THE MERGER
At the special meeting, the shareholders of Arlington Bank 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 as
Annex A
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Description of the Merger
Under the terms and subject to the conditions of the Merger Agreement unanimously approved by each of the Arlington Bank, First Merchants and
First Merchants Bank Boards of Directors, Arlington Bank will merge with and into First Merchants Bank and the separate corporate existence of Arlington Bank will cease. The rights of the Arlington Bank 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.
Exchange of Arlington Bank Common Shares
The Merger Agreement provides that Arlington Bank shareholders will have the right, with respect to each of their Arlington Bank common shares,
to receive, without interest, 2.7245 shares (the “Exchange Ratio”) 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 Bank 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 Bank shareholders. Instead, Arlington Bank 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 Bank shareholder and you receive First Merchants common stock as Merger Consideration for your Arlington Bank common
shares, 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 April 12, 2017, the most recent practicable trading day before this proxy statement and prospectus was finalized, was $103.83 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 Bank 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 in book entry form of First Merchants common stock, each to be given to the holders of Arlington Bank common shares in exchange for old certificates representing Arlington Bank common shares. 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 Bank common shares. The letter of
transmittal will contain instructions for use in effecting the surrender of Arlington Bank stock certificates in exchange for the consideration to which such person may be entitled pursuant to the Merger Agreement. Within ten (10) business days
following the later of the effective date
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of the Merger or the surrender to American Stock Transfer of the old certificate(s) representing Arlington Bank common shares for cancellation, together with such letter of transmittal duly
executed and completed, the holder of such old certificate(s) will be provided a new certificate (or evidence of shares in book entry 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.
Until you surrender your Arlington Bank stock
certificates 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 Bank stock certificates, 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 Bank of any Arlington Bank common shares.
If a certificate for Arlington Bank common shares 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’s shareholder with all procedures historically required by Arlington Bank 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.
Background of the Merger
As part of its consideration and assessment of Arlington Bank’s long-term alternatives, prospects and strategies, the Board of Directors
of Arlington Bank has periodically discussed and reviewed 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 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 the Board of Directors of Arlington Bank continued to evaluate strategic options,
including a possible merger or other strategic combination with another financial institution to achieve economies of scale to absorb increased regulatory compliance costs and additional operating and regulatory costs.
To assist the Board of Directors in its review of strategic alternatives for Arlington Bank, Arlington Bank interviewed several investment
banking firms for consideration in providing assistance and financial advice to Arlington Bank and its board of directors during a period from June through August, 2016. At a special meeting of the Board of Directors of Arlington Bank held on
September 12, 2016, management was authorized by the Board of Directors to retain Boenning 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 Boenning in the event that a potential sale, merger or other transaction was entered into by Arlington Bank.
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During a discussion with the Chairman, Vice Chairman and President of Arlington Bank, acting at
the direction of Arlington Bank’s Board of Directors, Boenning identified a possible universe of financial institutions that could be potential candidates for a strategic transaction with Arlington Bank. Following that discussion, Boenning was
instructed to contact 16 financial institutions without naming Arlington Bank as the institution under consideration. Of those initial 16 institutions, 13 candidates, including First Merchants, entered into confidentiality agreements and then
obtained access to a virtual data room containing extensive financial and operating 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 requested non-binding indications of interest from the interested parties as they were proceeding with their due diligence review. Of the 13 candidates, five submitted official non-binding indications of interest on
November 7, 2016. Those submitting indications of interest included First Merchants.
The Board of Directors held a special meeting
on November 9, 2016, 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, including 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. 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, First Merchants submitted a revised indication of interest that included two proposals:
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One proposal from First Merchants involved a stock and cash transaction where Arlington Bank shareholders would receive a fixed exchange ratio of 1.8732 shares of First Merchants common stock and $25.62 per share 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 on the First Merchants stock price at that time.
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The other proposal from First Merchants, received at the same time, involved an all-stock transaction where Arlington Bank shareholders would receive a fixed exchange ratio of 2.7245 shares of First Merchants’
common stock in exchange for each outstanding share of Arlington Bank. This proposal would equate to $98.00 per share or approximately $74.775 million based on the First Merchants stock price on December 16, 2016.
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A special meeting 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 representative from the law firm of Vorys, Sater, Seymour and Pease LLP (“Vorys”), legal counsel for Arlington Bank, also present in person. The Board of Directors reviewed the two proposals from First
Merchants in detail with extensive discussion regarding the history 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.
After extensive discussion of the two First Merchants proposals, after considering the potential benefits and potential adverse
consequences of both proposals from First Merchants, the Board of Directors elected to proceed with the all-stock proposal. Boenning, Vorys and management of Arlington Bank were directed by the Board of Directors to proceed to negotiate a definitive
agreement with First Merchants consistent with the terms of the all-stock proposal contained in the letter of intent submitted by First Merchants.
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On January 3, 2017, the law firm of Bingham Greenebaum Doll LLP, legal counsel for First
Merchants, presented a draft Merger Agreement to Arlington Bank and Vorys.
During the period from January 3, 2017, through
January 24, 2017, 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 additional due diligence was performed. 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 the evening of January 24, 2017, the Board of Directors of Arlington Bank held a special meeting to discuss the draft Merger Agreement
and related issues. Also present in addition to the directors were representatives of Boenning and Vorys. Vorys representatives discussed the purpose for the meeting and the legal standards and responsibilities of the directors with regard to
matters before them. A Boenning representative reviewed with the Board of Directors the background of the process which had been undertaken to that point, and presented a financial analysis of First Merchants and of the proposed Merger
Consideration. Boenning then delivered to the Board of Directors an oral opinion, which was subsequently confirmed in writing that, based on and subject to the assumptions, limitations, qualifications and conditions set forth in Boenning’s
written opinion, as of the 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. Vorys attorneys then requested and
received confirmation from the 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. The Vorys
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.
Thereafter, the board received and considered resolutions concerning the transaction. The members of the board unanimously approved the Merger
Agreement and transactions set forth therein and authorized Mr. James DeRoberts to execute and deliver the Merger Agreement and take the other actions necessary to effect the transaction.
Arlington Bank and First Merchants executed the Merger Agreement and announced the transaction on January 25, 2017.
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:
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each of First Merchants’ and Arlington Bank’s business, operations, financial condition, asset quality, earnings and prospects. In reviewing these factors, the First Merchants Board of Directors considered
that the Merger (1) will expand First Merchants’ business within demographically attractive markets in Central Ohio; (2) will increase First Merchants’ core deposit base, an important funding source; (3) will provide First
Merchants with an experienced management team and quality bank branches in and around Central Ohio; and (4) will provide First Merchants with the opportunity to sell First Merchants’ broad array of products to Arlington Bank’s client
base;
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its understanding of the current and prospective environment in which First Merchants and Arlington Bank operate, including national and local economic conditions, the competitive environment for financial institutions
generally, and the likely effect of these factors on First Merchants both with and without the proposed transaction;
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its review and discussions with First Merchants’ management concerning the due diligence examination of Arlington Bank;
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the complementary nature of the cultures of the two companies, which management believes should facilitate integration and implementation of the transaction;
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the financial and other terms of the Merger Agreement, including the fixed exchange ratio, tax treatment and deal protection and termination fee provisions, which it reviewed with its outside financial and legal
advisors;
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the potential risk of diverting management attention and resources from the operation of First Merchants’ business towards the completion of the Merger; and
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the regulatory and other approvals required in connection with the Merger and the expectation that such regulatory approvals will be received in a timely manner and without the imposition of unacceptable conditions.
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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’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 Board of Directors consulted with Arlington Bank 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 review undertaken by the Arlington Bank Board of Directors and management with respect to the strategic alternatives available to Arlington Bank;
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the business strategy and strategic plan of Arlington Bank and its prospects for the future as an independent institution, including the risks inherent in successful execution of its strategic plan, its projected
financial results, and expectations relating to the proposed Merger with First Merchants;
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a review of the challenges facing Arlington Bank in the current competitive, economic, financial and regulatory climate, and the potential benefits of aligning Arlington Bank with a larger organization;
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the consistency of the Merger with Arlington Bank’s long-term strategic plan to seek profitable future expansion, leading to continued growth in overall shareholder value and enhanced liquidity for Arlington Bank
shareholders;
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a review of the historical financial statements and condition of Arlington Bank and certain other internal information, primarily financial in nature, relating to the business, earnings and balance sheet of Arlington
Bank;
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a review of the historical financial statements and condition of First Merchants and certain other information, primarily financial in nature, relating to the business, earnings and financial condition of First
Merchants;
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its review and discussions with Arlington Bank management and its advisors concerning the due diligence examination of First Merchants;
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the fact that the Merger would combine two established banking franchises to create a bank with over $7 billion in assets;
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the complementary nature of the businesses of Arlington Bank and First Merchants and the anticipated improved stability of the combined company’s business and earnings in varying economic and market climates;
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the belief of Arlington Bank senior management that the management teams and employees of Arlington Bank and First Merchants possess complementary skills and expertise and the potential advantages of a larger
institution when pursuing, or seeking to retain, talent;
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the financial strength of First Merchants based on First Merchants’ historical earnings and profitability expectations over the near and long term;
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the strength, recent performance and liquidity of First Merchants’ common stock;
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the financial and other terms of the Merger Agreement, including the fixed exchange ratio, tax treatment and deal protection and termination fee provisions, which it reviewed with its outside financial and legal
advisors;
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the fact that, based on the closing price of First Merchants’ common stock on January 24, 2017, of $36.46, the transaction value would be approximately $75.8 million, with an implied price per share of
Arlington Bank common shares of $99.34;
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the ability of Arlington Bank’s shareholders to benefit from First Merchants’ potential growth and stock appreciation over time since it is more likely that the combined entity will have superior future
earnings and prospects compared to Arlington Bank’s earnings and prospects on an independent basis as the result of greater operating efficiencies and better penetration of commercial and consumer banking markets;
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the ability of First Merchants to complete a merger transaction from a financial and regulatory perspective;
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the regulatory and other approvals required in connection with the Merger and the expectation that such regulatory approvals will be received in a timely manner and without the imposition of unacceptable conditions;
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the complementary geographic fit and customer convenience of the branch networks of the combined banks;
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the potential continued representation of certain of Arlington Bank’s management on the management team of the combined entity;
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the nature and amount of payments and other benefits to be received by Arlington Bank management in connection with the Merger pursuant to existing Arlington Bank plans, as well as compensation arrangements contemplated
in connection with the Merger;
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the anticipated effect of the acquisition on Arlington Bank’s employees;
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the anticipated effect on Arlington Bank’s customers and the communities served by Arlington Bank;
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the belief that, while no assurances could be given, the business and financial advantages contemplated in connection with the Merger were likely to be achieved within a reasonable time frame, particularly in light of
the fact that First Merchants has transition experience due to successfully completed acquisitions in the past; and
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the opinion of Boenning orally delivered to the Arlington Bank Board of Directors on January 24, 2017, and
subsequently confirmed in writing, that, as of that date, and based upon and subject to the
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conditions, limitations, qualifications and assumptions set forth in the opinion, 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 of Arlington Bank common shares.
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The foregoing discussion of the information
and factors considered by the Arlington Bank Board of Directors is not intended to be exhaustive, but includes the material factors considered by the Arlington Bank 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 Bank 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 Bank Board of Directors considered all these factors as a whole, including discussions with, and questioning of, Arlington Bank’s management and Arlington Bank’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
unanimously approved the Merger Agreement and recommends that Arlington Bank’s shareholders vote
“FOR”
the approval of the Merger Proposal and
“FOR”
the Adjournment Proposal. Arlington Bank shareholders should
be aware that Arlington Bank’s directors and executive officers have interests in the Merger that are different from, or in addition to, those of other Arlington Bank shareholders. The Board of Directors of Arlington Bank 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. See “THE MERGER—Interests of Certain
Persons in the Merger.”
This summary of the reasoning of the Board of Directors of Arlington Bank 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.
Boenning & Scattergood, Inc. (“Boenning”) is acting as financial advisor to Arlington Bank in connection with the Merger.
Boenning is a registered broker-dealer providing investment banking services with substantial expertise in transactions similar to the Merger. As part of its investment banking activities, Boenning is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions, underwritings, private placements and valuations for estate, corporate and other purposes.
On January 24, 2017, Boenning rendered its oral opinion, which was subsequently confirmed in writing, to the Arlington Bank board of
directors that, as of such date and subject to the assumptions made, matters considered and limitations of the review undertaken by Boenning, the Exchange Ratio to be received by the holders of Arlington Bank’s common stock pursuant to the
Merger Agreement was fair, from a financial point of view, to such holders.
The full text of Boenning’s written opinion dated
January 24, 2017, which sets forth the assumptions made, matters considered and limitations of the review undertaken, is attached as Annex C 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 summary of Boenning’s opinion set forth in this proxy statement and prospectus is qualified in its entirety by
reference to the full text of the opinion. Boenning’s opinion speaks only as of the date of the opinion and does not reflect any developments that may occur or may have occurred after the date of its opinion and prior to the completion of
the Merger.
No limitations were imposed by Arlington Bank on the scope of Boenning’s investigation or the procedures to be followed
by Boenning in rendering its opinion. Boenning was not requested to, and did not, make any recommendation to the Arlington Bank board of directors as to the form or amount of the consideration to be
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paid to the Arlington Bank stockholders, which was determined through arm’s length negotiations between the parties. In arriving at its 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.
In connection
with its opinion, Boenning, among other things:
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reviewed the historical financial performance, current financial position and general prospects of each of First Merchants and Arlington Bank and reviewed certain internal financial analyses and forecasts prepared by
the respective management teams of First Merchants and Arlington Bank;
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reviewed the Merger Agreement;
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reviewed and analyzed the stock performance and trading history of First Merchants;
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studied and analyzed the consolidated financial and operating data of First Merchants and Arlington Bank;
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reviewed the pro forma financial impact of the Merger on First Merchants, based on assumptions relating to transaction expenses, purchase accounting adjustments, cost savings and other synergies determined by the
respective management teams of First Merchants and Arlington Bank;
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considered the financial terms of the Merger as compared with the financial terms of comparable bank and bank holding company mergers and acquisitions;
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met and/or communicated with certain members of each of First Merchants’ and Arlington Bank’s senior management to discuss their respective operations, historical financial statements and future prospects; and
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conducted such other financial analyses, studies and investigations as Boenning deemed appropriate.
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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 in its review and, for purposes of its
opinion, Boenning assumed and 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 relating to the general prospects of First Merchants and Arlington Bank, Boenning assumed that such information 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 performance. Boenning further relied on the assurances of the
respective management teams of 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. Boenning was not asked to and did not undertake an
independent verification of any of such information and Boenning did not assume any responsibility or liability for the accuracy or completeness thereof. Boenning assumed that the allowance for loan losses indicated on the balance sheet of each
of First Merchants and Arlington Bank was adequate to cover such losses; Boenning did not review individual loans or credit files of First Merchants and Arlington Bank. Boenning assumed that all of the representations and warranties contained
in the Merger Agreement and all related
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agreements were true and correct, that each party under the agreements will perform all of the covenants required to be performed by such party under the agreements, and that the conditions
precedent in the agreements were not waived. Also, in rendering its opinion, Boenning assumed that in the course of obtaining the necessary regulatory approvals for the consummation of the Merger no conditions will be imposed that will have a
material adverse effect on the combined entity or contemplated benefits of the Merger, including the cost savings and related expenses expected to result from the Merger.
Boenning’s opinion is based upon information provided to it by the respective management teams of First Merchants and Arlington Bank, as
well as market, economic, financial and other conditions as they existed and could be evaluated only as of the date of its opinion and accordingly, it speaks to no other period. Boenning did not undertake to reaffirm or revise its opinion or
otherwise comment on events occurring after the date of its 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 recommendation to the board of directors of Arlington Bank in connection with the Merger or a recommendation
to any shareholder of Arlington Bank as to how such shareholder should vote or act with respect to the Merger.
In connection with
rendering its opinion, Boenning performed a variety of financial analyses that are summarized below. This summary does not purport to be a complete description of such analyses. Boenning believes that its analyses and the summary set forth
herein must be considered as a whole and that selecting portions of such analyses and the factors considered therein, without considering all factors and analyses, could create an incomplete view of the analyses and processes underlying its
opinion. The preparation of a fairness opinion is a complex process involving subjective judgments and is not necessarily susceptible to partial analysis or summary description. In arriving at its opinion, Boenning considered the results
of all of its analyses as a whole and did not attribute any particular weight to any analyses or factors considered by it. The range of valuations resulting from any particular analysis described below should not be taken to be Boenning’s
view of the actual value of Arlington Bank.
In its 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 was identical to Arlington Bank or First Merchants or the Merger. Accordingly, an analysis of the results described below is not mathematical; rather, it
involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other facts that could affect the public trading value of the companies to which they are being 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 prices 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 of 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 text of each summary. The tables alone do not constitute a complete
40
description of Boenning’s financial analyses, including the methodologies and assumptions underlying the analyses, and if viewed in isolation could create a misleading 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 respect to any of the analyses performed by it in connection
with its opinion. Rather, Boenning made its determination as to the fairness to the holders of Arlington Bank’s 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 the analyses performed. Accordingly, the data included in the summary tables and the corresponding imputed ranges of value for Arlington Bank should be considered as a whole and in the context 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 financial analyses performed by Boenning.
In connection with rendering its opinion and based upon the terms of the draft Agreement and Plan of Reorganization and Merger reviewed by it,
Boenning assumed the effective aggregate indicated Merger Consideration to be $74.4 million and the per share Merger Consideration 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 and the November 30, 2016 tangible book value per share. The transaction pricing multiples for the Merger Consideration relative to September 30, 2016 financials (Arlington Bank’s most recent publicly disclosed
financial data) would have been as follows: price / book value and price / tangible book value of 211.9%, price / latest 12 months 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 multiples 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
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|
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Adjusted Trading Price
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|
Pricing Multiple
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|
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
|
%
|
|
(1)
|
Peer metrics are based on prices as of market close on January 23, 2017.
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41
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
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Median for Selected Transactions
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Pricing Multiple
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Offer Price
|
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Group A
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Group B
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Group C
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Group D
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Price/Book Value
|
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|
223.5
|
%
|
|
|
144.2
|
%
|
|
|
148.3
|
%
|
|
|
141.5
|
%
|
|
|
176.0
|
%
|
|
Price/Tangible Book Value
|
|
|
223.5
|
%
|
|
|
148.9
|
%
|
|
|
148.3
|
%
|
|
|
141.5
|
%
|
|
|
178.8
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%
|
|
Price/Latest 12 Months Earnings Per Share
|
|
|
17.8x
|
|
|
|
17.7x
|
|
|
|
18.2x
|
|
|
|
12.5x
|
|
|
|
14.4x
|
|
|
Price/Assets
|
|
|
24.0
|
%
|
|
|
14.1
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%
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|
15.3
|
%
|
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|
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%, as well as a short-term balance sheet growth
rate of 4% 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 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%. Sensitivity analyses for discount rates and cost savings ranged from 11.5% to 15.5% and 30% to 40%, respectively. The
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
42
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 does not purport to be indicative of actual 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.
Pro Forma Merger
Analysis
. Boenning analyzed certain potential pro forma effects of the Merger, assuming the following: (i) the Merger is completed June 30, 2017; (ii) each share of Arlington Bank’s common stock will be eligible to receive
consideration of approximately $97.51 in First Merchants stock (based on an exchange ratio of 2.7425); (iii) estimated pre-tax 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 with 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. The analyses indicated that the Merger (excluding transaction expenses) would be neutral to the combined company’s projected earnings
per share in 2017, accretive to the combined company’s projected earnings per share for the full year 2018 and accretive to Arlington Bank’s per share equivalent earnings and tangible book value for 2017 and the full year 2018.
Additionally, the combined company’s regulatory capital ratios would exceed regulatory guidelines for “well capitalized.” 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.
Arlington Bank has agreed to pay Boenning certain fees for its services as
financial advisor in connection with the Merger. Specifically, Arlington Bank paid Boenning a fee of $15,000 upon commencement of the engagement and a fee of $50,000 upon the issuance of the fairness opinion. Arlington Bank will pay Boenning an
additional fee of $878,000 contingent upon and payable in connection with consummation of the Merger. Boenning’s fee for rendering the fairness opinion was not contingent upon any
43
conclusion that Boenning reached or upon completion of the Merger. The Company has also agreed to indemnify Boenning against certain liabilities that may arise out of Boenning’s engagement.
Prior Engagements by First Merchants and Arlington Bank.
Except for the arrangements between Boenning and Arlington Bank described
in the preceding paragraph, Boenning has not had any material relationship with either First Merchants or Arlington Bank during the past two years in which compensation was received or was intended to be received. Boenning may provide services to
First Merchants in the future (and/or to Arlington Bank if the Merger is not consummated), although 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 April 14, 2017, the record date for the
special meeting, and whose shares are not voted in favor of the adoption of the Merger Agreement may be entitled to be paid the “fair cash value” of such Arlington Bank shares after the effective time 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 as
Annex 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.
44
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 as
Annex 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 Bank shareholders in the Merger will be registered under the Securities Act.
These shares may be traded freely without restriction by those Arlington Bank 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 Bank who are anticipated to be an “affiliate” of First Merchants after the Merger.
Regulatory Approvals
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 filed applications with both
the Indiana DFI and the FDIC, but cannot be certain when or if such approval will be obtained.
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 Bank 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.
Effective Date of the Merger
The Merger will be consummated if the Merger Proposal is approved by the Arlington Bank 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 Articles of Merger are filed with the Secretary of State of Indiana or at such later date and time as may be specified in the
Articles 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 second quarter of 2017. 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 Bank 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.
45
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 Bank shareholders will be listed on The NASDAQ Global Select Market.
Registration Statement
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, you should be aware
that certain of the directors and officers of Arlington Bank 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. These
interests are different from, or in conflict with, your interests as Arlington Bank shareholders. The members of the Arlington Bank Board of Directors and the First Merchants Board of Directors were aware of these additional interests, and
considered them, when they approved the Merger Agreement. Except as described below, to the knowledge of Arlington Bank, the officers and directors of Arlington Bank do not have any material interest in the Merger apart from their interests as
shareholders.
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•
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Arlington Bank has employment agreements with each of Thomas C. Westfall, President, Natalie Karas, Senior Vice President and Nona Durham, Treasurer, that provide for each such executive officer to receive, following a
change in control, a multiple of the executive’s compensation prior to the change in control, subject to certain limitations. Under these agreements, Mr. Westfall, Ms. Karas and Ms. Durham would be entitled to receive approximately $833,000,
$247,000 and $250,000, respectively.
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•
|
|
Mr. Westfall and Ms. Karas will each receive restricted shares of First Merchants common stock under First Merchants 2009 Long-Term Equity Incentive Plan (having a value of $75,000 and $25,000, respectively)
if they are employed by First Merchants Bank upon the effective date of the Merger.
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•
|
|
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 for the directors and officers
of Arlington Bank and indemnify those persons, subject to certain conditions in the Merger Agreement.
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46
EFFECT OF
THE MERGER
Upon the Merger becoming effective:
2.1
General Description
. The separate existence and corporate organization of Arlington Bank shall cease, and the corporate existence
of FMB, including 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 IFIA and shall succeed to all the rights, privileges, immunities, powers, duties and liabilities of Arlington Bank as
provided under the IFIA and the Ohio Corporate Law.
2.2
Name
. The name of the Surviving Corporation shall be “First Merchants
Bank.”
2.3
Articles of Incorporation
. The Articles of Incorporation of FMB shall be the Articles of Incorporation of the
Surviving Corporation.
2.4
Code of Bylaws
. The Code of Bylaws of FMB (the “
Code of Bylaws
”) shall be the Code of
Bylaws of the Surviving Corporation.
2.5
Officers 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.
2.6
Offices
. Immediately following the Merger, FMB’s principal office shall be located at 200 East Jackson Street, Muncie, Indiana
47305 and Arlington Bank’s principal office at 2130 Tremont Center, Upper Arlington, Ohio 43221 shall become a branch office of FMB.
2.7
Shares of Arlington Bank
. As of the Effective Date, by virtue 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.
A-2
2.8
Shares of FMB
. As 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.
2.9
Savings Accounts
. By virtue of the Merger, deposit accounts held at Arlington Bank shall automatically, by operation of law,
become deposit accounts held at FMB.
2.10
Further Assurances
. If, at any time after the Effective Date, the Surviving Corporation
shall consider or be advised that any further deeds, assignments or assurances under the Law or any other acts are necessary or desirable (a) to vest, perfect or confirm, of record or otherwise, in the Surviving Corporation its right, title or
interest in, to or under any of the rights, properties or assets of Arlington Bank, or (b) otherwise carry out the purposes of this Agreement, Arlington Bank and its officers and directors shall be deemed to have granted to the Surviving
Corporation 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 Corporation and otherwise to carry out the purposes of this Agreement, and the officers and directors of the Surviving Corporation are authorized in the name of Arlington Bank or otherwise to take any and all such action.
2.11
Consent 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.
2.12
Statutory 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 DISTRIBUTED
3.1
Consideration
. Upon and by reason of the Merger becoming effective, the shareholders of Arlington Bank of record on the Effective
Date shall be entitled to receive in exchange for Arlington Bank common shares, $0.50 par value (“
Arlington Bank Common Stock
”) held, 2.7245 (the “
Exchange Ratio
”) shares of First Merchants’ common stock
(“
First Merchants Common Stock
”). The Exchange Ratio shall be subject to adjustment as set forth in Section 3.3.
3.2
Fractional Shares of First Merchants Common Stock
. 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 of Arlington Bank 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 Bank 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 Bank Common Stock would otherwise be entitled. No such holder of Arlington Bank 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) 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.
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3.3
Recapitalization
. 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 Bank 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.
3.4
Distribution of First Merchants’ Common Stock
.
(a) Each share 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 Bank Common Stock for exchange in accordance with this Section 3, certificates for shares (or book entry of shares) 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 Bank Common Stock a letter of transmittal (the “
Letter of Transmittal
”) providing (i) that delivery shall be effected and risk of loss of title to the certificates representing Arlington
Bank Common Stock shall pass only upon delivery of the certificates to the Exchange Agent and (ii) instructions as to the transmittal to the Exchange Agent of certificates representing shares of Arlington Bank Common Stock and the issuance of
shares of First Merchants Common Stock in exchange therefor pursuant to the terms of this Agreement. Distribution of First Merchants Stock Certificates and cash payments in lieu of fractional shares shall be made by the Exchange Agent to each former
holder of Arlington Bank Common Stock within five (5) business days following the later of the Effective Date or the date of such shareholder’s delivery to the Exchange Agent of such shareholder’s certificates representing Arlington
Bank Common Stock, accompanied by 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 Bank 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 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 Bank of any shares
of Arlington Bank Common Stock.
(f) Any portion of the Exchange Fund that remains unclaimed by the holders of Arlington
Bank 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 Bank 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
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distributions on First Merchants Common Stock deliverable in respect of each share of Arlington Bank 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 Bank 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 Bank 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 Bank 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 reasonably required by Arlington Bank in connection with lost, stolen, or destroyed certificates, with any costs incurred at such shareholder’s expense.
3.5
Employee Stock Options
. Immediately prior to the Closing, each then outstanding option to purchase Arlington Bank Common Stock,
shall be converted into the right to receive in cash (a) the excess, if any, of (i) the Exchange Ratio
multiplied by
the First Merchants Average Price over (ii) the per share exercise price of such Arlington Bank stock option
multiplied by
(b) the number of shares of Arlington Bank 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 behalf of Arlington Bank within ten (10) business days following the Closing. As a condition to its obligation to pay the Option Payment Amount to 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 option agreement between Arlington Bank and such option holder and the option holder’s rights thereunder shall terminate and be of no further force or effect.
SECTION 4
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 holders
of shares of Arlington Bank Common Stock to require payment of fair cash value of such Arlington Bank Common Stock (the “
Dissenting Shares
”), in accordance with Sections 1701.84 and 1701.85 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 value 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
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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 BANK
Arlington Bank hereby makes the representations and warranties set forth below to First Merchants. For the purposes of this Section 5,
“
Arlington Bank Disclosure Letter
” is defined as the letter referencing Section 5 of this Agreement which shall be prepared by Arlington Bank and delivered to First Merchants contemporaneously with the execution of this
Agreement.
5.1
Organization and Authority
. Arlington Bank is a savings bank duly organized and validly existing under the laws of
the State of Ohio. Arlington Bank has the power and authority (corporate and otherwise) to conduct its businesses in the manner and by the means utilized as of the date hereof. Arlington Bank has no subsidiaries. Arlington Bank is subject to primary
federal regulatory supervision and regulation by the Federal Deposit Insurance Corporation (“
FDIC
”).
5.2
Authorization
.
(a) Arlington Bank 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, 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 Board of Directors of Arlington Bank has approved the Merger pursuant to the terms and conditions of this Agreement and has agreed to recommend to Arlington
Bank’s shareholders that they adopt this Agreement and approve the transactions described herein subject to Section 7.5 hereof.
(b) Except as set forth in the Arlington Bank 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’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 Bank 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; (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 Bank 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 Bank 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, or
First Merchants and FMB taken as a whole, as applicable, or (ii) would
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materially impair the ability of Arlington Bank, 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 Arlington 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, 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 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).
(c) Other than (i) the filing of a certificate of merger with the Secretary of State of the State of Ohio, in accordance
with the Ohio Corporate Law, and (ii) 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 Bank 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 Bank 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 Arlington 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.
5.3
Capitalization
.
(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 Bank has 10,000,000 shares of Arlington Bank Common Stock authorized, 761,528 shares of which are issued and outstanding. Such issued and outstanding shares of Arlington Bank Common Stock have been
duly and validly authorized by all necessary corporate action of Arlington Bank, 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 Bank 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 Bank Disclosure Letter, Arlington Bank has no intention or obligation to authorize or issue additional shares of its capital stock.
(b) The Arlington Bank Disclosure Letter contains a list of option holders of Arlington Bank, the number of options to purchase
Arlington Bank Common Stock held by each and the applicable exercise price of each. Except as set forth in the Arlington Bank Disclosure Letter, there are no options,
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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 or any debt securities, of Arlington Bank, by which Arlington Bank is or may become bound. Arlington Bank does not have any outstanding contractual or other obligations to
repurchase, redeem or otherwise acquire any of its outstanding shares of capital stock.
5.4
Organizational Documents
. The Articles
of Incorporation, Bylaws and Constitution of Arlington Bank have been delivered to First Merchants and represent true, accurate and complete copies of such corporate documents of Arlington Bank in effect as of the date of this Agreement.
5.5
Compliance with Law
. To the knowledge of Arlington Bank’s Management, Arlington Bank has not engaged in any activity or 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 possesses all licenses, franchises, permits and other authorizations necessary for the
continued conduct of its business 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, and such
licenses, franchises, permits and authorizations shall be transferred to FMB 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 Bank Disclosure Letter. Arlington Bank 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. Arlington 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 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 any securities laws applicable to Arlington Bank. Arlington Bank received a rating of “satisfactory” or better in its most recent examination or interim review with respect to
the Community Reinvestment Act.
5.6
Accuracy of Statements
. No information which has been or shall be supplied by Arlington Bank
with respect to its businesses, operations and financial condition for inclusion in the regulatory applications relating to the Merger or the registration statement relating to the Merger contains or shall contain (at the time the application, the
registration statement and each amendment or supplement thereto, if any, 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.
5.7
Litigation and Pending Proceedings
. Except as set forth in the Arlington Bank 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’s Management, threatened in any court or before any government agency or body, arbitration panel or otherwise (nor does
Arlington Bank’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’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 Bank as a result of an
examination by any regulatory agency or body which could reasonably be expected to have a Material Adverse Effect.
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5.8
Financial Statements
.
(a) Arlington Bank’s consolidated audited balance sheets as of the end of the two (2) fiscal years ended
December 31, 2015 and 2014, the unaudited consolidated balance sheet for the nine months ended September 30, 2016 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 Bank as of the respective dates thereof and the consolidated results of
operations of Arlington Bank 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 September 30,
2016 (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 knowledge of Arlington Bank’s Management, to the extent that Arlington Bank has a security interest in collateral or
a mortgage securing such loans, are secured by perfected security interests or mortgages naming Arlington Bank as the secured party or mortgagee, except for such unperfected security interests or mortgages naming Arlington 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 Arlington Bank is not able to enforce any such security interest or mortgage.
5.9
Absence 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 Bank Disclosure Letter, since September 30, 2016, no events have occurred which could reasonably be expected to have a Material Adverse Effect. Except as set forth
in the Arlington Bank Disclosure Letter, between the period from September 30, 2016 to the date of this Agreement, Arlington Bank has carried on its business in the ordinary and usual course consistent with its 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’s Common Stock (other than normal quarterly cash dividends) or any split, combination or reclassification of any stock of Arlington Bank or, with the exception of the issuance of shares in
connection with the exercise of stock options, 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.
5.10
Absence of Undisclosed Liabilities
. Except as set forth in the Arlington Bank Disclosure Letter, to the knowledge of Arlington
Bank’s Management, Arlington Bank does not have 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 One Hundred Thousand and 00/100
Dollars ($100,000.00) 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’s business consistent with past practices.
5.11
Title to Assets
.
(a) Arlington Bank has good title to all personal property reflected in the September 30, 2016 Financial Information, good
title to all other personal property and assets which Arlington Bank purports to own, and good title to or right to use by terms of any lease or contract all other property used in Arlington Bank’s business, and good title to all personal
property and assets acquired since September 30, 2016, 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 such property and which would not have a Material Adverse Effect.
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(b) The operation by Arlington Bank of such personal property and assets is in
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.
5.12
Loans and Investments
.
(a) The Arlington Bank Disclosure Letter sets forth any loan of Arlington Bank in excess of the principal amount of One Hundred
Thousand and 00/100 Dollars ($100,000.00) that, as of December 31, 2016, has been: (i) classified by Arlington Bank, applying applicable regulatory examination standards, as “Other Loans Specially Mentioned,”
“Substandard,” “Doubtful” or “Loss,” (ii) identified by accountants or auditors (internal or external) as having a significant risk of uncollectibility, or (iii) determined by Arlington Bank’s 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’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 Bank Disclosure
Letter, none of the investments reflected in the Financial Information and none of the investments made by Arlington Bank since September 30, 2016 is subject to any restrictions, whether contractual or statutory, which materially impairs the
ability of Arlington Bank to dispose freely of such investment at any time. Except as set forth in the Arlington Bank Disclosure Letter, Arlington Bank is not a party to any repurchase agreements with respect to securities.
5.13
Employee Benefit Plans
.
(a) The Arlington Bank 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
Bank or any entity, trade or business that, together with Arlington Bank, would be treated as a single employer under the provisions of Sections 414(b), (c), (m) or (o) of the Code (“
Arlington Bank ERISA Affiliate
”),
and covers any employee, director or former employee or director of Arlington Bank or any Arlington Bank ERISA Affiliate under which Arlington Bank or any Arlington Bank ERISA Affiliate has any liability. The Arlington Bank Disclosure Letter also
contains a list of all “employee benefit plans” as defined under ERISA which have been terminated by Arlington Bank or any Arlington Bank ERISA Affiliate since January 1, 2012. 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’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 Bank to material taxes
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or penalties. Neither Arlington Bank nor any Arlington Bank 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’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 Bank or any Arlington Bank 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 Bank Disclosure Letter, Arlington Bank and/or any Arlington Bank 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 Bank
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 Bank 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 Arlington Bank, or any Arlington Bank ERISA Affiliate, to any liability under Sections 4062, 4063 or
4064 of ERISA. Neither Arlington Bank nor any Arlington Bank ERISA Affiliate ever has engaged in any transaction within the meaning of Section 4069 of ERISA. Except as disclosed in the Arlington Bank Disclosure Letter, there exist no facts or
circumstances which could subject Arlington Bank, or any Arlington Bank 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 Bank nor any Arlington Bank 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 Bank or any Arlington Bank 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’s Management, have been threatened to be filed in a court of law.
(i) There is no
contract, agreement, plan or arrangement covering any employee, director or former employee or director of Arlington Bank 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’s Management, no
event has occurred that would cause the imposition of the tax described in Section 4980B of the Code on Arlington Bank. To the knowledge of Arlington Bank’s Management, Arlington Bank has materially complied with all requirements of
Section 601 of ERISA, as applicable, with respect to any Employee Plan.
(k) The Arlington Bank 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 Bank and (iii) covers any employee, director or former employee or director
of Arlington Bank. Such contracts, plans and arrangements as are described above, copies or descriptions of all of which have been furnished previously to First Merchants, are
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hereinafter referred to collectively as the “
Benefit Arrangements
.” Each of the Benefit Arrangements has been maintained in compliance 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 Bank Disclosure Letter or as required by applicable law, neither Arlington Bank nor any Arlington Bank ERISA Affiliate has any present or future liability in respect of post-retirement health and medical benefits
for former employees or directors of Arlington Bank or any Arlington Bank ERISA Affiliate.
(m) Except as set forth in the
Arlington Bank Disclosure Letter, there has been no amendment to, written interpretation or announcement (whether or not written) by Arlington Bank or any Arlington Bank ERISA Affiliate relating to, or change in employee participation or coverage
under, any Employee Plan or Benefit Arrangement administered by Arlington Bank or any Arlington Bank 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.
(n) Except as otherwise provided in
the Arlington Bank 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 Bank 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.
5.14
Obligations to Employees
. Except as set forth in the Arlington Bank Disclosure
Letter, all accrued obligations and liabilities of Arlington Bank, 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 Bank for its 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 Bank 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 Bank Disclosure Letter, all obligations and liabilities of Arlington Bank, whether arising by operation of law, by contract, or by past custom, for all forms of
compensation which are or may be payable to its current or former directors, officers, employees or agents have been and are being paid, and adequate accruals and/or reserves for payment therefor 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, except where the failure to correctly and accurately reflect and account for such accruals and reserves would not have a Material Adverse
Effect.
5.15
Taxes, Returns and Reports
. Except as set forth in the Arlington Bank Disclosure Letter, Arlington Bank has
(a) duly filed all federal, state, local and foreign tax returns of every type and kind required to be filed by it 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 it or any of its 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
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Financial Information is adequate to cover all of Arlington Bank’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. Arlington Bank does not, and will not, have any liability for taxes of any nature for or with respect to the operation of its business from September 30, 2016, up to
and including the Effective Date, except to the extent reflected on its Financial Information or on financial statements of Arlington Bank subsequent to such date and as set forth in the Arlington Bank Disclosure Letter. Arlington Bank 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 Bank Disclosure Letter, none of the federal, state, or local tax returns of Arlington Bank have been audited by
any taxing authority during the past five (5) years.
5.16
Deposit Insurance
. The deposits of Arlington Bank are insured by
the FDIC in accordance with the Federal Deposit Insurance Act, and Arlington Bank has paid all premiums and assessments due through the date of this Agreement with respect to such deposit insurance.
5.17
Reports
. Since January 1, 2014, Arlington Bank has timely filed all reports, registrations and statements, together with any
required amendments thereto, that it was required to file with (i) the Ohio Superintendent of Financial Institutions (the “
Ohio Superintendent
”), (ii) the FDIC, and (iii) 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 Bank Regulatory Authorities
”), having jurisdiction over the
affairs of Arlington Bank except where such failure would not have a Material Adverse Effect. All such reports filed by Arlington Bank complied in all material respects with all applicable rules and regulations promulgated by the applicable
Arlington Bank 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.
5.18
Absence of Defaults
. Arlington Bank is not in violation of its Articles of Incorporation, Bylaws or Constitution or to the
knowledge of Arlington Bank’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’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.
5.19
Tax and Regulatory Matters
. Arlington Bank has not taken, or agreed to take, any action and does not
have 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.
5.20
Real Property
.
(a) A list of the locations of each parcel of real property owned by Arlington Bank (other than real property acquired in
foreclosure or in lieu of foreclosure in the course of the collection of loans and being held by Arlington Bank for disposition as required by law) is set forth in the Arlington Bank Disclosure Letter under the heading of “Arlington Bank Owned
Real Property” (such real property being herein referred to as the “
Arlington Bank Owned Real Property
”). A list of the locations of each parcel of real property leased by Arlington Bank is also set forth in the Arlington Bank
Disclosure Letter under the heading of “Arlington Bank Leased Real Property” (such real property being herein referred to as the “
Arlington Bank Leased Real Property
”). Arlington Bank shall update the Arlington Bank
Disclosure Letter within ten (10) days after acquiring or leasing any real property after the date hereof. Collectively, the Arlington Bank Owned Real Property and the Arlington Bank Leased Real Property are herein referred to as the
“
Arlington Bank Real Property
.”
(b) There is no pending action involving Arlington Bank as to the title
of or the right to use any of the Arlington Bank Real Property.
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(c) Other than the Arlington Bank Owned Real Property, Arlington Bank does not
have 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 Owned 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 Owned 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’s Management, threatened, with respect to any such building, structure or improvement. The Arlington Bank Real Property is in good condition for its intended purpose, ordinary wear
and tear excepted, and Arlington Bank has maintained (as to the Arlington Bank Leased Real Property, to the extent required to be maintained by Arlington Bank) the Arlington Bank Real Property in accordance with reasonable and prudent business
practices applicable to like facilities. The Arlington Bank 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 at the Effective Date will have, good and
marketable title to the Arlington Bank 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.
(g) Except as set forth in the Arlington Bank Disclosure Letter and to the knowledge of Arlington Bank’s Management,
Arlington Bank has not caused or allowed the generation, treatment, storage, disposal or release at any Arlington Bank Real Property of any Toxic Substance, 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, 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 Bank Disclosure Letter and to the knowledge
of Arlington Bank’s Management, there are no underground storage tanks located on, in or under any Arlington Bank Owned Real Property and no such Arlington Bank Owned Real Property has previously contained an underground storage tank. Except as
set forth in the Arlington Bank Disclosure Letter and to the knowledge of Arlington Bank’s Management, Arlington Bank does not own or operate any underground storage tank at any Arlington Bank Leased Real Property and no such Arlington Bank
Leased Real Property has previously contained an underground storage tank. To the knowledge of Arlington Bank’s Management, no Arlington Bank Real Property is or has been listed on the Comprehensive Environmental Response, Compensation, and
Liability Information System (“
CERCLIS
”).
(i) Except as set forth in the Arlington Bank Disclosure Letter
and to the knowledge of Arlington Bank’s Management, no Toxic Substance has been released, spilled, discharged or disposed at, in, on or under any Arlington Bank Real Property nor, to the knowledge of Arlington Bank’s Management, are there
any other conditions or circumstances affecting any Arlington Bank Real Property, in each case, which would reasonably be expected to have a Material Adverse Effect.
(j) To the knowledge of Arlington Bank’s Management, there are no mechanic’s or materialman’s liens relating to
any construction, improvements or repairs on or to the Arlington Bank Leased Real Property, and
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no unpaid claims for labor performed, materials furnished or services rendered in connection therewith in respect of which liens may or could be filed against Arlington Bank’s interest in
the Arlington Bank Leased Real Property.
5.21
No Listing Requirements
. Arlington Bank’s Common Stock is not listed or traded
on any established securities exchange or quotation system.
5.22
Broker’s or Finder’s Fees
. Except for
Boenning & Scattergood, Inc., no agent, broker or other person acting on behalf of Arlington Bank or under any authority of Arlington Bank is or shall be entitled to any commission, broker’s or finder’s fee or any other form of
compensation or payment from any of the parties hereto, other than attorneys’ or accountants’ fees, in connection with any of the transactions contemplated by this Agreement.
5.23
Shareholder Rights Plan
. Arlington Bank 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 Arlington Bank or which may be considered an anti-takeover mechanism.
5.24
Indemnification Agreements
. Except as set forth in the Arlington Bank Disclosure Letter, Arlington Bank 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, Bylaws or Constitution of Arlington Bank.
5.25
Nonsurvival 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 Bank and all directors and officers of
Arlington Bank shall have no further liability with respect thereto.
SECTION 6
REPRESENTATIONS AND
WARRANTIES OF FIRST MERCHANTS
First Merchants and FMB, as applicable, hereby make the following representations and warranties set forth below to Arlington Bank. 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 Bank contemporaneous
with the execution of this Agreement.
6.1
Organization 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 (the “
First Merchants Subsidiaries
”). FMB is subject to primary federal regulatory supervision and regulation by the FDIC.
6.2
Authorization
.
(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
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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 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.
6.3
Capitalization
.
(a) As of October 31, 2016, First Merchants had 50,000,000 shares of First Merchants Common Stock authorized, without par
value, $0.125 stated value, of which 40,807,138 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.
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(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.
6.4
Organizational
Documents
. The Articles of Incorporation and By-Laws of First Merchants in force as of the date hereof have been delivered to Arlington Bank. 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.
6.5
Compliance 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, 2014 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.
6.6
Accuracy 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 regulatory applications or proxy statement relating to the 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 at the time they are filed) 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.
6.7
Litigation 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.
6.8
Financial Statements
.
(a) First Merchants’ consolidated audited balance sheets as of the end of the two
(2) fiscal years ended December 31, 2015 and 2014, the unaudited consolidated balance sheet for the nine months ended September 30, 2016 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
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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 September 30, 2016 (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.
6.9
Absence 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 September 30, 2016, 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 September 30, 2016 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 September 30, 2016, 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.
6.10
Absence 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’s business consistent with past practices.
6.11
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 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.
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6.12
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.
6.13
Reports
. 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.
6.14
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.
6.15
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.
6.16
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, 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.
6.17
Broker’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.
6.18
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,
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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.
6.19
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.
6.20
Employee 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 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. 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 Bank 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 Bank 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
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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.
(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
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.
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(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 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.
SECTION 7
COVENANTS OF ARLINGTON BANK
Arlington Bank covenants and agrees with First Merchants as follows:
7.1
Shareholder Approval
.
(a) Following the execution of this Agreement, Arlington Bank shall take, in accordance with applicable law and its Articles of
Incorporation, Bylaws and Constitution, 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 adoption 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 Bank 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 Bank 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’s shareholders 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 Bank in connection with the Shareholder Meeting are
solicited in compliance with the Ohio Corporate Law, the Articles of Incorporation, Bylaws and Constitution of Arlington Bank, and all other applicable legal requirements. Arlington Bank 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’s Board of Directors shall recommend that Arlington Bank’s shareholders vote to adopt this Agreement and approve the transactions contemplated hereby (including the Merger) and any other matters
required to be approved by Arlington Bank’s shareholders for consummation of the Merger and the transactions contemplated hereby.
7.2
Other Approvals
. As soon as reasonably practicable following the date hereof, Arlington Bank shall use its reasonable best efforts
to procure upon reasonable terms and conditions any consents, authorizations, approvals, registrations, and certificates from any applicable Arlington Bank 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 on the terms and conditions provided in this Agreement.
7.3
Conduct of Business
.
(a) Except as otherwise set forth on the Arlington Bank 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,
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Arlington Bank shall not, without the prior written consent (which may include consent via electronic mail) of First Merchants, (i) make any changes in its capital structure, including, but
not limited to the redemption of shares of Arlington Bank 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 exercise of stock options outstanding as of the date of this Agreement); (iii) declare, distribute or pay any dividends on its common shares, or authorize a stock split, or make any other distribution to its
shareholders; (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 its assets or any of its
securities to any other person, 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 Thousand and 00/100 Dollars ($100,000.00), 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 Arlington 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 its 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 and
non-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 Arlington Bank; (viii) except as set forth in the Arlington Bank 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, 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 its Articles of Incorporation, Bylaws, or Constitution from those
in effect on the date of this Agreement; (x) except as set forth in the Arlington Bank 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 waive any rights of Arlington Bank thereunder); (xi) fail to make additions to Arlington
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) 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) 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.
(b) Arlington Bank 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 Bank shall provide First Merchants and its representatives full access, during
normal business hours and on reasonable advance notice to Arlington Bank, to further information (to the extent
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permissible under applicable law) and Arlington Bank’s premises for purposes of (i) observing Arlington Bank’s business activities and operations and to consult with Arlington
Bank’s officers and employees regarding the same on an ongoing basis to verify compliance by Arlington Bank with all terms of this Agreement, and (ii) making all necessary preparations for conversion of Arlington Bank’s information
technology systems, including, but not limited to, installation of a hardware or software device(s) within Arlington 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 Arlington Bank’s technology systems are free of security breaches
and, if necessary, provide remediation and notices related thereto. Arlington Bank 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 Bank 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, such access would or might adversely affect the confidential nature of, or any privilege relating 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. First Merchants will use such information as is provided to it by Arlington Bank, its representatives or any third party
consultant, solely for the purpose of conducting business, legal and financial reviews of Arlington Bank 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 8.4 below. Arlington Bank 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.
7.4
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, Arlington Bank shall (a) carry on its business diligently, substantially in the same manner as heretofore conducted, and in the ordinary course of business; (b) use commercially reasonable efforts to preserve
its business organization intact, to keep its present officers and employees and to preserve its present relationship with customers and others having business dealings with it; 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 is a party or by which it is 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.
7.5
Other Negotiations
.
(a) Arlington Bank shall 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 Bank (or its securities or assets) that, if effected, would constitute an acquisition of control of Arlington Bank 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 FDIC 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’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’s Board of Directors may, in response
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to an Acquisition Proposal which was not solicited by or on behalf of Arlington 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 Arlington 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 Bank and First Merchants and (ii) participate in discussions or negotiations regarding such Acquisition Proposal. In the event that Arlington Bank’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 Bank may (A) withdraw, modify or otherwise change in a manner adverse to First Merchants, the recommendation of Arlington Bank’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’s Board of Directors may not terminate this Agreement
pursuant to this Section 7.5(b) unless and until (x) five (5) business days have elapsed following the delivery to First Merchants of a written notice of such determination by Arlington Bank’s Board of Directors and during such
five (5) business-day period, Arlington Bank otherwise cooperates 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) business-day period Arlington Bank’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’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’s shareholders than the Merger and for which financing, to the extent required, is then committed or which, in the good faith judgment of Arlington Bank’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’s Board of Directors prior to the date of this Agreement.
(c) In addition to the obligations of Arlington Bank set forth in Section 7.5(a) and (b), Arlington Bank 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 Bank 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.
7.6
Announcement; Press Releases
. In connection with the execution of this Agreement, Arlington Bank and First Merchants intend to
jointly issue a press release mutually acceptable to the parties. Except as otherwise required by law, Arlington 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.
7.7
Arlington Bank Disclosure Letter
. Arlington Bank shall
supplement, amend and update as of the Effective Date the Arlington Bank 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 Bank Disclosure Letter. If, at any time prior to the Effective Date, Arlington Bank becomes aware of a fact or matter that might indicate that any of the representations and warranties of Arlington Bank herein may
be untrue, incorrect or misleading in any material respect, Arlington Bank shall promptly disclose such fact or matter to First Merchants in writing.
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7.8
Confidentiality
. Arlington Bank shall use commercially reasonable efforts to cause its
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, (b) becomes
available to Arlington Bank from other sources, (c) is independently developed by Arlington Bank, (d) is disclosed by Arlington Bank 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 Bank
further agrees that, in the event this Agreement is terminated, it will return to First Merchants, or destroy, all information obtained by Arlington Bank 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. This provision shall survive the Effective Date or the earlier termination of this Agreement.
7.9
Cooperation
. Arlington 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 Bank 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 obtaining all necessary approvals, and (b) Arlington Bank shall furnish First Merchants with all information concerning itself that First Merchants may request in connection with the preparation of the
documentation referenced above.
7.10
Arlington Bank Fairness Opinion
. On the date hereof or as soon as reasonably practicable
following the date hereof, Arlington Bank shall use its reasonable best efforts to procure the written opinion from Boenning & Scattergood, Inc. to the Board of Directors of Arlington Bank 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 Bank Common Stock (the “
Arlington Bank Fairness Opinion
”). The Arlington Bank Fairness Opinion shall be included in the
Proxy Statement.
7.11
Financial Statements and Other Reports
. Promptly upon its becoming available, Arlington Bank shall furnish
to First Merchants one (1) copy of each financial statement, report, notice, or proxy statement sent by Arlington Bank to its shareholders generally or filed with any of the Arlington Bank Regulatory Authorities.
7.12
Adverse Actions
. Arlington Bank 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.
SECTION 8
COVENANTS OF FIRST MERCHANTS AND FMB
First Merchants and FMB covenant and agree with Arlington Bank as follows:
8.1
Approvals
. 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 the FDIC, the Indiana Department of Financial Institutions and the Ohio Superintendent for approval of the Merger, and take
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all other appropriate actions necessary to obtain the regulatory approvals referred to herein, and Arlington Bank 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 Bank 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 Bank and its counsel of any material communication received by First
Merchants or FMB or their 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 Bank 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. 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, 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 Bank Common Stock in the Merger.
8.2
Employee Benefit Plans
.
(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 Bank 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 Bank subsequently participate, for purposes of determining eligibility, vesting, vacation and severance
entitlement, First Merchants will ensure that service with Arlington Bank will be treated as service with First Merchants; provided, however, that service with Arlington Bank 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 under First Merchants’ tax-qualified retirement plans, First Merchants, 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 event First Merchants determines to terminate Arlington Bank’s participation in the Pentegra Defined Contribution Plan for
Financial Institutions and, if permitted by such plan, any outstanding participant loans under that 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.
(b)
Coverage Under First Merchants’ Health and Welfare Plan
. With respect to First
Merchants’ health and welfare plans under which employees of Arlington Bank 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 expenses incurred by Arlington Bank’s employees and their eligible dependents under the health plans in which they participated immediately prior to the Effective Date during the
portion of the calendar year prior to the Effective Date in satisfying any
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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 expenses were incurred, and (iii) waive any waiting period limitation or evidence of insurability requirement that would otherwise be applicable to an employee of Arlington Bank 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 Bank 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 Bank 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.
(d)
COBRA
. First Merchants shall be
responsible for providing COBRA continuation coverage to any qualified employee or former employee of Arlington Bank and to their respective qualified beneficiaries, on and after the Effective Date, regardless of when the qualifying event occurred.
(e)
Employment and Change in Control Agreements
. First Merchants shall honor all obligations under any Arlington
Bank employment and change in control agreements as described in the Arlington Bank Disclosure Letter.
8.3
Announcement; Press
Releases
. In connection with the execution of this Agreement, Arlington Bank 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 without the prior approval of Arlington Bank 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.
8.4
Confidentiality
. Each of First Merchants and FMB shall, and each shall use its best efforts to cause its officers, employees, and
authorized representatives to, hold in strict confidence all confidential data and information obtained by them from Arlington Bank, unless such information (i) was already known to First Merchants prior to entering into discussions with
Arlington Bank, (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, 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, or will destroy, all information obtained by it regarding Arlington 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.
8.5
Directors 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 Arlington 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; provided however, that if First Merchants is unable to obtain such endorsement, then Arlington Bank may purchase tail coverage under its existing
director and officer liability insurance policy for such claims; provided further that in no event shall First Merchants be required to
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expend in the aggregate during the Tail Coverage Period more than $25,000 (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 efforts to obtain as much comparable
insurance as is available for the Insurance Amount; provided, further, that officers and directors of Arlington 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
Bank or Subsidiary officers, directors and employees who become officers, directors and employees of the Surviving Corporation 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
Bank 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 Bank to the same extent (and subject to the same limitations) as the indemnification
provided by Arlington Bank under its Articles of Incorporation, Bylaws and Constitution (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 Bank as provided in its Articles of Incorporation, Bylaws and Constitution and any existing indemnification agreements or arrangements of Arlington Bank described
in the Arlington Bank 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 Bank (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 Bank or any of its 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.
8.6
SEC and Other Reports
. Promptly upon its becoming available, First Merchants shall furnish
to Arlington Bank 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.
8.7
First 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
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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 Merchants in writing.
8.8
Adverse 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 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.
8.9
Cooperation
. First Merchants shall generally
cooperate with Arlington Bank 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.
8.10
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.
8.11
Regional Board
. All members of the Board of Directors of Arlington 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 Ohio regional advisory board, as soon as practicable after the Effective Date, and in no event later than sixty (60) days after the Effective Date.
8.12
Restricted 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
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:
9.1
Shareholder Approval
. The shareholders of
Arlington Bank shall have approved the Merger as required by applicable law.
9.2
Registration Statement Effective
. First Merchants
shall have registered its shares of First Merchants Common Stock to be issued to shareholders of Arlington Bank in accordance with this Agreement with the SEC
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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).
9.3
Tax Opinion
.
(a) First Merchants shall have received an opinion of Bingham Greenebaum Doll LLP, in form and substance reasonably acceptable
to the parties, dated on or about the effectiveness of the Registration Statement 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 upon factual representations received from Arlington Bank 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 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 permitted to rely on the opinion referred to in Section 9.3(a) above.
9.4
Regulatory Approvals
. The FDIC, the Indiana Department of Financial Institutions and the Ohio Superintendent shall have authorized
and approved the 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.
9.5
Officer’s Certificate
. First Merchants and Arlington Bank 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 Bank shall certify as to the
number of shares of its capital stock are issued and outstanding as of the Effective Date.
9.6
No Judicial Prohibition
. Neither
Arlington 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.
9.7
Arlington Bank Fairness Opinion
. Arlington Bank shall have obtained the Arlington Bank Fairness Opinion. Such opinion shall be
provided orally to Arlington Bank 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) days following the date hereof.
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SECTION 10
TERMINATION OF MERGER
10.1
Manner 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 Bank or by Arlington Bank to First Merchants only for the following reasons:
(a) By the mutual consent of First Merchants and Arlington Bank, 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, 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, in the event of
the failure of Arlington Bank’s shareholders to approve the Agreement at the Shareholder Meeting; provided, however, that Arlington Bank 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, 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;
(e) By Arlington Bank or First Merchants, if
the transaction contemplated herein has not been consummated by December 31, 2017; provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained herein;
(f) By Arlington Bank, in accordance with the terms of Section 7.5(b) of this Agreement;
(g) By First Merchants, if Arlington Bank’s Board of Directors fails to make, withdraws or modifies its recommendation for
Arlington Bank’s shareholders to vote in favor of the Merger following receipt of a written proposal for an Acquisition Proposal;
(h) By First Merchants, (i) if Arlington Bank 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 Bank does not terminate all discussions, negotiations and information
exchanges related to such Acquisition Proposal and provide First Merchants with written notice of such termination; or
(i)
By Arlington Bank, if Arlington Bank’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) 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
”).
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If Arlington Bank 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 Bank 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 Bank 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.
“
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 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.
10.2
Effect 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
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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, in the event of termination by Arlington Bank 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
Bank shall pay First Merchants the sum of Three Million Dollars ($3,000,000) 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 Bank its reasonable attorneys’ fees incurred in the enforcement of this provision; provided that such amount shall not exceed $100,000. This termination fee payable by Arlington Bank 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).
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 Bank with and into FMB, 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 Bank with and into FMB, as filed with the Secretary of State of the State of Ohio (the “
Ohio Certificate of Merger
”). 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 by a state or federal regulatory agency or governmental authority expires and
(b) the conditions precedent to the Merger outlined in Section 9 have been satisfied.
SECTION 12
CLOSING
12.1
Closing
Date and Place
. The closing of the Merger (the “
Closing
”) 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.
12.2
Merger-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 Secretary of State of the State of Ohio.
SECTION 13
MISCELLANEOUS
13.1
Effective 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, 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. 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.
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13.2
Waiver; Amendment
.
(a) First Merchants, FMB and Arlington Bank 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, this Agreement may be amended, modified or supplemented by the written agreement of Arlington Bank, First Merchants 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 Bank or the tax consequences of the Merger to the shareholders of Arlington
Bank without the further approval of such shareholders.
13.3
Notices
. 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) day after sent by certified or registered mail, postage prepaid, return receipt requested, addressed as follows:
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If to First Merchants:
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With a copy to:
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200 E. Jackson Street
Muncie, IN 47305
Attn: Brian T. Hunt, Esq., General Counsel
FAX:
(765) 741-7283
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Bingham Greenebaum Doll LLP
2700 Market
Tower
10 West Market Street
Indianapolis, Indiana
46204-2982
Attn: Jeremy E. Hill, Esq.
FAX: (317)
236-9907
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If to Arlington Bank:
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With a copy to:
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2130 Tremont Center
Upper Arlington, Ohio
43221
Attn: Thomas C. Westfall, President
FAX:
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Vorys, Sater, Seymour and Pease LLP
52 East
Gay Street
Columbus, Ohio 43215
Attn: Jeffrey E. Smith,
Esq.
FAX: 614-719-5246
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or to such substituted address as any of them have given to the other in writing.
13.4
Headings
. 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.
13.5
Severability
. In case any one or more of the provisions contained herein
shall, for any reason, be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such
invalid, illegal, or unenforceable provision or provisions had never been contained herein.
13.6
Counterparts
. This Agreement may
be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute one and the same instrument. In addition, this
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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.
13.7
Governing Law
. This Agreement is executed in and shall be construed in accordance with the laws of the State of Ohio, without
regard to choice of law principles.
13.8
Entire Agreement
. This Agreement supersedes any other agreement, whether oral or written,
among First Merchants, FMB and Arlington Bank, or any of them, relating to the matters contemplated hereby, and constitutes the entire agreement between the parties hereto.
13.9
Expenses
. First Merchants, FMB and Arlington Bank 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.
13.10
Securityholder 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 parties reasonably informed with respect to the status thereof. Each party shall give
the other parties 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 parties 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 parties (which shall not be unreasonably withheld, conditioned or delayed).
13.11
Certain Definitions
. For purposes of this Agreement, “
Arlington Bank’s Management
” means any of
James R. DeRoberts, Thomas C. Westfall, Nona A. Durham and Natalie A. Karas; and “
First Merchants’ Management
” means any of Michael C. Rechin, Mark K. Hardwick and Michael J. Stewart. The phrases “to the knowledge
of”, “known to” and similar formulations with respect to Arlington Bank’s Management or First Merchants 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. 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.
13.12
Survival 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.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
A-36
IN WITNESS WHEREOF
, First Merchants, FMB and Arlington Bank 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.
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FIRST MERCHANTS CORPORATION
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By:
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/s/ Michael C. Rechin
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Michael C. Rechin, President and
Chief
Executive Officer
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FIRST MERCHANTS BANK
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By:
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/s/ Michael C. Rechin
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Michael C. Rechin, President and
Chief
Executive Officer
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THE ARLINGTON BANK
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By:
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/s/ James R. DeRoberts
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James R. DeRoberts, Chairman and
Chief
Executive Officer
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A-37
ANNEX B
S
ECTION
1701.85
OF
THE
O
HIO
G
ENERAL
C
ORPORATION
L
AW
D
ISSENTERS
’ R
IGHTS
D
ISSENTERS
’ R
IGHTS
UNDER
S
ECTION
1701.85
OF
THE
O
HIO
G
ENERAL
C
ORPORATION
L
AW
1701.85 Dissenting shareholders - compliance with section - fair cash value of shares.
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(A) (1)
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A shareholder of a domestic corporation is entitled to relief as a dissenting shareholder in respect of the proposals described in sections 1701.74, 1701.76, and 1701.84 of the Revised Code, only in
compliance with this section.
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(2)
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If the proposal must be submitted to the shareholders of the corporation involved, the dissenting shareholder shall be a record holder of the shares of the corporation as to which the dissenting shareholder seeks relief
as of the date fixed for the determination of shareholders entitled to notice of a meeting of the shareholders at which the proposal is to be submitted, and such shares shall not have been voted in favor of the proposal.
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(3)
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Not later than twenty days before the date of the meeting at which the proposal will be submitted to the shareholders, the corporation may notify the corporation’s shareholders that relief under this section is
available. The notice shall include or be accompanied by all of the following:
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(a) A copy of this section;
(b) A statement that the proposal can give rise to rights under this section if the proposal is approved by the required
vote 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 shareholders and the shareholder
does not vote in favor of the proposal.
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(4)
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If the corporation delivers notice to its shareholders as provided in division (A)(3) of this section, a shareholder electing to be eligible as a dissenting shareholder under this section shall deliver to the
corporation before the vote on the proposal is taken a written demand for payment of the fair cash value of the shares as to which the shareholder seeks relief. The demand for payment shall include the shareholder’s address, the number and
class of such shares, and the amount claimed by the shareholder as the fair cash value of the shares.
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(5)
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If the corporation does not notify the corporation’s shareholders pursuant to division (A)(3) of this section, not later than ten days after the date on which the vote on the proposal was taken at the meeting of
the shareholders, the dissenting shareholder shall deliver to the corporation a written demand for payment to the dissenting shareholder of the fair cash value of the shares as to which the dissenting shareholder seeks relief, which demand shall
state the dissenting shareholder’s address, the number and class of such shares, and the amount claimed by the dissenting shareholder as the fair cash value of the shares.
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(6)
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If a signatory, designated and approved by the dissenting shareholder, executes the demand, then at any time after receiving the demand, the corporation may make a written request that the dissenting shareholder provide
evidence of the signatory’s authority. The shareholder shall provide the evidence within a reasonable time but not sooner than twenty days after the dissenting shareholder has received the corporation’s written request for evidence.
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(7)
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The dissenting shareholder entitled to relief under division (A)(3) of section 1701.84 of the Revised
Code in the case of a merger pursuant to section 1701.80 of the Revised Code and a dissenting shareholder entitled to relief under division (A)(5) of section 1701.84 of the Revised Code in the case of a merger pursuant to
section 1701.801 of the Revised Code shall be a record holder of the shares of the corporation as to which the dissenting shareholder seeks relief as of the date on which the agreement of merger was adopted by the directors of that
corporation. Within twenty days after the
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B-1
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dissenting shareholder has been sent the notice provided in section 1701.80 or 1701.801 of the Revised Code, the dissenting shareholder shall deliver to the corporation a
written demand for payment with the same information as that provided for in division (A) (4) of this section.
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(8)
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In the case of a merger or consolidation, a demand served on the constituent corporation involved constitutes service on the surviving or the new entity, whether the demand is served before, on, or after the effective
date of the merger or consolidation. In the case of a conversion, a demand served on the converting corporation constitutes service on the converted entity, whether the demand is served before, on, or after the effective date of the conversion.
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(9)
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If the corporation sends to the dissenting shareholder, at the address specified in the dissenting shareholder’s demand, a request for the certificates representing the shares as to which the dissenting shareholder
seeks relief, the dissenting shareholder, within fifteen days from the date of the sending of such request, shall deliver to the corporation the certificates requested so that the corporation may endorse on them a legend to the effect that demand
for the fair cash value of such shares has been made. The corporation promptly shall return the endorsed certificates to the dissenting shareholder. A dissenting shareholder’s failure to deliver the certificates terminates the dissenting
shareholder’s rights as a dissenting shareholder, at the option of the corporation, exercised by written notice sent to the dissenting shareholder within twenty days after the lapse of the fifteen-day period, unless a court for good cause shown
otherwise directs. If shares represented by a certificate on which such a legend has been endorsed are transferred, each new certificate issued for them shall bear a similar legend, together with the name of the original dissenting holder of the
shares. Upon receiving a demand for payment from a dissenting shareholder who is the record holder of uncertificated securities, the corporation shall make an appropriate notation of the demand for payment in its shareholder records. If
uncertificated shares for which payment has been demanded are to be transferred, any new certificate issued for the shares shall bear the legend required for certificated securities as provided in this paragraph. A transferee of the shares so
endorsed, or of uncertificated securities where such notation has been made, acquires only the rights in the corporation as the original dissenting holder of such shares had immediately after the service of a demand for payment of the fair cash
value of the shares. A request under this paragraph by the corporation is not an admission by the corporation that the shareholder is entitled to relief under this section.
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(B)
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Unless the corporation and the dissenting shareholder have come to an agreement on the fair cash value per share
of the shares as to which the dissenting shareholder seeks relief, the dissenting shareholder or the corporation, which in case of a merger or consolidation may be the surviving or new entity, or in the case of a conversion may be the converted
entity, within three months after the service of the demand by the dissenting shareholder, may file a complaint in the court of common pleas of the county in which the principal office of the corporation that issued the shares is located or was
located when the proposal was adopted by the shareholders of the corporation, or, if the proposal was not required to be submitted to the shareholders, was approved by the directors. Other dissenting shareholders, within that three-month period, may
join as plaintiffs or may be joined as defendants in any such proceeding, and any two or more such proceedings may be consolidated. The complaint shall contain a brief statement of the facts, including the vote and the facts entitling the dissenting
shareholder to the relief demanded. No answer to a complaint is required. Upon the filing of a complaint, the court, on motion of the petitioner, shall enter an order fixing a date for a hearing on the complaint and requiring that a copy of the
complaint and a notice of the filing and of the date for hearing be given to the respondent or defendant in the manner in which summons is required to be served or substituted service is required to be made in other cases. On the day fixed for the
hearing on the complaint or any adjournment of it, the court shall determine from the complaint and from evidence submitted by either party whether the dissenting shareholder is entitled to be paid the fair cash value of any shares and, if so, the
number and class of such shares. If the court finds that the dissenting shareholder is so entitled, the court may appoint one or more persons as appraisers to receive evidence and to recommend a decision on the amount of the fair cash value. The
appraisers have power and authority specified in the order of their
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appointment. The court thereupon shall make a finding as to the fair cash value of a share and shall render judgment against the corporation for the payment of it, with interest at a rate and
from a date as the court considers equitable. The costs of the proceeding, including reasonable compensation to the appraisers to be fixed by the court, shall be assessed or apportioned as the court considers equitable. The proceeding is a special
proceeding and final orders in it may be vacated, modified, or reversed on appeal pursuant to the Rules of Appellate Procedure and, to the extent not in conflict with those rules, Chapter 2505. of the Revised Code. If, during the pendency of any
proceeding instituted under this section, a suit or proceeding is or has been instituted to enjoin or otherwise to prevent the carrying out of the action as to which the shareholder has dissented, the proceeding instituted under this section shall
be stayed until the final determination of the other suit or proceeding. Unless any provision in division (D) of this section is applicable, the fair cash value of the shares that is agreed upon by the parties or fixed under this section shall
be paid within thirty days after the date of final determination of such value under this division, the effective date of the amendment to the articles, or the consummation of the other action involved, whichever occurs last. Upon the occurrence of
the last such event, payment shall be made immediately to a holder of uncertificated securities entitled to payment. In the case of holders of shares represented by certificates, payment shall be made only upon and simultaneously with the surrender
to the corporation of the certificates representing the shares for which the payment is made.
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(C) (1)
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If the proposal was required to be submitted to the shareholders of the corporation, fair cash value as to those shareholders shall be determined as of the day prior to the day on which the vote by the shareholders was
taken and, in the case of a merger pursuant to section 1701.80 or 1701.801 of the Revised Code, fair cash value as to shareholders of a constituent subsidiary corporation shall be determined as of the day before the adoption of
the agreement of merger by the directors of the particular subsidiary corporation. The fair cash value of a share for the purposes of this section is the amount that a willing seller who is under no compulsion to sell would be willing to accept and
that a willing buyer who is under no compulsion to purchase would be willing to pay, but in no event shall the fair cash value of a share exceed the amount specified in the demand of the particular shareholder. In computing fair cash value, both of
the following shall be excluded:
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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.
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(2)
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For the purposes of this section, the fair cash value of a share that was listed on a national securities exchange at any of the following times shall be the closing sale price on the national securities exchange as of
the applicable date provided in division (C)(1) of this section:
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(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.
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(D) (1)
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The right and obligation of a dissenting shareholder to receive fair cash value and to sell such shares as to which the dissenting shareholder seeks relief, and the right and obligation of the corporation to purchase
such shares and to pay the fair cash value of them terminates if any of the following applies:
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(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;
B-3
(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.
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(2)
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For purposes of division (D)(1) of this section, if the merger, consolidation, or conversion has become effective and the surviving, new, or converted entity is not a corporation, action required to be taken by the
directors of the corporation shall be taken by the partners of a surviving, new, or converted partnership or the comparable representatives of any other surviving, new, or converted entity.
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(E)
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From the time of the dissenting shareholder’s giving of the demand until either the termination of the rights and obligations arising from it or the purchase of the shares by the corporation, all other rights
accruing from such shares, including voting and dividend or distribution rights, are suspended. If during the suspension, any dividend or distribution is paid in money upon shares of such class or any dividend, distribution, or interest is paid in
money upon any securities issued in extinguishment of or in substitution for such shares, an amount equal to the dividend, distribution, or interest which, except for the suspension, would have been payable upon such shares or securities, shall be
paid to the holder of record as a credit upon the fair cash value of the shares. If the right to receive fair cash value is terminated other than by the purchase of the shares by the corporation, all rights of the holder shall be restored and all
distributions which, except for the suspension, would have been made shall be made to the holder of record of the shares at the time of termination.
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B-4
ANNEX C
O
PINION
OF
B
OENNING
& S
CATTERGOOD
, I
NC
.
January 24, 2017
Board
of Directors
The Arlington Bank
2130 Tremont Center
Upper Arlington, OH 43221
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of view, to the holders of shares 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 holders in the proposed merger (the “Proposed Merger”) of Arlington with an into
First Merchants Bank, a wholly-owned subsidiary of First Merchants Corporation, as set forth in the Agreement and Plan of Reorganization dated January 24, 2017 (the “Merger Agreement”). First Merchants Corporation 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”).
In arriving at our opinion, we have, among other things: (i) reviewed the historical financial performance, current financial position and general prospects
of each of First Merchants and Arlington and reviewed certain internal financial analyses and forecasts prepared by the respective management teams 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) reviewed the pro forma financial impact of the Proposed Merger on First
Merchants, based on assumptions relating to transaction expenses, purchase accounting adjustments, cost savings and other synergies determined by the respective management teams of First Merchants and Arlington, (vi) considered the financial terms
of the Proposed Merger as compared with the financial terms of comparable bank and bank holding company mergers and acquisitions, (vii) met and/or communicated with certain members of each 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.
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 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
C-1
Board of Directors
The
Arlington Bank
January 24, 2017
Page
2
With respect to anticipated
transaction costs, purchase accounting adjustments, expected cost savings and other synergies and financial and other information relating to the general prospects of First Merchants and Arlington, we have assumed that such information has been
reasonably prepared and reflects the best currently available estimates and good faith judgment of the respective management teams of First Merchants and Arlington as to their most likely future performance. We have further relied on the assurances
of the respective management teams of 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 have assumed that the allowance for loan losses indicated on the balance sheet of each of First
Merchants and Arlington is adequate to cover such losses; we have not reviewed loans or credit files of First Merchants or Arlington. We have assumed that all of the representations and warranties contained in the Merger Agreement and all related
agreements are true and correct, that each party under the agreements will perform all of the covenants required to be performed by such party under the agreements, and that the conditions precedent in the agreements will not be waived. Also, in
rendering our opinion, we have assumed that in the course of obtaining the necessary regulatory approvals for the consummation of the Proposed Merger, no conditions will be imposed that will have a material adverse effect on the combined entity or
contemplated benefits of the Proposed Merger, including the cost savings and related expenses expected to result from the Proposed Merger.
Our opinion is
based upon information provided to us by the respective management teams of First Merchants and Arlington, as well as market, economic, financial and other conditions as they exist and can be evaluated only as of the date hereof and accordingly, it
speaks to no other period. We have not undertaken to reaffirm or revise this opinion or otherwise comment on 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. We were not asked to and did not solicit or explore other strategic alternatives to the Proposed Merger. We are expressing no opinion as to the prices at which First Merchants’ securities may trade at any time.
Nothing in our opinion is to be construed as constituting tax advice 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 that First
Merchants has obtained such advice as it deemed necessary from qualified professionals. Our opinion is for the information of Arlington’s Board of Directors in connection with its evaluation of the Proposed Merger and does not constitute a
recommendation to the Board of Directors of Arlington in connection with the Proposed Merger or a recommendation to any shareholder 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, Inc.,
as part of its investment banking business, regularly is engaged in the valuation of assets, securities and companies in connection with various types of 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 our business as a broker-dealer, we may,
C-2
Board of Directors
The
Arlington Bank
January 24, 2017
Page
3
from time to time, purchase
securities from, and sell securities to, First Merchants, Arlington, and/or their respective affiliates. In the ordinary course of business, we may also actively trade the securities of First Merchants for our own account and/or for the accounts of
customers and accordingly may at any time hold a long or short position in such securities.
We are acting as Arlington’s financial advisor in
connection with the Proposed Merger and will receive a fee for our services, a significant portion of which is contingent upon consummation of the Proposed 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 completion of the Proposed Merger. Arlington has also agreed to indemnify us against certain liabilities that may arise out of our engagement.
Except for the arrangements between Boenning & Scattergood, Inc. and Arlington described in the preceding paragraph, Boenning & Scattergood, Inc. has
not had any material relationship with either Arlington or First Merchants during the past two years 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. We 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 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 Company Common Shares in the Proposed Merger.
Based on and subject to the foregoing, it is our opinion that, as of the date hereof, the Exchange Ratio
to be received by the holders of Company Common Shares pursuant to the Merger Agreement is fair, from a financial point of view, to such holders.
Sincerely,
Boenning & Scattergood, Inc.
C-3