<![CDATA[Item 1.01. Entry into a Material Definitive Agreement.
On September 3, 2008, First Merchants Corporation ("First Merchants") and
Lincoln Bancorp ("Lincoln") jointly announced the signing of a definitive
agreement (the "Agreement") pursuant to which Lincoln will be merged with and
into First Merchants (the "Merger"). The Merger has been approved by the Boards
of Directors of each of Lincoln and First Merchants, but is conditioned upon the
approval of the Lincoln shareholders and certain regulatory authorities. The
Agreement provides that upon the effective date of the Merger (the "Effective
Time"), each shareholder of Lincoln may elect to receive either 0.7004 shares of
First Merchants' common stock (valued at $13.93 based on First Merchants'
September 2, 2008 closing price of $19.89 per share), or $15.76 in cash for each
Lincoln common share owned by such shareholder. However, no more than 3,576,417
shares of First Merchants' common stock and no more than $16,800,000 in cash may
be paid to the Lincoln shareholders in the Merger and there may be
re-allocations of cash and stock to certain Lincoln shareholders if either
threshold is exceeded. Based on the closing price of First Merchants' common
stock on September 2, 2008, the transaction has an aggregate value between $74
million and $77 million, depending upon the elections made by Lincoln
shareholders. The transaction is expected to be a tax-free stock exchange for
those Lincoln shareholders electing to receive First Merchants' common stock.
The Merger is subject to various contingencies, including the approval of the
holders of Lincoln's outstanding common shares and the receipt of certain
regulatory approvals.
The Agreement of Reorganization and Merger between First Merchants and
Lincoln dated September 2, 2008, is attached hereto as Exhibit 2.1 and
incorporated herein by reference.
This current report on Form 8-K, including the exhibit hereto, contains
forward-looking statements that involve risk and uncertainty. It should be noted
that a variety of factors could cause the company's actual results and
experience to differ materially from the anticipated results or other
expectations expressed in the combined company's forward-looking statements.
The risks and uncertainties that may affect the operations, performance,
development, growth projections and results of the combined company's business
include, but are not limited to, the growth of the economy, interest rate
movements, timely development by the combined company of technology enhancements
for its products and operating systems, the impact of competitive products,
services and pricing, customer business requirements, legislation, acquisition
cost savings and revenue enhancements and similar matters. Readers of this
report are cautioned not to place undue reliance on forward-looking statements
which are subject to influence by the named risk factors and unanticipated
future events. Actual results, accordingly, may differ materially from
management expectations.
Item 7.01. Regulation FD Disclosure.
In connection with the execution of the Agreement, First Merchants and
Lincoln jointly issued a press release attached hereto as Exhibit 99.1 and
incorporated herein by reference.
Item 9.01. Financial Statements and Exhibits.
(d) (2.1) Agreement of Reorganization and Merger between First Merchants
Corporation and Lincoln Bancorp dated September 2, 2008.
(10.1) Press Release dated September 3, 2008
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DATE: September 3, 2008.
FIRST MERCHANTS CORPORATION
By: /s/ Mark K. Hardwick
-----------------------
Mark K. Hardwick,
Executive Vice President and
Chief Financial Officer
EXHIBIT INDEX
(2.1) Agreement of Reorganization and Merger between First Merchants
Corporation and Lincoln Bancorp dated September 2, 2008.
(10.1) Press Release dated September 3, 2008
EXHIBIT 2.1
AGREEMENT OF REORGANIZATION AND MERGER
BETWEEN
FIRST MERCHANTS CORPORATION
AND
LINCOLN BANCORP
THIS AGREEMENT OF REORGANIZATION AND MERGER (the "Agreement"), is entered
as of the 2nd day of September, 2008, by and between FIRST MERCHANTS
CORPORATION, an Indiana corporation ("First Merchants") and LINCOLN BANCORP, an
Indiana corporation ("Lincoln").
W I T N E S S E T H:
WHEREAS, First Merchants is a registered bank holding company under the
Bank Holding Company Act of 1956, as amended, with its principal place of
business in Muncie, Delaware County, Indiana and with First Merchants Bank of
Central Indiana, National Association, a national bank ("FMBCI") as its
wholly-owned subsidiary;
WHEREAS, Lincoln is a registered bank holding company under the Bank
Holding Company Act of 1956, as amended, with its principal place of business in
Plainfield, Hendricks County, Indiana, with Lincoln Bank, an Indiana state bank
(the "Bank") as its wholly-owned subsidiary;
WHEREAS, LF Portfolio Services, Inc. ("LF Portfolio") is a corporation duly
organized and existing under the laws of the State of Delaware and is a
wholly-owned subsidiary of the Bank (the "Bank", "LF Portfolio", "LF Service"
(as defined below) and "Citizens" (as defined below) are sometimes collectively
referred to herein as "Subsidiaries")
WHEREAS, it is the desire of First Merchants and Lincoln to effect a series
of transactions whereby (i) Lincoln will merge with and into First Merchants,
(ii) the Bank will merge with and into FMBCI, and (iii) LF Portfolio will become
a wholly-owned subsidiary of FMBCI; and
WHEREAS, a majority of the entire Boards of Directors of First Merchants,
FMBCI, Lincoln and the Bank 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 hereby acknowledged, First Merchants and Lincoln hereby make
this Agreement and prescribe the terms and conditions of the merger of Lincoln
with and into First Merchants and the Bank with and into FMBCI and the mode of
carrying the transactions into effect as follows:
SECTION 1
The Mergers
1.01 Lincoln Merger. Subject to the terms and conditions of this Agreement,
on the Effective Date (as defined in Section 11 hereof), Lincoln shall be merged
with and into First Merchants, which shall be the "Continuing Company" and shall
continue its corporate existence under the laws of the State of Indiana,
pursuant to the provisions of and with the effect provided in the Indiana
Business Corporation Law and particularly Indiana Code Section 23-1-40 (the
"Merger").
1.02 Bank Merger. Subject to the terms and conditions of this Agreement, on
the Effective Date, or another date subsequent thereto, the Bank shall be merged
with and into FMBCI pursuant to the terms and conditions of the Agreement and
Plan of Merger attached hereto as Exhibit A (the "Bank Merger Agreement") and
otherwise in accordance with 12 USC 215a and The Indiana Financial Institutions
Act, as amended, together with any regulations promulgated thereunder (the "Bank
Merger").
1.03 Right to Revise Mergers. First Merchants may, at any time, change the
method of effecting the Merger or the Bank Merger if and to the extent First
Merchants deems such change to be desirable, including, without limitation, to
provide for the merger of Lincoln into a wholly-owned subsidiary of First
Merchants and/or the merger of the Bank and LF Portfolio or either of them into
FMBCI or wholly-owned subsidiaries of First Merchants or FMBCI; 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
Lincoln specified in Section 3 hereof as a result of the Merger, except in
accordance with the terms of Section 3 hereof; (b) adversely affect the tax
treatment to the shareholders of Lincoln; (c) alter or change any of First
Merchant's covenants specified in Section 8 hereof; or (d) 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 Lincoln shall cease and
the Continuing Company shall possess all of the assets of Lincoln and all of its
rights, privileges, immunities, powers, and franchises and shall be subject to
and assume all of the duties and liabilities of Lincoln.
2.02 Name, Offices, and Management. The name of the Continuing Company
shall continue to be "First Merchants Corporation." Its principal office shall
be located at 200 E. Jackson Street, Muncie, Indiana. Except as otherwise
provided in Section 8.07 hereof, the Board of Directors of the Continuing
Company, until such time as their successors have been elected and qualified,
shall consist of the current Board of Directors of First Merchants. The officers
of First Merchants immediately prior to the Effective Date shall continue as the
officers of the Continuing Company.
2.03 Capital Structure. The amount of capital stock of the Continuing
Company shall not be less than the capital stock of First Merchants immediately
prior to the Effective Date increased by the amount of capital stock issued in
accordance with Section 3 hereof.
2.04 Articles of Incorporation and Bylaws. The Articles of Incorporation
and the Bylaws of the Continuing Company shall be those of First Merchants
immediately prior to the Effective Date until the same shall be further amended
as provided by law.
2.05 Assets and Liabilities. The title to all assets, real estate and other
property owned by First Merchants and Lincoln shall vest in the Continuing
Company without reversion or impairment. All liabilities of Lincoln 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 Lincoln or the Subsidiaries, or (b) otherwise carry out
the purposes of this Agreement, Lincoln and the Subsidiaries 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 Lincoln or the Subsidiaries or otherwise
to take any and all such action.
SECTION 3
Consideration To Be
Distributed To Shareholders Of Lincoln
3.01 Consideration. Upon and by reason of the Merger becoming effective,
the shareholders of Lincoln of record on the Effective Date shall be entitled to
receive in exchange for the Lincoln common shares held and at their election
(subject to the limitations and prorations set forth in this Section 3) either
(i) 0.7004 (the "Conversion Ratio") shares of First Merchants' common stock for
each Lincoln common share held ("Share Option"), or (ii) cash in the amount of
$15.76 for each share of Lincoln's common stock held ("Cash Option"), subject to
the provisions and limitations of Section 3.07. A Lincoln shareholder shall be
entitled to elect the Share Option for all shares held of record, the Cash
Option for all shares held of record or the Share Option for a portion of the
shares held of record and the Cash Option for a portion of the shares held of
record. The Conversion Ratio shall be subject to adjustment as set forth in
Sections 3.03 and 3.04.
3.02 No Fractional First Merchants Common Shares. Certificates for
fractional shares of common stock of First Merchants shall not be issued in
respect of fractional interests arising from the Conversion Ratio. Each Lincoln
shareholder who would otherwise have been entitled to a fraction of a First
Merchants share, upon surrender of all such shareholder's certificates
representing Lincoln'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 Lincoln 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 Lincoln shareholder electing the Share Option
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 Termination Rights.
(a) As used in this Section 3.04 and Section 7.11, the term "First
Merchants Average Price" shall mean the average of the closing price of the
common stock of First Merchants as reported in Bloomberg, L.P. for the
twenty (20) days that First Merchants common stock trades on NASDAQ
preceding the fifth (5th) calendar day prior to the Effective Date (the
"Determination Date"). The First Merchants Average Price and the dollar
amounts set forth in Sections 3.04(b) and 3.04(c) shall be appropriately
and proportionately adjusted to reflect any share adjustment as
contemplated by Section 3.03 hereof.
(b) Lincoln 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 $16.50;
subject to the following two provisions. If Lincoln elects to exercise its
right of termination pursuant to the immediately preceding sentence, it
shall give written notice to First Merchants within forty-eight (48) hours
of the Determination Date. Within three 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 $16.50 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 Lincoln of such election
and the revised Conversion Ratio, whereupon no termination shall have
occurred pursuant to this Section 3.04(b) and this Agreement shall remain
in effect in accordance with its terms (except as the Conversion Ratio
shall have been so modified), and any references in this Agreement to
"Conversion Ratio" shall thereafter be deemed to refer to the Conversion
Ratio as adjusted pursuant to this Section 3.04(b).
(c) First Merchants may terminate this Agreement if its Board of
Directors so determines by a vote of a majority of the members of its
entire Board of Directors if the First Merchants Average Price shall be
greater than $30.00; subject 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 Lincoln
within forty-eight (48) hours of the Determination Date. Within three
business days after the date of receipt of such notice, Lincoln shall have
the option of adjusting the Conversion Ratio to equal a number equal to a
quotient, the numerator of which is the product of $30.00 and the
Conversion Ratio (as then in effect) and the denominator of which is the
First Merchants Average Price. If Lincoln 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 (the "Election Form") shall be mailed to
each record holder of Lincoln's common shares as of the record date fixed for
the special shareholders' meeting at which the Merger will be submitted to a
vote of Lincoln'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 Lincoln between the Special Record Date and
the Election Deadline (as defined below). The deadline for receipt of such
Election Forms shall be the close of business on the first business day after
the special meeting at which the Merger will be submitted to a vote of Lincoln's
shareholders, or such other date mutually agreed to by Lincoln and First
Merchants (the "Election Deadline"). The Election Forms shall be mailed to each
record holder of Lincoln'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 Lincoln's shareholders. The Election Form will
permit each holder of record of Lincoln'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 the Share Option, the Cash Option or a
combination of the Share Option and the Cash Option. The Election Form shall
also permit direct deposit of cash in each holder's account in either the Bank
or FMBCI. 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 mutually agreed upon by Lincoln and First Merchants to receive
elections, to receive outstanding Lincoln shares, to deliver cash or cash and
shares of First Merchants' common stock and to carry out the other procedures
set forth herein, on or before 5:00 p.m., Eastern Time, on the Election
Deadline. Lincoln common shares as to which the Share Option has been elected
are referred to in this Agreement as "Stock Election Shares." Lincoln common
shares as to which the Cash Option has been elected are referred to in this
Agreement as "Cash Election Shares." Lincoln common shares as to which no valid
election has been made by the Election Deadline are referred to in this
Agreement as "Non-Electing Shares."
3.06 Election Agent. First Merchants and Lincoln hereby appoint American
Stock Transfer to act as agent (the "Election Agent") of Lincoln's shareholders
for the purposes of mailing and receiving the Election Forms, tabulating the
results and notifying First Merchants and Lincoln of the results.
3.07 Diversity of Payments.
(a) In the event (i) the number of Cash Election Shares would entitle
the holders of such shares (and Lincoln shareholders receiving cash
payments for fractional shares) to receive $16,800,000 or less in cash, and
(ii) the number of Stock Election Shares and Non-Electing Shares would
entitle the holders of such shares to receive 3,576,417 or less shares of
common stock of First Merchants (assuming for such purpose that all
Non-Electing Shares were treated as Stock Election Shares), then all Share
Option and Cash Option elections of the holders of Lincoln's common shares
shall be honored (each in its entirety) and all Non-Electing Shares shall
be treated as Stock Election Shares.
(b) In the event that the amount of cash to be received by holders of
Cash Election Shares and Lincoln shareholders receiving cash payments for
fractional shares pursuant to the terms of the Agreement would result in
cash payments of more than $16,800,000, the Cash Election Shares shall be
converted into Stock Election Shares pro rata (based on the number of Cash
Election Shares held by each Lincoln shareholder) until the total remaining
number of Cash Election Shares is such that the Merger will (i) result in
cash payments of no more than $16,800,000 for Cash Election Shares and
Lincoln shareholders receiving cash payments for fractional shares, and
(ii) satisfy the "continuity of interest" requirement applicable to
tax-free reorganizations under the Code. Cash Election Shares which are not
converted into Stock Election Shares shall remain as Cash Election Shares,
and all Non-Electing Shares shall be treated as Stock Election Shares.
(c) In the event that the number of shares of common stock of First
Merchants to be received by shareholders of Lincoln pursuant to the terms
of the Agreement in respect of Stock Election Shares and Non-Electing
Shares (which, for purposes of this calculation, shall be considered as
Stock Election Shares) exceeds 3,576,417, the Non-Electing Shares shall
first be converted into Cash Election Shares pro rata (based on the number
of Non-Electing Shares held by each Lincoln shareholder), and after all
Non-Electing Shares have been converted into Cash Election Shares, the
Stock Election Shares shall be converted into Cash Election Shares pro rata
(based on the number of Stock Election Shares held by each Lincoln
shareholder) until the total remaining number of Stock Election Shares
(and, if applicable, Non-Electing Shares) is such that the Merger will
(i) result in 3,576,417 shares of First Merchants common stock being issued
to the shareholders of Lincoln for Stock Election Shares and Non-Electing
Shares (if any have not been so converted) or such lesser number of shares
as is required in effecting the adjustment described in this subsection,
and (ii) satisfy the "continuity of interest" requirement applicable to
tax-free reorganizations under the Code. Stock Election Shares which are
not converted into Cash Election Shares shall remain as Stock Election
Shares, and all Non-Electing Shares which are not converted into Cash
Election Shares shall be treated as Stock Election Shares.
(d) Lincoln and First Merchants shall mutually determine the validity
of elections submitted by Lincoln's shareholders.
(e) A holder of Lincoln'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 Lincoln 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 Lincoln may, upon mutual agreement, apply the
adjustments set forth in this Section 3.07 only to such extent and to such
number of Lincoln's shareholders as is necessary to accomplish the
objectives of this Section 3.07 and to assure that the Merger will qualify
as a tax-free reorganization.
(g) Certain shares of common stock of Lincoln are held under The
Lincoln Bank Employee Stock Ownership Plan and 401(k) Savings Plan and
Trust Agreement (the "ESOP"). The Cash Option or Share Option elected with
respect to the shares held by the ESOP shall be subject to the adjustments
described in Sections 3.07(b) and 3.07(c), but only to the extent that no
less than "Adequate Consideration" (as defined below) will be paid to the
ESOP for its Lincoln common shares. Accordingly, the ESOP will participate
in any pro rata adjustment required by Sections 3.07(b) and 3.07(c) until
such adjustment would otherwise cause the ESOP to receive less than
Adequate Consideration, and further adjustments will only be made among the
Lincoln shareholders other than the ESOP. For purposes of this subsection,
"Adequate Consideration" shall be as defined in section 3(18) of Employee
Retirement Income Security Act of 1974, as amended ("ERISA") and the
regulations promulgated thereunder. If the trustee of the ESOP desires
application of this subsection 3.07(g), it shall so instruct First
Merchants in writing on or before the Effective Date, along with its
written determination that failure to apply this subsection would result in
less than "Adequate Consideration" being delivered to the ESOP as provided
herein.
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, First Merchants shall mail to each
Lincoln shareholder a letter of transmittal (the "Letter of Transmittal")
providing instructions as to the transmittal to the conversion agent,
American Stock Transfer (the "Conversion Agent"), of certificates
representing shares of Lincoln's common stock and the issuance of shares of
First Merchants' common stock and cash in exchange therefor pursuant to the
terms of this Agreement. Distribution of stock certificates representing
First Merchants' common stock and cash payments for Lincoln's common stock
and for fractional shares shall be made by First Merchants to each former
shareholder of Lincoln within fifteen (15) business days following the
later of the Effective Date or the date of such shareholder's delivery to
the Conversion Agent of such shareholder's certificates representing
Lincoln common shares, accompanied by a properly completed and executed
Letter of Transmittal. Interest shall not accrue or be payable with respect
to any cash payments.
(c) Following the Effective Date, stock certificates representing
Lincoln's common shares 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 such shareholder's certificates for
Lincoln's common shares to the Conversion Agent in exchange for
certificates representing First Merchants' common stock and/or cash. Upon
surrender or compliance with the provisions of Section 3.08(b), 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 Lincoln of any Lincoln common shares. If, after the
Effective Date, certificates are presented for transfer to Lincoln, 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 Lincoln 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 Lincoln common shares 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 Lincoln's
shareholder with all procedures historically required by Lincoln in
connection with lost, stolen, or destroyed certificates.
SECTION 4
Dissenters' Rights Shareholders of Lincoln are not entitled to dissenters'
rights under Indiana Code Section 23-1-44, as amended, because the shares of
Lincoln common stock are traded on the NASDAQ Global Markets share exchange.
SECTION 5
Representations and
Warranties of Lincoln
Lincoln represents and warrants to First Merchants with respect to itself
and the Subsidiaries as follows (For the purposes of this Section, a "Disclosure
Letter" is defined as the letter referencing Section 5 of this Agreement which
shall be prepared and executed by an authorized executive officer of Lincoln and
delivered to and initialed by an authorized executive officer of First Merchants
contemporaneously with the execution of this Agreement.):
5.01 Organization and Authority. Lincoln is a corporation duly organized
and validly existing under the laws of the State of Indiana, the Bank is a bank
duly organized and validly existing under the laws of the State of Indiana and
LF Portfolio is a corporation duly organized and validly existing under the laws
of the State of Delaware. Lincoln, the Bank and Lincoln's other Subsidiaries
have the power and authority (corporate and otherwise) to conduct their
respective businesses in the manner and by the means utilized as of the date
hereof. Lincoln's only direct subsidiary is the Bank. Other than LF Portfolio
Services, Inc., a Delaware corporation, LF Service Corporation, an Indiana
corporation ("LF Service"), and Citizens Loan and Service Corporation, an
Indiana corporation ("Citizens"), which are wholly-owned Subsidiaries of the
Bank, Lincoln has no indirect Subsidiaries. The Bank is subject to primary
federal regulatory supervision and regulation by the Federal Deposit Insurance
Corporation.
5.02 Authorization.
(a) Lincoln has the corporate power and authority to enter into this
Agreement and to carry out its obligations hereunder, subject to obtaining
certain required regulatory approvals and obtaining shareholder approval.
This Agreement, when executed and delivered, will have been duly authorized
and will constitute a valid and binding obligation of Lincoln, enforceable
in accordance with its terms except to the extent limited by insolvency,
reorganization, liquidation, readjustment of debt or other laws of general
application relating to or affecting the enforcement of creditors' rights.
The Board of Directors of the Bank and Lincoln as its sole shareholder have
approved the Bank Merger pursuant to the terms and conditions of this
Agreement and the Bank Merger Agreement.
(b) Except as set forth in the Disclosure Letter, 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 Lincoln's or any Subsidiary's Articles of
Incorporation or By-Laws; (ii) conflict with, result in a breach of, or
constitute a default under any federal, foreign, state or local law,
statute, ordinance, rule, regulation or court or administrative order or
decree, or any note, bond, indenture, loan, mortgage, security agreement,
contract, arrangement or commitment, to which Lincoln or any Subsidiary is
subject or bound, the result of which would have a Material Adverse Effect;
(iii) result in the creation of, or give any person, corporation or entity
the right to create, any lien, charge, encumbrance, security interest, or
any other rights of others or other adverse interest upon any right,
property or asset of Lincoln or any of the Subsidiaries; (iv) terminate, or
give any person, corporation or entity the right to terminate, amend,
abandon, or refuse to perform, any note, bond, indenture, loan, mortgage,
security agreement, contract, arrangement or commitment to which Lincoln or
any of the Subsidiaries 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, Lincoln or any of the
Subsidiaries is to perform any duties or obligations or receive any rights
or benefits under any note, bond, indenture, loan, mortgage, security
agreement, contract, arrangement or commitment.
For the purpose of this Agreement, and in relation to Lincoln, a
"Material Adverse Effect" means any effect that (i) is material and adverse
to the financial position, results of operations or business of Lincoln and
its Subsidiaries taken taken as a whole, or (ii) would materially impair
the ability of Lincoln to perform its obligations under this Agreement or
otherwise materially threaten or materially impede the consummation of the
Merger and the other transactions contemplated by this Agreement; provided,
however, that Material Adverse Effect shall not be deemed to include the
impact of (a) changes in banking and similar laws of general applicability
to banks or their holding companies or interpretations thereof by courts or
governmental authorities, (b) changes in generally accepted accounting
principles or regulatory accounting requirements applicable to banks or
their holding companies generally, (c) any modifications or changes to
valuation policies and practices in connection with the Merger or
restructuring charges taken in connection with the Merger, in each case in
accordance with generally accepted accounting principles, (d) effects of
any action taken with the prior written consent of First Merchants, (e)
changes in the general level of interest rates (including the impact on
Lincoln's or the Bank's securities portfolios) or conditions or
circumstances relating to or that affect either the United States economy,
financial or securities markets or the banking industry, generally, (f)
changes resulting from expenses (such as legal, accounting and investment
bankers' fees) incurred in connection with this Agreement or the
transactions contemplated herein, including without limitation payment of
any amounts due to, or the provision of any benefits to, any officers or
employees under agreements, plans or other arrangements in existence of or
contemplated by this Agreement and disclosed to First Merchants, (g) the
impact of the announcement of this Agreement and the transactions
contemplated hereby, and compliance with this Agreement on the business,
financial condition or results of operations of Lincoln and its
Subsidiaries, and (h) the occurrence of any military or terrorist attack
within the United States or any of its possessions or offices; provided
that in no event shall a change in the trading price of the Lincoln Common
Stock, by itself, be considered to constitute a Material Adverse Effect on
Lincoln and its Subsidiaries taken as a whole (it being understood that the
foregoing proviso shall not prevent or otherwise affect a determination
that any effect underlying such decline has resulted in a Material Adverse
Effect).
(c) Other than the filing of Articles of Merger with the Indiana
Secretary of State for the Merger and the Bank Merger and in connection or
in compliance with the banking regulatory approvals contemplated by Section
9.04 and federal and state securities laws and the rules and regulations
promulgated thereunder, no notice to, filing with, authorization of,
exemption by, or consent or approval of, any public body or authority is
necessary for the consummation by Lincoln of the transactions contemplated
by this Agreement.
(d) Other than those filings, authorizations, consents and approvals
referenced in Section 5.02(c) above and except as set forth in the
Disclosure Letter, no notice to, filing with, authorization of, exemption
by, or consent or approval of, any third party is necessary for the
consummation by Lincoln or the Bank of the transactions contemplated by
this Agreement.
5.03 Capitalization.
(a) As of the date of this Agreement, Lincoln had 20,000,000 shares of
common stock authorized, without par value, 5,319,731 shares of which are
issued and outstanding. Such issued and outstanding Lincoln common shares
have been duly and validly authorized by all necessary corporate action of
Lincoln, are validly issued, fully paid and nonassessable and have not been
issued in violation of any preemptive rights of any shareholders. Lincoln
has no capital stock authorized, issued or outstanding other than as
described in this Section 5.03(a) and, except as set forth in the
Disclosure Letter, Lincoln has no intention or obligation to authorize or
issue additional shares of its common stock.
(b) As of the date of this Agreement, the Bank has 1,000 shares of
common stock authorized, $.01 par value per share, 1,000 shares of which
are issued and outstanding and held by Lincoln. 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. Except as set forth in the Disclosure
Letter, all the issued and outstanding Bank common stock is owned by
Lincoln, free and clear of all liens, pledges, charges, claims,
encumbrances, restrictions, security interests, options and preemptive
rights and of all other rights of any other person, corporation or entity
with respect thereto. The Bank has no capital stock authorized, issued or
outstanding other than as described in this Section 5.03(b) and has no
intention or obligation to authorize or issue any other shares of capital
stock.
(c) All outstanding shares of capital stock of LF Portfolio are owned
directly by the Bank. Such shares have been duly and validly authorized by
all necessary corporate action, are validly issued, fully paid and
nonassessable, and have not been issued in violation of any preemptive
rights. Such shares are owned by the Bank, free and clear of any 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. LF Portfolio does not have any
other shares of capital stock authorized, issued or outstanding except as
set forth in the Disclosure Letter, and does not have any intention or
obligation to authorize or issue any other shares of capital stock.
(d) All outstanding shares of capital stock of LF Service and Citizens
are owned directly by the Bank. Such shares have been duly and validly
authorized by all necessary corporate action, are validly issued, fully
paid and nonassessable, and have not been issued in violation of any
preemptive rights. Such shares are owned by the Bank, free and clear of any
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. Neither LF
Service nor Citizens have any other shares of capital stock authorized,
issued or outstanding except as set forth in the Disclosure Letter, and
neither LF Service nor Citizens have any intention or obligation to
authorize or issue any other shares of capital stock.
(e) Except as set forth in the Disclosure Letter, there are no
options, commitments, calls, agreements, understandings, arrangements or
subscription rights regarding the issuance, purchase or acquisition of
capital stock, or any securities convertible into or representing the right
to purchase or otherwise receive the capital stock or any debt securities,
of Lincoln nor any Subsidiary by which Lincoln or any Subsidiary is or may
become bound. Neither Lincoln nor any Subsidiary has any outstanding
contractual or other obligation to repurchase, redeem or otherwise acquire
any of its respective outstanding shares of capital stock.
(f) Except as set forth in the Disclosure Letter, no person or entity
beneficially owns 5% or more of Lincoln's outstanding common shares.
5.04 Organizational Documents. The respective Articles of Incorporation and
By-Laws of Lincoln and each Subsidiary have been delivered to First Merchants
and represent true, accurate and complete copies of such corporate documents of
Lincoln and each Subsidiary in effect as of the date of this Agreement.
5.05 Compliance with Law. Except as set forth in the Disclosure Letter,
neither Lincoln nor any Subsidiary has engaged in any activity nor taken or
omitted to take any action which has resulted or, to the knowledge of "Lincoln's
Management" (as defined below) could reasonably be expected to result, in the
violation of any local, state, federal or foreign law, statute, rule, regulation
or ordinance or of any order, injunction, judgment or decree of any court or
government agency or body, the violation of which could reasonably be expected
to have a Material Adverse Effect. Except as set forth in the Disclosure Letter,
Lincoln and each Subsidiary possess all licenses, franchises, permits and other
authorizations necessary for the continued conduct of their respective
businesses without material interference or interruption and such licenses,
franchises, permits and authorizations shall be transferred to First Merchants
on the Effective Date without any restrictions or limitations thereon or the
need to obtain any consents of third parties. None of Lincoln or any of the
Subsidiaries are subject to any agreement or understanding with, or order and
directive of, any regulatory agency or government authority with respect to the
business or operations of Lincoln or any Subsidiary. Except as set forth in the
Disclosure Letter, the Bank has received no inquiries, claims or complaints
since January 1, 2003 from any regulatory agency or government authority
relating to its compliance with the Bank Secrecy Act, the Truth-in-Lending Act,
the Community Reinvestment Act, the Gramm-Leach-Bliley Act of 1999, the USA
Patriot Act, the International Money Laundering Abatement and Financial
Anti-Terrorism Act of 2001, the Sarbanes-Oxley Act of 2002 or any laws with
respect to the protection of the environment or the rules and regulations
promulgated thereunder. Except as set forth in the Disclosure Letter, Lincoln
has received no inquiries, claims or complaints since January 1, 2003 from any
regulatory agency or government authority relating to its compliance with any
securities, tax or employment laws applicable to Lincoln.
5.06 Accuracy of Statements. This Agreement, the Disclosure Letter and any
certificate required to be furnished by Lincoln or any Subsidiary to First
Merchants in connection with this Agreement or any of the transactions
contemplated hereby (including, without limitation, any information which shall
be supplied by Lincoln or any Subsidiary with respect to their businesses,
operations and financial condition for inclusion in the regulatory filings
relating to the Merger or the Bank Merger) do not or shall not contain any
untrue statement of a material fact or do not or shall not 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
Lincoln's Management threatened in any court or before any government agency or
body, arbitration panel or otherwise (nor does Lincoln's Management have any
knowledge of a basis for any claim, action, suit, proceeding, arbitration or
investigation) which could reasonably be expected to have a Material Adverse
Effect. There are no material uncured violations, criticisms or exceptions, or
violations with respect to which material refunds or restitutions may be
required, cited in any report, correspondence or other communication to Lincoln
or any Subsidiary as a result of an examination by any regulatory agency or
body.
5.08 Financial Statements.
(a) Lincoln's consolidated audited balance sheets as of the end of the
two fiscal years ended December 31, 2006 and 2007, the unaudited
consolidated balance sheet for the six months ended June 30, 2008 and the
related consolidated statements of income, shareholders' equity and cash
flows for the years or period then ended (hereinafter collectively referred
to as the "Financial Information") present fairly the consolidated
financial condition or position of Lincoln as of the respective dates
thereof and the consolidated results of operations of Lincoln for the
respective periods covered thereby and have been prepared in conformity
with generally accepted accounting principles applied on a consistent
basis.
(b) All loans reflected in the Financial Information and which have
been made, extended or acquired since June 30, 2008 (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 and interest rate environment in general, the accrual or payment
of Merger-related expenses, or as set forth in the Disclosure Letter, since June
30 2008, no events have occurred, or to the knowledge of Lincoln, can reasonably
be expected to occur, which could reasonably be expected to have a Material
Adverse Effect. Between the period from June 30, 2008 to the date of this
Agreement, Lincoln and each Subsidiary have carried on their respective
businesses in the ordinary and usual course consistent with their past practices
(excluding the incurrence of fees and expenses of professional advisors related
to this Agreement and the transactions contemplated hereby) and there has not
been any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to Lincoln's
common shares (other than normal quarterly cash dividends) or any split,
combination or reclassification of any stock of Lincoln or any Subsidiary or any
issuance or the authorization of any issuance of any securities in respect of,
or in lieu of, or in substitution for Lincoln's common shares.
5.10 Absence of Undisclosed Liabilities. Neither Lincoln nor any Subsidiary
is a party to any agreement, contract, obligation, commitment, arrangement,
liability, lease or license which individually exceeds $100,000 per year or
which may not be terminated within one year from the date of this Agreement,
except (a) unfunded loan commitments made in the ordinary course of the Bank's
business consistent with past practices or (b) as set forth in the Disclosure
Letter, nor to the knowledge of Lincoln's Management 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, Lincoln and each
Subsidiary have good and marketable title in fee simple absolute to all
personal property reflected in the June 30, 2008 Financial Information,
good and marketable title to all other properties and assets which Lincoln
or any Subsidiary purports to own, good and marketable title to or right to
use by terms of any lease or contract all other property used in Lincoln's
or any Subsidiary's business, and good and marketable title to all property
and assets acquired since June 30, 2008, free and clear of all mortgages,
liens, pledges, restrictions, security interests, charges, claims or
encumbrances of any nature, except such minor imperfections of title, if
any, as do not materially detract from the value of or interfere with the
use of the property and which would not have a Material Adverse Effect.
(b) The operation by Lincoln or any Subsidiary of such properties and
assets is in compliance with all applicable laws, ordinances, rules and
regulations of any governmental authority or third party having
jurisdiction over such use except for such noncompliance that would not
have a Material Adverse Effect.
5.12 Loans and Investments.
(a) Except as set forth in the Disclosure Letter, there is no loan of
the Bank in excess of $250,000 that has been classified by Lincoln applying
bank regulatory examination standards as "Other Loans Specially Mentioned,"
"Substandard," "Doubtful" or "Loss," nor is there any loan of the Bank in
excess of $250,000 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 $250,000 that
Lincoln'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 Lincoln's Management, 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 Lincoln or any Subsidiary since June 30, 2008 is
subject to any restrictions, whether contractual or statutory, which
materially impairs the ability of Lincoln or any Subsidiary to dispose
freely of such investment at any time. Except as set forth in the
Disclosure Letter, neither Lincoln nor any Subsidiary is 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 currently maintained, administered or
contributed to by Lincoln or any Subsidiary and covers any employee,
director or former employee or director of Lincoln or any Subsidiary under
which Lincoln or any Subsidiary has any liability. The Disclosure Letter
also contains a list of all "employee benefit plans" as defined under ERISA
which have been terminated by Lincoln or any Subsidiary since January 1,
2002. Copies of such plans (and, if applicable, related trust agreements or
insurance contracts) and all amendments thereto and written interpretations
thereof have been furnished to First Merchants together with the three most
recent annual reports prepared in connection with any such plan and the
current summary plan descriptions. Such plans are hereinafter referred to
individually as a "Lincoln Employee Plan" and collectively as the "Lincoln
Employee Plans." The Lincoln 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 Lincoln 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
Lincoln, any Subsidiary, or a Lincoln Employee Plan. Each Lincoln Employee
Plan has been administered in substantial conformance with such
requirements and all reports and information required with respect to each
Lincoln Employee Plan has been timely filed or 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(c)
of ERISA, for which a notice is required to be filed, has occurred with
respect to any Lincoln Employee Plan Neither Lincoln nor any Subsidiary has
any liability to the Pension Benefit Guaranty Corporation ("PBGC"), to the
Internal Revenue Service ("IRS"), to the Department of Labor ("DOL"), to
the Employee Benefits Security Administration, or to an employee or
Employee Plan beneficiary under Section 502 of ERISA, with respect to any
Lincoln Employee Plan.
(d) No "fiduciary," as defined in Section 3(21) of ERISA, of a Lincoln
Employee Plan has failed to comply with the requirements of Section 404 of
ERISA.
(e) Each of the Lincoln 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, the Retirement Protection Act of 1994, 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, the Internal Revenue Service
Restructuring and Reform Act of 1998, the Community Renewal Tax Relief Act
of 2000, the Economic Growth and Tax Relief Reconciliation Act of 2001, the
age 70-1/2 Code Section 401(a)(9) model amendments required to be adopted
by the end of the 2004 plan year, and any rules, regulations or other
requirements promulgated thereunder (the "Acts"). In addition, each such
Lincoln 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 the automatic rollover rules which became
effective March 28, 2005. Except as set forth in the Disclosure Letter,
Lincoln and/or any Subsidiary, 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 Lincoln Employee Plan that is an "employee pension benefit plan" under
ERISA Section 3(2)(A).
(f) With respect to the Lincoln Bank Employee Stock Ownership Plan and
401(k) Savings Plan and Trust Agreement (the "ESOP"), except as set forth
on the Disclosure Letter: (i) the ESOP constitutes a qualified plan within
the meaning of Section 401(a) of the Code and the trust is exempt from
federal income tax under Section 501(a) of the Code; (ii) the ESOP has been
maintained and operated in substantial compliance in all material respects
with all applicable provisions of Sections 409 and 4975 of the Code and the
regulations and rulings thereunder; (iii) all contributions required by
such plan have been made or will be made on a timely basis; and (iv) no
termination, partial termination or discontinuance of contributions has
occurred without a determination by the IRS that such action does not
affect the tax-qualified status of such ESOP.
(g) Except as set forth in the Disclosure Letter, no Lincoln Employee
Plan has incurred an "accumulated funding deficiency," as determined under
Code Section 412 and ERISA Section 302.
(h) Except as set forth in the Disclosure Letter, no Lincoln Employee
Plan subject to Title IV of ERISA has been terminated or incurred a partial
termination (either voluntarily or involuntarily), in such a way as to
cause material additional liability to Lincoln.
(i) No claims against an Employee Plan, Lincoln or any Subsidiary
(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 Lincoln or any Subsidiary that, individually
or collectively, could give rise to the payment of any amount that would
not be deductible by reason of Section 280G or Section 162(a)(1) of the
Code.
(k) To the knowledge of Lincoln's Management, no event has occurred
that would cause the imposition of the tax described in Code Section 4980B.
To the knowledge of Lincoln's Management, 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 a Lincoln Employee
Plan, (ii) was entered into, maintained or contributed to, as the case may
be, by Lincoln or any Subsidiary and (iii) covers any employee, director or
former employee or director of Lincoln or any Subsidiary. Such contracts,
plans and arrangements as are described above, copies or descriptions of
all of which have been furnished previously to First Merchants, are
hereinafter referred to collectively as the "Lincoln Benefit Arrangements."
Each of the Lincoln 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
Lincoln Benefit Arrangements.
(m) Except as set forth in the Disclosure Letter, neither Lincoln nor
any Subsidiary has any present or future liability in respect of
post-retirement health and medical benefits for former employees or
directors of Lincoln or any Subsidiary.
(n) Except as set forth in the Disclosure Letter, there has been no
amendment to, written interpretation or announcement (whether or not
written) by Lincoln or any Subsidiary relating to, or change in employee
participation or coverage under, any Lincoln Employee Plan or Lincoln
Benefit Arrangement administered by Lincoln or any Subsidiary which would
increase materially the expense of maintaining such Lincoln Employee Plans
or Lincoln Benefit Arrangements above the level of the expense incurred in
respect thereof for the fiscal year ended December 31, 2007.
(o) For purposes of this Section 5.13, references to Lincoln or any
Subsidiary are deemed to include (i) all predecessors of Lincoln or any
Subsidiary, (ii) any subsidiary of Lincoln or any Subsidiary, (iii) all
members of any controlled group (as determined under Code Section 414(b) or
(c)) that includes Lincoln or any Subsidiary, and (iv) all members of any
affiliated service group (as determined under Code Section 414(m) or (n))
that includes Lincoln or any Subsidiary.
(p) With respect to any nonqualified deferred compensation plan that
is subject to Code Section 409A, such plan has been identified on the
Disclosure Letter. The Disclosure Letter shall also identify to what extent
and in what years federal employment taxes (FICA/Medicare) have been paid
on any such nonqualified deferred compensation amounts, as required by Code
Section 3121(v) and the underlying regulations.
5.14 Obligations to Employees. Except as set forth in the Disclosure
Letter, all accrued obligations and liabilities of Lincoln and any Subsidiary,
whether arising by operation of law, by contract or by past custom, for payments
to trust or other funds, to any government agency or body or to any individual
director, officer, employee or agent (or his heirs, legatees or legal
representative) with respect to unemployment compensation or social security
benefits and all pension, retirement, savings, stock purchase, stock bonus,
stock ownership, stock option, restricted stock grant, 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 Lincoln
or any Subsidiary 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 Lincoln or any Subsidiary in accordance with
generally accepted accounting and actuarial principles, except where the failure
to pay any such accrued obligations or liabilities or to maintain adequate
accruals and/or reserves for payment thereof would not have a Material Adverse
Effect. Except as set forth in the Disclosure Letter, all obligations and
liabilities of Lincoln and the Subsidiaries, whether arising by operation of
law, by contract, or by past custom, for all forms of compensation which are or
may be payable to 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 have a Material Adverse Effect. All accruals and
reserves referred to in this Section 5.14 are correctly and accurately reflected
and accounted for in the books, statements and records of Lincoln and the
Subsidiaries, except where the failure to correctly and accurately reflect and
account for such accruals and reserves would not have a Material Adverse Effect.
5.15 Taxes, Returns and Reports. Lincoln and the Subsidiaries 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 all material taxes, assessments
and other governmental charges due and payable or claimed to be due and payable
upon them or any of their income, properties or assets; and (c) not requested an
extension of time for any such payments (which extension is still in force).
Except for taxes not yet due and payable, the reserve for taxes on the Financial
Information is adequate to cover all of Lincoln's and the Subsidiaries' tax
liabilities (including, without limitation, income taxes and franchise fees)
that may become payable in future years with respect to any transactions
consummated prior to June 30, 2008. Neither Lincoln 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 June 30, 2008,
up to and including the Effective Date, except to the extent reflected on their
Financial Information or on financial statements of Lincoln or any Subsidiary
subsequent to such date and as set forth in the Disclosure Letter. Neither
Lincoln nor any Subsidiary is currently under audit by any state or federal
taxing authority. Except as set forth in the Disclosure Letter, neither the
federal, state, nor local tax returns of Lincoln nor any Subsidiary 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, 2003, Lincoln and each Subsidiary have
timely filed all reports, registrations and statements, together with any
required amendments thereto, that Lincoln or any Subsidiary was required to file
with (i) the Indiana Department of Financial Institutions, (ii) the FDIC, or
(iii) any federal, state, municipal or local government, securities, banking,
environmental, insurance and other governmental or regulatory authority, and the
agencies and staffs thereof (collectively, the "Regulatory Authorities"), having
jurisdiction over the affairs of Lincoln or any Subsidiary except where such
failure would not have a Material Adverse Effect. All such reports filed by
Lincoln and the Subsidiaries 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 with
respect to any report or statement filed by, or any examination of, Lincoln or
the Bank.
5.18 Absence of Defaults. Neither Lincoln nor any Subsidiary is in
violation of its charter documents or By-Laws or to the knowledge of Lincoln's
Management in default under any material agreement, commitment, arrangement,
loan, lease, insurance policy or other instrument, whether entered into in the
ordinary course of business or otherwise and whether written or oral, and there
has not occurred any event known to Lincoln's Management that, with the lapse of
time or giving of notice or both, would constitute such a default, except for
defaults which would not have a Material Adverse Effect.
5.19 Tax and Regulatory Matters. Neither Lincoln nor the Bank has taken or
agreed to take any action or has any knowledge of any fact or circumstance that
would (a) prevent the transactions contemplated hereby from qualifying as a
reorganization within the meaning of Section 368 of the Code or (b) materially
impede or delay receipt of any regulatory approval required for consummation of
the transactions contemplated by this Agreement.
5.20 Real Property.
(a) A list of the locations of each parcel of real property owned by
Lincoln 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 Lincoln 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"). A list of
the locations of each parcel of real property leased by Lincoln 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"). Lincoln 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 Lincoln or the Bank as to the
title of or the right to use any of the Real Property.
(c) Except as set forth in the Disclosure Letter, neither Lincoln nor
the Bank has any interest in any other real property except interests as a
mortgagee or any real property acquired in foreclosure or in lieu of
foreclosure and being held for disposition as required by law.
(d) Except as set forth in the Disclosure Letter, (i) none of the
buildings, structures or other improvements located on the Owned Real
Property encroaches upon or over any adjoining parcel of real estate or any
easement or right-of-way or "setback" line and all such buildings,
structures; and (ii) improvements are located and constructed in conformity
with all applicable zoning ordinances and building codes.
(e) Except as set forth in the Disclosure Letter, (i) none of the
buildings, structures or improvements located on the Owned Real Property
are the subject of any official complaint or notice by any governmental
authority of violation of any applicable zoning ordinance or building code;
and (ii) there is no zoning ordinance, building code, use or occupancy
restriction or condemnation action or proceeding pending, or, to the best
knowledge of Lincoln's Management, threatened, with respect to any such
building, structure or improvement. Except as set forth in the Disclosure
Letter, the Real Property is in good condition for its intended purpose,
ordinary wear and tear excepted, and has been maintained (as to the Leased
Property, to the extent required to be maintained by Lincoln or the Bank)
in accordance with reasonable and prudent business practices applicable to
like facilities. The Owned 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, encumbrances, real estate taxes
and assessments or other monetary obligations such as contributions to an
Owner's Association, as do not individually or in the aggregate materially
adversely affect the use or value of the Owned Real Property, Lincoln and
the Bank have, and at the Closing Date will have, good and marketable title
to their respective Owned Real Property, free and clear of all liens,
mortgages, security interests, encumbrances and restrictions of any kind or
character.
(g) Neither Lincoln nor the Bank has caused or allowed the generation,
treatment, storage, disposal or release at any Real Property of any Toxic
Substance, except in compliance with all applicable federal, state and
local laws and regulations and except as set forth in the Disclosure
Letter. "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, (i) there are no
underground storage tanks located on, in or under any Owned Real Property;
and (ii) to the knowledge of Lincoln's Management, no such Owned Real
Property has previously contained an underground storage tank. Neither
Lincoln nor the Bank own or operate any underground storage tank at any
Leased Real Property and to the knowledge of Lincoln's Management no such
Leased Real Property has previously contained an underground storage tank.
No Owned Real Property is or has been, during Lincoln's ownership, listed
on the CERCLIS.
(i) To the knowledge of Lincoln's Management and as a result of any
act of Lincoln or the Bank, no Toxic Substance has been released, spilled,
discharged or disposed at, in, on or under any Owned Real Property nor to
the knowledge of Lincoln's Management are there any other conditions or
circumstances affecting any Owned Real Property, in each case, which would
pose a significant risk to the environment or the health or safety of
persons or otherwise pose a material risk of liability for remediation,
corrective action or clean-up.
(j) Except as disclosed in the Disclosure Letter, the Owned Real
Property is not "property" within the definition of Indiana Code
13-11-2-174. Neither Lincoln 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. Section 13-25-3-1 et
seq.).
(k) To the knowledge of Lincoln's Management and as a result of any
act of Lincoln or the Bank, there are no mechanic's or materialman's liens
against the Leased Property, and no unpaid claims for labor performed,
materials furnished or services rendered in connection with constructing,
improving or repairing the Leased Property in respect of which liens may or
could be filed against the Leased Property.
5.21 Securities Law Compliance. Lincoln's common shares are traded on the
NASDAQ Global Market under the symbol of "LNCB." Lincoln has complied in all
material respects with all state, federal or foreign securities laws, statutes,
rules, regulations or orders, injunctions or decrees of any government agency
relating thereto. Lincoln has complied in all material respects with all rules,
regulations, orders, injunctions or decrees of the National Association of
Securities Dealers, Inc. and all entities related or affiliated therewith and
has filed all reports and documents required to be filed with such entities.
Lincoln 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 Lincoln's Annual Report on Form 10-K for the year ended December 31,
2007, and Quarterly Report on Form 10-Q for the quarter ended June 30, 2008,
copies of which have previously been delivered to First Merchants. Except as
would not reasonably be expected to have Material Adverse Effect, 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.
5.22 Broker's or Finder's Fees. Except for Sandler O'Neill Partners, L.P.,
no agent, broker or other person acting on behalf of Lincoln or any Subsidiary
or under any authority of Lincoln or any Subsidiary is or shall be entitled to
any commission, broker's or finder's fee or any other form of compensation or
payment from any of the parties hereto, other than attorneys' or accountants'
fees, in connection with any of the transactions contemplated by this Agreement.
5.23 Shareholder Rights Plan. Except as otherwise provided in Lincoln's
Articles of Incorporation and By-Laws or set forth in the Disclosure Letter,
neither Lincoln nor the Bank has a shareholder rights plan or any other plan,
program or agreement involving, restricting, prohibiting or discouraging a
change in control or merger of Lincoln or the Bank or which may be considered an
anti-takeover mechanism.
5.24 Indemnification Agreements. Except as set forth in the Disclosure
Letter, neither Lincoln nor the Bank is a party to any indemnification,
indemnity or reimbursement agreement, contract, commitment or understanding to
indemnify any present or former director, officer, employee, shareholder or
agent against any liability or hold the same harmless from liability other than
as expressly provided in the Articles of Incorporation or By-Laws of Lincoln and
the Bank.
5.25 Bring Down of Representations and Warranties. All representations and
warranties of Lincoln and the Subsidiaries contained in this Section 5 shall be
true, accurate and correct on and as of the Effective Date except for those
representations and warranties which address matters only as of a particular
date (which shall have been true and correct as of such date) or have been
affected by the transactions contemplated by and specified within the terms of
this Agreement.
5.26 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 Lincoln and the
Subsidiaries and all directors and officers of Lincoln and the Subsidiaries
shall have no further liability with respect thereto unless a court of competent
jurisdiction should determine that any misrepresentation or breach of a warranty
was willfully or intentionally made or is deemed to be fraudulent.
SECTION 6
Representations and
Warranties of First Merchants
First Merchants hereby represents and warrants to Lincoln with respect to itself
and its Subsidiaries as follows (For the purposes of this Section, a "Disclosure
Letter" is defined as a letter referencing Section 6 of this Agreement which
shall be prepared and executed by an authorized executive officer of First
Merchants and delivered to and initialed by an authorized executive officer of
Lincoln contemporaneously with the execution of this Agreement.):
6.01 Organization and Authority. First Merchants is a corporation duly
organized and validly existing under the laws of the State of Indiana and FMBCI
is a national bank duly organized and validly existing under the laws of the
United States of America. Each has the corporate power and authority to conduct
its business in the manner and by the means utilized as of the date hereof.
First Merchants, FMBCI and the other Subsidiaries have the power and authority
(corporate or otherwise) to conduct their respective businesses in the manner
and by the means utilized as of the date hereof. First Merchants' only
subsidiaries are FMBCI and the other entities listed on Exhibit 21 to First
Merchants' Annual Report on Form 10-K as of and for the period ending December
31, 2007 (the "Subsidiaries"). FMBCI is subject to primary federal regulatory
supervision and regulation by the Office of the Comptroller of the Currency.
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
the conditions precedent set forth in Section 9.02. The Agreement, when
executed and delivered, will have been duly authorized and will constitute
a valid and binding obligation of First Merchants, subject to the condition
precedent set forth in Section 9.02 hereof, enforceable in accordance with
its terms, except to the extent limited by insolvency, reorganization,
liquidation, readjustment of debt, or other laws of general application
relating to or affecting the enforcement of creditor's rights. The Board of
Directors of First Merchants and FMBCI have approved the Merger and Bank
Merger pursuant to the terms and conditions of this Agreement and the Bank
Merger Agreement.
(b) Except as set forth in the Disclosure Letter, neither the
execution of this Agreement, nor the consummation of the transactions
contemplated hereby, subject to the condition precedent set forth in
Section 9.02 hereof does or will (i) conflict with, result in a breach of,
or constitute a default under Articles of Incorporation or By-laws of First
Merchants or FMBCI; (ii) conflict with, result in a breach of, or
constitute a default under any federal, foreign, state, or local law,
statute, ordinance, rule, regulation, or court or administrative order or
decree, or any note, bond, indenture, loan, mortgage, security agreement,
contract, arrangement, or commitment, to which First Merchants or any
Subsidiary is subject or bound, the result of which would have a Material
Adverse Effect; (iii) result in the creation of, or give any person,
corporation or entity the right to create, any lien, charge, encumbrance,
security interest, or any other rights of others or other adverse interest
upon any right, property or asset of either First Merchants or any
Subsidiary; (iv) terminate, or give any person, corporation or entity the
right to terminate, amend, abandon, or refuse to perform, any note, bond,
indenture, mortgage, security agreement, contract, arrangement, or
commitment to which First Merchants or any Subsidiary is a party or by
which First Merchants or any Subsidiary 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 or any Subsidiary is to perform any duties or obligations or
receive any rights or benefits under any note, bond, indenture, loan,
mortgage, security agreement, contract, arrangement, or commitment.
For the purpose of this Agreement, and in relation to First Merchants,
a "Material Adverse Effect" means any effect that (i) is material and
adverse to the financial position, results of operations or business of
First Merchants and its Subsidiaries taken as a whole, or (ii) would
materially impair the ability of First Merchants to perform its obligations
under this Agreement or otherwise materially threaten or materially impede
the consummation of the Merger and the other transactions contemplated by
this Agreement; provided, however, that Material Adverse Effect shall not
be deemed to include the impact of (a) changes in banking and similar laws
of general applicability to banks or their holding companies or
interpretations thereof by courts or governmental authorities, (b) changes
in generally accepted accounting principles or regulatory accounting
requirements applicable to banks or their holding companies generally, (c)
any modifications or changes to valuation policies and practices in
connection with the Merger or restructuring charges taken in connection
with the Merger, in each case in accordance with generally accepted
accounting principles, (d) effects of any action taken with the prior
written consent of Lincoln, (e) changes in the general level of interest
rates (including the impact on First Merchant's or FMBCI's securities
portfolios) or conditions or circumstances relating to or that affect the
United States economy, financial or securities markets or the banking
industry, generally, (f) changes resulting from expenses (such as legal,
accounting and investment bankers' fees) incurred in connection with this
Agreement or the transactions contemplated herein, (g) the impact of the
announcement of this Agreement and the transactions contemplated hereby,
and compliance with this Agreement on the business, financial condition or
results of operations of First Merchants and its Subsidiaries, and (h) the
occurrence of any military or terrorist attack within the United States or
any of its possessions or offices; provided that in no event shall a change
in the trading price of the First Merchants Common Stock, by itself, be
considered to constitute a Material Adverse Effect on First Merchants and
its Subsidiaries taken as a whole (it being understood that the foregoing
proviso shall not prevent or otherwise affect a determination that any
effect underlying such decline has resulted in a Material Adverse Effect).
(c) Other than in connection or in compliance with the provisions of
the Bank Holding Company Act of 1956, the Bank Merger Act, federal and
state securities laws, and applicable federal and Indiana banking statutes
and Indiana corporate statutes, all as amended, and the rules and
regulations promulgated thereunder, no notice to, filing with,
authorization of, exemption by, or consent or approval of, any public body
or authority is necessary for the consummation by First Merchants or FMBCI
of the transactions contemplated by this Agreement.
(d) Other than those filings, authorizations, consents and approvals
referenced in Section 6.02(c) above and filings and approvals relating to
the listing of the shares of First Merchants common stock to be issued in
the Merger on the NASDAQ Global Select Market, certain other filings and
approvals with NASDAQ relating to the change in the number of shares of
First Merchants outstanding as a result of the Merger, and except as set
forth on the Disclosure Letter, no notice to, filing with, authorization
of, execution by, or consent or approval of, any third party is necessary
for the consummation by First Merchants or FMBCI of the transactions
contemplated by this Agreement.
6.03 Capitalization.
(a) As of July 31, 2008, First Merchants had 50,000,000 shares of
common stock authorized, no par value, of which 18,272,085 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 duly authorized, fully paid, validly issued and
nonassessable and subject to no preemptive rights.
(d) As of the date of this Agreement, FMBCI has 114,000 shares of
common stock authorized, $10 par value per share, 114,000 shares of which
are issued and outstanding and held by First Merchants. Such issued and
outstanding shares of FMBCI common stock have been duly and validly
authorized by all necessary corporate action of the FMBCI, are validly
issued, fully paid and nonassessable, and have not been issued in violation
of any preemptive rights of any FMBCI shareholders. All the issued and
outstanding Bank common stock is owned by First Merchants, 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. FMBCI has
no capital stock authorized, issued or outstanding other than as described
in this Section 6.03(d) and has no intention or obligation to authorize or
issue any other shares of capital stock.
(e) Except as set forth in the Disclosure Letter, there are no
options, commitments, calls, agreements, understandings, arrangements or
subscription rights regarding the issuance, purchase or acquisition of
capital stock, or any securities convertible into or representing the right
to purchase or otherwise receive the capital stock or any debt securities,
of First Merchants nor FMBCI by which First Merchants or FMBCI is or may
become bound. Neither First Merchants nor FMBCI has any outstanding
contractual or other obligation to repurchase, redeem or otherwise acquire
any of its respective outstanding shares of capital stock.
(f) Except as set forth in the Disclosure Letter, no person or entity
beneficially owns 5% or more of First Merchants' outstanding common shares.
6.04 Organizational Documents. The respective Articles of Incorporation and
By-Laws of First Merchants and FMBCI have been delivered to Lincoln and
represent true, accurate and complete copies of such corporate documents of
First Merchants and FMBCI in effect as of the date of this Agreement.
6.05 Compliance with Law. Except as set forth in the Disclosure Letter,
neither First Merchants nor any Subsidiary has engaged in any activity nor taken
or omitted to take any action which has resulted or, to the knowledge of "First
Merchants' Management" (as defined below) could reasonably be expected to
result, in the violation of any local, state, federal or foreign law, statute,
rule, regulation or ordinance or of any order, injunction, judgment or decree of
any court or government agency or body, the violation of which could reasonably
be expected to have a Material Adverse Effect. Except as set forth in the
Disclosure Letter, First Merchants and each Subsidiary possess all licenses,
franchises, permits and other authorizations necessary for the continued conduct
of their respective businesses without material interference or interruption.
Neither First Merchants nor any of the Subsidiaries are subject to any agreement
or understanding with, or order and directive of, any regulatory agency or
government authority with respect to the business or operations of First
Merchants or FMBCI. Except as set forth in the Disclosure Letter, FMBCI has
received no inquiries, claims or complaints since January 1, 2003 from any
regulatory agency or government authority relating to its compliance with the
Bank Secrecy Act, the Truth-in-Lending Act, the Community Reinvestment Act, the
Gramm-Leach-Bliley Act of 1999, the USA Patriot Act, the International Money
Laundering Abatement and Financial Anti-Terrorism Act of 2001, the
Sarbanes-Oxley Act of 2002 or any laws with respect to the protection of the
environment or the rules and regulations promulgated thereunder. Except as set
forth in the Disclosure Letter, First Merchants has received no inquiries,
claims or complaints since January 1, 2003 from any regulatory agency or
government authority relating to its compliance with any securities, tax or
employment laws applicable to First Merchants.
6.06 Accuracy of Statements. This Agreement, the Disclosure Letter and any
certificate required to be furnished by First Merchants or any Subsidiary to
Lincoln in connection with this Agreement or any of the transactions
contemplated hereby (including, without limitation, any information which shall
be supplied by First Merchants or any Subsidiary with respect to their
businesses, operations and financial condition for inclusion in the regulatory
filings relating to the Merger or the Bank Merger) do not or shall not contain
any untrue statement of a material fact or do not or shall not omit to state a
material fact necessary to make the statements contained herein or therein not
misleading.
6.07 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 First
Merchants' Management threatened in any court or before any government agency or
body, arbitration panel or otherwise (nor does First Merchants' Management have
any knowledge of a basis for any claim, action, suit, proceeding, arbitration or
investigation) which could reasonably be expected to have a Material Adverse
Effect. There are no material uncured violations, criticisms or exceptions, or
violations with respect to which material refunds or restitutions may be
required, cited in any report, correspondence or other communication to First
Merchants or FMBCI as a result of an examination by any regulatory agency or
body.
6.08 Financial Statements.
(a) First Merchants' consolidated audited balance sheets as of the end
of the two fiscal years ended December 31, 2006 and 2007, the unaudited
consolidated balance sheet for the six months ended June 30, 2008 and the
related consolidated statements of income, shareholders' equity and cash
flows for the years or period then ended (hereinafter collectively referred
to as the "First Merchants Financial Information") present fairly the
consolidated financial condition or position of First Merchants as of the
respective dates thereof and the consolidated results of operations of
First Merchants for the respective periods covered thereby and have been
prepared in conformity with generally accepted accounting principles
applied on a consistent basis.
(b) All loans reflected in the First Merchants Financial Information
and which have been made, extended or acquired since June 30, 2008 (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 FMBCI has
a security interest in collateral or a mortgage securing such loans, are
secured by perfected security interests or mortgages naming FMBCI as the
secured party or mortgagee, except for such unperfected security interests
or mortgages naming FMBCI 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 FMBCI is not
able to enforce any such security interest or mortgage.
6.09 Absence of Certain Changes. Except for events and conditions relating
to the business and interest rate environment in general, the accrual or payment
of Merger-related expenses, or as set forth in the Disclosure Letter, since June
30, 2008, no events have occurred, or to the knowledge of First Merchants'
Management, can reasonably be expected to occur, which could reasonably be
expected to have a Material Adverse Effect. Between the period from June 30,
2008 to the date of this Agreement, First Merchants and each Subsidiary have
carried on their respective businesses in the ordinary and usual course
consistent with their past practices (excluding the incurrence of fees and
expenses of professional advisors related to this Agreement and the transactions
contemplated hereby) and there has not been any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to First Merchants' common shares (other than normal
quarterly cash dividends) or any split, combination or reclassification of any
stock of First Merchants or any Subsidiary or any issuance or the authorization
of any issuance of any securities in respect of, or in lieu of, or in
substitution for First Merchants' common shares.
6.10 Absence of Undisclosed Liabilities. Neither First Merchants nor any
Subsidiary is a party to any agreement, contract, obligation, commitment,
arrangement, liability, lease or license which individually exceeds $100,000 per
year or which may not be terminated within one year from the date of this
Agreement, except (a) unfunded loan commitments made in the ordinary course of
FMBCI's business consistent with past practices or (b) as set forth in the
Disclosure Letter, nor to the knowledge of First Merchants' Management 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.
6.11 Title to Assets.
(a) Except as set forth in the Disclosure Letter, First Merchants and
each Subsidiary have good and marketable title in fee simple absolute to
all personal property reflected in the June 30, 2008 Financial Information,
good and marketable title to all other properties and assets which First
Merchants or any Subsidiary purports to own, good and marketable title to
or right to use by terms of any lease or contract all other property used
in First Merchants' or any Subsidiary's business, and good and marketable
title to all property and assets acquired since June 30, 2008, free and
clear of all mortgages, liens, pledges, restrictions, security interests,
charges, claims or encumbrances of any nature, except such minor
imperfections of title, if any, as do not materially detract from the value
of or interfere with the use of the property and which would not have a
Material Adverse Effect.
(b) The operation by First Merchants or any Subsidiary of its
furniture, fixtures, machinery, equipment, computer software and hardware,
and all other tangible personal property is in compliance with all
applicable laws, ordinances, rules and regulations of any governmental
authority or third party having jurisdiction over such use except for such
noncompliance that would not have a Material Adverse Effect.
6.12 Loans and Investments.
(a) Except as set forth in the Disclosure Letter, there is no loan of
any other Subsidiary in excess of $250,000 that has been classified by
First Merchants applying bank regulatory examination standards as "Other
Loans Specially Mentioned," "Substandard," "Doubtful" or "Loss," nor is
there any loan of FMBCI in excess of $250,000 that has been identified by
accountants or auditors (internal or external) as having a significant risk
of uncollectibility. Any bank Subsidiary's loan watch list and all loans in
excess of $250,000 that First Merchants' 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 First Merchants' Management, 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 First Merchants or any Subsidiary since June 30, 2008
is subject to any restrictions, whether contractual or statutory, which
materially impairs the ability of First Merchants or any Subsidiary to
dispose freely of such investment at any time. Except as set forth in the
Disclosure Letter, neither First Merchants nor any Subsidiary is a party to
any repurchase agreements with respect to securities.
6.13 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 currently maintained, administered or
contributed to by First Merchants or any Subsidiary and covers any
employee, director or former employee or director of First Merchants or any
Subsidiary under which First Merchants or any Subsidiary has any liability.
The Disclosure Letter also contains a list of all "employee benefit plans"
as defined under ERISA which have been terminated by First Merchants or any
Subsidiary since January 1, 2002. 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 Lincoln together
with the three most recent annual reports prepared in connection with any
such plan and the current summary plan descriptions. Such plans are
hereinafter referred to individually as a "First Merchants Employee Plan"
and collectively as the "First Merchants Employee Plans." The First
Merchants Employee Plans which individually or collectively would
constitute an "employee pension benefit plan" as defined in Section 3(2)(A)
of ERISA are identified in the list referred to above.
(b) The First Merchants 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
First Merchants, any Subsidiary, or an First Merchants Employee Plan. Each
First Merchants Employee Plan has been administered in substantial
conformance with such requirements and all reports and information required
with respect to each First Merchants Employee Plan has been timely filed or
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(c)
of ERISA, for which a notice is required to be filed, has occurred with
respect to any First Merchants Employee Plan. Neither First Merchants nor
any Subsidiary has any liability to the PBGC, to the IRS, to the DOL, to
the Employee Benefits Security Administration, or to an employee or First
Merchants Employee Plan beneficiary under Section 502 of ERISA, with
respect to any First Merchants Employee Plan.
(d) No "fiduciary," as defined in Section 3(21) of ERISA, of a First
Merchants Employee Plan has failed to comply with the requirements of
Section 404 of ERISA.
(e) Each of the First Merchants 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, the Retirement Protection Act of 1994, 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, the Internal Revenue Service
Restructuring and Reform Act of 1998, the Community Renewal Tax Relief Act
of 2000, the Economic Growth and Tax Relief Reconciliation Act of 2001, the
age 70-1/2 Code Section 401(a)(9) model amendments required to be adopted
by the end of the 2004 plan year, and any rules, regulations or other
requirements promulgated thereunder (the "Acts"). In addition, each such
First Merchants 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 the automatic rollover rules which became
effective March 28, 2005. Except as set forth in the Disclosure Letter,
First Merchants and/or any Subsidiary, 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 Lincoln
copies of the most recent IRS determination letters with respect to any
such First Merchants Employee Plan that is an "employee pension benefit
plan" under ERISA Section 3(2)(A).
(f) Except as set forth in the Disclosure Letter, no First Merchants
Employee Plan has incurred an "accumulated funding deficiency," as
determined under Code Section 412 and ERISA Section 302.
(g) Except as set forth in the Disclosure Letter, no First Merchants
Employee Plan subject to Title IV of ERISA has been terminated or incurred
a partial termination (either voluntarily or involuntarily), in such a way
as to cause material additional liability to First Merchants.
(h) No claims against a First Merchants Employee Plan, First Merchants
or any Subsidiary (other than normal benefit claims), have been asserted or
threatened.
(i) 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 First Merchants or any Subsidiary that,
individually or collectively, could give rise to the payment of any amount
that would not be deductible by reason of Section 280G or Section 162(a)(1)
of the Code.
(j) To the knowledge of First Merchants' Management, no event has
occurred that would cause the imposition of the tax described in Code
Section 4980B. To the knowledge of First Merchants' Management, all
requirements of ERISA Section 601 have been met.
(k) 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 First Merchants
Employee Plan, (ii) was entered into, maintained or contributed to, as the
case may be, by First Merchants or any Subsidiary and (iii) covers any
employee, director or former employee or director of First Merchants or any
Subsidiary. Such contracts, plans and arrangements as are described above,
copies or descriptions of all of which have been furnished previously to
First Merchants, are hereinafter referred to collectively as the "First
Merchants Benefit Arrangements." Each of the First Merchants 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 First Merchants Benefit
Arrangements.
(l) Except as set forth in the Disclosure Letter, neither First
Merchants nor any Subsidiary has any present or future liability in respect
of post-retirement health and medical benefits for former employees or
directors of First Merchants or FMBCI.
(m) Except as set forth in the Disclosure Letter, there has been no
amendment to, written interpretation or announcement (whether or not
written) by First Merchants or any Subsidiary relating to, or change in
employee participation or coverage under, any First Merchants Employee Plan
or First Merchants Benefit Arrangement administered by First Merchants or
any Subsidiary which would increase materially the expense of maintaining
such First Merchants Employee Plans or First Merchants Benefit Arrangements
above the level of the expense incurred in respect thereof for the fiscal
year ended December 31, 2007.
(n) For purposes of this Section 6.13, references to First Merchants
or any Subsidiary are deemed to include (i) all predecessors of First
Merchants or any Subsidiary, (ii) any subsidiary of First Merchants or any
Subsidiary, (iii) all members of any controlled group (as determined under
Code Section 414(b) or (c)) that includes First Merchants or any
Subsidiary, and (iv) all members of any affiliated service group (as
determined under Code Section 414(m) or (n)) that includes First Merchants
or any Subsidiary.
(o) With respect to any nonqualified deferred compensation plan that
is subject to Code Section 409A, such plan has been identified on the
Disclosure Letter. The Disclosure Letter shall also identify to what extent
and in what years federal employment taxes (FICA/Medicare) have been paid
on any such nonqualified deferred compensation amounts, as required by Code
Section 3121(v) and the underlying regulations.
6.14 Obligations to Employees. Except as set forth in the Disclosure
Letter, all accrued obligations and liabilities of First Merchants and any
Subsidiary, whether arising by operation of law, by contract or by past custom,
for payments to trust or other funds, to any government agency or body or to any
individual director, officer, employee or agent (or his heirs, legatees or legal
representative) with respect to unemployment compensation or social security
benefits and all pension, retirement, savings, stock purchase, stock bonus,
stock ownership, stock option, restricted stock grant, 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 First
Merchants or any Subsidiary 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 First Merchants or any Subsidiary
in accordance with generally accepted accounting and actuarial principles,
except where the failure to pay any such accrued obligations or liabilities or
to maintain adequate accruals and/or reserves for payment thereof would not have
a Material Adverse Effect. Except as set forth in the Disclosure Letter, all
obligations and liabilities of First Merchants and any Subsidiary, 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 have a Material Adverse
Effect. All accruals and reserves referred to in this Section 6.14 are correctly
and accurately reflected and accounted for in the books, statements and records
of First Merchants and any Subsidiary, except where the failure to correctly and
accurately reflect and account for such accruals and reserves would not have a
Material Adverse Effect.
6.15 Taxes, Returns and Reports. First Merchants and its Subsidiaries 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 all material taxes,
assessments and other governmental charges due and payable or claimed to be due
and payable upon them or any of their income, properties or assets; and (c) not
requested an extension of time for any such payments (which extension is still
in force). Except for taxes not yet due and payable, the reserve for taxes on
the Financial Information is adequate to cover all of First Merchants' and the
Subsidiaries' tax liabilities (including, without limitation, income taxes and
franchise fees) that may become payable in future years with respect to any
transactions consummated prior to June 30, 2008. Neither First Merchants nor
FMBCI has or will have, any liability for taxes of any nature for or with
respect to the operation of their business, including the assets of any
Subsidiary, from June 30, 2008, up to and including the Effective Date, except
to the extent reflected on their Financial Information or on financial
statements of First Merchants or any Subsidiary subsequent to such date and as
set forth in the Disclosure Letter. Neither First Merchants nor any Subsidiary
is currently under audit by any state or federal taxing authority. Except as set
forth in the Disclosure Letter, neither the federal, state, nor local tax
returns of First Merchants nor any Subsidiary have been audited by any taxing
authority during the past five (5) years.
6.16 Deposit Insurance. The deposits of FMBCI are insured by the FDIC in
accordance with the Federal Deposit Insurance Act, and FMBCI has paid all
premiums and assessments with respect to such deposit insurance.
6.17 Reports. First Merchants and each Subsidiary have timely filed all
reports, registrations and statements, together with any required amendments
thereto, that they were required to file with the Regulatory Authorities, having
jurisdiction over the affairs of First Merchants or any Subsidiary, except where
such failure would not have a Material Adverse Effect. All such reports filed by
First Merchants and the Subsidiaries 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 with respect to any report or statement filed by, or any examination
of, First Merchants or FMBCI.
6.18 Absence of Defaults. Neither First Merchants nor any Subsidiary is in
violation of its Articles of Incorporation or By-Laws or the knowledge of First
Merchants Management 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 known to First Merchants' Management that, with
the lapse of time or giving of notice or both, would constitute such a default,
except for defaults which would not have a Material Adverse Effect.
6.19 Tax and Regulatory Matters. Neither First Merchants nor FMBCI has
taken or agreed to take any action or has any knowledge of any fact or
circumstance that would (a) prevent the transactions contemplated hereby from
qualifying as a reorganization within the meaning of Section 368 of the Code or
(b) materially impede or delay receipt of any regulatory approval required for
consummation of the transactions contemplated by this Agreement.
6.20 Real Property.
(a) A list of the locations of each parcel of real property owned by
First Merchants or FMBCI (other than real property acquired in foreclosure
or in lieu of foreclosure in the course of the collection of loans and
being held by First Merchants or FMBCI 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"). A list of the locations of each parcel of real property leased
by First Merchants or FMBCI 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"). First Merchants 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 First Merchants or FMBCI as
to the title of or the right to use any of the Real Property.
(c) Neither First Merchants nor FMBCI 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) Except as set forth in the Disclosure Letter, (i) none of the
buildings, structures or other improvements located on the Owned Real
Property encroaches upon or over any adjoining parcel of real estate or any
easement or right-of-way or "setback" line and all such buildings,
structures; and (ii) improvements are located and constructed in conformity
with all applicable zoning ordinances and building codes.
(e) Except as set forth in the Disclosure Letter, (i) none of the
buildings, structures or improvements located on the Owned Real Property
are the subject of any official complaint or notice by any governmental
authority of violation of any applicable zoning ordinance or building code;
and (ii) there is no zoning ordinance, building code, use or occupancy
restriction or condemnation action or proceeding pending, or, to the best
knowledge of First Merchants' Management, threatened, with respect to any
such building, structure or improvement. Except as set forth in the
Disclosure Letter, the Real Property is in good condition for its intended
purpose, ordinary wear and tear excepted, and has been maintained (as to
the Leased Property, to the intent required to be maintained by First
Merchants or FMBCI) in accordance with reasonable and prudent business
practices applicable to like facilities. The Owned 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, encumbrances, real estate taxes
and assessments or other monetary obligations such as contributions to an
Owner's Association, as do not individually or in the aggregate materially
adversely affect the use or value of the Owned Real Property, First
Merchants and FMBCI have, and at the Closing Date will have, good and
marketable title to their respective Owned Real Property, free and clear of
all liens, mortgages, security interests, encu]]>