ITEM 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
On February 20, 2009, First Merchants Corporation (the "Company") entered
into a Letter Agreement with the United States Department of the Treasury (the
"Treasury Department") as part of the Treasury Department's Capital Purchase
Program under the Emergency Economic Stabilization Act of 2008 ("EESA").
Pursuant to the Securities Purchase Agreement-Standard Terms ("Securities
Purchase Agreement") attached to the Letter Agreement, the Company issued to the
Treasury Department 116,000 shares of Fixed Rate Cumulative Perpetual Preferred
Stock, Series A ("Designated Preferred Stock"), having a liquidation amount per
share of $1,000, for a total price of $116,000,000 and a warrant ("Warrant") to
purchase up to 991,453 shares ("Warrant Shares") of the Company's common stock,
at an initial per share exercise price of $17.55, for an aggregate purchase
price of $17,400,000.15. The Designated Preferred Stock and the Warrant were
issued in a private placement exempt from registration pursuant to Section 4(2)
of the Securities Act of 1933.
The Designated Preferred Stock pays cumulative dividends at a rate of 5% per
year for the first five years and 9% per year thereafter. Pursuant to the terms
of the recently enacted American Recovery and Reinvestment Act of 2009 (the
"ARRA"), the Company may, upon consultation with its primary federal regulator,
repay the amount received for the Designated Preferred Stock at any time,
without regard to whether the Company has replaced such funds from any source or
to any waiting period. Upon repayment of the amount received for the Designated
Preferred Stock, the Treasury Department will also liquidate the associated
Warrant in accordance with the ARRA and any rules and regulations thereunder.
The restrictions on redemption of the Designated Preferred Stock are described
in Item 3.03 below. The Designated Preferred Stock is generally non-voting.
Pursuant to the Securities Purchase Agreement, until the Department of
Treasury no longer owns any shares of the Designated Preferred Stock, the
Warrant or Warrant Shares, the Company's employee benefit plans and other
executive compensation arrangements for the Senior Executive Officers must
continue to comply in all respects with Section 111 of the EESA, as amended from
time to time. The Company's "Senior Executive Officers" are Michael C. Rechin,
President and Chief Executive Officer; Mark K. Hardwick, Executive Vice
President and Chief Financial Officer; Robert R. Connors, Senior Vice President
- Operations and Technology; David W. Spade, Senior Vice President and Chief
Credit Officer; Michael J. Stewart, Executive Vice President and Chief Banking
Officer. As described in Item 5.02 below, each of the Senior Executive Officers
entered into a Senior Executive Officer Letter Agreement and Waiver on
February 20, 2009. In addition, on February 20, 2009, the Company entered into a
letter agreement with the Treasury Department (the "ARRA Letter Agreement")
confirming the applicability of the provisions of the ARRA relating to executive
compensation to the Company. A copy of the ARRA Letter Agreement is attached as
Exhibit 10.4 hereto, and is incorporated into this report by reference.
As part of its purchase of the Designated Preferred Stock, the Treasury
Department received a Warrant to purchase 991,453 shares of the Company's Common
Stock at an initial per share exercise price of $17.55. The Warrant provides for
the adjustment of the exercise price and the number of shares of the Company's
common stock issuable upon exercise pursuant to customary anti-dilution
provisions, such as upon stock splits or distributions of securities or other
assets to holders of Company Common Stock, and upon certain issuances of the
Company
Common Stock at or below a specified price relative to the initial exercise
price. The term of the Warrant is ten years. If the Company completes one or
more Qualified Equity Offerings on or prior to December 31, 2009 that result in
the Company receiving aggregate gross proceeds equal to at least $116,000,000,
then the number of Warrant Shares will be reduced by 50% of the original number
of Warrant Shares. Pursuant to the Securities Purchase Agreement, the Treasury
Department has agreed not to exercise voting power with respect to any shares of
Common Stock issued upon exercise of the Warrant.
The foregoing description of the Securities Purchase Agreement, the
Designated Preferred Stock, the Warrant, the Senior Executive Officer Letter
. . .
ITEM 3.03. MATERIAL MODIFICATION TO RIGHTS OF SECURITY HOLDERS.
Prior to February 20, 2012, unless the Company has redeemed the Designated
Preferred Stock or the Treasury Department has transferred the Designated
Preferred Stock to a third party, the consent of the Treasury Department will be
required for the Company to (i) increase its Common Stock dividend or
(ii) repurchase the Common Stock or other equity or capital securities, other
than in connection with benefit plans consistent with past practice and certain
other circumstances specified in the Securities Purchase Agreement.
Furthermore, under the Articles of Amendment to the Company's Articles of
Incorporation described in Item 5.03 of this report, the Company's ability to
declare or pay dividends or repurchase its Common Stock or other equity or
capital securities will be subject to restrictions in the event the Company
fails to declare or pay full dividends on the Designated Preferred Stock.
Pursuant to the ARRA, the Company may, upon consultation with its primary
federal regulator, repay the amount received for the Designated Preferred Stock
at any time, without regard to whether the Company has replaced such funds from
any source or to any waiting period. Upon repayment of the amount received for
the Designated Preferred Stock, the Treasury Department will also liquidate the
associated Warrant in accordance with the ARRA and any rules and regulations
thereunder.
ITEM 5.02. DEPARTURE OF DIRECTORS OR CERTAIN OFFICERS; ELECTION OF DIRECTORS;
APPOINTMENT OF CERTAIN OFFICERS; COMPENSATORY ARRANGEMENTS OF CERTAIN OFFICERS.
In connection with the events described above under "Item 1.01 Entry into a
Material Definitive Agreement," which is incorporated herein by reference, on
February 20, 2009, each of the Company's Senior Executive Officers entered in a
Senior Executive Officer Letter Agreement with the Company for the purpose of
amending each of the Senior Executive Officer's compensation, bonus, incentive
and other benefit plans, arrangements and agreements (including golden
parachute, severance and employment agreements) in order to comply with the
executive compensation and corporate governance requirements of Section 111 of
the EESA, as may be amended from time to time. Each of the Senior Executive
Officers also executed a Waiver voluntarily waiving any claim against the
Company or the Treasury Department for any changes to such person's compensation
and benefits required. The form of the Senior Executive Officer Letter Agreement
and the form of Waiver is attached as Exhibit 10.2 and 10.3 hereto,
respectively, and are incorporated into this report by reference. Additionally,
on February 20, 2009, the Company entered into the ARRA Letter Agreement with
the Treasury Department confirming the applicability of the executive
compensation provisions of the ARRA to the Company. A copy of the ARRA Letter
Agreement is attached as Exhibit 10.4 hereto, and is incorporated into this
report by reference.
ITEM 5.03. AMENDMENT TO ARTICLES OF INCORPORATION OR BYLAWS; CHANGE IN FISCAL
YEAR.
Effective February 17, 2009, the Company amended its Articles of
Incorporation to (i) designate a series of preferred stock as "Fixed Rate
Cumulative Perpetual Preferred Stock, Series A," (ii) authorize 116,000 shares
of Designated Preferred Stock, and (iii) set forth the voting and other powers,
designations, preferences and relative, participating, option or other rights,
and the qualifications, limitations or restrictions thereof, of the Designated
Preferred Stock.
The Articles of Amendment to the Company's Articles of Incorporation are
filed herewith as Exhibit 3.1 and incorporated herein by reference.
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