As filed with the Securities and Exchange Commission on April 6, 2001
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(1) price per unit(2) offering price (2) fee
- ----------------------------------------------------------------------------------------------------------------------
Common Stock, Up to
no par value 1,192,320 shares $16.83101852 $20,067,960 $5,016.99
(1) This represents the maximum number of shares to be offered to Francor
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 28, 2001 of
the shares of common stock of Francor 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.
FRANCOR FINANCIAL, INC.
189 West Market Street
P.O. Box 588
Wabash, Indiana 46992
NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS TO BE HELD ON
______________, 2001
To Our Shareholders:
We will hold a special meeting of the shareholders of Francor Financial,
Inc. on ____________, ____________, 2001, at _______ _.m. local time, at the
Wabash Inn located at 1950 State Highway 15 South, Wabash, Indiana 46992.
The purposes of the special meeting are:
1. To consider and vote upon the transactions contemplated by the Agreement
of Reorganization and Merger dated February 8, 2001, between First Merchants
Corporation and Francor Financial, Inc. Pursuant to the Merger Agreement,
Francor Financial, Inc. will merge into First Merchants Corporation and Frances
Slocum 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 the Merger Agreement is attached as Appendix A to
the accompanying Proxy Statement-Prospectus; and
2. To transact such other business which may properly be presented at the
special meeting or any adjournment or postponement of the special meeting.
We have fixed the close of business on _____________, 2001, as the record
date for determining those shareholders who are entitled to notice of, and to
vote at, the special meeting and any adjournment or postponement of the special
meeting. Adoption of the Merger Agreement requires the affirmative vote of at
least a majority of the outstanding shares of Francor Financial common stock.
Our shareholders 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
Jerry M. Ault, Chairman of the Board
_____________, 2001
Wabash, Indiana
PROSPECTUS OF FIRST MERCHANTS CORPORATION FOR UP TO
1,192,320 SHARES OF COMMON STOCK
AND
PROXY STATEMENT OF FRANCOR FINANCIAL, INC.
FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ___________, 2001
Your Board of Directors and the Board of Directors of First Merchants
Corporation (First Merchants) have agreed to merge Francor Financial, Inc.
(Francor Financial) into First Merchants. This document serves as a Prospectus
with respect to a maximum of 1,192,320 shares of First Merchants common stock
being offered to Francor Financial shareholders in connection with the proposed
merger. This document also constitutes the Proxy Statement of Francor Financial
in connection with the special meeting of shareholders to be held on _________,
________, 2001, for the purpose of voting on the merger. Your Board of Directors
unanimously approved the Merger Agreement and recommends that you approve it.
If Francor Financial is merged into First Merchants, each share of Francor
Financial common stock you own shall be converted into the right to receive, at
your election, either (i) 4.32 shares of First Merchants common stock, or (ii)
2.59 shares of First Merchants common stock and $48.70 in cash, or (iii) $121.74
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 some First Merchants
common stock and some cash. In addition, the conversion ratios are subject to
adjustment under certain circumstances. This document describes these
adjustments in greater detail. First Merchants will pay cash for any fractional
share interests resulting from the conversion ratios.
To complete the merger, the Francor Financial shareholders must approve it.
We will hold a special meeting of our shareholders for that purpose. Your vote
is very important. Whether or not you plan to attend the special meeting, please
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
voted in favor of the merger.
The special meeting of the Francor Financial shareholders will be held on
____________, ______, 2001 at ____ _.m. local time, at the Wabash Inn, 1950
State Highway 15 South, Wabash, Indiana 46992.
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, First Merchants common stock is 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 ________, 2001
and first mailed to shareholders on ________, 2001.
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 Francor 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 __________, 2001.
TABLE OF CONTENTS
PAGE
SUMMARY ................................................................... 1
The Companies ........................................................ 1
The Shareholders Meeting ............................................. 2
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 Francor Financial
Shareholders .................................................... 6
Comparative Rights of First Merchants Shareholders and
Francor Financial Shareholders .................................. 6
Dissenters' Rights ................................................... 6
Certain Federal Income Tax Consequences .............................. 6
Management and Operations After the Merger ........................... 7
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 ................................................... 10
SPECIAL MEETING (Francor Financial Shareholders) .......................... 17
General Information .................................................. 17
Matters To Be Considered ............................................. 17
Votes Required ....................................................... 17
Proxies .............................................................. 18
Solicitation of Proxies .............................................. 18
Recommendations ...................................................... 19
i
MERGER 20
Description of the Merger ............................................ 20
First Merchants' Reasons for the Merger .............................. 20
Francor Financial's Reasons for the Merger ........................... 21
Opinion of Financial Advisor ......................................... 22
Recommendation of the Board of Directors ............................. 28
Exchange of Francor Financial Common Stock ........................... 28
Conversion Ratio Adjustment .......................................... 30
Rights of Dissenting Shareholders .................................... 32
Resale of First Merchants Common Stock by Francor
Financial Affiliates ............................................ 34
Conditions to Completion of the Merger ............................... 35
Termination; Waiver; Amendment ....................................... 36
Restrictions Affecting Francor Financial ............................. 38
Regulatory Approvals ................................................. 39
Effective Date of the Merger ......................................... 40
Management After the Merger .......................................... 40
Interests of Certain Persons in the Merger ........................... 40
Accounting Treatment ................................................. 41
Registration Statement ............................................... 41
FEDERAL INCOME TAX CONSEQUENCES ........................................... 42
Tax Consequences to Francor Financial and First
Merchants ....................................................... 42
Tax Consequences to Francor Financial Shareholders ................... 42
Tax Opinion .......................................................... 44
COMPARATIVE PER SHARE DATA ................................................ 45
Nature of Trading Market ............................................. 45
Dividends ............................................................ 46
DESCRIPTION OF FIRST MERCHANTS ............................................ 48
Business ............................................................. 48
Acquisition Policy and Pending Transactions .......................... 49
Incorporation of Certain Information by Reference .................... 49
DESCRIPTION OF FRANCOR FINANCIAL .......................................... 50
Business ............................................................. 50
Properties ........................................................... 50
Litigation ........................................................... 51
Employees ............................................................ 51
Management ........................................................... 51
Security Ownership of Certain Beneficial Owners and
Management ...................................................... 53
Certain Relationships and Related Transactions ....................... 54
ii
REGULATION AND SUPERVISION OF FIRST MERCHANTS, FRANCOR
FINANCIAL AND THEIR SUBSIDIARIES .......................................... 55
Bank Holding Company Regulation ...................................... 55
Capital Adequacy Guidelines for Bank Holding Companies ............... 56
Bank Regulation ...................................................... 57
Bank Capital Requirements ............................................ 57
FDICIA ............................................................... 58
Deposit Insurance .................................................... 59
Brokered Deposits .................................................... 60
Interstate Banking And Branching ..................................... 60
Financial Services Modernization Act ................................. 60
Additional Matters ................................................... 61
COMPARISON OF COMMON STOCK ................................................ 62
Governing Law ........................................................ 62
Authorized But Unissued Shares ....................................... 62
Preemptive Rights .................................................... 63
Dividend Rights ...................................................... 63
Voting Rights ........................................................ 64
Article and Bylaw Amendments ......................................... 64
Special Meetings of Shareholders ..................................... 65
Number of Directors and Term of Office ............................... 65
Removal of Directors ................................................. 65
Dissenters' Rights ................................................... 66
Liquidation Rights ................................................... 67
Assessment and Redemption ............................................ 67
Anti-Takeover Provisions ............................................. 67
Director Liability ................................................... 70
LEGAL OPINIONS ............................................................ 71
EXPERTS ................................................................... 71
OTHER MATTERS ............................................................. 71
WHERE YOU CAN FIND ADDITIONAL INFORMATION ................................. 71
FORWARD LOOKING STATEMENTS ................................................ 73
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 this Proxy
Statement-Prospectus. Because this is a summary, it does not contain all of the
information that is important to you. You should carefully read this entire
document and the other documents to which we have referred you before you decide
how to vote. See "Where You Can Find Additional Information" on page 71 for a
description of documents that we incorporate by reference into this document.
Each item in this summary includes a page reference that directs you to a more
complete description in this document of the topic discussed.
The Companies (pages 48 and 50)
First Merchants Corporation
200 East Jackson Street
Muncie, Indiana 47305
(765) 747-1500
First Merchants is a multi-bank holding company and a financial holding company,
incorporated under Indiana law and headquartered in Muncie, Indiana. First
Merchants has seven 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, The First National Bank of
Portland and Decatur Bank & Trust Company. In addition, The Madison Community
Bank owns First Merchants Insurance Services, Inc.
At December 31, 2000, on a consolidated basis, First Merchants had assets of
approximately $1.6 billion, deposits of approximately $1.3 billion, and
stockholders' equity of approximately $156 million. First Merchants' common
stock is traded on the NASDAQ National Market System under the symbol FRME. See
"DESCRIPTION OF FIRST MERCHANTS."
Francor Financial, Inc.
189 West Market Street
P.O. Box 588
Wabash, Indiana 46992
(219) 563-4116
Francor Financial is a one bank holding company, incorporated under Indiana law
and headquartered in Wabash, Indiana. Frances Slocum Bank & Trust Company is a
wholly-owned subsidiary of Francor Financial.
At December 31, 2000, on a consolidated basis, Francor Financial had assets of
approximately $165 million, deposits of approximately $145 million and
stockholders' equity of approximately $18 million. See "DESCRIPTION OF FRANCOR
FINANCIAL."
1
The Shareholders Meeting (page 17)
The special meeting of Francor Financial shareholders will be held on
__________, _______, 2001 at ____ _.m. local time, at the Wabash Inn located at
1950 State Highway 15 South, Wabash, Indiana 46992.
At the special meeting, Francor Financial shareholders will be asked:
1. to approve the merger of Francor Financial and First Merchants; and
2. to act on any other items that may be submitted to a vote at the
special meeting.
Record Date; Vote Required (page 17)
You can vote at the special meeting of shareholders if you owned common stock of
Francor Financial at the close of business on __________, 2001. You can cast one
vote for each share of stock you owned on that date. To approve the merger, the
holders of at least a majority of the shares of Francor Financial common stock
outstanding must vote in its favor. You can vote your shares by attending the
special meeting 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 special meeting either by sending in a new proxy or by
attending the special meeting and voting in person.
As of ________, 2001, Francor Financial's executive officers, directors and
their affiliates owned of record or beneficially in the aggregate 50,506 shares
or approximately 18.30% of the shares of Francor Financial common stock
outstanding. Each member of the Board of Directors of Francor Financial as of
February 8, 2001, the date the Merger Agreement was executed, has agreed to
cause all shares of Francor Financial common stock owned by him of record or
beneficially to be voted in favor of the merger. As of ________, 2001, the
members of the Francor Financial Board of Directors owned of record or
beneficially 50,006 shares or approximately 18.12% of the shares of Francor
Financial common stock outstanding.
Reasons for the Merger (pages 20 and 21)
First Merchants. First Merchants' Board of Directors considered a number of
financial and nonfinancial factors in making its decision to merge with Francor
Financial, including its respect for the ability and integrity of the Francor
Financial Board of Directors, management and staff. The Board believes that
expanding First Merchants' operations in the areas Francor Financial operates
offers long term strategic benefits to First Merchants.
Francor Financial. In considering the merger with First Merchants, Francor
Financial's Board of Directors collected and evaluated a variety of economic,
financial and market information regarding First Merchants and its subsidiaries,
their respective businesses and First Merchants' reputation and future
prospects. In the opinion of Francor Financial's Board of Directors, favorable
factors included First Merchants' strong earnings and stock performance, its
management, the compatibility of its markets to those of Francor Financial and
the attractiveness
2
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 Francor 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
Francor Financial, indicating that the consideration to be received by Francor
Financial's shareholders under the Merger Agreement is fair from a financial
perspective. The Board of Directors believes that the merger will have a
positive, long-term impact on Frances Slocum Bank & Trust Company's customers
and employees and the communities served by Frances Slocum Bank & Trust Company.
Recommendation to Shareholders (pages 19 and 28)
The Board of Directors of Francor 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 20)
We have attached the Agreement of Reorganization and Merger (Merger Agreement)
to this document as Appendix A. Please read the Merger Agreement. It is the
legal document that governs the merger.
Francor Financial will merge with First Merchants and thereafter Francor
Financial will cease to exist. After the merger, Frances Slocum Bank & Trust
Company will be a wholly-owned subsidiary of First Merchants. We hope to
complete the merger in July, 2001.
Exchange of Shares (page 28)
As a Francor Financial shareholder, each of your shares of Francor Financial
common stock will be converted into the right to receive, at your election,
either (i) 4.32 shares of First Merchants common stock, or (ii) 2.59 shares of
First Merchants common stock and $48.70 in cash, or (iii) $121.74 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 some First Merchants common
stock and some cash. In addition, the conversion ratios are subject to
adjustment under certain circumstances. Cash will be paid for fractional shares
of First Merchants common stock resulting from the conversion ratios.
You are being asked to complete the Election Form accompanying this document to
elect to receive either 4.32 shares of First Merchants common stock, 2.59 shares
of First Merchants common stock and $48.70 in cash or $121.74 in cash for each
share of Francor Financial common stock you own. 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 _________, 2001.
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 Francor Financial common stock.
3
There is currently no established trading market for Francor 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 $22.00 per share on February 8, 2001, the
business day before the merger was publicly announced, and was $_______ per
share on _________, 2001. Based on the conversion ratio of 4.32, the market
value of the consideration to be received by Francor Financial shareholders who
elect to receive First Merchants stock in the merger for each share of Francor
Financial common stock would be $95.04 based on First Merchants' closing stock
price on February 8, 2001 and $______ based on First Merchants' closing stock
price on _________, 2001. 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 22)
The Board of Directors of Francor Financial has received the written opinion of
Renninger & Associates, LLC dated February 7, 2001, that the terms of the merger
are fair from a financial point of view to the Francor Financial shareholders.
The opinion was updated as of the date of this document. 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 35)
Completion of the merger depends on a number of conditions being met. In
addition to our compliance with the Merger Agreement, these conditions include
among others:
1. approval of the Merger Agreement by Francor 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 36)
The Merger 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 Merger Agreement;
2. a material adverse change in the financial condition of First
Merchants since September 30, 2000 or Francor Financial since December
31, 2000;
3. the failure of the merger to qualify as a tax-free reorganization;
4. the merger not having been completed by October 31, 2001;
4
5. the average of the mid-point between the bid and ask prices of First
Merchants common stock for a defined period before closing of the
merger being less than $20.00 or greater than $27.025, subject to the
right of the nonterminating party to preserve the Merger Agreement by
adjusting the conversion ratio;
6. if Francor Financial furnishes information or enters into discussions
or negotiations with a third party relating to a proposed acquisition
of Francor Financial or Frances Slocum Bank & Trust Company, if
Francor Financial fails to give First Merchants written notice of any
such intention, or if Francor Financial's Board of Directors withdraws
or modifies its recommendation to Francor Financial shareholders to
vote for the merger following receipt of a proposal for an acquisition
from a third party;
7. if Francor Financial's Board of Directors terminates the Merger
Agreement in the exercise of its fiduciary duties after receipt of an
unsolicited acquisition proposal from a third party; or
8. if either party is unable to satisfy the conditions precedent to the
merger (providing such party is not then in material breach of the
Merger Agreement).
If Francor Financial terminates the Merger Agreement in connection with an
acquisition proposal by a third party pursuant to items 7 above or if First
Merchants terminates the Merger Agreement in connection with item 6 above,
Francor Financial has agreed to pay First Merchants the amount of $1,000,000 in
liquidated damages.
Waiver and Amendment (page 36)
We can agree to amend the Merger Agreement, and each of us can waive our right
to require the other party to adhere to the terms and conditions of the Merger
Agreement, where the law allows. However, we may not do so after the Francor
Financial shareholders approve the merger if the amendment or waiver would have
a material adverse effect on the Francor Financial shareholders.
Accounting Treatment (page 41)
The merger will be accounted for as a purchase transaction. As a result, Francor
Financial's assets and liabilities will be recorded by First Merchants at their
estimated fair values.
Regulatory Approvals (page 39)
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. We cannot assure you as to
when or whether the approvals will be received.
5
Restrictions Placed on the Sale of First Merchants Stock Issued to Certain
Francor Financial Shareholders (page 34)
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 Francor Financial in exchange for their shares of Francor
Financial common stock.
Comparative Rights of First Merchants Shareholders and Francor Financial
Shareholders (page 62)
The rights of shareholders of First Merchants and Francor Financial differ in
some respects. Upon completion of the merger, Francor Financial shareholders who
receive First Merchants 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.
Dissenters' Rights (page 32)
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 Francor 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. See "MERGER -- Rights of Dissenting Shareholders" and
Appendix B.
Certain Federal Income Tax Consequences (page 42)
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 Francor 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 conversion ratios.
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. No loss will be recognized by you if you elect to receive part
cash and part First Merchants stock for your shares.
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.
6
Determining the actual tax consequences of the merger to you can be complicated.
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.
Management and Operations After the Merger (page 40)
Francor Financial's corporate existence will cease after the merger.
Accordingly, directors and officers of Francor Financial will not serve in such
capacities after the effective date of the merger. The directors and officers of
Frances Slocum 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 40)
Some of Francor Financial's directors and officers have interests in the merger
that are different from, or in addition to, their interests as Francor Financial
shareholders. These interests exist because of agreements that the Francor
Financial directors and officers have with First Merchants.
When we complete the merger, Jerry M. Ault, the current President and Chief
Executive Officer of Francor Financial, will be nominated for election as a
director of First Merchants to serve for 3 years following the merger. In
addition, the officers and directors of Francor Financial will remain officers
and directors of Frances Slocum Bank & Trust Company, subject to certain
restrictions.
The members of the Francor Financial Board of Directors knew about these
additional interests, and considered them, when they approved the Merger
Agreement.
Pro Forma Comparative Per Share Data
The following tables show historical information about Francor 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
First Merchants and Francor Financial had been merged through the periods shown
in the table. 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 4.32. First Merchants and Francor
Financial present this information to reflect the amount of shares of First
Merchants' common stock that Francor Financial shareholders will receive in the
merger for each share of Francor Financial common stock exchanged.
7
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, and does not attempt
to predict or suggest future results.
The information in the following table is based on historical financial
information of Francor 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 71 for a description of
documents that we incorporate by reference into this document and how to obtain
copies of them.
8
FIRST MERCHANTS AND FRANCOR FINANCIAL
HISTORICAL AND PRO FORMA PER SHARE DATA
First Merchants
---------------------------------------------------
Historical Pro Forma
---------- ---------------------------------
Assumption A(1) Assumption B(2)
--------------- ---------------
Net income per share
Twelve months ended December 31, 2000
Basic ........................... $ 1.76 $ 1.72 $ 1.73
Diluted ......................... 1.75 1.71 1.72
Cash dividends per share
Twelve months ended December 31, 2000 $ 0.90 $ 0.90 $ 0.90
Book value per share
At December 31, 2000 ............... $13.44 $14.33 $14.00
Francor Financial
----------------------------------------------------
Historical Equivalent
---------- --------------------------------------
Assumption A(1)(3) Assumption B(2)(4)
------------------ ------------------
Net income per share
Twelve months ended December 31, 2000
Basic ........................... $ 8.12 $ 7.43 $ 7.47
Diluted ......................... 8.12 7.39 7.43
Cash dividends per share
Twelve months ended December 31, 2000 $ 3.22 3.89 $ 3.89
Book value per share
At December 31, 2000 ............... $66.44 $61.91 $60.48
- ----------
(1) See Note (1) in "Notes to Pro Forma Summary of Selected Financial Data" on
page 16.
(2) See Note (2) in "Notes to Pro Forma Summary of Selected Financial Data" on
page 16.
(3) Calculated by multiplying the First Merchants Pro Forma - Assumption A
combined per share data by the assumed conversion ratio of 4.32.
(4) Calculated by multiplying the First Merchants Pro Forma - Assumption B
combined per share data by the assumed conversion ratio of 4.32.
9
Selected Financial Data
The following tables show summarized historical financial data for each of
Francor 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 Francor Financial's assets and liabilities
recorded at their estimated fair values as of December 31, 2000. The actual fair
value adjustments to the assets and the liabilities of Francor Financial will be
made on the basis of appraisals and evaluations that will be made as of the date
the merger is completed. Thus, the actual fair value adjustments may differ
significantly from those reflected in these pro forma financial statements. In
the opinion of First Merchants' management, the estimates used in the
preparation of these pro forma financial statements are reasonable under the
circumstances.
We expect that we will incur reorganization and restructuring expenses as a
result of combining our companies. We also anticipate that the merger will
provide the combined company with financial benefits that include reduced
operating expenses and the opportunity to earn more revenue. The pro forma
information, while helpful in illustrating the financial characteristics of the
new company under two sets of assumptions, does not take into account these
expected expenses or these anticipated financial benefits, and does not attempt
to predict or suggest future results.
The information in the following tables is based on historical financial
information of Francor 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 71 for a description of documents that
we incorporate by reference into this document and how to obtain copies of them.
10
FIRST MERCHANTS
FIVE YEAR SUMMARY OF SELECTED HISTORICAL FINANCIAL DATA (1)
(Dollars in Thousands, Except Per Share Amounts)
For the Years Ended December 31
----------------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
Summary of Operations
Interest income $ 116,528 $ 100,463 $ 94,161 $ 88,184 $ 80,523
Interest expense 60,546 46,898 44,465 41,392 37,134
---------- ---------- ---------- ---------- ----------
Net interest income 55,982 53,565 49,696 46,792 43,119
Provision for loan losses 2,625 2,241 2,372 1,735 1,790
Noninterest income 16,634 14,573 12,880 10,146 9,317
Noninterest expense 40,083 36,710 32,741 30,016 27,596
---------- ---------- ---------- ---------- ----------
Net income before income tax 29,908 29,187 27,463 25,187 23,050
Income tax expense 9,968 10,099 9,556 8,704 8,006
---------- ---------- ---------- ---------- ----------
Net Income $ 19,940 $ 19,088 $ 17,907 $ 16,483 $ 15,044
========== ========== ========== ========== ==========
Per Share Data (2)
Net income
Basic $ 1.76 $ 1.59 $ 1.50 $ 1.40 $ 1.29
Diluted 1.75 1.58 1.48 1.38 1.27
Cash dividends (3) 0.90 0.84 0.77 0.69 0.59
Balances End of Period
Total assets $1,621,063 $1,474,048 $1,362,527 $1,181,359 $1,112,672
Total loans 1,175,586 998,895 890,356 838,658 744,474
Total deposits 1,288,299 1,147,203 1,085,952 976,972 918,876
Securities sold under repurchase
agreements (long-term portion) 32,500 35,000 48,836 -- --
Federal home loan bank advances 93,182 73,514 47,067 25,500 10,150
Stockholders' equity 156,063 126,296 153,891 141,794 130,250
11
For the Years Ended December 31
----------------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
Selected Ratios
Return on average assets 1.30% 1.37% 1.43% 1.43% 1.39%
Return on average equity 14.10 12.75 12.09 12.12 11.95
(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, 1996.
(2) Restated for 3-for-2 stock split effected October 1998.
(3) Dividends per share are for First Merchants only, not restated for pooling
transactions.
12
FRANCOR FINANCIAL
FIVE YEAR SUMMARY OF SELECTED HISTORICAL FINANCIAL DATA
(Dollars in Thousands, Except Per Share Amounts)
For the Years Ended December 31
----------------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
Summary of Operations
Interest income $ 13,456 $ 11,789 $ 11,159 $ 10,481 $ 10,291
Interest expense 5,906 4,816 4,727 4,348 4,342
-------- -------- -------- -------- --------
Net interest income 7,550 6,973 6,432 6,133 5,949
Provision for loan losses 410 300 300 434 132
Noninterest income 927 878 840 1,075 774
Noninterest expense 4,521 4,248 4,001 3,664 3,570
-------- -------- -------- -------- --------
Net income before income tax 3,546 3,303 2,971 3,110 3,021
Income tax expense 1,306 1,228 1,111 1,174 1,159
-------- -------- -------- -------- --------
Net Income $ 2,240 $ 2,075 $ 1,860 $ 1,936 $ 1,862
======== ======== ======== ======== ========
Per Share Data
Net income
Basic $ 8.12 $ 7.52 $ 6.74 $ 7.01 $ 6.75
Diluted 8.12 7.52 6.74 7.01 6.75
Cash dividends 3.22 3.11 3.02 2.90 2.80
Balances End of Period
Total assets $165,009 $151,929 $144,272 $128,415 $124,457
Total loans 133,522 129,130 110,677 101,511 92,049
Total deposits 145,017 130,131 126,337 111,291 108,470
Securities sold under repurchase
agreements (long-term portion) -- -- -- -- --
Federal home loan bank advances -- -- -- -- --
Stockholders' equity 18,393 16,885 15,988 14,934 13,894
13
For the Years Ended December 31
----------------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
Selected Ratios
Return on average assets 1.41% 1.40% 1.36% 1.53% 1.54%
Return on average equity 12.70 12.62 12.03 13.43 13.80
14
FIRST MERCHANTS
PRO FORMA SUMMARY OF SELECTED FINANCIAL DATA
(Dollars In Thousands, Except Per Share Amounts)
For The Year Ended
December 31, 2000
--------------------------------
Assumption A(1) Assumption B(2)
--------------- ---------------
Summary of Operations
Interest income $ 129,984 $ 129,144
Interest expense 66,452 66,452
---------- ----------
Net interest income 63,532 62,692
Provision for loan losses 3,035 3,035
Noninterest income 17,561 17,561
Noninterest expense 45,212 45,374
---------- ----------
Net income before income tax 32,846 31,844
Income tax expense 11,274 10,934
---------- ----------
Net income $ 21,572 $ 20,910
========== ==========
Per Share Data
Net income
Basic $ 1.72 $ 1.73
Diluted 1.71 1.72
Cash dividends 0.90 0.90
Balances End of Period
Total assets $1,795,192 $1,784,187
Total loans 1,309,108 1,309,108
Total deposits 1,433,316 1,433,316
Securities sold under repurchase
agreements (long-term portion) 32,500 32,500
Federal home loan bank advances 93,182 93,182
Stockholders' equity 183,576 172,571
Selected Ratios
Return on average assets 1.27% 1.23%
Return on average equity 12.77 13.24
- ----------
Notes to Pro Forma Summary of Selected Financial Data appear on the following
page.
15
NOTES TO PRO FORMA SUMMARY OF SELECTED FINANCIAL DATA
(Dollars in Thousands, Except Per Share Amounts)
(1) Assumption A -- Issuance of 1,192,320 shares of First Merchants common
stock:
Assumes 276,000 shares (100%) of Francor Financial common stock become subject
to Option 1 elections and no shares become subject to Option 2 or Option 3
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 February 8, 2001 was $23.075.
Such amount is less than $27.025 per share and greater than $22.325 per share.
Accordingly, it has been assumed that no adjustment to the conversion ratio
would be required and 4.32 shares of First Merchants common stock would be
issued for each share of Francor Financial common stock subject to Option 1
elections. Using this assumption, no cash payments would be made to Francor
Financial shareholders except to the extent cash payments are made in lieu of
the issuance of fractional shares resulting from the 4.32 to 1 conversion ratio.
Based on such assumptions and a $23.075 per share price for First Merchants
common stock, the purchase price is computed as follows:
Common stock (1,192,320 shares at stated value of $.125
per share) ........................................... $ 149
Capital surplus (1,192,320 shares at $22.950 per share) ... 27,364
-------
Total stock issued (1,192,320 shares at $23.075
per share) ...................................... 27,513
Cash price ................................................ 0
-------
Total purchase price ................................. $27,513
=======
(2) Assumption B - Issuance of 715,392 shares of First Merchants common stock:
Assumes 165,600 shares (60%) of Francor Financial common stock become subject to
Option 1 elections and 110,400 shares (40%) of Francor Financial common stock
become subject to Option 3 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 February 8, 2001 was $23.075. Such amount is less than $27.025 per share and
greater than $22.325 per share. Accordingly, it has been assumed that no
adjustment to the conversion ratio would be required and 4.32 shares of First
Merchants common stock would be issued for each share of Francor Financial
common stock subject to Option 1 elections and $121.74 cash is issued for each
share of Francor Financial common stock subject to Option 3 elections. Based on
such assumptions and a $23.075 per share price for First Merchants common stock,
the purchase price is computed as follows:
Common stock (715,392 shares at stated value of $.125
per share) ........................................... $ 89
Capital surplus (715,392 shares at $22.950 per share) ..... 16,419
-------
Total stock issued (715,392 shares at $23.075 per
share) .......................................... 16,508
Cash price:
110,400 Francor Financial shares at $121.74 per
share ........................................... 13,440
-------
Total purchase price ............................ $29,948
=======
16
SPECIAL MEETING
Special Meeting of Shareholders of
Francor Financial, Inc.
General Information
This document is furnished to the shareholders of Francor Financial, Inc.
(Francor Financial) in connection with the solicitation by the Board of
Directors of Francor Financial of proxies for use at the special meeting of
shareholders to be held on __________, _________, 2001, at ____ _.m., local
time, at the Wabash Inn located at 1950 State Highway 15 South, Wabash, Indiana
46992. This document is first being mailed to Francor Financial shareholders on
____________, 2001, and is accompanied by the notice of Francor Financial
special meeting, a form of proxy, and an Election Form.
Matters To Be Considered
The purposes of the special meeting are to consider and vote upon adoption
of the Agreement of Reorganization and Merger (Merger Agreement), dated February
8, 2001, by and between First Merchants Corporation (First Merchants) and
Francor Financial, and to consider and vote upon any other matters that properly
come before the special meeting or any adjournment or postponement of the
special meeting. Pursuant to the Merger Agreement, Francor Financial will merge
into First Merchants, and Frances Slocum Bank & Trust Company will become a
wholly-owned subsidiary of First Merchants.
Votes Required
Approval of the Merger Agreement requires the affirmative vote of at least
a majority of the outstanding shares of Francor Financial common stock. Francor
Financial has fixed _______, 2001 as the record date for determining those
Francor Financial shareholders entitled to notice of, and to vote at, the
special meeting. Accordingly, only Francor Financial shareholders of record at
the close of business on _______, 2001 will be entitled to notice of and to vote
at the special meeting. If you are not the record holder of your shares and
instead hold your shares in a "street name" through a bank, broker or other
record holder, that person will vote your shares in accordance with the
instructions you provide them on the enclosed proxy. Each share of Francor
Financial common stock you own on the record date entitles you to one vote on
each matter presented at the special meeting. At the close of business on the
record date, there were approximately 276,000 shares of Francor Financial common
stock outstanding held by approximately 447 shareholders.
As of the record date, Francor Financial's executive officers, directors
and their affiliates owned of record or beneficially in the aggregate 50,506
shares or approximately 18.30% of the shares of Francor Financial common stock
outstanding. Each member of the Board of Directors of Francor Financial as of
February 8, 2001, the date the Agreement was executed, has agreed to cause all
shares of Francor Financial common stock owned by him of record or beneficially
to be voted in favor of the merger. As of the record date, the members of the
Francor Financial Board
17
of Directors owned of record or beneficially 50,006 shares or approximately
18.12% of the shares of Francor Financial common stock outstanding.
Proxies
The accompanying form of proxy is for your use at the special meeting if
you are unable or do not wish to attend the special meeting in person. The
shares represented by proxies properly signed and returned will be voted at the
special meeting as instructed by the Francor Financial shareholders giving the
proxies. In the absence of specific instructions to the contrary, proxies will
be voted FOR --- approval of the Merger Agreement described in this document and
in accordance with the judgment of the persons named as proxies with respect to
any other matter which may properly come before the special meeting. The Board
of Directors of Francor Financial is unaware of any other matters that may be
presented for action at the special meeting.
You may revoke your proxy at any time before it is exercised by:
o delivering to the Secretary of Francor Financial a written notice of
revocation addressed to Sondra T. Kaselonis, Francor Financial, 189
West Market Street, P.O. Box 588, Wabash, Indiana 46992; or
o delivering a properly executed proxy having a later date; or
o personal oral or written request at the special meeting.
Therefore, your right to vote in person if you attend the special meeting
will not be affected by executing a proxy. To be effective, Francor Financial
must receive the revocation before the proxy is exercised.
Because approval of the Merger Agreement and the merger requires the
affirmative vote of at least a majority of the outstanding shares of Francor
Financial common stock, abstentions and broker non-votes will have the same
effect as voting against approval of the Merger Agreement. Accordingly, your
Board of Directors urges all Francor Financial shareholders to complete, date
and sign the accompanying proxy and return it promptly in the enclosed
postage-paid envelope.
Solicitation of Proxies
Francor Financial will bear the entire cost of soliciting proxies from
Francor Financial shareholders. Francor Financial will request that banks,
brokers and other record holders send proxies and proxy material to the
beneficial owners of stock held by them and secure their voting instructions, if
necessary. Francor Financial will reimburse these banks, brokers and other
record holders for their reasonable expenses. In addition to solicitation of
proxies by mail, proxies may be solicited personally or by telephone by
directors, officers and certain employees of Francor Financial, who will not be
specially compensated for such soliciting. In soliciting proxies, the directors,
officers and employees of Francor Financial have no authority to make any
representations and warranties about the merger or the Merger Agreement in
addition to or
18
contrary to the provisions stated in this document. No statement made by a
director, officer or employee of Francor Financial regarding the merger or the
Merger Agreement should be relied upon except as expressly stated in this
document.
Recommendations
The Francor Financial Board of Directors has unanimously approved the
Merger Agreement and the merger. The Board believes that the merger is in the
best interests of Francor Financial and its shareholders. The Board unanimously
recommends that the Francor Financial shareholders vote "FOR" the Merger
Agreement and the merger. See "MERGER -- Francor Financial's Reasons for the
Merger" and "MERGER -- Recommendation of the Board of Directors."
19
MERGER
At the special meeting, the shareholders of Francor Financial will consider and
vote upon adoption of the Merger Agreement. The following summary highlights
some of the terms of the Merger Agreement. Because this is a summary of the
Merger Agreement, it does not contain a description of all of the terms of the
Merger Agreement and is qualified in its entirety by reference to the Merger
Agreement. To understand the merger, you should read carefully the entire Merger
Agreement, which is attached to this document as Appendix A and is incorporated
herein by reference.
Description of the Merger
Under the terms of the Merger Agreement, Francor Financial will merge with
First Merchants and the separate corporate existence of Francor Financial will
cease. As a result of the merger, Frances Slocum Bank & Trust Company (Frances
Slocum Bank) will become a wholly-owned subsidiary of First Merchants. First
Merchants presently intends to continue to operate Frances Slocum Bank as a
subsidiary after the merger.
First Merchants' Reasons for the Merger
In reaching its decision to approve the Merger Agreement and the merger,
the First Merchants Board of Directors considered a number of factors concerning
First Merchants' benefits from 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
Francor Financial Board of Directors, management, and staff, and
their affiliates;
2. First Merchants' belief that expanding its operations in the
areas served by Francor Financial offers important long range
strategic benefits to First Merchants;
3. a review of (i) the business, operations, earnings, and financial
condition including the capital levels and asset quality, of
Francor 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 Francor 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 Francor Financial; and
4. a variety of factors affecting and relating to the overall
strategic focus of First Merchants, including First Merchants'
desire to expand into contiguous markets.
20
Francor Financial's Reasons for the Merger
Among other items considered by the Francor 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 Francor Financial and First Merchants, as
separate institutions and as combined;
2. the compatibility of First Merchants' subsidiary banks' markets
to that of Francor Financial's market;
3. the anticipated tax-free nature of the merger to the shareholders
of Francor Financial receiving solely First Merchants common
stock in exchange for their shares of Francor Financial common
stock;
4. the possibility of increased liquidity through ownership of First
Merchants common stock as compared to Francor 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 Frances Slocum Bank as
a wholly-owned subsidiary of First Merchants;
9. an analysis of alternatives to Francor Financial merging with
First Merchants; and
10. the opinion of Renninger & Associates, LLC indicating that the
consideration to be received by Francor Financial's shareholders
under the Merger Agreement is fair from a financial perspective.
The Francor Financial Board also considered the impact of the merger on
Francor Financial's and Frances Slocum Bank's customers and employees and the
communities served by Frances Slocum 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 Frances Slocum Bank's employees within First Merchants
or one of its subsidiaries. The Francor Financial Board examined First
Merchants' continuing commitment to the communities served by the institutions
previously
21
acquired by First Merchants. Additionally, as a subsidiary of First Merchants,
Frances Slocum Bank would be able to offer more products and services to its
customers because of First Merchants' greater resources.
Based upon the foregoing factors, the Board of Directors of Francor
Financial concluded 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 June 8, 2000, Francor Financial engaged Renninger & Associates, LLC
(Renninger) to assess its strategic alternatives and to pursue an affiliation
with selected financial institutions. In the event of an affiliation with
another financial institution, the scope of these services included 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 Francor
Financial shareholders, from a financial point of view.
Renninger is a recognized specialist in the area of bank and thrift mergers
and acquisitions, branch acquisition and divestiture, stock valuation, capital
management, and other financial advisory services. Prior to forming Renninger,
Renninger's 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 CPA firm and later a large
regional CPA firm. Renninger does not own any interest in Francor Financial or
First Merchants. The Francor Financial Board selected Renninger because of its
familiarity with Indiana financial institutions and its knowledge of the banking
industry as a whole.
Renninger acted as financial advisor to Francor Financial in connection
with the merger and participated in the negotiations leading to the Merger
Agreement. Renninger also performed certain analyses described below and
presented the range of values for Francor Financial resulting from such analyses
to the Francor Financial Board of Directors in connection with its advice as to
the fairness of the consideration to be paid by First Merchants in the merger.
Francor Financial and First Merchants determined the amount of consideration
payable to Francor Financial shareholders in connection with the merger through
arm's length negotiations.
Renninger delivered a Fairness Opinion to the Francor Financial Board on
February 7, 2001, at a meeting of the Board of Directors. Renninger has updated
the Fairness Opinion as of the date of this Proxy Statement-Prospectus. A copy
of the full text 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 their entirety. The summary of the Fairness Opinion of
Renninger set forth in this document is qualified in its entirety by reference
to the attached Fairness Opinion.
In arriving at its Fairness Opinion, Renninger reviewed and considered the
following information:
22
1. Certain publicly available business and financial information
relating to Francor Financial and First Merchants;
2. Certain financial and stock market data of Francor Financial and
First Merchants, compared with similar data for certain other
publicly-held bank holding companies;
3. The financial terms of certain other recent comparable bank
transactions in the Midwestern United States; and
4. 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. Renninger prepared financial forecasts using
assumptions Renninger believed to be reasonable and to reflect currently
available information. No independent evaluation or appraisal of the assets of
Francor Financial or First Merchants was made by Renninger. 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 Francor Financial. Renninger reviewed the correspondence and information
received from interested financial institutions that were contacted. Renninger
reviewed all offers received with Francor Financial's Board of Directors.
As part of preparing this updated Fairness Opinion, Renninger performed a
due diligence review of First Merchants as of February 7, 2001. As part of the
due diligence, Renninger reviewed the following items:
o minutes of the meetings of the First Merchants Board of Directors for 1999
and through December, 2000;
o the most recent regulatory reports of examination of First Merchants
(commenced July 5, 2000) and First Merchants Bank, National Association
(commenced June 12, 2000);
o December 31, 1997, 1998, and 1999 audited annual reports;
o Forms 10-Q for the quarters ended March 31, 2000, June 30, 2000, and
September 30, 2000;
o the Bank Holding Company Performance Report for June 30, 2000;
o the most recent Third Party Loan Reports for each banking affiliate and
various other asset quality related reports; and
23
o the most recent Allowance for Loan and Lease Loss analysis reports for
First Merchants and each affiliate bank as of September 30, 2000.
In addition, Renninger reviewed and analyzed the historical performance of
Francor Financial and Francor Financial's wholly-owned subsidiary, Frances
Slocum Bank, after reviewing the following items:
o audited Annual Reports and financial statements dated December 31, 1997,
1998 and 1999 of Francor Financial;
o the March 31, 2000, June 30, 2000 and September 30, 2000 Consolidated
Reports of Condition and Income filed by Frances Slocum Bank with the
Federal Deposit Insurance Corporation;
o June 30, 2000 Uniform Bank Performance Reports of Frances Slocum Bank;
o historical common stock trading activity of Francor Financial; and
o the premises and other fixed assets.
Renninger also 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.
In connection with rendering the Fairness Opinion and preparing its written
and oral presentation to Francor Financial's Board, Renninger performed a
variety of financial analyses, including those summarized below. Because this is
a summary, it does not contain a complete description of the analyses performed
by Renninger. 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.
As a result, a fairness opinion is not easily described in a summary.
Accordingly, 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
Francor 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.
24
o Acquisition Comparison Analysis
In performing this analysis, Renninger reviewed all bank acquisition
transactions involving sellers in the Midwestern United States announced in
2000, which had assets between $50 million and $250 million. Of the 18 bank
acquisition transactions meeting this criteria, detailed financial information
was available for 16. 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 Francor Financial. The median multiples of
book value, tangible book value and earnings for these comparable transactions
were 2.00X, 2.00X and 18.7X, respectively. When applied to Francor Financial's
book value and earnings as of and for the year ending December 31, 2000, these
multiples suggest Francor Financial shares would be valued at $133.28 on a book
value and tangible book value basis and $152.03 on an earnings basis. It should
be noted that the comparable transactions have a median equity-to-assets
percentage of 7.94% compared to Francor Financial's 11.15%. Acquirers are
generally willing to pay a premium over book value for prudent levels of
acquired equity, and will consider paying for excessive equity on a
dollar-for-dollar basis. Assuming Francor Financial received a book multiple of
2.00X on the first 7.94% of capital and dollar-for-dollar for the excess
capital, Francor Financial shares would be valued at $114.10.
o Adjusted Net Asset Value Analysis
Renninger reviewed Francor 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
Francor Financial's financial statements. Renninger determined that the only
material adjustment relates to the core deposit intangible value inherent in
Francor Financial's relatively low-rate deposit base. Equity would be increased
$5.2 million to reflect the after-tax value of recording such an intangible
asset. The aggregate adjusted net asset value of Francor Financial would be
$23.6 million or $85.51 per share of Francor Financial common stock as of
December 31, 2000.
o Discounted Earnings Analysis
A dividend discount analysis was performed by Renninger pursuant to which a
range of values for Francor Financial was determined by adding (i) the present
value of estimated future dividend streams that Francor Financial could generate
over a five-year period and (ii) the present value of the "terminal value" of
Francor Financial's earnings at the end of the fifth year. The "terminal value"
of earnings at the end of the five-year period was determined by applying a
multiple of 18.7 times the projected terminal year's earnings. The 18.7 multiple
represents the median price paid as a multiple of earnings for the 16 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 Francor Financial's common
stock. The projection assumed an annual asset growth rate of 8.0%, a return on
assets of 1.40%, and a dividend pay-out ratio equal to 50% throughout
25
the analysis. The aggregate value of Francor Financial, determined by adding the
present value of the total cash flows, was $22,339,000 or $80.94 per share.
o Specific Acquisition Analysis
Renninger valued Francor 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 6.0% of
deposits) over 8 years, amortization of non-deductible goodwill over 15 years
and a projected December 31, 2000 earnings level of $2,240,000. This analysis
assumed a potential acquirer would attain non-interest expense reductions and
revenue enhancements totaling $414,000 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
$30,291,000 or $109.75 per share of Francor 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 $42,228,000 or $153.00 per share of Francor Financial common stock.
o Pro Forma Merger Analysis
Renninger compared the historical performance of Francor 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 Francor 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 Francor Financial was prepared and analyzed. Francor Financial's
historical financial data was compared to the pro forma combined historical and
projected earnings, book value and dividends per share.
The Merger Agreement provides that, in the proposed transaction, Francor
Financial shareholders are entitled to receive in exchange for each share held,
and at their election, either (i) 4.32 shares of First Merchants' common stock;
or (ii) 2.59 shares of First Merchants common stock and $48.70 in cash; or (ii)
$121.74 in cash, within certain limitations. The cash portion of the transaction
is limited to $13,440,096, 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 1,192,320
shares of First Merchants common stock will be issued in exchange for all
276,000 shares of outstanding Francor Financial common stock. Based on recent
trading activity as reported on the National Association of Securities Dealers
Automated Quotation System, First Merchants' shares have traded at approximately
$23.00. At that price, the proposed consideration to be received represents an
aggregate value of $27,423,360 or $99.36 per share of Francor Financial common
26
stock. This valuation represents a multiple of December 31, 2000 book value and
tangible book value of 1.49X and a multiple of 2000 net income of 12.24X.
The fixed cash price of $121.74 implies a $28.18 value of First Merchant's
shares. If the maximum number of Francor Financial shares are exchanged for
cash, an aggregate of 715,392 share of First Merchants common stock will be
issued and the aggregate value of the transaction will be $29,894,112 or $108.31
per share assuming First Merchants' shares are valued at $23.00. This valuation
represents a multiple of December 31, 2000 book value and tangible book value of
1.63X and a multiple of 2000 net income of 13.35X.
Renninger also considered the pro forma impact of the proposed transaction
on Francor Financial's shareholders from the perspective of book value, earnings
and dividends. Assuming 75% of Francor Financial shareholders elect to accept
First Merchants stock, Francor Financial shareholders electing stock are
expected to recognize book value dilution of 13.9%, earnings dilution of 4.9%
(before giving impact to revenue enhancements and cost savings), and a 24.2%
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 Francor Financial's shareholders under the
Merger Agreement is fair and equitable from a financial perspective. The
Fairness Opinion is not a recommendation to any Francor Financial shareholder to
vote in favor of the merger. No limitations were imposed on Renninger regarding
the scope of its investigation or otherwise by Francor Financial.
Based on the results of the various analyses described above, Renninger
concluded that the consideration to be received by Francor Financial's
shareholders under the Merger Agreement is fair and equitable from a financial
perspective to the shareholders of Francor Financial.
Renninger's compensation for all services performed in connection with the
sale of Francor Financial and 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 received by Francor
Financial shareholders. In connection with the sale of Francor Financial,
Renninger has received a consulting fee of $20,000 paid upon engagement by
Francor Financial and an additional fee of $80,000 paid upon execution of the
Merger Agreement. In addition to such fees, Renninger will receive a contingent
fee equal to (i) 0.50% of the first $33 million of the consideration for the
merger and (ii) 5.00% of the consideration for the merger in excess of $33
million to be paid upon consummation of the merger. In the event that all
Francor Financial shareholders elect to receive First Merchants shares valued at
$22.00 per share, the closing price of First Merchants common stock on February
8, 2001, the business day immediately preceding the public announcement of the
merger, the merger would be valued at $26.2 million and Renninger would receive
total fees of approximately $231,000 for his services to Francor Financial. In
the event that all Francor Financial shareholders elect to receive First
Merchants shares valued at $____ per share, the closing price of First Merchants
common stock on __________, 2001, the merger would be valued at $___ million and
Renninger would receive total fees of approximately $_______ for his services to
Francor Financial.
27
In addition to the above fees, Francor Financial has agreed to indemnify
Renninger and its directors, officers and employees, from liability in
connection with the merger, 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 Francor
Financial.
Recommendation of the Board of Directors
The Board of Directors of Francor Financial has carefully considered and
unanimously approved the Merger Agreement and the merger and unanimously
recommends to the Francor Financial shareholders that they approve the Merger
Agreement.
Exchange of Francor Financial Common Stock
As of the effective date of the merger, you will be entitled to receive for
each outstanding share of Francor Financial common stock you own, other than for
shares as to which dissenters' rights have been exercised, at your election,
either (i) 4.32 shares of First Merchants common stock (Option 1), or (ii) 2.59
shares of First Merchants common stock and $48.70 in cash (Option 2) or (iii)
$121.74 in cash (Option 3). The conversion ratios are subject to adjustment
under certain circumstances. See "MERGER -- Conversion Ratio Adjustment."
Option 2 is based upon you receiving 60% of the consideration for your
Francor Financial shares in First Merchants stock and 40% in cash. The amount of
stock to be received under Option 2 was determined by calculating 60% times the
conversion ratio of 4.32 from Option 1, which equals 2.59. The amount of cash to
be received under Option 2 was determined by calculating 40% times the cash
price of $121.74 from Option 3, which equals $48.70. Thus, if you elect Option
2, you would be entitled to 2.59 shares of First Merchants stock and $48.70 in
cash for each of your shares of Francor Financial common stock.
An Election Form is being mailed to you along with this document. You must
elect to receive either Option 1, Option 2 or Option 3 for all shares of Francor
Financial common stock you own by completing the Election Form. You may not
elect a combination of Option 1, Option 2 and/or Option 3 for your Francor
Financial shares. To be effective, the Trust Department of First Merchants Bank,
National Association must receive a properly completed Election Form by 5:00
p.m. local time on __________, 2001. If a properly completed Election Form is
not timely received for your Francor Financial shares, you will be treated as if
you elected Option 1 for all shares you own.
In the event (i) the number of shares of Francor Financial common stock
covered by Option 2 and Option 3 elections would entitle Francor Financial
shareholders to receive more than $13,440,096 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 (Continuity
of Interest Rule) due to the amount of cash that would be issuable in connection
with the merger, certain of the Option 3 elections of the holders of Francor
Financial shares shall be converted into Option 2 elections. The Option 3
election covering the smallest number of
28
Francor Financial shares will be honored first, followed by the election which
covers the next smallest number of Francor Financial shares and continuing this
process until the total remaining number of Francor Financial shares covered by
Option 2 and Option 3 elections is such that the merger will result in cash
payments of no more than $13,440,096 and will satisfy the Continuity of Interest
Rule.
First Merchants will not issue fractional shares of First Merchants common
stock to Francor Financial shareholders. Each Francor Financial shareholder who
otherwise would be entitled to a fractional interest in a First Merchants share
as a result of the conversion ratios will be paid a cash amount 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 (First Merchants Average Price).
Immediately after completion of the merger, First Merchants will mail a
letter of transmittal to each Francor Financial shareholder. This transmittal
letter will contain instructions on how to surrender your certificates
representing shares of Francor Financial common stock. You should not return
your Francor Financial stock certificates with the enclosed proxy and Election
Form, but should retain them until you receive a letter of transmittal from
First Merchants.
If you hold your shares of Francor Financial common stock in a "street
name" through a bank or broker, your bank or broker is responsible for ensuring
that the certificate or certificates representing your shares are properly
surrendered and that the appropriate number of First Merchants shares are
credited to your account. However, you must complete and return the Election
Form to your bank or broker for transmittal to First Merchants Bank, National
Association.
After completion of the merger, your stock certificates previously
representing Francor Financial common stock will represent only the right for
you to receive shares of First Merchants common stock and/or cash, as
applicable. Prior to the surrender of Francor Financial stock certificates for
exchange subsequent to completion of the merger, 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, upon the subsequent exchange of such
certificates, First Merchants will pay, without interest, any accumulated
dividends or distributions previously declared and withheld on the shares of
First Merchants common stock. On the effective date of the merger, the stock
transfer books of Francor Financial will be closed and no transfer of shares of
Francor Financial common stock will be made thereafter. If, after the effective
date of the merger, you present certificates representing shares of Francor
Financial common stock for registration or transfer, the certificates will be
cancelled and exchanged for shares of First Merchants' common stock and/or cash,
as applicable.
First Merchants will distribute stock certificates representing shares of
First Merchants common stock and/or cash payments to each former shareholder of
Francor Financial within 10
29
days after the shareholder delivers his/her/its Francor Financial stock
certificates to First Merchants. Delivery of Francor Financial shares for
conversion will not be taken until after completion of the merger. First
Merchants Bank, National Association will act as conversion agent in the merger.
If your certificate for your shares of Francor Financial common stock has
been lost, stolen or destroyed, First Merchants will issue the First Merchants
common stock and/or make any cash payments to you after First Merchants receives
from you an agreement to indemnify First Merchants against loss from such lost,
stolen or destroyed certificate and an affidavit evidencing the loss, theft or
destruction of your certificates.
Conversion Ratio Adjustment
If the First Merchants Average Price (as defined above in the preceding
section) is less than or greater than certain target prices set forth in the
Merger Agreement, then First Merchants and Francor Financial may agree to adjust
the conversion ratio or terminate the Merger Agreement. See "MERGER --
Termination; Waiver; Amendment." If adjusted, the new conversion ratio will be
determined by taking the target price triggering the adjustment times the
existing conversion ratio of 4.32, divided by the First Merchants Average Price.
Provided below are a description of the target prices triggering a possible
adjustment in the conversion ratio or termination of the Merger Agreement,
followed by a scenario detailing how the conversion ratio may be adjusted. The
scenarios are provided only as possible examples to assist your understanding of
the conversion ratio adjustment provisions.
First, if the First Merchants Average Price is less than $22.325 and
greater than or equal to $20.00, then the conversion ratio shall be
automatically adjusted by First Merchants and Francor Financial. The adjusted
conversion ratio will equal a number equal to $22.325 times the existing
conversion ratio of 4.32, divided by the First Merchants Average Price.
SCENARIO 1: If the First Merchants Average Price is $21.00 (which is
less than $22.325 and greater than or equal to $20.00), then the conversion
ratio would be adjusted as follows by First Merchants and Francor
Financial:
22.325 x 4.32 = 4.59
-------------
21.00
Thus, the adjusted conversion ratio would be 4.59 to 1, which would
impact the number of shares of First Merchants common stock you would
receive under Option 1 and Option 2. The amount of cash to be received
under Option 2 and Option 3 would not be changed. The conversion ratio
under Option 2 would be adjusted to 60% of 4.59, which equals 2.75. Thus,
under this scenario, after adjustment, you would be entitled to receive for
each outstanding share of Francor Financial common stock you own, other
than for shares as to which dissenters' rights have been exercised, at your
election, either (i) 4.59 shares of First Merchants common stock under
Option 1, or (ii) 2.75 shares of First Merchants
30
common stock and $48.70 in cash under Option 2, or (iii) $121.74 in cash
under Option 3.
Second, if the First Merchants Average Price is less than $20.00, then
Francor Financial may terminate the Merger Agreement. If Francor Financial's
Board exercises its right to terminate the Merger Agreement, it must give
written notice to First Merchants of its election to terminate the merger within
24 hours after the 5th day prior to the closing date of the merger. Within 2
business days after the receipt of such notice, First Merchants may elect to
increase the conversion ratio to equal a number equal to $22.325 times the
existing conversion ratio of 4.32, divided by the First Merchants Average Price.
If First Merchants elects to adjust the conversion ratio, the Merger Agreement
will remain in effect with the adjusted conversion ratio and will not be
terminated. If First Merchants does not elect to adjust the conversion ratio
within such 2 business days, then the Merger Agreement will terminate.
SCENARIO 2: If the First Merchants Average Price is $19.00 (which is
less than $20.00), then, at First Merchants' election, the conversion ratio
would be adjusted as follows by First Merchants and Francor Financial:
22.325 x 4.32 = 5.08
-------------
19.00
Thus, the adjusted conversion ratio would be 5.08 to 1, which would
impact the number of shares of First Merchants common stock you would
receive under Option 1 and Option 2. The amount of cash to be received
under Option 2 and Option 3 would not be changed. The conversion ratio
under Option 2 would be adjusted to 60% of 5.08, which equals 3.05. Thus,
under this scenario, after adjustment, you would be entitled to receive for
each outstanding share of Francor Financial common stock you own, other
than for shares as to which dissenters' rights have been exercised, at your
election, either (i) 5.08 shares of First Merchants common stock under
Option 1, or (ii) 3.05 shares of First Merchants common stock and $48.70 in
cash under Option 2, or (iii) $121.74 in cash under Option 3.
Finally, if the First Merchants Average Price is greater than $27.025, then
First Merchants may terminate the Merger Agreement. If First Merchant's Board
exercises its right to terminate the Merger Agreement, it must give written
notice to Francor Financial of its election to terminate the merger within 24
hours after the 5th day prior to the closing date of the merger. Within 2
business days after the receipt of such notice, Francor Financial may elect to
decrease the conversion ratio to equal a number equal to $27.025 times the
existing conversion ratio of 4.32, divided by the First Merchants Average Price.
If Francor Financial elects to adjust the conversion ratio, the Merger Agreement
will remain in effect with the adjusted conversion ratio and will not be
terminated. If Francor Financial does not elect to adjust the conversion ratio
within such 2 business days, then the Merger Agreement will terminate.
31
SCENARIO 3: If the First Merchants Average Price is $29.00 (which is
greater than $27.025), then, at Francor Financial's election, the
conversion ratio would be adjusted as follows by First Merchants and
Francor Financial:
27.025 x 4.32 = 4.03
-------------
29.00
Thus, the adjusted conversion ratio would be 4.03 to 1, which would
impact the number of shares of First Merchants common stock you would
receive under Option 1 and Option 2. The amount of cash to be received
under Option 2 and Option 3 would not be changed. The conversion ratio
under Option 2 would be adjusted to 60% of 4.03, which equals 2.42. Thus,
under this scenario, after adjustment, you would be entitled to receive for
each outstanding share of Francor Financial common stock you own, other
than for shares as to which dissenters' rights have been exercised, at your
election, either (i) 4.03 shares of First Merchants common stock under
Option 1, or (ii) 2.42 shares of First Merchants common stock and $48.70 in
cash under Option 2, or (iii) $121.74 in cash under Option 3.
The scenarios set forth above are provided as examples only and do not
reflect what the actual First Merchants Average Price will be. The scenarios
have been included in this document to help you understand how the conversion
ratio adjustment works at various arbitrarily chosen prices. First Merchants and
Francor Financial will determine if an adjustment to the conversion ratio will
be made in the 5 days preceding completion of the merger.
Rights of Dissenting Shareholders
The Indiana Business Corporation Law (IBCL) provides shareholders of
merging corporations with certain rights to dissent to a merger. The dissenters'
rights of Francor Financial shareholders are set forth in Chapter 44 of the
IBCL, a copy of which is attached to this document as Appendix B. To be entitled
to dissenter's rights, Francor Financial shareholders must strictly comply with
the procedures of Indiana law set forth in the IBCL. This document summarizes
the procedures for Francor Financial shareholders to dissent to the merger under
Indiana law.
As a Francor Financial shareholder, Chapter 44 of the IBCL provides that
you have the right to demand payment in cash for the fair value of the shares
you own immediately before the merger is completed. Such fair market value
excludes any appreciation or depreciation on the value of your shares in
anticipation of the merger, unless a court determines that such exclusion would
be inequitable. To claim dissenters' rights, you must first:
1. deliver to Francor Financial before the vote on the merger is taken,
written notice of your intent to demand payment in cash for your
shares if the merger is completed; and
32
2. you must not vote in favor of the merger. To not vote in favor of the
merger, you must either vote against the merger or abstain from voting
on the merger in person or by proxy or simply take no action at all
with respect to voting your shares.
If you desire to dissent to the merger, you may send your written notice to
Jerry M. Ault, Chairman of the Board, Francor Financial, Inc., 189 West Market
Street, P.O. Box 588, Wabash, Indiana 46992.
If the merger is approved by the Francor Financial shareholders, within 10
days after shareholder approval, First Merchants or Francor Financial will send
a notice of dissenters' rights to those Francor Financial 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.
If you receive such a notice, to exercise your dissenters' rights, you must
then:
1. demand payment for the shares of Francor Financial common stock you
own;
2. certify that you owned the Francor Financial shares before the date
set forth in such notice; and
3. deposit your Francor Financial stock certificates in accordance with
the instructions in such notice.
If a Francor Financial shareholder does not strictly comply with each of
the conditions described above, he/she/it will not be entitled to dissenters'
rights under Chapter 44 of the IBCL. If you execute and return the enclosed
proxy but do not specify a choice on the merger proposal, you will be deemed to
have voted in favor of the merger and accordingly to have waived your
dissenters' rights, unless you revoke the proxy prior to its being voted.
Accordingly, if you return the enclosed proxy and wish to dissent to the merger,
you must vote your Francor Financial shares against the merger or abstain from
voting.
Upon completion of the merger, First Merchants will pay each dissenting
Francor Financial shareholder who has complied with all of the requirements of
Chapter 44 of the IBCL and of the notice, First Merchants' estimate of the fair
value of their 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 your shares of
Francor Financial common stock on February 8, 2001, 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 demanding 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
33
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 Wabash
County for a judicial determination of the fair value. The Court may appoint
appraisers to determine the fair value. The Court will assess the costs of the
proceeding, including compensation and expenses of the appraisers, counsel for
the parties and experts, 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.
This summary of the rights of dissenting shareholders addresses all
material features of the applicable Indiana dissenters' rights statute, but does
not contain a description of all requirements of the dissenters' rights statute
and is qualified in its entirety by the statutory provisions attached to this
document as Appendix B.
If you wish to exercise dissenters' rights for the merger and you fail to
comply with the statutory requirements for exercising dissenters' rights, you
will lose such rights. Accordingly, Francor Financial shareholders who may wish
to exercise dissenters' rights should consider seeking legal counsel.
Resale of First Merchants Common Stock by Francor Financial Affiliates
Shares of First Merchants common stock to be issued to Francor Financial
shareholders in the merger have been registered under the Securities Act of
1933, as amended (Securities Act). These shares may be traded freely and without
restriction by those Francor Financial shareholders not considered to be
"affiliates" (as defined below). However, certain restrictions apply to the
transfer of First Merchants shares owned by any shareholder deemed a Francor
Financial "affiliate" under Rule 145 of the Securities Act. Shares held by any
person who is an "affiliate" of Francor Financial at the time the merger is
submitted for vote at the special meeting will not, under existing law, be
permitted to sell or transfer those shares without:
o further registration under the Securities Act of the shares of First
Merchants common stock to be transferred;
o compliance with Rule 145 promulgated under the Securities Act which
permits limited sales in certain circumstances; or
o the availability of another exemption from registration of such
shares.
Directors, executive officers and 10% shareholders are generally deemed to be
"affiliates" for purposes of Rule 145 of the Securities Act.
The Merger Agreement provides that Francor Financial will provide First
Merchants with a list identifying each affiliate of Francor Financial. The
Merger Agreement also requires that each Francor Financial affiliate deliver to
First Merchants a written transfer restriction agreement prior to completion of
the merger. The transfer restriction agreement shall provide that the affiliate
will not sell, pledge, transfer or otherwise dispose of any shares of First
Merchants
34
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 Francor Financial affiliates
in the merger may contain a legend indicating these resale restrictions.
This is only a general statement of certain restrictions regarding the sale
or transfer of the shares of First Merchants common stock to be issued in the
merger. If you are or may be an affiliate of Francor Financial, you should
confer with legal counsel regarding the transfer restrictions that may apply.
Conditions to Completion of the Merger
First Merchants' and Francor Financial's obligations to complete the merger
are subject to the satisfaction of the following conditions, among other things,
at or prior to the effective time of the merger:
1. the approval of the Merger Agreement by the affirmative vote of the
holders of at least a majority of the outstanding shares of Francor
Financial common stock;
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 Francor Financial shareholders;
3. the receipt of all regulatory approvals required for the merger;
4. the receipt of an opinion of First Merchants' counsel that the merger
will be treated as tax-free for federal income tax purposes to each
party;
5. the receipt by First Merchants of certain undertakings from affiliates
of Francor Financial;
6. the fulfillment of certain covenants set forth in the Merger
Agreement;
7. the receipt by First Merchants and Francor Financial of certain
officer's certificates, legal opinions and closing documents; and
8. the representations and warranties of First Merchants and Francor
Financial contained in the Merger Agreement being accurate at the
effective date of the merger.
The conditions to completion of the merger are not subject to waiver by
either party individually and may be altered only by the written agreement of
both parties. See "MERGER -- Resale of First Merchants Common Stock by Francor
Financial Affiliates," "MERGER --
35
Regulatory Approvals," "MERGER - Interests of Certain Persons in the Merger,"
"FEDERAL INCOME TAX CONSEQUENCES" and Appendix A.
Termination; Waiver; Amendment
First Merchants and Francor Financial may terminate the Merger Agreement at
any time before the merger is completed, including after the Francor Financial
shareholders have approved the merger, if one of the events which gives the
party the right to terminate occurs. The Merger Agreement may be terminated:
1. by either First Merchants or Francor Financial if there has been a
material misrepresentation in or material breach of the Merger
Agreement by Francor Financial, in the case of termination by First
Merchants, or by First Merchants, in the case of termination by
Francor Financial;
2. by either First Merchants or Francor Financial if the terminating
party reasonably determines that completion of the merger is
inadvisable due to the commencement or threat of material litigation
against one of the parties;
3. by First Merchants if there has been a material adverse change in the
consolidated financial condition or business of Francor Financial
since December 31, 2000;
4. by Francor Financial if there has been a material adverse change in
the consolidated financial condition or business of First Merchants
since September 30, 2000;
5. by either First Merchants or Francor Financial if the merger will not
constitute a tax-free reorganization under the Internal Revenue Code
of 1986;
6. by First Merchants in the event that information provided pursuant to
the Merger Agreement by Francor Financial to First Merchants prior to
completion of the merger has had or may have a material adverse effect
on the financial condition or business of Francor Financial or Frances
Slocum Bank;
7. by either First Merchants or Francor Financial if the merger has not
been completed by October 31, 2001;
8. by First Merchants in the event that 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) for the 10
trading days preceding the 5th calendar day prior to the closing date
of the merger is greater than $27.025 and Francor Financial does not
elect to adjust the conversion
36
ratio, as described in more detail in this document under "MERGER --
Conversion Ratio Adjustment";
9. by Francor Financial in the event that 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) for the 10
trading days preceding the 5th calendar day prior to the closing date
of the merger is less than $20.00 and First Merchants does not elect
to adjust the conversion ratio, as described in more detail in this
document under "MERGER -- Conversion Ratio Adjustment";
10. by First Merchants if Francor Financial furnishes information or
enters into discussions or negotiations with a third party relating to
a proposed acquisition of Francor Financial or Frances Slocum Bank, or
Francor Financial fails to give First Merchants written notice of any
such intention, or Francor Financial's Board of Directors withdraws or
modifies its recommendation to Francor Financial shareholders to vote
for the merger following receipt of a proposal of an acquisition from
a third party;
11. by Francor Financial's Board of Directors if it determines it must
terminate the Merger Agreement and exercise its fiduciary duties after
receipt of an unsolicited acquisition proposal from a third party; or
12. by either First Merchants or Francor Financial if such party is unable
to satisfy the conditions precedent to the merger (providing such
party is not then in material breach of the Merger Agreement).
Upon termination for any of these reasons, the Merger Agreement will be
void and of no further force or effect. However, if either First Merchants or
Francor Financial willfully breaches any of the provisions of the Merger
Agreement, then the other party will be entitled to recover appropriate damages
for the breach. In addition, if First Merchants terminates the Merger Agreement
after Francor Financial takes the action described in item 10 above or if
Francor Financial terminates the Merger Agreement in accordance with item 11
above, Francor Financial must pay First Merchants $1,000,000 as liquidated
damages to reimburse First Merchants for the considerable time and expense
invested by First Merchants in furtherance of the merger.
First Merchants and Francor Financial can agree to amend the Merger
Agreement and can waive their right to require the other party to adhere to the
terms and conditions of the Merger Agreement, where the law allows. However,
First Merchants and Francor Financial cannot amend the Merger Agreement after
the Francor Financial shareholders approve the merger if the amendment or waiver
would have a material adverse effect on the Francor Financial shareholders.
37
Restrictions Affecting Francor Financial
The Merger Agreement contains a number of restrictions regarding the
conduct of the business of Francor Financial and Frances Slocum Bank until the
merger is completed. Among other items, Francor Financial and Frances Slocum
Bank may not, without the prior written consent of First Merchants:
o materially change their capital structure;
o authorize any additional class of stock or issue stock, other than or
in addition to the stock which was issued and outstanding as of
February 8, 2001;
o declare or pay any dividends or make any other distribution to its
shareholders, except that (i) Frances Slocum Bank may pay cash
dividends to Francor Financial to pay Francor Financial's expenses of
operation and payment of fees and expenses incurred in connection with
the merger, and (ii) Francor Financial may pay a cash dividend of no
more than $0.82 per share for any quarter prior to completion of the
merger, except that no dividend may be paid during the quarter in
which the merger is completed, if, during this quarter, Francor
Financial shareholders will be entitled to receive dividends on their
shares of First Merchants common stock received pursuant to the
merger;
o merge, consolidate or sell their assets or securities to any other
person or entity;
o subject any of their assets to a mortgage, lien, or encumbrance;
o promote or increase or decrease the rate of compensation of any
director, officer, or employee of Francor Financial or Frances Slocum
Bank, expect for non-material increases in the ordinary course of
business and in accordance with their past practices;
o amend their Articles of Incorporation or By-Laws from those in effect
on February 8, 2001;
o modify or institute new employment practices or enter into or extend
any employment or severance agreement with any present or former
directors, officers or employees of Francor Financial or Frances
Slocum Bank; or
o fail to maintain Frances Slocum Bank's reserve for loan losses or any
other reserve account in the ordinary course of business.
This discussion of the restrictions imposed by the Merger Agreement is not
intended to be exhaustive, but includes material restrictions imposed on Francor
Financial and Frances Slocum Bank. Please refer to the Merger Agreement,
attached as Appendix A, for a complete listing of the restrictions.
38
Regulatory Approvals
The merger requires prior approval of the Indiana Department of Financial
Institutions (Indiana Department) under the Indiana Financial Institutions Act
and the Board of Governors of the Federal Reserve System (Federal Reserve) under
the Bank Holding Company Act of 1956. Applications have been filed with the
Indiana Department and with the Federal Reserve. We cannot assure you as to when
or whether the approvals will be received.
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, The First
National Bank of Portland and Decatur Bank & Trust Company, 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 merger.
In reviewing the Federal Reserve application, the Federal Reserve considers
various factors including:
1. the financial and managerial resources and future prospects of First
Merchants and its subsidiaries;
2. the competitive effects of the merger; and
3. the convenience and needs of the community served by Frances Slocum
Bank.
The Federal Reserve may not approve the merger if it finds that the effect
of the merger 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 merger are outweighed by the public
interest and the probable effect of the merger in meeting the convenience and
needs of the communities to be served.
After the Federal Reserve's approval is received, the merger cannot be
completed for 30 days. During this 30-day waiting period, the United States
Department of Justice has the authority to challenge the merger on antitrust
grounds. With the approval of the Federal Reserve and the Department of Justice,
the waiting period can be reduced to 15 days.
39
The approvals of the Indiana Department and the Federal Reserve are not the
opinion of those regulatory authorities that the merger is favorable to the
Francor Financial shareholders 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 complete the merger is received or, if later, in which any
applicable waiting period following an approval expires. First Merchants and
Francor Financial currently anticipate that the merger will be completed during
July, 2001. However, completion of the merger could be delayed if there is a
delay in obtaining the required regulatory approvals or in satisfying the
conditions to the merger.
Management After the Merger
First Merchants will be the surviving corporation in the merger and Francor
Financial's separate corporate existence will cease. Accordingly, the directors
and officers of Francor Financial will no longer serve in such capacities after
the completion of the merger.
The officers and directors of Frances Slocum Bank immediately prior to the
merger will continue to be the officers and directors of Frances Slocum Bank
following the merger subject to the provisions of its Articles of Incorporation
and By-Laws. Bank directors who desire to continue to serve in that capacity
shall serve for at least the remainder of the 1-year terms to which they have
been elected. However, Frances Slocum Bank's directors will be subject to First
Merchants' policy of mandatory retirement at age 70, but the policy of mandatory
retirement will not apply to any of Frances Slocum Bank's current directors
until 24 months after the merger. Thus, 24 months after the merger, all
directors of Frances Slocum Bank age 70 or older will retire.
In accordance with the Merger Agreement, First Merchants shall cause the
current President and Chief Executive Officer of Francor Financial, Jerry M.
Ault, to either (i) be nominated for election as a member of the First Merchants
Board of Directors for a 3-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. Ault would serve until the next annual meeting of First
Merchants' shareholders and then be nominated for election to a 3-year term as a
director. The option that is chosen depends on the timing of the merger's
completion.
Interests of Certain Persons in the Merger
Certain of the directors and officers of Francor Financial have interests
in the merger other than their interests as Francor Financial shareholders,
pursuant to certain agreements and understandings that are reflected in the
Merger Agreement. The members of the Francor
40
Financial Board of Directors knew about these additional interests, and
considered them, when they approved the Merger Agreement.
First, First Merchants has agreed that it will cause the current President
and Chief Executive Officer of Francor Financial, Jerry M. Ault, to be nominated
for election to the First Merchants Board of Directors for a 3-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. Ault as a director
to serve until the first annual meeting of First Merchants.
Second, the officers and directors of Francor Financial will remain
officers and directors of Frances Slocum Bank after the merger.
Accounting Treatment
The merger will be accounted for as a purchase transaction for accounting
and financial reporting purposes. As a result, Francor Financial's assets and
liabilities will be recorded by First Merchants on its books at their fair
estimated values and added to those of First Merchants.
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.
While First Merchants common stock is listed on the NASDAQ National Market
System, it is exempt from the statutory registration requirements of each state
in the United States. Therefore, First Merchants has not taken any steps to
register its stock under state laws.
41
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain material federal income tax
consequences of the merger. The following represents general information only
and is based on the Internal Revenue Code of 1986, as amended (Code), the
regulations thereunder, published rulings and decisions, all as currently in
effect and which may be subject to change, and case law. 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 foreign tax
laws.
Assuming the merger of Francor Financial into First Merchants is completed
as described in the Merger Agreement and constitutes a statutory merger under
Indiana law, then for United States federal income tax purposes, the merger is
expected to constitute a tax-free reorganization under Section 368(a)(1)(A) of
the Code. The following is a summary of the federal income tax consequences of
the merger:
Tax Consequences to Francor Financial and First Merchants
Francor Financial and First Merchants will not recognize gain or loss as a
result of the merger for federal income tax purposes. Code Sections 361(a) and
1032. In addition, the basis of the assets of Francor Financial acquired by
First Merchants in the merger will be the same as the basis of such assets in
the hands of Francor Financial immediately prior to the merger. Code Section
362(b).
Tax Consequences to Francor Financial Shareholders
o Francor Financial Shareholders Receiving Solely First Merchants Common
Stock
In general, a Francor Financial shareholder who elects to receive only
First Merchants common stock in exchange for shares of Francor Financial common
stock will not recognize any gain or loss on the exchange for federal income tax
purposes. Code Section 354(a)(1). However, gain or loss for federal income tax
purposes will be recognized with respect to cash payments received by a Francor
Financial shareholder in lieu of fractional share interests resulting from the
conversion ratios. See following paragraph concerning "Cash Received for
Fractional Shares" for a more detailed discussion of the tax consequences of the
receipt of cash in lieu of fractional share interests of First Merchants common
stock.
The basis of First Merchants common stock received (including any
fractional share interests deemed received as described below) by Francor
Financial shareholders in exchange for their Francor Financial common stock will
be equal to the shareholder's basis in the Francor Financial common stock
exchanged, decreased by any cash received, and increased by any gain recognized
on the exchange. Code Section 358(a)(1).
In addition, the holding period of the First Merchants common stock
received (including any fractional share interests deemed received as described
below) will include the holding period of Francor Financial common stock
surrendered in the exchange, provided that the
42
Francor Financial stock was held as a capital asset on the date of the merger.
Code Section 1223(1).
o Cash Received For Fractional Shares
Gain or loss for federal income tax purposes will be recognized with
respect to cash payments received by a Francor Financial shareholder in lieu of
fractional share interests resulting from the conversion ratios. A Francor
Financial shareholder who receives cash for a fractional share interest of First
Merchants common stock as a result of the conversion ratios should be treated
(consistent with the case of Commissioner v. Clark, described below) as having
received such fraction of a share of First Merchants common stock and then as
having received cash in redemption of the fractional share interest, subject to
the provisions and limitations of Section 302 of the Code. The Francor Financial
shareholder will recognize capital gain or loss equal to the difference between
the amount of cash received and the portion of the basis of the shares of
Francor Financial common stock allocable to the fractional interest. This
capital gain or loss will be long term gain or loss if, as of the date of the
merger, the Francor Financial shareholder has held such shares of Francor
Financial common stock for greater than 1 year.
o Francor Financial Shareholders Receiving Part Cash And Part First
Merchants Common Stock
A Francor Financial shareholder who elects to receive part cash and part
First Merchants common stock in exchange for shares of Francor Financial 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 Francor 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 Francor Financial shareholder on the receipt of
First Merchants common stock and cash in exchange for Francor Financial common
stock. Code Section 356(c).
o Francor Financial Shareholders Receiving All Cash
A Francor 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 Francor Financial stock surrendered. After the Commissioner v.
Clark case, if a Francor Financial shareholder receives only cash in exchange
for Francor Financial common stock, the transaction should be treated as if
either (i) the shareholder sold his or her Francor Financial common stock to
First Merchants for cash, or (ii) the Francor 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 Francor Financial shareholder who perfects dissenters rights and
receives solely cash, that the Internal Revenue Service could view the
transaction as stock redemption by Francor Financial (subject to the provisions
and limitations of Code Section 302).
43
Tax Opinion
First Merchants and Francor Financial have each requested the law firm of
Bingham Summers Welsh & Spilman, LLP to render an opinion that the merger to be
effected pursuant to the Merger Agreement constitutes a tax-free reorganization
under the Code to First Merchants and Francor Financial. Under the Merger
Agreement, receipt of this opinion with respect to the above consequences is a
condition to completion of the merger. In rendering its opinion, Bingham Summers
Welsh & Spilman, LLP will rely upon representations made by the management of
First Merchants and Francor Financial. However, this opinion will not bind the
Internal Revenue Service, which could take a different view. No ruling on the
merger has been sought from the Internal Revenue Service regarding the tax-free
nature of the merger.
The Internal Revenue Service has not verified the federal income tax
consequences discussion set forth above. 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 Francor
Financial shareholder. First Merchants and Francor Financial urge you to consult
with your 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, foreign and other tax laws.
44
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 February 8, 2001, the business day immediately preceding the
public announcement of the merger, the closing price of First Merchants common
stock was $22.00 per share. On _________, 2001, 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 as reported by the NASDAQ National Market System. 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 for all stock
dividends and stock splits.
1998 HIGH LOW
- ---- ---- ---
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 $26.63 $19.88
Second Quarter $22.88 $18.50
Third Quarter $23.00 $19.25
Fourth Quarter $23.88 $21.75
2001
- ----
First Quarter $25.25 $20.94
Second Quarter through ______, 2001 $____ $____
There is no established public trading market for shares of Francor
Financial common stock. Most trades are isolated and occur through private
negotiations. As a result, management of Francor Financial is often not directly
informed of trades or prices. The best information available to Francor
Financial's management indicates that in 1998, 1999, 2000 and 2001, the
following number of shares of Francor Financial common stock were traded in the
number of transactions and for prices to be within the ranges set forth below:
45
Number of Sales Price
Shares Number of ------------------------
Year Traded Transactions High Low
---- ------ ------------ ---- ---
1998 2,308 37 $75 $70
1999 4,418 39 $85 $75
2000 2,609 15 $80 $76
2001 0 0 -- --
(through ______, 2001)
Management of Francor 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 Francor Financial common stock
would trade. There may also have been additional shares of Francor Financial
common stock traded at higher or lower prices of which Francor Financial
management is unaware. The last trade of Francor Financial common stock, of
which Francor Financial management is aware, occurred on or about December 15,
2000 and involved the sale of 160 shares at a price which, to the best of
Francor Financial management's knowledge, was approximately $80 per share.
As of __________, 2001, there were approximately _______ holders of First
Merchants common stock and approximately 447 holders of Francor Financial common
stock, not including individual participants whose stock is held in a "street
name."
Dividends
The following table sets forth the per share cash dividends declared on
shares of First Merchants common stock and Francor Financial common stock since
January 1, 1998. All dividends have been adjusted to give effect to stock
dividends and stock splits.
First Merchants Francor Financial
1998 Common Stock (1) Common Stock (2)
- ---- ---------------- ----------------
First Quarter $0.19 $0.75
Second Quarter $0.19 $0.75
Third Quarter $0.20 $0.75
Fourth Quarter $0.20 $0.77
1999
- ----
First Quarter $0.20 $0.77
Second Quarter $0.20 $0.77
Third Quarter $0.22 $0.77
Fourth Quarter $0.22 $0.80
46
First Merchants Francor Financial
Common Stock (1) Common Stock (2)
---------------- ----------------
2000
- ----
First Quarter $0.22 $0.80
Second Quarter $0.22 $0.80
Third Quarter $0.23 $0.80
Fourth Quarter $0.23 $0.82
2001
- ----
First Quarter $0.23 $0.82
(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 1998, 1999, and 2000, Francor Financial has declared and paid
dividends on a quarterly basis. The Merger Agreement permits Francor
Financial to pay dividends on its common stock in March, 2001, June, 2001,
and September, 2001, which dividends shall not exceed $0.82 per share,
provided that Francor Financial may not pay any such dividend during the
fiscal quarter in which the merger is completed if Francor Financial
shareholders will, during that period, be entitled to receive dividends on
the shares of First Merchants common stock received in the merger. In
accordance with the Merger Agreement, Francor Financial paid a dividend of
$0.82 per share of common stock in March, 2001.
47
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. First Merchant is
also a financial holding company.
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. On May 31, 2000,
First Merchants acquired Decatur Bank & Trust Company, a state chartered
commercial bank organized in 1966.
First Merchants is headquartered in Muncie, Indiana. First Merchants
presently conducts its commercial banking business in Delaware, Adams, Madison,
Henry, Union, Wayne, Fayette, Randolph, and Jay counties in the State of
Indiana, through the 33 offices of its 7 bank subsidiaries. These banks provide
a wide range of commercial banking services, including:
o demand, savings and time deposits;
o agricultural, commercial, industrial, consumer and real estate loans;
o installment credit lending;
o safe deposit facilities;
o collections;
o fiduciary and trust services; and
o other general services related to the 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.
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.
48
As of December 31, 2000, First Merchants had consolidated assets of
approximately $1.6 billion, consolidated deposits of approximately $1.3 billion,
and stockholders' equity of approximately $156 million.
First Merchant's principal office is located at 200 East Jackson Street,
Muncie, Indiana 47305. Its telephone number is (765) 747-1500.
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 document, First Merchants is not a party to any other
agreement relating to an acquisition of additional financial institutions, other
than the Merger Agreement with Francor Financial.
Incorporation of Certain Information by Reference
The foregoing information concerning First Merchants does not purport to be
complete. Certain additional information relating to First Merchants' business,
management, executive and director compensation, voting securities and certain
relationships is incorporated by reference in this document from other documents
filed by First Merchants with the Securities and Exchange Commission and listed
under "WHERE YOU CAN FIND ADDITIONAL INFORMATION" in this document. If you
desire copies of any of these documents, you may contact First Merchants at its
address or telephone number indicated under "WHERE YOU CAN FIND ADDITIONAL
INFORMATION" on page 71.
49
DESCRIPTION OF FRANCOR FINANCIAL
Business
Francor Financial is an Indiana corporation which was incorporated in 1982
and which is a registered bank holding company owning all of the issued and
outstanding common stock of Frances Slocum Bank & Trust Company (Frances Slocum
Bank). Francor Financial's principal office is located in Wabash, Indiana and
its business consists primarily of the ownership, supervision and control of
Frances Slocum Bank. The common stock of Frances Slocum Bank is Francor
Financial's principal asset and dividends paid by Frances Slocum Bank are
Francor Financial's principal source of income.
Frances Slocum Bank is a state chartered bank which was established in 1963
and which has been in continuous operation since that date. Frances Slocum Bank
provides various commercial and consumer banking services to its customers
located primarily in Wabash, Miami, and Howard counties in the State of Indiana.
These commercial bank services include:
o demand, savings and time deposits;
o commercial, consumer and real estate loans;
o safe deposit facilities;
o installment credit lending;
o fiduciary and trust services; and
o other general services related to the banking business.
As of December 31, 2000, Francor Financial had consolidated assets of
approximately $165 million, consolidated deposits of approximately $145 million,
and stockholders' equity of approximately $18 million.
Properties
The main office of Francor Financial and Frances Slocum Bank is located at
189 West Market Street, Wabash, Indiana 46992. Its telephone number is (219)
563-4116. In addition to its main office, Frances Slocum Bank operates 5 full
service branches located at 1250 North Cass Street, Wabash, Indiana, 901 State
Highway 114, North Manchester, Indiana, 855 North Broadway, Peru, Indiana, 990
West Main Street, Peru, Indiana and 1306 East Gano Street, Kokomo, Indiana.
Frances Slocum Bank also has two loan offices located at 146 West Market Street,
Wabash, Indiana and 212 West Walnut Street, Kokomo, Indiana. Frances Slocum Bank
owns all of the offices and branches.
50
Litigation
Francor Financial and Frances Slocum Bank are not parties to any pending
litigation of a material nature and their properties are not subject to any
pending litigation of a material nature, other than ordinary routine litigation
incidental to the normal business of Francor Financial or Frances Slocum 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 Francor Financial or Frances Slocum Bank. None of the
ordinary routine litigation in which Francor Financial or Frances Slocum Bank is
involved is expected to have a material adverse impact upon the financial
condition or results of operation of Francor Financial or Frances Slocum Bank.
Employees
As of December 31, 2000, Frances Slocum Bank had 68.5 full-time equivalent
employees to whom it provides a variety of benefits. Management of Frances
Slocum Bank considers its relations with its employees to be good. Francor
Financial has no employees.
Management
The following table contains certain information about each director and
executive officer of Francor Financial as of the date of this document:
Directors:
Principal Occupation for Served as Director
Name Age Last 5 years Continuously Since (1)
---- --- ------------ ----------------------
Terry D. Agness 62 President of Ford Meter Box Corporation 1992 (1992)
Jerry M. Ault 64 Chairman of the Board and President of 1982 (1972)
Frances Slocum Bank
Richard T. Doermer 78 50% Owner of Avis Industrial Corporation 1982 (1963)
John W. Forrester 52 President of Wabash Electrical Supply, Inc. 1988 (1988)
Leonard Gardner 92 Farmer 1982 (1963)
51
Directors:
Principal Occupation for Served as Director
Name Age Last 5 years Continuously Since (1)
---- --- ------------ ----------------------
Robert R. Halderman 65 Chairman of Halderman Farm Management 1982 (1963)
Service, Inc. and
Halderman Real Estate Service, Inc.
Arthur W. Jasen 56 President of B. Walter & Co., Inc. and 1987 (1987)
Walter Dimension, Inc.
Charles R. Tiede 71 Attorney, Tiede Metz Downs Lynn & Schlitt, 1982 (1963)
P.C.
(1) Years in parenthesis relate to service as a director of Frances Slocum
Bank. All of Francor Financial's directors are also directors of Frances
Slocum Bank.
Executive Officers:
Name Age Office
---- --- ------
Jerry M. Ault 64 Chairman of the Board, President and Chief Executive Officer of
Francor Financial and Chairman of the Board and President of
Frances Slocum Bank
Michael J. Weller 51 Vice President and Trust Officer of Frances Slocum Bank
All of Francor Financial's directors and executive officers hold office for
a term of 1-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
Francor Financial's or Frances Slocum Bank's directors or executive officers
have been selected for their respective positions.
In accordance with the Merger Agreement, First Merchants shall cause
all necessary action to be taken to cause the current President and Chief
Executive Officer of Francor Financial, Jerry M. Ault, to either (i) be
nominated for election as a member of the First Merchants Board of Directors for
a 3-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. Ault would serve until the next annual meeting of First Merchants'
shareholders and then would be nominated for election to a 3-year term as
Director. The timing of the merger's completion will dictate the option that is
followed.
52
Security Ownership of Certain Beneficial Owners and Management
The following is a summary of the amount and percent of Francor Financial's
common stock beneficially owned as of February 28, 2001, by each beneficial
owner of more than 5% of Francor Financial's common stock, by each director of
Francor Financial, by each executive officer of Francor 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
---------------- --------------------------- ----------------
Terry D. Agness 435 (2) *
Jerry M. Ault 18,407 (3) 6.67%
Richard T. Doermer 9,736 3.53%
John W. Forrester 700 *
Leonard Gardner 3,744 (4) 1.36%
Robert R Halderman 5,764 (5) 2.09%
Arthur W. Jasen 3,848 (6) 1.39%
Richard I. Spiece 16,285 (7) 5.90%
Charles R. Tiede 7,372 (8) 2.67%
Michael J. Weller 500 (9) *
Directors and Executive Officers as a 50,506 18.30%
Group (9 Individuals)
(1) The information contained in this column is based upon information
furnished to Francor Financial by the persons and entities named above and
shareholder records of Francor Financial.
(2) Includes 135 shares held by his spouse, Carol Agness.
(3) Includes 90 shares held by his spouse, Christina B. Ault. Mr. Ault's
mailing address is 3441 S. 100 W., Wabash, Indiana 46992.
(4) Shares are held jointly with his spouse, Florence Gardner.
53
(5) Includes 1,963 shares held by his spouse, Janet Halderman, and 1,504 shares
held by Halderman Investments, L.P., of which Mr. Halderman is the General
Partner.
(6) Includes 1,129 shares held by his spouse, Priscilla Jasen, and 1,199 shares
held jointly with his spouse.
(7) Shares are held by the Richard I. Spiece & Bette Spiece Trust. Mr. Spiece's
mailing address is 2601 Desert Glen Drive, Las Vegas, Nevada 89154.
(8) Includes 4,868 shares held by the Charles R. Tiede Family Trust and 2,504
shares held by the Julie G. Tiede Family Trust.
(9) Shares are held in a self-directed IRA for the benefit of Mr. Weller.
* Percentage beneficially owned is less than 1% of the outstanding shares.
Certain Relationships and Related Transactions
Certain directors and executive officers of Francor Financial and Frances
Slocum Bank are customers of and have had transactions with Francor Financial or
Frances Slocum 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.
54
REGULATION AND SUPERVISION
OF FIRST MERCHANTS, FRANCOR FINANCIAL AND THEIR SUBSIDIARIES
Bank Holding Company Regulation
Both First Merchants and Francor 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 (BHC
Act). Bank holding companies are required to file periodic reports with the
Federal Reserve. In addition, the Federal Reserve conducts periodic examination
of bank holding companies.
Under the policy of the Federal Reserve, a bank holding company is expected
to act as a source of financial and managerial strength for its bank
subsidiaries and to commit resources to support such banks. As a result, the
Federal Reserve may require First Merchants to commit resources to its bank
subsidiaries. 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) if such
activity constitutes a serious risk to the financial stability of any bank
subsidiary.
Additionally, under the Federal Deposit Insurance Corporation Improvement
Act of 1991 (FDICIA), a bank holding company must 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) 5% of the
undercapitalized subsidiary's assets, or (ii) the amount required to meet
regulatory capital requirements.
The BHC Act requires First Merchants and Francor Financial to obtain the
prior approval of the Federal Reserve before:
1. Acquiring direct or indirect control or ownership of any voting shares
of any bank or bank holding company if, after such acquisition, the
bank holding company will directly or indirectly own or control more
than 5% of the voting shares of the bank or bank holding company;
2. Merging or consolidating with another bank holding company; or
3. Acquiring substantially all of the assets of any bank.
The BHC Act generally prohibits bank holding companies that have not become
financial holding companies from (i) engaging in activities other than banking
or managing or controlling banks or other permissible subsidiaries, and (ii)
acquiring or retaining direct or indirect control of any company engaged in the
activities other than those activities determined by the Federal Reserve to be
closely related to banking or managing or controlling banks. See "REGULATION AND
SUPERVISION OF FIRST MERCHANTS, FRANCOR FINANCIAL AND THEIR SUBSIDIARIES --
Financial Services Modernization Act."
55
The BHC Act does not place territorial restrictions on such
nonbanking-related activities.
Capital Adequacy Guidelines for Bank Holding Companies
Bank holding companies are required to comply with the Federal Reserve's
capital guidelines. There are two basic measures of capital adequacy for bank
holding companies: a risk-based measure and a leverage measure. All applicable
capital standards must be satisfied for a bank holding company to be considered
in compliance.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and bank
holding companies, to account for off-balance sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance sheet items are
assigned to broad-risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance sheet items.
The minimum guideline for the ratio of total required capital to
risk-weighted assets (including certain off-balance sheet items, such as standby
letters of credit) is 8.0%. At least half of the total required capital must be
"Tier 1 capital," consisting principally of common shareholders' equity,
undivided profits, qualifying 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 and other
intangible assets. The remainder may consist of certain subordinated debt, other
preferred stock, and a limited amount of loan loss reserves. The minimum
guideline for Tier 1 capital is 4.0%.
In addition to the risk-based capital guidelines, the Federal Reserve has
established minimum leverage ratio guidelines for bank holding companies. Under
these guidelines, a bank holding company must maintain a minimum level of Tier 1
capital to average total consolidated assets, less goodwill and certain other
intangible assets. The leverage 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 required to maintain a ratio of at least 1% to 2% above the stated minimum.
The guidelines also provide that bank holding companies experiencing
internal growth or making acquisitions will be expected to maintain strong
capital positions substantially above the minimum supervisory levels without
significant reliance on intangible assets.
The following are First Merchants' and Francor Financial's regulatory
capital ratios as of December 31, 2000:
56
First Merchants Francor Financial
--------------- -----------------
Tier 1 Capital: 11.65% 15.20%
Total Capital: 12.72% 16.40%
Leverage Ratio: 8.72% 11.40%
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 (OCC).
First United Bank, The Madison Community Bank, The Randolph County Bank, Decatur
Bank & Trust Company and Frances Slocum Bank are state banks chartered in
Indiana and are supervised, regulated and examined by the Indiana Department. In
addition, four of First Merchants' subsidiaries, The Madison Community Bank,
First United Bank, The Randolph County Bank and Decatur Bank & Trust Company,
are supervised and regulated by the Federal Deposit Insurance Corporation
(FDIC). Francor Financial's subsidiary, Frances Slocum Bank, is also supervised
and regulated by the FDIC. The federal and state banking regulators examine the
operations of the relevant banks and have authority to approve or disapprove
mergers, consolidations, acquisitions, the establishment of branches, and
similar corporate actions. Each regulator also has the power to issue
cease-and-desist orders if it determines that activities of the bank regularly
represent an unsafe and unsound banking practice or a violation of law.
Both federal and state law extensively regulate various aspects of the
banking business such as reserve requirements, truth-in-lending and
truth-in-savings disclosure, equal credit opportunity, fair credit reporting,
trading in securities and other aspects of banking operations. Current federal
law also requires banks, among other things, to make deposited funds available
within specified time periods.
Under the FDICIA, insured state-chartered banks are prohibited 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 has adopted risk-based capital ratio guidelines for state
chartered banks. Similarly, the OCC has adopted risk-based capital ratio
guidelines for national banks. These guidelines are substantially similar to the
guidelines adopted by the Federal Reserve for bank holding companies. 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.
57
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%. However, the FDIC or OCC may set higher
capital requirements in particular circumstances. For banks experiencing or
anticipating significant growth, capital ratios, including tangible capital
positions, must be maintained well above the minimum levels.
In addition, the FDIC and the OCC have 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 have the highest regulatory rating and are
not experiencing or anticipating significant growth. All other banks are
required to maintain a ratio at least 1% to 2% above the stated minimum.
All of First Merchants' affiliate banks as well as Frances Slocum Bank
exceed the risk-based capital guidelines of the FDIC and/or the OCC as of
December 31, 2000.
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. 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.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including issuance of a capital directive, the termination
of deposit insurance by the FDIC, and certain restrictions on its business. As
described below, substantial additional restrictions can be imposed upon FDIC
insured depository institutions that fail to meet applicable capital
requirements. See "REGULATION AND SUPERVISION OF FIRST MERCHANTS, FRANCOR
FINANCIAL AND THEIR SUBSIDIARIES -- FDICIA."
FDICIA
Under FDICIA, federal bank regulatory authorities are required to take
"prompt corrective action" for banks which do not meet minimum capital
requirements. For these purposes, FDICIA establishes five capital tiers: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized. The FDIC has adopted
regulations to implement the prompt corrective action provisions of FDICIA.
Under this system, the FDIC must take certain mandatory supervisory actions and
is authorized to take other discretionary actions with respect to depository
institutions in the three undercapitalized categories. The FDIC has specified by
regulation the relevant capital level for each of the five categories. Holding
companies are not subject to classification under the "prompt corrective action"
system and are affected only to the extent that a subsidiary bank is subject to
"prompt corrective action" sanctions.
"Undercapitalized" banks are subject to growth limitations and are required
to submit a capital restoration plan. A bank's parent holding company must
guarantee that its subsidiary will meet its plan, subject to certain
limitations. The parent holding company's obligation to fund a subsidiary
capital restoration plan is limited to the lesser of 5.0% of an undercapitalized
subsidiary's assets or the amount required to meet regulatory capital
requirements. If an
58
"undercapitalized" bank fails to submit an acceptable plan, it is treated as if
it is significantly undercapitalized. An "undercapitalized" institution is also
generally prohibited from increasing its average total assets, making
acquisitions, establishing any branches or engaging in any new line of business,
except in accordance with an accepted capital restoration plan or with FDIC
approval.
"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 becoming "critically undercapitalized," make any payment
of principal or interest on certain subordinated debt or extend credit for a
highly leveraged transaction or enter into any transaction outside the ordinary
course of business. In addition, a receiver or conservator may be appointed for
"critically undercapitalized" institutions.
As of December 31, 2000, each bank subsidiary of First Merchants and
Francor Financial was "well capitalized" based on the "prompt corrective action"
ratios and guidelines described above. However, a bank's capital category is
determined solely for the purpose of applying the OCC's or the FDIC's "prompt
corrective action" regulations. As a result, the capital category may not
constitute an accurate representation of the bank's overall financial condition
or prospects.
Deposit Insurance
First Merchants' and Francor Financial's affiliated banks are insured up to
regulatory limits by the FDIC. As a result, their affiliate banks are subject to
deposit insurance assessments to maintain the Bank Insurance Fund (BIF) and the
Savings Association Insurance Fund (SAIF) administered by the FDIC. The FDIC has
adopted regulations establishing a permanent risk-related 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.
The bank's risk category then determines its insurance assessment rate.
The FDIC may terminate an institution's insurance of deposits upon a
finding that the institution has engaged in unsafe and unsound practices, is in
an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC.
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. Unlike the BIF and SAIF assessments,
the FICO assessments do not vary depending upon a depository institution's
capitalization or supervisory evaluations.
59
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, generally, (i) bank holding companies such as First Merchants and Francor
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. However,
these activities are subject to certain concentration limits, receipt of
required regulatory approvals and other requirements.
Financial Services Modernization Act
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act of 1999. The general effect of this legislation is to
permit affiliations among commercial banks, insurance companies, securities
firms, and other financial service providers by revising and expanding the
existing BHC Act. This legislation permits bank holding companies to conduct
essentially unlimited securities and insurance activities and other activities
determined by the Federal Reserve to be related to financial services. As a
result, First Merchants is now able to underwrite and sell securities and
insurance. First Merchants is also able to acquire, or be acquired by, brokerage
and securities firms and insurance underwriters. In addition, this legislation
broadens the activities that may be conducted by national banks through the
formation of financial subsidiaries. Finally, this legislation 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.
Under this legislation, a bank holding company may become a financial
holding company if each of its subsidiary banks is well capitalized, well
managed and has received at least a satisfactory rating under the Community
Reinvestment Act. A bank holding company may elect to become a financial holding
company by filing a declaration with the Federal Reserve Board. First Merchants
became a financial holding company on or about September 13, 2000.
As a financial holding company, First Merchants has authority to engage in
a range of activities that are financial in nature and that were not previously
permissible for banks and bank holding companies. Subject to the regulation of
the Federal Reserve, a financial holding
60
company may engage directly or through a subsidiary in the statutorily
authorized activities of securities dealing, underwriting, market making,
insurance underwriting and agency activities, merchant banking, insurance
company portfolio investments, and any activity that the Federal Reserve
determines by rule or order to be financial in nature or incidental to a
financial activity. Merchant banking activities are subject to certain
limitations and may become subject to more stringent capital requirements than
other financial activities. In addition, no regulatory approval is required for
a financial holding company to acquire a company, other than a bank or savings
association, engaged in activities that are financial in nature or incidental to
financial activities, as determined by the Federal Reserve Board.
First Merchants has not had an opportunity to assess the impact of the
legislation on its operations, but at the present time does not anticipate
significant changes in its products or services as a result of this legislation.
However, as a result of this legislation, the financial services industry may
experience further consolidation and may increase the amount of competition that
First Merchants faces from larger institutions and other companies offering
financial products.
Additional Matters
In addition to the matters discussed above, First Merchants' affiliate
banks and Frances Slocum Bank are subject to additional regulation of their
activities, including a variety of consumer protection regulations affecting
their lending, deposit and collection activities and regulations affecting
secondary mortgage market activities.
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 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.
61
COMPARISON OF COMMON STOCK
The following summary comparison of First Merchants common stock and Francor
Financial common stock includes the material features of such stocks and the
material differences in the rights of holders of shares of such stocks. Because
this is a summary, it does not contain all of the information that is important
to you and is qualified in its entirety by reference to First Merchants'
Articles of Incorporation and By-Laws and Francor Financial's Articles of
Incorporation and By-Laws.
Governing Law
Following the merger, the rights of former Francor Financial shareholders
who receive First Merchants common stock in the merger will be governed by the
laws of the State of Indiana, the state in which First Merchants is
incorporated, and by First Merchants' Articles of Incorporation and By-Laws. The
rights of Francor Financial shareholders are presently governed by the laws of
the State of Indiana, the state in which Francor Financial is incorporated, and
by Francor Financial's Articles of Incorporation and By-Laws. The rights of
Francor Financial shareholders differ in certain respects from the rights they
will have as First Merchants shareholders, including certain anti-takeover
measures, the vote required for the amendment of certain significant provisions
of the articles of incorporation and for the approval of certain significant
corporate transactions.
Authorized But Unissued Shares
First Merchants' Articles of Incorporation authorize the issuance of
50,000,000 shares of common stock, of which 11,611,732 shares were outstanding
as of December 31, 2000. First Merchants' Board of Directors may authorize the
issuance of additional shares of common stock up to the amounts authorized in
First Merchants' Articles of Incorporation without shareholder approval. First
Merchants has 500,000 shares of preferred stock authorized. These shares are
available to be issued, without prior shareholder approval, in classes with the
rights, privileges and preferences determined for each class by the Board of
Directors of First Merchants. No shares of preferred stock are presently
outstanding.
As of December 31, 2000, First Merchants had 223,222 shares of its common
stock reserved and remaining available for issuance under its 1999 Employee
Stock Purchase Plan, 1,329,128 shares of its common stock reserved and remaining
available for issuance under its 1999 Long-term Equity Incentive Plan and
430,521 shares of its common stock reserved and remaining available for issuance
under its Dividend Reinvestment and Stock Purchase Plan. In addition, as of
December 31, 2000, First Merchants had 38,524 options granted, but unexercised,
under its 1989 Stock Option Plan and 298,207 options granted, but unexercised,
under its 1994 Stock Option Plan, with shares reserved and remaining available
equal to the outstanding options under each 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 by diluting their voting and ownership
interests.
62
Francor Financial's Articles of Incorporation authorize the issuance of
500,000 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, 2000, Francor Financial had 276,000 shares of stock issued and
outstanding. Francor Financial's Board of Directors may authorize the issuance
of additional shares of common stock up to the amounts authorized in Francor
Financial's Articles of Incorporation without shareholder approval.
Preemptive Rights
As permitted by Indiana law, First Merchants' Articles of Incorporation do
not provide for preemptive rights for shareholders to subscribe for any new or
additional First Merchants shares of common stock. Preemptive rights may be
granted to First Merchants shareholders if First Merchants' Articles of
Incorporation are amended to permit such rights. Similarly, Francor Financial's
Articles of Incorporation do not provide for preemptive rights for shareholders,
but its Articles of Incorporation may also be amended to permit such rights.
Dividend Rights
The holders of common stock of First Merchants and Francor Financial are
entitled to dividends and other distributions when, as and if declared by their
respective boards of directors. Generally, First Merchants and Francor Financial
may not pay a dividend if, after giving effect to the dividend:
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 the amount that would be needed to satisfy
preferential rights of shareholders payable upon dissolution.
The amount of dividends, if any, that may be declared by First Merchants in
the future will necessarily depend upon many factors, including, among other
things, future earnings, capital requirements, business conditions and capital
levels of subsidiaries (since First Merchants is primarily dependent upon
dividends paid by its subsidiaries for revenues), the discretion of First
Merchants' Board of Directors and other factors that may be appropriate in
determining dividend policies.
First Merchants' national bank subsidiaries and its Indiana-chartered bank
subsidiaries may pay cash dividends to First Merchants 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.
First Merchants' bank subsidiaries will ordinarily be restricted to pay
dividends in 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
63
MERCHANTS, FRANCOR FINANCIAL AND THEIR 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. First Merchants' present bank
subsidiaries and Frances Slocum Bank are not currently subject to such a
restriction.
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 Francor Financial common stock
also are entitled to one vote per share on all matters presented for shareholder
vote. First Merchants shareholders and Francor Financial shareholders do not
have cumulative voting rights in the election of directors. Under cumulative
voting, the number of shares a shareholder is entitled to vote is multiplied by
the number of directors to be elected to the board. A shareholder may then cast
this number of votes for the election of directors. A shareholder may cast all
of his/her/its votes for one candidate or distribute them among two or more
candidates.
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 the affirmative vote of a majority of the issued and
outstanding shares entitled to vote at the shareholders meeting, subject to
provision in the corporation's articles of incorporation requiring a higher
percentage vote. First Merchants' Articles of Incorporation 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." Similarly,
Francor Financial's Articles of Incorporation provide that certain business
combinations may, under certain circumstances, require approval of more than a
majority of the outstanding voting shares of Francor Financial common stock. See
"COMPARISON OF COMMON STOCK -- Anti-Takeover Provisions."
Article and Bylaw Amendments
Indiana law generally requires shareholder approval for most amendments to
a corporation's articles of incorporation by a majority of a quorum at a
shareholder's meeting (and, in certain cases, a majority of all shares held by
any voting group entitled to vote). However, Indiana law permits a corporation
in its articles of incorporation to specify a higher shareholder vote
requirement for certain amendments. First Merchants' Articles of Incorporation
require a super-majority shareholder vote of 75% of its outstanding shares of
common stock for the amendment of certain significant provisions. Francor
Financial's Articles of Incorporation require a super-majority shareholder vote
of 80% of its outstanding shares of common stock for the amendment of certain
significant provisions.
Indiana law permits a board of directors to amend a corporation's by-laws
unless the articles of incorporation provide otherwise. First Merchants' By-Laws
may generally be amended by an affirmative vote of a majority of the entire
Board of Directors. However, several provisions of First Merchants' By-Laws
require two-thirds (2/3) vote of the entire Board of
64
Directors to approve amendments, including the provision regarding removal of
directors and setting the number and classes of directors. In addition, First
Merchants' Articles of Incorporation provide that its By-Laws may not be amended
to repeal, modify or amend certain provisions of its Articles of Incorporation.
Francor Financial's By-Laws may be amended by an affirmative vote of a majority
of the entire Board of Directors.
Special Meetings of Shareholders
First Merchants' By-Laws provide that a special meeting of shareholders may
be called by the Board of Directors, the President, at the written request of a
majority of the Board of Directors or at the written request of shareholders
holding at least one-fourth (1/4) of all shares outstanding and entitled to vote
on business for which the meeting is called. Francor Financial's By-Laws contain
the same provision.
Number of Directors and Term of Office
First Merchants' Articles of Incorporation provide that the number of
directors shall be set in the By-Laws by the Board of Directors and shall be at
least 9 and no more than 21. First Merchants' Articles of Incorporation also
provide for classes of Directors with staggered terms. Amendment of this
provision of First Merchants' Articles of Incorporation requires the approval of
three-fourths (3/4) of the voting stock. First Merchants' By-Laws specify that
the number of Directors is 13. The By-Laws provide that the number of Directors
may be amended only by a two-thirds (2/3) vote of the entire Board of Directors.
Consistent with its Articles of Incorporation, First Merchants' By-Laws provide
that the Board of Directors is divided into three classes with 4 directors in
two of the classes and 5 directors in one class. The Directors in each class are
elected for 3-year staggered terms. Thus, approximately only one-third (1/3) of
First Merchants' Board of Directors is elected at each annual meeting of
shareholders. Because First Merchants' Board of Directors is divided into
classes, a majority of First Merchants' Directors can be replaced only after two
annual meetings of shareholders. A two-thirds (2/3) vote of the entire Board of
Directors is required to amend this provision of First Merchants' By-Laws.
Francor Financial's Articles of Incorporation provide that the number of
directors shall be set in its By-Laws by the Board of Directors. Currently,
there are 8 directors of Francor Financial. Similar to First Merchants, Francor
Financial's Board of Directors is divided into 3 classes. The Directors in each
class are elected for 3-year staggered terms. Thus, like First Merchants,
approximately only one-third (1/3) of Francor Financial's Board of Directors is
elected at each annual meeting. A vote of 80% of the total number of outstanding
shares of Francor Financial entitled to vote is required to amend this provision
of Francor Financial's Articles of Incorporation regarding staggered terms and
classes of its Board of Directors.
Removal of Directors
First Merchants' Articles of Incorporation and By-Laws provide that any
Director or all Directors may be removed, with or without cause, at a meeting of
shareholders upon the vote of the holders of not less than two-thirds (2/3) of
the outstanding shares entitled to vote on the election of directors. However,
if two-thirds (2/3) of the entire Board of Directors recommends
65
removal of a Director to the shareholders, then such Director may be removed by
the affirmative vote of the holders of at least a majority of the outstanding
shares entitled to vote on the election of directors at a shareholder meeting. A
two-thirds (2/3) vote of the entire Board of Directors is required to amend this
provision of First Merchants' By-Laws. Amendment of this provision of First
Merchants' Articles of Incorporation requires the approval of three-fourths
(3/4) of the voting stock.
Francor Financial's By-Laws provide any Director or all Directors may be
removed, with or without cause, at a meeting of shareholders upon the
affirmative vote of a majority of the outstanding shares entitled to vote on the
election of directors.
Dissenters' Rights
Francor 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 Francor 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 Francor Financial's
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, the
property of Francor Financial other than in the usual course of
business, if the shareholder is entitled to vote on the sale or
exchange;
4. Approval of a control share acquisition under Indiana law; and
5. Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, by-laws or a resolution of the
board of directors provides that voting or non-voting shareholders are
entitled to dissent and obtain payment for their shares.
Under Indiana law, dissenters' rights are not available to holders of
shares with respect to any transaction if the shares were registered in a
national securities exchange or traded on the NASDAQ National Market System.
Thus, First Merchants shareholders do not have dissenters' rights because First
Merchants' shares are traded on the NASDAQ National Market System. With respect
to dissenters' rights of Francor Financial shareholders in connection with the
merger, see the discussion under "MERGER -- Rights of Dissenting Shareholders"
and also Appendix B hereto.
66
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 Francor 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 Francor Financial's
liabilities and any rights of creditors. Thus, shareholders of Francor Financial
have similar liquidation rights to shareholders of First Merchants.
Assessment and Redemption
Under Indiana law, the shares of First Merchants common stock and of
Francor Financial common stock are not 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.
Francor Financial has similar redemption rights under Indiana law.
In addition, as a bank holding company, First Merchants must give prior
notice to the Federal Reserve if the consideration to be paid by First Merchants
for any redemption or acquisition of its shares, when aggregated with the
consideration paid for all redemption or acquisitions for the preceding 12
months, equals or exceeds 10% of its consolidated net worth. As a bank holding
company, Francor Financial is subject to the same restriction.
Anti-Takeover Provisions
The anti-takeover measures applicable to First Merchants and Francor
Financial described below may have the effect of discouraging a person or other
entity from acquiring control of either company. These measures may have the
effect of discouraging certain tender offers for shares of 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.
o Indiana Law
Under the business combination provision of the Indiana Business
Corporation Law (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, such as First Merchants, is prohibited for a period of 5 years from
completing a business combination with the corporation unless, prior to the
acquisition of such 10% interest, the board of directors approved either the
acquisition of
67
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 either a
majority of disinterested shareholders approve the transaction or all
shareholders receive a price per share as determined by Indiana law. A
corporation may specifically adopt application of the business combination
provision in its Articles of Incorporation and obtain the protection provided by
this provision.
An Indiana corporation may elect to remove itself from the protection
provided by the Indiana business combination provision, but such an election
remains ineffective for 18 months and does not apply to a combination with a
shareholder who acquired a 10% ownership position prior to the election. First
Merchants is covered by the business combination provision of the IBCL, but
Francor Financial is not covered. The constitutional validity of the business
combination provision has been challenged in the past and has been upheld by the
United States Supreme Court.
In addition to the business combination provision, the IBCL also contains a
"control share acquisition" provision which, although different in structure
from the business combination provision, may have a similar effect of
discouraging or making more difficult a hostile takeover of an Indiana
corporation. This provision also may have the effect of discouraging premium
bids for outstanding shares. Under this provision, unless otherwise provided in
the corporation's articles of incorporation or by-laws, if a shareholder
acquires a certain amount of shares, approval of a majority of the disinterested
shareholders must be obtained before the acquiring shareholder may vote the
control shares. If such approval is not obtained, the shares held by the
acquiror will be redeemed by the corporation at the fair market value of the
shares as determined by the control share acquisition provision.
The control share acquisition provision does not apply to a plan of
affiliation and merger if the corporation complies with the applicable merger
provisions and is a party to the agreement of merger or plan of share exchange.
Both First Merchants and Francor Financial are subject to the control share
acquisition provision.
o First Merchants' Articles of Incorporation
In addition to the protection afforded by the IBCL, First Merchants'
Articles of Incorporation provide that the directors of First Merchants are
divided into 3 classes, each serving 3-year terms with one class to be elected
at each annual meeting of shareholders. First Merchants' Articles of
Incorporation provide that directors may be removed with or without cause by a
two-thirds (2/3) vote of the shares entitled to vote. However, if the Board by
two-thirds (2/3) vote recommends removal of a director, that director may be
removed by a majority of the shares entitled to vote. These provisions help
prevent hostile shareholders from replacing a majority of the Board of Directors
at one time. In addition, both of these provisions regarding Directors may only
be amended by a two-thirds (2/3) vote of the Directors.
First Merchants' Articles of Incorporation also require the approval of the
holders of three-fourths (3/4) of the voting stock to approve certain business
combinations involving any shareholder holding more than 10% of the voting stock
unless the transaction is approved by a
68
two-thirds (2/3) vote of the Board or the shareholders are to receive fair
consideration for their shares. "Business combination" is defined to include
mergers, consolidations, sales, leases, liquidations, dissolutions, certain
reorganizations, and agreements relating to the foregoing. "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 2 years preceding the business
combination, and (b) the per share book value for the stock. In the event
two-thirds (2/3) 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 two-thirds (2/3) of the voting stock.
Amendment of this provision of First Merchants' Articles of Incorporation
requires the approval of three-fourths (3/4) of the voting stock.
The existence of authorized but unissued common and preferred stock of
First Merchants may have an anti-takeover effect. 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. Prior to issuance, the Board
would determine the relative rights, preferences, limitations and restrictions
of the preferred stock. The Board would also 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 shareholders. Since First
Merchants shareholders have no preemptive rights, there is no guarantee that
shareholders would have an opportunity to purchase any of the preferred or
common stock when and if it is issued.
o Francor Financial's Articles of Incorporation
Similar to First Merchants' Articles of Incorporation, Francor Financial's
Articles of Incorporation provide additional protection beyond the protections
provided by the IBCL. Similar to First Merchants' Articles of Incorporation,
Francor Financial's Articles of Incorporation provide that the directors of
Francor Financial are divided into 3 classes, each serving 3-year terms with one
class to be elected at each annual meeting of shareholders. This provision helps
prevent hostile shareholders from replacing a majority of the Board of Directors
at one time. In addition, this provision regarding Directors may only be amended
by 80% of the voting stock of Francor Financial.
Francor Financial's Articles of Incorporation also require the approval of
the holders of 80% of the voting stock to approve any merger or consolidation of
Francor Financial with another company, or the sale, lease or other disposition
of any material part of the assets of Francor Financial. However, if any such
business combination is recommended by 70% or more of Francor Financial's
Directors, then only the affirmative vote of a majority of the voting stock is
required to approve the business combination. Amendment of this provision of
Francor Financial's Articles of Incorporation requires the approval of 80% of
the voting stock.
Francor Financial's Articles of Incorporation contain a provision
permitting its Directors to consider factors other than price when evaluating a
business combination. The Board of
69
Directors may consider social and economic effects of the transaction, the
business and financial condition of the acquiring person, and the competence,
experience and integrity of the acquiring person and its management. Amendment
of this provision of Francor Financial's Articles of Incorporation requires the
approval of 80% of the voting stock.
Francor Financial's Articles of Incorporation also provide that any
proposed acquisition of 25% or more of the voting stock of Francor Financial
must follow certain procedures and be approved by the Francor Financial
shareholders. A person proposing to acquire 25% or more of the voting stock must
provide a notice containing specified information to Francor Financial. After
receiving the notice, a special shareholders meeting will be held to vote on the
proposed acquisition. The proposed acquisition must be approved by the
affirmative vote of a majority of the voting stock, excluding shares held by the
acquiring person and by any officer or director of Francor Financial. If the
proposed acquisition is approved, Francor Financial's Articles of Incorporation
provide rights to dissenting shareholders who do not vote in favor of the
proposed acquisition. If a person acquires 25% or more of the voting stock of
Francor Financial without complying with these procedures, Francor Financial may
deny shareholder rights to these acquired shares. Amendment of this provision of
Francor Financial's Articles of Incorporation requires the approval of 80% of
the voting stock.
The existence of authorized but unissued shares of Francor Financial common
stock may have an anti-takeover effect. The issuance of additional Francor
Financial shares with sufficient voting power could have a dilutive effect on
Francor Financial's stock and may result in the defeat of an attempt to acquire
control of the corporation. The Board of Directors of Francor Financial may
issue shares of common stock at any time without shareholder approval. The
Merger Agreement prohibits the issuance by Francor Financial of additional
shares of common stock.
Director Liability
Under Indiana law, a director of First Merchants or Francor 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.
70
LEGAL OPINIONS
Certain legal matters in connection with the Merger 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 Francor Financial by the law firm of Krieg, DeVault, Alexander and
Capehart, LLP, One Indiana Square, Suite 2800, Indianapolis, Indiana 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 and its
affiliates, incorporated by reference into this document, 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 document 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 Francor Financial shareholders is called for the
purposes set forth in the Notice attached to this document. The Board of
Directors of Francor Financial knows of no other matter for action by
shareholders at the special meeting other than the matters described in the
Notice. However, the enclosed proxy will give discretionary authority to the
persons named with respect to matters which are not known to the Board of
Directors as of the date hereof and which may properly come before the special
meeting. It is the intention of the persons named in the proxy to vote with
respect to such matters in accordance with the recommendations of management of
Francor Financial.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
First Merchants has filed with the Securities and Exchange Commission (SEC)
a Registration Statement on Form S-4 under the Securities Act with respect to
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 Francor Financial and
First Merchants common stock. The rules and regulations of the SEC allow First
Merchants to omit certain information included in the Registration Statement
from this Proxy Statement-Prospectus.
In addition, First Merchants is subject to the reporting requirements of
the Securities Exchange Act of 1934 and files reports, proxy statements and
other information with the SEC. You may read and copy this information at the
following locations of the SEC:
Public Reference Room Northeast Regional Office Midwest 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
71
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 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 SEC at 1-800-SEC-0330.
The SEC 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 SEC. The address of that
site is http://www.sec.gov.
The SEC 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 SEC. 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 SEC. 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, 2000
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 SEC for the purpose of updating such description.
First Merchants incorporates by reference additional documents that it may
file with the SEC between the date of this Proxy Statement-Prospectus and the
date of the Francor 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. Francor Financial has supplied all
such information relating to Francor Financial.
You can obtain any of the documents incorporated by reference in this
document through First Merchants, or from the SEC through the SEC'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:
72
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 _________, 2001 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 1 business day after we receive your
request.
You may also obtain additional information about First Merchants and its
subsidiaries at its website at http://www.firstmerchants.com
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 document contains certain forward-looking statements with respect to
the financial condition, results of operations, and business of First Merchants
and Francor Financial and of First Merchants following completion 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. Actual results may differ
materially from those contemplated by such forward-looking statements due to,
among others, the following factors:
(i) expected cost savings from the merger that may not be fully realized;
(ii) deposit attrition, customer loss, or revenue loss following the merger
may be greater than expected;
(iii) competitive pressure in the banking industry may increase
significantly;
73
(iv) costs or difficulties related to the integration of the businesses of
First Merchants and Francor Financial may be greater than expected;
(v) changes in the interest rate environment may reduce margins;
(vi) general economic conditions, either nationally or regionally, may be
less favorable than expected, resulting in, among other things, a
deterioration in credit quality or a reduced demand for credit;
(vii) changes may occur in the regulatory environment;
(viii) changes may occur in business conditions and inflation; and
(ix) changes may 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 Francor Financial, nor have such
accountants applied any procedures thereto. Accordingly, such accountants do not
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 SEC filings incorporated by reference
herein. See "WHERE YOU CAN FIND ADDITIONAL INFORMATION."
74
APPENDIX A
AGREEMENT OF REORGANIZATION AND MERGER
BETWEEN
FIRST MERCHANTS CORPORATION
AND
FRANCOR FINANCIAL, INC.
THIS AGREEMENT OF REORGANIZATION AND MERGER (the "Merger Agreement"), is
entered this 8th day of February, 2001, by and between First Merchants
Corporation ("First Merchants") and Francor Financial, Inc. ("Francor
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, Francor 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 Wabash, Wabash County, Indiana;
WHEREAS, Frances Slocum Bank and Trust Company ("Frances Slocum Bank") is a
bank duly organized and existing under the laws of the State of Indiana and a
wholly-owned subsidiary of Francor Financial with its principal banking office
in Wabash, Wabash County, Indiana;
WHEREAS, it is the desire of First Merchants and Francor Financial to
effect a transaction whereby the Bank will become a wholly-owned subsidiary of
First Merchants through a statutory merger of Francor 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 Francor 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.
NOW, THEREFORE, in consideration of the mutual promises, covenants, and
agreements herein contained and other good and valuable consideration, the
receipt of which is
A-1
hereby acknowledged, First Merchants and Francor Financial hereby make this
Agreement and prescribe the terms and conditions of the merger of Francor
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), Francor 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 Francor 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
Francor 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 Francor 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 Francor Financial
shall cease and the Continuing Company shall possess all of the assets of
Francor 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 Francor 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 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.
A-2
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 By-Laws. The Articles of Incorporation
and the By-Laws 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 Francor Financial shall vest in the
Continuing Company without reversion or impairment. All liabilities of Francor
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 Francor Financial or the Bank, or (b) otherwise carry
out the purposes of this Agreement, Francor 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 Francor Financial or the Bank or otherwise
to take any and all such action.
SECTION 3
Consideration To Be
Distributed To Shareholders Of Francor Financial
3.01. Consideration. Upon and by reason of the Merger becoming effective,
the shareholders of Francor 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 the shares of Francor
Financial's common stock held and at their election (subject to the limitations
and prorations set forth in this Section 3) either (i) 4.32 (the "Conversion
Ratio") shares of First Merchants' common stock for each share of Francor
Financial's common stock held ("Option 1"), (ii) such number of shares of First
Merchants' common stock as shall be equal to the product of the Conversion Ratio
and a number equal to 60% of the number of shares of Francor Financial's common
stock held and cash in the amount of $121.74 per share with respect to 40% of
the shares of Francor Financial's common stock held ("Option 2"), or (iii) cash
in the amount of $121.74 for each share of Francor Financial's common stock
held, subject to the provisions and limitations of Section 3.07 ("Option 3").
The Conversion Ratio shall be subject to adjustment as set forth in Sections
3.03 and 3.04.
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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 Francor
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 Francor 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 Francor 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 Francor Financial shareholder electing Option 1
or Option 2 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) If the First Merchants Average Price shall be less than $22.325
and greater than or equal to $20.00, the Conversation Ratio shall be
adjusted, automatically and without any action on the part of any party
hereto, to equal a number equal to a quotient, the numerator of which is
the product of $22.325 and the Conversion Ratio (as then in effect) and the
denominator of which is the First Merchants Average Price 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). In addition, Francor 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 $20.00; subject, however, to the following
two provisions. If Francor 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 $22.325 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 Francor
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Financial of such election and the revised Conversion Ratio, whereupon no
termination shall have occurred pursuant to this Section 3.04(b)(2) 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 $27.025; 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 Francor
Financial within twenty-four (24) hours of the Determination Date. Within
two (2) business days after the date of receipt of such notice, Francor
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
$27.025 and the Conversion Ratio (as then in effect) and the denominator of
which is the First Merchants Average Price. If Francor 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 Francor 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 Francor 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 Francor
Financial between the Special Record Date and the Election Deadline (as defined
below). Francor 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 first day on which the administrative
offices of First Merchants are generally open for business after the special
meeting at which the Merger will be submitted to a vote of Francor Financial's
shareholders. The Election Forms shall be mailed to each record holder of
Francor 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 Francor Financial's shareholders. The Election Form
will permit each holder of record of Francor 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 Option
3. No single holder shall be entitled to elect a combination of Option 1, Option
2 and/or Option 3 for his/her/its shares. 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 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 Francor Financial
and approved by First
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Merchants to receive elections, to receive outstanding Francor 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 Francor Financial hereby appoint
the Trust Department of First Merchants Bank, National Association to act as
agent (the "Election Agent") of Francor Financial's shareholders for the
purposes of mailing and receiving the Election Forms, tabulating the results and
notifying First Merchants and Francor Financial of the results.
3.07. All Cash Payments.
(a) In the event the number of shares of Francor Financial common
stock covered by Option 2 and Option 3 elections would entitle Francor
Financial's shareholders to receive less than $13,440,096 in cash
(including cash payments for fractional shares and payments to dissenting
shareholders), the Option 3 elections of the holders of Francor Financial's
common stock shall be honored (each in its entirety); provided, however,
that in the event that the amount of cash to be received by shareholders of
Francor Financial pursuant to the terms of the Agreement would result in
cash payments of $13,440,096 or more (including cash payments for
fractional shares and payments to dissenting shareholders), the Option 3
elections shall be honored in the following order: the Option 3 election
which covers the smallest number of shares of Francor Financial's common
stock shall be honored first, followed by the election which covers the
next smallest number of shares (each in its entirety) and continuing this
process until the total remaining number of outstanding Francor Financial's
shares covered by Option 2 and Option 3 elections is such that the Merger
will (i) result in cash payments of no more than $13,440,096 (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. Option 3 elections
which are not honored shall be treated as Option 2 elections.
(b) Notwithstanding anything to the contrary in this Section 3, if (i)
a shareholder of Francor Financial certifies in writing at the time of
filing an Option 3 election (the "Certifying Cash Elector"), that his
outstanding Francor Financial's shares are deemed to be constructively
owned by another shareholder of Francor 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 Francor 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 3 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 pursuant to Option 3.
(c) Shares of Francor 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
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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) Francor Financial and First Merchants shall mutually determine the
validity of elections submitted by Francor Financial's shareholders.
(e) A holder of Francor 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 Francor 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 Francor Financial may, upon mutual agreement,
apply the adjustments set forth in this Section 3.07 only to such extent
and to such number of Francor 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 Francor
Financial's common stock and for fractional shares shall be made by First
Merchants to each former shareholder of Francor Financial within ten (10)
days of such shareholder's delivery of his/her certificates representing
common stock of Francor 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 Francor 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
Francor 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 stock of First
Merchants shall be paid to any shareholder entitled to receive the same
until such shareholder has surrendered his/her certificates for Francor
Financial's common stock to the Conversion Agent in exchange for
certificates representing First Merchants' common stock and/or cash. Upon
surrender or compliance with the provisions of
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Section 3.08(f), there shall be paid to the record holder 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 Francor Financial of any shares of the common stock
of Francor Financial. If, after the Effective Date, certificates are
presented for transfer to Francor 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 Francor 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 Francor 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
Francor Financial's shareholder with all procedures historically required
by Francor Financial in connection with lost, stolen, or destroyed
certificates.
SECTION 4
Dissenting Shareholders
Shareholders of Francor Financial shall have the rights accorded to
dissenting shareholders under Indiana Code ss. 23-1-44, as amended.
SECTION 5
Representations and
Warranties of Francor Financial
Francor 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 authorized executive
officer of Francor 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. Francor 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. Francor Financial and the Bank have the
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power and authority (corporate and other) to conduct their respective businesses
in the manner and by the means utilized as of the date hereof. Francor
Financial's only subsidiary is the Bank, and the Bank has no subsidiaries other
than those disclosed in the Disclosure Letter (the "Bank Subsidiaries"). The
Bank is subject to primary federal regulatory supervision and regulation by the
Federal Deposit Insurance Corporation.
5.02. Authorization.
(a) Francor 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 Francor 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 Francor 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 Francor Financial
or the Bank is subject or bound, the result of which would materially
affect the business or financial condition of Francor 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 Francor 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 Francor 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, Francor 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 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 Francor Financial of the
transactions contemplated by this Agreement.
5.03. Capitalization.
(a) As of December 31, 2000, Francor Financial had 500,000 shares of
common stock authorized, no par value per share, 276,000 shares of which
were issued and
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outstanding. Such issued and outstanding shares of Francor Financial's
common stock have been duly and validly authorized by all necessary
corporate action of Francor Financial, are validly issued, fully paid and
nonassessable and have not been issued in violation of any preemptive
rights of any shareholders. Francor Financial has no intention or
obligation to authorize or issue additional shares of its common stock.
Francor Financial has not authorized the issuance of any other class of
stock. On a consolidated basis as of December 31, 2000, Francor Financial
had total capital of $18,392,931, which consisted of common stock of
$69,000, capital surplus of $1,912,250 and retained earnings of
$16,411,681.
(b) As of December 31, 2000, the Bank had 77,000 shares of common
stock authorized, no par value per share, 77,000 shares of which were
issued and outstanding to Francor 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 Francor 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 December
31, 2000, the Bank had total capital of $18,368,000, which consisted of
common stock of $963,000, capital surplus of $5,000,000 and retained
earnings of $12,405,000.
(c) 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 Francor Financial nor the Bank by which
Francor Financial or the Bank is or may become bound. Neither Francor
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 Francor Financial's outstanding shares of
common stock.
5.04. Organizational Documents. The respective Articles of Incorporation or
Association and By-Laws of Francor Financial and the Bank have been delivered to
First Merchants and represent true, accurate and complete copies of such
corporate documents of Francor Financial and the Bank in effect as of the date
of this Agreement.
5.05. Compliance with Law. Except as set forth in the Disclosure Letter,
neither Francor 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 Francor
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 Francor Financial or the Bank. Francor
Financial and the Bank possess all
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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 Francor Financial or the Bank, including all correspondence,
communications and commitments related thereto, are set forth in the Disclosure
Letter. Except as 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 Francor 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 Francor
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
Francor Financial or the Bank threatened in any court or before any government
agency or body, arbitration panel or otherwise (nor does Francor 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
Francor 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 uncured violations, or
violations with respect to which material refunds or restitutions may be
required, cited in any compliance report to Francor Financial or the Bank as a
result of an examination by any regulatory agency or body.
5.08. Financial Statements.
(a) Francor Financial's consolidated balance sheets as of the end of
the three fiscal years ended December 31, 1998, 1999 and 2000 and the
related consolidated statements of income, comprehensive income,
shareholders' equity and cash flows for the years then ended (hereinafter
collectively referred to as the "Financial Information") present fairly the
consolidated financial condition or position of Francor Financial as of the
respective dates thereof and the consolidated results of operations of
Francor Financial for the respective periods covered thereby and have been
prepared in conformity with generally accepted accounting principles
applied on a consistent basis.
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(b) All loans reflected in the Financial Information and which have
been made, extended or acquired since December 31, 2000, (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 December 31, 2000, no events or conditions of any character, whether
actual, threatened or contemplated, have occurred, or, to the knowledge of
Francor Financial, can reasonably be expected to occur, which materially
adversely affect Francor 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, Francor Financial's or the
Bank's business to be conducted in a materially less profitable manner than
prior to December 31, 2000.
5.10. Absence of Undisclosed Liabilities. Neither Francor 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,
nor to the knowledge of Francor 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, Francor Financial
and the Bank have good and marketable title in fee simple absolute to all
personal property reflected in the December 31, 2000 Financial Information,
good and marketable title to all other properties and assets which Francor
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 Francor
Financial's or the Bank's business, and good and marketable title to all
property and assets acquired since December 31, 2000, free and clear of all
mortgages, liens, pledges, restrictions, security interests, charges,
claims or encumbrances of any nature.
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(b) All furniture, fixtures, machinery, equipment, computer software
and hardware, and all other tangible personal property owned or used by
Francor 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 Francor 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 Francor 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 Francor 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.
(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 Francor Financial or the Bank since December 31, 2000
is subject to any restrictions, whether contractual or statutory, which
materially impairs the ability of Francor Financial or the Bank to dispose
freely of such investment at any time. Except as set forth in the
Disclosure Letter, neither Francor 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 Francor Financial or the Bank and covers any employee, director or
former employee or director of Francor Financial or the Bank under which
Francor 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
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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
Francor 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 Francor 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 Francor 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.
(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 2001 plan year). Except as set forth in
the Disclosure Letter, Francor 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 Francor Financial or the
Bank.
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(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, Francor 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 Francor 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.
(k) To the best knowledge of Francor Financial and the Bank, no event
has occurred that would cause the imposition of the tax described in Code
Section 4980B. To the best knowledge of Francor 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
Francor Financial or the Bank and (iii) covers any employee, director or
former employee or director of Francor 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 Francor
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 Francor 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 Francor 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
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maintaining such Employee Plans or Benefit Arrangements above the level of
the expense incurred in respect thereof for the fiscal year ended December
31, 2000.
(o) For purposes of this Section 5.13, references to Francor Financial
or the Bank are deemed to include (i) all predecessors of Francor Financial
or the Bank, (ii) any subsidiary of Francor Financial or the Bank, (iii)
all members of any controlled group (as determined under Code Section
414(b) or (c)) that includes Francor Financial or the Bank, and (iv) all
members of any affiliated service group (as determined under Code Section
414(m) or (n)) that includes Francor Financial or the Bank.
5.14. Obligations to Employees. Except as set forth in the Disclosure
Letter, all accrued obligations and liabilities of Francor 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 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 Francor 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 Francor 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
Francor Financial or the Bank or their respective businesses, prospects,
conditions (financial or otherwise), results of operations or assets. All
obligations and liabilities of Francor 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 Francor 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
Francor 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 Francor Financial or the Bank or their respective
businesses, prospects, conditions (financial or otherwise), results of
operations or assets.
5.15. Taxes, Returns and Reports. Francor 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 materials
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
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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 Francor 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
December 31, 2000. Neither Francor 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 December 31, 2000 up to
and including the Effective Date, except to the extent reflected on their
Financial Information or on financial statements of Francor Financial or the
Bank subsequent to such date and as set forth in the Disclosure Letter. Neither
Francor 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 Francor Financial or the Bank have been
audited by any taxing authority during the past five (5) years.
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 Francor 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
Francor Financial or the Bank. All such reports filed by Francor 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. Except as set forth in the
Disclosure Letter, 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, Francor Financial or the Bank.
5.18. Absence of Defaults. Neither Francor 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
Francor Financial or the Bank.
5.19. Tax and Regulatory Matters. Neither Francor 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.
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5.20. Real Property.
(a) The legal description of each parcel of real property owned by
Francor Financial, the Bank or any subsidiary of Francor 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
Francor 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 Francor
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"). Francor Financial shall update the
Disclosure Letter 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 Francor Financial or the Bank
as to the title of or the right to use any of the Real Property.
(c) Neither Francor 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 Francor 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, Francor Financial and the Bank have, and
at the Closing Date will have, good and marketable title to their
respective Owned Real Property.
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(g) Neither Francor 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.
(h) Except as disclosed in the Disclosure Letter, there are no
underground storage tanks located on, in or under any Owned Real Property.
Neither Francor 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 Francor 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 Francor Financial or the Bank
or under any authority of Francor 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 Francor 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 Francor Financial and
the Bank and all directors, officers and employees of Francor 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.
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SECTION 6
Representations and
Warranties of First Merchants
First Merchants hereby represents and warrants to Francor Financial as
follows:
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.
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6.03. Capitalization.
(a) As of December 31, 2000, First Merchants had 50,000,000 shares of
common stock authorized, no par value, of which 11,611,732 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 Francor
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 Francor 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 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.
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6.07. Financial Statements. First Merchants consolidated balance sheets as
of the end of the two fiscal years ended December 31, 1998 and 1999 and the nine
(9) months ended September 30, 2000 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 2000, 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, 2000, 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, 2000.
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, 1999, and Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000, copies of which have previously been delivered to Francor
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 of competent jurisdiction should
determine that any misrepresentation or breach of a warranty was willfully or
intentionally made or is deemed to be fraudulent.
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SECTION 7
Covenants of Francor Financial
Francor Financial covenants and agrees with First Merchants, and covenants
and agrees to cause the Bank to act, as follows:
7.01. Shareholder Approval. Francor 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
Francor Financial at the earliest possible reasonable date, and the Board of
Directors of Francor Financial shall recommend to the shareholders of Francor
Financial that such shareholders approve this Agreement and shall not thereafter
withdraw or modify its recommendation. The Board of Directors of Francor
Financial shall use its best efforts to obtain any vote of its shareholders
necessary for the approval of this Agreement.
7.02. Other Approvals. Francor 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 Francor 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 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 Francor Financial prior to the Effective Date of cash dividends
on its common stock in March, 2001, June, 2001 and September, 2001, which
dividends shall not exceed $0.82 per share, respectively, provided that
Francor Financial shall not pay any such dividend during the fiscal quarter
in which the Merger shall become effective and in which Francor Financial
shareholders will become entitled to receive dividends on the shares of
First Merchants into which the shares of Francor Financial have been
converted or in any subsequent fiscal quarter, and (b) the payment by the
Bank to Francor Financial of dividends to pay Francor 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
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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) 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 Francor
Financial or the Bank; (viii) 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 Francor 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) 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 Francor 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.
(b) Francor 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) Francor 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, Francor 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
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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,
Francor 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 Francor Financial or the Bank or similar transaction involving
Francor Financial or the Bank (all such transactions hereinafter referred to as
an "Acquisition Transaction"). Francor 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) Francor 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 Francor 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 Francor Financial to fulfill
their fiduciary duties and obligations to Francor Financial's shareholders and
other constituencies under Indiana law, and (b) prior to furnishing such
information to, or entering into discussions or negotiations with, such person
or entity, Francor 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 Francor 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 Francor 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 Francor Financial to
fulfill their fiduciary duties and obligations to Francor Financial's
shareholders and other constituencies under Indiana law.
7.06. Restrictions Regarding Affiliates. Francor 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 Francor 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 Francor 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
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counsel to First Merchants, regarding compliance by each such person with the
provisions of such Rule 145.
7.07. Press Release. Neither Francor 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. Francor 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. Francor 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 Francor Financial and the Bank, (ii) becomes available to
Francor Financial and the Bank from other sources, (iii) is independently
developed by Francor Financial and the Bank, (iv) is disclosed outside of
Francor 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. Francor Financial and the
Bank further agree that in the event this Agreement is terminated, they will
return to First Merchants all information obtained by Francor Financial and the
Bank regarding First Merchants, including all copies made of such information by
Francor Financial and the Bank. This provision shall survive the Effective Date
or the earlier termination of this Agreement.
7.10 Cooperation. Francor 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) Francor 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) Francor 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), Francor Financial agrees to disclose to First Merchants any fact or
matter that comes to the attention of Francor Financial that might indicate that
any of the representations or warranties of Francor Financial may be untrue,
incorrect, or misleading in any material respect.
7.11. Environmental Reports. Francor 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
Francor Financial or the Bank as of the date hereof (but excluding
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space in retail and similar establishments leased by Francor 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 Francor Financial or the Bank after the date
hereof (but excluding space in retail and similar establishments leased by
Francor 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, Francor Financial shall
provide to First Merchants, within sixty (60) 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 Francor 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 Francor 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 Francor Financial.
7.12. Letter to Francor Financial's Shareholders. Within two (2) business
days after execution of this Agreement by Francor Financial and First Merchants,
Francor Financial shall deposit in the United States mail a letter to each of
the shareholders of record of Francor 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 Francor
Financial shall be in a form mutually agreed to by First Merchants and Francor
Financial.
7.13. Subsidiaries. Francor Financial shall, within thirty (30) days after
the date of this Agreement, cause the Bank Subsidiaries to be merged with and
into the Bank.
SECTION 8
Covenants of First Merchants
First Merchants covenants and agrees with Francor 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
Francor
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Financial with copies of proposed regulatory filings in connection with the
Merger and afford Francor 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,
2003, 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 Francor Financial or the Bank on the Effective Date. For
purposes of determining a Francor Financial or Bank employee's eligibility
and vesting service under a First Merchant's employee benefit plan that the
employee is permitted to enter, service with Francor Financial or the Bank
will be treated as service with First Merchants; provided, however, that
except as set forth in the next sentence, service with Francor Financial or
the Bank shall not be treated as service with First Merchants for purposes
of benefit accrual. For purposes of benefit accrual, service with Bank on
or after the Effective Date will be treated as service with First
Merchants.
(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
Francor 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 Francor 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 Francor 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
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Merchants with and in accordance with the terms of prior written approval of
Francor 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 Francor Financial all
information obtained by First Merchants regarding Francor 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 directors of the Bank in office immediately prior to the consummation of the
Merger shall be the directors of the Bank at the Effective Date subject to the
provisions of the Bank's Articles of Incorporation 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' 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
twenty-four (24) months after the Effective Date. First Merchants intends to
continue to operate the Bank as an operating subsidiary of First Merchants under
the name "Frances Slocum Bank and 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 Francor 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 Francor Financial shall
have approved, ratified and confirmed this Agreement as required by applicable
law.
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9.02. Registration Statement Effective. First Merchants shall have
registered its shares of common stock to be issued to shareholders of Francor
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
dated on or about the Effective Date, 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. 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 shall have obtained (a) from
Francor Financial, a list identifying each affiliate of Francor Financial and
(b) from each affiliate of Francor 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 Francor 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. Francor 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 Francor Financial from a financial
viewpoint. Such opinion shall be (a) in form and substance reasonably
satisfactory to Francor 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 Francor 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.
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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.
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 Francor Financial or by Francor
Financial to First Merchants only for the following reasons:
(a) By Francor 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 Francor 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 Francor 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, 2000 (as to First Merchants) and December 31, 2000 (as to
Francor Financial);
(d) By Francor Financial or First Merchants, if the transaction
contemplated herein has not been consummated by October 31, 2001 (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 (as
determined by First Merchants in good faith) a material adverse effect on
the financial condition, results of operations, business, or prospects of
Francor Financial or the Bank;
(f) By First Merchants or Francor Financial if, in the opinion of
counsel to First Merchants or Francor Financial, the Merger will not
constitute a tax-free reorganization under the Code;
(g) By First Merchants or Francor Financial pursuant to their
respective termination rights set forth in Section 3.04 hereof;
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(h) By First Merchants pursuant to its termination rights set forth in
Section 7.11 hereof;
(i) By Francor Financial if the appropriate discharge of the fiduciary
duties of the Board of Directors of Francor Financial consistent with
Section 7.05 requires that Francor Financial terminate this Agreement;
(j) By First Merchants if it receives written notice under Section
7.05 that Francor Financial intends to furnish information to or enter into
discussions or negotiations with a third party in connection with a
proposed Acquisition Transaction, if Francor Financial fails to give any
such written notice as required in Section 7.05 or if Francor Financial's
Board of Directors fails to make, withdraws or modifies its recommendation
to Francor 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 Francor Financial in accordance with Section 10.01(i),
Francor 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.
Francor 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 Francor Financial as compensation to First Merchants for its
time and expense and not as a penalty to Francor 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 Francor Financial its
reasonable attorneys' fees incurred in the enforcement of this Section.
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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 Francor
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 Francor
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, Francor Financial shall deliver
an opinion of its counsel, Krieg DeVault Alexander & Capehart, LLP to First
Merchants, and First Merchants shall deliver an opinion of its counsel, Bingham
Summers Welsh & Spilman, LLP to Francor 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 Francor 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.
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13.02. Waiver; Amendment.
(a) First Merchants and Francor 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 Francor
Financial, this Agreement may be amended, modified or supplemented by the
written agreement of Francor 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
Francor 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 Francor Financial: With a copy to:
189 W. Market Street Krieg DeVault Alexander & Capehart, LLP
P. O. Box 588 One Indiana Square, Suite 2800
Wabash, IN 46992 Indianapolis, Indiana 46204
Attn: Jerry M. Ault, Chairman Attn: John W. Tanselle, Esq.
President and Chief Executive
Officer
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.
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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 Francor Financial relating
to the matters contemplated hereby, and constitutes the entire agreement between
the parties hereto.
13.09. Expenses. First Merchants and Francor 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 Francor 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.
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IN WITNESS WHEREOF, First Merchants and Francor 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
FRANCOR FINANCIAL, INC.
ATTEST:
/s/Sondra T. Kaselonis By:/s/Jerry M. Ault
- ------------------------------- ----------------------------------------
Sondra T. Kaselonis, Secretary Jerry M. Ault, Chairman,
President and Chief Executive Officer
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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, By-Laws, 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.]
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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
February 7, 2001
Board of Directors
Francor Financial, Inc.
1250 N. Cass Street
Wabash, Indiana 46992
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 Francor Financial, Inc.,
Wabash, 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 Francor Financial's common stock, and at their
election, either (I) 4.32 shares of First Merchants' common stock; or (II) 2.59
shares of First Merchants common stock and $48.70 in cash; or (III) $121.74 in
cash, within certain limitations. The cash portion of the transaction is limited
to $13,440,096, 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 1,192,320 First
Merchants common shares will be issued in exchange for all 276,000 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
$23.00. At that price, the proposed consideration to be received represents an
aggregate value of $27,423,360 or $99.36 per Company common share.
The fixed cash price of $121.74 implies a $28.18 value of First Merchant's
shares. If the maximum number of Francor shares are exchanged for cash, an
aggregate of 715,392 First Merchants common shares will be issued and the
aggregate value of the transaction will be $29,894,112, assuming First Merchants
shares are valued at $23.00.
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.
Renninger performed certain analyses described herein and presented the range of
values for the Company resulting from such analyses to the Board of Directors of
the Company in connection with its advice as to the fairness of the
consideration to be paid by First Merchants.
C-1
Board of Directors
Francor Financial, Inc.
February 7, 2001
Page 2
For purposes of this opinion, Renninger performed a review and analysis of the
historic performance of the Company and its wholly owned subsidiary, Frances
Slocum Bank & Trust Company (the "Bank"), contained in: (i) audited Annual
Reports and financial statements dated December 31, 1997, 1998 and 1999 of the
Company; (ii) the March 31, 2000, June 30, 2000 and September 30, 2000
Consolidated Reports of Condition and Income filed by the Bank with the Federal
Deposit Insurance Corporation; (iii) June 30, 2000 Uniform Bank Performance
Reports of the Bank; and (iv) historical common stock trading activity of the
Company. 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, 1997, 1998 and
1999 audited annual reports; and (ii) Forms 10-Q for the quarters ended March
31, 2000, June 30, 2000, and September 30, 2000; (iii) the Bank Holding Company
Performance Report for June 30, 2000; (iv) the most recent Third Party Loan
Reports for each banking affiliate 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, 2000.
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
___________, 2001
Board of Directors
Francor Financial, Inc.
1250 N. Cass Street
Wabash, Indiana 46992
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 Francor
Financial, Inc., Wabash, Indiana (the "Company") dated February 7, 2001, 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,
employee or agent 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 or such other corporation
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 (acting by a quorum consisting of directors
who are not parties to or who have been wholly successful with respect to such
action) 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 By-Laws and amendments thereto... (C)
4. None
5. Opinion of Bingham Summers Welsh & Spilman, LLP (legality)... 137
6-7. None
8. Opinion of Bingham Summers Welsh & Spilman, LLP
(tax matters)................................................ 138
II-1
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 1994 Stock Option Plan...............(E)
d. First Merchants Corporation Change of Control Agreements.........(B),(I)
e. First Merchants Corporation Unfunded Deferred Compensation Plan..(F)
f. First Merchants Corporation Supplemental Executive Retirement
Plan and amendments thereto......................................(G)
g. First Merchants Corporation 1999 Long-term Equity Incentive Plan.(H)
h. First Merchants Corporation Management Incentive Compensation
Program..........................................................(I)
11-20. None
21. Subsidiaries of Registrant.......................................141
22. None
23. a. Consent of Olive LLP.............................................142
b. Consent of Crowe, Chizek and Company LLP.........................143
c. Consent of Bingham Summers Welsh & Spilman, LLP (legality).......(l)
d. Consent of Bingham Summers Welsh & Spilman, LLP
(tax matters)....................................................(l)
e. Consent of Renninger & Associates, LLC...........................144
24. Power of Attorney included in "Signatures" section...............132
25-98. None
99. Form of Proxy....................................................145
(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.
II-2
(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 Annual Report on Form 10-K for
year ended December 31, 1993.
(F) Incorporated by reference to Registrant's Annual Report on Form 10-K for
year ended December 31, 1996.
(G) Incorporated by reference to Registrant's Annual Report on Form 10-K for
year ended December 31, 1997.
(H) Incorporated by reference to Registrant's Registration Statement on Form
S-8 (SEC File No. 333-80117) effective on June 7, 1999.
(I) Incorporated by reference to Registrant's Annual Report on Form 10-K for
year ended December 31, 2000.
(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
II-3
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 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
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(d) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this 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.
(2) 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.
(e) 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.
(f) 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 6th day of April, 2001.
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 6th day of April, 2001 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/ Roger M. Arwood
- --------------------------------
Roger M. Arwood Director
S-1
/s/ James F. Ault
- ---------------------------------
James F. Ault Director
/s/ Dennis A. Bieberich
- ---------------------------------
Dennis A. Bieberich Director
/s/ Frank A. Bracken
- ---------------------------------
Frank A. Bracken Director
/s/ Blaine A. Brownell
- ---------------------------------
Blaine A. Brownell Director
/s/ Thomas B. Clark
- ---------------------------------
Thomas B. Clark Director
/s/ Barry J. Hudson
- ---------------------------------
Barry J. Hudson Director
/s/ Norman M. Johnson
- ---------------------------------
Norman M. Johnson Director
/s/ George A. Sissel
- ---------------------------------
George A. Sissel Director
/s/ Robert M. Smitson
- ---------------------------------
Robert M. Smitson 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 By-Laws and amendments thereto... (C)
4. None
5. Opinion of Bingham Summers Welsh & Spilman, LLP (legality)... 137
6-7. None
8. Opinion of Bingham Summers Welsh & Spilman, LLP
(tax matters)................................................ 138
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 1994 Stock Option Plan...............(E)
d. First Merchants Corporation Change of Control Agreements.........(B),(I)
e. First Merchants Corporation Unfunded Deferred Compensation Plan..(F)
f. First Merchants Corporation Supplemental Executive Retirement
Plan and amendments thereto......................................(G)
g. First Merchants Corporation 1999 Long-term Equity Incentive Plan.(H)
h. First Merchants Corporation Management Incentive Compensation
Program..........................................................(I)
11-20. None
21. Subsidiaries of Registrant.......................................141
22. None
23. a. Consent of Olive LLP.............................................142
b. Consent of Crowe, Chizek and Company LLP.........................143
c. Consent of Bingham Summers Welsh & Spilman, LLP (legality).......(l)
d. Consent of Bingham Summers Welsh & Spilman, LLP
(tax matters)....................................................(l)
e. Consent of Renninger & Associates, LLC...........................144
24. Power of Attorney included in "Signatures" section...............132
25-98. None
99. Form of Proxy....................................................145
(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 Annual Report on Form 10-K for
year ended December 31, 1993.
(F) Incorporated by reference to Registrant's Annual Report on Form 10-K for
year ended December 31, 1996.
(G) Incorporated by reference to Registrant's Annual Report on Form 10-K for
year ended December 31, 1997.
(H) Incorporated by reference to Registrant's Registration Statement on Form
S-8 (SEC File No. 333-80117) effective on June 7, 1999.
(I) Incorporated by reference to Registrant's Annual Report on Form 10-K for
year ended December 31, 2000.
(1) Included in opinion.
April 6, 2001
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 1,192,320 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 April 6, 2001.
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
April 6, 2001
Board of Directors
First Merchants Corporation
200 East Jackson Street
Muncie, IN 47305
Board of Directors
Francor Financial, Inc.
189 West Market Street
Wabash, IN 46992
Re: Merger of Francor 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 Francor Financial, Inc., an Indiana corporation registered as a bank
holding company under the Bank Holding Company Act of 1956, as amended ("Francor
Financial"), with and into First Merchants, pursuant to the terms of the
Agreement of Reorganization and Merger between First Merchants and Francor
Financial, dated February 8, 2001 (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 April 6, 2001 (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 Francor Financial with and into First Merchants (the "Merger")
of certain written representations and covenants of Francor 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
Francor 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 Francor Financial, will hold substantially all of its
assets, and (ii) in the transaction, the Francor Financial shareholders will
exchange an amount of stock
Ex. 8-1
First Merchants Corporation
Francor Financial, Inc.
April 6, 2001
Page 2
constituting majority control of Francor 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 Francor 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 Francor Financial shareholders,
Francor Financial, and First Merchants:
1. In general, a Francor 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 Francor 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 Francor 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 Francor 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 Francor 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 Francor Financial shareholder on
the receipt of First Merchants common stock and cash in exchange for Francor
Financial common stock. Code Section 356(c).
3. A Francor 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 Francor Financial stock surrendered. After the Commissioner v.
Clark case, if a Francor Financial shareholder receives only cash in exchange
for Francor Financial stock, the transaction should be treated as if either (i)
the shareholder sold his or her Francor Financial stock to First Merchants for
cash, or (ii) the Francor 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 Francor
Financial shareholder who perfects dissenters rights and receives solely cash,
that the Internal Revenue Service could view the transaction as stock redemption
by Francor 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 Francor Financial shareholders in
exchange for their Francor Financial stock will be equal to such shareholder's
basis in the Francor 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
Francor Financial, Inc.
April 6, 2001
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 Francor Financial stock was held, provided that the
Francor 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 Francor Financial or First
Merchants in connection with the transaction. Code Sections 361(a) and 1032.
7. The basis of the assets of Francor Financial acquired by First Merchants
in the Merger will be the same as the basis of such assets in the hands of
Francor 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:
State of Incorporation
Name of Registrant's Subsidiary or Organization
- ------------------------------- ---------------
Decatur Bank & Trust Company Indiana
520 North 13th Street
Decatur, Indiana 46733
First Merchants Bank, National Association Under the laws of the United States
(also doing business as First Merchants
Bank of Hamilton County)
200 East Jackson Street
Muncie, Indiana 47305
First Merchants Insurance Services, Inc. Indiana
200 East Jackson Street
Muncie, Indiana 47305
(a wholly-owned subsidiary of
The Madison Community Bank)
First United Bank Indiana
709 Mill Street
Middletown, Indiana 47356
The First National Bank of Portland Under the laws of the United States
112 West Main Street
Portland, Indiana 47371
The Madison Community Bank Indiana
19 West 10th Street
Anderson, Indiana 46016
The Randolph County Bank Indiana
122 West Washington Street
Winchester, Indiana 47394
The Union County National Bank Under the laws of the United States
of Liberty
107 West Union, Box 217
Liberty, Indiana 47353
Ex. 21-1
Ex. 23(a)-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 Francor Financial, Inc. into First
Merchants Corporation, of our report, dated January 22, 2001, except for note 19
as to which the date is February 8, 2001, on the consolidated financial
statements of First Merchants Corporation as of December 31, 2000 and 1999 and
for each of the three years in the period ended December 31, 2000. We also
consent to the reference to our firm appearing under the heading "Experts" in
the Prospectus.
Olive LLP
April 6, 2001
Indianapolis, Indiana
Ex. 23(a)-1
Ex. 23(b)-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 Francor Financial, Inc. into First
Merchants Corporation, of our reports dated January 8, 1999, on Jay Financial
Corporation, and January 15, 1999, on Anderson Community Bank, relating to the
statements of income, changes in shareholders' equity and cash flows of those
organizations for the year ended December 31, 1998, included in First Merchants
Corporation's Annual Report on Form 10-K for the year ended December 31, 2000.
CROWE, CHIZEK AND COMPANY LLP
April 6, 2001
Indianapolis, Indiana
Ex. 23(b)-1
Ex. 23(e)-1
Consent of Financial Advisor
We consent to the use of our fairness opinion letter dated February 7, 2001 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 Francor 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
April 6, 2001
Ex. 23(e)-1
FRANCOR FINANCIAL, INC.
189 West Market Street
P.O. Box 588
Wabash, Indiana 46992
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Jerry M. Ault, Robert R. Halderman, and Charles
R. Tiede, 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 Francor Financial, Inc. which the undersigned would be entitled to vote
at the special meeting of shareholders of Francor Financial, Inc. to be held at
the Wabash Inn, located at 1950 State Highway 15 South, Wabash, Indiana 46992,
on __________, ________, 2001, at _:__ _.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 Francor Financial, Inc. recommends a vote FOR approval
of the Agreement of Reorganization and Merger dated February 8, 2001, by and
between First Merchants Corporation and Francor Financial, Inc. pursuant to
which Francor Financial, Inc. will merge with and into First Merchants
Corporation, and Frances Slocum Bank & Trust Company will become a wholly-owned
subsidiary of First Merchants Corporation.
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 FRANCOR FINANCIAL, INC.
PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY PROMPTLY.
Dated: ______________, 2001.
_____________________________________
(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