<PAGE> 1
As filed with the Securities and Exchange Commission on ,1996
Registration No. 333-________
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
MERCHANTS BANCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
OHIO 6710 31-1467303
(State or Other Jurisdiction (Primary Standard Industrial (IRS Employer
of Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
100 NORTH HIGH STREET
HILLSBORO, OHIO 45133
(513) 393-1993
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
MR. PAUL W. PENCE, JR. COPIES OF COMMUNICATIONS TO:
PRESIDENT THOMAS C. BLANK, ESQ.
MERCHANTS BANCORP, INC. WERNER & BLANK CO., L.P.A.
100 NORTH HIGH STREET 7205 W. CENTRAL AVE.
HILLSBORO, OHIO 45133 TOLEDO, OHIO 43617
(513) 393-1993 (419) 841-8051
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
Approximate date of commencement of proposed sale of the securities to the
public:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box: [ ]
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE> 2
MERCHANTS BANCORP, INC.
CROSS-REFERENCE SHEET
FORM S-4
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<CAPTION>
Heading in
Item of Form S-4 Prospectus and Proxy Statement
- ---------------- ------------------------------------
<S> <C>
1. Forepart of Registration Statement and Outside "NOTICE OF SPECIAL MEETING OF
Front Cover Page of Prospectus SHAREHOLDERS"; "PROXY STATE-
MENT - GENERAL INFORMATION";
"SUMMARY"; "TABLE OF CONTENTS"
2. Inside Front and Outside Back Cover Pages of "TABLE OF CONTENTS"; "FINANCIAL
Prospectus STATEMENTS"; DESCRIPTION OF
COMMON STOCK - COMPARATIVE
RIGHTS - Reports"
3. Risk Factors, Ratio of Earnings to Fixed Charges, Outside Front Cover Page of Prospectus;
and Other Information "THE PROPOSED REORGANIZATION";
"CAPITALIZATION"; "HISTORY AND
BUSINESS OF THE COMPANY";
"HISTORY AND BUSINESS OF THE
BANK"; "DESCRIPTION OF COMMON
STOCK - COMPARATIVE RIGHTS";
4. Terms of the Transaction "SUMMARY - Terms of the Consolidation Agreement";
"THE PROPOSED REORGANIZATION -
Reasons for the Proposed Trans-
action, Description of the Reorganization,
Federal Tax Consequences"; "DESCRIP-
TION OF COMMON STOCK - COM-
PARATIVE RIGHTS"
5. Pro Forma Financial Information FINANCIAL INFORMATION-Pro Forma Information
6. Material Contracts with the Company Being "THE PROPOSED REORGANIZATION -
Acquired Description of the Reorganization";
"CONSOLIDATION AGREEMENT"
7. Additional Information Required for Reoffering by Not Applicable
Persons and Parties Deemed to be Underwriters
8. Interests of Named Experts and Counsel "Legal Opinion"
9. Disclosure of Commission Position on "HISTORY AND BUSINESS OF THE
Indemnification for Securities Act Liabilities COMPANY - Indemnification"; "HISTORY
AND BUSINESS OF THE BANK -
Indemnification"
10. Information with Respect to S-3 Registrants Not Applicable
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Heading in
Item of Form S-4 Prospectus and Proxy Statement
-------------------------------------------------- ---------------------------------------
<S> <C> <C>
11. Incorporation of Certain Information by Reference Not Applicable
12. Information with Respect to S-2 or S-3 Registrants Not Applicable
13. Incorporation of Certain Information by Reference Not Applicable
14. Information with Respect to Registrants Other Than "HISTORY AND BUSINESS OF THE
S-3 or S-2 Registrants COMPANY - Competition"; "HISTORY
AND BUSINESS OF THE BANK -
Competition"; "MARKET PRICES OF
STOCK - The Company - The Bank";
"FINANCIAL STATEMENTS";
"HISTORY AND BUSINESS OF THE
COMPANY - Property"; "HISTORY AND
BUSINESS OF THE BANK - Property"
15. Information with Respect to S-3 Companies Not Applicable
16. Information with Respect to S-2 or S-3 Companies Not Applicable
17. Information with Respect to Companies Other Than "THE PROPOSED REORGANIZATION";
S-2 or S-3 Companies "HISTORY AND BUSINESS OF THE
BANK - Competition"; "HISTORY AND
BUSINESS OF THE COMPANY";
"VOTING AT THE MEETING";
"DESCRIPTION OF COMMON STOCK -
COMPARATIVE RIGHTS - Dividend
Rights"; "MARKET PRICES OF STOCK -
The Bank"
18. Information if Proxies, Consents or Authorizations "VOTING AT THE MEETING -
Are to be Solicited REVOCATION OF PROXY"; "THE
PROPOSED REORGANIZATION -
Appraisal Right of Dissenting Share-
holders"; "SUMMARY - Management";
"THE PROPOSED REORGANIZATION -
Conditions of Consummation"; "HISTORY
AND BUSINESS OF THE COMPANY -
Board of Directors"; "HISTORY AND
BUSINESS OF THE COMPANY -
Remuneration of Directors and Officers"
19. Information if Proxies, Consents or Authorizations Not Applicable
Are Not to be Solicited, or in an Exchange Offer
</TABLE>
<PAGE> 4
MERCHANTS NATIONAL BANK
100 North High Street
Hillsboro, Ohio 45133
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD
December __ , 1996
TO THE SHAREHOLDERS OF MERCHANTS NATIONAL BANK:
You are hereby notified that a special meeting of the shareholders of
Merchants National Bank (the "Bank") will be held on DECEMBER __, 1996 AT 10:00
A.M. (LOCAL TIME), AT _________________________, ________________, Hillsboro,
Ohio for the purpose of considering and acting upon the following:
1. To consider and vote upon the formation of a holding company by the
adoption of a Consolidation Agreement (the "Agreement") which provides for
the consolidation of Hillsboro Interim Bank, National Association (In
Organization), a subsidiary of Merchants Bancorp, Inc., an Ohio
corporation (the "Company") with the Bank under the name and charter of
Merchants National Bank with shareholders of the Bank receiving ten (10)
shares of Company stock for each share of Bank stock held by them.
2. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING
OR ANY ADJOURNMENT THEREOF.
The Board of Directors has fixed November 1, 1996 as the record date for
the determination of shareholders entitled to notice of and to vote at the
meeting.
By order of the Board of Directors
Paul W. Pence, Jr., President
The affirmative vote of the holders of two-thirds (2/3) of the outstanding
common stock of Merchants National Bank is required for approval of the
Consolidation Agreement. Directors of the Bank beneficially owned ______
shares, or ______ percent of the outstanding common stock of the Bank as of
November 1, 1996. The Directors all have agreed to vote their shares in favor
of the transaction and management will vote its proxies to adjourn the meeting,
if necessary, to insure that the Consolidation Agreement is approved.
YOUR VOTE IS IMPORTANT. EVEN IF YOU PLAN TO ATTEND THE MEETING, PLEASE
DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE. YOU MAY REVOKE YOUR EXECUTED PROXY AT ANY TIME BEFORE IT IS
EXERCISED AT THE SPECIAL MEETING OF SHAREHOLDERS BY NOTIFYING THE CHAIRMAN OF
THE MEETING OR THE CASHIER OF THE BANK AT, OR PRIOR TO THE MEETING, OF YOUR
INTENTION. IF YOUR STOCK IS HELD IN MORE THAN ONE (1) NAME, ALL PARTIES MUST
SIGN THE PROXY FORM.
<PAGE> 5
PROXY STATEMENT/PROSPECTUS
GENERAL INFORMATION
OFFERING OF 1,000,000 COMMON VOTING SHARES OF MERCHANTS BANCORP, INC.
This Proxy Statement/Prospectus and the accompanying form of proxy is
furnished in connection with the solicitation, by the Board of Directors of
Merchants National Bank, 100 North High Street, Hillsboro, Ohio 45133,
Telephone (513) 393-1993, of proxies to be voted at the special meeting of
shareholders of Merchants National Bank to be held on December __, 1996, at
10:00 a.m. (local time), at
______________________________________________________.
This Proxy Statement has been mailed to all holders of record of the
common stock of Merchants National Bank as of the close of business on November
1, 1996. The cost of soliciting proxies will be borne by the Company.
Merchants Bancorp, Inc., 100 North High Street, Hillsboro, Ohio 45133,
has filed a Registration Statement with the Securities and Exchange Commission
concerning the securities to be issued by it in connection with a plan of
reorganization described in this Proxy Statement. This Proxy Statement also
constitutes a "prospectus" and has been filed with the Securities and Exchange
Commission as part of the Registration Statement. Please see page "Risk
Factors" for a description of certain risks in connection with the shares of
the Company.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR THE OFFICE OF THE COMPTROLLER OF THE CURRENCY, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION, THE FEDERAL DEPOSIT INSURANCE CORPORATION OR THE
COMPTROLLER OF THE CURRENCY PASSED ON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE
SHARES OF STOCK OF MERCHANTS BANCORP, INC., OFFERED HEREBY, ARE NOT SAVINGS
ACCOUNTS OR BANK DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY OR COMPANY.
ADDITIONAL INFORMATION
This Prospectus and Proxy Statement constitutes part of the Registration
Statement covering the shares to be offered pursuant to the consolidation
transaction by the Company, as filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended. This Prospectus and
Proxy Statement does not contain all the information set forth in such
Registration Statement and the exhibits thereto, certain portions of which have
been omitted pursuant to the rules and regulations of the Securities and
Exchange Commission.
Such Registration Statement may be inspected, without charge, at the
principal office of the Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, D.C., and copies of all or part thereof may be obtained from
the Securities and Exchange Commission upon payment of its prescribed fees.
The date of this Proxy Statement is November __, 1996.
1
<PAGE> 6
TABLE OF CONTENTS
Page
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GENERAL 6
REVOCATION OF PROXIES 6
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF 7
PROPOSAL I: THE PROPOSED REORGANIZATION TO FORM A
ONE-BANK HOLDING COMPANY 8
SUMMARY 8
General 8
Terms of the Consolidation Agreement 8
The Exchange Ratio and Market Value 9
Business of the Company, the Bank, and the New Bank 9
Management 10
Shareholders' Approval 10
Regulatory Approval 10
Dissenters' Rights 10
Differences Between Company Stock and Bank Stock 10
Tax Consequences 11
Antitakeover Measures 12
Risk Factors 12
Per Share Summary of the Bank and Pro Forma Per Share Summary
of the Company 14
PURPOSE OF THE MEETING 14
THE PROPOSED REORGANIZATION 15
Reasons for the Proposed Transaction 15
Description of the Reorganization 15
Conversion and Exchange of Stock 16
Negotiation of Terms of the Agreement 16
Affiliate Restrictions 16
Conditions of Consummation 17
Other Considerations 17
Expenses 18
Federal Tax Consequences 18
</TABLE>
2
<PAGE> 7
TABLE OF CONTENTS (CONT.)
Page
<TABLE>
<S> <C>
State Tax Consequences 19
Appraisal Rights of Dissenting Shareholders 19
Accounting Treatment 20
MARKET PRICES OF STOCK 20
The Company 20
The Bank 21
DIVIDENDS 21
The Company 21
The Bank 22
CAPITALIZATION 23
FINANCIAL STATEMENTS 23
HISTORY AND BUSINESS OF THE COMPANY 25
General 25
Competition 25
Employees 25
Property 25
Board of Directors 26
Remuneration of Directors and Officers 26
Indemnification 26
HISTORY AND BUSINESS OF THE BANK 27
General 27
Competition 27
Employees 27
Property 28
Litigation 28
Board of Directors 28
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS 30
EXECUTIVE COMPENSATION AND OTHER INFORMATION 31
Summary of Cash and Certain Other Compensation 31
Directors' Compensation 32
Bonus Plan 32
Defined Benefit Retirement Plan 32
Profit Sharing and 401K Savings Retirement Plan 33
Stock Option Plans 33
</TABLE>
3
<PAGE> 8
TABLE OF CONTENTS (CONT.)
Page
<TABLE>
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CERTAIN TRANSACTIONS 33
SUPERVISION AND REGULATION 34
The Company 34
Bank 35
Additional Regulation 36
Dividend Regulation 36
Government Policies and Legislation 36
Recent Legislation 37
Proposed Legislation 40
DESCRIPTION OF COMMON STOCK--COMPARATIVE RIGHTS 40
General 40
Voting Rights 40
Antitakeover Measures 41
Right of Redemption 41
Liquidation Rights 42
Preemptive Rights 42
Dissenters' Rights 42
Cumulative Voting 42
Indemnification 43
Dividend Rights 43
Transfer and Assessability 44
ANTITAKEOVER MEASURES 44
Discussion of Fair Price and Supermajority Vote Provisions 44
Reasons for Fair Price and Supermajority Vote Provisions 45
Summary of Fair Price and Supermajority Vote Provisions 46
Comparison with Current Requirements 48
Classified Board of Directors and Supermajority Vote Required to
Remove Directors 49
Additional Considerations 49
REPORTS 50
LEGAL OPINION 50
OTHER MATTERS 50
ADDITIONAL INFORMATION 51
</TABLE>
4
<PAGE> 9
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED HEREIN IN CONNECTION WITH THE OFFER
CONTAINED IN THIS PROXY STATEMENT-PROSPECTUS, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON. THIS PROXY
STATEMENT-PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY OF THE SECURITIES OFFERED BY THIS PROXY
STATEMENT-PROSPECTUS IN ANY STATE TO ANY PERSON TO WHOM IT WOULD BE UNLAWFUL TO
MAKE SUCH AN OFFER OR SOLICITATION. THE DELIVERY OF THIS PROXY
STATEMENT-PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE FEDERAL DEPOSIT INSURANCE CORPORATION OR THE
COMPTROLLER OF THE CURRENCY, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION,
THE FEDERAL DEPOSIT INSURANCE CORPORATION OR THE COMPTROLLER OF THE CURRENCY
PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
5
<PAGE> 10
GENERAL
This Proxy Statement is furnished to the shareholders of Merchants
National Bank ("Bank") in connection with the solicitation of proxies to be
used in voting at the special meeting of shareholders to be held on December __
, 1996, at _________________________at 10:00 a.m. ("Meeting"). THE ENCLOSED
PROXY IS SOLICITED BY THE BOARD OF DIRECTORS (HEREINAFTER SOMETIMES REFERRED TO
AS "MANAGEMENT") OF THE BANK. This Proxy Statement and the enclosed form of
proxy are first sent or delivered to the Bank's shareholders on November ___,
1996.
The Meeting has been called for the purpose of: (i) acting on a proposal
to form a holding company; and (ii) considering such other matters as may
properly come before the Meeting.
REVOCATION OF PROXIES
The names and addresses of Management's designated Proxy Committee are:
Name Address
---- -------
Ernest W. Williamson 9715 State Route 785, Hillsboro, Ohio 45133
Charles M. Harsha 128 Beekin Drive, Hillsboro, Ohio 45133
Albert R. Fling 8369 Berrysville Road, Hillsboro, Ohio
All shareholders who execute proxies retain the right to revoke them at
any time. Unless so revoked, the shares represented by such proxies will be
voted at the Meeting and all adjournments thereof. Proxies may be revoked at
any time before they are exercised at the annual meeting by filing a written
notice with the Cashier of the Bank or by delivering to the Cashier of the Bank
a subsequently dated proxy prior to the commencement of the meeting. A written
notice of revocation of a proxy should be sent to the Cashier of Merchants
National Bank, 100 North High Street, Hillsboro, Ohio 45133. A previously
submitted proxy will also be revoked if a shareholder attends the Meeting and
votes in person. In the event a shareholder attends the meeting and does not
wish to have his/her proxy used, he/she should notify the Cashier of the Bank
prior to the start of the business meeting. Proxies solicited by the Board of
Directors of the Bank will be voted in accordance with the directions given
therein. Where no instructions are indicated, proxies will be voted in favor
of each proposal set forth in this Proxy Statement for consideration at the
Meeting. Management will vote its proxies to adjourn the meeting, if
necessary, to insure that the Consolidation Agreement is approved. Each of the
Directors has agreed to vote all of the shares owned by him in favor of the
proposal to organize a holding company for the Bank by executing a copy of the
Consolidation Agreement attached hereto as Appendix I.
6
<PAGE> 11
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Shareholders of record as of the close of business on November 1, 1996,
are entitled to one vote for each share then held. As of November 1, 1996, the
Bank had 100,000 shares of common stock authorized, all of which are
outstanding. All of such shares are entitled to vote at the Meeting.
Management of the Bank is not aware of any person who owns, beneficially
or of record, more than five percent (5%) of the Bank's outstanding common
stock except as set forth below. Management is not aware of any changes in
control of the Bank which have occurred or of any arrangement which may, at a
subsequent date, result in a change in control of the Bank.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH BANK NUMBER OF SHARES/%
- ---------------------------------- ---------------------- --------------------
<S> <C> <C>
Donald E. Fender Chairman of the Board 13,566.66/13.57% (1)
121 Westover Drive
Hillsboro, Ohio 45133
Paul W. Pence, Sr. Director, Retired 6,341.68/6.34% (2)
123 Beekin Drive President of the Bank
Hillsboro, Ohio 45133
Virginia R. Fling and Albert Fling Shareholders 11,511.66/11.51% (3)
8369 Berrysville Road
Hillsboro, Ohio 45133
</TABLE>
(1) Includes 12,566.66 shares owned individually by Donald E. Fender, Jr. and
1,000 shares owned jointly with Ann F. Fender.
(2) Includes 4,958.35 shares owned individually by Paul W. Pence, Sr. and
1,383.33 shares owned individually by Margaret Pence.
(3) Includes 9,766.67 shares owned by Virginia R. Fling, 933.33 shares owned
jointly by Virginia R. Fling and Albert Fling, and 811.66 shares owned by
Albert Fling.
7
<PAGE> 12
THE PROPOSED REORGANIZATION TO FORM A
ONE-BANK HOLDING COMPANY
SUMMARY
This summary contains a brief description of the proposed reorganization.
This summary is not a complete statement of all the information contained in
the Proxy Statement or the Consolidation Agreement. A thorough reading of both
documents is recommended.
General
If this proposal is adopted, shareholders of the Bank would exchange their
current stock in the Bank for stock of the Company on a ten-for-one basis,
receiving ten(10) shares of common stock in the Company for each one share of
common stock currently owned in the Bank. The terms of the transaction and the
method of carrying it into effect are more fully described below.
Shareholders of Merchants National Bank (the "Bank") are being asked to
vote on a proposal to reorganize the Bank into a one-bank holding company.
This section describes the proposal for the consolidation of Hillsboro Interim
Bank, National Association (the "New Bank"), a new federally-chartered bank to
be organized solely for the purpose of this transaction, with the Bank under
the charter of the Bank. At or immediately prior to the consolidation,
Merchants Bancorp, Inc. (the "Company") will own all of the capital stock of
the New Bank. Following the consolidation of the Bank and the New Bank, the
Company will own all of the outstanding shares of common stock of the Bank and
the New Bank combined, and the Bank will continue to do business under the name
of "Merchants National Bank" (the "Resulting Bank"). As of the effective date
of the consolidation, the shares of New Bank will be redeemed and canceled with
the effect that the capital stock of the Resulting Bank at and after the
effective date of the consolidation will be equal to the capital structure of
the Bank immediately prior to the effective date of the consolidation.
Assuming the consolidation is approved, all shareholders of the Bank, except
those shareholders who properly exercise dissenters' rights, will become
shareholders of the Company.
The Bank's Board of Directors determined by resolution that an affiliation
with the Company will permit the Company and the Bank greater financial and
corporate flexibility in such areas as acquisitions and debt financing as well
as the possibility that the Company and the Bank may be able to offer new
services, provide them access to new markets, and provide them an opportunity
to participate in activities which are not permissible for the Bank to engage
in directly. (See "THE PROPOSED REORGANIZATION--Reasons for the Proposed
Transaction" and "SUPERVISION AND REGULATION--The Company.")
Terms of the Consolidation Agreement
The Bank, the New Bank, and the Company have entered into a Consolidation
Agreement (the "Agreement"). The Agreement provides for the consolidation of
the New Bank and the Bank under the name and charter of the Bank, and for the
conversion of each share of the
8
<PAGE> 13
Bank's common stock outstanding on the effective date of the
consolidation into ten (10) shares of common stock of the Company. A copy of
the Agreement is included as Appendix I to this Proxy Statement.
The Exchange Ratio and Market Value
Each share of the common stock of the Bank outstanding on the effective
date of the proposed consolidation will be converted into ten (10) shares of
common stock of the Company.
Stock of the Company has not been publicly traded as the Company is a new
company and has not engaged in any business activity prior to its intended
acquisition of the outstanding shares of the Bank. There is, therefore, no
published information as to the market price of Company stock. Because no
meaningful market can be said to exist for Company stock at this time, there
can be no assurance that an established market will develop for Company stock
after the consolidation. (See "MARKET PRICE OF STOCK--The Company.")
Bank stock is traded among Bank shareholders and customers in the Highland
County area. Trading, however, has not been sufficient to support an
established "over-the-counter" market. (See "MARKET PRICE OF STOCK--The
Bank.") There is no established market for the New Bank's stock as it is a
nonoperating bank, formed solely for the purpose of this transaction, nor is
there any information about its market price. (See "MARKET PRICE OF STOCK--The
Bank.")
Further, as a result of the proposed consolidation, no market will exist
for the Resulting Bank's stock as the Company will be its sole shareholder.
Business of the Company, the Bank, and the New Bank
The Company is a business corporation formed under the laws of the State
of Ohio on March 29, 1996. Since its incorporation, it has not engaged in any
business. Upon consummation of the reorganization, the Company will become a
registered bank holding company, whose principal asset will be its share
holdings in the Resulting Bank. (See "HISTORY AND BUSINESS OF THE COMPANY.")
The Bank is a federally-chartered bank organized under the banking laws of
the United States. The Bank engages in the commercial banking business in the
Cities of Hillsboro, Washington Court House and Greenfield, Ohio, and in the
surrounding areas. (See "HISTORY AND BUSINESS OF THE BANK.")
The New Bank is a newly formed bank, chartered under the banking laws of
the United States solely for the purpose of this transaction. Prior to the
consummation of the transaction, the New Bank will not conduct any business.
At or prior to the consolidation, the Company will own all of the capital stock
of the New Bank. (See "THE PROPOSED REORGANIZATION--Description of the
Reorganization.")
9
<PAGE> 14
Management
Under the terms of the Agreement, the Directors and officers of the
Bank, immediately prior to the effective date of the proposed consolidation,
will continue to be Directors and officers of the Resulting Bank following the
consolidation. It is also anticipated that, upon completion of the
reorganization, the present directors of the Bank will constitute the first
Board of Directors of the Company. Commencing at the annual meeting of
shareholders of the Company in 1997, approximately one-third of the members of
the Board of Directors of the Company will be elected by shareholders of the
Company each year to three year terms.
Shareholders' Approval
The banking laws of the United States require that the Agreement be
ratified and confirmed by the holders of at least two-thirds (2/3) of the
issued and outstanding shares of common stock of the Bank. Directors of the
Bank who have signed the Agreement have agreed to vote the shares of Bank stock
owned by them, personally, in favor of the reorganization. (See "THE PROPOSED
REORGANIZATION--Conditions of Consummation" and "Appraisal Rights of Dissenting
Shareholders.") As of November 18, 1996, the record date, the Board of
Directors and management of the Bank own in the aggregate shares or % of the
outstanding shares of the Bank. Each member of the Board of Directors has
agreed to vote their shares in favor of the transaction by signing the Merger
Agreement and it is expected that all members of management also will vote
their shares in favor of the transaction.
Regulatory Approval
The proposed transaction is subject to regulatory approval. An
application to charter the New Bank and consolidate the New Bank with the Bank
has been filed with the Office of the Comptroller of the Currency ("OCC"). The
OCC approved the transaction on September 3, 1996. In addition, an application
was filed with the Board of Governors of the Federal Reserve System ("FRS") for
the acquisition of the Bank by the Company. The application was approved on
September 12, 1996.
Dissenters' Rights
Under the provisions of Section 215 of Title 12, of the United States
Code, any stockholder who has voted against the Consolidation at the Special
Meeting of Stockholders, or who has given notice in writing at or prior to such
meeting to the Bank that such stockholder dissents from the Consolidation,
shall be entitled to receive the value of the Bank Common Stock held by such
stockholder. Failure to follow the procedures enumerated in Section 215 of
Title 12 of the United States Code which is Appendix II of this Proxy
Statement (the Dissenters Statute), will waive the shareholder's right of
appraisal. (See "THE PROPOSED REORGANIZATION--Appraisal Rights of Dissenting
Shareholders.")
Differences Between Company Stock and Bank Stock
Shareholders of the common stock of the Company will have rights generally
comparable to those rights which they now have as shareholders of the common
stock of the Bank. However, shareholders of the Company will not have
preemptive rights whereas shareholders of the Bank currently do have preemptive
rights. Preemptive rights permit a shareholder to
10
<PAGE> 15
subscribe to a sufficient number of shares so as to maintain their
relative pro rata ownership upon the issuance of additional shares by a
corporation, except in certain circumstances. The loss of preemptive rights
will remove the ability of a shareholder to assure themselves that they will
continue to own the same percentage of the outstanding shares of the Company
after an issuance of additional shares by the Company. Shareholders of the
Company will continue to have the right to vote cumulatively in the election of
directors as provided by Ohio law the same as stockholders of the Bank
currently have the right to cumulate their shares in the election of directors.
A shareholder voting cumulatively may cast the number of shares he owns times
the number of Directors to be elected in favor of one nominee or allocate such
votes among the nominees as he determines. The Article of Incorporation and
Code of Regulations of the Company also contain certain "antitakeover" defenses
not currently contained in the Articles of Association and Code of Regulations
of the Bank. For a more complete discussion regarding preemptive rights and
cumulative voting, see DESCRIPTION OF COMMON STOCK-COMPARATIVE
RIGHTS-"Preemptive Rights" and "Cumulative Voting" below. For a summary of the
antitakeover measures see "Antitakeover Measures" on the following page. For a
complete discussion, see "ANTITAKEOVER MEASURES" below.
Shareholders will also be affected by certain differences between Ohio law
governing corporations and federal law governing banks. Shareholders will also
be affected by differing provisions of the Articles of Incorporation and Code
of Regulations of the Company and the Articles of Association and Code of
Regulations of the Bank. The Company's Articles of Incorporation and Code of
Regulations contain certain provisions which are antitakeover measures as
discussed below. (See "DESCRIPTION OF COMMON STOCK--COMPARATIVE RIGHTS"). For
a more complete discussion regarding the antitakeover defenses, see
"Antitakeover Measures" immediately below and "ANTITAKEOVER MEASURES."
Tax Consequences
An opinion of special legal counsel, Werner & Blank Co., L.P.A., has been
obtained that states, among other things, that no gains or losses will be
recognized by either the Bank or the Company or their respective shareholders
as a result of the consolidation, except for those shareholders who perfect
their dissenters' rights and receive cash for their shares. (See "THE PROPOSED
REORGANIZATION-- Federal Tax Consequences.")
EACH BANK SHAREHOLDER SHOULD RELY UPON HIS OWN TAX ADVISOR WITH RESPECT TO
THE FEDERAL, STATE AND LOCAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION.
11
<PAGE> 16
Antitakeover Measures
The Company's Amended Articles of Incorporation contain a "fair price and
super vote" provision. If the transaction is approved, such provisions will
require the affirmative vote of the holders of Eighty percent (80%) of the
shares of the Company entitled to vote to approve certain business combination
transactions, unless the transaction is authorized and approved by the
"Continuing Directors" as defined in the Company's Amended Articles of
Incorporation of the Company and certain other conditions are met which result
in a "fair price" being paid to all shareholders. The Board of Directors of
the Bank believes that the inclusion of this provision in the corporate
structure of the Company will aid in assuring that shareholders are treated
fairly in any offer for their investment in the Company. The Company has
certain other provisions which are also "antitakeover" in nature such as a
classified election system for the election of directors.
The Board of Directors of the Company and the Bank believe that the
conversion to a holding company form of ownership is the appropriate time to
implement such antitakeover provisions. The adoption of such provisions is not
in response to any attempted takeover of the Bank or the Company. The Bank has
not been the target of an attempted takeover in the past. The further reasons
behind the adoption of the antitakeover provisions are discussed below.
The presence of these "antitakeover" provisions may have the effect of
discouraging outside offers for the shares of the Company and may also give
management more control over the acceptance or rejection of these business
combination transactions, than otherwise. Such provisions may have certain
negative effects. One such negative effect could be protecting the incumbent
Board of Directors and management by discouraging takeover attempts which are
not supported by the Board but which may be supported by the majority of
shareholders. (See "ANTITAKEOVER MEASURES.")
Risk Factors
The transaction contemplated by the Agreement is principally designed to
reorganize the corporate structure of the Bank in order to conduct the business
of the Bank as a wholly owned subsidiary of a registered bank holding company.
The transaction, if consummated, will not represent any material change in the
nature of the business conducted by the Bank.
Presented below are certain "risk factors" associated with the combined
business of the Company and the Bank which may be present as a result of the
Bank's reorganizing its business structure, through the consummation of the
transaction contemplated by the Agreement, into a subsidiary of the Company.
These risk factors represent those identified by the Board of Directors of the
Bank and may not represent all of the risk factors associated with the
transaction contemplated by the Agreement.
Company's Financial Condition. Shareholders electing to receive Company
stock for Bank stock do so without the ability of analyzing the historical
financial performance of the
12
<PAGE> 17
Company. The Company is a newly formed Ohio corporation and has no
history of financial performance. The Company's financial condition
immediately following the effective date of the consolidation contemplated by
the Agreement will depend on the operation and profitability of the Bank at the
time of and after the effective date of the reorganization. As the Company
continues to operate in the future, additional factors may affect its
profitability including, among others: (i) businesses started or acquired by
the Company other than the Bank; (ii) the nature of federal or state laws and
regulations applicable to the Company; and (iii) the effect of management.
Banking Institutions. The financial services industry and banking in
particular has undergone a complex deregulation process. Interest rate
limitations on what banks may pay to depositors have been phased out;
"regional" interstate banking pacts and "true interstate" banking, allowing
financial institutions to cross state lines have been and will continue to be
enacted nationally and in many states; and competition has increased among
banks and other companies to provide traditional banking services. These
changes have resulted in increased competition for a market share of the
financial services industry. The Company and the Bank will be affected by
these changes in the future. The conduct of the Bank's business as a
subsidiary of the Company may increase the ability to compete in this newly
deregulated environment.
Antitakeover Provisions. The Company's Articles of Incorporation and Code
of Regulations contain provisions intended to be "antitakeover" in nature as
discussed above, including a supermajority vote provision, fair price
provision, staggered terms for the Board of Directors, supermajority removal
clause for the Board of Directors and additional items. In addition, as an
"issuing public corporation" under Ohio law, the Company will be subject to the
Ohio Control Share Acquisition Statute requiring the approval of a majority of
the shareholders and unaffiliated shareholders before certain levels of voting
power of the Company may be acquired. The presence of all of these provisions
may have the effect of discouraging outside offers for the shares of the
Company and may also give management more control over the acceptance or
rejection of business combination transactions, than otherwise. Such
provisions may have certain negative effects. One such negative effect could
be protecting the incumbent Board of Directors and management by discouraging
takeover attempts which are not supported by the Board but which may be
supported by the majority of shareholders. (See "DESCRIPTION OF COMMON
STOCK--COMPARATIVE RIGHTS and "ANTITAKEOVER MEASURES.")
13
<PAGE> 18
Per Share Summary of the Bank and Pro Forma Per Share Summary of the
Company
Presented below is certain per share financial information of the Bank.
Certain pro forma per share information is provided for the Company, assuming
there are no dissenters to the transaction and each share of the Bank's common
stock is exchanged for ten (10) shares of the Company's common stock.
PER SHARE DATA(1)
Year Ended December 31,
<TABLE>
<CAPTION>
1995 1994 1993 1992(2) 1991(2)
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
Merchants National Bank
Net Income (loss) 23.51 18.63 14.26 15.19 12.92
Cash Dividends Declared 5.50 2.10 1.90 1.70 1.50
Book Value (at period end) 159.63 125.93 123.54 111.18 97.69
Pro Forma, Merchants
Bancorp, Inc.
Net Income (loss) 2.35 1.86 1.47 1.52 1.29
Cash Dividends Declared 0.55 0.21 0.19 0.17 0.15
Book Value (at period end) 15.96 12.59 12.35 11.12 9.77
</TABLE>
(1)Per share information shown for Merchants Bancorp, Inc. reflects an exchange
of ten (10) shares of Merchants Bancorp, Inc. for each one (1) share of
Merchants National Bank incident to the consolidation.
(2)Adjusted to give effect to the Bank's 5-for-1 stock split on October 30,
1992.
PURPOSE OF THE MEETING
The purpose of the meeting, as set forth in the notice of the special
meeting, is to vote upon a proposed reorganization by which the New Bank, a
subsidiary of the Company, will consolidate with the Bank under the name and
charter of the Bank. The effect of approving the reorganization would be the
exchange of each share of the Bank's stock for ten (10) shares of the Company's
stock, and the acquisition of control of the Bank by the Company. The Bank
would then continue to do business as a wholly owned subsidiary of the Company,
and shareholders of the Bank would become shareholders of the Company.
The Board of Directors of the Bank unanimously approved the Agreement and
recommends that shareholders vote in favor of the Agreement. This Proxy
Statement/Prospectus is being solicited by the Board of Directors of the Bank.
14
<PAGE> 19
THE PROPOSED REORGANIZATION
The Board of Directors of the Bank approved a plan of reorganization and
the Consolidation Agreement under which the business of the Bank would be
conducted as a wholly owned subsidiary of Company.
Reasons for the Proposed Transaction
A bank holding company form of organization will increase the corporate
and financial flexibility of the business operated by the Bank through the
combined business of the Bank and the Company, such as increased structural
alternatives in the area of acquisitions, the ability to augment capital by the
incurring of debt and the ability of the Company to redeem its own stock,
subject to, in certain instances, notice to and approval by the Board of
Governors of the Federal Reserve.
A bank holding company can engage in certain bank-related activities in
which the Bank cannot presently engage, such as equity or debt investments in
community development projects, owning a separately chartered savings and loan
association, certain securities sales, brokerage and underwriting activities
and other activities as may, from time to time, be deemed appropriate by the
Federal Reserve Board. Further, the holding company will allow for the
flexibility to run any such business as a separate entity at the discretion of
management. Thus this reorganization would broaden the scope of services which
could be offered to the public. Furthermore, a bank holding company is not
subject to the same geographical limitations as to where it may carry on its
business whereas the Bank is currently limited. (See "SUPERVISION AND
REGULATION--The Company.")
Description of the Reorganization
The Company will subscribe for and will hold all of the One Thousand
(1,000) authorized shares of common stock of the New Bank, an interim bank, to
be chartered under the laws of the United States, solely for the purpose of
this transaction. The Bank will consolidate with the New Bank under the name
and charter of the Bank, pursuant to the terms of the Agreement. (See Appendix
I of this Proxy Statement.) Upon consummation of the transaction, the
consolidated banks (the "Resulting Bank") will redeem and cancel the shares
used to capitalize the New Bank.
After the consolidation, the business of the Bank will be conducted by the
Resulting Bank under the name "Merchants National Bank." All of the
outstanding shares of stock of the Resulting Bank will be owned by the Company.
The Resulting Bank will have the same directors, officers, interests and
properties as those of the Bank immediately prior to the consolidation. The
Resulting Bank will continue to be subject to regulation and supervision by the
Office of the Comptroller of the Currency to the same extent as the Bank and,
in addition, as a subsidiary of the Company, will be subject to examination and
regulation by the Board of Governors of the Federal Reserve System. (See
"SUPERVISION AND REGULATION.")
15
<PAGE> 20
Conversion and Exchange of Stock
Upon consummation of the reorganization, each outstanding share of the
Bank's common stock will be converted into ten (10) shares of the Company's
common stock. The Board of Directors selected a ten (10) to one exchange so as
to reduce the trading price of the shares of the Company to approximately
$30.00 per share from the $300 per share which currently exists at the Bank,
thus making shares more easily affordable and therefore increasing the
liquidity for the shares of the Company. Each holder of Bank stock
certificates, which immediately prior to the reorganization represented shares
of the Bank's common stock, upon surrender of such certificates for
cancellation, will be entitled to receive certificates representing the number
of shares of the Company's common stock into which such shares shall have been
converted.
Until so surrendered, certificates nominally representing the Bank's
common stock will be deemed, for all corporate purposes, to evidence the number
of shares of the Company's common stock which the holder thereof would be
entitled to receive upon surrender. UPON APPROVAL BY THE DIRECTORS, NO
DIVIDENDS WILL BE PAID UPON THE CERTIFICATES NOMINALLY REPRESENTING THE BANK'S
COMMON STOCK AFTER CONSUMMATION OF THE REORGANIZATION, BUT SUCH DIVIDENDS WILL
BE ACCUMULATED AND PAID, WITHOUT INTEREST, AT THE TIME OF SURRENDER OF SUCH
CERTIFICATES FOR CERTIFICATES REPRESENTING THE COMPANY STOCK.
Negotiation of Terms of the Agreement
The terms of the Agreement were agreed upon by the Boards of Directors of
the Bank, the New Bank and the Company. Since the management and Boards of
Directors of these three (3) organizations are substantially the same, the
terms of the Agreement were not a result of arms length negotiations.
Affiliate Restrictions
The shares of stock to be issued upon consummation of the Agreement by the
Company will be registered pursuant to the 1933 Securities Act ("Act").
However, the resale of such shares by the Directors, principal officers and
principal shareholders of the Bank presently and of the Company upon
consummation of the Agreement may be restricted by the Act and by the rules
promulgated by the Securities and Exchange Commission if such Directors,
principal officers and principal shareholders are deemed to be "affiliates" as
that term is defined by the Act and appropriate SEC rules.
Persons considered to be in control of an issuer are known as "affiliates"
and may include officers, Directors and shareholders who own 10 percent or more
of the outstanding stock. Shares of common stock of the Company received after
the transaction by "affiliates" of the Bank or the Company will be "control
stock," which can only be sold if they are registered or in a transaction
exempt from registration under the Act, such as pursuant to Rules 144 and 145,
or pursuant to a private placement. Rules 144 and 145 generally require that
before an affiliate can sell his "control stock":
16
<PAGE> 21
(1) There must be on file with the Securities and Exchange Commission public
information filed by the issuer;
(2) The affiliate must sell his stock in a routine unsolicited broker's
transaction or directly to a market maker in the stock;
(3) During any three-month period, the amount of the securities that can be
sold is limited to the greater of one percent of the outstanding stock of
the company or the average weekly trading volume during the four calendar
weeks preceding the receipt of an order to sell by the broker or the sale
to a market maker; and
(4) In some cases, the stock must be held for two years prior to sale.
It may be advisable for those shareholders of the Bank who may be
"affiliates" of the Company to confer with legal counsel of their own choosing
prior to the sale of any Company stock received as a result of this
transaction.
Conditions of Consummation
Federal Banking Law provides that a consolidation of a bank with another
bank requires the approval of a consolidation agreement by a majority of both
banks' Board of Directors and by shareholders holding two-thirds (2/3) of the
outstanding common stock of each bank.
Acquisition of the voting shares of the Bank by the Company must be
approved by the Board of Governors of the Federal Reserve System. The
reorganization must also be approved by the Office of the Comptroller of the
Currency.
The obligation of the Bank and the Company to consummate the
reorganization is conditioned further upon the following: (i) the absence of
any action, suit, proceeding or claim, made or threatened, related to the
proposed consolidation, or any other reason which makes consummation of the
consolidation inadvisable in the opinion of the Board of Directors of the Bank
or the New Bank; (ii) receipt of a favorable opinion of counsel with respect to
the tax consequences of the transaction (see "THE PROPOSED
REORGANIZATION--Federal Tax Consequences"); (iii) the receipt of all necessary
regulatory approvals and the expiration of all required waiting periods; and
(iv) the performance of all covenants and agreements. The Boards of Directors
of the Bank, the New Bank and the Company may, in their discretion, terminate
the Agreement before or after approval by the shareholders of the Bank if they
deem such termination advisable.
Other Considerations
The Company is a business corporation formed under the general corporation
laws of the State of Ohio. As a general "for profit" corporation, the Company
will have greater flexibility in certain corporate procedures than the Bank
(which is subject to Federal Banking Laws and is
17
<PAGE> 22
regulated by the Office of the Comptroller of the Currency) including,
but not limited to, the ability to incur debt for leveraged growth, redeem its
own common stock to create greater flexibility for trading of such common
stock, and operate related financially oriented businesses.
Upon consummation of the reorganization, the Company will become a
registered bank holding company and will become subject to the Federal Bank
Holding Company Act of 1956, as amended. As a bank holding company under
federal law, the Company will be permitted to carry on a wider range of
business activities than the Bank presently can under state and federal law.
(See "SUPERVISION AND REGULATION.")
Expenses
Expenses to be incurred in implementing the reorganization are estimated
at $50,000, of which approximately $27,500 can be attributed to legal fees paid
in connection with the transaction. The remaining amount of expenses can be
attributed to application fees, printing costs and other miscellaneous
expenses. The Company has paid the costs associated with the transaction and
borrowed the funds to do so from an unaffiliated third party bank, the
repayment of which loan has been personally guaranteed by the Directors of the
Company and the Bank. In the event the transaction is approved and
consummated, the Bank will pay a special dividend to the Company which will be
used by the Company to retire the debt incurred to pay such expenses.
Federal Tax Consequences
An opinion of special legal counsel, Werner & Blank Co., L.P.A., has been
obtained to the following effect: (i) the transaction will qualify as a
reorganization within the meaning of Internal Revenue Code Section 368(a)(1)(A)
and (a)(2)(E); (ii) no gain or loss will be recognized for federal income tax
purposes by shareholders of the Bank upon conversion of the common stock of the
Bank into common stock of the Company, except for those shareholders of the
Bank who dissent from the plan of reorganization and perfect their appraisal
rights (see "THE PROPOSED REORGANIZATION--Appraisal Rights of Dissenting
Shareholders"); (iii) the tax basis of the common stock of the Company received
by the shareholders of the Bank will be the same as the tax basis of the common
stock of the Bank surrendered by the shareholders; and (iv) the holding period
of the common stock of the Company received by shareholders of the Bank will
include the holding period of the common stock of the Bank surrendered by
shareholders, provided that the stock of the Bank is held as a capital asset by
shareholders on the date of consummation of the consolidation.
Gain or loss for federal and other income tax purposes may be recognized
upon the receipt of cash by dissenting shareholders, if any. THE TAX TREATMENT
OF SUCH GAIN OR LOSS MAY VARY WITH THE PARTICULAR CIRCUMSTANCES OF EACH
DISSENTING SHAREHOLDER.
18
<PAGE> 23
State Tax Consequences
Depending upon the state of residence of a Bank shareholder, the
transaction may be subject to certain state law provisions relating to capital
gains tax.
Shares of the common stock of the Bank may in some jurisdictions have
certain advantages not available to shares of common stock of the Company, such
as exemption from personal property taxes, exemption from taxation on dividend
income, and qualification as a legal investment for various categories of
investors.
SHAREHOLDERS ARE URGED TO REVIEW THEIR TAX STATUS UNDER ANY STATE OR LOCAL
TAX LAWS WITH THEIR OWN TAX ADVISORS.
Appraisal Rights of Dissenting Stockholders
Pursuant to the provisions of Section 215 of Title 12 of the United States
Code, the Consolidation Agreement provides that any stockholder of the Bank who
has voted against the Consolidation Agreement at the Annual Meeting of Bank's
stockholders, or who has given notice in writing at or prior to such meeting to
the presiding officer that such stockholder dissents from the Consolidation,
shall be entitled to receive the value of the Bank Common Stock so held by such
stockholder. The relevant portions of Section 215 of Title 12 of the United
States Code are hereto attached as Appendix II. A failure to vote against the
Consolidation Agreement or to give such notice in writing at or prior to the
meeting will be deemed a waiver of a stockholder's right of appraisal. Any
stockholder of the Bank who votes against the Consolidation Agreement at the
Special Meeting of the Bank's stockholders, or who gives a notice in writing at
or prior to such meeting to the presiding officer that such stockholder
dissents, will be notified in writing of the date of consummation of the
Consolidation.
In order to receive the value of the Bank Common Stock held, a stockholder
must make a written request for payment to the continuing bank at any time
before thirty days after the date of consummation of the Consolidation,
accompanied by the surrender of such stockholder's stock certificates. This
written request for payment should be sent to: Merchants National Bank, 100
North High Street, Hillsboro, Ohio 45133, Attention: Cashier.
The value of the shares of any dissenting stockholder will be ascertained,
as of the effective date of the Consolidation, by an appraisal made by a
committee of three persons comprised of (1) one selected by the vote of the
holders of the majority of the stock, the owners of which are entitled to
payment in cash (by reason of such request for appraisal); (2) one selected by
the directors of the continuing bank; and (3) one selected by the two so
selected. The valuation agreed upon by any two of the three appraisers shall
govern.
If the value so fixed shall not be satisfactory to any dissenting
stockholder who has requested payment, that stockholder may, within five days
after being notified of the appraised value of such shares, appeal to the OCC,
which shall cause a reappraisal to be made which shall be final and binding as
to the value of the shares of the dissenting stockholder. If within ninety
19
<PAGE> 24
days from the date of consummation of the Consolidation, for any reason
one more of the appraisers is not selected as above provided, or the appraisers
fail to determine the value of such shares, the OCC shall, upon written request
of any interested party, cause an appraisal to be made which shall be final and
binding on all parties. The expenses of the OCC in making the reappraisal or
the appraisal, as the case may be, shall be paid by the continuing bank. The
value of the shares ascertained shall be promptly paid to the dissenting
stockholders by the continuing bank. In performing the appraisal or
reappraisal, the OCC selects an appropriate valuation method, or combination of
methods, after reviewing the facts of each case to establish a reasonable
estimate of the value of the shares. The OCC may review the market value of
the shares being appraised, the investment value of the shares based upon
earnings of the bank and similarly situated banks, and the adjusted book value
of the shares. A combination of methods may be used with the OCC applying
varying weights to the different methods. SEE APPENDIX II TO THIS PROXY
STATEMENT/PROSPECTUS FOR A MORE DETAILED DESCRIPTION OF THE VALUATION METHODS
USED BY THE OCC TO ESTIMATE THE VALUE OF A BANK'S SHARES WHEN THE BANK IS
INVOLVED IN A TRANSACTION SUCH AS THE CONSOLIDATION.
The foregoing summary of Section 215 does not purport to be complete and
is qualified in its entirety by reference to Section 215. The failure of a
stockholder to follow the procedures set forth in Section 215 will terminate
such stockholder's appraisal rights. As a consequence, each stockholder of the
Bank who desires to exercise such rights should review Section 215 and follow
its provisions.
Shareholders are urged to read the Dissenters Statute, and should consult
with their own legal advisors regarding their rights in the event they desire
to dissent.
Accounting Treatment
It is intended that the consolidation of Bank and New Bank will be
accounted for in a manner similar to that for a pooling of interest.
MARKET PRICES OF STOCK
The Company
Merchants Bancorp, Inc. was incorporated on March 29, 1996. There is
one share of the Company's common stock outstanding which was issued to Paul
Pence, President of the Bank solely for organizational purposes. Such share
will be repurchased at its initial cost and cancelled simultaneous with the
consummation of the Merger. No shares of the Company have been traded since
the date of its incorporation to the present time. No market exists at this
time for the Company's stock. Bank shareholders will exchange their Bank stock
for Company stock. Currently, no established "over-the-counter" market exists
for Bank stock. Assuming the market for Company stock will be the same as for
Bank stock, it is not anticipated that an established "over-the-counter" market
will develop for Company stock.
20
<PAGE> 25
The Bank
There has been only a limited over-the-counter market for the Bank's
common stock. As of November 18, 1996, the Bank had shareholders. The
Bank's common stock is not listed on the National Association of Securities
Dealers' Automated Quotation System ("NASDAQ") or any other exchange. The Bank
is not aware of any securities dealer which is appropriate to classify as a
"market maker" in shares of the Bank. The latest trade known to management was
for 50 shares at a price of $301.50 per share on December 4, 1995. The average
trading price of shares of the Bank's Common Stock of which the Bank is aware
over the past three (3) years is as follows:
<TABLE>
<CAPTION>
Quarter Ended: Average Trading Price During Quarter:
- -------------- -------------------------------------
<S> <C>
September 30, 1993 *
December 31, 1993 *
March 31, 1994 *
June 30, 1994 *
September 30, 1994 *
December 31, 1994 $250.00
March 31, 1995 *
June 30, 1995 *
September 30, 1995 *
December 31, 1995 $301.50
March 31, 1996 *
June 30, 1996 *
September 30, 1996 *
</TABLE>
*Transactions during these quarters all were transfers without consideration or
sales for which the Bank has no information on pricing.
DIVIDENDS
The Company
Since the date of its incorporation, the Company has paid no dividends.
After consummation of the reorganization, the amount and timing of future
dividends will be determined by its Board of Directors and will substantially
depend upon the earnings and financial condition of its principal subsidiary,
the Resulting Bank. At the present time, the Company has no established
dividend policy.
21
<PAGE> 26
The Bank
The Bank last paid a dividend to shareholders on June 30, 1996, in the amount
of $3.00 per share or $300,000 in the aggregate. The Bank has adopted a policy
of regularly paying dividends in June and December of each year, assuming the
continued financial performance of the Bank. The history of dividends paid by
the Bank to its stockholders over the last three (3) years is as follows:
<TABLE>
<CAPTION>
Semi-Annual: Dividends Paid Semi-Annually:
- ------------ -----------------------------
<S> <C>
June 30, 1993 0.90
December 31, 1993 1.00
June 30, 1994 1.00
December 31, 1994 1.10
June 30, 1995 2.50
December 31, 1995 3.00
June 30, 1996 3.00
</TABLE>
The amount and timing of future dividends will be determined by the Board
of Directors of the Bank, and will depend upon the Bank's earnings and
financial condition, as well as upon federal economic policies and other
relevant factors. (See "SUPERVISION AND REGULATION.")
22
<PAGE> 27
CAPITALIZATION
The following table sets forth the capitalization of the Bank as of
December 31, 1995, and the pro forma capitalization of the Company as of
December 31, 1995, assuming that the reorganization had been consummated at
such date, that no shareholder of the Bank had exercised dissenters' rights,
and that the Company had redeemed and canceled the shares of New Bank issued
to the Company in connection with its formation at the price paid therefore.
<TABLE>
<CAPTION>
Bank New Bank Adjustments Company
(Actual) (Actual) (Pro Forma) (Pro Forma)(2)(3)
------------- ---------- --------------- -----------------
<S> <C> <C> <C> <C>
Shareholders' Equity
Common 2,000,000 100,000(1) (100,000)(1) 2,000,000
Surplus 1,600,000 20,000(1) (20,000)(1) 1,600,000
Undivided Profits 12,208,000 0 (12,208,000) 0
Undistributed
Profits of
- ----Subsidiary 0 12,208,000 12,208,000
Unrealized
gain/(loss) on
Investments
Securities 155,000(4) 155,000
Total Shareholders
Equity 15,963,000 120,000 (120,000) 15,963,000
</TABLE>
(1) Represents the capitalization of the New Bank in accordance with Federal
Banking Law which requires minimum capitalization of $120,000, of which,
pursuant to law, will be paid-in-capital at the effective time of the
consolidation of the Bank and the New Bank and will be immediately
withdrawn through a redemption of such stock by the Bank. The capital of
the Resulting Bank and the Company therefore will be equal to the capital
of the Bank immediately before the transaction and will not be affected by
the temporary capitalization of the New Bank.
(2) Reflects that the capital stock of the Bank is the sole investment of the
Company upon the consummation of the transaction.
(3) Does not reflect the effect of the incurrence of debt by the Company to
pay organizational costs estimated at $50,000. As of the date of this
proxy statement the Company has a line of credit which entitles the
Company to borrow up to $50,000 from an unaffiliated bank for the purpose
of paying expenses relating to the transaction contemplated by the
Agreement. Upon consummation of the transaction, the Resulting Bank will
pay a dividend to the Company which will be used to retire this debt.
(4) Represents unrealized loss on Investment securities classified as
"Available for Sale" under Statement of Financial Accounting Standards No.
115 "Accounting for Certain Investments in Debt and Equity Securities"
which became effective January 1, 1994.
FINANCIAL STATEMENTS
The Bank's audited Balance Sheets as of December 31, 1995, and 1994, the
related audited Statements of Income, Statements of Changes in Shareholders'
Equity, and Statements of Cash Flows for each of the two years ended December
31, 1995, are included in the Bank's Annual Report, which was sent to each
shareholder in connection with the annual meeting of shareholders held February
27, 1996. Financial statements of the Bank are not included herein as they are
not deemed material to the exercise of prudent judgment by shareholders with
respect to the matters to be acted upon at the Special Meeting. If any
shareholder so desires, he may obtain an additional copy of such financial
statements upon written request to Paul W. Pence, Jr., President, Merchants
National Bank, 100 North High Street, Hillsboro, Ohio 45133.
23
<PAGE> 28
Provided below is a five-year summary of selected financial data of the Bank.
SELECTED FINANCIAL DATA OF MERCHANTS NATIONAL BANK
AS OF OR FOR THE PERIOD ENDED DECEMBER 31,
(000'S EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS DATA: 1995 1994 1993 1992 1991
- ------------------------------ ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
TOTAL INTEREST INCOME $ 12,952 $ 11,236 $ 10,923 $ 11,188 $ 11,877
TOTAL INTEREST EXPENSE $ 5,948 $ 4,546 $ 4,700 $ 5,524 $ 7,036
--------- --------- --------- --------- --------
NET INTEREST INCOME $ 7,004 $ 6,690 $ 6,223 $ 5,664 $ 4,841
PROVISION FOR LOAN LOSSES ($100) ($708) ($1,145) ($644) ($705)
--------- --------- --------- --------- --------
NET INTEREST INCOME (NET PROVISION) $ 6,904 $ 5,983 $ 5,078 $ 5,020 $ 4,136
NONINTEREST INCOME $ 839 $ 731 $ 690 $ 488 $ 376
NONINTEREST EXPENSE (NET) $ 4,369 $ 4,039 $ 3,782 $ 3,342 $ 2,646
TAX $ 1,023 $ 812 $ 560 $ 648 $ 575
--------- --------- --------- --------- --------
NET INCOME $ 2,351 $ 1,863 $ 1,426 $ 1,519 $ 1,292
PER SHARE DATA:
- ---------------
NET INCOME(1) $ 23.51 $ 18.63 $ 14.26 $ 15.19 $ 12.92
BOOK VALUE(1) $ 159.63 $ 125.93 $ 123.54 $ 111.18 $ 97.69
CASH DIVIDENDS(1) $ 5.50 $ 2.10 $ 1.90 $ 1.70 $ 1.50
BALANCE SHEET DATA:
- -------------------
TOTAL ASSETS $176,834 $161,823 $156,216 $143,361 $132,276
TOTAL DEPOSITS $152,465 $141,492 $142,072 $130,628 $118,271
TOTAL NET LOANS $118,747 $104,126 $102,245 $ 97,455 $ 87,267
ALLOWANCE FOR LOAN LOSSES $ 1,469 $ 1,431 $ 1,174 $ 1,113 $ 972
NET SHAREHOLDER'S EQUITY $ 15,963 $ 12,593 $ 12,354 $ 11,118 $ 9,769
NONPERFORMING LOANS $ 807 $ 312 $ 970 $ 725 $ 358
CAPITAL RATIOS:
- ---------------
EQUITY TO ASSETS RATIO 9.03% 7.78% 7.91% 7.76% 7.39%
TIER 1 RISK-BASED 14.20% 13.90% 12.10% 11.40% N.A.
CAPITAL RATIO
TOTAL RISK-BASED CAPITAL 15.40% 15.10% 13.30% 12.60% N.A.
RATIO
OTHER RATIOS:
- -------------
ALLOWANCE FOR LOANS
LOSSES TO
NONPERFORMING LOANS 182.03% 458.65% 121.03% 153.52% 271.51%
RETURN ON AVERAGE ASSETS 1.39% 1.17% 0.95% 1.10% 1.02%
RETURN ON AVERAGE EQUITY (BEFORE FASB 115) 15.77% 14.13% 12.15% 14.54% 14.04%
DIVIDEND PAYOUT RATIO 23.39% 11.27% 13.32% 11.19% 11.61%
</TABLE>
(1)Adjusted to give effect to the 5-for-1 stock split on October 30, 1992.
24
<PAGE> 29
HISTORY AND BUSINESS OF THE COMPANY
General
The Company was incorporated under the laws of the State of Ohio on March
29, 1996, at the direction of management of the Bank, for the purpose of
becoming a bank holding company by acquiring all of the outstanding shares of
the Bank. Immediately prior to consummation of the reorganization, the Company
will own all of the stock of the New Bank. Thereafter, the New Bank will merge
with the Bank. Shareholders of the Bank will become shareholders of the
Company (subject to their dissenters' rights; see "THE PROPOSED
REORGANIZATION--Appraisal Rights of Dissenting Shareholders") and the Company
will become the sole shareholder of the Resulting Bank. The Resulting Bank
will carry on the business of the Bank and the New Bank under the name
"Merchants National Bank," without interruption. The principal office of the
Company is located at 100 North High Street, Hillsboro, Ohio 45133. A copy of
the Company's Articles of Incorporation is attached as Appendix III.
Competition
As the Company is a bank holding company in formation and currently
controls no banking subsidiaries, it is not engaged in competition with any
other bank or corporation. However, upon consummation of the reorganization,
the Bank will become a wholly owned subsidiary of the Company, and the
Company's competition will primarily be the same as that of the Bank's. (See
"HISTORY AND BUSINESS OF THE BANK--Competition.")
Employees
The Company has no employees other than its officers, each of whom is also
an employee and officer of the Bank and who serve in their capacity as officers
of the Company without compensation. Upon consummation of the reorganization,
the Company, whose sole business function will be to hold one hundred percent
(100%) of the Bank's stock, does not anticipate any immediate change in the
number of or status of its employee officers. The status of the Bank's current
employees is not expected to be affected by the reorganization.
Property
The Company is not currently engaged in any business activity and
currently owns no property. Upon consummation of the reorganization, the
Company will conduct its business from the Bank's offices. It is anticipated
that the Company will continue to operate its business from the offices of the
Bank immediately following the consummation of the acquisition of the Bank by
the Company. Because initially following the consummation of the transaction
the Company will not conduct any business other than its ownership of the
Bank's stock, the Company will not compensate the Bank for the use of office
space in the Bank's main office facility.
25
<PAGE> 30
Board of Directors
The present Directors of the Company are the same individuals who are
presently Directors of the Bank. (For information regarding the present
Directors of the Company, See "HISTORY AND BUSINESS OF THE BANK-Board of
Directors.") Directors of the Company will be elected to staggered three-year
terms commencing in 1997. Upon consummation of the reorganization, the
Directors of the Company will own the same percentage of Company stock, as they
currently own of Bank stock, assuming there are no dissenters to the
transaction who elect to receive the value of their shares in cash.
Remuneration of Directors and Officers
The Company has paid no remuneration, direct or otherwise, to its officers
and/or directors since its incorporation. Furthermore, it is not anticipated
that the Company's officers and Directors will initially be paid any additional
compensation by the Company.
Indemnification
Article Eighth of the Company's Amended Articles of Incorporation provides
for indemnification of various persons affiliated with the Company as follows:
ARTICLE EIGHT
The Corporation shall indemnify its present and past Directors,
officers, employees and agents, and such other persons as it shall have
powers to indemnify to the full extent permitted under, and subject to the
limitations of, Title 17 of the Ohio Revised Code. Additionally, and
subject to the limitations set forth below, the Corporation shall indemnify
its present and past Directors for personal liability for monetary damages
resulting from breach of their fiduciary duty as Directors.
Notwithstanding the above, no indemnification for personal liability shall
be provided for: (i) any breach of the Directors' duty of loyalty to the
Corporation or its shareholders; (ii) acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law; and
(iii) illegal distribution of dividends; and (iv) any transaction from which
the Director derived an improper personal benefit.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES
ACT OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS, OR PERSONS CONTROLLING THE
COMPANY PURSUANT TO THE FOREGOING PROVISIONS, THE COMPANY HAS BEEN INFORMED
THAT, IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION, SUCH
INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE SECURITIES ACT OF
1933, AND IS THEREFORE UNENFORCEABLE.
Additionally, the provisions regarding indemnification may not be
applicable under certain federal banking laws and regulations. For a complete
description of the provisions regarding indemnification provided by the Company
see "DESCRIPTION OF COMMON STOCK--COMPARATIVE RIGHTS, Indemnification" of this
Proxy Statement.
26
<PAGE> 31
The Company's provisions regarding indemnification are for the personal
benefit of the directors, officers, employees and agents of the Company.
The reorganization of the Bank into a subsidiary of the Company is not
expected to have any effect, positive or negative, on the Bank nor the
Company's ability to obtain officers and directors indemnification insurance
nor the rates at which such insurance is available.
HISTORY AND BUSINESS OF THE BANK
General
The Bank has operated in Hillsboro as a national banking association since
its charter was issued on December 26, 1879. The Bank has grown through the
opening of its own branches as well as the acquisition of three branches from
Banc Ohio in Greenfield, Ohio in 1987 and one branch from Savings of America in
1993.
The Bank provides customary retail and commercial banking services to its
customers, including checking and savings accounts, time deposits, safe deposit
facilities, personal loans, real estate mortgage loans, installment loans, IRAs
and night depository facilities.
The Bank's deposits are insured by the Federal Deposit Insurance
Corporation ("FDIC") to applicable legal limits and the Bank is supervised and
regulated by the Office of the Comptroller of the Currency.
Competition
The Bank operates in a highly competitive industry, due to the Ohio law
permitting statewide branching by banks and savings and loan associations, and
credit unions. Ohio law also permits nationwide interstate banking. The
Bank's main competition comes from other commercial banks, national and state
savings and loan institutions, security dealers, mortgage bankers, financial
companies and insurance companies.
Banks generally compete with other financial institutions through the
banking products and services offered, the pricing of services, the level of
service provided, the convenience and availability of services, and the degree
of expertise and personal manner in which these services are offered. The Bank
encounters strong competition from most of the financial institutions in the
Bank's extended market area.
Employees
As of September 30, 1996, the Bank had 73 full-time employees and 12
part-time employees. The Bank provides a number of benefits for its full-time
employees, including health and life insurance, workers' compensation, social
security, paid vacations, numerous bank
27
<PAGE> 32
services and a Bonus Plan, Defined Benefit Retirement Plan and Profit
Sharing and 401K Retirement Plan.
Property
The Bank owns and operates its main office at 100 North High Street,
Hillsboro, Ohio 45133, and full-service branch offices at: (i) 1478 North High
Street, Hillsboro, Ohio 45133; (ii) 128 South North Street, Washington Court
House, Ohio 43160; (iii) 117 South Washington Street, Greenfield, Ohio 45123;
(iv) 102 Jefferson Street, Greenfield, Ohio 45123; and a ATM locations at: (i)
100 North High Street, Hillsboro, Ohio 45133; (ii) 128 South North Street,
Washington Court House, Ohio 43160; (iii) 102 Jefferson Street, Greenfield,
Ohio 45123; and (iv) 1086 North High Street, Hillsboro, Ohio 45133, at Bob &
Carl's Finer Foods.
Litigation
There is no pending litigation to which the Company, the Bank or the New
Bank is a party, other than routine litigation incidental to the business of
the Bank. Further, there is no material legal proceeding in which any
Director, executive officer, principal shareholder, or affiliate of the
Company, the Bank or the New Bank or any associate of any such Director,
executive officer, or principal shareholder is a party and has a material
interest adverse to the Company, the Bank or the New Bank. None of the routine
litigation in which the Bank is involved is expected to have a material adverse
impact upon the financial position or results of operations of the Company, the
Bank or the New Bank.
Board of Directors
The Bank's Board of Directors is presently composed of 8 members, elected
annually.
The following table sets forth for each of the directors, name, age (as of
September 30, 1996), principal occupation(s) during the past five years, the
year they first became a director, year of expiration of the current term as a
director, and the number of shares of the Bank beneficially owned by such
person.
28
<PAGE> 33
<TABLE>
<CAPTION>
SHARES OF BANK
STOCK BENEFICIALLY PERCENT OF TOTAL PRINCIPAL
NAME AGE OWNED AS OF 11/1/96 OUTSTANDING DIRECTOR SINCE OCCUPATION
<S> <C> <C> <C> <C> <C>
Paul W. Pence, Jr. 38 250 0.25% 1981 President, CEO and
Director of Bank
Donald E. Fender, Jr. 58 13,566.67 (1) 13.57% 1972 Owner Donald E.
Fender Realty,
Inc..
Jack Walker 68 725 (2) 0.275% 1974 Retired Insurance
Consultant
Paul W. Pence, Sr. 81 6,341.67 (3) 6.34% 1964 Retired, Former
President of the
Bank
Charles A. Davis 61 50 0.05% 1983 Retired Charles
Davis Motor Sales
William Butler 60 1,360 (4) 1.36% 1983 Vice President,
Union Stock Yards
James R. Vanzant 49 50 0.05% 1992 Veterinarian
Robert L. Hammond 53 50 0.05% 1994 Attorney at Law
</TABLE>
(1) Includes 12,566.666 shares owned individually by Donald E. Fender, Jr.
and 1,000.000 shares owned jointly with Ann F. Fender.
(2) Includes 675.000 shares owned individually by Jack Walker and 50.000
shares owned jointly with Patricia Walker.
(3) Includes 4,958.345 shares owned individually by Paul W. Pence, Sr. and
1,383.332 shares owned individually by Margaret Pence.
(4) Includes 1,250.000 shares owned individually by William Butler and
110.000 shares owned individually by Janet S. Butler.
The following is a list of the executive officer of the Bank, other than
Paul W. Pence, Jr., who is listed above, together with share ownership
information:
<TABLE>
<CAPTION>
NO. OF SHARES
BENEFICIALLY OWNED IN
OFFICER TITLE BANK AS OF 11/1/96 % OWNERSHIP
- -------------- ------------------------ --------------------- -----------
<S> <C> <C> <C>
James D. Evans Executive Vice President 275 0.275%
</TABLE>
As of November 18, 1996, the record date, the Board of Directors and executive
management of the Bank own in the aggregate shares or % of the
outstanding shares of the Bank.
29
<PAGE> 34
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Bank conducts its business through meetings
of the Board. During the fiscal year ended December 31, 1995, the Board of
Directors of the Bank held a total of twenty-five (25) regular and special
meetings. Each director of the Bank attended at least 75 percent of the total
meetings of the Board and committees on which such Board member served during
this period.
The following table describes the standing committees of the Board of
Directors and identifies the directors serving on each committee as of December
31, 1995:
<TABLE>
<CAPTION>
Number of Meetings
Board Committee Function Held-1995 Directors Serving
- -------------------- -------------------- -------------------- ----------------------------------
<S> <C> <C> <C>
Salary and personnel Conducts 1 Donald Fender-Chairman
performance reviews Paul Pence, Sr.
of the President Jack Walker
and Executive Vice Robert Hammond
President and
additional
personnel with the
Executive Officers
input; establishes
bonuses and annual
salary increases
and to discusses
any other
compensation and
personnel issues.
Loan Reviews proposed 24 Board as a whole acts
loans and monitors as the Loan Committee
loan portfolio
quality by
reviewing existing
loans and
establishes loan
loss reserves.
Audit Responsible for 1 Board as a whole acts
audit of the Bank as the Audit Committee
and monitoring with reports received
follow-through on from the Internal
any corrective Auditor; Paul W.
measures deemed Pence, Jr., President
necessary. All of the Bank is not
serving must be present for such
outside directors. presentations.
Investment Responsible for the 2 Donald Fender, Chairman
Investments Paul Pence, Sr.
Portfolio of the Jack Walker
Bank and compliance Robert Hammond
with the Bank's
Investment Policy;
reviews information
on GAP position and
interest rates;
acts as Asset
Liability Committee
</TABLE>
30
<PAGE> 35
<TABLE>
<CAPTION>
Number of Meetings
Board Committee Function Held-1995 Directors Serving
- ------------------ -------------------- -------------------- ----------------------------------
<S> <C> <C> <C> <C>
Strategic Planning Responsible for 3 Donald Fender, Chairman
long range planning Paul Pence, Jr.
for the Bank Additional Bank
Personnel
Insurance Responsible for 0 Jack Walker, Chairman
maintaining James Vanzant
appropriate William Butler
insurance for the Robert Hammond
Bank
</TABLE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary of Cash and Certain Other Compensation
The following table provides certain summary information concerning
compensation paid or accrued by the Corporation and/or its subsidiaries, to or
on behalf of the Bank's Chief Executive Officer for the fiscal years ended
December 31, 1995 and 1994, and to all executive officers as a group during
1995:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
All Other
Name and Principal Position Year Salary($) Bonus($) Compensation($) (1)
- ------------------------------ ---- --------- -------- -------------------
<S> <C> <C> <C> <C>
Paul W. Pence, Jr. , President 1995 $100,000 $25,610 $9,105
Merchants National Bank 1994 94,500 11,090 4,613
1993 90,000 22,982 9,191
James D. Evans 1995 $82,500 10,670 $10,034
Executive Vice President 1994 78,750 4,620 7,828
1993 75,000 9,576 9,575
All Executive Officers as a
Group (two (2) in number) 1995 $237,919 (2)
</TABLE>
(1) The Bank pays for an automobile as a "fringe benefit" for its Executive
Officers which is not available to employees in general. Includes the Bank's
Defined Benefit Plan and 401K Plan contribution on behalf of Mr. Pence and Mr.
Evans.
(2) Includes Mr. Pence and Mr. Evansand and includes all compensation paid.
31
<PAGE> 36
Directors' Compensation
Directors are paid an annual retainer of $6,000, $250 per Regular Meeting
of the Board of Directors (held twice per month), $75 for each Special Meeting
of the Board of Directors, if any, and $75 for each Committee Meeting attended.
Bonus Plan
All of the employees of the Bank who are full time or permanent part time
employees as of the end of the year are eligible to participate in and Bonus
Plan adopted by the Board of Directors in May of 1988. The Plan pays a bonus
to all employees based upon the return on average equity of the Bank for the
prior year. The payments are based on a scale ranging from payment of a three
percent (3%) bonus for return on average equity of 11% to a payment of 14% for
return on average equity of 16.5%. The Executive Officers can receive a
greater percentage under the plan, which amounts are included in the
compensation table above. The payments are allocated based upon the percentage
of salary of the individual employee as compared to the total salary paid to
all employees. In 1995, the return on average equity of the Bank was 15.77 %
which resulted in bonus payments of $321,386 to 79 employees.
Defined Benefit Retirement Plan
The Board of Directors amended The Merchants National Bank Defined Benefit
Retirement Plan (the "Plan") effective as of May, 1989. Each employee of the
Bank who is at least 21 years of age and has completed one year of "eligibility
service" is entitled to participate in the Plan. Pursuant to the Plan, the
Bank contributes to a separate trust account on behalf of employees of the Bank
an amount determined by an independent actuary necessary to provide the
benefits set forth in the Plan. Benefits from the Plan become available to the
employee upon retirement, or in the event of death or disability. If
employment is terminated prior to normal retirement, the employee receives all
"vested" contributions based upon an established vesting schedule.
As of December 31, 1995, 63 employees were participating in the Plan.
During 1995, the Bank contributed $93,213 to the Plan.
Employee Vesting Schedule
<TABLE>
<CAPTION>
Years of Service Percentage
---------------- ----------
<S> <C>
Less than 5 -0-
5 years or more 100%
</TABLE>
32
<PAGE> 37
Profit Sharing and 401K Savings Retirement Plan
The Bank has a Profit Sharing and 401K Savings Retirement Plan (the "401K
Plan") which covers substantially all of its employees. The 401K Plan was
adopted in 1994. The purpose of the 401K Plan is to allow the employees of the
Bank the opportunity to allow the employees of the Bank to provide for their
retirement through a tax deferred program to which the Bank also may
contribute. An employee may participate in the 401K Plan after having worked
for the Bank for one year and after having reached the age of 21. The
contributions to the 401K Plan are made by the employee and are limited to the
greater of 15% of the employees' income or $9,500. The Bank may, but is not
required to, "match" contributions made by the employees. During 1995, the
Bank contributed $0.50 for each $1.00 contributed by the employee on the first
4% of the employee's income. The Bank also has the right under the 401K Plan
to make additional discretionary contributions on behalf of employees. Three
Directors of the Bank, Messrs. Fender, walker and Pence, Jr. act as Trustees
under the 401K Plan. The employees have the option of investing in various
funds to met their investment objectives. The employee is entitled to the full
value of their 401K Plan at the time of retirement, death or permanent
disability. An employee is entitled to receive the full "vested" portion of
his or her account upon other termination from the Bank but forfeits the
unvested portion.
Employee Vesting Schedule
<TABLE>
<CAPTION>
Number of Years of Service Percentage
- -------------------------- ----------
<S> <C>
0-5 years 0%
5 years 100%
</TABLE>
As of December 31, 1995, 61 employees were participating in the 401K Plan.
During 1995, the Bank contributed $19,284 to the Plan.
Stock Option Plans
The Board of Directors has not adopted, nor have the shareholders
authorized, any stock option plans or other qualified benefit plans for the
benefit of any Bank officer, director, or key employee as of the date of this
Proxy Statement.
CERTAIN TRANSACTIONS
There are no existing or proposed material transactions between the Bank
and any of the Bank's officers, directors, or the immediate family or
associates of any of the foregoing persons, except as indicated below:
Some of the directors of the Bank, as well as the companies with which
such directors are associated, are customers of, and have had banking
transactions with the Bank in the ordinary course of the Bank's business and
the Bank expects to have such ordinary banking transactions
33
<PAGE> 38
with such persons in the future. In the opinion of management of the
Bank, all loans and commitments to lend included in such transactions were made
in compliance with applicable laws on substantially the same terms, including
interest rates and collateral, as those prevailing for comparable transactions
with other persons of similar creditworthiness and did not involve more than a
normal risk of collectability or present other unfavorable features.
The Bank expects to have in the future, banking transactions, in the
ordinary course of its business with directors, officers, principal
shareholders, and their associates, on substantially the same terms, including
interest rates and collateral on loans, as those prevailing at the same time
for comparable transactions with others and which do not involve more than the
normal risk of collectability or present other unfavorable features.
SUPERVISION AND REGULATION
The following is a summary of certain statutes and regulations affecting
the Company. This summary is qualified in its entirety by such statutes and
regulations.
The Company
The Company is a registered bank holding company under the Bank Holding
Company Act of 1956 (the "Banking Act") as amended, and as such is subject to
regulation by the Federal Reserve Board (FRB). A bank holding company is
required to file with the FRB annual reports and other information regarding
its business operations and those of its subsidiaries. A bank holding company
and its subsidiary banks are also subject to examination by the FRB.
The Banking Act requires every bank holding company to obtain the prior
approval of the FRB before acquiring substantially all the assets of any bank
or bank holding company or ownership or control of any voting shares of any
bank or bank holding company, if, after such acquisition, it would own or
control, directly or indirectly, more than five percent (5%) of the voting
shares of such bank or bank holding company.
In approving acquisitions by bank holding companies of companies engaged
in banking-related activities, the FRB considers whether the performance of any
such activity by a subsidiary of the holding company reasonably can be expected
to produce benefits to the public, such as greater convenience, increased
competition, or gains in efficiency, which outweigh possible adverse effects,
such as overconcentration of resources, decrease of competition, conflicts of
interest, or unsound banking practices.
Bank holding companies are restricted in, and subject to, limitations
regarding transactions with subsidiaries and other affiliates.
34
<PAGE> 39
Bank
The Bank is regulated by the Office of the Comptroller of the Currency
("OCC") as a national banking association organized under the laws of the
United States. Deposits of the Bank are insured by the Federal Deposit
Insurance Corporation ("FDIC") and thus the Bank is subject to certain FDIC
rules and regulations. The regulatory agencies have the authority to regularly
examine the Bank and the Bank is subject to the regulations promulgated by its
supervisory agencies.
Capital
The FRB, OCC, and FDIC require banks and holding companies to maintain
minimum capital ratios.
In December 1988, the FRB approved final "risk-adjusted" capital
guidelines for bank holding companies. The new guidelines became fully
implemented as of December 31, 1992. The FDIC has adopted substantially
similar risk-based capital guidelines. These ratios involve a mathematical
process of assigning various risk weights to different classes of assets, then
evaluating the sum of the risk-weighted balance sheet structure against the
Company's capital base. The rules set the minimum guidelines for the ratio of
capital to risk-weighted assets (including certain off-balance sheet
activities, such as standby letters of credit) at 8 percent. At least half of
the total capital is to be composed of common equity, retained earnings, and a
limited amount of perpetual preferred stock less certain goodwill items ("Tier
1 Capital"). The remainder may consist of a limited amount of subordinated
debt, other preferred stock, or a limited amount of loan loss reserves. At
September 30, 1996, on a pro forma basis as if the transaction had been
consummated on such date, the Company's consolidated risk-adjusted Tier 1
Capital and total capital, as defined by the regulatory agencies based on the
fully phased in 1992 guidelines, were _____ percent and _____ percent of
risk-weighted assets, respectively, well above the 4 percent and 8 percent
minimum standards mandated by the regulatory agencies.
In addition, the federal banking regulatory agencies have adopted leverage
capital guidelines for banks and bank holding companies. Under these
guidelines, banks and bank holding companies must maintain a minimum ratio of
three percent (3%), Tier 1 Capital (as defined for purposes of the year-end
1992 risk-based capital guidelines) to total assets. However, most banking
organizations are expected to maintain capital ratios well in excess of the
minimum levels and generally must keep such Tier 1 ratio at or above 5 percent.
As of September 30, 1996, on a pro forma basis as if the transaction had been
consummated on such date, the Company's core leverage ratio was _____ percent,
well above the regulatory minimum.
Regulatory authorities may increase such minimum requirements for all
banks and bank holding companies or for specified banks or bank holding
companies. Increases in the minimum required ratios could adversely affect the
Bank and the Company, including their ability to pay dividends.
35
<PAGE> 40
Additional Regulation
The Bank is also subject to federal regulation as to such matters as
required reserves, limitation as to the nature and amount of its loans and
investments, regulatory approval of any consolidation or consolidation,
issuance or retirement by the Bank of its own securities, limitations upon the
payment of dividends and other aspects of banking operations. In addition, the
activities and operations of the Bank are subject to a number of additional
detailed, complex and sometimes overlapping laws and regulations. These
include state usury and consumer credit laws, laws relating to fiduciaries, the
Federal Truth-in-Lending Act and Regulation Z, the Federal Equal Credit
Opportunity Act and Regulation B, the Fair Credit Reporting Act, the Truth in
Savings Act, the Community Reinvestment Act, antiredlining legislation and
antitrust laws.
Dividend Regulation
The ability of the Company to obtain funds for the payment of dividends
and for other cash requirements is largely dependent on the amount of dividends
which may be declared by its subsidiary, the Bank. Generally, a national
banking association may not declare a dividend, without the approval of the OCC
if the total of dividends declared by such bank in a calendar year exceeds the
total of its net profits for that year combined with its retained profits of
the preceding two years. In addition, national banks are subject to dividend
regulation by their primary federal bank regulatory agency in connection with
general supervisory authority as it relates to a bank's requirement to maintain
adequate capital.
Government Policies and Legislation
The policies of regulatory authorities, including the OCC, FRB, FDIC and
the Depository Institutions Deregulation Committee, have had a significant
effect on the operating results of commercial banks in the past and are
expected to do so in the future. An important function of the Federal Reserve
System is to regulate aggregate national credit and money supply through such
means as open market dealings in securities, establishment of the discount rate
on member bank borrowings, and changes in reserve requirements against member
bank deposits. Policies of these agencies may be influenced by many factors,
including inflation, unemployment, short-term and long-term changes in the
international trade balance and fiscal policies of the United States
government.
The United States Congress has periodically considered and adopted
legislation which has resulted in further deregulation of both banks and other
financial institutions, including mutual funds, securities brokerage firms and
investment banking firms. No assurance can be given as to whether any
additional legislation will be adopted or as to the effect such legislation
would have on the business of the Bank or the Company.
In addition to the relaxation or elimination of geographic restrictions on
banks and bank holding companies, a number of regulatory and legislative
initiatives have the potential for eliminating many of the product line
barriers presently separating the services offered by commercial banks from
those offered by nonbanking institutions. For example, Congress
36
<PAGE> 41
recently has considered legislation which would expand the scope of
permissible business activities for bank holding companies (and in some cases
banks) to include securities underwriting, insurance services and various real
estate-related activities as well as allowing interstate branching.
Recent Legislation
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") was enacted in 1991. Among other things, FDICIA, requires federal
bank regulatory authorities to take "prompt corrective action" with respect to
banks that do not meet minimum capital requirements. For these purposes,
FDICIA establishes five capital tiers: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized, and critically
undercapitalized.
The FRB and the FDIC have adopted regulations to implement the prompt
corrective action provisions of FDICIA. Among other things, the regulations
define the relevant capital measures for the five capital categories. An
institution is deemed to be "well capitalized" if it has a total risk-based
capital ratio (total capital to risk-weighted assets) of 10 percent or
greater, a Tier 1 risk-based capital ratio (Tier 1 Capital to risk-weighted
assets) of 6 percent or greater, and a Tier 1 leverage capital ratio (Tier 1
Capital to total assets) of 5 percent or greater, and is not subject to a
regulatory order, agreement or directive to meet and maintain a specific
capital level for any capital measure. An institution is deemed to be
"adequately capitalized" if it has a total risk-based capital ratio of 8
percent or greater, a Tier 1 risk-based capital of 4 percent or greater, and
(generally) a Tier 1 leverage capital ratio of 4 percent or greater, and the
institution does not meet the definition of a "well capitalized" institution.
An institution is deemed to be "critically undercapitalized" if it has a ratio
of tangible equity (as defined in the regulations) to total assets that is
equal to or less than 2 percent. "Undercapitalized" banks are subject to
growth limitations and are required to submit a capital restoration plan. If
an "undercapitalized" bank fails to submit an acceptable plan, it is treated as
if it is significantly undercapitalized. "Significantly undercapitalized"
banks may be subject to a number of requirements and restrictions, including
orders to sell sufficient voting stock to become adequately capitalized,
requirements to reduce total assets, and cessation of receipt of deposits from
correspondent banks. "Critically undercapitalized" institutions may not,
beginning 60 days after becoming "critically undercapitalized," make any
payment of principal or interest on their subordinated debt.
The Bank currently meets the regulatory definition of a "well capitalized"
financial institution.
FDICIA directs that each federal banking agency prescribe standards for
depository institutions and depository institution holding companies relating
to internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation, a maximum ratio of classified assets to capital, minimum earnings
sufficient to absorb losses, a minimum ratio of market value to book value for
publicly traded shares and such other standards as the agency deems
appropriate. Such standards
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have not yet been promulgated and, therefore, their impact on the
Company cannot be ascertained.
On September 29, 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Act") was signed into law. This
Interstate Act effectively permits nationwide banking. The Interstate Act
provides that one year after enactment, adequately
capitalized and adequately managed bank holding companies may acquire banks in
any state, even in those jurisdictions that currently bar acquisitions by
out-of-state institutions, subject to deposit concentration limits. The
deposit concentration limits provide that regulatory approval by the Federal
Reserve Board may not be granted for a proposed interstate acquisition if after
the acquisition, the acquirer on a consolidated basis would control more than
10 percent of the total deposits nationwide or would control more than 30
percent of deposits in the state where the acquiring institution is located.
The deposit concentration state limit does not apply for initial acquisitions
in a state and may be waived by the state regulatory authority. Interstate
acquisitions are subject to compliance with the Community Reinvestment Act
("CRA"). States are permitted to impose age requirements not to exceed five
years on target banks for interstate acquisitions. States are not allowed to
opt-out of interstate banking. National banks are impacted as well as the OCC
generally refers to state law to determine appropriate branching provisions for
a national bank located in a particular state.
Branching between states may be accomplished either by merging separate
banks located in different states into one legal entity, or by establishing de
novo branches in another state. Consolidation of banks is not permitted until
June 1, 1997 provided that the state has not passed legislation "opting-out" of
interstate branching. If a state opts-out prior to June 1, 1997, then banks
located in that state may not participate in interstate branching. A state may
opt-in to interstate branching by bank consolidation or by de novo branching by
passing appropriate legislation earlier than June 1, 1997. Interstate branching
is also subject to a 30 percent statewide deposit concentration limit on a
consolidated basis, and a 10 percent nationwide deposit concentration limit.
The laws of the host state regarding community reinvestment, fair lending,
consumer protection (including usury limits) and establishment of branches
shall apply to the interstate branches.
De novo branching by an out-of-state bank is not permitted unless the host
state expressly permits de novo branching by banks from out-of-state. The
establishment of an initial de novo branch in a state is subject to the same
conditions as apply to initial acquisition of a bank in the host state other
than the deposit concentration limits.
Effective one year after enactment, the Interstate Act permits bank
subsidiaries of a bank holding company to act as agents for affiliated
depository institutions in receiving deposits, renewing time deposits, closing
loans, servicing loans and receiving payments on loans and other obligations.
A bank acting as agent for an affiliate shall not be considered a branch of the
affiliate. Any agency relationship between affiliates must be on terms that
are consistent with safe and sound banking practices. The authority for an
agency relationship for receiving deposits includes the taking of deposits for
an existing account but is not meant to include the opening or origination of
new deposit accounts. Subject to certain conditions, insured saving
associations
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which were affiliated with banks as of June 1, 1994, may act as agents
for such banks. An affiliate bank or saving association may not conduct any
activity as an agent which such institution is prohibited from conducting as a
principal. If an interstate bank decides to close a branch located in a low-
or moderate-income area, it must comply with additional branch closing notice
requirements. The appropriate regulatory agency is authorized to consult with
community organizations to explore options to maintain banking services in the
affected community where the branch is to be closed.
To ensure that interstate branching does not result in taking deposits
without regard to a community's credit needs, the regulatory agencies are
directed to implement regulations prohibiting interstate branches from being
used as "deposit production offices." The regulations to implement its
provisions are due by June 1, 1997. The regulations must include a provision
to the effect that if loans made by an interstate branch are less than fifty
percent of the average of all depository institutions in the state, then the
regulator must review the loan portfolio of the branch. If the regulator
determines that the branch is not meeting the credit needs of the community, it
has the authority to close the branch and to prohibit the bank from opening new
branches in that state.
On November 18, 1993, the FDIC, together with the Federal Reserve, the OCC
and the Office of Thrift Supervision (the "OTS"), published for comment
proposed rules implementing the FDICIA requirement that the federal banking
agencies establish operational and managerial standards to promote the safety
and soundness of federally insured depository institutions. The proposal would
establish standards for internal controls, information systems, internal audit
systems, loan documentation, credit underwriting, interest rate exposure, asset
growth, and compensation, fees and benefits. In general, the standards set
forth in the proposal consist of the goals to be achieved in each area, and
each institution would be responsible for establishing its own procedures to
achieve those goals. Additionally, the proposal would establish a maximum
permissible ratio of classified assets to capital and a minimum required
earnings ratio. If an institution failed to comply with any of the standards
set forth in the proposal, the institution would be required to submit to its
primary federal regulator a plan for achieving and maintaining compliance.
Failure to submit an acceptable plan, or failure to comply with a plan that has
been accepted by the appropriate regulator, would constitute grounds for
further enforcement action. Based upon a review of the proposal, management of
the Bank believes that the proposal, if adopted in substantially the form
proposed, will not have a material adverse effect on the Bank.
On May 17, 1995, the FDIC, together with the Federal Reserve, the OCC and
the OTS issued new regulations under the Community Reinvestment Act ("CRA").
Under the regulations, an institution's performance in meeting the credit needs
of its entire community, including low-and moderate income areas, as required
by the CRA, is generally to be evaluated under three tests: the "lending test,"
which would consider the extent to which the institution makes loans in the
low- and moderate-income areas of its market; the "service test," which
considers the extent to which the institution makes branches accessible to low-
and moderate-income areas of its market and provides other services that
promote credit availability; and the "investment test," which considers the
extent to which the institution invests in community and economic development
activities. Because the Bank is defined as a "small institution" under the new
rules
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(i.e., one with less than $250 million in total assets), the
regulations will focus upon the "lending test" specified above. The new
regulations will be used to evaluate CRA compliance commencing July 1, 1995 and
were fully phased in on January 1, 1996. Based upon a review of the
regulations, management of the Bank does not anticipate that the regulations
will adversely affect the Bank. The Bank currently complies with the CRA
through use of an alternate method of "self-analysis" that allows the Bank to
monitor its own response in meeting the needs of the communities that it serves
and the Bank should not be significantly affected by these changes.
On September 30, 1996, legislation was signed by the President to
combine the Bank Insurance Fund ("BIF") and the Savings Association Insurance
Fund ("SAIF") of the FDIC. The legislation, known as the Deposit Insurance
Funds Act of 1996, provides for a special assessment of .657% (65.7 basis
points) on institutions that pay assessments to the SAIF. The Bank does not
pay assessments to the SAIF. The legislation also provides for the payment of
interest on bonds issued in connection with the clean up of the savings
and loan crisis by both banks and savings associations. Beginning in 2000
banks and thrifts will pay deposit insurance of $0.0243 per $100 in deposits
which is an increase from that currently paid by banks. Because of the recent
adoption of the law, it is not possible to accurately predict what impact, if
any, this will have upon the Bank or the Company in the future.
Proposed Legislation
There have been proposed a number of legislative and regulatory proposals
designed to strengthen the federal deposit insurance system and to improve the
overall financial stability of the U.S. banking system. It is impossible to
predict whether or in what form these proposals may be adopted in the future,
and if adopted, what their effect would be on the Company.
DESCRIPTION OF COMMON STOCK--COMPARATIVE RIGHTS
General
The authorized common stock of the Company consists of one million five
hundred thousand (1,500,000) shares of voting common stock, without par value.
The authorized capital stock of the Bank consists of one hundred thousand
(100,000) shares of Twenty Dollar ($20.00) par value per share, all of which
shares are outstanding.
Assuming the consummation of the transaction contemplated by the
Agreement, and subject to the exercise of dissenters' rights of appraisal, the
Company will issue One Million (1,000,000) shares of its no par value common
stock to existing shareholders of the Bank on the basis of ten (10) shares of
Company common stock for each share of $20.00 par value common stock of the
Bank. Assuming no dissenters to the transaction, the Company will, immediately
upon the effective date of the transaction contemplated by the Agreement, have
a capital structure of one million five hundred thousand (1,500,000) authorized
shares of no par value common stock of which one million (1,000,0000) shares
will then be issued and outstanding.
Voting Rights
Each share of common stock of the Company and the Bank entitles the holder
thereof to one (1) vote on all matters except for the election of directors
where shareholders are entitled to vote cumulatively. Under Ohio General
Corporation Law and the Articles of Incorporation of the Company, shareholders
of the Company will continue to have cumulative voting rights. (See
"DESCRIPTION OF COMMON STOCK COMPARATIVE RIGHTS--Cumulative Voting.") Pursuant
to the Company's Code of Regulations, the affirmative vote of 66 2/3 percent of
the shares represented at a duly called meeting for such purpose may remove any
one or all of the directors of the Company. Pursuant to federal banking law,
the affirmative vote of a majority (greater than 50 percent) of the shares
represented at a duly called meeting for such purpose may
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remove any one or all of the directors. A special meeting of
shareholders of the Bank may be called by shareholders of the Bank who own not
less than twenty-five percent (25%) of the voting power of the Bank.
Similarly, a special meeting of shareholders of the Company may be called by
shareholders who own in the aggregate not less than twenty-five percent (25%)
of the stock of the Company.
Antitakeover Measures
A vote of the holders of at least two-thirds (2/3) of the issued and
outstanding common shares of capital stock of the Bank is required to
effectuate a voluntary liquidation of the Bank, reorganization of the Bank,
merger or consolidation of the Bank with another bank, or the increase or
decrease of the Bank's authorized or outstanding capital stock. A two-thirds
(2/3) vote of the issued and outstanding stock is also required for such
transactions of the Company, unless a higher or lower voting requirement is
established in the Company's Articles of Incorporation. Pursuant to the
Articles of Incorporation of the Company, a majority vote of the issued and
outstanding shares is sufficient to amend the Articles of Incorporation of the
Company, other than Article Sixth. In accordance with Article Sixth of the
Articles of Incorporation of the Company a "business combination" (which
includes any merger or consolidation; sale, lease exchange, mortgage, pledge or
other disposition of greater than 10 percent of the assets of the Company;
issuance or sale of any securities of the Company; adoption of a plan of
liquidation by the Company) requires the approval of eighty percent (80%) of
the total outstanding shares of common stock and sixty-six and two-thirds
percent (66 2/3%) of the outstanding shares of common stock held by the
Independent Shareholders (as defined in Article Sixth), unless such "Business
Combination" has been approved by the "Continuing Directors." In addition,
amendment of Article Sixth of the Company's Articles of Incorporation may also
require the vote of eighty percent (80%) of the Company's outstanding shares
and shares held by sixty-six and two-thirds percent (66 2/3%) of the
Independent Shareholders if such amendment is not approved by the Continuing
Directors as defined by Article Sixth. Because the Executive officers and
Directors of the Company will own approximately 22.67%% percent of the shares
of the Company (assuming consummation of the proposed consolidation and
assuming there are no dissenting shareholders to the transaction), a "Business
Combination" with an Interested Shareholder may be difficult to approve without
the consent of the Continuing Directors (as such term is defined by Article
Sixth) and Management. The Bank currently has no antitakeover provision which
is substantially similar to Article Sixth of the Company's Articles of
Incorporation. (See "ANTITAKEOVER MEASURES.")
Right of Redemption
The Bank has limited ability to buy its outstanding shares (redeem its
shares) from its shareholders. The Company is specifically empowered by its
Articles of Incorporation and Ohio General Corporation Law to buy its shares of
outstanding common stock from its shareholders, at the mutual accord of the
shareholder and Company.
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Liquidation Rights
In the event of liquidation, holders of common stock of the Company and
the Bank are entitled to similar rights as to assets distributable to
shareholders on a pro rata basis.
Preemptive Rights
Holders of common stock of the Company will not have the preemptive right
to subscribe for or to purchase any additional securities which may be issued
by the Company as provided by the Ohio General Corporation Law. Holders of
common stock of the Bank currently do have preemptive rights to subscribe for
or to purchase additional securities issued by the Bank as provided by federal
banking law.
Preemptive rights permit a shareholder to subscribe to a sufficient number
of shares so as to maintain their relative pro rata ownership upon the issuance
of additional shares by a corporation, except in certain circumstances.
Dissenters' Rights
Shareholders of the Corporation and the Bank have similar dissenters'
rights in certain transactions pursuant to federal banking and Ohio general
corporate law. Under Section 1701.85 of the Ohio Revised Code, and Section 215
of Title 12 of the United States Code, shareholders of the Company and the Bank
may elect to dissent from a merger, consolidation or sale of substantially all
of the assets of an Ohio corporation and a national bank and receive the fair
cash value of their shares.
Cumulative Voting
Each share of common stock of the Company and Bank entitles the holder
thereof to one (1) vote on all matters except for the election of directors
where shareholders are entitled to vote cumulatively. The shareholders of the
Bank currently have the right to cumulate their shares in the election of
Directors. Shareholders of the Company will have cumulative voting rights as
required by Ohio law. The Company may, as permitted by Section 1701.69 of the
Ohio Revised Code, propose to shareholders that the Articles of Incorporation
of the Company be amended to delete the right to vote cumulatively in the
election of Directors. In the event the Company would propose such an
amendment to shareholders, all shareholders would be entitled to notice of the
proposed amendment as provided by law and such an amendment would be subject to
other requirements as to the number of shares which could be voted against the
proposed amendment. The adoption of such amendment would require the
affirmative vote of the holders of a majority of the stock entitled to vote in
the election of Directors.
A shareholder voting cumulatively may cast the number of shares he owns
times the number of Directors to be elected in favor of one nominee or allocate
such votes among the nominees as he determines.
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Indemnification
The Company's Articles of Incorporation provide for indemnification of
officers, directors, employees and agents to the fullest extent permitted by
Ohio law. Similarly, the Articles of Association of the Bank provide for
indemnification of directors and officers of the Bank. Ohio law provides for
indemnification in both derivative and nonderivative actions.
Ohio law generally provides for the payment of expenses, including
attorneys' fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by the indemnitee provided such person acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and with respect to any criminal action or
proceeding if he had no reasonable cause to believe his conduct was unlawful.
However, in derivative suits, if the suit is lost, no indemnification is
permitted in respect of any claim, issue or matter as to which the prospective
indemnitee is adjudged to be liable for negligence or misconduct in the
performance of his duty to the corporation unless, and only to the extent that,
a court of competent jurisdiction determines upon view of all the circumstances
of the case, the prospective indemnitee is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper. Further, this indemnity
in derivative suits is limited to expenses incurred in defending the suit, not
the amount of any judgment, fine or other penalty levied against the
prospective indemnitee. Finally, no indemnification may be provided in any
action or suit in which the only liability asserted against a director is
pursuant to a statutory provision outlawing loans, dividends, and distribution
of assets under certain circumstances.
The Articles of Incorporation of the Company provide that the Company
shall indemnify its past and present directors for personal liability for
monetary damages resulting from breach of their fiduciary duty as directors,
except in certain instances involving a breach of a director's duty of loyalty
to the Company, acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, liability based upon
illegal distribution of dividends and liability based upon a transaction from
which the Director derived an improper personal benefit. The Bank does not
have a similar specific provision regarding indemnification of past and present
directors for monetary liability resulting from the breach of their fiduciary
duties.
The provisions regarding indemnification may not be applicable under
certain federal banking and securities laws and regulations.
Dividend Rights
Dividends may be paid on common stock of the Company as are declared by
the Board of Directors out of funds legally available therefor. Dividends may
not exceed the surplus of the Company, as defined by the Ohio General
Corporation Act, and may not be declared if the Company is insolvent or would
thereby be made insolvent. (See "SUPERVISION, REGULATION AND LEGISLATION--The
Company.")
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Dividends may be paid on common stock of the Bank as are declared by the
Board of Directors out of funds legally available therefor. Dividends paid by
the Bank on its common stock must be declared out of the net profits of the
Bank.
Transfer and Assessability
Transfer of common stock of the Company may not be restricted by the
Company and, when issued, common stock of the Company is fully paid and
nonassessable.
The transfer of common stock of the Bank may not be restricted, except as
is reasonably calculated by the Bank to simplify the work of the Bank with
respect to stock transfers, voting at shareholders' meetings and related
matters, and to protect it against fraudulent transfers. The common stock of
the Bank is subject to assessment by the Board of Directors in order to restore
capital impaired by losses or otherwise, and shares owned by public
shareholders who fail to pay any assessment may be sold at public or private
sale.
ANTITAKEOVER MEASURES
Discussion of Fair Price and Supermajority Vote Provisions
The Company's Amended Articles of Incorporation contain a "Fair Price" and
"Supermajority Vote" provision. Such provision has been included in the
Company's Articles of Incorporation based on the fact that certain tactics have
become relatively common in corporate takeover practice, including the
accumulation of a substantial block of stock as a prelude to an attempted
takeover or proxy fight or the use of a partial tender offer followed by a
second step merger or Business Combination involving less favorable
considerations than were offered in the partial tender offer. The Board
considers that such tactics can be highly disruptive and can result in
dissimilar and unfair treatment of shareholders.
The Fair Price and Supermajority Vote provisions are designed to encourage
potential takeover bidders to negotiate at arms length with the Board of
Directors. In the absence of such negotiations, the provisions are intended to
achieve a measure of assurance that any multistep attempt to take over the
Company is made on terms that offer similar treatment to all shareholders.
Neither the proposed fair price provision nor the supermajority vote provision
will impede a takeover that is approved by a majority of the directors of the
Company who are unaffiliated with a 10 percent or more shareholder.
The Board of Directors is not aware of any current efforts to obtain
control of the Bank or to effect substantial accumulations of its common
shares. The provisions are proposed in order to have in place appropriate
safeguards to protect the shareholders in light of numerous two-step takeover
attempts for public corporations and in light of developments in legislation
regarding interstate banking.
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An effect of the Fair Price provision and the Supermajority Vote provision
is to make more difficult the consummation of a Business Combination with a 10
percent or more shareholder in the absence of the approval of the Board of
Directors of the Company. Accordingly, the provisions may discourage takeover
attempts which are not supported by the Board of Directors even in transactions
which may be supported by a majority of shareholders. (See "Purpose and Effect
of Amendments to Articles of Incorporation Concerning Fair Price and
Supermajority Vote Provisions.")
Reasons for Fair Price and Supermajority Vote Provisions
The Board of Directors of the Bank and the Company (which Boards are
comprised of the same individuals and, therefore, the Agreement was not the
result of any arms-length negotiation) unanimously approved the Agreement,
which Agreement provides for the exchange of Company common shares for Bank
common shares. Company common shares are subject to the provisions of its
Articles of Incorporation, including Article Sixth, which Articles of
Incorporation were adopted at the direction of and with the approval of the
Bank's and Company's Boards of Directors. The so-called "Fair Price" and
"Supermajority Vote" provision would be applicable in the case of certain
Business Combinations with a shareholder owning ten percent (10%) or more of
the voting stock of the Company, except for stockholders who currently own more
than ten percent (10%) of the stock of the Bank, until such person would
acquire twenty percent (20%) of the stock of the Company. Such an exception
currently is applicable to Donald E. Fender, Jr., the Chairman of the Board of
the Bank, who with his wife currently owns approximately 13.57% of the
outstanding stock of the Bank, and Virginia R. Fling and Albert Fling,
stockholders of the Bank, who currently own approximately 11.51% of the Bank.
The Board of Directors determined that the provisions are desirable to assure
all shareholders fair and equitable treatment in the event of certain types of
"two-step" acquisition transactions.
There have been a number of takeovers of publicly owned corporations
accomplished by the purchase of a control block of stock by means of open
market purchases or by means of a tender offer made directly to a target
corporation's shareholders at a price above the prevailing market price,
followed by a second-step merger or other Business Combination. The value of
the consideration given for the acquired corporation's shares in the second
step of such an acquisition may be, and frequently is, less than the value paid
in the first step and/or the form of the consideration in the first step. The
Board of Directors is concerned that the interest of all shareholders may not
be adequately protected in such a two-step acquisition.
The Bank has a large number of long-term shareholders who individually
hold a small number of Bank common shares. The Board believes that
sophisticated arbitrageurs and other market professionals are generally in a
better position to take advantage of the more lucrative first step transaction,
while long-term shareholders will often, as a practical matter, be compelled to
accept the less favorable consideration payable in the second step merger or
other Business Combination. Although the remaining shareholders subject to the
second step may have available certain legal remedies in such a situation,
including the right to dissent under Ohio law
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in a merger and certain other Business Combinations, the enforcement of
such rights or remedies by a minority shareholder may involve significant
expense, delay and uncertainty.
The Board of Directors has also observed that there have been significant
developments in the area of interstate banking. Previously, under the Bank
Holding Company Act, a bank holding company was generally prohibited from
acquiring the voting stock or assets of a bank or bank holding company located
outside the state where the principal operations of the acquiring bank holding
company were conducted, unless statutes of the state where the bank or the bank
holding company to be acquired is located expressly authorize such an
acquisition. Several states, including Ohio (effective January 1, 1991),
adopted, in various forms, statutes authorizing out-of-state bank holding
companies to acquire banks and bank holding companies located in their states.
Such statutes increased the number of potential acquirors of the Bank. In
addition, the impact of the Reigle/Neal Act discussed in "Recent Legislation"
above will accelerate such out of state transactions.
The potential for future use of the two-step acquisition and further
expansion of interstate banking have convinced the Board of Directors of the
Bank and the Company that these provisions are desirable in order to preserve
for the shareholders the benefits which will accrue to the Company and its
subsidiary, the Bank, including its increased ability to compete in the
significantly deregulated banking industry.
Summary of Fair Price and Supermajority Vote Provisions
The following summary is qualified by reference to the full text of the
Amended Articles of Incorporation (attached hereto as Appendix II).
Capitalized terms used throughout this discussion of Article Sixth shall have
the meaning given to such terms in Article Sixth of the Company's Articles of
Incorporation. Article Sixth contains both a "Fair Price" and "Supermajority
Vote" provision.
Under the "Fair Price" provision, no Business Combination may be effected
without the approval of the Continuing Directors, unless either:
(i) Approved by holders of not less than 66 2/3 percent of the Voting Stock
held by all Independent Shareholders voting together as a class; or
(ii) The minimum price and other requirements and conditions set forth in
Article VI (D.) are complied with
It is possible that, if the Interested Shareholder has not made a recent
purchase of Corporation stock, the "Fair Price" might be a price paid by the
Interested Shareholder several years ago. That price may have no relation to
the present market value of the stock, particularly if the stock has declined
in value during the interim period.
As the fair price is an aggregate of the cash and Fair Market Value of
property paid plus interest paid on such property from the date the Interested
Shareholder became such to the date
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of consummation, a determination of whether the price paid satisfies
the Fair Price provision may conceivably not be made until the date of
consummation. Due to this uncertainty of whether the Fair Price provision has
been satisfied, the actual vote required at the meeting of shareholders may not
be determinable until consummation. This uncertainty may preclude an
Interested Shareholder from actually determining the price required to satisfy
the Fair Price provision, even if the Interested Shareholder had every
intention of doing so.
The uncertainty associated with the Fair Price provision may have the
effect of encouraging an Interested Shareholder who is not assured of the
eighty percent (80%) Supermajority Vote to negotiate any proposed Business
Combination with the Board of Directors, and more specifically, negotiate with
the Continuing Directors.
The purpose of the foregoing conditions is to require, in the absence
of the approval of the Continuing Directors or holders of at least 66 2/3
percent of all Voting Stock held by the Independent Shareholders, that the
Independent Shareholders receive in a Business Combination the "minimum price"
specified in Article Sixth (D.), which is the highest price per share paid by
the Interested Shareholder in acquiring shares of such class or series or, if
greater, in the case of preferred stock, the amount of the per share redemption
price, plus interest, less cash dividends received. The form of the
consideration would be the same as previously paid by the Interested
Shareholder to acquire the largest number of shares of such class or series.
The conditions in Article Sixth (D.)(3) are to deter the Interested Shareholder
from self-dealing or taking advantage of its equity position in the
Corporation.
Article Sixth also contains a "Supermajority Vote" provision. The vote
required by the Supermajority Vote provision is in addition to any vote
required by the Fair Price Provision. Under the Supermajority Vote provision,
no Business Combination with an Interested Shareholder may be effected without
the approval of the Continuing Directors, unless approved by holders of not
less than eighty percent (80%) of the outstanding Voting Stock voting together
as a single class. (This 80 percent Supermajority Vote requirement includes
the vote of the Interested Shareholder.)
Any vote of Shareholders of the Corporation under Article Sixth is in
addition to any required vote of the holders of any class of shares of capital
stock of the Corporation and is required notwithstanding that no shareholder
vote or a lesser percentage shareholder vote may be required by law or other
provisions of the Articles of Incorporation.
All actions required to be taken by the Continuing Directors under Article
Sixth shall be taken by the vote or written consent of two-thirds (2/3) of the
Continuing Directors. In the event that the number of Continuing Directors is
at any time less than five (5), all power and authority of the Continuing
Directors under Article Sixth shall cease, including the authority to approve
Business Combinations and successor Continuing Directors and filling director
vacancies. The Continuing Directors are given authority under Article Sixth to
determine, consistent with their fiduciary obligations, such matters as whether
any person is an Interested Shareholder; Fair Market Value of property,
securities and other noncash considerations; and other matters.
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Provisions of Article Sixth (H) restrict the manner in which the Article
may be repealed, amended, supplemented or otherwise modified.
Comparison with Current Requirements
Under Federal Banking Law, the following transactions or actions generally
require shareholder approval:
(i) To effect a merger or consolidation;
(ii) To sell or otherwise dispose of all or substantially all the assets of
the Corporation;
(iii) To dissolve the Corporation; and
(iv) To adopt amendments to its Articles of Association.
The Shareholder vote required by Federal Banking Law to authorize any
of the foregoing is two-thirds (2/3) of the voting power of the Bank on such
proposals. It should be noted, however, that certain transactions are included
within the definition of Business Combinations which would not, in absence of
the proposed Fair Price and Supermajority Vote provisions, require any
shareholder approval. In addition, under the Fair Price provision, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66 2/3%) of the Voting Stock held by the Independent Shareholders voting as a
single class is required to approve a Business Combination with an Interested
Shareholder in the absence of the approval of the Continuing Directors or in
the absence of compliance with the minimum price and other conditions and
requirements of the Fair Price provision.
The Board of Directors has determined that encouraging a prospective
purchaser to negotiate directly with the Board and Management will be
beneficial to all shareholders. The Board has determined that it and
Management, in consultation with their professional advisors, are in the best
position to assess the business and prospects of the Company. Accordingly, the
Board is of the opinion that negotiations between the Company and a potential
acquiror will increase the likelihood that shareholders will receive a higher
price for their shares.
The fair price and supermajority vote provisions may have the effect of
protecting the incumbent Board of Directors and management by discouraging
takeover attempts which are not supported by the Board and management. As a
result, shareholders may not have the opportunity to sell some or all of their
shares in such a takeover attempt. Tender offers for control usually involve a
purchase price higher than the prevailing market price and may result in a
bidding contest between competing takeover bidders. In addition, these
"antitakeover" provisions could affect the price of the Company's common shares
by making it less attractive to persons who invest in securities in
anticipation of an increase in price if a takeover attempt occurs. On the
other hand, defeating undesirable tender offers can be expensive and
disruptive. The fair price and supermajority vote provisions may also deter an
Interested Shareholder from proceeding with a second-step business combination
unless approved by the Continuing Directors, especially
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<PAGE> 53
if the market price of the Company shares had declined from the highest
price paid by the interested shareholder in acquiring shares of such class.
Furthermore, unless the Continuing Directors approve a business combination,
these "antitakeover" provisions would give the holder of a minority of the
total outstanding shares a veto power over a business combination with an
Interested Shareholder notwithstanding that the other shareholders, including
the Interested Shareholder, may believe the business combination to be
desirable or beneficial.
Classified Board of Directors and Supermajority Vote Required to Remove
Directors
The Company's Board of Directors will be divided into three classes
commencing with the annual meeting of shareholders in 1997, and each class will
be elected for a three-year term. The classified election system for Directors
provides continuity of Directors and also serves as a defense against unwanted
takeovers. Shareholders desiring to change a majority of the Board would have
to wait two years, in that one class of the Directors are elected annually.
This may discourage potential acquirors of the Company's shares from making
acquisitions of the Company's shares.
The Bank's Articles of Association do not currently provide for a
classified system for the election of Directors. At the effective date of the
consolidation, all of the Directors of the Bank will be Directors of the
Company and will be subject to reelection as Directors of the Company at the
annual meeting of shareholders of the Company in 1997.
Additional Considerations
Federal law requires prior approval by the Board of Governors of the
Federal Reserve System and the Office of the Comptroller of the Currency before
any company acquires control of a bank or bank holding company. Independent of
any provision of the Company's Articles of Incorporation or Code of
Regulations, the requirement for such regulatory approval may delay efforts to
obtain control over the Company.
The Company is an Ohio-chartered corporation and, as an "issuing public
corporation" under the laws of Ohio, is subject to the provisions of the Ohio
Control Share Acquisition Statute (ORC Section 1701.831) and the Merger
Moratorium Act (ORC Section 1704). Pursuant to the Ohio Control Share
Acquisition Statute, the purchase of certain levels of voting power of the
Company (one-fifth or more, one-third or more, or a majority) can be made only
with the prior authorization of at least a majority of the total voting power
of the Company and a separate prior authorization of the holders of at least a
majority of the voting power held by shareholders other than the proposed
purchaser, officers of the Company and Directors of the Company who are also
employees. This law has the potential effect of deterring certain potential
acquisitions of the Company which might be beneficial to shareholders. The
Merger Moratorium Act, enacted in 1990, prohibits certain Ohio corporations
from engaging in specified types of transactions with an "interested
shareholder" for a period of three years after the shareholder becomes an
"interested shareholder" unless the shareholder receives the approval of the
Corporation's Board of Directors prior to the acquisition of shares or the
consummation of the specified type of transaction. The anticipated effect of
the Merger Moratorium Act is to encourage a potential
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<PAGE> 54
acquiror to negotiate with a target Corporation's Board of Directors
prior to obtaining a 10 percent or greater block of shares in the Corporation.
The Company has 1,500,000 shares of authorized common stock of which,
after consummation of the proposed reorganization, there will be 1,000,000
issued and outstanding. Therefore the Company will have 500,000 shares of its
authorized common stock available for future issuance, without further action
by the shareholders of the Company, by the Board of Directors for any proper
corporate purpose. These shares could be issued into "friendly" hands by the
Board of Directors of the Company in the event of an attempt to gain control of
the Company without the approval of the incumbent members of the Board of
Directors. Because the Company's excess authorized shares could be utilized in
this manner, they represent a potential "antitakeover" device.
The Company's Articles of Incorporation and Code of Regulations currently
contain no other provisions that were intended to be or could fairly be
considered as antitakeover in nature or effect. The Board of Directors has no
present intention to amend further the Articles of Incorporation or Code of
Regulations to add any antitakeover provisions. These antitakeover provisions
are not the result of Management's knowledge of any effort to obtain control of
the Company by any means.
REPORTS
The Company will furnish its shareholders with annual reports containing
audited financial statements and may provide quarterly reports containing
financial information.
LEGAL OPINION
Legal matters in connection with the issuance of common stock of the
Company in the consolidation will be passed upon by special counsel in
connection with the reorganization, Werner & Blank Co., L.P.A., Toledo, Ohio.
OTHER MATTERS
The management of the Bank is not aware of any other matters to be
presented for consideration at the meeting or any adjournments thereof. If any
other matters should properly come before the meeting, it is intended that the
persons' names in the enclosed proxy will vote the shares represented thereby
in accordance with their judgment, pursuant to the discretionary authority
granted therein.
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ADDITIONAL INFORMATION
This Prospectus and Proxy Statement constitutes part of the Registration
Statement covering the shares to be offered pursuant to the consolidation
transaction by the Company, as filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended. This Prospectus and
Proxy Statement does not contain all the information set forth in such
Registration Statement and the exhibits thereto, certain portions of which have
been omitted pursuant to the rules and regulations of the Securities and
Exchange Commission.
Such Registration Statement may be inspected, without charge, at the
principal office of the Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, D.C., and copies of all or part thereof may be obtained from
the Securities and Exchange Commission upon payment of its prescribed fees.
The Securities and Exchange Commission also maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission, including the Company.
By Order of the Board of Directors of
Merchants National Bank
Paul W. Pence, Jr., President
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APPENDIX I
CONSOLIDATION AGREEMENT
<PAGE> 57
CONSOLIDATION AGREEMENT
This CONSOLIDATION AGREEMENT (hereinafter called the "Agreement") dated as
of October __, 1996 between Merchants National Bank, Hillsboro, Ohio
(hereinafter called the "Bank") and Hillsboro Interim Bank (hereinafter called
the "New Bank") joined in by Merchants Bancorp, Inc. (hereinafter called the
"Corporation"), as the parent corporation of New Bank.
WITNESSETH:
WHEREAS, the Bank and the New Bank are each national banking associations
duly organized under the laws of the United States, each with its principal
office in the City of Hillsboro, County of Highland, State of Ohio. The Bank
is a banking corporation engaged in the business of banking. The New Bank is a
banking corporation which is not engaged in the business of banking and will
not be engaged in the business of banking prior to the consolidation as
provided herein. New Bank and Bank shall consolidate pursuant to the
provisions of 12 U.S.C. Section 215 of the banking laws of the United States,
under the charter of Bank and with the name "Merchants National Bank."
WHEREAS, as of December 31, 1995, the capital funds of the Bank consisted
of capital stock of $2,000,000, divided into 100,000 shares of common stock of
a par value of $20.00 per share, surplus of $1,600,000 and undivided profits,
including capital reserves and unrealized gains on "available for sale
securities" of $12,207,401, for total equity capital of $15,962,857.
WHEREAS, an application to charter New Bank has been submitted to and
approved by the Office of the Comptroller of the Currency and, upon the
effective date of the Consolidation, the New Bank will have capital stock of
$100,000, divided into 1,000 shares of common stock of the par value of $100.00
per share and surplus of $20,000 for total capital funds of $120,000.
WHEREAS, all of the shares of the Bank and the New Bank outstanding
immediately prior to the Consolidation of New Bank and Bank (the
"Consolidation") will be owned by the Corporation immediately following the
Consolidation, and such shares of the New Bank will be
<PAGE> 58
retired and canceled by the Corporation immediately subsequent to the
Consolidation.
WHEREAS, Corporation is a for-profit corporation duly organized under the
laws of the State of Ohio which has its registered office in the City of
Hillsboro, County of Highland, State of Ohio. As of the date hereof,
Corporation has 850 common shares without par value authorized, one (1)
organizational share of which is currently issued and outstanding, and which
will be canceled in connection with the Consolidation. In connection with the
Consolidation, the Articles of Incorporation of the Company will be amended to
increase the authorized shares to 1,500,000.
WHEREAS, from and after the time the Consolidation becomes effective, and
as and when required by the provisions of this Agreement, the Corporation will
issue shares of its common stock as hereinafter provided.
WHEREAS, a majority of the Board of Directors of the Bank and a majority
of the Board of Directors of the New Bank, respectively, approved this
Agreement and authorized its execution, and a majority of the Board of
Directors of the Corporation has approved this Agreement, undertaken that the
Corporation shall join in and be bound by it, and authorized the undertaking
hereinafter made by the Corporation.
NOW, THEREFORE, in consideration of the premises, covenants and conditions
contained herein, the Bank and the New Bank hereby enter into this Agreement
and prescribe the terms and conditions set forth herein.
1. Consolidation. The New Bank and the Bank shall be consolidated under the
Charter of the Bank pursuant to the provisions of, and with the effect provided
under 12 U.S.C. Section 215.
2. Name, Articles and Bylaws. Upon the Consolidation becoming effective, the
name of the Bank (hereinafter called the "Consolidated Bank" whenever reference
is made to it as of the time of Consolidation or thereafter) shall be
"Merchants National Bank," its Articles of Association shall be the current
Articles of Association of the Bank, and its Bylaws shall be the current
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Bylaws of the Bank upon the effective date of the Consolidation. The
principal office of the Consolidated Bank shall be the currently existing
principal office of the Bank and the Consolidated Bank shall continue to
operate all legally established branches of the Bank.
3. Effect of Consolidation. Upon the Consolidation becoming effective, the
corporate existence of the Bank and the New Bank shall be consolidated into and
continued in the Consolidated Bank, as provided by the aforementioned federal
banking laws, and the Consolidated Bank shall be deemed to be the same
association as the Bank and the New Bank combined, possessing all the rights,
interests, privileges, powers and franchises and being subject to all
restrictions, liabilities and duties of each. All and each of the rights,
interests, privileges and franchises of the Bank and New Bank and all property,
real, personal and mixed, and all debts due to the Bank and New Bank on
whatever account, shall be transferred to and vested in the Consolidated Bank
without any deed or other transfer and without any order or other action on the
part of any court or otherwise; and, all property, rights, privileges, powers,
franchises and interests and each and every other interest of the Bank or New
Bank shall be thereafter the property of the Consolidated Bank. The
Consolidated Bank, by virtue of the Consolidation, and without any order or
other action on the part of any court or otherwise, shall hold and enjoy the
same and all rights of property, franchises and interests, including
appointments, designations and nominations and all other rights and interests
as trustee, executor, administrator, registrar of stocks and bonds, guardian of
estates, assignee, receiver, guardian of mentally incompetent persons and in
every other fiduciary capacity, in the same manner and to the same extent as
such rights, franchises and interests were held or enjoyed by the Bank and New
Bank immediately prior to the Consolidation of the Bank and the New Bank.
4. Liabilities. Upon the Consolidation becoming effective, the Consolidated
Bank shall be liable for all deposits, debts, liabilities, obligations and
contracts of the Bank and of the New
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Bank, respectively, matured or unmatured, whether accrued, absolute,
contingent or otherwise; and whether or not reflected or reserved against on
balance sheets, books of account, or records of the Bank or the New Bank, as
the case may be, shall be those of the Consolidated Bank, and shall not be
released or impaired by the Consolidation; and, all rights of creditors and
other obligees and all liens on property of either the Bank or the New Bank
shall be preserved unimpaired.
5. Conversion, Exchange and Consolidation of Shares. Upon the Consolidation
becoming effective:
(a) The shareholders of the Bank of record at the time the
Consolidation becomes effective shall be allocated and entitled to
receive shares of the common stock of the Corporation, without par
value, at the rate of ten (10) such shares of the Corporation for
each one (1) share of the common stock of the Bank.
(b) Each share of the common stock of the Bank shall, ipso facto
and without any action on the part of the holder thereof, become and
be converted into ten (10) shares of the common stock of the
Corporation, and outstanding certificates representing shares of the
common stock of the Bank shall thereafter represent shares of the
common stock of the Corporation, and such certificates may be
exchanged by the holders thereof, after the Consolidation becomes
effective, for the new certificates for the appropriate number of
shares bearing the name of the Corporation.
(c) The amount and number of shares of capital stock of the Bank
outstanding immediately before the Consolidation becomes effective
(specifically, $2,000,000, divided into 100,000 shares of common
stock of a par value of $20.00 each, surplus of $1,600,000 and
undivided profits of $12,207,401, such figures being adjusted to
reflect all increases, if any, in the capital stock of the
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Bank between the date hereof and immediately prior to the
Consolidation) shall be increased in the amount and the number of
shares of the capital stock of the New Bank outstanding immediately
before the Consolidation becomes effective (specifically, $100,000,
divided into 1,000 shares of the par value of $100.00 each, $20,000
Surplus and no undivided profits or capital reserves). Upon the
effective date of the Consolidation, the capital stock of the New
Bank will be retired and canceled.
(d) Upon and by reason of the Consolidation becoming effective,
stock shall be allocated as follows:
(i) To shareholders of the Bank of record at the time
the Consolidation becomes effective there shall be allocated
ten (10) shares of common stock of the Corporation for each
one (1) share of common stock of the Bank held of record at
the time of the Consolidation and
(ii) To the Corporation there shall be allocated the
amount and the number of shares of capital stock of the
Consolidated Bank of the par value of $20.00 each, which shall
be equal to the amount and the number of shares of capital
stock of the Bank outstanding immediately before the
Consolidation.
(e) No dividend, except if and to the extent permitted by the
Board of Directors of the Corporation, payable by the Corporation as
of any date subsequent to the date the Consolidation becomes
effective, shall be payable to any holder of shares of the
Corporation evidenced by any certificate for stock of the Bank
outstanding on the effective date of the Consolidation, unless and
until such outstanding certificate for Bank stock shall have been
surrendered to the Corporation in exchange for a certificate or
certificates evidencing shares of the common stock of the
Corporation. Upon the surrender of any such Bank certificate for a
new
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certificate or certificates evidencing shares of the common
stock of the Corporation, there shall be paid to the holder of the
certificate the amount of dividends payable by the Corporation as of
a date subsequent to the effective date of the Consolidation and not
theretofore paid on such shares of its common stock.
6. Employee Benefit Plans. Any employee benefit plan of Bank shall not
be terminated upon consummation of the Consolidation, but shall continue
thereafter as the plan of the Consolidated Bank. The parties hereto may enter
into a succession agreement relating to such plans to reflect such
continuation, to adapt such plans to the corporate structure existing from and
after the Consolidation becomes effective, and to make provisions for the
employees of the Corporation to participate therein, all in such manner as the
Boards of Directors of the respective parties may deem necessary or desirable.
7. Directors and Officers. The Board of Directors and Officers of the
Consolidated Bank, upon the Consolidation becoming effective, shall consist of
all persons who are directors or officers, as the case may be, of the Bank
immediately before the Consolidation becomes effective.
8. Shareholder and Regulatory Approvals. This Agreement shall be submitted to
the shareholders of the Bank and the New Bank for ratification and confirmation
at meetings to be called and held in accordance with the applicable provisions
of law and the respective Articles of Association and Bylaws of the Bank and
the New Bank. The Bank and the New Bank shall proceed expeditiously and
cooperate fully in the procurement of any other consents and approvals and in
the taking of any other action, and the satisfaction of all other requirements
prescribed by law or otherwise, necessary for consummation of the Consolidation
on the terms herein provided; including, without being limited to, the
preparation and submission of an
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application to the Office of the Comptroller of the Currency to charter
New Bank and application for approval under the provisions of Section 18(c) of
the Federal Deposit Insurance Act, as amended, for prior approval to effect the
Consolidation, and, incident thereto, to establish a branch or branches under
Section 9 of the Federal Reserve Act (12 USC 321), and an application by the
Corporation to the Federal Reserve System to acquire the Bank through the
Consolidation.
9. Dissenters' Rights. A shareholder of the Bank who votes against the
Consolidation at the meeting of shareholders of the Bank held for the purpose
of considering the Consolidation or who gives notice in writing to the Bank at
or prior to such meeting that he dissents from the Consolidation, shall be
entitled to receive in cash, as provided in 12 U.S.C. Section 215, from the
Consolidated Bank if and when the Consolidation is consummated. A copy of the
relevant portions of Section 215 of the National Banking Laws is attached
hereto as Exhibit A.
10. Conditions. Effectuation of the Consolidation herein provided is
conditioned upon the following:
(a) Ratification and confirmation of this Agreement by vote of
the shareholders of the Bank and the New Bank, as required by law;
and
(b) Procurement of the consent of the Office of the Comptroller
of the Currency, Board of Governors of the Federal Reserve, and all
other necessary consents and approvals, and satisfaction of all
other requirements prescribed by law which are necessary for
consummation of the Consolidation.
11. Termination. If any of the following shall occur, then this Agreement may
be terminated at any time before the Consolidation becomes effective, by the
written notice by either the Bank or the New Bank to the other of them,
authorized or approved by resolution adopted by the Board of Directors of one
of them giving such notice:
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(a) The number of shares of capital stock of the Bank voted
against the Consolidation, or in respect of which written notice is
given purporting to dissent from the Consolidation, shall exceed
five percent (5%) of the outstanding shares; or
(b) Any action, suit, proceeding or claim has been instituted,
made or threatened relating to the proposed Consolidation; or
(c) Any action, consent or approval, governmental or otherwise,
which is, or in the opinion of counsel for the Bank, may be
necessary to permit or enable the Consolidated Bank, upon and after
the Consolidation, to conduct all or any part of the business
activities of the Bank up to the time of the Consolidation, in the
manner in which such activities and businesses are then conducted,
shall not have been obtained; or
(d) Rulings from the Internal Revenue Service, or any opinion of
counsel in lieu thereof, satisfactory in form and substance to the
Bank and counsel for the Bank with respect to tax consequences of
the Consolidation and transactions referred to herein shall not have
been obtained and remain in effect; or
(e) In the event of the mutual agreement to terminate the
transactions contemplated by this Agreement, rendered by a
resolution electing to terminate, and adopted by the Boards of
Directors of the Bank and the New Bank.
Upon termination by written notice, as provided in this Section 11, this
Agreement shall be void and of no further effect, and there shall be no
liability by reason of this Agreement or the termination thereof on the part of
any of the Bank, the New Bank, the Corporation or the directors, officers,
employees, agents or shareholders of any of them.
12. Effective Time. Subject to the terms of this Agreement and upon
satisfaction of all requirements of law and the conditions specified in this
Agreement, the Consolidation shall
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become effective at the time specified in the certificate of the
Comptroller of the Currency approving the Consolidation.
13. Agreement of Directors. Each of the natural persons whose signature is
appended to this Agreement as a Director of the Bank hereby covenants and
agrees with each of the other natural persons whose signature is appended to
this Agreement as a Director of the Bank and New Bank, and with each of the
corporate parties to the Agreement, that he will vote any and all shares of the
capital stock of the Bank now owned, held, or standing in his name in his
individual, fiduciary, or other capacity that he may or shall be or become
entitled to vote, in favor of the adoption of this Agreement in any meeting of
shareholders of the Bank called for the purpose of voting on this Agreement.
14. Agreement of Affiliates. The Bank shall obtain agreements in the form set
forth as Exhibit B attached hereto, executed by each person, who is identified
as an "affiliate" (as such term is defined in Rule 144 under the Securities Act
of 1933) of the Bank.
15. Miscellaneous.
(a) Any of the terms or conditions of this Agreement may be
waived at any time by any party hereto, by action of its Board of
Directors, evidenced by a certificate signed by its President or
other duly authorized person.
(b) To the extent permitted by law, this Agreement may be amended
or supplemented at any time, whether before or after the vote of
shareholders of the Bank or New Bank, by written amendment
authorized by the Boards of Directors of each of the parties and
executed by a majority of members of the Boards of Directors of each
party.
(c) This Agreement and the instruments referred to herein
constitute the entire
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<PAGE> 66
contract among the parties and supersede all other
understandings with respect to the subject matter hereof.
(d) This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which together
shall be deemed one and the same Agreement, and shall become binding
on the parties hereto when one or more counterparts have been signed
by each of the parties and delivered to the other parties.
(e) Any notices or other communications required or permitted
hereunder shall be sufficiently given if hand delivered or sent by
registered mail or certified mail, postage prepaid, addressed, if to
Corporation, Bank, or New Bank, 100 North High Street, Hillsboro,
Ohio 45133, or such other address as shall be furnished in writing
by any party, and any such notice or communication shall be deemed
to have been given as of the date so mailed (except that a notice of
change of address shall not be deemed to have been given until
received by the addressee).
(f) This Agreement shall be governed by and construed in
accordance with the laws of the United States.
(g) The descriptive headings of the several articles, sections
and paragraphs of this Agreement are inserted for convenience only
and do not constitute a part of this Agreement.
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IN WITNESS WHEREOF, the Bank and the New Bank have caused this
Consolidation Agreement to be executed in counterpart by their duly authorized
officers and their corporate seals to be hereunto affixed as of the date first
above written.
MERCHANTS NATIONAL BANK
By:_____________________________ By:_________________________
Paul W. Pence, Jr., President James D. Evans, Secretary
(SEAL OF BANK)
HILLSBORO INTERIM BANK, N.A.
By:_____________________________ By:_________________________
Paul W. Pence, Jr., President James D. Evans, Secretary
(SEAL OF INTERIM BANK)
WE AGREE TO THE ABOVE TERMS AND CONDITIONS:
Merchants Bancorp, Inc.
By:______________________________
Paul W. Pence, Jr., President
And:_____________________________
James D. Evans, Secretary
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<PAGE> 68
The undersigned execute this Consolidation Agreement pursuant to the provisions
of Section 13.
________________________ __________________________
Donald E. Fender, Jr. Charles A. Davis
________________________ __________________________
Paul W. Pence, Jr. William Butler
________________________ __________________________
Jack Walker James R. Vanzant
________________________ __________________________
Paul W. Pence, Sr. Robert L Hammond
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EXHIBIT A
DISSENTERS' RIGHTS {12 U.S.C. SECTION 215(b), (c), (d)}
(b) The consolidated association shall be liable for all liabilities of the
respective consolidating banks or associations. The capital stock of such
consolidated association shall not be less than that required under existing
law for the organization of a national bank in the place in which it is
located: Provided, That if such consolidation shall be voted for at such
meetings by the necessary majorities of the shareholders of each association
and State bank proposing to consolidate, and thereafter the consolidation shall
be approved by the Comptroller, any shareholder of any of the associations or
State banks so consolidated who has voted against such consolidation at the
meeting of the association or bank of which he is a stockholder, or who has
given notice in writing at or prior to such meeting to the presiding officer
that he dissents from the plan of consolidation, shall be entitled to receive
the value of the shares so held by him when such consolidation is approved by
the Comptroller upon written request made to the consolidated association at
any time before thirty days after the date of consummation of the
consolidation, accompanied by the surrender of his stock certificates.
(c) The value of the shares of any dissenting shareholder shall be ascertained,
as of the effective date of the consolidation, by an appraisal made by a
committee of three persons, composed of (1) one selected by the vote of the
holders of the majority of the stock, the owners of which are entitled to
payment in cash; (2) one selected by the directors of the consolidated banking
association; and (3) one selected by the two so selected. The valuation agreed
upon by any two of the three appraisers shall govern. If the value so fixed
shall not be satisfactory to any dissenting shareholder who has requested
payment, that shareholder may, within five days after being notified of the
appraised value of his shares, appeal to the Comptroller, who shall cause a
reappraisal to be made which shall be final and binding as to the value of the
shares of the appellant.
(d) If, within 90 days from the date of consummation of the
consolidation, for any reason one or more of the appraisers is not selected as
herein provided, or the appraisers fail to determine the value of such shares,
the Comptroller shall upon written request of any interested party cause an
appraisal to be made which shall be final and binding on all parties. The
expenses of the Comptroller in making the reappraisal or the appraisal, as the
case may be, shall be paid by the consolidated banking association. The value
of the shares ascertained shall be promptly paid to the dissenting shareholders
by the consolidated banking association. Within thirty days after payment has
been made to all dissenting shareholders as provided for in this section the
shares of stock of the consolidated banking association which would have been
delivered to such dissenting shareholders had they not requested payment shall
be sold by the consolidated banking association at an advertised public
auction, unless some other method of sale is approved by the Comptroller, and
the consolidated banking association shall have the right to purchase any of
such shares at such public auction, if it is the highest bidder therefor, for
the purpose of reselling such shares within thirty days thereafter to such
person or persons and at such price not less than par as its board of directors
by resolution may determine. If the shares are sold at public auction at a
price greater than the amount paid to the dissenting shareholders the excess in
such sale price shall be paid to such dissenting shareholders. The appraisal
of such shares of stock in any State bank shall be determined in the manner
prescribed by the law of the State in such cases, rather than as provided in
this section, if such provision is made in the State law; and no such
consolidation shall be in contravention of the law of the State under which
such bank is incorporated.
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EXHIBIT B
Affiliate Letter
Merchants Bancorp, Inc.
100 North High
Hillsboro, Ohio 45133
Gentlemen:
I have been advised that I may be deemed an "affiliate," within the meaning of
Paragraph (c) of Rule 145 of the Rules and Regulations of the Securities and
Exchange Commission ("SEC") under the Securities Act of 1933 (the "Act"), of
Merchants National Bank, Hillsboro, Ohio, a national banking association (the
"Bank"), and may be deemed such at the time of the Consolidation
("Consolidation") of the Bank with Hillsboro Interim Bank, a newly chartered
national banking association organized by Merchants Bancorp, Inc. (the
"Company") for the sole purpose of effecting the affiliation of the Company and
the Bank. Pursuant to the Consolidation, I will acquire _______ (___) shares
of the Common Stock of the Company ("Company Common Stock") in exchange for
each share of the Bank stock held by me and elected for such exchange. I agree
that I will not make any sale, transfer or other disposition of the Company
Common Stock in violation of the Act or the rules and regulations promulgated
thereunder by the SEC.
I have been advised that the issuance of the Company Common Stock to me
pursuant to the Consolidation has been registered under the Act by the Company
by the filing of a Registration Statement with the SEC. I have also been
advised that such registration does not apply to any distribution by me of the
Company Common Stock received by me in the Consolidation. I also have been
advised that, since at the effective time of the Consolidation, I may be deemed
to have been an "affiliate" of the Bank, any offering or sale by me of any of
the Company Common Stock will, under current law, require either: (i) the
further registration under the Act of the Company Common Stock to be sold; (ii)
compliance with Rule 145 promulgated under the Act; or (iii) the availability
of another exemption from such registration. In addition, I have been advised
that any transferee in a private offering or other similar disposition will be
subject to the same limitations as those imposed on me.
I represent and warrant to the Company that:
1. I have carefully read this letter and discussed its requirements and
other applicable limitations upon the sale, transfer or other disposition
of the Company Common Stock and to the extent I felt necessary, with my
counsel or counsel for the Bank.
2. I have been informed by the Company that the Company Common Stock
must be held by me indefinitely unless: (i) any of the Company Common
Stock received by me in the Consolidation and to be distributed by me has
been registered under the Act other than by the registration by the
Company referred to above; (ii) a sale of the Company Common Stock is made
in conformity with the volume and other applicable limitations of Rule
144; or (iii) some other exemption from registration is available with
respect to any such proposed sale, transfer or other disposition of the
Company Common Stock. I will be required to deliver to the Company
evidence of compliance with such requirements in connection with any
proposed sale, transfer or other disposition by me which may include, in
the case of a distribution under some other exemption from registration,
an opinion of counsel satisfactory to counsel for the Company that such
exemption is available.
3. I understand that the Company is under no obligation to register the
Company Common Stock that I may wish to sell, transfer, or otherwise
dispose of or to take any other action necessary in order to make
compliance with an exemption from registration available.
4. If I rely on the exemption from the registration provisions contained in
Section 4 of the Act (other than that
14
<PAGE> 71
contained in Rule 144 and 145), I will obtain and deliver to the
Company a copy of a letter from any prospective transferee which will
contain: (a) representations reasonably satisfactory to the Company as to
the nondistributive intent, sophistication, ability to bear risk, and
access to information of such transfer of the Company Common Stock; and
(b) an assumption of the obligations of the undersigned under this
Paragraph 4.
5. I also understand that to enforce the foregoing commitments, stop
transfer instructions will be given to the Company's transfer agent with
respect to the Company Common Stock and that there will be placed on the
certificates for the Company Common Stock, or any substitutions therefor,
a legend stating in substance:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933
APPLIES AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IN COMPLIANCE WITH
THE REQUIREMENTS OF RULE 145 OR PURSUANT TO A REGISTRATION STATEMENT UNDER
SAID ACT OR AN EXEMPTION FROM SUCH REGISTRATION.
Very truly yours,
- ----------------------
15
<PAGE> 72
APPENDIX II
DISSENTER'S STATUTE
12 U.S.C. Section 215
AND OCC BANKING CIRCULAR 259 (ISSUED MARCH 5, 1992)
<PAGE> 73
EXHIBIT A
DISSENTERS' RIGHTS {12 U.S.C. SECTION 215(b), (c), (d)}
(b) The consolidated association shall be liable for all liabilities of the
respective consolidating banks or associations. The capital stock of such
consolidated association shall not be less than that required under existing
law for the organization of a national bank in the place in which it is
located: Provided, That if such consolidation shall be voted for at such
meetings by the necessary majorities of the shareholders of each association
and State bank proposing to consolidate, and thereafter the consolidation shall
be approved by the Comptroller, any shareholder of any of the associations or
State banks so consolidated who has voted against such consolidation at the
meeting of the association or bank of which he is a stockholder, or who has
given notice in writing at or prior to such meeting to the presiding officer
that he dissents from the plan of consolidation, shall be entitled to receive
the value of the shares so held by him when such consolidation is approved by
the Comptroller upon written request made to the consolidated association at
any time before thirty days after the date of consummation of the
consolidation, accompanied by the surrender of his stock certificates.
(c) The value of the shares of any dissenting shareholder shall be ascertained,
as of the effective date of the consolidation, by an appraisal made by a
committee of three persons, composed of (1) one selected by the vote of the
holders of the majority of the stock, the owners of which are entitled to
payment in cash; (2) one selected by the directors of the consolidated banking
association; and (3) one selected by the two so selected. The valuation agreed
upon by any two of the three appraisers shall govern. If the value so fixed
shall not be satisfactory to any dissenting shareholder who has requested
payment, that shareholder may, within five days after being notified of the
appraised value of his shares, appeal to the Comptroller, who shall cause a
reappraisal to be made which shall be final and binding as to the value of the
shares of the appellant.
(d) If, within 90 days from the date of consummation of the consolidation, for
any reason one or more of the appraisers is not selected as herein provided, or
the appraisers fail to determine the value of such shares, the Comptroller
shall upon written request of any interested party cause an appraisal to be
made which shall be final and binding on all parties. The expenses of the
Comptroller in making the reappraisal or the appraisal, as the case may be,
shall be paid by the consolidated banking association. The value of the shares
ascertained shall be promptly paid to the dissenting shareholders by the
consolidated banking association. Within thirty days after payment has been
made to all dissenting shareholders as provided for in this section the shares
of stock of the consolidated banking association which would have been
delivered to such dissenting shareholders had they not requested payment shall
be sold by the consolidated banking association at an advertised public
auction, unless some other method of sale is approved by the Comptroller, and
the consolidated banking association shall have the right to purchase any of
such shares at such public auction, if it is the highest bidder therefor, for
the purpose of reselling such shares within thirty days thereafter to such
person or persons and at such price not less than par as its board of directors
by resolution may determine. If the shares are sold at public auction at a
price greater than the amount paid to the dissenting shareholders the excess in
such sale price shall be paid to such dissenting shareholders. The appraisal
of such shares of stock in any State bank shall be determined in the manner
prescribed by the law of the State in such cases, rather than as provided in
this section, if such provision is made in the State law; and no such
consolidation shall be in contravention of the law of the State under which
such bank is incorporated.
<PAGE> 74
BC - 259
Date: March 5, 1992
BANKING ISSUANCE
Comptroller of the Currency
Administrator of National Banks
Type: Banking Circular Subject: Stock Appraisals
To: Chief Executive Officers of National Banks, Deputy Comptrollers
(District), Department and Division Heads, and Examining Personnel
PURPOSE
This banking circular informs all national banks of the valuation methods used
by the Office of the Comptroller of the Currency (OCC) to estimate the value of
a bank's shares when requested to do so by a shareholder dissenting to the
conversion, merger, or consolidation of its bank. The results of appraisals
performed by the OCC between January 1, 1985 and September 30, 1991 are
summarized.
References: 12 U.S.C. 214a, 215 and 215a; 12 CFR 11.590 (Item 2)
BACKGROUND
Under 12 U.S.C. Section 214a, a shareholder dissenting from a conversion,
consolidation, or merger involving a national bank is entitled to receive the
value of his or her shares from the resulting bank. A valuation of the shares
shall be made by a committee of three appraisers (a representative of the
dissenting shareholder, a representative of the resulting bank, and a third
appraiser selected by the other two). If the committee is formed and renders
an appraisal that is acceptable to the dissenting shareholder, the process is
complete and the appraised value of the shares is paid to the dissenting
shareholder by the resulting bank. If, for any reason, the committee is not
formed or if it renders an appraisal that is not acceptable to the dissenting
shareholder, an interested party may request an appraisal by the OCC. 12
U.S.C. Section 215 provides these appraisal rights to any shareholder
dissenting to a consolidation. Any dissenting shareholder of a target bank in
a merger is also entitled to these appraisal rights pursuant to 12 U.S.C.
Section 215a.
The above provides only a general overview of the appraisal process. The
specific requirements of the process are set forth in the statutes themselves.
<PAGE> 75
BC - 259
Date: March 5, 1992
BANKING ISSUANCE
Comptroller of the Currency
Administrator of National Banks
Type: Banking Circular Subject: Stock Appraisals
METHODS OF VALUATION USED
Through its appraisal process, the OCC attempts to arrive at a fair estimate of
the value of a bank's shares. After reviewing the particular facts in each
case and the available information on a bank's shares, the OCC selects an
appropriate valuation method, or combination of methods, to determine a
reasonable estimate of the shares' value.
Market Value
The OCC uses various methods to establish the market value of shares being
appraised. If sufficient trading in the shares exists and the prices are
available from direct quotes from the Wall Street Journal or a market-maker,
those quotes are considered in determining the market value. If no market
value is readily available, or if the market value available is not
well-established, the OCC may use other methods of estimating market value,
such as the investment value and adjusted book value methods.
Investment Value
Investment value requires an assessment of the value to investors of a share in
the future earnings of the target bank. Investment value is estimated by
applying an average price/earnings ratio of banks with similar earnings
potential to the earnings capacity of the target bank.
The peer group selection is based on location, size, and earnings patterns. If
the state in which the subject bank is located provides a sufficient number of
comparable banks using location, size and earnings patterns as the criteria for
selection, the price/earnings ratios assigned to the banks are applied to the
earnings per share estimated for the subject bank. In order to select a
reasonable peer group when there are too few comparable independent banks in a
location that is comparable to that of the subject bank, the pool of banks from
which a peer group is selected is broadened by including one-bank holding
company banks in a comparable location, and/or by selecting banks in less
comparable locations, including adjacent states, that have earnings patterns
similar to the subject bank.
<PAGE> 76
BC - 259
Date: March 5, 1992
BANKING ISSUANCE
Comptroller of the Currency
Administrator of National Banks
Type: Banking Circular Subject: Stock Appraisals
Adjusted Book Value
The OCC also uses an "adjusted book value" method for estimating value.
Historically, the OCC has not placed any weight on the bank's "unadjusted book
value," since that value is based on historical acquisition costs of the bank's
assets, and does not reflect investors' perceptions of the value of the bank as
an ongoing concern. Adjusted book value is calculated by multiplying the book
value of the target bank's assets per share times the average market price to
book value ratio of comparable banking organizations. The average market price
to book value ratio measures the premium or discount to book value, which
investors attribute to shares of similarly situated banking organizations.
Both the investment value method and the adjusted book value method present
appraised values which are based on the target bank's value as a going concern.
These techniques provide estimates of the market value of the shares of the
subject bank.
OVERALL VALUATION
The OCC may use more than one of the above-described methods in deriving the
value of shares of stock. If more than one method is used, varying weights may
be applied in reaching an overall valuation. The weight given to the value by
a particular valuation method is based on how accurately the given method is
believed to represent market value. For example, the OCC may give more weight
to a market value representing infrequent trading by shareholders than to the
value derived from the investment value method when the subject bank's earnings
trend is so irregular that it is considered to be a poor predictor of future
earnings.
PURCHASE PREMIUMS
For mergers and consolidations, the OCC recognizes that purchase premiums do
exist and may, in some instances, be paid in the purchase of small blocks of
shares. However, the payment of purchase premiums depends entirely on the
acquisition or control plans of the purchasers, and such payments are not
regular or predictable elements of market value. Consequently, the OCC's
valuation methods do not include consideration of purchase premiums in arriving
at the value of shares.
<PAGE> 77
BC - 259
Date: March 5, 1992
BANKING ISSUANCE
Comptroller of the Currency
Administrator of National Banks
Type: Banking Circular Subject: Stock Appraisals
STATISTICAL DATA
The chart below lists the results of appraisals the OCC performed between
January 1, 1985 and September 30, 1991. The OCC provides statistical data on
book value and price/earnings ratios for comparative purposes, but does not
necessarily rely on such data in determining the value of the banks' shares.
Dissenting shareholders should not view these statistics as determinative for
future appraisals.
In connection with disclosures given to shareholders under 12 CFR
11.590 (Item 2), banks may provide shareholders a copy of this banking circular
or disclose the information in the banking circular, including the past results
of OCC appraisals. If the bank discloses the past results of the OCC
appraisals. If the bank discloses the past results of the OCC appraisals, it
should advise shareholders that: (1) the OCC did not rely on all the
information set forth in the chart in performing each appraisal; and (2) the
OCC's past appraisals are not necessarily determinative of its future
appraisals of a particular bank's shares.
<PAGE> 78
BC - 259
Date: March 5, 1992
BANKING ISSUANCE
Comptroller of the Currency
Administrator of National Banks
Type: Banking Circular Subject: Stock Appraisals
APPRAISAL RESULTS
<TABLE>
<CAPTION>
OCC Average Price/
Appraisal Appraisal Price Earnings Ratio
Date * Value Offered Book Value of Peer Group
- --------- --------- -------- ---------- --------------
<S> <C> <C> <C> <C>
1/1/85 107.05 110.00 178.29 5.3
1/2/85 73.16 NA 66.35 6.8
1/15/85 53.41 60.00 83.95 4.8
1/31/85 22.72 20.00 38.49 5.4
2/1/85 30.63 24.00 34.08 5.7
2/25/85 27.74 27.55 41.62 5.9
4/30/85 25.98 35.00 42.21 4.5
7/30/85 3,153.10 2,640.00 6,063.66 NC
9/1/85 17.23 21.00 21.84 4.7
11/22/85 316.74 338.75 519.89 5.0
11/22/85 30.28 NA 34.42 5.9
12/16/85 66.29 77.00 89.64 5.6
12/27/85 60.85 57.00 119.36 5.3
12/31/85 61.77 NA 73.56 5.9
12/31/85 75.79 40.00 58.74 12.1
1/12/86 19.93 NA 26.37 7.0
3/14/86 59.02 200.00 132.20 3.1
4/21/86 40.44 35.00 43.54 6.4
5/2/86 15.50 16.50 23.69 5.0
7/3/86 405.74 NA 612.82 3.9
7/31/86 297.34 600.00 650.63 4.4
</TABLE>
* - The "Appraisal Date" is the consummation date for the conversion,
consolidation, or merger.
NA - Not Available NC - Not Computed
<PAGE> 79
BC - 259
Date: March 5, 1992
BANKING ISSUANCE
Comptroller of the Currency
Administrator of National Banks
Type: Banking Circular Subject: Stock Appraisals
APPRAISAL RESULTS
<TABLE>
<CAPTION>
OCC Average Price/
Appraisal Appraisal Price Earnings Ratio
Date * Value Offered Book Value of Peer Group
- --------- --------- ------- ---------- --------------
<S> <C> <C> <C> <C>
8/22/86 103.53 106.67 136.23 NC
12/26/86 16.66 NA 43.57 4.0
12/31/86 53.39 95.58 69.66 7.1
5/1/87 186.42 NA 360.05 5.1
6/11/87 50.46 70.00 92.35 4.5
6/11/87 38.53 55.00 77.75 4.5
7/31/87 13.10 NA 20.04 6.7
8/26/87 55.92 57.52 70.88 NC
8/31/87 19.55 23.75 30.64 5.0
8/31/87 10.98 NA 17.01 4.2
10/6/87 56.48 60.00 73.11 5.6
3/15/88 297.63 NA 414.95 6.1
6/2/88 27.26 NA 28.45 5.4
6/30/88 137.78 NA 215.36 6.0
8/30/88 768.62 677.00 1,090.55 10.7
3/31/89 773.62 NA 557.30 7.9
5/26/89 136.47 180.00 250.42 4.5
5/29/90 9.87 NA 11.04 9.9
</TABLE>
* - The "Appraisal Date" is the consummation date for the conversion,
consolidation, or merger.
NA - Not Available NC - Not Computed
<PAGE> 80
BC - 259
Date: March 5, 1992
BANKING ISSUANCE
Comptroller of the Currency
Administrator of National Banks
Type: Banking Circular Subject: Stock Appraisals
For more information regarding the OCC's stock appraisal process, contact the
Officer of the Comptroller of the Currency, Bank Organization and Structure.
- ----------------
Frank Maguire
Acting Senior Deputy Comptroller
Corporate Policy and Economic Analysis
<PAGE> 81
APPENDIX III
AMENDED ARTICLES OF INCORPORATION OF
MERCHANTS BANCORP, INC.
<PAGE> 82
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
MERCHANTS BANCORP, INC.
*****
THE UNDERSIGNED, under Sections 1701.01 et seq. of the Revised Code of
Ohio, do hereby certify:
FIRST: The name of said Corporation shall be:
Merchants Bancorp, Inc.
SECOND: The place in the State of Ohio where its principal office is to be
located is Hillsboro, Highland County.
THIRD: The purposes for which it is formed are:
To engage in any lawful act or activity for which corporations may be
formed under Sections 1701.01 to 1701.98 inclusive of the Ohio Revised Code.
FOURTH: The authorized number of shares of the Corporation is One Million
Five Hundred Thousand (1,500,000), all of which shall be without par value.
FIFTH: The following provisions are hereby agreed to for the purpose of
defining, limiting and regulating the exercise of the authority of the
Corporation, or of the Directors, or of all of the shareholders:
The Board of Directors is expressly authorized to set apart, out of any of
the funds of the Corporation available for dividends, a reserve or reserves for
any proper purpose or to abolish any such reserve in the manner in which it was
created, and to purchase on behalf of the Corporation any shares issued by it
to the extent permitted under Sections 1701.01 et seq. of the Revised Code of
Ohio.
The Corporation may in its regulations confer powers upon its Board of
Directors in addition to the powers and authorities conferred upon it expressly
by Sections 1701.01 et seq. of the Revised Code of Ohio.
1
<PAGE> 83
Any meeting of the shareholders or the Board of Directors may be held at
any place within or without the State of Ohio in the manner provided for in the
regulations of the Corporation.
Subject to Article SIXTH, any amendments to the Articles of Incorporation
may be made from time to time, and any proposal or proposition requiring the
action of shareholders may be authorized from time to time by the affirmative
vote of the holders of shares entitling them to exercise a majority of the
voting power of the Corporation.
SIXTH: FAIR PRICE AND SUPER VOTE REQUIREMENT
A. Definitions as used in this Article Sixth
(1) "Affiliate" or "Associate" shall have the respective meanings given to
such terms in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934.
(2) A person shall be a "beneficial owner" of any Voting Stock:
(i) which such person or any of its Affiliates or Associates beneficially
owns, directly or indirectly; or
(ii) which such person or any of its Affiliates or Associates has by
itself or with others (a) the right to acquire (whether such right is
exercisable immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise, or (b) the right to
vote pursuant to any agreement, arrangement or understanding; or
(iii) which is beneficially owned, directly or indirectly, by any other
person with which such person or any of its Affiliates or Associates has any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of any shares of Voting Stock.
(3) "Business Combination" shall include:
(i) any merger or consolidation of the Corporation or any of its
subsidiaries with or into an Interested Shareholder, regardless of which person
is the surviving entity;
(ii) any sale, lease, exchange, mortgage, pledge, or other disposition
(in one transaction or a series of transactions) from the Corporation or any of
its subsidiaries to an Interested
2
<PAGE> 84
Shareholder, or from an Interested Shareholder to the Corporation or any of
its subsidiaries, of assets having an aggregate Fair Market Value of twenty
percent (20%) or more of the Corporation's total stockholders' equity;
(iii) the issuance, sale or other transfer by the Corporation or any
subsidiary thereof of any securities of the Corporation or any subsidiary
thereof to an Interested Shareholder (other than an issuance or transfer of
securities which is effected on a pro rata basis to all shareholders of the
Corporation);
(iv) the acquisition by the Corporation or any of its subsidiaries of
any securities of an Interested Shareholder;
(v) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an Interested
Shareholder;
(vi) any reclassification or recapitalization of securities of the
Corporation if the effect, directly or indirectly, of such transaction is to
increase the relative voting power of an Interested Shareholder; or
(vii) any agreement, contract or other arrangement providing for or
resulting in any of the transactions described in this definition of Business
Combination.
(4) "Continuing Director" shall mean any member of the Board of
Directors of the Corporation who is unaffiliated with the Interested
Shareholder and was a member of the Board of Directors prior to the time that
the Interested Shareholder became an Interested Shareholder; any successor of a
Continuing Director who is unaffiliated with the Interested Shareholder and is
approved to succeed a Continuing Director by the Continuing Directors; any
member of the Board of Directors who is appointed to fill a vacancy on the
Board of Directors who is unaffiliated with the Interested Shareholder and is
approved by the Continuing Directors.
3
<PAGE> 85
(5) "Fair Market Value" shall mean:
(i) in the case of securities listed on a national securities exchange
or quoted in the National Association of Securities Dealers Automated
Quotations System (or any successor thereof), the highest sales price or bid
quotation, as the case may be, reported for securities of the same class or
series traded on a national securities exchange or in the over-the-counter
market during the 30-day period immediately prior to the date in question, or
if no such report or quotation is available, the fair market value as
determined by the Continuing Directors; and
(ii) in the case of other securities and of other property or
consideration (other than cash), the Fair Market Value as determined by the
Continuing Directors; provided, however, in the event the power and authority
of the Continuing Directors ceases and terminates pursuant to Subdivision F of
this Article SIXTH as a result of there being less than five Continuing
Directors at any time, then (a) for purposes of clause (ii) of the definition
of "Business Combination," any sale, lease, exchange, mortgage, pledge, or
other disposition of assets from the Corporation or any of its subsidiaries to
an Interested Shareholder or from an Interested Shareholder to the Corporation
or any of its subsidiaries, regardless of the Fair Market Value thereof, shall
constitute a Business Combination, and (b) for purposes of paragraph 1 of
Subdivision D of this Article SIXTH, in determining the amount of consideration
received or to be received per share by the Independent Shareholders in a
Business Combination, there shall be excluded all consideration other than cash
and the Fair Market Value of securities listed on a national securities
exchange or quoted in the National Association of Securities Dealers Automated
Quotations System (or any successor thereof) for which there is a reported
sales price or bid quotation, as the case may be, during the 30-day period
immediately prior to the date in question.
(6) "Independent Shareholder" shall mean shareholders of the
Corporation other than the Interested Shareholder engaged in or proposing the
Business Combination.
4
<PAGE> 86
(7) "Interested Shareholder" shall mean: (a) any person (other than the
Corporation or any of its subsidiaries), and (b) the Affiliates and Associates
of such person, who, or which together, are:
(i) the beneficial owner, directly or indirectly, of 10% or more of the
outstanding Voting Stock or were within the two-year period immediately prior
to the date in question the beneficial owner, directly or indirectly, of 10% or
more of the then outstanding Voting Stock; or
(ii) an assignee of or other person who has succeeded to any shares of
the Voting Stock which were at any time within the two-year period immediately
prior to the date in question beneficially owned by an Interested Shareholder,
if such assignment or succession shall have occurred in the course of a
transaction or series of transactions not involving a public offering within
the meaning of the Securities Act of 1933.
Notwithstanding the foregoing, no Trust Department, or designated
fiduciary or other trustee of such Trust Department of the Corporation or a
subsidiary of the Corporation, or other similar fiduciary capacity of the
Corporation with direct voting control of the outstanding Voting Stock shall be
included or considered as an Interested Shareholder. Further, no
profit-sharing, employee stock ownership, employee stock purchase and savings,
employee pension, or other employee benefit plan of the Corporation or any of
it subsidiaries, and no trustee of any such plan in its capacity as such
trustee, shall be included or considered as an Interested Shareholder.
Further, no person who was the holder of 10% or more of the common stock of
Merchants National Bank (the "Bank") prior to the Bank's initial acquisition by
the Corporation in connection with the organization of a one bank holding
company for the Bank, and who as a result of such transaction is now the owner
of 10% or more of the common stock of the Corporation, shall be deemed to be an
Interested Shareholder unless and until such person owns 20% or more of the
common stock of the Corporation. Notwithstanding the foregoing exception, an
assignee or other person who has succeeded to any of the shares of such 10% or
more shareholder of stock in the Bank shall be deemed to be an Interested
Shareholder if such person otherwise meets the definition set forth above.
5
<PAGE> 87
(8) A "Person" shall mean an individual, partnership, trust, corporation,
or other entity and includes any two or more of the foregoing acting in
concert.
(9) "Voting Stock" shall mean all outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of directors of the
Corporation.
B. Supermajority Vote to Effect Business Combination. No Business
Combination shall be effected or consummated unless:
(1) Authorized and approved by the Continuing Directors and, if otherwise
required by law to authorize or approve the transaction, the approval or
authorization of shareholders of the Corporation, by the affirmative vote of
the holders of such number of shares as is mandated by the Ohio Revised Code;
or
(2) Authorized and approved by the Board of Directors of the Corporation,
including both the Continuing Directors and those affiliated with any
Interested Shareholder, and authorized by the affirmative vote of holders of
not less than 80% of the outstanding Voting Stock voting together as a single
class.
The authorization and approval required by this Subdivision B is in
addition to any authorization and approval required by Subdivision C of this
Article SIXTH.
C. Fair Price Required to Effect Business Combination. No Business
Combination shall be effected or consummated unless:
(1) All the conditions and requirements set forth in Subdivision D of
this Article SIXTH have been satisfied; or
(2) Authorized and approved by the Continuing Directors; or
(3) Authorized and approved by the affirmative vote of holders of not less
than 66 2/3% of the outstanding Voting Stock held by all Independent
Shareholders voting together as a single class.
Any authorization and approval required by this Subdivision C is in
addition to any authorization and approval required by Subdivision B of this
Article SIXTH.
6
<PAGE> 88
D. Conditions and Requirements to Fair Price. All the following
conditions and requirements must be satisfied in order for clause (1) of
Subdivision C of this Article SIXTH to be applicable.
(1) The cash and Fair Market Value of the property, securities or other
consideration to be received by the Independent Shareholders in the Business
Combination per share for each class or series of capital stock of the
Corporation must not be less than the sum of:
(i) the highest per share price (including brokerage commissions,
transfer taxes, soliciting dealer's fees and similar payments) paid by the
Interested Shareholder in acquiring any shares of such class or series,
respectively, and, in the case of Preferred Stock, if greater, the amount of
the per share redemption price; and
(ii) the amount, if any, by which interest on the per share price,
calculated at the Treasury Bill Rate from time to time in effect, from the date
the Interested Shareholder first became an Interested Shareholder until the
Business Combination has been consummated, exceeds the per share amount of cash
dividends received by the Independent Shareholders during such period. The
"Treasury Bill Rate" means for each calendar quarter, or part thereof, the
interest rate of the last auction in the preceding calendar of 91-day United
States Treasury Bills expressed as a bond equivalent yield.
For purposes of this paragraph (1) per share amounts shall be
appropriately adjusted for any recapitalization, reclassification, stock
dividend, stock split, reserve split, or other similar transaction. Any
Business Combination which does not result in the Independent Shareholders
receiving consideration for or in respect of their shares of capital stock of
the Corporation shall not be treated as complying with the requirements of this
paragraph (1).
(2) The form of the consideration to be received by the Independent
Shareholders owning the Corporation's shares must be the same as was previously
paid by the Interested Shareholder(s) for shares of the same class or series;
provided, however, if the Interested Shareholder previously paid for shares of
such class or series with different forms of consideration, the form of the
7
<PAGE> 89
consideration to be received by the Independent Shareholders owning shares of
such class or series must be in the form as was previously paid by the
Interested
Shareholder in acquiring the largest number of shares of such class or series
previously acquired by the Interested Shareholder, provided, further, in the
event no shares of the same class or series had been previously acquired by the
Interested Shareholder, the form of consideration must be cash. The provisions
of this paragraph (2) are not intended to diminish the aggregate amount of cash
and Fair Market Value of any other consideration that any holder of the
Corporation's shares is otherwise entitled to receive upon the liquidation or
dissolution of the Corporation, under the terms of any contract with the
Corporation or an Interested Shareholder, or otherwise.
(3) From the date the Interested Shareholder first became an Interested
Shareholder until the Business Combination has been consummated, the following
requirements must be complied with unless the Continuing Directors otherwise
approve:
(i) the Interested Shareholder has not received, directly or indirectly,
the benefit (except proportionately as a shareholder) of any loan, advance,
guaranty, pledge, or other financial assistance, tax credit or deduction, or
other benefit from the Corporation or any of its subsidiaries;
(ii) there shall have been no failure to declare and pay in full, when
and as due or scheduled, any dividends required to be paid on any class or
series of the Corporation's shares;
(iii) there shall have been (a) no reduction in the annual rate of
dividends paid on Common Shares of the Corporation (except as necessary to
reflect any split of such shares), and (b) an increase in the annual rate of
dividends as necessary to reflect reclassification (including a reverse split),
recapitalization or any similar transaction which has the effect of reducing
the number of outstanding Common Shares; and
(iv) there shall have been no amendment or other modification to any
profit-sharing, employee stock ownership; employee stock purchase and savings,
employee pension or other employee benefit plan of the Corporation or any of
its subsidiaries, the effect of which is to
8
<PAGE> 90
change in any manner the provisions governing the voting of any shares
of capital stock of the Corporation in or covered by such plan.
(4) A proxy or information statement describing the Business Combination
and complying with the requirements of the Securities Exchange Act of 1934, as
amended, and the rules and regulations under it (or any subsequent provisions
replacing that Act and the rules and regulations under it) has been mailed at
least 30 days prior to the completion of the Business Combination to the
holders of all outstanding Voting Stock. If deemed advisable by the Continuing
Directors, the proxy or information statement shall contain a recommendation by
the Continuing Directors as to the advisability (or inadvisability) of the
Business Combination and/or an opinion by an investment banking firm, selected
by the Continuing Directors and retained at the expense of the Corporation, as
to the fairness (or unfairness) of the Business Combination to the Independent
Shareholders.
E. Other Applicable Voting Requirement. The affirmative votes or
approvals required to be received from shareholders of the Corporation under
Subdivisions B, C and H of this Article SIXTH are in addition to the vote of
the holders of any class of shares of capital stock of the Corporation
otherwise required by law, or by other provisions of these Articles of
Incorporation, or by the express terms of the shares of such class. The
affirmative votes or approvals required to be received from shareholders of the
Corporation under Subdivisions B, C and H of this Article SIXTH shall apply
even though no vote or a lesser percentage vote, may be required by law, or by
other provisions of these Articles of Incorporation, or otherwise. Any
authorization, approval or other action of the Continuing Directors under this
Article SIXTH is in addition to any required authorization, approval or other
action of the Board of Directors.
F. Continuing Directors. All actions required or permitted to be taken by
the Continuing Directors shall be taken with or without a meeting by the vote
or written consent of two-thirds of the Continuing Directors, regardless of
whether the Continuing Directors constitute a quorum of the members of the
Board of Directors then in office. In the event that the number of Continuing
Directors is at any time less than five, all power and authority of the
Continuing Directors under this Article
9
<PAGE> 91
SIXTH shall thereupon cease and terminate, including, without
limitation, the authority of the Continuing Directors to authorize and approve
a Business Combination under Subdivisions B and C of this Article SIXTH and to
approve a successor Continuing Director. Two-thirds of the Continuing
Directors shall have the power and duty, consistent with their fiduciary
obligations, to determine for the purpose of this Article SIXTH, on the basis
of information known to them:
(1) Whether any person is an Interested Shareholder;
(2) Whether any person is an Affiliate or Associate of another;
(3) Whether any person has an agreement, arrangement, or understanding
with another or is acting in concert with another; and
(4) The Fair Market Value of property, securities or other consideration
(other than cash).
The good faith determination of the Continuing Directors on such matters
shall be binding and conclusive for purposes of this Article SIXTH.
G. Effect on Fiduciary Obligations of Interested Shareholders. Nothing
contained in this Article SIXTH shall be construed to relieve any Interested
Shareholder from any fiduciary obligations imposed by law.
H. Repeal. Notwithstanding any other provisions of these Articles of
Incorporation (and notwithstanding the fact that a lesser percentage vote may
be required by law or other provision of these Articles of Incorporation), the
provisions of this Article SIXTH may not be repealed, amended, supplemented or
otherwise modified, unless:
(1) The Continuing Directors (or, if there is no Interested
Shareholder, a majority vote of the whole Board of Directors of the
Corporation) recommend such repeal, amendment, supplement or modification and
such repeal, amendment or modification is approved by the affirmative vote of
the holders of not less than a simple majority of the outstanding Voting Stock;
or
(2) Such repeal, amendment, supplement or modification is approved by
the affirmative vote of holders of (a) not less than 80% of the outstanding
Voting Stock voting together as
10
<PAGE> 92
a single class, and (b) not less than 66 2/3% of the outstanding Voting
Stock held by all shareholders other than Interested Shareholders voting
together as a single class.
I. Further Considerations to Effect Business Combination. No Business
Combination shall be effected or consummated unless, in addition to the
consideration set forth in Subdivisions B, C, D and E of this Article SIXTH,
the Board of Directors of the Corporation, including the Continuing Directors
shall consider all of the following factors and any other factors which it
(they) deem relevant:
(1) The Social and economic effects of the transaction on the Corporation
and its subsidiaries, employees, depositors, loan and other customers,
creditors and other elements of the communities in which the Corporation and
its subsidiaries operate or are located;
(2) The business and financial conditions and earnings prospects of the
Interested Shareholder, including, but not limited to, debt service and other
existing or likely financial obligations of the Interested Shareholder, and the
possible effect on other elements of the communities in which the Corporation
and its subsidiaries operate or are located, and
(3) The competence, experience and integrity of the Interested Shareholder
and his (its) or their management.
SEVENTH: Shareholders of the Corporation shall have no preemptive right
to purchase shares when issued by the Corporation.
EIGHTH: The Corporation shall indemnify its present and past Directors,
officers, employees and agents, and such other persons as it shall have powers
to indemnify, to the full extent permitted under, and subject to the
limitations of, Title 17 of the Ohio Revised Code. Additionally, and subject
to the limitations set forth below, the Corporation shall indemnify its present
and past Directors for personal liability for monetary damages resulting from
breach of their fiduciary duty as Directors. Notwithstanding the above, no
indemnification for personal liability shall be provided for: (i) any breach
of the Directors' duty of loyalty to the Corporation or its stockholder; (ii)
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law; (iii) illegal
11
<PAGE> 93
distribution of dividends; and (iv) any transaction from which the
Director derived an improper personal benefit.
12
<PAGE> 94
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Chapter 17 of the Ohio General Corporation Law provides that Ohio
corporations may indemnify an individual made a party to any threatened,
pending, or completed action, suit or proceeding whether civil, criminal,
administrative or investigative, because the individual is or was a director,
officer, employee or agent of the corporation, against liability incurred in
the proceeding if the person: (i) acted in good faith and (ii) the individual
believes his conduct was in the corporation's best interest or was not opposed
to the corporation's best interest.
Chapter 17 further provides that a corporation shall indemnify an
individual who was fully successful on the merits or otherwise in any
proceeding to which the director, officer, employee or agent was a party
because the individual was or is a director, officer, employee or agent of the
corporation, for reasonable expenses incurred by the director in connection
with the proceeding. Chapter 17 also provides that a corporation may purchase
and maintain insurance on behalf of the individual who is or was a director,
officer, employee or agent of the corporation or who, while a director,
officer, employee or agent of the corporation is or was serving at the request
of the corporation as a director, officer, partner, trustee, employer or agent
of another foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan or other enterprises, against liability asserted against
or incurred by the individual in that capacity or arising from the individual
status as a director, officer, employee, or agent.
Registrant maintains a directors' and officers' liability insurance
policy, including bank reimbursement, for the purpose of providing
indemnification to its directors and officers in the event of such a
threatened, pending or completed action.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS
The exhibits filed pursuant to this Item 21 immediately follow the Exhibit
Index. The following is a description of the applicable exhibits required for
Form S-4 provided by Item 601 of Regulation S-K.
Exhibit Number Description
(1) Not Applicable
(2) The Consolidation Agreement by and between Hillsboro Interim
Bank, N.A. and Merchants National Bank and joined in by Merchants
Bancorp, Inc. is attached as Exhibit A to the Prospectus/Proxy
Statement forming a part of this Registration Statement.
(3) Articles of Incorporation and Code of Regulations.
<PAGE> 95
A. A copy of the Amended Articles of
Incorporation of the Registrant is included as Exhibit
3.A to this Registration Statement.
B. A copy of the Code of Regulations of
the Registrant is included as Exhibit 3.B to this
Registration Statement.
(4) Instruments defining the rights of security holders, including
indentures.
A. Instruments defining the rights of
security holders are included in the Articles of
Incorporation and Code of Regulations (see Exhibit 3.A.
and B).
(5) Opinion of Werner & Blank Co., L.P.A., regarding Merchants
Bancorp, Inc. Common Stock, and Consent
(6) Not Applicable.
(7) Not Applicable.
(8) Opinion of Werner & Blank Co., L.P.A., regarding certain tax
matters, and Consent.
(9) Not Applicable.
(10) Not Applicable
(11) Not Applicable.
(12) Not Applicable.
(13) Not Applicable.
(14) Not Applicable.
(15) Not Applicable.
(16) Not Applicable.
(21) None.
(22) None
(23) Consents of Experts and Counsel.
<PAGE> 96
A. Consent of Werner & Blank Co., L.P.A.
(the consent is contained in that firm's opinions filed
as Exhibits (5) and (8)).
(24) Power of Attorney
(25) Not Applicable.
(26) Not Applicable.
(27) Not Applicable.
(28) Not Applicable.
(99) Additional Exhibits.
A. Form of President's Letter to
Shareholders of Merchants National Bank.
B. Form of Notice of Special Meeting of
Shareholders of Merchants National Bank.
C. Form of Proxy to be delivered to
Shareholders of Merchants National Bank.
<PAGE> 97
ITEM 22. UNDERTAKINGS.
A. The undersigned Registrant hereby undertakes as follows:
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this
Registration Statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the Prospectus any
facts or events arising after the Effective Date of the
Registration Statement (or the most recent
post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
(iii) To include any material information
with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material
change to the information set forth in the Registration
Statement;
(2) That, for the purpose of determining any
liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of the
offering.
(b) The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of
1933, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934 that is incorporated by reference in this Registration
Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to officers, directors, and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such
<PAGE> 98
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of
the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel that matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
B. The undersigned Registrant hereby undertakes to respond to requests for
information that are incorporated by reference into the Prospectus/Proxy
Statement pursuant to Items 4, 10(b), 11, or 13 of this form, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This
includes information contained in the documents filed subsequent to the
Effective Date of this Registration Statement through the date of
responding to the request.
C. The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
<PAGE> 99
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Hillsboro, State of Ohio, this 20th day of November,
1996.
Merchants Bancorp, Inc.
/s/ Paul W. Pence, Jr.
---------------------------------
Paul W. Pence, Jr., President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the 20th day of November, 1996.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Paul W. Pence, Jr.
- ------------------------------------ President and Chief Executive Officer
Paul W. Pence, Jr. and Director (Principal Executive Officer)
/s/ James D. Evans
- ----------------------------------- Treasurer and Secretary (Principal
James D. Evans Financial Officer)
*Donald E. Fender, Jr. Director
*Jack Walker Director
*Paul W. Pence, Sr. Director
*Charles A. Davis Director
*William Butler Director
*James R. Vanzant Director
*Robert L. Hammond Director
*By: /s/ Paul W. Pence, Jr.
-----------------------------------
Paul W. Pence, Jr. Attorney-in-Fact
</TABLE>
<PAGE> 100
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Page #
<S> <C> <C> <C>
3.A A copy of the Registrant's Amended Articles of *
Incorporation -------
3.B A copy of the Registrant's Code of Regulations *
-------
5.0 Opinion of Werner & Blank Co., L.P.A. regarding
Merchants Bancorp, Inc., Common Stock and Consent *
-------
8.0 Opinion of Werner & Blank Co., L.P.A., Attorneys,
regarding certain Tax Matters and Consent -------
23.0 Contained in Opinions at 5.0 and 8.0. N/A
24.0 Power of Attorney *
-------
99.A Form of President's Letter to Shareholders *
of Merchants National Bank. -------
99.B Form of Notice of Special Meeting of Shareholders *
of Merchants National Bank -------
99.C Form of Proxy to be delivered to shareholders of *
-------
Merchants National Bank
</TABLE>
*Previously Filed
- -----------------
<PAGE> 1
EXHIBIT TO S-4
REGISTRATION STATEMENT
EXHIBIT 8
<PAGE> 2
EXHIBIT 8
[WERNER & BLANK CO., L.P.A. LETTERHEAD]
November 20, 1996
The Board of Directors
Merchants National Bank
100 North High Street
Hillsboro, Ohio 45133
Attention: Mr. Paul W. Pence, Jr.
Re: Plan of Corporate Reorganization under which Merchants National Bank,
Hillsboro, Ohio, will become a wholly owned subsidiary of Merchants
Bancorp, Inc.
Gentlemen:
We have been requested as special counsel to Merchants National Bank (the
"Bank") to render our opinion expressed below in connection with the proposed
consolidation (the "Consolidation") of the Bank and Hillsboro Interim Bank (the
"New Bank"), a wholly owned subsidiary of Merchants Bancorp, Inc. (the
"Corporation"), an Ohio corporation organized at the direction of the Bank
pursuant to the terms and conditions of a Consolidation Agreement (the
"Agreement"), by and among the Bank, the Corporation, and the New Bank
described in the Form S-4 Registration Statement (the "Registration Statement")
filed by the Corporation.
In rendering our opinion, we have conducted an examination of applicable law,
regulations, rulings, decisions, documents, and records, and have made such
investigation of fact as we have deemed necessary, and we have relied upon the
representations in the Agreement and upon the following "Assumptions of Facts"
and certain "Representations" which have heretofore been made to us by
directors and officers.
ASSUMPTIONS OF FACTS
Merchants National Bank
Merchants National Bank ("Bank") is a National Bank organized under the laws of
the United States, with its principal office and place of business at 100 North
High Street, Hillsboro, Ohio 45133.
The Bank has an authorized capital structure of 100,000 shares of common stock,
par value $20.00 per share, all of which authorized shares are presently issued
and outstanding.
<PAGE> 3
[WERNER & BLANK CO., L.P.A. LETTERHEAD]
Page 2
The Board of Directors
October 15, 1996
The Bank is engaged in the general banking business in the City of Hillsboro,
which is located in Highland County. The Bank provides customary retail and
commercial banking services to its customers, including checking and savings
accounts, time deposits, safe deposit facilities, personal loans, and
installment loans. It also makes secured and unsecured commercial loans. The
Bank does not operate any foreign offices.
Merchants Bancorp, Inc.
Merchants Bancorp, Inc. ("Corporation") is a domestic corporation which was
incorporated under the laws of the State of Ohio on March 29, 1996, at the
direction of the management of the Bank for the purpose of becoming a bank
holding company by acquiring all of the outstanding shares of common stock of
the Bank. Corporation also has its principal place of business at 100 North
High Street, Hillsboro, Ohio 45133.
Corporation has an authorized capital structure of 1,500,000 shares, without
par value. After the consolidation becomes effective, and as and when required
by the Agreement, Corporation will issue up to 1,000,000 shares of its common
stock in exchange for Bank common stock, as provided in the Agreement.
Corporation maintains its books of account on a calendar year basis, and
computes its income for financial purposes under the accrual method of
accounting.
Hillsboro Interim Bank, National Association (In Organization)
Hillsboro Interim Bank, National Association (In Organization) (the "New Bank")
is a banking corporation which will be organized under the laws of the United
States and will be wholly owned by Corporation. It is intended that the New
Bank will never open for business as a separate operating entity, but will only
be an "interim" bank to be consolidated with the Bank as part of the proposed
reorganization. New Bank will also have its principal place of business at 100
North High Street, Hillsboro, Ohio 45133.
The New Bank will have an authorized capital structure of 1,000 shares of
common stock, par value of $100.00 per share, all of which shares will be
issued and outstanding at the time of the Consolidation.
<PAGE> 4
[WERNER & BLANK CO., L.P.A. LETTERHEAD]
Page 3
The Board of Directors
October 15, 1996
PROPOSED TRANSACTION
In the proposed transaction, the Bank will become a wholly owned subsidiary of
the Corporation. Each of the following steps has been or will be undertaken at
the direction of the Bank to carry out the plan of reorganization.
The Corporation will acquire 100% of the stock of the New Bank, as soon as the
New Bank receives a charter and issues shares of its common stock. The New
Bank will be consolidated with the Bank under the charter of the Bank, pursuant
to the laws of the United States and pursuant to a Consolidation Agreement (the
"Agreement"), which has been entered into between the Bank, the New Bank, and
joined by the Corporation.
Pursuant to the Agreement, the resulting bank (hereinafter called the
"Resulting Bank") will continue the name and banking business of the Bank
without change. The Resulting Bank will continue to hold all of the Bank's
assets and will assume all of the Bank's liabilities subsequent to the
transaction. The name of the Resulting Bank will be "Merchants National Bank"
and the Resulting Bank's Articles of Incorporation and Code of Regulations will
be the Articles of Incorporation and Code of Regulations of the Bank upon the
effective date of the Consolidation. The Resulting Bank will operate under the
charter of the Bank. The principal office of the Bank will continue to be the
principal office of the Resulting Bank.
Each share of the common stock of the Bank then issued and outstanding will, by
operation of law, be transferred into the Corporation, and the holders thereof
will receive ten (10) shares of common stock of Corporation in exchange
therefor, unless such holder properly exercises his dissenter's right of
appraisal under federal banking law. The shareholders of the Bank have the
right to dissent from the transaction under applicable law.
The amount and number of shares of capital stock of the New Bank outstanding
immediately before the consolidation becomes effective (specifically, $120,000
divided into 1,000 shares, $100 par value) will be increased in the amount and
number of shares of the capital stock of the Bank outstanding immediately
before the consolidation becomes effective. At the effective date of the
consolidation, the Resulting Bank will redeem and simultaneously cancel the
1,000 shares of $100 par value stock formerly representing the capital stock of
the New Bank from the Corporation.
BUSINESS PURPOSES
The Boards of Directors of the Bank and the Corporation believe that the
proposed merger will provide a means whereby the Resulting Bank can provide
improved commercial banking services to the Hillsboro area.
<PAGE> 5
[WERNER & BLANK CO., L.P.A. LETTERHEAD]
Page 4
The Board Of Directors
October 15, 1996
The bank holding company structure will give the Resulting Bank greater
flexibility in carrying on its present activities and responding effectively in
the future to meet the changing needs of its customers. Enterprises with
facilities or customers outside of the Resulting Bank's local area can be
served more effectively by the broader geographic coverage of the Corporation.
Total earnings of the group, including the Corporation and the Resulting Bank,
should be increased through the use of the combined skills of the Bank and the
Corporation.
The new structure will also provide an opportunity for diversification, either
through the formation of new subsidiaries or by acquisition of established
companies. The extent of such diversification is governed by the provisions of
the Bank Holding Company Act of 1956, as amended, and is limited essentially to
ownership of banks and of companies whose activities are closely related to
banking. The activities in which a bank holding company may engage include
mortgage banking, financial companies, credit card activities, servicing of
loans for others, electronic data processing, equipment leasing, insurance
agencies or insurance brokerage operations and certain equity and debt
investments.
In summary, the consolidation of the New Bank with and into the Bank, and the
Resulting Bank's affiliation with the Corporation is expected to enable the
Resulting Bank to operate more efficiently and profitably for the benefit of
its customers, employees and the shareholders of the Corporation.
REPRESENTATIONS
The following representations are made in connection with the proposed
transaction:
1. The fair market value of the Corporation's stock and other consideration
received by each Bank shareholder will be approximately equal to the fair
market value of the Bank stock surrendered in the exchange.
2. There is no plan or intention by the shareholders of Bank who own one
percent (1%) or more of the Bank stock, and to the best of the knowledge
of the management of Bank, there is no plan or intention on the part of
the remaining shareholders of Bank to sell, exchange or otherwise dispose
of a number of shares of the Corporation stock received in the transaction
that would reduce the Bank shareholders' ownership of the Corporation
stock to a number of shares having a value, as of the date of the
transaction, of less than eighty percent (80%) of the value of all of the
formerly outstanding stock of the Bank as of the same date. For purposes
of this representation, shares of Bank stock exchanged for cash or other
property, surrendered by dissenters or exchanged for cash in lieu of
fractional shares of parent stock will be treated as outstanding Bank
stock and shares of
<PAGE> 6
[WERNER & BLANK CO., L.P.A. LETTERHEAD]
Page 5
The Board of Directors
October 15, 1996
Corporation stock held by Bank shareholders and otherwise sold, redeemed,
or disposed of prior or subsequent to the transaction will be considered
in making this representation.
3. The Resulting Bank will acquire at least 90 percent of the fair market
value of the net assets and at least 70 percent of the fair market value
of the gross assets held by the Bank immediately prior to the transaction.
For purposes of this representation, amounts paid by the Bank to
dissenters, amounts paid by the Bank to shareholders who receive cash or
other property, the Bank assets used to pay its reorganization expenses,
and all redemptions and distributions (except for regular, normal
dividends) made by the Bank immediately preceding the transfer, will be
included as assets of the Bank held immediately prior to the transaction.
4. Prior to the transaction, the Corporation will be in control of the New
Bank within the meaning of Section 368(c) of the Internal Revenue Code.
5. Following the transaction, Resulting Bank will not issue additional
shares of its stock that would result in Corporation losing control of
Resulting Bank within the meaning of Section 368(c) of the Internal
Revenue Code.
6. The Corporation has no plan or intention to reacquire any of its stock
issued in the transaction.
7. The Corporation has no plan or intention to liquidate the Resulting Bank;
to merge the Resulting Bank with and into another corporation; to sell or
otherwise dispose of the stock of the Resulting Bank; or to cause the
Resulting Bank to sell or otherwise dispose of any of the assets of the
Bank acquired in the transaction, except for dispositions made in the
ordinary course of business or transfers described in Section 368(a)(2)(C)
of the Internal Revenue Code.
8. The liabilities of the New Bank assumed by the Bank and the liabilities
to which the transferred assets of the New Bank are subject were incurred
by the New Bank in the ordinary course of its business.
9. Following the transaction, the Resulting Bank will continue the historic
business of the Bank or use a significant portion of the Bank's business
assets in a business.
10. The Corporation, the New Bank, and the Bank, and the shareholders of the
Bank will pay their respective expenses, if any, incurred in connection
with the transaction.
<PAGE> 7
[WERNER & BLANK CO., L.P.A. LETTERHEAD]
11. There is no intercorporate indebtedness existing between the Corporation
and the Bank or between the New Bank and the Bank that was issued,
acquired, or will settle at a discount.
12. No two parties to the transaction are investment companies as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code.
13. The Bank is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Internal
Revenue Code.
14. The fair market value of the assets of the New Bank transferred to the
Bank will equal or exceed the sum of the liabilities assumed by the Bank,
plus the amount of liabilities, if any, to which the transferred assets
are subject.
15. No stock of the New Bank will be issued in the transaction.
16. No dividends will be paid by the Bank prior to the consummation of the
transaction other than regular periodic dividends, consistent in amount
and in effect with prior dividend distributions.
17. The Bank presently has, and on the date of the proposed transaction will
have, no outstanding warrants, options or convertible securities or any
other type or right pursuant to which any person could acquire shares of
Bank.
OPINION
Based on the foregoing "Assumptions of Facts" and "Representations," it is our
opinion that:
1. The consolidation of the New Bank with the Bank qualifies as a statutory
merger/consolidation under the federal; banking laws, and provided that
after the transaction the Resulting Bank will hold substantially all of
the assets and substantially all of the liabilities of the Bank and the
New Bank, and in the transaction shareholders of the Bank will exchange,
an amount of stock of Bank representing "control," within the meaning of
Section 368(c), for Corporation voting common stock, the transaction will
constitute a reorganization, within the meaning of Section 368(a)(1)(A)
and (a)(2)(E) of the Internal Revenue Code of 1986, as amended. For
purposes of this opinion, "substantially all" means at least 90 percent of
the fair market value of the gross assets of the Bank and the New Bank.
<PAGE> 8
[WERNER & BLANK CO., L.P.A. LETTERHEAD]
Page 7
The Board of Directors
October 15, 1996
2. No gain or loss will be recognized by the Corporation, the Bank or the
New Bank upon the acquisition by the Corporation of the stock of the Bank,
as described in number 1, above.
3. The basis of the assets received by the Resulting Bank will be the same
as the basis of such assets in the hands of the Bank immediately prior to
the merger (Section 362(b)).
4. No gain or loss will be recognized by the Corporation upon receipt of
stock of the Bank solely in exchange for stock in the Corporation (Section
354(a)(1)).
5. With respect to Bank shareholders who receive only Corporation voting
stock in the transaction, no gain or loss will be recognized by them on
the receipt of shares of Corporation voting common stock solely in
exchange for shares of their stock in the Bank (Section 354(a)(1)).
6. With respect to those Bank shareholders who receive only Corporation
voting stock in the transaction, the basis of the Corporation stock
received by them will be the same as the basis of their shares of the Bank
stock surrendered in exchange therefor (Section 358(a)(1)).
7. The holding period for the Corporation's stock to be received by the
shareholders of the Bank will include the period during which their shares
of stock in the Bank surrendered in exchange therefor were held, provided
that the shares of the Bank stock surrendered in the exchange were held as
capital assets on the date of the exchange (Section 1223(1)).
This letter is solely for your information and use and that of the shareholders
of Merchants National Bank and, except to the extent that such may be referred
to in the Registration Statement on Form S-4 as filed with the Securities and
Exchange Commission as an exhibit to same, it is not to be used, circulated,
quoted or otherwise referred to for any other purpose, or relied upon by any
other person, for whatever reason without our prior written consent.
Sincerely,
Werner & Blank Co., L.P.A.
