of [●], 2017,December 18, 2018, there were [●] Arlington Bank23,025,525 shares of MBT common sharesstock outstanding held by approximately [●]3,200 shareholders of record.
As of the record date, Arlington Bank’s executive officers, directors, and certain significant shareholders and their affiliatesMBT’s Board of Directors had voting power with respect to an aggregate of 276,258 Arlington Bank1,155,725 shares of MBT common sharesstock outstanding, representing 36.28%5.0% of the outstanding shares on that date. As of the record date, the members of MBT’s Board of Directors, together with Patriot Partners, and Castle Creek had power to vote, or caused to be voted, an aggregate of 5,092,450 shares of MBT common stock outstanding, representing 22.1% of the outstanding shares on that date. Each member of the Board of Directors
28
of Arlington BankMBT, Patriot Financial Partners, and certain other significant shareholdersCastle Creek Capital Partners entered into a voting agreement with First Merchants to cause all Arlington Bankshares of MBT common sharesstock owned by them of record or beneficially to be voted in favor of the Merger Proposal. See “THE MERGER AGREEMENT—Voting Agreement” on page [●]59.
If you are an Arlington BankMBT shareholder, you should have received a proxy card for use at the Arlington BankMBT special meeting with this proxy statement and prospectus. The accompanying proxy card is for your use in voting at the special meeting if you are unable or do not wish to attend the special meeting in person. The shares
represented by proxies properly signed and returned will be voted at the special meeting as instructed by the Arlington BankMBT shareholder giving the proxies. Proxy cards that are properly signed and returned but do not have voting instructions will be voted “FOR” approval of the Merger Proposal and “FORFOR”” approval of the Adjournment Proposal.
If you deliver a properly signed proxy card, you may revoke your proxy at any time before it is exercised by:
Because approval of the Merger Proposal requires the affirmative vote of at least a majoritysixty-six and two-thirds percent (66 2/3%) of the outstanding Arlington Bankshares of MBT common shares,stock, abstentions will have the same effect as voting “AGAINST” approval of the Merger Proposal. Accordingly, your Board of Directors urges all Arlington BankMBT shareholders to vote by proxy by completing, dating and signing the accompanying proxy and returning it promptly in the enclosed postage-paid envelope. Abstentions and broker non-votes will have no effect on the Adjournment Proposal since it only requires a majority of the Arlington Bankshares of MBT common sharesstock voting at the meeting. You shouldnot send stock certificates with your proxy card.
Arlington BankMBT will bear the entire cost of soliciting proxies from and mailing proxies to its shareholders in connection with the Arlington BankMBT special meeting. In addition to solicitation of proxies by mail, proxies may be solicited personally or by telephone by directors, officers and certain employees of Arlington Bank,MBT, who will not be specially compensated for such soliciting.
In soliciting proxies, no one has any authority to make any representations and warranties about the Merger or the Merger Proposal in addition to or contrary to the provisions stated in this document. No statement regarding the Merger, the Merger Agreement or the Merger Proposal should be relied upon except as expressly stated in this document.
MBT has retained Morrow Sodali L.L.C., a proxy solicitation firm, to assist MBT in soliciting proxies with respect to the special meeting. MBT anticipates that the costs of Morrow Sodali L.L.C.’s services will be approximately $12,500, plus additional fees in the event certain services are requested. In addition, MBT’s financial advisor Donnelly Penman may assist in the solicitation of proxies without any additional compensation beyond what is disclosed in the proxy.
Recommendation of the Arlington BankMBT Board of Directors
Arlington Bank’sMBT’s Board of Directors has unanimously approved the Merger Agreement. Arlington Bank’sMBT’s Board of Directors believes that the Merger is fair to and in the best interests of Arlington BankMBT and its shareholders. The Board unanimously recommends that the Arlington BankMBT shareholders vote “FOR” approval of the Merger Proposal and “FOR” approval of the Adjournment Proposal. See “THE MERGER—Arlington Bank’s MBT’s Reasons for the Merger” on page [●] and “THE MERGER—Recommendation of the Arlington Bank Board of Directors” on page [●]38.
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The special meeting of Arlington BankMBT shareholders has been called for the purposes set forth in the Notice to Arlington BankMBT shareholders included in this document. Your Board of Directors is unaware of any matter for action by shareholders at the special meeting other than as stated in the Notice or in this proxy statement and prospectus. However, the enclosed proxy will give discretionary authority to the persons named in the proxy with respect to matters which are not known to your Board of Directors as of the date hereof and which may properly come before the special meeting. It is the intention of the persons named in the proxy to vote with respect to such
matters in accordance with the recommendations of the Board of Directors of Arlington BankMBT or, if no recommendations are given, in their best judgment. The approval of the transaction of any other business that may properly come before the special meeting generally requires more votes to be cast in favor of the proposal than are cast against it.
Beneficial Ownership of Arlington BankMBT Common SharesStock by Certain Shareholders
The following table shows, as of March 10, 2017,December 18, 2018, the beneficial ownership of MBT common stock of each Arlington Bankperson who beneficially owns more than five percent (5%) of MBT’s outstanding common stock, each MBT director, each of the executive officers of ArlingtonMBT and/or Monroe Bank & Trust and all of the directors and executive officers as a group. No other persons beneficially own more than 5% of Arlington Bank’s outstanding common stock. Unless otherwise indicated, each person has sole voting and investment power with respect to the shares set forth in the following table.
Name of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class | ||||||
Directors | ||||||||
James R. DeRoberts | 70,875 | (1) | 9.3 | % | ||||
Mark K. Milligan | 44,875 | (2) | 5.9 | % | ||||
John S. Christie | 3,500 | * | ||||||
Richard A. DeRoberts | 58,125 | (3) | 7.6 | % | ||||
William H. Mason | 19,150 | (4) | 2.5 | % | ||||
Thomas C. Westfall | 24,050 | (5) | 3.2 | % | ||||
John S. Wiseman | 43,683 | (6) | 5.7 | % | ||||
Other Executive Officers | ||||||||
Natalie A. Karas | 3,200 | (7) | * | |||||
Rodney H. Lake | 4,870 | * | ||||||
Nona A. Durham | 10,600 | (7) | 1.4 | % | ||||
Directors and Executive Officers as a Group (10 persons) | 294,928 | 37.0 | % | |||||
Name of Beneficial Owner | Shares of Common Stock Owned(1) | Percent of Class | ||||
Kristine L. Barann | 7,629 | * | ||||
Peter H. Carlton | 206,556 | * | ||||
H. Douglas Chaffin | 200,241 | (2) | * | |||
Joseph S. Daly | 305,895 | (3) | 1.3 | % | ||
James F. Deutsch | 2,060,302 | (4) | 9.0 | % | ||
Scott E. McKelvey | 74,826 | (5) | * | |||
Audrey Mistor | 28,235 | (6) | * | |||
Michael J. Miller | 227,314 | (7) | * | |||
Thomas G. Myers | 112,914 | (8) | * | |||
Tony Scavuzzo | 1,876,423 | (9) | 8.2 | % | ||
Debra J. Shah | 127,123 | * | ||||
John L. Skibski | 88,953 | (10) | * | |||
Joseph S. Vig | 17,629 | (11) | * | |||
All Directors, Nominees and Executive Officers as a Group (13 in group) | 5,334,040 | 23.2 | % | |||
| * |
| (1) | Except as otherwise noted, none of the named individuals shares with another person either voting or investment power as to the shares reported. |
| (2) | Includes |
| (3) | Includes 98,021 share units issued under the director deferred compensation plan. |
| (4) | Includes 1,845,027 shares held by Patriot Financial Partners II, L.P. and 215,275 shares held by Patriot Financial Partners Parallel II, L.P. Mr. |
| (5) | Includes |
| (6) | Includes 270 shares subject to SOSARs, which are presently exercisable. |
| (7) | Includes 227,314 shares subject to shared voting and investment power. |
| (8) | Includes |
| Includes 1,876,423 shares held by Castle Creek Capital Partners. Mr. Scavuzzo is a Principal at Castle Creek and disclaims beneficial ownership. |
| (10) | Includes 4,000 shares subject to shared voting and investment power, and 6,339 shares subject to SOSARs, which are presently exercisable. |
| (11) | Includes 5,000 shares subject to shared voting and investment power. |
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As of December 18, 2018, no person was known by MBT to be the beneficial owner of more than 5% of the outstanding shares of common stock of MBT, except as follows:
Name and Address of Beneficial Owner | Shares of Common Stock Owned | Percent of Class | ||||
Patriot Financial Partners(1) CIRA Centre 2929 Arch Street, 27th Floor Philadelphia, PA 19104-2868 | 2,060,302 | 8.9 | % | |||
Castle Creek Capital Partners(2) 6051 El Tordo, PO Box 1329 Rancho Santa Fe, CA 92067 | 1,876,423 | 8.1 | % | |||
Dimensional Fund Advisors LP Building One 6300 Bee Cave Road Austin, TX, 78746 | 1,271,324 | 5.5 | % | |||
| (1) | James F. Deutsch, a director of MBT, is a member of the investment committee of Patriot Financial Partners which makes investment decisions on behalf Patriot Financial Partners II, L.P. and Patriot Financial Partners Parallel II, L.P. which own 1,845,027 shares |
| Tony Scavuzzo, a director, is a principal at Castle Creek Capital Partners. Mr. |
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Arlington BankMBT is asking its shareholders to approve the Merger Proposal. Holders of Arlington BankMBT common sharesstock should read this proxy statement and prospectus carefully and in its entirety, including the annexes, for more detailed information concerning the Merger Agreement and the Merger. A copy of the Merger Agreement is attached to this proxy statement and prospectus asAnnex A.
After careful consideration, the Arlington Bank Board of Directors unanimouslyof MBT approved and adopted the Merger Agreement and determined it to be advisable and in the best interest of Arlington BankMBT and its shareholders of Arlington Bank.shareholders. See “THE MERGER—Arlington Bank’sMBT’s Reasons for the Merger; Recommendation of Arlington Bank’sMBT’s Board of Directors” included elsewhere in this proxy statement and prospectus for a more detailed discussion of the Arlington BankMBT Board of Directors’ recommendation.
For the reasons discussed in this proxy statement and prospectus, the Arlington Bank Board of Directors unanimouslyof MBT determined that the Merger Agreement and the transactions contemplated by the Merger Agreement are advisable and in the best interests of Arlington BankMBT and its shareholders, and unanimously adopted and approved the Merger Agreement. The Arlington Bank Board of Directors unanimouslyof MBT recommends that Arlington BankMBT shareholders vote “FOR” approval of the Merger Proposal.
The Arlington BankMBT special meeting may be adjourned to another time or place, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Arlington BankMBT special meeting to approve the Merger Proposal.
If, at the Arlington BankMBT special meeting, the number of Arlington Bankshares of MBT common sharesstock present or represented and voting in favor of the Merger Proposal is insufficient to approve the Merger Proposal, Arlington BankMBT intends to move to adjourn the Arlington BankMBT special meeting in order to enable the Board of Directors of Arlington BankMBT to solicit additional proxies for approval of the Merger Proposal. In that event, Arlington BankMBT will ask its shareholders to vote upon the Adjournment Proposal, but not the Merger Proposal.
In this Adjournment Proposal, Arlington BankMBT is asking its shareholders to authorize the holder of any proxy solicited by the Board of Directors of Arlington Bank,MBT, on a discretionary basis, to vote in favor of adjourning the Arlington BankMBT special meeting to another time and place for the purpose of soliciting additional proxies, including the solicitation of proxies from Arlington BankMBT shareholders who have previously voted.
The Board of Directors of Arlington Bank unanimouslyMBT recommends a vote “FOR” the Adjournment Proposal.
MERGER-RELATED COMPENSATION PROPOSAL
Non-Binding Advisory Vote on Merger Related Named Executive Officer Compensation
As required by Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and Rule 14a-21(c) of the Securities Exchange Act of 1934, as amended, MBT is seeking non-binding, advisory shareholder approval of the compensation of the named executive officers of MBT that is based upon or otherwise related to the Merger as disclosed under the heading “Merger-Related Compensation for MBT’s Named Executive Officers” appearing below. This proposal provides you, as a shareholder of MBT, the opportunity to express your view on any merger-related compensation of MBT’s named executive officers by approving or not approving adoption of the following resolution:
“RESOLVED, that the compensation that may be paid or become payable to MBT’s named executive officers in connection with the Merger and the agreements or understandings pursuant to which such compensation may be paid or become payable, in each case as disclosed pursuant to Item 402(t) of Regulation S-K in ‘THE MERGER – RELATED COMPENSATION PROPOSAL,’ are hereby APPROVED.”
Because the Merger is not conditioned upon this proposal and your vote is advisory, it will not be binding on MBT or First Merchants. If the parties complete the Merger, the merger-related compensation disclosed below under “Merger-Related Compensation for MBT’s Named Executive Officers” will be paid to MBT’s named executive officers to the extent payable in accordance with the compensation agreements and other arrangements
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even if the MBT’s shareholders do not approve the merger-related compensation on an advisory basis. In addition to information below regarding the Merger-Related Compensation Proposal, see “THE MERGER - Interests of Certain Persons in the Merger” for additional information regarding interests of management in the Merger at page 51.
Merger-Related Compensation for MBT’s Named Executive Officers
MBT has entered into change in control or severance agreements with its named executive officers that will provide cash payments to them in connection with the Merger. Additionally, under the terms of the MBT’s equity plans, award agreements and the terms of the Merger Agreement all unvested equity awards will become vested and exchanged for the Merger Consideration. Pursuant to the terms of the Merger Agreement and subject to closing of the Merger, to the extent those arrangements are “double trigger” arrangements those arrangements have been amended to eliminate any requirement that the covered participating executive experience an actual or constructive termination of their employment in order to receive the payments and benefits. In exchange for the cash payments provided under the amended agreements the covered executives must provide a full release to MBT and an express agreement permitting the enforcement of any applicable noncompetition and non-solicitation covenants contained in those agreements by First Merchants following the Merger.
The table and footnotes below reflect the estimated amount of compensation that each of the named executive officers of MBT is entitled to receive as a result of the Merger. In addition, the table presents the value of the acceleration of the vesting of equity awards as a result of the Merger. The amounts reported below are estimates based on assumptions that may or may not actually occur or be accurate on the relevant date, including assumptions described in this document. As a result the actual amounts to be received by a named executive officer may differ from the amounts set forth below.
Golden Parachute Compensation
Name and Principal Position (a) | Cash(1) ($) | Equity(2) ($) | Total ($) | ||||||
H. Douglas Chaffin (PEO) | 1,681,809 | 228,192 | 1,910,001 | ||||||
John L. Skibski (PFO) | 465,704 | 108,924 | 574,628 | ||||||
Thomas G. Myers EVP, Chief Lending Manager | 454,122 | 108,924 | 563,046 | ||||||
Scott E. McKelvey EVP, Wayne County President | 447,562 | 108,924 | 556,486 | ||||||
Audrey Mistor EVP, Wealth Management Group Director | 423,875 | 108,924 | 532,799 | ||||||
| (1) | The cash payment payable to each of the named executive officers of MBT will be made in a single lump sum in connection with the consummation of the Merger. The amounts indicated for Mr. Chaffin includes $1,174,485 under the terms of his change in control agreement and $507,324 payable in connection with Mr. Chaffin’s agreement to terminate his participation in the Director DBO Plan. At the election of Mr. Chaffin, the cash amount payable in connection with the Director DBO Plan may be paid in shares of common stock of First Merchants. For a description regarding the Director DBO Plan See “THE MERGER - Interests of Certain Persons in the Merger” at page 51. The amounts payable to the other named executive officers represent amounts payable under the terms of their severance agreements with MBT. |
| (2) | Under the terms of the Merger Agreement immediately prior to the closing, each then outstanding stock only stock appreciation right (SOSAR) and restricted stock unit (RSU) of MBT, whether unvested or vested, shall be exchanged for shares of MBT common stock according to their respective award agreement terms and as a result of the Merger will be converted into the Merger Consideration. The dollar value of the SOSARs and RSUs, the vesting of which is accelerated as a result of the Merger are shown below, in accordance with SEC Reg S-K, Item 402(t), in an amount equal to the average closing market price of MBT common stock over the first five business days following the public announcement of the Merger on October 10, 2018, or $43.63 per share. |
Name | SOSARs ($) | Restricted Stock Units ($) | Total ($) | ||||||
H. Douglas Chaffin | 18,816 | 209,376 | 228,192 | ||||||
John L. Skibski | 7,476 | 101,448 | 108,924 | ||||||
Thomas G. Myers | 7,476 | 101,448 | 108,924 | ||||||
Scott E. McKelvey | 7,476 | 101,448 | 108,924 | ||||||
Audrey Mistor | 7,476 | 101,448 | 108,924 | ||||||
The Board of Directors of MBT recommends a vote “FOR” the Merger-Related Compensation Proposal.
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At the special meeting, the shareholders of Arlington BankMBT will consider and vote upon approval of the Merger Agreement. The following summary highlights certain information about the Merger. To understand the Merger, you should read carefully this entire proxy statement and prospectus, including the Merger Agreement, which is attached to this document asAnnex A.
Under the terms and subject to the conditions of the Merger Agreement unanimously approved by each of the Arlington Bank, First MerchantsMBT’s and First Merchants BankMerchants’ Boards of Directors, Arlington BankMBT will merge with and into First Merchants Bank and the separate corporate existence of Arlington BankMBT will cease. The rights ofImmediately following the ArlingtonMerger, Monroe Bank shareholders who receive& Trust will be consolidated and merged with and into First Merchants common stockBank and Monroe Bank & Trust will cease to exist as a separate entity. The Articles of Incorporation and Bylaws of First Merchants, as in effect prior to the Merger, will be governed by the laws of the State of Indiana, the state in which First Merchants is incorporated, and by First Merchants’ Articles of Incorporation and Bylaws.Bylaws of First Merchants after the Merger.
Exchange of Arlington BankMBT Common SharesStock
The Merger Agreement provides that Arlington BankMBT shareholders will have the right, with respect to each of their Arlington Bankshares of MBT common shares,stock, to receive, without interest, 2.7245 sharesa 0.2750 (the “Exchange Ratio”) share of First Merchants common stock (the “Merger Consideration”), subject to the payment of cash instead of fractional shares.
If First Merchants changes the number of outstanding shares of First Merchants common stock before the Merger through any stock split, stock dividend, recapitalization or similar transaction, then the Exchange Ratio will be proportionately adjusted so that Arlington BankMBT shareholders will receive such number of shares of First Merchants common stock as represents the same percentage of outstanding shares of First Merchants common stock at the effective date of the Merger as would have been represented by the number of shares of First Merchants common stock such shareholder would have received if the recapitalization had not occurred.
First Merchants will not issue fractional shares to Arlington BankMBT shareholders. Instead, Arlington BankMBT common shareholders will receive for each fractional share an amount in cash determined by multiplying (i) the fractional interest by (ii) the average of the closing price of the common stock of First Merchants as reported by Bloomberg, L.P. for the ten (10) days that First Merchants common stock trades on The NASDAQ Global Select Market preceding the fourth calendar day prior to the effective date of the Merger.
If you are an Arlington BankMBT shareholder and you receive First Merchants common stock as Merger Consideration for your Arlington Bankshares of MBT common shares,stock, the value of the consideration that you will receive in the Merger will depend on the market price of First Merchants common stock when you receive your shares of First Merchants common stock. The implied per share value of the stock consideration, based upon First Merchants’ closing stock price on [●], 2017,December 18, 2018, the most recent practicable trading day before this proxy statement and prospectus was finalized, was $[●]$9.86 per share. No assurance can be given (and it is not likely) that the current market price of First Merchants common stock will be equivalent to the market price of First Merchants common stock on the date that shares of First Merchants common stock are received by an Arlington BankMBT shareholder or at any other time.
On or prior to the effective date of the Merger, First Merchants will deposit with American Stock Transfer, as exchange agent, shares incertificates or book entry formfor shares (as requested by registered shareholders of MBT) of First Merchants common stock, each to be given to the holders of Arlington BankMBT common sharesstock in exchange for old certificates (or shares in book entry form) representing Arlington Bankshares of MBT common shares.stock. Within three (3) business days following the effective date of the Merger, First Merchants will mail a letter of transmittal to each person who was, immediately prior to the effective time of the Merger, a holder of record of Arlington BankMBT common shares.stock. The letter of transmittal will contain instructions for use in effecting the surrender of Arlington BankMBT stock certificates (or shares in book entry form) in exchange for the consideration to which such person may be entitled pursuant to the Merger Agreement. Within ten (10)five (5) business days following the later of the effective date
of the Merger or the surrender to American Stock Transfer of the old certificate(s) representing Arlington Bankshares of MBT common sharesstock for cancellation, together with such letter of transmittal duly executed and completed, the holder of such old certificate(s) (or shares in book entry form) will be provided a new certificate (or evidence of shares in book entry form)form representing shares of First Merchants common stock and/or a check in the amount to which such holder is entitled pursuant to the Merger Agreement, and the old certificate will be canceled.
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Until you surrender your Arlington BankMBT stock certificates (or shares in book entry form) for exchange, you will accrue, but will not be paid, any dividends or other distributions declared after the effective time of the Merger with respect to First Merchants common stock into which any of your shares may have been converted. When you surrender your Arlington BankMBT stock certificates (or shares in book entry form), First Merchants will pay any unpaid dividends or other distributions, without interest. After the completion of the Merger, there will be no transfers on the stock transfer books of Arlington BankMBT of any Arlington Bankshares of MBT common shares.stock.
If a certificate for Arlington BankMBT common sharesstock has been lost, stolen or destroyed, First Merchants will issue the consideration properly payable under the Merger Agreement to the registered owner of such certificate upon receipt of an affidavit of lost stock certificate, in form and substance satisfactory to First Merchants, and upon compliance by the Arlington Bank’sMBT’s shareholder with all procedures historically required by Arlington BankMBT in connection with lost, stolen or destroyed certificates.
Effect of the Merger on First Merchants Shareholders
The approval of the First Merchants shareholders of the Merger Agreement is not required in order to complete the Merger. First Merchants shareholders will also not be entitled to exchange their shares of First Merchant common stock for any consideration as a result of the Merger. After the Merger, First Merchants shareholders will continue to own the same number of First Merchants shares they owned before the Merger.
As partMBT’s Board of its consideration and assessment of Arlington Bank’sDirectors conducts regular strategic planning sessions on a basis no less often than annually to discuss MBT’s long-term strategic alternatives, prospects and strategies to enhance shareholder value. These sessions not only reviewed organic growth plans but also capital management and the potential for mergers and acquisitions. At the December 2017 MBT Board of Directors meeting, the MBT Board of Arlington Bank has periodicallyDirectors discussed and reviewed MBT’s capital management plan and strategic opportunities 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 affiliating with another institution.
While Arlington Bank’s profit consistently ranked in Following these deliberations, the top quartile of its peers, the future growth of that profit was tied to asset growth and absorption of the costs of regulatory compliance. The improving Ohio economy was attracting out-of-market financial institutions to the area, resulting in increasing market competition and limiting growth opportunities. Facing challenges of generating continued increased earnings through organic growth, management and theMBT Board of Directors made a preliminary decision to further discuss and review the possibility of Arlington Bank continuedan affiliation with a larger financial institution. During January of 2018 the MBT Board of Directors met with representatives of Sandler O’Neill and discussed in general terms the market conditions for mergers and acquisitions in the financial services industry and in particular MBT’s prospects as an acquiror and as a potential acquisition by a larger financial institution.
The MBT Board of Directors held a special meeting on June 1, 2018, to evaluatefurther discuss its strategic options including a possible merger or other strategic combinationaffiliation with anothera larger financial institution to achieve economies of scale to absorb increased regulatory compliance costs and additional operating and regulatory costs.
To assist theinstitution. The MBT Board of Directors reviewed the challenges facing MBT in the market place including its review of strategic alternatives for Arlington Bank, Arlington Bank interviewed several investmentstrong market position in the Monroe, Michigan banking firms for consideration in providing assistancemarket necessitating the need to continue to extend geographically either through organic growth or growth by acquisitions and financial advice to Arlington Bank and its board of directors during a period from June through August, 2016. At a special meeting of themergers. In considering growth by acquisitions MBT’s Board of Directors considered the difficulty of Arlington Bank heldidentifying and successfully concluding the acquisitions of other financial institutions as well as the attendant risk of execution of that growth by acquisition strategy. Consideration was also given to the lack of strong loan demand in MBT’s existing markets. The increasing level of market competition in the financial service sector in the Monroe, Michigan market and the high level of competition in the adjacent metropolitan areas were also considered. Finally, the difficulty of adequately growing earnings in the current highly competitive marketplace and the high costs associated with complying with ever increasing governmental regulations, health care and technology needs were considered.
Based upon its prior relationships and the national reputations for investment banking services, at the direction of the MBT Board of Directors, Mr. Chaffin contacted Sandler O’Neill and Donnelly Penman & Partners (“Donnelly Penman”) to seek professional investment banking advice on September 12, 2016, management was authorized by the national and regional market conditions for financial institution mergers and acquisitions. On July 26, 2018, representatives of Sandler O’Neill and Donnelly Penman met separately with the MBT Board of Directors to retain Boenningdiscuss current market conditions for mergers and an agreement to retain Boenning was entered into between Arlington Bank and Boenning on September 28, 2016. The agreement with Boenning included issuance of a “fairness opinion” by Boenningacquisitions in the eventcommunity banking sector and to specifically discuss institutions that a potential sale, merger or other transaction was entered into by Arlington Bank.
During a discussion withmay have an interest in acquiring MBT. Representatives of Sandler O’Neill and Donnelly Penman also provided the Chairman, Vice Chairman and President of Arlington Bank, acting at the direction of Arlington Bank’sMBT Board of Directors Boenningwith market information regarding recent mergers in the financial services industry covering transactions occurring in the both the Midwest and nationally. Sandler O’Neill and Donnelly Penman separately identified a possible universe of financial institutions that could be potential candidates for a
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strategic transaction with Arlington Bank.MBT. Following that discussion, Boenningthose discussions, Mr. Chaffin was instructeddirected by the MBT Board of Directors to retain Sandler O’Neill and Donnelly Penman to assist MBT with the formal exploration of a possible combination of MBT with a larger financial institution. In order to efficiently and initially evaluate its options with regard to a possible strategic merger with a larger financial institution, the MBT Board of Directors on July 31, 2018, established a special committee comprised of the following directors; Mr. Carlton, Mr. Chaffin, Mr. Daly, Mr. Deutsch, Mr. Miller, Mr. Scavuzzo and Mr. Skibski (the “Special Committee”). The MBT Board of Directors on July 31, 2018 directed Sandler O’Neill to contact 16six financial institutions without naming Arlington Bank asto assess their current posture with respect to an acquisition and more specifically their interest in MBT. All of the institution under consideration. Of those initial 16six institutions, 13 candidates, including First Merchants, entered into confidentiality agreements and then obtainedduring the first week of August, 2018. Representatives of Sandler O’Neill discussed with each party the expected discovery process which was to include access over the coming weeks to a virtualconfidential data room containing extensive financial and operatingwith information on Arlington Bank. First Merchants executed a confidentiality agreement on October 14, 2016, and began its due diligence process. On Arlington Bank’s behalf, Boenning requestedregarding MBT to assist them in formulating their indications of interest. Representatives of Sandler O’Neill also indicated that all parties would be asked to provide written non-binding indications of interest fromduring the interested parties as they were proceeding with their due diligence review. Ofweek following the 13 candidates, five submitted official non-binding indications2018 Labor Day holiday weekend.
On or about August 15, 2018, First Merchants contacted Sandler O’Neill and indicated that First Merchants would be submitting a written indication of interest within the next several days and wanted to move forward with MBT on November 7, 2016. Those submitting indications of interest included First Merchants.
The Board of Directors heldan exclusive basis to negotiate a special meeting on November 9, 2016,definitive agreement to review the indications of interest with Boenning. Because the Board of Directors felt that the indications of interest submitted by two of the potential candidates presented the best alternatives for Arlington Bank and its shareholders, two potential candidates, includingcombine First Merchants were then selected from that group of five and invited to perform a more detailed and comprehensive due diligence process on Arlington Bank.
From December 2, 2016, to December 4, 2016, First Merchants conducted a comprehensive on-site due diligence review of Arlington Bank and made a presentation to the Arlington Bank’s Board of Directors. From December 9, 2016, to December 10, 2016, the other finalist performed on-site due diligence on Arlington Bank and made a presentation to the Arlington Bank’s Board of Directors.MBT. On December 13, 2016, the other finalist informed Boenning that it had elected not to proceed further after determining that the structure of Arlington Bank’s mortgage banking business would not be compatible with the candidate’s business model, making the chances for a successful transaction at the anticipated strong valuation level less likely.
On December 19, 2016,August 17, 2018, First Merchants submitted a revisedwritten indication of interest, which provided that included two proposals:
MBT’s Special Committee met on August 19, 2018. Representatives of Shumaker, Loop & Kendrick, LLP, counsel to MBT and representatives of Sandler O’Neill attended the meeting. Sandler O’Neill informed the MBT Special Committee that one of the six parties had withdrawn from the process shortly after execution of the confidentiality agreement in cash, equating to $93.00 per share or approximately $70.956 million in aggregate consideration based on First Merchants’ closing price on December 16, 2016, of $35.97. That proposal would result in an approximate 72% stock and 28% cash split, based onearly August after determining it had no further interest. The MBT Special Committee members then reviewed with Sandler O’Neill the First Merchants August 17, 2018, indication of interest and discussed its response, which included negotiating various terms of the letter and adding other key terms. Thereafter, at the direction of the MBT Special Committee, Representatives of Sandler O’Neill contacted First Merchants on August 20, 2018, and indicated that the offer was not sufficiently compelling to grant First Merchants exclusivity. Representatives of Sandler O’Neill were also directed by the MBT Special Committee to contact the other four interested parties and communicate that MBT had been approached by a party with a potentially preemptive bid and therefore the exploration process would need to be adjusted. Representatives of Sandler O’Neill contacted the other remaining parties and instructed each party to make certain baseline financial assumptions and determine whether they would be in a position to be competitive at or above a pricing level in the mid $13.00 per MBT share area. Representatives of Sandler O’Neill asked that these parties provide a response within the next several days.
The MBT Special Committee met on August 23, 2018. Representatives of Shumaker, Loop & Kendrick, LLP, counsel to MBT and representatives of Sandler O’Neill attended the meeting. Sandler O’Neill presented to the MBT Special Committee the results of their conversations with the four remaining interested parties other than First Merchants. One of the parties indicated to Sandler O’Neill that consistent with its disclosure at the time it executed a confidentiality agreement, it had another potential acquisition transaction that could take a priority over its interest in MBT. Sandler O’Neill indicated to the MBT Special Committee that the other potential transaction was in fact moving forward, and as a result, the interested party withdrew. Two of the other parties indicated that the pricing level indicated by Sandler O’Neill was above their pricing capacity and withdrew. The final interested party submitted an oral indication of interest followed by an emailed indication of interest on August 23, 2018, with a 100% stock priceoffer and an implied pricing level at that time.
A special meetingOn August 25, 2018, all of the members of the Board of Directors of Arlington Bank was held on December 21, 2016, with representatives of Boenning present in person and telephonically, and with a representativeMBT met to receive an update from the law firmMBT Special Committee and to review a revised indication of Vorys, Sater, Seymourinterest received from First Merchants dated August 25, 2018. Representatives of Shumaker, Loop & Kendrick, LLP, counsel to MBT and Pease LLP (“Vorys”), legal counselrepresentatives of
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Sandler O’Neill attended the meeting. Representatives of Sandler O’Neill gave an overview of the process that had occurred since the beginning of August 2018 to the full MBT Board of Directors. Sandler O’Neill also reviewed the terms of the revised indication of interest received from First Merchants. The revised indication of interest proposed an all-stock transaction in which shareholders of MBT would receive 0.2800 shares of First Merchants for Arlington Bank, also present in person. Theeach share of MBT which based on the most recent closing price of First Merchants equated to $13.59 per MBT share at that time. Sandler O’Neill provided the MBT Board of Directors with detailed financial information regarding the proposed merger including a comprehensive pro-forma merger analysis. Other recent merger transactions were reviewed with the two proposals fromMBT Board of Directors and compared to the proposed transaction. The members of the MBT Board of Directors then discussed and considered the revised indication of interest and at the conclusion of that discussion unanimously resolved to approve and execute the First Merchants in detail with extensive discussion regarding the historyindication of First Merchants and its stock performance, pro-forma analysis of the combined companies and opportunities as well as risks for Arlington Bank shareholders under both proposals.interest letter.
After extensive discussion of the two First Merchants proposals, after considering the potential benefits and potential adverse consequences of both proposals from First Merchants,On August 27, 2018 the Board of Directors electedof MBT formally engaged Sandler O’Neill and Donnelly Penman to proceedprovide financial advisory services in connection with the all-stock proposal. Boenning, Vorys and managementa possible sale of Arlington Bank were directed by the Board of Directors to proceed to negotiate a definitive agreement withMBT. From August 26, 2018 until September 27, 2018, First Merchants consistent with the termsconducted a due diligence review of the all-stock proposal contained in the letter of intent submitted by First Merchants.
On January 3, 2017,MBT and on September 6, 2018, the law firm of Bingham Greenebaum Doll LLP, legal counsel for First Merchants, presented a draft Agreement and Plan of Reorganization and Merger Agreement(the “Merger Agreement”) to Arlington Bank and Vorys.
During the period from January 3, 2017, through January 24, 2017, theMBT’s legal counsel, Shumaker, Loop & Kendrick, LLP. The parties and their legal counsel exchanged comments and negotiated changes to the draft Merger Agreement. During this time, management of the parties continued discussions and additionalperformed due diligence was performed.diligence. The parties also provided drafts of their respective disclosure letters to the Merger Agreement and discussed other aspects of the proposed transaction and merger integration issues.
On September 27, 2018, the evening of January 24, 2017, theMBT Board of Directors of Arlington Bank held a special meeting to discuss the draft Merger Agreement and related issues. All directors had been provided a copy of the Merger Agreement several days prior to the meeting. Also present in addition toat the directorsmeeting were representatives of BoenningSandler O’Neill and Vorys. Vorys representativesShumaker, Loop & Kendrick, LLP. Shumaker, Loop & Kendrick, LLP, discussed the purpose for the meeting and the legal standards and responsibilities of the directors with regard to matters before them. A Boenning representativethem and provided a comprehensive review of all of the material terms of the terms of the Merger Agreement. Representatives of Sandler O’Neill reviewed with the MBT Board of Directors the background of the process which had been undertaken to that point and presented a comprehensive financial analysis of First Merchants and of the proposed Merger Consideration. BoenningRepresentatives of Sandler O’Neill indicated to the MBT Board of Directors that while substantial due diligence had been completed by the parties, several more days were likely necessary to complete due diligence. Shumaker, Loop & Kendrick, LLP indicated that the Merger Agreement was substantially complete and only minor changes were likely required.
After the September meeting of the MBT Board of Directors, MBT and its representatives conducted a limited scope reverse due diligence of First Merchants. The MBT Board of Directors met again on October 5, 2018, to further discuss the transaction and receive an update on the due diligence progress. Representatives of Sandler O’Neill provided an overview of the due diligence process and indicated that First Merchants contacted them to discuss those results. First Merchants had determined that as a result of its due diligence a small adjustment in the exchange ratio proposed in its indication of interest dated August 25, 2018, was determined necessary, and First Merchants revised the proposed exchange ratio from 0.2800 to 0.2750. Representatives of Sandler O’Neill reviewed the revised proposal with the MBT Board of Directors, and the MBT Board of Directors discussed the matter. At the conclusion of the meeting, Sandler O’Neill was directed by the MBT Board of Directors to communicate to First Merchants that MBT would accept the revised exchange ratio. The MBT Board of Directors determined to meet again on October 8, 2018 for the purpose of its final consideration of the final Merger Agreement.
The MBT Board of Directors met on October 8, 2018, to consider the final Merger Agreement. Sandler O’Neill then delivered to the MBT Board of Directors an oral opinion, which was subsequently confirmed in writing on October 9, 2018, to the effect that, based on and subject to the assumptions, limitations, qualifications and conditions set forth in Boenning’sSandler O’Neill’s written opinion, as of thesuch date of the special meeting the Exchange Ratio to be received in the Merger by the holders of Arlington Bank common shares was fair, from a financial point of view, to such holders. Vorysholders of MBT common stock. Shumaker, Loop & Kendrick, LLP attorneys then requested and received confirmation from the directorsMBT Board of Directors that each of the directors present had reviewed the draft Merger Agreement, resolutions and other ancillary material provided to the directors prior to the special meeting and addressed questions.meeting. The VorysShumaker, Loop & Kendrick, LLP attorneys also reiterated that the directors would be need to sign voting agreements, which would require them to vote their shares in favor of the Merger.
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Thereafter, the board received andMBT Board of Directors considered resolutions concerning the transaction. The membersMBT Board of the board unanimouslyDirectors then approved the Merger Agreement and transactions set forth therein and authorized Mr. James DeRobertsChaffin to execute and deliver the Merger Agreement and take the other actions necessary to effect the transaction.
Arlington BankMBT and First Merchants executed the Merger Agreement on October 9, 2018 and announced the transaction on January 25, 2017.October 10, 2018.
First Merchants’ Reasons for the Merger
In reaching its decision to adopt and approve the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, the First Merchants Board of Directors consulted with First Merchants management and considered a number of factors, including the following material factors:
The foregoing discussion of the information and factors considered by the First Merchants Board of Directors is not intended to be exhaustive, but includes the material factors considered by the First Merchants Board of Directors. In reaching its decision to approve and adopt the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, the First Merchants 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 First Merchants Board of Directors considered all these factors as a whole, including discussions with, and questioning of, First Merchants’ management and First Merchants’ financial and legal advisors, and overall considered the factors to be favorable to, and to support, its determination.
For the reasons set forth above, the First Merchants Board of Directors unanimously determined that the Merger Agreement and the transactions contemplated by the Merger Agreement are advisable and in the best interests of First Merchants and its shareholders, and unanimously approved and adopted the Merger Agreement.
Arlington Bank’sMBT’s Reasons for the Merger
In reaching its decision to adopt and approve the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, and to recommend that its shareholders approve the Merger Agreement, Arlington Bank’s
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MBT’s Board of Directors consulted with Arlington BankMBT management, as well as its financial and legal advisors, and considered a number of factors, including the following material factors:
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The foregoing discussion of the information and factors considered by the Arlington BankMBT Board of Directors is not intended to be exhaustive, but includes the material factors considered by the Arlington BankMBT Board of Directors. In reaching its decision to approve and adopt the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, the Arlington BankMBT 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 Arlington BankMBT Board of Directors considered all these factors as a whole, including discussions with, and questioning of, Arlington Bank’sMBT’s management and Arlington Bank’sMBT’s financial and legal advisors, and overall considered the factors to be favorable to, and to support, its determination.
The Board of Directors of Arlington Bank unanimouslyMBT approved the Merger Agreement and recommends that Arlington Bank’sMBT’s shareholders vote“FOR” the approval of the Merger Proposal, “FOR” the Merger-Related Compensation Proposal, and“FOR” the Adjournment Proposal. Arlington BankMBT shareholders should be aware that Arlington Bank’sMBT’s directors and executive officers have interests in the Merger that are different from, or in addition to, those of other Arlington BankMBT shareholders. The Board of Directors of Arlington BankMBT was aware of and considered these interests, among other matters, in evaluating and negotiating the Merger Agreement, and in recommending that the Merger Proposal be approved by the shareholders of Arlington Bank.MBT. See “THE MERGER—Interests of Certain Persons in the Merger.”
This summary of the reasoning of the Board of Directors of Arlington BankMBT and other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed under the heading “FORWARD-LOOKING STATEMENTS.”
Opinion of Boenning & Scattergood, Inc.MBT’s Financial Advisor
Boenning & Scattergood, Inc. (“Boenning”) is actingMBT retained Sandler O’Neill to act as financial advisor to Arlington BankMBT’s Board of Directors in connection with the Merger. BoenningMBT’s consideration of a possible business combination. MBT selected Sandler O’Neill as its financial advisor because Sandler O’Neill is a registered broker-dealer providingnationally recognized investment banking services with substantial expertise in transactions similar tofirm whose principal business specialty is financial institutions. In the Merger. As partordinary course of its investment banking activities, Boenningbusiness, Sandler O’Neill is regularly engaged in the valuation of businessesfinancial institutions and their securities in connection with mergers acquisitions, underwritings, private placements and valuations for estate, corporateacquisitions and other purposes.corporate transactions.
On January 24, 2017, Boenning renderedSandler O’Neill acted as financial advisor to MBT in connection with the proposed Merger and participated in certain of the negotiations leading to the execution of the Merger Agreement. At the October 8, 2018 meeting at which MBT’s Board of Directors considered the Merger and the Merger Agreement, Sandler O’Neill delivered to the Board of Directors of MBT its oral opinion, which was subsequently confirmed in writing on October 9, 2018, to the Arlington Bank board of directorseffect that, as of such date, and subject to the assumptions made, matters considered and limitations of the review undertaken by Boenning, the Exchange Ratio was fair to be received by the holders of Arlington Bank’sMBT common stock pursuant to the Merger Agreement was fair, from a financial point of view, to such holders.view.
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The full text of Boenning’s writtenSandler O’Neill’s opinion dated January 24, 2017, which sets forth the assumptions made, matters considered and limitations of the review undertaken, is attached as Annex CB to this proxy statement and prospectus and is incorporated herein by reference. You are urged to, and should, read this opinion carefully and in its entirety in connection with this proxy statement and prospectus. The summaryopinion outlines the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Sandler O’Neill in rendering its opinion. The description of Boenning’sthe opinion set forth in this proxy statement and prospectusbelow is qualified in its entirety by reference to the full text of the opinion. Boenning’sHolders of MBT common stock are urged to read the entire opinion carefully in connection with their consideration of the proposed Merger.
Sandler O’Neill’s opinion speaks only as of the date of the opinion. The opinion was directed to MBT’s Board of Directors in connection with its consideration of the Merger Agreement and the Merger and does not reflectconstitute a recommendation to any developments that may occur or may have occurred aftershareholder of MBT as to how such shareholder should vote at any meeting of shareholders called to consider and vote upon the dateapproval of itsthe Merger. Sandler O’Neill’s opinion and priorwas directed only to the completionfairness, from a financial point of view, of the Merger.
No limitations were imposed by Arlington Bank onExchange Ratio to the scopeholders of Boenning’s investigation or the procedures to be followed by Boenning in rendering its opinion. Boenning was not requested to,MBT common stock and did not makeaddress the underlying business decision of MBT to engage in the Merger, the form or structure of the Merger or the other transactions contemplated in the Merger Agreement, the relative merits of the Merger as compared to any recommendation toother alternative transactions or business strategies that might exist for MBT or the Arlington Bank boardeffect of directorsany other transaction in which MBT might engage.
Sandler O’Neill also did not express any opinion as to the form or amount of the considerationcompensation to be
paid received in the Merger by any MBT or First Merchants officer, director, or employee, or class of such persons, if any, relative to the Arlington Bank stockholders, whichamount of compensation to be received by any other shareholder. Sandler O’Neill’s opinion was determined through arm’s length negotiations between the parties. In arriving at itsapproved by Sandler O’Neill’s fairness opinion Boenning did not ascribe a specific range of values to Arlington Bank. Its opinion is based on the financial and comparative analyses described below.committee.
In connection with its opinion, Boenning,Sandler O’Neill reviewed and considered, among other things:
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Sandler O’Neill also discussed with certain members of senior management of MBT the business, financial condition, results of operations and prospects of MBT and held similar discussions with certain members of senior management of First Merchants and Arlington Bank;
Boenning’s opinion was given in reliance on information and representations made or given by First Merchants and Arlington Bank, and their respective officers, directors, auditors, counsel and other agents, and on filings, releases and other information issued by each of First Merchants and Arlington Bank including financial statements, financial projections, and stock price data as well as certain information from recognized independent sources. Boenning did not independently verify the information concerning First Merchants or Arlington Bank nor any other data Boenning considered inIn performing its review, and, for purposes of its opinion, Boenning assumed andSandler O’Neill relied upon the accuracy and completeness of all such information and data. Boenning assumed that all forecasts and projections provided to it had been reasonably prepared and reflected the best currently available estimates and good faith judgments of the respective management teams of First Merchants and Arlington Bank as to their most likely future financial performance. Boenning expressed no opinion as to any financial projections or the assumptions on which they were based. Boenning did not conduct any valuation or appraisal of any assets or liabilities of First Merchants or Arlington Bank, nor have any such valuations or appraisals been provided to Boenning. Additionally, Boenning assumed that the Merger is, in all respects, lawful under applicable law.
With respect to anticipated transaction costs, purchase accounting adjustments, expected cost savings and other synergies and financial and other information relatingthat was available to the general prospects ofand reviewed by Sandler O’Neill from public sources, that was provided to Sandler O’Neill by MBT or First Merchants, or their respective representatives, or that was otherwise reviewed by Sandler O’Neill and Arlington Bank, BoenningSandler O’Neill assumed that such information had been reasonably preparedaccuracy and reflected the best currently available estimates and good faith judgmentscompleteness for purposes of the respective management teams of First Merchants and Arlington Bank as to their most likely future performance. Boenningrendering its opinion without any independent verification or investigation. Sandler O’Neill further relied on the assurances of the respective management teamssenior managements of MBT and First Merchants and Arlington Bank that they were not aware of any facts or circumstances that would make any of such information inaccurate or misleading. BoenningSandler O’Neill was not asked to undertake, and did not undertake, an independent verification of any of such information, and BoenningSandler O’Neill did not assume any responsibility or liability for the accuracy or completeness thereof. Boenning assumed thatSandler O’Neill did not make an independent evaluation or perform an appraisal of the specific assets, the collateral securing assets or the liabilities (contingent or otherwise) of MBT or First Merchants, or any of their respective subsidiaries, and Sandler O’Neill was not furnished with any evaluations or appraisals prepared by others. Sandler O’Neill rendered no opinion or evaluation on the collectability of any assets or the future performance of any loans of MBT or First Merchants or any of their respective subsidiaries. Sandler O’Neill did not make an independent evaluation of the adequacy of the allowance for loan losses indicated on the balance sheet of each ofMBT or First Merchants, or the combined entity after the Merger, and Arlington Bank wasdid not review any individual credit files relating to MBT or First Merchants or any of their respective subsidiaries. Sandler O’Neill assumed, with MBT’s consent, that the respective allowances for loan losses for both MBT and First Merchants were adequate to cover such losses; Boenning did not review individual loans or credit fileslosses and would be adequate on a pro forma basis for the combined entity.
In preparing its analyses, Sandler O’Neill used publicly available consensus median analyst earnings per share estimates for MBT for the years ending December 31, 2018 through December 31, 2020, as well as a long-term earnings per share growth rate for the years thereafter and dividends per share for the years ending December 31, 2018 through December 31, 2022, as provided by the senior management of MBT. In addition, in preparing its analyses Sandler O’Neill used publicly available consensus median analyst earnings per share estimates for First Merchants for the years ending December 31, 2018 through December 31, 2020, as well as a long-term earnings per share growth rate for the years thereafter and dividends per share for the years ending December 31, 2018 through December 31, 2020 with an estimated dividend payout ratio for the years thereafter, as provided by the senior management of First Merchants. Sandler O’Neill also received and used in its pro forma analyses certain assumptions relating to transaction expenses, purchase accounting adjustments and cost savings, as provided by the senior management of First Merchants. With respect to the foregoing information, the respective senior managements of MBT and First Merchants confirmed to Sandler O’Neill that such information reflected (or, in the case of the publicly available median analyst estimates referred to above, were consistent with) the best currently available projections, estimates and Arlington Bank. Boenningjudgment of those respective senior managements as to the future financial performance of MBT and First Merchants, respectively, and the other matters covered thereby, and Sandler O’Neill assumed that the future financial performance reflected in such information would be achieved. Sandler O’Neill expressed no opinion as to such information, or the assumptions on which such information was based. Sandler O’Neill also assumed that there had been no material change in MBT’s or First Merchants’ assets, financial condition, results of operations, business or prospects since the date of the most recent financial statements made available to Sandler O’Neill. Sandler O’Neill assumed in all respects material to its analysis that MBT and First Merchants would remain as going concerns for all periods relevant to its analyses.
Sandler O’Neill also assumed, with MBT’s consent, that (i) each of the parties to the Merger Agreement would comply in all material respects with all material terms and conditions of the Merger Agreement and all related agreements, that all of the representations and warranties contained in the Merger Agreement and all related
such agreements were true and correct in all material respects, that each party under the parties to such agreements willwould perform in all material respects all of the covenants and other obligations required to be performed by such party under thesuch agreements and that the conditions precedent in thesuch agreements were and would not waived. Also, in rendering its opinion, Boenning assumed thatbe waived, (ii) in the course of obtaining the necessary regulatory or third party approvals, forconsents and releases with respect to the consummationMerger, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on MBT, First Merchants or the benefits contemplated by the Merger or any related transactions, and (iii) the Merger and any related
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transactions would be consummated in accordance with the terms of the Merger no conditions will be imposedAgreement without any waiver, modification or amendment of any material term, condition or agreement thereof and in compliance with all applicable laws and other requirements. With MBT’s consent, Sandler O’Neill relied upon the advice that will have a material adverse effect on the combined entity or contemplated benefits ofMBT received from its legal, accounting and tax advisors as to all legal, accounting and tax matters relating to the Merger includingand the cost savings and related expenses expected to result from the Merger.
Boenning’s opinion is based upon information provided to itother transactions contemplated by the respective management teams of First MerchantsMerger Agreement. Sandler O’Neill expressed no opinion as to any such matters.
Sandler O’Neill’s analyses and Arlington Bank, as well asopinion were necessarily based on financial, regulatory, economic, market economic, financial and other conditions as they existedin effect on, and could be evaluated onlythe information made available to Sandler O’Neill as of, the date of its opinion. Events occurring after the date of the opinion and accordingly, it speakscould materially affect Sandler O’Neill’s opinion. Sandler O’Neill has not undertaken to no other period. Boenning did not undertake toupdate, revise, reaffirm or revisewithdraw its opinion or otherwise comment onupon events occurring after the date of itsthereof. Sandler O’Neill expressed no opinion and did not have an obligation to update, revise or reaffirm its opinion. Boenning’s opinion does not address the relative merits of the Merger or the other business strategies that Arlington Bank’s board of directors has considered or may be considering, nor does it address the underlying business decision of Arlington Bank’s board of directors to proceed with the Merger. Boenning’s opinion is for the information of Arlington Bank’s board of directors in connection with its evaluation of the Merger and does not constitute a recommendationas to the boardtrading values of directorsMBT common stock or First Merchants common stock at any time or what the value of Arlington Bank in connection withFirst Merchants common stock would be once it is actually received by the Merger or a recommendation to any shareholderholders of Arlington Bank as to how such shareholder should vote or act with respect to the Merger.MBT common stock.
In connection with rendering its opinion, BoenningSandler O’Neill performed a variety of financial analyses that are summarized below. Thisanalyses. The summary doesbelow is not purport to be a complete description of such analyses. Boenning believes that itsall the analyses underlying Sandler O’Neill’s opinion or the presentation made by Sandler O’Neill to MBT’s board of directors, but is a summary of the material analyses performed and presented by Sandler O’Neill. The summary includes information presented in tabular format. In order to fully understand the summary set forth hereinfinancial analyses, these tables must be considered asread together with the accompanying text. The tables alone do not constitute a whole and that selecting portions of such analyses and the factors considered therein, without considering all factors and analyses, could create an incomplete viewcomplete description of the analyses and processes underlying its opinion.financial analyses. The preparation of a fairness opinion is a complex process involving subjective judgments as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. The process, therefore, is not necessarily susceptible to a partial analysis or summary description. In arriving atSandler O’Neill believes that its opinion, Boenninganalyses must be considered the results of all of its analyses as a whole and did not attribute any particular weightthat selecting portions of the factors and analyses to anybe considered without considering all factors and analyses, or attempting to ascribe relative weights to some or all such factors considered by it. The range of valuations resulting from any particular analysis described below should not be taken to be Boenning’sand analyses, could create an incomplete view of the actual value of Arlington Bank.
Inevaluation process underlying its opinion. Also, no company included in Sandler O’Neill’s comparative analyses Boenning made numerous assumptions with respect to industry performance, business and economic conditions, and other matters, many of which are beyond the control of Arlington Bank or First Merchants. Any estimates contained in Boenning’s analyses are not necessarily indicative of actual future values or results, which may be significantly more or less favorable than suggested by such estimates. Estimates of values of companies do not purport to be appraisals or necessarily reflect the actual prices at which companies or their securities actually may be sold. No company or transaction utilized in Boenning’s analyses wasdescribed below is identical to Arlington BankMBT or First Merchants orand no transaction is identical to the Merger. Accordingly, an analysis of the results described below is not mathematical; rather, itcomparable companies or transactions involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factsfactors that could affect the public trading valuevalues or Merger transaction values, as the case may be, of MBT and First Merchants and the companies to which they are beingwere compared. None of the analyses performed by Boenning was assigned a greater significance by Boenning than any other, nor does the order of analyses described represent relative importance or weight given to those analyses by Boenning. The analyses described below do not purport to be indicative of actual future results, or to reflect the pricesIn arriving at which Arlington Bank’s common stock or First Merchants’ common stock may trade in the public markets, which may vary depending upon various factors, including changes in interest rates, dividend rates, market conditions, economic conditions and other factors that influence the price of securities.
In accordance with customary investment banking practice, Boenning employed generally accepted valuation methods in reaching its opinion. The following is a summary of the material financial analyses that Boenning used in providing its opinion, on January 24, 2017. Some ofSandler O’Neill did not attribute any particular weight to any analysis or factor that it considered. Rather, Sandler O’Neill made qualitative judgments as to the summaries of financial analyses are presented in tabular format. In order to understand the financial analyses used by Boenning more fully, you should read the tables together with the textsignificance and relevance of each summary. The tables alone doanalysis and factor. Sandler O’Neill did not constitute a complete
description of Boenning’s financial analyses, including the methodologies and assumptions underlying the analyses, and if viewedform an opinion as to whether any individual analysis or factor (positive or negative) considered in isolation could create a misleadingsupported or incomplete view of the financial analyses performed by Boenning. The summary data set forth below do not represent and should not be viewed by anyone as constituting conclusions reached by Boenning with respectfailed to any of the analyses performed by it in connection withsupport its opinion. Rather, Boenningopinion, rather, Sandler O’Neill made its determination as to the fairness of the Merger Consideration to the holders of Arlington Bank’sMBT common stock of the Exchange Ratio, from a financial point of view, on the basis of its experience and professional judgment after considering the results of all of theits analyses performed. Accordingly, the data included in the summary tables and the corresponding imputed ranges of value for Arlington Bank should be consideredtaken as a wholewhole.
In performing its analyses, Sandler O’Neill also made numerous assumptions with respect to industry performance, business and ineconomic conditions and various other matters, many of which cannot be predicted and are beyond the contextcontrol of the full narrative description of all of the financial analyses set forth in the following pages, including the assumptions underlying these analyses. Considering the data included in the summary table without considering the full narrative description of all of the financial analyses, including the assumptions underlying these analyses, could create a misleading or incomplete view of the financialMBT, First Merchants, and Sandler O’Neill. The analyses performed by Boenning.
In connection withSandler O’Neill are not necessarily indicative of actual values or future results, both of which may be significantly more or less favorable than suggested by such analyses. Sandler O’Neill prepared its analyses solely for purposes of rendering its opinion and based uponprovided such analyses to MBT’s Board of Directors at its October 8, 2018 meeting. Estimates on the values of companies do not purport to be appraisals or necessarily reflect the prices at which companies or their securities may actually be sold. Such estimates are inherently subject to uncertainty and actual values may be materially different. Accordingly, Sandler O’Neill’s analyses do not necessarily reflect the value of MBT common stock or First Merchants common stock or the prices at which MBT or First Merchants common stock may be sold at any time. The analyses of Sandler O’Neill and its opinion were among a number of factors taken into consideration by MBT’s board of directors in making its determination to approve the Merger Agreement and the analyses described below should not be viewed as determinative of the decision of MBT’s Board of Directors with respect to the fairness of the Merger.
Summary of Proposed Merger Consideration and Implied Transaction Metrics. Sandler O’Neill reviewed the financial terms of the draft Agreementproposed transaction. Sandler O’Neill calculated an implied purchase price per share of $12.45, or an aggregate implied transaction value of approximately $288.0 million, consisting of the implied
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value of 0.2750 shares of First Merchants common stock based on the closing price of First Merchants common stock on October 5, 2018. Based upon financial information for MBT as of or for the most recent available completed quarter (“MRQ”) ended June 30, 2018, the publicly available consensus median analyst 2018 and Plan2019 earnings per share estimates for MBT and the closing price of ReorganizationMBT common stock on October 5, 2018, Sandler O’Neill calculated the following implied transaction metrics:
Purchase Price Per Share / LTM EPS | 23.1 | x | |
Purchase Price Per Share / YTD EPS Annualized(1) | 16.4 | x | |
Purchase Price Per Share / 2018 Estimated EPS(2) | 15.7 | x | |
Purchase Price Per Share / 2019 Estimated EPS(2) | 14.7 | x | |
Purchase Price Per Share / June 30, 2018 Book Value Per Share | 238 | % | |
Purchase Price Per Share / June 30, 2018 Tangible Book Value Per Share | 238 | % | |
Tangible Book Premium / Core Deposits(3) (“Core Deposit Premium”) | 15.2 | % | |
Market Premium as of October 5, 2018 | 9.7 | % | |
Market Premium based on FRME’s ($46.72) & MBTF’s ($11.29) 20-Day VWAP’s | 13.8 | % |
| (1) | June 2018 YTD earnings per common share as reported by MBT Financial Corp. annualized. |
| (2) | Based on median consensus analyst earnings per share estimates. |
| (3) | Core Deposits defined as deposits less time deposits with a balance of at least $100,000. |
Stock Trading History. Sandler O’Neill reviewed the historical publicly reported trading prices of MBT common stock and MergerFirst Merchants common stock for the three-year period ended October 5, 2018. Sandler O’Neill then compared the relationship between the movements in the price of MBT common stock and First Merchants common stock, respectively, to movements in their respective peer groups (as described below) as well as certain stock indices.
MBT’s Three-Year Stock Performance
Beginning Value October 5, 2015 | Ending Value October 5, 2018 | |||||
MBT | 100 | % | 180.7 | % | ||
SNL U.S. Bank Index | 100 | % | 147.6 | % | ||
MBT Peer Group | 100 | % | 152.0 | % | ||
First Merchants’ Three-Year Stock Performance
Beginning Value October 5, 2015 | Ending Value October 5, 2018 | |||||
First Merchants | 100 | % | 173.5 | % | ||
SNL U.S. Bank Index | 100 | % | 147.6 | % | ||
First Merchants Peer Group | 100 | % | 147.8 | % | ||
Comparable Company Analyses. Sandler O’Neill used publicly available information to compare selected financial information for MBT with a group of financial institutions selected by Sandler O’Neill. The MBT peer group included 16 United States-based banks headquartered in the continental 48 states with securities publicly traded on major United States exchanges and assets between $1.0 billion and $2.0 billion, but excluded targets of announced merger transactions and the companies Farmers & Merchants Bancorp, Inc. & Waterstone Financial, Inc. (the “MBT Peer Group”). The MBT Peer Group consisted of the following companies:
First Business Financial Services, Inc. | Hawthorn Bancshares, Inc. |
Southern Missouri Bancorp, Inc. | Ames National Corporation |
Macatawa Bank Corporation | Level One Bancorp, Inc. |
Bridgewater Bancshares, Inc. | Mackinac Financial Corporation |
LCNB Corp. | Middlefield Banc Corp. |
BankFinancial Corporation | Limestone Bancorp, Inc. |
Civista Bancshares, Inc. | First Savings Financial Group, Inc. |
County Bancorp, Inc. | Ohio Valley Banc Corp. |
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The analysis compared publicly available financial information for MBT with corresponding data for the MBT Peer Group as of or for the twelve months ended June 30, 2018 with pricing data as of October 5, 2018. The table below sets forth the data for MBT and the high, low, mean, and median data for the MBT Peer Group. Certain financial data prepared by Sandler O’Neill, as referenced in the table presented below, may not correspond to the data presented in MBT’s historical financial statements, as a result of the different periods, assumptions and methods used by Sander O’Neill to compute the financial data presented.
MBT Comparable Company Analysis
MBT | Peer Group High | Peer Group Low | Peer Group Mean | Peer Group Median | |||||||||||
Total Assets ($ millions) | 1,322 | 1,900 | 1,025 | 1,460 | 1,484 | ||||||||||
Loans / Deposits | 64.6 | % | 119.2 | % | 68.7 | % | 94.6 | % | 97.9 | % | |||||
Non-Performing Assets(1) / Total Assets | 0.28 | % | 2.30 | % | 0.05 | % | 0.74 | % | 0.64 | % | |||||
Tangible Common Equity / Tangible Assets | 9.1 | % | 12.4 | % | 6.4 | % | 9.7 | % | 9.7 | % | |||||
Tier 1 Risk Based Capital Ratio | 14.8 | % | 16.6 | % | 9.3 | % | 12.9 | % | 12.2 | % | |||||
Total Risk Based Capital Ratio | 15.7 | % | 17.8 | % | 11.8 | % | 14.4 | % | 14.0 | % | |||||
CRE / Total Risk Based Capital Ratio | 132 | % | 412 | % | 102 | % | 266 | % | 260 | % | |||||
YTD Return on Average Assets (“ROAA”) | 1.34 | % | 1.52 | % | 0.37 | % | 1.04 | % | 1.10 | % | |||||
YTD Return on Average Tangible Common Equity (“ROATCE”) | 14.6 | % | 14.8 | % | 5.2 | % | 11.2 | % | 11.7 | % | |||||
YTD Net Interest Margin | 3.55 | % | 4.37 | % | 2.91 | % | 3.68 | % | 3.74 | % | |||||
YTD Efficiency Ratio | 64.6 | % | 76.3 | % | 40.0 | % | 63.2 | % | 64.9 | % | |||||
Stock Price / Tangible Book Value | 217 | % | 215 | % | 121 | % | 159 | % | 162 | % | |||||
Stock Price / YTD Annualized Earnings Per Share(2) | 14.9 | x | 29.6 | x | 11.0 | x | 15.5 | x | 14.5 | x | |||||
Stock Price / Mean Consensus Analyst 2018E Earnings Per Share | 14.2 | x | 19.5 | x | 11.6 | x | 14.5 | x | 14.3 | x | |||||
Stock Price / Mean Consensus Analyst 2019E Earnings Per Share | 13.4 | x | 16.3 | x | 10.6 | x | 12.4 | x | 12.2 | x | |||||
Current Dividend Yield | 3.5 | % | 3.5 | % | 0.0 | % | 1.8 | % | 1.9 | % | |||||
Market Capitalization ($ millions) | 261 | 390 | 97 | 225 | 206 | ||||||||||
| (1) | Excludes restructured loans. |
| (2) | June 2018 YTD earnings per common share annualized. |
Sandler O’Neill used publicly available information to perform a similar analysis for First Merchants by comparing selected financial information for First Merchants with a group of financial institutions selected by Sandler O’Neill. The First Merchants peer group included 13 United States-based banks with securities publicly traded on major United States exchanges and assets between $5.0 billion and $20.0 billion (the “First Merchants Peer Group”). The First Merchants Peer Group consisted of the following companies:
Flagstar Bancorp, Inc. | First Busey Corporation |
Old National Bancorp | Park National Corporation |
First Midwest Bancorp, Inc. | 1st Source Corporation |
First Financial Bancorp. | Midland States Bancorp, Inc. |
Great Western Bancorp, Inc. | Enterprise Financial Services Corp. |
Heartland Financial USA, Inc. | Republic Bancorp, Inc. |
Capitol Federal Financial, Inc. |
The analysis compared publicly available financial information for First Merchants with corresponding data for the First Merchants Peer Group as of or for the twelve months ended June 30, 2018 with pricing data as of October 5, 2018. The table below sets forth the data for First Merchants and the high, low, mean, and median data for the First Merchants Peer Group. Certain financial data prepared by Sandler O’Neill, as referenced in the table presented below, may not correspond to the data presented in First Merchants’ historical financial statements, as a result of the different periods, assumptions and methods used by Sander O’Neill to compute the financial data presented.
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First Merchants Comparable Company Analysis
First Merchants | Peer Group High | Peer Group Low | Peer Group Mean | Peer Group Median | |||||||||||
Total Assets ($ millions) | 9,735 | 18,130 | 5,266 | 10,367 | 9,049 | ||||||||||
Loans / Deposits | 94.4 | % | 136.2 | % | 78.8 | % | 97.3 | % | 94.7 | % | |||||
Non-Performing Assets(1) / Total Assets | 0.30 | % | 1.16 | % | 0.14 | % | 0.53 | % | 0.45 | % | |||||
Tangible Common Equity / Tangible Assets | 9.4 | % | 14.8 | % | 7.0 | % | 9.2 | % | 8.4 | % | |||||
Tier 1 Risk Based Capital Ratio | 12.0 | % | 30.0 | % | 9.8 | % | 13.4 | % | 11.8 | % | |||||
Total Risk Based Capital Ratio | 13.8 | % | 30.2 | % | 11.9 | % | 14.8 | % | 13.4 | % | |||||
CRE / Total Risk Based Capital Ratio | 218 | % | 238 | % | 22 | % | 161 | % | 188 | % | |||||
YTD Return on Average Assets | 1.60 | % | 1.67 | % | 0.56 | % | 1.18 | % | 1.17 | % | |||||
YTD Return on Average Tangible Common Equity | 18.7 | % | 20.4 | % | 7.6 | % | 13.7 | % | 13.6 | % | |||||
YTD Net Interest Margin | 3.96 | % | 4.85 | % | 1.87 | % | 3.65 | % | 3.78 | % | |||||
YTD Efficiency Ratio | 50.4 | % | 76.9 | % | 42.2 | % | 57.3 | % | 57.3 | % | |||||
Stock Price / Tangible Book Value | 257 | % | 269 | % | 123 | % | 211 | % | 229 | % | |||||
Stock Price / YTD Annualized Earnings Per Share(2) | 14.7 | x | 24.8 | x | 10.4 | x | 15.6 | x | 16.1 | x | |||||
Stock Price / Mean Consensus Analyst 2018E Earnings Per Share | 14.3 | x | 17.4 | x | 9.9 | x | 15.0 | x | 15.4 | x | |||||
Stock Price / Mean Consensus Analyst 2019E Earnings Per Share | 13.2 | x | 16.2 | x | 8.6 | x | 12.9 | x | 13.2 | x | |||||
Current Dividend Yield | 1.9 | % | 3.7 | % | 0.0 | % | 2.1 | % | 2.4 | % | |||||
Market Capitalization ($ millions) | 2,244 | 3,030 | 740 | 1,846 | 1,732 | ||||||||||
| (1) | Excluded restructured loans. |
| (2) | June 2018 YTD earnings per common share annualized. |
Analysis of Precedent Transactions. Sandler O’Neill reviewed by it, Boenning assumeda group of merger and acquisition transactions consisting of bank and thrift transactions where targets were headquartered in the effective aggregate indicated Merger Consideration to be $74.4Midwest region, announced between November 8, 2016 and October 5, 2018 with target company assets between $750 million and $2.0 billion (the “Regional Precedent Transactions”). Sandler O’Neill also reviewed a national group of merger and acquisition transactions consisting of bank and thrift transactions announced between November 8, 2016 and October 5, 2018 with target company assets between $1.0 billion and $2.0 billion (the “Nationwide Precedent Transactions”).
The Regional Precedent Transactions group was composed of the following transactions:
Acquiror | Target |
MidWestOne Financial Grp Inc. | ATBancorp |
First Busey Corp. | Banc Ed Corp. |
Old National Bancorp | Klein Financial Inc. |
WesBanco Inc. | Farmers Capital Bank Corp. |
Byline Bancorp Inc. | First Evanston Bancorp Inc. |
Midland States Bancorp Inc. | Alpine Bancorp. Inc. |
National Bank Holdings Corp. | Peoples Inc. |
First Merchants Corp. | Independent Alliance Banks Inc |
First Busey Corp. | First Community Financial Partners |
Midland States Bancorp Inc. | Centrue Financial Corporation |
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Using the latest publicly available information prior to the announcement of the relevant transaction, Sandler O’Neill reviewed the following transaction metrics: transaction price to last-twelve-months earnings per share, Merger Considerationtransaction price to be $97.51, based on First Merchants’ closing stock price on January 23, 2017 of $35.79. For the basis of its analysis, Boenning considered Arlington Bank’s financials as of November 30, 2016, as a $3.00 per share dividend declared in November led to a material difference between Arlington Bank’s September 30, 2016 tangible book value per share, core deposit premium (to the extent publicly available), and 1-day market premium. Sandler O’Neill compared the November 30, 2016indicated transaction metrics for the Merger to the high, low, mean and median metrics of the Regional Precedent Transactions.
First Merchants / MBT | Regional Precedent Transactions High | Regional Precedent Transactions Low | Regional Precedent Transactions Mean | Regional Precedent Transactions Median | |||||||||||
Transaction price/LTM earnings per share(1) | 23.1 | x | 28.9 | x | 18.2 | x | 24.1 | x | 23.6 | x | |||||
Transaction price/Tangible book value per share | 238 | % | 265 | % | 139 | % | 187 | % | 173 | % | |||||
Core deposit premium(2) | 15.2 | % | 22.6 | % | 6.8 | % | 11.1 | % | 8.2 | % | |||||
1-Day market premium | 9.7 | %(3) | 74.4 | % | 10.4 | % | 11.1 | % | 8.2 | % | |||||
| (1) | Excluded the multiples of the MidWestOne Financial Grp Inc./ ATBancorp and National Bank Holdings Corp./ Peoples Inc. transactions as not meaningful. |
| (2) | Core deposits defined as total deposits, less time deposit accounts with a balance of at least $100,000. |
| (3) | First Merchants / MBT as of October 5, 2018. |
The Nationwide Precedent Transactions group was composed of the following transactions:
Acquiror | Target |
MidWestOne Financial Grp Inc. | ATBancorp |
Allegiance Bancshares Inc. | Post Oak Bancshares Inc. |
TriCo Bancshares | FNB Bancorp |
Byline Bancorp Inc. | First Evanston Bancorp Inc. |
Glacier Bancorp Inc. | Inter-Mountain Bancorp. Inc. |
Midland States Bancorp Inc. | Alpine Bancorp. Inc. |
Pacific Premier Bancorp | Plaza Bancorp |
Southside Bancshares Inc. | Diboll State Bancshares Inc. |
Carolina Financial Corp. | First South Bancorp Inc. |
First Merchants Corp. | Independent Alliance Banks Inc |
Heartland Financial USA Inc. | Citywide Banks of Colorado Inc |
FB Financial Corp | American City Bank/Clayton Ban |
First Busey Corp. | First Community Financial Partners |
Renasant Corp. | Metropolitan BancGroup Inc. |
Veritex Holdings Inc. | Sovereign Bancshares Inc. |
Southern National Bancorp of VA | Eastern Virginia Bankshares |
Using the latest publicly available information prior to the announcement of the relevant transaction, Sandler O’Neill reviewed the following transaction metrics: transaction price to last-twelve-months earnings per share, transaction price to tangible book value per share. Theshare, core deposit premium (to the extent publicly available), and 1-day market premium. Sandler O’Neill compared the indicated transaction pricing multiplesmetrics for the Merger Consideration relative to September 30, 2016 financials (Arlington Bank’s most recentthe high, low, mean and median metrics of the Nationwide Precedent Transactions.
First Merchants / MBT | Nationwide Precedent Transactions High | Nationwide Precedent Transactions Low | Nationwide Precedent Transactions Mean | Nationwide Precedent Transactions Median | |||||||||||
Transaction price/LTM earnings per share(1) | 23.1 | x | 27.8 | x | 9.8 | x | 20.7 | x | 20.8 | x | |||||
Transaction price/Tangible book value per share | 238 | % | 265 | % | 155 | % | 202 | % | 192 | % | |||||
Core deposit premium(2) | 15.2 | % | 22.6 | % | 6.8 | % | 13.1 | % | 13.0 | % | |||||
1-Day market premium | 9.7 | %(3) | 74.4 | % | 2.8 | % | 23.7 | % | 15.5 | % | |||||
| (1) | Excluded the multiples of the MidWestOne Financial Grp Inc./ ATBancorp transaction as not meaningful. |
| (2) | Core deposits defined as total deposits, less time deposit accounts with a balance of at least $100,000. |
| (3) | First Merchants / MBT as of October 5, 2018. |
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Net Present Value Analyses. Sandler O’Neill performed an analysis that estimated the net present value per share of MBT common stock, assuming publicly disclosed financial data) would have been as follows: price / book value and price / tangible book value of 211.9%, price / latest 12 monthsavailable consensus median analyst earnings per share of 18.7x, price / assets of 24.4%, core deposit premium of 19.2% and price / deposits of 28.7%.
Comparison of Selected Companies. Boenning reviewed and, as reflected in Table 1 below, compared the multiples and ratios of the offer price to Arlington Bank’s book value, tangible book value, latest 12 months earnings per share, assets, tangible book premium to core deposits, and deposits, such multiples referred to herein as the pricing multiples, with the median pricing multiplesestimates for MBT for the current trading prices, after the application of a 30.0% assumed control premium, referred to as the adjusted trading price, of the common stock of a peer group of 16 selected public banks and thrifts with assets between $200 million and $800 million, tangible common equity / tangible assets between 10% and 15%, and latest 12 months core return on average equity between 10% and 17% and nonperforming assets / assets less than 2%, excluding merger targets. The 30.0% equity control premium is the median one day stock price premium for all bank and thrift merger and acquisition deals announced since January 1, 2000, based on data from SNL Financial.
Table 1
| Adjusted Trading Price | ||||||||
Pricing Multiple | Offer Price | Median Statistics for Peer Group (1) | ||||||
Price/Book Value | 223.5 | % | 160.2 | % | ||||
Price/Tangible Book Value | 223.5 | % | 160.2 | % | ||||
Price/Latest 12 Months Earnings Per Share | 17.8x | 14.4x | ||||||
Price/Assets | 24.0 | % | 17.2 | % | ||||
Premium over Tangible Book Value/Core Deposits | 20.0 | % | 8.9 | % | ||||
Price/Deposits | 28.5 | % | 20.4 | % | ||||
Analysis of Bank Merger Transactions. Boenning analyzed certain information relating to recent transactions in the banking industry, consisting of (i) 20 Ohio bank and thrift transactions announced since January 1, 2014 with target assets greater than $100 million and disclosed pricing, referred to below as Group A; (ii) 15 bank and thrift deals announced since January 1, 2015 with target headquarters in a Midwestern metropolitan statistical area with a population of one million or more, assets between $100 million and $1 billion and disclosed pricing, excluding mergers of equals, referred to below as Group B; and (iii) 11 nationwide bank and thrift deals announced since January 1, 2014 with target assets less than $1 billion, tangible equity / tangible assets between 11% and 15%, latest 12 months return on average equity between 10% and 20%, and disclosed pricing, referred to below as Group C. In addition, Boenning also applied an adjustment to the pricing multiples from eight nationwide bank and thrift deals announced since January 1, 2016 with target assets less than $1 billion, tangible equity / tangible assets between 11% and 15%, latest 12 months return on average equity greater than 10% %, and disclosed pricing in order to reflect the recent increase in bank stock prices. The percentage increase in the SNL U.S. Bank and Thrift Index since the announcement of each transaction was applied to each transaction’s aggregate deal value. The median increase for the selected transactions was 29.3%. This adjusted transaction group is referred to below as Group D. Boenning then reviewed and compared the pricing multiples of the offer price and the pricing multiples of the selected transaction values for Group A, Group B, Group C and Group D.
Table 2
| Median for Selected Transactions | ||||||||||||||||||||
Pricing Multiple | Offer Price | Group A | Group B | Group C | Group D | |||||||||||||||
Price/Book Value | 223.5 | % | 144.2 | % | 148.3 | % | 141.5 | % | 176.0 | % | ||||||||||
Price/Tangible Book Value | 223.5 | % | 148.9 | % | 148.3 | % | 141.5 | % | 178.8 | % | ||||||||||
Price/Latest 12 Months Earnings Per Share | 17.8x | 17.7x | 18.2x | 12.5x | 14.4x | |||||||||||||||
Price/Assets | 24.0 | % | 14.1 | % | 15.3 | % | 16.7 | % | 20.4 | % | ||||||||||
Premium over Tangible Book Value/Core Deposits | 20.0 | % | 6.9 | % | 6.5 | % | 6.8 | % | 12.3 | % | ||||||||||
Price/Deposits | 28.5 | % | 17.2 | % | 17.7 | % | 19.2 | % | 24.4 | % | ||||||||||
Discounted Cash Flow Analysis. Discounted cash flow analysis approximates the value of a share of stock to an acquiror by calculating the present value of the target’s dividendable cash flow in perpetuity. This analysis assumed a short-term earnings growth rate of 5% and a long-term growth rate of 2%,years ending December 31, 2018 through December 31, 2020, as well as a short-term balance sheetlong-term earnings per share growth rate for the years thereafter and dividends per share for the years ending December 31, 2018 through December 31, 2022, as provided by the senior management of 4%MBT. To approximate the terminal value of MBT common stock at December 31, 2022, Sandler O’Neill applied price to 2022 earnings multiples ranging from 14.0x to 18.0x and multiples of December 31, 2022 tangible book value ranging from 150% to 200%. The terminal values were then discounted to present values using different discount rates ranging from 10.0% to 14.0%, which were chosen to reflect different assumptions regarding required rates of return of holders or prospective buyers of MBT common stock. As illustrated in the following tables, the analysis indicated an imputed range of values per share of MBT common stock of $10.03 to $14.50 when applying multiples of earnings and $7.67 to $11.29 when applying multiples of tangible book value.
Imputed Present Values Per Share Based on Earnings Multiples
Discount Rate | 14.0x | 15.0x | 16.0x | 17.0x | 18.0x | ||||||||||
10.0% | $ | 11.64 | $ | 12.36 | $ | 13.07 | $ | 13.78 | $ | 14.50 | |||||
11.0% | 11.21 | 11.89 | 12.58 | 13.26 | 13.95 | ||||||||||
12.0% | 10.80 | 11.45 | 12.11 | 12.77 | 13.43 | ||||||||||
13.0% | 10.40 | 11.03 | 11.67 | 12.30 | 12.93 | ||||||||||
14.0% | 10.03 | 10.63 | 11.24 | 11.85 | 12.46 | ||||||||||
Imputed Present Values Per Share Based on Tangible Book Multiples
Discount Rate | 150% | 160% | 170% | 180% | 190% | 200% | ||||||||||||
10.0% | $ | 8.88 | $ | 9.36 | $ | 9.84 | $ | 10.32 | $ | 10.81 | $ | 11.29 | ||||||
11.0% | 8.56 | 9.02 | 9.48 | 9.94 | 10.41 | 10.87 | ||||||||||||
12.0% | 8.25 | 8.69 | 9.14 | 9.58 | 10.02 | 10.47 | ||||||||||||
13.0% | 7.95 | 8.38 | 8.81 | 9.23 | 9.66 | 10.09 | ||||||||||||
14.0% | 7.67 | 8.08 | 8.49 | 8.90 | 9.31 | 9.72 | ||||||||||||
Sandler O’Neill also considered and discussed with the MBT Board of Directors how this analysis would be affected by changes in the underlying assumptions, including variations with respect to earnings. To illustrate this impact, Sandler O’Neill performed a similar analysis, assuming MBT’s earnings varied from 15% above estimates to 15% below estimates. This analysis resulted in the following range of per share values for MBT common stock, applying the price to 2022 earnings multiples range of 14.0x to 18.0x referred to above and a long-term growth rate of 2%, based on guidance from Arlington Bank’s management. The estimated cost savings of 35%, with 25% of that amount recognized in 2017 and 100% thereafter, transaction costs of $5.8 million pre-tax and gross credit mark of approximately $5.5 million (equal to $2.2 million net of Arlington Bank’s loan loss reserve) were based on guidance provided by First Merchants. A discount rate of 13.5% was determined using12.00%.
Imputed Present Values per Share Based on Earnings Multiples:
Annual Estimate Variance | 14.0x | 15.0x | 16.0x | 17.0x | 18.0x | ||||||||||
(15.0%) | 9.41 | 9.97 | 10.53 | 11.09 | 11.65 | ||||||||||
(10.0%) | 9.88 | 10.47 | 11.06 | 11.65 | 12.24 | ||||||||||
(5.0%) | 10.34 | 10.96 | 11.58 | 12.21 | 12.83 | ||||||||||
0.0% | 10.80 | 11.45 | 12.11 | 12.77 | 13.43 | ||||||||||
5.0% | 11.26 | 11.95 | 12.64 | 13.33 | 14.02 | ||||||||||
10.0% | 11.72 | 12.44 | 13.16 | 13.89 | 14.61 | ||||||||||
15.0% | 12.18 | 12.93 | 13.69 | 14.45 | 15.20 | ||||||||||
Sandler O’Neill also performed an analysis that estimated the Capital Asset Pricing Model andnet present value per share of First Merchants common stock, assuming that First Merchants performed in accordance with publicly available median consensus analyst earnings per share estimates for First Merchants for the Build-Up Method, both of which take into account certain factors such as the current risk free rate, the beta of bank stocks compared to the broader market and the Ibbotson risk premiums for small, illiquid stocks and for commercial bank stocks,years ending December 31, 2018 through December 31, 2020, as well as comparable company returns ona long-term earnings per share growth rate for the years thereafter and dividends per share for the years ending December 31, 2018 through December 31, 2020 with an estimated dividend payout ratio for the years thereafter, as provided by the senior management of First Merchants. To approximate the terminal value of First Merchants common stock at December 31, 2022, Sandler O’Neill applied price to
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2022 earnings multiples ranging from 12.0x to 19.0x and multiples of December 31, 2022 tangible common equity.book value ranging from 200% to 250%. The average of the three methods was approximately 13.5%. Sensitivity analyses forterminal values were then discounted to present values using different discount rates ranging from 9.0% to 13.0%, which were chosen to reflect different assumptions regarding required rates of return of holders or prospective buyers of First Merchants common stock. As illustrated in the following tables, the analysis indicated an imputed range of values per share of First Merchants common stock of $32.16 to $57.17 when applying multiples of earnings and cost savings ranged$38.06 to $54.63 when applying multiples of tangible book value.
Imputed Present Values per Share Based on Earnings Multiples
Discount Rate | 12.0x | 13.0x | 14.0x | 15.0x | 16.0x | 17.0x | 18.0x | 19.0x | ||||||||||||||||
9.0% | $ | 37.56 | $ | 40.36 | $ | 43.16 | $ | 45.96 | $ | 48.77 | $ | 51.57 | $ | 54.37 | $ | 57.17 | ||||||||
10.0% | 36.11 | 38.80 | 41.49 | 44.18 | 46.87 | 49.56 | 52.25 | 54.94 | ||||||||||||||||
11.0% | 34.73 | 37.31 | 39.89 | 42.47 | 45.06 | 47.64 | 50.22 | 52.80 | ||||||||||||||||
12.0% | 33.41 | 35.89 | 38.37 | 40.85 | 43.33 | 45.81 | 48.29 | 50.77 | ||||||||||||||||
13.0% | 32.16 | 34.54 | 36.93 | 39.31 | 41.69 | 44.08 | 46.46 | 48.84 | ||||||||||||||||
Imputed Present Values per Share Based on Tangible Book Multiples
Discount Rate | 200% | 210% | 220% | 230% | 240% | 250% | ||||||||||||
9.0% | $ | 44.49 | $ | 46.52 | $ | 48.55 | $ | 50.58 | $ | 52.60 | $ | 54.63 | ||||||
10.0% | 42.76 | 44.71 | 46.66 | 48.60 | 50.55 | 52.49 | ||||||||||||
11.0% | 41.12 | 42.99 | 44.85 | 46.72 | 48.59 | 50.46 | ||||||||||||
12.0% | 39.55 | 41.35 | 43.14 | 44.93 | 46.73 | 48.52 | ||||||||||||
13.0% | 38.06 | 39.78 | 41.51 | 43.23 | 44.96 | 46.68 | ||||||||||||
Sandler O’Neill also considered and discussed with the MBT Board of Directors how this analysis would be affected by changes in the underlying assumptions, including variations with respect to earnings. To illustrate this impact, Sandler O’Neill performed a similar analysis assuming First Merchants’ earnings varied from 11.5%15% above estimates to 15.5%15% below estimates. This analysis resulted in the following range of per share values for First Merchants common stock, applying the price to 2022 earnings multiples range of 12.0x to 19.0x referred to above and 30% to 40%, respectively. Thea discount rate of 11.00%.
Imputed Present Values per Share Based on Earnings Multiples:
Annual Estimate Variance | 12.0x | 13.0x | 14.0x | 15.0x | 16.0x | 17.0x | 18.0x | 19.0x | ||||||||||||||||
(15.0%) | $ | 30.08 | $ | 32.27 | $ | 34.47 | $ | 36.66 | $ | 38.86 | $ | 41.05 | $ | 43.25 | $ | 45.44 | ||||||||
(10.0%) | 31.63 | 33.95 | 36.28 | 38.60 | 40.93 | 43.25 | 45.57 | 47.90 | ||||||||||||||||
(5.0%) | 33.18 | 35.63 | 38.08 | 40.54 | 42.99 | 45.44 | 47.90 | 50.35 | ||||||||||||||||
0.0% | 34.73 | 37.31 | 39.89 | 42.47 | 45.06 | 47.64 | 50.22 | 52.80 | ||||||||||||||||
5.0% | 36.28 | 38.99 | 41.70 | 44.41 | 47.12 | 49.83 | 52.55 | 55.26 | ||||||||||||||||
10.0% | 37.83 | 40.67 | 43.51 | 46.35 | 49.19 | 52.03 | 54.87 | 57.71 | ||||||||||||||||
15.0% | 39.38 | 42.35 | 45.32 | 48.28 | 51.25 | 54.22 | 57.19 | 60.16 | ||||||||||||||||
Sandler O’Neill noted that the net present value of Arlington Bank common shares calculated using discounted cash flow analysis ranged from $54.36 per share to $89.96 per share based on the cost savings estimates and discount rates used, compared to the offer price of $97.51 per share. This analysis does not purport to be indicative of actual future results and does not purport to reflect the prices at which Arlington Bank common shares may trade in the public markets. A discounted cash flow analysis was included because it is a widely used valuation methodology, but the results of such methodology are highly dependent upon the numerous assumptions that must be made, including earnings growth rates, dividend payout rates and discount rates.
Present Value Analysis.Applying present value analysis to Arlington Bank’s theoretical future earnings, dividends and tangible book value, Boenning compared the offer price for one share of Arlington Bank’s
common stock to the present value of one share of Arlington Bank’s common stock on a stand-alone basis. The analysis was based upon management’s projected earnings growth, a range of assumed price / earnings ratios, a range of assumed price / tangible book value ratios and a 13.5% discount rate, which was determined using the Capital Asset Pricing Model and the Build-Up Method, both of which take into account certain factors such as the current risk free rate, the beta of bank stocks compared to the broader market and the Ibbotson risk premiums for small, illiquid stocks and for commercial bank stocks, as well as comparable company returns on tangible common equity. The average of the three methods was approximately 13.5%. The valuation was completed with a sensitivity analysis on the discount rate ranging from 11.5% to 15.5%. Boenning derived the terminal price / earnings multiple of 16.0x and terminal price / tangible book value multiple of 127.4% from the three-year median trading multiples of the SNL Bank < $500 Million Index as of January 23, 2017. Sensitivity analyses for terminal price / earnings and price / tangible book ranged from 10.2x to 21.8x and 101.7% to 153.1%, respectively, each representing two standard deviations above or below the median. The present value of Arlington Bank’s common stock on a standalone basis is $48.36 to $107.19 per share based on price / earnings multiples, and $42.58 to $68.81 per share based on price / tangible book value multiples, compared to the offer price of $97.51 per share. This analysis doesresults thereof are not purport to benecessarily indicative of actual values or future results and does not purport to reflect the prices at which shares of Arlington Bank’s common stock may trade in the public markets. A present value analysis was included because it is a widely used valuation methodology, but the results of such methodology are highly dependent upon the numerous assumptions that must be made, including earnings growth rates, dividend payout rates and discount rates.results.
Pro Forma Merger AnalysisAnalysis. . BoenningSandler O’Neill analyzed certain potential pro forma effects of the Merger, assuming the following: (i)Merger closes at the Merger is completed June 30, 2017; (ii) eachend of the first calendar quarter of 2019. Sandler O’Neill utilized the following information and assumptions: (a) publicly available median consensus analyst earnings per share of Arlington Bank’s common stock will be eligible to receive consideration of approximately $97.51 inestimates for First Merchants stock (based onfor the years ending December 31, 2018 through December 31, 2020, as well as a long-term earnings per share growth rate for the years thereafter and dividends per share for the years ending December 31, 2018 through December 31, 2020 and an exchangeestimated dividend payout ratio, as provided by First Merchants senior management; (b) publicly available median consensus analyst earnings per share estimates for MBT for the years ending December 31, 2018 through December 31, 2020, as well as a long-term earnings per
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share growth rate for the years thereafter and dividends per share for the years ending December 31, 2018 through December 31, 2022, as provided by the senior management of 2.7425); (iii) estimated pre-taxMBT; and (c) certain assumptions relating to transaction expenses, purchase accounting adjustments and cost savings, of approximately 35% of Arlington Bank’s non-interest expense on an annual basis ($2.2 million after-tax), recognized 25% in 2017 and 100% in 2018; (iv) estimated one-time transaction-related costs of approximately $5.8 million pre-tax are expensed prior to closing; (v) Arlington Bank performance was calculated in accordance with Arlington Bank management’s earnings forecasts; (vi) First Merchants’ performance was calculated in accordance withas provided by First Merchants management’s earnings forecasts; and (vii) certain other assumptions pertaining to costs and expenses associated with the transaction, intangible amortization, opportunity cost of cash and other items.senior management. The analysesanalysis indicated that the Merger (excluding transaction expenses) wouldcould be neutralaccretive to the combined company’s projectedFirst Merchants’ estimated earnings per share (excluding one-time transaction costs and expenses) in 2017, accretivethe years ending December 31, 2019 through December 31, 2022 and dilutive to the combined company’s projected earnings per share for the full year 2018 and accretive to Arlington Bank’s per share equivalent earnings andFirst Merchants’ estimated tangible book value for 2017per share at close and at December 31, 2019, December 31, 2020, and December 31, 2021, but accretive in the full year 2018. Additionally,ending December 31, 2022.
In connection with this analysis, Sandler O’Neill considered and discussed with the combined company’s regulatory capital ratiosMBT Board of Directors how the analysis would exceed regulatory guidelines for “well capitalized.” Thebe affected by changes in the underlying assumptions, including the impact of final purchase accounting adjustments determined at the closing of the Merger, and noted that the actual results achieved by the combined company may vary from projected results and the variations may be material.
As described above, Boenning’s opinion was just one of the many factors taken into consideration by the Arlington Bank board of directors in making its determination to approve the Merger.
Boenning, as part of its investment banking business, regularly is engaged in the valuation of assets, securities and companies in connection with various types of asset and security transactions, including mergers, acquisitions, private placements, public offerings and valuations for various other purposes, and in the determination of adequate consideration in such transactions. In the ordinary course of Boenning’s business as a broker-dealer, it may, from time to time, purchase securities from, and sell securities to, First Merchants, Arlington Bank, and/or their respective affiliates. In the ordinary course of business, Boenning may also actively trade the securities of First Merchants and Arlington Bank for its own account and/or for the accounts of customers and accordingly may at any time hold a long or short position in such securities.
BoenningSandler O’Neill’s Relationship. Sandler O’Neill is acting as Arlington Bank’sMBT’s independent financial advisor in connection with the Merger and will receive a customary fee for itssuch services in an amount equal to two-thirds of 1.10% of the aggregate value of the transaction immediately prior to closing as determined under MBT’s engagement letter with Sandler O’Neill (the “Transaction Fee”), a significantsubstantial portion of which is contingent upon consummationthe closing of the Merger. Boenning alsoAt the time of signing of the Merger Agreement, Sandler O’Neill received a portion of the Transaction Fee equal to $166,667. The balance of the Transaction Fee, less a $30,000 retainer fee for renderingpaid by MBT upon its execution of Sandler O’Neill’s engagement letter, and estimated at $1,940,000 based on an estimated transaction value as of the fairness opinion. Boenning’s fee for renderingdate of the fairness opinion
was not contingentpublic announcement of the Merger on October 10, 2018, is payable to Sandler O’Neill upon any conclusion that Boenning reached or upon completionthe closing of the Merger. The CompanySandler was also paid $250,000 from MBT upon rendering its opinion. MBT has also agreed to indemnify BoenningSandler O’Neill against certain claims and liabilities that may arisearising out of Boenning’sSandler O’Neill’s engagement and to reimburse Sandler O’Neill for certain of its out-of-pocket expenses incurred in connection with Sandler O’Neill’s engagement.
Prior EngagementsIn the two years preceding the date of Sandler O’Neill’s opinion, Sandler O’Neill provided certain other investment banking services to MBT. Most recently, Sandler O’Neill was retained by MBT in August 2017 to act as MBT’s financial advisor in connection with a possible business combination, which transaction was never consummated. Sander O’Neill also informed the Board of Directors of MBT that in the two years preceding the date of Sandler O’Neill’s opinion Sandler O’Neill had provided certain investment banking services to First Merchants. Most recently, Sandler O’Neill acted as (i) financial advisor in connection with First Merchants’ acquisition of Independent Alliance Banks, Inc., which transaction closed in July 2017, and (ii) financial advisor in connection with First Merchants’ acquisition of Arlington Bank, which transaction closed in May 2017. In addition, the ordinary course of Sandler O’Neill’s business as a broker-dealer, Sandler O’Neill may purchase securities from and sell securities to MBT, First Merchants and Arlington Bank.Except fortheir respective affiliates. Sandler O’Neill may also actively trade the arrangements between Boenningequity and Arlington Bank described in the preceding paragraph, Boenning has not had any material relationship with eitherdebt securities of MBT and First Merchants or Arlington Bank duringtheir respective affiliates for Sandler O’Neill’s own account and for the past two yearsaccounts of its customers.
Donnelly Penman Co-financial Advisor.
Donnelly Penman participated as a co-financial advisor to MBT in connection with the Merger. In connection with its role Donnelly Penman will receive a fee for such services in an amount to one-third of 1.10% of the aggregate value of the transaction, a substantial portion of which compensation was received or was intended to be received. Boenning may provide services to First Merchants inis contingent upon the future (and/or to Arlington Bank ifclosing of the Merger. At the time of signing of the Merger is not consummated), althoughAgreement, Donnelly Penman received a portion of the transaction fee equal to $83,333. The balance of the transaction fee, less a $15,000 retainer fee paid by MBT upon its execution of Donnelly Penman’s engagement letter and estimated at $970,000 based on an estimated transaction value as of the date of Boenning’s opinion, there was no agreement to do so nor any mutual understanding that such services are contemplated.
Boenning’s opinion was approved by Boenning’s fairness opinion committee. Boenning did not express any opinion as to the fairness of the amount or nature of the compensation to be received in the Merger by any of the officers, directors, or employees of any party to the Merger Agreement, or any class of such persons, relative to the compensation to be received by the holders of Arlington Bank’s common stock in the Merger.
Recommendation of the Arlington Bank Board of Directors
The Board of Directors of Arlington Bank has carefully considered, unanimously approved and adopted the Merger Agreement, and unanimously recommends to the Arlington Bank shareholders that they approve the Merger Agreement.
Rights of Dissenting Shareholders
The shareholders of Arlington Bank are entitled to certain dissenters’ rights pursuant to Sections 1701.84(A) and 1701.85 of the Ohio General Corporation Law (the “OGCL”). Section 1701.85 generally provides that shareholders of Arlington Bank will not be entitled to such rights without strict compliance with the procedures set forth in Section 1701.85, and failure to take any one of the required steps may result in the termination or waiver of such rights. Specifically, any Arlington Bank shareholder who is a record holder of Arlington Bank common shares on [●], 2017, the record date for the special meeting, and whose shares are not voted in favor of the adoptionpublic announcement of the Merger Agreement may be entitledon October 10, 2018, is payable to be paidDonnelly Penman upon the “fair cash value” of such Arlington Bank shares after the effective timeclosing of the Merger. To be entitled to such payment, a shareholder must deliver to Arlington Bank a written demand for payment of the fair cash value of the common shares held by such shareholder, before the vote on the Merger Proposal is taken, the shareholder must not vote in favor of approval and adoption of the Merger Agreement, and the shareholder must otherwise comply with Section 1701.85. An Arlington Bank shareholder’s failure to vote against the adoption and approval of the Merger Agreement will not constitute a waiver of such shareholder’s dissenters’ rights. Any written demand must specify the shareholder’s name and address, the number of shares held by him, her or it on the record date, and the amount claimed as the “fair cash value” of such Arlington Bank common shares. See the text of Section 1701.85 of the OGCL attached asAnnex B to this proxy statement and prospectus for specific information on the procedures to be followed in exercising dissenters’ rights.
If Arlington Bank so requests, dissenting shareholders must submit their share certificates to Arlington Bank within 15 days of such request, for endorsement on such certificates by Arlington Bank that a demand for appraisal has been made. Failure to comply with such request will terminate the dissenting shareholders’ rights. Such certificates will be promptly returned to the dissenting shareholders by Arlington Bank. If Arlington Bank and any dissenting shareholder cannot agree upon the “fair cash value” of Arlington Bank’s shares, either may, within three months after service of demand by the shareholder, file a petition in the Court of Common Pleas of Franklin County, Ohio, for a determination of the “fair cash value” of such dissenting shareholder’s Arlington Bank shares. The fair cash value of an Arlington Bank share to which a dissenting shareholder is entitled to under Section 1701.85 will be determined as of the day prior to the vote of the Arlington Bank shareholders. Investment banker opinions to company boards of directors regarding the fairness from a financial point of view of the consideration payable in a transaction such as the Merger are not opinions regarding, and do not address, “fair cash value” under Section 1701.85.
If an Arlington Bank shareholder exercises his, her or its dissenters’ rights under Section 1701.85, all other rights with respect to such shareholder’s Arlington Bank shares will be suspended until Arlington Bank purchases the shares, or the right to receive the fair cash value is otherwise terminated. Such rights will be reinstated should the right to receive the fair cash value be terminated other than by the purchase of the shares.
The foregoing description of the procedures to be followed in exercising dissenters’ rights available to holders of Arlington Bank’s shares pursuant to Section 1701.85 of the OGCL may not be complete and is qualified in its entirety by reference to the full text of Section 1701.85 attached asAnnex B to this proxy statement and prospectus.
If you wish to exercise dissenters’ rights with respect to the Merger and you fail to comply with the statutory requirements for exercising dissenters’ rights, you will lose such rights. Accordingly, Arlington Bank shareholders who may wish to exercise dissenters’ rights should consider seeking legal counsel.
Registration of First Merchants Common Stock
Shares of First Merchants common stock to be issued to Arlington BankMBT shareholders in the Merger will be registered under the Securities Act. These shares may be traded freely without restriction by those Arlington BankMBT shareholders not considered to be “affiliates” of First Merchants under the Securities Act after the Merger is complete. At the present time, there are no persons involved in the management of Arlington BankMBT who are anticipated to be an “affiliate” of First Merchants after the Merger.
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The Merger cannot be completed until First Merchants Bank receives necessary regulatory approvals, which include the approval of the Indiana Department of Financial Institutions (the “Indiana DFI”) and the Federal Deposit Insurance Corporation (the “FDIC”). On February 24, 2017, First Merchants Bank has filed applicationsan application with both the Indiana DFI on or about November 2, 2018, and an application with the FDIC on or about November 23, 2018, but cannot be certain when or if such approvalapprovals will be obtained. First Merchants Bank has also sent required notice to the Michigan Department of Insurance and Financial Services (the “Michigan DIFS”) on or about November 30, 2018. First Merchants has also requested that the Federal Reserve Board of Governors (the “Federal Reserve”) waive its right to receive an application in connection with the Merger as permitted under Regulation Y of the Bank Holding Company Act.
After the FDIC’s approval is received, the Bank Merger cannot be completed for 30 days. During this 30-day waiting period, the United States Department of Justice has the authority to challenge the Bank Merger on antitrust grounds. With the approval of the FDIC and the Department of Justice, the waiting period can be reduced to 15 days.
The approval of the Indiana DFI and the FDIC is not the opinion of the regulatory authorities that the Merger is favorable to the Arlington BankMBT and First Merchants shareholders from a financial point of view or that the Indiana DFI or the FDIC has considered the adequacy of the terms of the Merger. The approvals in no way constitute an endorsement or a recommendation of the Merger by the FDIC.
The Merger will be consummated if the Merger Proposal is approved by the Arlington BankMBT shareholders, all required consents and approvals are obtained and all other conditions to the Merger are either satisfied or waived. The Merger will become effective when the Articles of Merger are filed with the Secretary of State of Indiana and the Certificate of Merger is filed with the Michigan Corporations Division, or at such later date and time as may be specified in the Articles of Merger and the Certificate of Merger. The closing of the Merger will likely occur in the month in which any applicable waiting period following the last approval of the Merger expires or on such other date as agreed to by the parties. We currently anticipate that the Merger will be completed during the secondfirst quarter of 2017.2019. However, completion of the Merger could be delayed if there is a delay in obtaining the required shareholder or regulatory approvals or in satisfying the other conditions to completion of the Merger. Arlington BankMBT and First Merchants have the right, subject to certain conditions, to terminate the Merger Agreement if the Merger is not completed by December 31, 2017.
The NASDAQ Global Select Market Listing
First Merchants will file a notification with The NASDAQ Global Select Market regarding the issuance of First Merchants common stock in the Merger. Following the Merger, the First Merchants shares issued to Arlington BankMBT shareholders will be listed on The NASDAQ Global Select Market.
First Merchants has filed a Registration Statement on Form S-4 with the SEC in order to register the shares of First Merchants common stock to be issued pursuant to the Merger under the Securities Act. Because First Merchants common stock is listed on The NASDAQ Global Select Market, it is exempt from the statutory registration requirements of each state in the United States. Therefore, First Merchants has not taken any steps to register its stock under state laws.
Interests of Certain Persons in the Merger
When considering the recommendation of the Arlington Bank Board of Directors of MBT, you should be aware that certain of the directors and officers of Arlington BankMBT have interests in the Merger other than their interests as Arlington Bank shareholders, pursuant to certain agreements and understandings that are set forth in the Merger Agreement.MBT shareholders. These interests are different from, or in conflict with, your interests as Arlington BankMBT shareholders. The members of the Arlington BankMBT’s Board of Directors and the First MerchantsMerchants’ Board of Directors were aware of these additional interests, and considered them, when they approved the Merger Agreement. Except as described below,follows, to the knowledge of Arlington Bank,MBT, the named executive officers and directors of Arlington BankMBT do not have any material interest in the Merger apart from their interests as shareholders.
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MBT Executive Officer Agreements. Certain executive officers of MBT and Monroe Bank has employment& Trust currently have change in control agreements, with each of Thomas C. Westfall, President, Natalie Karas, Senior Vice Presidentseverance benefit agreements and Nona Durham, Treasurer,long term incentive awards that provide for each such executive officer to receive,cash payments, the acceleration of vesting of equity awards and the provision of certain benefits, following a change in control a multiple of the executive’s compensation priorMBT. Pursuant to the change in control, subject to certain limitations. Under these agreements, such executive officers would be entitled to receive an aggregate of approximately $1,330,000.
MBT Director Death Benefit Only Plan. MBT Directors Peter H. Carlton, H. Douglas Chaffin, Joseph S. Daly, Michael J. Miller and Debra J. Shah are participants in a legacy death benefit only plan that was frozen to new director participants in 2006 (“Director DBO Plan”). The Director DBO Plan provides death benefits to the participating director’s beneficiaries in the event of the death of the director during service as a director. In the event of a change in control of MBT the Director DBO Plan also provides those same death benefits during the director’s post retirement and for the life of the director. In connection with entering into the Merger Agreement, each of the participating directors in the Director DBO Plan executed agreements that terminate their rights under the Director DBO Plan upon the First Merchants’ closing stock priceconsummation of $36.46 on January 24, 2017, the business day before the Merger was publicly announced,in exchange for a cash payment. The cash payment represents approximately 66 and two-thirds percent (662∕3%) of the executive officersprojected actuarial net present value of Arlington Bank (including Ms. Karasthe benefit arrangement to the participating directors. Under the terms of these termination agreements the participating directors will receive the following payments upon the closing of the Merger: Mr. Carlton $645,009, Mr. Chaffin $507,324, Mr. Daly $461,764, Mr. Miller $645,009 and Ms. Durham) would receive an aggregateShah $640,788. At the election of approximately $131,720 upon conversioneach of their stock options.
Indemnification and $25,000, respectively) if they are employed by First Merchants Bank uponContinued Director and Officer Liability Coverage. From and after the effective datetime of the Merger.
Board Appointment. The Merger Agreement obligates First Merchants to appoint one person who is currently a member of the MBT Board of Directors (chosen by First Merchants after consultation with MBT) to the First Merchants Board of Directors. Such person will be entitled to receive compensation from First Merchants for service to the Board. As of the date of this proxy statement and prospectus, it has not yet been determined which MBT director will be appointed to the First Merchants Board of Directors.
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The following summary highlights certain material provisions of the Merger Agreement. Because this is a summary of the Merger Agreement, it does not contain a description of all of the terms of the Merger Agreement and is qualified in its entirety by reference to the Merger Agreement. You should read carefully the entire Merger Agreement, which is attached to this document asAnnex A and is incorporated herein by reference.
Under the terms and subject to the conditions of the Merger Agreement unanimously approved by theeach of MBT’s and First Merchants’ Boards of Directors, of each of First Merchants, First Merchants Bank and Arlington Bank, Arlington BankMBT will merge with and into First Merchants Bank and the separate corporate existence of ArlingtonMBT will cease. Immediately following the Merger, Monroe Bank & Trust will cease.be consolidated and merged with and into First Merchants Bank and Monroe Bank & Trust will cease to exist as a separate entity. The Articles of Incorporation and Code of Bylaws of First Merchants, Bank, as in effect prior to the Merger, will be the Articles of Incorporation and Code of Bylaws of First Merchants Bank after the Merger.
Representations and Warranties
The Merger Agreement contains some customary representations and warranties made both by Arlington Bank on the one handMBT and First Merchants, and First Merchants Bank on the other hand, including representations and warranties relating to:
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The representations and warranties in the Merger Agreement will not survive the effective date of the Merger or the termination of the Merger Agreement. After the effective date of the Merger or termination of the Merger Agreement, neithernone of the parties to the Merger Agreement, nor their respective subsidiaries, or the respective officers and directors of any of them will have any liability for any of their representations and warranties made in the Merger Agreement unless the Merger Agreement is terminated as a result of a willful breach, in which case the non-breaching party may recover appropriate damages from the breaching party.
Conditions to Completion of the Merger
First Merchants’ and Arlington Bank’sMBT’s obligations to complete the Merger are subject to the satisfaction of the following conditions, among other things, at or prior to the effective time of the Merger:
| 1. | the approval of the Merger Agreement at the special meeting by |
| 2. | the receipt of all regulatory approvals required for the Merger and the Bank Merger and the expiration of any regulatory waiting periods prior to consummation of the Merger; |
| 3. | the representations and warranties made by the parties in the Merger Agreement must be true, accurate and correct in all material respects on and as of the effective date of the Merger, except that representations and warranties that are qualified by materiality or a Material Adverse Effect (as defined below) must be true and correct in all respects, and provided that for those representations and warranties which address matters only as of an earlier date, then they shall be tested as of such earlier date. For the purpose of the Merger Agreement, a “Material Adverse Effect” means any effect, circumstance, occurrence or change that (i) is material and adverse to the financial position, results of operations or business of |
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that in no event shall a change in the trading price of the First Merchants common stock, by itself, be considered to constitute a Material Adverse Effect on First Merchants (it being understood that the foregoing proviso shall not prevent or otherwise affect a determination that any effect underlying such decline has resulted in a Material Adverse Effect);
| 4. | the covenants made by the parties must have been complied with in all material respects from the date of the Merger Agreement through and as of the effective date of the Merger; |
| 5. | First Merchants must have received an opinion of Bingham Greenebaum Doll LLP that, for U.S. federal income tax purposes, the Merger will be treated as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code; |
| 6. |
| the Registration Statement on Form S-4, of which this proxy statement and prospectus is a part, relating to the First Merchants 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 SEC; |
| the shares of First Merchants common stock to be issued in the Merger shall have been listed for trading on |
| there must be no order, decree or injunction of a court or agency of competent jurisdiction which enjoins or prohibits the consummation of the Merger or the Bank Merger; and |
| receipt by each party of an officer’s certificate, certain legal opinions and various closing documents. |
The conditions to completion of the Merger are subject to waiver by the party benefiting from such condition. The conditions may also be altered by the written agreement of both parties. If these and other conditions are not satisfied or waived, First Merchants and/or Arlington Bank may terminate the Merger Agreement. See “THE MERGER AGREEMENT—Termination; Waiver; Amendment,” “THE MERGER—Regulatory Approvals,” “THE MERGER—Interests of Certain Persons in the Merger,” “MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES,” andAnnex A.
Termination; Waiver; Amendment
First Merchants and Arlington BankMBT may terminate the Merger Agreement at any time before the Merger is completed, including after the Arlington BankMBT shareholders have approved the Merger, if one of the events which gives the party the right to terminate occurs. The Merger Agreement may be terminated:
| 1. | by mutual consent of First Merchants and |
| 2. | by either First Merchants or |
| 3. | by either First Merchants or |
| 4. | by either First Merchants or |
| 5. | by either First Merchants or |
| 6. | by either First Merchants or |
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| 7. | by either First Merchants or |
| 8. | by |
| 9. | by First Merchants if |
| 10. | by First Merchants if |
| 11. | by First Merchants if |
| 12. | by |
| (i) | the FMC Market Value is less than 80% of the Initial FMC Market Value; and |
| (ii) | the quotient obtained by dividing the FMC Market Value by the Initial FMC Market Value (“Buyer Ratio”) shall be less than the quotient obtained by dividing the Final Index Price by the Initial Index Price, minus 0.20 (the “Index Ratio”). |
If Arlington BankMBT elects to exercise its termination right pursuant to this clause 12, it must give prompt written notice thereof to First Merchants. During the five (5) business day period commencing with its receipt of such notice, First Merchants shall have the option to increase the Exchange Ratio, at its sole discretion, to (x) the quotient, the numerator of which is equal to the product of the Initial FMC Market Value, the Exchange Ratio (as then in effect) and the Index Ratio, and the denominator of which is equal to the FMC Market Value, or (y) the quotient determined by dividing the Initial FMC Market Value by the FMC Market Value, and multiplying the quotient by the product of the Exchange Ratio (as then in effect) and 0.80. If First Merchants so elects, it shall give, within such five (5) business day period, written notice to Arlington BankMBT of such election and the revised Exchange Ratio, whereupon no termination shall be deemed to have occurred pursuant to this Section 10.1(i)clause 12 and thisthe Merger Agreement shall remain in full force and effect in accordance with its terms, except as the Exchange Ratio shall have been so modified.
For purposes of this clause 12, the following terms shall have the meanings indicated below:
“Determination Date” shall mean the later of the date on which (i) all regulatory approvals required pursuant to Section 9.4 (andthe Merger Agreement (see clause 2 under “Conditions to Completion of the Merger” above), and waivers, if applicable)applicable, have been received (disregarding any waiting period), and (ii) the approval of thisthe Merger Agreement, the Merger and any other matter required to be approved by the shareholders of Arlington BankMBT in order to consummate the Merger and the transactions contemplated herein is obtained.
“Final Index Price” means the average of the closing price of the Index on each of ten (10) consecutive trading days immediately preceding the Determination Date.
“FMC Market Value” shall be the average of the daily closing sales prices of a share of First Merchants Common Stock as reported on NASDAQ for the ten (10) consecutive trading days immediately preceding the Determination Date.
“Index” means the NASDAQ Bank Index; provided, however, that if the NASDAQ Bank Index is not available for any reason, “Index” shall mean such substitute or similar index as substantially replicates the NASDAQ Bank Index.
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“Initial FMC Market Value” means the average of the daily closing sales prices of a share of First Merchants Common Stock, as reported on NASDAQ, for the ten (10) consecutive trading days immediately preceding the date of thisthe Merger Agreement.
“Initial Index Price” means the average of the closing prices of the Index for the ten (10) consecutive trading days immediately preceding the date of thisthe Merger Agreement.
If First Merchants or any company belonging to the Index declares or effects a stock split, stock dividend, recapitalization, reclassification, or similar transaction with respect to the outstanding common stock, and the record date therefor shall be after the date of thisthe Merger Agreement and prior to the Determination Date, the prices for the common stock of such company shall be proportionately and appropriately adjusted for the purpose of applying this Section 10.1(i).clause 12.
Upon termination for any of these reasons, the Merger Agreement will be void and of no further force or effect. However, if either First Merchants or Arlington BankMBT willfully breaches any of the representations and warranties or agreements set forth in the Merger Agreement, then the other party will be entitled to recover appropriate damages for the breach. Notwithstanding the foregoing, if First Merchants terminates the Merger Agreement under itemsclauses 9, 10 or 11 above or if Arlington BankMBT terminates the Merger Agreement in accordance with itemclause 8 above, Arlington BankMBT must pay First Merchants $3,000,000$12,680,000 as a termination fee to reimburse First Merchants for the considerable time and expense invested by First Merchants in furtherance of the Merger. Additionally, if the Merger Agreement is terminated by either party pursuant to clause 7 above as a result of the failure to obtain any of the required regulatory approvals and such failure is a result of a regulatory issue directly and solely related to First Merchants, First Merchants shall pay to MBT an amount in cash equal to $2,500,000 as a termination fee to reimburse MBT for the considerable time and expense invested by MBT in furtherance of the Merger.
First Merchants and Arlington BankMBT can agree to amend the Merger Agreement and can waive their right to require the other party to adhere to the terms and conditions of the Merger Agreement, where the law allows. However, First Merchants and Arlington BankMBT cannot amend the Merger Agreement after the Arlington BankMBT shareholders approve the Merger without their further approval if the amendment would decrease the Merger considerationConsideration or materially adversely affect the rights of Arlington BankMBT shareholders or the tax consequences of the Merger to the shareholders of Arlington Bank.MBT.
Restrictions Affecting the Parties Prior to Completion of the Merger
The Merger Agreement contains a number of restrictions regarding the conduct of the business of First Merchants, Arlington BankMBT and the Subsidiaries until the Merger is completed. Among other items and subject to certain limited exceptions, Arlington BankMBT and the Subsidiaries may not take any of the following actions, without the prior written consent of First Merchants:
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ordinary course of business consistent with past practice, property acquired or disposed of in connection with foreclosures of mortgages or enforcement of security interests, loans in the ordinary course of business and deposit liabilities and advances from the Federal Home Loan Bank in each case in the ordinary course of business;
In addition, until the Merger is consummated or the Merger Agreement is terminated, First Merchants and Arlington BankMBT shall carry on their business diligently and in the ordinary course of business and use their best efforts to preserve their business organizations and existing business relationships intact.
This discussion of the restrictions imposed by the Merger Agreement is not intended to be exhaustive, but includes material restrictions imposed on the parties. Please refer to the Merger Agreement, attached asAnnex A, for a complete listing of the restrictions.
First Merchants and Arlington BankMBT will pay their own fees, costs, and expenses incurred in connection with the Merger, including the fees of any investment bankers engaged by such party.
First Merchants Bank will be the surviving corporation in the Merger and Arlington Bank’sMBT’s separate corporate existence will cease. Accordingly, the directors and officers of Arlington BankMBT will no longer serve in such capacities after the completion of the Merger. Similarly, First Merchants Bank will be the surviving banking subsidiary in the consolidation and merger with Monroe Bank & Trust (the “Bank Merger”) and Monroe Bank & Trust’s separate corporate existence will cease.
The directors of First Merchants and First Merchants Bank immediately prior to the Merger will continue to be the directors of First Merchants and First Merchants Bank following the Merger and the Bank Merger, respectively, until they resign or until their respective successors are duly elected and qualified. However, the Merger Agreement obligates First Merchants to appoint one person who is currently a member of the MBT Board of Directors (chosen by First Merchants after consultation with MBT) to the First Merchants Board of Directors. As of the date of this proxy statement and prospectus, it has not yet been determined which
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MBT director will be appointed to the First Merchants Board of Directors. Additionally, all members of the Board of Directors of Monroe Bank & Trust, who have agreed to serve in such capacity and would not otherwise be prohibited to serve under applicable law, will be appointed to First Merchants Bank’s Michigan regional advisory board, as soon as practicable after the effective time of the Merger.
The officers of First Merchants and First Merchants Bank immediately prior to the Merger will continue to be the officers of First Merchants and First Merchants Bank following the Merger and the Bank Merger, respectively, until they resign or until their successors are duly elected and qualified.
Indemnification and Insurance of Arlington BankMBT Directors and Officers
First Merchants has agreed to indemnify and hold harmless each director and officer of ArlingtonMBT and Monroe Bank & Trust for six (6) years after the effective time of the Merger in connection with any losses arising out of the fact that any such person is or was a director or officer of ArlingtonMBT or Monroe Bank & Trust at or prior to the effective time of the Merger to the same extent as would have been available under the articlesArticles of incorporation, bylawsIncorporation, Bylaws or other indemnification agreement of Arlington Bank.MBT and Monroe Bank & Trust.
In addition, First Merchants has agreed to use its reasonable best efforts to include Arlington Bank’sMBT’s and Monroe Bank & Trust’s present and former directors and officers on its existing insurance, or to obtain directors’ and officers’ liability insurance “tail” policy coverage for Arlington Bank’sMBT’s and Monroe Bank & Trust’s present and former directors and executive officers, for a period of 6six (6) years (the “Tail Coverage Period”), which will provide the directors and officers with coverage containing terms no less advantageous than the coverage currently provided by Arlington BankMBT to such directors and officers for claims based on activity prior to the effective time of the Merger. However, for each year of the Tail Coverage Period, First Merchants has no obligation during the 6-year period to pay an aggregate amount in excess of $25,000premiums which is more than 1.5 times the current annual amount spent by MBT to maintain Arlington Bank’sits current directors’ and officers’ insurance coverage. If First Merchants is unable to obtain the coverage described above, First Merchants has agreed to use its reasonable best efforts to obtain as much comparable insurance as is available.
After the Merger, Arlington Bank’sMBT’s and Monroe Bank & Trust’s officers and employees who become officers, directors or employees of First Merchants or its subsidiaries shall have the same directors and officers insurance coverage and indemnification protection that First Merchants provides to other officers, directors and employees of First Merchants or its subsidiaries.
The Merger Agreement provides that the current employees of Arlington BankMBT and the Subsidiaries who continue as employees of First Merchants or its subsidiaries following the Merger will be entitled to participate in the employee benefit plans of First Merchants. In addition, the Merger Agreement requiresWith respect to each employee benefit plan or benefit arrangement maintained by First Merchants to the extent necessary, to amend each of its employee benefit plans in which former Arlington Bank employees are toof MBT or the Subsidiaries subsequently participate, sofor purposes of determining eligibility, vesting, vacation and severance entitlement, First Merchants will ensure that service of such employees with ArlingtonMBT or the Subsidiaries will be treated as service with First Merchants; provided, however, that service with MBT or the Bank willshall not be treated as service with First Merchants for eligibility, vesting, vacation and severance entitlement purposes under such plans, but not forof benefit accrual, except with respect to severance benefits.
Each member of the Board of Directors has entered into a voting agreement with First Merchants as of the date of the Merger Agreement whereby the parties have agreed, subject to their fiduciary duties to entertain a superior third-party acquisition proposal under the Merger Agreement, to vote, or cause to be voted, all of their Arlington Bankshares of MBT common sharesstock and shares owned by certain affiliates over which they have voting control in favor of the Merger Proposal. ThePatriot Partners and Castle Creek, two significant shareholders of MBT, have also entered into the same voting agreement. As of the record date, the number of shares of common stock subject to thissuch voting agreement is 276,258 Arlington Bank5,092,450 shares of MBT common shares outstanding,stock, representing 36.28%22.1% of the outstanding shares on that date.shares.
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the material federal income tax consequences of the Merger to U.S. Holders (as hereinafter defined) of Arlington BankMBT common sharesstock that exchange their Arlington Bankshares of MBT common sharesstock for shares of First Merchants common stock. The following discussion is based on current provisions of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”),the Treasury Regulations promulgated thereunder, published pronouncements of the Internal Revenue Service (the “IRS”) and case law, all as currently in effect and which are subject to differing interpretations and subject to change at any time by legislative, judicial or administrative action, possibly with retroactive effect. This discussion is limited to U.S. Holders, who hold their Arlington Bankshares of MBT common sharesstock as capital assets for U.S. federal income tax purposes (generally, assets held for investment).
This discussion does not address the federal income tax consequences of shareholders who are not U.S. Holders, nor does it address all of the tax consequences relevant to certain U.S. Holders including, but not limited to, S corporations, partnerships or other pass-through entities (including investors in pass-through entities), financial institutions, insurance companies, tax-exempt organizations, trusts described in sectionsSections 1361(c)(2)(A) and 1361(d)) of the Internal Revenue Code, dealers in securities or currencies, traders in securities that use a mark to market method of accounting, persons who hold Arlington BankMBT common sharesstock as part of a straddle, hedge, constructive sale conversion or other integrated transaction, persons who acquired their Arlington Bankshares of MBT common sharesstock through the exercise of an employee stock option or otherwise as compensation or through a tax-qualified plan, regulated investment companies, real estate investment trusts and foreign persons or persons whose “functional currency” is not the U.S. dollar. This discussion also does not address the tax consequences of persons who are subject to alternative minimum tax, nor does it address the tax consequences of the Merger under state, local or foreign tax laws.
All U.S. Holders including, but not limited to, the U.S. Holders referenced immediately above, should consult their own tax advisors about the tax consequences of the Merger to them.
For purposes of this discussion, the term “U.S. Holder” means a beneficial owner of Arlington BankMBT common shares stock that for U.S. federal income tax purposes is an individual who is a citizen or resident of the U.S., a corporation or entity taxed as a corporation that was organized under the laws of the U.S. or any state or the District of Columbia, an estate the income of which is subject to U.S. federal income tax regardless of its source, or a trust that (i) is subject to the supervision of a court within the U.S. and the control of one (1) or more U.S. Persons (as(as hereinafter defined) or (ii) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. Person. For purposes of this discussion, “U.S. Person” shall have the meaning ascribed to it by sectionSection 7701(a)(30) of the Internal Revenue Code.
Tax Consequences of the Merger Generally
The parties intend for the Merger to qualify as a “reorganization” under sectionSection 368(a) of the Internal Revenue Code for U.S. federal income tax purposes. It is a condition to the obligation of First Merchants to complete the Merger that First Merchants obtain an opinion from the law firm of Bingham Greenebaum Doll LLP that the Merger to be effected pursuant to the Merger Agreement constitutes a reorganization under section 368(a) of the Internal Revenue Code.
It is a condition to the obligationclosing of Arlington Bank to complete the Merger that Arlington Bank receive a letter from the law firm of Bingham Greenebaum Doll LLP addressed to the shareholders of Arlington Bank, dateddeliver an opinion, effective as of the effective date of the Merger,on or about this proxy statement and prospectus, to First Merchants substantially to the effect that, such shareholders mayfor United States federal income tax purposes, the Merger will be treated as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code. Such opinion will comply with the regulations and guidance of the SEC with respect to the persons entitled to rely on the opinion referencedtax opinions contained in the preceding sentence.Registration Statement on Form S-4, of which this proxy and prospectus is a part.
The obligation of Bingham Greenebaum Doll LLP to deliver such opinion and reliance letter is conditioned on the Merger satisfying the statutory and regulatory requirements of a “reorganization.” The determination by tax counsel as to whether the Merger will be treated as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code is based on the facts and law existing as of the effective date of the Merger.
This opinion will be subject to customary qualifications and assumptions, including that the Merger will be completed according to the terms of the Merger Agreement. In rendering the tax opinion, such counsel may require and rely on factual representations of First Merchants and Arlington Bank.MBT. If any of such assumptions or representations is or becomes inaccurate, the U.S. federal income tax consequences of the Merger could be adversely affected. Neither theThe opinion nor the reliance letter will not be binding on the IRS. First Merchants and Arlington BankMBT do not intend to request any ruling from the IRS as to the U.S. federal income tax consequences of the Merger. Consequently, no assurance can be given that the IRS will not assert, or that a court will not sustain, a position contrary to any of the tax consequences set forth below or any of the tax consequences described in the tax opinion.
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Tax Consequences to First Merchants, First Merchants Shareholders and Arlington BankMBT
No gain or loss will be recognized by First Merchants, First Merchants shareholders or Arlington BankMBT with respect to the Merger.
Tax Consequences of the Merger to U.S. Holders of Arlington BankMBT Common Stock
In general, a U.S. Holder who receives First Merchants common stock in exchange for Arlington BankMBT common sharesstock will not recognize any gain or loss on the exchange for U.S. federal income tax purposes, except with respect to cash received in lieu of fractional shares of First Merchants common stock (as discussed below). The aggregate tax basis of First Merchants common stock received by a U.S. Holder in exchange for their Arlington BankMBT common sharesstock (including any fractional shares of First Merchants common stock deemed received and redeemed for cash as described below) will be equal to the U.S. Holder’s aggregate adjusted tax basis in their Arlington BankMBT common sharesstock exchanged. In addition, the holding period of the First Merchants common stock received in the Merger (including any fractional shares of First Merchants common stock deemed received and redeemed for cash as described below) generally will include the holding period of Arlington BankMBT common sharesstock surrendered in the exchange. If a U.S. Holder acquired different blocks of Arlington BankMBT common sharesstock at different times or at different prices, the First Merchants common stock received in the Merger will be allocated pro rata to each block of Arlington BankMBT common shares,stock, and the basis and holding period of each block of First Merchants common stock received will be determined on a block-for-block basis depending on the basis and holding period of the blocks of Arlington BankMBT common sharesstock exchanged for such block of First Merchants common stock.
A U.S. Holder who receives cash in lieu of fractional shares of First Merchants common stock will be treated as having received such fractional share of First Merchants common stock pursuant to the Merger and then as having sold that fractional share of First Merchants common stock for cash. As a result, a U.S. Holder will generally recognize gain or loss equal to the difference between the amount of cash received and the U.S. Holder’s basis in the fractional share of First Merchants common stock determined as described above. Any resultant gain or loss will be capital in nature, and will be long-term or short-term, depending on the period of time the exchanged Arlington BankMBT common sharesstock were held. The deductibility of capital losses is subject to limitations.
Information Reporting and Backup Withholding
Cash payments received in the Merger by a U.S. Holder may, under certain circumstances, be subject to information reporting and backup withholding, unless the U.S. Holder provides proof of an applicable exemption, furnishes its taxpayer identification number (in the case of individuals, their social security number) and otherwise complies with all applicable requirements of the backup withholding rules. Any amounts withheld from payments to a U.S. Holder under the backup withholding rules are not an additional tax and will be allowed as a refund or credit against the U.S. Holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS.
U.S. Holders who are “significant holders” and receive First Merchants common stock in exchange for Arlington BankMBT common sharesstock are required to file a statement with their U.S. federal income tax return setting forth certain information, including, but not limited to, their tax basis (determined immediately before the Merger) in the Arlington BankMBT common sharesstock exchanged in the Merger and the fair market value (determined immediately before the Merger) of the Arlington BankMBT common sharesstock exchanged in the Merger. A “significant holder” is a holder of Arlington BankMBT common stock who immediately before the Merger (i) owned at least 1%5% of the total outstanding stock of Arlington BankMBT by vote or by value or (ii) owned stock of Arlington BankMBT with a tax basis of at least $1 million.
All Arlington BankMBT shareholders will be required to retain permanent tax records of the tax basis of Arlington BankMBT common sharesstock exchanged and the First Merchants common stock and cash received in the Merger.
This discussion is of a general nature only, is not exhaustive, and is not intended to be, nor should it be construed to be, legal or tax advice to any particular shareholder. Because of the complexity of the tax law and because of the unique tax consequences to the shareholders following the Merger, each shareholder is strongly urged to consult such shareholder’s own tax advisor as to the particular tax consequences to such shareholder of the Merger, including the applicability and effect of federal, state, local, foreign and other tax laws in such shareholder’s particular circumstances.
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DESCRIPTION OF FIRST MERCHANTS
The following information should be read with the financial statements incorporated by reference into this proxy statement and prospectus.
First Merchants is a financial holding company headquartered in Muncie, Indiana and was organized in September 1982. First Merchants common stock is listed on The NASDAQ Global Select Market under the symbol “FRME.”
First Merchants has one full-service Indiana commercial bank charter, First Merchants Bank, which opened for business in Muncie, Indiana, in March 1893. First Merchants Bank also operates Lafayette Bank and Trust and First Merchants Private Wealth Advisors as divisionsa division of First Merchants Bank. First Merchants Bank includes over 106 bankinghas 116 full-service branch locations in 27thirty-one Indiana, two Illinois and two Ohio counties. In addition to its branch network, First Merchant Banks’s delivery channels include ATMs, check cards, remote deposit capture, interactive voice response systems and internet technology. First Merchants Bank’s business activities are currently limited to one significant business segment, which is community banking. First Merchants Bank offers a broad range of financial services, including accepting time deposits, savings and demand deposits; making consumer, commercial, agri-business and real estate mortgage loans; renting safe deposit facilities; providing personal and corporate trust services; providing full-service brokerage and private wealth management; and providing letters of credit, repurchase agreements and other corporate services.
As of December 31, 2016,September 30, 2018, First Merchants had consolidated assets of $7.2$9.8 billion, consolidated deposits of $5.6$7.6 billion and shareholders’ equity of $902 million.$1.4 billion. As of December 31, 2016,2017, First Merchants and its subsidiaries had 1,4491,684 full-time equivalent employees.
First Merchants’ principal office is located at 200 East Jackson Street, Muncie, Indiana 47305. Its telephone number is (765) 747-1500.
Incorporation of Certain Information Regarding First Merchants by Reference
The foregoing information concerning First Merchants does not purport to be complete. Certain additional information relating to First Merchants’ business, management, executive officer and director compensation, voting securities and certain relationships is incorporated by reference in this document from other documents filed by First Merchants with the SEC and listed under “WHERE YOU CAN FIND ADDITIONAL INFORMATION” on page [●]71. If you desire copies of any of these documents, you may contact First Merchants at its address or telephone number indicated under “WHERE YOU CAN FIND ADDITIONAL INFORMATION” on page [●]71.
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DESCRIPTION OF ARLINGTON BANKMBT
ArlingtonMBT Financial Corp. (“MBT”) is a bank holding company as defined by the Bank is an Ohio savings bankHolding Company Act of 1956, as amended (the “BHCA”) headquartered in Upper Arlington, Ohio. ArlingtonMonroe, Michigan. It was incorporated under the laws of the State of Michigan in January 2000, at the direction of the management of Monroe Bank has been operating& Trust, for the purpose of becoming a bank holding company by acquiring all the outstanding shares of Monroe Bank & Trust.
Monroe Bank & Trust was incorporated and chartered as Monroe State Savings Bank under the laws of the State of Michigan in 1905. In 1940, Monroe Bank & Trust consolidated with Dansard Bank and moved to the Columbus, Ohio market since 1999present address of its main office at 10 Washington Street, Monroe, Michigan 48161. Monroe Bank & Trust operated as a unit bank until 1950 when it opened its first branch office in Ida, Michigan. It then continued its expansion to its present total of 20 branch offices, including its main office. Monroe Bank & Trust changed its name from “Monroe State Savings Bank” to “Monroe Bank & Trust” in 1968.
Monroe Bank & Trust provides customary retail and now servescommercial banking and trust services to its customers, through threeincluding checking and savings accounts, time deposits, safe deposit facilities, commercial loans, personal loans, real estate mortgage loans, installment loans, IRAs, ATM and night depository facilities, treasury management services, telephone and internet banking, center locations. Arlingtonpersonal trust, employee benefit and investment management services. Monroe Bank employed 67 full-time equivalent employees& Trust’s service areas are comprised of Monroe, Wayne, and Lenawee counties in Southern Michigan.
Monroe Bank & Trust’s deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”) to applicable legal limits and Monroe Bank & Trust is supervised and regulated by the FDIC and Michigan Office of Financial and Insurance Regulation.
Incorporation of Certain Information Regarding MBT by Reference
The foregoing information concerning MBT does not purport to be complete. Certain additional information relating to MBT’s business, management, executive officer and director compensation, voting securities and certain relationships is incorporated by reference in this document from other documents filed by MBT with the SEC and listed under “WHERE YOU CAN FIND ADDITIONAL INFORMATION” on page 71. If you desire copies of any of these documents, you may contact MBT at December 31, 2016.
At December 31, 2016, Arlington Bank had assets of approximately $309 million, deposits of approximately $262 million, and shareholders’ equity of approximately $34 million.
Arlington Bank’s principal office is located at 2130 Tremont Center Upper Arlington, Ohio 43221. Itsits address or telephone number is (614) 486-9000.
Market, Dividend and Other Information
As of the date of this proxy statement and prospectus, Arlington Bank’s authorized capital consisted of 10,000,000 common shares, $0.50 par value, of which [●] common shares were issued and outstanding, and 1,000,000 preferred shares, $0.50 par value, none of which were issued and outstanding. At the close of business on the record date of [●], 2017, there were approximately [●] shareholders of record.
Arlington Bank common shares are not listed on an exchange or quoted on any automated services, no established public trading market exists for Arlington Bank’s common shares and, to the knowledge of Arlington Bank, no brokerage or other firm makes a market in Arlington Bank common shares. While shares are very occasionally transferred between individuals for consideration, the economic terms of those private transactions may or may not be known to the Arlington Bank’s management.
As of the date of this proxy statement and prospectus, a total of 2,250 Arlington Bank common shares were subject to issuance upon exercise of outstanding stock options at a weighted average exercise price of $33.40. Arlington Bank has agreed in the Merger Agreement that it will not issue any additional stock options or restricted stock awards without the consent of First Merchants prior to the effective time of the Merger or termination of the Merger Agreement.
The following table presents the payment date and amount of all cash dividends paid by Arlington Bank during the period from January 1, 2015 through the date of this this proxy statement and prospectus:
Cash Dividend Payment Date | Amount Per Share | |||
December 10, 2015 | $ | 3.00 | ||
December 14, 2016 | $ | 3.00 | ||
Arlington Bank does not have any equity compensation plansindicated under which equity securities are authorized for issuance.
Beneficial Ownership of Arlington Bank Common Shares
See “THE ARLINGTON BANK SPECIAL MEETING—Beneficial Ownership of Arlington Bank Common Shares by Certain Shareholders”“WHERE YOU CAN FIND ADDITIONAL INFORMATION” on page [●] of this proxy statement and prospectus71.
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The following summary comparison of First Merchants common stock and Arlington BankMBT common sharesstock includes the material features of such stocks and the material differences in the rights of holders of shares of such stocks. Because this is a summary, it does not contain all of the information that is important to you and is qualified in its entirety by reference to First Merchants’ Articles of Incorporation and Bylaws and Arlington Bank’sMBT’s Articles of Incorporation Constitution and Bylaws.
Governing Law
Following the Merger, the rights of former Arlington BankMBT shareholders who receive First Merchants common stock in the Merger will be governed by the laws of the State of Indiana, the state in which First Merchants is incorporated, and by First Merchants’ Articles of Incorporation and Bylaws. The rights of Arlington BankMBT shareholders are presently governed by the laws of the State of Ohio,Michigan, the state in which Arlington BankMBT is incorporated, and by Arlington Bank’sMBT’s Articles of Incorporation Constitution and Bylaws. The rights of Arlington BankMBT shareholders differ in certain respects from the rights they will have as First Merchants shareholders, including certain preferential rights of preferred stockholders, anti-takeover measures, the vote required for the amendment of certain significant provisions of the Articles of Incorporation and for the approval of certain significant corporate transactions.
Authorized But Unissued Shares
First Merchants | MBT | |
First Merchants’ Articles of Incorporation authorize the issuance of 2018. First Merchants’ Board of Directors may authorize the issuance of additional shares of common stock up to the amounts authorized in First Merchants’ Articles of Incorporation without shareholder approval, subject only to the restrictions of the Indiana Business Corporation Law and the Articles of Incorporation. First Merchants has 500,000 shares of preferred stock | ||
| issued, without prior shareholder approval, in classes with the rights, privileges and preferences determined for each class by the Board of Directors of First Merchants. | The | its Articles of Incorporation. | |
As of | |||
The issuance of additional shares of First Merchants common stock or the issuance of additional First Merchants preferred stock may adversely affect the interests of First Merchants shareholders by diluting their voting and ownership interests. | |||
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Restrictions on Transfer of Shares
First Merchants | MBT | |
The holders of First Merchants common stock are generally not restricted on sales of their shares. The shares are also registered under Section 12 of the Securities and Exchange Act of 1934 (the “Exchange Act”) and listed for exchange on The NASDAQ Global Select Market. As a result, a public market exists for the shares of common stock. | The holders of MBT common stock are generally not restricted on sales of their shares. The shares are | |
Preemptive Rights
Neither First Merchants’ Articles of Incorporation nor Arlington Bank’sMBT’s Articles of Incorporation and Constitution provide for preemptive rights for shareholders to subscribe for any new or additional shares of common stock.
Dividend Rights
First Merchants | MBT | |||||
The holders of First Merchants common stock are entitled to dividends and other distributions when, as and if declared by its Boards of Directors. | The holders of MBT common stock are entitled to dividends and other distributions when, as and if declared by its Boards of Directors. Dividends may be paid in cash, in property or in MBT’s stock. | |||||
Generally, First Merchantsmay notpay a dividend if, after giving effect to the dividend: | Generally, MBT may not pay a dividend if, after giving effect to the dividend: | |||||
• | First Merchants would not be able to pay its debts as they become due in the usual course of business; or | • | MBT would not be able to pay its debts as they become due in the usual course of business; or | |||
• | First Merchants’ total assets would be less than the sum of its total liabilities plus the amount that would be needed to satisfy preferential rights of shareholders payable upon dissolution. | • | MBT’s total assets would be less than the sum of its total liabilities plus the amount that would be needed to satisfy preferential rights of shareholders payable upon dissolution. | |||
The amount of dividends, if any, that may be declared by First Merchants in the future will necessarily depend upon many factors, including, among other things, future earnings, capital requirements, business conditions and capital levels of subsidiaries (since First Merchants is primarily dependent upon dividends paid by its subsidiaries for revenues), the discretion of First Merchants’ Board of Directors and other factors that may be appropriate in determining dividend policies.
|
| |||||
First Merchants Bank will ordinarily be restricted to paying dividends in a lesser amount to First Merchants than is legally permissible because of the need for the banks to maintain adequate capital consistent with the capital adequacy guidelines promulgated by the banks’ | MBT’s ability to pay dividends on its common stock depends on its receipt of dividends from Monroe Bank & Trust. Monroe Bank & Trust is subject to restrictions and limitations in the amount and timing of the dividends it may pay to the Corporation. Dividends may be paid out of a Michigan commercial bank’s net income after deducting all bad debts. A Michigan commercial bank may only pay dividends on its common stock if the bank has a surplus amounting to not less than 20% of its capital after the payment of the dividend. If a bank has a surplus less than the amount of its capital, it may not declare or pay any dividend until an amount equal to at least 10% of net income for the preceding one-half year (in the case of quarterly or semi-annual dividends) or at least 10% of net income of the preceding two consecutive half-year periods (in the case of annual dividends) has been transferred to surplus. Federal law also affects the ability of a Michigan commercial bank to pay dividends. The FDIC’s prompt | |||||
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First Merchants | MBT | ||||
principal federal regulatory authorities. If a bank’s capital levels are deemed inadequate by the regulatory authorities, payment of dividends to its parent holding company may be prohibited. First Merchants Bank is not currently subject to such a restriction. | corrective action regulations prohibit an insured depository institution from making capital distributions, including dividends, if the institution has a regulatory capital classification of “undercapitalized,” or if it would be undercapitalized after making the distribution. The FDIC may also prohibit the payment of dividends if it deems any such payment to constitute an unsafe and unsound banking practice. In addition, the Basel III capital rules include a capital conservation buffer that prohibits or limits the dividends a bank can pay if its risk-based capital ratios fall below certain thresholds. | ||||
Voting Rights
The holders of the outstanding shares of common stock of First Merchants and Arlington BankMBT are entitled to one (1) vote per share on all matters presented for shareholder vote. Neither First Merchants nor MBT shareholders do not have cumulative voting rights in the election of directors. Arlington Bank shareholders may vote cumulatively in the election of directors pursuant to the OGCL.
Articles of Incorporation and Bylaw and Constitution Amendments
First Merchants | MBT | |
Indiana law generally requires shareholder approval for most amendments to a corporation’s articles of incorporation by a majority of a quorum at a shareholder’s meeting (and, in certain cases, a majority of all shares held by any voting group entitled to vote). However, Indiana law permits a corporation in its articles of incorporation to specify a higher shareholder vote requirement for certain amendments. First Merchants’ Articles of Incorporation require a super-majority shareholder vote of
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By majority vote of the outstanding shares, the shareholders of
| |
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Special Meetings of Shareholders
First Merchants | MBT | |
First Merchants’ Bylaws provide that a special meeting of shareholders may be called by the Board of Directors, the President, at the written request of a majority of the Board of Directors or at the written request of shareholders holding at least one-fourth (1/4) of all | ||
| shares outstanding and entitled to vote on business for which the meeting is called. | MBT’s Bylaws provide that a special meeting of shareholders may be called at any time by a majority of the Board of Directors |
Number of Directors and Term of Office
First Merchants | MBT | ||
First Merchants’ Articles of Incorporation provide that the number of directors shall be set in the Bylaws by the Board of Directors and shall be at least 9 and no more than 15. First Merchants’ Articles of Incorporation also provide for classes of directors with staggered terms. Amendment of this provision of First Merchants’ Articles of Incorporation requires the approval of three-fourths (3/4) of the voting stock. First Merchants’ Bylaws specify that the number of directors is 10. The Bylaws provide that the number of directors may be amended only by a two-thirds (2/3) vote of the entire Board of Directors. Consistent with its Articles of Incorporation, First Merchants’ Bylaws provide that the Board of Directors is divided into 3 classes with 4 directors in 1 of the classes and 3 directors in the other 2 classes. The directors in each class are elected for 3-year staggered terms. Thus, approximately only one-third (1/3) of First Merchants’ Board of Directors is elected at each annual meeting of shareholders. Because First Merchants’ Board of Directors is divided into classes, a majority of First Merchants’ directors can be replaced only after 2 annual meetings of shareholders. A two-thirds (2/3) vote of the entire Board of Directors is required to amend this provision of First Merchants’ Bylaws. | First Merchants’ Board of Directors | MBT’s Bylaws provide that the Directors shall be elected | |
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Nomination of Directors
First Merchants | MBT | |||
Under First Merchants’ Bylaws, only the Nominating and Governance Committee of the Board of Directors may nominate a candidate for the Board of Directors. Shareholders may suggest a person for nomination by sending a notice to the Committee setting forth at a minimum: | MBT’s Bylaws provide that the Board of Directors or any shareholder entitled to vote may nominate a candidate for election to the Board of Directors; provided, however, that a shareholder must comply with the advance notice procedures and provision of information requirements set forth in MBT’s Bylaws. Under MBT’s Corporate Governance Guidelines and Directors’ Policy, the Governance Committee of the Board will consider recommendations for nominations received from shareholders. The recommendation must include the name, age, business address, residence address, principal occupation of and number of shares of the MBT owned by the recommended candidate for nomination and the information that would be required to be disclosed in the solicitation of proxies for the election of directors under federal securities laws, including the candidate’s consent to be elected and to serve. | |||
• | the name and address of each suggested nominee; | |||
• | the age and principal occupation of each suggested nominee; | |||
• | the total number of shares of First Merchants capital stock held by the notifying shareholder; and |
| ||
• | the name and residence address of the notifying shareholder. |
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Removal of Directors
First Merchants | MBT | |
First Merchants’ Articles of Incorporation and Bylaws provide that any director or all directors may be removed, with or without cause, at a meeting of shareholders upon the vote of the holders of not less than two-thirds (2/3) of the outstanding shares entitled to vote on the election of directors. However, if | MBT Articles of Incorporation provide that any or all of the members of the Board of Directors may be removed in accordance with the provisions of the Michigan Business Corporation Act, which provides that any director or all directors may be removed, | |
First Merchants | MBT |
The anti-takeover measures applicable to First Merchants described below may have the effect of discouraging a person or other entity from acquiring control of either company. These measures may have the effect of discouraging certain tender offers for shares of their common stock which might otherwise be made at premium prices or certain other acquisition | The anti-takeover measures applicable to MBT described below may have the effect of discouraging a person or other entity from acquiring control of either company. These measures may have the effect of discouraging certain tender offers for shares of their common stock which might otherwise be made at premium prices or certain other acquisition transactions |
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First Merchants | MBT |
transactions which might be viewed favorably by a significant number of shareholders. Under Indiana law, any An Indiana corporation may elect to remove itself from the protection provided by the Indiana business combination provision, but such an election remains ineffective for eighteen (18) months and does not apply to a combination with a shareholder who acquired a ten percent (10%) ownership position prior to the election. First Merchants has adopted the protection provided by the business combination provision of Indiana law. In addition to the business combination provision, Indiana law contains a “control share acquisition” provision which, although different in structure from the business combination provision, may have a similar effect of discouraging or making more difficult a hostile takeover of an Indiana corporation. This provision also may have the effect of discouraging premium bids for outstanding shares. Under this provision, unless otherwise provided in the corporation’s articles of incorporation or bylaws, if a shareholder acquires a certain amount of shares, approval of a majority of the disinterested shareholders must be obtained before the acquiring shareholder may vote the control shares. Under certain circumstances, the shares held by the acquirer may be redeemed by the corporation at the fair market value of the shares as determined by the control share acquisition provision. First Merchants is subject to the control share acquisition provision. The constitutional validity | which might be viewed favorably by a significant number of shareholders. The following is a summary description of these provisions: MBT’s Articles of Incorporation authorize the issuance of 50,000,000 shares of common stock. Authorized and unissued shares of common stock provide MBT’s Board of Directors with flexibility to effect, among other transactions, financings, acquisitions, stock dividends, stock splits and employee stock options. However, these additional authorized shares may have an anti-takeover effect due to the potential dilution. The Board of Directors, consistent with its fiduciary duty, could issue additional common shares in amounts sufficient to dilute the voting power of persons who may desire to acquire a controlling interest in MBT. In addition, MBT’s Articles of Incorporation requires the affirmative vote of the holders of at least two-thirds (66 2/3%) of MBT’s outstanding common shares MBT’s Bylaws establish an advance notice procedure for shareholders to nominate directors or bring other business before an annual meeting of shareholders. A person may not In addition, the Michigan Business Corporation Act contains an “anti-takeover” provision. Chapter 7A (the “Fair Price Act”) applies to MBT and may have an anti-takeover effect and may delay, defer or prevent a tender offer or takeover attempt that a shareholder might consider in its best interest, including those attempts that might result in shareholders receiving a premium over market price for their shares. |
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First Merchants | MBT |
of The control share acquisition provision does not apply to |
Anti-Takeover Provisions
The anti-takeover measures applicable to First Merchants and Arlington Bank described below may have the effect of discouraging a person or other entity from acquiring control of either company. These measures may have the effect of discouraging certain tender offers for shares of their common stock which might otherwise be made at premium prices or certain other acquisition transactions which might be viewed favorably by a significant number of shareholders.
First Merchants
Under Indiana law, any 10% shareholder of an Indiana corporation, with a class of voting shares registered under Section 12 of the Exchange Act, such as First Merchants, is prohibited for a period of 5 years from completing a business combination with the corporation unless, prior to the acquisition of such 10% interest, the Board of Directors approved either the acquisition of such interest or the proposed business combination. If such prior approval is not obtained, the corporation and a 10% shareholder may not consummate a business combination unless all provisions of the articles of incorporation are complied with and either a majority of disinterested
shareholders approve the transaction or all shareholders receive a price per share as determined by Indiana law. A corporation may specifically adopt application of the business combination provision in its Articles of Incorporation and obtain the protection provided by this provision.
An Indiana corporation may elect to remove itself from the protection provided by the Indiana business combination provision, but such an election remains ineffective for 18 months and does not apply to a combination with a shareholder who acquired a 10% ownership position prior to the election. First Merchants has adopted the protection provided by the business combination provision of Indiana law.
In addition to the business combination provision, Indiana law contains a “control share acquisition” provision which, although different in structure from the business combination provision, may have a similar effect of discouraging or making more difficult a hostile takeover of an Indiana corporation. This provision also may have the effect of discouraging premium bids for outstanding shares. Under this provision, unless otherwise provided in the corporation’s articles of incorporation or bylaws, if a shareholder acquires a certain amount of shares, approval of a majority of the disinterested shareholders must be obtained before the acquiring shareholder may vote the control shares. Under certain circumstances, the shares held by the acquirer may be redeemed by the corporation at the fair market value of the shares as determined by the control share acquisition provision. First Merchants and Arlington Bank are subject to the control share acquisition provision. The constitutional validity of the control share acquisition statute has been challenged in the past and has been upheld by the United States Supreme Court.
The control share acquisition provision does not apply to a plan of affiliation and merger if the corporation complies with the applicable merger provisions and is a party to the agreement of merger or plan of share exchange.
Arlington Bank
The OGCL contains a Merger Moratorium Statute that prohibits specified business combinations and transactions between an “issuing public corporation” and an “interested shareholder” for at least three years after the interested shareholder attains 10% ownership, unless the board of directors of the issuing public corporation approves the transaction before the interested shareholder attains 10% ownership.
An interested shareholder is a person who either:
An issuing public corporation is defined as an Ohio corporation with 50 or more shareholders that has its principal place of business, principal executive offices, or substantial assets within the State of Ohio, and as to which no close corporation agreement exists.
After the three-year period, a moratorium transaction may take place provided that certain conditions are satisfied, including that:
The OGCL also contains a Control Share Acquisition Statute that requires specified notice and informational filings and special shareholder meetings and voting procedures that must occur before consummation of a proposed “control share acquisition.” A control share acquisition is defined as any acquisition, directly or indirectly, of an issuer’s shares that would entitle the acquirer to exercise or direct the voting power of the issuer in the election of directors within any of the following ranges:
Assuming compliance with the notice and information filing requirements, the proposed control share acquisition may take place only if, at a duly convened special meeting of shareholders, the acquisition is approved by both a majority of the voting power of the issuer represented at the meeting and a majority of the voting power remaining after excluding the combined voting power of the intended acquirer and the directors and officers of the issuer.
Liquidation Rights
First Merchants | MBT | |
In the event of any liquidation or dissolution of First Merchants, its shareholders are entitled to receive pro rata, according to the number of shares held, any assets distributable to shareholders, subject to the payment of First Merchants’ liabilities and any rights of creditors and holders of shares of First Merchants’ preferred stock then outstanding. | In the event of any liquidation, dissolution, or | |
Redemption
Under Indiana and Michigan law, First Merchants and MBT may only redeem or acquire shares of its common stock with funds legally available therefor, and shares so acquired constitute authorized but unissued shares. Neither First Merchants nor MBT may redeem or acquire its shares of common stock if, after such redemption, it would not be able to pay its debts as they become due. Additionally, neither First Merchants nor MBT may redeem its shares if its total assets would be less than the sum of its total liabilities plus preferential rights of shareholders payable upon dissolution.
Indemnification of Directors, Officers and Employees
First Merchants | MBT | |
Under Indiana law and First Merchants’ Articles of Incorporation, First Merchants may | ||
Director Liability
| ||
| Under Michigan law and MBT’s Articles of Incorporation, MBT shall indemnify their officers, directors, employees and agents and those persons serving at the |
Indemnification of Directors, Officers and Employees
First Merchants70
Under Indiana law and First Merchants’ Articles of Incorporation, First Merchants may indemnify any director, officer, employee or agent for any and all liability and expense incurred in connection with a proceeding which such person is involved in by reason of such person’s position with First Merchants, in which (a) the person is wholly successful or (b) the person acted in good faith in what the person reasonably believed to be in or at least not opposed to the best interests of First Merchants. If the proceeding is a criminal proceeding, the person must have had no reasonable cause to believe that the person’s conduct was unlawful. If the person is wholly successful with respect to the claim or proceeding, the indemnification by First Merchants is mandatory. Finally, under Indiana law and First Merchants Articles of Incorporation and/or Bylaws, First Merchants is permitted to advance expenses to a person prior to final disposition of the proceeding if the person undertakes to repay any advanced amounts, if it is ultimately determined that he or she is not entitled to indemnification, or if the person furnishes to First Merchants a written affirmation of the person’s good faith belief that he or she is entitled to indemnification.TABLE OF CONTENTS
Arlington Bank
The Arlington Bank Constitution provides mandatory indemnification for directors and officers in most instances when they are acting on behalf of Arlington Bank. The person claiming indemnification shall be presumed to have acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of Arlington Bank. It does not provide indemnification in instances of completed actions or suit instituted by or in the right of Arlington Bank where the proposed indemnitee is adjudged to be liable for acting with reckless disregard for the best interests of Arlington Bank or misconduct (other than negligence) in the performance of his duty to the corporation unless and only to the extent that the court in which the action was brought, determines upon application that despite such adjudication of liability and in view of the circumstances, he is fairly and reasonably entitled to such indemnification. The Arlington Bank Constitution also sets forth certain procedural routines for the board in making determinations with regard to eligibility for indemnification. Indemnification can be limited by applicable Ohio and federal banking laws and regulations, and if the OGCL and Ohio Banking Law provides for broader indemnification then that broader indemnification shall apply. In addition, under its Constitution and as permitted under Ohio law, Arlington Bank has agreed to pay the expenses incurred in defending any action or suit referred to above in advance of the final disposition of such action or suit to or on behalf of the person seeking indemnification promptly as such expenses are incurred by him, but only if such
person shall first agree, in writing, to repay all amounts so paid in respect of any claim, issue or other matter asserted in such action or suit in defense of which he shall not have been successful on the merits or otherwise if (a) it shall ultimately be determined that he is not entitled to be indemnified by Arlington Bank under its Constitution, or (b) he shall have been adjudged to be liable for acting with reckless disregard for the best interests of Arlington Bank or misconduct (other than negligence) in the performance of his duty to Arlington Bank (unless and only to the extent that the court in which such action or suit was brought shall determine that, despite such adjudication of liability, and in view of all the circumstances, he is fairly and reasonably entitled to all or part of such indemnification).
Certain U.S. federal income tax consequences relating to the Merger will be passed upon for First Merchants and Arlington BankMBT by the law firm of Bingham Greenebaum Doll LLP, Indianapolis, Indiana.
The audited consolidated financial statements of First Merchants and its affiliates and the effectiveness of its internal control over financial reporting as of December 31, 2016,2017, incorporated by reference into this document, have been audited by BKD, LLP, independent certified public accountants, to the extent and for the periods indicated in their reports thereon, and have been so incorporated by reference in this document in reliance upon such reports of BKD, LLP given on the authority of such firm as experts in auditing and accounting.
MBT’s consolidated financial statements as of December 31, 2017, and for each of the years in the three-year period ended December 31, 2017, incorporated by reference into this document, have been audited by Plante & Moran, PLLC, an independent registered public accounting firm, as set forth in Plante & Moran PLLC’s report preceding such consolidated financial statements, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
SHAREHOLDER PROPOSALS FOR NEXT YEAR
First Merchants
If the Merger is completed, Arlington BankMBT shareholders will become shareholders of First Merchants. Any proposal which a First Merchants shareholder intendsintended to have presented at the 20182019 annual meeting of First Merchants and included in the proxy statement and form of proxy relating to that meeting must behave been received by the Secretary of First Merchants at First Merchants’ principal office no later than November 24, 2017,22, 2018, for inclusion in First Merchants’ proxy statement and form of proxy relating to that meeting. Shareholder proposals, if any, intended to be presented at the 20182019 annual meeting of First Merchants that arewere not submitted by November 24, 201722, 2018 for inclusion in the proxy statement will be considered untimely. However, if the date of First Merchants’ 2019 annual meeting of the shareholders is more than thirty (30) days before or after May 10, 2019, then the deadline for submitting any shareholder proposal for inclusion in the proxy materials relating to First Merchants’ annual meeting will be a reasonable time before First Merchant begins to print and mail such proxy materials. In any event, the inclusion of any shareholder proposals in First Merchants’ proxy materials will be subject to the requirements of the proxy rules adopted under the Exchange Act, including Rule 14a-8.
Arlington BankMBT
If the Merger occurs, there will be no Arlington BankMBT annual meeting of shareholders for 2017.2019. In that case, shareholder proposals must be or must have been submitted to First Merchants in accordance with the procedures described above.
If the Merger is not completed, Arlington BankMBT will hold its 20172019 annual meeting in accordance with its current governing documents and as required by OhioMichigan law.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
First Merchants has filed with the SEC a Registration Statement on Form S-4 under the Securities Act, with respect to the common stock of First Merchants being offered in the Merger. This proxy statement and prospectus does not contain all the information set forth in the registration statement, certain parts of which are omitted in accordance with the rules and regulations of the SEC. For further information with respect to First Merchants and the securities offered by this proxy statement and prospectus, reference is made to the registration statement. Statements contained in this proxy statement and prospectus concerning the provisions of such documents are necessarily summaries of such documents and each such statement is qualified in its entirety by reference to the copy of the applicable documents filed with the SEC.
First Merchants and MBT each files annual, quarterly and current reports, proxy statements and other information with the SEC. These filings are available to the public over the Internetinternet at the SEC’s website at http://www.sec.gov. You may also read and copy these materials at the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You may also obtain additional information about First Merchants on its website at
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http://www.firstmerchants.com. You may obtain additional information about Arlington BankMBT on its website at https://www.cbindianaonline.com.www.mbandt.com. However, the contents of those websites are not incorporated by reference in, or otherwise a part of, this proxy statement and prospectus and are not soliciting material.
First Merchants “incorporates by reference” into this proxy statement and prospectus the information in documents it files with the SEC, which means that it can disclose important information to you through those documents. The information incorporated by reference is an important part of this proxy statement and prospectus. Some information contained in this proxy statement and prospectus updates the information incorporated by reference and some information filed by First Merchants subsequently with the SEC will automatically update this proxy statement and prospectus.
First Merchants incorporates by reference the documents and information listed below:
First Merchants also incorporates by reference any of its filings (other than current reports furnished under Item 2.02 or Item 7.01 of Form 8-K and exhibits filed on such form that are related to such items) made with the SEC under Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the initial filing of the registration statement that contains this proxy statement and prospectus.
You may request, either orally or in writing, a copy of the documents incorporated by reference by First Merchants in this proxy statement and prospectus without charge by requesting them in writing or by telephone from First Merchants at the following addresses and telephone number:
First Merchants Corporation | |
200 East Jackson Street | |
Muncie, Indiana 47305 | |
Attention: Brian T. Hunt, | |
Corporate Secretary | |
Telephone: (765) 747-1500 |
MBT “incorporates by reference” into this proxy statement and prospectus the information in documents it files with the SEC, which means that it can disclose important information to you through those documents. The information incorporated by reference is an important part of this proxy statement and prospectus. Some information contained in this proxy statement and prospectus updates the information incorporated by reference and some information filed by MBT subsequently with the SEC will automatically update this proxy statement and prospectus.
200 East Jackson StreetMBT incorporates by reference the documents and information listed below:
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MBT also incorporates by reference any future filings (other than current reports furnished under Item 2.02 or Item 7.01 of Form 8-K and exhibits filed on such form that are related to such items) made with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, including those made after the date of filing of the initial registration statement that contains this proxy statement prospectus and prior to effectiveness of the registration statement.
Muncie, Indiana 47305The documents incorporated by reference into this prospectus are available from MBT upon request. MBT will provide a copy of any and all of the information that is incorporated by reference in this prospectus to any person, without charge, upon written or oral request. If exhibits to the documents incorporated by reference in this prospectus are not themselves specifically incorporated by reference in this prospectus, then the exhibits will not be provided. Requests for such copies should be directed to the following:
Attention: Brian T. Hunt,
Corporate Secretary
Telephone: (765) 747-1500
John L. Skibski | |
Executive Vice President and Chief Financial Officer | |
MBT Financial Corp. | |
102 E. Front St. | |
Monroe, Michigan 48161 | |
(734) 241-3431 | |
john.skibski@mbandt.com |
If you would like to request documents, please do so by [●]February 7, 2019, 2017, in order to receive them before the Arlington BankMBT special meeting.
You should rely only on the information incorporated by reference or provided in this proxy statement and prospectus. We have authorized no one to provide you with different information. We are not making an offer of these securities in any state where the offer or sale is not permitted. You should not assume that the information in this proxy statement and prospectus is accurate as of any date other than the date on the front of this document. If any material change occurs during the period that this proxy statement and prospectus is required to be delivered, this proxy statement and prospectus will be supplemented or amended.
All information regarding First Merchants in this proxy statement and prospectus has been provided by First Merchants, and all information in this proxy statement and prospectus regarding Arlington BankMBT has been provided by Arlington Bank.MBT.
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MERGER AGREEMENT
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
BY AND AMONG
BETWEEN
FIRST MERCHANTS CORPORATION
FIRST MERCHANTS BANK
AND
THE ARLINGTON BANK
MBT FINANCIAL CORP.
THIS AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (the “Agreement”), is entered as of the 259th day of January, 2017,October, 2018, by and amongbetween FIRST MERCHANTS CORPORATION, an Indiana corporation (“First Merchants”), and FIRST MERCHANTS BANKMBT FINANCIAL CORP., an Indiana commercial banka Michigan corporation (“FMB”), andTHE ARLINGTON BANK, an Ohio savings bank (“Arlington BankMBT”).
W I T N E S S E T H:
WHEREAS, First Merchants is a registered bank holding company under the Bank Holding Company Act of 1956, as amended, with its principal place of business in Muncie, Delaware County, Indiana, and is the owner of all of the issued and outstanding shares of common stock of FMB;with First Merchants Bank, an Indiana commercial bank (“FMB”) as its wholly-owned subsidiary;
WHEREAS, FMBMBT is an Indiana commerciala registered bank holding company under the Bank Holding Company Act of 1956, as amended, with its principal place of business in Muncie, DelawareMonroe, Monroe County, Indiana;Michigan, with Monroe Bank & Trust, a Michigan commercial bank (the “Bank”) as its wholly-owned subsidiary;
WHEREAS, MB&T Financial Services, Inc., a Michigan corporation (“MB&T Financial”) is a wholly-owned subsidiary of the Bank (the Bank and MB&T Financial are sometimes collectively referred to herein as the “Subsidiaries” or individually as a “Subsidiary”);
WHEREAS, Arlingtonit is the desire of First Merchants and MBT to effect a series of transactions whereby (i) MBT will consolidate and merge with and into First Merchants, and (ii) the Bank is an Ohio savings bankwill merge with its principal office and place of business located in Upper Arlington, Franklin County, Ohio;into FMB;
WHEREAS, the Boards of Directors of First Merchants and Arlington BankMBT have agreed that it is in their mutual best interests and in the best interests of their respective shareholders for Arlington Bank to be acquired by First Merchants and merged with and into FMB in the manner and upon the terms and conditions contained inapproved this Agreement (the “Merger”);and authorized its execution; and
WHEREAS, for federal income tax purposes, it is intended that the Mergermerger of MBT with and into First Merchants shall qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and First Merchants FMB, and Arlington BankMBT desire to and hereby adopt this Agreement as a plan of reorganization for purposes of Sections 354 and 361 of the Code;
WHEREAS, the respective Boards of Directors of First Merchants and FMB have each approved this Agreement and authorized its execution; and
WHEREAS, Arlington Bank’s Board of Directors has approved this Agreement and authorized its execution, and will recommend to Arlington Bank’s shareholders that they adopt this Agreement and approve the transactions described herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants, and agreements herein contained and other good and valuable consideration, the receipt of which is hereby acknowledged, First Merchants FMB and Arlington BankMBT hereby make this Agreement and prescribe the terms and conditions of the merger of ArlingtonMBT with and into First Merchants and the Bank with and into FMB and the mode of carrying the transactions into effect as follows:
SECTION 1
THE MERGERMERGERS
1.1MBT Merger. Subject to the terms and conditions of this Agreement, on the Effective Date (as defined in Section 11 hereof), Arlington BankMBT shall be merged with and into First Merchants pursuant to the terms and conditions of this Agreement and otherwise in accordance with the Indiana Business Corporation Law and the Michigan Business Corporation Act (the “Merger”). First Merchants, as the continuing corporation, shall sometimes be referred to herein as the “Continuing Company” and shall continue its corporate existence under the laws of the State of Indiana, pursuant to the provisions of and with the effect provided in the Indiana Business Corporation Law and particularly Indiana Code §23-1-40.
1.2 The Bank Merger. Subject to the terms and conditions of this Agreement, on the Effective Date and immediately after the Merger, the Bank shall be consolidated and merged with and into FMB pursuant to the terms and conditions of the Agreement and Plan of Merger attached hereto as Exhibit A (the “Bank Merger Agreement”) and otherwise in accordance with 12 U.S.C. §1828(c)
(the “Bank Merger Act”), the Indiana Financial Institutions Act, (the “IFIA”), and Ohio Revised Code Chapters 1161-1165, together with the Ohio General Corporation Law (collectively, the “Ohio Corporate Law”), in each case as amended, and the Michigan Banking Code of 1999, as amended, together with any regulations promulgated thereunder (collectively, the (the “LawBank Merger””).
1.2
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1.3 Right to Revise MergerMergers. The parties may, at any time, change the method of effecting the Merger or the Bank Merger if and to the extent the parties deem such change to be desirable, including, without limitation, to provide for the merger of Arlington BankMBT into anothera wholly-owned subsidiary of First Merchants;Merchants and/or the merger of the Bank or either of them into FMB or wholly-owned subsidiaries of First Merchants or FMB; provided, however, that First Merchants shall pay all fees incurred by Arlington Bank as a result of such change, including reasonable legal fees, and that no such change, modification or amendment shall (a) alter or change the amount or kind of consideration to be received by the shareholders of Arlington BankMBT specified in Section 3 hereof as a result of the Merger, except in accordance with the terms of Section 3 hereof; (b) adversely affect the tax treatment to the shareholders of Arlington Bank resulting from the Merger;MBT; or (c) materially impede or delay receipt of any approvals referred to in this Agreement or the consummation of the transactions contemplated by this Agreement.
SECTION 2
EFFECT OF THE MERGER
Upon the Merger becoming effective:
2.1General Description. The separate existence and corporate organization of Arlington BankMBT shall cease, and the corporate existence of FMB, includingContinuing Company shall possess all of its purposes, powers and objectives, shall survive and continue unaffected and unimpaired by the Merger (FMB, as the surviving corporation in the Merger, being sometimes referred to herein as the “Surviving Corporation”). FMB shall continue to be governed by the laws applicable to state-chartered commercial banks under the IFIAassets of MBT and shall succeed to and assume all of the rights, privileges, immunities, powers, franchises, duties, obligations and liabilities of Arlington Bank as provided under the IFIAMBT.
2.2 Name, Offices, and the Ohio Corporate Law.
2.2NameManagement. The name of the Surviving CorporationContinuing Company shall continue to be “First Merchants Bank.Corporation.”
2.3Articles of Incorporation. The Articles of Incorporation of FMB shall be the Articles of Incorporation of the Surviving Corporation.
2.4Code of Bylaws. The Code of Bylaws of FMB (the “Code of Bylaws”) shall be the Code of Bylaws of the Surviving Corporation.
2.5Officers and Directors. The Directors of FMB shall all remain directors of the Surviving Corporation and shall hold such offices from the Effective Date until their respective successors are duly elected and qualified in the manner provided in the Code of Bylaws. The officers of FMB shall all remain officers of the Surviving Corporation and shall hold such offices from the Effective Date until their respective successors are duly elected and qualified in the manner provided in the Code of Bylaws.
2.6Offices. Immediately following the Merger, FMB’s Its principal office shall be located at 200 EastE. Jackson Street, Muncie, Indiana 47305Indiana. The Board of Directors of the Continuing Company, until such time as their successors have been elected and Arlington Bank’s principal office at 2130 Tremont Center, Upper Arlington, Ohio 43221qualified, shall become a branch officeconsist of FMB.
2.7Sharesthe current Board of Arlington Bank. AsDirectors of First Merchants. The officers of First Merchants immediately prior to the Effective Date by virtueshall continue as the officers of the Merger and without any further action on the part of First Merchants, FMB or Arlington Bank, all issued and outstanding shares of the common stock of Arlington Bank, when converted as provided in Section 3.4(d) hereof, shall no longer be outstanding and shall automatically be canceled, retired and of no further effect.
2.82.3 Shares of FMBCapital Structure. AsThe amount of the Effective Date, by virtue of the Merger and without any further action on the part of FMB or Arlington Bank, all 114,000 issued and outstanding shares of the common capital stock of FMB, shall represent all of the issued and outstanding shares of the common capital stock of the Surviving Corporation.Continuing Company shall not be less than the capital stock of First Merchants immediately prior to the Effective Date increased by the amount of capital stock issued in accordance with Section 3 hereof.
2.92.4 Savings AccountsArticles of Incorporation and Bylaws. By virtueThe Articles of Incorporation and the Bylaws of the Merger, deposit accounts held at Arlington BankContinuing Company shall automatically,be those of First Merchants immediately prior to the Effective Date until the same shall be further amended as provided therein or by operationlaw.
2.5 Assets and Liabilities. The title to all assets, real estate and other property owned by First Merchants and MBT shall vest in the Continuing Company without reversion or impairment. All liabilities of law, become deposit accounts held at FMB.MBT shall be assumed by the Continuing Company.
2.102.6 Further AssurancesAdditional Actions. If, at any time after the Effective Date, the Surviving CorporationContinuing Company shall consider or be advised that any further deeds, assignments or assurances under the Lawin law or any other acts are necessary or desirable (a) to vest, perfect or confirm, of record or otherwise, in the Surviving CorporationContinuing Company its right, title or interest in, to or under any of the rights, properties or assets of Arlington Bank,MBT or the Subsidiaries, or (b) otherwise carry out the purposes of this Agreement, Arlington BankMBT and itsthe Subsidiaries and their respective officers and directors shall be deemed to have granted to the Surviving CorporationContinuing Company an irrevocable power of attorney to execute and deliver all such deeds, assignments or assurances in law and to do all acts necessary or proper to vest, perfect or confirm title to and possession of such rights, properties or assets in the Surviving CorporationContinuing Company and otherwise to carry out the purposes of this Agreement, and the officers and directors of the Surviving CorporationContinuing Company are authorized in the name of Arlington BankMBT or the Subsidiaries or otherwise to take any and all such action.
2.11Consent of Surviving Corporation. The Surviving Corporation hereby consents to be sued and served with process in the State of Ohio and to the irrevocable appointment of the Secretary of State of the State of Ohio as its agent to accept service of process in any proceeding in the State of Ohio to enforce against the Surviving Corporation any obligation of Arlington Bank, or to enforce the rights of a Dissenting Shareholder of Arlington Bank.
2.12Statutory Agent. The Surviving Corporation shall continue to transact business in the State of Ohio as a foreign corporation. The name and address of the statutory agent in Ohio upon whom any process, notice or demand against the Surviving Corporation may be served is: Jennifer Griffith, 3650 Olentangy River Road, Suite 100, Columbus, Ohio 43214.
SECTION 3
CONSIDERATION TO BE DISTRIBUTEDDISTRUBUTED
3.1Consideration. Upon and by reason of the Merger becoming effective, the shareholders of Arlington Bankholders of record, on the Effective Date, of MBT common stock, without par value (“MBT Common Stock”) shall be entitled to receive, in exchange for Arlington Bank common shares, $0.50 par value (“Arlington Bankeach share of MBT Common Stock”) held, 2.7245a 0.2750 (the “Exchange Ratio”) sharesshare of First Merchants’ common stock (“First Merchants Common Stock”). The Exchange Ratio shall be subject to adjustment as set forth in Section 3.3.
3.2Fractional Shares of First Merchants Common StockShares. Certificates for fractional shares of First Merchants Common Stock shall not be issued in respect of fractional interests arising from the Exchange Ratio. Each holder
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of Arlington BankMBT Common Stock who would have otherwise been entitled to a fraction of a share of First Merchants Common Stock, upon surrender of all such shareholder’s certificates representing Arlington BankMBT Common Stock, shall be paid in cash (without interest), an amount rounded to the nearest whole cent, determined by multiplying the First Merchants Average Price (as defined below) by the fractional share of First Merchants Common Stock to which such holder of Arlington BankMBT Common Stock would otherwise be entitled. No such holder of Arlington BankMBT Common Stock shall be entitled to dividends, voting rights, or any other rights in respect of any fractional share. The term “First Merchants Average Price” shall mean the average closing price of a share of First Merchants Common Stock as reported by Bloomberg, L.P. for the ten (10) days that First Merchants Common Stock trades on the NASDAQ Global Select Market preceding the fourth (4th)(4th) calendar day prior to the Effective Date. The First Merchants Average Price shall be appropriately and proportionately adjusted to reflect any share adjustment as contemplated by Section 3.3 hereof.
3.3Recapitalization. If, between the date of this Agreement and the Effective Date, First Merchants issues a stock dividend with respect to its shares of common stock, combines, subdivides, or splits up its outstanding shares or takes any similar recapitalization action, then the Exchange Ratio shall be adjusted so that each holder of Arlington BankMBT Common Stock shall receive such number of shares of First Merchants Common Stock as represents the same percentage of outstanding shares of First Merchants Common Stock at the Effective Date as would have been represented by the number of shares of First Merchants Common Stock such shareholder would have received if the recapitalization had not occurred.
3.4Distribution of First Merchants’ Common Stock.
(a) Each share of common stock of First Merchants Common Stock outstanding immediately prior to the Effective Date shall remain outstanding unaffected by the Merger.
(b) On or prior to the Effective Date, First Merchants shall (i) authorize the issuance of and shall make available to American Stock Transfer & Trust Company, LLC or such other exchange agent selected by First Merchants (the “Exchange Agent”), for the benefit of the registered shareholders of Arlington BankMBT Common Stock for exchange in accordance with this Section 3, certificates or book entry for shares (or book entry(as requested by the registered shareholder of shares)MBT) of First Merchants Common Stock (the “First Merchants Stock Certificates”) to be issued pursuant to Section 3.1, and (ii) shall deposit with the Exchange Agent sufficient cash for payment of cash in lieu of any fractional shares of First Merchants Common Stock in accordance with Section 3.2. Such First Merchants Stock Certificates and cash are referred to in this Section 3 as the “Exchange Fund.” First Merchants shall be solely responsible for the payment of any fees and expenses of the Exchange Agent.
(c) Within three (3) business days following the Effective Date, the Exchange Agent shall mail to each holder of Arlington BankMBT Common Stock a letter of transmittal (the “Letter of Transmittal”) providing (i) with respect to MBT shareholders whose shares of MBT Common Stock are held in certificate form that delivery shall be effected and risk of loss of title to the certificates representing Arlington BankMBT Common Stock shall pass only upon delivery of the certificates to the Exchange Agent and (ii) with respect to MBT shareholders whose shares of MBT Common Stock are held in certificate form instructions as to the transmittal to the Exchange Agent of certificates representing shares of Arlington BankMBT Common Stock and, with respect to all holders of MBT Common Stock, instructions as to the issuance of shares of First Merchants Common Stock in exchange therefor pursuant to the terms of this Agreement. Distribution of shares of First Merchants Common Stock Certificates (or book entry) and cash payments in lieu of fractional shares shall be made by the Exchange Agent to each former holder of Arlington BankMBT Common Stock within five (5) business days following the later of the Effective Date or with respect to MBT shareholders whose shares of MBT Common Stock are held in certificate form, the date of such shareholder’s delivery to the Exchange Agent of such shareholder’s certificates representing Arlington BankMBT Common Stock, accompanied byand with respect to all holders of MBT Common Stock a properly completed and executed Letter of Transmittal. Interest shall not accrue or be payable with respect to any cash payments.
(d) Following the Effective Date, stock certificates representing Arlington BankMBT Common Stock shall be converted to, and deemed to evidence only the right to receive such number of shares of First Merchants Common Stock as determined in accordance with Sections 3.1 and 3.2 above (for all corporate purposes other than the payment of dividends) and cash for fractional shares, as applicable. No dividends or other distributions otherwise payable subsequent to the Effective Date on shares of First Merchants Common Stock shall be paid to any shareholder entitled to receive the same until such shareholder has surrendered such shareholder’s certificates for Arlington Bank MBT
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Common Stock to the Exchange Agent in exchange for First Merchants Common Stock. Upon surrender or compliance with the provisions of Section 3.4(c), there shall be paid to the record holder of First Merchants Common Stock the amount of all dividends and other distributions, without interest thereon, withheld with respect to such common stock.
(e) From and after the Effective Date, there shall be no transfers on the stock transfer books of Arlington BankMBT of any shares of Arlington BankMBT Common Stock.
(f) Any portion of the Exchange Fund that remains unclaimed by the holders of Arlington BankMBT Common Stock for twelve (12) months after the Effective Date shall be paid, distributed, or otherwise released to First Merchants, or its successors in interest. Any shareholders of Arlington BankMBT who have not theretofore complied with this Section 3 shall thereafter look only to First Merchants, or its successors in interest, for the issuance of shares of First Merchants Common Stock and any unpaid dividends and
distributions on First Merchants Common Stock deliverable in respect of each share of Arlington BankMBT Common Stock such shareholder holds as determined pursuant to this Agreement. Notwithstanding the foregoing, none of First Merchants, the Exchange Agent or any other person shall be liable to any former holder of shares of Arlington BankMBT Common Stock for any amount delivered in good faith to a public official pursuant to applicable abandoned property, escheat or similar laws.
(g) First Merchants shall be entitled to rely upon the stock transfer books of Arlington BankMBT to establish the persons entitled to receive shares of First Merchants Common Stock, which books, in the absence of actual knowledge by First Merchants of any adverse claim thereto, shall be conclusive with respect to the ownership of such stock.
(h) With respect to any certificate for Arlington BankMBT Common Stock which has been lost, stolen, or destroyed, First Merchants shall be authorized to issue First Merchants Common Stock to the registered owner of such certificate upon receipt of an affidavit of lost stock certificate, in form and substance reasonably satisfactory to First Merchants, and upon compliance by such registered owner with all procedures reasonablyhistorically required by Arlington BankMBT in connection with lost, stolen, or destroyed certificates, with any costs incurred at suchthe shareholder’s expense.
3.5Employee Stock OptionsEquity Awards. Immediately prior to the Closing, each then outstanding option to purchase Arlington Bankstock appreciation right (SOSAR) and restricted stock unit (RSU), whether unvested or vested, shall be exchanged for shares of MBT Common Stock shall be converted into the rightaccording to receive in cash (a) the excess, if any, of (i) the Exchange Ratiomultiplied by the First Merchants Average Price over (ii) the per share exercise price of such Arlington Bank stock optionmultiplied by (b) thetheir respective award agreement terms. The number of RSU’s subject to each award shall assume MBT performance at the full payout at the Target level for all relevant future periods. Upon issuance of the shares of Arlington BankMBT Common Stock subject to such stock option,less (c) applicable tax withholdings (the “Option Payment Amount”). The Option Payment Amount shall be paid by First Merchants to the respective option holders on behalfa holder of Arlington Bank within ten (10) business days following the Closing. As a condition to its obligation to pay the Option Payment Amount toSOSARs or RSUs any option holder pursuant to this Section 3.5, First Merchants shall be entitled to require from each such option holder an agreement, in form and substance reasonably acceptable to Arlington Bank, agreeing to accept such Option Payment Amount in complete cancellation, satisfaction and release of all claims of such option holder in respect of the Arlington Bank stock options, plus the satisfaction of any transfer or other taxes in connection therewith. Upon payment of the Option Payment Amount to an option holder, any optionaward agreement between Arlington BankMBT and such option holder and the option holder’s rights thereunder shall terminate and be of no further force or effect.
SECTION 4
NO DISSENTING SHAREHOLDERS
Notwithstanding anything in this Agreement to the contrary, any issued and outstanding shares of Arlington Bank Common Stock held by a person (a “Dissenting Shareholder”) who has not voted in favor of, or consented to, the adoption of this Agreement and has complied with all the provisions of the Ohio Corporate Law concerning the rights of holdersHolders of shares of Arlington BankMBT Common Stock, pursuant to the Michigan Business Corporation Act, MBT’s articles of incorporation or bylaws, contract or otherwise, do not have, and the Board of Directors of MBT have not taken any action that would cause any holder of shares of MBT Common Stock to requirehave, the right of a shareholder to dissent and obtain payment of fair cash value of such Arlington Bank Common Stock (the “Dissenting Shares”), in accordance with Sections 1701.84 and 1701.85for shares under Section 450.1762 of the Ohio Corporate Law, shall not be converted into the right to receive such number of shares of First Merchants Common Stock and cash for fractional shares as determined in accordance with Sections 3.1 and 3.2 above (the “Merger Consideration”), but shall become the right to receive such consideration as may be determined to be due to such Dissenting Shareholder pursuant to the procedures set forth in Section 1701.85 of the Ohio Corporate Law. If such Dissenting Shareholder withdraws its demand for fair cash valueMichigan Business Corporation Act or fails to perfect or otherwise loses its rights as a dissenting shareholder, in any case under the Ohio Corporate Law, each of such Dissenting Shareholder’s shares of Arlington Bank Common Stock shall thereupon be treated as though such shares of Arlington Bank Common Stock had been converted into the right to receive the Merger Consideration pursuant to Sections 3.1 and 3.2. Arlington Bank shall notify First Merchants of each shareholder who asserts rights as a Dissenting Shareholder following receipt of such Shareholder’s written demand delivered
as provided in Section 1701.85 of the Ohio Corporate Law. Prior to the Effective Date, Arlington Bank shall not, except with the prior written consent of First Merchants, voluntarily make any payment, or settle or commit to settle or offer to settle any rights of a Dissenting Shareholder asserted under Section 1701.85 of the Ohio Corporate Law.
SECTION 5
REPRESENTATIONS AND
WARRANTIES OF ARLINGTON BANKMBT
Arlington BankMBT hereby makes the representations and warranties set forth below to First Merchants.Merchants with respect to itself and the Subsidiaries. For the purposes of this Section 5, “Arlington BankMBT Disclosure Letter” is defined as the letter referencing Section 5 of this Agreement which shall be prepared by Arlington BankMBT and delivered to First Merchants contemporaneously with the execution of this Agreement.
5.1Organization and Authority. ArlingtonMBT, the Bank, isand MB&T Financial are each a savings bankcorporation duly organized and validly existing under the laws of the State of Ohio. Arlington Bank hasMichigan. MBT and each of the Subsidiaries have the corporate power and authority (corporate and otherwise) to conduct itstheir respective businesses in the manner and by the means utilized as of the date hereof. Arlington Bank has no subsidiaries. ArlingtonMBT’s only subsidiary is the Bank. The Bank’s only subsidiary is MB&T Financial. The Bank is subject to primary federal regulatory supervision and regulation by the Federal Deposit Insurance Corporation (“FDIC”). Other than the Subsidiaries, MBT has no direct or indirect subsidiaries.
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5.2Authorization.
(a) Arlington BankMBT has the corporate power and authority to enter into this Agreement and to carry out its obligations hereunder, subject to satisfaction of the conditions precedent in Section 9. This Agreement, when executed and delivered by all parties, will have been duly authorized and will constitute a valid and binding obligation of Arlington Bank,MBT, subject to the conditions precedent set forth in Section 9 hereof, enforceable in accordance with its terms except to the extent limited by insolvency, reorganization, liquidation, readjustment of debt or other laws of general application relating to or affecting the enforcement of creditors’ rights. The Boardrespective Boards of Directors of ArlingtonMBT and the Bank, hasand MBT as the sole shareholder of the Bank, have approved the Merger and the Bank Merger pursuant to the terms and conditions of this Agreement and the Bank Merger Agreement. The Board of Directors of MBT has adopted this Agreement and agreed to recommend to Arlington Bank’sMBT’s shareholders that they adoptapprove this Agreement and approve the transactions described herein subject to Section 7.5 hereof.
(b) Except as set forth in the Arlington BankMBT Disclosure Letter, neither the execution of this Agreement, nor the consummation of the transactions contemplated hereby, subject to the conditions precedent set forth in Section 9 hereof, does or will (i) conflict with, result in a breach of, or constitute a default under Arlington Bank’sMBT’s or any Subsidiary’s organizational documents; (ii) conflict with, result in a breach of, or constitute a default under any federal, foreign, state or local law, statute, ordinance, rule, regulation or court or administrative order or decree, or any note, bond, indenture, loan, mortgage, security agreement, contract, arrangement or commitment, to which Arlington BankMBT or any Subsidiary is subject or bound, the result of which would have a Material Adverse Effect; (iii) result in the creation of, or give any person, corporation or entity the right to create, any lien, charge, encumbrance, security interest, or any other rights of others or other adverse interest upon any right, property or asset of Arlington Bank;MBT or any Subsidiary; (iv) terminate, or give any person, corporation or entity the right to terminate, amend, abandon, or refuse to perform, any note, bond, indenture, loan, mortgage, security agreement, contract, arrangement or commitment to which Arlington BankMBT or any Subsidiary is subject or bound, the result of which would have a Material Adverse Effect; or (v) accelerate or modify, or give any party thereto the right to accelerate or modify, the time within which, or the terms according to which, Arlington BankMBT or any Subsidiary is to perform any duties or obligations or receive any rights or benefits under any note, bond, indenture, loan, mortgage, security agreement, contract, arrangement or commitment.
For the purpose of this Agreement, a “Material Adverse Effect” means any effect, circumstance, occurrence or change that (i) is material and adverse to the financial position, results of operations or business of Arlington Bank,MBT and the Subsidiaries taken as a whole, or First Merchants and FMB taken as a whole, as applicable or (ii) would
materially impair the ability of Arlington Bank,MBT or First Merchants, or FMB, as applicable, to perform its obligations under this Agreement; provided, however, that a Material Adverse Effect shall not be deemed to include the impact of (a) changes in banking and similar laws of general applicability to banks or their holding companies or interpretations thereof by courts or governmental authorities, (b) changes in generally accepted accounting principles (“GAAP”) or regulatory accounting requirements applicable to banks or their holding companies generally, (c) any modifications or changes to valuation policies and practices in connection with the Merger or restructuring charges taken in connection with the Merger, in each case in accordance with GAAP, (d) effects of any action taken with the prior written consent of the other party hereto, (e) changes in the general level of interest rates (including the impact on the securities portfolios of ArlingtonMBT and the Bank, or First Merchants and FMB, as applicable) or conditions or circumstances relating to or that affect either the United States economy, financial or securities markets or the banking industry, generally, (f) changes resulting from expenses (such as legal, accounting and investment bankers’ fees) incurred in connection with this Agreement or the transactions contemplated herein, including without limitation payment of any amounts due to, or the provision of any benefits to, any officers or employees under agreements, plans or other arrangements in existence on the date of or contemplated by this Agreement and disclosed to First Merchants, (g) the impact of the announcement of this Agreement and the transactions contemplated hereby, and compliance with this Agreement on the business, financial condition or results of operations of Arlington Bank,MBT and the Subsidiaries, or First Merchants and FMB, as applicable and (h) the occurrence of any military or terrorist attack within the United States or any of its possessions or offices; provided that in no event shall a change in the trading price of the First Merchants Common Stock, by itself, be considered to constitute a Material Adverse Effect on First Merchants (it being understood that the foregoing proviso shall not prevent or otherwise affect a determination that any effect underlying such decline has resulted in a Material Adverse Effect).
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(c) Other than (i)required filings with NASDAQ and FINRA and the filing of articles of merger (the “Articles of Merger”) with the Indiana Secretary of State and a certificate of merger (the “Certificate of Merger”) with the Secretary of StateCorporations Division of the StateMichigan Department of Ohio, in accordance withLicensing and Regulatory Affairs (the “Michigan Corporations Division”), for the Ohio Corporate Law,Merger, and (ii)filing of articles of merger, certificates of merger or other filings necessary to consummate the Bank Merger, and such notices and filings made in connection or in compliance with the banking regulatory approvals contemplated by Section 9.4 and federal and state securities laws and the rules and regulations promulgated thereunder, no notice to, filing with, authorization of, exemption by, or consent or approval of, any public body or authority is necessary for the consummation by Arlington BankMBT of the transactions contemplated by this Agreement.
(d) Other than those filings, authorizations, consents and approvals referenced in Section 5.2(c) above and except as set forth in the Arlington BankMBT Disclosure Letter, no notice to, filing with, authorization of, exemption by, or consent or approval of, any third party is necessary for the consummation by ArlingtonMBT or the Bank of the transactions contemplated by this Agreement, except for such authorizations, exemptions, consents or approvals, the failure of which to obtain, would not be reasonably likely to result in a Material Adverse Effect.
5.3Capitalization.
(a) The Arlington Bank Disclosure Letter contains a list of the shareholders of Arlington Bank and the number of shares held by each. As of the date of this Agreement, Arlington BankMBT has 10,000,000authorized Fifty-One Million (51,000,000) shares of Arlington Bankcapital stock, comprised of Fifty Million (50,000,000) authorized shares of MBT Common Stock authorized, 761,528without par value, 22,990,430 shares of which are issued and outstanding, and One Million (1,000,000) authorized shares of MBT nonvoting Preferred Stock, none of which are outstanding. SuchAll of the issued and outstanding shares of Arlington BankMBT Common Stock have been duly and validly authorized by all necessary corporate action of Arlington Bank,MBT, are validly issued, fully paid and nonassessable and have not been issued in violation of any preemptive rights of any shareholders. As of the date of this Agreement, Arlington Bank has 1,000,000 shares of preferred stock, $0.50 par value, authorized, none of which is issued and outstanding. Arlington BankMBT has no capital stock authorized, issued or outstanding other than as described in this Section 5.3(a) and, except as set forth in the Arlington BankMBT Disclosure Letter, Arlington BankMBT has no intention or obligation to authorize or issue additional shares of its capital stock.
(b) As of the date of this Agreement, the Bank has 10,000,000 shares of common stock, $3.125 par value, authorized and outstanding, all of which are held beneficially and of record by MBT. Such issued and outstanding shares of Bank common stock have been duly and validly authorized by all necessary corporate action of the Bank, are validly issued, fully paid and nonassessable, and have not been issued in violation of any preemptive rights of any Bank shareholder. All of the issued and outstanding shares of Bank common stock are owned by MBT free and clear of all liens, pledges, charges, claims, encumbrances, restrictions, security interests, options and preemptive rights and of all other rights of any other person, corporation or entity with respect thereto. The Arlington Bank Disclosure Letter contains a listhas no capital stock authorized, issued or outstanding other than as described in this Section 5.3(b) and has no intention or obligation to authorize or issue any other shares of option holderscapital stock.
(c) As of Arlingtonthe date of this Agreement, MB&T Financial has 60,000 shares of common stock, no par value per share, authorized and outstanding, all of which are held beneficially and of record by the Bank. Such issued and outstanding shares of MB&T Financial common stock have been duly and validly authorized by all necessary corporate action of MB&T Financial, are validly issued, fully paid and nonassessable, and have not been issued in violation of any preemptive rights of any MB&T Financial shareholder. All of the issued and outstanding shares of MB&T Financial common stock are owned by the Bank the numberfree and clear of all liens, pledges, charges, claims, encumbrances, restrictions, security interests, options and preemptive rights and of all other rights of any other person, corporation or entity with respect thereto. MB&T Financial has no capital stock authorized, issued or outstanding other than as described in this Section 5.3(c) and has no intention or obligation to purchase Arlington Bank Common Stock held by each and the applicable exercise priceauthorize or issue any other shares of each.capital stock.
(d) Except as set forth inon the Arlington BankMBT Disclosure Letter there are no options,
commitments, calls, agreements, understandings, arrangements or subscription rights regarding the issuance, purchase or acquisition of capital stock, or any securities convertible into or representing the right to purchase or otherwise receive the capital stock, equity interests, or any debt securities, of Arlington Bank,MBT or any Subsidiary by which Arlington BankMBT or any Subsidiary is or may become bound. Arlington Bank does not haveNeither MBT nor any Subsidiary has any outstanding contractual or other obligationsobligation to repurchase, redeem or otherwise acquire any of its respective outstanding shares of capital stock.stock or equity interests, as applicable.
(e) Except as set forth in the MBT Disclosure Letter, to the knowledge of MBT’s Management (as defined below), no person or entity beneficially owns five percent (5%) or more of MBT’s outstanding common shares.
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5.4Organizational Documents. The respective Articles of Incorporation and Bylaws of MBT and Constitution of Arlington Bankthe Subsidiaries have been delivered to First Merchants and represent true, accurate and complete copies of such corporate documents of Arlington BankMBT and the Subsidiaries in effect as of the date of this Agreement.
5.5Compliance with Law. ToExcept as disclosed on the knowledgeMBT Disclosure Schedule, to the Knowledge of Arlington Bank’sMBT’s Management Arlington Bank(as defined below), neither MBT nor any Subsidiary has not engaged in any activity ornor taken or omitted to take any action which has resulted or could reasonably be expected to result, in the violation of any local, state, federal or foreign law, statute, rule, regulation or ordinance or of any order, injunction, judgment or decree of any court or government agency or body, the violation of which could reasonably be expected to have a Material Adverse Effect on Arlington Bank. Arlington Bank possessesMBT. MBT and each Subsidiary possess all licenses, franchises, permits and other authorizations necessary for the continued conduct of its businesstheir respective businesses without material interference or interruption, except where the failure to possess such licenses or other authorizations would not be reasonably expected to have a Material Adverse Effect on Arlington Bank,MBT, and such licenses, franchises, permits and authorizations shall be transferred to FMBFirst Merchants on the Effective Date without any material restrictions or limitations thereon or the need to obtain any consents of third parties, except as otherwise set forth in the Arlington BankMBT Disclosure Letter. Arlington BankNeither MBT nor any Subsidiary is not subject to any agreement, commitment or understanding with, or order and directive of, any regulatory agency or government authority with respect to the business or operations of Arlington Bank. ArlingtonMBT or any Subsidiary. The Bank has not received any notice of enforcement actions since January 1, 2014 from any regulatory agency or government authority relating to its compliance with the Bank Secrecy Act, the Truth-in-Lending Act, the Community Reinvestment Act, the Gramm-Leach-Bliley Act of 1999, the USA Patriot Act, the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act or any laws with respect to the protection of the environment or the rules and regulations promulgated thereunder. Arlington BankMBT has not received any notice of enforcement actions since January 1, 2014, from any regulatory agency or government authority relating to its compliance with any securities laws applicable to Arlington Bank. ArlingtonMBT. The Bank received a rating of “satisfactory” or better in its most recent examination or interim review with respect to the Community Reinvestment Act.
5.6Accuracy of Statements. No information which has been or shall be supplied by Arlington BankMBT with respect to its businesses, operations and financial condition for inclusion in the proxy statement, registration statement, or regulatory applications relating to the Merger or the registration statement relating to theBank Merger contains or shall contain (at(in the case of information relating to the proxy statement at the time it is mailed and for the application, theregulatory applications and registration statement, and each amendment or supplement thereto, if any, at the time it becomes effective) any untrue statement of a material fact or omits or shall omit to state a material fact necessary to make the statements contained therein not misleading.
5.7Litigation and Pending Proceedings. Except as set forth in the Arlington BankMBT Disclosure Letter, there are no claims of any kind, nor any action, suits, proceedings, arbitrations or investigations pending or, to the knowledge of Arlington Bank’sMBT’s Management, threatened in any court or before any government agency or body, arbitration panel or otherwise (nor does Arlington Bank’sMBT’s Management have any knowledge of a basis for any claim, action, suit, proceeding, arbitration or investigation) which could reasonably be expected to have a Material Adverse Effect. To the knowledge of Arlington Bank’sMBT’s Management, there are no uncured violations, criticisms or exceptions, or violations with respect to which refunds or restitutions may be required, cited in any report, correspondence or other communication to Arlington BankMBT or any Subsidiary as a result of an examination by any regulatory agency or body which could reasonably be expected to have a Material Adverse Effect.
5.8Financial Statements.
(a) Arlington Bank’sMBT’s consolidated audited balance sheets as of the end of the two (2) fiscal years ended December 31, 20152017 and 2014,2016, the unaudited consolidated balance sheet for the nine monthsperiod ended SeptemberJune 30, 20162018 and the related consolidated statements of income, shareholders’ equity and cash flows for the years or period then ended (hereinafter collectively referred to as the “Financial Information”) present fairly the consolidated financial condition or position of Arlington BankMBT as of the respective dates thereof and the consolidated results of operations of Arlington BankMBT for the respective periods covered thereby and have been prepared in conformity with GAAP applied on a consistent basis.
(b) All loans reflected in the Financial Information and which have been made, extended or acquired since SeptemberJune 30, 20162018 (i) have been made for good, valuable and adequate consideration in the ordinary course of
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business; (ii) constitute the legal, valid and binding obligation of the obligor and any guarantor named therein; (iii) are evidenced by notes, instruments or other evidences of indebtedness which are true, genuine and what they purport to be; and (iv) to the knowledge of Arlington Bank’s Management, to the extent that Arlingtonthe Bank has a security interest in collateral or a mortgage securing such loans, are secured by perfected security interests or mortgages naming Arlingtonthe Bank as the secured party or mortgagee, except for such unperfected security interests or mortgages naming Arlingtonthe Bank as secured party or mortgagee which, on an individual loan basis, would not materially adversely affect the value of any such loan and the recovery of payment on any such loan if Arlingtonthe Bank is not able to enforce any such security interest or mortgage.
5.9Absence of Certain Changes. Except for events and conditions relating to the business and interest rate environment in general, the accrual or payment of Merger-related expenses, or as set forth in the Arlington BankMBT Disclosure Letter, since SeptemberJune 30, 2016,2018, no events have occurred which could reasonably be expected to have a Material Adverse Effect. Except as set forth in the Arlington BankMBT Disclosure Letter, between the period from SeptemberJune 30, 20162018 to the date of this Agreement, Arlington Bank hasMBT and each Subsidiary have carried on its businesstheir respective businesses in the ordinary and usual course consistent with itstheir past practices (excluding the incurrence of fees and expenses of professional advisors related to this Agreement and the transactions contemplated hereby) and there has not been any declaration, setting aside or payment of any dividend or other distribution (whether in cash, stock or property) with respect to Arlington Bank’sMBT’s Common Stock (other than normal quarterly cash dividends) or any split, combination or reclassification of any stock of Arlington BankMBT or any Subsidiary or, with the exception of the issuance of shares in connection with the MBT Director Deferred Compensation Plan, , exercise of stock options,only stock appreciation rights, or the vesting of any performance stock units, any issuance or the authorization of any issuance of any securities in respect of, or in lieu of, or in substitution for Arlington Bank’s Common Stock.MBT’s or any Subsidiary’s common shares or equity interests, as applicable.
5.10Absence of Undisclosed Liabilities. Except as set forth in the Arlington BankMBT Disclosure Letter, toneither MBT nor the knowledge of Arlington Bank’s Management, Arlington Bank does not havehas any liabilities, whether accrued, absolute, contingent, or otherwise, existing or arising out of any transaction or state of facts existing on or prior to the date hereof, except (a) as and to the extent disclosed, reflected or reserved against in the Financial Information, (b) any agreement, contract, obligation, commitment, arrangement, liability, lease or license which individually is less than OneTwo Hundred Fifty Thousand and 00/100 Dollars ($100,000.00)250,000.00) per year and which may be terminated within one year from the date of this Agreement, (c) liabilities incurred since June 30, 2018 in the ordinary course of business consistent with past practice that either alone or when considered with all similar liabilities, have not had or would not reasonably be expected have a Material Adverse Effect on MBT, (d) liabilities incurred for reasonable legal, accounting, financial advising fees and (c)out-of-pocket expenses or fees in connection with the transactions contemplated by this Agreement, and (e) unfunded loan commitments made in the ordinary course of Arlingtonthe Bank’s business consistent with past practices. Neither MBT nor the Subsidiaries have entered into any reinsurance or similar agreements in order to participate in a captive insurance pool or program.
5.11Title to Assets.
(a) Arlington Bank hasMBT and each Subsidiary have good and marketable title in fee simple absolute to all personal property reflected in the SeptemberJune 30, 20162018 Financial Information, good and marketable title to all other personal propertyproperties and assets which Arlington BankMBT or any Subsidiary purports to own, good and goodmarketable title to or right to use by terms of any lease or contract all other property used in Arlington Bank’sMBT’s or any Subsidiary’s business, and good and marketable title to all personal property and assets acquired since SeptemberJune 30, 2016,2018, free and clear of all mortgages, liens, pledges, restrictions, security interests, charges, claims or encumbrances of any nature, except such minor imperfections of title, if any, as do not materially detract from the value of or interfere with the use of suchthe property and which would not have a Material Adverse Effect.
(b) The operation by Arlington BankMBT or any Subsidiary of such personal propertyproperties and assets is in material compliance with all applicable laws, ordinances, rules and regulations of any governmental authority or third party having jurisdiction over such use except for such noncompliance that would not have a Material Adverse Effect.
5.12Loans and Investments.
(a) The Arlington BankExcept as set forth in the MBT Disclosure Letter, sets forth anythere is no loan of Arlingtonthe Bank in excess of the principal amount of OneTwo Hundred Fifty Thousand and 00/100 Dollars ($100,000.00)250,000.00) that, as of December 31, 2016,June 30, 2018, (i) has been: (i)been classified by Arlington Bank,MBT, applying applicable regulatory examination standards, as “Other Loans Specially Mentioned,” “Substandard,
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“Substandard,” “Doubtful” or “Loss,“Loss;” (ii) has been identified by accountants or auditors (internal or external) as having a significant risk of uncollectibility, or (iii) determinedhas been identified by Arlington Bank’sMBT Management to be ninety (90) days or more past due with respect to principal or interest or has placed on nonaccrual status.
(b) The reserves for loan and lease losses and the carrying value for other real estate owned which are shown on each of the balance sheets contained in the Financial Information were adequate in the judgment of Arlington Bank’sMBT’s Management and consistent with applicable bank regulatory standards and under GAAP to provide for losses, net of recoveries relating to loans and leases previously charged off, on loans and leases outstanding and other real estate owned (including accrued interest receivable) as of the applicable date of such balance sheet.
(c) Except as set forth in the Arlington BankMBT Disclosure Letter, none of the investments reflected in the Financial Information and none of the investments made by Arlington BankMBT or any Subsidiary since SeptemberJune 30, 20162018 is subject to any restrictions, whether contractual or statutory, which materially impairs the ability of Arlington BankMBT or any Subsidiary to dispose freely of such investment at any time. Except as set forth in the Arlington BankMBT Disclosure Letter, Arlington Bankneither MBT nor any Subsidiary is not a party to any repurchase agreements with respect to securities.
5.13Employee Benefit Plans.
(a) The Arlington BankMBT Disclosure Letter contains a list identifying each “employee benefit plan,” as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), which (i) is subject to any provision of ERISA, and (ii) is currently maintained, administered or contributed to by Arlington BankMBT, any Subsidiary or any other entity, trade or business that, together with Arlington Bank,MBT, would be treated as a single employer under the provisions of Sections 414(b), (c), (m) or (o) of the Code (“Arlington BankMBT ERISA Affiliate”), and covers any employee, director or former employee or director of Arlington BankMBT, any Subsidiary or any Arlington BankMBT ERISA Affiliate under which Arlington BankMBT or any Arlington BankMBT ERISA Affiliate has any liability. The Arlington BankMBT Disclosure Letter also contains a list of all “employee benefit plans” as defined under ERISA which have been terminated by Arlington BankMBT, any Subsidiary or any Arlington BankMBT ERISA Affiliate since January 1, 2012.2013. Copies of such plans (and, if applicable, related trust agreements or insurance contracts) and all amendments thereto and written interpretations thereof have been furnished to First Merchants together with the three (3) most recent annual reports (Form 5500) prepared in connection with any such plan and the current summary plan descriptions (and any summary of material modifications thereto). Such plans are hereinafter referred to individually as an “Employee Plan” and collectively as the “Employee Plans.” The Employee Plans which individually or collectively would constitute an “employee pension benefit plan” as defined in Section 3(2)(A) of ERISA are identified as such in the list referred to above.
(b) The Employee Plans have been operated in material compliance with all applicable laws, regulations, rulings and other requirements, as well as pursuant to the terms of their governing documents (to the extent consistent with ERISA).
(c) To the knowledge of Arlington Bank’sMBT’s Management, no “prohibited transaction,” as defined in Section 406 of ERISA or Section 4975 of the Code, for which no statutory or administrative exemption exists, and no “reportable event,” as defined in Section 4043(c) of ERISA, for which a notice is required to be filed, has occurred with respect to any Employee Plan that could subject Arlington BankMBT to material taxes
or penalties. Neither Arlington BankMBT, any Subsidiary nor any Arlington BankMBT ERISA Affiliate has any material liability to the Pension Benefit Guaranty Corporation (“PBGC”), to the Internal Revenue Service (“IRS”), to the Department of Labor (“DOL”), to the Employee Benefits Security Administration, with respect to any Employee Plan, except for routine premium payments to the PBGC.
(d) To the knowledge of Arlington Bank’sMBT’s Management, no “fiduciary,” as defined in Section 3(21) of ERISA, of an Employee Plan has failed to comply with the requirements of Section 404 of ERISA in such a way as to cause material liability to Arlington BankMBT, any Subsidiary or any Arlington BankMBT ERISA Affiliate.
(e) Each of the Employee Plans which is intended to be qualified under Section 401(a) of the Code has been timely amended to comply in all material respects with the applicable requirements of the Code. Except as set forth in the Arlington BankMBT Disclosure Letter, Arlington BankMBT and/or any Arlington BankMBT ERISA Affiliate, as applicable, sought and received favorable determination letters from the IRS (or are otherwise relying on an opinion letter issued to a prototype plan sponsor) and has furnished to First Merchants copies of the most recent IRS determination letters with respect to any such Employee Plan that is intended to be qualified under Section 401(a) of the Code.
(f) Except as disclosed in the Arlington BankMBT Disclosure Letter, no Employee Plan has incurred an “accumulated funding deficiency,” as determined under Section 412 of the Code and Section 302 of ERISA. Arlington BankMBT has at all
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times met the minimum funding standard, and has made all contributions required, under Section 412 of the Code and Section 302 of ERISA. No facts or circumstances exist that may subject Arlington Bank,MBT, any Subsidiary, or any Arlington BankMBT ERISA Affiliate, to any liability under Sections 4062, 4063 or 4064 of ERISA. Neither Arlington BankMBT, any Subsidiary nor any Arlington BankMBT ERISA Affiliate ever has engaged in any transaction within the meaning of Section 4069 of ERISA. Except as disclosed in the Arlington BankMBT Disclosure Letter, there exist no facts or circumstances which could subject Arlington Bank,MBT, or any Arlington BankMBT ERISA Affiliate thereof, to withdrawal liability within the meaning of Section 4201 of ERISA or to contingent withdrawal liability under Section 4204 of ERISA. Neither Arlington BankMBT nor any Arlington BankMBT ERISA Affiliate ever has been a party to a transaction within the meaning of Section 4212(c) of ERISA.
(g) No Employee Plan subject to Title IV of ERISA has been terminated or incurred a partial termination (either voluntarily or involuntarily), in such a way as to cause material additional liability to Arlington BankMBT, any Subsidiary or any Arlington BankMBT ERISA Affiliate.
(h) No claims involving an Employee Plan (other than normal benefit claims) have been filed in a court of law or, to the knowledge of Arlington Bank’sMBT’s Management, have been threatened to be filed in a court of law.
(i) ThereExcept as set forth in the MBT Disclosure Letter, there is no contract, agreement, plan or arrangement covering any employee, director or former employee or director of Arlington BankMBT or any Subsidiary that, individually or collectively, could give rise to the payment of any amount that would not be deductible by reason of Section 280G or Section 162(a)(1) of the Code.
(j) To the knowledge of Arlington Bank’sMBT’s Management, no event has occurred that would cause the imposition of the tax described in Section 4980B of the Code on Arlington Bank.MBT. To the knowledge of Arlington Bank’sMBT’s Management, Arlington BankMBT has materially complied with all requirements of Section 601 of ERISA, as applicable, with respect to any Employee Plan.
(k) The Arlington BankMBT Disclosure Letter contains a list of each employment, severance or other similar contract, arrangement or policy and each plan or arrangement (written or oral) providing for insurance coverage (including any self-insured arrangements), workers’ compensation, disability benefits, supplemental unemployment benefits, vacation benefits, retirement benefits or deferred compensation, profit sharing, bonuses, stock options, stock appreciation or other forms of incentive compensation or post-retirement insurance, compensation or benefits which (i) is not an Employee Plan, (ii) was entered into, maintained or contributed to, as the case may be, by Arlington BankMBT or any Subsidiary and (iii) covers any employee, director or former employee or director of Arlington Bank.MBT or any Subsidiary. Such contracts, plans and arrangements as are described above, copies or descriptions of all of which have been furnished previously to First Merchants, are
hereinafter referred to collectively as the “Benefit Arrangements.” Each of the Benefit Arrangements has been maintained in compliance in all material respects with its terms and with the requirements prescribed by any and all statutes, orders, rules and regulations which are applicable to such Benefit Arrangements.
(l) Except as set forth in the Arlington BankMBT Disclosure Letter or as required by applicable law, neither Arlington BankMBT nor any Arlington BankMBT ERISA Affiliate has any present or future liability in respect of post-retirement health and medical benefits for former employees or directors of Arlington BankMBT, any Subsidiary or any Arlington BankMBT ERISA Affiliate.
(m) Except as set forth in the Arlington BankMBT Disclosure Letter, there has been no amendment to, written interpretation or announcement (whether or not written) by Arlington BankMBT, any Subsidiary or any Arlington BankMBT ERISA Affiliate relating to, or change in employee participation or coverage under, any Employee Plan or Benefit Arrangement administered by Arlington BankMBT or any Arlington BankMBT ERISA Affiliate which would increase materially the expense of maintaining such Employee Plans or Benefit Arrangements above the level of the expense incurred in respect thereof for the fiscal year ended December 31, 2015.2017.
(n) Except as otherwise provided in the Arlington BankMBT Disclosure Letter, the transactions contemplated by the Agreement will not cause acceleration of vesting in, or payment of, any material benefits under any Employee Plan or Benefit Arrangement and will not otherwise materially accelerate or increase any obligation under any Employee Plan or Benefit Arrangement.
(o) With respect to any nonqualified deferred compensation plan that is subject to Section 409A of the Code, such plan has been identified on the Arlington BankMBT Disclosure Letter and, except as otherwise set forth in the MBT Disclosure Letter, has been operated in accordance with, and is in documentary compliance with Section 409A of the Code and the guidance issued thereunder.
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5.14Obligations to Employees. Except as set forth in the Arlington BankMBT Disclosure Letter, all accrued obligations and liabilities of Arlington Bank,MBT and any Subsidiary, whether arising by operation of law, by contract or by past custom, for payments to trust or other funds, to any government agency or body or to any individual director, officer, employee or agent (or his heirs, legatees or legal representative) with respect to unemployment compensation or social security benefits and all pension, retirement, savings, stock purchase, stock bonus, stock ownership, stock option, stock appreciation rights or profit sharing plan, any employment, deferred compensation, consultant, bonus or collective bargaining agreement or group insurance contract or other incentive, welfare or employee benefit plan or agreement maintained by Arlington BankMBT or any Subsidiary for itstheir current or former directors, officers, employees and agents have been and are being paid to the extent required by law or by the plan or contract, and adequate actuarial accruals and/or reserves for such payments have been and are being made by Arlington BankMBT or any Subsidiary in accordance with generally accepted accounting and actuarial principles, except where the failure to pay any such accrued obligations or liabilities or to maintain adequate accruals and/or reserves for payment thereof would not have a Material Adverse Effect. Except as set forth in the Arlington BankMBT Disclosure Letter, all obligations and liabilities of Arlington Bank,MBT and the Subsidiaries, whether arising by operation of law, by contract, or by past custom, for all forms of compensation which are or may be payable to itstheir current or former directors, officers, employees or agents have been and are being paid, and adequate accruals and/or reserves for payment therefortherefore have been and are being made in accordance with GAAP, except where the failure to pay any such obligations and liabilities or to maintain adequate accruals and/or reserves for payment thereof would not have a Material Adverse Effect. All accruals and reserves referred to in this Section 5.14 are correctly and accurately reflected and accounted for in the books, statements and records of Arlington Bank,MBT and the Subsidiaries, except where the failure to correctly and accurately reflect and account for such accruals and reserves would not have a Material Adverse Effect.
5.15Taxes, Returns and Reports. Except as set forth in the Arlington BankMBT Disclosure Letter, Arlington Bank hasMBT and the Subsidiaries have (a) duly filed all federal, state, local and foreign tax returns of every type and kind required to be filed by itthem as of the date hereof, and each return is true, complete and accurate in all material respects; (b) paid all material taxes, assessments and other governmental charges due and payable or claimed to be due and payable upon itthem or any of itstheir income, properties or assets; and (c) not requested an extension of time for any such payments (which extension is still in force). Except for taxes not yet due and payable, the reserve for taxes on the
Financial Information is adequate to cover all of Arlington Bank’sMBT’s and the Subsidiaries’ tax liabilities (including, without limitation, income taxes and franchise fees) that may become payable in future years with respect to any transactions consummated prior to SeptemberJune 30, 2016. Arlington2018. Neither MBT nor the Bank does not, andhas or will not, have, any liability for taxes of any nature for or with respect to the operation of itstheir business, including the assets of any Subsidiary, from SeptemberJune 30, 2016,2018, up to and including the Effective Date, except to the extent reflected on itstheir Financial Information or on financial statements of Arlington BankMBT or the Subsidiaries subsequent to such date and as set forth in the Arlington BankMBT Disclosure Letter. Arlington BankNeither MBT nor any Subsidiary has not received written notice that it is currently under audit by any state or federal taxing authority. Except as set forth in the Arlington BankMBT Disclosure Letter, none of the federal, state, or local tax returns of Arlington BankMBT or any Subsidiary have been audited by any taxing authority during the past five (5) years.years.3
5.16Deposit Insurance. The deposits of Arlingtonthe Bank are insured by the FDIC in accordance with the Federal Deposit Insurance Act, and Arlingtonthe Bank has paid all premiums and assessments due through the date of this Agreement with respect to such deposit insurance.
5.17Reports. Since January 1, 2014, Arlington2015, MBT and the Bank hashave timely filed all reports, registrations and statements, together with any required amendments thereto, that itMBT or any Subsidiary was required to file with (i) the Ohio SuperintendentBoard of Financial InstitutionsGovernors of the Federal Reserve System (the “Ohio SuperintendentFederal Reserve Board”), (ii) the Michigan Department of Insurance and Financial Services (the “Michigan DIFS”), (iii) the FDIC, and (iii)(iv) any federal, state, municipal or local government, securities, banking, environmental, insurance and other governmental or regulatory authority, and the agencies and staffs thereof (collectively, the “Arlington BankMBT Regulatory Authorities”), having jurisdiction over the affairs of ArlingtonMBT or the Bank except where such failure would not have a Material Adverse Effect. All such reports filed by Arlington BankMBT and any Subsidiary complied in all material respects with all applicable rules and regulations promulgated by the applicable Arlington BankMBT Regulatory Authorities and were true, accurate and complete in all material respects and, to the extent required, were prepared in conformity with regulatory accounting principles applied on a consistent basis.
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5.18Absence of Defaults. Arlington BankNeither MBT nor any Subsidiary is not in violation of its respective Articles of Incorporation Bylaws or ConstitutionBylaws or to the knowledge of Arlington Bank’sMBT’s Management in default under any material agreement, commitment, arrangement, loan, lease, insurance policy or other instrument, whether entered into in the ordinary course of business or otherwise and whether written or oral, and there has not occurred any event known to Arlington Bank’sMBT’s Management that, with the lapse of time or giving of notice or both, would constitute such a default, except for such violations or defaults which would not have a Material Adverse Effect.
5.19Tax and Regulatory Matters. Arlington BankNeither MBT nor any Subsidiaries has not taken or agreed to take any action and does not haveor has any knowledge of any fact or circumstance that would (a) prevent the transactions contemplated hereby from qualifying as a reorganization within the meaning of Section 368 of the Code or (b) materially impede or delay receipt of any regulatory approval required for consummation of the transactions contemplated by this Agreement.
5.20Real Property.
(a) A list of the locations of each parcel of real property owned by Arlington BankMBT or any Subsidiary (other than real property acquired in foreclosure or in lieu of foreclosure in the course of the collection of loans and being held by ArlingtonMBT or the Bank for disposition as required by law) is set forth in the Arlington BankMBT Disclosure Letter under the heading of “Arlington Bank“MBT Owned Real Property” (such real property being herein referred to as the “Arlington BankMBT Owned Real Property”). A list of the locations of each parcel of real property leased by Arlington BankMBT or any Subsidiary is also set forth in the Arlington BankMBT Disclosure Letter under the heading of “Arlington Bank“MBT Leased Real Property” (such real property being herein referred to as the “Arlington BankMBT Leased Real Property”). Arlington BankMBT shall update the Arlington BankMBT Disclosure Letter within ten (10) days after acquiring or leasing any real property after the date hereof. Collectively, the Arlington BankMBT Owned Real Property and the Arlington BankMBT Leased Real Property are herein referred to as the “Arlington BankMBT Real Property.”
(b) There is no pending action involving Arlington BankMBT or any Subsidiary as to the title of or the right to use any of the Arlington BankMBT Real Property.
(c) Other than the Arlington BankMBT Owned Real Property, Arlington Bank does not haveneither MBT nor any Subsidiary has any interest in any other real property except interests as a mortgagee, and except for any real property acquired in foreclosure or in lieu of foreclosure and being held for disposition as required by law.
(d) None of the buildings, structures or other improvements located on the Arlington Bank OwnedMBT Real Property encroaches upon or over any adjoining parcel of real estate or any easement or right-of-way or “setback” line and all such buildings, structures and improvements are located and constructed in conformity with all applicable zoning ordinances and building codes.
(e) None of the buildings, structures or improvements located on the Arlington Bank OwnedMBT Real Property are the subject of any official complaint or notice by any governmental authority of violation of any applicable zoning ordinance or building code, and there is no zoning ordinance, building code, use or occupancy restriction or condemnation action or proceeding pending, or, to the best knowledge of Arlington Bank’sMBT’s Management, threatened, with respect to any such building, structure or improvement. The Arlington BankMBT Real Property is in good condition for its intended purpose, ordinary wear and tear excepted, and Arlington Bank has been maintained (as to the Arlington BankMBT Leased Real Property, to the extent required to be maintained by ArlingtonMBT or the Bank) the Arlington Bank Real Property in accordance with reasonable and prudent business practices applicable to like facilities. The Arlington BankMBT Real Property has been used and operated in all material respects in compliance with all applicable laws, statutes, rules, regulations and ordinances applicable thereto.
(f) Except as may be reflected in the Financial Information, Arlington Bank has,and except for liens for taxes not yet due and payable or with respect to such easements, liens, defects or encumbrances, real estate taxes and assessments or other monetary obligations such as contributions to an Owners’ Association, as do not individually or in the aggregate materially adversely affect the use or value of the MBT Owned Real Property and which would not have a Material Adverse Effect, MBT and the Subsidiaries have, and at the Effective Date will have, good and marketable title to the Arlington Banktheir respective MBT Owned Real Property, free and clear of all liens, mortgages, security interests, encumbrances and restrictions of any kind or character, except as such liens, mortgages, security interests, encumbrances and restrictions do not individually or in the aggregate adversely affect the use or value of the Arlington Bank Owned Real Property and which would not have a Material Adverse Effect.character.
(g) Except as set forth in the Arlington BankMBT Disclosure Letter and to the knowledge of Arlington Bank’sMBT’s Management, Arlington BankMBT or any Subsidiary has not caused or allowed the generation, treatment, storage, disposal or release at any Arlington BankMBT Real Property of any Toxic Substance (as defined below), except in compliance with all applicable federal, state and local laws and regulations and except where such noncompliance would not reasonably be expected to have a Material Adverse Effect. “Toxic Substance” means any hazardous, toxic or dangerous substance, pollutant,
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waste, gas or material, including, without limitation, petroleum and petroleum products, metals, liquids, semi-solids or solids, that are regulated under any federal, state or local statute, ordinance, rule, regulation or other law pertaining to environmental protection, contamination, quality, waste management or cleanup.
(h) Except as disclosed in the Arlington BankMBT Disclosure Letter and to the knowledge of Arlington Bank’sMBT’s Management, there are no underground storage tanks located on, in or under any Arlington BankMBT Owned Real Property and no such Arlington BankMBT Owned Real Property has previously contained an underground storage tank. Except as set forth in the Arlington BankMBT Disclosure Letter and to the knowledge of Arlington Bank’sMBT’s Management, Arlington Bank doesMBT or any Subsidiary do not own or operate any underground storage tank at any Arlington BankMBT Leased Real Property and no such Arlington BankMBT Leased Real Property has previously contained an underground storage tank. To the knowledge of Arlington Bank’sMBT’s Management, no Arlington BankMBT Real Property is or has been listed on the Comprehensive Environmental Response, Compensation, and Liability Information System (“CERCLIS”CERCLIS”).
(i) Except as set forth in the Arlington BankMBT Disclosure Letter and to the knowledge of Arlington Bank’sMBT’s Management, no Toxic Substance has been released, spilled, discharged or disposed at, in, on or under any Arlington BankMBT Real Property nor, to the knowledge of Arlington Bank’sMBT’s Management, are there any other conditions or circumstances affecting any Arlington BankMBT Real Property, in each case, which would reasonably be expected to have a Material Adverse Effect.
(j) To the knowledge of Arlington Bank’sMBT’s Management, there are no mechanic’s or materialman’s liens relating to any construction, improvements or repairs on or toagainst the Arlington BankMBT Leased Real Property, and
no unpaid claims for labor performed, materials furnished or services rendered in connection therewithwith constructing, improving or repairing the MBT Leased Real Property in respect of which liens may or could be filed against Arlington Bank’s interest in the Arlington BankMBT Leased Real Property.
5.21No Listing RequirementsSecurities Law Compliance. Arlington Bank’s Common StockMBT’s common stock is not listed or traded on the NASDAQ Global Select Market under the symbol of “MBTF.” MBT has complied in all material respects with all applicable state, federal or foreign securities laws, statutes, rules, regulations or orders, injunctions or decrees of any established securities exchangeapplicable government agency relating thereto. Since January 1, 2017, MBT has filed all reports and other documents required to be filed by it under the Securities and Exchange Act of 1934 (the “1934 Act”) and the Securities Act of 1933 (the “1933 Act”), including MBT’s Annual Report on Form 10-K for the year ended December 31, 2017, copies of which have previously been delivered to First Merchants. Since January 1, 2017, all such SEC filings were true, accurate and complete in all material respects as of the dates of the filings (except for information included therein as of a certain date, which shall have been true and correct as of such date), and no such filings, at the time they were filed, contained any untrue statement of a material fact or quotation system.omitted to state a material fact necessary in order to make the statements made, at the time and in the light of the circumstances under which they were made, not false or misleading.
5.22Broker’s or Finder’s Fees. Except for BoenningSandler O’Neill & Scattergood,Partners, L.P. and Donnelly Penman & Partners Inc., no agent, broker or other person acting on behalf of Arlington BankMBT or any Subsidiary or under any authority of Arlington BankMBT or any Subsidiary is or shall be entitled to any commission, broker’s or finder’s fee or any other form of compensation or payment from any of the parties hereto, other than attorneys’ or accountants’ fees, in connection with any of the transactions contemplated by this Agreement.
5.23Shareholder Rights Plan. Arlington BankMBT does not have a shareholder rights plan or any other plan, program or agreement involving, restricting, prohibiting or discouraging a change in control or merger of ArlingtonMBT or the Bank or which may be considered an anti-takeover mechanism.
5.24Indemnification Agreements. Except as set forth in the Arlington BankMBT Disclosure Letter, Arlington Bankneither MBT nor any Subsidiary is not a party to any indemnification, indemnity or reimbursement agreement, contract, commitment or understanding to indemnify any present or former director, officer, employee, shareholder or agent against any liability or hold the same harmless from liability other than as expressly provided in the Articles of Incorporation or Bylaws of MBT or Constitution of Arlington Bank.the Subsidiaries.
5.25Nonsurvival of Representations and Warranties. The representations and warranties contained in this Section 5 shall expire on the Effective Date or the earlier termination of this Agreement, and thereafter Arlington BankMBT and the Subsidiaries and all directors and officers of Arlington BankMBT and the Subsidiaries shall have no further liability with respect thereto.
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SECTION 6
REPRESENTATIONS AND
WARRANTIES OF FIRST MERCHANTS
First Merchants and FMB, as applicable, hereby makemakes the following representations and warranties set forth below to Arlington Bank.MBT. For the purposes of this Section, “First Merchants Disclosure Letter” is defined as a letter referencing Section 6 of this Agreement which shall be prepared by First Merchants and FMB and delivered to Arlington BankMBT contemporaneous with the execution of this Agreement.
6.1Organization and Qualification. First Merchants is a corporation duly organized and validly existing under the laws of the State of Indiana and FMB is a commercial bank duly organized and validly existing under the laws of the State of Indiana. First Merchants and FMB have the power and authority (corporate or otherwise) to conduct their respective businesses in the manner and by the means utilized as of the date hereof. First Merchants’ only subsidiaries are FMB and the other entities listed on Exhibit 21 to First Merchants’ Annual Report on Form 10-K as of and for the period ending December 31, 2015 (the2017 (each, a “First Merchants Subsidiary”, and collectively, the “First Merchants Subsidiaries”). FMB is subject to primary federal regulatory supervision and regulation by the FDIC.
6.2Authorization.
(a) First Merchants and FMB have the corporate power and authority to enter into this Agreement and to carry out their obligations hereunder subject to the conditions precedent set forth in Section 9. The Agreement, when executed and delivered, will have been duly authorized and will constitute a valid and binding obligation of First Merchants and FMB, subject to the conditions precedent set forth in Section 9
hereof, enforceable in accordance with its terms, except to the extent limited by insolvency, reorganization, liquidation, readjustment of debt, or other laws of general application relating to or affecting the enforcement of creditor’s rights. The Board of Directors of First Merchants and FMB have approved the Merger pursuant to the terms and conditions of this Agreement.
(b) Except as set forth in the First Merchants Disclosure Letter, neither the execution of this Agreement, nor the consummation of the transactions contemplated hereby, subject to the conditions precedent set forth in Section 9 hereof does or will (i) conflict with, result in a breach of, or constitute a default under either First Merchants’ or FMB’s Articles of Incorporation or By-Laws; (ii) conflict with, result in a breach of, or constitute a default under any federal, foreign, state, or local law, statute, ordinance, rule, regulation, or court or administrative order or decree, or any note, bond, indenture, loan, mortgage, security agreement, contract, arrangement, or commitment, to which either First Merchants or FMB is subject or bound, the result of which would have a Material Adverse Effect; (iii) result in the creation of, or give any person, corporation or entity the right to create, any lien, charge, claim, encumbrance, security interest, or any other rights of others or other adverse interest upon any right, property or asset of either First Merchants or FMB; (iv) terminate, or give any person, corporation or entity the right to terminate, amend, abandon, or refuse to perform, any note, bond, indenture, loan, mortgage, security agreement, contract, arrangement, or commitment to which First Merchants or FMB is a party or by which either First Merchants or FMB is subject or bound, the result of which would have a Material Adverse Effect on First Merchants; or (v) accelerate or modify, or give any party thereto the right to accelerate or modify, the time within which, or the terms according to which, either First Merchants or FMB is to perform any duties or obligations or receive any rights or benefits under any note, bond, indenture, loan, mortgage, security agreement, contract, arrangement, or commitment.
(c) Other than in connection or in compliance with the provisions of the Bank Holding Company Act of 1956, the Bank Merger Act, federal and state securities laws, and applicable federal and Indiana banking statutes and Indiana corporate statutes, all as amended, and the rules and regulations promulgated thereunder, no notice to, filing with, authorization of, exemption by, or consent or approval of, any public body or authority is necessary for the consummation by First Merchants and FMB of the transactions contemplated by this Agreement.
(d) Except as set forth in the First Merchants Disclosure Letter, other than those filings, authorizations, consents and approvals referenced in Section 6.2(c) above and filings and approvals relating to the listing of the shares of First Merchants Common Stock to be issued in the Merger on the NASDAQ Global Select Market and certain other filings and approvals with NASDAQ relating to the change in the number of shares of First
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Merchants outstanding as a result of the Merger, no notice to, filing with, authorization of, exemption by, or consent or approval of, any third party is necessary for the consummation by First Merchants or FMB of the transactions contemplated by this Agreement, except for such authorizations, exemptions, consents or approvals, the failure of which to obtain, would not be reasonably likely to result in a Material Adverse Effect.
6.3Capitalization.
(a) As of OctoberJuly 31, 2016,2018, First Merchants had 50,000,000One Hundred Million (100,000,000) shares of First Merchants Common Stock authorized, without par value, $0.125 stated value, of which 40,807,13849,560,536 shares were issued and outstanding. Such issued and outstanding shares of First Merchants Common Stock have been duly and validly authorized by all necessary corporate action of First Merchants, are validly issued, fully paid and nonassessable and have not been issued in violation of any preemptive rights of any shareholders.
(b) First Merchants has authorized 500,000 shares of preferred stock, without par value (“First Merchants Preferred Stock”). First Merchants has designated 116,000 of those shares of First Merchants Preferred Stock as Fixed Rate Cumulative Perpetual Preferred Stock, Series A authorized, $1,000 per share liquidation amount, no shares of which are issued and outstanding. First Merchants also has designated 90,823.23 shares of the First Merchants Preferred Stock as Senior Non-Cumulative Perpetual Preferred Stock, Series B authorized, $1,000 per share liquidation amount, no shares of which are currently outstanding.
(c) The shares of First Merchants Common Stock to be issued pursuant to the Merger will be duly authorized, fully paid, validly issued and nonassessable and subject to no preemptive rights.
6.4Organizational Documents. The Articles of Incorporation and By-Laws of First Merchants in force as of the date hereof have been delivered to Arlington Bank.MBT. The documents delivered by it represent true, accurate and complete copies of the corporate documents of First Merchants in effect as of the date of this Agreement.
6.5Compliance with Law. To the knowledge of “First Merchants’ Management” (as defined below), except as set forth in the First Merchants Disclosure Letter, neither First Merchants nor any First Merchants Subsidiary has engaged in any activity nor taken or omitted to take any action which has resulted or could reasonably be expected to result, in the violation of any local, state, federal or foreign law, statute, rule, regulation or ordinance or of any order, injunction, judgment or decree of any court or government agency or body, the violation of which could reasonably be expected to have a Material Adverse Effect. Except as set forth in the First Merchants Disclosure Letter, First Merchants and each First Merchants Subsidiary possess all licenses, franchises, permits and other authorizations necessary for the continued conduct of their respective businesses without material interference or interruption. Neither First Merchants nor any First Merchants Subsidiary are subject to any agreement, commitment or understanding with, or order and directive of, any regulatory agency or government authority with respect to the business or operations of First Merchants or FMB. Except as set forth in the First Merchants Disclosure Letter, FMB has not received any notice of enforcement actions since January 1, 2014 from any regulatory agency or government authority relating to its compliance with the Bank Secrecy Act, the Truth-in-Lending Act, the Community Reinvestment Act, the Gramm-Leach-Bliley Act of 1999, the USA Patriot Act, the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act or any laws with respect to the protection of the environment or the rules and regulations promulgated thereunder. Except as set forth in the First Merchants Disclosure Letter, First Merchants has not received any notice of enforcement actions since January 1, 20142015 from any regulatory agency or government authority relating to its compliance with any securities, tax or employment laws applicable to First Merchants. FMB received a rating of “satisfactory” or better in its most recent examination or interim review with respect to the Community Reinvestment Act.
6.6Accuracy of Statements. No information which has been or shall be supplied by First Merchants nor any First Merchants Subsidiary with respect to its respective businesses, operations and financial condition for inclusion in the proxy statement, registration statement, and regulatory applications or proxy statement relating to the Merger or the Bank Merger contains or shall contain (in the case of information relating to the proxy statement at the time it is mailed and for the regulatory applications and registration statement, and each amendment or supplement thereto, if any, at the time they are filed)it becomes effective) any untrue statement of a material fact or omits or shall omit to state a material fact necessary to make the statements contained herein or therein not misleading.
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6.7Litigation and Pending Proceedings. Except as set forth in the First Merchants Disclosure Letter, there are no claims of any kind, nor any action, suits, proceedings, arbitrations or investigations pending or to the knowledge of First Merchants’ Management threatened in any court or before any government agency or body, arbitration panel or otherwise (nor does First Merchants’ Management have any knowledge of a basis for any claim, action, suit, proceeding, arbitration or investigation) which could be reasonably expected to have a Material Adverse Effect. To the knowledge of First Merchants’ Management, there are no material uncured violations, criticisms or exceptions, or violations with respect to which material refunds or restitutions may be required, cited in any report, correspondence or other communication to First Merchants as a result of an examination by any regulatory agency or body.
6.8Financial Statements.
(a) First Merchants’ consolidated audited balance sheets as of the end of the two (2) fiscal years ended December 31, 20152017 and 2014,2016, the unaudited consolidated balance sheet for the nine monthsperiod ended SeptemberJune 30, 20162018 and the related consolidated statements of income, shareholders’ equity and cash flows for the years or period then ended (hereinafter collectively referred to as the “First Merchants Financial Information”) present fairly the consolidated financial condition or position of First Merchants as of the
respective dates thereof and the consolidated results of operations of First Merchants for the respective periods covered thereby and have been prepared in conformity with GAAP applied on a consistent basis.
(b) All loans reflected in the First Merchants Financial Information and which have been made, extended or acquired since SeptemberJune 30, 20162018 (i) have been made for good, valuable and adequate consideration in the ordinary course of business; (ii) constitute the legal, valid and binding obligation of the obligor and any guarantor named therein; (iii) are evidenced by notes, instruments or other evidences of indebtedness which are true, genuine and what they purport to be; and (iv) to the extent that FMB has a security interest in collateral or a mortgage securing such loans, are secured by perfected security interests or mortgages naming FMB as the secured party or mortgagee, except for such unperfected security interests or mortgages naming FMB as secured party or mortgagee which, on an individual loan basis, would not materially adversely affect the value of any such loan and the recovery of payment on any such loan if FMB is not able to enforce any such security interest or mortgage.
6.9Absence of Certain Changes. Except for events and conditions relating to the business and interest rate environment in general, the accrual or payment of Merger-related expenses, or as set forth in the First Merchants Disclosure Letter, since SeptemberJune 30, 2016,2018, no events have occurred which could reasonably be expected to have a Material Adverse Effect. Except as set forth in the First Merchants Disclosure Letter, between the period from SeptemberJune 30, 20162018 to the date of this Agreement, First Merchants and each First Merchants Subsidiary have carried on their respective businesses in the ordinary and usual course consistent with their past practices (excluding the incurrence of reasonable fees and expenses of professional advisors related to this Agreement and the transactions contemplated hereby). Since SeptemberJune 30, 2016,2018, there has not been any declaration, setting aside or payment of any dividend or other distribution (whether in cash, stock or property) with respect to First Merchants’ Common Stock (other than normal quarterly cash dividends) or any split, combination or reclassification of any stock of First Merchants or any First Merchants Subsidiary or any issuance or the authorization of any issuance of any securities in respect of, or in lieu of, or in substitution for First Merchants’ Common Stock.
6.10Absence of Undisclosed Liabilities. Except as set forth in the First Merchants Disclosure Letter, neither First Merchants nor any First Merchants Subsidiary has any liabilities, whether accrued, absolute, contingent, or otherwise, existing or arising out of any transaction or state of facts existing on or prior to the date hereof, except (a) as and to the extent disclosed, reflected or reserved against in the First Merchants Financial Information, (b) any agreement, contract, obligation, commitment, arrangement, liability, lease or license which individually is less than Five Hundred Thousand and 00/100 Dollars ($500,000.00) per year and which may be terminated within one year from the date of this Agreement, and (c) unfunded loan commitments made in the ordinary course of Arlington Bank’sMBT’s business consistent with past practices.
6.11Taxes, Returns and Reports. First Merchants and FMB have (a) duly filed all federal, state, local and foreign tax returns of every type and kind required to be filed by them as of the date hereof, and each return is true, complete and accurate in all material respects; (b) paid all material taxes, assessments and other governmental charges due and payable or claimed to be due and payable upon them or any of their income, properties or assets; and (c) not requested an extension of time for any such payments (which extension is still in force). Except for taxes not yet due and payable, the reserve for taxes on the First Merchants Financial Information is adequate to cover all of First Merchants’ and FMB’s tax liabilities (including, without limitation, income taxes and franchise fees) that may become payable in future years with respect to any transactions consummated prior to September 30, 2016. Neither First Merchants nor FMB has or will have, any liability for taxes of any nature for or with respect to the operation of their business, including the assets of any subsidiary, from September 30, 2016, up to and including the Effective Date, except to the extent reflected on the First Merchants Financial Information or on financial statements of First Merchants or any subsidiary subsequent to such date and as set forth in the First Merchants Disclosure Letter. Neither First Merchants nor FMB has received written notice that it is currently under audit by any state or federal taxing authority. Except as set forth in the First Merchants Disclosure Letter, none of the federal, state, or local tax returns of First Merchants or FMB have been audited by any taxing authority during the past five (5) years.
6.12Deposit Insurance. The deposits of FMB are insured by the FDIC in accordance with the Federal Deposit Insurance Act, and FMB has paid all premiums and assessments with respect to such deposit insurance.
6.13Reports. Since January 1, 2014, First Merchants and the First Merchants Subsidiaries have timely filed all reports, registrations and statements, together with any required amendments thereto, that they were required to file with (i) the Board of Governors of the Federal Reserve System, (ii) the Office of the Comptroller of the Currency, (iii) the FDIC, (iv) the Indiana Department of Financial Institutions, and (v) any federal, state, municipal or local government, securities, banking, environmental, insurance and other governmental or regulatory authority, and the agencies and staffs thereof (collectively, the “FMC Regulatory Authorities”), except where such failure would not have a Material Adverse Effect. All such reports filed by First Merchants and the First Merchants Subsidiaries complied in all material respects with all applicable rules and regulations promulgated by the applicable FMC Regulatory Authorities and were true, accurate and complete in all material respects and, to the extent required, were prepared in conformity with GAAP applied on a consistent basis. There is no unresolved violation with respect to any report or statement filed by, or any examination of First Merchants or FMB.
6.14Absence of Defaults. Neither First Merchants nor FMB is in violation of its Articles of Incorporation or By-Laws or, to the knowledge of First Merchants’ Management, in default under any material agreement, commitment, arrangement, loan, lease, insurance policy or other instrument, whether entered into in the ordinary course of business or otherwise and whether written or oral, and there has not occurred any event known to First Merchants’ Management that, with the lapse of time or giving of notice or both, would constitute such a default, except for defaults which would not have a Material Adverse Effect.
6.15Tax and Regulatory Matters. Neither First Merchants nor any First Merchants Subsidiary has taken or agreed to take any action or has any knowledge of any fact or circumstance that would (a) prevent the transactions contemplated hereby from qualifying as a reorganization within the meaning of Section 368 of the Code or (b) materially impede or delay receipt of any regulatory approval required for consummation of the transactions contemplated by this Agreement.
6.16Securities Law Compliance. First Merchants’ common stock is traded on the NASDAQ Global Select Market under the symbol of “FRME.” First Merchants has complied in all material respects with all applicable state, federal or foreign securities laws, statutes, rules, regulations or orders, injunctions or decrees of any applicable government agency relating thereto. Since January 1, 2015, First Merchants has filed all reports and other documents required to be filed by it under the Securities and Exchange Act of 1934 (the “1934 Act”) and the Securities Act of 1933 (the “1933 Act”), including First Merchants’ Annual Report on Form 10-K for the year ended December 31, 2015, copies of which have previously been delivered to Arlington Bank. Since January 1, 2015, all such SEC filings were true, accurate and complete in all material respects as of the dates of the filings (except for information included therein as of a certain date, which shall have been true and correct as of such date), and no such filings, at the time they were filed, contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements made, at the time and in the light of the circumstances under which they were made, not false or misleading.
6.17Broker’s or Finder’s Fees. Except for Sandler O’Neill & Partners, L.P., no agent, broker or other person acting on behalf of First Merchants or under any authority of First Merchants is or shall be entitled to any commission, broker’s or finder’s fee or any other form of compensation or payment from any of the parties hereto, other than attorneys’ or accountants’ fees, in connection with any of the transactions contemplated by this Agreement.
6.18Indemnification Agreements. Except as set forth in the First Merchants Disclosure Letter, neither First Merchants nor any First Merchants Subsidiary is a party to any indemnification, indemnity or reimbursement agreement, contract, commitment or understanding to indemnify any present or former director, officer,
employee, shareholder or agent against any liability or hold the same harmless from liability other than as expressly provided in the Articles of Incorporation or By-Laws of First Merchants and the First Merchants Subsidiaries.
6.19Nonsurvival of Representations and Warranties. The representations and warranties contained in this Section 6 shall expire on the Effective Date or the earlier termination of this Agreement, and thereafter First Merchants and the First Merchants Subsidiaries and all directors and officers of First Merchants and the First Merchants Subsidiaries shall have no further liability with respect thereto.
6.20Employee Benefit Plans.
(a) The First Merchants Disclosure Letter contains a list identifying each “employee benefit plan,” as defined in Section 3(3) of ERISA, which (i) is subject to any provision of ERISA, and (ii) is currently maintained, administered or contributed to by First Merchants or any entity, trade or business that, together with
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First Merchants, would be treated as a single employer under the provisions of Sections 414(b), (c), (m) or (o) of the Code (“First Merchants ERISA Affiliate”), and covers any employee, director or former employee or director of First Merchants or any First Merchants ERISA Affiliate under which First Merchants or any First Merchants ERISA Affiliate has any liability. The First Merchants Disclosure Letter also contains a list of all “employee benefit plans” as defined under ERISA which have been terminated by First Merchants or any First Merchants ERISA Affiliate since January 1, 2012.2013. Copies of such plans (and, if applicable, related trust agreements or insurance contracts) and all amendments thereto and written interpretations thereof have been furnished to Arlington BankMBT together with the three (3) most recent annual reports (Form 5500) prepared in connection with any such plan and the current summary plan descriptions (and any summary of material modifications thereto). Such plans are hereinafter referred to individually as a “First Merchants Employee Plan” and collectively as the “First Merchants Employee Plans.” The First Merchants Employee Plans which individually or collectively would constitute an “employee pension benefit plan” as defined in Section 3(2)(A) of ERISA are identified as such in the list referred to above.
(b) The First Merchants Employee Plans have been operated in material compliance with all applicable laws, regulations, rulings and other requirements, as well as pursuant to the terms of their governing documents (to the extent consistent with ERISA).
(c) Except as set forth in the First Merchants Disclosure letter, to the knowledge of First Merchants’ Management, no “prohibited transaction,” as defined in Section 406 of ERISA or Section 4975 of the Code, for which no statutory or administrative exemption exists, and no “reportable event,” as defined in Section 4043(c) of ERISA, for which a notice is required to be filed, has occurred with respect to any First Merchants Employee Plan that could subject First Merchants to material taxes or penalties. Neither First Merchants nor any First Merchants ERISA Affiliate has any material liability to the PBGC, to the IRS, to the DOL, to the Employee Benefits Security Administration, with respect to any First Merchants Employee Plan, except for routine premium payments to the PBGC.
(d) To the knowledge of First Merchants’ Management, no “fiduciary,” as defined in Section 3(21) of ERISA, of a First Merchants Employee Plan has failed to comply with the requirements of Section 404 of ERISA in such a way as to cause material liability to First Merchants or any First Merchants ERISA Affiliate.
(e) Each of the First Merchants Employee Plans which is intended to be qualified under Section 401(a) of the Code has been timely amended to comply in all material respects with the applicable requirements of the Code. Except as set forth in the First Merchants Disclosure Letter, First Merchants and/or any First Merchants ERISA Affiliate, as applicable, sought and received favorable determination letters from the IRS and has furnished to Arlington BankMBT copies of the most recent IRS determination letters with respect to any such Employee Plan that is intended to be qualified under Section 401(a) of the Code.
(f) No First Merchants Employee Plan has incurred an “accumulated funding deficiency,” as determined under Section 412 of the Code and Section 302 of ERISA. First Merchants has at all times met the minimum funding standard, and has made all contributions required, under Section 412 of the Code and
Section 302 of ERISA. No facts or circumstances exist that may subject First Merchants, or any First Merchants ERISA Affiliate, to any liability under Sections 4062, 4063 or 4064 of ERISA. Neither First Merchants nor any First Merchants ERISA Affiliate ever has engaged in any transaction within the meaning of Section 4069 of ERISA. Except as disclosed in the First Merchants Disclosure Letter, there exist no facts or circumstances which could subject First Merchants, or any First Merchants ERISA Affiliate thereof, to withdrawal liability within the meaning of Section 4201 of ERISA or to contingent withdrawal liability under Section 4204 of ERISA. Neither First Merchants nor any First Merchants ERISA Affiliate ever has been a party to a transaction within the meaning of Section 4212(c) of ERISA.
(g) No First Merchants Employee Plan subject to Title IV of ERISA has been terminated or incurred a partial termination (either voluntarily or involuntarily), in such a way as to cause material additional liability to First Merchants or any First Merchants ERISA Affiliate.
(h) No claims involving a First Merchants Employee Plan (other than normal benefit claims) have been filed in a court of law or, to the knowledge of First Merchants’ Management, have been threatened to be filed in a court of law.
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(i) There is no contract, agreement, plan or arrangement covering any employee, director or former employee or director of First Merchants or any Subsidiary that, individually or collectively, could give rise to the payment of any amount that would not be deductible by reason of Section 280G or Section 162(a)(1) of the Code.
(j) To the knowledge of First Merchants’ Management, no event has occurred that would cause the imposition of the tax described in Section 4980B of the Code on First Merchants or any First Merchants ERISA Affiliate. To the knowledge of First Merchants’ Management, First Merchants has materially complied with all requirements of Section 601 or ERISA, as applicable, with respect to any First Merchants Employee Plan.
(k) The First Merchants Disclosure Letter contains a list of each employment, severance or other similar contract, arrangement or policy and each plan or arrangement (written or oral) providing for insurance coverage (including any self-insured arrangements), workers’ compensation, disability benefits, supplemental unemployment benefits, vacation benefits, retirement benefits or deferred compensation, profit sharing, bonuses, stock options, stock appreciation or other forms of incentive compensation or post-retirement insurance, compensation or benefits which (i) is not a First Merchants Employee Plan, (ii) was entered into, maintained or contributed to, as the case may be, by First Merchants or any First Merchants Subsidiary and (iii) covers any employee, director or former employee or director of First Merchants or any First Merchants Subsidiary. Such contracts, plans and arrangements as are described above, copies or descriptions of all of which have been furnished previously to First Merchants, are hereinafter referred to collectively as the “First Merchants Benefit Arrangements.” Each of the First Merchants Benefit Arrangements has been maintained in compliance in all material respects with its terms and with the requirements prescribed by any and all statutes, orders, rules and regulations which are applicable to such First Merchants Benefit Arrangements.
(l) Except as set forth in the First Merchants Disclosure Letter, neither First Merchants nor any First Merchants ERISA Affiliate has any present or future liability in respect of post-retirement health and medical benefits for former employees or directors of First Merchants or any First Merchants ERISA Affiliate.
(m) Except as set forth in the First Merchants Disclosure Letter, there has been no amendment to, written‘written interpretation or announcement (whether or not written) by First Merchants or any First Merchants ERISA Affiliate relating to, or change in employee participation or coverage under, any First Merchants Employee Plan or Benefit Arrangement administered by First Merchants or any First Merchants ERISA Affiliate which would increase materially the expense of maintaining such First Merchants Employee Plans or First Merchants Benefit Arrangements above the level of the expense incurred in respect thereof for the fiscal year ended December 31, 2015.2017.
(n) Except as otherwise provided in the First Merchants Disclosure Letter, the transactions contemplated by the Agreement will not cause acceleration of vesting in, or payment of, any material benefits under any First Merchants Employee Plan or Benefit Arrangement and will not otherwise materially accelerate or increase any obligation under any First Merchants Employee Plan or Benefit Arrangement.
(o) With respect to any nonqualified deferred compensation plan that is subject to Section 409A of the Code, such plan has been identified on the First Merchants Disclosure Letter and has been operated in accordance with, and is in documentary compliance with, Section 409A of the Code and the guidance issued thereunder.
6.12 Taxes, Returns and Reports. First Merchants and FMB have (a) duly filed all federal, state, local and foreign tax returns of every type and kind required to be filed by them as of the date hereof, and each return is true, complete and accurate in all material respects; (b) paid all material taxes, assessments and other governmental charges due and payable or claimed to be due and payable upon them or any of their income, properties or assets; and (c) not requested an extension of time for any such payments (which extension is still in force). Except for taxes not yet due and payable, the reserve for taxes on the First Merchants Financial Information is adequate to cover all of First Merchants’ and FMB’s tax liabilities (including, without limitation, income taxes and franchise fees) that may become payable in future years with respect to any transactions consummated prior to June 30, 2018. Neither First Merchants nor FMB has or will have, any liability for taxes of any nature for or with respect to the operation of their business, including the assets of any subsidiary, from June 30, 2018, up to and including the Effective Date, except to the extent reflected on the First Merchants Financial Information or on financial statements of First Merchants or any subsidiary subsequent to such date and as set forth in the First Merchants Disclosure Letter. Neither First Merchants nor FMB has received written
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notice that it is currently under audit by any state or federal taxing authority. Except as set forth in the First Merchants Disclosure Letter, none of the federal, state, or local tax returns of First Merchants or FMB have been audited by any taxing authority during the past five (5) years.
6.13 Deposit Insurance. The deposits of FMB are insured by the FDIC in accordance with the Federal Deposit Insurance Act, and FMB has paid all premiums and assessments with respect to such deposit insurance.
6.14 Reports. Since January 1, 2015, First Merchants and the First Merchants Subsidiaries have timely filed all reports, registrations and statements, together with any required amendments thereto, that they were required to file with (i) the Board of Governors of the Federal Reserve System, (ii) the Office of the Comptroller of the Currency, (iii) the FDIC, (iv) the Indiana Department of Financial Institutions, and (v) any federal, state, municipal or local government, securities, banking, environmental, insurance and other governmental or regulatory authority, and the agencies and staffs thereof (collectively, the “FMC Regulatory Authorities”), except where such failure would not have a Material Adverse Effect. All such reports filed by First Merchants and the First Merchants Subsidiaries complied in all material respects with all applicable rules and regulations promulgated by the applicable FMC Regulatory Authorities and were true, accurate and complete in all material respects and, to the extent required, were prepared in conformity with GAAP applied on a consistent basis. There is no unresolved violation with respect to any report or statement filed by, or any examination of First Merchants or FMB.
6.15 Absence of Defaults. Neither First Merchants nor FMB is in violation of its Articles of Incorporation or By-Laws or, to the knowledge of First Merchants’ Management, in default under any material agreement, commitment, arrangement, loan, lease, insurance policy or other instrument, whether entered into in the ordinary course of business or otherwise and whether written or oral, and there has not occurred any event known to First Merchants’ Management that, with the lapse of time or giving of notice or both, would constitute such a default, except for defaults which would not have a Material Adverse Effect.
6.16 Tax and Regulatory Matters. Neither First Merchants nor any First Merchants Subsidiary has taken or agreed to take any action or has any knowledge of any fact or circumstance that would (a) prevent the transactions contemplated hereby from qualifying as a reorganization within the meaning of Section 368 of the Code or (b) materially impede or delay receipt of any regulatory approval required for consummation of the transactions contemplated by this Agreement.
6.17 Securities Law Compliance. First Merchants’ common stock is traded on the NASDAQ Global Select Market under the symbol of “FRME.” First Merchants has complied in all material respects with all applicable state, federal or foreign securities laws, statutes, rules, regulations or orders, injunctions or decrees of any applicable government agency relating thereto. Since January 1, 2017, First Merchants has filed all reports and other documents required to be filed by it under the 1934 Act and the 1933 Act, including First Merchants’ Annual Report on Form 10-K for the year ended December 31, 2017, copies of which have previously been delivered to MBT. Since January 1, 2017, all such SEC filings were true, accurate and complete in all material respects as of the dates of the filings (except for information included therein as of a certain date, which shall have been true and correct as of such date), and no such filings, at the time they were filed, contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements made, at the time and in the light of the circumstances under which they were made, not false or misleading.
6.18 Broker’s or Finder’s Fees. Except for Keefe, Bruyette & Woods, no agent, broker or other person acting on behalf of First Merchants or under any authority of First Merchants is or shall be entitled to any commission, broker’s or finder’s fee or any other form of compensation or payment from any of the parties hereto, other than attorneys’ or accountants’ fees, in connection with any of the transactions contemplated by this Agreement.
6.19 Indemnification Agreements. Except as set forth in the First Merchants Disclosure Letter, neither First Merchants nor any First Merchants Subsidiary is a party to any indemnification, indemnity or reimbursement agreement, contract, commitment or understanding to indemnify any present or former director, officer, employee, shareholder or agent against any liability or hold the same harmless from liability other than as expressly provided in the Articles of Incorporation or By-Laws of First Merchants and the First Merchants Subsidiaries.
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6.20 Nonsurvival of Representations and Warranties. The representations and warranties contained in this Section 6 shall expire on the Effective Date or the earlier termination of this Agreement, and thereafter First Merchants and the First Merchants Subsidiaries and all directors and officers of First Merchants and the First Merchants Subsidiaries shall have no further liability with respect thereto.
SECTION 7
COVENANTS OF ARLINGTON BANKMBT
Arlington BankMBT covenants and agrees with First Merchants and covenants and agrees to cause the Bank to act, as follows:
7.1Shareholder ApprovalApproval..
(a) Following the execution of this Agreement, Arlington BankMBT shall take, in accordance with applicable law and its Articles of Incorporation Bylaws and Constitution,Bylaws, all action necessary to convene a meeting of its shareholders as promptly as practicable (and in any event within forty-five (45) days following the time when the Registration Statement becomes effective, subject to extension with the consent of First Merchants, which shall not unreasonably be withheld, conditioned or delayed) to consider and vote upon the adoptionapproval of this Agreement and approval of the transactions contemplated hereby (including the Merger) and any other matter required to be approved by the shareholders of Arlington BankMBT in order to consummate the Merger and the transactions contemplated hereby (including any adjournment or postponement thereof, the “Shareholder Meeting”).
(b) Subject to Section 7.5 hereof, Arlington BankMBT shall cooperate with First Merchants in the preparation of an appropriate proxy statement and other proxy solicitation materials (the “Proxy Statement”) and use its reasonable best efforts to obtain the requisite vote of Arlington Bank’sMBT’s shareholders to approve this Agreement and to consummate the Merger and the other transactions contemplated hereby, and shall ensure that the Shareholder Meeting is called, noticed, convened, held and conducted, and that all proxies solicited by Arlington BankMBT in connection with the Shareholder Meeting are solicited in compliance with the Ohio Corporate Law,Michigan Business Corporation Act, the Articles of Incorporation and Bylaws and Constitution of Arlington Bank,MBT, and all other applicable legal requirements. Arlington BankMBT shall keep First Merchants updated with respect to the proxy solicitation results in connection with the Shareholder Meeting as reasonably requested by First Merchants.
(c) Subject to Section 7.5 hereof, Arlington Bank’sMBT’s Board of Directors shall recommend that Arlington Bank’sMBT’s shareholders vote to adoptapprove this Agreement and approve the transactions contemplated hereby (including the Merger) and any other matters required to be approved by Arlington Bank’sMBT’s shareholders for consummation of the Merger and the transactions contemplated hereby.
7.2Other Approvals. As soon as reasonably practicable following the date hereof, ArlingtonMBT and the Bank shall use itstheir reasonable best efforts to procure upon reasonable terms and conditions any consents, authorizations, approvals, registrations, and certificates from any applicable Arlington BankMBT Regulatory Authorities (other than those from which First Merchants will seek approval pursuant to Section 8.1 hereof), as may be required by applicable law, and to satisfy all other requirements prescribed by law which are necessary for consummation of the Merger and the Bank Merger on the terms and conditions provided in this Agreement.
7.3Conduct of Business.
(a) Except as otherwise set forth on the Arlington BankMBT Disclosure Letter, on and after the date of this Agreement and until the Effective Date or until this Agreement shall be terminated as herein provided,
Arlington Bank neither MBT nor any Subsidiary shall, not, without the prior written consent (which may include consent via electronic mail) of First Merchants, (i) make any changes in itstheir capital structure, including, but not limited to the redemption of shares of Arlington Bank Common Stock;common stock; (ii) authorize an additional class of stock or issue, or authorize the issuance of any capital stock or any options or other instruments convertible into shares of capital stock, except pursuant to the Director Deferred Compensation Plan, or the exercise of, stock optionsSOSARs and RSUs outstanding as of the date of this Agreement);Agreement; (iii) declare, distribute or pay any dividends on itstheir common shares, or authorize a stock split, or make any other distribution to its shareholders;their shareholders, except for MBT’s quarterly cash dividend in an amount not to exceed $0.10 per share; provided, however, MBT and First Merchants shall coordinate MBT’s dividend schedule for the quarter in which Closing occurs so that holder of MBT Common Stock does not receive dividends on both First Merchants and MBT common stock attributable to the same calendar quarter; (iv) merge, combine or consolidate with or, other than in the ordinary course of business consistent with past practice (including the sale, transfer or disposal of other real estate owned), sell itstheir assets or any of itstheir securities to any other person,
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corporation or entity, effect a share exchange or enter into any other transaction not in the ordinary course of business; (v) incur any new liability or obligation, make any new commitment, payment or disbursement, enter into any new contract, agreement, understanding or arrangement or engage in any new transaction, or acquire or dispose of any property, other than other real estate owned, or asset the fair market value of which exceeds One Hundred Fifty Thousand and 00/100 Dollars ($100,000.00)150,000.00), in the aggregate, except for payments or disbursements made in the ordinary course of business consistent with past practice, the acquisition or disposition of personal or real property in connection with either foreclosures on mortgages or enforcement of security interests, the origination or sale of loans by Arlingtonthe Bank in the ordinary course of business and the creation of deposit liabilities and advances from the Federal Home Loan Bank in each case in the ordinary course of business consistent with past practice; (vi) subject any of itstheir properties or assets to a mortgage, lien, claim, charge, option, restriction, security interest or encumbrance, except for such mortgages, liens or other encumbrances incurred in the ordinary course of business consistent with past practice; (vii) promote or increase or decrease the rate of compensation (except for promotions andnon-material increases in the ordinary course of business and in accordance with past practices) or enter into any agreement to promote or increase or decrease the rate of compensation of any director, officer or employee of ArlingtonMBT or the Bank; (viii) except as set forth in the Arlington BankMBT Disclosure Letter, as specifically authorized by this Agreement or as required by applicable law, execute, create, institute, modify or amend any pension, retirement, savings, stock purchase, stock bonus, stock ownership, stock option, stock appreciation or depreciation right or profit sharing plans, any employment, deferred compensation, consultant, bonus or collective bargaining agreement, group insurance contract or other incentive, welfare or employee benefit plan or agreement for current or former directors, officers or employees of Arlington Bank,MBT or any Subsidiary, change the level of benefits or payments under any of the foregoing or increase or decrease any severance or termination pay benefits or any other fringe or employee benefits or pay any bonuses other than as required by law or regulatory authorities; (ix) amend itstheir respective Articles of Incorporation Bylaws, or ConstitutionBylaws from those in effect on the date of this Agreement; (x) except as set forth in the Arlington BankMBT Disclosure Letter or as specifically authorized by this Agreement, modify, amend or institute new employment policies or practices, or enter into, renew, modify, amend or extend any employment or severance agreements with respect to any present or former directors, officers or employees of Arlington Bank (or waiveMBT or any rightsSubsidiary; (xi) give, dispose, sell, convey, assign, hypothecate, pledge, encumber or otherwise transfer or grant a security interest in any capital stock of Arlington Bank thereunder); (xi)any Subsidiary; (xii) fail to make additions to Arlingtonthe Bank’s reserve for loan losses, or any other reserve account, in the ordinary course of business and in accordance with sound banking practices; (xii)(xiii) other than in the ordinary course of business consistent with past practice, incur any indebtedness for borrowed money or assume, guarantee, endorse or otherwise as an accommodation become responsible or liable for the obligations of any other individual, corporation or other entity; and (xiii)(xiv) agree in writing or otherwise to take any of the foregoing actions. The prior consent of First Merchants for the items listed above may be withheld, conditioned or delayed in its sole discretion; provided, however, consent for the items listed in (v) through (xiii) above may not be unreasonably withheld, conditioned or delayed.discretion.
(b) Arlington BankMBT and the Subsidiaries shall maintain, or cause to be maintained, in full force and effect insurance on its properties and operations and fidelity coverage on its directors, officers and employees in such amounts and with regard to such liabilities and hazards as customarily are maintained by other companies operating similar businesses.
(c) Arlington BankMBT shall provide and shall cause the Subsidiaries to provide First Merchants and its representatives full access, during normal business hours and on reasonable advance notice to Arlington Bank,MBT, to further information (to the extent
permissible under applicable law) and Arlington Bank’sthe Subsidiaries’ premises for purposes of (i) observing Arlington Bank’sthe Subsidiaries’ business activities and operations and to consult with Arlington Bank’sMBT’s officers and employees regarding the same on an ongoing basis to verify compliance by Arlington BankMBT with all terms of this Agreement, and (ii) making all necessary preparations for conversion of Arlingtonthe Bank’s information technology systems, including, but not limited to, installation of a hardware or software device(s) within Arlingtonthe Bank’s network to perform system penetration testing or assess previous security breaches. First Merchants may hire, at its expense, a mutually-agreeable third party consultant to perform cybersecurity system testing and monitoring (based on a mutually-agreeable project scope) in order to confirm that Arlingtonthe Bank’s technology systems are free of security breaches and, if necessary, provide remediation and notices related thereto. Arlington BankMBT and First Merchants shall each receive the results of the testing and reasonably coordinate their efforts on any potential remediation and notices. None of the foregoing actions shall unduly interfere with the business operations of Arlington BankMBT or the Subsidiaries nor shall such actions be permitted if such access relates to, (i) pending or threatened litigation or investigations if, in the opinion of counsel to Arlington Bank,MBT, such access would or might adversely affect the confidential nature of, or any privilege relating
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to, the matters being discussed, or (ii) matters involving an Acquisition Proposal. No investigation pursuant to this Section 7.3 shall affect or be deemed to modify any representation or warranty made in this Agreement by Arlington Bank.MBT. First Merchants will use such information as is provided to it by Arlington Bank, itsMBT or the Subsidiaries, or representatives or any third party consultant,thereof, solely for the purpose of conducting business, legal and financial reviews of Arlington BankMBT and the Subsidiaries and for such other purposes as may be related to this Agreement, and First Merchants will, and will direct all of its agents, employees and advisors to, maintain the confidentiality of all such information in accordance with the terms of Section 8.48.5 below. Arlington BankNeither MBT nor any of the Subsidiaries shall not be required to provide access to or to disclose information where such access or disclosure would violate or prejudice the rights of its customers, jeopardize the attorney-client privilege of the entity in possession or control of such information or contravene any law, rule, regulation, order, judgment, decree, fiduciary duty or binding agreement entered into prior to the date of this Agreement. The parties will make appropriate and reasonable substitute disclosure arrangements under circumstances in which the restrictions of the preceding sentence apply.
7.4Preservation of Business. On and after the date of this Agreement and until the Effective Date or until this Agreement is terminated as herein provided, Arlington BankMBT and the Subsidiaries shall (a) carry on itstheir business diligently, substantially in the same manner as heretofore conducted, and in the ordinary course of business; (b) use commercially reasonable efforts to preserve itstheir business organizationorganizations intact, to keep itstheir present officers and employees and to preserve itstheir present relationship with customers and others having business dealings with it;them; and (c) not do or fail to do anything which will cause a material breach of, or material default in, any contract, agreement, commitment, obligation, understanding, arrangement, lease or license to which it isthey are a party or by which it isthey are or may be subject or bound; provided, however, that Arlington Bank shall not be responsible for the effects that may result from the public announcement of the Merger.bound.
7.5Other Negotiations.
(a) ArlingtonMBT shall not, and shall cause the Bank shallto not, during the term of this Agreement, directly or indirectly, solicit, encourage or facilitate inquiries or proposals or enter into any agreement with respect to, or initiate or participate in any negotiations or discussions with any person or entity concerning, any proposed transaction or series of transactions involving or affecting Arlington BankMBT or the Subsidiaries (or itsthe securities or assets)assets of the foregoing) that, if effected, would constitute an acquisition of control of Arlington Bankeither MBT, or the Subsidiaries within the meaning of 12 U.S.C. §1817(j) (disregarding the exceptions set forth in 12 U.S.C. §1817(j)(17)) and the regulations of the FDICFederal Reserve Board thereunder (each, an “Acquisition Proposal”), or furnish any information to any person or entity proposing or seeking an Acquisition Proposal.
(b) Notwithstanding the foregoing, in the event that Arlington Bank’sMBT’s Board of Directors determines in good faith and after consultation with outside counsel, that in light of an Acquisition Proposal, it is necessary to provide such information or engage in such negotiations or discussions in order to act in a manner consistent with such Board’s fiduciary duties, Arlington Bank’sMBT’s Board of Directors may, in response
to an Acquisition Proposal which was not solicited by or on behalf of ArlingtonMBT or the Bank or which did not otherwise result from a breach of Section 7.5(a), subject to its compliance with Section 7.5(c), (i) furnish information with respect to ArlingtonMBT or the Bank to such person or entity making such Acquisition Proposal pursuant to a customary confidentiality agreement that is no less restrictive than the Confidentiality Agreement between Arlington BankMBT and First Merchants and (ii) participate in discussions or negotiations regarding such Acquisition Proposal. In the event that Arlington Bank’sMBT’s Board of Directors determines in good faith and after consultation with outside counsel, that the Acquisition Proposal is a Superior Acquisition Proposal (as defined below) and that it is necessary to pursue such Superior Acquisition Proposal in order to act in a manner consistent with such Board’s fiduciary duties, Arlington BankMBT may (A) withdraw, modify or otherwise change in a manner adverse to First Merchants, the recommendation of Arlington Bank’sMBT’s Board of Directors to its shareholders with respect to this Agreement and the Merger, and/or (B) terminate this Agreement in order to concurrently enter into an agreement with respect to such Superior Acquisition Proposal;provided,however, that Arlington Bank’sMBT’s Board of Directors may not terminate this Agreement pursuant to this Section 7.5(b) unless and until (x) five (5)ten (10) business days have elapsed following the delivery to First Merchants of a written notice of such determination by Arlington Bank’sMBT’s Board of Directors and during such five (5)ten (10) business-day period, ArlingtonMBT and the Bank otherwise cooperatescooperate with First Merchants with the intent of enabling the parties to engage in good faith negotiations so that the Merger and other transactions contemplated hereby may be effected and (y) at the end of such five (5)ten (10) business-day period Arlington Bank’sMBT’s Board of Directors continues reasonably to believe the Acquisition Proposal at issue constitutes a Superior Acquisition Proposal. A “Superior Acquisition Proposal” shall mean any Acquisition Proposal containing terms which Arlington Bank’sMBT’s Board of Directors determines in its good faith judgment (based on the advice of an independent financial advisor) to be more favorable to Arlington Bank’sMBT’s shareholders
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than the Merger and for which financing, to the extent required, is then committed or which, in the good faith judgment of Arlington Bank’sMBT’s Board of Directors, is reasonably capable of being obtained by such third party, but shall exclude any Acquisition Proposal the terms of which were made known to Arlington Bank’sMBT’s Board of Directors prior to the date of this Agreement.
(c) In addition to the obligations of Arlington BankMBT set forth in Section 7.5(a) and (b), Arlington BankMBT shall advise First Merchants orally and in writing as soon as reasonably practicable of any request (whether oral or in writing) for information or of any inquiries, proposals, discussions or indications of interest (whether oral or in writing) with respect to any Acquisition Proposal, the material terms and conditions of such request or Acquisition Proposal and the identity of the person or entity making such request or Acquisition Proposal. Arlington BankMBT shall keep First Merchants reasonably informed of the status and details (including amendments or proposed amendments) of any such request or Acquisition Proposal, including the status of any discussions or negotiations with respect to any Superior Acquisition Proposal.
7.6Announcement; Press Releases. In connection with the execution of this Agreement, Arlington BankMBT and First Merchants intend to jointly issue a press release mutually acceptable to the parties. Except as otherwise required by law, Arlingtonneither MBT nor the Bank shall not issue any additional press releases or make any other public announcements or disclosures relating to the Merger and the other transactions contemplated hereby without the prior approval of First Merchants provided, however, that nothing in this Section 7.6 shall be deemed to prohibit any party from making any disclosure that its counsel deems necessary in order to satisfy such party’s disclosure obligation imposed by law.
7.7Arlington BankMBT Disclosure Letter. Arlington BankMBT shall supplement, amend and update as of the Effective Date the Arlington BankMBT Disclosure Letter with respect to any matters hereafter arising which, if in existence or having occurred as of the date of this Agreement, would have been required to be set forth or described in the Arlington BankMBT Disclosure Letter. If, at any time prior to the Effective Date, Arlington BankMBT becomes aware of a fact or matter that might indicate that any of the representations and warranties of Arlington BankMBT herein may be untrue, incorrect or misleading in any material respect, Arlington BankMBT shall promptly disclose such fact or matter to First Merchants in writing.
7.8Confidentiality. Arlington BankMBT and the Subsidiaries shall use commercially reasonable efforts to cause itstheir respective officers, employees, and authorized representatives to hold in strict confidence all confidential data and information obtained by them from First Merchants, unless such information (a) was already known to Arlington Bank,MBT and the Subsidiaries, (b) becomes available to Arlington BankMBT and the Subsidiaries from other sources, (c) is independently developed by Arlington Bank,MBT and the Subsidiaries, (d) is disclosed by Arlington BankMBT or the Subsidiaries with and in accordance with the terms of prior written approval of First Merchants, or (e) is or becomes readily ascertainable from public or published information or trade sources or public disclosure of such information is required by law or requested by a court or other governmental agency, commission, or regulatory body. Arlington BankMBT and the Subsidiaries further agreesagree that, in the event this Agreement is terminated, itthey will return to First Merchants, or destroy, all information obtained by Arlington BankMBT and the Subsidiaries from First Merchants or a First Merchants Subsidiary, including all copies made of such information by Arlington Bank other than as reasonably necessary for regulatory or litigation purposes.MBT and the Subsidiaries. This provision shall survive the Effective Date or the earlier termination of this Agreement.
7.9Cooperation. ArlingtonMBT and the Bank shall generally cooperate with First Merchants and its officers, employees, attorneys, accountants and other agents, and, generally, do such other acts and things in good faith as may be reasonable, necessary or appropriate to timely effectuate the intents and purposes of this Agreement and the consummation of the transactions contemplated hereby, including, without limitation, (a) Arlington BankMBT shall cooperate and assist First Merchants in the preparation of and/or filing of all regulatory applications, the Registration Statement, and all other documentation required to be prepared for consummation of the Merger and the Bank Merger and obtaining all necessary approvals, and (b) Arlington BankMBT shall furnish First Merchants with all information concerning itself and the Subsidiaries that First Merchants may request in connection with the preparation of the documentation referenced above.
7.10Arlington BankMBT Fairness Opinion. On the date hereof or as soon as reasonably practicable following the date hereof, Arlington BankMBT shall use its reasonable best efforts to procure the written opinion from BoenningSandler O’Neill & Scattergood, Inc.Partners, L.P. to the Board of Directors of Arlington BankMBT to the effect that, as of the date of this Agreement, the Exchange Ratio in the Merger is fair, from a financial point of view, to the holders of Arlington BankMBT Common Stock (the “Arlington BankMBT Fairness Opinion”). The Arlington BankMBT Fairness Opinion shall be included in the Proxy Statement.Statement (as defined below).
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7.11Financial Statements and Other Reports. Promptly upon its becoming available, Arlington BankMBT shall furnish to First Merchants one (1) copy of each financial statement, report, notice, or proxy statement sent by Arlington BankMBT to its shareholders generally or filed with any of the Arlington BankMBT Regulatory Authorities.
7.12Adverse Actions. Arlington BankNeither MBT nor any Subsidiary shall not (a) take any action while knowing that such action would, or is reasonably likely to, prevent or impede the Merger from qualifying as a reorganization within the meaning of Section 368 of the Code; or (b) knowingly take any action that is intended or is reasonably likely to result in (i) any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect at any time at or prior to the Effective Date, (ii) any of the conditions to the Merger set forth in Section 9 not being satisfied, (iii) a material violation of any provision of this Agreement, or (iv) a material delay in the consummation of the Merger except, in each case, as may be required by applicable law or regulation.
7.13 Bank Merger Agreement. MBT shall cause the appropriate officers of the Bank to execute and deliver the Bank Merger Agreement contemporaneously herewith.
7.14 Change in Control and Severance Agreements. Prior to the Effective Date, MBT may amend the MBT change in control and severance agreements as more fully described in the MBT Disclosure Letter (the “Change in Control Agreements”) to eliminate the need for affected employees to resign in order to be entitled to benefits thereunder in exchange for the restrictive covenants provided thereunder being expressly enforceable by First Merchants or FMB according to their terms following the Effective Date.
7.15 Incentive Compensation Plans. Prior to the Effective Date, MBT shall use its reasonable best efforts to obtain necessary consents from grantees of stock only stock appreciation rights and restricted stock awards to permit the vesting of such awards and exchange for the merger consideration as provided in Section 3.1 and Section 3.2, respectively, less any applicable exercise price or tax withholdings. MBT shall take action prior to the Effective Date to cause the termination of the MBT Financial Corp. Long-Term Incentive Compensation Plan, 2008 Stock Incentive Plan and 2018 Stock Incentive Plan as of the Effective Date.
7.16 Death Benefit Only Plan. Subject to the continuing rights of existing participants, if requested by First Merchants, MBT shall cause the Executive and Director Death Benefit Only Plans to be terminated prior to the Effective Date.
7.17 Annual Incentive Pay Plan. Except as disclosed in the MBT Disclosure Schedule, if requested by First Merchants, MBT shall cause the Annual Incentive Pay Plans and pending Awards to be terminated prior to the Effective Date.
7.18 Postretirement Health Benefit Plan. Subject to the continuing rights of existing participants, if requested by First Merchants, MBT shall cause the Postretirement Benefit Plans to be terminated prior to the Effective Date.
7.19 Employee Stock Purchase Plan. If requested by First Merchants, MBT shall cause the Employee Stock Purchase Plan to be terminated prior to the Effective Date.
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SECTION 8
COVENANTS OF FIRST MERCHANTS AND FMB
First Merchants covenants and FMB covenant and agreeagrees with Arlington BankMBT as follows:
8.1Approvals. As soon as reasonably practicable, but in any event within sixty (60) days following execution and delivery of this Agreement, First Merchants and FMB will file an application with each of the FDIC,Federal Reserve Board and the Indiana Department of Financial Institutions and the Ohio Superintendent(the “Indiana DFI”) for approval of the Merger and an application with each of the Indiana DFI and the FDIC for approval of the Bank Merger, and take
all other appropriate actions necessary to obtain the regulatory approvals referred to herein, and Arlington BankMBT will use all reasonable and diligent efforts to assist in obtaining all such approvals. In advance of filing any applications for such regulatory approvals, First Merchants shall provide Arlington BankMBT and its counsel with a copy of such applications (but excluding any information contained therein regarding First Merchants and its business or operations for which confidential treatment has been requested) and provide an opportunity to comment thereon, and thereafter shall promptly advise Arlington BankMBT and its counsel of any material communication received by First Merchants or FMB or theirits counsel from any regulatory authorities with respect to such applications. In addition, First Merchants agrees to prepare, in cooperation with and subject to the review and comment of Arlington BankMBT and its counsel, a registration statement on Form S-4, including a prospectus of First Merchants and a proxy statement of Arlington Bank (the “Registration Statement”), to be filed no later than sixty (60) days after the date hereof by First Merchants with the SEC in connection with the issuance of First Merchants Common Stock in the Merger.Merger (including the proxy statements and prospectus and other proxy solicitation materials of, and to be filed by, MBT and First Merchants constituting a part thereof (the “Proxy Statement”) and all related documents). First Merchants agrees to use its reasonable best efforts to have the Registration Statement declared effective by the SEC and to keep the Registration Statement effective so long as is necessary to consummate the Merger and the transactions contemplated hereby. First Merchants agrees to advise Arlington Bank,MBT, promptly after First Merchants receives notice thereof, of the time when the Registration Statement has become effective or any supplement or amendment has been filed, of the issuance of any stop order or the suspension of the qualification of First Merchants Common Stock for offering or sale in any jurisdiction, of the initiation or threat of any proceeding for any such purpose, or of the receipt of any comment letters from the SEC regarding, or of any request by the SEC for the amendment or supplement of, the Registration Statement, or for additional information. First Merchants agrees to use its reasonable best efforts to list, prior to the Effective Date, on the NASDAQ Global Select Market (subject to official notice of issuance), the shares of First Merchants Common Stock to be issued to the holders of shares of Arlington BankMBT Common Stock in the Merger.
8.2Employee Benefit PlansPlans..
(a) First Merchants shall take such action as may be necessary so that, as soon as reasonably practicable following the Effective Date, employees of Arlington BankMBT and the Subsidiaries shall be entitled to participate in the employee benefit plans of First Merchants. Until such time participation is implemented, First Merchants shall assume, honor and continue the Employee Plans and Benefit Arrangements of Arlington Bank, in each case, as in effect on the Effective Date, without any amendment or modification, other than any amendment or modification required to comply with applicable law or to facilitate the transition of the participants to the benefit plans of First Merchants. Notwithstanding the foregoing, First Merchants may amend or terminate any such plans or arrangements to the extent that such amendment or termination is permitted by the terms thereof as of the Effective Date. With respect to each employee benefit plan or benefit arrangement maintained by First Merchants in which employees of Arlington BankMBT or the Subsidiaries subsequently participate, for purposes of determining eligibility, vesting, vacation and severance entitlement, First Merchants will ensure that service with Arlington BankMBT or the Subsidiaries will be treated as service with First Merchants; provided, however, that service with Arlington BankMBT or the Subsidiaries shall not be treated as service with First Merchants for purposes of benefit accrual, except with respect to severance benefits. Once Arlington Bank’s employees are covered underAt its discretion, First Merchants shall either (a) cause the MBT Retirement Plan and related money purchase pension Plan (the “401(k) Plan”) to be merged with and into the First Merchants’ tax-qualified retirement plans,Retirement Income and Savings Plan, with employees of MBT and the Subsidiaries eligible to participate in such First Merchants plan subject to and pursuant to the terms thereof; (b) assume sponsorship of the 401(k) Plan effective as of the Effective Date; or (c) direct MBT to take such reasonable steps to terminate the 401(k) Plan prior to the Effective Date (which MBT hereby agrees to take), in its sole discretion, shall determine whether Arlington Bank’s tax-qualified retirement plan(s) are terminated or merged into First Merchants’ plan(s). In the eventwhich case, First Merchants determines to terminate Arlington Bank’s participation in the Pentegra Defined Contribution Plan for Financial Institutions and, if permitted by such plan,agrees that any outstanding participant loans under that planthe 401(k) Plan may be rolled over to the First Merchants’ Retirement Income and Savings Plan so that participants can continue to repay outstanding loans via payroll deduction.deduction, if permitted under the terms of the respective plans.
(b)Coverage Under First Merchants’ Health and Welfare Plan. With respect to First Merchants’ health and welfare plans under which employees of Arlington BankMBT or the Subsidiaries and their eligible dependents become participants, First Merchants agrees to (i) waive all restrictions and limitations for pre-existing conditions, (ii) honor any deductible, co-payments and out-of-pocket expensesmaximums incurred by Arlington Bank’sMBT’s or the Subsidiaries’ employees and their eligible dependents under the health plans in which they participated immediately prior to
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the Effective Date during the portion of the calendar year prior to the Effective Date in satisfying any
deductibles, co-payments or out-of-pocket maximums under health plans of First Merchants in which they are eligible to participate after the Effective Date in the same plan year in which such deductibles, co-payments or out-of-pocket expensesmaximums were incurred, and (iii) waive any waiting period limitation or evidence of insurability requirement that would otherwise be applicable to an employee of Arlington BankMBT or the Subsidiaries and his or her eligible dependents on or after the Effective Date, in each case to the extent such employee or eligible dependent had satisfied any similar limitation or requirement under an analogous plan prior to the Effective Date.
(c)Severance. For any employee of Arlington BankMBT who did not have an employment agreement, change in control agreement or severance agreement, who is not offered employment with First Merchants or FMB with salary and bonus opportunities substantially the same as the salary and bonus opportunities of their current employment with Arlington BankMBT or whose employment is terminated by First Merchants or FMB (other than for cause) on or within six (6) months of the Effective Date, First Merchants agrees that it shall provide such employees with severance and outplacement benefits identical to those offered to First Merchants employees as listed on the First Merchants Disclosure Letter.Letter; provided, however, the minimum severance benefit will be four (4) weeks.
(d)COBRA. First Merchants shall be responsible for providing COBRA continuation coverage to any qualified employee or former employee of Arlington BankMBT or the Subsidiaries and to their respective qualified beneficiaries, on and after the Effective Date, regardless of when the qualifying event occurred.
(e)Employment and ChangeDeferred Compensation Plans. As set forth in Control Agreements.Schedule 8.2(f) of the Disclosure Schedule First Merchants shall honor all obligations under any Arlington Bank employmentwork with MBT to find a mutually agreeable transition or termination with respect to the MBT supplemental executive retirement agreement (SERP) together with the related SERP split dollar plan and change in control agreements as described in the Arlington Bank Disclosure Letter.director deferred compensation plans.
8.3Announcement; Press Releases. In connection with the execution of this Agreement, Arlington BankMBT and First Merchants intend to jointly issue a press release mutually acceptable to the parties. Except as otherwise required by law, neither First Merchants nor a First Merchants Subsidiary shall issue any additional press releases or make any other public announcements or disclosures relating to the Merger or the Bank Merger without the prior approval of Arlington BankMBT provided, however, that nothing in this Section 8.3 shall be deemed to prohibit any party from making any disclosure that its counsel deems necessary in order to satisfy such party’s disclosure obligation imposed by law.
8.4Confidentiality. Each of First Merchants and FMB shall, and each shall use its best efforts to cause the First Merchants Subsidiaries and its officers, employees, and authorized representatives to, hold in strict confidence all confidential data and information obtained by them from Arlington Bank,MBT, unless such information (i) was already known to First Merchants prior to entering into merger discussions with Arlington Bank,MBT, (ii) becomes available to First Merchants from other sources, (iii) is independently developed by First Merchants, (iv) is disclosed by First Merchants with and in accordance with the terms of prior written approval of Arlington Bank,MBT, or (v) is or becomes readily ascertainable from public or published information or trade sources or public disclosure of such information is required by law or requested by a court or other governmental agency, commission, or regulatory body. First Merchants further agrees that in the event this Agreement is terminated, it will return to Arlington Bank,MBT, or will destroy, all information obtained by it regarding ArlingtonMBT or the Bank, including all copies made of such information by First Merchants. This provision shall survive the Effective Date or the earlier termination of this Agreement.
8.5Directors and Officers Insurance.
(a) For a period of at least six (6) years from the Effective Date (the “Tail Coverage Period”), First Merchants shall use its reasonable best efforts to obtain an endorsement to its director’s and officer’s liability insurance policy to cover the present and former officers and directors of ArlingtonMBT and the Bank (determined as of the Effective Date) with respect to claims against such directors and officers arising from facts or events which occurred before the Effective Date, which insurance shall contain at least the same coverage and amounts, and contain terms and conditions no less advantageous, as that coverage currently provided by Arlington Bank;MBT; provided however, that if First Merchants is unable to obtain such endorsement, then Arlington BankFirst Merchants may purchase tail coverage under itsMBT’s existing director and officer liability insurance policy for such claims; provided further that in no event shall First Merchants be required to
expend inmore than 1.5 times the aggregate duringannual amount paid by MBT for its director and officer liability insurance coverage prior to the Effective Date for each year of the Tail Coverage Period more than $25,000purchased (the “Insurance Amount”) to maintain or procure Arlington Bank’s current directors’ and officers’ insurance coverage;; provided further, that if First Merchants is unable to maintain or obtain the insurance called for by this Section 8.5, First Merchants shall use its reasonable best
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efforts to obtain as much comparable insurance as is available for the Insurance Amount; provided, further, that officers and directors of ArlingtonMBT or the Bank may be required to make application and provide customary representations and warranties to First Merchants’ insurance carrier for the purpose of obtaining such insurance.
(b) Following the Effective Date, First Merchants will provide any Arlington BankMBT or Subsidiary officers, directors and employees who become officers, directors and employees of the Surviving CorporationContinuing Company or its subsidiaries with the same directors and officers liability insurance coverage and indemnification protections that First Merchants provides to other officers, directors and employees of First Merchants or its subsidiaries. In addition, First Merchants further agrees to indemnify and advance expenses to the current and former directors and officers of Arlington BankMBT and the Subsidiaries after the Effective Date, for all actions taken by them prior to the Effective Date in their respective capacities as directors and officers of Arlington BankMBT or the Subsidiaries to the same extent (and subject to the same limitations) as the indemnification provided by Arlington BankMBT and the Subsidiaries under itstheir respective Articles of Incorporation Bylaws and ConstitutionBylaws (as applicable) to such directors and officers immediately prior to the Effective Date and as permitted under applicable law. Notwithstanding the foregoing, the indemnity obligations contained herein shall be limited as may be required by applicable federal banking laws and regulations.
(c) All rights to indemnification and exculpation from liabilities for acts or omissions occurring on or prior to the Effective Date now existing in favor of the current or former directors or officers of Arlington BankMBT and the Subsidiaries as provided in itstheir respective Articles of Incorporation Bylaws and ConstitutionBylaws and any existing indemnification agreements or arrangements of Arlington BankMBT or the Subsidiaries described in the Arlington BankMBT Disclosure Letter, shall survive the Merger and shall continue in full force and effect in accordance with their terms to the extent permitted by law, and shall be honored by First Merchants following the Effective Date with respect to acts or omissions of such individuals occurring or alleged to occur on or prior to the Effective Date.
(d) In the event of any threatened or actual claim, action, suit, proceeding or investigation, whether civil, criminal or administrative, including, without limitation, any such claim, action suit, proceeding or investigation in which any individual who is now, or has been at any time prior to the date of this Agreement, or who becomes prior to the Effective Date, a director or officer of Arlington BankMBT or any Subsidiary (the “Indemnified Parties”), is, or is threatened to be, made a party based in whole or in part on, or arising in whole or in part out of, or pertaining to (i) the fact that he is or was a director, officer or employee of Arlington BankMBT or a Subsidiary or any of itstheir predecessors or (ii) this Agreement or any of the transactions contemplated hereby, whether in any case asserted or arising before or on or after the Effective Date, the parties hereto agree to cooperate and use their best reasonable efforts to defend against and respond thereto.
(e) If First Merchants shall consolidate with or merge into any other entity and shall not be the continuing or surviving entity of such consolidation or merger or shall transfer all or substantially all of its assets to any entity, then and in each case, proper provision shall be made so that the successors and assigns of First Merchants shall assume the obligations set forth in this Section 8.5.
8.6SEC and Other Reports. Promptly upon its becoming available, First Merchants shall furnish to Arlington BankMBT one (1) copy of each financial statement, report, notice, or proxy statement sent by First Merchants to its shareholders generally and of each regular or periodic report, registration statement or prospectus filed by First Merchants with the SEC or any successor agency, and of any notice or communication received by First Merchants from the SEC, which is not available on the SEC’s EDGAR internet database.
8.7First Merchants Disclosure Letter. First Merchants shall supplement, amend and update as of the Effective Date the First Merchants Disclosure Letter with respect to any matters hereafter arising which, if in existence or having occurred as of the date of this Agreement, would have been required to be set forth or described in the First Merchants Disclosure Letter. If, at any time prior to the Effective Date, First Merchants
becomes aware of a fact or matter that might indicate that any of the representations and warranties of First Merchants herein may be untrue, incorrect or misleading in any material respect, First Merchants shall promptly disclose such fact or matter to First MerchantsMBT in writing.
8.8Adverse Actions. Neither First Merchants nor any First Merchants Subsidiary shall (a) take any action while knowing that such action would, or is reasonably likely to, prevent or impede the Merger from qualifying as a reorganization within the meaning of Section 368 of the Code; or (b) knowingly take any action that is intended or is reasonably likely to result in (i) any of its representations and warranties set forth in this
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Agreement being or becoming untrue in any respect at any time at or prior to the Effective Date, (ii) any of the conditions to the Merger set forth in Section 9 not being satisfied, (iii) a material violation of any provision of this Agreement, or (iv) a material delay in the consummation of the Merger except, in each case, as may be required by applicable law or regulation.
8.9Cooperation. First Merchants shall generally cooperate with Arlington BankMBT and its officers, employees, attorneys, accountants and other agents, and, generally, do such other acts and things in good faith as may be reasonable, necessary or appropriate to timely effectuate the intents and purposes of this Agreement and the consummation of the transactions contemplated hereby.
8.10Bank Merger Agreement. First Merchants shall cause the appropriate officers of FMB to execute and deliver the Bank Merger Agreement upon approval by FMB’s Board of Directors.
8.11 Preservation of Business. On and after the date of this Agreement and until the Effective Date or until this Agreement is terminated as herein provided, First Merchants and the First Merchants Subsidiaries shall (a) except as set forth in the First Merchants Disclosure Letter, carry on their business diligently, substantially in the same manner as heretofore conducted, and in the ordinary course of business; (b) use commercially reasonable efforts to preserve their business organizations intact, to keep their present officers and employees and to preserve their present relationship with customers and others having business dealings with them; and (c) not do or fail to do anything which will cause a material breach of, or material default in, any contract, agreement, commitment, obligation, understanding, arrangement, lease or license to which they are a party or by which they are or may be subject or bound.
8.118.12 Regional Board. All members of the Board of Directors of Arlingtonthe Bank, who have agreed to serve in such capacity and would not be otherwise prohibited to serve under applicable law, shall be appointed to FMB’s OhioMichigan regional advisory board, as soon as practicable after the Effective Date,Date.
8.13 Representation on FMC Board. First Merchants shall cause one (1) Person who is currently a member of the MBT Board of Directors (who may be chosen by First Merchants after the opportunity for consultation regarding its choice having been afforded to MBT) to be vetted and in no event later than sixty (60) daysappointed for a term to the First Merchants Board of Directors according to the First Merchants Bylaws and Corporate Governance guidelines as soon as practicable after the Effective Date.
8.12Restricted Stock Awards. Immediately following the Effective Date, in exchange for continued employment with First Merchants or FMB, First Merchants will award restricted shares of First Merchants Common Stock to each executive officer of Arlington Bank set forth in the First Merchants Disclosure Letter, in the amount set forth opposite his or her name. Each such award shall be made pursuant to First Merchants’ 2009 Long-Term Equity Incentive Plan (the “Plan”), based upon terms and conditions substantially similar to those included with awards under the Plan made to management employees of First Merchants or FMB holding positions similar to each such executive officer of Arlington Bank.
SECTION 9
CONDITIONS PRECEDENT TO THE MERGER AND THE BANK MERGER
The obligation of each of the parties hereto to consummate the transactions contemplated by this Agreement is subject to the satisfaction and fulfillment of each of the following conditions on or prior to the Effective Date:
9.1Shareholder Approval. The shareholders of Arlington BankMBT shall have approved the Merger as required by applicable law.
9.2Registration Statement Effective. First Merchants shall have registered its shares of First Merchants Common Stock to be issued to shareholders of Arlington BankMBT in accordance with this Agreement with the SEC
pursuant to the 1933 Act, and all state securities and “blue sky” approvals and authorizations required to offer and sell such shares, if any, shall have been received by First Merchants. The Registration Statement shall have been declared effective by the SEC and no stop order shall have been issued or threatened. The shares of First Merchants Common Stock shall have been listed for trading on the NASDAQ Global Select Market (subject to official notice of issuance).
9.3Tax OpinionOpinions.
(a) First Merchants shall have receivedobtained an opinion of Bingham Greenebaum Doll LLP, in form and substance reasonably acceptable to the parties, dated on or about the effectiveness ofdate the Registration StatementProxy Statement/Prospectus is delivered to MBT shareholders to the effect that the Merger effected pursuant to this Agreement shall constitute a reorganization within the meaning of Section 368(a) of the Code. Such opinion shall rely uponbe based on factual representations received by counsel from Arlington BankMBT and First Merchants, which representations may take the form of written certifications.
(b) Arlington Bank shall have received a letter from Bingham Greenebaum Doll LLP addressed Such opinion will comply with the regulations and guidance of the SEC with respect to the shareholders of Arlington Bank, in form and substance reasonably acceptable to the parties, dated as of the Effective Date, to the effect that such shareholders shall be permittedpersons entitled to rely on tax opinions contained in the opinion referred to in Section 9.3(a) above.Registration Statement.
9.4Regulatory Approvals. The FDIC,Federal Reserve Board and the Indiana Department of Financial Institutions and the Ohio SuperintendentDFI shall have authorized and approved the Merger and the transactions related thereto. The Indiana DFI and the FDIC shall have approved the
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Bank Merger and the transactions related thereto. In addition, all appropriate orders, consents, approvals and clearances from all other regulatory agencies and governmental authorities whose orders, consents, approvals or clearances are required by law for consummation of the transactions contemplated by this Agreement shall have been obtained. All regulatory approvals remain in full force and effect and all statutory waiting periods shall have expired or been terminated.
9.5Officer’s Certificate. First Merchants and Arlington BankMBT shall have delivered to each other a certificate signed by their respective Chairman or President and their Secretary, dated the Effective Date, certifying that (a) all of the representations and warranties of their respective corporations are true, accurate and correct in all material respects on and as of the Effective Date, except that representations and warranties that are qualified by materiality or a Material Adverse Effect shall be true and correct in all respects, and provided that for those representations and warranties which address matters only as of an earlier date, then they shall be tested as of such earlier date; (b) all the covenants of their respective corporations have been complied with in all material respects from the date of this Agreement through and as of the Effective Date; and (c) their respective corporations have satisfied and fully complied with in all material respects all conditions necessary to make this Agreement effective as to them. Additionally Arlington BankMBT shall certify as to the number of shares of its capital stock are issued and outstanding as of the Effective Date.
9.6No Judicial Prohibition. Neither ArlingtonMBT, the Bank nor First Merchants shall be subject to any order, decree or injunction of a court or agency of competent jurisdiction which enjoins or prohibits the consummation of the Merger or the Bank Merger.
9.7Arlington BankMBT Fairness Opinion. Arlington BankMBT shall have obtained the Arlington BankMBT Fairness Opinion. Such opinion shall be provided orally to Arlington BankMBT Board of Directors on or prior to the date hereof and a written copy of such fairness opinion shall be delivered to Arlington Bank as soon as reasonably practicable thereafter, but in no event later than fifteen (15)MBT within thirty (30) days followingof the date hereof.
9.8 Bank Merger Agreement. FMB and the Bank shall have entered into the Bank Merger Agreement.
SECTION 10
TERMINATION OF MERGER
10.1Manner of Termination. This Agreement and the transactions contemplated hereby may be terminated at any time prior to the Effective Date by written notice delivered by First Merchants to Arlington BankMBT or by Arlington BankMBT to First Merchants only for the following reasons:
(a) By the mutual consent of First Merchants and Arlington Bank,MBT, if the Board of Directors of each so determines by vote of a majority of the members of its entire Board;
(b) By First Merchants or Arlington Bank,MBT, if its respective Board of Directors so determines by vote of a majority of the members of its entire Board, in the event of either: (i) a material breach by the other party of any representation or warranty contained herein which breach cannot be or has not been cured within thirty (30) days after the giving of written notice to the breaching party of such breach; (ii) a material breach by the other party of any of the covenants or agreements contained herein, which breach cannot be or has not been cured within thirty (30) days after the giving of written notice to the breaching party of such breach; or (iii) any event, fact or circumstance shall have occurred with respect to the other party that has had or could be reasonably expected to have a Material Adverse Effect on such party;
(c) by either First Merchants or Arlington Bank,MBT, in the event of the failure of Arlington Bank’sMBT’s shareholders to approve the Agreement at the Shareholder Meeting; provided, however, that Arlington BankMBT shall only be entitled to terminate the Agreement pursuant to this clause if it has complied in all material respects with its obligations under Section 7.1;
(d) by either First Merchants or Arlington Bank,MBT, if either (i) any approval, consent or waiver of any governmental or regulatory authority, agency, court, commission, or other administrative entity (“Governmental Entity”) required to permit consummation of the transactions contemplated by this Agreement shall have been denied and such denial has become final and non-appealable or (ii) any court or other Governmental Entity of competent jurisdiction shall have issued a final, unappealable order enjoining or otherwise prohibiting consummation of the transactions contemplated by this Agreement;
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(e) By Arlington BankMBT or First Merchants, if the transaction contemplated herein has not been consummated by December 31, 2017;June 30, 2019; provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained herein; and provided further, that if the sole impediment to closing is the lack of receipt of any necessary regulatory approvals described in Section 9.4, then such termination date shall be extended to September 30, 2019;
(f) By Arlington Bank,MBT, in accordance with the terms of Section 7.5(b) of this Agreement;
(g) By First Merchants, if Arlington Bank’sMBT’s Board of Directors fails to make, withdraws or modifies its recommendation for Arlington Bank’sMBT’s shareholders to vote in favor of the Merger following receipt of a written proposal for an Acquisition Proposal; or
(h) By First Merchants, (i) if Arlington BankMBT breaches in any material respect its notice obligations under Section 7.5(c) or (ii) if within sixty (60) days after giving First Merchants written notice pursuant to Section 7.5(c) of an Acquisition Proposal, Arlington BankMBT does not terminate all discussions, negotiations and information exchanges related to such Acquisition Proposal and provide First Merchants with written notice of such termination; ortermination.
(i) By Arlington Bank,MBT, if Arlington Bank’sMBT’s Board of Directors so determines by a majority vote of the members of such Board, at any time during the five (5) business day period commencing on the Determination Date if both of the following conditions are satisfied:
(i) theThe FMC Market Value is less than 80%eighty percent (80%) of the Initial FMC Market Value; and
(ii) theThe quotient obtained by dividing the FMC Market Value by the Initial FMC Market Value (“Buyer Ratio”) shall be less than the quotient obtained by dividing the Final Index Price by the Initial Index Price, minus 0.20 (the “Index Ratio”).
If Arlington BankMBT elects to exercise its termination right pursuant to this Section 10.1(i), it shall give prompt written notice thereof to First Merchants. During the five (5) business day period commencing with its receipt of such notice, First Merchants shall have the option to increase the Exchange Ratio, at its sole discretion, to (x) the quotient, the numerator of which is equal to the product of the Initial FMC Market Value, the Exchange Ratio (as then in effect) and the Index Ratio, and the denominator of which is equal to the FMC Market Value, or (y) the quotient determined by dividing the Initial FMC Market Value by the FMC Market Value, and multiplying the quotient by the product of the Exchange Ratio (as then in effect) and 0.80. If First Merchants so elects, it shall give, within such five (5) business day period, written notice to Arlington BankMBT of such election and the revised Exchange Ratio, whereupon no termination shall be deemed to have occurred pursuant to this Section 10.1(i) and this Agreement shall remain in full force and effect in accordance with its terms, except as the Exchange Ratio shall have been so modified.
For purposes of this Section 10.1(i), the following terms shall have the meanings indicated below:
“Determination Date” shall mean the later of the date on which (i) all regulatory approvals required pursuant to Section 9.4 (and waivers, if applicable) have been received (disregarding any waiting period), and (ii) the approval of this Agreement, the Merger and any other matter required to be approved by the shareholders of Arlington BankMBT in order to consummate the Merger and the transactions contemplated herein is obtained.
“Final Index Price” means the average of the closing price of the Index on each of ten (10) consecutive trading days immediately preceding the Determination Date.
“FMC Market Value” shall be the average of the daily closing sales prices of a share of First Merchants Common Stock as reported on NASDAQ for the ten (10) consecutive trading days immediately preceding the Determination Date.
“Index” means the NASDAQ Bank Index; provided, however, that if the NASDAQ Bank Index is not available for any reason, “Index” shall mean such substitute or similar index as substantially replicates the NASDAQ Bank Index.
“Initial FMC Market Value” means the average of the daily closing sales prices of a share of First Merchants Common Stock, as reported on NASDAQ, for the ten (10) consecutive trading days immediately preceding the date of this Agreement.
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“Initial Index Price” means the average of the closing prices of the Index for theon each of ten (10) consecutive trading days immediately preceding the date of this Agreement.
If First Merchants or any company belonging to the Index declares or effects a stock split, stock dividend, recapitalization, reclassification, or similar transaction with respect to the outstanding common stock, and the record date therefor shall be after the date of this Agreement and prior to the Determination Date, the prices for the common stock of such company shall be proportionately and appropriately adjusted for the purpose of applying this Section 10.1(i).
(j) By First Merchants if greater than twenty percent (20%) of the outstanding shares of Arlington Bank Common Stock have become and remain Dissenting Shares as described in Section 4.
10.2Effect of Termination. Except as provided below, in the event that this Agreement is terminated pursuant to the provisions of Section 10.1 hereof, this Agreement shall forthwith become void and, no party shall have any liability to any other party for costs, expenses, damages or otherwise, except that Sections 7.8, 8.4, 10.2, 13.9, and 13.12 shall survive any termination of this Agreement; provided, however, that notwithstanding the foregoing, in the event that this Agreement is terminated pursuant to Section 10.1(b)(i) and (ii) hereof on account of a willful breach of any of the representations and warranties set forth herein or any willful breach of any of the agreements set forth herein, then the non-breaching party shall be entitled to recover appropriate damages from the breaching party, including, without limitation, reimbursement to the non-breaching party of its costs, fees and expenses (including attorneys’, accountants’ and advisors’ fees and expenses) incident to the negotiation, preparation and execution of this Agreement and related documentation; provided further, however, that nothing
in the foregoing proviso shall be deemed to constitute liquidated damages for the breach by a party of the terms of this Agreement or otherwise limit the rights of the non-breaching party. Notwithstanding the foregoing, inthe following termination fees shall be payable as provided below.
(i) In the event of termination by Arlington BankMBT in accordance with Section 10.1(f) or by First Merchants in accordance with Section 10.1(g), Section 10.1(h)(i) or Section 10.1(h)(ii), then Arlington BankMBT shall pay First Merchants the sum of ThreeTwelve Million Six Hundred Eighty Thousand and 00/100 Dollars ($3,000,000)12,680,000.00) as a termination fee. Such payment shall be made within ten (10) days of the date of notice of termination. First Merchants shall also be entitled to recover from Arlington BankMBT its reasonable attorneys’ fees incurred in the enforcement of this provision; provided that such amount shall not exceed $100,000. Thisprovision. The termination fee payable by Arlington Bankthe Company constitutes liquidated damages and not a penalty and shall be the sole remedy of First Merchants in the event of termination of this Agreement based on Sections 10.1(f), 10.1(g), 10.1(h)(i) or 10.1(h)(ii).
(ii) If this Agreement is terminated by either party pursuant to Section 10.1(e) as a result of the failure to obtain any of the required regulatory approvals and such failure is a result of a regulatory issue directly and solely related to First Merchants, First Merchants shall pay to MBT an amount in cash equal to Two Million Five Hundred Thousand Dollars ($2,500,000).
SECTION 11
EFFECTIVE DATE OF MERGER
Subject to the terms and upon satisfaction of all requirements of law and the conditions specified in this Agreement, the Merger shall become effective at the close of business on the day specified (the “Effective Date”) in the Articles of Merger of Arlington BankMBT with and into FMB,First Merchants as filed with the Secretary of State of the State of Indiana (the “Indiana Articles of Merger”), and in the Certificate of Merger of Arlington BankMBT with and into FMB,First Merchants as filed with the Secretary of State of the State of OhioMichigan Corporations Division (the “Ohio Certificate of MergerEffective Date”). Unless otherwise agreed to by the parties, the Effective Date shall be no later than the last business day of the month in which both (a) any waiting period following the last approval of the Merger and Bank Merger by a state or federal regulatory agency or governmental authority expires and (b) the conditions precedent to the Merger and the Bank Merger outlined in Section 9 have been satisfied.
SECTION 12
CLOSING
12.1Closing Date and Place. The closing of the Merger (the “Closing”) and the Bank Merger shall take place at the main office of First Merchants on the Effective Date or at such other time and place as mutually agreed to by First Merchants and Arlington Bank.MBT.
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12.2Merger-Articles of Merger/Certificate of Merger. Subject to the provisions of this Agreement, on the Effective Date, the Articles of Merger shall be duly filed with the Secretary of State of the State of Indiana, and the Certificate of Merger shall be duly filed with the SecretaryMichigan Corporations Division.
12.3 Bank Merger-Articles of StateMerger. Subject to the provisions of this Agreement, on the StateEffective Date, articles of Ohio.merger, certificates of merger or other filings necessary to consummate the Bank Merger shall be duly filed.
SECTION 13
MISCELLANEOUS
13.1Effective Agreement. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but none of the provisions hereof shall inure to the benefit of any other person, firm, or corporation whomsoever; except that (a) the terms and provisions of Sections 8.2(c) and 8.5 of this Agreement shall inure to the benefit of the current and former employees, officers and directors of Arlington Bank,MBT, as applicable, as specified in such sections and shall be enforceable by such individuals against First Merchants, and (b) the terms and provisions of Section 3.4 shall inure to the benefit of the former shareholders of Arlington Bank.MBT. Neither this Agreement nor any of the rights, interests, or obligations hereunder shall be assigned or transferred by either party hereto without the prior written consent of the other party.
13.2Waiver; Amendment.
(a) First Merchants FMB and Arlington BankMBT may, by an instrument in writing executed in the same manner as this Agreement: (i) extend the time for the performance of any of the covenants or agreements of the other party under this Agreement; (ii) waive any inaccuracies in the representations or warranties of the other party contained in this Agreement or in any document delivered pursuant hereto or thereto; (iii) waive the performance by the other party of any of the covenants or agreements to be performed by it or them under this Agreement; or (iv) waive the satisfaction or fulfillment of any condition the nonsatisfaction or nonfulfillment of which is a condition to the right of the party so waiving to terminate this Agreement. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any other or subsequent breach hereunder.
(b) Notwithstanding the prior approval by the shareholders of Arlington Bank,MBT, this Agreement may be amended, modified or supplemented by the written agreement of Arlington Bank,MBT, First Merchants, the Bank and FMB without further approval of such shareholders, except that no such amendment, modification or supplement shall decrease the consideration specified in Section 3 hereof, or shall otherwise materially adversely affect the rights of the shareholders of Arlington BankMBT or the tax consequences of the Merger to the shareholders of Arlington BankMBT without the further approval of such shareholders.
13.3Notices. Any and all notices or other communications required or permitted under this Agreement shall be in writing and shall be deemed to be given (i) when delivered in person, or (ii) on the day of transmission if sent via facsimile transmission to the facsimile number given below, provided telephonic confirmation of receipt is obtained promptly after completion of transmission, or (iii) on the fifth (5th)(5th) day after sent by certified or registered mail, postage prepaid, return receipt requested, addressed as follows:
If to First Merchants: | With a copy to: | |
200 E. Jackson Street
| Bingham Greenebaum Doll LLP
| |
If to | With a copy to: | |
102 E. Front Street Monroe, Michigan 48161 Attn: H. Douglas Chaffin President and Chief Executive Officer FAX: (734) 241-3431 | ||
Shumaker, Loop & Kendrick LLP 1000 Jackson Street Toledo, OH 43604 Attn:
|
| |
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or to such substituted address as any of them have given to the other in writing.
13.4Headings. The headings in this Agreement have been inserted solely for the ease of reference and should not be considered in the interpretation or construction of this Agreement.
13.5Severability. In case any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal, or unenforceable provision or provisions had never been contained herein.
13.6Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute one and the same instrument. In addition, this
Agreement and the documents to be delivered hereunder may be executed by the parties hereto either manually or by facsimile signatures, each of which shall constitute an original signature.
13.7Governing Law. This Agreement is executed in and shall be construed in accordance with the laws of the State of Ohio,Indiana, without regard to choice of law principles.
13.8Entire Agreement. This Agreement supersedes any other agreement, whether oral or written, amongbetween First Merchants FMB and Arlington Bank, or any of them,MBT relating to the matters contemplated hereby, and constitutes the entire agreement between the parties hereto.
13.9Expenses. First Merchants FMB and Arlington BankMBT shall each pay their own expenses incidental to the transactions contemplated hereby. It is understood that the fees of the investment bankers for the fairness opinion desired hereunder shall be borne by the engaging party whether or not the Merger is consummated. This provision shall survive the Effective Date or the earlier termination of this Agreement.
13.10Securityholder Litigation. Each party shall notify the other party hereto in writing of any litigation related to this Agreement, the Merger or the other transactions contemplated by this Agreement that is brought, or, to the knowledge of either party, threatened in writing, against it and/or the members of its Board of Directors (any such litigation and/or the executive officers or members of the Board of Directors of a party (a “Transaction Litigation”)), and shall keep the other partiesparty reasonably informed with respect to the status thereof. Each party shall give the other partiesparty the opportunity to participate in the defense or settlement of any Transaction Litigation, and, except to the extent required by applicable law, none of the partiesneither party shall settle, agree to any undertakings or approve or otherwise agree to any waiver that may be sought in connection with such Transaction Litigation, without the prior written consent of the other partiesparty (which shall not be unreasonably withheld, conditioned or delayed).
13.11Certain Definitions. For purposes of this Agreement, “Arlington Bank’sMBT’s Management” means any of James R. DeRoberts, Thomas C. Westfall, Nona A. DurhamH. Douglas Chaffin and Natalie A. Karas;John L. Skibski; and “First Merchants’ Management” means any of Michael C. Rechin and Mark K. Hardwick and Michael J. Stewart.Hardwick. The phrases “to the knowledge of”, “known to” and similar formulations with respect to Arlington Bank’sMBT’s Management or First MerchantsMerchants’ Management means matters that are within the actual conscious knowledge of such persons after due inquiry of other appropriate Arlington Bank or First Merchant and FMB, as applicable, employees.inquiry. For purposes of this Agreement, “business day” means any day other than a Saturday, Sunday or other day that a federal savings bank or a national banking association is authorized or required by applicable law to be closed.
13.12Survival of Contents. The provisions of Sections 7.8, 8.4, 8.5, 10.2, 13.9 and this Section 13.12 shall survive beyond the termination of this Agreement. The provisions of Sections 7.8, 8.2, 8.4, 8.5, 13.9 and this Section 13.12 shall survive beyond the Effective Date.
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IN WITNESS WHEREOF, First Merchants FMB and Arlington BankMBT have made and entered into this Agreement as of the day and year first above written and have caused this Agreement to be executed and attested by their duly authorized officers.
FIRST MERCHANTS CORPORATION | |||
By: | /s/ Michael C. Rechin | ||
Michael C. Rechin, President and Chief Executive Officer | |||
MBT FINANCIAL CORP. | ||
By: | /s/ H. Douglas Chaffin | |
| ||
H Douglas Chaffin, President and Chief Executive Officer | ||
| ||
| ||
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ANNEX BEXHIBIT A
AGREEMENT AND PLAN OF MERGER
Merging
MONROE BANK & TRUST,
A Michigan commercial bank,
with and into
FIRST MERCHANTS BANK
an Indiana commercial bank
THIS AGREEMENT AND PLAN OF MERGER (this “Agreement and Plan”), made and entered into as of the 9th day of October, 2018, by and between FIRST MERCHANTS BANK, an Indiana commercial bank (“FMB”), and MONROE BANK & TRUST, a Michigan commercial bank (the “Bank”) (FMB and the Bank are sometimes referred to collectively as the “Constituent Companies”).
WITNESSETH
WHEREAS, the Constituent Companies desire to consummate the business combination transaction outlined in this Agreement and Plan pursuant to which the Bank will consolidate and merge with and into FMB in accordance with 12 U.S.C. §1828(c), the Michigan Banking Code of 1999, as amended, and the Indiana Financial Institutions Act (collectively, the “Law”);
WHEREAS, this Agreement and Plan is being executed in connection with, and the consummation of this Agreement and Plan is expressly contingent upon the closing of, that certain Agreement and Plan of Reorganization and Merger (the “Merger Agreement”) between First Merchants Corporation, an Indiana corporation (“First Merchants”) and MBT Financial Corp., a Michigan corporation (“MBT”) dated as of October 9, 2018 (the “Holding Company Merger”);
WHEREAS, the Boards of Directors of both FMB and the Bank have approved the transactions contemplated by this Agreement;
WHEREAS, First Merchants, as the sole shareholder of FMB, and MBT, as the sole shareholder of the Bank, have also adopted this Agreement and Plan and approved the transactions contemplated by this Agreement and Plan;
NOW, THEREFORE, in consideration of the premises and of the mutual provisions, agreements, covenants, conditions and grants contained in this Agreement and Plan, and in accordance with the provisions of the Law, the parties mutually covenant and agree as follows:
ARTICLE I
THE MERGER
SECTION 1701.851.1The Merger. At the “Effective Time” (as defined below), the Bank shall be consolidated and merged with and into FMB in accordance with applicable provisions of the Law (the “Merger”). The separate existence and company organization of the Bank shall cease, and the company existence of FMB, including all its purposes, powers and objectives, shall continue unaffected and unimpaired by the Merger. FMB shall continue to be governed by the laws applicable to state-chartered nonmember commercial banks under the Law and the regulations promulgated thereunder and shall succeed to all the rights, privileges, immunities, powers, duties and liabilities of the Bank as set forth in the Law.
1.2Further Assurances. If, after the Effective Time, FMB shall consider or be advised that any further deeds, assignments or assurances in the Law or any other things are necessary or desirable to (a) vest, perfect or confirm, of record or otherwise, in FMB, its right, title or interest in, to or under any rights, properties or assets of the Bank, or (b) otherwise carry out the purposes of this Agreement and Plan, the Bank and its officers and directors shall be deemed to have granted to FMB an irrevocable power of attorney to execute and deliver all such deeds, assignments or assurances in law and to do all acts necessary or proper to vest, perfect or confirm title to and possession of such rights, properties or assets in FMB and otherwise to carry out the purposes of this Agreement and Plan, and the officers and directors of FMB are authorized in the name of the Bank or otherwise to take any and all such action.
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TABLE OFTHE OHIO GENERAL CORPORATION LAW CONTENTS
1.3Offices. Immediately following the Merger, FMB’s principal office shall be located at 200 East Jackson Street, Muncie, Indiana 47305 and the Bank’s principal office at 102 E. Front Street, Monroe, Michigan 48161 shall become a branch office of FMB.
1.4Savings Accounts. By virtue of the Merger, savings accounts held at the Bank shall automatically, by operation of law, become savings accounts held at FMB.
ARTICLE II
ARTICLES OF INCORPORATION, CODE OF BYLAWS
BOARD OF DIRECTORS AND OFFICERS
DISSENTERS’ RIGHTS2.1
2.2Articles of Incorporation. The Articles of Incorporation of FMB shall be the Articles of Incorporation of the surviving bank.
DISSENTERS’ RIGHTSUNDER2.3Code of Bylaws. The Code of Bylaws of FMB (the “Code of Bylaws”) shall be the Code of Bylaws of the surviving bank.
2.4Officers and Directors. The directors of FMB shall all remain directors of the surviving bank and shall hold such offices from the Effective Time until their respective successors are duly elected and qualified in the manner provided in the Code of Bylaws. The officers of FMB shall all remain officers of the surviving bank and shall hold such offices from the Effective Time until their respective successors are duly elected and qualified in the manner provided in the Code of Bylaws.
ARTICLE III
CAPITAL STOCK OF THE SURVIVING BANK
SECTION 1701.85OFTHE OHIO GENERAL CORPORATION LAW3.1Shares of the Bank. At the Effective Time, by virtue of the Merger and without any further action on the part of FMB or the Bank, all ten million (10,000,000) issued and outstanding shares of the common capital stock of the Bank, whose separate existence shall cease, shall automatically and by operation of law be canceled, void and of no further effect.
3.2Shares of FMB. At the Effective Time, by virtue of the Merger and without any further action on the part of FMB or the Bank, all one hundred fourteen thousand (114,000) issued and outstanding shares of the common capital stock of FMB, shall represent all of the issued and outstanding shares of the common capital stock of the surviving bank.
ARTICLE IV
NO DISSENTING SHAREHOLDERS
1701.85 Dissenting shareholders - complianceFirst Merchants, as the sole shareholder of FMB, and MBT, as the sole shareholder of the Bank, have adopted this Agreement and Plan and approved and consented to this Merger.
ARTICLE V
GENERAL PROVISION
5.1Condition Precedent to Closing. The following conditions must be satisfied prior to the closing of the Merger:
(a) appropriate approvals must be obtained from or notices filed with section - fair cash valuethe Indiana Department of shares.
(a) A copy of this section;
(b) A statement that the proposal can give rise to rights under this section ifHolding Company Merger must occur.
5.2Effective Time. The Merger shall become effective immediately following the proposal isHolding Company Merger, or such later time as designated by First Merchants and otherwise approved by the required voteIndiana Department of Financial Institutions and the Federal Deposit Insurance Corporation (the “Effective Time”).
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5.3Manner of Termination. This Agreement and Plan and the transactions contemplated hereby may be terminated at any time prior to the Effective Time:
(a) by the mutual consent of FMB and the Bank; or
(b) automatically and without further action by either FMB or the Bank if the Merger Agreement is terminated for any reason.
5.4Effect of Termination. Upon termination as provided in Section 5.3, this Agreement and Plan shall be void and of no further force or effect, and there shall be no obligation on the part of FMB or the Bank or their respective officers, directors, employees, agents, or shareholders, except for payment of their respective expenses in connection with this Agreement and Plan.
[The remainder of this page was intentionally left blank.]
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IN WITNESS WHEREOF, the parties have executed this Agreement and Plan by their respective officers duly authorized as of the shareholders;
(c) A statement that the shareholder will be eligible as a dissenting shareholder under this section only if the shareholder delivers to the corporation a written demand with the information provided for in division (A)(4) of this section before the vote on the proposal will be taken at the meeting of the shareholdersdate and the shareholder does not vote in favor of the proposal.
year first above written.
“FMB” | FIRST MERCHANTS BANK, |
an Indiana state commercial bank, | |
ATTEST: | |
Secretary/Cashier | By: |
Printed: Michael C. Rechin | |
Its: President and |
“BANK” | MONROE BANK & TRUST, |
an Michigan state | |
ATTEST: | |
Secretary/Cashier | By: |
Printed: H. Douglas Chaffin | |
Its: President and |
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|
|
(a) Any appreciation or depreciation in market value resulting from the proposal submitted to the directors or to the shareholders;
(b) Any premium associated with control of the corporation, or any discount for lack of marketability or minority status.
(a) Immediately before the effective time of a merger or consolidation;
(b) Immediately before the filing of an amendment to the articles of incorporation as described in division (A) of section 1701.74 of the Revised Code;
(c) Immediately before the time of the vote described in division (A)(1)(b) of section 1701.76 of the Revised Code.
(a) The dissenting shareholder has not complied with this section, unless the corporation by its directors waives such failure;
(b) The corporation abandons the action involved or is finally enjoined or prevented from carrying it out, or the shareholders rescind their adoption of the action involved;
(c) The dissenting shareholder withdraws the dissenting shareholder’s demand, with the consent of the corporation by its directors;
(d) The corporation and the dissenting shareholder have not come to an agreement as to the fair cash value per share, and neither the shareholder nor the corporation has filed or joined in a complaint under division (B) of this section within the period provided in that division.
OPINIONOF BOENNING & SCATTERGOOD, INC.
January 24, 2017October 9, 2018
Board of Directors
MBT Financial Corp.
102 East Front Street
Monroe, MI 48161
The Arlington BankLadies and Gentlemen:
2130 Tremont Center
Upper Arlington, OH 43221
MembersMBT Financial Corp. (“MBT”) and First Merchants Corporation (“First Merchants”) are proposing to enter into an Agreement and Plan of Reorganization and Merger (the “Agreement”) pursuant to which MBT will, subject to the terms and conditions set forth in the Agreement, merge with and into First Merchants with First Merchants being the surviving entity (the “Merger”). Pursuant to the terms and conditions of the Board:
Agreement, at the Effective Time, each share of MBT’s common stock, no par value (“MBT Common Stock”), issued and outstanding immediately prior to the Effective Time, except for certain shares of MBT Common Stock as specified in the Agreement, shall be entitled to receive a 0.2750 share (the “Exchange Ratio”) of the common stock, no par value, of First Merchants (“First Merchants Common Stock”). Capitalized terms used herein without definition shall have the meanings assigned to them in the Agreement. The terms and conditions of the Merger are more fully set forth in the Agreement. You have requested our opinion as to the fairness, from a financial point of view, of the Exchange Ratio to the holders of sharesMBT Common Stock.
Sandler O’Neill & Partners, L.P. (“Sandler O’Neill”, “we” or “our”), as part of issued and outstanding common stock, $0.50 par value (the “Company Common Shares”), of The Arlington Bank (“Arlington”) of the Exchange Ratio (as defined below) to be received by such holdersits investment banking business, is regularly engaged in the proposed merger (the “Proposed Merger”)valuation of Arlingtonfinancial institutions and their securities in connection with an into First Merchants Bank, a wholly-owned subsidiary of First Merchants Corporation, as set forth in the Agreementmergers and Plan of Reorganization dated January 24, 2017 (the “Merger Agreement”). First Merchants Corporationacquisitions and First Merchants Bank are referred to individually and collectively herein as “First Merchants.” As detailed in the Merger Agreement, pursuant to the Proposed Merger, each Company Common Share issued and outstanding immediately prior to the effective time of the Proposed Merger will be converted into the right to receive 2.7245 shares of First Merchants common stock, no par value (the “Exchange Ratio”).
other corporate transactions. In arriving at ourconnection with this opinion, we have reviewed and considered, among other things: (i) revieweda draft of the Agreement, dated October 6, 2018; (ii) certain publicly available financial statements and other historical financial performance, currentinformation of MBT that we deemed relevant; (iii) certain publicly available financial positionstatements and general prospects of eachother historical financial information of First Merchants that we deemed relevant; (iv) publicly available consensus median analyst earnings per share estimates for MBT for the years ending December 31, 2018 through December 31, 2020, as well as a long-term earnings per share growth rate for the years thereafter and Arlington and reviewed certain internal financial analyses and forecasts prepareddividends per share for the years ending December 31, 2018 through December 31, 2022, as provided by the respectivesenior management teamsof MBT; (v) publicly available consensus median analyst earnings per share estimates for First Merchants for the years ending December 31, 2018 through December 31, 2020, as well as a long-term earnings per share growth rate for the years thereafter and dividends per share for the years ending December 31, 2018 through December 31, 2020 with an estimated dividend payout ratio for the years thereafter, as provided by the senior management of First Merchants and Arlington, (ii) reviewed the Merger Agreement, (iii) reviewed and analyzed the stock performance and trading history of First Merchants, (iv) studied and analyzed the consolidated financial and operating data of First Merchants and Arlington, (v) reviewedMerchants; (vi) the pro forma financial impact of the Proposed Merger on First Merchants based on certain assumptions relating to transaction expenses, purchase accounting adjustments, cost savings and other synergies determinedtransaction expenses, as provided by the respectivesenior management teamsof First Merchants; (vii) the publicly reported historical price and trading activity for MBT Common Stock and First Merchants Common Stock, including a comparison of certain stock market information for MBT Common Stock and First Merchants Common Stock and certain stock indices as well as publicly available information for certain other similar companies, the securities of which are publicly traded; (viii) a comparison of certain financial information for MBT and First Merchants with similar financial institutions for which information is publicly available; (ix) the financial terms of certain recent business combinations in the bank and thrift industry (on a regional and nationwide basis), to the extent publicly available; (x) the current market environment generally and the banking environment in particular; and (xi) such other information, financial studies, analyses and investigations and financial, economic and market criteria as we considered relevant. We also discussed with certain members of the management of MBT and its representatives the business, financial condition, results of operations and prospects of MBT and held similar discussions with certain members of the management of First Merchants and Arlington, (vi) consideredits representatives regarding the business, financial termscondition, results of the Proposed Merger as compared with the financial terms of comparable bankoperations and bank holding company mergers and acquisitions, (vii) met and/or communicated with certain members of eachprospects of First Merchants’ and Arlington’s senior management to discuss their respective operations, historical financial statements and future prospects, and (viii) conducted such other financial analyses, studies and investigations as we deemed appropriate.Merchants.
Our opinion is given in reliance on information and representations made or given by First Merchants, Arlington, and their respective officers, directors, auditors, counsel and other agents, and on filings, releases and other information issued by each of First Merchants and Arlington, including financial statements and financial projections, stock price data, as well as certain other information from recognized independent sources. We have not independently verified the information or data concerning First Merchants or Arlington nor any other data we considered in
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In performing our review, and, for purposes of the opinion set forth below, we have assumed and relied upon the accuracy and completeness of all such information and data. We have assumed that all forecasts and projections provided to us have been reasonably prepared and reflect the best currently available estimates and good faith judgments of the respective management teams of First Merchants and Arlington as to their most likely future financial performance. We express no opinion as to any financial projections or the assumptions on which they are based. We have not conducted any valuation or appraisal of any assets or liabilities of First Merchants or Arlington, nor have any such valuations or appraisals been provided to us. Additionally, we assume that the Proposed Merger is, in all respects, lawful under applicable law.
4 Tower Bridge • 200 Barr Harbor Drive • West Conshohocken • PA 19428-2979
phone (610) 832-1212 • fax (610) 832-5301 • www.boenninginc.com • Member FINRA/SIPC
Board of Directors
The Arlington Bank
January 24, 2017
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With respect to anticipated transaction costs, purchase accounting adjustments, expected cost savings and other synergies and financial and other information relatingthat was available to the general prospects ofand reviewed by us from public sources, that was provided to us by MBT or First Merchants or their respective representatives, or that was otherwise reviewed by us, and Arlington, we have assumed that such information has been reasonably preparedaccuracy and reflects the best currently available estimates and good faith judgmentcompleteness for purposes of the respective management teams of First Merchants and Arlington as to their most likely future performance.rendering this opinion without any independent verification or investigation. We have further relied on the assurances of the respective management teamsmanagements of MBT and First Merchants and Arlington that they are not aware of any facts or circumstances that would make any of such information inaccurate or misleading. We have not been asked to and have not undertaken an independent verification of any of such information and we do not assume any responsibility or liability for the accuracy or completeness thereof. We did not make an independent evaluation or perform an appraisal of the specific assets, the collateral securing assets or the liabilities (contingent or otherwise) of MBT or First Merchants or any of their respective subsidiaries, nor have assumed thatwe been furnished with any such evaluations or appraisals. We render no opinion or evaluation on the collectability of any assets or the future performance of any loans of MBT or First Merchants. We did not make an independent evaluation of the adequacy of the allowance for loan losses indicated on the balance sheet of each ofMBT or First Merchants, or of the combined entity after the Merger, and Arlington iswe have not reviewed any individual credit files relating to MBT or First Merchants. We have assumed, with your consent, that the respective allowances for loan losses for both MBT and First Merchants are adequate to cover such losses; we have not reviewed loans or credit fileslosses and will be adequate on a pro forma basis for the combined entity.
In preparing its analyses, Sandler O’Neill used publicly available consensus median analyst earnings per share estimates for MBT for the years ending December 31, 2018 through December 31, 2020, as well as a long-term earnings per share growth rate for the years thereafter and dividends per share for the years ending December 31, 2018 through December 31, 2022, as provided by the senior management of MBT. In addition, Sandler O’Neill used publicly available consensus median analyst earnings per share estimates for First Merchants for the years ending December 31, 2018 through December 31, 2020, as well as a long-term earnings per share growth rate for the years thereafter and dividends per share for the years ending December 31, 2018 through December 31, 2020 with an estimated dividend payout ratio for the years thereafter, as provided by the senior management of First Merchants. Sandler O’Neill also received and used in its pro forma analyses certain assumptions relating to purchase accounting adjustments, cost savings and transaction expenses, as provided by the senior management of First Merchants. With respect to the foregoing information, the respective managements of MBT and First Merchants confirmed to us that such information reflected (or, in the case of the publicly available analyst estimates referred to above, were consistent with) the best currently available estimates and judgments of those respective managements as to the future financial performance of MBT and First Merchants, respectively, and the other matters covered thereby, and we assumed that the future financial performance reflected in such information would be achieved. We express no opinion as to such information, or Arlington.the assumptions on which such information is based. We have also assumed that there has been no material change in the respective assets, financial condition, results of operations, business or prospects of MBT or First Merchants since the date of the most recent financial statements made available to us. We have assumed in all respects material to our analysis that MBT and First Merchants will remain as going concerns for all periods relevant to our analysis.
We have also assumed, with your consent, that (i) each of the parties to the Agreement will comply in all material respects with all material terms and conditions of the Agreement and all related agreements, that all of the representations and warranties contained in the Merger Agreement and all relatedsuch agreements are true and correct in all material respects, that each party underof the parties to such agreements will perform in all material respects all of the covenants and other obligations required to be performed by such party under thesuch agreements and that the conditions precedent in thesuch agreements are not and will not be waived. Also, in rendering our opinion, we have assumed thatwaived, (ii) in the course of obtaining the necessary regulatory or third party approvals, forconsents and releases with respect to the consummation of the Proposed Merger, no conditionsdelay, limitation, restriction or condition will be imposed that willwould have a materialan adverse effect on MBT, First Merchants, the combined entityMerger or contemplated benefitsany related transactions, (iii) the Merger and any related transactions will be consummated in accordance with the terms of the ProposedAgreement without any waiver, modification or amendment of any material term, condition or agreement thereof and in compliance with all applicable laws and other requirements, and (iv) the Merger includingwill qualify as a
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tax-free reorganization for federal income tax purposes. Finally, with your consent, we have relied upon the cost savingsadvice that MBT has received from its legal, accounting and related expenses expectedtax advisors as to result fromall legal, accounting and tax matters relating to the Proposed Merger.Merger and the other transactions contemplated by the Agreement. We express no opinion as to any such matters.
Our opinion is necessarily based upon information provided to us by the respective management teams of First Merchants and Arlington, as well ason financial, regulatory, economic, market economic, financial and other conditions as they existin effect on, and can be evaluated onlythe information made available to us as of, the date hereof. Events occurring after the date hereof and accordingly, it speaks to no other period.could materially affect this opinion. We have not undertaken to update, revise, reaffirm or revisewithdraw this opinion or otherwise comment onupon events occurring after the date hereof and do not have an obligation to update, revise or reaffirm our opinion. Our opinion does not address the relative merits of the Proposed Merger or the other business strategies that Arlington’s Board of Directors has considered or may be considering, nor does it address the underlying business decision of Arlington’s Board of Directors to proceed with the Proposed Merger.hereof. We were not asked to and did not solicit or explore other strategic alternatives to the Proposed Merger. We are expressingexpress no opinion as to the prices at whichtrading values of MBT Common Stock or First Merchants’ securities may tradeMerchants Common Stock at any time. Nothing in our opinion is to be construed as constituting tax advicetime or a recommendation to take any particular tax position, nor does our opinion address any legal, tax, regulatory or accounting matters, as to which we understand thatwhat the value of First Merchants has obtained such adviceCommon Stock will be once it is actually received by the holders of MBT Common Stock.
We have acted as it deemed necessary from qualified professionals. Our opinion is for the information of Arlington’s Board of DirectorsMBT’s financial advisor in connection with its evaluationthe Merger and will receive a fee for our services, a substantial portion of which is contingent upon closing of the Proposed MergerMerger. We will also receive a fee for rendering this opinion. MBT has also agreed to indemnify us against certain claims and does not constituteliabilities arising out of our engagement and to reimburse us for certain of our out-of-pocket expenses incurred in connection with our engagement. In the two years preceding the date hereof we have provided certain other investment banking services to MBT. Most recently, Sandler O’Neill was retained by MBT in August 2017 to act as MBT’s financial advisor in connection with a recommendation topossible business combination, which transaction was never consummated. As we have previously informed the Board of Directors of ArlingtonMBT, in the two years preceding the date hereof we have provided certain investment banking services to First Merchants. Most recently, Sandler O’Neill acted as (i) financial advisor in connection with the Proposed Merger or a recommendation to any shareholderFirst Merchants’ acquisition of Arlington as to how such shareholder should vote or act with respect to the Proposed Merger. This opinion should not be construed as creating any fiduciary duty on Boenning & Scattergood, Inc.’s part to any party or person. Our opinion is not to be quoted or referred to, in whole or in part, in a registration statement, prospectus, proxy statement or in any other document, nor shall this opinion be used for any other purpose, without our prior written consent, except that, if required by applicable law, this opinion may be referenced and included in its entirety in any filing made by First Merchants in respect to the Proposed Merger with the Securities and Exchange Commission; provided, however, any description of or reference to our opinion or to Boenning & Scattergood, Inc. be in a form reasonably acceptable to us and our counsel. We shall have no responsibility for the form or content of any such disclosure, other than the opinion itself.
Boenning & Scattergood,Independent Alliance Banks, Inc., as part of its investment banking business, regularly is engagedwhich transaction closed in the valuation of assets, securitiesJuly 2017, and companies(ii) financial advisor in connection with various typesFirst Merchants’ acquisition of transactions, including mergers, acquisitions, private placements, public offerings and valuations for various other purposes, andArlington Bank, which transaction closed in the determination of adequate considerationMay 2017. In addition, in such transactions. In the ordinary course of our business as a broker-dealer, we may
Board of Directors
The Arlington Bank
January 24, 2017
Page 3
from time to time, purchase securities from and sell securities to MBT, First Merchants Arlington, and/orand their respective affiliates. In the ordinary course of business, weWe may also actively trade the equity and debt securities of MBT, First Merchants and their respective affiliates for our own account and/orand for the accounts of customers and accordingly may at any time hold a long or short position in such securities.our customers.
We are acting as Arlington’s financial advisorOur opinion is directed to the Board of Directors of MBT in connection with its consideration of the ProposedAgreement and the Merger and will receivedoes not constitute a fee for our services, a significant portionrecommendation to any shareholder of which is contingentMBT as to how any such shareholder should vote at any meeting of shareholders called to consider and vote upon consummationthe approval of the ProposedAgreement and the Merger. We will also receive a fee for rendering this opinion. Our fee for rendering this opinion is not contingent upon any conclusion that we may reach or upon completiondirected only to the fairness, from a financial point of view, of the Proposed Merger. Arlington has also agreedExchange Ratio to indemnify us against certain liabilities that may arise outthe holders of our engagement.
Except forMBT Common Stock and does not address the arrangements between Boenning & Scattergood, Inc. and Arlington describedunderlying business decision of MBT to engage in the preceding paragraph, Boenning & Scattergood, Inc. has not hadMerger, the form or structure of the Merger or any material relationship with either Arlingtonother transactions contemplated in the Agreement, the relative merits of the Merger as compared to any other alternative transactions or First Merchants duringbusiness strategies that might exist for MBT or the past two yearseffect of any other transaction in which compensation was received or was intended to be received. Boenning & Scattergood, Inc. may provide services to First Merchants in the future (and/or to Arlington if the Proposed Merger is not consummated), although as of the date of this opinion, there is no agreement to do so nor any mutual understanding that such services are contemplated.
This opinion has been approved by Boenning & Scattergood, Inc.’s fairness opinion committee.MBT might engage. We also do not express any opinion as to the fairness of the amount or nature of the compensation to be received in the Proposed Merger by any officer, director or employee of the officers, directors,MBT or employees of any party to the Merger Agreement,First Merchants, or any class of such persons, if any, relative to the compensation to be received by the holders of Company Common Shares in the ProposedMerger by any other shareholder. This opinion has been approved by Sandler O’Neill’s fairness opinion committee. This opinion may not be reproduced without Sandler O’Neill’s prior written consent; provided, however, Sandler O’Neill will provide its consent for the opinion to be included in regulatory filings to be completed in connection with the Merger.
Based onupon and subject to the foregoing, it is our opinion that, as of the date hereof, the Exchange Ratio is fair to be received by the holders of CompanyMBT Common Shares pursuant to the Merger Agreement is fair,Stock from a financial point of view, to such holders.view.
Sincerely,Very truly yours,
Boenning & Scattergood, Inc.B-3
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
| Item 20. | Indemnification of Directors and Officers of First Merchants Corporation |
First Merchants is an Indiana corporation. First Merchants officers and directors are and will be indemnified under Indiana law, First Merchants Articles of Incorporation, as amended and Bylaws, as amended. Section 23-1-37-1et seq. of the Indiana Business Corporation Law (the “Indiana Business Corporation Law”) requires a corporation, unless limited by its articles of incorporation, to indemnify a director or an officer of the corporation who is wholly successful, on the merits or otherwise, in the defense of any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative and whether formal or informal, against reasonable expenses, including counsel fees, incurred in connection with the proceeding. First Merchants’ Articles of Incorporation do not contain any provision limiting such indemnification.
The Indiana Business Corporation Law also permits a corporation to indemnify a director, officer, employee, or agent who is made a party to a proceeding because the person was a director, officer, employee, or agent of the corporation against liability incurred in the proceeding if (a) the individual’s conduct was in good faith, and (b) the individual reasonably believed (i) in the case of conduct in the individual’s official capacity with the corporation, that the conduct was in the corporation’s best interests, and (ii) in all other cases, that the individual’s conduct was at least not opposed to the corporation’s best interests, and (c) in the case of a criminal proceeding, the individual either (i) had reasonable cause to believe the individual’s conduct was lawful, or (ii) had no reasonable cause to believe the individual’s conduct was unlawful.
First Merchants’ Articles of Incorporation, as amended, and Bylaws, as amended, provide that First Merchants will indemnify any person satisfying the standard of conduct outlined above as determined by (a) the First Merchants Board of Directors acting by a quorum consisting of Directors who are not parties to or who have been wholly successful with respect to such claim, action, suit or proceeding; or (b) independent legal counsel chosen by First Merchants.
First Merchants may advance expenses to or, where appropriate, may at its expense undertake the defense of any such person upon receipt of an undertaking by such person to repay such expenses if it should ultimately be determined that he is not entitled to the indemnification outlined above.
As permitted by the Indiana Business Corporation Law, the directors and officers of First Merchants are covered by an insurance policy indemnifying them against certain civil liabilities, including liabilities under the federal securities laws, which might be incurred by them in such capacity.
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| Item 21. | Exhibits and Financial Statement Schedules. |
(a) The following Exhibits are being filed as part of this Registration Statement except those which are incorporated by reference:
| (a) | The following Exhibits are being filed as part of this Registration Statement except those which are incorporated by reference: |
Exhibit No. | Description of Exhibit | |
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| March 1, 2017) | ||
|
| |
4.6 | Upon request, the registrant agrees to furnish supplementally to the Commission a copy of the instruments defining the rights of holders of its (a) 5.00% Fixed-to-Floating Rate Senior Notes due 2028 in the aggregate principal amount of $5 million and (b) 6.75% Fixed-to-Floating Rate Subordinated Notes due 2028 in aggregate principal amount of $65 million. | |
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| Financial Statement Schedules: |
The undersigned registrant hereby undertakes:
(1) To file, during any period inAll schedules for which offers or sales are beingprovision is made a post-effective amendment to this registration statement: (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement (notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement); and (iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initialbona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in this registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initialbona fide offering thereof.
(5) That prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the registrant undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form.
(6) That every prospectus (i) that is filed pursuant to paragraph (5) above, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to this registration statement and will not be used until such amendment has become effective, and that, for purposes of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initialbona fide offering thereof.
(7) To respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of this registration statement through the date of responding to the request.
(8) To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in this registration statement when it became effective.
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(9) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinionaccounting regulations of the Securities and Exchange Commission such indemnification is against public policy as expressedhave been omitted because they are not required, amounts which would otherwise be required to be shown with respect to any item are not material, are inapplicable or the required information has already been provided elsewhere or incorporated by reference in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by theregistration statement.
| Item 22. | Undertakings. |
The undersigned registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.hereby undertakes:
| (1) | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement (notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement); and (iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. |
| (2) | That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| (3) | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
| (4) | That, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in this registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| (5) | That prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145©, the registrant undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. |
| (6) | That every prospectus (i) that is filed pursuant to paragraph (5) above, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to this registration statement and will not be used until such amendment has become effective, and that, for purposes of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
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| (7) | To respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of this registration statement through the date of responding to the request. |
| (8) | To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in this registration statement when it became effective. |
| (9) | Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. |
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Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Muncie, State of Indiana, as of the 17th19th day of March, 2017.December, 2018.
FIRST MERCHANTS CORPORATION | |||
By: | /s/ Michael C. Rechin | ||
Michael C. Rechin, Chief Executive Officer and President | |||
Each person whose signature appears below constitutes and appoints Michael C. Rechin and Mark K. Hardwick and each of them his true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and any subsequent registration statement filed by First Merchants Corporation pursuant to Rule 462(b) of the Securities Act of 1933, and to file the same, with all exhibits thereto, and other documents in connection therewith with the Securities and Exchange Commission, granting unto said attorney-in-fact and agents full power and authority to perform each and every act and thing requisite and necessary to be done in and about the premises, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed as of the 17th19th day of March, 2017December, 2018 by the following persons in the capacities indicated.
/s/ Michael C. Rechin
| Chief Executive Officer, President and Director (Principal Executive Officer) | |||
Michael C. Rechin | ||||
/s/ Mark K. Hardwick
| Executive Vice President, Chief Financial Officer and Chief Operating Officer (Principal Financial and Accounting Officer) | |||
Mark K. Hardwick | ||||
| ||||
* | Chairman of the Board and Director | |||
Charles E. Schalliol | ||||
* | Director | |||
Michael R. Becher | ||||
* | Director | |||
Michael J. Fisher | ||||
* | Director | |||
F. Howard Halderman | ||||
* | Director | |||
William L. Hoy | ||||
* | Director | |||
Gary J. Lehman | ||||
* | Director | |||
Michael C. Marhenke | ||||
* | Director | |||
Patrick A. Sherman | ||||
* | Director | |||
Terry L. Walker | ||||
* | Director | |||
Jean L. Wojtowicz | ||||
* By: | /s/ Michael
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Michael C. Rechin Attorney-in-fact December 19, 2018 | |||||
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FIRST MERCHANTS CORPORATION
EXHIBIT INDEX
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