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Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
dated as of
TABLE OF CONTENTS
AGREEMENT AND PLAN OF MERGER , dated as of October 31, 2005 (this “Agreement” ), by and between Mercantile Financial Corporation, a unitary thrift holding company organized under the laws of the State of Ohio ( “Mercantile”) and Peoples Community Bancorp Inc., a Maryland corporation ( “PCBI” ).
A. Mercantile . Mercantile is a unitary thrift holding company organized under the laws of the State of Ohio, having its principal place of business in Cincinnati, Ohio. Mercantile Savings Bank (“Mercantile Bank”) is an Ohio chartered stock savings and loan association and wholly owned subsidiary of Mercantile.
B. PCBI . PCBI is a Maryland corporation, having its principal place of business in West Chester, Ohio. Peoples Community Bank (“Peoples Bank”) is a federally-chartered stock savings bank and wholly owned subsidiary of PCBI.
C. Mergers; Board Action . The respective Boards of Directors of each of PCBI and Mercantile have determined that it is in the best interests of their respective companies and their respective shareholders to consummate the strategic business combinations provided for herein.
D. Intentions of the Parties . It is the intention of the parties to this Agreement that the business combinations contemplated hereby shall be treated as a “reorganization” under Section 368 of the Internal Revenue Code of 1986, as amended (the “ Code ”).
E. As a condition and inducement to the willingness of PCBI to enter into this Agreement, certain stockholders of Mercantile (the “Mercantile Stockholders”) are concurrently entering into a Stockholder Agreement with PCBI (the “Stockholder Agreement”), in substantially the form attached hereto as Exhibit A, pursuant to which, among other things, such shareholders agree to vote their shares of Mercantile Common Shares (as defined below) in favor of this Agreement and the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants, representations, warranties and agreements contained herein the parties agree as follows:
Certain Definitions
1.01 Certain Definitions . The following terms are used in this Agreement with the meanings set forth below:
“Acquisition Proposal” means any tender or exchange offer, proposal for a merger, consolidation or other business combination involving Mercantile or Mercantile Bank or any proposal or offer to acquire in any manner a substantial equity interest in, or a substantial portion of the assets or deposits of, Mercantile
or Mercantile Bank, other than the Merger and the related transactions contemplated by this Agreement.
“Agreement” means this Agreement, as amended or modified from time to time in accordance with Section 9.02.
“Agreement to Merge” has the meaning set forth in Section 2.02.
“Average PCBI Price” means the arithmetic mean of the PCBI Prices for the period beginning the day following the date of this Agreement and ending on the day which is the fifth (5 th ) trading day prior to the Effective Date (the “Valuation Period”).
“Average Peer Group Price” means the arithmetic mean of the Peer Group Prices for the Valuation Period.
“Book Value” means the value at which a Fixed Asset is carried on the balance sheet of Mercantile or Mercantile Bank as of the date of sale of such Fixed Asset.
“Business Day” means any day other than a Saturday, Sunday, a legal holiday or a day on which banks located in Cincinnati, OH are authorized or required by government action to close.
“Change in Control” means the sale or disposition of PCBI or Peoples Bank, in a single transaction or a series of related transactions, to one or more Persons, pursuant to which any Person or group of associated, affiliated or related Persons acquires more than 25% of the outstanding common stock of PCBI or Peoples Bank constituting a controlling interest in PCBI or Peoples Bank, or all or substantially all of the consolidated assets of PCBI or Peoples Bank (including, without limitation, by merger, consolidation, recapitalization, reorganization, or otherwise).
“Closing” has the meaning set forth in Section 2.03.
“Closing Date” has the meaning set forth in Section 2.03.
“Code” means the Internal Revenue Code of 1986, as amended.
“Compensation and Benefit Plans” has the meaning set forth in Section 5.03(m)(i).
“Consultants” has the meaning set forth in Section 5.03(m)(i).
“ Conversion Date ” means the date on which data and information on the computer systems of Mercantile and Mercantile Bank are converted to the computer systems of PCBI and Peoples Bank.
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“Department” means the Maryland State Department of Assessments and Taxation.
“Derivative Transaction” means any swap transaction, option, warrant, forward purchase or sale transaction, futures transaction, cap transaction, floor transaction or collar transaction relating to one or more currencies, commodities, bonds, equity securities, loans, interest rates, catastrophic events, weather-related events, credit-related events or conditions or any indexes, or any other similar transaction (including any option with respect to any of these transactions) or combination of any of these transactions, including collateralized mortgage obligations or other similar instruments or any debt of equity instruments evidencing or embedding any such types of transactions, and any related credit support, collateral or other similar arrangements related to such transactions; provided, however, that Derivative Transactions shall not include forward sales contracts between Mercantile Bank and the Federal Home Loan Mortgage Corporation (Freddie Mac) with respect to residential real estate loans.
“Directors” has the meaning set forth in Section 5.03(m)(i).
“Disclosure Schedule” has the meaning set forth in Section 5.01.
“Dissenting Shares” means any shares of Mercantile Common Shares held by a holder who properly demands and perfects appraisal rights with respect to such shares in accordance with applicable provisions of the OGCL.
“DOL” has the meaning set forth in Section 5.03(m)(iii).
“Effective Date” means the date on which the Effective Time occurs.
“Effective Time” means the effective time of the Merger, as provided for in Section 2.04.
“Employees” has the meaning set forth in Section 5.03(m)(i).
“Environmental Laws” means all applicable local, state and federal environmental, health and safety laws and regulations, including the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation, and Liability Act, the Clean Water Act and the Federal Clean Air Act, each as amended, regulations promulgated thereunder, and state counterparts.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.
“Exchange Agent” has the meaning set forth in Section 3.05(a).
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“Exchange Fund” has the meaning set forth in Section 3.05(a).
“ FDIC ” means the Federal Deposit Insurance Corporation.
“Fixed Assets” means tangible property owned by Mercantile or Mercantile Subsidiaries and used in the operation of the business of Mercantile but not expected to be consumed or converted into cash in the ordinary course of events, including, but not limited to, leasehold improvements, improved real property and furniture, fixtures and equipment.
“GAAP” means generally accepted accounting principles.
“Governmental Authority” means any court, administrative agency or commission or other federal, state or local governmental authority or instrumentality.
“Hazardous Substance” means any substance that is (i) listed, classified or regulated pursuant to any Environmental Law, (ii) any petroleum product or by-product, asbestos-containing materials, lead-containing paint or plumbing, polychlorinated biphenyls, radioactive materials or radon or (iii) any other substance which is the subject of regulatory action by any Governmental Authority in connection with any Environmental Law.
“IRS” has the meaning set forth in Section 5.03(m)(ii).
The term “knowledge” means, with respect to PCBI or Mercantile, information or facts that are actually known, or should be known by: (i) any officer of either party with the title of not less than a senior vice president, or (ii) any director of either party.
“Lien” means any charge, mortgage, pledge, security interest, restriction, claim, lien, or encumbrance.
“Material Adverse Effect” means, with respect to PCBI or Mercantile, any effect that (i) is material and adverse to the financial position, results of operations or business of PCBI and its Subsidiaries taken as a whole or Mercantile and its Subsidiaries taken as a whole, respectively, or (ii) would materially impair the ability of either PCBI or Mercantile 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 or interpretations thereof by courts or governmental authorities or other changes affecting depository institutions generally, including changes in general economic conditions and changes in prevailing interest and deposit rates, (b) any modifications or changes to valuation policies and practices in connection with the Merger or restructuring charges taken in connection with the
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Merger, in each case in accordance with GAAP, or with respect to Mercantile Bank, in accordance with applicable regulatory accounting principles, (c) changes resulting from expenses (such as legal, accounting and investment bankers’ fees and fees resulting from termination of or modification of contracts) incurred in connection with this Agreement or the transactions contemplated herein, (d) actions or omissions of a party which have been waived in accordance with Section 9.02 hereof.
“Mercantile” has the meaning set forth in the preamble to this Agreement.
“Mercantile Articles” means the Articles of Incorporation of Mercantile, as amended.
“Mercantile Bank” has the meaning set forth in Recital A.
“Mercantile Board” means the Board of Directors of Mercantile.
“Mercantile Code” means the Code of Regulations of Mercantile.
“Mercantile Common Shares” means the common shares, without par value, of Mercantile.
“Mercantile Financial Statements” has the meaning set forth in Section 5.01(g)(i).
“Mercantile Meeting” has the meaning set forth in Section 6.02.
“Mercantile Subsidiary” or, collectively, “Mercantile Subsidiaries” means each of Mercantile Savings Bank, Mercantile Service Corporation, an Ohio corporation, and Mercantile Bancorp., an Ohio corporation.
“Merger” collectively refers to the Parent Merger and the Subsidiary Merger, as set forth in Section 2.02.
“Merger Consideration” has the meaning set forth in Section 3.01.
“MGCL” means the Maryland General Corporation Law.
“New Certificate” has the meaning set forth in Section 3.05(a).
“OGCL” means the Ohio General Corporation Law, as amended.
“Old Certificate ” has the meaning set forth in Section 3.05(a).
“ Ownership Interest ” means a fraction, the numerator of which is the number of shares of Mercantile Common Shares owned by a holder of Mercantile Common Shares and the denominator of which is the total number of shares of Mercantile Common Shares outstanding.
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“OTS” means The Office of Thrift Supervision.
“Parent Merger” has the meaning set forth in Section 2.01.
“PBGC” means the Pension Benefit Guaranty Corporation.
“PCBI” has the meaning set forth in the preamble to this Agreement.
“PCBI Articles” means the Articles of Incorporation of PCBI, as amended.
“ PCBI Balance Sheet Date ” means June 30, 2005.
“PCBI Board” means the Board of Directors of PCBI.
“PCBI Bylaws” means the Bylaws of PCBI, as amended.
“PCBI Common Shares” means the common shares, par value $.01 per share, of PCBI.
“ PCBI ERISA Affiliate ” means any corporation, trade or business that is, along with PCBI or any of its Subsidiaries, a member of a controlled group of corporations or a group of trades or businesses (whether or not incorporated) that are under common control, as described in Sections 414(b) and 414(c) of the Code and the regulations issued thereunder, respectively, or Section 4001 of ERISA.
“ PCBI Financial Statements ” means, collectively, the audited consolidated financial statements of PCBI, consisting of consolidated statements of financial condition as of September 30, 2004, 2003 and 2002 and the related consolidated statements of earnings, shareholders’ equity and cash flows for the three years then ended, including the related notes and reports thereon of PCBI’s auditor, and the unaudited interim consolidated statements of Peoples Bank, consisting of consolidated statements of financial condition as of June 30, 2005, the related unaudited consolidated statements of earnings, cash flows, including the related notes thereto, for the nine months ended June 30, 2005.
“ PCBI Price ” means either (i) the price per share of the last sale of PCBI Common Shares or (ii) as to those trading days in which no sales of PCBI Common Shares are made, the average of the bid and ask price for a PCBI Common Share, all as reported on NASDAQ at the close of the trading days by the NASD.
“PCBI SEC Documents” has the meaning set forth in Section 5.04(g)(i).
“Peoples Bank” has the meaning set forth in Recital B.
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“Peer Group” means: (i) First Place Financial Corp. (FPFC) of Warren, Ohio, (ii) First Defiance Financial (FDEF) of Defiance, Ohio, (iii) PVF Capital Corp. (PVFC) of Solon, Ohio, (iv) Wayne Savings Bancshares (WAYN) of Wooster, Ohio, (v) Perpetual Federal Savings Bank (PFOH) of Urbana, Ohio, (vi) Northern Savings & Loan Co (NLVS) of Elyria, Ohio, (vii) First Franklin Corp. (FFHS) of Cincinnati, Ohio, and (viii) Home City Financial Corp. (HCFC) of Springfield, OH; provided, however , that any member of the Peer Group that is, or has entered into an agreement or publicly announced discussions to be, acquired by or merged into another financial institution prior to the Effective Date, shall be deemed to have been removed from the Peer Group prior to the date of this Agreement.
“Peer Group Price” means arithmetic mean of the price per share of the last sale of common stock of each member of the Peer Group; provided, however, that, as to those trading days in which no sales are made of the common stock of one or more members of the Peer Group (the “No-sale Peer Group Members”), the average of the bid and ask price for each such No-sale Peer Group Member shall be used for purpose of computing the Peer Group Price as described in the first clause in this definition. The price per share and average bid and ask prices referenced above shall be as reported on NASDAQ at the close of the trading days by the NASD.
“Person” means any individual, bank, corporation, partnership, association, joint-stock company, business trust or unincorporated organization.
“Pension Plan” has the meaning set forth in Section 5.03(m)(ii).
“Previously Disclosed” by a party shall mean the information set forth in such party’s Disclosure Schedule.
“ Proxy Statement” has the meaning set forth in Section 6.02.
“Purchase Price Adjustment” has the meaning set forth in Section 3.02.
“Registration Statement” has the meaning set forth in Section 6.03(a).
“Regulatory Authorities” has the meaning set forth in Section 5.03(i).
“Representatives” means, with respect to any Person, such Person’s directors, officers, employees, legal or financial advisors or any representatives of such legal or financial advisors.
“Resulting Bank” has the meaning set forth in Section 2.02.
“Rights” means, with respect to any Person, securities or obligations convertible into or exercisable or exchangeable for, or giving any person any right to subscribe for or acquire, or any options, calls or commitments relating to, or any stock appreciation right or other instrument the value of which is
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determined in whole or in part by reference to the market price or value of, shares of capital stock of such person.
“SEC” means the Securities and Exchange Commission.
“Secretary” means the Secretary of State of the State of Ohio.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations thereunder.
“Subsidiary” has the meaning ascribed to it in Rule 1-02 of Regulation S-X of the SEC.
“Subsidiary Merger” has the meaning set forth in Section 2.02.
“Superintendent” means the Superintendent of Financial Institutions in the State of Ohio.
“Surviving Corporation” has the meaning set forth in Section 2.01.
“Tax” and “Taxes” means all federal, state, local and foreign income, gross income, gross receipts, gains, premium, sales, use, ad valorem, transfer, franchise, profits, withholding, payroll, employment, excise, severance, stamp, occupancy, license, lease, environmental, customs, duties, property, windfall profits and other taxes (including, without limitation, any interest penalties or additions to tax with respect thereto.
“Tax Returns” means all returns, statements, reports and forms (including, without limitation, elections, declarations, disclosures, schedules, estimates and information returns).
“Treasury Shares” shall mean shares of Mercantile Common Shares held by Mercantile or a Mercantile Subsidiary or by PCBI or any of its Subsidiaries, in each case other than in a fiduciary capacity or as a result of debts previously contracted in good faith.
“Valuation Period” has the meaning set forth in the definition of Average PCBI Price.
The Merger
2.01 The Parent Merger . At the Effective Time, Mercantile shall merge with and into PCBI (the “ Parent Merger”), the separate corporate existence of Mercantile shall cease and PCBI shall survive and continue to exist as a Maryland corporation (PCBI, as the surviving corporation in the Parent Merger, sometimes being referred to herein as the “ Surviving Corporation” ). The Parent Merger shall become effective upon the occurrence of the filing of the Certificate of Merger with the Department and the
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Secretary, or such later date and time as may be set forth in such filings. The Parent Merger shall have the effects prescribed in the MGCL and the OGCL.
2.02 The Subsidiary Merger . Pursuant to an agreement to merge (the “ Agreement to Merge ”) to be executed by Peoples Bank and Mercantile Bank and filed with the OTS and the Superintendent, as required, and any other applicable regulatory approval, Mercantile Bank shall merge with and into Peoples Bank (the “Subsidiary Merger”), at the time specified in the Agreement to Merge (which shall not be earlier than the Effective Time). Upon consummation of the Subsidiary Merger, the separate corporate existence of Mercantile Bank shall cease and Peoples Bank shall survive and continue to exist as a federally-chartered stock savings bank (Peoples Bank, as the resulting bank in the Subsidiary Merger, sometimes being referred to herein as the “ Resulting Bank ”). (The Parent Merger and the Subsidiary Merger shall sometimes collectively be referred to as the “ Merger” .)
2.03 Closing of Parent Merger . The Closing of the Parent Merger (the “Closing” ) will take place in the offices of Squire, Sanders & Dempsey L.L.P., 312 Walnut Street, Cincinnati, Ohio, at 10:00 a.m. on the third business day (unless the parties agree to another time or date) after satisfaction or waiver of the conditions set forth in Article VII, other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of those conditions (the “Closing Date” ).
2.04 Effective Date and Effective Time . Subject to the provisions of this Agreement, the parties shall cause the effective date of the Parent Merger (the “ Effective Date”) and the Conversion Date to occur as soon as practicable after the last of the conditions set forth in Article VII shall have been satisfied or waived in accordance with the terms of this Agreement; provided, however, that the Effective Date shall fall: (i) after January 1, 2006, (ii) on or about the Conversion Date; and (iii) before the earlier of (a) the date specified in Section 8.01(c) hereof, or (b) the date after which any Regulatory Authority approval or any extension thereof expires. The time on the Effective Date when the Parent Merger shall become effective is referred to as the “ Effective Time.”
Consideration; Purchase Price Adjustment; Exchange Procedures
3.01 Merger Consideration . Subject to the provisions of this Agreement, at the Effective Time, automatically by virtue of the Parent Merger and without any action on the part of any Person, each share (excluding Treasury Shares and Dissenting Shares) of Mercantile Common Shares issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger, be converted into the right to receive and be exchangeable for an amount of cash and PCBI Common Shares, as described herein, in each case payable on a pro rata basis and subject to the provisions in Section 3.01(a) and (d) hereof. The total consideration payable by PCBI in connection with the Merger shall equal $12.0 million minus the assumed Book Value of Fixed Assets as of the month end immediately preceding the Effective Date (“Purchase Price”), (the
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“ Merger Consideration ”). Such Merger Consideration shall consist of (A) PCBI Common Shares having an aggregate value of $7,700,000 as of the Effective Date (based upon the average (arithmetic mean) closing price for PCBI’s Common Shares for twenty (20) trading days immediately preceding the ten (10) calendar days immediately prior to the Closing Date) (the “ Stock Consideration ”) and (B) cash equal to the Purchase Price minus the sum of the $7.7 million Stock Consideration and $360,838 of severance payments (the “ Cash Consideration ”).
(a) Merger Consideration . Subject to the provisions hereof, as of the Effective Time, each Mercantile shareholder will be entitled to receive his pro rata portion of the Merger Consideration in cash and in PCBI Common Shares, provided, however, that fractional shares will not be issued and cash (payable by wire transfer of immediately available funds or by check) will be paid in lieu thereof as provided in Section 3.04.
(b) Treasury Shares . Mercantile Common Shares held as Treasury Shares immediately prior to the Effective Time shall be canceled and retired at the Effective Time and no consideration shall be issued in exchange therefor.
(c) Outstanding PCBI Common Shares . Each PCBI Common Share issued and outstanding immediately prior to the Effective Time shall remain issued and outstanding and unaffected by the Merger.
3.02 Fixed Assets. As set forth in Section 7.03(c), Mercantile and the Mercantile Subsidiaries shall sell all of their respective Previously Disclosed Fixed Assets in one or more transactions and dividend or otherwise distribute to the shareholders of Mercantile all proceeds of such sales of Fixed Assets, net of all costs and expenses associated with such sales, including but not limited to, any applicable employee bonus payments and all brokerage fees and estimated taxes, including but not limited to income, capital gains and recapture taxes, incurred by Mercantile or the Mercantile Subsidiaries in connection with such sale(s), (the amount of such estimated taxes shall be as calculated by BKD, LLP or such other third party as the parties hereto may mutually agree upon).
3.03 Rights as Shareholders; Share Transfers . At the Effective Time, holders of Mercantile Common Shares shall cease to be, and shall have no rights as, shareholders of Mercantile, other than to receive (i) any dividend or other distribution with respect to such Mercantile Common Shares Previously Disclosed and with a record date occurring prior to the Effective Time, and (ii) the consideration provided under this Article III or appraisal rights in the case of Dissenting Shares. After the Effective Time, there shall be no transfers on the stock transfer books of Mercantile or the Surviving Corporation of any Mercantile Common Shares.
3.04 Fractional Shares . As specified elsewhere in this Agreement, no fractional PCBI Common Shares and no certificates or scrip therefor, or other evidence of ownership thereof, will be issued in the Parent Merger. Instead, PCBI shall pay to each holder of Mercantile Common Shares who would otherwise be entitled to a fractional PCBI Common Share (after taking into account all Old Certificates delivered
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by such holder) an amount in cash (without interest) equal to the value of such fractional share of PCBI Common Shares to which the holder would be entitled.
(a) At or prior to the Effective Time, PCBI shall deposit, or shall cause to be deposited, with Registrar and Transfer Company of Cranford, New Jersey (in such capacity, the “ Exchange Agent”), for the benefit of the holders of certificates formerly representing Mercantile Common Shares (“Old Certificates”), for exchange in accordance with this Article III, certificates, or at PCBI’s option, evidence of shares in book entry form, representing the Stock Consideration (“New Certificates”) and an amount of cash equal to the Cash Consideration (such cash and New Certificates, together with any dividends or distributions with a record date occurring on or after the Effective Date with respect thereto (without any interest on any such cash, dividends or distributions), being hereinafter referred to as the “ Exchange Fund”) to be paid pursuant to this Article III in exchange for outstanding Mercantile Common Shares.
(b) On the Effective Date, PCBI shall send or cause to be sent to each former holder of record of Mercantile Common Shares immediately prior to the Effective Time transmittal materials for use in exchanging such shareholder’s Old Certificates for the consideration set forth in this Article III. PCBI shall cause the New Certificates into which shares of a shareholder’s Mercantile Common Shares are converted on the Effective Date and/or any check in respect of cash to be paid as part of the Merger Consideration and in respect of any fractional share interests or dividends or distributions which such person shall be entitled to receive to be delivered to such shareholder upon delivery to the Exchange Agent of Old Certificates representing such Mercantile Common Shares (or an indemnity affidavit, if any of such certificates are lost, stolen or destroyed) owned by such shareholder. No interest will be paid on any such cash to be paid in lieu of fractional share interests or in respect of dividends or distributions which any such person shall be entitled to receive pursuant to this Article III upon such delivery.
(c) Notwithstanding the foregoing, neither the Exchange Agent, nor any party hereto shall be liable to any former holder of Mercantile Common Shares for any amount properly delivered to a public official pursuant to applicable abandoned property, escheat or similar laws.
(d) No dividends or other distributions with respect to PCBI Common Shares with a record date occurring on or after the Effective Date shall be paid to the holder of any unsurrendered Old Certificate representing PCBI Common Shares converted in the Parent Merger into the right to receive shares of such PCBI Common Shares until the holder thereof shall be entitled to receive New Certificates in exchange therefor in accordance with the procedures set forth in this Section 3.05. After becoming so entitled in accordance with this Section 3.05, the record holder thereof also shall be entitled to receive any such dividends or other distributions, without any interest thereon, which theretofore
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had become payable with respect to shares of PCBI Common Share such holder had the right to receive upon surrender of the Old Certificates.
(e) Any portion of the Exchange Fund that remains unclaimed by the shareholders of Mercantile for one year after the Effective Time shall be paid to PCBI. Any shareholders of Mercantile who have not theretofore complied with this Article III shall thereafter look only to PCBI for payment of the PCBI Common Shares, cash in lieu of any fractional shares and unpaid dividends and distributions on PCBI Common Shares deliverable in respect of each share of Mercantile Common Shares such shareholder holds as determined pursuant to this Agreement, in each case, without any interest thereon.
3.06 Anti-Dilution Provisions and Other Adjustments .
In the event PCBI changes (or establishes a record date for changing) the number of PCBI Common Shares issued and outstanding between the date hereof and the Effective Date as a result of a stock split, stock dividend, recapitalization, reclassification, split up, combination, exchange of shares, readjustment or similar transaction with respect to the outstanding PCBI Common Shares and the record date therefor shall be prior to the Effective Date, the Stock Consideration shall be proportionately adjusted.
Actions Pending Consummation of Merger
4.01 Forbearances of Mercantile . From the date hereof until the Effective Time, except as expressly contemplated by this Agreement, without the prior written consent of PCBI, Mercantile will not, and will cause Mercantile Bank not to:
(a) Ordinary Course. Except as Previously Disclosed, c onduct the business of Mercantile and Mercantile Bank other than in the ordinary and usual course or fail to use reasonable efforts to preserve intact their business organizations and assets and maintain their rights, franchises and existing relations with customers, suppliers, employees and business associates, or voluntarily take any action which, at the time taken, is reasonably likely to have an adverse effect upon Mercantile’s ability to perform any of its material obligations under this Agreement.
(b) Capital Stock. Other than as Previously Disclosed or pursuant to Rights outstanding on the date hereof, (i) issue, sell or otherwise permit to become outstanding, or authorize the creation of, any additional Mercantile Common Shares or any Rights thereto, (ii) enter into any agreement with respect to the foregoing, or (iii) permit any additional Mercantile Common Shares to become subject to new grants of employee or director stock options, other Rights or similar stock-based employee rights.
(c) Dividends, Etc. Except as Previously Disclosed or as contemplated by Section 3.02, (i) make, declare, pay or set aside for payment any dividend, or
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(ii) directly or indirectly adjust, split, combine, redeem, reclassify, purchase or otherwise acquire, any shares of its capital stock.
(d) Compensation; Employment Agreements; Etc. Except as Previously Disclosed, enter into or amend or renew any employment, consulting, severance or similar agreements or arrangements with any director, officer or employee of Mercantile or a Mercantile Subsidiary, or grant any salary or wage increase or increase any benefit (including incentive or bonus payments) under any Compensation and Benefit Plan except (i) for normal individual increases in compensation to employees in the ordinary course of business consistent with past practice, (ii) for other changes that are required by applicable law, or (iii) to satisfy Previously Disclosed contractual obligations existing as of the date hereof.
(e) Benefit Plans. Enter into, establish, adopt or amend (except (i) as may be required by applicable law, (ii) to satisfy Previously Disclosed contractual obligations existing as of the date hereof or (iii) the regular annual renewal of group insurance contracts) any Compensation and Benefit Plan, in respect of any director, officer or employee of Mercantile or Mercantile Bank, or take any action to accelerate the vesting or exercisability of stock options, restricted stock or other compensation or benefits payable thereunder.
(f) Dispositions . Except as Previously Disclosed or as contemplated by Section 3.02, sell, transfer, mortgage, encumber or otherwise dispose of or discontinue any of its material: assets, deposits, business or properties.
(g) Acquisitions . Except as Previously Disclosed, acquire (other than by way of foreclosures or acquisitions of control in a bona fide fiduciary capacity or in satisfaction of debts previously contracted in good faith, in each case in the ordinary and usual course of business, consistent with past practice) all or any portion of, the assets, business, deposits or properties of any other entity.
(h) Governing Documents. Amend the Mercantile Articles, Mercantile Code or the articles of incorporation or bylaws (or similar governing documents) of any of Mercantile’s Subsidiaries.
(i) Accounting Methods . Implement or adopt any change in its accounting principles, practices or methods, including loan loss, depreciation and amortization methodologies, other than as may be required by GAAP, or, with respect to Mercantile Bank, applicable regulatory accounting principles.
(j) Contracts. Except as Previously Disclosed, enter into, terminate, amend or modify in any material respect, any contract with a value in excess of $10,000.
(k) Claims. S ettle any claim, action or proceeding, except for any claim, action or proceeding which does not involve precedent for other material claim, actions or proceedings and which involve solely money damages in an amount not in excess of $10,000.
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(l) Adverse Actions. (a) Take any action while knowing that such action would, or is reasonably likely to, prevent or impede the Merger from qualifying as a reorganization within the meaning of Section 368 of the Code; or (b) knowingly take any action that is intended or is reasonably likely to result in (i) any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect at any time at or prior to the Effective Time, (ii) any of the conditions to the Merger set forth in Article VII not being satisfied or (iii) a material violation of any provision of this Agreement except, in each case, as may be required by applicable law or regulation.
(m) Risk Management. Except pursuant to applicable law or regulation, (i) implement or adopt any material change in its interest rate and other risk management policies, procedures or practices; (ii) fail to follow its existing policies or practices with respect to managing its exposure to interest rate and other risk; or (iii) fail to use commercially reasonable means to avoid any material increase in its aggregate exposure to interest rate risk.
(n) Capital Expenditures. Make any capital expenditures in excess of $10,000 other than pursuant to binding commitments existing on the date hereof, and other than expenditures necessary to maintain existing assets in good repair.
(o) Hiring. Hire any person as an employee of Mercantile or any of its Subsidiaries or promote any employee, except (i) to satisfy contractual obligations existing as of the date hereof and as Previously Disclosed or (ii) persons whose employment is terminable at the will of Mercantile or a Subsidiary of Mercantile, as applicable.
(p) Transactions with Affiliates. Except pursuant to agreements or arrangements in effect on the date hereof or except as Previously Disclosed, pay, loan or advance any amount to, or sell, transfer or lease any properties or assets (real, personal or mixed, tangible or intangible) to, or enter into any agreement or arrangement with, any of its officers or directors or any of their immediate family members or any affiliates or associates (as such terms are defined under the Exchange Act) of any of its officers or directors.
(q) Banking Operations. Enter into any new material line of business; change its material lending, investment, underwriting, risk and asset liability management and other material banking and operating policies, except as required by applicable law, regulation or policies imposed by any governmental authority; or file any application or make any contract with respect to branching or site location or branching or site relocation.
(r) Derivatives Transactions. Enter into any Derivatives Transactions.
(s) Indebtedness. Incur any indebtedness for borrowed money, other than in the ordinary course of business consistent with past practice.
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(t) Investment Securities. Invest in any securities other than United States government or agency securities with a term of one (1) year or less or Federal funds.
(u) Taxes . Except as may be required by applicable laws or regulations, make or change any material tax election, file any material amended tax return, enter into any material closing agreement, settle or compromise any material liability with respect to taxes, or consent to any extension or waiver of the limitation period applicable to any material tax claim or assessment.
(v) Compliance with Agreements. Knowingly commit any act or omission which constitutes a material breach or default by Mercantile or any of its Subsidiaries under any agreement with any governmental authority or under any material contract to which any of them is a party or by which any of them or their respective properties is bound.
(w) Investments in Real Estate. Except as Previously Disclosed with respect to certain real property (the “Other Property”), make any investments or commitment to invest in real estate (other than by way of foreclosure or acquisitions in a bona fide fiduciary capacity or in satisfaction of a debt previously contracted in good faith, in each case in the ordinary course of business consistent with past practice), provided, however, that the commitment with respect to the Other Property shall be subject to the Previously Disclosed binding, non-cancellable take out agreement. In no event may Mercantile take title to the Other Property.
(x) Environmental Assessments. Foreclose on or take a deed or title to any commercial real estate without first conducting a Phase I environmental assessment of the property or foreclose on any such real estate if such environmental assessment indicates that material remediation costs or damages are likely to be incurred with respect to such property under applicable Environmental Laws.
(y) Commitments . Agree or commit to do any of the foregoing.
4.02 Forbearances of PCBI . From the date hereof until the Effective Time, except as expressly contemplated by this Agreement, without the prior written consent of Mercantile, PCBI will not, and will cause each of its Subsidiaries not to:
(a) Ordinary Course. Conduct the business of PCBI and its Subsidiaries other than in the ordinary and usual course or fail to use reasonable efforts to preserve intact their business organizations and assets and maintain their rights, franchises and existing relations with customers, suppliers, employees and business associates, or voluntarily take any action which, at the time taken, is reasonably likely to have an adverse effect upon PCBI’s ability to perform any of its material obligations under this Agreement.
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(b) Acquisitions . Except as Previously Disclosed and except in those circumstances when PCBI shareholder approval is not required by applicable law, regulation, rule or by PCBI’s articles of incorporation, bylaws or similar governing documents, acquire (other than by way of foreclosures or acquisitions of control in a bona fide fiduciary capacity or in satisfaction of debts previously contracted in good faith, in each case in the ordinary and usual course of business, consistent with past practice) all or any portion of, the assets, business, deposits or properties of any other entity.
(c) Governing Documents. Amend the PCBI Articles, PCBI Bylaws or the articles of incorporation or bylaws (or similar governing documents) of any of PCBI’s Subsidiaries, except for ministerial amendments or any amendments relating to a change in the status of the Bank as a federally-chartered savings bank to a different state or federally-chartered savings institution.
(d) Adverse Actions . (a) Take any action while knowing that such action would, or is reasonably likely to, prevent or impede the Merger from qualifying as a reorganization within the meaning of Section 368 of the Code; or (b) knowingly take any action that is intended or is reasonably likely to result in (i) any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect at any time at or prior to the Effective Time, (ii) any of the conditions to the Merger set forth in Article VII not being satisfied or (iii) a material violation of any provision of this Agreement except, in each case, as may be required by applicable law or regulation.
(e) Risk Management . Except pursuant to applicable law or regulation, fail to follow its existing policies with respect to managing its exposure to interest rate risk.
(f) Change in Control. Neither PCBI nor Peoples Bank will consummate a Change in Control transaction prior to the Effective Time.
(g) Commitments . Agree or commit to do any of the foregoing.
Representations and Warranties
5.01 Disclosure Schedules . On or prior to the date hereof, PCBI has delivered to Mercantile a schedule and Mercantile has delivered to PCBI a schedule (respectively, its “ Disclosure Schedule” ) setting forth, among other things, items, the disclosure of which are necessary or appropriate either in response to an express disclosure requirement contained in a provision hereof or as an exception to one or more representations or warranties contained in Section 5.03 or 5.04 or to one or more of its respective covenants contained in Article IV; provided , that (a) no such item is required to be set forth in a Disclosure Schedule as an exception to a representation or warranty if its absence would not be reasonably likely to result in the related representation or warranty being deemed untrue or incorrect under the standard
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established by Section 5.02, and (b) the mere inclusion of an item in a Disclosure Schedule as an exception to a representation or warranty shall not be deemed an admission by a party that such item represents a material exception or fact, event or circumstance or that such item is reasonably likely to have or result in a Material Adverse Effect on the party making the representation. Mercantile’s representations, warranties and covenants contained in this Agreement shall not be deemed to be untrue, incorrect or to have been breached as a result of effects on Mercantile arising solely from actions taken in compliance with a written request of PCBI.
5.02 Standard . No representation or warranty of Mercantile or PCBI contained in Section 5.03 or 5.04 shall be deemed untrue or incorrect, and no party hereto shall be deemed to have breached a representation or warranty, as a consequence of the existence of any fact, event or circumstance unless such fact, circumstance or event, individually or taken together with all other facts, events or circumstances inconsistent with any representation or warranty contained in Section 5.03 or 5.04 has had, or is reasonably likely to have, a Material Adverse Effect.
5.03 Representations and Warranties of Mercantile . Subject to Sections 5.01 and 5.02 and except as Previously Disclosed in a paragraph of its Disclosure Schedule corresponding to the relevant paragraph below, Mercantile hereby represents and warrants to PCBI:
(a) Organization, Standing and Authority . Mercantile is a unitary thrift holding company duly organized, validly existing and in good standing under the laws of the State of Ohio. Mercantile is duly licensed or qualified to do business and is in good standing in any and all foreign jurisdictions where its ownership or leasing of property or assets or the conduct of its business requires it to be so licensed or qualified.
(b) Capital Structure of Mercantile . As of the date hereof, the authorized number of shares of Mercantile is 100,000, all of which are common shares without par value, of which 9,014 are issued and outstanding as of the date hereof. The outstanding Mercantile Common Shares have been duly authorized, are validly issued and outstanding, fully paid, nonassessable and free of preemptive rights. As of the date hereof, except as Previously Disclosed, (i) Mercantile does not have any Rights issued or outstanding with respect to Mercantile Common Shares, and (ii) Mercantile does not have any commitment to authorize, issue or sell any Mercantile Common Shares or Rights, except pursuant to this Agreement. Neither Mercantile nor Mercantile Bank has an option or any other plan pursuant to which Rights to purchase Mercantile Common Shares may be issued.
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(c) Subsidiaries .
(i) Except as Previously Disclosed: (A) Mercantile owns, directly or indirectly, all the issued and outstanding equity securities of each Mercantile Subsidiary, (B) no equity securities of any Mercantile Subsidiary are subject to any Right, (C) there are no contracts, commitments, understandings or arrangements by which a Mercantile Subsidiary is or may be bound to sell or otherwise transfer any of its equity securities, (D) there are no contracts, commitments, understandings, or arrangements relating to Mercantile’s rights to vote or to dispose of such securities, (E) all the equity securities of the Mercantile Subsidiaries held by Mercantile are fully paid and nonassessable and are owned by Mercantile, free and clear of any Liens, and (F) Mercantile Bank is an “insured bank” as defined in the Federal Deposit Insurance Act and applicable regulations thereunder.
(ii) Mercantile does not own beneficially, directly or indirectly, any equity securities or similar interests of any Person, or any interest in a partnership or joint venture of any kind, other than the Mercantile Subsidiaries.
(iii) Each of the Mercantile Subsidiaries has been duly organized and is validly existing in good standing under the laws of the jurisdiction of its organization, and is duly licensed or qualified to do business and in good standing in all jurisdictions where its ownership or leasing of property or its conduct of business requires it to be so licensed or qualified.
(d) Corporate Power; Authorized and Effective Agreement . Except as Previously Disclosed, Mercantile and each Mercantile Subsidiary has full corporate power and authority to carry on its business as it is now being conducted and to own all its properties and assets. Subject to the adoption of this Agreement by the holders of the requisite number of Mercantile Common Shares entitled to vote on this Agreement pursuant to the OGCL and the Mercantile Articles and the approval of this Agreement and the Merger by applicable federal and state banking authorities, (i) Mercantile has the corporate power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the Parent Merger, and (ii) Mercantile Bank has the corporate power and authority to consummate the Subsidiary Merger in accordance with the terms of this Agreement and the Agreement to Merge.
(e) Corporate Authority . Subject to the adoption of this Agreement by the holders of the requisite number of Mercantile Common Shares entitled to vote on this Agreement pursuant to the OGCL, this Agreement and the transactions contemplated hereby have been authorized by all necessary corporate action of Mercantile on or before the date hereof. The Agreement to Merge, when executed by Mercantile Bank, shall have been approved by the Board of Directors of Mercantile Bank and by Mercantile, as the sole shareholder of Mercantile Bank. This Agreement is a valid and legally binding obligation of
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Mercantile, enforceable against Mercantile in accordance with its terms (except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws of general applicability relating to or affecting creditors’ rights or by general equity principles and except to the extent such enforceability may be limited by laws relating to safety and soundness of insured depository institutions as set forth in 12 U.S.C. § 1818(b) or by appointment of a conservator by the FDIC).
(f) Regulatory Filings; No Defaults .
(i) No consents or approvals of, or filings or registrations with, any Governmental Authority or with any third party are required to be made or obtained by Mercantile or Mercantile Bank in connection with the execution, delivery or performance by Mercantile of this Agreement or to consummate the Merger, except as Previously Disclosed and except for (A) filings of applications, notices and the Agreement to Merge, as applicable, with federal and state banking authorities, (B) the filing of the Certificate of Merger with the Department pursuant to the MGCL and (C) the filing of the Certificate of Merger with the Secretary pursuant to the OGCL. Except as Previously Disclosed, as of the date hereof, to Mercantile’s knowledge, the approvals set forth in Section 7.01(b) will be received without the imposition of a condition, restriction or requirement of the type described in Section 7.01(b).
(ii) Subject to receipt of the regulatory and shareholder approvals referred to above, the expiration of regulatory waiting periods and required filings under federal and state securities laws, the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby do not and will not (A) except as Previously Disclosed, constitute a breach or violation of, or a default under, or give rise to any Lien, any acceleration of remedies or any right of termination under, any law, rule or regulation or any judgment, decree, order, governmental permit or license, or agreement, indenture or instrument of Mercantile or of a Mercantile Subsidiary or to which Mercantile or a Mercantile Subsidiary or their properties is subject or bound, (B) constitute a breach or violation of, or a default under, the Mercantile Articles or the Mercantile Code or similar governing documents of any Mercantile Subsidiary or (C) except as Previously Disclosed, require any consent or approval under any such law, rule, regulation, judgment, decree, order, governmental permit or license, agreement, indenture or instrument.
(g) Financial Statements; Material Adverse Effect .
(i) Except as Previously Disclosed, the audited consolidated financial statements of Mercantile, consisting of consolidated statements of financial condition as of December 31, 2004, 2003 and 2002, and the related consolidated statements of earnings, shareholders’ equity and
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cash flows for the three years then ended, including the related notes and the reports thereon of Mercantile’s auditor, and the unaudited interim consolidated statements of Mercantile Bank, consisting of consolidated statements of financial condition as of June 30, 2005, the related unaudited consolidated statements of earnings, shareholders’ equity and cash flows, including the related notes thereto, for the six months ended June 30, 2005, (collectively, all of such audited and unaudited consolidated financial statements are referred to as the “ Mercantile Financial Statements ”), copies of which have been provided or made available to PCBI, have been prepared in accordance with GAAP or, with respect to Mercantile Bank, applicable regulatory accounting principles, and present fairly, in all material respects, the consolidated financial position, earnings, shareholders’ equity and cash flows of Mercantile and the Mercantile Subsidiaries, for the periods then ended.
(ii) Except as Previously Disclosed, since December 31, 2004, (A) Mercantile and each Mercantile Subsidiary has conducted its respective business in the ordinary and usual course consistent with past practice (excluding matters related to this Agreement and the transactions contemplated hereby) and (B) no event has occurred or circumstance arisen that, individually or taken together with all other facts, circumstances and events (described in any paragraph of Section 5.03 or otherwise), is reasonably likely to have a Material Adverse Effect with respect to Mercantile.
(h) Litigation . Except as Previously Disclosed, no litigation, claim or other proceeding before any court or governmental agency is pending against Mercantile or a Mercantile Subsidiary and, to Mercantile’s knowledge, no such litigation, claim or other proceeding has been threatened.
(i) Regulatory Matters .
(i) Except as Previously Disclosed, neither Mercantile, nor any Mercantile Subsidiary is a party to or is subject to any order, decree, agreement, memorandum of understanding or similar arrangement with, or a commitment letter or similar submission to, or extraordinary supervisory letter from, any federal or state governmental agency or authority charged with the supervision or regulation of financial institutions (or their holding companies) or issuers of securities or engaged in the insurance of deposits or the supervision or regulation of Mercantile or Mercantile Bank (collectively, the “ Regulatory Authorities” ).
(ii) Except as Previously Disclosed, neither Mercantile nor any Mercantile Subsidiary has been provided written notice from any Regulatory Authority that such Regulatory Authority is contemplating issuing or requesting (or is considering the appropriateness of issuing or requesting) any such order, decree, agreement, memorandum of understanding, commitment letter, supervisory letter or similar submission.
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(j) Compliance with Laws . Except as Previously Disclosed, Mercantile and each Mercantile Subsidiary:
(i) is in compliance with all applicable federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders or decrees applicable thereto or to the employees conducting such businesses, including, without limitation, the Equal Credit Opportunity Act, the Fair Housing Act, the Community Reinvestment Act, the Home Mortgage Disclosure Act, the Financial Services Modernization Act and all other applicable fair lending laws and other laws relating to discriminatory business practices;
(ii) has all permits, licenses, authorizations, orders and approvals of, and has made all filings, applications and registrations with, all Governmental Authorities that are required in order to permit them to own or lease their properties and to conduct their businesses as presently conducted; all such permits, licenses, certificates of authority, orders and approvals are in full force and effect and, to Mercantile’s knowledge, no suspension or cancellation of any of them is threatened; and
(iii) has not received, since December 31, 2004, any written communication from any Governmental Authority (A) asserting that Mercantile or Mercantile Bank is not in compliance with any of the statutes, regulations, or ordinances which such Governmental Authority enforces or (B) threatening to revoke any license, franchise, permit, or governmental authorization (nor, to Mercantile’s knowledge, do any grounds for any of the foregoing exist).
(k) Material Contracts; Defaults . Except for this Agreement and those agreements and contracts Previously Disclosed, neither Mercantile nor any Mercantile Subsidiary is a party to, bound by or subject to any agreement, contract, arrangement, commitment or understanding (i) that is a “material contract” within the meaning of Item 601(b)(10) of the SEC’s Regulation S-K or (ii) that restricts or limits in any way the conduct of its business. Neither Mercantile nor any Mercantile Subsidiary is in material default under any contract, agreement, commitment, arrangement, lease, insurance policy or other instrument to which it is a party, by which its respective assets, business, or operations are bound or are affected in any way, or under which it or its respective assets, business, or operations receive benefits, and to Mercantile’s knowledge, there has not occurred any event that, with the lapse of time or the giving of notice or both, would constitute such a default. Except as Previously Disclosed, each contract to which Mercantile or any of the Mercantile Subsidiaries is a party, by which any of its respective assets, business or operations may be bound or affected, or under which it or its respective assets, business or operations receives benefits, is a valid and legally binding obligation of Mercantile or Mercantile Subsidiary, as applicable, and to Mercantile’s knowledge, the other party or parties thereto, enforceable in accordance with its
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terms (except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws of general applicability relating to or affecting creditor’s rights or by general equity principles).
(l) Brokerage and Finder’s Fees . Mercantile has not employed any broker or agent, or agreed to pay or incurred any brokerage fee, finder’s fee, commission or similar form of compensation in connection with this Agreement or the | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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