As filed with the Securities and Exchange Commission on March 24, 2000
Registration Statement No. 33-__________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------
FIRST MERCHANTS CORPORATION
(Exact name of registrant as specified in its charter)
INDIANA 35-1544218
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
6712
(Primary Standard Industrial Classification Code Number)
200 East Jackson Street
Muncie, Indiana 47305
(765) 747-1500
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive offices)
----------
Larry R. Helms With a copy to:
Senior Vice President David R. Prechtel, Esq.
First Merchants Corporation Bingham Summers Welsh &
200 East Jackson Street Spilman, LLP
Muncie, Indiana 47305 2700 Market Tower
(765) 747-1530 10 West Market Street
Indianapolis, Indiana 46204
(317) 635-8900
(Name, address, including zip code,
and telephone number, including area
code, of agent for service)
Approximate date of commencement of the proposed sale of the securities to
the public: As soon as practicable after the effective date of this Registration
Statement and the effective time of the merger described in the accompanying
Proxy Statement/Prospectus.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------------
Title of each class Amount Proposed Proposed Amount of
of securities to be maximum offering maximum aggregate registration
to be registered registered price per unit(2) offering price(2) fee
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, Up to
no par value 1,346,118 shares $10.77804975 $14,508,526.77 $4,033.37
(1) This represents the maximum number of shares to be offered to Decatur
Financial, Inc. shareholders.
(2) The maximum offering price is based on an estimate solely for the purpose
of calculating the registration fee and has been calculated in accordance
with Rule 457 (f)(2) on the basis of the book value on February 29, 2000 of
the shares of common stock of Decatur Financial, Inc. to be cancelled in
connection with the merger.
----------
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
DECATUR FINANCIAL, INC.
520 North 13th Street
P.O. Box 988
Decatur, Indiana 46733
NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS TO BE HELD
___________ __, 2000
Notice is hereby given that, pursuant to the call of the Board of
Directors, a Special Meeting of the Shareholders of Decatur Financial, Inc.,
will be held on _________, _________, __, 2000, at _:__ p.m. local time, at
_________________ located at _________________, Decatur, Indiana 46733.
The purposes of the Special Meeting are:
1. To consider and vote upon the transactions contemplated by the Agreement
of Reorganization and Merger dated January 20, 2000, between First Merchants
Corporation and Decatur Financial, Inc. Pursuant to the Agreement, Decatur
Financial, Inc. will be merged into First Merchants Corporation and Decatur Bank
& Trust Company will become a wholly-owned subsidiary of First Merchants
Corporation. The merger is more fully described in the accompanying Proxy
Statement-Prospectus; and
2. To transact such other business as may properly be presented at the
Special Meeting.
Holders of Decatur Financial, Inc. common stock of record at the close of
business on __________, 2000, will be entitled to notice of, and to vote at, the
Special Meeting and any adjournment thereof.
Shareholders of Decatur Financial, Inc. are entitled to assert dissenters'
rights of appraisal in connection with the proposed merger under Chapter 44 of
the Indiana Business Corporation Law, a copy of which is attached as Appendix B
to the accompanying Proxy Statement-Prospectus.
Whether or not you plan to attend the Special Meeting in person, please
complete, date, sign and return the enclosed proxy card in the enclosed
envelope, which requires no postage if mailed in the United States. If you
attend the Special Meeting, you may vote in person if you wish, even if you have
previously returned your proxy card.
By Order of the Board of Directors
Paul E. Strickler, Chairman of the Board
_____________, 2000
Decatur, Indiana
PROSPECTUS OF FIRST MERCHANTS CORPORATION FOR UP TO
1,346,118 SHARES OF COMMON STOCK
AND
PROXY STATEMENT OF DECATUR FINANCIAL, INC.
FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ___________, 2000
The Boards of Directors of First Merchants Corporation ("First Merchants")
and Decatur Financial, Inc. ("Decatur Financial") have agreed to merge Decatur
Financial with and into First Merchants. This Proxy Statement-Prospectus serves
as a Prospectus with respect to a maximum of 1,346,118 shares of First Merchants
common stock being offered to shareholders of Decatur Financial in connection
with the proposed merger. This Proxy Statement-Prospectus constitutes the Proxy
Statement of Decatur Financial in connection with the Special Meeting of
Shareholders to be held on ___________, _________ __, 2000 for the purpose of
voting on the merger.
If Decatur Financial is merged into First Merchants, each share of Decatur
Financial common stock held by you shall be converted into the right to receive,
at your election, either (i) 9.13 shares of First Merchants common stock or (ii)
$237.39 in cash. The amount of cash payable in connection with the merger is
subject to various limitations and prorations. Under certain circumstances, an
election to receive cash may be converted into an election to receive First
Merchants common stock. In addition, the 9.13 to 1 conversion ratio is subject
to adjustment under certain circumstances. These matters are described in
greater detail in this Proxy Statement-Prospectus. First Merchants will pay cash
for any fractional share interests resulting from the conversion ratio.
The merger cannot be completed unless the shareholders of Decatur Financial
approve it. Decatur Financial will hold a special meeting of its shareholders
for that purpose. Your vote is very important. Whether or not you plan to attend
the Special Meeting, please take the time to vote by completing and returning
the enclosed proxy card. If you sign, date and mail your proxy card without
indicating how you want to vote, your proxy will be counted as a vote in favor
of the merger.
The Special Meeting of the Shareholders of Decatur Financial will be held
on _______ __, 2000 at _:__ p.m. local time, at _______________, _____________,
Decatur, Indiana 46733.
This document provides you with detailed information about the Special
Meeting and the proposed merger. We encourage you to read this entire document
carefully. You can also get information about First Merchants from publicly
available documents that First Merchants has filed with the Securities and
Exchange Commission. Additionally, shares of First Merchants common stock are
traded in the over-the-counter market and share prices are reported by the
NASDAQ National Market System under the symbol FRME.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the securities to be issued pursuant
to this Proxy Statement-Prospectus or determined if this Proxy
Statement-Prospectus is truthful or complete. Any representation to the contrary
is a criminal offense.
Proxy Statement-Prospectus dated _________ __, 2000
and first mailed to shareholders on __________ __, 2000.
This Proxy Statement-Prospectus incorporates important business and financial
information about First Merchants that is not included in or delivered with this
document. The information incorporated by reference is available without charge
to each Decatur Financial shareholder upon written or oral request to Larry R.
Helms, Senior Vice President and General Counsel, First Merchants Corporation,
200 East Jackson Street, Muncie Indiana 47305, (765) 747-1530. To obtain timely
delivery, you should request such information by ______ __, 2000.
TABLE OF CONTENTS
PAGE
SUMMARY ................................................................... 1
The Companies .................................................... 1
The Shareholders Meeting ......................................... 1
Record Date; Vote Required ....................................... 2
Reasons for the Merger ........................................... 2
Recommendation to Shareholders ................................... 3
The Merger ....................................................... 3
Exchange of Shares ............................................... 3
Opinion of Financial Adviser ..................................... 4
What We Need to Do to Complete the Merger ........................ 4
Termination of the Merger ........................................ 4
Waiver and Amendment ............................................. 5
Accounting Treatment ............................................. 5
Regulatory Approvals ............................................. 5
Restrictions Placed on the Sale of First Merchants
Stock Issued to Certain Decatur Financial Shareholders .. 5
Comparative Rights of First Merchants Shareholders And Decatur
Financial Shareholders .................................. 5
Stock Options .................................................... 6
Dissenters' Rights ............................................... 6
Certain Federal Income Tax Consequences .......................... 6
Management and Operations After the Merger ....................... 6
Interests of Directors and Officers in the Merger that
are Different From Your Interests ....................... 7
Pro Forma Comparative Per Share Data ............................. 7
SELECTED FINANCIAL DATA ................................................... 9
SPECIAL MEETING (Decatur Financial Shareholders) .......................... 16
General Information .............................................. 16
Matters To Be Considered ......................................... 16
Votes Required ................................................... 16
Proxies .......................................................... 16
Solicitation of Proxies .......................................... 17
i
Recommendations .................................................. 17
MERGER .................................................................... 18
Description of the Merger ........................................ 18
First Merchants' Reasons for the Merger .......................... 18
Decatur Financial's Reasons for the Merger ....................... 19
Opinion of Financial Advisor ..................................... 20
Recommendation of the Board of Directors ......................... 25
Exchange of Decatur Financial Common Stock ....................... 25
Conversion Ratio Adjustment ...................................... 26
Rights of Dissenting Shareholders ................................ 27
Resale of First Merchants Common Stock by Decatur
Financial Affiliates .......................................... 29
Conditions to Consummation of the Merger ......................... 29
Termination; Waiver; Amendment ................................... 30
Restrictions Affecting Decatur Financial ......................... 31
Regulatory Approvals ............................................. 31
Effective Date of the Merger ..................................... 32
Management After the Merger ...................................... 33
Interests of Certain Persons in the Merger ....................... 33
Stock Options .................................................... 34
Accounting Treatment ............................................. 34
Registration Statement ........................................... 34
FEDERAL INCOME TAX CONSEQUENCES ........................................... 35
COMPARATIVE PER SHARE DATA ................................................ 37
Nature of Trading Market ......................................... 37
Dividends ........................................................ 38
DESCRIPTION OF FIRST MERCHANTS ............................................ 40
Business ......................................................... 40
Acquisition Policy and Pending Transactions ...................... 40
Incorporation of Certain Information by Reference ................ 41
DESCRIPTION OF DECATUR FINANCIAL .......................................... 42
Business ......................................................... 42
Properties ....................................................... 42
Litigation ....................................................... 42
Employees ........................................................ 42
Management ....................................................... 43
Security Ownership of Certain Beneficial Owners and Management ... 44
Certain Relationships and Related Transactions ................... 45
ii
REGULATION AND SUPERVISION OF FIRST MERCHANTS,
DECATUR FINANCIAL AND SUBSIDIARIES ........................................ 46
Bank Holding Company Regulation .................................. 46
Capital Adequacy Guidelines for Bank Holding Companies ........... 47
Bank Regulation .................................................. 47
Bank Capital Requirements ........................................ 48
FDICIA ........................................................... 48
Deposit Insurance ................................................ 49
Brokered Deposits ................................................ 50
Interstate Banking And Branching ................................. 50
Financial Services Modernization Act ............................. 50
Additional Matters ............................................... 51
COMPARISON OF COMMON STOCK ................................................ 52
Governing Law .................................................... 52
Authorized But Unissued Shares ................................... 52
Preemptive Rights ................................................ 53
Dividend Rights .................................................. 53
Voting Rights .................................................... 54
Dissenters' Rights ............................................... 54
Liquidation Rights ............................................... 55
Assessment and Redemption ........................................ 55
Anti-Takeover Provisions ......................................... 55
Director Liability ............................................... 57
LEGAL OPINIONS ............................................................ 58
EXPERTS ................................................................... 58
OTHER MATTERS ............................................................. 58
WHERE YOU CAN FIND ADDITIONAL INFORMATION ................................. 58
FORWARD LOOKING STATEMENTS ................................................ 60
APPENDICES
A.Agreement of Reorganization and Merger ......................... A-1
B.Indiana Business Corporation Law, Chapter 44
(Dissenters' Rights of Appraisal) .............................. B-1
C.Fairness Opinion of Renninger & Associates, LLC ................ C-1
iii
SUMMARY
This brief summary highlights selected information from the Proxy
Statement-Prospectus. It does not contain all of the information that is
important to you. You should carefully read the entire Proxy
Statement-Prospectus and the other documents to which this document refers to
understand the merger fully. See "Where You Can Find Additional Information" on
page 58.
The Companies (pages 40 and 42)
First Merchants Corporation
200 East Jackson Street
Muncie, Indiana 47305
(765) 747-1500
First Merchants is a multi-bank holding company organized under the laws of the
State of Indiana and headquartered in Muncie, Indiana. First Merchants has six
banking subsidiaries; First Merchants Bank, National Association; First United
Bank; The Madison Community Bank; The Union County National Bank of Liberty; The
Randolph County Bank and The First National Bank of Portland. In addition, The
Madison Community Bank owns First Merchants Insurance Services, Inc. See
"DESCRIPTION OF FIRST MERCHANTS."
Decatur Financial, Inc.
520 North 13th Street
P.O. Box 988
Decatur, Indiana 46733
(219) 724-2157
Decatur Financial is a one bank holding company organized under the laws of the
State of Indiana. Decatur Bank & Trust Company is a wholly-owned subsidiary of
Decatur Financial. See "DESCRIPTION OF DECATUR FINANCIAL."
The Shareholders Meeting (page 16)
The Special Meeting of Shareholders of Decatur Financial will be held on
________ __, 2000, at _:__ p.m. local time, at _____________________,
_________________, Decatur, Indiana 46733. At the Special Meeting, Decatur
Financial shareholders will be asked:
1. to approve the merger of Decatur Financial and First Merchants; and
2. to act on any other items that may be submitted to a vote at the
Special Meeting.
1
Record Date; Vote Required (page 16)
You can vote at the Special Meeting of Shareholders if you owned common stock of
Decatur Financial at the close of business on _________ __, 2000. You can cast
one vote for each share of stock you owned on that date. To approve the merger,
the holders of a majority of the shares of Decatur Financial common stock
outstanding must vote in its favor. You can vote your shares by attending the
Special Meeting of Shareholders or you can mark the enclosed proxy card with
your vote, sign it and mail it in the enclosed return envelope. You can revoke
your proxy as late as the date of the meeting either by sending in a new proxy
or by attending the meeting and voting in person.
Decatur Financial's executive officers, directors and their affiliates own of
record or beneficially in the aggregate 59,513 shares or approximately 40% of
the shares of Decatur Financial common stock outstanding. Each member of the
Board of Directors of Decatur Financial as of January 20, 2000, the date the
Agreement of Reorganization and Merger was executed, has agreed to cause all
shares of Decatur Financial common stock owned by him of record or beneficially
to be voted in favor of the merger. The members of the Decatur Financial Board
of Directors as of January 20, 2000 own of record or beneficially 60,285 shares
or approximately 41% of the shares of Decatur Financial common stock
outstanding.
Reasons for the Merger (pages 18 and 19)
First Merchants. First Merchants' Board of Directors considered a number of
financial and nonfinancial factors in making its decision to merge with Decatur
Financial, including its respect for the ability and integrity of the Decatur
Financial Board of Directors, management and staff. The Board believes that
expanding First Merchants' operations in the areas Decatur Financial operates
offers long term strategic benefits to First Merchants.
Decatur Financial. In considering the merger with First Merchants, the Board of
Directors of Decatur Financial collected and evaluated a variety of economic,
financial and market information regarding First Merchants and its subsidiaries,
their respective businesses and First Merchants' reputation and future
prospects. In the opinion of the Board of Directors of Decatur Financial,
favorable factors included First Merchants' strong earnings and stock
performance, its management, the compatibility of its markets to those of
Decatur Financial and the attractiveness of First Merchants' offer from a
financial perspective. Consideration was further given to the potential benefits
of ownership of First Merchants common stock, which is traded in the
over-the-counter market and reported on the NASDAQ National Market System, as
compared to Decatur Financial common stock, which has no established public
trading market. In addition, the Board of Directors considered the opinion of
Renninger & Associates, LLC, the financial advisor to Decatur Financial,
indicating that the consideration to be received by Decatur Financial's
shareholders under the Agreement is fair from a financial perspective. The Board
of Directors believes that the merger will have a positive, long-term impact on
Decatur Bank & Trust Company's customers and employees and the communities
served by Decatur Bank & Trust Company.
2
Recommendation to Shareholders (pages 17 and 25 )
The Board of Directors of Decatur Financial believes that the merger is in your
best interests and unanimously recommends that you vote "FOR" the proposal to
approve the merger.
The Merger (page 18)
We have attached the Agreement of Reorganization and Merger (the "Agreement") to
this document as Appendix A. Please read the Agreement. It is the legal document
that governs the merger.
Decatur Financial will merge with First Merchants and thereafter Decatur
Financial will cease to exist. As a result of the merger, Decatur Bank & Trust
Company will become a wholly-owned subsidiary of First Merchants. We hope to
complete this merger in the second quarter of 2000.
Exchange of Shares (page 25)
As a Decatur Financial shareholder, each of your shares of Decatur Financial
common stock will be converted into the right to receive, at your election,
either (i) 9.13 shares of First Merchants common stock or (ii) $237.39 in cash.
The amount of cash payable in connection with the merger is subject to various
limitations and prorations. Under certain circumstances, an election to receive
cash may be converted into an election to receive First Merchants common stock.
In addition, the 9.13 to 1 conversion ratio is subject to adjustment under
certain circumstances. Cash will be paid for fractional shares of First
Merchants common stock resulting from the 9.13 to 1 conversion ratio.
You are being asked to complete the Election Form accompanying this Proxy
Statement- Prospectus to elect to receive either 9.13 shares of First Merchants
common stock or $237.39 in cash for each share of Decatur Financial common stock
held by you. You may elect to receive cash for a portion of your shares and
First Merchants stock for a portion of your shares. To be effective, your
properly completed Election Form must be received by the Trust Department of
First Merchants Bank, National Association by 5:00 p.m. local time on __________
__, 2000. If a properly completed Election Form is not timely received, you will
be deemed to have elected to receive First Merchants stock in exchange for all
of your shares of Decatur Financial common stock.
There is currently no established trading market for shares of Decatur Financial
common stock. Shares of First Merchants common stock are traded in the
over-the-counter market and are reported on the NASDAQ National Market System.
The closing price of First Merchants common stock was $24.00 per share on
January 20, 2000, the business day before the merger was publicly announced, and
was $__________ per share on __________ __, 2000. Based on the conversion ratio
of 9.13, the market value of the consideration to be received by Decatur
Financial shareholders who elect to receive First Merchants stock in the merger
for each share of Decatur Financial common stock would be $219.12 based on First
Merchants' closing stock price on January 20, 2000 and $_______ based on First
Merchants' closing stock price
3
On __________ __, 2000. Of course, the market price of First Merchants' shares
will fluctuate prior to the merger, while the conversion ratio is fixed.
Opinion of Financial Adviser (page 20)
The Board of Directors of Decatur Financial has received the written opinion of
Renninger & Associates, LLC dated January 20, 2000, that the terms of the merger
are fair from a financial point of view to the shareholders of Decatur
Financial. The opinion was updated as of the date of this Proxy
Statement-Prospectus. We have attached a copy of the opinion and update to this
document as Appendix C.
What We Need to Do to Complete the Merger (page 29)
The completion of the merger depends on a number of conditions being met. In
addition to our compliance with the Agreement, these conditions include among
others:
1. approval of the Agreement by Decatur Financial shareholders;
2. approval of the merger by certain regulatory agencies; and
3. the receipt of an opinion of counsel with respect to certain federal
income tax matters.
Termination of the Merger (page 30)
The Agreement may be terminated before the merger becomes effective upon the
occurrence of certain events, including among others:
1. a material misrepresentation or breach of the Agreement;
2. a material adverse change in the financial condition of First
Merchants since September 30, 1999 or Decatur Financial since November
30, 1999;
3. the failure of the merger to qualify as a tax-free reorganization;
4. the merger not having been completed by October 2, 2000;
6. the average daily closing price of First Merchants common stock for a
defined period before closing of the merger being less than $22.00 or
greater than $30.00, subject to the right of the nonterminating party
to preserve the Agreement by adjusting the conversion ratio;
7. if Decatur Financial furnishes information or enters into discussions
or negotiations with a third party relating to a proposed acquisition
of Decatur Financial or Decatur Bank & Trust Company, if Decatur
Financial fails to give First Merchants written notice of any such
intention, or if Decatur Financial's
4
Board of Directors withdraws or modifies its recommendation to Decatur
Financial shareholders to vote for the merger following receipt of a
proposal for an acquisition from a third party;
8. if Decatur Financial's Board of Directors terminates the Agreement in
the exercise of its fiduciary duties after receipt of an unsolicited
acquisition proposal from a third party; or
9. if either party is unable to satisfy the conditions precedent to the
merger (providing such party is not then in material breach of the
Agreement).
If Decatur Financial terminates the Agreement in connection with an acquisition
proposal by a third party pursuant to items 7 or 8 above, Decatur Financial has
agreed to pay First Merchants the amount of $1,000,000 in liquidated damages.
Waiver and Amendment (page 30)
We can agree to amend the Agreement, and each of us can waive our right to
require the other party to adhere to the terms and conditions of the Agreement,
where the law allows. However, we may not do so after the Decatur Financial
shareholders approve the merger if the amendment or waiver would have a material
adverse effect on the Decatur Financial shareholders.
Accounting Treatment (page 34)
The merger will be accounted for as a purchase transaction. As a result, Decatur
Financial's assets and liabilities will be recorded by First Merchants at fair
values.
Regulatory Approvals (page 31)
The merger must be approved by the Board of Governors of the Federal Reserve
System ("Federal Reserve") and the Indiana Department of Financial Institutions
("Indiana Department"). We have filed all of the required applications or
notices with the Federal Reserve and the Indiana Department.
Restrictions Placed on the Sale of First Merchants Stock Issued to
Certain Decatur Financial Shareholders (page 29)
Certain resale restrictions apply to the sale or transfer of the shares of First
Merchants common stock issued to directors, executive officers and 10%
shareholders of Decatur Financial in exchange for their shares of Decatur
Financial common stock.
Comparative Rights of First Merchants Shareholders
And Decatur Financial Shareholders (page 52)
The rights of shareholders of First Merchants and Decatur Financial differ in
some respects. Upon completion of the merger, Decatur Financial shareholders who
receive First Merchants
5
common stock will take such stock subject to its terms and conditions. The
Articles of Incorporation of First Merchants contain certain anti-takeover
measures which may discourage or render more difficult a subsequent takeover of
First Merchants by another corporation.
Stock Options (page 34)
Pursuant to the terms of the Agreement, Dennis A. Bieberich, the current
President of Decatur Financial, is required to exercise all of his options to
acquire shares of Decatur Financial common stock prior to the consummation of
the merger.
Dissenters' Rights (page 27)
Indiana law permits you to dissent from the merger and have the fair value of
your stock appraised by a court and paid to you in cash. To do this, you must
follow certain procedures, including giving Decatur Financial certain notices
and not voting your shares in favor of the merger. You will not receive any
stock in First Merchants if you dissent and follow all of the required
procedures. Instead, you will only receive the value of your stock in cash. The
relevant sections of Indiana law governing this process are attached to this
document as Appendix B.
Certain Federal Income Tax Consequences (page 35)
Whether a gain or loss, for federal income tax purposes, will be recognized by
you as a result of the merger will depend upon whether you elect to receive for
your shares of Decatur Financial stock solely First Merchants stock, part First
Merchants stock and part cash, or solely cash. In general, no gain or loss, for
federal income tax purposes, will be recognized by you if you elect to receive
only shares of First Merchants stock. However, gain or loss, for federal income
tax purposes, will be recognized for cash payments received by you in lieu of
fractional share interests resulting from the 9.13 to 1 conversion ratio. If you
elect to receive part cash and part First Merchants stock for your shares, you
will recognize gain only, for federal income tax purposes, and whether such gain
is treated as a capital gain or dividend varies based on the circumstances. Gain
or loss, for federal income tax purposes, will be recognized, however, with
respect to cash payments received by you if you elect to solely receive cash.
Gain or loss will also be recognized with respect to cash payments received by
you if you perfect your dissenters' rights. You are urged to consult with your
own tax advisors with respect to the tax consequences of the merger to you.
Our obligation to complete the merger is conditioned on our receipt of a legal
opinion about the federal income tax consequences of the merger. The opinion
will not, however, bind the Internal Revenue Service which could take a
different view. Determining the actual tax consequences of the merger to you can
be complicated.
Management and Operations After the Merger (page 33)
Decatur Financial's corporate existence will cease after the merger.
Accordingly, directors and officers of Decatur Financial will not serve in such
capacities after the effective date of the
6
merger. The directors and officers of Decatur Bank & Trust Company will continue
in their respective positions after the merger, subject to certain restrictions.
Interests of Directors and Officers in the Merger that are Different
From Your Interests (page 33)
Some of Decatur Financial's directors and officers have interests in the merger
that are different from, or in addition to, their interests as shareholders of
Decatur Financial. These interests exist because of agreements that the Decatur
Financial directors and officers have with First Merchants, including the
following.
When we complete the merger, Dennis A. Bieberich, the current President of
Decatur Financial, will be nominated for election as a director of First
Merchants to serve for three years following the merger. The officers and
directors of Decatur Financial will remain officers and directors of Decatur
Bank & Trust Company, subject to certain restrictions.
The members of the Decatur Financial Board of Directors knew about these
additional interests, and considered them, when they approved the Agreement.
Pro Forma Comparative Per Share Data
The following tables show information about Decatur Financial's and First
Merchants' income per share, dividends per share and book value per share, and
similar information reflecting the merger (which we refer to as "pro forma"
information). The comparative pro forma information has been presented assuming
the merger has occurred. The pro forma information reflects the "purchase"
method of accounting.
The information listed as "equivalent pro forma" was obtained by multiplying the
pro forma amounts by the conversion ratio of 9.13. The pro forma information,
while helpful in illustrating the financial characteristics of the new company
under two sets of assumptions, does not attempt to predict or suggest future
results.
The information in the following table is based on historical financial
information of Decatur Financial not included in this document and historical
financial information of First Merchants which it has presented in its prior
Securities and Exchange Commission filings. The historical financial information
of First Merchants has been incorporated into this document by reference. See
"Where You Can Find Additional Information" on page 58.
7
FIRST MERCHANTS AND DECATUR FINANCIAL
HISTORICAL AND PRO FORMA PER SHARE DATA
First Merchants Decatur Financial
------------------------------------------- -----------------------------------------
Historical Pro Forma Historical Equivalent
---------- ------------------------------- ---------- ------------------------------
Assumption A(1) Assumption B(2) Assumption A(1) Assumption B(2)
-------------- -------------- -------------- ---------------
Net income per share
Twelve months ended December 31, 1999
Basic ............................... $ 1.59 $ 1.48 $ 1.50 $ 13.08 $ 13.52 $ 13.70
Diluted ............................. 1.58 1.47 1.49 13.07 13.42 13.60
Cash dividends per share
Twelve months ended December 31, 1999 ... $ .84 $ .80 $ .81 $ 4.00 $ 7.30 $ 7.40
Book value per share
At December 31, 1999 ................... $ 11.55 $ 12.95 $ 12.43 $ 99.67 $118.23 $113.49
- ----------
(1) See Note (1) in "Notes to Pro Forma Summary of Selected Financial
Data" on page 15.
(2) See Note (2) in "Notes to Pro Forma Summary of Selected Financial
Data" on page 15.
8
Selected Financial Data
The following tables show summarized historical financial data for each of
Decatur Financial and First Merchants and also show similar pro forma
information reflecting the merger. The pro forma information reflects the
"purchase" method of accounting, with Decatur Financial's assets and liabilities
recorded at fair values.
We expect that we will incur reorganization and restructuring expenses as a
result of combining our companies. We also anticipate that the merger will
provide the combined company with financial benefits that include reduced
operating expenses and the opportunity to earn more revenue. The pro forma
information, while helpful in illustrating the financial characteristics of the
new company under two sets of assumptions, does not take into account these
expected expenses or these anticipated financial benefits, or otherwise attempt
to predict or suggest future results.
The information in the following tables is based on historical financial
information of Decatur Financial not included in this document and historical
financial information of First Merchants that it has presented in its prior
Securities and Exchange Commission filings. The historical information of First
Merchants has been incorporated into this document by reference. See "WHERE YOU
CAN FIND ADDITIONAL INFORMATION" on page 58.
9
FIRST MERCHANTS
FIVE YEAR SUMMARY OF SELECTED HISTORICAL FINANCIAL
DATA (1) (Dollars in Thousands, Except Per
Share Amounts)
For the Years Ended December 31
------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Summary of Operations
Interest income - tax equivalent $ 103,411 $ 96,928 $ 90,795 $ 82,565 $ 75,831
Interest expense 46,898 44,465 41,392 37,134 34,510
---------- ---------- ---------- ---------- ----------
Net interest income- tax equivalent 56,513 52,463 49,403 45,431 41,321
Tax equivalent adjustment 2,948 2,767 2,611 2,312 2,243
---------- ---------- ---------- ---------- ----------
Net interest income 53,565 49,696 46,792 43,119 39,078
Provision for loan losses 2,241 2,372 1,735 1,790 1,543
Noninterest income 14,573 12,880 10,146 9,317 8,188
Noninterest expense 36,710 32,741 30,016 27,596 25,585
---------- ---------- ---------- ---------- ----------
Net income before income tax 29,187 27,463 25,187 23,050 20,138
Income tax expense 10,099 9,556 8,704 8,006 6,905
---------- ---------- ---------- ---------- ----------
Net Income $ 19,088 $ 17,907 $ 16,483 $ 15,044 $ 13,233
========== ========== ========== ========== ==========
Per Share Data(2)
Net income
Basic $ 1.59 $ 1.50 $ 1.40 $ 1.29 $ 1.15
Diluted 1.58 1.48 1.38 1.27 1.14
Cash dividends(3) 0.84 0.77 0.69 0.59 0.51
Balances End of Period
Total assets $1,474,048 $1,362,527 $1,181,359 $1,112,672 $1,037,509
Total loans 998,895 890,356 838,658 744,474 621,539
Total deposits 1,147,203 1,085,952 976,972 918,876 862,023
Securities sold under repurchase
agreements (long-term portion) 35,000 48,836 -- -- --
Federal home loan bank advances 73,514 47,067 25,500 10,150 9,000
Stockholders' equity 126,296 153,891 141,794 130,250 121,339
10
For the Years Ended December 31
------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Selected Ratios
Return on average assets 1.37% 1.43% 1.43% 1.39% 1.34%
Return on average equity 12.75 12.09 12.12 11.95 11.44
- ----------
(1) On April 1, 1999, First Merchants issued 1,098,795 shares of its common
stock in exchange for all of the outstanding shares of Jay Financial
Corporation, Portland, Indiana. On April 21, 1999, First Merchants issued
810,642 shares of its common stock in exchange for all of the outstanding
shares of Anderson Community Bank, Anderson, Indiana. On August 1, 1996,
First Merchants issued 1,414,028 shares of its common stock in exchange for
all of the outstanding shares of Union National Bancorp, Liberty, Indiana.
On October 2, 1996, First Merchants issued 848,558 shares of its common
stock in exchange for all of the outstanding shares of Randolph County
Bancorp, Winchester, Indiana. All of such transactions were accounted for
under the pooling-of-interests method of accounting. The financial
information for First Merchants presented above has been restated to
reflect these poolings-of-interests and reports the financial condition and
results of operations as though First Merchants had been combined with Jay
Financial Corporation, Anderson Community Bank, Union National Bancorp and
Randolph County Bancorp as of January 1, 1995.
(2) Restated for 3-for-2 stock splits effected October 1995 and 1998.
(3) Dividends per share are for First Merchants only, not restated for pooling
transactions.
11
DECATUR FINANCIAL
FIVE YEAR SUMMARY OF SELECTED HISTORICAL FINANCIAL DATA
(Dollars in Thousands, Except Per Share Amounts)
For the Years Ended December 31
------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Summary of Operations
Interest income - tax equivalent $ 9,817 $ 9,443 $ 8,790 $ 8,293 $ 7,645
Interest expense 4,030 4,071 3,876 3,721 3,451
-------- -------- -------- -------- --------
Net interest income- tax equivalent 5,787 5,372 4,914 4,572 4,194
Tax equivalent adjustment 1,005 817 542 577 566
-------- -------- -------- -------- --------
Net interest income 4,782 4,555 4,372 3,995 3,628
Provision for loan losses 50 230 170 105 170
Noninterest income 939 1,025 759 500 460
Noninterest expense 2,880 2,659 2,423 2,202 1,968
-------- -------- -------- -------- --------
Net income before income tax 2,791 2,691 2,538 2,188 1,950
Income tax expense 928 933 902 760 674
-------- -------- -------- -------- --------
Net Income $ 1,863 $ 1,758 $ 1,636 $ 1,428 $ 1,276
======== ======== ======== ======== ========
Per Share Data
Net income
Basic $ 13.08 $ 12.34 $ 11.48 $ 10.03 $ 8.96
Diluted 13.07 12.34 11.48 10.03 8.96
Cash dividends 4.00 3.65 3.11 2.75 2.50
Balances End of Period
Total assets $128,140 $120,308 $113,228 $106,255 $104,473
Total loans 86,407 80,453 78,171 72,024 62,572
Total deposits 109,955 99,961 94,636 82,714 81,672
Securities sold under repurchase
agreements (long-term portion)
-------- -------- -------- -------- --------
Federal home loan bank advances 1,900 4,500 2,500 2,500 2,500
Stockholders' equity 14,253 13,181 11,880 10,622 9,581
12
For the Years Ended December 31
------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Selected Ratios
Return on average assets 1.50% 1.51% 1.51% 1.38% 1.33%
Return on average equity 13.58 14.03 14.35 13.98 14.11
13
FIRST MERCHANTS
PRO FORMA SUMMARY OF SELECTED FINANCIAL DATA
(Dollars In Thousands, Except Per Share Amounts)
For The Year Ended
December 31, 1999
-----------------
Assumption A(1) Assumption B(2)
--------------- ---------------
Summary of Operations
Interest income - tax equivalent $ 113,157 $ 112,282
Interest expense 50,923 50,923
---------- ----------
Net interest income - tax equivalent 62,234 61,359
Tax equivalent adjustment 3,953 3,953
---------- ----------
Net interest income 58,281 57,406
Provision for loan losses 2,291 2,291
Noninterest income 15,512 15,512
Noninterest expense 40,761 40,821
---------- ----------
Net income before income tax 30,741 29,806
Income tax expense 11,000 10,645
---------- ----------
Net income $ 19,741 $ 19,161
========== ==========
Per Share Data
Net income
Basic $ 1.48 $ 1.50
Diluted 1.47 1.49
Cash dividends 0.80 0.81
Balances End of Period
Total assets $1,620,244 $1,621,149
Total loans 1,085,769 1,085,769
Total deposits 1,257,193 1,257,193
Securities sold under repurchase
agreements (long-term portion) 35,000 35,000
Federal home loan bank advances 75,414 75,414
Stockholders' equity 159,032 145,938
Selected Ratios
Return on average assets 1.28% 1.24%
Return on average equity 10.82 11.31
- ----------
Notes to Pro Forma Summary of Selected Financial Data appear on the following
page.
14
NOTES TO PRO FORMA SUMMARY OF SELECTED FINANCIAL DATA
(Dollars in Thousands, Except Per Share Amounts)
(1) Assumption A -- Issuance of 1,346,118 shares of First Merchants common
stock:
Assumes 147,439 (100%) shares of Decatur Financial common stock become subject
to Option 1 elections and no shares become subject to Option 2 elections. The
average of the mid point between the bid and ask prices of First Merchants
common stock as reported in The Wall Street Journal (Midwest Edition) during the
ten (10) NASDAQ trading days ending on January 21, 2000 was as less than $30.00
per share and greater than $22.00 per share. Accordingly, it has been assumed
that no adjustment to the conversion ratio would be required and 9.13 shares of
First Merchants common stock would be issued for each share of Decatur Financial
common stock subject to Option 1 elections. Using this assumption, no cash
payments would be made to shareholders of Decatur Financial except to the extent
cash payments are made in lieu of the issuance of fractional shares resulting
from the 9.13 to 1 conversion ratio. The increase to First Merchants'
shareholders' equity would be as follows:
Common stock (1,346,118 shares at stated value of $.125 per share) .. $ 168
Capital surplus (1,346,118 shares at $24.19375 per share) ........... 32,568
Total stock issued (1,346,118 shares at
$24.31875 per share) ..................................... 32,736
Cash price .......................................................... 0
Estimated reorganization expenses ................................... 0
-------
Total purchase price ....................................... $32,736
=======
(2) Assumption B - Issuance of 807,667 shares of First Merchants common stock:
Assumes 88,463 (60%) shares of Decatur Financial common stock become subject to
Option 1 elections and 58,976 (40%) shares become subject to Option 2 elections.
The average of the mid point between the bid and ask prices of First Merchants
common stock as reported in The Wall Street Journal (Midwest Edition) during the
ten (10) NASDAQ trading days ending on January 21, 2000 was less than $30.00 per
share and greater than $22.00 per share. Accordingly, it has been assumed that
no adjustment to the conversion ratio would be required and 9.13 shares of First
Merchants common stock would be issued for each share of Decatur Financial
common stock subject to Option 1 elections and $237.39 cash is issued for each
share of Decatur Financial common stock subject to Option 2 elections. The
increase to First Merchants' shareholders' equity would be as follows:
Common stock (807,667 shares at stated value of $.125 per share) .... $ 101
Capital surplus (807,667 shares at $24.19375 per share) ............. 19,540
Total stock issued (807,667 shares at
$24.31875 per share) ..................................... 19,641
Cash price:
58,976 Decatur Financial shares at $237.39 per share ....... 14,000
Estimated reorganization expenses ................................... 0
-------
Total purchase price .............................. $33,641
=======
15
SPECIAL MEETING
Special Meeting of Shareholders of
Decatur Financial, Inc.
General Information
This Proxy Statement-Prospectus is furnished to the shareholders of Decatur
Financial, Inc. ("Decatur Financial") in connection with the solicitation by the
Board of Directors of Decatur Financial of proxies for use at the Special
Meeting of Shareholders to be held on _________, _______ __, 2000, at _:__ p.m.,
local time, at ______________, ________________, Decatur, Indiana 46733. This
Proxy Statement-Prospectus is first being mailed to Decatur Financial
shareholders on _________ __, 2000.
Matters To Be Considered
The purpose of the Special Meeting is to consider and vote upon an Agreement of
Reorganization and Merger (the "Agreement"), dated January 20, 2000, by and
between First Merchants Corporation ("First Merchants") and Decatur Financial.
Pursuant to the Agreement, Decatur Financial will merge with and into First
Merchants and Decatur Bank & Trust Company will become a wholly-owned subsidiary
of First Merchants.
Votes Required
Approval of the Agreement requires the affirmative vote of a majority of the
outstanding shares of Decatur Financial common stock. Only holders of record of
Decatur Financial common stock at the close of business on __________ __, 2000,
are entitled to notice of, and to vote at, the Special Meeting. Decatur
Financial had _______ shares of common stock issued and outstanding on the
record date, which shares were held of record by approximately 400 shareholders.
Each share of Decatur Financial common stock is entitled to one vote.
Decatur Financial's executive officers, directors and their affiliates
own of record or beneficially in the aggregate 59,513 shares or approximately
40% of the shares of Decatur Financial common stock outstanding. Each member of
the Board of Directors of Decatur Financial as of January 20, 2000, the date the
Agreement was executed, has agreed to cause all shares of Decatur Financial
common stock owned by him of record or beneficially to be voted in favor of the
merger. The members of the Decatur Financial Board of Directors as of January
20, 2000 own of record or beneficially 60,285 shares or approximately 41% of the
shares of Decatur Financial common stock outstanding.
Proxies
The shares represented by proxies properly signed and returned will be voted at
the Special Meeting. In the absence of specific instructions to the contrary,
proxies will be voted FOR approval of the Agreement described in this Proxy
Statement-Prospectus and in accordance with the judgment of the persons named as
proxies with respect to any other matter which may
16
properly come before the Special Meeting. Any shareholder giving a proxy has the
right to revoke it before it is exercised. Therefore, execution of a proxy will
not affect a shareholder's right to vote in person if he or she attends the
Special Meeting. Revocation may be made by a later dated proxy delivered to
Decatur Financial; by written notice sent to the Secretary of Decatur Financial
at 520 North 13th Street, P.O. Box 988, Decatur, Indiana 46733; or by personal
oral or written request at the Special Meeting. To be effective, any revocation
must be received before the proxy is exercised.
Because approval of the Agreement and the merger of Decatur Financial into First
Merchants requires the affirmative vote of a majority of the outstanding shares
of Decatur Financial common stock, abstentions and broker non-votes will have
the same effect as voting against approval of the Agreement. Accordingly, the
Decatur Financial Board urges the Decatur Financial shareholders to complete,
date and sign the accompanying proxy and return it promptly in the enclosed
postage-paid envelope.
Solicitation of Proxies
The cost of soliciting proxies will be borne by Decatur Financial. In addition
to use of the mails, proxies may be solicited personally or by telephone or
telegraph by directors, officers and certain employees of Decatur Financial, who
will not be specially compensated for such soliciting. In soliciting proxies,
the directors, officers and employees of Decatur Financial have no authority to
make any representations and warranties about the merger or the Agreement in
addition to or contrary to the provisions stated in this Proxy
Statement-Prospectus. No statement made by a director, officer or employee of
Decatur Financial regarding the merger or the Agreement should be relied upon
except as expressly stated in this Proxy Statement-Prospectus.
Recommendations
The Decatur Financial Board has unanimously approved the Agreement and the
transactions contemplated thereby. The Board believes that the merger is in the
best interests of Decatur Financial and its shareholders. The Board unanimously
recommends that the Decatur Financial shareholders vote "FOR" the Agreement and
the transactions contemplated thereby. See "MERGER - Decatur Financial's Reasons
for the Merger - Recommendation of the Board of Directors."
17
MERGER
The following summary of certain aspects of the Agreement does not purport to be
a complete description of the terms of the Agreement and is qualified in its
entirety by reference to the Agreement, which is attached to this Proxy
Statement-Prospectus as Appendix A and is incorporated into this Proxy
Statement-Prospectus by reference.
Description of the Merger
Under the terms of the Agreement, Decatur Financial will merge with and into
First Merchants and the separate corporate existence of Decatur Financial will
cease. As a result, Decatur Bank & Trust Company (the "Bank") will become a
wholly-owned subsidiary of First Merchants. It is the present intention of First
Merchants to continue to operate the Bank as a subsidiary after the effective
date of the merger.
First Merchants' Reasons for the Merger
In adopting the Agreement and the merger, the First Merchants Board considered a
number of factors concerning First Merchants' benefits of the merger. Without
assigning any relative or specific weights to the factors, the First Merchants
Board considered the following material factors:
1. First Merchants' respect for the ability and integrity of the Decatur
Financial Board of Directors, management, and staff, and their
affiliates and First Merchants' belief that expanding its operations
in the areas served by Decatur Financial offers important long range
strategic benefits to First Merchants;
2. a review of (i) the business, operations, earnings, and financial
condition including the capital levels and asset quality, of Decatur
Financial on a historical, prospective, and pro forma basis in
comparison to other financial institutions in the area, (ii) the
demographic, economic, and financial characteristics of the market in
which Decatur Financial operates, including existing competition,
history of the market areas with respect to financial institutions,
and average demand for credit, on a historical and prospective basis,
and (iii) the results of First Merchants' due diligence review of
Decatur Financial; and
3. a variety of factors affecting and relating to the overall strategic
focus of First Merchants, including First Merchants' desire to expand
into contiguous markets.
18
Decatur Financial's Reasons for the Merger
Among other items considered by the Decatur Financial Board of Directors in
evaluating whether to remain independent or whether to pursue a merger with
First Merchants were the following factors:
1. the prospects of Decatur Financial and First Merchants, as separate
institutions and as combined;
2. the compatibility of First Merchants' subsidiary banks' markets to
that of Decatur Financial's market;
3. the anticipated tax-free nature of the merger to the shareholders of
Decatur Financial receiving solely First Merchants common stock in
exchange for their shares of Decatur Financial common stock;
4. the possibility of increased liquidity through ownership of First
Merchants common stock as compared to Decatur Financial common stock
because First Merchants common stock is traded in the over-the-counter
market and share prices are reported on the NASDAQ National Market
System;
5. the timeliness of a merger given the state of the economy and the
stock markets as well as anticipated trends in both;
6. regulatory requirements;
7. relevant price information involving recent comparable bank
acquisitions which occurred in the Midwest United States;
8. First Merchants' intention to operate the Bank as a wholly-owned
subsidiary of First Merchants;
9. an analysis of alternatives to Decatur Financial merging with First
Merchants, including other potential acquirors; and
10. the opinion of Renninger & Associates, LLC indicating that the
consideration to be received by Decatur Financial's shareholders under
the Agreement is fair from a financial perspective.
The Board of Directors of Decatur Financial also considered the impact of
the merger on Decatur Financial's and the Bank's customers and employees and the
communities served by the Bank. First Merchants' historical practice of
retaining employees of acquired institutions with competitive salary and benefit
programs was considered, as was the opportunity for training, education, growth
and advancement of the Bank's employees within First Merchants or one of its
subsidiaries. The Board of Directors of Decatur Financial examined First
Merchants' continuing commitment to the communities served by the institutions
previously acquired by
19
First Merchants. Further from the standpoint of the Bank's customers, it was
anticipated that more products and services would become available because of
First Merchants' greater resources.
Based upon the foregoing factors, the Board of Directors of Decatur
Financial concluded that it was advantageous to merge with First Merchants. The
importance of the various factors relative to one another cannot be precisely
determined or measured.
Opinion of Financial Advisor
On October 15, 1999, Renninger & Associates, LLC ("Renninger") was engaged
by Decatur Financial to assess its strategic alternatives and to pursue an
affiliation with selected financial institutions. The scope of these services
included, in the event of an affiliation with another financial institution, the
negotiation of the transaction structure and the negotiation of the financial
and non-financial terms of the transaction. In addition, in the event of an
affiliation with another financial institution, Renninger was engaged to render
an opinion as to the fairness of the consideration to be received by
shareholders of Decatur Financial, from a financial point of view. Prior to this
engagement, Renninger assisted Decatur Financial in initiating, negotiating and
consummating its 1999 acquisition of a bank branch for which Renninger was paid
$15,000.
Renninger is a recognized specialist in the area of bank and thrift mergers
and acquisition, branch acquisition and divestiture, stock valuation, capital
management, and other financial advisory services. Prior to forming Renninger,
the principal was vice president of investment banking for two regional
brokerage firms after having served as chief financial officer of a $350 million
community bank and as an auditor with a Big 5 and later a large regional CPA
firm. Renninger does not have an ownership interest in Decatur Financial or
First Merchants. Renninger was selected to advise Decatur Financial's Board of
Directors based upon its familiarity with Indiana financial institutions and
knowledge of the banking industry as a whole.
Renninger acted as financial advisor to Decatur Financial in connection
with the merger and participated in the negotiations leading to the Agreement.
Renninger also performed certain analyses described herein and presented the
range of values for Decatur Financial resulting from such analyses to the Board
of Directors of Decatur Financial in connection with its advice as to the
fairness of the consideration to be paid by First Merchants. The amount of
consideration payable to Decatur Financial shareholders in connection with the
merger was determined by Decatur Financial through arm's length negotiations
with First Merchants.
A Fairness Opinion of Renninger was delivered to the Board of Directors of
Decatur Financial on January 20, 2000, at a meeting of the Board of Directors
and has been updated as of the date of this Prospectus/Proxy Statement. A copy
of the Fairness Opinion, which includes a summary of the assumptions made and
information analyzed in deriving the Fairness Opinion, and the update are
attached as Appendix C to this Proxy Statement-Prospectus and should be read in
its entirety.
20
In arriving at its Fairness Opinion, Renninger reviewed certain publicly
available business and financial information relating to Decatur Financial and
First Merchants. Renninger considered certain financial and stock market data of
Decatur Financial and First Merchants, compared that data with similar data for
certain other publicly-held bank holding companies and considered the financial
terms of certain other comparable bank transactions in the State of Indiana and
contiguous states that had recently been effected. Renninger also considered
such other information, financial studies, analyses and investigations and
financial, economic and market criteria that it deemed relevant.
In connection with its review, Renninger did not independently verify the
foregoing information and relied on such information as being complete and
accurate in all material respects. Financial forecasts prepared by Renninger
were based on assumptions believed by Renninger to be reasonable and to reflect
currently available information. Renninger did not make an independent
evaluation or appraisal of the assets of Decatur Financial or First Merchants.
Renninger took into consideration the results of the solicitation of indications
of interest from other financial institutions concerning their interest in a
possible affiliation with Decatur Financial. Renninger reviewed the
correspondence and information received from interested financial institutions
that were contacted. Renninger reviewed all offers received with Decatur
Financial's Board of Directors.
As part of preparing this updated Fairness Opinion, Renninger performed a
due diligence review of First Merchants as of January 20, 2000. As part of the
due diligence, Renninger reviewed the following items: minutes of the meetings
of the Board of Directors of First Merchants for 1998 and through December,
1999; the most recent regulatory reports of examination of First Merchants
(commenced July 6, 1998) and First Merchants Bank, National Association
(commenced February 23, 1999); December 31, 1996, 1997, and 1998 audited annual
reports; Forms 10-Q for the quarters ended March 31, 1999, June 30, 1999, and
September 30, 1999; the Bank Holding Company Performance Report for June 30,
1999; the 1999 Third Party Loan Reports for each banking affiliate of First
Merchants and various other asset quality related reports; and the most recent
Allowance for Loan and Lease Loss analysis reports for First Merchants and each
affiliate bank as of September 30, 1999.
Renninger reviewed and analyzed the historical performance of Decatur
Financial and Decatur Financial's wholly-owned subsidiary, Decatur Bank & Trust
Company (the "Bank"), contained in: audited Annual Reports and financial
statements dated December 31, 1996, 1997 and 1998 of Decatur Financial; the
March 31, 1999, June 30, 1999 and September 30, 1999 Consolidated Reports of
Condition and Income filed by the Bank with the Federal Deposit Insurance
Corporation; June 30, 1999 Uniform Bank Performance Reports of the Bank;
historical common stock trading activity of Decatur Financial; and the premises
and other fixed assets. Renninger reviewed and tabulated statistical data
regarding the loan portfolio, securities portfolio and other performance ratios
and statistics. Financial projections were prepared and analyzed as well as
other financial studies, analyses and investigations as deemed relevant for the
purposes of this opinion. In review of the aforementioned information, Renninger
took into account its assessment of general market and financial conditions, its
experience in other similar transactions, and its knowledge of the banking
industry generally.
21
In connection with rendering the Fairness Opinion and preparing its written
and oral presentation to Decatur Financial's Board of Directors, Renninger
performed a variety of financial analyses, including those summarized herein.
The summary does not purport to be a complete description of the analyses
performed by Renninger in this regard. The preparation of a Fairness Opinion
involves various determinations as to the most appropriate and relevant methods
of financial analysis and the application of these methods to the particular
circumstances and therefore, such an opinion is not readily susceptible to
summary description. Accordingly, notwithstanding the separate factors
summarized below, Renninger believes that its analyses must be considered as a
whole and that selecting portions of its analyses and of the factors considered
by it, without considering all analyses and factors, could create an incomplete
view of the evaluation process underlying its opinion. In performing its
analyses, Renninger made numerous assumptions with respect to industry
performance, business and economic conditions and other matters, many of which
are beyond Decatur Financial's or First Merchants' control. The analyses
performed by Renninger are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested by
such analyses. In addition, analyses relating to the values of businesses do not
purport to be appraisals or to reflect the process by which businesses actually
may be sold.
Acquisition Comparison Analysis: In performing this analysis, Renninger
reviewed all bank acquisition transactions involving sellers in the State of
Indiana and contiguous states announced between January, 1997 and August, 1999
which had assets between $50 million and $200 million. Of the 39 bank
acquisition transactions meeting this criteria, detailed financial information
was available for 32. The purpose of the analysis was to obtain an evaluation
range based on these bank acquisition transactions. Median multiples of earnings
and book value implied by the comparable transactions were utilized in obtaining
a range for the acquisition value of Decatur Financial. The median multiples of
tangible book value and earnings for these comparable transactions were 2.45X
and 19.82X, respectively. These multiples, when applied to the Company's
tangible book value and earnings as of and for the year ending December 31, 1999
(as adjusted for outstanding stock options), suggest Decatur Financial shares
would be valued at $242.23 on a tangible book value basis and $250.20 on an
earnings basis.
Adjusted Net Asset Value Analysis: Renninger reviewed Decatur Financial's
balance sheet data to determine the amount of material adjustments required to
stockholders' equity based on differences between the market value of assets and
the value reflected on the Company's financial statements. Renninger determined
that the only material adjustment relates to the core deposit intangible value
inherent in the Company's relatively low-rate deposit base. Equity would be
increased $2,465,000 to reflect the after-tax value of recording such an
intangible asset. The aggregate adjusted net asset value of the Company would be
$17,186,000 or $116.56 per share of Decatur Financial common shares (adjusted to
reflect the exercise of outstanding stock options) as of December 31, 1999.
Discounted Earnings Analysis: A dividend discount analysis was performed by
Renninger pursuant to which a range of values of Decatur Financial was
determined by adding (i) the present value of estimated future dividend streams
that Decatur Financial could generate over a five-year period and (ii) the
present value of the "terminal value" of Decatur Financial's earnings at the end
of the fifth year. The "terminal value" of earnings at the end of the five-year
22
period was determined by applying a multiple of 19.82 times the projected
terminal year's earnings. The 19.82 multiple represents the median price paid as
a multiple of earnings for the thirty-two comparable bank transactions discussed
above.
Dividend streams and terminal values were discounted to present values
using a discount rate of 12%. This rate reflects assumptions regarding the
required rate of return of holders or buyers of Decatur Financial's common
stock. The projection assumed an annual asset growth rate of 5.0%, a return on
assets of 1.50%, and a dividend pay-out ratio equal to 50.0% throughout the
analysis. The aggregate value of Decatur Financial, determined by adding the
present value of the total cash flows, was $30,377,000 or $206.03 per share.
Specific Acquisition Analysis: Renninger valued Decatur Financial based on
an acquisition analysis assuming a "break-even" earnings scenario to an acquirer
as to price, current interest rates and amortization of the premium paid. This
analysis was based on a 60% stock / 40% cash transaction, funding cost of 7.0%
adjusted for taxes, amortization of tax deductible core deposit intangible
(assumed to equal 8.0% of deposits) over eight years, amortization of
non-deductible goodwill over fifteen years and a projected December 31, 1999
earnings level of $1,900,000. This analysis assumed a potential acquirer would
attain non-interest expense reductions and revenue enhancements totaling
$283,000 on an after-tax basis. Based on this analysis, which assumes the
acquiring institution is willing to accept no impact to their consolidated net
income, such an acquirer would pay in aggregate $24,843,000 or $168.50 per share
of Decatur Financial common stock. The same analysis was performed assuming a
"cash break-even" scenario. Based on this analysis, which assumes the acquiring
institution is willing to accept no impact to their consolidated cash flow, such
an acquirer would pay in aggregate $35,238,000 or $239.00 per share of Decatur
Financial common stock.
Pro Forma Merger Analysis: Renninger compared the historical performance of
Decatur Financial to that of First Merchants and other regional holding
companies. This analysis included, among other things, a comparison of
profitability, asset quality and capital measures. In addition, the contribution
of Decatur Financial and First Merchants to the income statement and balance
sheet of the pro forma combined company was analyzed.
The effect of the affiliation on the historical and pro forma financial
data of Decatur Financial was prepared and analyzed. Decatur Financial's
historical financial data was compared to the pro forma combined historical and
projected earnings, book value and dividends per share.
The Agreement provides that, in the proposed transaction, Decatur Financial
shareholders are entitled to receive in exchange for each share held, and at
their election, either (I) 9.13 shares of First Merchants' common stock; or (II)
$237.39 in cash; or (III) a combination of both, within certain limitations. The
cash portion of the transaction is limited to $14 million, in order to preserve
the opportunity for a tax-free exchange for shareholders electing to receive
shares.
If all shareholders elect to receive shares, an aggregate of 1,346,118
First Merchants common shares will be issued in exchange for all 147,439 Company
common shares currently outstanding and available under options. Based on recent
trading activity as reported on the National Association of Securities Dealers
Automated Quotation System, First Merchants' shares
23
have traded at approximately $24.00. At that price, the proposed consideration
to be received represents an aggregate value of $32,306,834 or $219.12 per
Company common share. This valuation represents a multiple of December 31, 1999
tangible book value (adjusted to reflect the exercise of outstanding options) of
2.22X and a multiple of 1999 net income of 17.34X.
The fixed cash price of $237.39 implies a $26.00 value of First Merchant's
shares. If the maximum number of Decatur shares are exchanged for cash, an
aggregate of 807,667 First Merchants common shares will be issued and the
aggregate value of the transaction will be $33,384,320. This valuation
represents a multiple of December 31, 1999 tangible book value (adjusted to
reflect the exercise of outstanding options) of 2.29X and a multiple of 1999 net
income of 17.92X.
Renninger also considered the pro forma impact of the proposed transaction
on the Company's shareholders from the perspective of tangible book value,
earnings and dividends. Decatur Financial shareholders electing to accept First
Merchants' stock are expected to achieve tangible book value accretion of 2.9%,
earnings accretion of 13.2% and a 101% increase in dividends (based on recent
dividend payments).
The Fairness Opinion is directed only to the question of whether the
consideration to be received by Decatur Financial's shareholders under the
Agreement is fair and equitable from a financial perspective and does not
constitute a recommendation to any Decatur Financial shareholder to vote in
favor of the affiliation. No limitations were imposed on Renninger regarding the
scope of its investigation or otherwise by Decatur Financial.
Based on the results of the various analyses described above, Renninger
concluded that the consideration to be received by Decatur Financial's
shareholders under the Agreement is fair and equitable from a financial
perspective to the shareholders of Decatur Financial.
Renninger's compensation for all services performed in connection with the
sale of Decatur Financial and for the rendering of the Fairness Opinion is based
on the value of the merger, which varies with First Merchants' share price upon
consummation of the merger and the mix of cash and shares of First Merchants
common stock received by Decatur Financial shareholders. In connection with the
sale of Decatur Financial, Renninger has received a consulting fee of $20,000
paid upon engagement by Decatur Financial and an additional fee of $80,000 paid
upon execution of the Agreement. In addition to such fees, Renninger will
receive a contingent fee equal to (i) 0.50% of the first $33,000,000 of the
consideration for the merger and (ii) 5.00% of the consideration for the merger
in excess of $33,000,000, to be paid upon consummation of the merger. In the
event that all Decatur Financial shareholders elect to receive First Merchants
shares valued at $24.00 per share, the closing price of First Merchants common
stock on January 20, 2000, the business day immediately preceding the public
announcement of the merger, the merger would be valued at $32.3 million and
Renninger would receive total fees of approximately $261,500 for his services to
Decatur Financial. In the event that all Decatur Financial shareholders elect to
receive First Merchants shares valued at $______ per share, the closing price of
First Merchants common stock on _____________, 2000, the merger would be valued
at $____ million and Renninger would receive total fees of approximately
$__________ for his services to Decatur Financial.
24
In addition to the above fees, Decatur Financial has agreed to indemnify
Renninger and its directors, officers and employees, from liability in
connection with the transaction, and to hold Renninger harmless from any losses,
actions, claims, damages, expenses or liabilities related to any of Renninger's
acts or decisions made in good faith and in the best interest of Decatur
Financial.
Recommendation of the Board of Directors
The Board of Directors of Decatur Financial has carefully considered and
unanimously approved the Agreement and unanimously recommends to the Decatur
Financial shareholders that they approve the Agreement.
Exchange of Decatur Financial Common Stock
Under the terms of the Agreement, as of the effective date of the merger,
each outstanding share of Decatur Financial common stock, other than shares as
to which dissenters' rights have been exercised, will be converted into the
right to receive, at the election of the holder thereof, either (i) 9.13 shares
of First Merchants common stock ("Option 1") or (ii) $237.39 in cash ("Option
2"). The conversion ratio is subject to adjustment under certain circumstances.
See "MERGER - Conversion Ratio Adjustment."
An Election Form is being mailed to all Decatur Financial shareholders
along with this Proxy Statement-Prospectus and is to be used by Decatur
Financial shareholders to elect either Option 1 or Option 2 for shares of
Decatur Financial common stock held by them. A Decatur Financial shareholder may
elect Option 1 for all or a portion of the shares owned and/or Option 2 for all
or a portion of the shares owned. To be effective, the properly completed
Election Form must be received by the Trust Department of First Merchants Bank,
National Association by 5:00 p.m. local time on ___________ __, 2000. Shares of
Decatur Financial common stock for which a properly completed Election Form is
not timely received will be treated as if the shareholder elected Option 1 for
all shares owned.
In the event (i) the number of shares of Decatur Financial common stock
covered by Option 2 elections would otherwise entitle Decatur Financial
shareholders to receive more than $14 million in cash or (ii) the merger would
not satisfy the "continuity of interest" rule applicable to tax-free
reorganizations under the Internal Revenue Code of 1986, as amended (the
"Continuity of Interest Rule") due to the amount of cash that would otherwise be
issuable in connection with the merger, certain of the Option 2 elections of the
holders of Decatur Financial shares shall be eliminated and converted into
Option 1 elections. This will be accomplished by first eliminating and
converting the election which covers the smallest number of Decatur Financial
shares, and then eliminating and converting the election which covers the next
smallest number of shares and continuing this process until the total remaining
number of Decatur Financial shares covered by Option 2 elections is such that
the merger will result in cash payments of no more than $14 million and will
satisfy the Continuity of Interest Rule.
25
The Election Form will allow a Decatur Financial shareholder to elect
Option 1 if there is an oversubscription in Option 2. Such elections shall be
the first shares reallocated, regardless of the number of shares, in the event
of an oversubscription as described above.
No fractional shares of First Merchants common stock will be issued to
Decatur Financial shareholders. Each shareholder who otherwise would be entitled
to a fractional interest in a First Merchants share as a result of the 9.13 to 1
conversion ratio will, upon surrender of all of the shareholder's certificates,
promptly receive cash for the fractional interest. The price of the fractional
interest will equal the average of the mid-point between the bid and ask prices
of the common stock of First Merchants as reported in The Wall Street Journal
(Midwest Edition) for the ten (10) NASDAQ trading days preceding the fifth (5th)
calendar day prior to the closing date of the merger (the "First Merchants
Average Price").
After the effective date of the merger, stock certificates previously
representing Decatur Financial common stock will represent only the right to
receive shares of First Merchants common stock and/or cash, as applicable. Prior
to the surrender of Decatur Financial stock certificates for exchange subsequent
to the effective date, the holders of such shares entitled to receive shares of
First Merchants common stock will not be entitled to receive payment of
dividends or other distributions declared on such shares of First Merchants
common stock. However, any accumulated dividends or other distributions
previously declared will be paid, without interest, upon the exchange of Decatur
Financial stock certificates for those of First Merchants. On the effective date
of the merger, the stock transfer books of Decatur Financial will be closed and
no transfer of shares of Decatur Financial common stock will thereafter be made.
If, after the effective date, certificates representing shares of Decatur
Financial common stock are presented for registration or transfer, they will be
cancelled and exchanged for shares of First Merchants' common stock and/or cash,
as applicable.
Distribution of stock certificates representing shares of First Merchants
common stock and/or cash payments will be made to each former shareholder of
Decatur Financial within ten days of the shareholder's delivery of his or her
certificates. Delivery of Decatur Financial shares for conversion will not be
taken until after the effective date of the merger. First Merchants Bank,
National Association will act as conversion agent in the merger. Instructions as
to delivery of stock certificates will be sent to each shareholder shortly after
the effective date of the merger.
Conversion Ratio Adjustment
The Agreement provides that Decatur Financial may terminate the Agreement
if the First Merchants Average Price (as defined above) is less than $22.00 (a
"Decatur Financial Price Termination Event"). The Agreement also provides that
First Merchants may terminate the Agreement if the First Merchants Average Price
is greater than $30.00 (a "First Merchants Price Termination Event").
If a Decatur Financial Price Termination Event occurs and Decatur
Financial's Board exercises its right to terminate the Agreement, it must give
written notice to First Merchants of its election to terminate the merger within
24 hours of the Determination Date (as defined
26
below). Within two business days after the receipt of such notice, First
Merchants will have the option of increasing the conversion ratio to equal a
number equal to a quotient, the numerator of which is the product of $22.00 and
the conversion ratio (as then in effect) and the denominator of which is the
First Merchants Average Price. If First Merchants elects to make such an
adjustment to the conversion ratio, the Agreement will remain in effect in
accordance with its terms (except for the adjustment to the conversion ratio).
If a First Merchants Price Termination Event occurs and First Merchants'
Board exercises its right to terminate the Agreement, it must give written
notice to Decatur Financial of its election to terminate the merger within 24
hours of the Determination Date. Within two business days after the receipt of
such notice, Decatur Financial will have the option of decreasing the conversion
ratio to equal a number equal to a quotient, the numerator of which is the
product of $30.00 and the conversion ratio (as then in effect) and the
denominator of which is the First Merchants Average Price. If Decatur Financial
elects to make such an adjustment to the conversion ratio, the Agreement will
remain in effect in accordance with its terms (except for the adjustment to the
conversion ratio).
"Determination Date" means the fifth calendar day prior to the closing date
of the merger.
Rights of Dissenting Shareholders
The Indiana Business Corporation Law ("IBCL") provides shareholders of
merging corporations with certain dissenters' rights. The dissenters' rights of
Decatur Financial shareholders are set forth in Chapter 44 of the IBCL, a copy
of which is attached to this Proxy Statement-Prospectus as Appendix B.
Shareholders will not be entitled to dissenters' rights absent strict compliance
with the procedures of Indiana law.
Chapter 44 of the IBCL provides that Decatur Financial shareholders have
the right to demand payment in cash for the fair value of their shares
immediately before the merger becomes effective. Such fair market value excludes
any appreciation or depreciation in anticipation of the merger, unless a court
determines that such exclusion would be inequitable. To claim this right, the
shareholder must first:
1. deliver to Decatur Financial before the vote is taken, written notice
of the shareholder's intent to demand payment in cash for the
shareholder's shares if the merger is effectuated; and
2. not vote in favor of the merger in person or by proxy.
Dissenting shareholders may send their written notice to Paul E. Strickler,
Chairman of the Board, Decatur Financial, Inc., 520 North 13th Street, P.O. Box
988, Decatur, Indiana 46733.
27
If the merger is approved by the Decatur Financial shareholders, First
Merchants or Decatur Financial will, within 10 days after shareholder approval,
send a notice of dissenters' rights to those shareholders who have satisfied the
above conditions. The notice will state the procedures that dissenting
shareholders must follow to exercise dissenters' rights under Indiana law.
A Decatur Financial shareholder who is sent such a notice must then:
1. demand payment for his or her shares of Decatur Financial common
stock;
2. certify that beneficial ownership of the Decatur Financial shares was
acquired before the date set forth in such notice; and
3. deposit the Decatur Financial stock certificates in accordance with
the terms of the notice.
A Decatur Financial shareholder who does not strictly comply with each of
the conditions described above will be considered not to be entitled to rights
under Chapter 44 of the IBCL. Shareholders who execute and return the enclosed
proxy but do not specify a choice on the merger proposal will be deemed to have
voted in favor of the merger and accordingly to have waived their dissenters'
rights, unless the shareholder revokes the proxy prior to its being voted.
Upon consummation of the merger, First Merchants will pay each dissenting
Decatur Financial shareholder who has complied with all of the requirements of
Chapter 44 and of the notice, First Merchants' estimate of the fair value of the
shares as of the time immediately prior to the merger, excluding any
appreciation in value in anticipation of the merger. The determination of the
estimate of "fair value" will be based on the value of such shares of Decatur
Financial common stock on January 20, 2000, the day immediately prior to the
announcement of the merger.
Dissenters can object to the fair value established by First Merchants by
stating their estimate of the fair value and demand payment of the additional
amount within 30 days after First Merchants makes or offers payment to the
dissenter. First Merchants can elect to agree to the dissenter's fair value
demand or commence an action within 60 days of receipt of the dissenter's demand
in the Circuit or Superior Court of Adams County for a judicial determination of
the fair value. The Court may appoint appraisers to determine the fair value.
The costs of the proceeding, including compensation and expenses of the
appraisers, counsel for the parties and experts, will be assessed against all
parties to the action in such amounts as the Court finds equitable. Each
dissenter made a party to the action will be entitled to receive the amount, if
any, by which the Court finds the fair value of the dissenter's shares, plus
interest, exceeds the amount paid by First Merchants.
28
The foregoing summary of the rights of dissenting shareholders addresses
all material features of the applicable Indiana dissenters' rights statute but
does not purport to be complete and is qualified in its entirety by the
statutory provisions attached hereto as Appendix B.
A shareholder's failure to comply with the statutory requirements for
exercising dissenters' rights will result in a loss of such rights and
shareholders who may wish to exercise dissenters' rights should consider seeking
legal counsel.
Resale of First Merchants Common Stock by Decatur Financial Affiliates
Generally, no restrictions on the sale or transfer of the shares of First
Merchants common stock issued pursuant to the merger will be imposed solely as a
result of the merger. However, certain restrictions will apply to the transfer
of First Merchants' shares owned by any shareholder deemed a Decatur Financial
"affiliate" under Rule 145 of the Securities Act of 1933, as amended (the
"Securities Act"). Directors, executive officers and 10% shareholders are
generally deemed to be affiliates for purposes of Rule 145.
The Agreement provides that Decatur Financial will provide First Merchants
with a list identifying each affiliate of Decatur Financial. The Agreement also
requires that each Decatur Financial affiliate deliver to First Merchants, prior
to the effective date of the merger, a written transfer restriction agreement.
The transfer restriction agreement shall provide that the affiliate will not
sell, pledge, transfer or otherwise dispose of any shares of First Merchants
common stock to be received unless done pursuant to an effective registration
statement under the Securities Act or pursuant to Rule 145 or another exemption
from the registration requirements under the Securities Act.
The certificates representing First Merchants common stock issued to
Decatur Financial affiliates in the merger may contain a legend indicating these
resale restrictions. If you are an affiliate of Decatur Financial, you should
confer with legal counsel regarding the transfer restrictions that may apply.
Conditions to Consummation of the Merger
Consummation of the merger is conditioned upon, among other things, the
satisfaction of each of the following conditions:
1. the approval of the Agreement by the affirmative vote of the holders
of a majority of the outstanding shares of common stock of Decatur
Financial;
2. the registration of First Merchants common stock with the Securities
and Exchange Commission and the receipt of all state securities and
blue sky approvals required for the offer and sale of First Merchants
common stock to Decatur Financial shareholders;
3. the receipt of all regulatory approvals required for the merger;
29
4. the receipt of an opinion of counsel with respect to certain federal
income tax matters; and
5. the receipt by First Merchants of certain undertakings from affiliates
of Decatur Financial.
Consummation of the merger is further conditioned upon both parties receipt
of certain officers' certificates and legal opinions, the accuracy of
representations and warranties contained in the Agreement and the fulfillment of
certain covenants set forth in the Agreement. The conditions to consummation of
the merger are requirements not subject to unilateral waiver and may be altered
only by the written consent of the parties. See "MERGER - Resale of First
Merchants Common Stock by Decatur Financial Affiliates," "MERGER - Regulatory
Approvals," "MERGER - Interests of Certain Persons in the Merger," "FEDERAL
INCOME TAX CONSEQUENCES" and Appendix A.
Termination; Waiver; Amendment
The Agreement may be terminated before the merger becomes effective under
the following conditions:
1. either party makes a material misrepresentation in or materially
breaches the Agreement;
2. either party reasonably determines that consummation of the merger is
inadvisable due to the commencement or threat of material legal
proceedings against one of the parties;
3. a material adverse change occurs in the consolidated financial
condition or business of First Merchants since September 30, 1999 or
Decatur Financial since November 30, 1999;
4. the merger will not constitute a tax-free reorganization under the
Internal Revenue Code of 1986;
5. certain information provided pursuant to the Agreement by Decatur
Financial to First Merchants prior to consummation of the merger has
had or may have a material adverse effect on the financial condition
or business of Decatur Financial or Decatur Bank & Trust Company;
6. consummation of the merger has not occurred by October 2, 2000;
7. as described under "MERGER - Conversion Ratio Adjustment;"
8. Decatur Financial furnishes information or enters into discussions or
negotiations with a third party relating to a proposed acquisition of
30
Decatur Financial or Decatur Bank & Trust Company, Decatur Financial,
fails to give First Merchants written notice of any such intention, or
Decatur Financial's Board of Directors withdraws or modifies its
recommendation to Decatur Financial shareholders to vote for the
merger following receipt of a proposal for an acquisition from a third
party; or
9. Decatur Financial's Board of Directors terminates the Agreement in the
exercise of its fiduciary duties after receipt of an unsolicited
acquisition proposal from a third party.
Upon termination for any of these reasons, the Agreement will be void and
of no further force or effect. However, if any party to the Agreement willfully
breaches any of the provisions of the Agreement, then the other party to the
Agreement shall be entitled to recover appropriate damages for such breach. In
addition, in the event First Merchants terminates the Agreement after Decatur
Financial takes the action described in item 8 above or Decatur Financial
terminates the Agreement in accordance with item 9 above, Decatur Financial is
required to pay First Merchants $1,000,000 as liquidated damages to reimburse
First Merchants for the considerable time and expense invested and to be
invested by First Merchants in furtherance of the Agreement and the merger.
The parties can agree to amend the Agreement and can waive their right to
require the other party to adhere to the terms and conditions of the Agreement,
where the law allows. However, no amendment to the Agreement is permissible
after the Decatur Financial shareholders approve the merger if the amendment or
waiver would have a material adverse effect on the Decatur Financial
shareholders.
Restrictions Affecting Decatur Financial
The Agreement contains certain restrictions regarding the conduct of
business of Decatur Financial and Decatur Bank & Trust Company. Among other
items, neither Decatur Financial nor the Bank may, without the prior written
consent of First Merchants, materially change its capital structure, issue stock
(except as contemplated by the Agreement), declare or pay any dividends or make
any other distribution to its shareholders. Notwithstanding, the Agreement
allows for Decatur Financial to make quarterly dividend payments on its common
stock in March, 2000, June, 2000 and September, 2000, which dividends shall not
exceed $1.03 per share, respectively. Decatur Financial may not pay any such
dividend with respect to the fiscal quarter in which the merger becomes
effective and in which Decatur Financial shareholders become entitled to receive
dividends on the shares of First Merchants received in the merger. Decatur Bank
& Trust Company is permitted under the Agreement to pay dividends to Decatur
Financial to cover its expenses of operations and expenses related to the
merger.
Regulatory Approvals
The merger is subject to the prior approval requirements of the Indiana
Financial Institutions Act and the Bank Holding Company Act of 1956.
Applications thereunder have been filed with the Indiana Department of Financial
Institutions ("Indiana Department") and
31
with the Board of Governors of the Federal Reserve System ("Federal Reserve").
In reviewing the Indiana Department application, the Indiana Department
considers various factors including:
1. the managerial and financial resources of First Merchants;
2. whether First Merchants' subsidiaries, First Merchants Bank, National
Association, First United Bank, The Madison Community Bank, The Union
County National Bank of Liberty, The Randolph County Bank and The
First National Bank of Portland, have met, and propose to continue to
meet, the credit needs of their communities; and
3. whether the interests of depositors, creditors, and the public
generally are jeopardized by the transaction.
In reviewing the Federal Reserve application, the Federal Reserve takes
into consideration various factors including the financial and managerial
resources and future prospects of First Merchants and its subsidiaries, as well
as the competitive effects of the acquisition and the convenience and needs of
the community served by Decatur Bank & Trust Company. The Federal Reserve may
not approve a transaction if it finds that the effect of the transaction
substantially lessens competition, tends to create a monopoly or results in a
restraint of trade, unless the Federal Reserve finds that the anti-competitive
effects of the proposed transaction are outweighed by the public interest and
the probable effect of the transaction in meeting the convenience and needs of
the communities to be served.
After the Federal Reserve's approval is received, the merger cannot be
consummated for 30 days, during which time the United States Department of
Justice has the authority to challenge the merger on antitrust grounds. With the
approval of the Federal Reserve and the Department of Justice, the waiting
period can be reduced to no later than 15 days.
The approvals of the Indiana Department and the Federal Reserve are not to
be interpreted as the opinion of those regulatory authorities that the merger is
favorable to the shareholders of Decatur Financial from a financial point of
view or that those regulatory authorities have 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 Indiana Department or the Federal Reserve.
Effective Date of the Merger
The merger will become effective in the month in which the last required
approval to consummate the merger is received or, if later, in which any
applicable waiting period following an approval expires. First Merchants and
Decatur Financial currently anticipate that the effective date of the merger
will occur during the second quarter of 2000.
32
Management After the Merger
First Merchants will be the surviving corporation in the merger and Decatur
Financial's separate corporate existence will cease. Accordingly, the directors
and officers of Decatur Financial will no longer serve in such capacities after
the effective date of the merger.
The officers and directors of Decatur Bank & Trust Company immediately
prior to the merger will continue to be the officers and directors of the Bank
following the merger subject to the provisions of the Bank's Articles of
Association and By-Laws. Bank directors who desire to continue to serve in that
capacity shall do so for at least the remainder of the one year terms to which
they have been elected. Decatur Bank & Trust Company's directors will be subject
to First Merchants' policy of mandatory retirement at age 70; provided, however,
the policy of mandatory retirement will not apply to any of the Bank's current
directors until 18 months after the merger.
In accordance with the Agreement, First Merchants shall cause all necessary
action to be taken to cause the current President of Decatur Financial, Dennis
A. Bieberich, to either (i) be nominated for election as a member of the First
Merchants Board of Directors for a three year term at the first annual meeting
of First Merchants' shareholders following the merger, or (ii) be appointed as a
director at the Board's first meeting following the completion of the merger. As
an appointed director, Mr. Bieberich would serve until the next annual meeting
of First Merchants' shareholders and then be nominated for election to a three
year term as a director. The timing of the merger's completion will dictate the
option that is followed.
Interests of Certain Persons in the Merger
Certain of the directors and officers of Decatur Financial have interests
in the merger other than their interests as Decatur Financial shareholders,
pursuant to certain agreements and understandings that are reflected in the
Agreement. Those agreements and understandings are as follows.
First Merchants has agreed that it will cause the current President of
Decatur Financial, Dennis A. Bieberich, to be nominated for election to the
First Merchants Board of Directors for a three year term at the first annual
meeting of First Merchants' shareholders following the merger. If First
Merchants' Board meets after the merger but before the next annual meeting of
First Merchants' shareholders, the Board shall appoint Mr. Bieberich as a
director to serve until the first annual meeting of First Merchants.
The officers and directors of Decatur Financial will remain officers and
directors of Decatur Bank & Trust Company after the merger.
The members of the Decatur Financial Board of Directors knew about those
additional interests, and considered them, when they approved the Agreement.
33
Stock Options
Pursuant to the terms of the Agreement, Dennis A. Bieberich, President of
Decatur Financial, is required to exercise all of his options to acquire shares
of Decatur Financial common stock prior to consummation of the merger.
Accounting Treatment
The merger will be accounted for as a purchase transaction. As a result,
Decatur Financial's assets and liabilities will be recorded by First Merchants
at fair values.
Registration Statement
First Merchants has filed a Registration Statement on Form S-4 with the
Securities and Exchange Commission registering under the Securities Act the
shares of First Merchants common stock to be issued pursuant to the merger.
First Merchants common stock, for so long as it is listed on the NASDAQ National
Market System, 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 those statutes.
34
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain federal income tax aspects of the
merger. The discussion does not purport to cover all federal income tax
consequences relating to the merger and does not contain any information with
respect to state, local or other tax laws.
The merger is expected to qualify as a reorganization under Section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). As
such, the following is a summary of the federal income tax consequences that
will result:
1. In general, a Decatur Financial shareholder who elects to receive only
shares of First Merchants common stock will not recognize gain or loss
on the exchange, for federal income tax purposes. Code Section
354(a)(1). Gain or loss for federal income tax purposes will be
recognized, however, with respect to cash payments received by a
Decatur Financial shareholder in lieu of fractional share interests
resulting from the conversion ratio. Rev. Rul. 66-365, 1966-2 C.B.
116. Any cash received by a Decatur Financial Shareholder in lieu of a
fractional share interest will be treated as received by the
shareholder as a distribution in redemption of that fractional share
interest and will be treated as a distribution in full payment in
exchange for the fractional share interest redeemed, subject to the
provisions and limitations of Code Section 302.
2. A Decatur Financial shareholder who elects to receive part cash and
part First Merchants common stock, will recognize gain to the extent
of boot received. Code Sections 354(a)(1) and 356(a)(1). Whether such
gain is capital gain or a dividend will be determined based upon the
Supreme Court's decision in Commissioner v. Clark, 109 S.Ct. 1455
(1989). Pursuant to Commissioner v. Clark, in applying Code Section
356(a)(2), the transaction should be tested under the rules of Code
Section 302(b) as if a Decatur Financial shareholder received only
First Merchants common stock in the merger, and then surrendered some
of such First Merchants stock to First Merchants in a redemption for
the cash received in the merger. No loss will be recognized by a
Decatur Financial shareholder on the receipt of First Merchants common
stock and cash in exchange for Decatur Financial common stock. Code
Section 356(c).
3. A Decatur Financial shareholder receiving all cash will recognize gain
or loss measured by the difference between the amount of cash received
and the basis of the Decatur Financial stock surrendered. After the
Commissioner v. Clark case, if a Decatur Financial shareholder
receives only cash in exchange for Decatur Financial stock, the
transaction should be treated as if either (i) the shareholder sold
his or her Decatur Financial stock to First Merchants for cash, or
(ii) the Decatur Financial shareholder received First Merchants stock
in the merger after which First Merchants redeemed those shares (i.e.,
a stock redemption by First Merchants subject to the provisions and
limitations of Code
35
Section 302). It is possible, however, especially in the case of a
Decatur Financial shareholder who perfects dissenters rights and
receives solely cash, that the Internal Revenue Service could view the
transaction as stock redemption by Decatur Financial (subject to the
provisions and limitations of Code Section 302).
4. The basis of First Merchants common stock received (including any
fractional share interests deemed received) by Decatur Financial
shareholders in exchange for their Decatur Financial stock will be
equal to such shareholder's basis in the Decatur Financial stock
exchanged, decreased by any cash received, and increased by any gain
recognized on the exchange. Code Section 358(a)(1).
5. The holding period of the First Merchants common stock received
(including any fractional share interests deemed received) will
include the period during which the Decatur Financial stock was held,
provided that the Decatur Financial stock was held as a capital asset
on the date of the merger. Code Section 1223(1).
6. No gain or loss will be recognized by Decatur Financial or First
Merchants in connection with the transaction. Code Sections 361(a) and
1032.
7. The basis of the assets of Decatur Financial acquired by First
Merchants in the merger will be the same as the basis of such assets
in the hands of Decatur Financial immediately prior to the merger.
Code Section 362(b).
Receipt of an opinion of tax counsel with respect to the above is a
condition precedent to consummation of the merger. The tax opinion will be based
upon representations made by the management of Decatur Financial and First
Merchants. The opinion will not, however, be binding on the Internal Revenue
Service, which could take a different view. No ruling has been sought from the
Internal Revenue Service regarding the tax free nature of the merger.
The foregoing is only a general description of the material federal income
tax consequences of the merger and does not consider the facts and circumstances
of any particular Decatur Financial shareholder. Each shareholder should consult
with his or her own tax advisor with respect to the specific tax consequences of
the merger, including the application and effect of existing and proposed
federal, state, local, foregoing and other tax laws.
36
COMPARATIVE PER SHARE DATA
Nature of Trading Market
Shares of First Merchants common stock are traded in the over-the-counter
market and share prices are reported by the NASDAQ National Market System under
the symbol FRME. On January 20, 2000, the business day immediately preceding the
public announcement of the merger, the closing price of First Merchants common
stock was $24.00 per share. On ________, 2000, the closing price of First
Merchants common stock was $_______ per share. The following table sets forth,
for the periods indicated, First Merchants' high and low closing prices per
share. Prices reflect inter-dealer prices without retail mark-up, mark-down or
commission, and may not represent the actual transaction. All prices have been
adjusted to give effect to stock dividends and stock splits.
1997 HIGH LOW
- ---- ---- ---
First Quarter $20.00 $16.83
Second Quarter $20.50 $18.50
Third Quarter $21.58 $20.00
Fourth Quarter $25.33 $21.42
1998
First Quarter $27.67 $24.50
Second Quarter $31.83 $25.67
Third Quarter $30.83 $24.00
Fourth Quarter $28.75 $21.50
1999
First Quarter $26.13 $21.50
Second Quarter $24.75 $21.50
Third Quarter $25.69 $22.25
Fourth Quarter $29.25 $21.88
2000
First Quarter $_____ $_____
Second Quarter through $_____ $_____
_______, 2000
There is no established public trading market for shares of Decatur
Financial common stock. Most trades are isolated and occur after private
negotiations, with the result that management of Decatur Financial is not
directly informed of trades or prices. The best information available to Decatur
Financial's management indicates that in 1997, 1998, 1999 and 2000, the
following number of shares of Decatur Financial common stock were traded in the
number of transactions and for prices to be within the ranges set forth below:
37
Number of Sales Price
Shares Number of -----------
Year Traded Transactions High Low
---- ------ ------------- ---- ---
1997 430 6 $ 83.00 $ 83.00
1998 2,524 9 115.00 105.00
1999 1,258 5 115.00 115.00
2000 0 0 N/A N/A
(through _____, 2000)
Management of Decatur Financial has not verified the accuracy of the above
prices. Further, the prices may not be a reliable indicator of the price at
which more than a limited number of shares of Decatur Financial common stock
would trade and there may have been additional shares of Decatur Financial
common stock traded at higher or lower prices of which Decatur Financial
management is unaware. The last trade of Decatur Financial common stock, of
which Decatur Financial management is aware, occurred on or about September 8,
1999 and involved the sale of 150 shares at a price which, to the best of
Decatur Financial management's knowledge, was approximately $115.00 per share.
As of ___________ __, 2000, there were approximately ____ holders of First
Merchants common stock and approximately 400 holders of Decatur Financial common
stock, not including individual participants in security position listings.
Dividends
The following table sets forth the per share cash dividends declared on
shares of First Merchants common stock and Decatur Financial common stock since
January 1, 1997. All dividends have been adjusted to give effect to stock
dividends and stock splits.
First Merchants Decatur Financial
Common Stock (1) Common Stock (2)
1997 ---------------- ----------------
First Quarter $0.16 $0.00
Second Quarter $0.16 $1.46
Third Quarter $0.19 $0.00
Fourth Quarter $0.19 $1.65
1998
First Quarter $0.19 $0.00
Second Quarter $0.19 $1.80
Third Quarter $0.20 $0.00
Fourth Quarter $0.20 $1.85
38
First Merchants Decatur Financial
Common Stock (1) Common Stock (2)
---------------- ----------------
1999
First Quarter $0.20 $0.00
Second Quarter $0.20 $1.95
Third Quarter $0.22 $0.00
Fourth Quarter $0.22 $2.05
2000
First Quarter $0.22 $1.03
- ----------
(1) There can be no assurance as to the amount of future dividends that may be
declared or paid on shares of First Merchants common stock since dividend
policies are subject to the discretion of the Board of Directors of First
Merchants, general business conditions and dividends paid to First
Merchants by its affiliate banks. For certain restrictions on the payment
of dividends on shares of First Merchants common stock, see "COMPARISON OF
COMMON STOCK--Dividend Rights."
(2) During 1997, 1998, and 1999, Decatur Financial has declared and paid
dividends on a semi-annual basis. The Agreement permits Decatur Financial
to pay dividends on its common stock in March, 2000, June, 2000, and
September, 2000, which dividends shall not exceed $1.03 per share,
respectively, provided that Decatur Financial may not pay any such dividend
during the fiscal quarter in which the merger becomes effective and in
which Decatur Financial shareholders become entitled to receive dividends
on the shares of First Merchants common stock into which their shares of
Decatur Financial common stock are to be converted. In accordance with the
Agreement, Decatur Financial paid a dividend of $1.03 per share of common
stock in March, 2000.
39
DESCRIPTION OF FIRST MERCHANTS
Business
First Merchants was incorporated under Indiana law on September 20, 1982 as
the bank holding company for First Merchants Bank, National Association, a
national banking association incorporated on February 6, 1893. On November 30,
1988, First Merchants acquired Pendleton Banking Company, a state chartered
commercial bank organized in 1872. On July 31, 1991, First Merchants acquired
First United Bank, a state chartered commercial bank organized in 1882. On
August 1, 1996, First Merchants acquired The Union County National Bank of
Liberty, a national banking association organized in 1872. On October 2, 1996,
First Merchants acquired The Randolph County Bank, a state chartered commercial
bank organized in 1865. On April 1, 1999, First Merchants acquired The First
National Bank of Portland, a national bank organized in 1904. On April 23, 1999,
First Merchants acquired Anderson Community Bank through a merger of Anderson
Community Bank with and into Pendleton Banking Company, with the resulting bank
being known as The Madison Community Bank.
First Merchants is headquartered in Muncie, Indiana and is presently
conducting commercial banking business through the 33 offices of its six bank
subsidiaries. These commercial banking activities include accepting demand,
savings and time deposits; making agricultural, commercial, industrial, consumer
and real estate loans; installment credit lending; collections, safe deposit
operations, performing fiduciary and trust services; and providing other
services relating to the general banking business.
First Merchants' bank subsidiaries make and service both secured and
unsecured loans to individuals, firms and corporations. Their installment loan
departments make direct loans to individuals and purchase installment
obligations from retailers without recourse. In addition, First Merchants'
subsidiaries make a variety of residential, industrial, commercial and
agricultural loans.
First Merchants is also conducting an insurance agency business through
First Merchants Insurance Services, Inc., a wholly-owned subsidiary of The
Madison Community Bank. First Merchants Insurance Services, Inc. commenced
operations in 1998.
Acquisition Policy and Pending Transactions
First Merchants anticipates that it will continue its policy of geographic
expansion through acquisitions of additional financial institutions. First
Merchants management periodically reviews and analyzes potential acquisitions.
As of the date of this Proxy Statement-Prospectus, First Merchants is not a
party to any other agreement relating to an acquisition of additional financial
institutions, other than the Agreement with Decatur Financial.
40
Incorporation of Certain Information by Reference
Additional information concerning First Merchants is included in the First
Merchants documents incorporated by reference in this Proxy Statement-
Prospectus. Shareholders desiring copies of such documents may contact First
Merchants at its address or telephone number indicated under "WHERE YOU CAN FIND
ADDITIONAL INFORMATION."
41
DESCRIPTION OF DECATUR FINANCIAL
Business
Decatur Financial is an Indiana corporation which was incorporated in 1983
and which is a registered bank holding company owning all of the issued and
outstanding common stock of Decatur Bank & Trust Company (the "Bank"). Decatur
Financial's principal office is located in Decatur, Indiana and its business
consists primarily of the ownership, supervision and control of the Bank. The
common stock of the Bank is Decatur Financial's principal asset and dividends
paid by the Bank are Decatur Financial's principal source of income.
The Bank is a state chartered bank which was established in 1966 and which
has been in continuous operation since that date. The Bank provides various
commercial and consumer banking services to its customers located primarily in
Adams County, Indiana. These commercial banking services include accepting
demand, savings and time deposits; making commercial, consumer and real estate
loans; installment credit lending; administering trusts and estates; and
providing other services relating to the general banking business, such as, for
example, safe deposit facilities.
Properties
The main office of Decatur Financial and the Bank is located at 520 North
13th Street, Decatur, Indiana. The Bank also operates three branches located at
103 East Monroe Street, Decatur, Indiana (full service branch), 1045 South 13th
Street, Decatur, Indiana (full service branch), and 1300 Mercer Avenue, Decatur,
Indiana (limited service branch). The main office and the two full service
branches are owned by the Bank. The remaining branch is located in space leased
at no cost in the Campus Center of the Woodcrest Retirement Community.
Litigation
There is no pending litigation of a material nature in which Decatur
Financial or the Bank is a party or in which any of their respective property is
subject, other than ordinary routine litigation incidental to the normal
business of Decatur Financial or the Bank. Further, there is no material legal
proceeding in which any director, executive officer, principal shareholder or
associate of any such director, executive officer, principal shareholder or
affiliate is a party or has a material interest adverse to Decatur Financial or
the Bank. None of the ordinary routine litigation in which Decatur Financial or
the Bank is involved is expected to have a material adverse impact upon the
financial condition or results of operation of Decatur Financial or the Bank.
Employees
As of December 31, 1999, the Bank had 38 full-time equivalent employees to
whom it provides a variety of benefits. Management of the Bank considers its
relations with its employees to be good. As of the same date, Decatur Financial
had one employee, who is an
42
executive officer of both Decatur Financial and the Bank and is not separately
compensated by Decatur Financial for his services to Decatur Financial.
Management
The following table contains certain information about each director
and executive officer of Decatur Financial as of the date of this Proxy
Statement-Prospectus:
Directors:
Principal Occupation for Served as Director
Name Age Last 5 years Continuously Since (1)
---- --- ------------ ----------------------
Phillip H. Barger 59 Self-employed Farmer 1984 (1978)
Dennis A. Bieberich 49 President of the Bank 1984 (1982)
Richard T. Doermer 77 Vice Chairman of Avis Industrial 1984 (1967)
Corporation
Gregory Fleming 40 President of Fleming Excavating, Inc. 2000 (2000)
L. Dale Gagle 68 Retired Cashier of the Bank 1984 (1970)
Wayne M. Porter 43 Vice President of Sales of 1988 (1988)
Thunderbird Products
John L. Schultz 50 President of Baker & Schultz, Inc. 1988 (1988)
Paul E. Strickler 83 Retired President of Strickler Family 1984 (1967)
Enterprises, Inc.
- ----------
(1) Years in parenthesis relate to service as a director of the Bank. All of
Decatur Financial's directors are also directors of the Bank.
Executive Officers:
Name Age Office
---- --- ------
Dennis A. Bieberich 49 President of Decatur Financial and
President of the Bank
All of Decatur Financial's directors and executive officers hold office for
a term of one year or until their respective successors are duly elected and
qualified. There are no arrangements or understandings between any of the
directors or executive officers and any other persons according to which any of
Decatur Financial's or the Bank's directors or executive officers have been
selected for their respective positions.
43
In accordance with the Agreement, First Merchants shall cause all necessary
action to be taken to cause the current President of Decatur Financial, Dennis
A. Bieberich, to either (i) be nominated for election as a member of the First
Merchants Board of Directors for a three year term at the first annual meeting
of First Merchants' shareholders following the merger, or (ii) be appointed as a
director at the First Merchants Board's first meeting following the completion
of the merger. As an appointed director, Mr. Bieberich would serve until the
next annual meeting of First Merchants' shareholders and then would be nominated
for election to a three year term as Director. The timing of the merger's
completion will dictate the option that is followed.
Security Ownership of Certain Beneficial Owners and Management
The following is a summary of the amount and percent of Decatur Financial's
common stock beneficially owned as of February 29, 2000, by each beneficial
owner of more than five percent of Decatur Financial's common stock, by each
director of Decatur Financial, by each executive officer of Decatur Financial,
and by all directors and executive officers as a group. Unless otherwise noted,
the beneficial owner has sole voting and investment power.
Amount and Nature
Beneficial Owner of Beneficial Ownership (1) Percent of Class
---------------- ----------------------- ----------------
Philip H. Barger 8,615(2) 6.02%
Dennis A. Bieberich 11,404(3) 7.73%
Richard T. Doermer 6,490(4) 4.54%
Gregory Fleming 1,312 *
L. Dale Gagle 2,113(5) 1.48%
Wayne M. Porter 754(6) *
John L. Schultz 2,652(7) 1.85%
Paul E. Strickler 26,173(8) 18.30%
Directors and Executive Officers as 59,513(9) 40.36%
a Group (8 Individuals)
- ----------
(1) The information contained in this column is based upon information
furnished to Decatur Financial by the persons and entities named above and
shareholder records of Decatur Financial.
(2) Includes 1,413 shares held by his spouse, Carolyn Barger; 4,070 shares held
by Barger Farms, Inc. over which he has voting and investment power; 1,084
shares held by him in
44
a self-directed IRA account; and 742 shares held by his spouse, Carolyn
Barger, in a self-directed IRA account. Mr. Barger's mailing address is
2656 N. US Highway 33, Decatur, Indiana 46733.
(3) Includes 3,184 shares held by his spouse, Melanie Bieberich; and 4,444
stock options outstanding to Mr. Bieberich which he shall exercise prior to
consummation of the merger. Mr. Bieberich's mailing address is 4704 W 500
N, Decatur, Indiana 46733.
(4) Includes 900 shares held by his spouse, Mary Louise Doermer.
(5) Includes 440 shares held by his spouse, Janet Gagle; 460 shares held
jointly with his spouse, Janet Gagle; 480 shares held by him in a
self-directed IRA account; and 41 shares held by his spouse, Janet Gagle,
in a self-directed IRA account.
(6) Includes 315 shares held jointly with his spouse, Karen Porter.
(7) Includes 2,350 shares held by Baker & Schultz, Inc. over which he has
voting and investment power.
(8) Includes 5,776 shares held by his spouse, Kathryn Strickler; and 6,732
shares held by Strickler Family Enterprises, Inc. over which he has voting
and investment power. Mr. Strickler's mailing address is 1209 Cross Pointe,
Decatur, Indiana 46733.
(9) Includes 4,444 stock options outstanding to Mr. Bieberich which he shall
exercise prior to consummation of the merger.
* Percentage beneficially owned is less than 1% of the outstanding shares.
Certain Relationships and Related Transactions
Certain directors and executive officers of Decatur Financial and the Bank
are customers of and have had transactions with Decatur Financial or the Bank
from time to time in the ordinary course of business. Similar transactions may
be expected to take place in the ordinary course of business in the future. All
loans included in such transactions were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons and do not involve more than the
normal risk of collectibility or present other unfavorable features.
45
REGULATION AND SUPERVISION
OF FIRST MERCHANTS, DECATUR FINANCIAL AND SUBSIDIARIES
Bank Holding Company Regulation
First Merchants and Decatur Financial are registered as bank holding
companies and are subject to the regulations of the Federal Reserve Board
("Federal Reserve") under the Bank Holding Company Act of 1956, as amended (the
"BHC Act"). Bank holding companies are required to file periodic reports with
and are subject to periodic examination by the Federal Reserve. The Federal
Reserve has issued regulations under the BHC Act requiring a bank holding
company to serve as a source of financial and managerial strength to its
subsidiary banks. Thus, it is the policy of the Federal Reserve that, a bank
holding company should stand ready to use its resources to provide adequate
capital funds to its subsidiary banks during periods of financial stress or
adversity. Additionally, under the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA"), a bank holding company is required to
guarantee the compliance of any subsidiary bank that may become
"undercapitalized" (as defined in the FDICIA) with the terms of any capital
restoration plan filed by such subsidiary with its appropriate federal banking
agency up to the lesser of (i) an amount equal to 5% of the institution's total
assets at the time the institution became undercapitalized, or (ii) the amount
that is necessary (or would have been necessary) to bring the institution into
compliance with all applicable capital standards as of the time the institution
fails to comply with such capital restoration plan. Under the BHC Act, the
Federal Reserve has the authority to require a bank holding company to terminate
any activity or relinquish control of a nonbank subsidiary (other than a nonbank
subsidiary of a bank) upon the determination that such activity constitutes a
serious risk to the financial stability of any bank subsidiary.
The BHC Act prohibits First Merchants and Decatur Financial from doing any
of the following without the prior approval of the Federal Reserve:
1. Acquiring direct or indirect control of more than 5% of the
outstanding shares of any class of voting stock or substantially all
of the assets of any bank or savings association.
2. Merging or consolidating with another bank holding company.
3. Engaging in or acquiring ownership or control of more than 5% of the
outstanding shares of any class of voting stock of any company engaged
in a nonbanking business unless such business is determined by the
Federal Reserve to be closely related to banking.
The BHC Act does not place territorial restrictions on such nonbanking-related
activities.
46
Capital Adequacy Guidelines for Bank Holding Companies
Bank holding companies are required to comply with the Federal Reserve's
risk-based capital guidelines. These guidelines require a minimum ratio of
capital to risk-weighted assets of 8% (including certain off-balance sheet
activities such as standby letters of credit). At least half of the total
required capital must be "Tier 1 capital," consisting principally of common
shareholders' equity, noncumulative perpetual preferred stock, a limited amount
of cumulative perpetual preferred stock and minority interest in the equity
accounts of consolidated subsidiaries, less certain goodwill items. The
remainder may consist of a limited amount of subordinate debt and
intermediate-term preferred stock, certain hybrid capital instruments and other
debt securities, cumulative perpetual preferred stock, and a limited amount of
the general loan loss allowance.
In addition to the risk-based capital guidelines, the Federal Reserve has
adopted a Tier 1 (leverage) capital ratio under which the bank holding company
must maintain a minimum level of Tier 1 capital to average total consolidated
assets. The ratio is 3% in the case of bank holding companies which have the
highest regulatory examination ratings and are not contemplating significant
growth or expansion. All other bank holding companies are expected to maintain a
ratio of at least 1% to 2% above the stated minimum.
The following are First Merchants' and Decatur Financial's regulatory
capital ratios as of December 31, 1999:
First Merchants Decatur Financial
--------------- -----------------
Tier 1 Capital: 12.7% 17.7%
Total Capital: 13.7 18.9
Leverage Ratio: 9.2 10.6
Bank Regulation
First Merchants Bank, National Association, The Union County National Bank,
and The First National Bank of Portland are national banks and are supervised,
regulated and examined by the Office of the Comptroller of the Currency (the
"OCC"). First United Bank, The Madison Community Bank, The Randolph County Bank
and Decatur Bank & Trust Company are state banks chartered in Indiana and are
supervised, regulated and examined by the Indiana Department. In addition, three
of First Merchants' subsidiaries, The Madison Community Bank, First United Bank
and The Randolph County Bank, are supervised and regulated by the FDIC as well
as Decatur Financial's subsidiary, Decatur Bank & Trust Company. Each regulator
has the authority to issue cease-and-desist orders if it determines that
activities of the bank regularly represent an unsafe and unsound banking
practice or a violation of law.
Both federal and state law extensively regulate various aspects of the
banking business such as reserve requirements, truth-in-lending and
truth-in-savings disclosure, equal credit
47
opportunity, fair credit reporting, trading in securities and other aspects of
banking operations. Current federal law also requires banks, among other things,
to make deposited funds available within specified time periods.
Insured state-chartered banks are prohibited under FDICIA from engaging as
the principal in activities that are not permitted for national banks, unless
(i) the FDIC determines that the activity would pose no significant risk to the
appropriate deposit insurance fund, and (ii) the bank is, and continues to be,
in compliance with all applicable capital standards.
Bank Capital Requirements
The FDIC and the OCC have adopted risk-based capital ratio guidelines to
which state-chartered banks and national banks are subject. The guidelines
establish a framework that makes regulatory capital requirements more sensitive
to differences in risk profiles. Risk-based capital ratios are determined by
allocating assets and specified off-balance sheet commitments to four
risk-weighted categories, with higher levels of capital being required for the
categories perceived as representing greater risk.
Like the capital guidelines established by the Federal Reserve, these
guidelines divide a bank's capital into tiers. Banks are required to maintain a
total risk-based capital ratio of 8%. The FDIC or OCC may, however, set higher
capital requirements when a bank's particular circumstances warrant. Banks
experiencing or anticipating significant growth are expected to maintain capital
ratios, including tangible capital positions, well above the minimum levels.
In addition, the FDIC and the OCC established guidelines prescribing a
minimum Tier 1 leverage ratio (Tier 1 capital to adjusted total assets as
specified in the guidelines). These guidelines provide for a minimum Tier 1
leverage ratio of 3% for banks that meet specified criteria, including that they
have the highest regulatory rating and are not experiencing or anticipating
significant growth. All other banks are required to maintain a Tier 1 leverage
ratio of 3% plus an additional 100 to 200 basis points.
All of First Merchants' affiliate banks as well as Decatur Bank & Trust
Company exceed the risk-based capital guidelines of the FDIC and/or the OCC as
of December 31, 1999.
The Federal Reserve, the FDIC and the OCC have adopted rules to incorporate
market and interest rate risk components into their risk-based capital
standards. Amendments to the risk-based capital requirements, incorporating
market risk, became effective January 1, 1998. Under the new market risk
requirements, capital will be allocated to support the amount of market risk
related to a financial institution's ongoing trading activities.
FDICIA
FDICIA requires, among other things, federal bank regulatory authorities to
take "prompt corrective action" with respect to banks which do not meet minimum
capital requirements. For these purposes, FDICIA establishes five capital tiers:
well capitalized,
48
adequately capitalized, undercapitalized, significantly undercapitalized and
critically undercapitalized. The FDIC has adopted regulations to implement the
prompt corrective action provisions of FDICIA.
"Undercapitalized" banks are subject to growth limitations and are required
to submit a capital restoration plan. A bank's compliance with such plan is
required to be guaranteed by the bank's parent holding company. If an
"undercapitalized" bank fails to submit an acceptable plan, it is treated as if
it is significantly undercapitalized. "Significantly undercapitalized" banks are
subject to one or more restrictions, including an order by the FDIC to sell
sufficient voting stock to become adequately capitalized, requirements to reduce
total assets and cease receipt of deposits from correspondent banks, and
restrictions on compensation of executive officers. "Critically
undercapitalized" institutions may not, beginning 60 days after become
"critically undercapitalized," make any payment of principal or interest on
certain subordinated debt or extend credit for a highly leveraged transaction or
enter into any transaction outside the ordinary course of business. In addition,
"critically undercapitalized" institutions are subject to appointment of a
receiver or conservator.
As of December 31, 1999, each bank subsidiary of First Merchants and
Decatur Financial was "well capitalized" based on the "prompt corrective action"
ratios and deadlines described above. It should be noted, however, that a bank's
capital category is determined solely for the purpose of applying the OCC's (or
the FDIC's) "prompt corrective action" regulations and that the capital category
may not constitute an accurate representation of the bank's overall financial
condition or prospects.
Deposit Insurance
First Merchants' and Decatur Financial's affiliated banks are insured up to
regulatory limits by the FDIC and, accordingly, are subject to deposit insurance
assessments to maintain the Bank Insurance Fund (the "BIF") and the Savings
Association Insurance Fund ("SAIF") administered by the FDIC. The FDIC has
adopted regulations establishing a permanent risk-related deposit insurance
assessment system. Under this system, the FDIC places each insured bank in one
of nine risk categories based on (i) the bank's capitalization, and (ii)
supervisory evaluations provided to the FDIC by the institution's primary
federal regulator. Each insured bank's insurance assessment rate is then
determined by the risk category in which it is classified by the FDIC.
Effective January 1, 1997, the annual insurance premiums on bank deposits
insured by the BIF and the SAIF vary between $0.00 per $100 of deposits for
banks classified in the highest capital and supervisory evaluation categories to
$0.27 per $100 of deposits for banks classified in the lowest capital and
supervisory evaluation categories.
The Deposit Insurance Funds Act of 1996 provides for assessments to be
imposed on insured depository institutions with respect to deposits insured by
the BIF and the SAIF (in addition to assessments currently imposed on depository
institutions with respect to BIF- and SAIF-insured deposits) to pay for the cost
of Financing Corporation ("FICO") funding. The FDIC established the FICO
assessment rates effective January 1, 1997 at $0.013 per $100 annually for
BIF-assessable deposits and $0.0648 per $100 annually for SAIF-assessable
49
deposits. The FICO assessments do not vary depending upon a depository
institution's capitalization or supervisory evaluations.
Brokered Deposits
Under FDIC regulations, no FDIC-insured depository institution can accept
brokered deposits unless it (i) is well capitalized, or (ii) is adequately
capitalized and received a waiver from the FDIC. In addition, these regulations
prohibit any depository institution that is not well capitalized from (a) paying
an interest rate on deposits in excess of 76 basis points over certain
prevailing market rates or (b) offering "pass through" deposit insurance on
certain employee benefit plan accounts unless it provides certain notice to
affected depositors.
Interstate Banking And Branching
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 ("Riegle-Neal") subject to certain concentration limits, required
regulatory approvals and other requirements, (i) bank holding companies such as
First Merchants and Decatur Financial are permitted to acquire banks and bank
holding companies located in any state; (ii) any bank that is a subsidiary of a
bank holding company is permitted to receive deposits, renew time deposits,
close loans, service loans and receive loan payments as an agent for any other
bank subsidiary of that holding company; and (iii) banks are permitted to
acquire branch offices outside their home states by merging with out-of-state
banks, purchasing branches in other states, and establishing de novo branch
offices in other states.
Financial Services Modernization Act
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act of 1999 (the "Financial Services Modernization Act"). The
general effect of the Financial Services Modernization Act is to establish a
comprehensive framework to permit affiliations among commercial banks, insurance
companies, securities firms, and other financial service providers by revising
and expanding the existing BHC Act. Under this legislation, bank holding
companies would be permitted to conduct essentially unlimited securities and
insurance activities as well as other activities determined by the Federal
Reserve Board to be financial in nature or related to financial services. As a
result, First Merchants would be able to provide securities and insurance
services. Furthermore, under this legislation, First Merchants would be able to
acquire, or be acquired by, brokerage and securities firms and insurance
underwriters. In addition, the Financial Services Modernization Act broadens the
activities that may be conducted by national banks through the formation of
financial subsidiaries. Finally, the Financial Services Modernization Act
modifies the laws governing the implementation of the Community Reinvestment Act
and addresses a variety of other legal and regulatory issues affecting both
day-to-day operations and long-term activities of financial institutions.
First Merchants has not had an opportunity to assess the impact of the
legislation on its operations, but at the present time does not believe that the
legislation will have a material adverse effect on its operations in the near
future. In addition, First Merchants does not
50
anticipate significant changes in its products or services as a result of this
legislation. However, to the extent that this legislation permits banks,
securities firms and insurance companies to affiliate, the financial services
industry may experience further consolidation and may increase the amount of
competition that First Merchants faces from larger institutions and other types
of companies offering financial products.
Additional Matters
In addition to the matters discussed above, First Merchants' affiliate
banks and Decatur Bank & Trust Company are subject to additional regulation of
their activities, including a variety of consumer protection regulations
affecting their lending, deposit and collection activities and regulations
affecting secondary mortgage market activities.
The earnings of financial institutions are also affected by general
economic conditions and prevailing interest rates, both domestic and foreign,
and by the monetary and fiscal policies of the United States Government and its
various agencies, particularly the Federal Reserve.
Additional legislation and administrative actions affecting the banking
industry may be considered by the United States Congress, state legislatures and
various regulatory agencies, including those referred to above. It cannot be
predicted with certainty whether such legislation or administrative action will
be enacted or the extent to which the banking industry in general or First
Merchants and its affiliate banks in particular would be affected thereby.
51
COMPARISON OF COMMON STOCK
The following summary comparison of First Merchants common stock and Decatur
Financial common stock includes all material features of such stocks but does
not purport to be complete and is qualified in its entirety by reference to
First Merchants' Articles of Incorporation and By-Laws and Decatur Financial's
Articles of Incorporation and By-Laws.
Governing Law
The rights of holders of Decatur Financial common stock who receive First
Merchants common stock in the merger will be governed by the Indiana Business
Corporation Law (the "IBCL"), the state in which First Merchants is
incorporated, and by First Merchants' Articles of Incorporation ("First
Merchants' Articles") and By-Laws. The rights of Decatur Financial shareholders
are also governed by the IBCL, the state in which Decatur Financial is
incorporated, and by Decatur Financial's Articles of Incorporation ("Decatur
Financial's Articles") and By-Laws. The rights of Decatur Financial shareholders
differ in certain respects from the rights they would have as First Merchants
shareholders, including certain anti-takeover measures, the vote percentage
required for the amendment of certain significant provisions of the articles of
incorporation and for the approval of certain significant corporate
transactions.
Authorized But Unissued Shares
First Merchants' Articles authorizes the issuance of 50,000,000 shares of
common stock, of which 10,936,617 shares were outstanding as of December 31,
1999. The remaining authorized but unissued shares of common stock may be issued
upon authorization of the Board of Directors of First Merchants without prior
shareholder approval. First Merchants has 500,000 shares of preferred stock
authorized. These shares are available to be issued, without prior shareholder
approval, in classes with relative rights, privileges and preferences determined
for each class by the Board of Directors of First Merchants. No shares of
preferred stock have currently been issued.
As of December 31, 1999, First Merchants had 250,000 shares of its common
stock reserved and remaining available for issuance under its 1999 Employee
Stock Purchase Plan, 1,427,177 shares of its common stock reserved and remaining
available for issuance under its 1999 Long-term Equity Incentive Plan, 253,125
shares of its common stock reserved and remaining available for issuance under
its 1994 Employee Stock Purchase Plan, 472,500 shares of its common stock
reserved and remaining available for issuance under its 1994 Stock Option Plan,
253,125 shares of its common stock reserved and remaining available for issuance
under its 1989 Stock Option Plan and 476,063 shares of its common stock reserved
and remaining available for issuance under its Dividend Reinvestment and Stock
Purchase Plan.
The issuance of additional shares of First Merchants common stock or the
issuance of First Merchants preferred stock may adversely affect the interests
of First Merchants shareholders.
52
Decatur Financial's Articles authorize the issuance of 750,000 shares of
common stock. Each outstanding share of stock is entitled to one vote on all
matters to which shareholders are entitled to vote. As of December 31, 1999,
Decatur Financial had 142,995 shares of stock issued and outstanding and there
will be 147,439 shares of stock issued and outstanding after the exercise of all
options for Decatur Financial stock held by Mr. Bieberich.
Preemptive Rights
As permitted by Indiana law, neither First Merchants' Articles nor Decatur
Financial's Articles provide for preemptive rights to subscribe for any new or
additional First Merchants or Decatur Financial shares of common stock.
Preemptive rights may be granted to First Merchants or Decatur Financial
shareholders if First Merchants' or Decatur Financial's Articles are amended
accordingly.
Dividend Rights
The holders of common stock of First Merchants and Decatur Financial are
entitled to dividends and other distributions when, as and if declared by their
respective Board of Directors. With respect to First Merchants and Decatur
Financial, a dividend generally may not be paid if:
1. The corporation would not be able to pay its debts as they become due
in the usual course of business; or
2. The corporation's total assets would be less than the sum of its total
liabilities plus preferential rights of shareholders payable upon
dissolution.
The amount of dividends, if any, that may be declared by First Merchants in
the future will necessarily depend upon many factors, including, without
limitation, future earnings, capital requirements, business conditions and
capital levels of subsidiaries (since First Merchants is primarily dependent
upon dividends paid by its subsidiaries for revenues), the discretion of First
Merchants' Board of Directors and other factors that may be appropriate in
determining dividend policies.
First Merchants' national bank subsidiaries and its Indiana-chartered
affiliate banks may pay dividends to First Merchants in cash on their common
stock only out of adjusted retained net profits for the year in which the
dividend is paid and the two preceding years.
Dividends paid by First Merchants' affiliate banks will ordinarily be
restricted to a lesser amount than is legally permissible because of the need
for the banks to maintain adequate capital consistent with the capital adequacy
guidelines promulgated by the banks' principal federal regulatory authorities.
See "REGULATION AND SUPERVISION OF FIRST MERCHANTS, DECATUR FINANCIAL AND
SUBSIDIARIES." If a bank's capital levels are deemed inadequate by the
regulatory authorities, payment of dividends to its parent holding company may
be prohibited. Neither First Merchants' present affiliate banks nor Decatur Bank
& Trust Company is subject to such a restriction.
53
Voting Rights
The holders of the outstanding shares of First Merchants common stock are
entitled to one vote per share on all matters presented for shareholder vote.
Similarly, the holders of outstanding shares of Decatur Financial common stock
also are entitled to one vote per share on all matters presented for shareholder
vote. Neither First Merchants shareholders nor Decatur Financial shareholders
have cumulative voting rights in the election of directors.
Indiana law generally requires that mergers, consolidations, sales, leases,
exchanges or other dispositions of all or substantially all of the assets of a
corporation be approved by a shareholder vote of a majority of votes entitled to
be cast at the shareholders meeting, subject to provision in the corporations'
articles of incorporation requiring a higher percentage vote. First Merchants'
Articles provide that certain business combinations may, under certain
circumstances, require approval of more than a majority of the outstanding
voting shares of First Merchants common stock. See "COMPARISON OF COMMON
STOCK--Anti-Takeover Provisions."
Indiana law requires shareholder approval for most amendments to a
corporation's articles of incorporation by a majority of a quorum at a
shareholder's meeting (and, in certain cases, a majority of all shares held by
any voting group entitled to vote). Indiana law permits a corporation in its
articles of incorporation to prescribe a higher shareholder vote requirement for
certain amendments. First Merchants' Articles require a super-majority
shareholder vote of seventy-five percent of the outstanding shares of common
stock for the amendment of certain significant provisions. Decatur Financial's
Articles require a majority vote to amend any provision.
Dissenters' Rights
Decatur Financial shareholders possess dissenters' rights in connection
with certain mergers and other significant corporate actions. Under Indiana law,
a shareholder is entitled to dissent from and obtain payment of the fair value
of the shareholder's shares in the following events:
1. Consummation of a plan of merger to which Decatur Financial is a
party, if shareholder approval is required and the shareholder is
entitled to vote thereon.
2. Consummation of a plan of share exchange by which Decatur Financial'
shares will be acquired, if the shareholder is entitled to vote
thereon.
3. Consummation of a sale or exchange of all, or substantially all, the
property of Decatur Financial other than in the usual course of
business, if the shareholder is entitled to vote thereon.
4. Approval of a control share acquisition under Indiana law; and
54
5. Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, by-laws or a resolution of the
board of directors provides that voting or non-voting shareholders are
entitled to dissent and obtain payment for their shares.
First Merchants shareholders do not have dissenters' rights because its
shares are traded on the NASDAQ National Market System. With respect to
dissenters' rights of Decatur Financial shareholders in connection with the
merger, see the discussion under "MERGER -- Rights of Dissenting Shareholders"
and also Appendix B hereto.
Liquidation Rights
In the event of any liquidation or dissolution of First Merchants, its
shareholders are entitled to receive pro rata, according to the number of shares
held, any assets distributable to shareholders, subject to the payment of First
Merchants' liabilities and any rights of creditors and holders of shares of
First Merchants preferred stock then outstanding. In the event of any
liquidation or dissolution of Decatur Financial, its shareholders are entitled
to receive pro rata, according to the number of shares held, any assets
distributable to shareholders, subject to the payment of Decatur Financial's
liabilities and any rights of creditors.
Assessment and Redemption
Under Indiana law, neither the shares of First Merchants common stock nor
of Decatur Financial common stock are liable to further assessment.
Under Indiana law, First Merchants may redeem or acquire shares of its
common stock with funds legally available therefor, and shares so acquired
constitute authorized but unissued shares. First Merchants may not redeem or
acquire its shares of common stock if, after such redemption it would not be
able to pay its debts as they become due. Additionally, First Merchants may not
redeem its shares if its total assets would be less than the sum of its total
liabilities plus preferential rights of shareholders payable upon dissolution.
Decatur Financial has similar redemption rights under Indiana law.
First Merchants and Decatur Financial must give prior notice to the Federal
Reserve if the consideration to be paid by them for any redemption or
acquisition of their respective shares, when aggregated with the consideration
paid for all redemption or acquisitions for the preceding 12 months, equal or
exceeds 10% of the consolidated net worth of the company involved.
Anti-Takeover Provisions
The anti-takeover measures applicable to First Merchants and Decatur
Financial, as described below, may have the effect of discouraging a person or
other entity to acquire control of either company. These measures may have the
effect of discouraging certain tender offers for shares of either company's
common stock which might otherwise be made at premium prices or certain other
acquisition transactions which might be viewed favorably by a significant number
of shareholders.
55
Indiana Law. Under the business combinations provisions of the IBCL, any
10% shareholder of an Indiana corporation, with a class of voting shares
registered under Section 12 of the Securities Exchange Act of 1934 or which has
specifically adopted this provision in the corporation's articles of
incorporation, is prohibited for a period of five years from completing a
business combination with the corporation unless, prior to the acquisition of
such 10% interest, the board of directors approved either the acquisition of
such interest or the proposed business combination. Further, the corporation and
a 10% shareholder may not consummate a business combination unless all
provisions of the articles of incorporation are complied with and a majority of
disinterested shareholders approve the transaction or all shareholders receive a
price per share as determined by Indiana law.
An Indiana corporation may elect to remove itself from the protection
provided by the Indiana business combinations provision, but such an election
remains ineffective for 18 months and does not apply to a combination with a
shareholder who acquired a 10% ownership position prior to the election. First
Merchants is covered by the business combinations provisions of the IBCL and
Decatur Financial is not covered. The constitutional validity of the business
combinations provisions of Indiana law has been upheld by the United States
Supreme Court.
In addition to the business combinations provision, the IBCL also contains
a "control share acquisition" provision which, although different in structure
from the business combinations provision, may have a similar effect of
discouraging or making more difficult a hostile takeover of an Indiana
corporation. This provision, however, also may have the effect of discouraging
premium bids for outstanding shares. The IBCL provides that, unless otherwise
provided in the corporation's articles of incorporation or by-laws, certain
acquisitions of shares of the corporation's common stock will be accorded voting
rights only if a majority of the disinterested shareholders approves a
resolution granting the potential acquiror the ability to vote such shares. Upon
disapproval of the resolution, the shares held by the acquiror shall be redeemed
by the corporation at the fair market value of the shares as determined by the
control share acquisition provision.
This provision does not apply to a plan of affiliation and merger if the
corporation complies with the applicable merger provisions and is a party to the
agreement of merger or plan of share exchange. Both First Merchants and Decatur
Financial are subject to the control share acquisition provision.
First Merchants' Articles. In addition to the protection afforded by the
IBCL, First Merchants' Articles provide that the directors of First Merchants
shall be divided into three classes, each serving three year terms with one
class to be elected at each annual meeting of shareholders. First Merchants'
Articles provide that directors may be removed with or without cause by a 2/3rds
vote of the shares entitled to vote; provided, however, that if the Board by
2/3rds vote recommends removal of a director, that director may be removed by a
majority of the shares entitled to vote.
First Merchants' Articles also require the approval of the holders of
3/4ths of the voting stock as a condition of certain business combinations
involving any shareholder holding more
56
than 10% of the voting stock. "Business combinations" include, but are not
limited to, mergers, consolidations, sales, leases, liquidations, dissolutions,
certain reorganizations, and agreements relating to the foregoing. An exception
exists if the transaction is approved by a 2/3rds vote of the Board or the
shareholders are to receive fair consideration for their shares. "Fair
consideration" generally means, an amount per share equal to the higher of (a)
the highest per share price paid for the stock in the two years preceding the
business combination, and (b) the per share book value for the stock. In the
event 2/3rds Board approval is obtained or fair consideration is to be paid,
then approval of the business combination would only require the approval of the
holders of 2/3rds of the voting stock.
The above referred to provision of First Merchants' Articles can be amended
only with the approval of 3/4ths of the voting stock.
The existence of authorized but unissued common and preferred stock of
First Merchants may have an anti-takeover effect as the issuance of additional
First Merchants shares with sufficient voting power could have a dilutive effect
on its stock and may result in the defeat of an attempt to acquire control of
First Merchants. The Board may issue shares of common stock and/or preferred
stock at any time without shareholder approval. The relative rights,
preferences, limitations and restrictions attendant with the ownership of the
preferred stock would be determined by the Board prior to the issuance thereof.
The Board would determine whether any voting rights would attach to the
preferred stock. The Board has no present plans to issue any preferred stock or
common stock other than in connection with the merger. The issuance of preferred
or common stock in the future could result in the dilution of ownership and
control of First Merchants by common shareholders. There is no guarantee that
current shareholders would have an opportunity to purchase any of the preferred
or common stock when and if it is issued since they do not have preemptive
rights.
Decatur Financial's Articles. The existence of authorized but unissued
shares of Decatur Financial common stock may have an anti-takeover effect as the
issuance of additional Decatur Financial shares with sufficient voting power
could have a dilutive effect on Decatur Financial's stock and may result in the
defeat of an attempt to acquire control of the corporation. The Board of
Directors of Decatur Financial may issue shares of common stock at any time
without shareholder approval. The Agreement prohibits the issuance by Decatur
Financial of additional shares of common stock.
Director Liability
Under the IBCL, a director of First Merchants or Decatur Financial will not
be liable to shareholders for any action taken as a director, or any failure to
take any action, unless:
1. The director has breached or failed to perform his duties as a
director in good faith with the care an ordinarily prudent person in a
like position would exercise under similar circumstances and in a
manner the director reasonably believes to be in the best interests of
the corporation; and
2. Such breach or failure to perform constitutes willful misconduct or
recklessness.
57
LEGAL OPINIONS
Certain legal matters in connection with the Agreement will be passed upon
for First Merchants by the law firm of Bingham Summers Welsh & Spilman, LLP,
2700 Market Tower, 10 West Market Street, Indianapolis, Indiana 46204 and for
Decatur Financial by the law firm of Krieg, DeVault, Alexander and Capehart,
LLP, One Indiana Square, Suite 2800, Indianapolis, IN 46204. Frank A. Bracken is
of counsel with Bingham Summers Welsh & Spilman, LLP and a director of First
Merchants.
EXPERTS
The consolidated financial statements of First Merchants, incorporated by
reference in this Proxy Statement-Prospectus, have been audited by Olive, LLP,
independent public accountants, to the extent and for the periods indicated in
their report thereon, and have been so incorporated by reference in this Proxy
Statement-Prospectus in reliance upon such report of Olive, LLP given on the
authority of such firm as experts in auditing and accounting.
OTHER MATTERS
The Special Meeting of Shareholders is called for the purposes set forth in
the Notice. The Board of Directors of Decatur Financial knows of no other matter
for action by shareholders at such Special Meeting other than the matters
described in the Notice. However, the enclosed proxy will confer discretionary
authority with respect to matters which are not known to the Board of Directors
at the time of the printing thereof and which may properly come before the
Special Meeting. It is the intention of the persons named in the proxy to vote
with respect to such matters in accordance with the recommendations of
management of Decatur Financial.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
First Merchants has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act that registers
the distribution to Decatur Financial shareholders of the shares of First
Merchants common stock to be issued in connection with the merger. The
Registration Statement, including the attached exhibits and schedules, contains
additional relevant information about Decatur Financial and First Merchants
common stock. The rules and regulations of the Commission allow First Merchants
to omit certain information included in the Registration Statement from this
Proxy Statement-Prospectus.
In addition, First Merchants files reports, proxy statements and other
information with the Commission under the Securities Exchange Act of 1934. You
may read and copy this information at the following locations of the Commission:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, NY 10048 Suite 1400
Chicago, Illinois 60661-2511
58
You may also obtain copies of this information by mail from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates. The public may obtain information
on the operation of the Public Reference Room by calling the Commission at
1-800-SEC-0330.
The Commission also maintains an Internet world wide web site that contains
reports, proxy and information statements and other information about issuers,
like First Merchants, who file electronically with the Commission. The address
of that site is http://www.sec.gov.
The Commission allows First Merchants to "incorporate by reference"
information into this Proxy Statement-Prospectus. This means that it can
disclose important information to you by referring you to another document filed
separately with the Commission. The information incorporated by reference is
considered to be a part of this Proxy Statement-Prospectus, except for any
information that other information included directly in this document
supersedes.
This Proxy Statement-Prospectus incorporates by reference the documents
listed below that First Merchants has previously filed with the Commission. They
contain important information about First Merchants and its financial condition.
First Merchants SEC Filings Period
- --------------------------- ------
Annual Report on Form 10-K.................. Year ended December 31, 1999
The description of First Merchants common stock set forth in the
registration statement filed by First Merchants pursuant to Section 12 of the
Securities Exchange Act of 1934, including any amendment or report filed with
the Commission for the purpose of updating such description.
First Merchants incorporates by reference additional documents that it may
file with the Commission between the date of this Proxy Statement-Prospectus and
the date of the Decatur Financial Special Meeting. These documents include
periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q and Current Reports on Form 8-K, as well as proxy statements.
First Merchants has supplied all information contained or incorporated by
reference in this Proxy Statement-Prospectus relating to First Merchants, as
well as all pro forma financial information, and Decatur Financial has supplied
all such information relating to Decatur Financial.
You can obtain any of the documents incorporated by reference in this
document through First Merchants, or from the Commission through the
Commission's web site at the address described above. Documents incorporated by
reference are available from First Merchants without charge, excluding any
exhibits to those documents unless the exhibit is specifically incorporated by
reference as an exhibit in this Proxy Statement-Prospectus. You can obtain
documents incorporated by reference in this Proxy Statement-Prospectus by
requesting them in writing or by telephone from:
59
First Merchants Corporation
Larry R. Helms
Senior Vice President and General Counsel
200 East Jackson Street
Muncie, Indiana 47305
(765) 747-1530
If you would like to request documents, please do so by _________, 2000 to
insure timely delivery before the Special Meeting. If you request any
incorporated documents from us, we will mail them to you by first class mail, or
another equally prompt means, within one business day after we received your
request.
We have not authorized anyone to give any information or make any
representation about the merger or our companies that is different from, or in
addition to, that contained in this Proxy Statement-Prospectus or in any of the
materials that we have incorporated into this document. Therefore, if anyone
does give you information of this sort, you should not rely on it. If you are in
a jurisdiction where offers to exchange or sell, or solicitations of offers to
exchange or purchase, the securities offered by this document or the
solicitation of proxies is unlawful, or if you are a person to whom it is
unlawful to direct these types of activities, then the offer presented in this
document does not extend to you. The information contained in this document
speaks only as of the date of this document unless the information specifically
indicates that another date applies.
FORWARD LOOKING STATEMENTS
This Proxy Statement-Prospectus contains certain forward-looking statements
with respect to the financial condition, results of operations, and business of
First Merchants and Decatur Financial and of First Merchants following the
consummation of the merger, including statements relating to the cost savings
and revenue enhancements that are expected to be realized from the merger and
the expected impact of the merger on First Merchants' financial performance.
These forward-looking statements involve certain risks and uncertainties.
Factors that may cause actual results to differ materially from those
contemplated by such forward-looking statements include, among other things, the
following possibilities: (i) expected cost savings from the merger cannot be
fully realized; (ii) deposit attrition, customer loss, or revenue loss following
the merger is greater than expected; (iii) competitive pressure in the banking
industry increases significantly; (iv) costs or difficulties related to the
integration of the businesses of First Merchants and Decatur Financial are
greater than expected; (v) changes in the interest rate environment reduce
margins; (vi) general economic conditions, either nationally or regionally, are
less favorable than expected, resulting in, among other things, a deterioration
in credit quality; (vii) changes occur in the regulatory environment; (viii)
changes occur in business conditions and inflation; and (ix) changes occur in
the securities markets. The forward-looking earnings estimates included in this
Proxy Statement-Prospectus have not been examined or compiled by the independent
public accountants of First Merchants and Decatur Financial, nor have such
accountants applied any procedures thereto. Accordingly, such accountants do not
60
express an opinion or any other form of assurance on them. Further information
on other factors that could affect the financial results of First Merchants
after the merger is included in the Commission filings incorporated by reference
herein. See "WHERE YOU CAN FIND ADDITIONAL INFORMATION."
61
APPENDIX A
AGREEMENT OF REORGANIZATION AND MERGER
BETWEEN
FIRST MERCHANTS CORPORATION
AND
DECATUR FINANCIAL, INC.
THIS AGREEMENT OF REORGANIZATION AND MERGER (the "Agreement"), is entered
this 20th day of January, 2000, by and between First Merchants Corporation
("First Merchants") and Decatur Financial, Inc. ("Decatur Financial").
W I T N E S S E T H:
WHEREAS, First Merchants is a corporation duly organized and existing under
the laws of the State of Indiana and a registered bank holding company under the
Bank Holding Company Act of 1956, as amended, with its principal place of
business in Muncie, Delaware County, Indiana;
WHEREAS, Decatur Financial is a corporation duly organized and existing
under the laws of the State of Indiana and a registered bank holding company
under the Bank Holding Company Act of 1956, as amended, with its principal place
of business in Decatur, Adams County, Indiana;
WHEREAS, Decatur Bank & Trust Company (the "Bank") is a bank duly organized
and existing under the laws of the State of Indiana and a wholly-owned
subsidiary of Decatur Financial with its principal banking office in Decatur,
Adams County, Indiana;
WHEREAS, it is the desire of First Merchants and Decatur Financial to
effect a transaction whereby the Bank will become a wholly-owned subsidiary of
First Merchants through a statutory merger of Decatur Financial with and into
First Merchants; and
WHEREAS, a majority of the entire Board of Directors of First Merchants and
a majority of the entire Board of Directors of Decatur Financial have approved
this Agreement, designated it as a plan of reorganization within the provisions
of Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code"), and authorized its execution.
A-1
NOW, THEREFORE, in consideration of the mutual promises, covenants, and
agreements herein contained and other good and valuable consideration, the
receipt of which is hereby acknowledged, First Merchants and Decatur Financial
hereby make this Agreement and prescribe the terms and conditions of the merger
of Decatur Financial with and into First Merchants and the mode of carrying the
transaction into effect as follows:
SECTION 1
The Merger
1.01. Merger. Subject to the terms and conditions of this Agreement, on the
Effective Date (as defined in Section 11 hereof), Decatur Financial shall be
merged into and under the Articles of Incorporation of First Merchants, which
shall be the "Continuing Company" and which shall continue its corporate
existence under the laws of the State of Indiana, pursuant to the provisions of
and with the effect provided in the Indiana Business Corporation Law and
particularly Indiana Code Chapter 23-1-40 (the "Merger").
1.02. Right to Revise Merger. First Merchants may, at any time, change the
method of effecting the Merger if and to the extent First Merchants deems such
change to be desirable, including, without limitation, to provide for the merger
of Decatur Financial and a wholly-owned subsidiary of First Merchants; provided,
however, that no such change, modification or amendment shall (a) alter or
change the amount or kind of consideration to be received by the shareholders of
Decatur Financial specified in Section 3 hereof as a result of the Merger,
except in accordance with the terms of Section 3 hereof, (ii) adversely affect
the tax treatment to the shareholders of Decatur Financial, or (iii) materially
impede or delay receipt of any approvals referred to in this Agreement or the
consummation of the transactions contemplated by this Agreement.
SECTION 2
Effect Of The Merger
Upon the Merger becoming effective:
2.01. General Description. The separate existence of Decatur Financial
shall cease and the Continuing Company shall possess all of the assets of
Decatur Financial including all of the issued and outstanding shares of capital
stock of the Bank and all of its rights, privileges, immunities, powers, and
franchises and shall be subject to and assume all of the duties and liabilities
of Decatur Financial.
2.02. Name, Offices, and Management. The name of the Continuing Company
shall continue to be "First Merchants Corporation." Its principal banking office
shall be located at
A-2
200 E. Jackson Street, Muncie, Indiana. The Board of Directors of the Continuing
Company, until such time as their successors have been elected and qualified,
shall consist of the current Board of Directors of First Merchants. The officers
of First Merchants immediately prior to the Effective Date shall continue as the
officers of the Continuing Company.
2.03. Capital Structure. The amount of capital stock of the Continuing
Company shall not be less than the capital stock of First Merchants immediately
prior to the Effective Date increased by the amount of capital stock issued in
accordance with Section 3 hereof.
2.04. Articles of Incorporation and Bylaws. The Articles of Incorporation
and the Bylaws of the Continuing Company shall be those of First Merchants
immediately prior to the Effective Date until the same shall be further amended
as provided by law.
2.05. Assets and Liabilities. The title to all assets, real estate and
other property owned by First Merchants and Decatur Financial shall vest in the
Continuing Company without reversion or impairment. All liabilities of Decatur
Financial shall be assumed by the Continuing Company.
2.06. Additional Actions. If, at any time after the Effective Date, the
Continuing Company shall consider or be advised that any further deeds,
assignments or assurances in law or any other acts are necessary or desirable
(a) to vest, perfect or confirm, of record or otherwise, in the Continuing
Company its right, title or interest in, to or under any of the rights,
properties or assets of Decatur Financial or the Bank, or (b) otherwise carry
out the purposes of this Agreement, Decatur Financial and the Bank and their
respective officers and directors shall be deemed to have granted to the
Continuing Company an irrevocable power of attorney to execute and deliver all
such deeds, assignments or assurances in law and to do all acts necessary or
proper to vest, perfect or confirm title to and possession of such rights,
properties or assets in the Continuing Company and otherwise to carry out the
purposes of this Agreement, and the officers and directors of the Continuing
Company are authorized in the name of Decatur Financial or the Bank or otherwise
to take any and all such action.
SECTION 3
Consideration To Be
Distributed To Shareholders Of Decatur Financial
3.01. Consideration. Upon and by reason of the Merger becoming effective,
the shareholders of Decatur Financial of record on the Effective Date who have
not dissented to the Merger in accordance with Indiana Code ss. 23-1-44, as
amended, shall be entitled to receive in exchange for each share of Decatur
Financial's common stock held and at their election (subject to the limitations
and prorations set forth in this Section 3) either (i) 9.13 (the "Conversion
Ratio") shares of First Merchants' common stock ("Option 1") or (ii) cash in the
amount of $237.39 ("Option 2"). A Decatur Financial shareholder shall be
entitled to elect
A-3
Option 1 for all shares held of record, Option 2 for all shares held of record
or Option 1 for a portion of the shares held of record and Option 2 for a
portion of the shares held of record. The Conversion Ratio shall be subject to
adjustment as set forth in Sections 3.03 and 3.04.
3.02. No Fractional First Merchants' Common Shares. Certificates for
fractional shares of common stock of First Merchants shall not be issued in
respect of fractional interests arising from the Conversion Ratio. Each Decatur
Financial shareholder who would otherwise have been entitled to a fraction of a
First Merchants share, upon surrender of all of his/her certificates
representing Decatur Financial's common shares, shall be paid in cash (without
interest) in an amount equal to the fraction of the First Merchants Average
Price (as defined below). No such shareholder of Decatur Financial shall be
entitled to dividends, voting rights or any other rights in respect of any
fractional share.
3.03. 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 Conversion Ratio
shall be adjusted so that each Decatur Financial shareholder electing Option 1
shall receive such number of First Merchants shares 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 such
shareholder would have received if the recapitalization had not occurred.
3.04. Conversion Ratio Adjustment.
(a) As used in this Section 3.04, the term "First Merchants Average
Price" shall mean the average of the mid point between the bid and ask
prices of the common stock of First Merchants as reported in The Wall
Street Journal (Midwest Edition) for the ten (10) NASDAQ trading days
preceding the fifth (5th) calendar day prior to the Closing (the
"Determination Date"). The First Merchants Average Price shall be
appropriately and proportionately adjusted to reflect any share adjustment
as contemplated by Section 3.03 hereof.
(b) Decatur Financial may terminate this Agreement if its Board of
Directors so determines by a vote of a majority of the members of its
entire Board of Directors if the First Merchants Average Price shall be
less than $22.00; subject, however, to the following two provisions. If
Decatur Financial elects to exercise its right of termination pursuant to
the immediately preceding sentence, it shall give written notice to First
Merchants within twenty-four (24) hours of the Determination Date. Within
two (2) business days after the date of receipt of such notice, First
Merchants shall have the option of adjusting the Conversion Ratio to equal
a number equal to a quotient, the numerator of which is the product of
$22.00 and the Conversion Ratio (as then in effect) and the denominator of
which is the First Merchants Average Price. If First Merchants makes an
election contemplated by the preceding sentence, it shall give prompt
written notice to Decatur Financial of such election and the revised
Conversion Ratio, whereupon no termination shall have occurred pursuant to
this Section 3.04(b)
A-4
and this Agreement shall remain in effect in accordance with its terms
(except as the Conversion Ratio shall have been so modified), and any
references in this Agreement to "Conversion Ratio" shall thereafter be
deemed to refer to the Conversion Ratio as adjusted pursuant to this
Section 3.04(b).
(c) First Merchants may terminate this Agreement if its Board of
Directors so determines by a vote of a majority of the members of its
entire Board of Directors if the First Merchants Average Price shall be
greater than $30.00; subject, however, to the following two provisions. If
First Merchants elects to exercise its right of termination pursuant to the
immediately preceding sentence, it shall give written notice to Decatur
Financial within twenty-four (24) hours of the Determination Date. Within
two (2) business days after the date of receipt of such notice, Decatur
Financial shall have the option of adjusting the Conversion Ratio to equal
a number equal to a quotient, the numerator of which is the product of
$30.00 and the Conversion Ratio (as then in effect) and the denominator of
which is the First Merchants Average Price. If Decatur Financial makes an
election contemplated by the preceding sentence, it shall give prompt
written notice to First Merchants of such election and the revised
Conversion Ratio, whereupon no termination shall have occurred pursuant to
this Section 3.04(c) and this Agreement shall remain in effect in
accordance with its terms (except as the Conversion Ratio shall have been
so modified), and any references in this Agreement to "Conversion Ratio"
shall thereafter be deemed to refer to the Conversion Ratio as adjusted
pursuant to this Section 3.04(c).
3.05 Election. An election form and letter of transmittal (the "Election
Form") shall be mailed to each record holder of Decatur Financial's common stock
as of the record date fixed for the special shareholders' meeting at which the
Merger will be submitted to a vote of Decatur Financial's shareholders (the
"Special Record Date"). In addition, reasonable efforts will be made to make the
Election Form available to all persons who become shareholders of Decatur
Financial between the Special Record Date and the Election Deadline (as defined
below). Decatur Financial and First Merchants shall also establish a deadline
for receipt of such Election Forms (the "Election Deadline"), which deadline
shall be the close of business on the date of the special meeting at which the
Merger will be submitted to a vote of Decatur Financial's shareholders. The
Election Forms shall be mailed to each record holder of Decatur Financial's
common stock as of the Special Record Date along with the proxy materials for
the special shareholders' meeting at which the Merger will be submitted to a
vote of Decatur Financial's shareholders. The Election Form will permit each
holder of record of Decatur Financial's common stock as of the Special Record
Date to elect, subject to Section 3.07, to have all of such holder's shares
converted in the Merger into either Option 1, Option 2 or a combination of
Option 1 and Option 2. The Election Form shall permit a Decatur Financial's
shareholder to elect Option 1 if there is an oversubscription in Option 2 as
described in Section 3.07. Such elections shall be the first shares reallocated,
regardless of the number of shares, in the event of oversubscription. The
Election Form shall also permit direct deposit of cash in each holder's account
in either the Bank or First Merchants Bank, National Association. An election
shall be duly made by completing the Election Form and any other required
documents
A-5
in accordance with the instructions set forth therein and delivering them to the
Election Agent (as defined below) or to such other person or persons selected by
Decatur Financial and approved by First Merchants to receive elections, to
receive outstanding Decatur Financial's shares, to deliver cash or cash and
shares of First Merchants' common stock and to carry out the other procedures
set forth herein.
3.06. Election Agent. First Merchants and Decatur Financial hereby appoint
the Trust Department of First Merchants Bank, National Association to act as
agent (the "Election Agent") of Decatur Financial's shareholders for the
purposes of mailing and receiving the Election Forms, tabulating the results and
notifying First Merchants and Decatur Financial of the results.
3.07. Oversubscriptions.
(a) In the event (i) the number of shares of Decatur Financial common
stock covered by Option 2 elections would otherwise entitle Decatur
Financial's shareholders to receive more than $14,000,000 in cash
(including cash payments for fractional shares and payments to dissenting
shareholders) or (ii) the condition set forth in Section 9.03 of this
Agreement cannot be satisfied due to the amount of cash which would
otherwise be received by Decatur Financial's shareholders, the Option 2
elections of the holders of Decatur Financial's common stock shall be
eliminated (each in its entirety) and converted to Option 1 elections (each
in its entirety) by first eliminating and converting the election which
covers the smallest number of shares of Decatur Financial's common stock,
and then eliminating and converting the election which covers the next
smallest number of shares and continuing this process until the total
remaining number of outstanding Decatur Financial's shares covered by
Option 2 elections is such that the Merger will (i) result in cash payments
of no more than $14,000,000 (including cash payments for fractional shares
and payments to dissenting shareholders), and (ii) satisfy the "continuity
of interest" requirement applicable to tax-free reorganizations under the
Code.
(b) Notwithstanding anything to the contrary in this Section 3, if (i)
a shareholder of Decatur Financial certifies in writing at the time of
filing an Option 2 election (the "Certifying Cash Elector"), that his
outstanding Decatur Financial's shares are deemed to be constructively
owned by another shareholder of Decatur Financial (the "Constructive
Owner") under the provisions of Section 318(a) of the Code, (ii) the
Certifying Cash Elector supplies such information in support of his
certification to Decatur Financial's legal counsel as such counsel may
request and such legal counsel does not disagree with the certification,
and (iii) the Constructive Owner has filed a valid Option 2 election, then
the elections of the Certifying Cash Elector or Electors and the
Constructive Owner or Owners shall be treated as a single election, and
their shares shall be aggregated for purposes of determining priority for
conversion into cash.
A-6
(c) Shares of Decatur Financial's common stock with respect to which
no Election Form is timely received or ever received or which are the
subject of otherwise invalid elections (the "Non-Electing Shares") will be
treated as if the holders thereof elected Option 1 for all shares held of
record. This Section 3.07(c) shall be given effect prior to the
reallocation provided for in Section 3.07(a).
(d) Decatur Financial and First Merchants shall mutually determine the
validity of elections submitted by Decatur Financial's shareholders.
(e) A holder of Decatur Financial's shares that is a bank, trust
company, security broker-dealer or other recognized nominee, may submit one
or more Election Forms for the persons for whom it holds shares as nominee
provided that such bank, trust company, security broker-dealer or nominee
certifies to the satisfaction of Decatur Financial and First Merchants the
names of the persons for whom it is so holding shares (the "Beneficial
Owners"). In such case, each Beneficial Owner for whom an Election Form is
submitted shall be treated as a separate owner for purposes of the election
procedure and allocation of shares set forth herein.
(f) First Merchants and Decatur Financial may, upon mutual agreement,
apply the adjustments set forth in this Section 3.07 only to such extent
and to such number of Decatur Financial's shareholders as is necessary to
accomplish the objectives of this Section 3.07 to assure that the Merger
will qualify as a tax-free reorganization.
3.08. Distribution of First Merchants' Common Stock and Cash.
(a) Each share of common stock of First Merchants outstanding
immediately prior to the Effective Date shall remain outstanding unaffected
by the Merger.
(b) Following the Effective Date, distribution of stock certificates
representing First Merchants' common stock and cash payments for Decatur
Financial's common stock and for fractional shares shall be made by First
Merchants to each former shareholder of Decatur Financial within ten (10)
days of such shareholder's delivery of his/her certificates representing
common stock of Decatur Financial to the conversion agent, First Merchants
Bank, National Association (the "Conversion Agent"). Certificates
surrendered for exchange by a person who is deemed to be an "affiliate" (as
defined in Section 7.06 hereof) of Decatur Financial shall not be exchanged
until First Merchants has received a written agreement from such affiliate
as required pursuant to Section 7.06 hereof. Interest shall not accrue or
be payable with respect to any cash payments.
(c) Following the Effective Date, stock certificates representing
Decatur Financial's common stock shall be deemed to evidence only the right
to receive cash and/or ownership of First Merchants' common stock (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
A-7
stock of First Merchants shall be paid to any shareholder entitled to
receive the same until such shareholder has surrendered his/her
certificates for Decatur Financial's common stock to the Conversion Agent
in exchange for certificates representing First Merchants' common stock
and/or cash. Upon surrender, there shall be paid to the recordholder of the
new certificate(s) evidencing shares of First Merchants' common stock the
amount of all dividends and other distributions, without interest thereon,
withheld with respect to such common stock.
(d) At or after the Effective Date, there shall be no transfers on the
stock transfer books of Decatur Financial of any shares of the common stock
of Decatur Financial. If, after the Effective Date, certificates are
presented for transfer to Decatur Financial, such certificates shall be
cancelled and exchanged for the consideration set forth in Section 3.01
hereof, as adjusted pursuant to the terms of this Agreement.
(e) First Merchants shall be entitled to rely upon the stock transfer
books of Decatur Financial to establish the persons entitled to receive
cash and shares of common stock of First Merchants, 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.
(f) With respect to any certificate for shares of Decatur Financial's
common stock which has been lost, stolen, or destroyed, First Merchants
shall be authorized to issue common stock 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
Decatur Financial's shareholder with all procedures historically required
by Decatur Financial in connection with lost, stolen, or destroyed
certificates.
SECTION 4
Dissenting Shareholders
Shareholders of Decatur Financial shall have the rights accorded to
dissenting shareholders under Indiana Code ss. 23-1-44, as amended.
SECTION 5
Representations and
Warranties of Decatur Financial
Decatur Financial represents and warrants to First Merchants with respect
to itself and the Bank as follows: (For the purposes of this Section, a
"Disclosure Letter" is defined as a letter referencing Section 5 of this
Agreement which shall be prepared and executed by an
A-8
authorized executive officer of Decatur Financial and delivered to and initialed
by an authorized executive officer of First Merchants contemporaneous with the
execution of this Agreement.)
5.01. Organization and Authority. Decatur Financial is a corporation duly
organized and validly existing under the laws of the State of Indiana, and the
Bank is a bank duly organized and validly existing under the laws of the State
of Indiana. Decatur Financial and the Bank have the power and authority
(corporate and other) to conduct their respective businesses in the manner and
by the means utilized as of the date hereof. Decatur Financial's only subsidiary
is the Bank, and the Bank has no subsidiaries. The Bank is subject to primary
federal regulatory supervision and regulation by the Federal Deposit Insurance
Corporation.
5.02. Authorization.
(a) Decatur Financial has the corporate power and authority to enter
into this Agreement and to carry out its obligations hereunder. This
Agreement, when executed and delivered, will have been duly authorized and
will constitute a valid and binding obligation of Decatur Financial,
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.
(b) Neither the execution of this Agreement, nor the consummation of
the transactions contemplated hereby, does or will (i) conflict with,
result in a breach of, or constitute a default under Decatur Financial'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, mortgage, security
agreement, contract, arrangement or commitment, to which Decatur Financial
or the Bank is subject or bound, the result of which would materially
affect the business or financial condition of Decatur Financial or the
Bank; (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 Decatur Financial or the Bank; (iv) terminate
or give any person, corporation or entity, the right to terminate, amend,
abandon, or refuse to perform any note, bond, indenture, mortgage, security
agreement, contract, arrangement or commitment to which Decatur Financial
or the Bank is subject or bound; 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, Decatur Financial or the Bank is to perform
any duties or obligations or receive any rights or benefits under any note,
bond, indenture, 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, federal and state securities laws and
applicable Indiana banking and corporate statutes, all as amended, and the
rules and regulations
A-9
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 Decatur Financial of the transactions
contemplated by this Agreement.
5.03. Capitalization.
(a) As of December 31, 1999, Decatur Financial had 750,000 shares of
common stock authorized, no par value per share, 142,995 shares of which
were issued and outstanding. Such issued and outstanding shares of Decatur
Financial's common stock have been duly and validly authorized by all
necessary corporate action of Decatur Financial, are validly issued, fully
paid and nonassessable and have not been issued in violation of any
preemptive rights of any shareholders. Except as set forth in the
Disclosure Letter, Decatur Financial has no intention or obligation to
authorize or issue additional shares of its common stock. Decatur Financial
has not authorized the issuance of any other class of stock. On a
consolidated basis as of November 30, 1999, Decatur Financial had total
capital of $14,466,299, which consisted of common stock of $1,424,390,
capital surplus of $1,446,854, retained earnings of $11,703,325, and
unrealized loss on securities of $108,270.
(b) As of December 31, 1999, the Bank had 5,827 shares of common stock
authorized, no par value per share, all of which shares are issued and
outstanding to Decatur Financial. Such issued and outstanding shares of
Bank common stock have been duly and validly authorized by all necessary
corporate action of the Bank, are validly issued, fully paid and
nonassessable, and have not been issued in violation of any preemptive
rights of any Bank shareholders. All the issued and outstanding shares of
Bank common stock are owned by Decatur Financial free and clear of all
liens, pledges, charges, claims, encumbrances, restrictions, security
interests, options and preemptive rights and of all other rights of any
other person, corporation or entity with respect thereto. As of November
30, 1999, the Bank had total capital of $14,409,674, which consisted of
common stock of $582,700, capital surplus of $4,394,296, retained earnings
of $9,540,948, and unrealized loss on securities of $108,270.
(c) Except as set forth in the Disclosure Letter, there are no
options, commitments, calls, agreements, understandings, arrangements or
subscription rights regarding the issuance, purchase or acquisition of
capital stock, or any securities convertible into or representing the right
to purchase or otherwise receive the capital stock or any debt securities,
of Decatur Financial nor the Bank by which Decatur Financial or the Bank is
or may become bound. Neither Decatur Financial nor the Bank has any
outstanding contractual or other obligation to repurchase, redeem or
otherwise acquire any of its respective outstanding shares of capital
stock.
(d) Except as set forth in the Disclosure Letter, no person or entity
beneficially owns 5% or more of Decatur Financial's outstanding shares of
common stock.
A-10
5.04. Organizational Documents. The respective Articles of Incorporation or
Association and By-Laws of Decatur Financial and the Bank have been delivered to
First Merchants and represent true, accurate and complete copies of such
corporate documents of Decatur Financial and the Bank in effect as of the date
of this Agreement.
5.05. Compliance with Law. Neither Decatur Financial nor the Bank has
engaged in any activity nor taken or omitted to take any action which has
resulted or, to the knowledge of Decatur Financial could 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 materially affect the
business, prospects, condition (financial or otherwise) or results of operations
of Decatur Financial or the Bank. Decatur Financial and the Bank possess all
licenses, franchises, permits and other authorizations necessary for the
continued conduct of their respective businesses without material interference
or interruption and such licenses, franchises, permits and authorizations shall
be transferred to First Merchants on the Effective Date without any restrictions
or limitations thereon or the need to obtain any consents of third parties. All
agreements and understandings with, and all orders and directives of, all
regulatory agencies or government authorities with respect to the business or
operations of Decatur Financial or the Bank, including all correspondence,
communications and commitments related thereto, are set forth in the Disclosure
Letter. The Bank has received no inquiries from any regulatory agency or
government authority relating to its compliance with the Bank Secrecy Act, the
Truth-in-Lending Act or the Community Reinvestment Act or any laws with respect
to the protection of the environment or the rules and regulations promulgated
thereunder.
5.06. Accuracy of Statements. Neither this Agreement nor any report,
statement, list, certificate or other information furnished or to be furnished
by Decatur Financial or the Bank to First Merchants in connection with this
Agreement or any of the transactions contemplated hereby (including, without
limitation, any information which has been or shall be supplied by Decatur
Financial or the Bank with respect to their businesses, operations and financial
condition for inclusion in the proxy statement and registration 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
registration statement at the time it becomes effective) any untrue statement of
a material fact or omits or shall omit to state a material fact necessary to
make the statements contained herein or therein not misleading.
5.07. Litigation and Pending Proceedings. Except as set forth in the
Disclosure Letter, there are no claims of any kind, nor any action, suits,
proceedings, arbitrations or investigations pending or to the knowledge of
Decatur Financial or the Bank threatened in any court or before any government
agency or body, arbitration panel or otherwise (nor does Decatur Financial or
the Bank have any knowledge of a basis for any claim, action, suit, proceeding,
arbitration or investigation) against, by or materially adversely affecting
Decatur Financial or the Bank or their respective businesses, prospects,
conditions (financial or otherwise), results of operations or assets, or which
would prevent the performance of this Agreement or declare the same unlawful or
cause the rescission hereof. There are no material
A-11
uncured violations, or violations with respect to which material refunds or
restitutions may be required, cited in any compliance report to Decatur
Financial or the Bank as a result of an examination by any regulatory agency or
body.
5.08. Financial Statements.
(a) Decatur Financial's consolidated balance sheets as of the end of
the two fiscal years ended December 31, 1997 and 1998 and the eleven months
ended November 30, 1999 and the related consolidated statements of income,
comprehensive 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 Decatur Financial as of the respective dates thereof and the
consolidated results of operations of Decatur Financial for the respective
periods covered thereby and have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis.
(b) All loans reflected in the Financial Information and which have
been made, extended or acquired since November 30, 1999, (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 the Bank has a
security interest in collateral or a mortgage securing such loans, are
secured by perfected security interests or mortgages naming the Bank as the
secured party or mortgagee, except for such unperfected security interests
or mortgages naming the 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 the Bank is
not able to enforce any such security interest or mortgage.
5.09. Absence of Certain Changes. Except for events and conditions relating
to the business environment in general or as set forth in the Disclosure Letter,
since November 30, 1999, no events or conditions of any character, whether
actual, threatened or contemplated, have occurred, or, to the knowledge of
Decatur Financial, can reasonably be expected to occur, which materially
adversely affect Decatur Financial's or the Bank's business, prospects,
conditions (financial or otherwise), assets or results of operations or which
have caused, or can reasonably be expected to cause, Decatur Financial's or the
Bank's business to be conducted in a materially less profitable manner than
prior to November 30, 1999.
5.10. Absence of Undisclosed Liabilities. Neither Decatur Financial nor the
Bank is a party to any agreement, contract, obligation, commitment, arrangement,
liability, lease or license which individually exceeds $10,000 per year or which
may not be terminated within one year from the date of this Agreement, except as
set forth in the Disclosure Letter and except for unfunded loan commitments made
in the ordinary course of the Bank's business consistent with past practices,
A-12
nor to the knowledge of Decatur Financial does there exist any circumstances
resulting from transactions effected or to be effected or events which have
occurred or may occur or from any action taken or omitted to be taken which
could reasonably be expected to result in any such agreement, contract,
obligation, commitment, arrangement, liability, lease or license.
5.11. Title to Assets.
(a) Except as set forth in the Disclosure Letter, Decatur Financial
and the Bank have good and marketable title in fee simple absolute to all
personal property reflected in the November 30, 1999 Financial Information,
good and marketable title to all other properties and assets which Decatur
Financial or the Bank purport to own, good and marketable title to or right
to use by terms of any lease or contract all other property used in Decatur
Financial's or the Bank's business, and good and marketable title to all
property and assets acquired since November 30, 1999, free and clear of all
mortgages, liens, pledges, restrictions, security interests, charges,
claims or encumbrances of any nature.
(b) All furniture, fixtures, machinery, equipment, computer software
and hardware, and all other tangible personal property owned or used by
Decatur Financial or the Bank, including any such items leased as a lessee,
are in good working order and free of known defects, subject only to normal
wear and tear. The operation by Decatur Financial or the Bank of such
properties and assets is in compliance with all applicable laws,
ordinances, rules and regulations of any governmental authority having
jurisdiction over such use except for such noncompliance that would not
have a material adverse effect on the business of Decatur Financial or the
Bank.
5.12. Loans and Investments.
(a) Except as set forth in the Disclosure Letter, there is no loan of
the Bank in excess of $10,000 that has been classified by bank regulatory
examiners as "Other Loans Specially Mentioned," "Substandard," "Doubtful"
or "Loss," nor is there any loan of the Bank in excess of $10,000 that has
been identified by accountants or auditors (internal or external) as having
a significant risk of uncollectibility. The Bank's loan watch list and all
loans in excess of $10,000 that the Bank's management has determined to be
ninety (90) days or more past due with respect to principal or interest or
has placed on nonaccrual status are set forth in the Disclosure Letter.
(b) Each of the reserves and allowances for possible loan losses and
the carrying value for real estate owned which are shown on the Financial
Information is, in the opinion of Decatur Financial and the Bank, adequate
in all material respects under the requirements of generally accepted
accounting principles applied on a consistent basis to provide for possible
losses on loans outstanding and real estate owned as of the date of such
Financial Information.
A-13
(c) Except as set forth in the Disclosure Letter, none of the
investments reflected in the Financial Information and none of the
investments made by Decatur Financial or the Bank since November 30, 1999
is subject to any restrictions, whether contractual or statutory, which
materially impairs the ability of Decatur Financial or the Bank to dispose
freely of such investment at any time. Except as set forth in the
Disclosure Letter, neither Decatur Financial nor the Bank are a party to
any repurchase agreements with respect to securities.
5.13. Employee Benefit Plans.
(a) The 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 maintained, administered or contributed to
by Decatur Financial or the Bank and covers any employee, director or
former employee or director of Decatur Financial or the Bank under which
Decatur Financial or the Bank has any liability. 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 most recent annual reports
prepared in connection with any such plan and the current summary plan
descriptions. 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
in the list referred to above.
(b) The Employee Plans comply with and have been operated in
accordance with all applicable laws, regulations, rulings and other
requirements the breach or violation of which could materially affect
Decatur Financial, the Bank, or an Employee Plan. Each Employee Plan has
been administered in substantial conformance with such requirements and all
reports and information required with respect to each Employee Plan has
been timely given.
(c) 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(b)
of ERISA, for which a notice is required to be filed, has occurred with
respect to any Employee Plan. Neither Decatur Financial nor the Bank has
any liability to the Pension Benefit Guaranty Corporation ("PBGC"), to the
Internal Revenue Service ("IRS"), to the Department of Labor ("DOL") or to
an employee or Employee Plan beneficiary under Section 502 of ERISA.
(d) To the best knowledge of Decatur Financial and the Bank, 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.
A-14
(e) Each of the Employee Plans which is intended to be qualified under
Code Section 401(a) has been amended to comply in all material respects
with the applicable requirements of the Code, including the Tax Reform Act
of 1986, the Revenue Act of 1987, the Technical and Miscellaneous Revenue
Act of 1988, the Omnibus Budget Reconciliation Act of 1989, the Revenue
Reconciliation Act of 1990, the Tax Extension Act of 1991, the Unemployment
Compensation Amendments of 1992, the Omnibus Budget Reconciliation Act of
1993, and the Retirement Protection Act of 1994 and any rules, regulations
or other requirements promulgated thereunder (the "Acts"). In addition,
each such Employee Plan has been and is being operated in substantial
conformance with the applicable provisions of ERISA and the Code, as
amended by the Acts, including operational compliance with the Uruguay
Round Agreements Act, the Uniformed Services Employment and Reemployment
Rights Act of 1994, the Small Business Job Protection Act of 1996, the
Taxpayer Relief Act of 1997, and the Internal Revenue Service Restructuring
and Reform Act of 1998 (even though actual plan amendments do not have to
be made until the last day of the 2000 plan year). Except as set forth in
the Disclosure Letter, Decatur Financial and/or the Bank, as applicable,
sought and received favorable determination letters from the IRS within the
applicable remedial amendment periods under Code Section 401(b), and has
furnished to First Merchants copies of the most recent IRS determination
letters with respect to any such Employee Plan.
(f) No Employee Plan owns any security of Decatur Financial or the
Bank.
(g) No Employee Plan has incurred an "accumulated funding deficiency,"
as determined under Code Section 412 and ERISA Section 302.
(h) No Employee Plan has been terminated or incurred a partial
termination(either voluntarily or involuntarily).
(i) No claims against an Employee Plan, Decatur Financial or the Bank,
with respect to an Employee Plan, (other than normal benefit claims) have
been asserted or threatened.
(j) Except as set forth in the Disclosure Letter, there is no
contract, agreement, plan or arrangement covering any employee, director or
former employee or director of Decatur Financial or the 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, except as set forth in the Disclosure Letter.
(k) To the best knowledge of Decatur Financial and the Bank, no event
has occurred that would cause the imposition of the tax described in Code
Section 4980B.
A-15
To the best knowledge of Decatur Financial and the Bank, all requirements
of ERISA Section 601 have been met.
(l) The 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
Decatur Financial or the Bank and (iii) covers any employee, director or
former employee or director of Decatur Financial or the 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 hereinafter referred to collectively as the "Benefit
Arrangements." Each of the Benefit Arrangements has been maintained in
substantial 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.
(m) Except as set forth in the Disclosure Letter, neither Decatur
Financial nor the Bank has any present or future liability in respect of
post-retirement health and medical benefits for former employees or
directors of Decatur Financial or the Bank.
(n) Except as set forth in the Disclosure Letter, there has been no
amendment to, written interpretation or announcement (whether or not
written) by Decatur Financial or the Bank relating to, or change in
employee participation or coverage under, any Employee Plan or Benefit
Arrangement 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, 1998.
(o) For purposes of this Section 5.13, references to Decatur Financial
or the Bank are deemed to include (i) all predecessors of Decatur Financial
or the Bank, (ii) any subsidiary of Decatur Financial or the Bank, (iii)
all members of any controlled group (as determined under Code Section
414(b) or (c)) that includes Decatur Financial or the Bank, and (iv) all
members of any affiliated service group (as determined under Code Section
414(m) or (n)) that includes Decatur Financial or the Bank.
5.14. Obligations to Employees. Except as set forth in the Disclosure
Letter, all accrued obligations and liabilities of Decatur Financial and the
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
A-16
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 Decatur Financial or the Bank for their
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 Decatur Financial or the 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 materially adversely affect
Decatur Financial or the Bank or their respective businesses, prospects,
conditions (financial or otherwise), results of operations or assets. All
obligations and liabilities of Decatur Financial and the 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 their 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 generally accepted accounting principles, except where the
failure to pay any such obligations and liabilities or to maintain adequate
accruals and/or reserves for payment thereof would not materially adversely
affect Decatur Financial or the Bank or their respective businesses, prospects,
conditions (financial or otherwise), results of operations or assets. 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
Decatur Financial and the Bank, except where the failure to correctly and
accurately reflect and account for such accruals and reserves would not
materially adversely affect Decatur Financial or the Bank or their respective
businesses, prospects, conditions (financial or otherwise), results of
operations or assets.
5.15. Taxes, Returns and Reports. Decatur Financial and the Bank have (a)
duly filed all federal, state, local and foreign tax returns of every type and
kind required to be filed as of the date hereof, and each return is true,
complete and accurate in all material respects; (b) paid in all material
respects all taxes, assessments and other governmental charges due or claimed to
be due 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 Financial Information is adequate to cover all of Decatur Financial's and
the 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 November 30, 1999. Neither Decatur Financial
nor the Bank 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 November 30, 1999 up to and including the Effective Date,
except to the extent reflected on their Financial Information or on financial
statements of Decatur Financial or the Bank subsequent to such date and as set
forth in the Disclosure Letter. Neither Decatur Financial nor the Bank is
currently under audit by any state or federal taxing authority. Except as set
forth in the Disclosure Letter, neither the federal, state, or local tax returns
of Decatur Financial or the Bank have been audited by any taxing authority
during the past five (5) years.
A-17
5.16. Deposit Insurance. The deposits of the Bank are insured by the
Federal Deposit Insurance Corporation ("FDIC") in accordance with the Federal
Deposit Insurance Act, and the Bank has paid all premiums and assessments with
respect to such deposit insurance.
5.17. Reports. Since January 1, 1995, each of Decatur Financial and the
Bank have timely filed all reports, registrations and statements, together with
any required amendments thereto, that it was required to file with (i) the
Federal Reserve Board, (ii) the Indiana Department of Financial Institutions,
(iii) the FDIC, and (iv) any federal, state, municipal or local government,
securities, banking, environmental, insurance and other governmental or
regulatory authority, and the agencies and staffs thereof (collectively, the
"Regulatory Authorities"), having jurisdiction over the affairs of either
Decatur Financial or the Bank. All such reports filed by Decatur Financial and
the Bank complied in all material respects with all the rules and regulations
promulgated by the applicable Regulatory Authorities and are true, accurate and
complete and were prepared in conformity with generally accepted regulatory
accounting principles applied on a consistent basis. There is no unresolved
violation, criticism or exception by any of the Regulatory Authorities with
respect to any report or statement filed by, or any examinations of, Decatur
Financial or the Bank.
5.18. Absence of Defaults. Neither Decatur Financial nor the Bank is in
violation of its charter documents or By-Laws or in default under any material
agreement, commitment, arrangement, 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 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 on the business of
Decatur Financial or the Bank.
5.19. Tax and Regulatory Matters. Neither Decatur Financial nor the Bank
has taken or agreed to take any action or has any knowledge of any fact or
circumstance that would (i) prevent the transactions contemplated hereby from
qualifying as a reorganization within the meaning of Section 368 of the Code or
(ii) materially impede or delay receipt of any regulatory approval required for
consummation of the transactions contemplated by this Agreement.
5.20. Real Property.
(a) The legal description of each parcel of real property owned by
Decatur Financial or the 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 Decatur Financial or the Bank for disposition as
required by law) is set forth in the Disclosure Letter under the heading of
"Owned Real Property" (such real property being herein referred to as the
"Owned Real Property"). The legal description of each parcel of real
property leased by Decatur Financial or the Bank is also set forth in the
Disclosure Letter under the heading of "Leased Real Property" (such real
property being herein referred to as the "Leased Real Property"). Decatur
Financial shall update the Disclosure Letter
A-18
within ten (10) days after acquiring or leasing any real property after the
date hereof. Collectively, the Owned Real Property and the Leased Real
Property are herein referred to as the "Real Property."
(b) There is no pending action involving Decatur Financial or the Bank
as to the title of or the right to use any of the Real Property.
(c) Neither Decatur Financial nor the Bank has any interest in any
other real property except interests as a mortgagee, and except for any
real property acquired in foreclosure or in lieu of foreclosure and being
held for disposition as required by law.
(d) None of the buildings, structures or other improvements located on
the 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
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 Decatur Financial, threatened, with respect to any
such building, structure or improvement. The Real Property is in good
condition for its intended purpose, ordinary wear and tear excepted, and
has been maintained in accordance with reasonable and prudent business
practices applicable to like facilities. The Real Property has been used
and operated in compliance with all applicable laws, statutes, rules,
regulations and ordinances applicable thereto.
(f) Except as may be reflected in the Financial Information or with
respect to such easements, liens, defects or encumbrances as do not
individually or in the aggregate materially adversely affect the use or
value of the Owned Real Property, Decatur Financial and the Bank have, and
at the Closing Date will have, good and marketable title to their
respective Owned Real Property.
(g) Neither Decatur Financial nor the Bank has caused or allowed the
generation, treatment, storage, disposal or release at any Real Property of
any Toxic Substance, except in accordance with all applicable federal,
state and local laws and regulations. "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.
A-19
(h) Except as disclosed in the Disclosure Letter, there are no
underground storage tanks located on, in or under any Owned Real Property.
Neither Decatur Financial nor the Bank own or operate any underground
storage tank at any Leased Real Property.
(i) The Real Property is not "property" within the definition of
Indiana Code 13-11-2-174. Neither Decatur Financial nor the Bank is
required to provide a "disclosure document" to First Merchants as a result
of the Merger pursuant to the Indiana Responsible Property Transfer Law
(I.C. ss. 13-25-3-1 et seq.).
(j) There are no mechanic's or materialman's liens against the Real
Property, and no unpaid claims for labor performed, materials furnished or
services rendered in connection with constructing, improving or repairing
the Real Property in respect of which liens may or could be filed against
the Real Property.
5.21. Broker's or Finder's Fees. Except for Renninger & Associates, LLC, no
agent, broker or other person acting on behalf of Decatur Financial or the Bank
or under any authority of Decatur Financial or the 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.
5.22. Bring Down of Representations and Warranties. All representations and
warranties of Decatur Financial and the Bank contained in this Section 5 shall
be true, accurate and correct on and as of the Effective Date except as affected
by the transactions contemplated by and specified within the terms of this
Agreement.
5.23. 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 Decatur Financial and
the Bank and all directors, officers and employees of Decatur Financial and the
Bank shall have no further liability with respect thereto unless a court of
competent jurisdiction should determine that any misrepresentation or breach of
a warranty was willfully or intentionally made or is deemed to be fraudulent.
SECTION 6
Representations and
Warranties of First Merchants
First Merchants hereby represents and warrants to Decatur Financial as
follows:
A-20
6.01. Organization and Qualification. First Merchants is a corporation
organized and existing under the laws of the State of Indiana and has the
corporate power and authority to conduct its business in the manner and by the
means utilized as of the date hereof.
6.02. Authorization.
(a) First Merchants has the corporate power and authority to enter
into this Agreement and to carry out its obligations hereunder subject to
certain required regulatory approvals. The Agreement, when executed and
delivered, will have been duly authorized and will constitute a valid and
binding obligation of First Merchants, 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.
(b) Neither the execution of this Agreement, nor the consummation of
the transactions contemplated hereby, does or will (i) conflict with,
result in a breach of, or constitute a default under First Merchant'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, mortgage, security
agreement, contract, arrangement, or commitment, to which First Merchants
is subject or bound, the result of which would materially affect the
business or financial condition of First Merchants; (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 First Merchants; (iv) terminate or give any person, corporation or
entity the right to terminate, amend, abandon, or refuse to perform any
note, bond, indenture, mortgage, security agreement, contract, arrangement,
or commitment to which First Merchants is a party or by which First
Merchants is subject or bound; 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, First Merchants is to perform any duties or
obligations or receive any rights or benefits under any note, bond,
indenture, 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, federal and state securities laws,
and applicable Indiana banking and 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 of
the transactions contemplated by this Agreement.
A-21
6.03. Capitalization.
(a) As of December 31, 1999, First Merchants had 50,000,000 shares of
common stock authorized, no par value, of which 10,936,617 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 500,000 shares of Preferred Stock authorized,
no par value, no shares of which have been issued and no commitments exist
to issue any of such shares.
(c) The shares of First Merchants' common stock to be issued pursuant
to the Merger will be fully paid, validly issued and nonassessable.
6.04. Organizational Documents. The Articles of Incorporation and By-laws
of First Merchants in force as of the date hereof have been delivered to Decatur
Financial. The documents delivered by it represent complete and accurate copies
of the corporate documents of First Merchants in effect as of the date of this
Agreement.
6.05. Accuracy of Statements. Neither this Agreement nor any report,
statement, list, certificate or other information furnished or to be furnished
by First Merchants to Decatur Financial in connection with this Agreement or any
of the transactions contemplated hereby (including, without limitation, any
information which has been or shall be supplied by First Merchants with respect
to its business, operations and financial condition for inclusion in the proxy
statement and registration 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 to the registration statement at the time it becomes effective)
any untrue statement of a material fact or omits or shall omit to state a
material fact necessary to make the statements contained herein or therein, in
light of the circumstances in which they are made, not misleading.
6.06. Compliance With Law. First Merchants has not engaged in any activity
nor taken or omitted to take any action which has resulted or, to the knowledge
of First Merchants, could 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 materially adversely affect the business, prospects,
condition (financial or otherwise) or results of operations of First Merchants.
First Merchants possesses all licenses, franchises, permits and other
authorizations necessary for the continued conduct of its business without
material interference or interruption. There are no agreements or understandings
with, nor any orders or directives of, any regulatory agencies or government
authorities, which would have a material adverse effect on the consolidated
financial position of First Merchants. First Merchants has received no written
inquiries from
A-22
any regulatory agency or government authority relating to its compliance with
the Bank Secrecy Act, the Truth-in-Lending Act or the Community Reinvestment
Act.
6.07. Financial Statements. First Merchants consolidated balance sheets as
of the end of the two fiscal years ended December 31, 1997 and 1998 and the nine
months ended September 30, 1999 and the related consolidated statements of
income, shareholders' equity and cash flows for the years or period then ended
present fairly the consolidated financial condition or position of First
Merchants as of the respective dates thereof and the consolidated results of
operations of First Merchants for the respective periods covered thereby and
have been prepared in conformity with generally accepted accounting principles
applied on a consistent basis. All required regulatory reports have been filed
by First Merchants with its primary federal regulator during 1999, 1998, 1997
and 1996, and all of such reports are true, accurate and complete in all
material respects and have been prepared in conformity with generally accepted
regulatory accounting principles applied on a consistent basis.
6.08. Absence of Certain Changes. Except for events and conditions relating
to the business environment in general, since September 30, 1999, no events or
conditions of any character, whether actual, threatened or contemplated, have
occurred, or can reasonably be expected to occur, which materially adversely
affect First Merchants consolidated business, prospects, conditions (financial
or otherwise), assets or results of operations or which have caused, or can
reasonably be expected to cause, First Merchants business, on a consolidated
basis, to be conducted in a materially less profitable manner than prior to
September 30, 1999.
6.09. First Merchants Securities and Exchange Commission Filings. First
Merchants has filed all reports and other documents required to be filed by it
under the Securities Exchange Act of 1934 and the Securities Act of 1933,
including First Merchants' Annual Report on Form 10-K for the year ended
December 31, 1998, and Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, copies of which have previously been delivered to Decatur
Financial. All such Securities and Exchange Commission filings were true,
accurate and complete in all material respects as of the dates of the filings,
and no such filings contained any untrue statement of a material fact or omitted
to state a material fact necessary in order to make the statements, at the time
and in the light of the circumstances under which they were made, not false or
misleading.
6.10. Bring Down of Representations and Warranties. All representations and
warranties of First Merchants contained in this Section 6 shall be true,
accurate and correct on and as of the Effective Date except as affected by the
transactions contemplated by and specified within the terms of this Agreement.
6.11. 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
all directors, officers and employees of First Merchants shall have no further
liability with respect thereto unless a court
A-23
of competent jurisdiction should determine that any misrepresentation or breach
of a warranty was willfully or intentionally made or is deemed to be fraudulent.
SECTION 7
Covenants of Decatur Financial
Decatur Financial covenants and agrees with First Merchants, and covenants
and agrees to cause the Bank to act, as follows:
7.01. Shareholder Approval. Decatur Financial shall submit this Agreement
to its shareholders for approval at a meeting to be called and held in
accordance with applicable law and the Articles of Incorporation and By-Laws of
Decatur Financial at the earliest possible reasonable date, and the Board of
Directors of Decatur Financial shall recommend to the shareholders of Decatur
Financial that such shareholders approve this Agreement and shall not thereafter
withdraw or modify its recommendation. The Board of Directors of Decatur
Financial shall use its best efforts to obtain any vote of its shareholders
necessary for the approval of this Agreement.
7.02. Other Approvals. Decatur Financial and the Bank shall proceed
expeditiously, cooperate fully and use their best efforts to procure upon
reasonable terms and conditions all consents, authorizations, approvals,
registrations and certificates, to complete all filings and applications and to
satisfy all other requirements prescribed by law which are necessary for
consummation of the Merger on the terms and conditions provided in this
Agreement at the earliest possible reasonable date.
7.03. Conduct of Business.
(a) On and after the date of this Agreement and until the Effective
Date or until this Agreement shall be terminated as herein provided,
neither Decatur Financial nor the Bank shall, without the prior written
consent of First Merchants, (i) make any material changes in their capital
structure; (ii) authorize a class of stock or, except upon the exercise of
stock options disclosed pursuant to Section 5.03(c), issue, or authorize
the issuance of, stock other than or in addition to the outstanding stock
as set forth in Section 5.03 hereof; (iii) declare, distribute or pay any
dividends on their shares of common stock, or authorize a stock split, or
make any other distribution to their shareholders, except for (a) the
payment by Decatur Financial prior to the Effective Date of cash dividends
on its common stock in March, 2000, June, 2000 and September, 2000, which
dividends shall not exceed $1.03 per share, respectively, provided that
Decatur Financial shall not pay any such dividend during the fiscal quarter
in which the Merger shall become effective and in which Decatur Financial
shareholders will become entitled to receive dividends on the shares of
First Merchants into which the shares of Decatur Financial have been
converted or in any subsequent
A-24
fiscal quarter, and (b) the payment by the Bank to Decatur Financial of
dividends to pay Decatur Financial's expenses of operations and its
business and payment of fees and expenses incurred in connection with the
transactions contemplated by this Agreement; (iv) merge, combine or
consolidate with or sell their assets or any of their 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
liability or obligation, make any commitment, payment or disbursement,
enter into any contract, agreement, understanding or arrangement or engage
in any transaction, or acquire or dispose of any property or asset having a
fair market value in excess of $10,000.00 (except for personal or real
property acquired or disposed of in connection with foreclosures on
mortgages or enforcement of security interests and loans made or sold by
the Bank in the ordinary course of business); (vi) subject any of their
properties or assets to a mortgage, lien, claim, charge, option,
restriction, security interest or encumbrance; (vii) except for the actions
specifically described in the Disclosure Letter which First Merchants
acknowledges it has approved, 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 Decatur Financial or
the Bank; (viii) except for the actions specifically described in the
Disclosure Letter which First Merchants acknowledges it has approved,
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 Decatur Financial or the Bank, change the level of benefits or
payments under any of the foregoing or increase or decrease any severance
or termination of pay benefits or any other fringe or employee benefits
other than as required by law or regulatory authorities; (ix) amend their
Articles of Incorporation or By-Laws from those in effect on the date of
this Agreement; (x) except for the actions specifically described in the
Disclosure Letter which First Merchants acknowledges it has approved,
modify, amend or institute new employment policies or practices, or enter
into, renew or extend any employment or severance agreements with respect
to any present or former Decatur Financial or Bank directors, officers or
employees; (xi) give, dispose, sell, convey, assign, hypothecate, pledge,
encumber or otherwise transfer or grant a security interest in any common
stock of the Bank; (xii) fail to make additions to the Bank's reserve for
loan losses, or any other reserve account, in the ordinary course of
business and in accordance with sound banking practices; (xiii) other than
in the ordinary course of business consistent with past practice, incur any
indebtedness for borrowed money or assume, guarantee, endorse or otherwise
as an accommodation become responsible or liable for the obligations of any
other individual, corporation or other entity; and (xiv) agree in writing
or otherwise to take any of the foregoing actions.
A-25
(b) Decatur Financial and the 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) Decatur Financial and the Bank shall continue to give to First
Merchants and its employees, accountants, attorneys and other authorized
representatives reasonable access during regular business hours and other
reasonable times to all their premises, properties, statements, books and
records.
7.04. 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, Decatur Financial and the Bank each shall (a) carry on their business
diligently, substantially in the same manner as heretofore conducted, and in the
ordinary course of business; (b) use their best 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.
7.05. Other Negotiations. Except with the prior written approval of First
Merchants, on and after the date of this Agreement and until the Effective Date,
Decatur Financial and the Bank shall not, and shall not permit or authorize
their respective directors, officers, employees, agents or representatives to,
directly or indirectly, initiate, solicit, encourage, or engage in discussions
or negotiations with, or provide information to, any corporation, association,
partnership, person or other entity or group concerning any merger,
consolidation, share exchange, combination, purchase or sale of substantial
assets, sale of shares of capital stock (or securities convertible or
exchangeable into or otherwise evidencing, or any agreement or instrument
evidencing the right to acquire, capital stock), tender offer, acquisition of
control of Decatur Financial or the Bank or similar transaction involving
Decatur Financial or the Bank (all such transactions hereinafter referred to as
an "Acquisition Transaction"). Decatur Financial and the Bank shall promptly
communicate to First Merchants the terms of any proposal, written or oral, which
either may receive with respect to an Acquisition Transaction and any request by
or indication of interest on the part of any third party with respect to
initiation of any Acquisition Transaction or discussion with respect thereto.
The above provisions of this Section 7.05 notwithstanding, nothing contained in
this Agreement shall prohibit (i) Decatur Financial from furnishing information
to, or entering into discussions or negotiations with, any person or entity that
makes an unsolicited proposal of an Acquisition Transaction if and to the extent
that (a) the Board of Directors of Decatur Financial, after consultation with
and based upon the written advice of legal counsel, determines in good faith
that such action is required for the directors of Decatur Financial to fulfill
their fiduciary duties and obligations to Decatur Financial's shareholders and
other constituencies under Indiana law, and (b) prior to furnishing such
information to, or entering into discussions or negotiations
A-26
with, such person or entity, Decatur Financial provides immediate written notice
to First Merchants to the effect that it is furnishing information to, or
entering into discussions or negotiations with, such person or entity, or (ii)
notwithstanding the provisions of Section 7.01, the Board of Directors of
Decatur Financial from failing to make, withdrawing or modifying its
recommendation to shareholders regarding the Merger following receipt of a
proposal for an Acquisition Transaction if the Board of Directors of Decatur
Financial, after consultation with and based upon the written advice of legal
counsel, determines in good faith that such action is required for the directors
of Decatur Financial to fulfill their fiduciary duties and obligations to
Decatur Financial's shareholders and other constituencies under Indiana law.
7.06. Restrictions Regarding Affiliates. Decatur Financial shall, within
thirty (30) days after the date of this Agreement and promptly thereafter until
the Effective Date to reflect any changes or upon the request of First
Merchants, provide First Merchants with a list identifying each person who may
reasonably be deemed to be an "affiliate" of Decatur Financial within the
meaning of such term as used in Rule 145 under the Securities Act of 1933, as
amended (the "1933 Act"). Each director, executive officer and other person who
is an "affiliate" of Decatur Financial for purposes of the 1933 Act shall
deliver to First Merchants, at least thirty-one (31) days prior to the Effective
Date, a written agreement, in form and substance satisfactory to counsel to
First Merchants, regarding compliance by each such person with the provisions of
such Rule 145.
7.07. Press Release. Neither Decatur Financial nor the Bank shall issue any
press releases or make any other public announcements or disclosures relating to
the Merger without the prior approval of First Merchants.
7.08. Disclosure Letter. Decatur Financial shall promptly supplement, amend
and update monthly and as of the Effective Date the 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 Disclosure Letter.
7.09 Confidentiality. Decatur Financial and the Bank shall use their best
efforts to cause their respective officers, employees, and authorized
representatives to, hold in strict confidence all confidential data and
information obtained by them from First Merchants, unless such information (i)
was already known to Decatur Financial and the Bank, (ii) becomes available to
Decatur Financial and the Bank from other sources, (iii) is independently
developed by Decatur Financial and the Bank, (iv) is disclosed outside of
Decatur Financial and the Bank with and in accordance with the terms of prior
written approval of First Merchants, 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. Decatur Financial and the
Bank further agree that in the event this Agreement is terminated, they will
return to First Merchants all information obtained by Decatur Financial and the
Bank regarding First Merchants, including all copies made of such information by
Decatur Financial and the Bank. This provision shall survive the Effective Date
or the earlier termination of this Agreement.
A-27
7.10 Cooperation. Decatur Financial 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, (i) Decatur Financial shall cooperate and
assist First Merchants in preparation of and/or filing of all regulatory
applications, the registration statement for registration of First Merchants'
shares, and all other documentation required to be prepared for consummation of
the Merger and obtaining all necessary approvals, and (ii) Decatur Financial
shall furnish First Merchants with all information concerning itself and the
Bank that First Merchants may request in connection with the preparation of the
documentation referenced above. Prior to the Closing (as defined in Section 12
hereof), Decatur Financial agrees to disclose to First Merchants any fact or
matter that comes to the attention of Decatur Financial that might indicate that
any of the representations or warranties of Decatur Financial may be untrue,
incorrect, or misleading in any material respect.
7.11. Environmental Reports. Decatur Financial, at its sole cost and
expense, shall provide to First Merchants, as soon as reasonably practical, but
not later than thirty (30) days after the date hereof, a report of a phase one
environmental investigation on all real property owned, leased or operated by
Decatur Financial or the Bank as of the date hereof (but excluding space in
retail and similar establishments leased by Decatur Financial or the Bank for
automatic teller machines or bank branch facilities where the space leased
comprises less than 20% of the total space leased to all tenants of such
property) and within ten (10) days after the acquisition or lease of any real
property acquired or leased by Decatur Financial or the Bank after the date
hereof (but excluding space in retail and similar establishments leased by
Decatur Financial or the Bank for automatic teller machines or bank branch
facilities where the space leased comprises less than 20% of the total space
leased to all tenants of such property). If required by the phase one
investigation in First Merchants' reasonable opinion, Decatur Financial shall
provide to First Merchants, within thirty (30) days of such request, a report of
a phase two investigation on properties requiring such additional study. First
Merchants shall have fifteen (15) business days from the receipt of any such
phase one or phase two investigation report to notify Decatur Financial of any
dissatisfaction with the contents of such report. Should the cost of taking all
remedial or other corrective actions and measures (i) required by applicable law
or reasonable likely to be required by applicable law, or (ii) recommended or
suggested by such report or reports as prudent in light of serious life, health
or safety concerns, in the aggregate, exceed the sum of $250,000 as reasonably
estimated by an environmental expert retained for such purpose by First
Merchants and reasonably acceptable to Decatur Financial, or if the cost of such
actions and measures cannot be so reasonably estimated by such expert to be such
amount or less with any reasonable degree of certainty, then First Merchants
shall have the right for a period of fifteen (15) business days following
receipt of such estimate or indication that the cost of such actions and
measures cannot be so reasonably estimated to terminate this Agreement by
providing written notice of such termination to Decatur Financial.
A-28
7.12. Letter to Decatur Financial's Shareholders. Within two (2) business
days after execution of this Agreement by Decatur Financial and First Merchants,
Decatur Financial shall deposit in the United States mail a letter to each of
the shareholders of record of Decatur Financial as of the date of execution of
this Agreement informing each shareholder about the execution of this Agreement
and the proposed Merger. The terms of such letter to the shareholders of Decatur
Financial shall be in a form mutually agreed to by First Merchants and Decatur
Financial.
7.13. Exercise of Options. Decatur Financial shall cause the stock options
disclosed pursuant to Section 5.03(c) hereof to be exercised and the related
shares of Decatur Financial's common stock to be issued on or before the
Effective Date. Decatur Financial commits that no cash shall be paid to option
holders in connection with the exercise of such options and that immediately
prior to the Effective Date of the Merger, Decatur Financial will have 147,439
shares of common stock outstanding.
SECTION 8
Covenants of First Merchants
First Merchants covenants and agrees with Decatur Financial as follows:
8.01. Approvals. First Merchants shall proceed expeditiously, cooperate
fully and use its best efforts to procure upon reasonable terms and conditions
all consents, authorizations, approvals, registrations and certificates, to
complete all filings and applications and to satisfy all other requirements
prescribed by law which are necessary for consummation of the Merger on the
terms and conditions provided in this Agreement. First Merchants shall provide
Decatur Financial with copies of proposed regulatory filings in connection with
the Merger and afford Decatur Financial the opportunity to offer comment on the
filings before filing. The approval of the shareholders of First Merchants of
the transactions contemplated by this Agreement is not required.
8.02. Employee Benefit Plans.
(a) Coverage Under First Merchants' Plans. No later than January 1,
2001, First Merchants will cover the Bank's employees under any
tax-qualified retirement plan First Merchants maintains for its employees,
provided that such an employee meets the applicable participation
requirements, in lieu of the Bank's current tax-qualified retirement plan.
Until that time, the Bank's current tax-qualified retirement plan will be
maintained at the same level, with respect to benefit accruals, provided
for on the Effective Date. Following the Effective Date, the Bank employees
will otherwise receive employee benefits that in the aggregate are
substantially comparable to the employee benefits provided to those
employees by Decatur Financial or the Bank on the Effective Date. For
purposes of determining a Decatur Financial or Bank employee's eligibility
and vesting service under a First Merchant's employee
A-29
benefit plan that the employee is permitted to enter, service with Decatur
Financial or the Bank will be treated as service with First Merchants;
provided, however, that service with Decatur Financial or the Bank shall
not be treated as service with First Merchants for purposes of benefit
accrual.
(b) Coverage Under First Merchants' Health Plan. Those employees of
the Bank who become covered by the health plan sponsored by First Merchants
under the provisions of subsection (a) and who have a condition which
constitutes a pre-existing condition subject to exclusion or limitation
under the health plan sponsored by First Merchants shall receive credit for
their period of coverage under a Bank health plan towards the satisfaction
under the First Merchants health plan of any limitation period imposed with
respect to such pre-existing condition exclusion or limitation.
(c) COBRA. First Merchants shall be responsible for providing COBRA
continuation coverage to any qualified employee or former employee of
Decatur Financial or the Bank and to their respective qualified
beneficiaries, on and after the Effective Date, regardless of when the
qualifying event occurred.
8.03. Press Release. Except as required by law, First Merchants shall not
issue any press release to any national wire service relating solely to the
Merger without the prior approval of Decatur Financial.
8.04. Confidentiality. First Merchants shall, and 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 it
from Decatur Financial or the Bank, unless such information (i) was already
known to First Merchants, (ii) becomes available to First Merchants from other
sources, (iii) is independently developed by First Merchants, (iv) is disclosed
outside of First Merchants with and in accordance with the terms of prior
written approval of Decatur Financial or the 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
Decatur Financial all information obtained by First Merchants regarding Decatur
Financial or the Bank, including all copies made of such information by First
Merchants. This provision shall survive the Effective Date or the earlier
termination of this Agreement.
8.05. Covenants Regarding the Bank. Upon consummation of the Merger, the
Bank shall be a state bank organized under the laws of the State of Indiana and
the officers and directors of the Bank in office immediately prior to the
consummation of the Merger shall be the officers and directors of the Bank at
the Effective Date subject to the provisions of the Bank's Articles of
Association and By-Laws. Thereafter, the Bank directors who desire to continue
to serve in that capacity shall do so for at least the remainder of the one (1)
year terms to which they have been elected. The Bank directors will be subject
to First Merchants'
A-30
policy of mandatory retirement at age seventy (70); provided, however, the
policy of mandatory retirement will not apply to any of the Bank's current
directors until eighteen (18) months after the Effective Date. First Merchants
intends to continue to operate the Bank as an operating subsidiary of First
Merchants under the name "Decatur Bank & Trust Company" with no changes in the
number or locations of branches.
8.06. First Merchants Board of Directors. First Merchants shall cause all
necessary action to be taken to cause an individual selected by the Board of
Directors of Decatur Financial on or before the Effective Date to either (i) be
nominated for election as a member of the First Merchants' Board of Directors
for a three (3) year term at the first annual meeting of the shareholders of
First Merchants following the Effective Date; or (ii) to be appointed as a
member of the First Merchants' Board of Directors at the next meeting of the
First Merchants' Board of Directors following the Effective Date to serve until
the first annual meeting of the shareholders of First Merchants following the
Effective Date and then to be nominated for election as a member of the First
Merchants' Board of Directors for a three (3) year term at the first annual
meeting of the shareholders of First Merchants following the Effective Date,
whichever can be effected first depending on the timing of the occurrence of the
Effective Date.
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:
9.01. Shareholder Approval. The shareholders of Decatur Financial shall
have approved, ratified and confirmed this Agreement as required by applicable
law.
9.02. Registration Statement Effective. First Merchants shall have
registered its shares of common stock to be issued to shareholders of Decatur
Financial in accordance with this Agreement with the Securities and Exchange
Commission pursuant to the 1933 Act, and all state securities and "blue sky"
approvals and authorizations required to offer and sell such shares shall have
been received by First Merchants. The registration statement with respect
thereto shall have been declared effective by the Securities and Exchange
Commission and no stop order shall have been issued or threatened.
9.03. Tax Opinion. The parties shall have obtained an opinion of counsel,
which shall be in form and content satisfactory to counsel for all parties
hereto, to the effect that the Merger effected pursuant to this Agreement shall
constitute a tax-free transaction (except to the extent cash or boot is
received) to each party hereto and to the shareholders of each party.
A-31
Such opinion shall be based upon factual representations received by such
counsel from the parties, which representations may take the form of written
certifications.
9.04. Affiliate Agreements. First Merchants and the Bank shall have
obtained (a) from Decatur Financial, a list identifying each affiliate of
Decatur Financial and (b) from each affiliate of Decatur Financial, the
agreements contemplated by Section 7.06 hereof.
9.05. Regulatory Approvals. The Board of Governors of the Federal Reserve
System and the Indiana Department of Financial Institutions 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.
9.06. Officer's Certificate. First Merchants and Decatur Financial shall
have delivered to each other a certificate signed by their Chairman or President
and their Secretary, dated the Effective Date, certifying that (a) all the
representations and warranties of their respective corporations are true,
accurate and correct on and as of the Effective Date; (b) all the covenants of
their respective corporations have been complied with from the date of this
Agreement through and as of the Effective Date; and (c) their respective
corporations have satisfied and fully complied with all conditions necessary to
make this Agreement effective as to them.
9.07. Fairness Opinion. Decatur Financial shall have obtained an opinion
from an investment banker of its choosing to the effect that the terms of the
Merger are fair to the shareholders of Decatur Financial from a financial
viewpoint. Such opinion shall be (a) in form and substance reasonably
satisfactory to Decatur Financial, (b) dated as of a date not later than the
mailing date of the Proxy Statement relating to the Merger and (c) included in
the Proxy Statement.
9.08. No Judicial Prohibition. Neither Decatur Financial, the Bank nor
First Merchants shall be subject to any order, decree or injunction of a court
or agency of competent jurisdiction which enjoins or prohibits the consummation
of the Merger.
9.09. Other Consents and Approvals. All consents and other approvals
required for the transfer of any contracts, agreements, leases, loans, etc. as a
result of the Merger shall have been obtained.
A-32
SECTION 10
Termination of Merger
10.01. 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 Decatur Financial or by Decatur
Financial to First Merchants only for the following reasons:
(a) By Decatur Financial or First Merchants, if there has been a
material misrepresentation, a breach of warranty or a failure to comply
with any covenant on the part of any party in the representations,
warranties, and covenants set forth herein; provided that the party in
default shall have no right to terminate for its own default;
(b) By Decatur Financial or First Merchants, if it shall determine in
its sole discretion that the transactions contemplated by this Agreement
have become inadvisable or impracticable by reason of commencement or
threat of material litigation or proceedings against any of the parties;
(c) By Decatur Financial or First Merchants, if the financial
condition, business, assets, or results of operations of the other party
shall have been materially and adversely changed from that in existence at
September 30, 1999 (as to First Merchants) and November 30, 1999 (as to
Decatur Financial);
(d) By Decatur Financial or First Merchants, if the transaction
contemplated herein has not been consummated by October 2, 2000 (provided
that the terminating party is not then in material breach of any
representation, warranty, covenant or other agreement contained herein);
(e) By First Merchants if any of the items, events or information set
forth in any update to the Disclosure Letter has had or may have a material
adverse effect on the financial condition, results of operations, business,
or prospects of Decatur Financial or the Bank;
(f) By First Merchants or Decatur Financial if, in the opinion of
counsel to First Merchants or Decatur Financial, the Merger will not
constitute a tax-free reorganization under the Code;
(g) By First Merchants or Decatur Financial pursuant to their
respective termination rights set forth in Section 3.04 hereof;
(h) By First Merchants pursuant to its termination rights set forth in
Section 7.11 hereof;
A-33
(i) By Decatur Financial if the appropriate discharge of the fiduciary
duties of the Board of Directors of Decatur Financial consistent with
Section 7.05 requires that Decatur Financial terminate this Agreement;
(j) By First Merchants if it receives written notice under Section
7.05 that Decatur Financial intends to furnish information to or enter into
discussions or negotiations with a third party in connection with a
proposed Acquisition Transaction, if Decatur Financial fails to give any
such written notice as required in Section 7.05 or if Decatur Financial's
Board of Directors fails to make, withdraws or modifies its recommendation
to Decatur Financial's shareholders to vote in favor of the Merger
following receipt of a proposal for an Acquisition Transaction; or
(k) By either party (provided that the terminating party is not then
in material breach of any representation or warranty contained in this
Agreement or in material breach of any covenant or other agreement
contained in this Agreement) in the event that any of the conditions
precedent to the obligations of such party to consummate the Merger cannot
be satisfied or fulfilled by the date specified in Section 10.1(d) of this
Agreement.
10.02. Effect of Termination. Except as provided below, in the event that
this Agreement is terminated pursuant to the provisions of Section 10.01 hereof,
no party shall have any liability to any other party for costs, expenses,
damages or otherwise; provided, however, that notwithstanding the foregoing, in
the event that this Agreement is terminated pursuant to Section 10.01(a) hereof
on account of a willful breach of any of the representations and warranties set
forth herein or any 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,
however, that nothing in this proviso shall be deemed to constitute liquidated
damages for the willful 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 First Merchants in accordance with
Section 10.01(j) or by Decatur Financial in accordance with Section 10.01(i),
Decatur Financial shall pay First Merchants the sum of $1,000,000 as liquidated
damages. Such liquidated damages shall be in lieu of costs, expenses and damages
otherwise recoverable under the first sentence of this Section 10.02. Such
payment shall be made within ten (10) days of the date of notice of termination.
Decatur Financial acknowledges the reasonableness of such amount in light of the
considerable time and expense invested and to be invested by First Merchants and
its representatives in furtherance of the Merger. Such amount was agreed upon by
First Merchants and Decatur Financial as compensation to First Merchants for its
time and expense and not as a penalty to Decatur Financial, it being impossible
to ascertain the exact value of the time and expense to be invested. First
Merchants shall also be entitled to recover from Decatur Financial its
reasonable attorneys' fees incurred in the enforcement of this Section.
A-34
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 in the Articles of Merger of Decatur
Financial with and into First Merchants as filed with the Secretary of State of
the State of Indiana (the "Effective Date"). The Effective Date shall occur no
later than the last business day of the month in which any waiting period
following the last approval of the Merger by a state or federal regulatory
agency or governmental authority expires.
SECTION 12
Closing
12.01. 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 place as mutually agreed to by First Merchants and Decatur
Financial.
12.02. Articles 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.
12.03. Opinions of Counsel. At the Closing, Decatur Financial shall deliver
an opinion of its counsel, Krieg DeVault Alexander & Capehart, to First
Merchants, and First Merchants shall deliver an opinion of its counsel, Bingham
Summers Welsh & Spilman, LLP, to Decatur Financial, dated as of the date of the
Closing. The form of such opinions shall be as mutually agreed to by the parties
hereto and their respective counsel.
SECTION 13
Miscellaneous
13.01. 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 thereof shall inure to the benefit
of any other person, firm, or corporation whomsoever, except as expressly
applied to the officers and directors of First Merchants and Decatur Financial.
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.
A-35
13.02. Waiver; Amendment.
(a) First Merchants and Decatur Financial 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 Decatur
Financial, this Agreement may be amended, modified or supplemented by the
written agreement of Decatur Financial and First Merchants without further
approval of such shareholders, except that no such amendment, modification
or supplement shall result in a decrease in the consideration specified in
Section 3 hereof, except in accordance with the terms of Section 3 hereof,
or shall materially adversely affect the rights of the shareholders of
Decatur Financial without the further approval of such shareholders.
13.03. Notices. Any notice required or permitted by this Agreement shall be
deemed to have been duly given if delivered in person, receipted for or sent by
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to First Merchants: With a copy to:
200 E. Jackson Street, Box 792 Bingham Summers Welsh & Spilman, LLP
Muncie, IN 47305 2700 Market Tower
Attn: Larry L. Helms, 10 West Market Street
General Counsel Indianapolis, Indiana 46204-2982
Attn: David R. Prechtel, Esq.
If to Decatur Financial: With a copy to:
520 North 13th Street Krieg DeVault Alexander & Capehart, LLP
P. O. Box 988 One Indiana Square, Suite 2800
Decatur, IN 46733 Indianapolis, Indiana 46204
Attn: Dennis A. Bieberich, Attn: John W. Tanselle, Esq.
President
A-36
or to such substituted address as any of them have given to the other in
writing. Notwithstanding the foregoing, all notices required to be given
pursuant to Sections 3.04(b) and 3.04(c) hereof shall be given in the time
periods specified in such sections by either hand delivery or facsimile
transmission to the specified parties.
13.04. 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.
13.05. Severability. In case any one or more of the provisions contained
herein shall, for any reason, be held to be invalid, illegal, or unenforceable
in any respect, such invalidity, illegality, or unenforceability shall not
affect any other provision of this Agreement, but this Agreement shall be
construed as if such invalid, illegal, or unenforceable provision or provisions
had never been contained herein.
13.06. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts shall
together constitute one and the same instrument. In addition, this Agreement and
the documents to be delivered hereunder may be executed by the parties hereto
either manually or by facsimile signatures, each of which shall constitute an
original signature.
13.07. Governing Law. This Agreement is executed in and shall be construed
in accordance with the laws of the State of Indiana, without regard to choice of
law principles.
13.08. Entire Agreement. This Agreement supersedes any other agreement,
whether oral or written, between First Merchants and Decatur Financial relating
to the matters contemplated hereby, and constitutes the entire agreement between
the parties hereto.
13.09. Expenses. First Merchants and Decatur Financial shall each pay their
own expenses incidental to the transactions contemplated hereby. It is
understood that the cost of the fairness opinion referenced in Section 9.07
shall be borne by Decatur Financial whether or not the Merger is consummated.
This provision shall survive the Effective Date or the earlier termination of
this Agreement.
13.10. Survival of Contents. The provisions of Sections 7.09, 8.04, 10.02,
13.09 and this Section 13.10 shall survive beyond the termination of this
Agreement. The provisions of Sections 7.09, 8.02, 8.04, 8.05, 8.06, 13.09 and
this Section 13.10 shall survive beyond the Effective Date.
A-37
IN WITNESS WHEREOF, First Merchants and Decatur Financial have made and
entered into this Agreement as of the day and year first above written and have
caused this Agreement to be executed and attested by their duly authorized
officers.
FIRST MERCHANTS CORPORATION
ATTEST:
/s/ Larry R. Helms By: /s/ Michael L. Cox
- -------------------------- -----------------------------------
Larry R. Helms, Secretary Michael L. Cox, President and Chief
Executive Officer
DECATUR FINANCIAL, INC.
ATTEST:
/s/ L. Dale Gagle By: /s/ Dennis A. Bieberich
- -------------------------- -----------------------------------
L. Dale Gagle, Secretary Dennis A. Bieberich, President
A-38
APPENDIX B
CHAPTER 44
DISSENTERS' RIGHTS
23-1-44-1. "CORPORATION" DEFINED. - As used in this chapter, "corporation"
means the issuer of the shares held by a dissenter before the corporate action,
or the surviving or acquiring corporation by merger or share exchange of that
issuer. [P.L. 149-1986, Section 28.]
23-1-44-2. "DISSENTER" DEFINED. - As used in this chapter, "dissenter"
means a shareholder who is entitled to dissent from corporate action under
section 8 [IC 23-1-44-8] of this chapter and who exercises that right when and
in the manner required by sections 10 through 18 [IC 23-1-44-10 through IC
23-1-44-18] of this chapter. [P.L.149-1986, Section 28.]
23-1-44-3. "FAIR VALUE" DEFINED. - As used in this chapter, "fair value,"
with respect to a dissenter's shares, means the value of the shares immediately
before the effectuation of the corporate action to which the dissenter objects,
excluding any appreciation or depreciation in anticipation of the corporate
action unless exclusion would be inequitable. [P.L. 149-1986, Section 28.]
23-1-44-4. "INTEREST" DEFINED. - As used in this chapter, "interest" means
interest from the effective date of the corporate action until the date of
payment, at the average rate currently paid by the corporation on its principal
bank loans or, if none, at a rate that is fair and equitable under all the
circumstances. [P.L. 149-1986, Section 28.]
23-1-44-5. "RECORD SHAREHOLDER" DEFINED. - As used in this chapter, "record
shareholder" means the person in whose name shares are registered in the records
of a corporation or the beneficial owner of shares to the extent that treatment
as a record shareholder is provided under a recognition procedure or a
disclosure procedure established under IC 23-1-30-4. [P.L. 149-1986, Section
28.]
23-1-44-6. "BENEFICIAL SHAREHOLDER" DEFINED. - As used in this chapter,
"beneficial shareholder" means the person who is a beneficial owner of shares
held by a nominee as the record shareholder. [P.L. 149-1986, Section 28.]
23-1-44-7. "SHAREHOLDER" DEFINED. - As used in this chapter, "shareholder"
means the record shareholder or the beneficial shareholder. [P.L. 149-1986,
Section 28.]
23-1-44-8. SHAREHOLDER DISSENT. - (a) A shareholder is entitled to dissent
from, and obtain payment of the fair value of the shareholder's shares in the
event of, any of the following corporate actions:
B-1
(1) Consummation of a plan of merger to which the corporation is a
party if:
(A) Shareholder approval is required for the merger by IC
23-1-40-3 or the articles of incorporation; and
(B) The shareholder is entitled to vote on the merger.
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan.
(3) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale
or exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which
all or substantially all of the net proceeds of the sale will be
distributed to the shareholders within one (1) year after the date of
sale.
(4) The approval of a control share acquisition under IC 23-1-42.
(5) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the
board of directors provides that voting or nonvoting shareholders are
entitled to dissent and obtain payment for their shares.
(b) This section does not apply to the holders of shares of any class or
series if, on the date fixed to determine the shareholders entitled to receive
notice of and vote at the meeting of shareholders at which the merger, plan of
share exchange, or sale or exchange of property is to be acted on, the shares of
that class or series were:
(1) Registered on a United States securities exchange registered under
the Exchange Act (as defined in IC 23-1-43-9); or
(2) Traded on the National Association of Securities Dealers, Inc.
Automated Quotations System Over-the-Counter Markets - National Market
Issues or a similar market.
(c) A shareholder:
(1) Who is entitled to dissent and obtain payment for the
shareholder's shares under this chapter; or
(2) Who would be so entitled to dissent and obtain payment but for the
provisions of subsection (b);
B-2
may not challenge the corporate action creating (or that, but for the
provisions of subsection (b), would have created) the shareholder's
entitlement. [P.L. 149-1986, Section 28; P.L. 107-1987, Section 19.]
23-1-44-9. BENEFICIAL SHAREHOLDER DISSENT. - (a) A record shareholder may
assert dissenters' rights as to fewer than all the shares registered in the
shareholder's name only if the shareholder dissents with respect to all shares
beneficially owned by any one (1) person and notifies the corporation in writing
of the name and address of each person on whose behalf the shareholder asserts
dissenters' rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which the shareholder dissents and the
shareholder's other shares were registered in the names of different
shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares
held on the shareholder's behalf only if:
(1) The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time
the beneficial shareholder asserts dissenters' rights and
(2) The beneficial shareholder does so with respect to all the
beneficial shareholder's shares or those shares over which the
beneficial shareholder has power to direct the vote. [P.L. 149-1986,
Section 28.]
23-1-44-10. NOTICE OF DISSENTERS' RIGHTS PRECEDING SHAREHOLDER VOTE. - (a)
If proposed corporate action creating dissenters' rights under section 8 [IC
23-1-44-8] of this chapter is submitted to a vote at a shareholders' meeting,
the meeting notice must state that shareholders are or may be entitled to assert
dissenters' rights under this chapter.
(b) If corporate action creating dissenters' rights under section 8 of this
chapter is taken without a vote of shareholders, the corporation shall notify in
writing all shareholders entitled to assert dissenters' rights that the action
was taken and send them the dissenters' notice described in section 12 [IC
23-1-44-121 of this chapter. [P.L. 149-1986, Section 28; P.L. 107-1987, Section
20.]
23-1-44-11. NOTICE OF INTENT TO DISSENT. - (a) If proposed corporate action
creating dissenters' rights under section 8 [IC 23-1-44-8] of this chapter is
submitted to a vote at a shareholders' meeting, a shareholder who wishes to
assert dissenters' rights:
(1) Must deliver to the corporation before the vote is taken written
notice of the shareholder's intent to demand payment for the
shareholder's shares if the proposed action is effectuated; and
(2) Must not vote the shareholder's shares in favor of the proposed
action.
(b) A shareholder who does not satisfy the requirements of subsection (a)
is not entitled to payment for the shareholder's shares under this chapter.
[P.L. 149-1986, Section 28.]
B-3
23-1-44-12. NOTICE OF DISSENTERS' RIGHTS FOLLOWING ACTION CREATING RIGHTS.
- - (a) If proposed corporate action creating dissenters' rights under section 8
[IC 23-1-44-8] of this chapter is authorized at a shareholders' meeting, the
corporation shall deliver a written dissenters' notice to all shareholders who
satisfied the requirements of section 11 [IC 23-1-44-11] of this chapter.
(b) The dissenters' notice must be sent no later than ten (10) days after
approval by the shareholders, or if corporate action is taken without approval
by the shareholders, then ten (10) days after the corporate action was taken.
The dissenters' notice must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of
the proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not the person acquired
beneficial ownership of the shares before that date;
(4) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty (30) nor more than
sixty (60) days after the date the subsection (a) notice is delivered;
and
(5) Be accompanied by a copy of this chapter. [P.L. 149-1986, Section
28.]
23-1-44-13. DEMAND FOR PAYMENT BY DISSENTER. - (a) A shareholder sent a
dissenters' notice described in IC 23-1-42-11 or in section 12 [IC 23-1-44-12]
of this chapter must demand payment, certify whether the shareholder acquired
beneficial ownership of the shares before the date required to be set forth in
the dissenters' notice under section 12(b)(3) [IC 23-1-44-12(b)(3)] of this
chapter, and deposit the shareholder's certificates in accordance with the terms
of the notice.
(b) The shareholder who demands payment and deposits the shareholder's
shares under subsection (a) retains all other rights of a shareholder until
these rights are cancelled or modified by the taking of the proposed corporate
action.
(c) A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
chapter and is considered, for purposes of this article, to have voted the
shareholder's shares in favor of the proposed corporate action. [P.L. 149-1986,
Section 28.]
B-4
23-1-44-14. TRANSFER OF SHARES RESTRICTED AFTER DEMAND FOR PAYMENT. - (a)
The corporation may restrict the transfer of uncertificated shares from the date
the demand for their payment is received until the proposed corporate action is
taken or the restrictions released under section 16 [IC 23-1-44-16] of this
chapter.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are cancelled or modified by the taking of the proposed corporate action.
[P.L. 149-1986, Section 28.]
23-1-44-15. PAYMENT TO DISSENTER. - (a) Except as provided in section 17
[IC 23-1-44-17] of this chapter, as soon as the proposed corporate action is
taken, or, if the transaction did not need shareholder approval and has been
completed, upon receipt of a payment demand, the corporation shall pay each
dissenter who complied with section 13 [IC 23-1-44-13] of this chapter the
amount the corporation estimates to be the fair value of the dissenter's shares.
(b) The payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen (16) months before the date of payment,
an income statement for that year, a statement of changes in
shareholders' equity for that year, and the latest available interim
financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of the
shares; and
(3) A statement of the dissenter's right to demand payment under
section 18 [IC 23-1-44-18] of this chapter. [P.L. 149-1986, Section
28; P.L. 107-1987, Section 21.]
23-1-44-16. RETURN OF SHARES AND RELEASE OF RESTRICTIONS. - (a) If the
corporation does not take the proposed action within sixty (60) days after the
date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under section 12 [IC 23-1-44-12] of this chapter and repeat
the payment demand procedure. [P.L. 149-1986, Section 28.]
23-1-44-17. OFFER OF FAIR VALUE FOR SHARES OBTAINED AFTER FIRST
ANNOUNCEMENT. - (a) A corporation may elect to withhold payment required by
section 15 [IC 23-1-44-15] of this chapter from a dissenter unless the dissenter
was the beneficial owner of the shares before the date set forth in the
dissenters' notice as the date of the first announcement to news media or to
shareholders of the terms of the proposed corporate action.
B-5
(b) To the extent the corporation elects to withhold payment under
subsection (a), after taking the proposed corporate action, it shall estimate
the fair value of the shares and shall pay this amount to each dissenter who
agrees to accept it in full satisfaction of the dissenter's demand. The
corporation shall send with its offer a statement of its estimate of the fair
value of the shares and a statement of the dissenter's right to demand payment
under section 18 [IC 23-1-44-18] of this chapter. [P.L. 149-1986, Section 28.]
23-1-44-18. DISSENTER DEMAND FOR FAIR VALUE UNDER CERTAIN CONDITIONS. - (a)
A dissenter may notify the corporation in writing of the dissenter's own
estimate of the fair value of the dissenter's shares and demand payment of the
dissenter's estimate (less any payment under section 15 [IC 23-1-44-15] of this
chapter), or reject the corporation's offer under section 17 [IC 23-1-44-17] of
this chapter and demand payment of the fair value of the dissenter's shares, if:
(1) The dissenter believes that the amount paid under section 15 of
this chapter or offered under section 17 of this chapter is less than
the fair value of the dissenter's shares;
(2) The corporation fails to make payment under section 15 of this
chapter within sixty (60) days after the date set for demanding
payment; or
(3) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within sixty (60) days
after the date set for demanding payment.
(b) A dissenter waives the right to demand payment under this section
unless the dissenter notifies the corporation of the dissenter's demand in
writing under subsection (a) within thirty (30) days after the corporation made
or offered payment for the dissenter's shares. [P.L. 149-1986, Section 28.]
23-1-44-19. EFFECT OF FAILURE TO PAY DEMAND - COMMENCEMENT OF JUDICIAL
APPRAISAL PROCEEDING. - (a) If a demand for payment under IC 23-1-42-11 or under
section 18 [IC 23-1-44-18] of this chapter remains unsettled, the corporation
shall commence a proceeding within sixty (60) days after receiving the payment
demand and petition the court to determine the fair value of the shares. If the
corporation does not commence the proceeding within the sixty (60) day period,
it shall pay each dissenter whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the circuit or
superior court of the county where a corporation's principal office (or, if none
in Indiana, its registered office) is located. If the corporation is a foreign
corporation without a registered office in Indiana, it shall commence the
proceeding in the county in Indiana where the registered office of the domestic
corporation merged with or whose shares were acquired by the foreign corporation
was located.
B-6
(c) The corporation shall make all dissenters (whether or not residents of
this state) whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) is plenary and exclusive. The court may appoint one (1) or
more persons as appraisers to receive evidence and recommend decision on the
question of fair value. The appraisers have the powers described in the order
appointing them or in any amendment to it. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment.
(1) For the amount, if any, by which the court finds the fair value of
the dissenter's shares, plus interest, exceeds the amount paid by the
corporation; or
(2) For the fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold
payment under section 17 [IC 23-1-44-17] of this chapter. [P.L.
149-1986, Section 28.]
23-1-44-20. JUDICIAL DETERMINATION AND ASSESSMENT OF COSTS. - (a) The court
in an appraisal proceeding commenced under section 19 [IC 23-1-44-19] of this
chapter shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against such parties and in such amounts as the court finds
equitable.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of sections 10 through 18 [IC 23-1-44-10 through IC
23-1-44-18] of this chapter; or
(2) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees
and expenses are assessed acted arbitrarily, vexatiously, or not in
good faith with respect to the rights provided by this chapter.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited. [P.L. 149-1986, Section 28.]
B-7
APPENDIX C
Renninger & Associates, LLC
Fairness Opinion and Update
January 20, 2000
Board of Directors
Decatur Financial, Inc.
520 N. 13th Street
Decatur, Indiana 46733
Dear Members of the Board:
You have requested our opinion as investment bankers as to the fairness, from a
financial perspective, to the common shareholders of Decatur Financial, Inc.,
Decatur, Indiana (the "Company") of the proposed merger of the Company with
First Merchants Corporation, Muncie, Indiana ("First Merchants"). As further
defined in the Agreement of Reorganization and Merger between First Merchants
and the Company (the "Agreement"), Company shareholders are entitled to receive
in exchange for each share held of Decatur Financial's common stock, and at
their election, either (I) 9.13 shares of First Merchants' common stock; or (II)
$237.39 in cash; or (III) a combination of both, within certain limitations. The
cash portion of the transaction is limited to $14 million, in order to preserve
the opportunity for a tax-free exchange for shareholders electing to receive
shares.
If all shareholders elect to receive shares, an aggregate of 1,346,118 First
Merchants common shares will be issued in exchange for all 147,439 Company
common shares currently outstanding and available under options. Based on recent
trading activity as reported on the National Association of Securities Dealers
Automated Quotation System, First Merchants' shares have traded at approximately
$24.00. At that price, the proposed consideration to be received represents an
aggregate value of $32,306,834 or $219.12 per Company common share.
The fixed cash price of $237.39 implies a $26.00 value of First Merchant's
shares. If the maximum number of Decatur shares are exchanged for cash, an
aggregate of 807,667 First Merchants common shares will be issued and the
aggregate value of the transaction will be $33,384,320.
Renninger & Associates, LLC ("Renninger") is a recognized specialist in the area
of bank and thrift mergers and acquisition, branch acquisition and divestiture,
stock valuation, capital management, and other financial advisory services.
Renninger does not have a financial interest in First Merchants.
C-1
Board of Directors
Decatur Financial, Inc.
January 20, 2000
Page 2
Renninger performed certain analyses described herein and presented the range of
values for Decatur Financial resulting from such analyses to the Board of
Directors of Decatur Financial in connection with its advice as to the fairness
of the consideration to be paid by First Merchants.
For purposes of this opinion, RENNINGER performed a review and analysis of the
historic performance of the Company and its wholly owned subsidiary, Decatur
Bank & Trust Company (the "Bank"), contained in: (i) audited Annual Reports and
financial statements dated December 31, 1996, 1997 and 1998 of Decatur
Financial; (ii) the March 31, 1999, June 30, 1999 and September 30, 1999
Consolidated Reports of Condition and Income filed by the Bank with the Federal
Deposit Insurance Corporation; (iii) June 30, 1999 Uniform Bank Performance
Reports of the Bank; and (iv) historical common stock trading activity of
Decatur Financial. We have reviewed and tabulated statistical data regarding the
loan portfolio, securities portfolio and other performance ratios and
statistics. Financial projections were prepared and analyzed as well as other
financial studies, analyses and investigations as deemed relevant for the
purposes of this opinion. In review of the aforementioned information, we have
taken into account our assessment of general market and financial conditions,
our experience in other transactions, and our knowledge of the banking industry
generally. We have also taken into consideration other offers received by the
Company.
For the purposes of this opinion, Renninger reviewed and analyzed the historic
performance of First Merchants contained in: (i) December 31, 1996, 1997 and
1998 audited Annual Reports; and (ii) Forms 10-Q for the quarters ended March
31, 1999, June 30, 1999, and September 30, 1999; (iii) the Bank Holding Company
Performance Report for June 30, 1999; (iv) the 1999 Third Party Loan Reports for
each banking affiliate of First Merchants and various other asset quality
related reports; and the Allowance for Loan and Lease Loss analysis reports for
First Merchants and each affiliate bank as of September 30, 1999.
We have not compiled, reviewed or audited the financial statements of the
Company or First Merchants nor have we independently verified any of the
information reviewed; we have relied upon such information as being complete and
accurate in all material respects. We have not made independent evaluation of
the assets of the Company or First Merchants.
Based on the foregoing and all other factors deemed relevant, it is our opinion
as investment bankers, that, as of the date hereof, the consideration proposed
to be received by the shareholders of the Company under the Agreement is fair
and equitable from a financial perspective.
Very truly yours,
RENNINGER & ASSOCIATES, LLC
C-2
_________, 2000
Board of Directors
Decatur Financial Corporation
520 N. 13th Street
Decatur, Indiana 46733
Dear Members of the Board:
To our knowledge, nothing of a material nature has occurred since the issuance
of our Fairness Opinion (the "Opinion") to the common shareholders of Decatur
Financial Inc., Decatur, Indiana (the "Company") dated January 20, 2000, that
would cause us to alter or rescind the Opinion. The Opinion is related to the
fairness from a financial point of view, to the common shareholders of the
Company, regarding the proposed transaction outlined in the Agreement of
Reorganization and Merger between First Merchants Corporation, Muncie, Indiana
and the Company.
Very truly yours,
RENNINGER & ASSOCIATES, LLC
C-3
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The Registrant's Articles of Incorporation provide that the Registrant will
indemnify any person who is or was a director, officer, employee or agent of the
Registrant or of any other corporation for which he is or was serving in any
capacity at the request of the Registrant against all liability and expense that
may be incurred in connection with or resulting from or arising out of any
claim, action, suit or proceeding with respect to which such director, officer
or employee is wholly successful or acted in good faith in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant or such other corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was unlawful. A
director, officer, employee or agent of the Registrant is entitled to be
indemnified as a matter of right with respect to those claims, actions, suits or
proceedings where he has been wholly successful. In all other cases, such
director, officer, employee or agent will be indemnified only if the Board of
Directors of the Registrant or independent legal counsel finds that he has met
the standards of conduct set forth above.
Item 21. Exhibits and Financial Statement Schedules.
(a) The following Exhibits are being filed as part of this Registration
Statement except those which are incorporated by reference:
Exhibit No. Description of Exhibit Form S-4 Page
- ----------- ---------------------- -------------
1. None
2. Agreement of Reorganization and Merger..............................(A)
3.a. First Merchants Corporation Articles of Incorporation and the
Articles of Amendment thereto.......................................(B)
b. First Merchants Corporation Bylaws and amendments thereto...........(C)
4. None
5. Opinion of Bingham Summers Welsh & Spilman, LLP (legality)..........126
6-7. None
8. Opinion of Bingham Summers Welsh & Spilman, LLP
(tax matters).......................................................127
9. None
II-1
10.a. First Merchants Corporation and First Merchants Bank,
National Association Management Incentive Plan......................(D)
b. First Merchants Bank, National Association Unfunded Deferred
Compensation Plan, as Amended.......................................(D)
c. First Merchants Corporation 1989 Stock Option Plan..................(E)
d. First Merchants Corporation 1994 Stock Option Plan..................(F)
e. First Merchants Corporation Change of Control Agreements............(B)
f. First Merchants Corporation Unfunded Deferred Corporation Plan......(G)
g. First Merchants Corporation Supplemented Executive Retirement
Plan and amendments thereto.........................................(H)
h. First Merchants Corporation 1999 Long-term Equity Incentive Plan....(I)
11-20. None
21. Subsidiaries of Registrant..........................................130
22. None
23.a. Consent of Olive, LLP...............................................131
b. Consent of Bingham Summers Welsh & Spilman, LLP (legality)..........(l)
c. Consent of Bingham Summers Welsh & Spilman, LLP
(tax matters).......................................................(l)
d. Consent of Renninger & Associates, LLC..............................132
24. Power of Attorney included in "Signatures" section..................121
25-28. None
99. Form of Proxy.......................................................133
(b) All schedules are omitted because they are not applicable or not
required or because the required information is included in the
consolidated financial statements or related notes.
(c) Fairness opinion furnished as part of prospectus.
(A) Included as Appendix A to the Prospectus.
(B) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
for quarter ended June 30, 1999.
(C) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
for quarter ended June 30, 1997.
II-2
(D) Incorporated by reference to Registrant's Annual Report on Form 10-K
for year ended December 31, 1996.
(E) Incorporated by reference to Registrant's Registration
Statement on Form S-8 (SEC File No. 33-28901) effective
on May 24, 1989.
(F) Incorporated by reference to Registrant's Annual Report on Form 10-K
for year ended December 31, 1993.
(G) Incorporated by reference to Registrant's Annual Report on Form 10-K
for year ended December 31, 1996.
(H) Incorporated by reference to Registrant's Annual Report on Form 10-K
for year ended December 31, 1997.
(I) Incorporated by reference to Registrant's Registration
Statement on Form S-8 (SEC File No. 333-80117)
effective on June 7, 1999.
(1) Included in opinion.
Item 22. Undertakings.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934, (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through the use
of a prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The undersigned registrant hereby undertakes that every prospectus (i)
that is filed pursuant to paragraph (b)(1) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Securities Act of
1933, and is used in connection with an offering of securities subject to Rule
415, will be filed as a part of an amendment to the registration statement and
will not be used until such amendment is effective, and that, for
II-3
purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer, or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(d) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective.
(e) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(f) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(g) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Muncie, State of Indiana,
as of the 24th day of March, 2000.
FIRST MERCHANTS CORPORATION
By:/s/ Michael L. Cox
---------------------------------------
Michael L. Cox, Chief Executive Officer
and President
Each person whose signature appears below constitutes and appoints Michael
L. Cox and Larry R. Helms and each of them his true and lawful attorneys-in-fact
and agents with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement
and any subsequent registration statement filed by First Merchants Corporation
pursuant to Rule 462(b) of the Securities Act of 1933, and to file the same,
with all exhibits thereto, and other documents in connection therewith with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agents full power and authority to perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed as of the 24th day of March, 2000 by the
following persons in the capacities indicated.
/s/ Michael L. Cox
- --------------------------
Michael L. Cox Chief Executive Officer, President and
Director (Principal Executive Officer)
/s/ James L. Thrash
- --------------------------
James L. Thrash Senior Vice President and Chief
Financial Officer (Principal Financial
and Accounting Officer)
/s/ Stefan S. Anderson
- --------------------------
Stefan S. Anderson Chairman of the Board and Director
/s/ James F. Ault
- --------------------------
James F. Ault Director
S-1
/s/ Frank A. Bracken
- --------------------------
Frank A. Bracken Director
/s/ Thomas B. Clark
- --------------------------
Thomas B. Clark Director
/s/ David A. Galliher
- --------------------------
David A. Galliher Director
/s/ Barry J. Hudson
- --------------------------
Barry J. Hudson Director
/s/ Norman M. Johnson
- --------------------------
Norman M. Johnson Director
/s/ Ted J. Montgomery
- --------------------------
Ted J. Montgomery Director
/s/ George A. Sissel
- --------------------------
George A. Sissel Director
/s/ Robert M. Smitson
- --------------------------
Robert M. Smitson Director
/s/ Michael D. Wickersham
- --------------------------
Michael D. Wickersham Director
/s/ John E. Worthen
- --------------------------
John E. Worthen Director
S-2
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
EXHIBITS
To
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
--------------------------
FIRST MERCHANTS CORPORATION
EXHIBIT INDEX
(a) The following Exhibits are being filed as part of this Registration
Statement except those that are incorporated by reference:
Exhibit No. Description of Exhibit Form S-4 Page
- ----------- ---------------------- -------------
1. None
2. Agreement of Reorganization and Merger..............................(A)
3.a. First Merchants Corporation Articles of Incorporation and the
Articles of Amendment thereto.......................................(B)
b. First Merchants Corporation Bylaws and amendments thereto...........(C)
4. None
5. Opinion of Bingham Summers Welsh & Spilman, LLP (legality)..........126
6-7. None
8. Opinion of Bingham Summers Welsh & Spilman, LLP
(tax matters).......................................................127
9. None
10.a. First Merchants Corporation and First Merchants Bank,
National Association Management Incentive Plan......................(D)
b. First Merchants Bank, National Association Unfunded Deferred
Compensation Plan, as Amended.......................................(D)
c. First Merchants Corporation 1989 Stock Option Plan..................(E)
d. First Merchants Corporation 1994 Stock Option Plan..................(F)
e. First Merchants Corporation Change of Control Agreements............(B)
f. First Merchants Corporation Unfunded Deferred Corporation Plan......(G)
g. First Merchants Corporation Supplemented Executive Retirement
Plan and amendments thereto.........................................(H)
h. First Merchants Corporation 1999 Long-term Equity Incentive Plan....(I)
11-20. None
21. Subsidiaries of Registrant..........................................130
22. None
23. a. Consent of Olive, LLP...............................................131
b. Consent of Bingham Summers Welsh & Spilman, LLP (legality)..........(l)
c. Consent of Bingham Summers Welsh & Spilman, LLP
(tax matters).......................................................(l)
d. Consent of Renninger & Associates, LLC ............................132
24. Power of Attorney included in "Signatures" section..................121
25-28. None
99. Form of Proxy.......................................................133
(b) All schedules are omitted because they are not applicable or not
required or because the required information is included in the
consolidated financial statements or related notes.
(c) Fairness opinion furnished as part of prospectus.
(A) Included as Appendix A to the Prospectus.
(B) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
for quarter ended June 30, 1999.
(C) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
for quarter ended June 30, 1997.
(D) Incorporated by reference to Registrant's Annual Report on Form 10-K
for year ended December 31, 1996.
(E) Incorporated by reference to Registrant's Registration
Statement on Form S-8 (SEC File No. 33-28901) effective
on May 24, 1989.
(F) Incorporated by reference to Registrant's Annual Report on Form 10-K
for year ended December 31, 1993.
(G) Incorporated by reference to Registrant's Annual Report on Form 10-K
for year ended December 31, 1996.
(H) Incorporated by reference to Registrant's Annual Report on Form 10-K
for year ended December 31, 1997.
(I) Incorporated by reference to Registrant's Registration
Statement on Form S-8 (SEC File No. 333-80117)
effective on June 7, 1999.
(1) Included in opinion.
March 24, 2000
First Merchants Corporation
200 East Jackson Street
Muncie, Indiana 47305
Gentlemen:
You have requested our opinion in connection with the proposed public
offering by First Merchants Corporation, an Indiana corporation (the "Company"),
of up to 1,346,118 shares of common stock ("Shares") covered by a Registration
Statement on Form S-4 (the "Registration Statement") filed with the Securities
and Exchange Commission on or about March 24, 2000.
In connection with your request to us, we have been provided with the
following:
1. The Articles of Incorporation and By-Laws of the Company;
2. The minute book of the Company; and
3. A Certificate from the Indiana Secretary of State certifying that the
Company is a corporation duly organized and existing under and by
virtue of the laws of the State of Indiana.
For purpose of this opinion, we have examined the above documents and have
relied upon them as to matters of fact. We have not independently checked to
verify the accuracy or completeness of the information set forth or certified in
such documents.
Based solely upon the foregoing documents and examination, and subject to
the foregoing limitations and qualifications, we are of the opinion that:
1. As of this date, the Company is a duly organized and existing
corporation under the laws of the State of Indiana with the corporate
power and authority to conduct its business as described in the
Registration Statement; and
2. The Shares, when issued as contemplated by the Registration Statement
in exchange for payment therefor, will be validly issued, fully paid
and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference made to us in the Registration Statement and
Proxy Statement-Prospectus forming a part thereof under the caption "Legal
Opinions." By giving this consent, we do not admit that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission thereunder.
Very truly yours,
BINGHAM SUMMERS WELSH & SPILMAN, LLP
Ex. 5-1
March 24, 2000
Board of Directors
First Merchants Corporation
200 East Jackson Street
Muncie, IN 47305
Board of Directors
Decatur Financial, Inc.
520 North 13th Street
P.O. Box 988
Decatur, IN 46733
Re: Merger of Decatur Financial, Inc. with and into First Merchants
Corporation
Ladies and Gentlemen:
We have acted as special counsel to First Merchants Corporation, an Indiana
corporation registered as a bank holding company under the Bank Holding Company
Act of 1956, as amended ("First Merchants"), in connection with the proposed
merger of Decatur Financial, Inc., an Indiana corporation registered as a bank
holding company under the Bank Holding Company Act of 1956, as amended ("Decatur
Financial"), with and into First Merchants, pursuant to the terms of the
Agreement of Reorganization and Merger between First Merchants and Decatur
Financial, dated January 20, 2000 (the "Merger Agreement"), as described in the
Registration Statement on Form S-4 to be filed by First Merchants with the
Securities and Exchange Commission on or about March 24, 2000 (the "Registration
Statement").
This opinion is being rendered as required by Section 9 of the Merger
Agreement. All capitalized terms herein, unless otherwise specified, have the
meaning assigned to them in the Registration Statement.
In connection with this opinion, we have relied on and have examined, and
we are familiar with originals or copies of, certified or otherwise identified
to our satisfaction, (i) the Merger Agreement, (ii) the Registration Statement,
and (iii) such other documents as we have deemed necessary or appropriate in
order to enable us to render the opinions below. In our examination, we have
assumed the genuineness of all signatures, the legal capacity of all natural
persons, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified,
conformed or photostatic copies and the authenticity of the originals of such
copies. This opinion is subject to the receipt by us prior to the effective time
of the merger of Decatur Financial with and into First Merchants (the "Merger")
of certain written representations and covenants of Decatur Financial and First
Merchants, the accuracy and truthfulness of which we shall assume and rely upon
without investigation. In rendering our opinion, we have considered the
applicable provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury Regulations, pertinent judicial authorities, interpretive
rulings of the Internal Revenue Service and such other authorities as we have
considered relevant.
Based upon and subject to the foregoing, provided that the Merger of
Decatur Financial with and into First Merchants qualifies as a statutory merger
under applicable state law, and assuming that (i) after the transaction, First
Merchants, as successor of Decatur Financial, will hold substantially all of its
assets,
Ex.8-1
First Merchants Corporation
Decatur Financial, Inc.
March 24, 2000
Page 2
and (ii) in the transaction, the Decatur Financial shareholders will exchange an
amount of stock constituting majority control of Decatur Financial solely for
First Merchants common stock, we are of the opinion that the Merger will, under
current law, constitute a reorganization within the meaning of Section
368(a)(1)(A) of the Code and that Decatur Financial and First Merchants will
each be a party to the reorganization within the meaning of Section 368(b) of
the Code. As a reorganization under Section 368(a)(1)(A) of the Code, the Merger
will have the following federal income tax consequences for Decatur Financial
shareholders, Decatur Financial, and First Merchants:
1. In general, a Decatur Financial shareholder who elects to receive only
shares of First Merchants common stock will not recognize gain or loss on the
exchange, for federal income tax purposes. Code Section 354(a)(1). Gain or loss
for federal income tax purposes will be recognized, however, with respect to
cash payments received by a Decatur Financial shareholder in lieu of fractional
share interests resulting from the conversion ratio. Rev. Rul. 66-365, 1966-2
C.B. 116. Any cash received by a Decatur Financial shareholder in lieu of a
fractional share interest will be treated as received by the shareholder as a
distribution in redemption of that fractional share interest and will be treated
as a distribution in full payment in exchange for the fractional share interest
redeemed, subject to the provisions and limitations of Code Section 302.
2. A Decatur Financial shareholder who elects to receive part cash and part
First Merchants common stock will recognize gain to the extent of boot received.
Code Sections 354(a)(1) and 356(a)(1). Whether such gain is capital gain or a
dividend will be determined based upon the Supreme Court's decision in
Commissioner v. Clark, 109 S.Ct. 1455 (1989). Pursuant to Commissioner v. Clark,
in applying Code Section 356(a)(2), the transaction should be tested under the
rules of Code Section 302(b) as if a Decatur Financial shareholder received only
First Merchants common stock in the Merger, and then surrendered some of such
First Merchants stock to First Merchants in a redemption for the cash received
in the Merger. No loss will be recognized by a Decatur Financial shareholder on
the receipt of First Merchants common stock and cash in exchange for Decatur
Financial common stock. Code Section 356(c).
3. A Decatur Financial shareholder receiving all cash will recognize gain
or loss measured by the difference between the amount of cash received and the
basis of the Decatur Financial stock surrendered. After the Commissioner v.
Clark case, if a Decatur Financial shareholder receives only cash in exchange
for Decatur Financial stock, the transaction should be treated as if either (i)
the shareholder sold his or her Decatur Financial stock to First Merchants for
cash, or (ii) the Decatur Financial shareholder received First Merchants stock
in the Merger after which First Merchants redeemed those shares (i.e., a stock
redemption by First Merchants subject to the provisions and limitations of Code
Section 302). It is possible, however, especially in the case of a Decatur
Financial shareholder who perfects dissenters rights and receives solely cash,
that the Internal Revenue Service could view the transaction as stock redemption
by Decatur Financial (subject to the provisions and limitations of Code Section
302).
4. The basis of First Merchants common stock received (including any
fractional share interests deemed received) by Decatur Financial shareholders in
exchange for their Decatur Financial stock will be equal to such shareholder's
basis in the Decatur Financial stock exchanged, decreased by any cash received,
and increased by any gain recognized on the exchange. Code Section 358(a)(1).
Ex.8-2
First Merchants Corporation
Decatur Financial, Inc.
March 24, 2000
Page 3
5. The holding period of the First Merchants common stock received
(including any fractional share interests deemed received) will include the
period during which the Decatur Financial stock was held, provided that the
Decatur Financial stock was held as a capital asset on the date of the Merger.
Code Section 1223(1).
6. No gain or loss will be recognized by Decatur Financial or First
Merchants in connection with the transaction. Code Sections 361(a) and 1032.
7. The basis of the assets of Decatur Financial acquired by First
Merchants in the Merger will be the same as the basis of such assets in the
hands of Decatur Financial immediately prior to the Merger. Code Section 362(b).
The opinions expressed herein represent our conclusions as to the
application of existing federal income tax law to the facts as presented to us,
and we give no assurance that changes in such law or any interpretation thereof
will not affect the opinions expressed by us. Moreover, there can be no
assurance that these opinions will not be challenged by the Internal Revenue
Service or that a court considering the issues will not hold contrary to such
opinions. We express no opinion on the treatment of this transaction under the
income tax laws of any state or other taxing jurisdictions. We assume no
obligation to advise of any changes concerning the above, whether or not deemed
material, which may hereafter come or be brought to our attention.
Except as set forth above, we express no opinion as to the tax consequences
to any party, whether federal, state, local or foreign, of the Merger or of any
transactions related to the Merger or contemplated by the Merger Agreement. This
opinion is addressed to you and is being furnished to you solely for your use in
connection with the transaction that is the subject of the Merger Agreement. We
assume no professional responsibility to any other person or entity.
Accordingly, the opinions expressed herein are not to be utilized or quoted by,
delivered or disclosed to, in whole or in part, any other person, corporation,
entity or governmental authority, or for any other purpose, without the prior
written consent of this firm. We hereby consent to the filing of this opinion as
an exhibit to the Registration Statement.
Very truly yours,
BINGHAM SUMMERS WELSH & SPILMAN, LLP
Ex.8-3
SUBSIDIARIES OF REGISTRANT
The following entities are subsidiaries of the Registrant, First Merchants
Corporation, as of the date hereof:
Name of Registrant's Subsidiary State of Incorporation or
Organization
First Merchants Bank, National Association Under the laws of the United
(also doing business as First Merchants States
Bank of Hamilton County)
200 East Jackson Street
Muncie, Indiana 47305
First United Bank Indiana
709 Mill Street
Middletown, Indiana 47356
The Madison Community Bank Indiana
19 West 10th Street
Anderson, Indiana 46016
First Merchants Insurance Services, Inc. Indiana
200 East Jackson Street
Muncie, Indiana 47305
(a wholly-owned subsidiary of Pendleton
Banking Company)
The First National Bank of Portland Under the laws of the United
112 West Main Street States
Portland, Indiana 47371
The Randolph County Bank Indiana
122 West Washington Street
Winchester, Indiana 47394
The Union County National Bank Under the laws of the United
of Liberty States
107 West Union, Box 217
Liberty, Indiana 47353
Ex.21-1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement on
Form S-4 and Prospectus of First Merchants Corporation, relating to the issuance
of securities in the proposed merger of Decatur Financial, Inc. into First
Merchants Corporation, of our report, dated January 22, 2000 on the consolidated
financial statements of First Merchants Corporation as of December 31, 1998 and
1999 and for each of the three years in the period ended December 31, 1999. We
also consent to the reference to our firm appearing under the heading "Experts"
in the Prospectus.
Olive LLP
March 24, 2000
Indianapolis, Indiana
Ex. 23(a)-1
Consent of Financial Advisor
We consent to the use of our fairness opinion letter dated January 20, 2000 and
the update to be dated as of the date of the Prospectus/Proxy Statement forming
a part of the Registration Statement on Form S-4 filed by First Merchants
Corporation in connection with the proposed merger of Decatur Financial, Inc. to
be included in such Prospectus/Proxy Statement, subject to the issuance of such
opinion by us. We further consent to the references to our fairness opinion
letter and the analysis conducted by us and the use of our name in such Proxy
Statement/Prospectus in conjunction therewith.
RENNINGER & ASSOCIATES, LLC
Carmel, Indiana
March 24, 2000
Ex. 23(d)-1
DECATUR FINANCIAL, INC.
520 North 13th Street
P.O. Box 988
Decatur, Indiana 46733
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints _____________ and ___________, and each of them,
proxies of the undersigned, with full power of substitution and re-substitution,
to represent and vote all shares of common stock of Decatur Financial, Inc.
("Decatur Financial") which the undersigned would be entitled to vote at the
Special Meeting of Shareholders of Decatur Financial to be held at the
_____________ located at _______________, Decatur, Indiana 46733, on __________,
______ __, 2000, at _:__ p.m. local time, and at any adjournment thereof, with
all of the powers the undersigned would possess if personally present, as set
forth below.
The Board of Directors of Decatur Financial recommends a vote FOR approval of
the Agreement of Reorganization and Merger dated January 20, 2000, by and
between First Merchants Corporation ("First Merchants") and Decatur Financial
pursuant to which Decatur Financial will merge with and into First Merchants,
and Decatur Bank & Trust Company will become a wholly-owned subsidiary of First
Merchants.
1. Approval of the Agreement of Reorganization and Merger:
________ FOR _______ AGAINST ________ ABSTAIN
2. In their discretion, on such other matters as may properly be
presented at the Special Meeting.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NOT OTHERWISE DIRECTED, THIS PROXY
WILL BE VOTED FOR APPROVAL OF THE AGREEMENT OF REORGANIZATION AND MERGER. ON ANY
OTHER MATTERS THAT MAY PROPERLY BE PRESENTED AT THE SPECIAL MEETING, THIS PROXY
WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS
OF DECATUR FINANCIAL.
PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY PROMPTLY.
Dated: ______________, 2000.
------------------------------------------
(SIGNATURE OF SHAREHOLDER)
------------------------------------------
(SIGNATURE OF SHAREHOLDER)
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS ON YOUR STOCK CERTIFICATE. JOINT OWNERS
SHOULD EACH SIGN PERSONALLY. TRUSTEES AND OTHERS SIGNING IN A REPRESENTATIVE
CAPACITY SHOULD INDICATE THE CAPACITY IN WHICH THEY SIGN.
Ex. 99-1