As filed with the Securities and Exchange Commission on July 22, 2021
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION ON AUGUST 18, 2006
REGISTRATION NO. 333-135565
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
IBT BANCORP, INC.
(Exact
ISABELLA BANK CORPORATION
(Exact name of registrant as specified in its charter)
| Michigan | 6022 | 38-2830092 | ||||||||||||
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification Number) | ||||||||||||
401 N. Main St.
Mt. Pleasant, Michigan 48858-1649
(989) 772-9471
(Address,
(Address, including zip code, and telephone number, including area code, of registrant'sregistrant’s principal executive offices)
DENNIS P. ANGNER, PRESIDENT
Jae A. Evans
President & CEO
200 EAST BROADWAY
MT. PLEASANT, MI 48858
Isabella Bank Corporation
401 N. Main St.
Mt. Pleasant, Michigan 48858-1649
(989) 772-9471
(Address,
(Name, address, including zip code, and telephone number, including area code, of agent for service)
COPIES TO:
Copies to:
Kimberly A. Baber
Varnum LLP
333 Bridge St, N.W., Suite 1700
Grand Rapids, Michigan 49504
(616) 336-6000
Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this registration statement becomes effective and
satisfaction or waiver of the conditions to the proposed merger transaction, as
described in this Registration Statement.
effective.
If the securities being registered on this formForm are to bebeing offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: [ ]
box. ☐
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
☐
If this Formform is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||||||||||||||||
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |||||||||||||||||
| Emerging growth company | ☐ | |||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transaction period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:
| Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) | ☐ | |||||||||||||
| Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) | ☐ | |||||||||||||
CALCULATION OF REGISTRATION FEE
(1) This amount represents
| Title of Each Class of Securities to be Registered | Amount to be Registered | Proposed Maximum Offering Price per Note | Proposed Maximum Aggregate Offering Price | Amount of Registration Fee | |||||||||||||||||||||||||
| 3.25% Fixed-to-Floating Rate Subordinated Notes due 2031 | $30,000,000 | 100% | $30,000,000 | $3,273(1) | |||||||||||||||||||||||||
| (1) | Calculated in accordance with Section 6(b) and Rule 457(f) under the Securities Act at a rate equal to 0.0001091 multiplied by the proposed maximum aggregate offering price. | ||||||||||||||||||||||||||||
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 bona fide estimatefurther amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the maximum amountSecurities Act of IBT
Bancorp, Inc. common stock to be offered based on the amount and form of
consideration to be issued pursuant to the proposed transaction and the
number of shares of common stock of The Farwell State Savings Bank
outstanding1933, as of June 1, 2006, plus additional shares available to be
issued in the event additional shares are required before the effective
time of the merger.
(2) The registration fee has been computed pursuant to Rule 457(f)(2) and Rule
457(f)(3). Pursuant to those rules and solely for purposes of calculatingamended, or until the registration fee, the Proposed Maximum Offering Price Per Share and
the Proposed Maximum Aggregate Offering Price have been calculatedstatement shall become effective on the
basis of the book value of the common stock of The Farwell State Savings
Bank at June 1, 2006, less the cash to be paid in connection with the
transaction.
(3) Calculated by multiplying (a) the proposed maximum aggregate offering
price for all securities to be registered ($7,058,601) by (b) 0.000107.
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 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 SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
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THE FARWELL STATE SAVINGS BANK
399 WEST MAIN STREET
FARWELL, MI 48622
NOTICE OF THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 12, 2006
NOTICE IS HEREBY GIVEN that a special meeting of the shareholders of The
Farwell State Savings Bank will be held at the Surrey Township Hall, Farwell,
Michigan, at 10 a.m. Michigan time, on September 12, 2006, for the following
purposes:
1. To adopt the Amended and Restated Agreement and Plan of Merger by and
between Farmers State Bank of Breckenridge, The Farwell State Savings Bank and
IBT Bancorp, Inc., datedsuch date as of May 2, 2006, and the transactions contemplated by
the Merger Agreement.
2. To transact any other business that properly comes before the special
meeting of shareholders, or any adjournments or postponements of the special
meeting, including, without limitation, a motion to adjourn the special meeting
to another time or place for the purpose of soliciting additional proxies in
order to approve the Merger Agreement and the merger or otherwise.
The proposed merger is described in more detail in this proxy statement-
prospectus, which you should read carefully in its entirety before voting. A
copy of the Merger Agreement is attached as Appendix A to this document. Only
The Farwell State Savings Bank shareholders of record as of the close of
business on August 15, 2006, are entitled to notice of and to vote at the
special meeting of shareholders or any adjournments of the special meeting.
YOUR VOTE IS VERY IMPORTANT. TO ENSURE YOUR REPRESENTATION AT THE SPECIAL
MEETING OF SHAREHOLDERS, PLEASE COMPLETE, EXECUTE AND PROMPTLY MAIL YOUR PROXY
CARD IN THE RETURN ENVELOPE ENCLOSED. This will not prevent you from voting in
person, but it will help to secure a quorum and avoid added solicitation costs.
Your proxy may be revoked at any time before it is voted.
BY ORDER OF THE BOARD OF DIRECTORS
----------------------------------------
Herbert R. Miller,
Chairman of the Board
Farwell, Michigan
August 22, 2006
THE BOARD OF DIRECTORS OF THE FARWELL STATE SAVINGS BANK UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY CARD PROMPTLY, WHETHER OR NOT
YOU PLAN TO ATTEND THE SPECIAL MEETING OF SHAREHOLDERS.
DO NOT SEND STOCK CERTIFICATES WITH THE PROXY CARD. UNDER SEPARATE COVER,
YOU WILL RECEIVE INSTRUCTIONS FOR DELIVERING YOUR STOCK CERTIFICATES.
[THE FARWELL STATE SAVINGS BANK LOGO]
DEAR SHAREHOLDER OF THE FARWELL STATE SAVINGS BANK:
You are cordially invited to attend a special meeting of shareholders of
The Farwell State Savings Bank, to be held on September 12, 2006, at 10 a.m.,
local time, at the Surrey Township Hall, Farwell, Michigan. At this special
meeting, you will be asked to approve the acquisition of The Farwell State
Savings Bank by Farmers State Bank of Breckenridge, a wholly-owned subsidiary of
IBT Bancorp, Inc. The acquisition will be accomplished through the merger of The
Farwell State Savings Bank with and into Farmers State Bank of Breckenridge.
If the merger is completed as proposed, subject to certain possible
adjustments, each share of The Farwell State Savings Bank common stock will be
converted into the right to receive 3.0382 shares of IBT Bancorp, Inc. common
stock and $29.00 in cash. Cash will be paid in lieu of any fractional share of
IBT Bancorp, Inc. common stock.
The last transaction price in IBT Bancorp, Inc. common stock known to
management occurring prior to the public announcement of the merger was $38.18 a
share on December 15, 2005, making 3.0382 shares of IBT Bancorp, Inc. common
stock and $29.00 in cash on that date equal to $145.00. The last transaction
price in IBT Bancorp, Inc. common stock known to management occurring prior to
the mailing of this Proxy Statement-Prospectus was $44 a share on August 15,
2006, making 3.0382 shares of IBT Bancorp, Inc. common stock and $29.00 in cash
equal on that date to $162.68.
YOUR VOTE IS VERY IMPORTANT. The parties cannot complete the merger unless,
among other things, our shareholders approve the merger. THE FARWELL STATE
SAVINGS BANK BOARD OF DIRECTORS HAS APPROVED THE MERGER AND RECOMMENDS THAT YOU
VOTE "FOR" APPROVAL OF THE MERGER. Please review and consider this Proxy
Statement-Prospectus carefully.
It is important that your shares are represented at the meeting, whether or
not you plan to attend. An abstention or failure to vote will have the same
effect as a vote against the merger. Accordingly, please complete, date, sign,
and return promptly your proxy card in the enclosed envelope. You may attend the
meeting and vote your shares in person if you wish, even if you have previously
returned your proxy.
Sincerely,
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Thomas E. Kedrowski
President and Chief Executive Officer of
The Farwell State Savings Bank
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED IN
CONNECTION WITH THE MERGER OR DETERMINED IF THIS DOCUMENT IS ACCURATE OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES TO BE ISSUED IN CONNECTION WITH THE MERGER ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY. IBT BANCORP, INC. COMMON STOCK IS SUBJECT TO INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF VALUE.
THIS DOCUMENT IS DATED AUGUST 22, 2006
AND IS FIRST BEING MAILED ON OR ABOUT AUGUST 22, 2006.
TABLE OF CONTENTS
This proxy statement-prospectus incorporates business and financial
information about IBT Bancorp, Inc. ("IBT") that is not included in or delivered
with this proxy statement-prospectus. Documents incorporated by reference are
available from IBT without charge. You may obtain documents incorporated by
reference in this proxy statement-prospectus by requesting them in writing or by
telephone from IBT at the following address:
IBT Bancorp, Inc.
Attn: Dennis P. Angner
President & Chief Executive Officer
200 East Broadway
Mt. Pleasant, Michigan 48858
(989) 772-9471
TO OBTAIN DELIVERY OF THIS INFORMATION PRIOR TO THE SPECIAL SHAREHOLDERS
MEETING OF THE FARWELL STATE SAVINGS BANK ("FARWELL"), YOU MUST REQUEST THE
INFORMATION NO LATER THAN SEPTEMBER 5, 2006, WHICH IS FIVE BUSINESS DAYS BEFORE
THE DATE OF THE SPECIAL MEETING AT WHICH YOU ARE REQUESTED TO VOTE. You should
rely only on the information contained or incorporated by reference in this
proxy statement-prospectus to vote on the merger and the related issuance of IBT
common stock. Neither IBT nor Farwell has authorized anyone to provide you with
information that is different from what is contained in this proxy statement-
prospectus.
i
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE
SPECIAL MEETING OF SHAREHOLDERS
Q: WHAT IS THE PROPOSED TRANSACTION?
A: Pursuant to the Amended and Restated Agreement and Plan of Merger (the
"Merger Agreement") (attached as Appendix A to this proxy statement-
prospectus), Farmers State Bank of Breckenridge ("Farmers") will acquire
Farwell through a merger transaction in which Farwell will merge with and
into Farmers. At the effective time of the merger, Farmers will change
its name to FSB Bank ("FSB"). FSB will continue to be a wholly-owned
subsidiary of IBT.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME?
A: Generally speaking, because you will receive a combination of IBT common
stock and cash, you should recognize a capital gain, but not loss, on the
exchange to the extent of the lesser of cash received or gain realized in
the exchange. This tax treatment may not apply to all Farwell
shareholders. Farwell shareholders should consult their own tax advisors
for a full understanding of the tax consequences of the merger. Farwell
recommends that Farwell shareholders carefully read the complete
explanation of the "Material Federal Income Tax Consequences" of the
merger beginning on page 32.
Q: WHAT DO I NEED TO DO NOW?
A: After you have carefully read this document, indicate on your proxy card
how you want your shares to be voted. Then sign and mail your proxy card
in the enclosed prepaid return envelope as soon as possible. This will
enable your shares to be represented and voted at the special meeting.
Q: WHY IS MY VOTE IMPORTANT?
A: The Merger Agreement must be adopted by 66 2/3% of the shares of Farwell
issued and outstanding as of the record date for the special meeting
(August 15, 2006). A failure to vote will have the same effect as a vote
against the Merger Agreement.
Q: IF MY BROKER HOLDS MY SHARES IN "STREET NAME" WILL MY BROKER
AUTOMATICALLY VOTE MY SHARES FOR ME?
A: No. Your broker will not be able to vote your shares without instructions
from you. You should instruct your broker to vote your shares, following
the directions your broker provides.
Q: WHAT IF I FAIL TO INSTRUCT MY BROKER TO VOTE MY SHARES?
A: If you fail to instruct your broker to vote your shares, the broker will
submit an unvoted proxy (a broker non-vote) as to your shares. Broker
non-votes will count toward a quorum at the special meeting. However,
broker non-votes will not count as a vote with respect to the Merger
Agreement, and therefore will have the same effect as a vote against the
Merger Agreement.
Q: CAN I ATTEND THE SPECIAL MEETING AND VOTE MY SHARES IN PERSON?
A: Yes. All shareholders are invited to attend the special meeting.
Shareholders of record can vote in person at the special meeting by
executing a proxy card. If a broker holds your shares in street name,
then you are not the shareholder of record and you must ask your broker
how you can vote your shares at the special meeting.
Q: CAN I CHANGE MY VOTE?
A: Yes. If you have not voted through your broker, you can change your vote
after you have sent in your proxy card by:
- providing written notice to the Secretary of Farwell;
- submitting a new proxy card. Any earlier proxies will be revoked
automatically; or
- attending the special meeting and voting in person. Any earlier proxy
will be revoked. However, simply attending the special meeting without
voting will not revoke your proxy.
If you have instructed a broker to vote your shares, you must follow your
broker's directions to change your vote.
ii
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: PLEASE DO NOT send your stock certificates with your proxy card. You will
be sent a letter of transmittal to complete and return with your Farwell
common stock certificate after the completion of the merger.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: Farmers and Farwell currently expect to complete the merger in the third
quarter of 2006, assuming all of the conditions to completion of the
merger have been satisfied.
Q: WHAT WILL SHAREHOLDERS OF FARWELL RECEIVE IN THE MERGER?
A: If the Merger Agreement is approved and the merger is subsequently
completed, each outstanding share of Farwell common stock (other than any
dissenting shares) will be converted into the right to receive 3.0382
shares of IBT common stock and $29.00 in cash subject to adjustment under
certain circumstances. Cash will be paid in lieu of any fractional share
of IBT common stock.
Q: WHOM SHOULD I CALL WITH QUESTIONS?
A: You should direct any questions regarding the special meeting of
shareholders or the merger to Thomas E. Kedrowski, President and Chief
Executive Officer of Farwell at (989) 588-9945.
iii
SUMMARY
This summary highlights selected information included in this document and
does not contain all of the information that may be important to you. You should
read this entire document and its appendices and the other documents to which we
refer you before you decide how to vote with respect to the Merger Agreement.
You may obtain the information incorporated by reference into this document
without charge by following the instructions in the section entitled "Where You
Can Find More Information" on page 83. Each item in this summary includes a page
reference directing you to a more complete description of that item.
This document, including information included or incorporated by reference
in this document, contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements include, but are not limited to: (i) statements of goals, intentions
and expectations; (ii) statements regarding business plans, prospects, growth
and operating strategies; (iii) statements regarding the asset quality of loan
and investment portfolios; (iv) statements regarding estimates of risks and
future costs and benefits; and (v) other statements identified by words such as
"expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates,"
or words of similar meaning. These forward-looking statements are based on
current beliefs and expectations of the management of IBT, Farmers and Farwell
and are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond our control. In
addition, these forward-looking statements are subject to assumptions with
respect to future business strategies and decisions that are subject to change.
Actual results may differ materially from the anticipated results discussed in
these forward-looking statements. See "Forward-Looking Statements" on page 85.
THE MERGER
THE MERGER AGREEMENT IS ATTACHED TO THIS DOCUMENT AS APPENDIX A. WE
ENCOURAGE YOU TO READ THIS AGREEMENT CAREFULLY, AS IT IS THE LEGAL DOCUMENT THAT
GOVERNS THE MERGER OF FARWELL WITH AND INTO FARMERS.
PARTIES TO THE MERGER
FARMERS (PAGE 13)
Farmers, a Michigan chartered commercial bank, is headquartered in
Breckenridge, Michigan, and operates three offices. As of March 31, 2006,
Farmers had assets of $136.4 million, deposits of $111.7 million and
shareholders equity of $13.0 million. Farmers' principal executive office is
located at 316 East Saginaw Street, Breckenridge, Michigan, 48615, and the
telephone number is (989) 842-3191.
FARWELL (PAGE 13)
Farwell, a Michigan chartered commercial bank, is headquartered in Farwell,
Michigan, and operates 2 offices. As of March 31, 2006, Farwell had assets of
$91.6 million, deposits of $76.8 million and shareholders' equity of $13.7
million. Farwell's principal executive office is located at 399 West Main
Street, Farwell, Michigan, 48622, and the telephone number is (989) 588-9945.
IBT (PAGE 13)
IBT, headquartered in Mt. Pleasant, Michigan, is the holding company for
Farmers and Isabella Bank and Trust, which operate 20 full service offices and
IBT Title and Insurance Agency which operates five offices. As of March 31,
2006, IBT had consolidated assets of $761.7 million, deposits of $616.7 million
and shareholders' equity of $81.8 million.
The principal executive office of IBT is located at 200 East Broadway, Mt.
Pleasant, Michigan, 48858, and the telephone number is (989) 772-9471.
1
WHAT FARWELL SHAREHOLDERS WILL RECEIVE IN THE MERGER (PAGE 14)
If the Merger Agreement is approved and the merger is subsequently
completed, each outstanding share of Farwell common stock (other than dissenting
shares) will be converted into the right to receive 3.0382 shares of IBT common
stock and $29.00 in cash, subject to adjustment under certain circumstances.
Cash will be paid in lieu of any fractional share of IBT common stock.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (PAGE 32)
As a result of receiving a combination of IBT common stock and cash in
exchange for shares of Farwell common stock, you will likely recognize gain, but
not loss, equal to the lesser of (1) the amount of cash received or (2) the
amount of gain realized in the transaction.
Generally, the actual U.S. federal income tax consequences to you will
depend on whether your shares of Farwell common stock were purchased at
different times and at different prices and the character of the gain, if any,
as either capital gain or ordinary income.
You should read "Material United States Federal Income Tax Consequences of
the Merger" starting on page 32 for a more complete discussion of the federal
income tax consequences of the merger. Tax matters can be complicated and the
tax consequences of the merger to you will depend on your particular tax
situation. You should consult your own tax advisor to fully understand the tax
consequences of the merger to you.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS SHAREHOLDER APPROVAL OF THE
MERGER (PAGE 15)
The Board of Directors of Farwell believes that the merger presents an
opportunity to join a financial institution that will have greater financial
strength and earning power than Farwell would have on its own, as well as the
added scale necessary to undertake and solidify leadership positions.
As a result, the Board of Directors of Farwell unanimously approved the
Merger Agreement. The Board of Directors of Farwell believes that the merger and
the Merger Agreement are fair to and in the best interests of Farwell and its
shareholders and unanimously recommends that you vote "FOR" adoption of the
Merger Agreement.
OPINIONS OF FINANCIAL ADVISORS (PAGE 16 AND APPENDIX B AND C)
In connection with the merger, the Board of Directors of Farwell, Farmers
and IBT received the written opinion of Austin Associates, LLC, that the terms
of the merger are fair to IBT's and Farwell's shareholders from a financial
point of view. In addition, Donnelly Penman & Partners has given its written
opinion to Farwell's Board of Directors that the consideration to be received in
the merger by Farwell shareholders is fair from a financial point of view. The
full texts of the opinion of Austin Associates, LLC, dated August 18, 2006 and
the opinion of Donnelly Penman & Partners dated June 30, 2006 are included in
this document as Appendix B and C, respectively. Farwell encourages you to read
these opinions carefully in their entirety for a description of the procedures
followed, assumptions made, matters considered and limitations of the review
undertaken by Austin Associates, LLC and Donnelly Penman & Partners. The
opinions do not constitute a recommendation to you or any other shareholder as
to how to vote with respect to the merger, or any other matter relating to the
proposed transaction. Austin Associates, LLC and Donnelly Penman & Partners will
each receive a fee for rendering their respective fairness opinions in
connection with the merger.
SPECIAL MEETING OF SHAREHOLDERS OF FARWELL (PAGE 12)
Farwell will hold a special meeting of its shareholders on September 12,
2006 at 10:00 a.m., Michigan time, at the Surrey Township Hall, Farwell,
Michigan. At the special meeting of shareholders, you will be asked to vote to
adopt the Merger Agreement.
You may vote at the special meeting of shareholders if you owned shares of
Farwell common stock at the close of business on the record date, August 15,
2006. On that date, there were 262,500 shares of Farwell common stock
2
outstanding and entitled to vote at the special meeting of shareholders. You may
cast one vote for each share of Farwell common stock you owned on the record
date.
Even if you expect to attend the special meeting of shareholders, Farwell
recommends that you promptly complete and return your proxy card in the enclosed
return envelope.
SHAREHOLDER VOTE REQUIRED (PAGE 12)
Adoption of the Merger Agreement requires the affirmative vote of the
holders of 66 2/3% of the shares of Farwell common stock issued and outstanding
on the record date. A failure to vote or an abstention will have the same effect
as a vote against the merger. As of the record date, directors and executive
officers of Farwell beneficially owned 75,485 shares of Farwell common stock
entitled to vote at the special meeting of shareholders. This represents
approximately 28.8% of the total votes entitled to be cast at the special
meeting of shareholders. These individuals have indicated that they will vote
"FOR" adoption of the Merger Agreement.
DISSENTERS' RIGHTS OF APPRAISAL (PAGE 35 AND APPENDIX D)
Under Section 3706(2)(b) of the Michigan Banking Code of 1999, holders of
Farwell common stock have the right to obtain an appraisal of the value of their
shares of Farwell common stock in connection with the merger. To perfect
appraisal rights, a Farwell shareholder must not vote for the adoption of the
Merger Agreement and must strictly comply with all of the procedures required
under Section 3706(2)(b) of the Michigan Banking Code of 1999.
We have included a copy of Section 3706(2)(b) of the Michigan Banking Code
of 1999 relating to dissenters' rights as Appendix D to this document.
INTERESTS OF FARWELL'S DIRECTORS AND OFFICERS IN THE MERGER (PAGE 26)
In considering the recommendation of the Board of Directors of Farwell to
approve the merger, you should be aware that certain executive officers and
directors of Farwell have employment and other compensation agreements or plans
and continuing liability insurance and indemnification protections that give
them interests in the merger that are somewhat different from, or in addition
to, the interests of Farwell shareholders.
REGULATORY APPROVALS REQUIRED FOR THE MERGER (PAGE 31)
We cannot complete the merger without the prior approval or non-objection
of the Federal Deposit Insurance Corporation ("FDIC") and the Michigan Office of
Financial and Insurance Services. The parties have received FDIC approval and
Farmers is in the process of seeking the other approvals and non-objections.
While we do not know of any reason why Farmers would not be able to obtain any
necessary approvals in a timely manner, we cannot assure you that these
approvals and non-objections will occur or what the timing may be or that these
approvals and non-objections will not be subject to one or more conditions that
affect the advisability of the merger.
CONDITIONS TO THE MERGER (PAGE 30)
Completion of the merger depends on a number of conditions being satisfied
or waived, including but not limited to the following:
- the Farwell shareholders must have adopted the Merger Agreement;
- the FDIC and the Michigan Office of Financial and Insurance Services must
have approved or not objected to the merger, as appropriate, and all
statutory waiting periods must have expired;
- no stop order suspending the effectiveness of IBT's registration
statement of which this document is a part shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by
the Securities and Exchange Commission; and
- the holders of no more than 10% of Farwell's shares of common stock have
indicated their intention to seek dissenter's rights of appraisal.
3
Other conditions to the completion of the merger are described beginning on
page 30. We cannot be certain when, or if, the conditions to the merger will be
satisfied or waived or whether or not the merger will be completed.
NO SOLICITATION (PAGE 31)
Farwell has agreed, subject to certain limited exceptions, not to initiate
discussions with another party regarding a business combination with such other
party while the merger with Farmers is pending.
TERMINATION OF THE MERGER AGREEMENT (PAGE 31)
Farmers and Farwell may mutually agree at any time to terminate the Merger
Agreement without completing the merger, even if Farwell shareholders have
approved it. Also, either party may decide, without the consent of the other
party, to terminate the Merger Agreement under specified circumstances, if the
required regulatory approvals are not received or if the other party breaches
its agreements.
DIFFERENCES IN RIGHTS OF SHAREHOLDERS (PAGE 36)
The rights of Farwell shareholders after the merger who continue as IBT
shareholders will be governed by Michigan corporate law and the articles of
incorporation and bylaws of IBT rather than the articles of incorporation and
bylaws of Farwell, which are governed by Michigan banking law.
4
SELECTED HISTORICAL FINANCIAL DATA FOR
IBT AND FARWELL (UNAUDITED)
The following tables show summarized historical consolidated financial data
for IBT and Farwell. This information is derived from IBT's audited financial
statements for 2001 through 2005 and unaudited financial statements for the
three-month period ended March 31, 2006 and Farwell's audited financial
statements for 2005 and unaudited financial statements for 2001 through 2004 and
for the three-month period ended March 31, 2006. This information is only a
summary. You should read it in conjunction with the historical financial
statements (and related notes) contained or incorporated by reference in IBT's
annual reports on Form 10-K, quarterly reports on Form 10-Q, and other
information filed with the Securities and Exchange Commission, ("SEC") and in
Farwell's financial statements, related notes, Management's Discussion and
Analysis of Financial Condition and Results of Operations and other information
included in this proxy statement-prospectus. See "Where You Can Find More
Information" on page 83.
SUMMARY OF SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
IBT BANCORP, INC.
- --------
(1) all per share data was adjusted for stock dividends
5
FARWELL STATE SAVINGS BANK
6
PRO FORMA MERGER DATA (UNAUDITED)
The following table shows selected financial information of IBT on a pro
forma combined basis giving effect to the merger as if the merger had become
effective at the end of the period presented, in the case of balance sheet
information, and at the beginning of the period presented, in the case of income
statement information. The pro forma information reflects the purchase method of
accounting under accounting principles generally accepted in the United States
of America. These adjustments are preliminary and are subject to change. The
final adjustments will be calculated when the merger is effective and may be
materially different from those presented.
The unaudited pro forma financial information is provided for informational
purposes only. The pro forma financial information presented is not necessarily
indicative of the actual results that would have been achieved by IBT had the
merger been consummated on the dates or at the beginning of the periods
presented, and is not necessarily indicative of future results.
You should read this summary pro forma information in conjunction with the
information under "Unaudited Pro Forma Financial Information" beginning on page
44.
- --------
(1) The pro forma combined balance sheet data assumes the issuance of 797,528
shares of IBT common stock, plus the payment of $7,612,500 in cash, in
exchange for all of the outstanding shares of Farwell common stock. This
assumes an exchange ratio of 3.0382 shares of IBT common stock and $29.00
in cash for each share of Farwell common stock outstanding as of August
15, 2006. The aggregate merger consideration to be paid by Farmers to all
Farwell shareholders is subject to certain possible adjustmentsacting pursuant to the Merger Agreement.
7
CAPITAL RATIOS
Under the "risk-based" capital guidelines presently in effect for banks and
bank holding companies, minimum capital levels are based on the perceived risk
in the various asset categories. Certain off-balance-sheet instruments, such as
loan commitments and letters of credit, require capital allocations. Bank
holding companies such as IBT and banks such as Farwell are required to maintain
minimum risk-based capital ratios. IBT's and Farwell's ratios are above the
regulatory minimum guidelines, Farwell met the regulatory criteria to be
categorized as a "well-capitalized" institution as of December 31, 2005. The
"well-capitalized" classificationsaid Section 8(a), may permit banks to minimize the cost of FDIC
insurance assessments by being charged a lesser rate than those that do not meet
this definition. Designation as a "well-capitalized" institution does not
constitute a recommendation by federal bank regulators. The following table
shows capital ratios and requirements as of March 31, 2006.
determine.
THE MERGER
IBT MAY FAIL TO REALIZE THE ANTICIPATED BENEFITS OF THE MERGER.
The success of the merger will depend on, among other things, IBT's ability
to realize anticipated cost savings, to conduct the business of Farwell in a
manner that does not materially disrupt the existing customer relationships of
Farwell nor result in decreased revenues resulting from any loss of customers,
and permits growth opportunities to occur. Farwell represents a new market area
for IBT. If IBT is not able to successfully achieve these objectives, the
anticipated benefits of the merger may not be fully realized, realized at all or
may take longer to realize than expected.
Farmers and Farwell have operated and, until the completion of the merger,
will continue to operate, independently. It is possible that the integration
process could result in the loss of key employees, the disruption of Farwell's
ongoing business or inconsistencies in standards, controls, procedures and
policies that adversely affect the ability of IBT to maintain relationships with
customers and employees or to achieve the anticipated benefits of the merger.
FARWELL DIRECTORS AND OFFICERS HAVE INTERESTSINFORMATION IN THE MERGER THAT DIFFER FROM
THOSE OF A SHAREHOLDER.
Farwell's directors and officers have various interests in the merger that
differ from, or are in addition to, the interests of Farwell shareholders. These
interests include:
- the agreement by Farmers to employ Mr. Kedrowski pursuant to a two-year
written employment agreement.
- following completion of the merger, the Farwell officers will continue to
serve with Farmers and the Farwell directors will serve on a regional
advisory board for the Farwell division of Farmers and shall receive the
same board member compensation as provided by Farwell prior to the
merger.
- upon completion of the merger, Michael McGuire shall join the
reconstituted Farmers' Board of Directors.
- the agreement by Farmers to employ all current Farwell employees pursuant
to a five-year written employment agreement.
- the agreement by Farmers to provide liability insurance and
indemnification protection to Farwell directors and officers.
RISKS ABOUT IBT
IBT'S CURRENT CONCENTRATION OF LOANS IN ITS PRIMARY MARKET AREA MAY INCREASE
ITS RISK.
IBT's success depends primarily on the general economic conditions in Mid-
Michigan. Unlike larger banks that are more geographically diversified, IBT
provides banking and financial services to customers primarily in Mid-Michigan.
The local economic conditions in the Mid-Michigan area have a significant impact
on its loans, the ability of the borrowers to repay these loans and the value of
the collateral securing these loans. A significant decline in general economic
conditions caused by inflation, recession, unemployment or other factors beyond
IBT's control would impact these local economic conditions and could negatively
affect the financial results of its banking operations.
IBT targets its business lending and marketing strategy for loans to serve
primarily the banking and financial services needs of small to medium size
businesses. These small to medium size businesses generally have fewer financial
resources in terms of capital or borrowing capacity than larger entities. If
general economic conditions negatively impact these businesses, IBT's results of
operations and financial condition may be adversely affected.
10
CHANGES IN INTEREST RATES COULD ADVERSELY AFFECT IBT'S RESULTS OF OPERATIONS
AND FINANCIAL CONDITION.
IBT's results of operations and financial condition are significantly
affected by changes in interest rates. IBT's results of operations depend
substantially on its net interest income, which is the difference between the
interest income earned on its interest-earning assets and the interest expense
paid on its interest-bearing liabilities. At December 31, 2005, IBT's interest
rate risk profile indicated that net interest income would increase in a rising
long term interest rate environment, but would decrease in a declining long term
interest rate environment.
Changes in interest rates also affect the value of IBT's interest-earning
assets, and in particular IBT's securities portfolio. Generally, the value of
securities fluctuates inversely with changes in interest rates. At December 31,
2005, IBT's available for sale securities totaled $183 million. Decreases in the
fair value of securities available for sale could have an adverse effect on
shareholders' equity or earnings.
IBT also is subject to reinvestment risk associated with changes in
interest rates. Changes in interest rates may affect the average life of loans
and mortgage-related securities. Decreases in interest rates can result in
increased prepayments of loans and mortgage-related securities, as borrowers
refinance to reduce borrowing costs. Under these circumstances, IBT is subject
to reinvestment risk to the extent that it is unable to reinvest the cash
received from such prepayments at rates that are comparable to the rates on
existing loans and securities. Additionally, increases in interest rates may
decrease loan demand and make it more difficult for borrowers to repay
adjustable rate loans.
STRONG COMPETITION WITHIN IBT'S MARKET AREA MAY LIMIT ITS GROWTH AND
PROFITABILITY.
Competition in the banking and financial services industry is intense. In
IBT's market area, IBT competes with commercial banks, savings institutions,
mortgage brokerage firms, credit unions, finance companies, mutual funds,
insurance companies, and brokerage and investment banking firms operating
locally and elsewhere. Many of these competitors (whether regional or national
institutions) have substantially greater resources and lending limits than IBT
does and may offer certain services that IBT does not or cannot provide. IBT's
profitability depends upon its continued ability to successfully compete in its
market area.
IBT OPERATES IN A HIGHLY REGULATED ENVIRONMENTTHIS PROSPECTUS IS NOT COMPLETE AND MAY BE ADVERSELY AFFECTED
BY CHANGES IN LAWSCHANGED. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND REGULATIONS.
IBT is subject to regulation, supervision and examination by the Board of
Governors of the Federal Reserve. Isabella Bank and Trust and Farmers State Bank
of Breckenridge are subject to regulation by the Office of Financial and
Insurance Services of the State of Michigan and by the Federal Deposit Insurance
Corporation, as insurer of their deposits. Such regulation and supervision
govern the activities in which a bank and its holding company may engage and are
intended primarily for the protection of the deposit insurance funds and
depositors. These regulatory authorities have extensive discretion in connection
with their supervisory and enforcement activities, including the imposition of
restrictions on the operation of a bank, the classification of assets by a bank
and the adequacy of a bank's allowance for loan losses. Any change in such
regulation and oversight, whether in the form of regulatory policy, regulations,
or legislation, could have a material impact on IBT and its operations.
IBT's operations are also subject to extensive regulation by other federal,
state and local governmental authorities and are subject to various laws and
judicial and administrative decisions imposing requirements and restrictions on
part or all of its operations. IBT believes that it is in substantial compliance
in all material respects with applicable federal, state and local laws, rules
and regulations. Because its business is highly regulated, the laws, rules and
regulations applicable to IBT are subject to regular modification and change.
There are currently proposed various laws, rules and regulations that, if
adopted, would impact its operations, including, among other things, matters
pertaining to corporate governance and SEC rules pertaining to public reporting
disclosures. There can be no assurance that these proposed laws, rules and
regulations, or any other laws, rules or regulations, will not be adopted in the
future, which could make compliance more difficult or expensive or otherwise
adversely affect its business, financial condition or prospects.
11
THE FARWELL SPECIAL MEETING
Farwell is mailing this proxy statement-prospectus to you as a Farwell
shareholder on or about August 22, 2006. With this document, Farwell is sending
you a notice of the Farwell special meeting of shareholders and a form of proxy
that is solicited by Farwell's Board of Directors. The special meeting will be
held on September 12, 2006 at 10:00 a.m., local time, at the Surrey Township
Hall, Farwell, Michigan.
MATTERS TO BE CONSIDERED
The sole purpose of the special meeting of shareholders is to vote on the
adoption of the Merger Agreement by which Farwell will merge with and into
Farmers.
You may also be asked to vote upon a proposal to adjourn or postpone the
special meeting of shareholders. Farwell could use any adjournment or
postponement for the purpose, among others, of allowing additional time to
solicit proxies.
PROXY CARD, REVOCATION OF PROXY
You should complete and return the proxy card accompanying this document to
ensure that your vote is counted at the special meeting of shareholders,
regardless of whether you plan to attend. You can revoke your proxy at any time
before the vote is taken at the special meeting by:
- submitting written notice of revocation to the Secretary of Farwell;
- submitting a properly executed proxy bearing a later date before the
special meeting of shareholders; or
- voting in person at the special meeting of shareholders. However, simply
attending the special meeting without voting will not revoke an earlier
proxy.
If your shares are held in street name, you should follow the instructions
of your broker regarding revocation of proxies.
All shares represented by valid proxies, and not revoked, will be voted in
accordance with your instructions on the proxy card. If you sign your proxy
card, but make no specification on the card as to how you want your shares
voted, your proxy card will be voted "FOR" approval of the foregoing proposal.
The Board of Directors is presently unaware of any other matter that may be
presented for action at the special meeting of shareholders. If any other matter
does properly come before the special meeting, the Board of Directors intends
that shares represented by properly submitted proxies will be voted, or not
voted, by and at the discretion of the persons named as proxies on the proxy
card.
RECORD DATE
The close of business on August 15, 2006 has been fixed as the record date
for determining the Farwell shareholders entitled to receive notice of and to
vote at the special meeting of shareholders. At that time, 262,500 shares of
Farwell common stock were outstanding, and were held by approximately 120
holders of record.
VOTING RIGHTS, QUORUM REQUIREMENTS AND VOTE REQUIRED
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Farwell common stock entitled to vote is
necessary to constitute a quorum at the special meeting of shareholders.
Abstentions and broker non-votes will be counted for the purpose of determining
whether a quorum is present but will not be counted as votes cast either for or
against the Merger Agreement.
Adoption of the Merger Agreement requires the affirmative vote of the
holders of 66 2/3% of the shares of Farwell common stock issued and outstanding
on the record date. Accordingly, a failure to vote, an abstention or a broker
non-vote will have the same effect as a vote against the Merger Agreement. As of
the record date, directors and executive officers of Farwell beneficially owned
75,485 shares of Farwell common stock entitled to vote at the special meeting of
shareholders. This represents approximately 28.8% of the total votes entitled to
be cast at the special meeting. These individuals have indicated that they will
vote "FOR" adoption of the Merger Agreement.
12
SOLICITATION OF PROXIES
For Farwell shareholders, the proxy that accompanies this document is being
solicited by Farwell's Board of Directors. In addition to solicitations by mail,
directors, officers, and regular employees of Farwell may solicit proxies from
shareholders personally or by telephone or other electronic means. Such
individuals will not receive any additional compensation for doing so. Farwell
will bear its own costs of soliciting proxies, which Farwell estimates will be
less than $20,000. Farwell also will make arrangements with brokers and other
custodians, nominees, and fiduciaries to send this document to beneficial owners
of Farwell common stock and, upon request, will reimburse those brokers and
other custodians for their reasonable expenses in forwarding these materials.
RECOMMENDATION OF THE BOARD OF DIRECTORS
Farwell's Board of Directors has unanimously approved the Merger Agreement
and the transactions contemplated by the Merger Agreement. The Board of
Directors believes that the Merger Agreement is fair to Farwell shareholders and
is in the best interest of Farwell and its shareholders and recommends that you
vote "FOR" the approval of the Merger Agreement. See "The Merger and the Merger
Agreement-Recommendation of the Farwell Board of Directors and Reasons for the
Merger."
THE MERGER AND THE MERGER AGREEMENT
The description of the merger and the Merger Agreement contained in this
proxy statement-prospectus describes the material terms of the Merger Agreement;
however, it does not purport to be complete. It is qualified in its entirety by
reference to the Merger Agreement. We have attached a copy of the Merger
Agreement as Appendix A and urge you to carefully review it.
GENERAL
Pursuant to the Merger Agreement, Farwell will merge with and into Farmers,
a wholly-owned subsidiary of IBT. Outstanding shares of Farwell common stock
will be converted into the right to receive 3.0382 shares of IBT common stock
and $29.00 in cash, subject to adjustment under certain circumstances. Cash will
be paid in lieu of any fractional share of IBT common stock. See "Merger
Consideration" below. At the effective time of the merger, Farwell's corporate
existence will terminate; and Farmers will continue as the surviving bank with a
Board of Directors consisting of Dennis Angner, Michael McGuire, Dale Weburg,
James Fabiano and David Maness. The name of the surviving bank shall be FSB.
THE PARTIES
FARMERS
Farmers, a Michigan chartered commercial bank, is headquartered in
Breckenridge, Michigan, and operates three offices. As of March 31, 2006,
Farmers had assets of $136.4 million, deposits of $111.7 million and
shareholders equity of $13.0 million. Farmers' principal executive office is
located at 316 East Saginaw Street, Breckenridge, Michigan, 48615, and the
telephone number is (989) 842-3191.
FARWELL
Farwell, a Michigan chartered commercial bank is headquartered in Farwell,
Michigan, and operates two offices. As of March 31, 2006, Farwell had assets of
$91.6 million, deposits of $76.8 million and shareholders' equity of $13.7
million. Farwell's principal executive office is located at 399 West Main
Street, Farwell, Michigan, 48622, and the telephone number is (989) 588-9945.
IBT
IBT, headquartered in Mt. Pleasant, Michigan, is the holding company for
Farmers and Isabella Bank and Trust, which operate 20 full service offices and
IBT Title and Insurance Agency which operates five offices. As of March 31,
2006, IBT had consolidated assets of $761.7 million, deposits of $616.7 million
and shareholders' equity
13
of $81.8 million. IBT was organized in 1988. As of July 18, 2006, IBT had
5,491,252 shares of outstanding common stock.
The principal executive office of IBT is located at 200 East Broadway, Mt.
Pleasant, Michigan, 48858, and the telephone number is (989) 772-9471.
MERGER CONSIDERATION
Under the terms of the Merger Agreement, each outstanding share of Farwell
common stock (other than dissenting shares) will be converted upon completion of
the merger into the right to receive 3.0382 shares of IBT common stock and
$29.00 in cash, subject to adjustment under certain circumstances.
No fractional shares of IBT will be issued in connection with the merger.
Instead, Farmers will make a cash payment to each Farwell shareholder who would
otherwise receive a fractional share.
Based on the last transaction price in IBT common stock known to management
occurring prior to the mailing of this Proxy Statement-Prospectus on August 22,
2006, each share of Farwell common stock that is exchanged solely for IBT common
stock and cash would be converted into shares of IBT common stock and cash
having a value of $162.68.
SURRENDER OF STOCK CERTIFICATES
PLEASE DOEXCHANGE COMMISSION. WE MAY NOT FORWARD YOUR FARWELL STOCK CERTIFICATES WITH YOUR PROXY
CARDS. STOCK CERTIFICATES SHOULD BE RETURNED TOCOMPLETE THE EXCHANGE AGENT IN ACCORDANCE
WITH THE INSTRUCTIONS CONTAINED IN THE LETTER OF TRANSMITTAL WHICH WILL BE
PROVIDEDOFFER AND ISSUE THESE SECURITIES UNTIL SUCH REGISTRATION STATEMENT IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SHAREHOLDERS AS SOON AS PRACTICABLE AFTER COMPLETION OF THE MERGER.
BACKGROUND OF MERGER
The terms and conditions of the Merger Agreement are the result of arm's
length negotiations between the representatives of Farmers and IBT and the
representatives of Farwell. A summary of the background of these negotiations is
set forth below.
The Board of Directors and management of Farwell have periodically explored
the possibility of merging with another financial institution as part of the
ongoing fiduciary responsibility to its shareholders. During the past 15 years,
Farwell's management has had several conversations with IBT management about
becoming part of the IBT organization. In June 2003, the Board of Directors of
both institutions agreed to formally explore the potential of a merger. The
companies agreed to retain Austin Associates, LLC of Toledo, Ohio as a
facilitator.
From July 2003 through July 2005, various discussions took place between
management and the Boards of Directors. These discussions included operating
philosophies, employee benefits, price and management of Farwell post-merger. As
a result of these discussions, the parties agreed to the price and the basic
structure of the transaction and, on October 3, 2005, executed a confidentiality
agreement. During October, November and December, 2005, the parties performed
due diligence and reviewed the draft of the definitive Merger Agreement. The
Board of Directors of both institutions agreed unanimously to sign the initial
agreement, which was signed on December 22, 2005.
Subsequent to the initial agreement's signing, IBT and Farwell began
preparing the required regulatory applications. As part of the regulatory
application preparation process, legal counsel had discussions with the
supervisor of the research department of the Federal Reserve Bank of Chicago
(FRB). Based on these discussions, the likelihood that the FRB would approve the
merger was extremely poor due to anti-competitive deposit market concentration.
The market as defined by the FRB was extremely narrow and included only the
deposits of commercial bank branches in Clare and Isabella counties.
Based on preliminary market research results, management of both
institutions believed that the FRB market area definition and restructuring the
market measurement to deposits only grossly overstated the anti-competitive
results of the proposed transaction. At the request of management, legal counsel
had discussions with the Federal Deposit Insurance Corporation (FDIC) about
their criteria and requirement to approve the proposed transaction.
14
Based on the criteria set forth by the FDIC and advice of legal counsel, Farwell
and IBT undertook further negotiations to change the structure of the
transaction in order to move the regulatory venue to the FDIC.
On March 6, 2006, the parties agreed in principal on the restructuring of
the initial agreement. The restructured transaction as set forth in the Merger
Agreement involves the merger of Farwell with and into Farmers, a wholly owned
subsidiary of IBT. As a result of the merger, Farmers will change its name to
FSB Bank. The revised structure and changes to the initial agreement were
unanimously approved by the Board of Directors of Farmers on April 19, 2006, by
the IBT Board on April 18, 2006 and the Farwell Board on May 2, 2006; and the
Merger Agreement was signed on May 2, 2006.
RECOMMENDATION OF FARWELL'S BOARD OF DIRECTORSSELL THESE SECURITIES AND REASONS FOR THE MERGER
The Board of Directors of Farwell has approved the Merger Agreement and has
determined that the merger is fair to and in the best interests of Farwell and
its shareholders. In reaching its decision to approve the Merger Agreement, the
Board of Directors consulted with its outside counsel regarding the legal terms
of the merger and the Board of Director's fiduciary obligations in its
consideration of the proposed merger, considered the financial aspects and
fairness of the proposed Merger Agreement from a financial point of view and
consulted with the management of Farwell regarding the future prospects of
Farwell as an independent entity and as part of IBT. Without assigning any
relative or specific weight, the Board of Directors of Farwell considered a
number of factors, including the following both from a short-term and long-term
perspective:
- The merger consideration to be paid to Farwell shareholders;
- The structure of the merger and the financial and other terms of the
Merger Agreement, including the fact that the merger is conditioned upon
Farwell's receipt of financial analysis and opinions to be delivered by
Austin Associates, LLC and Donnelly, Penman & Partners that the terms of
the Merger Agreement are fair to the shareholders of Farwell from a
financial point of view;
- The fact that the transaction was structured to keep Farwell's offices
open and to provide that no employee would be laid off;
- The Board of Directors reviews, with its legal and financial advisors, of
alternatives to the merger, the range and possible value to Farwell
shareholders obtainable through such alternatives and the timing and
likelihood of the alternatives.
- The familiarity of the Board of Directors of Farwell with, and review of,
its business, financial condition, results of operations and prospects,
including, but not limited to, its potential growth, development,
productivity and profitability and the business risks associated with the
merger;
- The current and prospective environment in which Farwell operates,
including national and local economic conditions, the highly competitive
environment for financial institutions generally, the increased
regulatory burden on financial institutions, the trend toward
consolidation in the financial services industry, and the increasing
importance of operational scale and financial resources in maintaining
efficiency, remaining competitive, and capitalizing on technological
developments.;
- The potential for appreciation in market and book value of Farwell's
common stock on both a short- and long-term basis, as a stand-alone
entity;
- Information concerning IBT's management, business, financial condition,
results of operations, asset quality and prospects, including the long-
term growth potential of IBT, the future growth prospects of IBT combined
with Farwell following the proposed merger, the potential synergies
expected from the merger and the business risks associated with the
merger;
- The United States federal income tax consequences to Farwell shareholders
of receiving the merger consideration in exchange for their shares of
Farwell common stock;
- The advantages and disadvantages of Farwell remaining an independent
institution or affiliating with a larger institution;
15
- The short- and long-term interests of Farwell and its shareholders, the
interests of the employees, customers, creditors and suppliers of
Farwell, and the interests of Farwell's community, all of which may
benefit from an appropriate affiliation with a larger institution with
increased economies of scale and with a greater capacity to serve all of
the banking needs of the community;
- The fact that some of Farwell's directors and executive officers have
interests in the merger that are in addition to and may differ from the
interests of Farwell shareholders. See "Interests of Directors and
Officers In the Merger"; and
- The compatibility of the businesses and management philosophies of
Farwell and IBT and IBT's strong commitment to the communities it serves.
On the basis of these considerations, the Merger Agreement was unanimously
approved by Farwell's Board of Directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS ADOPTION OF THE AGREEMENT AND
PLAN OF MERGER BY THE SHAREHOLDERS OF FARWELL.
Opinions of Farwell's, Farmer's and IBT'S Financial Advisors
The fairness opinions of the financial advisors, Austin Associates, LLC
("AAL") and Donnelly Penman & Partners ("Donnelly Penman") are described below.
The full text of the fairness opinions which set forth, among other things,
assumptions made, procedures followed, matters considered and limitations on the
review undertaken are attached to this document as Appendix B and C,
respectively. Shareholders of Farwell are urged to read the fairness opinions
carefully and in their entirety. To the extent that the descriptions contain
projections, estimates and/or other forward-looking statements about the future
earnings or other measures of the future performance of IBT, you should not rely
on any of these statements as having been made or adopted by IBT unless they
have been made by IBT in a document that is incorporated by reference into this
proxy statement-prospectus. See "Where You Can Find More Information."
Austin Associates, LLC Opinion
Farwell and IBT retained Austin Associates, LLC ("AAL") pursuant to an
engagement letter dated July 10, 2003 to provide financial advisory services in
connection with facilitating a potential business combination transaction under
which IBT would acquire Farwell. IBT and Farwell selected AAL based on its
experience, expertise and familiarity in representing community banks in similar
transactions. AAL is a nationally recognized investment banking firm and is
regularly engaged in the valuation of businesses and securities in connection
with mergers and acquisitions and valuations for corporate and other purposes.
AAL issued its written opinion dated August 18, 2006, that the financial terms
of the Merger Agreement are fair to each company and their respective
shareholders. AAL's written opinion is attached as Appendix B to this Proxy
Statement/Prospectus.
You should consider the following when reading the discussion of AAL's
opinion in this document:
- The summary of the AAL opinion set forth in this Proxy
Statement/Prospectus is qualified in its entirety by reference to the
full text of the opinion that is attached as Appendix B to this document.
You should read the opinion in its entirety for a full discussion of the
procedures followed, assumptions made, matters considered and
qualifications and limitations of the review undertaken by AAL in
connection with its opinion.
- AAL expressed no opinion as to the price at which IBT common stock would
actually be trading at any time.
- The AAL opinion does not address the relative merits of the Merger and
the other business strategies considered by IBT or Farwell, nor does it
address the IBT or Farwell board decision to proceed with the Merger.
- The AAL opinion to the IBT and Farwell boards rendered in connection with
the Merger does not constitute a recommendation to any Farwell
shareholder as to how he or she should vote at the special meeting.
16
In connection with its opinion, AAL made the following assumptions:
- that the Merger will be accounted for as a "purchase" in accordance with
generally accepted accounting principles;
- that all material governmental, regulatory and other consents and
approvals necessary for the consummation of the Merger would be obtained
without any adverse effect to IBT, Farwell or on the anticipated benefits
of the Merger;
- that IBT and Farwell had provided it with all of the information prepared
by IBT and Farwell or its other representatives that might be material to
AAL in its review; and
- that the financial projections it reviewed were reasonably prepared on a
basis reflecting the best currently available estimates and judgment of
the management of IBT and Farwell as to the future operating and
financial performance of IBT and Farwell, respectively.
In addition, AAL:
- reviewed the Merger Agreement and publicly available business and
financial information relating to IBT and Farwell that it considered
relevant;
- reviewed other information relating to IBT and Farwell, including
internal financial forecasts and forecasts of cost savings to be achieved
in the merger;
- held discussions with IBT and Farwell management related to the business
and prospects of the pro forma company;
- considered financial and stock market information about IBT and Farwell
and compared that information with similar information about other
publicly traded financial institutions;
- considered the financial terms of other recent business combinations
among financial institutions; and
- considered such other studies, analyses, inquiries and examinations as
AAL deemed appropriate.
In connection with its review, AAL did not assume any responsibility for
independent verification of any of the information provided to or otherwise
reviewed by AAL. AAL relied on this information being complete and accurate in
all material respects. As to the financial forecasts, including the estimates of
future cost savings expected to be achieved as a result of the merger, AAL
assumed that these forecasts were reasonably prepared and reflected the best
currently available estimates and judgments of the management of IBT and Farwell
as to the future financial performance of IBT and Farwell. In addition, IBT and
Farwell did not ask AAL to make, and AAL did not make, an independent evaluation
or appraisal of the assets or liabilities, contingent or otherwise, of IBT or
Farwell, nor was AAL furnished with any evaluations or appraisals of this kind.
IBT and Farwell placed no limits on the scope of analysis performed, or opinion
expressed, by AAL.
In preparing its opinion, AAL performed a variety of financial and
comparative analyses, the material aspects of which are described below. The
preparation of a fairness opinion is a complex analytic process involving
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to the particular
circumstances. Therefore, such an opinion is not readily susceptible to partial
analysis or summary description. In arriving at its opinion, AAL made
qualitative judgments as to the significance and relevance of each analysis and
factor considered by it. Accordingly, AAL believes that its analyses must be
considered as a whole and that selecting portions of its analyses and factors,
without considering all analyses and factors, could create a misleading or
incomplete view of the process underlying its analyses and its opinion.
The following is a summary of the material financial analyses performed by
AAL in connection with its written opinion rendered to the IBT and Farwell
boards of directors as of August 18, 2006. Certain of these summaries include
information presented in tabular format. In order to fully understand the
financial analyses used by AAL, these tables must be read together with the
accompanying narrative. The tables alone do not constitute a complete
description of the applicable financial analysis.
17
SUMMARY OF FINANCIAL TERMS OF AGREEMENT: AAL reviewed the financial terms
of the proposed transaction, including the form of consideration and the
exchange ratio. Under the terms of the Merger Agreement, each outstanding share
of Farwell common stock shall be exchanged for 3.0382 shares of IBT common stock
plus $29.00 in cash. Based on a market price of $43.00 for each IBT share (as of
May 2, 2006), the market value of the total transaction consideration payable to
Farwell shareholders is $159.64 per share, or $41.9 million in the aggregate for
100% of Farwell shares. Farwell reported 262,500 shares outstanding at March 31,
2006. No fractional shares of IBT common stock shall be issued in the Merger.
Cash will be paid in lieu of fractional shares based on the value of IBT common
stock of $42.00 per share.
PREPARATION OF FINANCIAL ANALYSIS: In connection with AAL's role as
financial advisor, AAL prepared various financial analyses as summarized below.
These analyses were based on March 31, 2006 financial information.
CONTRIBUTION ANALYSIS: The contribution analysis performed by AAL compares
the relative contribution of key balance sheet and income statement measures by
IBT and Farwell to the pro-forma company. AAL also compared the contribution of
market value as determined by IBT's current market capitalization and Farwell's
value as determined in the transaction with IBT.
- --------
(1) IBT's market value based on $43.00 per share times 5,484,324 shares
outstanding. Farwell's market value based on 3.0382 shares of IBT common
stock for each share of Farwell plus $29.00 in cash. Farwell reported
262,500 shares outstanding.
The range of contribution from Farwell in terms of assets, equity and net
income ranges from 10.7 percent to 18.5 percent in the pro forma company. The
actual market value contribution of Farwell equals 15.1 percent.
RELATIVE DISCOUNTED CASH FLOW VALUES: AAL calculated discounted cash flow
("DCF") values of both IBT and Farwell, and computed the relative DCF value
contribution of each organization to the combined company. The DCF value of IBT
was computed on the basis of a stand-alone, going concern company. The
calculation is based on a five year projection of key financial inputs including
total assets, net income and capital levels, among other variables. The
projected cash flows and residual value are discounted to a present value under
this methodology. The following provides highlights for the projected
performance of IBT:
Note: LTM = last twelve months
AAL determined the resulting aggregate DCF value of IBT at $112.7 million.
18
A DCF analysis of Farwell was prepared on a control level basis by
computing a stand-alone value for the company and adding the present value of
potential cost savings related to the Merger. The following provides highlights
for the key assumptions used in this analysis:
Based on these performance assumptions, AAL determined the resulting DCF
value of Farwell, on a stand-alone basis, equal to $20.1 million. AAL also
calculated the present value of potential cost savings in connection with the
Merger. AAL considered pre-tax cost savings equal to 4.6 percent of Farwell's
operating expenses in the first year after the Merger, and 6.4 percent
thereafter. Combining the stand-alone DCF value of Farwell with the present
value of potential cost savings resulted in a pro forma DCF value of $21.7
million.
The following table provides the resulting DCF values for both IBT and
Farwell and the respective contribution to the pro forma company.
The above table indicates the relative DCF value contribution of Farwell in
the pro forma company is 16.1 percent. This compares to the actual Farwell
market value contribution of 15.1 percent.
Market Premium Analysis for IBT: AAL compared the price-to-book and price-
to-core earnings multiples of IBT to guideline peer companies. AAL utilized two
guideline peer groups under this approach. The first guideline peer group
consisted of six Michigan publicly traded banks with assets between $500 million
and $1.5 billion and last twelve-month core return on average equity ("ROAE")
greater than 5 percent. The second guideline peer group consisted of 41 Midwest
publicly traded banks with assets between $500 million and $1 billion and last
twelve-month core ROAE between 5 and 15 percent. The following table provides
the median financial and stock price data of the guideline peer groups compared
to IBT. IBT stock trades at a substantial premium to the median trading
multiples of both the Michigan and Midwest peer organizations.
The above table indicates that IBT's stock trades at a premium of 67
percent to 75 percent over the peer median price-to-tangible book value ratio.
Also, IBT's stock trades at a premium of 127 percent to 132 percent over the
peer median price-to-last twelve months ("LTM") core earnings per share.
19
Market Premium Analysis for Farwell: AAL compared the price-to-book and
price-to-LTM earnings multiples being received by Farwell shareholders in the
Merger to guideline peer companies. AAL also utilized two guideline peer groups
under this approach. The first guideline transaction peer group consisted of 31
Midwest bank deals announced from January 1, 2004 through May 2, 2006 with
seller's assets between $50 and $250 million, year-to-date return on average
assets ("ROAA") greater than 0.5 percent, and tangible equity to assets greater
than 8.0 percent. The second guideline transaction group was based on a national
listing of sale transactions which consisted of 27 bank deals announced from
January 1, 2004 to May 2, 2006 with the seller's assets between $75 and $150
million, year-to-date ROAA greater than 0.75 percent, and tangible equity to
tangible assets greater than 10.0 percent. The following table provides the
median financial and deal pricing multiples for the guideline transaction peer
groups compared to the pricing multiples being received by Farwell shareholders
in the Merger.
The above table indicates the Farwell deal transaction multiples are at a
premium to the market. The price-to-tangible book premium ranges from 39 to 79
percent, while the price-to-LTM earnings premium ranges from 24 to 41 percent
over the guideline transaction multiples.
Application of Guideline Pricing Multiples And Resulting Contribution
Analysis: AAL reviewed the guideline peer groups identified in the above tables
and applied current market pricing multiples to both IBT and Farwell book value
and earnings levels. AAL utilized minority share guideline transaction multiples
for IBT and control level multiples for Farwell. The guideline pricing multiples
assigned to each company were subjectively determined after consideration of the
respective underlying performance characteristics of both IBT and Farwell. AAL
computed the aggregate value of each company using the selected price-to-
tangible book and price-to-earnings multiples. The following chart summarizes
the aggregate results and the resulting contribution that each company would
make to the combined organization:
The above table indicates a contribution by Farwell ranging from 14.1
percent to 17.5 percent using guideline transaction-based market values. This
compares to the actual Farwell market value contribution of 15.1 percent.
The opinion expressed by AAL was based on market, economic and other
relevant considerations as they existed and could be evaluated as of the date of
the opinion. Events occurring after the date of issuance of the opinion,
including but not limited to, changes affecting the securities markets, the
results of operations or material
20
changes in the financial condition of either IBT or Farwell could materially
affect the assumptions used in preparing this opinion.
IBT and Farwell have agreed to pay AAL customary fees for its services as
financial advisor in connection with the Merger. In addition to its fees and
regardless of whether the merger is consummated, IBT and Farwell have agreed to
reimburse AAL for its reasonable out-of-pocket expenses, and to indemnify AAL
against certain liabilities, including liabilities under securities laws.
FAIRNESS OPINION OF DONNELLY PENMAN & PARTNERS
Farwell retained Donnelly Penman & Partners ("Donnelly Penman") to act as
Farwell's financial advisor in connection with the merger and related matters
based upon its qualifications, expertise and reputation, as well as its
familiarity with Farwell. Donnelly Penman is a recognized investment banking and
advisory firm. As a part of its investment banking and advisory business,
Donnelly Penman is continually engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes.
On December 22, 2005 IBT, a bank holding company headquartered in Mt.
Pleasant, Michigan and Farwell announced that they had entered into an Agreement
and Plan of Merger (the "Agreement") to which IBT would acquire Farwell. On May
2, 2006 IBT, Farmers, a subsidiary of IBT, and Farwell entered into an amended
and restated Agreement and Plan of Merger (the "Merger Agreement") to substitute
Farmers as the acquiring entity. In accordance with the terms of the Merger
Agreement, Farwell will merge with Farmers with Farmers as the surviving entity.
Concurrently, each share of Farwell common stock issued and outstanding
immediately prior to the effective time of the merger shall be converted into
the right to receive 3.0382 shares of IBT common stock plus $29.00 in cash.
Donnelly Penman has delivered its opinion that the exchange ratio and cash
consideration received is fair to Farwell's shareholders from a financial point
of view. No limitations were imposed by Farwell on the scope of Donnelly
Penman's investigation or on the procedures followed by Donnelly Penman in
rendering its opinion.
THE FULL TEXT OF THE OPINION OF DONNELLY PENMAN, WHICH SETS FORTH, AMONG
OTHER THINGS, ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND
LIMITS ON THE REVIEW UNDERTAKEN BY DONNELLY PENMAN, IS ATTACHED AS APPENDIX C TO
THIS PROXY STATEMENT-PROSPECTUS. HOLDERS OF FARWELL COMMON STOCK ARE URGED TO
READ THE OPINION IN ITS ENTIRETY. DONNELLY PENMAN'S OPINION IS DIRECTED ONLY TO
THE MERGER CONSIDERATION DESCRIBED IN THE MERGER AGREEMENT AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY FARWELL SHAREHOLDER AS TO HOW SUCH
SHAREHOLDER SHOULD VOTE AT THE FARWELL SPECIAL SHAREHOLDER MEETING. THE SUMMARY
SET FORTH IN THIS PROXY STATEMENT-PROSPECTUS OF THE OPINION OF DONNELLY PENMAN
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF ITS OPINION
ATTACHED TO THIS DOCUMENT AS APPENDIX C.
In arriving at its opinion, Donnelly Penman engaged in discussions with
members of the management of each of Farwell and IBT concerning the historical
and current business operations, financial conditions and prospects of Farwell
and IBT and reviewed:
- the Agreement and Plan of Merger dated December 22, 2005 and the Amended
and Restated Agreement and Plan of Merger dated May 2, 2006;
- the most recent draft dated June 29, 2006 of the Form S-4 Registration
Statement relating to the merger;
- certain publicly-available information for IBT, including each of the
Annual Reports to Stockholders and Annual Reports on Form 10-K for the
years December 31, 2003, 2004 and 2005 and the quarterly reports on Form
10-Q for the quarter ended March 31, 2006;
- certain information, including financial forecasts, relating to earnings,
assets, liabilities and prospects of IBT furnished by senior management
of IBT;
21
- Independent Auditor's Report for Farwell State Bank for the years ended
December 31, 2005 and 2004 and the unaudited condensed balance sheet and
statement of income for the three months ended March 31, 2006 and March
31, 2005;
- certain information, including financial forecasts, relating to earnings,
assets, liabilities and prospects of Farwell furnished by senior
management of Farwell;
- IBT's senior management projected earnings estimates for fiscal years
2006 through 2010, which were deemed reasonable by IBT management;
- Farwell's senior management projected earnings estimates for fiscal years
2006 through 2010, which were deemed reasonable by Farwell management;
- the amount and timing of the cost savings expected to result from the
merger furnished by senior management of IBT;
- the financial condition and operating results of IBT and Farwell compared
to the financial conditions and operating results of certain other
financial institutions that Donnelly Penman deemed comparable;
- various valuation analyses of Farwell and IBT Donnelly Penman performed
including dividend discount analyses, analysis of comparable transactions
and analysis of comparable companies; and
- such other information, financial studies, analyses and investigations
and such other factors that Donnelly Penman deemed relevant for the
purposes of its opinion.
In conducting its review and arriving at its opinion, as contemplated under
the terms of its engagement by Farwell, Donnelly Penman, with the consent of IBT
and Farwell, relied, without independent investigation, upon the accuracy and
completeness of all financial and other information provided to it by IBT and
Farwell or upon publicly-available information. Donnelly Penman did not
undertake any responsibility for the accuracy, completeness or reasonableness
of, or any obligation independently to verify, such information. Donnelly Penman
further relied upon the assurance of management of IBT and Farwell that they
were unaware of any facts that would make the information provided or available
to Donnelly Penman incomplete or misleading in any respect. Donnelly Penman did
not make any independent evaluations, valuations or appraisals of the assets or
liabilities of IBT or Farwell. Donnelly Penman did not review any individual
credit files of IBT or Farwell and assumed that the aggregate allowances for
credit losses for IBT and Farwell were adequate to cover such losses. Donnelly
Penman's opinion was necessarily based upon economic and market conditions and
other circumstances as they existed and were evaluated by Donnelly Penman on the
date of its opinion. Donnelly Penman does not have any obligation to update its
opinion, unless requested by Farwell in writing to do so, and Donnelly Penman
expressly disclaims any responsibility to do so in the absence of any written
request by Farwell.
In connection with rendering its opinion to the Farwell Board, Donnelly
Penman performed a variety of financial analyses, which are summarized below.
Donnelly Penman believes that its analyses must be considered as a whole and
that selecting portions of its analyses and the factors considered by it,
without consideration of all factors and analyses, could create a misleading
view of the analyses and the processes underlying Donnelly Penman's opinion.
Donnelly Penman arrived at its opinion based on the results of all the analyses
it undertook assessed as a whole, and it did not draw conclusions from or with
regard to any one method of analysis. The preparation of a fairness opinion is a
complex process involving subjective judgments, and is not necessarily
susceptible to partial analysis or summary description. With respect to the
analysis of selected comparable companies and analysis of selected comparable
merger of equal transactions summarized below, no public company utilized as a
comparison is identical to IBT or Farwell, and such analyses necessarily involve
complex considerations and judgments concerning the differences in financial and
operating characteristics of the relevant financial institutions and other
factors that could affect the acquisition or public trading values of the
financial institutions concerned.
The financial forecast information and cost savings and other synergies
expected to result from the merger furnished by management of IBT and Farwell,
respectively, and deemed reasonable by them contained in or underlying Donnelly
Penman's analyses are not necessarily indicative of future results or values,
which may be significantly more or less favorable than such forecasts and
estimates. The forecasts and estimates were based on
22
numerous variables and assumptions that are inherently uncertain, including
factors related to general economic and competitive conditions. In that regard,
Donnelly Penman assumed, with IBT's and Farwell's consent, that the financial
forecasts, including the cost savings and other synergies expected to result
from the merger, were reasonably prepared on a basis reflecting the best
currently available judgments of IBT and Farwell, and that such forecasts will
be realized in the amounts and at the times that they contemplate. The estimates
contained in Donnelly Penman's analyses are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable than
those suggested by those analyses. Estimates of values of financial institutions
or assets do not purport to be appraisals or necessarily reflect the prices at
which financial institutions or their securities actually may be sold.
Accordingly, actual results could vary significantly from those assumed in the
financial forecasts and related analyses. None of the analyses performed by
Donnelly Penman was assigned a greater significance by Donnelly Penman than any
other.
The following is a brief summary of the analyses performed by Donnelly
Penman. Certain analyses have been updated to reflect currently available
information for purposes of the written fairness opinion.
SUMMARY ANALYSIS OF THE TRANSACTION
The Merger Agreement provides that each share of Farwell common stock
issued and outstanding immediately prior to the effective time of the merger
shall be converted into the right to receive 3.0382 shares of IBT common stock
plus $29.00 in cash.
Donnelly Penman reviewed the terms of the merger. It noted that the
exchange ratio of 3.0382 shares of IBT common stock for each share of Farwell
common stock and cash consideration of $29.0 per share meant that the
transaction had an implied per share value of $145.00 for each share of Farwell
common stock based upon the closing price of IBT of $38.18 on December 15, 2005.
This implied per share value represents a 277.2% premium to the book value per
Farwell share of $52.31 as of March 31, 2006. Donnelly Penman also noted that,
based on the exchange ratio and cash consideration the transaction had an
implied aggregate value of approximately $38.1 million (exclusive of transaction
costs) as of December 15, 2005. The complete aggregate deal metrics in relation
to the Farwell financial position as of March 31, 2006 are displayed below:
Donnelly Penman also noted, when considering the most recent trading based
upon the closing price of IBT of $45.00 on June 28, 2006 that the exchange ratio
of 3.0382 shares of IBT common stock for each share of Farwell common stock and
cash consideration of $29.00 per share meant that the transaction had an implied
per share value of $165.72 for each share of Farwell common stock. This implied
per share value represents a 316.8% premium to the book value per Farwell share
of $52.31 as of March 31, 2006.
Donnelly Penman also noted, when considering the value of the transaction
based on an implied equity value per share of IBT of $23.79 that the exchange
ratio of 3.0382 shares of IBT common stock for each share of Farwell common
stock and cash consideration of $29.00 per share meant that the transaction had
an implied per share value of $101.28 for each share of Farwell common stock.
This implied per share value represents a 193.6% premium to the book value per
Farwell share of $52.31 as of March 31, 2006. The $23.79 implied per share value
for IBT is based on an assumed price to tangible book multiple of 1.66 times
IBT's tangible book value of $14.33 as of March 31, 2006. The price to tangible
book multiple is based on a review of the multiples for select publicly traded
Midwest commercial banks with assets of $500 million to $1 billion and a return
on average equity between 8% and 12%.
Donnelly Penman also noted, when considering the value of the transaction
based on an implied equity value per share of IBT of $20.34 that the exchange
ratio of 3.0382 shares of IBT common stock for each share of Farwell common
stock and cash consideration of $29.00 per share meant that the transaction had
an implied per share value of $90.80 for each share of Farwell common stock.
This implied per share value represents a 173.6% premium to the book value per
Farwell share of $52.31 as of March 31, 2006. The $20.34 implied per share value
for IBT is based on a discounted dividend analysis. This analysis utilized a
range of discount rates of 11.0% to 14.0% and a range of
23
terminal value multiples of 14.0 to 17.0 times projected 2010 net income. The
discount rate was derived from the Ibbotson and Associates 20051 data on cost of
equity buildup (and sensitized a range of 11.0%-14.0%). The terminal multiple
range was determined by reviewing the multiples for select publicly traded
placeMidwest commercial banks with assets between $500 million and $1 billion
and return on average equity between 8% and 12%.
- --------
(1) Stocks, Bonds, Bills and Inflation -- Valuation Edition 2006 Yearbook, (C)
Ibbotson Associates, Inc. 2006
ANALYSIS OF SELECTED COMPARABLE COMPANIES
Donnelly Penman compared selected financial and operating results of
Farwell to a peer group that included the following 18 exchange traded
commercial banks in Illinois, Indiana, Michigan, Ohio and Wisconsin, which were
selected based on comparable asset size and financial returns. Specifically the
peer group identified had assets less than $250 million and a last twelve
month's return on average equity between 8% and 12%. The peer group had median
trading multiples of 139.2% of book value per share, 139.2% of tangible book
value per share and 16.79 times last twelve months earnings per share. These
peer companies consisted of:
- American Community Bancorp (ACBP)
- Capital Directions, Incorporated (CTDN)
- Century Financial Corporation (CYFL)
- ChoiceOne Financial Corporation (COFS)
- Community National Corporation (CMNC)
- Community Shores Bank Corporation (CSHB)
- Communibanc Corporation (CBCZ)
- Consumers Bancorp, Inc. (CBKM)
- CSB Bancorp, Inc. (CBMI)
- Eastern Michigan Financial Corporation (EFIN)
- F & M Bancorp (FMOO)
- FNB, Inc. (FIDS)
- Heartland Bancshares, Inc. (HRTB)
- ICNB Financial Corporation (ICNB)
- Layton Park State Bank (LTPM)
- Ohio Heritage Bancorp, Inc. (OHHB)
- United Commerce Bancorp (UCBN)
- Western Reserve Bancorp, Inc. (WRBO)
This comparison showed, among other things, that for the latest twelve
months ended March 31, 2006:
- Farwell's net interest margin was 3.94%, compared with the Farwell peer
group median of 4.06%;
- Farwell's efficiency ratio was 43.96%, compared with the Farwell peer
group median of 68.61%;
- Farwell's return on average assets was 1.65%, compared to the Farwell
peer group median of 0.88%;
- Farwell's return on average equity was 10.95%, compared to the Farwell
peer group median of 9.30%; and
- Farwell's ratio of nonperforming assets to total assets was 0.11%,
compared with the Farwell peer group median of 0.42%.
24
No financial institution used in the above analyses as a comparison is
identical to Farwell. Accordingly, an analysis of the results of the foregoing
necessarily involves complex considerations and judgments concerning differences
in financial and operating characteristics of the companies and other factors
that could affect the public trading values of Farwell and the financial
institutions to which it was compared.
ANALYSIS OF SELECTED COMPARABLE TRANSACTIONS
Donnelly Penman reviewed and compared actual information for 19 completed
or pending bank merger transactions announced from a period of January 1, 2003
to December 31, 2005. Furthermore, the transactions listed involved commercial
banks located in Illinois, Indiana, Michigan, Ohio and Wisconsin with total
assets less than $250 million and a last twelve month's return on average equity
of between 8% and 12%. These transactions consisted of:
(Buyer/Seller)
- MainSource Financial Group/ HFS Bank FSB
- Hometown Community Bncp Inc/ Progressive Bancorp Inc.
- River Holding Co./ Farmers State Bancshares Inc.
- Peotone Bancorp Inc./ Vermilion Bancorp Inc.
- Princeton National Bancorp/ Somonauk FSB Bancorp Inc.
- Peoples Community Bancorp Inc./ American State Corporation
- Park National Corp./ First Clermont Bank
- Webster Financial Corp./ Eastern Wisconsin Bcshrs Inc.
- Croghan Bancshares Inc./ Custar State Bank
- Wintrust Financial Corp./ Town Bankshares Ltd
- Camco Financial Corp./ London Financial Corp.
- Lincoln Bancorp/ First Shares Bancorp Inc.
- Harrodsburg First Fin Bancorp/ Independence Bancorp
- Van Orin Bancorp Inc./ Malden Bancorp Inc.
- State Financial Services Corp./ Lakes Region Bancorp Inc.
- Citizens First Bancorp Inc./ Metro Bancorp, Inc.
- Blackhawk Bancorp Inc./ DunC Corp.
- Carlinville Natl Bk Shares Inc/ Cornerstone Bank & Trust, NA
- JW Bancorp Inc./ John Warner Financial Corp.
This comparison showed that based on the transaction price calculated above
compared with Farwell's financial condition as of March 31, 2006:
- The transaction price to last twelve months earnings multiple was 25.3
times, compared with the comparable transaction group median of 20.0
times last twelve month's earnings;
- The transaction price was 277.2% of book value, compared with the
comparable transaction group median of 181.06%;
- The transaction price was 277.2% of tangible book value, compared with
the comparable transaction group median of 181.06%;
25
- The transaction price was 41.6% of total assets, compared with the
comparable transaction group median of 17.9%;
- The transaction price was 49.6% of deposits, compared with the comparable
transaction group median of 22.3%; and
- The transaction price represented a 40.4% premium to core deposits,
compared with the comparable transaction group median of 12.7%.
Donnelly Penman recognized that no transaction reviewed was identical to
the merger and that, accordingly, any analysis of comparable transactions
necessarily involves complex considerations and judgments concerning differences
in financial and operating characteristics of the parties to the transactions
being compared.
DIVIDEND DISCOUNT ANALYSIS -- FARWELL
Donnelly Penman calculated an estimated range of equity values per share
for Farwell based upon the values, discounted to the present, of estimates of
projected dividends from the fiscal year ending December 31, 2006 through the
fiscal year ending December 31, 2010 and a projected year 2010 terminal value
assuming Farwell continued to operate as an independent company. The valuation
date contemplated is July 1, 2006, with half of the 2006 dividends being paid in
the last six months of the year. In conducting its analysis, Donnelly Penman
utilized financial estimates provided by and deemed reasonable by Farwell and
IBT for 2006 through 2010. Donnelly Penman further assumed, with Farwell senior
management's consent, a $3.25 dividend payment per share in 2006 and each year
thereafter. Additionally, Donnelly Penman assumed that Farwell could pay a one
time special dividend at the beginning of the projection period. This special
dividend was estimated by Donnelly Penman as the excess capital that could be
distributed to shareholders and still leave Farwell at a 6.5% capital to assets
ratio. Then, estimated net income was reduced by the impact of the cost of cash
on the projected earnings.
This analysis utilized a range of discount rates of 11.0% to 14.0% and a
range of terminal value multiples of 14.0 to 17.0 times projected 2010 net
income. The discount rate was derived from the Ibbotson and Associates 20052
data on cost of equity buildup and sensitized to the base cost of equity of 12%
provided from the Ibbotson and Associates Research (a range of 11.0%-14.0% was
utilized). The terminal multiple range was determined by reviewing the multiples
for select publicly traded Midwest commercial banks with assets less than $250
million and return on average equity between 8% and 12%. The analysis resulted
in a range of present values between $92.30 and $103.23 per share.
The analysis was based upon Farwell and IBT senior management's projections
of future performance on a stand alone basis, which were based upon many factors
and assumptions deemed reasonable by Farwell and IBT senior management. This
analysis did not purport to be indicative of actual values or actual future
results and did not purport to reflect the prices at which any securities may
trade at the present or at any time in the future. Donnelly Penman included this
analysis because it is a widely used valuation methodology, but noted that the
results of such methodology are highly dependent upon the numerous assumptions
that must be made, including earnings growth rates, dividend payout rates,
terminal values and discount rates.
For its financial advisory services provided to Farwell, Donnelly Penman
has been paid ordinary and customary fees at or before the closing of the
merger. In addition, Farwell has agreed to indemnify Donnelly Penman against
various liabilities, including any which may arise under the federal securities
laws.
- --------
(2) Stocks, Bonds, Bills and Inflation -- Valuation Edition 2006 Yearbook, (C)
Ibbotson Associates, Inc. 2006
INTERESTS OF DIRECTORS AND OFFICERS IN THE MERGER
Directors and Officers of Farmers Following the Merger. Upon the
completion of the merger, Michael McGuire shall be added to the reconstituted
Farmers' Board of Directors. The current officers of Farwell will continue with
Farmers. In addition, Mr. Kedrowski will serve as a Vice-President of Farmers
pursuant to a two-year written employment agreement.
26
Regional Advisory Board. Upon completion of the merger, the incumbent
directors of Farwell will serve on a regional advisory board for the Farwell
division of Farmers and shall receive the same board member compensation as
provided by Farwell prior to the merger.
Indemnification. Pursuant to the Merger Agreement, Farmers has agreed that
from and after the effective date of the merger through the fifth anniversary
thereof, it will indemnify and hold harmless each present and former director,
officer and employee of Farwell against any costs or expenses (including
reasonable attorneys' fees), judgments, fines, losses, claims, damages or
liabilities incurred in connection with any claim, action, suit, proceeding or
investigation (each a "Claim"), arising in whole or in part out of, the fact
that such person is or was a director, officer, employee, fiduciary or agent of
Farwell or its subsidiary or is or was serving at the request of Farwell or its
subsidiary in such a role of another corporation, partnership, joint venture,
trust or other enterprise if such Claim pertains to any matters existing or
occurring at or before the effective date of the merger to the fullest extent to
which said individuals are entitled under applicable law.
Directors' and Officers' Insurance. Farmers has further agreed, for a
period of five years after the effective date of the merger, to maintain
Farwell's current directors' and officers' liability insurance policy (provided
that Farmers may substitute therefor policies of at least the same coverage and
amounts containing terms and conditions which are not materially less
advantageous than such policy) with respect to acts or omissions occurring prior
to the effective date of the merger.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
Board of Directors. At the effective time of the merger, the members of
the Farmers Board of Directors shall consist of Dennis Angner, Michael McGuire,
Dale Weburg, James Fabiano and David Maness.
Management. Mr. Kedrowski, the current president and chief executive
officer of Farwell, will enter into an employment agreement with Farmers to
become a Vice President of Farmers on the effective date of the merger. Dennis
P. Angner, the current president and chief executive officer of IBT shall also
serve as president and CEO of Farmers, with Timothy Miller, the current
president and CEO of Farmers becoming a Vice President. Following the effective
time of the merger, IBT will form a regional advisory board for the Farwell
division of Farmers consisting of persons living and/or working in the trade
area currently served by Farwell. The regional board will initially be comprised
of the directors of Farwell incumbent immediately preceding the merger.
Certificate of Incorporation and Bylaws. The certificate of incorporation
and bylaws of Farmers will be the same as the certificate of incorporation and
bylaws of the surviving entity, with the exception that the name of Farmers
shall be changed to FSB.
EFFECTIVE DATE OF MERGER
The parties expect that the merger will be effective during the third
quarter of 2006 or as soon as possible after the receipt of all regulatory and
shareholder approvals, the expiration of all regulatory waiting periods and
after the satisfaction of all conditions to the merger set forth in the Merger
Agreement.
DISTRIBUTION OF IBT COMMON STOCK
At the effective time of the merger, Farwell's shareholders will cease to
own shares of Farwell. Subject to certain adjustments pursuant to the Merger
Agreement, each share of Farwell common stock issued and outstanding immediately
prior to the completion of the merger will automatically be converted into the
right to receive 3.0382 shares of IBT common stock and $29.00 in cash.
At the effective time of the merger, IBT will deliver to its exchange
agent, Isabella Bank and Trust, the amount of cash and number of shares of IBT
common stock issuable in the merger. Within five business days after the closing
of the merger, the exchange agent will send you and other former Farwell
shareholders transmittal materials to be used to exchange the old Farwell stock
certificates. The transmittal materials will contain instructions with respect
to the surrender of old Farwell stock certificates. After the effective time of
the merger, and once the exchange agent receives your old Farwell stock
certificates, the exchange agent will send you a check for the cash payable in
exchange for your shares of Farwell common stock and will register the shares of
IBT common stock
27
issuable to you in the name and at the address appearing on Farwell's stock
records as of the time of the merger or such other name or address as you
request in the transmittal materials. The exchange agent will not be required to
register the shares in that manner until it has received all of your old Farwell
stock certificates (or an affidavit of loss for such certificate or certificates
and an indemnity bond), together with properly executed transmittal materials.
Such old Farwell stock certificates, transmittal materials, and affidavits must
be in a form and condition reasonably acceptable to IBT and the exchange agent.
The exchange agent will have discretion to determine reasonable rules and
procedures relating to the exchange (or lack thereof) of old Farwell stock
certificates and the payment of the per share merger consideration.
CONDUCT OF BUSINESS PENDING THE MERGER
The Merger Agreement contains various restrictions on the operations of
Farwell before the effective time of the merger. In general, the Merger
Agreement obligates Farwell to conduct its business in the usual, regular and
ordinary course of business and to use reasonable efforts to preserve its
business organization and assets and maintain its rights and franchises. In
addition, Farwell has agreed that, except as expressly contemplated by the
Merger Agreement or specified in a schedule to the Merger Agreement, without the
prior written consent of Farmers, it will not, among other things:
- change or waive any provision of its charter or bylaws, except as
required by law;
- change the number of authorized or issued shares of its capital stock;
- enter into, amend in any material respect or terminate any material
contract or agreement except in the ordinary course of business;
- make application for the opening or closing of any, or open or close any,
branch or automated banking facility, except as required by regulators;
- change compensation or benefits of its employees, except for certain
increases or bonuses subject to limits specified in the Merger Agreement;
- enter into or modify any employee benefit plans relating to any director,
officer or employee, except as may be required by law;
- merge or consolidate with any other corporation or sell or lease all or
any substantial portion of Farwell's assets;
- sell or dispose of the capital stock of Farwell or otherwise dispose of
any assets other than in the ordinary course of business;
- take any action that would cause any of the representations and
warranties contained in the Merger Agreement to be untrue or would fail
to cause any conditions precedent to be satisfied;
- change any method, practice or principle of accounting except as required
by generally accepted accounting principles or any bank regulator;
- waive, release, grant or transfer any material rights of value or modify
in any material respect any existing material agreement or indebtedness,
other than in the ordinary course of business;
- purchase equity securities, or securities for its investment portfolio
inconsistent with current investment policy;
- enter into, review, extend or modify any affiliate transaction (other
than a deposit transaction) other than pursuant to existing insider loan
policies;
- enter into any futures contract, option, interest rate caps, floors or
exchange agreement for purposes of hedging the exposure of interest-
earning assets and interest-bearing liabilities to changes in interest
rates, except in the ordinary course of business;
- take any action that would give rise to a payment to any individual under
any employment agreement;
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- change policies with respect to extension of credit, establishment of
reserves, investments, asset/liability management or other material
banking policies;
- take any action that would result in acceleration of the right to payment
under any benefit plan;
- sell any participation interest in any loan;
- enter into any lease or contract other than in the normal course of
business;
- pay, discharge, settle or compromise any claim, action, litigation,
arbitration or proceeding in an amount exceeding $10,000;
- incur any capital expenditures in excess of $25,000 individually or in
the aggregate other than pursuant to binding commitments existing on the
date of the Merger Agreement or necessary to maintain existing assets in
good repair; and
- make any new loan or other credit facility commitment to any borrower or
group of affiliated borrowers in excess of $250,000 for a construction
loan, $500,000 for a commercial real estate loan, $250,000 for a
commercial business loan or $500,000 for a residential loan, except for
prior commitments previously disclosed to Farmers and for any loan in
excess of such amount to which Farmers does not object within 24 hours
after being notified of the intent to make the loan.
- sell or dispose of any assets or incur any liability other than in the
ordinary course of business consistent with past practices and policies.
In addition to these covenants, the Merger Agreement contains various other
customary covenants, including, among other things, access to information and
each party's efforts to cause its representations and warranties to be true and
correct on the closing date.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains a number of customary representations and
warranties by Farmers, IBT and Farwell regarding aspects of their respective
businesses, financial condition, structure and other facts pertinent to the
merger that are customary for a transaction of this kind. They include, among
other things:
- the organization, existence, and corporate power and authority, and
capitalization of each of the companies;
- the absence of conflicts between the Merger Agreement and applicable laws
and other documents, contracts and agreements;
- the absence of any development materially adverse to the companies;
- the obtaining of necessary consents;
- the absence of adverse material litigation;
- the accuracy of reports and financial statements of each party;
- the ownership of their respective material assets and properties;
- the existence, performance and legal effect of certain contracts;
- loan portfolio matters;
- compliance with applicable laws;
- the filing of tax returns, payment of taxes and other tax matters by
either party;
- labor and employee benefit matters; and
- compliance with applicable environmental laws by Farwell.
All representations, warranties and covenants of the parties, other than
the covenants in specified sections which relate to continuing matters,
terminate upon the merger.
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CONDITIONS TO THE MERGER
MUTUAL CONDITIONS TO CLOSE
The respective obligations of Farmers and Farwell to complete the merger
are subject to various conditions prior to the merger. The conditions include
the following:
- Each of the FDIC and the Office of Financial and Insurance Services of
the State of Michigan approves or provides its non-objection of the
merger and all statutory waiting periods expire;
- approval of the Merger Agreement by the affirmative vote of 66 2/3% of
the issued and outstanding shares of Farwell;
- the absence of any litigation, statute, law, regulation, order, decree or
injunction by which the merger is restrained or enjoined;
- the registration statement of which this proxy statement prospectus is a
part must have been declared effective by the SEC and must not be subject
to a stop order or threatened stop order;
- Farmers and Farwell must have received a fairness opinion from Austin
Associates LLC to the effect that the terms of the merger are fair to
IBT's and Farwell's shareholders from a financial point of view;
- Farmers and Farwell must have received a tax opinion from Foster, Swift,
Collins & Smith, P.C. to the effect that the merger will qualify as a
reorganization; and
- None of the regulatory approvals shall impose any term, condition or
restriction that Farmers or Farwell in good faith reasonably determines
would so materially adversely affect the transaction as to render
inadvisable in the reasonable good faith judgment of Farmers or Farwell,
the consummation of the merger.
FARMER'S CONDITIONS TO CLOSE
In addition to the mutual conditions to close described above, Farmer's
obligation to complete the merger is subject to fulfillment of additional
conditions, including the following:
- the representations and warranties made by Farwell in the Merger
Agreement must be true and correct as of the closing date or to a
specifically related earlier date;
- Farwell must have performed in all material respects all of the
agreements, obligations and covenants made in the Merger Agreement to be
completed at or before the effective time;
- all requisite material permits, authorizations, consents, waivers,
clearances or approvals have been obtained;
- the holders of no more than 10% of Farwell's common stock shall have
indicated their intention to seek dissenters' rights of appraisal; and
- Farmers must have received an opinion from Bodman LLP (legal counsel for
Farwell) to the effect that Farwell is in good standing, the merger has
been approved by Farwell's Board of Directors and shareholders, and the
Merger Agreement is binding on Farwell.
FARWELL'S CONDITIONS TO CLOSE
In addition to the mutual conditions to close described above, Farwell's
obligation to complete the merger is subject to the fulfillment of additional
conditions, including the following:
- the representations and warranties made by Farmers and IBT in the Merger
Agreement must be true and correct as of the closing date or to a
specifically related earlier date;
- Farmers and IBT must have performed in all material respects all of the
agreements, obligations and covenants made in the Merger Agreement to be
completed at or before the effective time;
- all requisite material permits, authorizations, consents, waivers,
clearances or approvals have been obtained;
30
- Farwell must have received an opinion from Foster, Swift, Collins &
Smith, P.C. (legal counsel for Farmers and IBT) to the effect that
Farmers and IBT are in good standing, the Merger Agreement has been duly
executed by Farmers and IBT and is binding on Farmers and IBT;
- IBT shall have delivered the merger consideration (IBT stock and cash) to
the exchange agent; and
- Farwell must have received a fairness opinion from Donnelly Penman &
Partners to the effect that the terms of the merger are fair to Farwell's
shareholders from a financial point of view.
REGULATORY APPROVALS REQUIRED FOR THE MERGER
Farwell and Farmers have agreed to use all reasonable efforts to obtain all
permits, consents, approvals and authorizations of all third parties and
governmental entities that are necessary or advisable to consummate the merger.
This includes the approval or non-objection of the FDIC and the Office of
Financial and Insurance Services of the State of Michigan. Farmers has filed the
application or notice materials necessary to obtain these regulatory approvals
and has received approval of the merger from the FDIC. The merger cannot be
completed without such approvals and non-objections. Other than the FDIC
approval, Farmers cannot assure that it will obtain the required regulatory
approvals and non-objections, when they will be received, or whether there will
be conditions in the approvals or any litigation challenging the approvals.
Farwell and Farmers are not aware of any material governmental approvals or
actions that are required prior to the merger other than those described above.
Farwell and Farmers presently contemplate that they will seek any additional
governmental approvals or actions that may be required in addition to those
requests for approval currently pending; however, they cannot assure that they
will obtain any such additional approvals or actions.
NO SOLICITATION
Until the merger is completed or the Merger Agreement is terminated,
Farwell has agreed that it, its officers, directors employees, representatives
or agents will not:
- initiate, solicit or knowingly encourage any inquiries or the making of
any acquisition proposal;
- enter into, maintain or continue any discussions or negotiations
regarding any acquisition proposals; or
- agree to or endorse any other acquisition proposal.
Farwell may, however, furnish information regarding Farwell to, or enter
into and engage in discussion with, any person or entity in response to an
unsolicited proposal by the person or entity relating to an acquisition proposal
if:
- Farwell's Board of Directors determines in good faith that such proposal,
if consummated, is reasonably likely to result in a transaction more
favorable from a financial point-of-view to Farwell's shareholders than
the Farmers' merger;
- Farwell's Board of Directors determines in good faith, after consultation
with its legal counsel and financial advisors, that the action is
required for Farwell's directors to comply with their fiduciary
obligations under applicable law; and
- Farwell promptly notifies Farmers of such inquiries, proposals or offers,
the material terms of such inquiries, proposals or offers and the
identity of the person making such inquiry, proposal or offer.
TERMINATION; AMENDMENT; WAIVER
The Merger Agreement may be terminated prior to the closing, before or
after approval by Farwell's shareholders, as follows:
- by mutual written agreement of Farmers and Farwell;
- by Farmers or Farwell if Farwell shareholders do not approve the Merger
Agreement and merger;
31
- by a non-breaching party if the other party (1) materially breaches any
covenants or undertakings contained in the Merger Agreement or (2)
materially breaches any representations or warranties contained in the
Merger Agreement, in each case if such breach by its nature cannot be
cured prior to December 31, 2006 or has not been cured within thirty days
after written notice from the terminating party;
- by either party if any required regulatory approvals for consummation of
the merger is not obtained;
- by either party if the closing does not occur by December 31, 2006;
- by either party if any condition to closing cannot be satisfied or
fulfilled by December 31, 2006;
- by Farmers if Farwell shall have received a superior proposal and Farwell
Board of Directors shall have entered into an acquisition agreement with
respect to a superior proposal and terminates the Merger Agreement or
fails to recommend that the shareholders of Farwell approve the Merger
Agreement or has withdrawn, modified or changed such recommendation in a
manner which is adverse to Farmers; or
- by Farwell in order to accept a "superior proposal," as defined in the
Merger Agreement, which has been received and considered by Farwell in
compliance with the applicable terms of the Merger Agreement, provided
that Farwell has notified Farmers at least five business days in advance
of any such action and given Farmers the opportunity during such period,
if Farmers elects in its sole discretion, to negotiate amendments to the
Merger Agreement which would permit Farwell to proceed with the proposed
merger with Farmers.
FEES AND EXPENSES
Each party will each pay its own costs and expenses in connection with the
Merger Agreement and the transactions contemplated thereby; provided, however,
if the merger is not consummated due to the failure to obtain any necessary
regulatory approval, Farmers shall reimburse Farwell for its actual costs and
expenses incurred by Farwell after March 9, 2006 in connection with the Merger
Agreement and the transactions contemplated thereby.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion addresses the material United States federal
income tax consequences of the merger to holders of Farwell common stock. This
discussion applies only to Farwell shareholders who hold their Farwell common
stock as a capital asset within the meaning of Section 1221 of the Internal
Revenue Code. Further, this discussion does not address all aspects of United
States federal income taxation that may be relevant to a particular shareholder
in light of his or her personal circumstances or to shareholders subject to
special treatment under the United States federal income tax laws, including:
banks or trusts; tax-exempt organizations; insurance companies; regulated
investment companies or mutual funds; dealers in securities or foreign currency;
traders in securities who elect to apply a mark-to-market method of accounting;
pass-through entities and investors in such entities; foreign persons; and
shareholders who hold Farwell common stock as part of a hedge, straddle,
constructive sale, conversion transaction or other integrated instrument; and
shareholders of Farwell common stock who acquired their shares of Farwell common
stock upon the exercise of warrants or employee stock options or otherwise as
compensation.
This discussion is based on the Internal Revenue Code, Treasury
regulations, administrative rulings and judicial decisions, all as currently
applicable, and all of which are subject to change (possibly with retroactive
effect) and to differing interpretations. Tax considerations under state, local
and foreign laws are not addressed in this document. Tax consequences to you may
vary depending upon your particular circumstances. Therefore, you should consult
your tax advisor to determine the particular tax consequences of the merger to
you, including those relating to state and/or local taxes.
No ruling has been, or will be, sought from the Internal Revenue Service
concerning tax issues with respect to the merger. It is a condition to the
obligations of Farmers and Farwell to complete the merger that they receive from
Foster, Swift, Collins & Smith, P.C., legal counsel for Farmers and IBT, an
opinion regarding the material federal income tax consequences of the merger
which concludes that the tax consequences of the merger will be substantially
identical to those described in this proxy statement-prospectus.
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Based on representations contained in letters provided by IBT and Farwell
and on certain customary factual assumptions, all of which must continue to be
true and accurate in all material respects as of the effective time of the
merger, it is the opinion of Foster, Swift, Collins & Smith, P.C., counsel to
Farmers and IBT, that the material United States federal income tax consequences
of the merger are expected to be as follows:
- the merger will qualify as a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code and Farmers, Farwell and IBT
will each be a "party to a reorganization" within the meaning of Section
368(b);
- no gain or loss will be recognized by IBT, its subsidiaries or Farwell by
reason of the merger; and
- the tax consequences to Farwell shareholders will be as described in
detail below.
The tax opinion neither binds nor precludes the Internal Revenue Service
from adopting a contrary position. An opinion has no binding effect or official
status of any kind and no assurance can be given that contrary positions will
not be successfully asserted by the Internal Revenue Service or adopted by a
court if the issues are litigated. Accordingly, you are strongly urged to
consult with your tax advisor to determine the particular United States federal,
state, local or foreign income or other tax consequences of the merger to you.
EXCHANGE FOR CASH AND IBT COMMON STOCK
As a result of receiving a combination of cash and IBT common stock in
exchange for shares of Farwell common stock, a Farwell shareholder will
recognize gain, but not loss, equal to the lesser of (1) the amount of cash
received or (2) the amount of gain "realized" in the merger. The amount of gain
a Farwell shareholder "realizes" will equal the amount by which (a) the cash
plus the fair market value at the effective time of the merger of the IBT common
stock received exceeds (b) the shareholder's tax basis in Farwell common stock
surrendered in the merger. If a shareholder of Farwell common stock purchased
his or her shares of Farwell common stock at different prices, such Farwell
shareholder will have to compute his or her recognized gain or loss separately
for the shares of Farwell common stock with different adjusted basis in
accordance with the rules described in the previous sentence. Any recognized
gain would be taxed as a capital gain or a dividend, as described below. The tax
basis of the IBT common stock received in the merger will be the same as the tax
basis of the shares of Farwell common stock surrendered in the merger decreased
by the amount of cash received in the merger and increased by the (i) gain
recognized in the merger, if any and (ii) dividend income recognized in the
merger, if any. The holding period for shares of IBT common stock received by a
Farwell shareholder will include such shareholder's holding period for the
Farwell common stock surrendered in exchange for the IBT common stock, provided
that such shares of Farwell common stock were held as capital assets of the
shareholder at the effective time of the merger.
In certain circumstances, a Farwell shareholder may receive dividend or
ordinary income treatment, rather than capital gain treatment on all or a
portion of the gain recognized in the merger if receipt of the cash portion of
the merger consideration has the effect of the distribution of a dividend under
the principles of Section 302 of the Internal Revenue Code. The determination of
whether a cash payment has such effect is based on a comparison of the Farwell
shareholder's proportionate interest in IBT after the merger with the
proportionate interest the Farwell shareholder would have had if the shareholder
had received solely IBT common stock in the merger. For purposes of this
comparison, the Farwell shareholder may constructively own shares of IBT held by
certain members of the Farwell shareholder's family or certain entities in which
the Farwell shareholder has an ownership or beneficial interest and certain
stock options may be aggregated with the Farwell shareholder's shares of IBT
common stock. The amount of the cash payment that may be treated as a dividend
is limited to the shareholder's ratable share of the accumulated earnings and
profits of Farwell at the effective time of the merger. Any gain that is not
treated as a dividend will be taxed as a capital gain, provided that the Farwell
shareholder's common stock was held as a capital asset at the time of the
merger. Capital gain or loss recognized by a Farwell shareholder in the merger
will be long-term capital gain or loss if the holding period of the shares of
Farwell common stock exceeds one year at the completion of the merger. In the
case of individuals, the maximum federal income tax rate applicable to long-term
capital gains generally is 15%. If a Farwell shareholder has to recognize
ordinary income, such income for individuals is currently taxed at the maximum
rate of 15% if treated as dividend or 35% if treated as other ordinary income.
The determination of whether a cash payment will be treated as having the effect
of a dividend depends
33
primarily upon the facts and circumstances of each Farwell shareholder. Farwell
shareholders are urged to consult their own tax advisors regarding the tax
treatment of the cash received in the merger.
A Farwell shareholder who holds Farwell common stock as a capital asset and
who receives in the merger, in exchange for such stock, cash in lieu of a
fractional share interest in IBT common stock, will be treated as having
received such cash in full payment for such fractional share of stock and as
capital gain or loss, notwithstanding the dividend rules discussed above.
Unless an exemption applies under the backup withholding rules of Section
3406 of the Internal Revenue Code, the Exchange Agent is required to withhold,
and will withhold, 28% of any cash payments to which a Farwell shareholder is
entitled pursuant to the merger, unless the Farwell shareholder provides the
appropriate form. A Farwell shareholder should complete and sign the substitute
Internal Revenue Service Form W-9 enclosed with the letter of transmittal sent
by Isabella Bank and Trust. This completed form provides the information,
including the Farwell shareholder's taxpayer identification number (a social
security number for individuals), and certification necessary to avoid backup
withholding.
The foregoing is a summary discussion of material federal income tax
consequences of the merger. The discussion is included for general information
purposes only and may not apply to a particular Farwell shareholder in light of
such shareholder's particular circumstances. Farwell shareholders should consult
their own tax advisors as to the particular tax consequences to them of the
merger, including the application of state, local and foreign tax laws and
possible future changes in federal income tax laws and the interpretation
thereof, which can have retroactive effects.
Dissenting Shareholders. Holders of Farwell common stock who dissent with
respect to the merger as discussed in "Dissenters' Rights" and who receive cash
in respect of their shares of Farwell common stock will recognize capital gain
or loss equal to the difference between the amount of cash received and their
aggregate tax basis in their shares.
Holding IBT Common Stock. The following discussion describes the U.S.
federal income tax consequences to a holder of IBT common stock after the
merger. Any cash distribution paid by IBT out of earnings and profits, as
determined under U.S. federal income tax law, will be subject to tax as ordinary
dividend income and will be includible in your gross income in accordance with
your method of accounting. See below under "Tax Rate Changes" for information
regarding the rate of tax on dividends. Cash distributions paid by IBT in excess
of its earnings and profits will be treated as (i) a tax-free return of capital
to the extent of your adjusted basis in your IBT common stock (reducing such
adjusted basis, but not below zero), and (ii) thereafter as gain from the sale
or exchange of a capital asset.
Upon the sale, exchange or other disposition of IBT common stock, you will
generally recognize gain or loss equal to the difference between the amount
realized upon the disposition and your adjusted tax basis in the shares of IBT
common stock surrendered. Any such gain or loss generally will be long-term
capital gain or loss if your holding period with respect to the IBT common stock
surrendered is more than one year at the time of the disposition. For the rate
of tax on capital gains, see below under "Tax Rate Changes."
Tax Rate Changes. Under the Jobs and Growth Tax Relief Reconciliation Act
of 2003, the individual tax rates on long-term capital gains and dividend income
have been reduced. The top individual rate for long-term capital gains from
sales or exchanges on or after May 6, 2003 is 15%. The top individual rate for
"qualified dividend income" received after December 31, 2002 is also 15%. To be
considered "qualified dividend income" to a particular holder, the holder must
have held the common stock for more than 60 days during the 120 day period
beginning 60 days before the ex-dividend period as measured under section 246(a)
of the Internal Revenue Code. Dividend income that is not qualified dividend
income will be taxed at ordinary income rates. You are urged to consult your tax
advisor to determine whether a dividend, if any, would be treated as qualified
dividend income.
Limitations on Tax Opinion and Discussion. As noted earlier, the tax
opinion is subject to certain assumptions, relating to, among other things, the
truth and accuracy of certain representations made by IBT and Farwell, and the
consummation of the merger in accordance with the terms of the Merger Agreement
and applicable state law. Furthermore, the tax opinion will not bind the
Internal Revenue Service and, therefore, the IRS is not precluded from asserting
a contrary position. The tax opinion and this discussion are based on currently
existing provisions of
34
the Internal Revenue Code, existing and proposed Treasury regulations, and
current administrative rulings and court decisions. There can be no assurance
that future legislative, judicial, or administrative changes or interpretations
will not adversely affect the accuracy of the tax opinion or of the statements
and conclusions set forth herein. Any such changes or interpretations could be
applied retroactively and could affect the tax consequences of the merger.
THE PRECEDING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF MATERIAL UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER. IT IS NOT A COMPLETE
ANALYSISSOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR DISCUSSION OF ALL POTENTIAL TAX EFFECTS THAT MAY BE IMPORTANTSALE IS NOT PERMITTED.
SUBJECT TO YOU. THUS, WE URGE FARWELL SHAREHOLDERS TO CONSULT THEIR OWN TAX ADVISORS AS TO
THE SPECIFIC TAX CONSEQUENCES TO THEM RESULTING FROM THE MERGER, INCLUDING TAX
RETURN REPORTING REQUIREMENTS, THE APPLICABILITY AND EFFECT OF FEDERAL, STATE,
LOCAL, AND OTHER APPLICABLE TAX LAWS AND THE EFFECT OF ANY PROPOSED CHANGES IN
THE TAX LAWS.
RESALE OF IBT COMMON STOCK
All sharesCOMPLETION,
DATED JULY 21, 2021
PROSPECTUS
Isabella Bank Corporation
Offer to Exchange
Up to $30,000,000 in aggregate principal amount of IBT common stock received by Farwell shareholders in the
merger will be
3.25% Fixed-to-Floating Rate Subordinated Notes due 2031
that have been registered under the Securities Act of 1933, as amended,
(CUSIP #464214 AA3/ISIN# US464214AA32)
for any and all outstanding unregistered
3.25% Fixed-to-Floating Rate Subordinated Notes due 2031
(CUSIP #464214 AB1 / ISIN# US464214AB15; CUSIP #464214 AC9 / ISIN# US464214AC97)
The exchange offer will be freely
transferableexpire at 5:00 p.m., Eastern Time, on [expiration date], unless extended.
We are offering to exchange 3.25% Fixed-to-Floating Rate Subordinated Notes due 2031 that have been registered under the Securities Act of 1933, except that shares of IBT common
stock received by persons who are deemedas amended, which we refer to be "affiliates,"in this prospectus as the term“New Notes,” for any and all of our outstanding unregistered 3.25% Fixed-to-Floating Rate Subordinated Notes due 2031 that we issued in a private placement on June 2, 2021, which we refer to in this prospectus as the “Old Notes.” We are making this offer to exchange the New Notes for the Old Notes to satisfy our obligations under a registration rights agreement that we entered into with the purchasers of the Old Notes in connection with our issuance of the Old Notes to those purchasers.
We will not receive any cash proceeds from the exchange offer. The issuance of the New Notes in exchange for the Old Notes will not result in any increase in our outstanding indebtedness. Old Notes that are not exchanged for New Notes in the exchange offer will remain outstanding. The exchange offer is definednot subject to any minimum tender condition, but is subject to certain customary conditions.
Subject to the terms of the exchange offer, following the expiration or termination of the exchange offer, we will exchange Old Notes that have been validly tendered and not validly withdrawn prior to such expiration or termination for an equal principal amount of New Notes. The terms of the New Notes are identical in all material respects to the terms of the Old Notes, except that: (1) the New Notes have been registered with the Securities and Exchange Commission under the Securities Act of 1933, of IBT or Farwell atas amended, and, as a result, will not bear any legend restricting their transfer; (2) the timeNew Notes bear a different CUSIP number from the Old Notes; (3) the New Notes are generally not subject to transfer restrictions; (4) holders of the special meetingNew Notes are not entitled to registration rights under the registration rights agreement that we entered into with the purchasers of the Old Notes; and (5) because the holders of the New Notes are not entitled to registration rights, holders of the New Notes will not have the right to additional interest under the circumstances described in that registration rights agreement relating to our fulfillment of our registration obligations. Following fulfillment of our registration obligations, the accrual of any additional interest on the Old Notes will cease as well. The New Notes evidence the same debt as the Old Notes and are governed by the same indenture under which the Old Notes were issued.
The New Notes are a new issue of securities with no established trading market, and we do not expect any public market to develop in the future for the New Notes. The Old Notes are not listed on any national securities exchange or quotation system, and we do not intend to apply for listing of the New Notes on any national securities exchange or quotation system.
Except as otherwise provided in this prospectus, you may validly withdraw your tender of Old Notes at any time prior to 5:00 p.m., Eastern Time, on [expiration date], the expiration date of the exchange offer.
Any broker-dealer that holds Old Notes acquired for its own account as a result of market-making activities or other trading activities and that receives New Notes for its own account pursuant to the exchange offer may be resold by them only in transactions permitted bya statutory underwriter and must acknowledge that it will deliver a prospectus meeting the resale provisionsrequirements of Rule 145 under the Securities Act of 1933, or as otherwise
permitted under the Securities Act of 1933. Persons who may be deemed to be
affiliates of IBT or Farwell generally include individuals or entities that
control, are controlled by, or are under common controlamended, in connection with the party and may
include certain officers and directorsany resale of such partyNew Notes. A broker-dealer that acquired Old Notes because of market-making or other trading activities may use this prospectus, as supplemented or amended from time to time, in connection with resales of the New Notes for a period of 180 days after the completion of the exchange offer. See “Plan of Distribution.”
Investing in our securities involves certain risks. See “Risk Factors” beginning on page 5, as well as principal
shareholders of such party. Affiliates of both parties have previously been
notified of their status. The Merger Agreement requires Farwell to use
reasonable efforts to receive an affiliate letter from each person who is an
affiliate of Farwell.
This proxy statement-prospectus does not cover resales of IBT common stock
received by any person who may be deemed to be an affiliate of Farwell or IBT.
ACCOUNTING TREATMENT
In accordance with accounting principles generally acceptedthe risk factors contained in our Annual Report on Form 10-K for the year ended December 31, 2020, and in the United
States of America, the merger will be accounted for using the purchase method.
As a result, the recorded assets and liabilities of IBT will be carried forward
at their recorded amounts, the historical operating results will be unchanged
for the prior periods being reported on and the assets and liabilities from the
acquisition of Farwell will be adjusted to fair value at the date of the merger.
In addition, all identified intangibles, which presently consists of a core
deposit intangible, will be recorded at fair value and included as part of the
net assets acquired. To the extent that the purchase price payable to former
Farwell shareholders exceeds the fair value of the net assets including
identifiable intangibles of Farwell at the merger date, that amount will be
reported as goodwill. In accordance with Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets," goodwill will not be
amortized but will be evaluated for impairment annually. Identified intangibles
will be amortized over their estimated lives. Further, the purchase accounting
method results in the operating results of Farwell being included in the
consolidated income of IBT beginning from the date of consummation of the
merger.
DISSENTERS' RIGHTS
Under Michigan banking law, shareholders of Farwell have the right to
dissent from the merger and to receive payment in cash for the fair value of
their shares of Farwell common stock. Farwell shareholders electing to do so
must complyother reports filed by us with the provisions of Section 3706(2)(b) of the Michigan Banking
Code of 1999 in order to perfect their dissenters' rights. A copy of the
applicable Michigan statute is attached as Appendix D of this document.
ENSURING PERFECTION OF DISSENTERS' RIGHTS CAN BE COMPLICATED. THE
PROCEDURAL RULES ARE SPECIFIC AND MUST BE FOLLOWED PRECISELY. A FARWELL
SHAREHOLDER'S FAILURE TO COMPLY WITH THESE PROCEDURAL RULES MAY RESULT IN HIS OR
HER BECOMING INELIGIBLE TO PURSUE DISSENTERS' RIGHTS.
35
The following is intended as a brief summary of the material provisions of
the Michigan statutory procedures that a Farwell shareholder must follow in
order to dissent from the mergerSecurities and obtain payment of the fair value of his or
her shares of Farwell common stock. This summary, however, is not a complete
statement of all applicable requirementsExchange Commission and is qualified in its entiretyincorporated by reference to Section 3706(2)(b)into this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the Michigan Banking Code of 1999, the full
text of which appears in Appendix D ofthese securities or determined if this document.
Under Section 3706(2)(b), a shareholder of Farwell who votes against the
merger,prospectus is truthful or who has given notice in writing to Farwell at or before the meeting
called for the purpose of considering the Merger Agreement that the shareholder
dissents from the merger, is entitled to receive in cash from Farmers the fair
value of all shares held by the shareholder, if and when the merger is
consummated, upon written request made to Farmers at any time within 30 days
after the date of consummation of the merger, accompanied by the surrender of
the stock voted in dissent by the shareholder. Upon the filing of the written
request and the surrender of stock certificates, if any, the shareholder shall
cease to have any of the rights of a shareholder except the right to be paid the
fair value of the shareholder's shares. The request having been made shall not
be withdrawn except with the written consent of Farmers.
The fair value of the shares shall be determined, as of the date on which
the meeting of Farwell shareholders was held adopting the Merger Agreement, by a
qualified and independent appraiser selected by the Commissioner of the Office
of Financial and Insurance Services upon written request submitted by a
dissenting shareholder entitled to receive the fair value of his or her shares.
The appraiser selected shall file a written appraisal with the Commissioner, who
in turn shall forward copies to all interested parties. The valuation determined
by the appraiser is final and binding on all parties ascomplete. Any representation to the fair value of the
shares. Farmers shall pay to each dissenting shareholder entitled the fair value
of his or her shares within 30 days following the receipt of the written
appraisal. The fees and expenses of the appraisal, which shall be approved by
the Commissioner, shall be paid by Farmers.
If you are a Farwell shareholder who elects to exercise dissenters' rights,
you should mail or deliver a written demand to: The Farwell State Savings Bank,
399 West Main Street, Farwell, Michigan, 48622, Attention: Dean L. Beavers,
Corporate Secretary.
IF YOU FAIL TO COMPLY STRICTLY WITH THE PROCEDURES DESCRIBED ABOVE YOU WILL
LOSE YOUR DISSENTERS' RIGHTS. CONSEQUENTLY, IF YOU WISH TO EXERCISE YOUR
DISSENTERS' RIGHTS, WE STRONGLY URGE YOU TO CONSULT A LEGAL ADVISOR BEFORE
ATTEMPTING TO EXERCISE YOUR DISSENTERS' RIGHTS.
STOCK TRADING AND DIVIDEND INFORMATION
There is no established public trading market for Farwell common stock. It
is Farwell's established practice to pay annual cash dividends. Farwell paid
cash dividends of $3.25 and $13.25 per share in 2003 and 2004, respectively, and
Farwell paid a cash dividend of $11.00 per share in 2005. As of August 15, 2006,
there were 262,500 shares of Farwell common stock issued and outstanding, and
approximately 120 shareholders of record.
GENERAL
IBT is incorporated under the Michigan Business Corporation Act. Farwell is
incorporated under the predecessor to the Michigan Banking Code of 1999.
Accordingly, the rights of IBT shareholders are governed by the corporate laws
of the State of Michigan and the rights of Farwell shareholders are governed by
the banking laws of the State of Michigan. As a result of the merger, Farwell
shareholders will become shareholders of IBT. Thus, following the merger, the
rights of Farwell shareholders who become IBT shareholders in the merger will be
governed by the general corporate laws of the State of Michigan and by the IBT
articles of incorporation and bylaws. IBT's articles of incorporation and bylaws
will be unaltered by the merger.
COMPARISON OF SHAREHOLDERS' RIGHTS
Set forth on the following pagescontrary is a summary comparisoncriminal offense.
The securities are not savings accounts, deposits or obligations of the rights of
an IBT shareholder under the IBT articles of incorporation, the IBT bylaws,any bank and Michigan corporate law (right column) and the rights of a shareholder under the
Farwell Articles of Incorporation, the Farwell bylaws and Michigan banking law
(left column). The summary set forth below is not intended to provide a
comprehensive summary of Michigan corporate and banking
36
law or of each company's governing documents. This summary is qualified in its
entirety by reference to the full text of the IBT articles of incorporation and
IBT bylaws, and the Farwell Charter and Farwell bylaws.
37
38
39
PREEMPTIVE RIGHTS
Neither Farwell's charter nor IBT's articles of incorporation provide for
preemptive rights.
40
DESCRIPTION OF CAPITAL STOCK OF IBT
IBT is authorized to issue 10,000,000 shares of common stock, no par value.
IBT is not authorized to issue any shares of preferred stock. At July 18, 2006,
there were 5,491,252 shares of IBT common stock issued and outstanding. Each
share of IBT common stock has the same relative rights as, and is identical in
all respects with, each other share of common stock.
The common stock of IBT is not an account of an insurable type, and is not insured by the Federal Deposit Insurance Corporation or any other governmentgovernmental agency.
COMMON STOCK
Dividends.
The holdersdate of common stockthis prospectus is ____________, 2021
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ABOUT THIS PROSPECTUS
This prospectus is part of IBT are entitleda Registration Statement on Form S-4, which we refer to receiveas the “registration statement,” that we have filed with the Securities and share equally in dividendsExchange Commission (the “SEC”) under the Securities Act of 1933, as may be declared by the Board of Directors of IBT
out of funds legally available for the payment of dividends. The payment of
dividends by IBT is subject to limitations that are imposed by law and
applicable regulation.
Voting Rights. The holders of common stock of IBT have exclusive voting
rights in IBT. They elect IBT's Board of Directors and act on other matters as
are required to be presented to them under Michigan law or as are otherwise
presented to them by the Board of Directors. Generally, each holder of common
stock is entitled to one vote per share andamended (the “Securities Act”). This prospectus does not have any right to cumulate
votescontain all the information set forth in the electionregistration statement, certain parts of directors. No vote of IBT shareholders is required for
approvalwhich are omitted in accordance with the rules and regulations of the merger or Merger Agreement under Michigan law.
Liquidation. In the event of liquidation, dissolution or winding up of
IBT, the holders of its common stock would be entitled to receive, after payment
or provision for payment of all its debts and liabilities, all of the assets of
IBT available for distribution.
Preemptive Rights. Holders of the common stock of IBT are not entitled to
preemptive rightsSEC. For further information with respect to us, the exchange offer, and the securities offered by this prospectus, reference is made to the registration statement, including the exhibits to the registration statement and the documents incorporated by reference therein.
We are providing this prospectus to holders of Old Notes in connection with our offer to exchange Old Notes for New Notes. We are not making the exchange offer to, nor will we accept tenders for exchange from, holders of Old Notes in any shares that may be issued. The common
stock is not subject to redemption.
The transfer agent for IBT common stock is Isabella Bank and Trust.
CERTAIN PROVISIONS OF THE IBT
ARTICLES OF INCORPORATION AND BYLAWS
The following discussion is a general summaryjurisdiction in which the exchange offer or the acceptance of the material provisionsexchange offer would not be in compliance with the securities or blue sky laws of IBT's articles of incorporation and bylaws and certain other regulatory
provisions that may be deemed to have an "anti-takeover" effect. The following
description of certain of these provisions is necessarily general and,such jurisdiction.
You should read this prospectus together with respect to provisions contained in IBT's articles of incorporation and bylaws,
reference should be made in each case to the document in question. relating to
corporate governance and rights of shareholders, that might discourage future
takeover attempts. As a result, shareholders who might desire to participate in
such transactions may not have an opportunity to do so. In addition, these
provisions will also renderadditional information described under the removal of the Board of Directors or management
of IBT more difficult.
The following description is a summary of the provisions of the articles of
incorporation and bylaws. See "Whereheading “Where You Can Find More Information" asInformation” and in the accompanying letter of transmittal filed by us with the SEC. We have not authorized any other person to how to
review a copy of these documents.
Restrictions on Call of Special Meetings. The bylaws provide that special
meetings of shareholders can be called only by the President or the Secretary,
or by either of them on the request in writing or by vote of a majority of
directors or holders of at least a majority of the shares of capital stock of
IBT issued and outstanding.
Prohibition of Cumulative Voting. The articles of incorporation prohibit
cumulative voting for the election of directors.
Authorized But Unissued Shares. IBT has authorized but unissued shares of
common stock. See "Description of Capital Stock of IBT". The articles of
incorporation authorize ten million (10,000,000) shares of common stock, no par
value. As of July 18, 2006, there were 5,491,252 shares of IBT common stock
issued and outstanding.
Amendments to Articles of Incorporation and Bylaws. Amendmentsyou with any other information with regard to the articles of incorporation must be approved by 66 2/3% of the outstanding shares
of IBT's voting stock. The bylaws may be amended by a two-thirds vote of the
directors of IBTexchange offer. If anyone provides you with information that is different or the affirmative vote of a majority of sharesinconsistent, you should not rely on it. You should not assume that any information contained in attendance
at a duly constituted meeting
41
of shareholders. However, any amendment that relates to the classified board
provisions of the bylaws requires the approval of holders of a majority of
outstanding shares.
Classified Board of Directors. The IBT Board of Directors is divided into
three classes, with the directors in each class being elected for a term of
three years.
"for Cause" Removal of Directors. Directors of IBT may be removed from
office at any time, but only for cause by the affirmative vote of the holders of
a majority of the shares of IBT common stock entitled to vote thereon.
EXPERTS
The consolidated financial statements of IBT as of December 31, 2005 and
2004, and for each of the years in the three-year period ended December 31,
2005, have beenor incorporated by reference into the registration statement, of which this proxy statement-prospectus
herein in reliance upon the report of Rehmann Robson, P.C., independent
registered public accountants, which reportprospectus is incorporated by reference herein,
and upon the authority of such firm as experts in accounting and auditing.
The financial statements of Farwella part, is accurate as of December 31, 2005 and forany date other than the year then ended, which are included in this proxy statement-prospectus, include
the report of Rehmann Robson independent registered public accountants and are
included in this document in reliance upon such report given on the authority of
said firm as experts in accounting and auditing.
The financial statements of Farwell as of December 31, 2004 and for eachdate of the two years then ended are unaudited.
LEGAL OPINIONS
The validity of the common stock to be issued in and the United States
federal income tax consequences of, the merger transaction will be passed upon
by Foster, Swift, Collins & Smith, P.C., Lansing, Michigan, counsel to Farmers
and IBT.
ADJOURNMENT OF THE SPECIAL MEETING
In the eventapplicable document that there are not sufficient votes to constitute a quorum or
approve the adoption of the Merger Agreement at the time of the special meeting,
the Merger Agreement may not be approved unless the special meeting is adjourned
to a later date or dates in order to permit further solicitation of proxies. If
it is necessary to adjourn the special meeting, no notice of the adjourned
special meeting is required to be given to shareholders (unless a new record
date is fixed), other than an announcement at the special meeting of the hour,
date and place to which the special meeting is adjourned.
42
CERTAIN BENEFICIAL OWNERS OF
FARWELL COMMON STOCK
The following table sets forth, to the best knowledge and belief of
Farwell, certain information regarding the beneficial ownership of Farwell
common stock as of August 15, 2006, by (i) each person known to Farwell to be
the beneficial owner of more than 5% of the Farwell common stock; (ii) each
director and certain named executive officers of Farwell; and (iii) all of
Farwell's directors and executive officers as a group.
- --------
* Less than 1%
** Trustees of the ESOP who vote ESOP shares.
43
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed combined balance sheet and
income statement give effect to the merger. This pro formacontains such information. Our business, financial information
is based on the historical consolidated financial statements of IBT and Farwell
under the assumptions, and including the adjustments, set forth in the
accompanying notes to unaudited pro forma condensed combined financial
statements. The unaudited pro forma condensed combined balance sheet presents
combined financial information as of March 31, 2006, and the unaudited pro forma
consolidated condensed combined statement of income presents combined financial
information for the three-month period ended March 31, 2006, and for the year
ended December 31, 2005. The unaudited pro forma consolidated condensed combined
balance sheet assumes the merger was consummated on March 31, 2006, and the
unaudited pro forma condensed combined statements of income give effect to the
merger as if the merger occurred at the beginning of each period covered by such
statements of income. Pro forma per share amounts are based on total merger
consideration of $145 per share of Farwell common stock. The actual amount of
total merger consideration is subject to certain possible adjustments pursuant
to the Merger Agreement.
The unaudited pro forma condensed combined financial statements reflect the
restructuring and other merger related expenses disclosed in the notes to such
statements but do not reflect anticipated cost savings. As a result of this and
other factors, the pro forma combined financial condition, and results of operations and prospects may have changed since such date.
The registration statement of IBT aswhich this prospectus is a part, including the exhibits to the registration statement, contains additional information about us and the securities offered under this prospectus. The registration statement can be obtained from the SEC’s website, www.sec.gov. Copies of and after the effective time of the merger may not be
indicative of the results that actually would have occurred if the merger had
been in effect during the periods presented or of the results that may be
attained in the future.
This pro forma financialcertain information should be read in conjunctionfiled by us with the historical financial statementsSEC are also available on our website at www.isabellabank.com. The reference to our website is not intended to be an active link, and the information on, or that can be accessed through, our website is not, and you must not consider the information to be, a part of IBT consolidated and Farwell, includingthis prospectus or any other filings we make with the respective notes to those financial statements that are included or incorporated
by referenceSEC.
You should not consider any information in this proxy statement-prospectus,prospectus to be investment, legal or tax advice. You should consult your own counsel, accountant and in conjunction withother advisors for legal, tax, business, financial and related advice regarding the pro
forma financial data appearing elsewhere in this proxy statement-prospectus. See
"Where You Can Find More Information" on page 83.
44
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET(A)
AS OF MARCH 31, 2006
See notes to unaudited pro forma combined financial statements
45
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME(A)
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2006
46
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME(A)
FOR THE YEAR ENDED DECEMBER 31, 2005
47
BALANCE SHEETS AND STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
NOTES
(A)
The unaudited pro forma condensed combined balance sheet of IBT Bancorp,
Inc.exchange offer and subsidiaries and Farwell State Savings Bank at March 31, 2006 has been
prepared as if the merger had been consummated on that date. The unaudited pro
forma condensed combined statements of income for the three-month period ended
March 31, 2006 and for the year ended December 31, 2005 were prepared as if the
merger had been consummated at the beginning of the periods presented. The
unaudited pro forma condensed combined financial statements are based on the
historical financial statements of IBT Bancorp, Inc. and the historical
financial statements of Farwell State Savings Bank and give effect to the merger
under the purchase method of accounting and the assumptions and adjustments in
the notes that follow.
Assumptions relating to the pro forma adjustments set forth in the
unaudited pro forma condensed combined financial statements are summarized as
follows:
(1) Estimated fair values -- The estimated fair value and resulting
net discount on loans for purposesownership of these pro forma financial statements
are being accreted to interest income over their remaining estimated lives
of two years, using the level yield method.
(2) The resulting adjustment on deposits and borrowings is being
amortized to interest expense over the remaining estimated lives of two
years.
(B)
The cash portion of the acquisition assumes funding through available cash
on deposit with affiliate banks. For purposes of this pro forma presentation, it
is assumedsecurities.
Any broker-dealer that the affiliated banks will offset the loss in deposits by
borrowing from established lines of credit.
(C)
Purchase accounting fair value adjustments are estimated as follows(1).
- --------
(1) Fair value adjustments in accordance with purchase accounting under
generally accepted accounting principles.
(D)
Transaction related costs including legal, investment advisor and printing
expense are estimated to be $250,000 after tax, and have not been reflected in
these pro formas.
(E)
To record core deposit intangible created, which is estimated to be
$1,510,000 and equals 4.0% of Farwell's non-contractual deposits. This amount is
an estimate of the value of the core deposit. The core deposit intangible is
assumed to be amortized on the level yield method over 10 years.
(F)
Elimination of Farwell's equity
48
(G)
To record common stock issued (80.0%) and cash paid (20%)holds Old Notes acquired for each share of
Farwell.
- --------
(1) The cash portion of the purchase price is expected to be funded with
proceeds from internal sources and borrowing.
(2) Outstanding at March 31, 2006
(3) Estimate based on the price on the day the definitive agreement was signed
(H)
Goodwill resulting from the total purchase price less Farwell's total
equity and fair market value adjustment.
(I)
Pro forma adjustments to interest income and interest expense were
calculated as follows:
(J)
Basic and fully diluted weighted average number of common and common stock
equivalents utilized for the calculation of earnings per share for the periods
presented were calculated using Farwell's historical weighted average basic and
diluted shares of 262,500 plus 535,028 shares estimated to be issued to
Farwell's shareholders under the terms of the Merger Agreement. The shares to be
issued were assumed to be issued at the beginning of the period presented.
(K)
To record additional Federal Funds balances that will be required to fund a
portion of the cash paid in the transaction.
(L)
The annual depreciation associated with fair market value adjustment of the
building and equipment, over estimated useful lives of five to thirty years,
using the straight-line basis.
(M)
Income taxes calculated at 36% of pretax income.
49
FARWELL'S MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of the major factors
that influenced Farwell's financial performance as of the dates and for the
periods indicated. This analysis should be read in conjunction with Farwell's
2005 annual report and other financial information appearing elsewhere in this
document.
The data contained in this management discussion and analysis that are not
historical facts are forward looking statements subject to the safe harbor
created by the Private Securities Litigation Reform Act of 1995. Forward looking
statements, which are based on certain assumptions and describe future plans,
strategies, and expectations of Farwell, are generally identifiable by use of
the words "believe", "intend", "anticipate", "estimate", "project", or similar
expressions. Farwell's ability to predict results or the actual effect of future
plans or strategies is inherently uncertain. Factors which could have an adverse
impact on the operations and future prospects of Farwell include, but are not
limited to, changes in interest rates, general economic conditions, legislation,
regulations, fiscal policy of the United States government, monetary policy of
the Federal Reserve Board, competition from both other financial institutions
and non-financial institutions, and accounting principles. These risks and
uncertainties should be considered in evaluating forward looking statements and
undue reliance should not be placed on such statements.
RESULTS OF OPERATIONS
Net income equaled $1.55 million for the year ended December 31, 2005
compared to $1.64 million for the same period in 2004, a 5.8% decrease. The
decrease in net income was due primarily to lower net interest income resulting
from increases in interest expense. Return on average assets, which measures the
ability of Farwell to profitably and efficiently employ its resources, equaled
1.69% during 2005 and 1.77% in 2004. Return on average equity, which indicates
how effectively Farwell is able to generate earnings on shareholder invested
capital, equaled 10.84% in 2005 versus 10.29% for the same period in 2004. Net
income for the first quarter of 2006 was $320,000, a $41,000 decrease from the
same period in 2005. Return on assets for the three month period ending March
31, 2006 and 2005 was 1.58%. Return on average equity for the three-month period
ending March 31, 2006 was 9.38% versus 9.54% in 2005. The decrease in net income
was primarily related to a decrease in net interest income and legal and
professional expenses associated with the proposed merger with IBT Bancorp's
wholly owned subsidiary Farmers State Bank of Breckenridge.
NET INTEREST INCOME
Net interest income equals interest income less interest expense and is the
primary source of income for Farwell. For analytical purposes, net interest
income is adjusted to a "taxable equivalent" basis by adding the income tax
savings from interest on tax-exempt loans and securities, thus making year-to-
year comparisons more meaningful.
Average assets for the first quarter of 2006 were $90.1 million versus
$91.7 million for the year ended December 31, 2005 and $92.7 million for the
year ended December 31, 2004. The $2.6 million decrease since 2004 is primarily
related to payments of special dividends in 2004 and 2005 which has reduced
average shareholders equity by $2.2 million. Since 2004, average loans
outstanding declined $604,000 and investments by $1.6 million. As a result of
the decline in non-interest bearing and relatively low interest bearing funding
sources, and the corresponding decrease in interest earning assets, Farwell's
net interest margin has declined from 4.23% for the year ended December 31, 2004
to 3.97% in the first quarter of 2006. An additional factor adversely affecting
net interest margins is short term interest rates rising more rapidly than long
term rates. Generally, earning assets are repriced based on longer term rates
and funding sources are repriced based on short term interest rates. Thus the
cost of funding has risen disproportionately to the amount earned.
The impact on Farwell's interest income is due to a change in the asset and
liability mix and changes in rates. Management expects short term interest rates
to increase during 2006. Based on this expectation, and assets and liability re-
pricing characteristics, management projects that the fully taxable equivalent
(FTE) net interest margin as a percentage of average assets will decrease
slightly in 2006. Due to the many factors that can affect net interest income
earned, it cannot be predicted with any certainty.
50
Average assets were $91.7 million during 2005, a $1.0 million decrease
since December 31, 2004. Average loans outstanding increased $924,000 to $64.3
million, investments including federal funds sold decreased $1.7 million, and
other assets decreased $292,000. The decrease in average assets was primarily
due to a $1.7 million decrease in average shareholders' equity resulting from a
payout of excess capital. Deposits increased $550,000 in 2005, of which $347,000
was interest earned by customers being reinvested and a $203,000 increase in
non-interest bearing demand deposits.
As shown in Tables 1 and 2, when comparing the twelve month period ending
December 31, 2005 to the same period in 2004, fully taxable interest income
related to the volume of earning assets decreased $16,000. A 0.5% increase in
interest bearing liabilities resulted in $68,000 of additional interest expense.
Overall, changes in volume of assets and liabilities resulted in a reduction of
$84,000 in FTE interest income. The average FTE interest rate earned on assets
increased by 0.11%, increasing FTE interest income by $72,000 and the average
rate paid on deposits increased by 0.34% increasing interest expense by
$162,000. The increased interest rates earned and paid reduced FTE net interest
income by $90,000. Overall FTE net interest income decreased by $174,000own account as a result of changes in volumemarket-making activities or other trading activities and rates.
Farwell's FTE net interest yield asreceives New Notes for its own account pursuant to the exchange offer may be a percentage of average earning assets
during 2005 decreased by 0.17% to 4.06%. The decrease is primarilystatutory underwriter and must acknowledge that it will deliver a resultprospectus meeting the requirements of the average interest rates paid on deposits increasing faster than rates earned
on assets and the declineSecurities Act in non-interest bearing funding from the decline in
capital.
PROVISION FOR LOAN LOSSES
The viabilityconnection with any resale of any financial institution is ultimately determined by its
management of credit risk. Net loans outstanding represent 69% of Farwell's
total assets and is the single largest concentration of risk as of March 31,
2006. The allowance for loan losses is management's estimation of potential
future losses inherent in the existing loan portfolio. Factors used to evaluate
the loan portfolio, and thus to determine the current charge to expense, include
recent loan loss history, financial condition of borrowers, amount of non-
performing and impaired loans, overall economic conditions, and other factors.such New Notes. This evaluation is inherently subjectiveprospectus, as it requires material estimates,
including the amounts and timing of future cash flows and may be subjectamended or supplemented from time to significant change.
During the first quartertime, may be used by any such broker-dealer in connection with any resale of 2006, Farwell had net charge-offs of $35,000 or
0.21% of loans on an annualized basis. The net loss was entirely related to
consumer loans. Loans classified as substandard declined from 1.23% of gross
loans outstanding as of December 31, 2005 to 1.06% as of March 31, 2006.
As shownNew Notes received in Table 3, net loan charge offs were $44,000 in 2005, a $21,000
increase from 2004. Net charged off loans were 0.07% of average loans in 2005
and 0.04% in 2004. The allowanceexchange for loan losses as a percentage of loans
equaled 1.20% and 1.38% as of December 31, 2005 and 2004 respectively.
51
TABLE 1. FARWELL AVERAGE BALANCES, INTEREST INCOME AND EXPENSE, AND AVERAGE
RATES (DOLLARS IN THOUSANDS)
The following schedules present the daily average amount outstanding for
each major category of interest earning assets, non-earning assets, interest
bearing liabilities, and non-interest bearing liabilities. This schedule also
presents an analysis of interest income and interest expense for the periods
indicated. All interest income is reported on a fully taxable equivalent (FTE)
basis using a 34% tax rate. Non-accruing loans, for the purpose of the following
computations, are included in the average loan amounts outstanding.
52
(DOLLARS IN THOUSANDS)
The following table details the dollar amount of changes in FTE net
interest income for each major category of interest earning assets and interest
bearing liabilities, and the amount of change attributable to changes in average
balances (volume) or average rates. The change in interest due to both volume
and rate, has been allocated to volume and rate changes in proportion to the
relationship of the absolute dollar amounts of the change in each.
TABLE 3. FARWELL SUMMARY OF LOAN LOSS EXPERIENCE (DOLLARS IN THOUSANDS)
As shown in Table 4, loans classified as nonperforming plus other real
estate were $793,000 as December 31, 2005, an increase of $201,000 since
December 31, 2004. Nonperforming loans as a percentage of outstanding loans were
1.23% and 0.91% as December 31, 2005 and 2004 respectively. During 2005 net
charged off loans were
53
$44,000 and the provision for loans losses was zero. Management did not provide
for any loan losses in 2005 as a result of their internal analysis for allowance
for loan losses showing an adequate amount of allowance for loan losses. The
policy of Farwell is to transfer a loan, including impaired loans, to non-
accrual status whenever it is determined that the interest should be recorded on
a cash basis instead of the accrual basis because of a deterioration in the
financial position of the borrower, it is determined that the payment in full of
principal or interest cannot be expected, or the loan has been in default for a
period of 90 days or more, unless it is both well secured and in the process of
collection. Restructured loans are loans whose terms have been renegotiated to
provide for deferral of interest or principal because of a borrower's
deterioration in their financial position.
TABLE 4. FARWELL NONPERFORMING LOANS (DOLLARS IN THOUSANDS)
The following loans are all the credits which required classification for
state or federal regulatory purposes. Non-performing loans, including other real
estate acquired in satisfaction of loans, were as follows:
As of March 31, 2006, there were no other interest bearing assets which
would require classification. Management is not aware of any recommendations by
regulatory agencies which, if implemented, would have a significant impact on
liquidity, capital, or operations.
In management's opinion, the allowance for loan losses is adequate as of
December 31, 2005. Management has allocated, as shown in Table 5, the allowance
for loan losses to the following categories: commercial and agricultural, 7.7%;
real estate mortgages, 15.9%; installment loans, 68.1%; and unallocated, 8.3%.
TABLE 5. FARWELL ALLOCATION ON THE ALLOWANCE FOR LOAN LOSSES (DOLLARS IN
THOUSANDS)
The allowance for loan losses has been allocated according to the amount
deemed to be reasonably necessary to provide for the possibility of losses being
incurred within the following categories:
NON-INTEREST INCOME AND EXPENSE
Noninterest income consists of deposit service charges and fees for other
financial services. Total income earned from these sources increased $7,000 in
the first quarter of 2006 versus the same period in 2005 and $3,000 during the
year ended December 31, 2005 when compared to the year ended December 31, 2004.
There were no significant changes in any one category during these periods.
54
Total noninterest expense for the first quarter of 2006 increased $61,000
or 15.7%, when compared to the same period in 2005. The majority of the increase
in 2006 is related to an increase in audit and accounting fees as the result of
having a financial statement audit in 2005 versus a compilation in prior years
and legal and other professional expenses related to the proposed merger with
Farmers.
Total non-interest expense for the year ended December 31, 2005 increased
$41,000 or 2.6%. Salary and benefits increased $23,000, equipment and occupancy
expense decreased $13,000 and all other expenses increased $31,000. The largest
component of non-interest expense is salaries and employee benefits. The $23,000
increase is related to normal merit salary increases and increased benefit
costs. Occupancy and equipment expenses decreased $13,000. The decrease is
associated with a decrease in depreciation of equipment and building repairs.
Other non-interest expenses increased $31,000 or 5.8%. The most significant
changes were increases in legal and professional expenses related to the
proposed merger with Farmers.
FEDERAL INCOME TAXES
Federal income tax expense in 2005 was $621,000 or 28.6% of pretax income
and in 2004 $732,000 or 30.8% of pre-tax income. The difference between the
statutory rate of 34% and actual rates paid is primarily due to the exclusion of
interest income earned on tax exempt municipal bonds from taxable income.
ANALYSIS OF CHANGES IN FINANCIAL CONDITION
When comparing 2005 year ending balances to 2004, total assets increased
$91,000 to $89.1 million. During this period, loans outstanding decreased
$414,000, while fed funds sold and investment securities increased $651,000.
Changes in funding sources include a $1.1 million increase in non-interest
bearing deposits, a $393,000 increase in interest bearing deposits, and a $1.4
million decrease in shareholders' equity.
INVESTMENT SECURITIES
The primary objective of investing activities is to provide for safety of
the principal invested. Secondary considerations include the need for earnings
and liquidity. During 2005, Farwell's net holdings of investment securities
decreased $471,000. Table 6 shows the carrying value of investment securities
available for sale. At December 31, 2005, Farwell held no securities of any
single issue that exceeded 10% of shareholders' equity.
TABLE 6. FARWELL INVESTMENT PORTFOLIO (DOLLARS IN THOUSANDS)
The following is a schedule of the carrying value of investment securities
available for sale:
55
AVERAGE YIELDS (DOLLARS IN THOUSANDS)
The following table shows the relative maturities of securities available
for sale at fair value and their weighted average interest rate for each
maturity range as of December 31, 2005. There were no investments with a stated
maturity date greater than 5 years. All interest rates are reported on a fully
taxable equivalent (FTE) basis using a 34% tax rate.
LOANS
Loans are the largest component of earning assets. As a percentage of
assets, gross loans outstanding were $72.1% as of December 31, 2005. The proper
management of credit risk and market risk is critical to the financial well
being of Farwell. To control these risks, Farwell has adopted strict
underwriting standards. The standards include limits against lending outside
Farwell's defined market area, lending limits to a single borrower, and loan to
collateral value limits. Farwell has no foreign loans, and there were no
concentrations greater than 10% of total loans that are not disclosed as a
separate category in Table 8.
TABLE 8. FARWELL LOAN PORTFOLIO (DOLLARS IN THOUSANDS)
As shown in the following table, total loans decreased $458,000 in 2005 to
$64.2 million. The decrease was primarily in residential real estate and
personal loan categories.
56
TABLE 9. FARWELL LOAN MATURITY AND INTEREST SENSITIVITY (DOLLARS IN THOUSANDS)
The following table shows the maturity of commercial and agricultural loans
outstanding at December 31, 2005. Also provided are the amounts due after one
year, classified according to the sensitivity to changes in interest rates.
DEPOSITS
Deposits are the largest source of funds for financing asset growth. As
shown in Table 10, average deposits increased $550,000 in 2005 or 0.7%. Within
the banking industry there is agreement that competition from equity
investments, the bond market, and other financial intermediaries has had a
significant impact on deposit growth. The resultsuch Old Notes. We will make additional copies of this competition is a
general slowing of deposit growth. To fund asset growth in the future, it is
likely that Farwell is going to have to obtain funds from other sources such as
the Federal Home Loan Bank.
TABLE 10. FARWELL AVERAGE DEPOSITS (DOLLARS IN THOUSANDS)
TABLE 11. FARWELL MATURITIES OF TIME CERTIFICATES OF DEPOSITS OVER $100,000
(DEPOSITS IN THOUSANDS)
The following table shows the maturity scheduleprospectus, and amounts of time
deposits of more than $100,000 for the dates indicated. These deposits represent
34.8% of the total deposits in 2005 and 35.7% in 2004.
57
CAPITAL
The capital of Farwell consists solely of common stock, capital surplus,
retained earnings, and accumulated other comprehensive income. Total capital
decreased $1.4 million in 2005. The decrease was related to the payment of $2.9
million cash dividend in 2005.
The Federal Reserve Board's current recommended minimum primary capital to
assets requirement is 6.0%. Farwell's primary capital to assets, which consists
of shareholders' equity plus allowance for loan losses was 15.9% as of December
31, 2005.
The Federal Reserve has also established minimum capital requirements for
banks. Table 12 shows the minimum regulatory capital requirement to be
considered well capitalized and Farwell's ratios. Tier 1 capital consists of
shareholders' equity, excluding unrealized gains and losses on securities
available for sale less intangible assets. Total capital is comprised of Tier 1
capital plus the allowance for loan losses. At March 31, 2006, Farwell continued
to be well capitalized under the prompt corrective action regulatory criteria,
as shown below.
TABLE 12. FARWELL REGULATORY MINIMUM TO BE WELL CAPITALIZED AND FARWELL'S
RATIOS
LIQUIDITY
Liquidity management is designed to have adequate resourcesany amendments or supplements hereto, available to meet depositor and borrower discretionary demands for funds. Liquidity is also
required to fund expanding operations, investment opportunities, and the payment
of cash dividends. The primary sources of Farwell's liquidity are cash, cash
equivalents, and investment securities available for sale.
As of March 31, 2006, cash and cash equivalents as a percentage of total
assets equaled 7.9% versus 5.6% as of December 31, 2005. During the first three
months of 2006, $152,000 in net cash was provided from operations. Investing
activities used $135,000 and financing activities resulted in a $2.3 million
increase in cash and cash equivalents. Overall, cash and cash equivalents
increased $2.3 million in the first quarter of 2006. In addition to funding from
traditional sources Farwell has the ability to borrow in the federal funds
market. Farwell's liquidity is considered adequate by management.
ASSET AND LIABILITY MANAGEMENT
Asset and liability management aims at achieving reasonable stability in
the net interest margins through periods of changing interest rates. One method
to measure the exposure to changes in interest rates is gap analysis. GAP
analysis measure the cash flows and/or the earliest repricing of Farwell's
interest bearing assets and liabilities. The analysis is useful for measuring
trends in the repricing characteristics of the balance sheet. As shown in Table
13, the gap analysis depicts Farwell's position for specific time periods and
the cumulative gap as a percentage of total assets.
Investment securities and other investments are scheduled according to
their contractual maturity. Nonvariable rate loans are included in the
appropriate time frame based on their scheduled amortization. Farwell does not
offer variable rate loans. Time deposits are scheduled according to their
contractual maturity. Money market, NOW, and savings accounts have no
contractual maturity and are believed to be predominantly noninterest sensitive
by management. For purposes of gap analysis, these deposits are included in the
0-3 month repricing time frame.
Farwell has no foreign exchange risk, holds no trading account assets, nor
doesany such broker-dealer that requests it utilize interest rate swaps or derivatives in the management of its
interest rate risk. Farwell does have a significant portion of its assets in
real estate mortgages.
58
TABLE 13. FARWELL INTEREST RATE SENSITIVITY (DOLLARS IN THOUSANDS)
The following table shows the time periods and the amount of assets and
liabilities available for interest rate repricing as of December 31, 2005. For
purposes of this analysis, nonaccrual loans and the allowance for loan losses
are excluded.
IMPACT OF INFLATION
The majority of assets and liabilities of financial institutions are
monetary in nature. Generally, changes in interest rates have a more significant
impact on earnings of Farwell than inflation. Although influenced by inflation,
changes in rates do not necessarily move in either the same magnitude or
direction as changes in the price of goods and services. Inflation does impact
the growth of total assets, creating a need to increase equity capital at a
higher rate to maintain an adequate equity to assets ratio, which in turn
reduces the amount of earnings available for cash dividends.
59
THE FARWELL STATE SAVINGS BANK
FARWELL, MICHIGAN
FINANCIAL STATEMENTS
YEARS ENDED
DECEMBER 31, 2005, 2004 AND 2003
60
THE FARWELL STATE SAVINGS BANK
TABLE OF CONTENTS
61
INDEPENDENT AUDITORS' REPORT
Stockholders and Board of Directors
The Farwell State Savings Bank
Farwell, Michigan
We have audited the accompanying balance sheet of THE FARWELL STATE SAVINGS
BANK as of December 31, 2005, and the related statements of income,
comprehensive income, changes in stockholders' equity and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit of the 2005 financial statements in accordance with auditing standards generally acceptedthe instructions in the United Statesletter of America. Those
standards require that we plantransmittal. See “Plan of Distribution.”
Unless otherwise indicated or the context otherwise requires, as used in this prospectus, the terms “we,” “us,” “our,” “Isabella” or the “Company” refer to Isabella Bank Corporation and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 2005 financial statements referred to above present
fairly, in all material respects, the financial position of THE FARWELL STATE
SAVINGS BANK as of December 31, 2005,its consolidated subsidiaries, and the results of its operations and its
cash flows forterm the year then ended in conformity with accounting principles
generally accepted in“Bank” refers to Isabella Bank, the United States of America.
/s/ REHMANN ROBSON
----------------------------------------
Saginaw, Michigan
January 27, 2006
62
BALANCE SHEETS
The accompanying notes are an integral part of these financial statements.
63
THE FARWELL STATE SAVINGS BANK
STATEMENTS OF INCOME
The accompanying notes are an integral part of these financial statements.
64
STATEMENTS OF COMPREHENSIVE INCOME
The accompanying notes are an integral part of these financial statements.
65
THE FARWELL STATE SAVINGS BANK
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
The accompanying notes are an integral part of these financial statements.
66
THE FARWELL STATE SAVINGS BANK
STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of these financial statements.
67
THE FARWELL STATE SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND CONCENTRATIONS OF RISK
THE FARWELL STATE SAVINGS BANK ("Farwell") provides a variety of financial
services to individuals and businesses in Mid-Michigan through its two locations
in Farwell and Lake, Michigan. Active competition, principally from other
commercial banks, savings banks and credit unions, exists in all of Farwell's
primary markets. Farwell's results of operations can be significantly affected
by changes in interest rates or changes in the tourism industry which comprise a
significant portion of the local economic environment.
Farwell's primary deposit products are interest and noninterest bearing
checking accounts, savings accounts and time deposits and its primary lending
products are real estate mortgages, commercial and consumer loans. Note 3
further describes the types of lending Farwell engages in and Note 6 provides
additional information on deposits. Note 2 discusses the types of securities
Farwell invests in. Farwell does not have significant concentrations with
respect to any one industry, customer, or depositor.
Farwell is a state chartered bank and is a member of the Federal Deposit
Insurance Corporation ("FDIC") Bank Insurance Fund. Farwell is subject to the
regulations and supervision of the FDIC and state regulators and undergoes
periodic examinations by these regulatory authorities.
USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
balance sheet and the reported amounts of revenues and expenses during the year.
Actual results could differ from those estimates. The material estimate that is
particularly susceptible to significant change in the near term relates to the
determination of the allowance for loan losses.
ACCOUNTING POLICIES
Accounting policies used in preparation of the accompanying financial
statements conform to predominant banking industry practices and are based on
generally accepted accounting principles. The principles which materially affect
the determination of the financial position or results of operations of Farwell
are summarized below:
Cash and Cash Equivalents
For the purposes of the statements of cash flows, cash and cash equivalents
include cash on hand, amounts due from banks, and federal funds sold. Generally,
federal funds are sold for a one-day period. Farwell maintains deposit accounts
in various financial institutions which generally exceed federally insured
limits or are not insured.
Securities
Securities are classified as "available-for-sale" and are recorded at fair
value with unrealized gains and losses, net of the effect of deferred income
taxes, excluded from earnings and reported in other comprehensive income.
Purchase premiums and discounts are recognized in interest income using the
interest method over the terms of the securities. Declines in the fair value of
available-for-sale securities below their cost that are deemed to be other than
temporary are reflected in earnings as realized losses. In estimating other-
than-temporary impairment losses, management considers 1) the length of time and
extent to which the fair value has been less than cost, 2) the financial
condition and near-term prospects of the issuer, and 3) the intent and ability
of Farwell to retain its investment in the issuer for a period of time
sufficient to allow for anticipated recovery in fair value. Gains or losses on
the sale of securities are recorded on the trade date and are determined using
the specific identification method.
68
THE FARWELL STATE SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Loans
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are generally reported at their
outstanding unpaid principal balances adjusted for charge-offs, the allowance
for loan losses, and any deferred fees or costs on originated loans. Interest
income is accrued on the unpaid principal balance. Management estimates that
direct costs incurred in originating loans classified as held-to-maturity
approximate the origination fees generated on these loans. Therefore, net
deferred loan origination fees on loans classified as held-to-maturity are not
included on the accompanying balance sheets.
The accrual of interest on mortgage and commercial loans is discontinued at
the time the loan is 90 days past due unless the credit is well-secured and in
process of collection. Personal loans are typically charged off no later than
180 days past due. Past due status is based on contractual terms of the loan. In
all cases, loans are placed on non-accrual or charged-off at an earlier date if
collection of principal and interest is considered doubtful.
All interest accrued but not collected for loans that are placed on non-
accrual or charged off is reversed against interest income, while interest
accrued but not collected for prior years is reversed against the allowance for
loan losses. The interest on these loans is accounted for on the cash-basis or
cost-recovery method, until qualifying for return to accrual. Loans are returned
to accrual status when all principal and interest amounts contractually due are
brought current and future payments are reasonably assured.
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to
have occurred through a provision for loan losses charged to earnings. Loan
losses are charged against the allowance when management believes the
uncollectibility of the loan balance is confirmed. Subsequent recoveries, if
any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management
and is based upon management's periodic review of the collectibility of the
loans in light of historical experience, the nature and volume of the loan
portfolio, adverse situations that may affect the borrower's ability to repay,
estimated value of any underlying collateral and prevailing economic conditions.
This evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes available.
The allowance consists of specific, general and unallocated components. The
specific component relates to loans that are classified as doubtful, substandard
or special mention. For such loans that are classified as impaired, an allowance
is established when the discounted cash flows (or collateral value or observable
market price) of the impaired loan is lower than the carrying value of that
loan. The general component covers non-classified loans and is based on
historical loss experience adjusted for qualitative factors. An unallocated
component is maintained to cover uncertainties that could affect management's
estimate of probable losses. The unallocated component of the allowance reflects
the margin of imprecision inherent in the underlying assumptions used in the
methodologies for estimating specific and general losses in the portfolio.
A loan is considered impaired when, based on current information and
events, it is probable that Farwell will be unable to collect the scheduled
payments of principal or interest when due according to the contractual terms of
the loan agreement. Factors considered by management in determining impairment
include payment status, collateral value, and the probability of collecting
scheduled principal and interest payments when due. Loans that experience
insignificant payment delays and payment shortfalls generally are not classified
as impaired. Management determines the significance of payment delays and
payment shortfalls on a case-by-case basis, taking into consideration all of the
circumstance surrounding the loan and the borrower, including the length of the
delay, the reasons for the delay, the borrower's prior payment record, and the
amount of the shortfall in relation to the principal and interest owed.
Impairment is measured on a loan by loan basis for commercial and construction
loans by either the present value of expected future cash flows discounted at
the loan's effective interest rate, the loan's obtainable market price, or the
fair value of the collateral if the loan is collateral dependent.
69
THE FARWELL STATE SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Large groups of smaller balance homogeneous loans are collectively
evaluated for impairment. Accordingly, Farwell generally does not separately
identify individual consumer and residential loans for impairment disclosures,
unless such loans are the subject of a restructuring agreement.
Foreclosed Assets
Assets acquired through, or in lieu of, loan foreclosure are held for sale
and are initially recorded at fair value at the date of transfer, establishing a
new cost basis. Subsequent to foreclosure, valuations are periodically performed
by management and the assets are carried at the lower of the carrying amount or
fair value less costs to sell. Revenue and expenses from operations and changes
in the valuation allowance are included in net expenses from foreclosed assets.
Premises and Equipment
Land is carried at cost. Premises and equipment are carried at cost less
accumulated depreciation. Depreciation is computed principally by the straight-
line method based upon the useful lives of the related assets which generally
range from 3 to 40 years. Maintenance, repairs, and minor alterations are
charged to current operations as expenditures occur and major improvements are
capitalized.
Corporate Owned Life Insurance
Farwell has purchased life insurance policies on certain key executives.
Corporate owned life insurance is recorded at its cash surrender value, or the
amount that can be realized.
Off-Balance Sheet Credit Related Financial Instruments
In the ordinary course of business, Farwell has entered into commitments to
extend credit, including commercial letters of credit and standby letters of
credit. Such financial instruments are recorded when they are funded.
Federal Income Taxes
Federal income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently due plus
deferred income taxes. Deferred income taxes are recognized for temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Deferred income
tax assets and liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets or
liabilities are recorded or settled. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
As changes in income tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
Net Income Per Share
Net income per basic share of common stock represents income available to
common stockholders divided by the weighted-average number of common shares
outstanding during the year, which was 262,500 in 2005, 2004, and 2003.
70
THE FARWELL STATE SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. INVESTMENT SECURITIES
The amortized cost and fair value of available-for-sale securities with
unrealized gains and losses are as follows as of December 31:
The amortized cost and fair value of available-for-sale securities by
contractual maturity at December 31, 2005 are as follows:
Because of their variable payments, mortgage-backed securities are not
reported by a specific maturity group.
Information pertaining to securities with unrealized losses at December 31,
2005, aggregated by investment category and the length of time that individual
securities have been in a continuous loss position is as follows:
71
THE FARWELL STATE SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Management evaluates securities for other-than-temporary impairment at
least on a quarterly basis, and more frequently when economic or market concerns
warrant such evaluation. Consideration is given to (1) the length of time and
the extent to which the fair value has been less than cost, (2) the financial
condition and near-term prospects of the issuer, and (3) the intent and ability
of Farwell to retain its investment in the issuer for a period of time
sufficient to allow for any anticipated recovery in fair value.
At December 31, 2005, 12 government and federal agencies, 33 state and
municipal, and 3 corporate securities have unrealized losses with aggregate
depreciation of 1.0%, 1.0% and 1.3%, respectively.
In analyzing an issuer's financial condition, management considers whether
the securities are issued by the federal government or its agencies, whether
downgrades by bond rating agencies have occurred, and industry analysts'
reports. As Farwell has the ability to hold debt securities until maturity, or
for the foreseeable future if classified as available for sale, no declines are
deemed to be other than temporary.
3. LOANS
Farwell grants commercial, consumer and residential mortgage loans to
customers situated primarily in Mid-Michigan. The ability of Farwell's debtors
to honor their contracts is dependent upon the real estate and general economic
conditions in this area. Substantially all of the consumer and residential loans
are secured by various items of property, while commercial loans are secured
primarily by business assets and personal guarantees; a portion of loans are
unsecured.
Major loan classifications are as follows at December 31:
Nonaccrual loans, loans otherwise considered impaired, and loans 90 days or
more past due, and interest income recognized on such loans, were not
significant at either December 31, 2005 or 2004, or for the years ended December
31, 2005, 2004, or 2003.
72
THE FARWELL STATE SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. ALLOWANCE FOR LOAN LOSSES
The following is an analysis of the changes in the allowance for loan
losses for the years ended December 31:
5. PREMISES AND EQUIPMENT
A summary of the cost and accumulated depreciation of premises and
equipment is as follows at December 31:
Depreciation expense in 2005, 2004, and 2003 amounted to $34, $48, and $77,
respectively.
6. DEPOSITS
The following is a summary of the distribution of deposits at December 31:
Interest expense on time deposits issued in denominations of $100,000 or
more was $352 in 2005, $223 in 2004, and $237 in 2003.
73
THE FARWELL STATE SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Scheduled maturities of time deposits for the years succeeding December 31,
2005 are as follows:
7. INCOME TAXES
The provision for income taxes consists of the following components for the
years ended December 31:
A reconciliation between federal income tax expense and the amount computed
by applying the statutory federal income tax rate of 34% to income before
federal income taxes at December 31, follows:
The components of the net deferred tax liability at December 31 included
with other liabilities in the accompanying balance sheets, are primarily related
to temporary basis differences in premises and equipment and the allowance for
loan losses and are not significant.
8. RETIREMENT PLAN
Farwell maintains a non-leveraged Employee Stock Ownership Plan (ESOP) with
a 401(k) provision. Substantially all employees of Farwell are covered under the
plan. Farwell contributed 15 percent, the maximum allowed under the Internal
Revenue Code, of employee gross earnings during 2005 and 2004 and 2003. The cost
of the plan amounted to $92, $90, and $86 in 2005, 2004, and 2003, respectively.
Total shares outstanding related to the ESOP for each of the three years ended
December 31, 2005 were 26,582 and were included in the computation of dividends
and earnings per share in each of the respective years.
9. SUPPLEMENTAL CASH FLOWS INFORMATION
NON-CASH INVESTING ACTIVITIES
During 2005 and 2004, collateral repossessed on loans in the amount of $182
and $146, respectively, was reclassified as other real estate owned.
74
THE FARWELL STATE SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
OTHER CASH FLOWS INFORMATION
Cash paid during the years ended December 31 for interest and income taxes
amounted to the following:
10. RELATED PARTY TRANSACTIONS
LOANS
In the ordinary course of business, Farwell has granted loans to certain
directors, executive officers and their affiliates amounting to approximately
$249 and $343 at December 31, 2005 and 2004. During the year ended December 31,
2005, total principal additions were approximately $190 and total principal
payments were approximately $284.
DEPOSITS
Deposits of Bank directors, executive officers and their affiliates were
approximately $1,109,806 and $525,930 at December 31, 2005 and 2004,
respectively.
OTHER
Consulting fees in the amount of $73 and $65 at December 31, 2005 and 2004,
respectively, have been accrued and are payable to a Board member.
11. OFF-BALANCE SHEET ACTIVITIES
CREDIT-RELATED FINANCIAL INSTRUMENTS
Farwell is a party to credit related financial instruments with off-
balance-sheet risk in the normal course of business to meet the financing needs
of its customers. These financial instruments include commitments to extend
credit, standby letters of credit and commercial letters of credit. Such
commitments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the balance sheets. Farwell's
exposure to credit loss is represented by the contractual amount of these
commitments. Farwell follows the same credit policy in making commitments,
including collateral, as it does for on-balance-sheet instruments; no
significant losses are anticipated as a result of these commitments.
At December 31, 2005 and 2004, the following financial instruments were
outstanding whose contract amounts represent credit risk:
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. The commitments may expire without being drawn
upon. Therefore, the total commitment amounts do not necessarily represent
future cash requirements. The amount of collateral obtained, if it is deemed
necessary by Farwell, is based on management's credit evaluation of the
customer.
75
THE FARWELL STATE SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Unfunded commitments under commercial lines-of-credit, revolving credit
lines, equity lines-of-credit, and overdraft protection agreements are
commitments for possible future extensions of credit to existing customers.
These lines-of-credit are uncollateralized and usually do not contain a
specified maturity date and may not be drawn upon to the total extent to which
Farwell is committed.
Commercial and standby letters-of-credit are conditional commitments issued
by Farwell to guarantee the performance of a customer to a third party. Those
letters-of-credit are primarily issued to support public and private borrowing
arrangements. Essentially all letters-of-credit issued have expiration dates
within one year. The credit risk involved in issuing letters-of-credit is
essentially the same as that involved in extending loan facilities to customers.
Farwell generally holds collateral supporting those commitments if deemed
necessary.
12. REGULATORY REQUIREMENTS
CAPITAL REQUIREMENTS
Farwell is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional discretionary actions by
regulators, that if undertaken, could have a direct material effect on Farwell's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, Farwell must meet specific capital
guidelines that involve quantitative measures of their assets, liabilities,
capital and certain off-balance-sheet items as defined in the regulations and
calculated under regulatory accounting practices. The capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.
Quantitative measurements established by regulation to ensure capital
adequacy require Farwell to maintain minimum amounts and ratios (set forth in
the following table) of total and Tier 1 capital (as defined in the regulations)
to risk-weighted asset (as defined) and Tier 1 capital to average assets (as
defined). Management believes, as of December 31, 2005 and 2004, that Farwell
met all capital adequacy requirements to which it is subject.
As of December 31, 2005, the most recent notification from the Federal
Deposit Insurance Corporation categorized Farwell as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-
based, and Tier 1 leverage ratios as set forth in the following tables. There
are no conditions or events since the notification that management believes have
changed Farwell's category. Farwell's actual capital amounts and ratios as of
December 31, 2005 and 2004 are also presented in the table.
76
THE FARWELL STATE SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
RESTRICTIONS ON CASH AND AMOUNTS DUE FROM BANKS
Farwell is required by regulatory agencies to maintain legal cash reserves
based on the level of certain customer deposits. Required reserve balances were
$292 and $352 at December 31, 2005 and 2004, respectively.
13. CONTINGENCIES
LITIGATION
Farwell is party to litigation arising during the normal course of
business. In the opinion of management, based on consultation with legal
counsel, the resolution of such litigation is not expected to have a material
effect on the financial statements.
ENVIRONMENTAL ISSUES
As a result of acquiring real estate from foreclosure proceedings, Farwell
is subject to potential claims and possible legal proceedings involving
environmental matters. No such claims have been asserted as of December 31,
2005.
14. SUBSEQUENT EVENT
On December 22, 2005, The Farwell State Savings Bank signed a definitive
agreement to be acquired by IBT Bancorp, Inc. (the "Agreement"). The Agreement
was amended and restated effective May 2, 2006 to provide for the merger of
Farwell with and into Farmers State Bank of Breckenridge, a wholly-owned subsidiary of IBT Bancorp, Inc. The acquisition is subject to regulatory
approval.
* * * * *
77
FARWELL UNAUDITED CONDENSED FINANCIAL STATEMENTS FOR THE THREE-MONTH PERIOD
ENDED MARCH 31, 2006
THE FARWELL STATE SAVINGS BANK
CONDENSED BALANCE SHEETS
78
THE FARWELL STATE SAVINGS BANK
CONDENSED STATEMENTS OF INCOME
79
STATEMENTS OF COMPREHENSIVE INCOME
80
THE FARWELL STATE SAVINGS BANK
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
81
THE FARWELL STATE SAVINGS BANK
STATEMENTS OF CASH FLOWS
82
CERTAIN BENEFICIAL OWNERS OF IBT COMMON STOCK
The following table sets forth, to the best knowledge and belief of IBT,
certain information regarding the beneficial ownership of IBT common stock as of
July 18, 2006, by (i) each person known to IBT to be the beneficial owner of
more than 5% of the IBT common stock; (ii) each director and certain named
officers of IBT; and (iii) all of IBT's directors and officers as a group.
- --------
* Less than 1%
** Trustees of the ESOP who vote ESOP shares.
OTHER MATTERS
As of the date of this document, Farwell's Board of Directors knows of no
matters that will be presented for consideration at its special meeting other
than as described in this document. However, if any other matter shall properly
come before this special meeting or any adjournment or postponement thereof and
shall be voted upon, the proposed proxy will be deemed to confer authority to
the individuals named as authorized therein to vote the shares represented by
the proxy as to any matters that fall within the purposes set forth in the
notice of special meeting.
FARWELL ANNUAL MEETING
Farwell deferred scheduling its 2006 annual meeting of shareholders with
the impending special shareholders meeting and deems it to be in the best
interests of Farwell to continue to defer holding its 2006 annual meeting until
such special meeting of shareholders has occurred, after which the annual
meeting will be scheduled only if the Merger Agreement is not approved by the
requisite vote at the special meeting of the shareholders.
Company.
i
WHERE YOU CAN FIND MORE INFORMATION
IBT has filed a registration statement on Form S-4 to register with the SEC
the offering of IBT common stock to be issued by IBT in the merger. This proxy
statement-prospectus is a part of that registration statement. As allowed by SEC
rules, this proxy statement-prospectus does not contain all of the information
contained in the registration statement or the exhibits to the registration
statement. This means that this proxy-statement prospectus
83
incorporates important business and financial information about IBT that is not
included in or delivered with this document.
IBT is
We are subject to the informationalreporting requirements of the Securities Exchange Act of 1934, as amended. Accordingly, IBT filesamended (the “Exchange Act”), and therefore we file annual, quarterly and current reports, proxy statements and other informationdocuments with the SEC. You may readOur SEC filings are available on the SEC’s website at www.sec.gov. We also maintain a website at www.isabellabank.com. The reference to our website is not intended to be an active link and copythe information on, or that can be accessed through, our website is not, and you must not consider the information to be, a part of this prospectus or any reports, statements, or other filings we make with the SEC. See “Incorporation of Certain Documents by Reference” for more information on documents incorporated by reference into this prospectus.
This prospectus is part of the registration statement and does not contain all of the information in the registration statement. The registration statement, including the exhibits thereto and the documents incorporated by reference therein, contains additional relevant information about us, the New Notes and the exchange offer.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to “incorporate by reference” in this prospectus the information in other documents that we file at the SEC's
Public Reference Room at 450 Fifth Street N.W., Washington, D.C. 20549. You may
callwith the SEC, at 1-800-SEC-0330 for further information on the operation of the
Public Reference Room. IBT's SEC filings are also available to the public from
commercial document retrieval services and at the website maintained by the SEC
at www.sec.gov. The website contains reports, proxy and information statements,
and other information regarding companies that file electronically with the SEC.
The SEC allows IBT to incorporate by reference information into this proxy
statement-prospectus. Thiswhich means that IBTwe can disclose important information to you by referring you to another document filed separately with the SEC.those documents. The information incorporated by reference is considered to be part of this proxy statement-
prospectus except forand should be read with the same care. When we update the information contained in documents that have been incorporated by reference, by making future filings with the SEC, the information incorporated by reference in this prospectus is considered to be automatically updated and superseded. In other words, in all cases, if you are considering whether to rely on information contained in this prospectus or information incorporated by reference into this prospectus, you should rely on the information contained in the document that was filed later. We incorporate by reference (other than any information superseded by information in this proxy
statement-prospectus. This proxy statement prospectus incorporates by reference
the documents set forth below that IBT has previouslyfurnished to, rather than filed with, the SEC. TheseSEC, unless expressly stated otherwise therein) the documents contain important information about IBT and its finances.
IBT Commission Filings (File No. 000-18415)
Quarterly Report on Form 10-Q for the six-month period ended June 30, 2006.
Current Report on Form 8-K filed May 5, 2006
Quarterly Report on Form 10-Q for the three-month period ended March 31,
2006
Current Report on Form 8-K filed April 25, 2006
Current Report on Form 8-K filed March 28, 2006
Current Report on Form 8-K filed March 10, 2006
Definitive Proxy Statement on Schedule 14A filed March 28, 2006
Annual Report on Form 10-K for year ended December 31, 2005
listed below, which are considered to be a part of this prospectus:
| • | |||||||||||
| • | |||||||||||
| • | our Current Reports on Form 8-K filed on April 5, 2021, April 29, 2021, May 7, 2021, and June 2, 2021 (other than the information disclosed pursuant to Item 7.01 of such Current Report) (File No. 000-18415). | ||||||||||
All other documents that we subsequently filed by IBTfile with the SEC pursuant to SectionsSection 13(a), 13(c), 14 and 15or 15(d) of the Securities Exchange Act, of 1934, as amended,
betweenafter the date of this proxy statement-prospectus and theinitial date of the special
meetingregistration statement of which this prospectus is a part until the later of (1) the termination or completion of the shareholdersexchange offer or (2) the termination of Farwellthe period of time described under “Plan of Distribution” during which we have agreed to make available this prospectus to broker-dealers in connection with certain resales of the New Notes, are alsodeemed to be incorporated by reference into
this proxy statement-prospectus.
Documents incorporatedherein (other than any information furnished to, rather than filed with, the SEC, unless expressly stated otherwise therein).
Holders of the Old Notes may request a copy of these filings, at no cost, by reference are available from IBT without charge.
You may obtain documents incorporated by reference in this proxy statement-
prospectus by requesting them in writing or by telephone from IBTcontacting us at the following address:
IBT Bancorp, Inc.
Attn: Dennis P. Angner, President & Chief Executive Officer
200 East Broadway
address or telephone number:
Isabella Bank Corporation
Attention: Neil M. McDonnell
401 N. Main St.
Mt. Pleasant, Michigan 48858MI 48858-1649
Telephone: (989) 772-9471
TO OBTAIN DELIVERY OF THIS INFORMATION PRIOR TO THE SPECIAL FARWELL
SHAREHOLDERS MEETING, YOU MUST REQUEST THE INFORMATION NO LATER THAN SEPTEMBER
5, 2006, WHICH IS FIVE BUSINESS DAYS BEFORE THE DATE OF THE SPECIAL MEETING AT
WHICH YOU ARE REQUESTED TO VOTE.
NEITHER IBT NOR FARWELL HAS AUTHORIZED ANYONE TO GIVE ANY INFORMATION OR
MAKE ANY REPRESENTATION ABOUT THE MERGER OR OUR COMPANIES THAT IS DIFFERENT
FROM, OR IN ADDITION TO, THAT CONTAINED IN THIS DOCUMENT OR IN ANY OF THE
MATERIALS THAT HAVE BEEN INCORPORATED INTO THIS DOCUMENT. THEREFORE, IF ANYONE
DOES GIVE YOU INFORMATION OF THIS SORT, YOU SHOULD NOT RELY ON IT. IF YOU ARE IN
A JURISDICTION WHERE OFFERS TO EXCHANGE OR SELL, OR SOLICITATIONS OF OFFERS TO
EXCHANGE OR PURCHASE, THE SECURITIES OFFERED BY THIS DOCUMENT OR THE
SOLICITATION OF PROXIES IS UNLAWFUL, OR IF YOU ARE A PERSON TO WHOM IT IS
UNLAWFUL TO DIRECT THESE TYPES OF
84
ACTIVITIES, THEN THE OFFER PRESENTED IN THIS DOCUMENT DOES NOT EXTEND TO YOU.
THE INFORMATION CONTAINED IN THIS DOCUMENT SPEAKS ONLY AS OF THE DATE OF THIS
DOCUMENT UNLESS THE INFORMATION SPECIFICALLY INDICATES THAT ANOTHER DATE
APPLIES.
To ensure timely delivery of any requested information, holders of the Old Notes must make any request no later than ____________, 2021, which is five business days before the expiration date of the exchange offer, or, if we decide to extend the expiration date of the exchange offer, no later than five business days before such extended expiration date.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document, including information included or incorporated by reference
in this documentprospectus may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about management’s confidence and strategies and management’s expectations about new and existing programs and products, investments, relationships, opportunities and market conditions. These statements may be identified by such forward-looking terminology as “expect,” “look,” “believe,” “anticipate,” “may” or similar statements or variations of such terms. Actual results may differ materially from such forward-looking statements. Factors that may cause results to differ materially from such forward-looking statements include, but are not limited to:
(i) the financial condition, results
| • | the COVID-19 pandemic may adversely affect our business; | ||||||||||
| • | changes in credit quality and required allowance for loan and lease losses; | ||||||||||
| • | changes in economic conditions; | ||||||||||
| • | changes in interest rates; | ||||||||||
| • | liquidity risk; | ||||||||||
| • | fluctuations in the market; | ||||||||||
ii
| • | operational risk; | ||||||||||
| • | changes to the financial services industry as a result of regulatory changes or actions, or significant litigation; | ||||||||||
| • | the adoption of, violations of, or nonconformance with laws, rules, regulations, or prescribed practices; | ||||||||||
| • | changes in the financial services industry; | ||||||||||
| • | impairment of goodwill; | ||||||||||
| • | pressure from purchasers of our residential mortgage loans to repurchase loans sold or reimburse purchasers for losses related to such loans; | ||||||||||
| • | consumers may decide not to use banks to complete their financial transactions; | ||||||||||
| • | unauthorized disclosure of sensitive or confidential client or customer information, whether through cyber-attacks, breach of computer systems or by other means; | ||||||||||
| • | our estimates or assumptions may be incorrect; | ||||||||||
| • | disruption of infrastructure; and | ||||||||||
| • | anti-takeover provisions. | ||||||||||
A discussion of operationsthese and business of IBT
and Farwell;
(ii) statements about the benefits of the merger, including future
financial and operating results, cost savings, enhancements to revenue and
accretion to reported earnings that may be realized from the merger;
(iii) statements about our respective plans, objectives, expectations
and intentions and other statements that are not historical facts; and
(iv) other statements identified by words such as "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates," or
words of similar meaning. These forward-looking statements are based on
current beliefs and expectations of our management and are inherently
subject to significant business, economic and competitive uncertainties and
contingencies, many of which are beyond our control. In addition, these
forward-looking statements are subject to assumptions with respect to
future business strategies and decisions that are subject to change. The
following factors, among others, could cause actual results to differ
materially from the anticipated results or other expectations expressed in
the forward-looking statements:
- general economic conditions in the areas in which we operate;
- our businesses may not be combined successfully, or such combination
may take longer to accomplish than expected;
- delays or difficulties in the integration by IBT of recently
acquired businesses;
- the growth opportunities and cost savings from the merger may not be
fully realized or may take longer to realize than expected;
- operating costs, customer losses and business disruption following
the merger, including adverse effects of relationships with
employees, may be greater than expected;
- governmental approvals of the merger may not be obtained, or adverse
regulatory conditions may be imposed in connection with governmental
approvals of the merger;
- adverse governmental or regulatory policies may be enacted;
- the interest rate environment may change, causing margins to
compress and adversely affecting net interest income;
- the risks associated with continued diversification of assets and
adverse changes to credit quality;
- competition from other financial services companies in our markets;
- the concentration of IBT's operations in Michigan may adversely
affect results if the Michigan economy or real estate market
declines; and
- the risk of an economic slowdown that would adversely affect credit
quality and loan originations.
Additional factors that could cause actualaffect our results to differ materially
from those expressedis included in the forward-looking statements are discussed in IBT's
reports filedour filings with the Securities and Exchange Commission.
All subsequent written and oral forward-looking statements concerningCommission, including our Annual Report on Form 10-K for the proposed transaction or other matters attribut able to either of us or any
person acting on our behalf are expressly qualified in their entirety by the
cautionary statements above. Neither of usyear ended December 31, 2020. We undertake any obligationno duty to update any forward-looking statement to reflect circumstancesconform the statement to actual results or eventschanges in the Company’s expectations.
Although we believe that occur
after the dateexpectations reflected in the forward-looking statements are made.
85
APPENDIX A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
DATED AS OF MAY 2, 2006
TABLE OF CONTENTS
A-i
A-ii
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
iii
SUMMARY
This Amendedsummary highlights selected information appearing elsewhere in, or incorporated by reference into, this prospectus and Restated Agreementis therefore qualified in its entirety by the more detailed information appearing elsewhere in, or incorporated by reference into, this prospectus. This summary may not contain all of the information that may be important to you or that you should consider in deciding to exchange your Old Notes for New Notes. We urge you to read carefully this entire prospectus and Planthe other documents to which it refers to understand fully the terms of Mergerthe New Notes and the exchange offer. You should pay special attention to the sections entitled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.”
Isabella Bank Corporation
Isabella Bank Corporation is dated as of May
2, 2006 (the "Agreement"), by and between Farmers State Bank of Breckenridge, a Michigan chartered commercial bank ("Farmers"), The Farwell State Savings Bank,
a Michigan chartered commercial bank ("FSSB") and IBT Bancorp, Inc., a Michiganregistered financial services holding company ("IBT").
WHEREAS, FSSBthat was incorporated in September 1988 under Michigan law. The Company's wholly owned subsidiary, Isabella Bank, has 30 banking offices located throughout Clare, Gratiot, Isabella, Mecosta, Midland, Montcalm, and IBT,Saginaw counties. The area includes significant agricultural production, manufacturing, retail, gaming and tourism, and several colleges and universities.
We are a community bank with a focus on providing high quality, personalized service at a fair price. We offer a broad array of banking and wealth management services to businesses, institutions, individuals and their families. We compete with other commercial banks, savings and loan associations, mortgage brokers, finance companies, credit unions, retail brokerage firms, and other companies providing financial services.
Lending activities include loans for commercial and agricultural operations and real estate purposes, residential real estate loans, and consumer loans. We limit lending activities primarily to local markets and purchased loans from the parent corporationsecondary market are minimal. We do not make loans to fund leveraged buyouts, have no foreign corporate or government loans, and have limited holdings of Farmers,corporate debt securities. Our general lending philosophy is to limit concentrations to individuals and business segments. Deposit services offered include checking accounts, savings accounts, certificates of deposit, direct deposits, cash management services, mobile and internet banking, electronic bill pay services, and automated teller machines. We also offer full service investment management, trust and estate services.
As of March 31, 2021, we had total assets of $2.02 billion, total deposits of $1.64 billion and total shareholders’ equity of $218.3 million. The Company’s principal executive offices are located at 401 North Main Street, Mt. Pleasant, Michigan 48858-1649, and its telephone number is (989) 772-9471. The Company’s common stock is traded on the over-the-counter market. Our common stock is quoted on the OTCQX market tier of the OTC Markets Group Inc.’s electronic quotation system (www.otcmarkets.com) under the symbol “ISBA.”
Additional information about the Company and its subsidiaries may be found in the documents incorporated by reference into this prospectus. See “Where You Can Find More Information.”
Summary of the Exchange Offer
The following provides a summary of certain terms of the exchange offer. See “The Exchange Offer” appearing elsewhere in this prospectus for a more complete description of the exchange offer and “Description of the Notes” for a more complete description of the terms of the Old Notes and New Notes.
| Old Notes | $30,000,000 in aggregate principal amount of 3.25% Fixed-to-Floating Rate Subordinated Notes due 2031. | |||||||
| New Notes | Up to $30,000,000 in aggregate principal amount of 3.25% Fixed-to-Floating Rate Subordinated Notes due 2031 that have terms that are identical in all material respects to the terms of the Old Notes, except that: (1) the New Notes have been registered with the SEC under the Securities Act and, as a result, will not bear any legend restricting their transfer; (2) the New Notes bear a different CUSIP number from the Old Notes; (3) the New Notes are generally not subject to transfer restrictions; (4) holders of the New Notes are not entitled to registration rights under the registration rights agreement that we entered into with the initial purchasers of the Old Notes or otherwise; and (5) because the holders of the New Notes are not entitled to registration rights, holders of the New Notes will not have the right to additional interest under the circumstances described in the registration rights agreement relating to our fulfillment of our registration obligations. | |||||||
| Exchange Offer | We are offering to exchange the Old Notes for a like principal amount of New Notes. Subject to the terms of the exchange offer, following the expiration or termination of the exchange offer, we will exchange Old Notes that have been validly tendered and not validly withdrawn prior to such expiration or termination for an equal principal amount of New Notes. | |||||||
| Expiration Date | The exchange offer will expire at 5:00 p.m., Eastern Time, on [expiration date], unless extended. | |||||||
| Withdrawal Rights | Except as otherwise provided in this prospectus, you may validly withdraw your tender of Old Notes at any time prior to 5:00 p.m., Eastern Time, on the expiration date. For a withdrawal of tendered Old Notes to be effective, the exchange agent must receive, on or prior to 5:00 p.m., Eastern Time on the expiration date, a computer-generated notice of withdrawal, transmitted by the Depository Trust Company (“DTC”), on your behalf in accordance with the appropriate procedures of DTC’s Automated Tender Offer Program (“ATOP”). See “The Exchange Offer—Withdrawal of Tenders.” | |||||||
| Conditions to Exchange Offer | The exchange offer is subject to customary conditions, which we may waive. See “The Exchange Offer—Conditions.” | |||||||
1
| Procedures for Tendering Old Notes | Since the Old Notes were issued in book-entry form, and all of the Old Notes are currently represented by global certificates held for the account of DTC, as depositary, DTC or its nominee is treated as the registered holder of the Old Notes and will be the only entity that can tender your Old Notes for New Notes. To participate in the exchange offer, you must follow the procedures established by DTC for tendering Old Notes held in book-entry form. DTC’s ATOP procedures require that, prior to the expiration date of the exchange offer, (1) DTC receives (a) your instructions to exchange your Old Notes and (b) your agreement to be bound by the terms of the accompanying letter of transmittal, and (2) the exchange agent receives a computer-generated message known as an “agent’s message” that is transmitted through ATOP. Please note that by using the ATOP procedures to tender and exchange Old Notes, you will be bound by the terms of the accompanying letter of transmittal, and you will be deemed to have made the acknowledgments and representations it contains. See “The Exchange Offer—Eligibility; Transferability” and “The Exchange Offer—Representations.” | |||||||
| Material United States Federal Income Tax Considerations | The exchange of Old Notes for New Notes in the exchange offer generally should not constitute a taxable event for U.S. federal income tax purposes. See “Material United States Federal Income Tax Considerations.” You should consult your own tax advisor as to the tax consequences of exchanging your Old Notes for New Notes. | |||||||
| Registration Rights | Under the terms of the registration rights agreement that we entered into with the initial purchasers of the Old Notes at the time we issued the Old Notes, we agreed to register the New Notes and undertake the exchange offer. The exchange offer is intended to satisfy the rights of holders of Old Notes under that registration rights agreement. After the exchange offer is completed, we will have no further obligations, except under certain limited circumstances, to provide for any exchange or undertake any further registration with respect to the Old Notes. | |||||||
| Transferability | Based on existing interpretations of the Securities Act by the staff of the SEC set forth in several no-action letters issued to other parties, we believe that you may offer for resale, resell or otherwise transfer the New Notes without complying with the registration and prospectus delivery requirements of the Securities Act, provided that: • you are acquiring the New Notes in the ordinary course of business; • you do not have an arrangement or understanding with any person to participate in any distribution (within the meaning of the Securities Act) of the New Notes; • you are not an “affiliate” of ours within the meaning of Rule 405 under the Securities Act; • you are not a broker-dealer registered under the Exchange Act, and you are not engaged in, nor is any such person engaged in, and do not intend to engage in, any distribution (within the meaning of the Securities Act) of the New Notes; and • you are not acting on behalf of any person who could not truthfully make these statements. Our belief that transfers of New Notes would be permitted without complying with the registration and prospectus delivery requirements of the Securities Act under the conditions described above is based on interpretations by the staff of the SEC given to other, unrelated issuers in similar exchange offers. The staff of the SEC has not considered the exchange offer in the context of a no-action letter, and we cannot assure you that the staff of the SEC would make a similar interpretation with respect to the exchange offer. If our belief is not accurate and you transfer a New Note without delivering a prospectus meeting the requirements of the Securities Act or without an exemption from such requirements, you may incur liability under the Securities Act. We do not and will not assume, or indemnify you against, such liability. See “Risk Factors—Risks Related to the Exchange Offer.” | |||||||
| Any broker-dealer that holds Old Notes acquired for its own account as a result of market-making activities or other trading activities and that receives New Notes for its own account pursuant to the exchange offer may be a statutory underwriter and must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes. See “Plan of Distribution.” | ||||||||
2
| Consequences of Failing to Exchange Old Notes | Any Old Notes that are not exchanged in the exchange offer will continue to be governed by the indenture relating to the Old Notes and the terms of the Old Notes. Old Notes that are not exchanged will remain “restricted securities” within the meaning of Rule 144(a)(3) under the Securities Act and will be subject to the restrictions on transfer described in the Old Notes, and you will generally not be able to offer, sell, pledge or otherwise transfer the Old Notes, except to us or to any of our subsidiaries, under a registration statement that has been declared effective under the Securities Act or under an exemption from the requirements of the Securities Act. Upon the completion of the exchange offer, we will have no further obligations, except under limited circumstances, to provide for any exchange or undertake any further registration with respect to the Old Notes, and any accrual of additional interest on the Old Notes that are exchanged for New Notes in the exchange offer will cease. If you do not participate in the exchange offer, the liquidity of your Old Notes could be adversely affected. See “Risk Factors—Risks Related to the Exchange Offer” and “The Exchange Offer—Consequences of Failure to Exchange.” | |||||||
| Use of Proceeds | We will not receive any cash proceeds from the exchange of Old Notes for New Notes as a result of the exchange offer. Subject to certain exceptions, we will pay all expenses incident to the exchange offer. | |||||||
| Cancellation of Exchanged Old Notes | Old Notes that are surrendered in exchange for New Notes will be retired and cancelled and will not be reissued. Accordingly, the issuance of the New Notes under the exchange offer will not result in any increase in our outstanding indebtedness. | |||||||
| Exchange Agent | UMB Bank, N.A. is serving as the exchange agent for the exchange offer. See “The Exchange Offer—Exchange Agent” for the address, telephone number and email address of the exchange agent. | |||||||
Summary of the New Notes
The following provides a summary of certain terms of the New Notes. The New Notes have terms that are identical in all material respects to the terms of the Old Notes, except that: (1) the New Notes have been registered with the SEC under the Securities Act and, as a result, will not bear any legend restricting their transfer; (2) the New Notes bear a different CUSIP number from the Old Notes; (3) the New Notes are generally not subject to transfer restrictions; (4) holders of the New Notes are not entitled to registration rights under the registration rights agreement that we entered into with the initial purchasers of the Old Notes; and (5) because the holders of the New Notes are not entitled to registration rights, holders of the New Notes will not have the right to additional interest under the circumstances described in the registration rights agreement relating to our fulfillment of our registration obligations. The New Notes will evidence the same debt as the Old Notes and will be governed by the same indenture under which the Old Notes were issued. See “Description of the Notes” for a more complete description of the terms of the New Notes. References in this prospectus to the “notes” include both the Old Notes and the New Notes unless otherwise indicated or the context otherwise requires. Unless otherwise indicated or the context otherwise requires, as used in this summary, “we,” “our,” “us” and the “Company” refer only to Isabella Bank Corporation and not to any of its subsidiaries.
| Issuer | Isabella Bank Corporation. | |||||||
| Securities | 3.25% Fixed-to-Floating Rate Subordinated Notes due 2031. | |||||||
| Aggregate Principal Amount | Up to $30,000,000. | |||||||
| Stated Maturity | June 15, 2031, unless previously redeemed. | |||||||
| Form and Denomination | The New Notes will be issued only in registered form without coupons and in minimum denominations of $100,000 and any integral multiple of $1,000 in excess thereof. Unless otherwise required for institutional accredited investors, the New Notes will be evidenced by a global note deposited with the trustee for the New Notes, as custodian for DTC, and transfers of beneficial interests will be facilitated only through records maintained by DTC and its participants. | |||||||
| Interest Rate and Interest Rate Payment Dates During Fixed Interest Period | From and including June 2, 2021 to but excluding June 15, 2026 or any earlier redemption date, the New Notes will bear interest at a fixed annual rate equal to 3.25%, payable semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2021. | |||||||
3
| Interest Rate and Interest Rate Payment Dates During Floating Interest Period | From and including June 15, 2026 to but excluding the stated maturity or any earlier redemption date, the New Notes will bear interest at an annual floating rate, reset quarterly, equal to the Floating Interest Rate (as defined below) determined on the Floating Interest Determination Date (as defined below) for the applicable Floating Interest Period (as defined below) (provided that if the Floating Interest Rate for the applicable Floating Interest Period is less than zero, the Floating Interest Rate for such Floating Interest Period will be deemed to be zero), plus 256 basis points, payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year. See “Description of the Notes—Determination of Floating Interest Rate” for the definition of the Floating Interest Rate, which will initially be Three-Month Term SOFR, as well as a description of the method of its determination, and the alternative methods for determining the applicable Floating Interest Rate for the notes under certain circumstances. | |||||||
| Day Count Convention | During the Fixed Interest Period: 30-day month/360-day year. | |||||||
| During the Floating Interest Period: 360-day year and the number of actual days elapsed. | ||||||||
| Record Dates | We will make each interest payment to the holders of record of the New Notes at the close of business on the fifteenth calendar day prior to the applicable interest payment date, without regard to whether such day is a business day. | |||||||
| Subordination; Ranking | The New Notes will be our general unsecured, subordinated obligations and: | |||||||
• will rank junior in right of payment and upon liquidation to our existing and future “senior indebtedness” (as defined below); • will rank equally in right of payment and upon liquidation to our existing and future unsecured indebtedness, the terms of which provide that such indebtedness ranks equally with promissory notes, bonds, debentures and other evidences of indebtedness of types that include the New Notes; • will rank senior in right of payment and upon liquidation to our existing and future indebtedness, the terms of which provide that such indebtedness ranks junior to promissory notes, bonds, debentures and other evidences of indebtedness of types that include the New Notes; and • will be effectively subordinated to the existing and future indebtedness, deposits and other liabilities of the Bank and our other subsidiaries, including without limitation the Bank’s deposit liabilities and claims of other creditors of the Bank. | ||||||||
As of March 31, 2021, the Company and its subsidiaries had, in the aggregate, outstanding debt and deposits of $1.8 billion. In addition, as of March 31, 2021, the Company had no indebtedness that would rank senior to the New Notes (other than the Old Notes), and no indebtedness that would rank subordinate to the New Notes. See “Description of the Notes—Subordination.” | ||||||||
| Optional Redemption | We may, at our option, redeem the New Notes (1) in whole or in part on June 15, 2026 and at any time thereafter, and (2) in whole but not in part, at any time upon the occurrence of a Tier 2 Capital Event, Tax Event or an Investment Company Event (each as defined in “Description of the Notes—Redemption”). Any redemption of the New Notes will be at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the date of redemption. Any redemption of the New Notes will be subject to any required regulatory approvals, including from the Federal Reserve, to the extent such approval is then required. The New Notes will not be entitled to the benefit of any sinking fund. | |||||||
| No Limitations on Indebtedness | The indenture governing the New Notes and the terms of the New Notes do not contain any covenants or restrictions on the incurrence of indebtedness or other obligations by us or by a subsidiary of ours, including the Bank. | |||||||
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| Limited Indenture Covenants | The indenture governing the New Notes contains no financial covenants requiring us to achieve or maintain any minimum financial results relating to our financial position or results of operations or meet or exceed any financial ratios as a general matter or to incur additional indebtedness or obligations or to maintain any reserves. Moreover, neither the indenture nor the New Notes contain any covenants limiting our right to grant liens on our assets to secure our indebtedness or other obligations that are senior in right of payment to the New Notes, repurchase our stock or other securities, including any of the New Notes, or pay dividends or make other distributions to our shareholders (except, subject to certain limited exceptions, in the case of dividends or other distributions; redemptions, purchases, acquisitions or liquidation payments with respect to our capital stock; and repayments, repurchases or redemptions of any debt securities that rank equal with or junior to the notes, in each case, upon our failure to make any required payment of principal or interest on the notes, when the same becomes due and payable). | |||||||
| Listing; No Public Market | The New Notes are a new issue of securities with no established trading market and we do not expect any public market to develop in the future for the New Notes. The Old Notes are not listed on any national securities exchange or quotation system and we do not intend to apply for listing of the New Notes on any national securities exchange or quotation system. | |||||||
| Risk Factors | See “Risk Factors” beginning on page 5 of this prospectus, as well as the sections entitled “Risk Factors” in our annual and quarterly reports filed with the SEC, and other information included in or incorporated by reference into this prospectus for a discussion of factors you should consider carefully before deciding to participate in the exchange offer. | |||||||
| Trustee | UMB Bank, N.A., or its successor if replaced in accordance with the provisions of the indenture. | |||||||
| Governing Law | The indenture and the New Notes are governed by and will be construed in accordance with the laws of the State of New York. | |||||||
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RISK FACTORS
In addition to the other information contained in or incorporated by reference into this prospectus, including the matters addressed under “Cautionary Note Regarding Forward-Looking Statements” and the matters discussed under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2020 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, and any updates to those risk factors set forth in our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, all of which have been filed with the SEC and are incorporated by reference herein, you should carefully consider the following risks in deciding whether to participate in the exchange offer. See “Where You Can Find More Information.” If any of the risks contained in or incorporated by reference into this prospectus develop into actual events, our business, financial condition, liquidity, results of operations and prospects could be materially and adversely affected, the value of the New Notes could decline, our ability to repay the New Notes may be impaired and you may lose all or part of your investment.
Risks Related to our Business
For a discussion of certain risks applicable to our business and operations, see the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, as supplemented by our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021.
Risks Related to the Exchange Offer
If you do not tender your Old Notes, you will continue to hold unregistered Old Notes, and your ability to transfer Old Notes will be adversely affected.
If you do not exchange your Old Notes for New Notes in the exchange offer, you will continue to be subject to the restrictions on transfer of your Old Notes described in the legend on the global certificates for the Old Notes. The restrictions on transfer of the Old Notes arose because we issued the Old Notes in a private placement not subject to registration under the Securities Act or applicable state securities laws. In general, you may only offer or sell the Old Notes if they are registered under the Securities Act and applicable state securities laws, or you offer and sell under an Agreementexemption from these requirements. We do not plan to register any sale of the Old Notes under the Securities Act. Additionally, the tender of Old Notes under the exchange offer by other holders will reduce the principal amount of the Old Notes outstanding, which may have an adverse effect upon, and Planincrease the volatility of, Merger datedthe market price of any Old Notes that remain outstanding, due to a reduction in liquidity. See “The Exchange Offer—Consequences of Failure to Exchange.”
You may not receive New Notes in the exchange offer if you do not properly follow the exchange offer procedures.
We will issue New Notes in exchange for your Old Notes only if you validly tender and do not validly withdraw your Old Notes before expiration of the exchange offer. Although we intend to request the exchange agent to notify holders of defects or irregularities relating to tenders and withdrawals of Old Notes, neither we, the exchange agent nor any other person will have any duty or incur any liability for failure to give such notification. If you are the beneficial holder of Old Notes that are held through your broker, dealer, commercial bank, trust company or other nominee, and you wish to tender such Old Notes in the exchange offer, you should promptly contact the person through whom your Old Notes are held and instruct that person to tender your Old Notes on your behalf in accordance with the procedures described in this prospectus and the accompanying letter of transmittal. Old Notes that are not tendered or that are tendered but not accepted for exchange will, following consummation of the exchange offer, continue to be subject to the existing transfer restrictions under the Securities Act, and upon consummation of the exchange offer, certain registration and other rights under the registration rights agreement that we entered into with the initial purchasers of the Old Notes will terminate. See “The Exchange Offer—Procedures for Tendering Old Notes” and “The Exchange Offer—Consequences of Failure to Exchange.”
Some holders who exchange their Old Notes may be deemed to be underwriters, and these holders will be required to comply with additional requirements under the Securities Act.
Based on interpretations of the Securities Act by the staff of the SEC contained in certain no-action letters issued to other parties, we believe that you, or any other person receiving New Notes, may offer for resale, resell or otherwise transfer the New Notes without complying with the registration and prospectus delivery requirements of the Securities Act. Our belief that transfers of New Notes would be permitted without registration or prospectus delivery under the conditions described above is based on interpretations by the staff of the SEC given to other, unrelated issuers in similar exchange offers. The staff of the SEC has not considered the exchange offer in the context of a no-action letter, and we cannot assure you that the staff of the SEC would make a similar interpretation with respect to the exchange offer. Additionally, in some instances described in this prospectus under “Plan of Distribution,” certain holders of New Notes will remain obligated to comply with the registration and prospectus delivery requirements of the Securities Act to resell the New Notes. If any such holder transfers any New Notes without delivering a prospectus meeting the requirements of the Securities Act or without an applicable exemption from registration under the Securities Act, such holder may incur liability under the Securities Act. We do not and will not assume, or indemnify any such holder or other person against, such liability.
Risks Related to the Notes
The notes are unsecured and subordinated to our existing and future senior indebtedness.
Although the New Notes will rank on par with the Old Notes, the notes will be unsecured, subordinated obligations of the Company, and consequently, will rank junior in right of payment to all of our secured and unsecured “senior indebtedness” now existing or that we incur in the future, as described under “Description of the Notes—Subordination.” As a result, upon any payment or distribution of assets to creditors in the case of liquidation, dissolution, winding up, reorganization, assignment for the benefit of creditors or any bankruptcy, insolvency or similar proceeding, holders of senior indebtedness will be entitled to have the senior indebtedness paid in full before the holders of the notes receiving any payment of principal of, or interest on, the notes.
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As of March 31, 2021, the Company's subsidiaries had, in the aggregate, outstanding indebtedness, total deposits and other liabilities of $1.8 billion, all of which rank structurally senior to the notes. The notes do not limit the amount of additional indebtedness or senior indebtedness that we or any of our subsidiaries, including the Bank, may incur. Accordingly, in the future, we and our subsidiaries may incur other indebtedness, which may be substantial in amount, including senior indebtedness, indebtedness ranking on par with the notes and indebtedness ranking senior to the notes, as applicable. Any additional indebtedness and liabilities that we and our subsidiaries incur may adversely affect our ability to pay our obligations on the notes.
As a consequence of the subordination of the notes to our existing and future senior indebtedness, an investor in the notes may lose all or some of its investment upon our liquidation, dissolution, winding up, reorganization, assignment for the benefit of creditors or any bankruptcy, insolvency or similar proceeding. In such an event, our assets would be available to pay the principal of, and any accrued and unpaid interest on, the notes only after all of our senior indebtedness had been paid in full. In such an event, any of our other general, unsecured obligations that do not constitute senior indebtedness, depending upon their respective preferences, will share ratably in our remaining assets after we have paid all of our senior indebtedness in full.
The notes are obligations only of Isabella Bank Corporation and not obligations of the Bank or any of our other subsidiaries and will be effectively subordinated to the existing and future indebtedness, deposits and other liabilities of the Bank and our other subsidiaries.
The notes are obligations solely of Isabella Bank Corporation and are not obligations of the Bank or any of our other subsidiaries. The Bank and our other subsidiaries are separate and distinct legal entities from Isabella Bank Corporation. The rights of Isabella Bank Corporation and the rights of its creditors, including the holders of the notes, to participate in any distribution of the assets of the Bank or any other subsidiary (either as a shareholder or as a creditor) upon an insolvency, bankruptcy, liquidation, dissolution, winding up or similar proceeding of the Bank or such other subsidiary (and the consequent right of the holders of the notes to participate in those assets after repayment of our existing or future senior indebtedness), will be subject to the claims of the creditors of the Bank, including depositors of the Bank or such other subsidiary. Accordingly, the notes are effectively subordinated to all of the existing and future indebtedness, deposits and other liabilities of the Bank and our other subsidiaries, to the extent that those liabilities, including deposit liabilities, equal or exceed their respective assets. The notes do not limit the amount of indebtedness or other liabilities that the Bank or any of our other subsidiaries may incur, all of which would rank structurally senior to the notes. Any additional indebtedness and liabilities that our subsidiaries, including the Bank, incur may adversely affect our ability to pay our obligations on the notes.
The notes include limited covenants and do not restrict our ability to incur additional debt.
The notes do not contain any financial covenants that would require us to achieve or maintain any minimum financial results relating to our financial condition, liquidity or results of operations, to meet or exceed certain financial ratios as a general matter or to incur additional indebtedness or obligations or to maintain any reserves. Moreover, except under certain limited circumstances, the notes do not contain any covenants prohibiting or limiting us or our subsidiaries from granting liens on assets to secure indebtedness or other obligations, repurchasing our stock or other securities, including any of the notes, or paying dividends or making other distributions to our shareholders. The notes do not contain any provision that would provide protection to the holders of the notes against a material decline in our credit quality.
In addition, the notes do not limit the amount of additional indebtedness that we, the Bank or any of our other subsidiaries may incur or the amount of other obligations that we or the Bank may incur ranking senior or equal to the indebtedness evidenced by the notes. The issuance or guarantee of any such securities or the incurrence of any such other liabilities may reduce the amount, if any, recoverable by holders of the notes in the event of our insolvency, bankruptcy, liquidation, dissolution, winding up or similar proceeding and may limit our ability to meet our obligations under the notes.
To service our debt, we will require a significant amount of cash. Our ability to generate cash depends on many factors.
Our ability to make payments on or to refinance our indebtedness, including our ability to meet our obligations under the notes, and to fund our operations depends on our ability to generate cash and may depend on our access to the capital markets. These will depend on our financial and operating performance, which are subject to general economic, financial, competitive, legislative, regulatory and capital market conditions that are beyond our control. If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be unable to obtain new financing or to fund our obligations to our customers and business partners, implement our business plans, sell assets, seek additional capital or restructure or refinance our indebtedness, including the notes. As a result, we may be unable to meet our obligations under the notes. In the absence of sufficient capital resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet debt service and other obligations. We may not be able to consummate those dispositions of assets or obtain the proceeds that we could realize from them, and these proceeds may not be adequate to meet any debt service obligations then due, including obligations under the notes. Additionally, our ability to service our debt is dependent, in part, on the receipt of dividends, fees and interest paid to us by the Bank. The Bank is a separate legal entity that is legally distinct from us and has no obligation to make funds available to us for payments of principal of or interest on the notes. While we expect payments from the Bank to continue in the future, there are regulatory limits on the amount of dividends and distributions that the Bank can pay to us without regulatory approval. Accordingly, we can provide no assurance that we will receive dividends or other distributions from the Bank in an amount sufficient to pay the principal of or interest on the notes. See “Business – Isabella Bank” in our Annual Report on Form 10-K for the year ended December 22, 2005;
WHEREAS,31, 2020 for additional information.
Our indebtedness could adversely affect our financial results and prevent us from fulfilling our obligations under the notes.
In addition to the currently outstanding indebtedness of the Company and its subsidiaries, we may be able to borrow substantial additional indebtedness in the future. If new indebtedness is incurred in addition to our current debt levels, the related risks that we now face could increase. Our indebtedness, including the indebtedness we may incur in the future, could have important consequences for the holders of the notes, including:
| • | limiting our ability to satisfy our obligations with respect to the notes; | ||||||||||
| • | increasing our vulnerability to general adverse economic conditions; | ||||||||||
| • | limiting our ability to obtain additional financing to fund future working capital, capital expenditures and other general corporate requirements; | ||||||||||
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| • | requiring a substantial portion of our cash flows from operations for the payment of principal of and interest on our indebtedness and thereby reducing our ability to use our cash flows to fund working capital, capital expenditures and general corporate requirements; | ||||||||||
| • | limiting our flexibility in planning for, or reacting to, changes in our business and the industry; and | ||||||||||
| • | putting us at a disadvantage compared to competitors with less indebtedness. | ||||||||||
The notes are subject to limited rights of acceleration.
Payment of principal of the notes may be accelerated only in the case of certain bankruptcy-related events with respect to us. As a result, holders of the notes have no right to accelerate the payment of principal of the notes if we fail to pay principal of or interest on the notes or if we fail to perform any of our other obligations under the notes or in the indenture. See “Description of the Notes—Events of Default; Right of Acceleration; Failure to Pay Principal or Interest.”
The amount of interest payable on the notes will vary beginning on June 15, 2026, and interest after that date may be less than the initial fixed annual interest rate of 3.25% prior to that date.
The interest rate on the notes will vary beginning on June 15, 2026, at a floating rate equal to the Floating Interest Rate (as defined below in “Description of the Notes—Determination of Floating Interest Rate”), as determined quarterly on the determination date for the applicable interest period, plus 256 basis points. The interest rate that is determined on the relevant determination date will apply to the entire interest period following such determination date, even if the Floating Interest Rate changes during that interest period. The floating rate may be volatile over time and could be substantially less than the fixed interest rate we will pay before June 15, 2026. As a result, holders of the notes could experience a decline in their receipt of interest and the market price of the notes could decline. We have no control over a number of factors that may affect market interest rates, including geopolitical conditions and economic, financial, political, regulatory or other events that affect the markets generally and that are important in determining the existence, magnitude and longevity of market interest rate risk.
The notes may be redeemed at our option under certain circumstances, which limits the ability of holders of the notes to accrue interest over the full stated term of the notes.
We may, at our option, redeem the notes (1) in whole or in part on June 15, 2026 and at any time thereafter, and (2) in whole, but not in part, at any time upon the occurrence of a Tier 2 Capital Event, a Tax Event or an Investment Company Event (each of such terms as defined below in “Description of the Notes—Redemption”), in each case, at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the date of redemption. Any redemption of the notes will be subject to any required regulatory approvals, including from the Federal Reserve, to the extent such approval is then required. There can be no assurance that the Federal Reserve or any other regulatory agency, as applicable, will approve any redemption of the notes. Furthermore, we are under no obligation to redeem any notes when they first become redeemable or on any date thereafter. If we redeem the notes for any reason, you will not have the opportunity to continue to accrue and be paid interest to the stated maturity date, and you may not be able to reinvest the redemption proceeds you receive in a similar security or in securities bearing similar interest rates or yields.
There is not expected to be an active trading market for the New Notes.
The New Notes are a new issue of securities with no established trading market. We do not intend to apply for listing of the New Notes on any national securities exchange or quotation system. A liquid or active trading market for the New Notes is not expected to develop. If an active trading market for the New Notes does not develop, the market price and liquidity of the New Notes may be adversely affected. If the New Notes are traded, they may trade at a discount from their initial offering price, depending on prevailing interest rates, the market for similar securities, our performance and other factors. Accordingly, we cannot assure you that you will be able to sell any New Notes or the prices, if any, at which holders may be able to sell their New Notes.
SOFR has a very limited history, and the future performance of SOFR cannot be predicted based on historical performance.
Beginning on June 15, 2026, the notes will bear interest at an annual floating interest rate, reset quarterly, equal to the Floating Interest Rate determined for the applicable interest period plus 256 basis points. See “Description of the Notes” for additional information. The Floating Interest Rate is expected to be Three-Month Term SOFR (as defined below in “Description of the Notes—Determination of Floating Interest Rate”), which rate is subject to numerous uncertainties.
SOFR, or the “secured overnight financing rate,” is a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities. SOFR was first published by the Federal Reserve Bank of New York (the “FRBNY”) in April 2018. The FRBNY commenced publication of SOFR as an alternate reference rate for the London Interbank Offered Rate (“LIBOR”), following the announcement by the United Kingdom Financial Conduct Authority of its intention to stop persuading or compelling banks to submit rates for the calculation of LIBOR after 2021, which has since been extended to June 30, 2023.
SOFR has a very limited history, and the future performance of SOFR cannot be predicted based on its limited historical performance. The level of SOFR during the Floating Interest Period (as defined below) of the notes may bear little or no relation to historical actual or indicative data. Prior observed patterns, if any, in the behavior of market variables and their relation to SOFR, such as correlations, may change in the future. While some pre-publication historical data have been released by the FRBNY, such analysis inherently involves assumptions, estimates and approximations, and hypothetical or historical performance data are not indicative of, and have no bearing on, the potential performance of SOFR. The future performance of SOFR is therefore impossible to predict, and no future performance of SOFR may be inferred from any of the historical actual or indicative data. Changes in the levels of SOFR will affect the interest rate of the notes during the Floating Interest Period and accordingly will affect the return on the notes and the market price of the notes, but it is impossible to predict whether such levels will rise or fall.
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SOFR may be more volatile than other benchmark or market rates.
Since the initial publication of SOFR, daily changes in the rate have, on occasion, been more volatile than daily changes in other benchmark or market rates, such as three-month U.S. dollar LIBOR, during corresponding periods, and SOFR may bear little or no relation to the historical actual or indicative data. In addition, although changes in Term SOFR and Compounded SOFR (each of such terms as defined below in “Description of the Notes— Determination of Floating Interest Rate”) generally are not expected to be as volatile as changes in daily levels of SOFR, the return on and value of the notes may fluctuate more than floating rate securities that are linked to less volatile rates.
Any failure of SOFR to gain market acceptance could adversely affect the notes.
SOFR may fail to gain market acceptance. SOFR was developed for use in certain U.S. dollar derivatives and other financial contracts as an alternative to U.S. dollar LIBOR in part because it could be considered a good representation of general funding conditions in the overnight U.S. Treasury repurchase agreement market. However, as a rate based on transactions secured by U.S. Treasury securities, it does not measure bank-specific credit risk and, as a result, is less likely to correlate with the unsecured short-term funding costs of banks. This could mean that market participants may not consider SOFR a suitable substitute or successor for all of the purposes for which LIBOR historically has been used (including, without limitation, as a representation of the unsecured short-term funding costs of banks), which may, in turn, lessen market acceptance of SOFR. Any failure of SOFR to gain market acceptance could adversely affect the return on the notes, the liquidity in any trading market for the notes and the price at which you could sell the notes.
SOFR may be modified or discontinued.
SOFR is a relatively new rate, and the FRBNY, or any successor as administrator of SOFR, may make methodological or other changes that could change the value of SOFR, including changes related to the methodology by which SOFR is calculated, eligibility criteria applicable to the transactions used to calculate SOFR or timing related to the publication of SOFR. If the manner in which SOFR is calculated is changed, that change may result in a reduction of the amount of interest payable on the notes, which may adversely affect the market price of the notes. The administrator of SOFR may withdraw, modify, amend, suspend or discontinue the calculation or dissemination of SOFR in its sole discretion and without notice and has no obligation to consider the interests of holders of the notes in calculating, withdrawing, modifying, amending, suspending or discontinuing SOFR.
The calculation agent will make certain determinations with respect to the notes.
The calculation agent for the notes, which may be us or another entity that we appoint, will make certain determinations with respect to the notes during the Floating Interest Period, including with respect to the determination of the interest rate during this period. These determinations may adversely affect the payout to investors. Moreover, certain determinations may require the exercise of discretion and the making of subjective judgments, which adversely affect the payout to you on the notes.
Changes in our credit ratings may adversely affect your investment in the notes.
Any credit ratings on the notes are assessments by rating agencies of our ability to pay our debts when due. These ratings are not recommendations to purchase, hold or sell the notes, inasmuch as the ratings do not comment as to market price or suitability for a particular investor, are limited in scope and do not address all material risks relating to an investment in the notes. The ratings reflect only the view of each rating agency at the time the rating is issued based on information furnished to the ratings agencies by us and information obtained by the ratings agencies from other sources. There can be no assurance that any such credit ratings will remain in effect for any given period of time or that such ratings will not be lowered, suspended or withdrawn entirely by the rating agencies, if, in each rating agency’s judgment, circumstances so warrant.
Any ratings of our long-term debt are based on a number of factors, including our financial strength as well as factors not entirely within our control, including conditions affecting the financial services industry generally. There can be no assurance that we will not receive adverse changes in our ratings in the future, which could adversely affect the cost and other terms upon which we are able to obtain funding and the way in which we are perceived in the capital markets. Actual or anticipated changes or downgrades in our credit ratings, including any announcement that our ratings are under review for a downgrade, could affect the market value and liquidity of the notes and increase our borrowing costs.
An investment in the notes is not an FDIC insured deposit.
The notes are not savings accounts, deposits or other obligations of the Bank or any of our other subsidiaries and are not insured or guaranteed by the FDIC or any other governmental agency or instrumentality. Your investment will be subject to investment risk, and you may experience loss with respect to your investment.
USE OF PROCEEDS
The exchange offer is intended to satisfy our obligations under the registration rights agreement that we entered into with the initial purchasers of the Old Notes. We will not receive any cash proceeds from the exchange offer. In consideration for issuing the New Notes as contemplated by this prospectus, we will receive a like principal amount in exchange of the Old Notes. Old Notes that are surrendered in exchange for New Notes will be retired and cancelled and will not be reissued. Accordingly, the issuance of the New Notes under the exchange offer will not result in any increase in our outstanding indebtedness. Subject to certain exceptions, we will pay all expenses incident to the exchange offer.
9
THE EXCHANGE OFFER
General
In connection with the issuance of the Old Notes on June 2, 2021, we entered into a registration rights agreement with the initial purchasers of the Old Notes, which provide for the exchange offer we are making pursuant to Section 2.7this prospectus. The exchange offer will permit eligible holders of Old Notes to exchange their Old Notes for New Notes that are identical in all material respects with the Old Notes, except that:
| • | the New Notes have been registered with the SEC under the Securities Act and, as a result, will not bear any legend restricting their transfer; | ||||||||||
| • | the New Notes bear a different CUSIP number from the Old Notes; | ||||||||||
| • | the New Notes are generally not subject to transfer restrictions; | ||||||||||
| • | holders of the New Notes are not entitled to registration rights under the registration rights agreement or otherwise; and | ||||||||||
| • | because the New Notes are not entitled to registration rights, holders of the New Notes will not have the right to additional interest under the circumstances described in the registration rights agreement relating to our fulfillment of our registration obligations. | ||||||||||
The New Notes will evidence the same debt as the Old Notes. Holders of the AgreementNew Notes will continue to be entitled to the benefits of the indenture. Accordingly, the New Notes and Planthe Old Notes will be treated as a single series of Merger dated
December 22, 2005,subordinated debt securities under the parties now desireindenture. Old Notes that are not accepted for exchange in the exchange offer will remain outstanding and interest on those Old Notes will continue to modify certainaccrue at the applicable interest rate and be subject to the terms of the indenture.
The exchange offer does not depend on any minimum aggregate principal amount of Old Notes being tendered for exchange.
We intend to conduct the exchange offer in accordance with the provisions of the registration rights agreement, the applicable requirements of the Exchange Act and the related rules and regulations of the SEC applicable to transactions of this type.
We will be deemed to have accepted validly tendered Old Notes if and when we have given oral or written notice to the exchange agent of our acceptance of such Old Notes. Subject to the terms and conditions of the Agreementexchange offer, delivery of New Notes will be made by the exchange agent after receipt of our notice of acceptance. The exchange agent will act as more particularlyagent for the holders of Old Notes tendering their Old Notes for the purpose of receiving New Notes from us in exchange for such tendered and accepted Old Notes. The exchange offer is subject to the conditions set forth below under “The Exchange Offer—Conditions.” As a result of these conditions (which may be waived by us, in whole or in part, in our absolute discretion), we may not be required to exchange any of the Old Notes. In such case, or if any tendered Old Notes are not accepted for exchange because of an invalid tender, the occurrence of other events described in this prospectus or otherwise, we will return or cause to be returned the Old Notes not exchanged to the tendering holder after the expiration or termination of the exchange offer.
If a holder of Old Notes validly tenders Old Notes in the exchange offer, the tendering holder will not be required to pay us brokerage commissions or fees. In addition, subject to the instructions in the letter of transmittal and certain limited exceptions described in this prospectus and the letter of transmittal, the tendering holder will not be required to pay transfer taxes for the exchange of Old Notes. Subject to certain exceptions described in this prospectus, we will pay all of the expenses in connection with the exchange offer, other than certain applicable taxes. See “The Exchange Offer—Fees and Expenses.”
Holders of outstanding Old Notes do not have any appraisal, dissenters’ or similar rights in connection with the exchange offer. Outstanding Old Notes that are not tendered, or are tendered but not accepted, in connection with the exchange offer will remain outstanding.
Neither we nor the exchange agent are making any recommendation to the holders of the outstanding Old Notes as to whether to tender all or any portion of their outstanding Old Notes in the exchange offer. In addition, neither we nor the exchange agent have authorized anyone to make any such recommendation. Holders of the outstanding Old Notes must make their own decision whether to tender pursuant to the exchange offer, and, if so, the aggregate principal amount of outstanding Old Notes to tender after reading this prospectus and the letter of transmittal and consulting with their advisors, if any, based on their financial position and individual requirements.
Registration Rights Agreement
We issued the Old Notes in a private placement not subject to registration under the Securities Act or applicable state securities laws. In connection with the issuance of the Old Notes, we entered into a registration rights agreement with the initial purchasers of the Old Notes, and we are making the exchange offer to comply with our contractual obligations under the registration rights agreement.
The following provides a summary of certain terms of the registration rights agreement. This summary is qualified in its entirety by reference to the registration rights agreement, which is incorporated by reference as an exhibit to the registration statement of which this prospectus is a part.
Under the terms of the registration rights agreement, we agreed to register the New Notes and undertake the exchange offer. The exchange offer is intended to satisfy the rights of holders of Old Notes under the registration rights agreement. After the exchange offer is completed, we will have no further obligations, except under the limited circumstances described below, to provide for any exchange or undertake any further registration with respect to the Old Notes.
Under the terms of the registration rights agreement, we agreed, among other things, to use commercially reasonable efforts to:
file a registration statement with the SEC on or prior to August 1, 2021 with respect to a registered offer to exchange the Registrable Securities (as defined below) for the New Notes;
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| • | cause that registration statement to be declared effective by the SEC no later than September 30, 2021; | ||||||||||
| • | cause that registration statement to remain effective until the closing of the exchange offer; | ||||||||||
| • | commence the exchange offer promptly after the effectiveness of the registration statement and keep the exchange offer open for not less than 20 business days, or longer if required by applicable law, after the date on which notice of the exchange offer is given to the holders of the Old Notes; and | ||||||||||
| • | consummate the exchange offer no later than 45 days after the effective date of that registration statement. | ||||||||||
“Registrable Securities” means the Old Notes, but any Old Notes cease to be Registrable Securities when: (1) a registration statement with respect to the Old Notes has been declared effective under the Securities Act and the Old Notes have been disposed of pursuant to such registration statement, (2) the Old Notes have been sold to the public pursuant to Rule 144 (or any similar provision then in force, but not Rule 144A) under the Securities Act or are eligible to be resold pursuant to Rule 144 without regard to the public information requirements thereunder, (3) the Old Notes have ceased to be outstanding, (4) the Old Notes were eligible for exchange under an exchange offer registration statement that was declared effective under the Securities Act but were not exchanged at the election of the holder during the period the exchange offer was open, or (5) the Old Notes have been exchanged for New Notes, which have been registered pursuant to an exchange offer registration statement upon consummation of the exchange offer (unless the New Notes referred to in clause (5) are held by any broker-dealer who holds Registrable Securities acquired for its own account as a result of market-making activities or other trading activities or otherwise are not freely tradable by such participating broker-dealers without any limitations or restrictions under the Securities Act, in which case, such New Notes will be deemed to be Registrable Securities until they are sold to a purchaser in whose hands such New Notes are freely tradeable without any limitations or restrictions under the Securities Act).
We also agreed to issue and exchange New Notes for all Old Notes validly tendered and not validly withdrawn before the expiration of the exchange offer. We are sending this prospectus, together with a letter of transmittal, to all the holders of the Old Notes known to us. For each Old Note validly tendered to us in the exchange offer and not validly withdrawn, the holder will receive a New Note having a principal amount equal to the principal amount of the tendered Old Note. Old Notes may be exchanged, and New Notes will be issued, only in minimum denominations of $100,000 and any integral multiple of $1,000 in excess thereof.
We further agreed that, under certain circumstances, we would file a shelf registration statement with the SEC that would allow resales by certain holders of the Old Notes in lieu of such holders participating in the exchange offer.
Eligibility; Transferability
We are making the exchange offer in reliance on interpretations of the Securities Act by the staff of the SEC set forth in several no-action letters issued to other parties. We have not sought or received our own no-action letter from the staff of the SEC with respect to the exchange offer and the related transactions, and there can be no assurance that the staff of the SEC will make a determination in the case of the exchange offer and such transactions that is similar to its determinations in the above mentioned no-action letters. However, based on these existing SEC staff interpretations, we believe that you, or any other person receiving New Notes, may offer for resale, resell or otherwise transfer the New Notes without complying with the registration and prospectus delivery requirements of the Securities Act, provided that:
| • | you are, or the person receiving the New Notes is, acquiring the New Notes in the ordinary course of business; | ||||||||||
| • | you do not, nor does any such person, have an arrangement or understanding with any person to participate in any distribution (within the meaning of the Securities Act) of the New Notes; | ||||||||||
| • | you are not, nor is any such person, an “affiliate” of ours within the meaning of Rule 405 under the Securities Act; | ||||||||||
| • | you are not, nor is any such person, a broker-dealer registered under the Exchange Act, and you are not engaged in nor is any such person engaged in, and do not intend to engage in, any distribution (within the meaning of the Securities Act) of the New Notes; and | ||||||||||
| • | you are not acting on behalf of any person who could not truthfully make these statements. | ||||||||||
To participate in the exchange offer, you must represent as a holder of Old Notes that each of these statements is true.
In addition, in order for broker-dealers registered under the Exchange Act to participate in the exchange offer, each such broker-dealer must also: (1) represent that it is participating in the exchange offer for its own account and is exchanging Old Notes acquired as a result of market-making activities or other trading activities; (2) confirm that it has not entered into any arrangement or understanding with us or any of our affiliates to distribute the New Notes; and (3) acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of the New Notes. The letter of transmittal to be delivered in connection with a tender of the Old Notes states that by so acknowledging and by delivering a prospectus, such broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resale of the New Notes received in exchange for the Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. We have agreed that, for a period of 180 days following the expiration date of the exchange offer, we will amend or supplement this prospectus to expedite or facilitate the disposition of any New Notes by such broker-dealers.
Any holder of Old Notes (1) who is our affiliate, (2) who does not acquire the New Notes in the ordinary course of business, (3) who participates in or intends to participate in the exchange offer for the purpose of, or with a view to, distributing the New Notes or (4) who is a broker-dealer who purchased the Old Notes directly from us:
| • | will not be able to rely on the interpretation of the staff of the SEC set forth in the no-action letters described above; | ||||||||||
| • | will not be able to tender Old Notes in the exchange offer; and | ||||||||||
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must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of the New Notes, unless the sale or transfer is made pursuant to an exemption from those requirements.
The exchange offer is not being made to, nor will we accept tenders for exchange from, holders of Old Notes in any jurisdiction in which the exchange offer or the acceptance of the exchange offer would not be in compliance with the securities or blue sky laws of such jurisdiction.
Expiration of the Exchange Offer; Extensions; Amendments
The exchange offer will expire at 5:00 p.m., Eastern Time on [expiration date], 2021, or at such later date or time to which we may extend the exchange offer. We refer to such date, as it may be extended, as the “expiration date.” To extend the exchange offer, we will notify the exchange agent and each registered holder of the Old Notes of any extension before 9:00 a.m., Eastern Time on the next business day after the previously scheduled expiration date. During any such extension, all Old Notes previously tendered will remain subject to the exchange offer and may be accepted for exchange by us.
We reserve the right to extend the exchange offer, delay accepting any tendered Old Notes or, if any of the conditions described below under the heading “The Exchange Offer—Conditions” have not been satisfied, to terminate the exchange offer. We also reserve the right to amend the terms of the exchange offer in any manner. We will give oral or written notice of any delay, extension or termination of, or amendment to, the exchange offer to the exchange agent. We will keep the exchange offer open for not less than 20 business days, or longer if required by applicable law, after the date on which notice of the exchange offer is given to holders of the Old Notes.
If we amend the exchange offer in a manner that we consider material, we will disclose that amendment by means of a prospectus supplement, and we will extend the exchange offer so that at least five business days remain in the exchange offer following notice of the material change.
If we determine to make a public announcement of any delay, extension, amendment or termination of the exchange offer, we will do so by making a timely release through an appropriate news agency.
If we terminate or withdraw the exchange offer, we will promptly return any Old Notes deposited under the exchange offer as required by Rule 14e-1(c) under the Exchange Act.
Conditions
The exchange offer is not conditioned on any minimum aggregate principal amount of Old Notes being tendered or accepted for exchange. Notwithstanding any other term of the exchange offer, we will not be required to accept for exchange, or issue any New Notes for, any Old Notes and may terminate or amend the exchange offer before the acceptance of the Old Notes, if:
| • | such Old Notes are tendered to us other than in accordance with the terms and conditions of the exchange offer; | ||||||||||
| • | we determine that the exchange offer, or the making of any exchange by a holder, violates any applicable law or any applicable interpretation by the staff of the SEC; or | ||||||||||
| • | any action or proceeding is instituted or threatened in any court or by or before any governmental agency with respect to the exchange offer that, in our judgment, would reasonably be expected to impair our ability to proceed/ with the exchange offer. | ||||||||||
The conditions listed above are for our sole benefit and may be asserted by us regardless of the circumstances giving rise to any of these conditions. We reserve the absolute right to waive these conditions in whole or in part at any time and from time to time in our sole discretion prior to the expiration date, subject to applicable law. Our failure at any time to exercise any of the above rights will not be considered a waiver of that right, and that right will be considered an ongoing right which we may assert at any time and from time to time.
In addition, we will not accept for exchange any Old Notes tendered, and no New Notes will be issued in exchange for those Old Notes, if at any time any stop order is threatened or issued by the SEC with respect to the registration statement for the exchange offer and the New Notes or the qualification of the indenture under the Trust Indenture Act of 1939, as amended, or the Trust Indenture Act. In any such event, we must use our commercially reasonable efforts to obtain the withdrawal of any such stop order as soon as practicable and provide prompt notice to each holder of the withdrawal of any such stop order.
Further, we will not be obligated to accept for exchange the Old Notes of any holder that has not made to us the representations described under “The Exchange Offer—Eligibility; Transferability” and “Plan of Distribution.”
Procedures for Tendering Old Notes
To participate in the exchange offer, you must validly tender your Old Notes to the exchange agent as described below. It is your responsibility to validly tender your Old Notes.
If you have any questions or need help in exchanging your Old Notes, please contact the exchange agent, whose address, phone number and email address are set forth below in “The Exchange Offer—Exchange Agent.”
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All of the Old Notes were issued in book-entry form, and all of the Old Notes are currently represented by global certificates held for the account of DTC. Accordingly, DTC, as depositary, or its nominee, is treated as the registered holder of the Old Notes and will be the only entity that can tender your Old Notes for New Notes. Therefore, to validly tender Old Notes and to obtain New Notes, you must comply with the procedures described below to initiate the exchange agent’s book-entry transfer of the Old Notes into the exchange agent’s account at DTC using DTC’s ATOP procedures. To comply with those procedures, you must cause:
| • | a properly transmitted “agent’s message” (as defined below) to be received by the exchange agent through ATOP prior to 5:00 p.m., Eastern Time, on the expiration date; and | ||||||||||
| • | a timely confirmation of a book-entry tender of the Old Notes into the exchange agent’s account at DTC through ATOP pursuant to the procedure for book-entry transfer described below to be received by the exchange agent prior to 5:00 p.m., Eastern Time on the expiration date. | ||||||||||
Following receipt of a properly transmitted “agent’s message,” the exchange agent will establish an ATOP account with DTC for purposes of the exchange offer promptly after the commencement of the exchange offer. Any financial institution that is a DTC participant, including your broker or bank, may make a book-entry tender of outstanding Old Notes by causing the book-entry transfer of such Old Notes into the exchange agent’s ATOP account in accordance with DTC’s procedures for such transfers. Subject to the terms of the exchange offer, following the expiration or termination of the exchange offer, the exchange agent will exchange Old Notes validly tendered and not validly withdrawn prior to such expiration or termination for an equal principal amount of New Notes by credit to the holder’s account at DTC. If the entire principal amount of all Old Notes held by a holder is not tendered, then Old Notes for the principal amount of the Old Notes not tendered and accepted will be returned by credit to the holder’s account at DTC following the expiration date.
The term “agent’s message” means a message transmitted by a DTC participant to DTC, and thereafter transmitted by DTC to the exchange agent, which states that DTC has received an express acknowledgement from the participant stating that such participant and beneficial holder agree to be bound by the terms of the exchange offer, including the letter of transmittal, and that such agreement may be enforced against such participant.
Each agent’s message must include the following information:
| • | name of the beneficial owner tendering such Old Notes; | ||||||||||
| • | account number of the beneficial owner tendering such Old Notes; | ||||||||||
| • | principal amount of Old Notes tendered by such beneficial owner; and | ||||||||||
| • | a confirmation that the beneficial owner of the Old Notes has agreed to be bound by the terms of the accompanying letter of transmittal. | ||||||||||
The delivery of the Old Notes through DTC, and any transmission of an agent’s message through ATOP, is at the election and risk of the person tendering Old Notes. If we do not accept any tendered Old Notes for exchange or if Old Notes are submitted for a greater principal amount than the holder desires to exchange, the unaccepted or non-exchanged Old Notes will be returned, without expense, to their tendering holder by crediting the holder’s account at DTC, following the expiration or termination of the exchange offer.
The tender by a holder of Old Notes that is not validly withdrawn prior to the expiration date of the exchange offer and that is accepted by us will constitute a binding agreement between us and the holder in accordance with the terms and subject to the conditions set forth in this prospectus and in the accompanying letter of transmittal. By using the ATOP procedures to exchange Old Notes, you will not be required to deliver a letter of transmittal to the exchange agent. However, by using the ATOP procedures to tender and exchange Old Notes, you will be bound by the terms of the letter of transmittal, and you will be deemed to have made the acknowledgements and the representations and warranties it contains, just as if you had signed it. Each tendering holder, by delivery of an agent’s message, waives any right to receive any notice of the acceptance of such tender.
There is no procedure for guaranteed late delivery of the Old Notes in connection with the exchange offer.
We will determine all questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of tendered Old Notes in our sole discretion, and our determination will be final and binding on all parties. We reserve the absolute right, in our sole and absolute discretion, to reject any and all Old Notes not validly tendered or any Old Notes whose acceptance by us would, in the opinion of our counsel, be unlawful. We also reserve the absolute right, in our sole discretion subject to applicable law, to waive or amend any of the conditions of the exchange offer or to waive any defects, irregularities or conditions of tender as to any particular Old Notes, either before or after the expiration date. Our interpretation of the terms and conditions of the exchange offer (including the instructions in the accompanying letter of transmittal) will be final and binding on all parties. No alternative, conditional or contingent tenders will be accepted. Unless waived, any defects or irregularities in connection with tenders of Old Notes must be cured within a time period we will reasonably determine. We are not required to waive defects and are not required to notify you of defects in your tender. Although we intend to request the exchange agent to notify holders of defects or irregularities relating to tenders and withdrawals of Old Notes, neither we, the exchange agent nor any other person will have any duty or incur any liability for failure to give such notification. Tenders of Old Notes will not be considered to have been made until such defects or irregularities have been cured or waived. If we waive any terms or conditions with respect to a noteholder, we will extend the same waiver to all noteholders with respect to that term or condition. Any Old Notes received by the exchange agent that are not validly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the exchange agent, without expense, to the tendering holders following the expiration date. Each tendering holder, by delivery of an agent’s message, waives any right to receive any notice of the acceptance of such tender.
Representations
By tendering Old Notes, each holder is deemed to have acknowledged to us all of the representations contained in the letter of transmittal, including that:
any New Notes that you receive will be acquired in the ordinary course of business;
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you are not participating in the exchange offer with a view to distribute any New Notes nor do you have any arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of the New Notes in violation of the provisions of the Securities Act;
| • | you are not an “affiliate” (within the meaning of Rule 405 under the Securities Act); and | ||||||||||
| • | if you are a broker-dealer that will receive New Notes for your own account in exchange for Old Notes, you acquired those New Notes as a result of market-making or other trading activities, and you will satisfy any applicable prospectus delivery requirements in connection with any resale of such New Notes. | ||||||||||
Withdrawal of Tenders
Except as otherwise provided in this amendedprospectus, you may validly withdraw your tender of Old Notes at any time prior to 5:00 p.m., Eastern Time, on the expiration date. For a withdrawal of tendered Old Notes to be effective, the exchange agent must receive, prior to 5:00 p.m., Eastern Time on the expiration date, a computer-generated notice of withdrawal, transmitted by DTC on your behalf in accordance with the appropriate procedures of DTC’s ATOP system prior to 5:00 p.m., Eastern Time, on the expiration date. Any such notice of withdrawal must:
| • | specify the name of the tendering holder of Old Notes to be withdrawn; | ||||||||||
| • | specify the principal amount of the Old Notes delivered for exchange; | ||||||||||
| • | specify the name and number of the account at DTC to be credited with the withdrawn Old Notes; | ||||||||||
| • | include a statement that such holder is withdrawing its election to have such Old Notes exchanged; and | ||||||||||
| • | otherwise comply with the procedures of DTC. | ||||||||||
We will determine all questions as to the validity, form and restated
Agreement, includingeligibility (including time of receipt) of such withdrawal notices in our sole discretion, and our determination will be final and binding on all parties. Any Old Notes validly withdrawn will be considered not to have been validly tendered for purposes of the exchange offer, and no New Notes will be issued in exchange for such Old Notes. Any Old Notes that have been tendered but that are not limitedaccepted for exchange or that are withdrawn will be returned to substituting Farmersthe holder, without expense to such holder, after withdrawal, rejection of tender or termination of the exchange offer. Validly withdrawn Old Notes may be re-tendered by following one of the procedures described above under “—Procedures for IBTTendering Old Notes” at any time prior to the expiration date of the exchange offer.
Exchange Agent
UMB Bank, N.A., the trustee under the indenture, has been appointed the exchange agent for the exchange offer. Letters of transmittal and all correspondence in connection with the exchange offer should be sent or delivered by each holder of Old Notes, or a beneficial owner’s commercial bank, broker, dealer, trust company or other nominee, to the exchange agent as follows:
By Hand, Overnight Delivery or Mail (Registered or Certified Mail Recommended):
UMB Bank, N.A.
Attn: Corporate Trust Officer/Mauri J. Cowen
5555 San Felipe St., Suite 870
Houston, Texas 77056
For additional information, you may contact the exchange agent by calling (713) 300-0587 or emailing Mauri.Cowen@umb.com.
We will pay the exchange agent reasonable and customary fees for its services (including attorneys’ fees) and will reimburse it for its reasonable out-of-pocket expenses in connection with the exchange offer.
Fees and Expenses
We will bear the expenses of soliciting tenders of the Old Notes and issuance of the New Notes. The principal solicitation is being made through ATOP. However, we may make additional solicitations by email, telephone or in person by our officers and employees and those of our affiliates.
We have not retained any dealer-manager in connection with the exchange offer and will not make any payments to broker-dealers or others soliciting acceptances of the exchange offer. As indicated above, we will, however, pay the exchange agent reasonable and customary fees for its services and reimburse it for its related reasonable out-of-pocket expenses. We will also pay any other cash expenses that we incur in connection with the exchange offer.
Except as described below, we will pay all transfer taxes, if any, applicable to the exchange of Old Notes under the exchange offer. The tendering holder will be required to pay any transfer taxes, whether imposed on the registered holder or any other person, if:
| • | New Notes and/or substitute Old Notes not exchanged are to be delivered to, or registered or issued in the name of, any person other than the registered holder of the Old Notes so exchanged; | ||||||||||
| • | tendered Old Notes are registered in the name of any person other than the person signing the letter of transmittal; or | ||||||||||
| • | a transfer tax is imposed for any reason other than the exchange of Old Notes under the exchange offer. | ||||||||||
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If satisfactory evidence of payment of transfer taxes is not submitted with the letter of transmittal, the amount of any transfer taxes will be billed to the tendering holder.
Accounting Treatment
We will record the New Notes at the same carrying value as the acquiring entity;
WHEREAS,Old Notes reflected in our accounting records on the Boarddate of Directorsthe exchange. Accordingly, we will not recognize any gain or loss for accounting purposes upon completion of the exchange offer.
Consequences of Failure to Exchange
Old Notes that are not exchanged will remain “restricted securities” within the meaning of Rule 144(a)(3) under the Securities Act and will be subject to the restrictions on transfer described in the Old Notes.
Accordingly, such Old Notes may not be offered, sold, pledged or otherwise transferred except:
| • | to us or to any of our subsidiaries; | ||||||||||
| • | under a registration statement that has been declared effective under the Securities Act; | ||||||||||
| • | for so long as the Old Notes are eligible for resale pursuant to Rule 144A under the Securities Act, to a person the holder of the Old Notes and any person acting on its behalf reasonably believes is a “qualified institutional buyer” as defined in Rule 144A, that purchases for its own account or for the account of another qualified institutional buyer, in each case, to whom notice is given that the transfer is being made in reliance on Rule 144A; or | ||||||||||
| • | under any other available exemption from the registration requirements of the Securities Act (in which case we and the trustee will have the right to require the delivery of an opinion of counsel (at the holder’s sole cost), certifications and/or other information satisfactory to us and the trustee); | ||||||||||
in each case, subject to compliance with any applicable foreign, state or other securities laws.
Upon completion of the exchange offer, due to the restrictions on transfer of the Old Notes and the absence of such restrictions applicable to the New Notes, it is likely that the market, if any, for Old Notes will be relatively less liquid than the market for New Notes. Consequently, holders of Old Notes who do not participate in the exchange offer could experience significant diminution in the value of their Old Notes, compared to the value of the New Notes. The holders of Old Notes not tendered will have no further registration rights, except that, under limited circumstances specified in the registration rights agreement, we may be required to file a shelf registration statement covering resales of Old Notes.
Additional Information Regarding the Registration Rights Agreement
As noted above, we are effecting the exchange offer to comply with our contractual obligations under the registration rights agreement. The registration rights agreement requires us to cause an exchange offer registration statement to be filed with the SEC under the Securities Act, use our commercially reasonable efforts to cause the registration statement to become effective, and satisfy certain other obligations, within certain time periods.
If:
| • | the registration statement is not filed with the SEC on or prior to August 1, 2021; | ||||||||||
| • | the registration statement is not declared effective by the SEC on or prior to September 30, 2021; or | ||||||||||
| • | the exchange offer is not completed on or prior to the 45th day following the effective date of the registration statement; | ||||||||||
the interest rate on the Old Notes will be increased by 0.25% per annum immediately following the date of such registration default and will increase by an additional 0.25% per annum immediately following each 90-day period during which additional interest accrues, but in no event will such increase exceed 0.50% per annum. If at any time more than one registration default has occurred and is continuing, the increase in interest rate will apply as if there occurred a single registration default that begins on the date that the earliest such registration default occurred and ends on such date that there is no registration default. Following the cure of all such registration defaults, the accrual of additional interest will cease and the interest rate will be reduced to the original interest rate borne by the Old Notes.
Our obligation to register the New Notes will terminate upon completion of the exchange offer. However, under certain limited circumstances specified in the registration rights agreement, we may be required to file a shelf registration statement covering resales of the Old Notes.
DESCRIPTION OF THE NOTES
On June 2, 2021, we issued $30.0 million in aggregate principal amount of our 3.25% Fixed-to-Floating Rate Subordinated Notes due 2031, which we refer to in this prospectus as the “Old Notes.” The Old Notes were issued in a private placement transaction to certain qualified institutional buyers and accredited investors, and as such, were not registered under the Securities Act. The Old Notes were issued under an indenture, dated June 2, 2021, between Isabella Bank Corporation, as issuer, and UMB Bank, N.A., as trustee, which we refer to as the “indenture.” The term “notes” refers collectively to the Old Notes and the New Notes.
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The New Notes will be issued under the indenture and will evidence the same debt as the Old Notes. The terms of the New Notes are identical in all material respects to those of the Old Notes, except that:
the New Notes have been registered with the SEC under the Securities Act and, as a result, will not bear any legend restricting their transfer;
| • | the New Notes bear a different CUSIP number from the Old Notes; | ||||||||||
| • | the New Notes are generally not subject to transfer restrictions; | ||||||||||
| • | holders of the New Notes are not entitled to registration rights under the registration rights agreement that we entered into with the initial purchasers of the Old Notes or otherwise; and | ||||||||||
| • | because holders of New Notes are not entitled to registration rights, holders of the New Notes will not have the right to additional interest under the circumstances described in the registration rights agreement relating to our fulfillment of our registration obligations. | ||||||||||
The New Notes will be issued only in registered form without coupons and in minimum denominations of $100,000 and any integral multiple of $1,000 in excess thereof. The New Notes will be evidenced by a global note deposited with the trustee for the New Notes, as custodian for DTC, and transfers of beneficial interests will be facilitated only through records maintained by DTC and its participants.
The terms of the New Notes include those stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act.
The following provides a summary of certain terms of the indenture and the New Notes. This summary is qualified in its entirety by reference to the complete indenture, which is incorporated by reference as an exhibit to the registration statement of which this prospectus is a part, and to the form of notes, which is included as an exhibit to the registration statement of which this prospectus is a part. We urge you to read the indenture and the form of notes because those documents, not this summary description, define your rights as holders of the New Notes. Whenever we refer to the defined terms of the indenture in this prospectus without defining them, the terms have the meanings given to them in the indenture. You must look to the indenture for the most complete description of the information summarized in this prospectus.
Unless otherwise indicated or the context otherwise requires, as used in this section, “we,” “our,” “us” and the “Company” refer only to Isabella Bank Corporation and not to any of its subsidiaries.
General
The exchange offer for the New Notes will be for up to $30.0 million in aggregate principal amount of the Old Notes. The New Notes, together with any Old Notes that remain outstanding after the exchange offer, will be treated as a single class for all purposes of the indenture, including, without limitation, waivers, consents, amendments, redemptions and offers to purchase.
Principal, Maturity and Interest
The New Notes have materially identical interest terms as the Old Notes, except with respect to additional interest that may be earned on the Old Notes under circumstances relating to our registration obligations under the registration rights agreement. Interest on the notes will accrue from and including June 2, 2021. The notes will mature and become payable, unless earlier redeemed, on June 15, 2031.
From and including June 2, 2021 to but excluding June 15, 2026 or any earlier redemption date, the New Notes will bear interest at a fixed annual rate equal to 3.25%, payable semi-annually in arrears on June 15 and December 15 of each year, beginning December 15, 2021. During this period, interest will be computed on the basis of Farmersa 360-day year consisting of twelve 30-day months. Interest on each New Note will accrue from the last interest payment date on which interest was paid on the Old Note surrendered in exchange thereof, or, if no interest has been paid on such Old Note, from the date of its original issuance. Interest on the Old Notes accepted for exchange will cease to accrue upon the issuance of the New Notes.
From and FSSB (i) hasincluding June 15, 2026 to but excluding the stated maturity or any earlier redemption date, the New Notes will bear interest at an annual floating rate, reset quarterly, equal to the Floating Interest Rate (as defined below) determined on the Floating Interest Determination Date (as defined below) of the applicable Floating Interest Period (as defined below) (provided that if the Floating Interest Rate for the applicable Floating Interest Period is less than zero, the Floating Interest Rate for such Floating Interest Period will be deemed to be zero), plus 256 basis points, payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year. During this Agreementperiod, interest will be computed on the basis of a 360-day year and the actual number of days elapsed.
We will make each interest payment to the holders of record of the notes at the close of business combinationon the fifteenth calendar day prior to the applicable interest payment date, without regard to whether such day is a business day. Principal of and related
transactions contemplated hereby areinterest on the notes will be payable, and the notes will be exchangeable and transferable at the office or agency that we have designated and maintain for such purposes, which, initially, will be the corporate trust office of the trustee located at UMB Bank, N.A., 5555 San Felipe St., Suite 870, Houston, Texas, 77056, Attention: Corporate Trust Officer/Mauri Cowen; except that payment of interest may be made at our option by mailing a check to the address of the person entitled thereto as shown on the security register or by transfer to an account maintained by the payee with a bank located in the best interestsUnited States.
Determination of their respective
companiesFloating Interest Rate
For the purpose of calculating the interest rate on the notes during the Floating Interest Period, the term “Floating Interest Rate” means initially, Three-Month Term SOFR (as defined below), subject to certain exceptions. In particular, if the Calculation Agent (as defined below) determines prior to the relevant Floating Interest Determination Date (as defined below) that a Benchmark Transition Event and shareholdersits related Benchmark Replacement Date (each of such terms as defined below) have occurred with respect to Three-Month Term SOFR prior to the Reference Time (as defined below) regarding any determination of the Benchmark (as defined below) on any date, then we will promptly provide notice of such determination to the holders of the notes, and (ii)the
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following terms will thereafter apply to all determinations, calculations and quotations made or obtained for the purposes of calculating the Floating Interest Rate payable on the notes during a relevant Floating Interest Period:
| • | the Benchmark Replacement will replace the then-current Benchmark (each of such terms as defined below) for all purposes relating to the notes during the relevant Floating Interest Period regarding such determination on such date and all determinations on all subsequent dates; | |||||||||||||||||||
| • | in connection with the implementation of a Benchmark Replacement, we will have, from time to time, the right to make Benchmark Replacement Conforming Changes (as defined below); | |||||||||||||||||||
| • | any determination, decision or election that may be made by us or by the Calculation Agent pursuant to the benchmark transition provisions set forth in the indenture, including any determination with respect to a tenor, rate or adjustment or of the occurrence or non-occurrence of an event, circumstance or date, and any decision to take or refrain from taking any action or any selection: | |||||||||||||||||||
| • | will be conclusive and binding absent manifest error; | |||||||||||||||||||
| • | if made by us, will be made in our sole discretion; | |||||||||||||||||||
| • | if made by the Calculation Agent, will be made after consultation with us, and the Calculation Agent will not make any such determination, decision or election to which we reasonably object; and | |||||||||||||||||||
| • | notwithstanding anything to the contrary in the notes or the applicable subordinated note purchase agreement with the initial purchasers of the Old Notes, will become effective without consent from the relevant holder of such note or any other party; and | |||||||||||||||||||
| • | for the avoidance of doubt, after a Benchmark Transition Event and its related Benchmark Replacement Date have occurred, interest payable on the notes for the Floating Interest Period will be an annual rate equal to the sum of the applicable Benchmark Replacement and the interest rate spread described in the indenture. | |||||||||||||||||||
However, if the Calculation Agent determines that a Benchmark Transition Event and its related Benchmark Replacement Date have occurred with respect to Three-Month Term SOFR, but for any reason the Benchmark Replacement has not been determined that this Agreementas of the relevant Floating Interest Determination Date, the Floating Interest Rate for the applicable Floating Interest Period will be equal to the Floating Interest Rate on the last Floating Interest Determination Date for the notes, as determined by the Calculation Agent.
In addition, if the then-current Benchmark is Three-Month Term SOFR and any of the foregoing provisions concerning the calculation of the interest rate and the transactions contemplated herebypayment of interest during the Floating Interest Period are consistentinconsistent with any of the Three-Month Term SOFR Conventions (as defined below) determined by us, then the relevant Three-Month Term SOFR Conventions will apply.
The following definitions apply with respect to the notes, and the foregoing discussion of the determination of the Floating Interest Rate:
| 1. | “Benchmark” means, initially, Three-Month Term SOFR; provided that if a Benchmark Transition Event and its related Benchmark Replacement Date have occurred with respect to Three-Month Term SOFR or the then-current Benchmark, then “Benchmark” means the applicable Benchmark Replacement. | |||||||||||||
| 2. | “Benchmark Replacement” means the Interpolated Benchmark (as defined below) with respect to the then-current Benchmark; provided that if (a) the Calculation Agent cannot determine the Interpolated Benchmark as of the Benchmark Replacement Date or (b) the then-current Benchmark is Three-Month Term SOFR and a Benchmark Transition Event and its related Benchmark Replacement Date have occurred with respect to Three-Month Term SOFR (in which event no Interpolated Benchmark with respect to Three-Month Term SOFR will be determined), then “Benchmark Replacement” means the first alternative set forth in the order below that can be determined by the Calculation Agent, as of the Benchmark Replacement Date: | |||||||||||||
| a. | the sum of (i) Compounded SOFR (as defined below) and (ii) the Benchmark Replacement Adjustment; | |||||||||||||
| b. | the sum of: (i) the alternate rate of interest that has been selected or recommended by the Relevant Governmental Body (as defined below) as the replacement for the then-current Benchmark for the applicable Corresponding Tenor (as defined below) and (ii) the Benchmark Replacement Adjustment; | |||||||||||||
| c. | the sum of: (i) the ISDA Fallback Rate (as defined below) and (ii) the Benchmark Replacement Adjustment; or | |||||||||||||
| d. | the sum of: (i) the alternate rate of interest that has been selected by us as the replacement for the then-current Benchmark for the applicable Corresponding Tenor giving due consideration to any industry-accepted rate of interest as a replacement for the then-current Benchmark for U.S. dollar denominated floating rate notes at such time and (ii) the Benchmark Replacement Adjustment. | |||||||||||||
| 3. | “Benchmark Replacement Adjustment” means the first alternative set forth in the order below that can be determined by the Calculation Agent, as of the Benchmark Replacement Date: | |||||||||||||
| a. | the spread adjustment, or method for calculating or determining such spread adjustment (which may be a positive or negative value or zero) that has been selected or recommended by the Relevant Governmental Body for the applicable Unadjusted Benchmark Replacement (as defined below); | |||||||||||||
| b. | if the applicable Unadjusted Benchmark Replacement is equivalent to the ISDA Fallback Rate, then the ISDA Fallback Adjustment; or | |||||||||||||
| c. | the spread adjustment (which may be a positive or negative value or zero) that has been selected by us giving due consideration to any industry-accepted spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of the then-current Benchmark with the applicable Unadjusted Benchmark Replacement for U.S. dollar denominated floating rate notes at such time. | |||||||||||||
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| 4. | “Benchmark Replacement Conforming Changes” means, with respect to any Benchmark Replacement, any technical, administrative or operational changes (including changes to the definition of “Floating Interest Period,” timing and frequency of determining rates with respect to each Floating Interest Period and making payments of interest, rounding of amounts or tenors and other administrative matters) that we decide may be appropriate to reflect the adoption of such Benchmark Replacement in a manner substantially consistent with market practice (or if we decide that adoption of any portion of such market practice is not administratively feasible or if we determine that no market practice for use of the Benchmark Replacement exists, in such other manner as we determine is reasonably necessary). | |||||||||||||
| 5. | “Benchmark Replacement Date” means the earliest to occur of the following events with respect to the then-current Benchmark: | |||||||||||||
| a. | in the case of clause (a) of the definition of “Benchmark Transition Event,” the relevant Reference Time (as defined below) in respect of any determination; | |||||||||||||
| b. | in the case of clause (b) or (c) of the definition of “Benchmark Transition Event,” the later of (i) the date of the public statement or publication of information referenced therein and (ii) the date on which the administrator of the Benchmark permanently or indefinitely ceases to provide the Benchmark; or | |||||||||||||
| c. | in the case of clause (d) of the definition of “Benchmark Transition Event,” the date of such public statement or publication of information referenced therein. | |||||||||||||
For the avoidance of doubt, if the event giving rise to the Benchmark Replacement Date occurs on the same day as, but earlier than, the Reference Time in furtherancerespect of their
respective business strategies, and (iii) has approved this Agreement at
meetings of eachany determination, the Benchmark Replacement Date will be deemed to have occurred prior to the Reference Time for purposes of such Boardsdetermination.
| 6. | “Benchmark Transition Event” means the occurrence of one or more of the following events with respect to the then-current Benchmark: | |||||||||||||
| a. | if the Benchmark is Three-Month Term SOFR, (i) the Relevant Governmental Body has not selected or recommended a forward-looking term rate for a tenor of three months based on SOFR (as defined below), (ii) the development of a forward-looking term rate for a tenor of three months based on SOFR that has been recommended or selected by the Relevant Governmental Body is not complete or (iii) we determine that the use of a forward-looking rate for a tenor of three months based on SOFR is not administratively feasible; | |||||||||||||
| b. | a public statement or publication of information by or on behalf of the administrator of the Benchmark announcing that such administrator has ceased or will cease to provide the Benchmark, permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide the Benchmark; | |||||||||||||
| c. | a public statement or publication of information by the regulatory supervisor for the administrator of the Benchmark, the central bank for the currency of the Benchmark, an insolvency official with jurisdiction over the administrator for the Benchmark, a resolution authority with jurisdiction over the administrator for the Benchmark or a court or an entity with similar insolvency or resolution authority over the administrator for the Benchmark, which states that the administrator of the Benchmark has ceased or will cease to provide the Benchmark permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide the Benchmark; or | |||||||||||||
| d. | a public statement or publication of information by the regulatory supervisor for the administrator of the Benchmark announcing that the Benchmark is no longer representative. | |||||||||||||
| 7. | “Calculation Agent” means such bank or other entity (which may be us or an affiliate of ours but will not be the trustee without the trustee’s express written consent) as may be appointed by us to act as Calculation Agent for the notes during the Floating Interest Period. | |||||||||||||
| 8. | “Compounded SOFR” means the compounded average of SOFRs for the applicable Corresponding Tenor (as defined below), with the rate, or methodology for this rate, and conventions for this rate being established by us in accordance with: | |||||||||||||
| a. | the rate, or methodology for this rate, and conventions for this rate selected or recommended by the Relevant Governmental Body for determining compounded SOFR; provided that: | |||||||||||||
| b. | if, and to the extent that, we or our designee determine that Compounded SOFR cannot be determined in accordance with clause (a) above, then the rate, or methodology for this rate, and conventions for this rate that have been selected by us or our designee giving due consideration to any industry-accepted market practice for U.S. dollar denominated floating rate notes at such time. | |||||||||||||
For the avoidance of Directors;
WHEREAS,doubt, the calculation of Compounded SOFR will exclude the Benchmark Replacement Adjustment.
| 9. | “Corresponding Tenor” with respect to a Benchmark Replacement means a tenor (including overnight) having approximately the same length (disregarding business day adjustment) as the applicable tenor for the then-current Benchmark. | |||||||
| 10. | “Floating Interest Determination Date” means the date upon which the Floating Interest Rate is determined by the Calculation Agent pursuant to the Three-Month Term SOFR Conventions. | |||||||
| 11. | “Floating Interest Period” means each three-month period of each year, beginning June 15, 2026, to but excluding the Stated Maturity or any earlier redemption date. | |||||||
| 12. | “FRBNY” means the Federal Reserve Bank of New York. | |||||||
| 13. | “FRBNY’s Website” means the website of the FRBNY at http://www.newyorkfed.org, or any successor source. | |||||||
| 14. | “Interpolated Benchmark” with respect to the Benchmark means the rate determined for the Corresponding Tenor by interpolating on a linear basis between: (a) the Benchmark for the longest period (for which the Benchmark is available) that is shorter than the Corresponding Tenor and (b) the Benchmark for the shortest period (for which the Benchmark is available) that is longer than the Corresponding Tenor. | |||||||
| 15. | “ISDA” means the International Swaps and Derivatives Association, Inc. or any successor thereto. | |||||||
| 16. | “ISDA Definitions” means the 2006 ISDA Definitions published by the ISDA or any successor thereto, as amended or supplemented from time to time, or any successor definitional booklet for interest rate derivatives published from time to time. | |||||||
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| 17. | “ISDA Fallback Adjustment” means the spread adjustment (which may be a positive or negative value or zero) that would apply for derivatives transactions referencing the ISDA Definitions to be determined upon the occurrence of an index cessation event with respect to the Benchmark for the applicable tenor. | |||||||
| 18. | “ISDA Fallback Rate” means the rate that would apply for derivatives transactions referencing the ISDA Definitions to be effective upon the occurrence of an index cessation date with respect to the Benchmark for the applicable tenor excluding the applicable ISDA Fallback Adjustment. | |||||||
| 19. | “Reference Time,” with respect to any determination of a Benchmark, means (a) if the Benchmark is Three-Month Term SOFR, the time determined by the Calculation Agent after giving effect to the Three-Month Term SOFR Conventions, and (b) if the Benchmark is not Three-Month Term SOFR, the time determined by the Calculation Agent after giving effect to the Benchmark Replacement Conforming Changes. | |||||||
| 20. | “Relevant Governmental Body” means the Federal Reserve and/or the FRBNY, or a committee officially endorsed or convened by the Federal Reserve and/or the FRBNY or any successor thereto. | |||||||
| 21. | “SOFR” means the daily Secured Overnight Financing Rate provided by the FRBNY, as the administrator of the benchmark (or a successor administrator), on the FRBNY’s Website. | |||||||
| 22. | “Stated Maturity” means June 15, 2031. | |||||||
| 23. | “Term SOFR” means the forward-looking term rate for the Corresponding Tenor based on SOFR that has been selected or recommended by the Relevant Governmental Body. | |||||||
| 24. | “Term SOFR Administrator” means any entity designated by the Relevant Governmental Body as the administrator of Term SOFR (or a successor administrator). | |||||||
| 25. | “Three-Month Term SOFR” means the rate for Term SOFR for a tenor of three months that is published by the Term SOFR Administrator at the Reference Time for any Floating Interest Period, as determined by the Calculation Agent after giving effect to the Three-Month Term SOFR Conventions. | |||||||
| 26. | “Three-Month Term SOFR Conventions” means any determination, decision or election with respect to any technical, administrative or operational matter (including with respect to the manner and timing of the publication of Three-Month Term SOFR or changes to the definition of “Floating Interest Period,” timing and frequency of determining Three-Month Term SOFR with respect to each Floating Interest Period and making payments of interest, rounding of amounts or tenors and other administrative matters) that we decide may be appropriate to reflect the use of Three-Month Term SOFR as the Benchmark in a manner substantially consistent with market practice (or if we decide that adoption of any portion of such market practice is not administratively feasible or if we determine that no market practice for the use of Three-Month Term SOFR exists, in such other manner as we determine is reasonably necessary). | |||||||
| 27. | “Unadjusted Benchmark Replacement” means the Benchmark Replacement excluding the Benchmark Replacement Adjustment. | |||||||
Subordination
Our obligation to make any payment on account of the principal of, or interest on, the notes will be subordinate and junior in right of payment to the prior payment in full of all of our senior indebtedness. As of March 31, 2021, the Company's subsidiaries had outstanding indebtedness, total deposits and other liabilities of $1.8 billion, all of which rank structurally senior to the notes. As of March 31, 2021, the Company had no additional indebtedness that would rank senior to the notes. The notes and the indenture do not contain any limitation on the amount of senior indebtedness that we may incur in the future.
The term “senior indebtedness” means the principal of, and premium, if any, and interest, on or substantially similar payments we make in respect of the following categories of debt, whether that debt was outstanding on the date of execution of the indenture or thereafter incurred, created or assumed:
| • | all of our indebtedness and obligations of, or guaranteed or assumed by us for borrowed money, whether or not evidenced by notes, debentures, bonds, securities or other similar instruments, and including, but not limited to all obligations to the Company’s general and secured creditors; | ||||||||||
| • | any deferred obligations of the Company for the payment of the purchase price of property or assets acquired other than in the ordinary course of business; | ||||||||||
| • | all obligations, contingent or otherwise, of the Company in respect of any letters of credit, bankers’ acceptances, security purchase facilities and similar direct credit substitutes; | ||||||||||
| • | any capital lease obligations of the Company; | ||||||||||
| • | all obligations of the Company in respect of interest rate swap, cap or other agreements, interest rate future or option contracts, currency swap agreements, currency future or option contracts, commodity contracts and other similar arrangements or derivative products; | ||||||||||
| • | all obligations that are similar to those described in the bullets above of other persons, for the payment of which the Company is responsible or liable as obligor, guarantor or otherwise arising from an off-balance sheet guarantee, or which are secured by a lien on any property or asset of the Company; and | ||||||||||
| • | all amendments, renewals, extensions, modifications and refundings of such indebtedness and obligations described in the bullets above. | ||||||||||
| However, the term “senior indebtedness” excludes: | |||||||||||
| • | the notes; | ||||||||||
| • | any obligation that by its terms expressly is junior to, or ranks equally in right of payment with, the notes; and | ||||||||||
| • | any indebtedness between the Company and any of our subsidiaries or affiliates. | ||||||||||
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In accordance with the subordination provisions of the indenture and the notes, we are permitted to make payments of accrued and unpaid interest on the notes on the interest payment dates and at maturity and to pay the principal of the notes at maturity, unless:
| • | we are subject to any termination, winding up, liquidation or reorganization, whether in bankruptcy, insolvency, reorganization or receivership proceedings or upon an assignment for the benefit of our creditors or any other marshalling of our assets and liabilities or otherwise; or | ||||||||||
| • | a default in the payment of principal of, or premium, if any, or interest on any senior indebtedness, beyond any applicable grace period, or if any event of default with respect to any senior indebtedness will have occurred and be continuing, or would occur as a result of the payment of principal of or interest on the notes or in respect of any retirement, purchase or other acquisition of the notes, permitting the holders of such senior indebtedness (or a trustee on behalf of the holders thereof) to accelerate the maturity thereof, unless and until such default or event of default will have been cured or waived or will have ceased to exist. | ||||||||||
Upon our termination, winding up, liquidation or reorganization, whether in bankruptcy, insolvency, reorganization or receivership proceedings or upon an assignment for the benefit of our creditors or any other marshalling of our assets and liabilities or otherwise, holders of all of our senior indebtedness will first be entitled to receive payment in full in accordance with the terms of this Agreement, FSSBsuch senior indebtedness of the principal of, and premium, if any, and interest on, that senior indebtedness before any payment is made on the notes. If, after we have paid the senior indebtedness in full, there are any amounts available for payment of the notes and any of our other indebtedness and obligations ranking equally in right of payment with the notes, then we will mergeuse such remaining assets to pay the amounts of principal of, premium, if any, and accrued and unpaid interest on the notes and such other of our indebtedness and obligations that rank equally in right of payment with Farmersthe notes. If those assets are insufficient to pay in full the principal of, premium, if any, and interest on the notes and such other indebtedness and obligations, those assets will be applied ratably to the payment of such amounts owing with Farmersrespect to the notes and such other indebtedness and obligations.
If we are subject to any termination, winding up, liquidation or reorganization, whether in bankruptcy, insolvency, reorganization or receivership proceedings or upon an assignment for the benefit of our creditors or any other marshalling of our assets and liabilities or otherwise, if the holders of the notes receive for any reason any payment on the notes or other distributions of our assets with respect to the notes before all of our senior indebtedness is paid in full, the holders of the notes will be required to return that payment or distribution to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other person making payment of our assets for all our senior indebtedness remaining unpaid until all that senior indebtedness has been paid in full, after giving effect to any other concurrent payment or distribution to the holders of such senior indebtedness.
As a result of the subordination of the notes in favor of the holders of our senior indebtedness, in the event of our bankruptcy or insolvency, holders of our senior indebtedness may receive more, ratably, and holders of the notes may receive less, ratably, than our other creditors.
All liabilities of the Bank and our other subsidiaries, including deposits and liabilities to general creditors arising during the ordinary course of business or otherwise, will be effectively senior in right of payment to the notes to the extent of the assets of the subsidiary because, as a shareholder of the subsidiary, we do not have any rights to the assets of the subsidiary, except if the subsidiary declares a dividend payable to us or if there are assets of the subsidiary remaining after it has discharged its liabilities to its creditors in connection with its liquidation. As of March 31, 2021, the Bank and our other subsidiaries had total outstanding liabilities of $1.8 billion on a consolidated basis. Over the term of the notes, we will need to rely primarily on dividends paid to us by the Bank, which is a regulated and supervised depository institution, for the funds necessary to pay the interest on our outstanding debt obligations and to make dividends and other payments on our other securities outstanding now or in the future. With respect to the payment of the principal of the notes at their maturity, we may rely on the funds we receive from dividends paid to us by the Bank, but may have to rely on the proceeds of borrowings and/or the sale of other securities to pay the principal amount of the notes. Regulatory rules may restrict the Bank’s ability to pay dividends or make other distributions to us or provide funds to us by other means. As a result, with respect to the assets of the Bank, our creditors (including the holders of the notes) are structurally subordinated to the prior claims of creditors of the Bank, including its depositors, except to the extent that we may be a creditor with recognized claims against the Bank.
Redemption
We may, at our option, redeem the notes, in whole or in part, beginning on the interest payment date of June 15, 2026 and at any time thereafter. In addition, at our option, we may redeem the notes in whole, but not in part, at any time upon the occurrence of:
a “Tier 2 Capital Event,” which means our good faith determination that, as a result of (1) any amendment to or change in, or proposed amendment or change in, the laws, rules or regulations of the United States (including the Federal Reserve and other federal bank regulatory agencies) or any political subdivision of or in the United States that is announced, enacted or becomes effective after June 2, 2021, or (2) any official administrative decision or judicial decision or administrative action or other official pronouncement interpreting or applying those laws, rules, regulations, policies or guidelines that is announced after June 2, 2021, there is more than an insubstantial risk that the Company will not be entitled to treat the notes as “Tier 2 Capital” (meaning Tier 2 capital (or its equivalent) for purposes of capital adequacy guidelines of the Federal Reserve, as then in effect and applicable to the Company);
20
| • | a “Tax Event,” which means our receipt of an opinion of counsel experienced in such matters to the effect that, as a result of (1) an amendment or change, or an announced prospective amendment or change, in any law or treaty, or any regulation thereunder, of the United States or any of its political subdivisions or taxing authorities; (2) a judicial decision, administrative action, official administrative pronouncement, ruling, regulatory procedure, regulation, notice or announcement, including any notice or announcement of intent to adopt or promulgate any ruling, regulatory procedure or regulation (any of the foregoing, an “Administrative or Judicial Action”); or (3) an amendment to or change in any official position with respect to, or any interpretation of, an Administrative or Judicial Action or a law or regulation of the United States that differs from the previously generally accepted position or interpretation, in each case, which change or amendment or challenge becomes effective or that pronouncement, decision or challenge is announced on or after June 2, 2021, there is more than an insubstantial risk that interest payable by the Company on the notes is not, or, within 90 days of the date of such opinion, will not be, deductible by the Company, in whole or in part, for United States federal income tax purposes; or | ||||||||||
| • | an “Investment Company Event,” which means our receipt of an opinion of counsel experienced in such matters to the effect that there is more than an insubstantial risk that the Company is or, within 90 days of the date of such legal opinion will be, considered an “investment company” that is required to be registered under the Investment Company Act of 1940, as amended. | ||||||||||
Any redemption of the notes will be at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest, if any, and additional interest, if and to the extent applicable, thereon to, but excluding the date of redemption. Any redemption of the notes will be subject to any required regulatory approvals, including from the Federal Reserve, to the extent such approval is then required.
If less than all of the notes are to be redeemed, the notes will be redeemed on a pro rata basis as to the holders, and such redemption will be made on a “Pro Rata Pass-Through Distribution of Principal” basis in accordance with the procedures of DTC. In the event a pro rata redemption is not permitted under applicable law or applicable requirements of DTC, the notes to be redeemed will be selected by lot or such method as the surviving entity (the "Merger"). Concurrently,
shareholderstrustee will deem fair and appropriate.
Notices of FSSB shallredemption will be given in the manner provided for in the indenture to each holder of notes to be redeemed at least 30, but no more than 60 days, before the redemption date to the holders of notes to be redeemed. If any note is to be redeemed in part only, the notice of redemption that relates to that note will state the portion of the principal amount thereof to be redeemed. A new note in principal amount equal to the unredeemed portion of the original note, if any, will be issued in the name of the holder thereof upon surrender of the original note. Notes called for redemption become due and payable on the date fixed for redemption at the redemption price specified in the notice of redemption, together with any accrued and unpaid interest, if any, and additional interest, if and to the extent applicable. On and after the redemption date, interest will cease to accrue on notes or portions of notes called for redemption.
The notes are not subject to redemption at the option of the holders.
Repurchases
We may purchase notes at any time on the open market or otherwise. If we purchase notes in this manner, we have the discretion to hold, resell or surrender the notes to the trustee under the indenture for cancellation.
No Sinking Fund; Non-Convertible
The notes will not be entitled to the benefit of any sinking fund. This means that we will not deposit money on a regular basis into any separate custodial account to repay the notes. Except as contemplated by this prospectus, the notes are not convertible into, or exchangeable for, any of our or our subsidiaries’ equity securities, other securities or assets.
Form, Denomination, Transfer, Exchange and Book-Entry Procedures
The notes will be issued only in registered form without coupons and in minimum denominations of $100,000 and any integral multiple of $1,000 in excess thereof.
The New Notes will be evidenced by a global note that will be deposited with, or on behalf of, DTC, or any successor thereto, and registered in the name of Cede & Co., or Cede, as nominee of DTC. Except as set forth below, record ownership of the global note may be transferred, in whole or in part, only to another nominee of DTC or to a successor of DTC or its nominee.
The global note will not be registered in the name of any person, or exchanged for notes that are registered in the name of any person, other than DTC or its nominee, unless one of the following occurs:
| • | DTC notifies us that it is unwilling or unable to continue acting as the depositary for the global note, or DTC has ceased to be a clearing agency registered under the Exchange Act, and in either case, we do not appoint a successor depositary within 90 days; | ||||||||||
| • | we determine that the notes are no longer to be represented by the global note and so notify the trustee in writing; or | ||||||||||
| • | an event of default with respect to the notes has occurred and is continuing and DTC has requested the issuance of notes in certificated form. | ||||||||||
In those circumstances, DTC will determine in whose names any securities issued in exchange their sharesfor the global note will be registered. Any such notes in certificated form will be issued in minimum denominations of FSSB$100,000 and any integral multiples of $1,000 in excess thereof and may be transferred or exchanged only in such minimum denominations.
21
DTC or its nominee will be considered the sole owner and holder of the global note for shares of IBTall purposes, and
cash;
WHEREAS, the parties currently intend that the Merger shall qualify as a reorganizationresult:
| • | you cannot receive notes registered in your name if they are represented by the global note; | ||||||||||
| • | you cannot receive certificated (physical) notes in exchange for your beneficial interest in the global note; | ||||||||||
| • | you will not be considered to be the owner or holder of the global note or any note it represents for any purpose; and | ||||||||||
| • | all payments on the global note will be made to DTC or its nominee. | ||||||||||
The laws of some jurisdictions require that certain kinds of purchasers (for example, certain insurance companies) can only own securities in certificated form. These laws may limit your ability to transfer your beneficial interests in the global note to these types of purchasers.
Only institutions (such as a securities broker or dealer) that have accounts with DTC or its nominee, referred to as “participants,” and persons that may hold beneficial interests through participants (including through Euroclear Bank SA/NV or Clearstream Banking, société anonyme, as DTC participants) can own a beneficial interest in the global note. The only place where the ownership of beneficial interests in the global note will appear and the only way the transfer of those interests can be made will be on the records kept by DTC (for their participants’ interests) and the records kept by those participants (for interests of persons held by participants on their behalf).
Secondary trading in bonds and notes of corporate issuers is generally settled in clearinghouse (that is, next day) funds. In contrast, beneficial interests in a global note usually trade in DTC’s same-day funds settlement system and settle in immediately available funds. We make no representations as to the effect that settlement in immediately available funds will have on trading activity in those beneficial interests.
Cash payments of interest on and principal of the global note will be made to Cede, the nominee for DTC, as the registered owner of the global note. These payments will be made by wire transfer of immediately available funds on each payment date.
You may exchange or transfer the notes at the corporate trust office of the trustee for the notes or at any other office or agency maintained by us for those purposes. We will not require payment of a service charge for any transfer or exchange of the notes, but we may require payment of a sum sufficient to cover any applicable tax or other governmental charge.
We have been informed that, with respect to any cash payment of interest on or principal of the global note, DTC’s practice is to credit participants’ accounts on the payment date with payments in amounts proportionate to their respective beneficial interests in the notes represented by the global note as shown on DTC’s records, unless DTC has reason to believe that it will not receive payment on that payment date. Payments by participants to owners of beneficial interests in notes represented by the global note held through participants will be the responsibility of those participants, as is now the case with securities held for the accounts of customers registered in “street name.”
We also understand that neither DTC nor Cede will consent or vote with respect to the notes. We have been advised that, under its usual procedures, DTC will mail an “omnibus proxy” to us as soon as possible after the record date. The omnibus proxy assigns Cede’s consenting or voting rights to those participants to whose accounts the notes are credited on the record date identified in a listing attached to the omnibus proxy.
Because DTC can only act on behalf of participants, who in turn act on behalf of indirect participants, the ability of a person having a beneficial interest in the principal amount represented by the global note to pledge the interest to persons or entities that do not participate in the DTC book-entry system, or otherwise take actions in respect of that interest, may be affected by the lack of a physical certificate evidencing its interest.
DTC has advised that it will take any action permitted to be taken by a holder of notes (including the presentation of notes for exchange) only at the direction of one or more participants to whose account with DTC interests in the global note are credited and only in respect of such portion of the principal amount of the notes represented by the global note as to which such participant has, or participants have, given such direction.
DTC has also advised as follows: DTC is a limited purpose trust company organized under the laws of the State of New York, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve, a “clearing corporation” within the meaning of the Uniform Commercial Code, as amended, and a “clearing agency” registered pursuant to the provisions of Section 368(a)17A of the Exchange Act. DTC was created to hold securities for its participants and facilitate the clearance and settlement of securities transactions between participants through electronic book-entry changes in accounts of its participants. Participants include securities brokers and dealers, banks, trust companies and clearing corporations and may include certain other organizations. Certain of such participants (or their representatives), together with other entities, own DTC. Indirect access to the DTC system is available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly. The rules applicable to DTC and its direct and indirect participants are on file with the SEC.
The policies and procedures of DTC, which may change periodically, will apply to payments, transfers, exchanges and other matters relating to beneficial interests in the global note. We and the trustee have no responsibility or liability for any aspect of DTC’s or any participants’ records relating to beneficial interests in the global note, including for payments made on the global note, and we and the trustee are not responsible for maintaining, supervising or reviewing any of those records.
Indenture Covenants
The indenture contains no covenants or restrictions on the incurrence of indebtedness or other obligations by us or by a subsidiary of ours, including the Bank. The indenture contains no financial covenants requiring us to achieve or maintain any minimum financial results relating to our financial condition, liquidity or results of operations or meet or exceed any financial ratios, as a general matter, to incur additional indebtedness or obligations or to maintain any reserves. Moreover, neither the indenture nor the notes contain any covenants prohibiting us or our subsidiaries from or limiting our or our subsidiaries’ right to incur additional indebtedness or obligations, grant liens on our assets to secure our indebtedness or other obligations that are senior in right of payment to the notes, repurchase our stock or other securities, including any of the notes, or pay dividends or make other distributions to our shareholders (except, subject to
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certain limited exceptions, in the case of dividends or other distributions, redemptions, purchases, acquisitions or liquidation payments with respect to our capital stock and repayments, repurchases or redemptions of any debt securities that rank equal with or junior to the notes, in each case, upon our failure to make any required payment of principal or interest on the notes, when the same becomes due and payable). In addition, neither the indenture nor the notes contain any provision that would provide protection to the holders of the notes against a material decline in our credit quality.
Events of Default; Right of Acceleration; Failure to Pay Principal or Interest
The following are events of default under the indenture:
| • | the entry of a decree or order for relief in respect of us by a court having jurisdiction in the premises in an involuntary case or proceeding under any applicable bankruptcy, insolvency or reorganization law, in effect at the time we entered into the indenture or thereafter in effect of the United States or any political subdivision thereof, and such decree or order will have continued unstayed and in effect for a period of 60 consecutive days; | ||||||||||
| • | the commencement by us of a voluntary case under any applicable bankruptcy, insolvency or reorganization law, in effect at the time we entered into the indenture or thereafter in effect of the United States or any political subdivision thereof, or our consent to the entry of a decree or order for relief in an involuntary case or proceeding under any such law; | ||||||||||
| • | our failure to pay any installment of interest on any of the notes as and when the same will become due and payable, and the continuation of such failure for a period of 30 days; | ||||||||||
| • | our failure to pay all or any part of the principal of any of the notes as and when the same will become due and payable under the indenture; | ||||||||||
| • | our failure to perform any other covenant or agreement on our part contained in the notes or in the indenture, and the continuation of such failure for a period of 90 days after the date on which a notice specifying such failure, stating that such notice is a “Notice of Default” under the indenture and demanding that we remedy the same, is given to us by the trustee, or is given to us and the trustee by the holders of at least 30% in aggregate principal amount of the notes at the time outstanding; and | ||||||||||
| • | our default under any bond, debenture, note or other evidence of indebtedness for money borrowed by us having an aggregate principal amount outstanding of at least $50,000,000, whether such indebtedness existed at the time we entered into the indenture or was thereafter created or incurred, which default (1) constitutes a failure to pay any portion of the principal of such indebtedness when due and payable after the expiration of any applicable grace period or (2) results in such indebtedness becoming due, or being declared due, and payable prior to the date on which it otherwise would have become due and payable without, in the case of clause (1), such indebtedness having been discharged or, in the case of clause (2), without such indebtedness having been discharged or such acceleration having been rescinded or annulled. | ||||||||||
If an event of default with respect to the notes occurs due to a bankruptcy event described in the first two bullets above, then the principal of all of the outstanding notes and all accrued and unpaid interest, if any, thereon will become immediately due and payable without any declaration or other act on the part of the trustee or any holder of the notes. If an event of default with respect to the notes occurs due to any reason other than a bankruptcy event, neither the trustee nor any holder may accelerate the maturity of the notes.
Under the indenture, if we fail to pay any installment of interest on any note when such interest becomes due and payable, and such default continues for a period of 30 days, or if we fail to pay all or any part of the principal of any note when such principal becomes due and payable, the trustee may, subject to certain limitations and conditions, demand that we pay to the trustee, for the benefit of the holders of the notes, the whole amount then due and payable with respect to such notes, with interest upon the overdue principal and, to the extent permitted by applicable law, upon any overdue installments of interest at the rate or respective rates, as the case may be, provided for or with respect to such notes or, if no such rate or rates are so provided, at the rate or respective rates, as the case may be, of interest borne by such notes. Any rights to receive payment of such amounts under the notes remain subject to the subordination provisions of the notes as discussed above under “—Subordination.” Neither the trustee nor the holders of the notes will have the right to accelerate the maturity of the notes in the case of our failure to pay the principal of or interest on the notes or our non-performance of any other covenant or warranty under the notes or the indenture.
Amendment, Supplement and Waiver
Without the consent of any holder of notes, we and the trustee, at any time and from time to time, may enter into one or more supplemental indentures, in form satisfactory to the trustee for any of the following purposes:
| • | to evidence the succession of another person to the Company and the assumption by any such successor of our covenants contained in the indenture and in the notes; | ||||||||||
| • | to add to the covenants of the Company for the benefit of holders of the notes or to surrender any right or power conferred upon us with respect to the notes issued under the indenture; | ||||||||||
| • | to permit or facilitate the issuance of notes in uncertificated or global form, provided any such action will not adversely affect the interests of the holders of then outstanding notes; | ||||||||||
| • | to evidence and provide for the acceptance of appointment under the indenture by a successor trustee with respect to the notes and to add to or change any of the provisions of the indenture, as necessary, to provide for or facilitate the administration of the trusts thereunder by more than one trustee, in accordance with the requirements set forth in the indenture; | ||||||||||
| • | to cure any ambiguity or to correct or supplement any provision in the indenture that may be defective or that may be inconsistent with any other provision therein; | ||||||||||
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| • | to make any other provisions with respect to matters or questions arising under the indenture that will not adversely affect the interests of the holders of then-outstanding notes in any material respect; | ||||||||||
| • | to add any additional events of default; | ||||||||||
| • | to supplement any of the provisions of the indenture to such extent necessary to permit or facilitate the legal defeasance, covenant defeasance and/or satisfaction and discharge of the notes in accordance with the indenture, provided that any such action will not adversely affect the interests of any holder of notes in any material respect; | ||||||||||
| • | to provide for the issuance of the New Notes pursuant to the exchange offer; | ||||||||||
| • | to conform any provision in the indenture to the requirements of the Trust Indenture Act; or | ||||||||||
| • | to make any change that does not adversely affect the legal rights under the indenture of any holder of then-outstanding notes. | ||||||||||
With the consent of the holders of not less than a majority in principal amount of the outstanding notes, we and the trustee may enter into one or more supplemental indentures to add any provisions to, or change in any manner, eliminate any of the provisions of the indenture or of the notes or of modify in any manner the contractual rights of the holders of the notes under the indenture, except that no such supplemental indenture, without the consent of the holder of each outstanding note affected thereby, will:
| • | reduce the rate of or change the time for payment of interest, including defaulted interest, on any notes; | ||||||||||
| • | reduce the principal of or change the stated maturity of any notes or change the date on which any notes may be subject to redemption or reduce the redemption price therefor; | ||||||||||
| • | make any note payable in money other than U.S. dollars; | ||||||||||
| • | make any change in provisions of the indenture protecting the right of each holder of the notes to receive payment of principal of and interest on such notes on or after the due date thereof or to bring suit to enforce such payment; | ||||||||||
| • | reduce the percentage of principal amount of outstanding notes whose holders’ consent is required for any supplemental indenture, or any waiver of compliance with certain provisions of the indenture or certain defaults under the indenture and their consequences, as provided in the sections of the indenture relating to waiver of past defaults or waiver of certain covenants; or | ||||||||||
| • | modify any of the provisions of the section of the indenture governing supplemental indentures with the consent of holders, or those provisions relating to waiver of past defaults or waiver of certain covenants, except to increase any such percentage required for such actions or to provide that certain other provisions of the indenture cannot be modified or waived without the consent of the holder of each outstanding note affected thereby. | ||||||||||
The holders of not less than a majority in aggregate principal amount of the outstanding notes may, on behalf of the holders of all notes, waive any past default under the indenture and its consequences, except a default in the payment of the principal of, or interest on, any note, or in respect of a covenant or provision of the indenture which, under the terms of the indenture, cannot be modified or amended without the consent of the holder of each outstanding note.
Satisfaction and Discharge of the Indenture; Defeasance
We may terminate our obligations under the indenture when:
| • | either: (1) all notes (with certain specified exceptions) have been delivered to the trustee for cancellation, or (2) all notes that have not been delivered to the trustee for cancellation (a) have become due and payable, (b) will become due and payable at their stated maturity within one year or (c) if redeemable at our option, are to be called for redemption within one year under arrangements satisfactory to the trustee for the giving of notice of redemption by the trustee, and we have deposited or caused to be deposited with the trustee funds in an amount sufficient to pay and discharge the entire indebtedness on such outstanding notes, including the applicable principal and interest on such notes; | ||||||||||
| • | we have paid or caused to be paid all other sums payable by us under the indenture with respect to the outstanding notes; and | ||||||||||
| • | we have delivered to the trustee an officers’ certificate and an opinion of counsel, each stating that all conditions precedent under the indenture relating to the satisfaction and discharge of the indenture have been satisfied. | ||||||||||
We may elect, at our option and at any time, to have our obligations discharged with respect to the outstanding notes, which we refer to as “legal defeasance.” “Legal defeasance” means that we will be deemed to have paid and discharged the entire indebtedness represented by the outstanding notes and will be deemed to have been discharged from our obligations with respect to the outstanding notes, except that the following rights and obligations will survive until otherwise terminated or discharged under the indenture:
| • | the rights of the holders of such outstanding notes to receive payments in respect of the principal of and interest on such notes when payments are due; | ||||||||||
| • | our and the trustee’s obligations with respect to such notes concerning registration of notes, mutilated, destroyed, lost and stolen notes, maintenance of an office or agency for payment and money for payments on the notes to be held in trust; | ||||||||||
| • | the rights, powers, trusts, duties and immunities of the trustee under the indenture; and | ||||||||||
| • | the defeasance provisions of the indenture. | ||||||||||
In addition, we may elect, at our option, to have our obligations released with respect to certain covenants contained in the indenture, which we refer to as “covenant defeasance.”
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To exercise either legal defeasance or covenant defeasance with respect to outstanding notes:
| • | we will irrevocably have deposited or caused to be deposited with the trustee as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the holders of outstanding notes, (1) an amount in U.S. dollars, (2) government obligations that through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one calendar day before the due date of any payment of principal of and interest, if any, on such notes, money or (3) a combination thereof, in any case, in an amount, sufficient, without consideration of any reinvestment of such principal and interest, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the trustee, to pay and discharge, and which will be applied by the trustee to pay and discharge, the principal of and interest, if any, on, such outstanding notes on the stated maturity of such principal or installment of principal or interest or the applicable redemption date, as the case may be; | ||||||||||
| • | such legal defeasance or covenant defeasance will not result in a breach or violation of, or constitute a default under, the indenture or any other material agreement or instrument to that we or any of our subsidiaries are a party or by which we or any of them are bound; | ||||||||||
| • | no event of default or event that, with notice or lapse of time or both, would become an event of default with respect to such notes will have occurred and be continuing on the date of such deposit, and, solely in the case of legal defeasance, no event of default or event that, with notice or lapse of time or both, would become an event of default under the indenture will have occurred and be continuing at any time during the period ending on and including the 91st day after the date of such deposit (it being understood that this condition to legal defeasance will not be deemed satisfied until the expiration of such period); | ||||||||||
| • | in the case of legal defeasance, we will have delivered to the trustee an opinion of counsel stating that (1) we have received from, or there has been published by, the Internal Revenue Service a ruling or (2) since the date of the indenture, there has been a change in applicable federal income tax law, in either case, to the effect that, and based thereon, such opinion of independent counsel will confirm that, the holders of such outstanding notes will not recognize income, gain or loss for federal income tax purposes as a result of such legal defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such legal defeasance had not occurred; | ||||||||||
| • | in the case of covenant defeasance, we will have delivered to the trustee an opinion of counsel to the effect that the holders of such outstanding notes will not recognize income, gain or loss for federal income tax purposes as a result of such covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; | ||||||||||
| • | we will have delivered to the trustee an officers’ certificate and an opinion of counsel, each stating that all conditions precedent to the legal defeasance or covenant defeasance, as the case may be, under the indenture have been satisfied; | ||||||||||
| • | if the moneys or government obligations, or combination thereof, as the case may be, deposited are sufficient to pay the principal of and interest, if any, on such notes, provided that such notes are redeemed on a particular redemption date, we will have given the trustee irrevocable instructions to redeem such notes on such date and to provide notice of such redemption to holders of such notes as provided in or under the indenture; and | ||||||||||
| • | the trustee will have received such other documents, assurances and opinions of counsel as the trustee will have reasonably required. | ||||||||||
In connection with a discharge or defeasance, if the trustee is unable to apply the moneys deposited as contemplated under the satisfaction and discharge provisions of the indenture by reason of any legal proceeding or any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, our obligations under the indenture and the notes will be revived as if the deposit had never occurred.
Regarding the Trustee
UMB Bank, N.A. is acting as the trustee under the indenture and the initial paying agent and registrar for the notes. From time to time, we and some of our subsidiaries may maintain deposit accounts and conduct other banking transactions, including lending transactions, with the trustee in the ordinary course of business.
Except during the continuance of an event of default under the indenture, the trustee will perform only such duties as are specifically set forth in the indenture.
The indenture and the Trust Indenture Act contain certain limitations on the rights of the trustee, if it becomes a creditor of our organization, to obtain payment of claims in certain cases or to realize on certain property received in respect of any such claim as security or otherwise. The trustee will be permitted to engage in other transactions; however, if it acquires any “conflicting interest” (as defined in the Trust Indenture Act), it must eliminate such conflict within 90 days and apply to the SEC for permission to continue or resign.
The holders of a majority in aggregate principal amount of the outstanding notes will have the right to direct the time, place and method of conducting any proceeding for any remedy available to the trustee or to exercise any trust or power conferred on the trustee, subject to certain exceptions. If an event of default has occurred and is continuing, the trustee will exercise such of the rights and powers vested in it by the indenture and use the same degree of care and skill in its exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person’s own affairs. Subject to such provisions, the trustee will be under no obligation to exercise any of the rights or powers vested in it by the indenture at the request or direction of any holder under the indenture, unless such holder will have offered to the trustee security or indemnity satisfactory to the trustee against the losses, liabilities and expenses that might be incurred by it in compliance with such request or direction.
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No Personal Liability of Shareholders, Employees, Officers, Directors or Exchange Agent
None of our or any of our predecessors’ or successors’ past, present or future shareholders, employees, officers or directors, as such or in such capacity, nor the exchange agent will have any personal liability for any of our obligations under the notes or the indenture by reason of his, her or its status as such shareholder, employee, officer or director. Each holder of notes, by accepting a note, waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the notes. Such waiver may not be effective to waive liabilities under the federal securities laws, and it is the view of the SEC that such a waiver is against public policy.
Governing Law
The notes and the indenture are governed by and will be construed in accordance with the laws of the State of New York.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of the material U.S. federal income tax considerations of the exchange of outstanding Old Notes for New Notes in the exchange offer. It is not a complete analysis of all the potential tax considerations relating to the exchange of outstanding Old Notes for New Notes. This discussion is based upon the provisions of the Internal Revenue Code of 1986, as amended, (the "Code");or the Code, existing and WHEREAS,proposed regulations under the parties desireCode and any administrative and judicial interpretations and rulings thereof, all as currently in effect. These authorities are subject to change, possibly on a retroactive basis, and subject to differing interpretations. We cannot assure you that the Internal Revenue Service will not challenge one or more of the tax consequences described in this prospectus, and we have not obtained, and do not intend to obtain, a ruling from the Internal Revenue Service or an opinion of counsel with respect to the U.S. federal income tax consequences described herein. Furthermore, this discussion does not address the tax considerations arising under the laws of any foreign, state or local jurisdiction or any non-income tax consequences of the exchange of Old Notes for New Notes.
This discussion is limited to the U.S. federal income tax consequences applicable to holders that purchased their Old Notes from us in the initial offering and at the initial offering price for cash and who held such Old Notes, and will now hold the New Notes, as “capital assets” within the meaning of Section 1221 of the Code. This discussion does not address all U.S. federal income tax considerations that may be applicable to each holder’s particular circumstances or to holders that may be subject to special tax rules under U.S. federal income tax laws, including, but not limited to, banks, insurance companies, other financial institutions, regulated investment companies, real estate investment trusts, tax-exempt organizations, dealers or traders in securities, commodities or currencies, U.S. expatriates, controlled foreign corporations, passive foreign investment companies, holders subject to the alternative minimum tax, traders in securities that elect to use a mark-to-market method of accounting for their securities holdings, U.S. holders whose functional currency is not the U.S. dollar, persons that will hold the New Notes as a position in a hedging transactions, straddle or conversion transaction or as part of a “synthetic security,” other integrated transactions or risk reduction transaction, persons deemed to sell the New Notes under the constructive sale provisions of the Code, persons that will hold the New Notes in an individual retirement account, 401(k) plan or similar tax-favored account, an accrual method taxpayer who is required to recognize income for U.S. federal income tax purposes no later than when such income is taken into account for financial accounting purposes, a person that purchases or sells notes as part of a wash sale for tax purposes or entities or arrangements classified as partnerships for U.S. federal income tax purposes or other pass-through entities, or investors in such entities.
The exchange of Old Notes for New Notes in the exchange offer should not constitute a taxable exchange for U.S. federal income tax purposes. Consequently, (1) a holder of Old Notes should not recognize gain or loss upon the receipt of New Notes in the exchange offer, (2) a holder’s basis in the New Notes received in the exchange offer should be the same as such holder’s basis in the Old Notes surrendered in exchange therefor immediately before the exchange and (3) a holder’s holding period in the New Notes should include such holder’s holding period in the Old Notes surrendered in exchange therefor.
This discussion of material U.S. federal income tax considerations is for general information only and may not be applicable, depending upon a holder’s particular situation. Holders of Old Notes considering the exchange offer are urged to consult their own tax advisors with respect to the tax consequences to them of exchanging Old Notes for New Notes, including the tax consequences under state, local, estate, foreign and other tax laws and the possible effects of changes in United States or other tax laws.
PLAN OF DISTRIBUTION
Any broker-dealer that holds Old Notes acquired for its own account as a result of market-making activities or other trading activities and receives New Notes for its own account pursuant to the exchange offer may be a statutory underwriter and must deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes. This prospectus, as it may be amended or supplemented from time to time, may be used by any such broker-dealer in connection with any resale of New Notes received in exchange for such Old Notes, provided that such broker-dealer notifies the Company to that effect in accordance with the instructions in the letter of transmittal. We will make certain representations, warrantiesadditional copies of this prospectus, and agreementsany amendments or supplements hereto, available to any such broker-dealer that requests it in accordance with the instructions in the letter of transmittal. To the extent that any notifying broker-dealer participates in the exchange offer, we will use our commercially reasonable efforts to maintain the effectiveness of this prospectus for a period of 180 days following the expiration date of the exchange offer.
We will not receive any proceeds from any sale of New Notes by broker-dealers or any other persons. New Notes received by broker-dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on New Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any New Notes. Any broker-dealer that holds Old Notes acquired for its own account as a result of market-making activities or other trading activities and receives New Notes for its own account pursuant to the exchange offer and resells such New Notes and any broker-dealer that participates in a distribution of such New Notes may be a statutory “underwriter” within the meaning of the Securities Act, and any profit on any such resale of New Notes and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that, by acknowledging that it will
26
deliver and by delivering a prospectus meeting the requirements of the Securities Act in connection with the business transactions described in this
Agreement andresale of any such New Notes, a broker-dealer will not be deemed to prescribe certain conditions thereto.
NOW, THEREFORE, in considerationadmit that it is an “underwriter” within the meaning of the mutual covenants, representations,
warranties and agreements herein contained, and of other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I -- CERTAIN DEFINITIONS
1.1. Certain Definitions. As used in this Agreement, the following terms
have the following meanings (unless the context otherwise requires, references
to articles and sections refer to articles and sectionsSecurities Act.
We will promptly send additional copies of this Agreement).
"Affiliates" means any Person who directly, or indirectly, through one or
more intermediaries, controls, or is controlled by, or is under common control
with, such Person and, without limiting the generality of the foregoing,
includes any executive officer or director of such Personprospectus, and any Affiliates of
such executive officeramendments or director.
"Agreement" means this agreement, and any amendment hereto.
"Bank Regulator" shall mean any Federal or state banking regulatory agency
with supervisory authority over Farmers, FSSB, IBT, Isabella Bank and Trust, or
a subsidiary of any of them.
"Bureau" shall mean the Office of Financial and Insurance Services of the
State of Michigan.
"Certificate" shall mean a certificate evidencing shares of FSSB Common
Stock.
"Closing" shall have the meaning set forth in Section 2.2.
"Closing Date" shall have the meaning set forth in Section 2.2.
"COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
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"Confidentiality Agreements" shall mean the confidentiality agreements
referred to in Section 12.1 of this Agreement.
"Dissenting Shareholder" shall have the meaning set forth in Section
3.1(d).
"Dissenting Shares" shall have the meaning set forth in Section 3.1(d).
"Effective Time" shall mean the date and time specified pursuant to Section
2.2 hereof as the effective time of the Merger.
"Environmental Laws" means any applicable Federal, state or local law,
statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, order, judgment, decree, injunction or agreement with any
governmental entity relating to (1) the protection, preservation or restoration
of the environment (including, without limitation, air, water vapor, surface
water, groundwater, drinking water supply, surface soil, subsurface soil, plant
and animal life or any other natural resource) and/or (2) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Materials of Environmental Concern.
The term "Environmental Laws" includes without limitation (a) the comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.
Section 9601, et seq.; the resource Conservation and Recovery Act, as amended,
42 U.S.C. Section 901, et seq.; the Clean Air Act, as amended, 42 U.S.C. Section
7401, et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C.
Section 1251, et seq.; the Toxic Substances Control Act, as amended, 15 U.S.C.
Section 2601, et seq.; the Emergency Planning and Community Right to Know Act,
42 U.S.C. Section 11001, et seq.; the Safe Drinking Water Act, 42 U.S.C. Section
300f, et seq.; and all comparable state and local laws, and (b) any common law
(including without limitation common law that may impose strict liability) that
may impose liability or obligations for injuries or damages due to the presence
of or exposuresupplements hereto, available to any Materialssuch broker-dealer that requests it in accordance with the instructions in the letter of Environmental Concern.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Exchange Agent" shall mean Isabella Bank and Trust, or such other bank or
trust company or other agent designated by Farmers, and reasonably acceptabletransmittal. We have agreed to FSSB, which shall act as agent for Farmerspay certain expenses in connection with the exchange offer and will indemnify the holders of the CertificatesOld Notes (including any broker-dealers) against certain liabilities, including certain liabilities under the Securities Act.
LEGAL MATTERS
The validity of the New Notes will be passed upon for the Merger Consideration.
"Exchange Fund" shall have the meaning set forth in Section 3.2(a).
"Exchange Ratio" shall mean the numberus by Varnum LLP, Grand Rapids, Michigan.
EXPERTS
The consolidated financial statements of shares IBT Common Stock and the
amount of cash into which one (1) share of FSSB Common Stock shall be converted
at the Effective Time, which shall be as set forth below:
3.0382 shares of IBT Common Stock plus $29.00 in cash for each share
of FSSB Common Stock, provided that the cash portion shall be reduced
by the amount that cash dividends paid by FSSB during 2006 exceed
$3.50 per share and shall be increased by the amount that cash
dividends paid by IBT during 2006 exceed $0.66 per share.
"Farmers" shall mean Farmers State Bank of Breckenridge, with its principal
offices located at 316 East Saginaw Street, Breckenridge, Michigan 48615.
"Farmers Entity Disclosure Schedule" shall mean a written disclosure
schedule delivered by Farmers and IBT to FSSB specifically referring to the
appropriate section of this Agreement.
"Farmers Entity" shall mean any of Farmers, IBT, Isabella Bank and Trust,
IBT Title and Insurance Agency, Inc., Financial Group Information Services,
Inc., IB&T Employee Leasing, LLC, and IBT Personnel, LLC.
"FDIC" shall mean the Federal Deposit Insurance Corporation or any
successor thereto.
"FRB" shall mean the Board of Governors of the Federal Reserve System or
any successor thereto.
"FSSB" shall mean The Farwell State Savings Bank, with its principal
offices located at 399 West Main Street, Farwell, Michigan 48622.
"FSSB Common Stock" shall mean the common stock, par value $10.00 per
share, of FSSB.
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"FSSB Disclosure Schedule" shall mean a written disclosure schedule
delivered by FSSB to IBT specifically referring to the appropriate section of
this Agreement.
"FSSB Financial Statements" shall mean (i) the audited statements of
financial condition (including related notes and schedules, if any) of FSSB as of December 31, 2005, 20042020 and 20032019 and the statements of income, changes in
shareholders' equity and cash flows (including related notes and schedules, if
any) of FSSB for each of the three years in the three-year period ended December 31, 2005, 20042020, and 2003,the effectiveness of internal control over financial reporting as set forthof December 31, 2020 included in FSSB's annual reportour Annual Report on Form 10-K for the year ended December 31, 20042020, have been incorporated by reference herein in reliance upon the reports of Rehmann Robson LLC, independent registered public accounting firm, incorporated herein by reference, and (ii)upon the unaudited interim consolidated financial statementsauthority of FSSBsaid firm as experts in auditing and accounting.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Officers and Directors.
The Company's Articles of Incorporation provide that, with limited exceptions, a director of the endCompany is not personally liable to the Company or its shareholders for monetary damages for a breach of the three-month period ended March 31, 2006.
"FSSB Shareholders Meeting" shall havedirector’s fiduciary duties. The Company's Articles of Incorporation also require the meaning set forth in Section
8.1.
"FSSB Stock Benefit Plans" shall mean any and all stock-based benefit plans
and amendments thereto of FSSB.
"FSSB Subsidiary" means any corporationCompany to indemnify each person who is, was, or entity, 50%had agreed to become a director or moreofficer of the equity interest of whichCompany, or each such person who is owned, either directly or indirectly, by FSSB,
except any corporationwas serving, or entitywho had agreed to serve at the equity interest of which is held in the
ordinary courserequest of the lending activitiesBoard of FSSB.
"GAAP" shall mean accounting principles generally applied in the United
States of America.
"Governmental Entity" shall mean any FederalDirectors as a director or state court, administrative
agency or commission or other governmental authority or instrumentality.
"IBT" shall mean IBT Bancorp, Inc., a Michigan corporation, with its
principal executive offices located at 200 East Broadway Street, Mt. Pleasant,
Michigan, 48858.
"IBT Common Stock" shall mean the common stock, no par value per share, of
IBT.
"IBT Financial Statements" shall mean the (i) the audited consolidated
statements of financial condition (including related notes and schedules) of IBT
as of December 31, 2005, 2004 and 2003 and the consolidated statements of
income, changes in shareholders' equity and cash flows (including related notes
and schedules, if any) of IBT for each of the three years ended December 31,
2005, 2004 and 2003, as set forth in IBT's annual report for the year ended
December 31, 2005, and (ii) the unaudited interim consolidated financial
statement of IBT as of the end of the three-month period ended March 31, 2006,
as filed by IBT in its Securities Documents.
"IBT Stock Benefit Plans" shall mean any and all stock-based benefit plans
and amendments thereto of IBT.
"IBT Subsidiary" means any corporation or entity, 50% or more of the equity
interest of which is owned, either directly or indirectly, by IBT, Isabella Bank
and Trust or Farmers, except any corporation or entity, the equity interest of
which is held in the ordinary course of the lending activities of Isabella Bank
and Trust or Farmers.
"IRS" shall mean the United States Internal Revenue Service.
"Knowledge" as used with respect to a Person (including references to such
person being aware of a particular matter) means those facts that are known by
the current executive officers and directors of such Person, and includes any
and all facts, matters or circumstances set forth in any written notice from any
Bank Regulator or any other material written notice received by such executive
officer, or director of that Person.
"Loan Property" shall have the meaning set forth in Section 4.1(o).
"Material Adverse Effect" shall mean, with respect to Farmers or FSSB,
respectively, any effect that (i) is material and adverse to the financial
condition, results of operations or business of IBT and its Subsidiaries taken
as a whole, or FSSB and its Subsidiaries taken as a whole, respectively, or (ii)
does or would materially impair the ability of either FSSB, on the one hand, or
Farmers, on the other hand, to perform its obligations under this Agreement or
otherwise materially threaten or materially impede the consummation of the
transactions contemplatedfull extent permitted by this Agreement; provided that "Material Adverse
Effect" shall not be deemed to include the impact of (a) changes in laws and
regulations affecting banks generally or interpretations thereof by courts or
governmental agencies, (b) changes in GAAP or regulatory accounting principles
generally applicable to financial institutions and their holding companies, (c)
actions and omissions of a party hereto (or any of its Subsidiaries) taken with
the prior
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written consent of the other party, (d) compliance with this Agreement on the
business, financial condition or results of operations of the parties and their
respective Subsidiaries, including the expenses incurred by the parties hereto
in consummating the transactions contemplated by this Agreement (consistent with
the information included in the Disclosure Schedules) and (e) any change in the
value of the securities portfolio of IBT or FSSB, respectively, whether held as
available for sale or held to maturity, resulting from a change in interest
rates value of the securities portfolio of IBT or FSSB, respectively, whether
held as available for sale or held to maturity, resulting from a change in
interest rates generally.
"Materials of Environmental Concern" means pollutants, contaminants,
wastes, toxic substances, petroleum and petroleum products, and any other
materials regulated under Environmental Laws.
"MBCA" shall mean the Michigan Business Corporation Act as amended.
"Merger" shall mean the merger of FSSB with and into Farmers pursuantor other applicable law.
The Michigan Business Corporation Act empowers a corporation to the terms hereof.
"Merger Consideration" shall mean the IBT Common Stock and cash,indemnify a person who was or is a party, or threatened to be paidmade a party, to a threatened, pending, or completed action, suit, or proceeding, other than an action by Farmers for each share of FSSB Common Stock, as set forthor in Section 3.1.
"Merger Registration Statement" shall mean the registration statement,
together with all amendments, filed with the SEC under the Securities Act for
the purpose of registering shares of IBT Common Stock to be offered to holders
of FSSB Common Stock in connection with the Merger.
"Michigan Banking Law" shall mean the Michigan Banking Code of 1999, as
amended, and the rules and regulations promulgated thereunder, as amended, as
administered by the Bureau.
"Participation Facility" shall have the meaning set forth in Section
4.1(o).
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor
thereto.
"Pension Plan" shall have the meaning set forth in Section 4.1(m).
"Person" shall mean any individual, corporation, limited liability company,
partnership, joint venture, association, trust "group" (as that term is defined
under the Exchange Act) or entity.
"Proxy Statement -- Prospectus" shall have the meaning set forth in Section
8.2.
"Regulatory Agreement" shall have the meaning set forth in Section 4.1(l).
"Regulatory Approvals" means the approval of any Bank Regulator that is
necessary in connection with the consummationright of the Merger and the related
transactions contemplated by this Agreement.
"Rights" shall mean warrants, options, rights, convertible securities,
stock appreciation rights and other arrangements or commitments which obligate
an entity to issue or dispose of any of its capital stock or other ownership
interests or which provide for compensation based on the equity appreciation of
its capital stock.
"SEC" shall mean the Securities and Exchange Commission or any successor
thereto.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securities Documents" shall mean all reports, offering circulars, proxy
statements, registration statements and all similar documents filed pursuant to
the Securities Laws.
"Securities Laws" shall mean the Securities Act; the Exchange Act; the
Investment Company Act of 1940, as amended; the Investment Advisers Act of 1940,
as amended; the Trust Indenture Act of 1939, as amended, and the rules and
regulations of the SEC promulgated thereunder.
"Significant Subsidiary" shall have the meaning set forth in Rule 1-02 of
Regulation S-X of the SEC.
"Surviving Corporation" shall have the meaning set forth in Section 2.1
hereof.
"Termination Date" shall mean December 31, 2006.
Other terms used herein are defined in the preamble and elsewhere in this
Agreement.
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ARTICLE II -- THE MERGER
2.1. Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time, FSSB shall merge with Farmers, with Farmers as the resulting
or surviving banking corporation, (the "Surviving Corporation"). As part of the
Merger, each share of FSSB Common Stock shall be converted into the right to
receive the Merger Consideration pursuant to the terms of Article III hereof.
2.2. Closing; Effective Time. Subject to the satisfaction or waiver of
all conditions to closing contained in Article IX hereof, the Closing shall
occur no later than five (5) business days following the latest to occur of (i)
the receipt of all required Regulatory Approvals, and the expiration of any
applicable waiting periods, (ii) the approval of the Merger by the shareholders
of FSSB, or (iii) at such other date or time upon which Farmers and FSSB
mutually agree (the "Closing"). The Merger shall be effected by the filing of a
certificate of merger with the Bureau on the day of the Closing (the "Closing
Date"), in accordance with Michigan Banking Law. The "Effective Time" means the
date and time upon which the certificate of merger is filed with the Bureau, or
as otherwise stated in the certificate of merger, in accordance with Michigan
Banking Law.
2.3. Articles of Incorporation and Bylaws; Name. The Articles of
Incorporation and Bylaws of Farmers as in effect immediately prior to the
Effective Time shall be the Articles of Incorporation and Bylaws of the
Surviving Corporation, until thereafter amended as provided therein and by
applicable law. The name of the Surviving Corporation shall be FSB.
2.4. Directors and Officers of Surviving Corporation. The board directors
of the Surviving Corporation shall consist of one of the incumbent directors of
each of FSSB and Farmers immediately preceding the Effective Time, the President
and CEO of IBT and two outside directors of IBT, each to hold office in
accordance with the Articles of Incorporation and Bylaws of the Surviving
Corporation. At the Effective Time, IBT shall establish by resolution of the
Board of Directors a regional board to preserve the institutional knowledge of
FSSB immediately before the Merger and to provide advice to the IBT Board of
Directors about business and operations, community and customer needs in the
market area, regional economic conditions and such other advisory
responsibilities as determined by the IBT Board of Directors. The members of the
initial regional board shall consist of all incumbent members of the FSSB board
of directors immediately preceding the Effective Time. Regional board member
compensation shall be the same as that provided by FSSB prior to the Effective
Time provided, however, that IBT may conduct periodic reviews of director
compensation to assess reasonableness and consistency. The officers of the
Surviving Corporation at the Effective Time shall be as set forth in Exhibit F.
2.5. Effects of the Merger. At and after the Effective Time, the Merger
shall have the effects as set forth in the Michigan Banking Law.
2.6. Tax Consequences. It is intended that the Merger shall constitute a
reorganization within the meaning of Section 368(a) of the Code and that this
Agreement shall constitute a "plan of reorganization" as that term is used in
Sections 354 and 361 of the Code. From and after the date of this Agreement and
until the Closing, each party hereto shall use its reasonable best efforts to
cause the Merger to qualify, and will not knowingly take any action, cause any
action to be taken, fail to take any action or cause any action to fail to be
taken which action or failure to act could prevent the Merger from qualifying as
a reorganization under Section 368(a) of the Code other than is contemplated by
this Agreement. Following the Closing, neither Farmers nor FSSB nor any of their
Affiliates shall knowingly take any action, cause any action to be taken, fail
to take any action or cause any action to fail to be taken, which action or
failure to act could cause the Merger to fail to qualify as a reorganization
under Section 368(a) of the Code.
2.7. Possible Alternative Structures. Notwithstanding anything to the
contrary contained in this Agreement and subject to the satisfaction of the
conditions set forth in Article IX, prior to the Effective Time, Farmers shall,
with the consent of FSSB, which will not be unreasonably withheld, be entitled
to revise the structure of the Merger described in Section 2.1 hereof provided
that (i) there are no adverse Federal or state income tax consequences to FSSB
shareholders as a result of the modification; (ii) the consideration to be paid
to the holders of FSSB Common Stock under this Agreement is not thereby changed
in kind or value (or the composition thereof), or reduced in amount; and (iii)
such modification will not delay materially or jeopardize receipt of any
required Regulatory
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Approvals or other consents and approvals relating to the consummation of the
Merger. The parties hereto agree to appropriately amend this Agreement and any
related documents in order to reflect any such revised structure.
ARTICLE III -- CONVERSION OF SHARES
3.1. Conversion of FSSB Common Stock; Merger Consideration. At the
Effective Time, by virtue of the Merger and without any action on the part of
Farmers, FSSB or the holders of any of the shares of FSSB Common Stock, the
Merger shall be effected in accordance with the following terms:
(a) Each share of Farmers Common Stock that is issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding
following the Effective Time and shall be unchanged by the Merger.
(b) All shares of FSSB Common Stock held in the treasury of FSSB and
each share of FSSB Common Stock owned by IBT or any direct or indirect
wholly owned subsidiary of IBT or of FSSB immediately prior to the
Effective Time, shall cease to exist, and the certificates for such shares
shall be canceled as promptly as practicable thereafter, and no payment or
distribution shall be made in consideration therefor.
(c) Except as set forth above, each share of FSSB Common Stock issued
and outstanding immediately prior to the Effective Time (other than
Dissenting Shares) shall become and be converted into, as provided in and
subject to the limitations set forth in this Agreement, the right to
receive shares of IBT Common Stock and cash based on the Exchange Ratio
(the "Merger Consideration").
(d) Each outstanding share of FSSB Common Stock the holder of which
has perfected his right to dissent under Michigan Banking Law and has not
effectively withdrawn or lost such right as of the Effective Time (the
"Dissenting Shares") shall not be converted into or represent a right to
receive the Merger Consideration hereunder, and the holder thereof shall be
entitled only to such rights as are granted by Michigan Banking Law. FSSB
shall give Farmers prompt notice upon receipt by FSSB of any such demand
for payment of the fair value of such shares of FSSB Common Stock and of
withdrawals of such demands and any other instruments provided pursuant to
applicable law (any shareholder duly making such demand being hereinafter
called a "Dissenting Shareholder"), and Farmers shall have the right to
participate in all negotiations and proceedings with respect to any such
demand for payment, or waive any failure to timely deliver a written demand
for appraisal or the taking of any other action by such Dissenting
Shareholder as may be necessary to perfect appraisal rights under Michigan
Banking Law. Any payments made with respect to Dissenting Shares shall be
made by the Surviving Corporation.
(e) If any Dissenting Shareholder shall effectively withdraw or lose
(through failure to perfect or otherwise) his right to payment as a
Dissenting Shareholder at or prior to the Effective Time, such holder's
shares of FSSB Common Stock shall be converted into a right to receive the
Merger Consideration in accordance with the applicable provisions of this
Agreement.
(f) At the Effective Time, shares of FSSB Common Stock shall
automatically be canceled and shall no longer be outstanding, and shall be
converted into the right to receive the Merger Consideration.
(g) Notwithstanding anything to the contrary contained herein, no
certificates or script representing fractional shares of IBT Common Stock
shall be issued upon the surrender and exchange of Certificates, no
dividend or distribution with respect to IBT Common Stock shall be payable
on or with respect to any fractional share interest, and such fractional
share interests shall not entitle the owner thereof to vote or to any other
rights of a shareholder of IBT. In lieu of the issuance of any such
fractional share, Farmers shall pay to each former holder of FSSB Common
Stock who otherwise would be entitled to receive a fractional share of IBT
Common Stock, an amount in cash, rounded to the nearest cent and without
interest, equal to the product of (i) the fraction of a share to which such
holder would otherwise have been entitled and (ii) $42.00. For purposes of
determining any fractional share interest, all shares of FSSB Common Stock
owned by a FSSB shareholder shall be combined so as to calculate the
maximum number of whole shares of IBT Common Stock issuable to such FSSB
Shareholder.
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(h) In the event that, subsequent to the date of this Agreement but
prior to the Effective Time, the outstanding shares of IBT Common Stock
and/or FSSB Common Stock shall have been increased, decreased, changed into
or exchanged for a different number or kind of shares or securities through
a reorganization, recapitalization, reclassification, stock dividend, stock
split, reverse stock split, or other similar change in capitalization, or
exchanged or converted into shares or securities of another corporation,
then an appropriate, equitable and proportionate adjustment shall be made
to the Exchange Ratio.
3.2. Procedures for Exchange of FSSB Common Stock.
(a) IBT to Make Merger Consideration Available. No later than the Closing
Date, IBT shall deposit, or shall cause to be deposited, in an account with the
Exchange Agent for the benefit of the holders of FSSB Common Stock, for exchange
in accordance with this Section 3.2, certificates representing the shares of IBT
Common Stock and an aggregate amount of cash sufficient to pay the aggregate
amount of cash payable pursuant to this Article III (such cash and certificates
for shares of IBT Common Stock, together with any dividends or distributions
with respect thereto (without any interest thereon) being hereinafter referred
to as the "Exchange Fund").
(b) Exchange of Certificates. IBT shall take any steps necessary to cause
the Exchange Agent, within five (5) business days after the Effective Time, to
mail to each holder of a Certificate or Certificates, a form letter of
transmittal for return to the Exchange Agent and instructions for use in
effecting the surrender of the Certificates in exchange for the Merger
Consideration. The letter of transmittal shall be in customary form and shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent. Upon proper surrender of a Certificate for exchange and cancellation to
the Exchange Agent, together with a properly completed letter of transmittal,
duly executed, the holder of such Certificate shall be entitled to receive in
exchange therefore the Merger Consideration to which such holder of FSSB Common
Stock shall have become entitled pursuant to Section 3.1(c) and 3.1(g) hereof,
and the Certificate so surrendered shall forthwith be cancelled. No interest
will be paid or accrued on any cash payable hereunder or any unpaid dividends
and distributions, if any, payable to holders of Certificates.
(c) Rights of Certificate Holders After the Effective Time. After the
Effective Time, the holders of the Certificates shall have no rights (excluding
dissenter's rights of those shareholders properly exercising dissenter's rights)
with respect to the shares of FSSB Common Stock formerly represented by those
Certificates except to surrender those Certificates in exchange for the Merger
Consideration as provided in this Agreement. No dividends or other distributions
declared after the Effective Time with respect to IBT Common Stock or interest
with respect to cash that is part of the Exchange Fund shall be paid to the
holder of any Certificate until the holder thereof shall surrender such
Certificate in accordance with this Section 3.2. After the surrender of a
Certificate in accordance with this Section 3.2, the record holder thereof shall
be entitled to receive any dividends or other distributions, without any
interest thereon, that become payable after the Effective Time with respect to
the shares of IBT Common Stock that are part of the Merger Consideration for the
shares of FSSB Common Stock represented by the surrendered Certificate.
(d) Surrender by Persons Other than Record Holders. If the Person
surrendering a Certificate and signing the accompanying letter of transmittal is
not the record holder thereof, then it shall be a condition of the payment of
the Merger Consideration that: (i) such Certificate is properly endorsed to such
Person or is accompanied by appropriate stock powers, in either case signed
exactly as the name of the record holder appears on such Certificate, and is
otherwise in proper form for transfer, or is accompanied by appropriate evidence
of the authority of the Person surrendering such Certificate and signing the
letter of transmittal to do so on behalf of the record holder; and (ii) the
person requesting such exchange shall pay to the Exchange Agent in advance any
transfer or other taxes required by reason of the payment to a Person other than
the registered holder of the Certificate surrendered, or required for any other
reason, or shall establish to the satisfaction of the Exchange Agentfact that such
tax has been paid or is not payable.
(e) Closing of Transfer Books. From and after the Effective Time, there
shall be no transfers on the stock transfer books of FSSB of the FSSB Common
Stock that were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates representing such shares are presented for
transfer to the Exchange Agent, they shall be exchanged for the Merger
Consideration and canceled as provided in this Section 3.2. Certificates
surrendered for exchange by any person constituting an "Affiliate" of FSSB for
purposes of Rule 145 under the
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Securities Act shall not be exchanged until Farmers has received a written
agreement from such person as provided in Section 8.4.
(f) Return of Exchange Fund. At any time following the twelve (12) month
period after the Effective Time, IBT shall be entitled to require the Exchange
Agent to deliver to it any portions of the Exchange Fund which has been made
available to the Exchange Agent and not disbursed to holders of Certificates
(including, without limitation, all interest and other income received by the
Exchange Agent in respect of all funds made available to it), and thereafter
such holders shall be entitled to look to IBT (subject to abandoned property,
escheat and other similar laws) with respect to any Merger Consideration that
may be payable upon due surrender of the Certificates held by them.
Notwithstanding the foregoing, neither IBT nor the Exchange Agent shall be
liable to any holder of a Certificate for any Merger Consideration delivered in
respect of such Certificate to a public official pursuant to any abandoned
property, escheat or other similar law.
(g) Lost, Stolen or Destroyed Certificates. In the event any Certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the person claiming such Certificate to be lost, stolenis or
destroyed and, if required by IBT, the posting by such person of a bond in such
amount as IBT may reasonably direct as indemnity against any claim that may be
made against it with respect to such Certificate, the Exchange Agent will issue
in exchange for such lost, stolen or destroyed Certificate, the Merger
Consideration deliverable in respect thereof.
(h) Withholding. IBT or the Exchange Agent will be entitled to deduct and
withhold from the consideration otherwise payable pursuant to this Agreement or
the transactions contemplated hereby to any holder of FSSB Common Stock such
amounts as IBT (or any Affiliate thereof) or the Exchange Agent are required to
deduct and withhold with respect to the making of such payment under the Code,
or any applicable provision of U.S. Federal, state, local or non-U.S. tax law.
To the extent that such amounts are properly withheld by IBT or the Exchange
Agent, such withheld amounts will be treated for all purposes of this Agreement
as having been paid to the holder of the FSSB Common Stock in respect of whom
such deduction and withholding were made and shall be delivered to the
applicable taxing authorities.
3.3. Reservation of Shares. IBT shall reserve for issuance a sufficient
number of shares of IBT Common Stock for the purpose of issuing such shares to
FSSB shareholders in accordance with this Article III.
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES OF FSSB
4.1. Representations and Warranties of FSSB. FSSB represents and warrants
to Farmers that the statements contained in this Article IV are correct as of
the date of this Agreement, except as set forth in the FSSB Disclosure Schedule
delivered by FSSB to Farmers on the date hereof, and except as to any
representation or warranty which specifically relates to an earlier date. FSSB
has made a good faith effort to ensure that the disclosure on each schedule of
the FSSB Disclosure Schedule corresponds to the section referenced herein.
However, for purposes of the FSSB Disclosure Schedule, any item disclosed on any
schedule therein is deemed to be fully disclosed with respect to all schedules
under which such item may be relevant as and to the extent that it is reasonably
apparent that such item applies to such other schedule.
(a) Organization, Standing and Power.
(i) FSSB is a Michigan chartered commercial bank duly organized,
validly existing and in good standing under the laws of the State of
Michigan. FSSB has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
The deposits of FSSB are insured by the FDIC to the fullest extent
permitted by law, and all premiums and assessments required to be paid in
connection therewith have been paid by FSSB when due.
(ii) FSSB Disclosure Schedule 4.1(a)(ii) sets forth each FSSB
Subsidiary. Each FSSB Subsidiary is a corporation, limited liability
company or other legal entity duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or
organization.
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(iii) The respective minute books of FSSB and each FSSB Subsidiary
accurately records, in all material respects, all material corporate
actions of the respective shareholders and boards of directors (including
committees) since January 1, 2003.
(iv) Prior to the date of this Agreement, FSSB has made available to
Farmers or a Farmers Entity, true and correct copies of the articles of
incorporation or charter and bylaws of FSSB and each FSSB Subsidiary. FSSB
Disclosure Schedule 4.1(a)(iv) sets forth any and all current noncompliance
with FSSB's charter and bylaws. Such noncompliance has not, and will not
have, a Material Adverse Effect on FSSB.
(b) Capital Structure.
(i) The authorized capital stock of FSSB consists of 262,500 shares of
FSSB Common Stock, of which 262,500 shares are outstanding, validly issued,
fully paid and nonassessable (except for assessments by the Bureau pursuant
to Section 3807 of the Michigan Banking Code of 1999) and free of
preemptive rights. There are no shares of FSSB Common Stock held by FSSB as
treasury stock. FSSB has no outstanding options, warrants or other rights
which are convertible into shares of FSSB Common Stock, except as disclosed
on FSSB Disclosure Schedule 4.1(b)(i). Neither FSSB nor any FSSB Subsidiary
has or is bound by any Rights of any character relating to the purchase,
sale or issuance or voting of, or right to receive dividends or other
distributions on any shares of FSSB Common Stock, or any other security of
FSSB or any securities representing the right to vote, purchase or
otherwise receive any shares of FSSB Common Stock or any other security of
FSSB, other than shares issuable under the FSSB Stock Benefit Plans. FSSB
Disclosure Schedule 4.1(b)(i) sets forth: the name of each holder of an
award granted under any FSSB Stock Benefit Plan, identifying the nature,
number of shares, grant and vesting dates of the award.
(ii) Except for the FSSB Subsidiaries and as set forth in FSSB
Disclosure Schedule 4.1(b)(ii), FSSB does not possess, directly or
indirectly, any material equity interest in any corporate entity, except
for equity interests held in the investment portfolios of FSSB or any FSSB
Subsidiary, equity interests held by FSSB in a fiduciary capacity, and
equity interests held in connection with the lending activities of FSSB.
FSSB owns each of its outstanding shares of capital stock of each FSSB
Subsidiary free and clear of all liens, security interests, pledges,
charges, encumbrances, agreements and restrictions of any kind or nature.
(iii) To FSSB's Knowledge, except as set forth on FSSB Disclosure
Schedule 4.1(b)(iii), no Person is the beneficial owner (as defined in
Section 13(d) of the Exchange Act) of 5% or more of the outstanding shares
of FSSB Common Stock.
(iv) No bonds, debentures, notes or other indebtedness having the
right to vote on any matters on which FSSB's shareholders may vote has been
issued by FSSB and are outstanding.
(c) Authority.
(i) FSSB has full corporate power and authority to execute and deliver
this Agreement and, subject to the receipt of the Regulatory Approvals
described in Section 8.3 and the approval of this Agreement by FSSB's
shareholders, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by FSSB and the completion by FSSB
of the transactions contemplated hereby, up to and including the Merger,
have been duly and validly approved by the Board of Directors of FSSB. This
Agreement has been duly and validly executed and delivered by FSSB, and
subject to approval by the shareholders of FSSB and receipt of the
Regulatory Approvals, constitutes the valid and binding obligation of FSSB,
enforceable against FSSB in accordance with its terms, subject to
applicable bankruptcy, insolvency and similar laws affecting creditors'
rights generally, and subject, as to enforceability, to general principles
of equity.
(ii) (A) The execution and delivery of this Agreement by FSSB, (B)
subject to receipt of Regulatory Approvals, and FSSB's and Farmers'
compliance with any conditions contained therein, and subject to the
receipt of the approval of the shareholders of FSSB, the consummation of
the transactions contemplated hereby, and (C) compliance by FSSB with any
of the terms or provisions hereof will not (i) conflict with or result in a
breach of any provision of the Articles of Incorporation or Bylaws of FSSB
or any FSSB Subsidiary; (ii) violate any statute, code, ordinance, rule,
regulation, judgment, order, writ, decree or injunction applicable to FSSB
or any FSSB Subsidiary or any of their respective properties or assets; or
(iii) except as set forth in
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FSSB Disclosure Schedule 4.1(c)(ii), violate, conflict with, result in a
breach of any provisions of, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default), under,
result in the termination of, accelerate the performance required by, or
result in a right of termination or acceleration or the creation of any
lien, security interest, charge or other encumbrance upon any of the
properties or assets of FSSB or any FSSB Subsidiary under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other investment or obligation to which
FSSB or any FSSB Subsidiary is a party, or by which they or any of their
respective properties or assets may be bound or affected, except for such
violations, conflicts, breaches or defaults under clause (ii) or (iii)
hereof which, either individually or in the aggregate, will not have a
Material Adverse Effect on FSSB and the FSSB Subsidiaries taken as a whole.
(d) Information Supplied. None of the information supplied or to be
supplied by FSSB or any FSSB Subsidiary for inclusion or incorporation by
reference in (i) the Registration Statement on Form S-4 to be filed with the SEC
by IBT in connection with the issuance of shares of IBT Common Stock in the
Merger (including the Proxy Statement and prospectus constituting a part
thereof, the "S-4") will, at the time the S-4 becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Proxy Statement -- Prospectus
and any amendment or supplement thereto will, at the date of mailing to FSSB
shareholders and at the time of the meeting of shareholders of FSSB to be held
in connection with the Merger, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading. The Proxy
Statement -- Prospectus (except for such portions thereof that relate only to
IBT) will comply in all material respects with the provisions of the Exchange
Act and the rules and regulations thereunder, and the S-4 (except for such
portions thereof that relate only to IBT) will comply in all material respects
with the provisions of the Securities Act and the rules and regulations
thereunder.
(e) Consents. Except for the Regulatory Approvals referred to in Section
8.3 hereof and consents set forth in FSSB Disclosure Schedule 4.1(e) and
compliance with any conditions contained therein, and the approval of this
Agreement by the requisite vote of the shareholders of FSSB, no consents,
waivers or approvals of, or filings or registrations with, any Governmental
Entity or Bank Regulator are necessary, and, to FSSB's Knowledge, no consents,
waivers or approvals of, or filings or registrations with, any other third
parties are necessary, in connection with the execution and delivery of this
Agreement by FSSB, and the completion by FSSB of the Merger. To FSSB's
knowledge, (i) it has not received notice as of the date hereof that any Bank
Regulator intends to disapprove or object to the completion of the transactions
contemplated by this Agreement, and (ii) there is no reason to expect that all
Regulatory Approvals required for the consummation of the transactions
contemplated by this Agreement will not be received.
(f) Financial Statements.
(i) FSSB has previously made available to Farmers or a Farmers Entity
the FSSB Financial Statements. Except as disclosed in FSSB Disclosure
Schedule 4.1(f)(i), the FSSB Financial Statements have been prepared in
accordance with GAAP, and (including the related notes where applicable)
fairly present in each case in all material respects (subject to the case
of the unaudited interim statements to normal year-end adjustments) the
consolidated financial position, results of operations and cash flows of
FSSB and the FSSB Subsidiaries on a consolidated basis as of and for the
respective periods ending on the dates thereof, in accordance with GAAP
during the periods involved, except as indicated in the notes thereto.
(ii) Except as disclosed in FSSB Disclosure Schedule 4.1(f)(ii), at
the date of each balance sheet included in the FSSB Financial Statements,
FSSB did not have any liability, obligation or loss contingency of any
nature (whether absolute, accrued, contingent or otherwise) of a type
required to be reflected in such FSSB Financial Statements or in the
footnotes thereto which were not fully reflected or reserved against
therein or fully disclosed in a footnote thereto, except for liabilities,
obligations and loss contingencies which were not material individually or
in the aggregate or which are incurred in the ordinary course of business,
consistent with past practice, and except for liabilities, obligations and
loss contingencies which are within the subject matter of a specific
representation and warranty herein and subject, in the case of any
unaudited statements, to normal, recurring audit adjustments and the
absence of footnotes.
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(g) Taxes. Except as set forth in FSSB Disclosure Schedule 4.1(g), FSSB
and the FSSB Subsidiaries that are at least 80% owned by FSSB are members of the
same Affiliated group within the meaning of Code Section 1504(a) and (A) FSSB
has duly filed all federal, state and material local tax returns required to be
filed by or with respect to FSSB and each Significant Subsidiary of FSSB on or
prior to the Closing Date, taking into account any extensions (all such returns,
to FSSB's Knowledge, being accurate and correct in all material respects) and
has duly paid or made provisions for the payment of all material federal, state
and local taxes which have been incurred by or are due or claimed to be due from
FSSB and any Significant Subsidiary of FSSB by any taxing authority or pursuant
to any written tax sharing agreement on or prior to the Closing Date other than
taxes or other charges which (i) are not delinquent, (ii) are being contested in
good faith, or (iii) have not yet been fully determined, (B) as of the date of
this Agreement, FSSB has received no written notice of, and to FSSB's Knowledge
there is no audit examination, deficiency assessment, tax investigation or
refund litigation with respect to any taxes of FSSB or any of its Significant
Subsidiaries, and no claim has been made by any authority in a jurisdiction
where FSSB or any of its Significant Subsidiaries do not file tax returns that
FSSB or any such Significant Subsidiary is subject to taxation in that
jurisdiction and (C) FSSB and its Significant Subsidiaries have not executed an
extension or waiver of any statute of limitations on the assessment or
collection of any material tax due that is currently in effect. FSSB and each of
its Significant Subsidiaries has withheld and paid all taxes required to have
been withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, shareholder or other third party, and FSSB and
each of its Significant Subsidiaries, to FSSB's Knowledge, has timely complied
with all applicable information reporting requirements under Part III,
Subchapter A of Chapter 61 of the Code and similar applicable state and local
information reporting requirements.
(h) No Material Adverse Effect. Except as disclosed in FSSB Disclosure
Schedule 4.1(h), FSSB and the FSSB Subsidiaries, taken as a whole, have not
suffered any Material Adverse Effect since December 31, 2004, and, to FSSB's
Knowledge, no event has occurred or circumstance arisen since that date which,
in the aggregate, has had or is reasonably likely to have a Material Adverse
Effect on FSSB and the FSSB Subsidiaries, taken as a whole.
(i) Material Contracts; Leases; Defaults.
(i) Except as set forth in FSSB Disclosure Schedule 4.1(i)(i), neither
FSSB nor any FSSB Subsidiary is a party to or subject to: (i) any
employment, consulting or severance contract with any past or present
officer, director or employee of FSSB or any FSSB Subsidiary, except for
"at will" arrangements; (ii) any plan or contract providing for bonuses,
pensions, options, deferred compensation, retirement payments, profit
sharing or similar material arrangements for or with any past or present
officers, directors or employees of FSSB or any FSSB Subsidiary; (iii) any
collective bargaining agreement with any labor union relating to employees
of FSSB or any FSSB Subsidiary; (iv) any agreement (other than this
Agreement) which by its terms limits the payment of dividends by FSSB or
any FSSB Subsidiary; (v) any instrument evidencing or related to material
indebtedness for borrowed money whether directly or indirectly, by way of
purchase money obligation, conditional sale, lease purchase, guaranty or
otherwise, in respect of which FSSB or any FSSB Subsidiary is an obligor to
any person, which instrument evidences or relates to indebtedness other
than deposits, repurchase agreements, bankers' acceptances, and "treasury
tax and loan" accounts established in the ordinary course of business and
transactions in "federal funds" or which contains financial covenants or
other restrictions (other than those relating to the payment of principal
and interest when due) which would be applicable on or after the Closing
Date to Farmers or any Farmers Entity; (vi) any other agreement, written or
oral, that obligates FSSB or any FSSB Subsidiary for the payment of more
than $50,000 annually; or (vii) any agreement (other than this Agreement),
contract, arrangement, commitment or understanding (whether written or
oral) that restricts or limits in any material way the conduct of business
by FSSB or any FSSB Subsidiary (it being understood that any non-compete or
similar provision shall be deemed material).
(ii) Each real estate lease that will require the consent of the
lessor or its agent or the assignment to Surviving Corporation as a result
of the Merger by virtue of the terms of any such lease, is listed in FSSB
Disclosure Schedule 4.1(i)(ii) identifying the section of the lease that
contains such prohibition or restriction. Subject to any consents that may
be required as a result of the transactions contemplated by this Agreement,
to its Knowledge, neither FSSB nor any FSSB Subsidiary is in default in any
material respect under any material contract, agreement, commitment,
arrangement, lease, insurance policy or other instrument to which it is a
party, by which its assets, business, or operations may be bound or
affected, or under which it or its assets,
A-11
business, or operations receive benefits, and there has not occurred any
event that, with the lapse of time or the giving of notice or both, would
constitute such a default.
(iii) True and correct copies of agreements, contracts, arrangements
and instruments referred to in Section 4.1(i)(i) and 4.1(i)(ii) have been
made available to Farmers or its Affiliates on or before the date hereof,
are listed on FSSB Disclosure Schedule 4.1(i)(i) and 4.1(i)(ii) and are in
full force and effect on the date hereof. Except as set forth in FSSB
Disclosure Schedule 4.1(i)(iii), no plan, contract, employment agreement,
termination agreement, or similar agreement or arrangement to which FSSB or
any FSSB Subsidiary is a party or under which FSSB or any FSSB Subsidiary
may be liable contains provisions which permit an employee or independent
contractor to terminate it without cause and continue to accrue future
benefits thereunder. Except as set forth in FSSB Disclosure Schedule
4.1(i)(iii), no such agreement, plan, contract, or arrangement (x) provides
for acceleration in the vesting of benefits or payments due thereunder upon
the occurrence of a change in ownership or control of FSSB or any FSSB
Subsidiary; or (y) requires FSSB or any FSSB Subsidiary to provide a
benefit in the form of FSSB Common Stock or determined by reference to the
value of FSSB Common Stock. FSSB Disclosure Schedule 4.1(i)(iii) sets forth
an analysis of FSSB Pension Plan liability including the amounts that are
funded and unfunded.
(j) Ownership of Property; Insurance Coverage.
(i) FSSB and each FSSB Subsidiary has good and, as to real property,
marketable title to all material assets and properties owned by FSSB or
each FSSB Subsidiary in the conduct of its businesses, whether such assets
and properties are real or personal, tangible or intangible, including
assets and property reflected in the balance sheet contained in the most
recent FSSB Financial Statements or acquired subsequent thereto (except to
the extent that such assets and properties have been disposed of in the
ordinary course of business, since the date of such balance sheet), subject
to no material encumbrances, liens, mortgages, security interests or
pledges, except (i) those items which secure liabilities for public or
statutory obligations or any discount with, borrowing from or other
obligations to FHLB, inter-bank credit facilities or any transaction by
FSSB acting in a fiduciary capacity, and (ii) statutory liens for amounts
not yet delinquent or which are being contested in good faith. FSSB and the
FSSB Subsidiaries, as lessee, have the right under valid and existing
leases of real and personal properties used by FSSB and the FSSB
Subsidiaries in the conduct of their businesses to occupy or use all such
properties as presently occupied and used by each of them. Such existing
leases and commitments to lease constitute or will constitute operating
leases for both tax and financial accounting purposes and the lease expense
and minimum rental commitments with respect to such leases and lease
commitments are as disclosed in all material respects in the notes to the
FSSB Financial Statements.
(ii) FSSB and each Significant Subsidiary of FSSB currently maintain
insurance considered by each of them to be reasonable for their respective
operations. Neither FSSB nor any Significant Subsidiary of FSSB has
received notice from any insurance carrier that (i) such insurance will be
canceled or that coverage thereunder will be reduced or eliminated, or (ii)
premium costs with respect to such policies of insurance will be
substantially increased. There are presently no material claims pending
under such policies of insurance and no notices of material claims have
been given by FSSB or any Significant Subsidiary of FSSB under such
policies. All such insurance is valid and enforceable and in full force and
effect, and within the last three (3) years FSSB and each Significant
Subsidiary of FSSB has received each type of insurance coverage for which
it has applied and during such periods has not been denied indemnification
for any material claims submitted under any of its insurance policies. FSSB
Disclosure Schedule 4.1(j) (ii) identifies all policies of insurance
maintained by FSSB and each Significant Subsidiary of FSSB.
(k) Legal Proceedings. Except as set forth in FSSB Disclosure Schedule
4.1(k), neither FSSB nor any FSSB Subsidiary is a party to any, and there are no
pending or, to FSSB's Knowledge, threatened legal, administrative, arbitration
or other proceedings, claims (whether asserted or unasserted), actions or
governmental investigations or inquiries of any nature (i) against FSSB or any
FSSB Subsidiary, (ii) to which FSSB or any FSSB Subsidiary's assets are or may
be subject, (iii) challenging the validity or propriety of any of the
transactions contemplated by this Agreement, or (iv) which could adversely
affect the ability of FSSB to perform under this Agreement, except for any
proceeding, claim, action, investigation or inquiry referred to in clauses (i)
and (ii) which, individually or in the aggregate, would not be reasonably
expected to have a Material Adverse Effect.
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(l) Compliance With Applicable Law.
(i) Except as set forth in FSSB Disclosure Schedule 4.1(l)(i), to
FSSB's Knowledge, each of FSSB and each FSSB Subsidiary is in compliance in
all material respects with all applicable federal, state, and local
statutes, laws, regulations, ordinances, rules, judgments, orders or
decrees applicable to it, its properties, assets and deposits, its
business, and its conduct of business and its relationship with its
employees, including, without limitation, the USA PATRIOT Act, the Bank
Secrecy Act, the Equal Credit Opportunity Act, the Fair Housing Act, the
Community Reinvestment Act of 1977 ("CRA"), the Home Mortgage Disclosure
Act, and all other applicable fair lending laws and other laws relating to
discriminatory business practices and neither FSSB nor any FSSB Subsidiary
has received any written notice to the contrary.
(ii) Each of FSSB and each FSSB Subsidiary has all material permits,
licenses, authorizations orders and approvals of, and has made all filings,
applications and registrations with, all Bank Regulators that are required
in order to permit it to own or lease its properties and to conduct its
business as presently conducted; all such permits, licenses, certificates
of authority, orders and approvals are in full force and effect and, to the
Knowledge of FSSB, no suspension or cancellation of any such permit,
license, certificate, order or approval is threatened or will result from
the consummation of the transactions contemplated by this Agreement,
subject to obtaining the approvals set forth in Section 8.3.
(iii) Except as set forth in FSSB Disclosure Schedule 4.1(l)(iii) for
the period beginning January 1, 2003, neither FSSB nor any FSSB Subsidiary
has received any written notification or, to FSSB's Knowledge, any other
communication from any Bank Regulator (i) asserting that FSSB or any FSSB
Subsidiary is not in material compliance with any of the statutes,
regulations or ordinances which such Bank Regulator enforces; (ii)
threatening to revoke any license, franchise, permit or governmental
authorization which is material to FSSB or any FSSB Subsidiary; (iii)
requiring or threatening to require FSSB or any FSSB Subsidiary, or
indicating that FSSB or any FSSB Subsidiary may be required, to enter into
a cease and desist order, agreement or memorandum of understanding or any
other agreement with any federal or state governmental agency or authority
which is charged with the supervision or regulation of banks or engages in
the insurance of bank deposits restricting or limiting, or purporting to
restrict or limit, in any material respect the operations of FSSB or any
FSSB Subsidiary, including without limitation any restriction on the
payment of dividends; or (iv) directing, restricting or limiting, or
purporting to direct, restrict or limit, in any material manner the
operations of FSSB or any FSSB Subsidiary (any such notice, communication,
memorandum, agreement or order described in this sentence is hereinafter
referred to as a "Regulatory Agreement"). Except as set forth in FSSB
Disclosure Schedule 4.1(l)(iii), neither FSSB nor any FSSB Subsidiary has
consented to or entered into any Regulatory Agreement that is currently in
effect. Any such Regulatory Agreement and all correspondence relating
thereto is set forth in FSSB Disclosure Schedule 4.1(l)(iii). The most
recent regulatory rating given to FSSB as to compliance with the CRA is
"Satisfactory" or better.
(m) Employee Benefit Plans.
(i) FSSB Disclosure Schedule 4.1(m)(i) includes a descriptive list of
all existing bonus, incentive, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus,
stock purchase, restricted stock, stock option, stock appreciation, phantom
stock, severance, welfare benefit plans, fringe benefit plans, employment,
severance and change in control agreements and all other material benefit
practices, policies and arrangements maintained by FSSB or any FSSB
Subsidiary in which any employee or former employee, consultant or former
consultant or director or former director of FSSB or any FSSB Subsidiary
participates or to which any such employee, consultant or director is a
party or is otherwise entitled to receive benefits (the "Compensation and
Benefit Plans"). Except as set forth in FSSB Disclosure Schedule 4.1(m)(i),
neither FSSB nor any of its Subsidiaries has any commitment to create any
additional Compensation and Benefit Plan or to materially modify, change or
renew any existing Compensation and Benefit Plan (any modification or
change that increases the cost of such plans would be deemed material),
except as required to maintain the qualified status thereof. FSSB has made
available to Farmers or a Farmers Entity true and correct copies of the
Compensation and Benefit Plans. There are no outstanding unvested or
unexercised awards under any FSSB benefit plans and there are no awards
available for issuance under any such plan.
A-13
(ii) Except as disclosed in FSSB Disclosure Schedule 4.1(m)(ii), each
Compensation and Benefit Plan has been operated and administered in all
material respects in accordance with its terms and with applicable law,
including, but not limited to, ERISA, the Code, the Securities Act, the
Exchange Act, the Age Discrimination in Employment Act, COBRA, the Health
Insurance Portability and Accountability Act and any regulations or rules
promulgated thereunder, and all material filings, disclosures and notices
required by ERISA, the Code, the Securities Act, the Exchange Act, the Age
Discrimination in Employment Act and any other applicable law have been
timely made or any interest, fines, penalties or other impositions for late
filings have been paid in full. Each Compensation and Benefit Plan which is
an "employee pension benefit plan" within the meaning of Section 3(2) of
ERISA (a "Pension Plan") and which is intended to be qualified under
Section 401(a) of the Code has received a favorable determination letter
from the IRS, and FSSB is not aware of any circumstances which are
reasonably likely to result in revocation of any such favorable
determination letter. There is no material pending or, to the Knowledge of
FSSB, threatened action, suit or claim relating to any of the Compensation
and Benefit Plans (other than routine claims for benefits). Neither FSSB
nor any FSSB Subsidiary has engaged in a transaction, or omitted to take
any action, with respect to any Compensation and Benefit Plan that would
reasonably be expected to subject FSSB or any FSSB Subsidiary to an unpaid
tax or penalty imposed by either Section 4975 of the Code or Section 502 of
ERISA.
(iii) Except as set forth in FSSB Disclosure Schedule 4.1(m)(iii), no
liability, other than PBGC premiums arising in the ordinary course of
business, has been or is expected by FSSB or any of its Subsidiaries to be
incurred with respect to any FSSB Compensation and Benefit Plan which is a
defined benefit plan subject to Title IV of ERISA ("FSSB Defined Benefit
Plan"), or with respect to any "single-employer plan" (as defined in
Section 4001(a) of ERISA) currently or formerly maintained by FSSB or any
entity which is considered one employer with FSSB under Section 4001(b)(1)
of ERISA or Section 414 of the Code (an "ERISA Affiliate") (such plan
hereinafter referred to as an "ERISA Affiliate Plan"). To the Knowledge of
FSSB and any FSSB Subsidiary, except as set forth in FSSB Disclosure
Schedule 4.1(m)(iii), no FSSB Defined Benefit Plan had an "accumulated
funding deficiency" (as defined in Section 302 of ERISA), whether or not
waived, as of the last day of the end of the most recent plan year ending
prior to the date hereof. Except as set forth in FSSB Disclosure Schedule
4.1(m)(iii), the fair market value of the assets of each FSSB Defined
Benefit Plan exceeds the present value of the benefits guaranteed under
Section 4022 of ERISA under such FSSB Defined Benefit Plan as of the end of
the most recent plan year with respect to the respective FSSB Defined
Benefit Plan ending prior to the date hereof, calculated on the basis of
the actuarial assumptions used in the most recent actuarial valuation for
such FSSB Defined Benefit Plan as of the date hereof; and no notice of a
"reportable event" (as defined in Section 4043 of ERISA) for which the 30-
day reporting requirement has not been waived has been required to be filed
for any FSSB Defined Benefit Plan within the 12-month period ending on the
date hereof. Except as set forth in FSSB Disclosure Schedule 4.1(m)(iii),
neither FSSB nor any of its Subsidiaries has provided, or is required to
provide, security to any FSSB Defined Benefit Plan or to any single-
employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the
Code or has taken any action, or omitted to take any action, that has
resulted, or would reasonably be expected to result in the imposition of a
lien under Section 412(n) of the Code or pursuant to ERISA. To the
Knowledge of FSSB, and except as set forth in FSSB Disclosure Schedule
4.1(m)(iii), there is no pending investigation or enforcement action by any
Bank Regulator with respect to any Compensation and Benefit Plan or any
ERISA Affiliate Plan.
(iv) With respect to any FSSB Defined Benefit Plan that is a "multi-
employer plan" as such term is defined in Section 3(37) of ERISA, covering
employees of FSSB or any ERISA Affiliate, (i) neither FSSB nor any ERISA
Affiliate has made or suffered a "complete withdrawal" or "partial
withdrawal," as such terms are respectively defined in Sections 4203 and
4205 of ERISA, (ii) no event has occurred, and no circumstances exist, that
alone or with the passage of time present a material risk of a complete or
partial withdrawal, and (iii) neither FSSB or any ERISA Affiliate has any
contingent liability under Section 4204 of ERISA and no circumstances exist
that present a material risk that any such plan will go into
reorganization. FSSB Disclosure Schedule 4.1(m)(iv) lists FSSB's best
estimate of the amount of withdrawal liability that would be incurred if
FSSB and each ERISA Affiliate were to make a complete withdrawal from such
plan as of the Effective Time and also states the aggregate withdrawal
liability of FSSB and the ERISA Affiliate. There are no "unfunded vested
benefits" (within the meaning of Section 4211 of ERISA) as of the end of
the most recently completed plan year and as of the date of this Agreement.
A-14
(v) All material contributions required to be made under the terms of
any Compensation and Benefit Plan or ERISA Affiliate Plan or any employee
benefit arrangements to which FSSB or any FSSB Subsidiary is a party or a
sponsor have been timely made, and all anticipated contributions and
funding obligations are accrued on FSSB's consolidated financial statements
to the extent required by GAAP. FSSB or its Subsidiaries have expensed and
accrued as a liability the present value of future benefits under each
applicable Compensation and Benefit Plan for financial reporting purposes
as required by GAAP.
(vi) Neither FSSB nor any FSSB Subsidiary has any obligations to
provide retiree health, life insurance, disability insurance, or other
retiree death benefits under any Compensation and Benefit Plan, other than
benefits mandated by Section 4980B of the Code. Except as set forth in FSSB
Disclosure Schedule 4.1(m)(vi), there has been no communication to
employees by FSSB or any FSSB Subsidiary that would reasonably be expected
to promise or guarantee such employees retiree health, life insurance,
disability insurance, or other retiree death benefits.
(vii) Except as set forth in FSSB Disclosure Schedule 4.1(m)(vii),
FSSB and its Subsidiaries do not maintain any Compensation and Benefit
Plans covering employees who are not United States residents.
(viii) Except as set forth in FSSB Disclosure Schedule 4.1(m)(viii),
with respect to each Compensation and Benefit Plan, if applicable, FSSB has
provided or made available to Farmers or a Farmers Entity copies of the:
(A) trust instruments and insurance contracts, (B) two (2) most recent
Forms 5500 filed with the IRS, (C) two (2) most recent actuarial reports
and financial statements; (D) most recent summary plan description, (E)
most recent determination letter issued by the IRS; (F) any Form 5310 or
Form 5330 filed with the IRS within the last two years, and (G) most recent
nondiscrimination tests performed under ERISA and the Code (including
401(k) and 401(m) tests), if applicable.
(ix) Except as set forth in FSSB Disclosure Schedule 4.1(m)(ix), the
consummation of the Merger will not, directly or indirectly (including,
without limitation, as a result of any termination of employment or service
at any time prior to or following the Effective Time) (A) entitle any
employee, consultant or director to any payment or benefit (including
severance pay, change in control benefit, or similar compensation) or any
increase in compensation, (B) result in the vesting or acceleration of any
benefits under any Compensation and Benefit Plan or (C) result in any
material increase in benefits payable under any Compensation and Benefit
Plan.
(x) Neither FSSB nor any FSSB Subsidiary maintains any compensation
plans, programs or arrangements under which any payment is reasonably
likely to become non-deductible, in whole or in part, for tax reporting
purposes as a result of the limitations under Section 162(m) of the Code
and the regulations issued thereunder.
(xi) To the Knowledge of FSSB, the consummation of the Merger will
not, directly or indirectly (including without limitation, as a result of
any termination of employment or service at any time prior to or following
the Effective Time), entitle any current or former employee, director or
independent contractor of FSSB or any FSSB Subsidiary to any actual or
deemed payment (or benefit) which could constitute a "parachute payment"
(as such term is defined in Section 280G of the Code).
(xii) There are no stock appreciation or similar rights, earned
dividends or dividend equivalents, or shares of restricted stock,
outstanding under any of the Compensation and Benefit Plans or otherwise as
of the date hereof and none will be granted, awarded, or credited after the
date hereof.
(n) Brokers, Finders and Financial Advisors. Except as set forth in FSSB
Disclosure Schedule 4.1(n), neither FSSB nor any FSSB Subsidiary, nor any of
their respective officers, directors, employees or agents, has employed any
broker, finder or financial advisor other than Austin Associates, LLC in
connection with the transactions contemplated by this Agreement, or incurred any
liability or commitment for any fees or commissions to any such person other
than Austin Associates, LLC in connection with the transactions contemplated by
this Agreement.
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(o) Environmental Matters.
(i) Except as may be set forth in FSSB Disclosure Schedule 4.1(o) and
any Phase I Environmental Report identified therein, with respect to FSSB
and each FSSB Subsidiary:
(A) Each of FSSB and the FSSB Subsidiaries and, to FSSB's
Knowledge, the Participation Facilities and Loan Properties are, and
have been, in substantial compliance with, and are not liable under,
any Environmental Laws;
(B) FSSB has received no written notice that there is any suit,
claim, action, demand, executive or administrative order, directive,
investigation or proceeding pending and, to FSSB's Knowledge, no such
action is threatened, before any court, governmental agency or other
forum against it or any of the FSSB Subsidiaries or any Participation
Facility (x) for alleged noncompliance (including by any predecessor)
with, or liability under, any Environmental Law or (y) relating to the
presence of or release into the environment of any Materials of
Environmental Concern, whether or not occurring at or on a site owned,
leased or operated by it or any of the FSSB Subsidiaries or any
Participation Facility;
(C) FSSB has received no notice that there is any suit, claim,
action, demand, executive or administrative order, directive,
investigation or proceeding pending and, to FSSB's Knowledge no such
action is threatened, before any court, governmental agency or other
forum relating to or against any Loan Property (or FSSB or any of the
FSSB Subsidiaries in respect of such Loan Property) (x) relating to
alleged noncompliance (including by any predecessor) with, or
liability under, any Environmental Law or (y) relating to the presence
of or release into the environment of any Materials of Environmental
Concern, whether or not occurring at or on a site owned, leased or
operated by a Loan Property;
(D) To FSSB's Knowledge, the properties currently owned or
operated by FSSB or any FSSB Subsidiary (including, without
limitation, soil, groundwater or surface water on, or under the
properties, and buildings thereon) are not contaminated with and do
not otherwise contain any Materials of Environmental Concern other
than as permitted under applicable Environmental Law;
(E) neither FSSB nor any FSSB Subsidiary has received any written
notice, demand letter, executive or administrative order, directive or
request for information from any federal, state, local or foreign
governmental entity or any third party indicating that it may be in
violation of, or liable under, any Environmental Law;
(F) To FSSB's Knowledge, there are no underground storage tanks
on, in or under any properties owned or operated by FSSB or any of the
FSSB Subsidiaries or any Participation Facility, and to FSSB's
Knowledge, no underground storage tanks have been closed or removed
from any properties owned or operated by FSSB or any of the FSSB
Subsidiaries or any Participation Facility; and
(G) To FSSB's Knowledge, during the period of (s) FSSB's or any
of the FSSB Subsidiaries' ownership or operation of any of their
respective current properties or (t) FSSB's or any of the FSSB
Subsidiaries' participation in the management of any Participation
Facility, there has been no contamination by or release of Materials
of Environmental Concerns in, on, under or affecting such properties
that could reasonably be expected to result in material liability
under the Environmental Laws. To FSSB's Knowledge, prior to the period
of (x) FSSB's or any of the FSSB Subsidiaries' ownership or operation
of any of their respective current properties or (y) FSSB's or any of
the FSSB Subsidiaries' participation in the management of any
Participation Facility, there was no contamination by or release of
Materials of Environmental Concern in, on, under or affecting such
properties that could reasonably be expected to result in material
liability under the Environmental Laws.
(ii) "Loan Property" means any property in which the applicable party
(or a Subsidiary of it) holds a security interest, and, where required by
the context, includes the owner or operator of such property, but only with
respect to such property. "Participation Facility" means any facility in
which the applicable party (or a Subsidiary of it) participates in the
management (including all property held as trustee or in any other
fiduciary capacity) and, where required by the context, includes the owner
or operator of such property, but only with respect to such property.
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(p) Loan Portfolio.
(i) To FSSB's Knowledge, the allowance for loan losses reflected in
the notes to FSSB's audited consolidated statement of financial condition
at December 31, 2004 was, and the allowance for loan losses shown in the
notes to the FSSB's unaudited consolidated financial statements for periods
ending after December 31, 2004 were, or will be, adequate, as of the dates
thereof, under GAAP.
(ii) FSSB Disclosure Schedule 4.1(p)(ii) sets forth a listing, as of
the most recently available date, by account, of: (A) each borrower,
customer or other party which has notified FSSB or any FSSB Subsidiary
during the past twelve months of, or has asserted against FSSB or any FSSB
Subsidiary, in each case in writing, any "lender liability" or similar
claim, and, to the Knowledge of FSSB, each borrower, customer or other
party which has given FSSB or any FSSB Subsidiary any oral notification of,
or orally asserted to or against FSSB or any FSSB Subsidiary, any such
claim; and (B) all loans, (1) that are contractually past due 90 days or
more in the payment of principal and/or interest, (2) that are on non-
accrual status, (3) that as of the date of this Agreement are classified as
"Other Loans Specifically Mentioned", "Special Mention", "Substandard",
"Doubtful", "Loss", "Classified", "Criticized", "Watch list" or words of
similar import, together with the principal amount of and accrued and
unpaid interest on each such loan and the identity of the obligor
thereunder, (4) where the interest rate terms have been reduced and/or the
maturity dates have been extended subsequent to the agreement under which
the loan was originally created due to concerns regarding the borrower's
ability to pay in accordance with such initial terms, or (5) where a
specific reserve allocation exists in connection therewith; and (C) all
other assets classified by FSSB or any FSSB Subsidiary as real estate
acquired through foreclosure or in lieu of foreclosure, including in-
substance foreclosures, and all other assets currently held that were
acquired through foreclosure or in lieu of foreclosure.
(iii) All loans receivable (including discounts) and accrued interest
entered on the books of FSSB and the FSSB Subsidiaries arose out of bona
fide arm's-length transactions, were made for good and valuable
consideration in the ordinary course of FSSB's or the appropriate FSSB
Subsidiary's respective business, and the notes or other evidences of
indebtedness with respect to such loans (including discounts) are true and
genuine and are what they purport to be, except as set forth in FSSB
Disclosure Schedule 4.1(p)(iii). To the Knowledge of FSSB, the loans,
discounts and the accrued interest reflected on the books of FSSB and the
FSSB Subsidiaries are subject to no defenses, set-offs or counterclaims
(including, without limitation, those afforded by usury or truth-in-lending
laws), except as may be provided by bankruptcy, insolvency or similar laws
affecting creditors' rights generally or by general principles of equity.
Except as set forth in FSSB Disclosure Schedule 4.1(p)(iii), all such loans
are owned by FSSB or the appropriate FSSB Subsidiary free and clear of any
liens.
(iv) The notes and other evidences of indebtedness evidencing the
loans described above, and all pledges, mortgages, deeds of trust and other
collateral documents or security instruments relating thereto are, in all
material respects, valid, true and genuine, and what they purport to be.
(q) Related Party Transactions. Except as set forth in FSSB Disclosure
Schedule 4.1(q), neither FSSB nor any FSSB Subsidiary is a party to any
transaction (including any loan or other credit accommodation) with any
Affiliate of FSSB or any FSSB Subsidiary. All such transactions (a) were made in
the ordinary course of business, (b) were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other Persons, and (c) did not involve more than
the normal risk of collectibility or present other unfavorable features. No loan
or credit accommodation to any Affiliate of FSSB or any FSSB Subsidiary is
presently in default or, during the three (3) year period prior to the date of
this Agreement, has been in default or has been restructured, modified or
extended except for rate or other modifications pursuant to FSSB's loan
modification policy that is applicable to all Persons. Neither FSSB nor any FSSB
Subsidiary has been notified that principal and interest with respect to any
such loan or other accommodation will not be paid when due or that the loan
grade classification accorded such loan or credit accommodation by FSSB is
inappropriate.
(r) Deposits. Except as disclosed in FSSB Disclosure Schedule 4.1(f), none
of the deposits of FSSB is a "brokered deposit" as defined in 12 C.F.R. Section
337.6(a)(2).
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(s) Required Vote. The affirmative vote of not less than 2/3rds of the
issued and outstanding shares of FSSB Common Stock is required to approve this
Agreement and the Merger under FSSB's Articles of Incorporation and Michigan
law.
(t) Intellectual Property. FSSB and each Significant Subsidiary of FSSB
owns or, to FSSB's Knowledge, possesses valid and binding licenses and other
rights to use all patents, copyrights, trade secrets, trade names, servicemarks
and trademarks used in their business, each without payment, and neither FSSB
nor any Significant Subsidiary of FSSB has received any notice of conflict with
respect thereto that asserts the rights of others. FSSB and each Significant
Subsidiary of FSSB have performed all the obligations required to be performed,
and are not in default in any respect, under any contract, agreement,
arrangement or commitment relating to any of the foregoing.
(u) Administration of Trust Accounts. FSSB and each FSSB Subsidiary has
properly administered in all material respects and which could reasonably be
excepted to be material to the financial condition of FSSB and the FSSB
Subsidiaries taken as a whole, all accounts for which it acts as a fiduciary,
including but not limited to accounts for which it serves as a trustee, agent,
custodian, personal representative, guardian, conservator or investment advisor,
in accordance with the terms of the governing documents and applicable state and
federal law and regulations and common law. To the Knowledge of FSSB, neither
FSSB, any FSSB Subsidiary, nor any director, officer or employee of FSSB or any
FSSB Subsidiary has committed any breach of trust with respect to any such
fiduciary account which is material to or could reasonably be expected to be
material to the financial condition of FSSB and the FSSB Subsidiaries taken as a
whole, and the accountings for each such fiduciary account are true and correct
in all material respects and accurately reflect the assets of such fiduciary
account.
ARTICLE V -- REPRESENTATIONS AND WARRANTIES OF FARMERS
5.1. Representations and Warranties of Farmers. Farmers and IBT represent
and warrant to FSSB that the statements contained in this Article V are correct
as of the date of this Agreement, except as set forth in the Farmers Entity
Disclosure Schedule delivered by Farmers and IBT to FSSB on the date hereof.
Farmers and IBT have made a good faith effort to ensure that the disclosure on
each schedule of the Farmers Entity Disclosure Schedule corresponds to the
section referenced herein. However, for purposes of the Farmers Entity
Disclosure Schedule, any item disclosed on any schedule therein is deemed to be
fully disclosed with respect to all schedules under which such item may be
relevant as and to the extent that it is reasonably apparent that such item
applies to such other schedule.
(a) Organization, Standing and Power.
(i) IBT is a corporation duly organized, validly existing and in good
standing under the laws of the State of Michigan, and is duly registered as
a financial services holding company under the Bank Holding Company Act of
1956, as amended. IBT has all requisite power and authority to own, lease
and operate its properties and to carry on its business as now conducted
and is duly licensed or qualified to do business in the states of the
United States and foreign jurisdictions where its ownership or leasing of
property or the conduct of its business requires such qualification.
(ii) Isabella Bank and Trust is a state chartered bank duly organized,
validly existing and in good standing under the laws of the State of
Michigan. The deposits of Isabella Bank and Trust are insured by the FDIC
to the fullest extent permitted by law, and all premiums and assessments
required to be paid in connection therewith have been paid when due.
(iii) Farmers is a state chartered bank duly organized, validly
existing and in good standing under the laws of the State of Michigan. The
deposits of Farmers are insured by the FDIC to the fullest extent permitted
by law, and all premiums and assessments required to be paid in connection
therewith have been paid when due.
(iv) Farmers Entity Disclosure Schedule 5.1(a)(iv) sets forth each IBT
Subsidiary. Each IBT Subsidiary (other than Isabella Bank and Trust and
Farmers) is a corporation or limited liability company duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation or organization.
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(b) Capital Structure.
(i) The authorized capital stock of IBT consists of 10,000,000 shares
of IBT Common Stock, of which 4,949,515 shares are outstanding, validly
issued, fully paid and nonassessable and free of preemptive rights. Neither
IBT nor any IBT Entity has or is bound by any Rights of any character
relating to the purchase, sale or issuance or voting of, or right to
receive dividends or other distributions on any shares of IBT Common Stock,
or any other security of IBT or any securities representing the right to
vote, purchase or otherwise receive any shares of IBT Common Stock or any
other security of IBT, other than shares issuable under the IBT Stock
Benefit Plans.
(ii) IBT owns all the outstanding shares of the capital stock of
Isabella Bank and Trust and of Farmers. Either IBT, Isabella Bank and Trust
or Farmers owns all the outstanding shares of the capital stock or all the
equity interest of each IBT Subsidiary.
(iii) Except as set forth in Farmers Entity Disclosure Schedule
5.1(b)(iii), or as is set forth in the IBT proxy statement, to the
Knowledge of IBT or Farmers, no Person is the beneficial owner (as defined
in Section 13(d) of the Exchange Act) of 5% or more of the outstanding
shares of IBT Common Stock.
(iv) No bonds, debentures, notes or other indebtedness having the
right to vote on any matters on which IBT's shareholders may vote has been
issued by IBT and are outstanding.
(c) Authority.
(i) Farmers and IBT each have full corporate power and authority to
execute and deliver this Agreement and, subject to receipt of the required
Regulatory Approvals, to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement by Farmers and IBT and the
completion by Farmers and IBT of the transactions contemplated hereby, up
to and including the Merger, have been duly and validly approved by each of
the Board of Directors of Farmers and IBT, and no other corporate
proceedings on the part of Farmers or IBT are necessary to complete the
transactions contemplated hereby, up to and including the Merger. This
Agreement has been duly and validly executed and delivered by Farmers and
IBT, and subject to the receipt of the Regulatory Approvals described in
Section 8.3 hereof constitutes the valid and binding obligations of Farmers
and IBT enforceable against Farmers and IBT in accordance with its terms,
subject to applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally, and subject, as to enforceability, to general
principles of equity.
(ii) (A) The execution and delivery of this Agreement by Farmers and
IBT, (B) subject to receipt of the Regulatory Approvals, and FSSB's and
Farmers' compliance with any conditions contained therein, and subject to
the receipt of the approval of the shareholders of FSSB, the consummation
of the transactions contemplated hereby, and (C) compliance by Farmers and
IBT with any of the terms or provisions hereof will not (i) conflict with
or result in a breach of any provision of the Articles of Incorporation or
Bylaws of Farmers or any Farmers Entity; (ii) violate any statute, code,
ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to Farmers or any Farmers Entity or any of their respective
properties or assets; or (iii) violate, conflict with, result in a breach
of any provisions of, constitute a default (or an event which, with notice
or lapse of time, or both, would constitute a default), under, result in
the termination of, accelerate the performance required by, or result in a
right of termination or acceleration or the creation of any lien, security
interest, charge or other encumbrance upon any of the properties or assets
of Farmers or any Farmers Entity under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other investment or obligation to which any of them is
a party, or by which they or any of their respective properties or assets
may be bound or affected, except for such violations, conflicts, breaches
or defaults under clause (ii) or (iii) hereof which, either individually or
in the aggregate, will not have a Material Adverse Effect on Farmers and
the Farmers Entities taken as a whole.
(d) Consents. Except for the Regulatory Approvals referred to in Section
8.3 hereof and compliance with any conditions contained therein, and the
approval of this Agreement by the requisite vote of the shareholders of FSSB, no
consents, waivers or approvals of, or filings or registrations with, any
Governmental Entity or Bank Regulator are necessary, and, to the Knowledge of
Farmers and IBT, no consents, waivers or approvals of, or filings or
registrations with, any other third parties are necessary, in connection with
the execution and delivery of this Agreement by Farmers or IBT and the
completion by Farmers and IBT of the Merger. To Farmers' and IBT's
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knowledge, (i) they have not received notice as of the date hereof that any Bank
Regulator intends to disapprove or object to the completion of the transactions
contemplated by this Agreement, and (ii) there is no reason to expect that all
Regulatory Approvals required for the consummation of the transactions
contemplated by this Agreement will not be received.
(e) Financial Statements.
(i) Farmers or a Farmers Entity has previously made available to FSSB
the IBT Financial Statements. The IBT Financial Statements have been
prepared in accordance with GAAP, and (including the related notes where
applicable) fairly present in each case in all material respects (subject
in the case of the unaudited interim statements to normal year-end
adjustments) the consolidated financial position, results of operations and
cash flows of Farmers and the Farmers Entities on a consolidated basis as
of and for the respective periods ending on the dates thereof, in
accordance with GAAP during the periods involved, except as indicated in
the notes thereto, or in the case of unaudited statements, as permitted by
Form 10-Q.
(ii) At the date of each balance sheet included in the IBT Financial
Statements, neither Farmers nor any Farmers Entity had any liability,
obligation or loss contingency of any nature (whether absolute, accrued,
contingent or otherwise) of a type required to be reflected in such IBT
Financial Statements or in the footnotes thereto which were not fully
reflected or reserved against therein or fully disclosed in a footnote
thereto, except for liabilities, obligations and loss contingencies which
were not material individually or in the aggregate or which are incurred in
the ordinary course of business, consistent with past practice, and except
for liabilities, obligations and loss contingencies which are within the
subject matter of a specific representation and warranty herein and
subject, in the case of any unaudited statements, to normal, recurring
audit adjustments and the absence of footnotes.
(f) Taxes. Farmers, IBT and the IBT Subsidiaries that are at least 80
percent owned by IBT are members of the same Affiliated group within the meaning
of Code Section 1504(a). IBT has duly filed all federal, state and material
local tax returns required to be filed by or with respect to Farmers and each
Farmers Entity on or prior to the Closing Date, taking into account any
extensions (all such returns, to the Knowledge of Farmers, being accurate and
correct in all material respects) and has duly paid or made provisions for the
payment of all material federal, state and local taxes which have been incurred
by or are due or claimed to be due from Farmers, IBT and any Significant
Subsidiary of IBT by any taxing authority or pursuant to any written tax sharing
agreement on or prior to the Closing Date other than taxes or other charges
which (i) are not delinquent, (ii) are being contested in good faith, or (iii)
have not yet been fully determined. As of the date of this Agreement, neither
Farmers nor any Farmers Entity has received notice of, and to the Knowledge of
Farmers, there is no audit examination, deficiency assessment, tax investigation
or refund litigation with respect to any taxes of Farmers, IBT or any of its
Significant Subsidiaries, and no claim has been made by any authority in a
jurisdiction where Farmers, IBT or any of its Significant Subsidiaries do not
file tax returns that Farmers, IBT or any such Significant Subsidiary is subject
to taxation in that jurisdiction. Except as set forth in Farmers Entity
Disclosure Schedule 5.1(f), Farmers, IBT and its Significant Subsidiaries have
not executed an extension or waiver of any statute of limitations on the
assessment or collection of any material tax due that is currently in effect.
Farmers, IBT and each of its Significant Subsidiaries has withheld and paid all
taxes required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, shareholder or other
third party, and Farmers, IBT and each of its Significant Subsidiaries, to the
Knowledge of Farmers, has timely complied with all applicable information
reporting requirements under Part III, Subchapter A of Chapter 61 of the Code
and similar applicable state and local information reporting requirements.
(g) No Material Adverse Effect. Except as disclosed in IBT's Securities
Documents filed on or prior to the date hereof, Farmers and the Farmers
Entities, taken as a whole, have not suffered any Material Adverse Effect since
December 31, 2004 and to Farmers' Knowledge, no event has occurred or
circumstance arisen since that date which, in the aggregate, has had or is
reasonably likely to have a Material Adverse Effect on Farmers and the Farmers
Entities, taken as a whole.
(h) Ownership of Property; Insurance Coverage.
(i) Farmers and each Farmers Entity has good and, as to real property,
marketable title to all material assets and properties owned by Farmers or
any Farmers Entity in the conduct of its businesses, whether such
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assets and properties are real or personal, tangible or intangible,
including assets and property reflected in the balance sheet contained in
the most recent IBT Financial Statements or acquired subsequent thereto
(except to the extent that such assets and properties have been disposed of
in the ordinary course of business, since the date of such balance sheet),
subject to no material encumbrances, liens, mortgages, security interests
or pledges, except (i) those items which secure liabilities for public or
statutory obligations or any discount with, borrowing from or other
obligations to FHLB, inter-bank credit facilities or any transaction by
Farmers or IBT acting in a fiduciary capacity, and (ii) statutory liens for
amounts not yet delinquent or which are being contested in good faith.
Farmers and each Farmers Entity, as lessee, have the right under valid and
existing leases of real and personal properties used by Farmers and each
Farmers Entity in the conduct of their businesses to occupy or use all such
properties as presently occupied and used by each of them. Such existing
leases and commitments to lease constitute or will constitute operating
leases for both tax and financial accounting purposes and the lease expense
and minimum rental commitments with respect to such leases and lease
commitments are as disclosed in all material respects in the notes to the
IBT Financial Statements.
(ii) Farmers and each Farmers Entity currently maintain insurance
considered by each of them to be reasonable for their respective
operations. Neither Farmers nor any Farmers Entity has received notice from
any insurance carrier that (i) such insurance will be canceled or that
coverage thereunder will be reduced or eliminated, or (ii) premium costs
with respect to such policies of insurance will be substantially increased.
There are presently no material claims pending under such policies of
insurance and no notices of material claims have been given by Farmers, or
any Farmers Entity under such policies. All such insurance is valid and
enforceable and in full force and effect, and within the last three (3)
years Farmers and each Farmers Entity has received each type of insurance
coverage for which it has applied and during such periods has not been
denied indemnification for any material claims submitted under any of its
insurance policies. Farmers Entity Disclosure Schedule 5.1(h) (ii)
identifies all policies of insurance maintained by Farmers and each Farmers
Entity.
(i) Legal Proceedings. Except as disclosed in Farmers Entity Disclosure
Schedule 5.1(i), neither Farmers nor any Farmers Entity is a party to any, and
there are no pending or, to Farmers' and IBT's Knowledge, threatened legal,
administrative, arbitration or other proceedings, claims (whether asserted or
unasserted), actions or governmental investigations or inquiries of any nature
(i) against Farmers or any Farmers Entity, (ii) to which Farmers or any Farmers
Entity's assets are or may be subject, (iii) challenging the validity or
propriety of any of the transactions contemplated by this Agreement, or (iv)
which could adversely affect the ability of Farmers or any Farmers Entity to
perform under this Agreement, except for any proceeding, claim, action,
investigation or inquiry referred to in clauses (i) and (ii) which, individually
or in the aggregate, would not be reasonably expected to have a Material Adverse
Effect.
(j) Compliance with Applicable Law.
(i) To the Knowledge of Farmers and IBT, each of Farmers and each
Farmers Entity is in compliance in all material respects with all
applicable federal, state, local and foreign statutes, laws, regulations,
ordinances, rules, judgments, orders or decrees applicable to it, its
properties, assets and deposits, its business, and its conduct of business
and its relationship with its employees, including, without limitation, the
USA PATRIOT Act, the Bank Secrecy Act, the Equal Credit Opportunity Act,
the Fair Housing Act, the CRA, the Home Mortgage Disclosure Act, and all
other applicable fair lending laws and other laws relating to
discriminatory business practices and neither Farmers nor any Farmers
Entity has received any written notice to the contrary.
(ii) Each of Farmers and each Farmers Entity has all material permits,
licenses, authorizations, orders and approvals of, and has made all
filings, applications and registrations with, all Bank Regulators that are
required in order to permit it to own or lease its properties and to
conduct its business as presently conducted; all such permits, licenses,
certificates of authority, orders and approvals are in full force and
effect and, to the Knowledge of Farmers, no suspension or cancellation of
any such permit, license, certificate, order or approval is threatened or
will result from the consummation of the transactions contemplated by this
Agreement, subject to obtaining the approvals set forth in Section 8.3.
(iii) For the period beginning January 1, 2003, neither Farmers nor
any Farmers Entity has received any written notification or, to the
Knowledge of Farmers, any other communication from any Bank Regulator
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(i) asserting that Farmers or any Farmers Entity is not in material
compliance with any of the statutes, regulations or ordinances which such
Bank Regulator enforces; (ii) threatening to revoke any license, franchise,
permit or governmental authorization which is material to Farmers or any
Farmers Entity; (iii) requiring or threatening to require Farmers or any
Farmers Entity, or indicating that Farmers or any Farmers Entity may be
required, to enter into a cease and desist order, agreement or memorandum
of understanding or any other agreement with any federal or state
governmental agency or authority which is charged with the supervision or
regulation of banks or engages in the insurance of bank deposits
restricting or limiting, or purporting to restrict or limit, in any
material respect the operations of Farmers or any Farmers Entity, including
without limitation any restriction on the payment of dividends; or (iv)
directing, restricting or limiting, or purporting to direct, restrict or
limit, in any manner the operations of Farmers or any Farmers Entity,
including without limitation any restriction on the payment of dividends
(any such notice, communication, memorandum, agreement or order described
in this sentence is hereinafter referred to as a "Regulatory Agreement").
Neither Farmers nor any Farmers Entity has consented to or entered into any
currently effective Regulatory Agreement. The most recent regulatory
ratings given to Isabella Bank and Trust and Farmers as to compliance with
the CRA is satisfactory or better.
(k) IBT Common Stock. The shares of IBT Common Stock to be issued pursuant
to this Agreement, when issued in accordance with the terms of this Agreement,
will be duly authorized, validly issued, fully paid and non-assessable and
subject to no preemptive rights.
(l) Material Contracts; Leases, Defaults. Neither Farmers nor any Farmers
Entity is a party to or subject to: (i) any collective bargaining agreement with
any labor union relating to employees of Farmers or any Farmers Entity; nor (ii)
any agreement which by its terms limits the payment of dividends by Farmers or
any Farmers Entity.
(m) Securities Documents. IBT has made available to FSSB copies of its (i)
annual reports on Form 10-K for the years ended December 31, 2004, 2003 and
2002, (ii) quarterly reports on Form 10-Q for the quarters ended March 31, 2005,
June 30 2005 and September 30, 2005, and (iii) proxy materials used or for use
in connection with its meetings of shareholders held in 2005, 2004 and 2003.
Such reports and proxy materials complied, at the time filed with the SEC, in
all material respects, with the Securities Laws.
(n) Reorganization. Farmers and IBT have no knowledge of any reason why
the Merger would fail to qualify as a reorganization under Section 368(a) of the
Code.
(o) Information Supplied. None of the information supplied or to be
supplied by Farmers or any Farmers Entity for inclusion or incorporation by
reference in (i) the S-4 will, at the time the S-4 becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading and (ii) the Proxy Statement and any amendment
or supplement thereto will, at the date of mailing to FSSB shareholders and at
the time of the meeting of shareholders of FSSB to be held in connection with
the Merger, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading. The Proxy Statement (except for such portions
thereof that relate only to FSSB) will comply in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder, and the
S-4 (except for such portions thereof that relate only to FSSB) will comply in
all material respects with the provisions of the Securities Act and the rules
and regulations thereunder.
(p) Required Vote. Only the vote of the sole stockholder of Farmers is
required by law, by Farmer's Articles of Incorporation or Bylaws, or otherwise
to approve this Agreement and the Merger on behalf of the Farmers Entities.
(q) Merger Consideration. As of the Closing Date and subject to Article
IX, IBT will have cash and authorized shares of IBT Common Stock in the
aggregate amount of the Merger Consideration available for deposit with the
Exchange Agent.
(r) Pro Forma Capital Requirements. Farmers is, and on a pro forma basis
giving effect for the transactions contemplated by this Agreement and any
financing or capital injection contemplated by IBT, will be "adequately
capitalized" as defined for purposes of the Federal Deposit Insurance Act and
applicable regulations.
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(s) Brokers, Finders and Financial Advisors. Neither IBT, Farmers nor any
Farmers Entity, nor any of their respective officers, directors, employees or
agents, has employed any broker, finder or financial advisor other than Austin
Associates, LLC in connection with the transactions contemplated by this
Agreement, or incurred any liability or commitment for any fees or commissions
to any such person other than Austin Associates, LLC in connection with the
transactions contemplated by this Agreement.
(t) Employee Benefit Plans.
(i) Except as disclosed in Farmers Entity Disclosure Schedule
5.1(t)(i), each bonus, incentive, deferred compensation, pension,
retirement, profit-sharing, thrift, savings, employee stock ownership,
stock bonus, stock purchase, restricted stock, stock option, stock
appreciation, phantom stock, severance, welfare benefit plans, fringe
benefit plans, employment, severance and change in control agreements and
all other material benefit practices, policies and arrangements maintained
by Farmers or any Farmers Entity (the "Farmers Entity Plans") has been
operated and administered in all material respects in accordance with its
terms and with applicable law, including, but not limited to, ERISA, the
Code, the Securities Act, the Exchange Act, the Age Discrimination in
Employment Act, COBRA, the Health Insurance Portability and Accountability
Act and any regulations or rules promulgated thereunder, and all material
filings, disclosures and notices required by ERISA, the Code, the
Securities Act, the Exchange Act, the Age Discrimination in Employment Act
and any other applicable law have been timely made or any interest, fines,
penalties or other impositions for late filings have been paid in full.
Each Farmers Entity Plan which is an "employee pension benefit plan" within
the meaning of Section 3(2) of ERISA (a "Pension Plan") and which is
intended to be qualified under Section 401(a) of the Code has received a
favorable determination letter from the IRS, and Farmers is not aware of
any circumstances which are reasonably likely to result in revocation of
any such favorable determination letter. There is no material pending or,
to the Knowledge of Farmers or IBT, threatened action, suit or claim
relating to any of the Compensation and Benefit Plans (other than routine
claims for benefits). Neither Farmers nor any Farmers Entity has engaged in
a transaction, or omitted to take any action, with respect to any
Compensation and Benefit Plan that would reasonably be expected to subject
Farmers or any Farmers Entity to an unpaid tax or penalty imposed by either
Section 4975 of the Code or Section 502 of ERISA.
(ii) Except as set forth in Farmers Entity Disclosure Schedule
5.1(t)(ii), no liability, other than PBGC premiums arising in the ordinary
course of business, has been or is expected by Farmers or any Farmers
Entity to be incurred with respect to any Farmers Entity Plan which is a
defined benefit plan subject to Title IV of ERISA ("Farmers Entity Defined
Benefit Plan"), or with respect to any "single-employer plan" (as defined
in Section 4001(a) of ERISA) currently or formerly maintained by Farmers,
any Farmers Entity or any entity which is considered one employer with
Farmers under Section 4001(b)(1) of ERISA or Section 414 of the Code (a
"Farmers Entity ERISA Affiliate") (such plan hereinafter referred to as a
"Farmers Entity ERISA Affiliate Plan"). To the Knowledge of Farmers and
IBT, except as set forth in Farmers Entity Disclosure Schedule 5.1(t)(ii),
no Farmers Entity Defined Benefit Plan had an "accumulated funding
deficiency" (as defined in Section 302 of ERISA), whether or not waived, as
of the last day of the end of the most recent plan year ending prior to the
date hereof. Except as set forth in Farmers Entity Disclosure Schedule
5.1(t)(ii), the fair market value of the assets of each Farmers Entity
Defined Benefit Plan exceeds the present value of the benefits guaranteed
under Section 4022 of ERISA under such Farmers Entity Defined Benefit Plan
as of the end of the most recent plan year with respect to the respective
Farmers Entity Defined Benefit Plan ending prior to the date hereof,
calculated on the basis of the actuarial assumptions used in the most
recent actuarial valuation for such Farmers Entity Defined Benefit Plan as
of the date hereof; and no notice of a "reportable event" (as defined in
Section 4043 of ERISA) for which the 30-day reporting requirement has not
been waived has been required to be filed for any Farmers Entity Defined
Benefit Plan within the 12-month period ending on the date hereof. Except
as set forth in Farmers Entity Disclosure Schedule 5.1(t)(ii), neither
Farmers nor any Farmers Entity has provided, or is required to provide,
security to any Farmers Entity Defined Benefit Plan or to any single-
employer plan of a Farmers Entity ERISA Affiliate pursuant to Section
401(a)(29) of the Code or has taken any action, or omitted to take any
action, that has resulted, or would reasonably be expected to result in the
imposition of a lien under Section 412(n) of the Code or pursuant to ERISA.
To the Knowledge of Farmers and IBT, and except as set forth in Farmers
Entity Disclosure Schedule 5.1(t)(ii), there is no pending
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investigation or enforcement action by any Bank Regulator with respect to
any Farmers Plan or any Farmers Entity ERISA Affiliate Plan.
(iii) With respect to any Farmers Entity Defined Benefit Plan that is
a "multi-employer plan" as such term is defined in Section 3(37) of ERISA,
covering employees of Farmers, any Farmers Entity or any Farmers Entity
ERISA Affiliate, (i) neither Farmers, any Farmers Entity, nor any Farmers
Entity ERISA Affiliate has made or suffered a "complete withdrawal" or
"partial withdrawal," as such terms are respectively defined in Sections
4203 and 4205 of ERISA, (ii) no event has occurred, and no circumstances
exist, that alone or with the passage of time present a material risk of a
complete or partial withdrawal, and (iii) neither Farmers, any Farmers
Entity, or any Farmers Entity ERISA Affiliate has any contingent liability
under Section 4204 of ERISA and no circumstances exist that present a
material risk that any such plan will go into reorganization. Farmers
Entity Disclosure Schedule 5.1(t)(iii) lists IBT's best estimate of the
amount of withdrawal liability that would be incurred if Farmers, each
Farmers Entity and each Farmers Entity ERISA Affiliate were to make a
complete withdrawal from such plan as of the Effective Time and also states
the aggregate withdrawal liability of Farmers, the Farmers Entities and the
Farmers Entity ERISA Affiliates. There are no "unfunded vested benefits"
(within the meaning of Section 4211 of ERISA) as of the end of the most
recently completed plan year and as of the date of this Agreement.
(iv) All material contributions required to be made under the terms of
any Farmers Plan or Farmers Entity ERISA Affiliate Plan or any employee
benefit arrangements to which Farmers or any Farmers Entity is a party or a
sponsor have been timely made, and all anticipated contributions and
funding obligations are accrued on IBT's consolidated financial statements
to the extent required by GAAP. Farmers or any Farmers Entity have expensed
and accrued as a liability the present value of future benefits under each
applicable Farmers Entity Plan for financial reporting purposes as required
by GAAP.
(v) Neither Farmers nor any Farmers Entity has any obligations to
provide retiree health, life insurance, disability insurance, or other
retiree death benefits under any Farmers Entity Plan, other than benefits
mandated by Section 4980B of the Code.
(u) Loan Portfolio.
(i) To IBT's Knowledge, the allowance for loan losses reflected in the
notes to IBT's audited consolidated statement of financial condition at
December 31, 2004 was, and the allowance for loan losses shown in the notes
to the IBT's unaudited consolidated financial statements for periods ending
after December 31, 2004 were, or will be, adequate, as of the dates
thereof, under GAAP.
(ii) Farmers Entity Disclosure Schedule 5.1(u) sets forth a listing,
as of the most recently available date, by account, of all loans having a
principal balance in excess of $750,000 (1) that are contractually past due
90 days or more in the payment of principal and/or interest, (2) that are
on non-accrual status, (3) that as of the date of this Agreement are
classified as "Other Loans Specifically Mentioned", "Special Mention",
"Substandard", "Doubtful", "Loss", "Classified", "Criticized", "Watch list"
or words of similar import, together with the principal amount of and
accrued and unpaid interest on each such loan and the identity of the
obligor thereunder, (4) where the interest rate terms have been reduced
and/or the maturity dates have been extended subsequent to the agreement
under which the loan was originally created due to concerns regarding the
borrower's ability to pay in accordance with such initial terms, or (5)
where a specific reserve allocation exists in connection therewith.
(iii) All loans receivable (including discounts) and accrued interest
entered on the books of Farmers and the Farmers Entities arose out of bona
fide arm's-length transactions, were made for good and valuable
consideration in the ordinary course of Farmers' or the appropriate Farmers
Entity's respective business, and the notes or other evidences of
indebtedness with respect to such loans (including discounts) are true and
genuine and are what they purport to be, other than loans as to which the
failure to satisfy the foregoing standards would not have a Material
Adverse Effect on Farmers or any of the Farmers Entities.
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ARTICLE VI -- COVENANTS OF FSSB
6.1. Conduct of Business.
(a) Affirmative Covenants. During the period from the date of this
Agreement to the Effective Time, except with the written consent of Farmers,
which consent will not be unreasonably withheld, conditioned or delayed, FSSB
will, and will cause each FSSB Subsidiary to: operate its business only in the
usual, regular and ordinary course of business; use reasonable efforts to
preserve intact its business organization and assets and maintain its rights and
franchises; and voluntarily take no action which would: (i) adversely affect the
ability of the parties to obtain the Regulatory Approvals or materially increase
the period of time necessary to obtain such approvals, or (ii) adversely affect
its ability to perform its covenants and agreements under this Agreement.
(b) Negative Covenants. FSSB agrees that from the date of this Agreement
to the Effective Time, except as otherwise specifically permitted or required by
this Agreement, set forth in FSSB Disclosure Schedule 6.1(b), or consented to by
Farmers in writing (which consent shall not be unreasonably withheld,
conditioned or delayed), it will not, and it will cause each of the FSSB
Subsidiaries not to:
(i) change or waive any provision of its Articles of Incorporation,
Charter or Bylaws, except as required by law;
(ii) change the number of authorized or issued shares of its capital
stock, issue any shares of FSSB Common Stock that are held as "treasury
shares" as of the date of this Agreement, or issue or grant any Right or
agreement of any character relating to its authorized or issued capital
stock or any securities convertible into shares of such stock, make any
grant or award under any FSSB Stock Benefit Plan, or split, combine or
reclassify any shares of capital stock, or declare, set aside or pay any
dividend or other distribution in respect of capital stock other than
dividends issued consistent with the past practice of FSSB, or redeem or
otherwise acquire any shares of capital stock;
(iii) enter into, amend in any material respect or terminate any
material contract or agreement (including without limitation any settlement
agreement with respect to litigation) except in the ordinary course of
business;
(iv) make application for the opening or closing of any, or open or
close any, branch or automated banking facility, except as required by any
Bank Regulator;
(v) except as agreed to or incurred prior to the date of this Merger
Agreement, grant or agree to pay any bonus, severance or termination to, or
enter into, renew or amend any employment agreement, severance agreement
and/or supplemental executive agreement with, or increase in any manner the
compensation or fringe benefits of, any of its directors, officers or
employees except that FSSB may (A) authorize compensation increases
including bonuses to officers in the ordinary course of business not to
exceed $10,000 in the aggregate, after the execution of this Agreement
through December 31, 2005, and (B) hire at-will, non-officer employees to
fill vacancies that may from time to time arise in the ordinary course of
business;
(vi) enter into or, except as may be required by law, materially
modify any pension, retirement, stock option, stock purchase, stock
appreciation right, stock grant, savings, profit sharing, deferred
compensation, supplemental retirement, consulting, bonus, group insurance
or other employee benefit, incentive or welfare contract, plan or
arrangement, or any trust agreement related thereto, in respect of any of
its directors, officers or employees; or make any contributions to any
defined contribution or defined benefit plan other than regularly scheduled
contributions consistent with past practice, without the prior consent of
Farmers;
(vii) merge or consolidate FSSB or any FSSB Subsidiary with any other
corporation; sell or lease all or any substantial portion of the assets or
business of FSSB or any FSSB Subsidiary; make any acquisition of all or any
substantial portion of the business or assets of any other Person other
than in connection with foreclosures, settlements in lieu of foreclosure,
troubled loan or debt restructuring, or the collection of any loan or
credit arrangement between FSSB, or any FSSB Subsidiary, and any other
Person; enter into a purchase and assumption transaction with respect to
deposits and liabilities; permit the revocation or surrender by any FSSB
Subsidiary of its certificate of authority to maintain, or file an
application for the relocation of, any existing branch office, or file an
application for a certificate of authority to establish a new branch
office;
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(viii) sell or otherwise dispose of the capital stock of FSSB or sell
or otherwise dispose of any asset of FSSB or of any FSSB Subsidiary other
than in the ordinary course of business consistent with past practice;
except for transactions with the FHLB, subject any asset of FSSB or of any
FSSB Subsidiary to a lien, pledge, security interest or other encumbrance
(other than in connection with deposits, repurchase agreements, bankers
acceptances, "treasury tax and loan" accounts established in the ordinary
course of business and transactions in "federal funds" and the satisfaction
of legal requirements in the exercise of trust powers) other than in the
ordinary course of business consistent with past practice; incur any
indebtedness for borrowed money (or guarantee any indebtedness for borrowed
money), except in the ordinary course of business consistent with past
practice;
(ix) take any action which would result in any of the representations
and warranties of FSSB set forth in this Agreement becoming untrue as of
any date after the date hereof or in any of the conditions set forth in
Article IX hereof not being satisfied, except in each case as may be
required by applicable law;
(x) change any method, practice or principle of accounting, except as
may be required from time to time by GAAP (without regard to any optional
early adoption date) or any Bank Regulator responsible for regulating FSSB;
(xi) waive, release, grant or transfer any material rights of value or
modify or change in any material respect any existing material agreement or
indebtedness to which FSSB or any FSSB Subsidiary is a party, other than in
the ordinary course of business, consistent with past practice;
(xii) purchase any equity securities, or purchase any security for its
investment portfolio inconsistent with FSSB's or any FSSB Subsidiary's
current investment policy;
(xiii) except for commitments issued prior to the date of this
Agreement which have not yet expired and which have been disclosed on the
FSSB Disclosure Schedule 6.1(b)(xiii), and the renewal of existing lines of
credit, make any new loan or other credit facility commitment (including
without limitation, lines of credit and letters of credit) in an amount in
excess of $500,000 for a commercial real estate loan, $250,000 for a
construction loan, $250,000 for a commercial business loan, or in excess of
$500,000 for a residential loan, except that if Farmers does not object
within 24 hours after confirmation of receipt of notification from FSSB of
an intent to originate a loan in excess of the amounts set forth in this
paragraph, consent shall be deemed to have been given by Farmers.
Notwithstanding Section 12.4, notice under this Section 6.1(b)(xiii) may
also be provided by facsimile or electronic mail;
(xiv) except as set forth on the FSSB Disclosure Schedule 6.1(b)(xiv),
enter into, renew, extend or modify any other transaction (other than a
deposit transaction) with any Affiliates other than pursuant to FSSB's
existing insider loan policy;
(xv) enter into any futures contract, option, interest rate caps,
interest rate floors, interest rate exchange agreement or other agreement
or take any other action for purposes of hedging the exposure of its
interest-earning assets and interest-bearing liabilities to changes in
market rates of interest except in the ordinary course of business
consistent with past practice;
(xvi) except for the execution of this Agreement, and actions taken or
which will be taken in accordance with this Agreement and performance
thereunder, take any action that would give rise to a right of payment to
any individual under any employment agreement;
(xvii) make any change in policies in existence on the date of this
Agreement with regard to: the extension of credit, or the establishment of
reserves with respect to the possible loss thereon or the charge off of
losses incurred thereon; investments; asset/liability management; or other
material banking policies in any material respect except as may be required
by changes in applicable law or regulations, by a Bank Regulator, or in the
discretion of the FSSB board of directors, consistent with prudent banking
practice, in which case FSSB shall give prior notice to Farmers;
(xviii) except for the execution of this Agreement, and the
transactions contemplated herein, take any action that would give rise to
an acceleration of the right to payment to any individual under any FSSB
Compensation and Benefit Plan;
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(xix) except as set forth in FSSB Disclosure Schedule 6.1(b)(xix),
make any capital expenditures in excess of $25,000 individually and in the
aggregate, other than pursuant to binding commitments existing on the date
hereof and other than expenditures necessary to maintain existing assets in
good repair;
(xx) except as set forth in FSSB Disclosure Schedule 6.1(b)(xx),
purchase or otherwise acquire, or sell or otherwise dispose of, any assets
or incur any liabilities other than in the ordinary course of business
consistent with past practices and policies and other than the sale or
disposal or worn, surplus or replaced equipment;
(xxi) sell any participation interest in any loan (other than sales of
loans secured by one- to four-family real estate that are consistent with
past practice) unless Farmers has been given prior written notice of any
loan participation being sold;
(xxii) undertake or enter into any lease, contract or other commitment
for its account, other than in the normal course of banking business;
(xxiii) pay, discharge, settle or compromise any claim, action,
litigation, arbitration or proceeding in an amount exceeding $10,000; or
(xxiv) agree to do any of the foregoing.
6.2. Current Information.
(a) Subject to Section 12.1 hereof, during the period from the date of this
Agreement to the Effective Time, FSSB will cause one or more of its
representatives to confer with representatives of Farmers or a designated
Farmers Entity and report the general status of its ongoing operations at such
times as Farmers or a designated Farmers Entity may reasonably request. FSSB
will promptly notify Farmers or a designated Farmers Entity of any material
change in the normal course of its business or in the operation of its
properties and, to the extent permitted by applicable law, of any governmental
complaints, investigations or hearings (or communications indicating that the
same may be contemplated), or the institution or the threat of material
litigation involving FSSB or any FSSB Subsidiary.
(b) Subject to Section 12.1 hereof, FSSB shall provide Farmers or a
designated Farmers Entity, within thirty (30) days after the end of each month,
a written list of (i) nonperforming assets (the term "nonperforming assets" for
purposes of this subsection, means loans that are "troubled debt restructuring"
as defined in Statement of Financial Accounting Standards No. 15, "Accounting by
Debtors and Creditors for Troubled Debt Restructuring,"), (ii) loans on
nonaccrual, (iii) real estate owned, (iv) all loans ninety (90) days or more
past due as of the end of such month, and (v) impaired loans. On a monthly
basis, FSSB shall provide Farmers or a designated Farmers Entity with a schedule
of all loan approvals, which schedule shall indicate the loan amount, loan type
and other material features of the loan.
(c) FSSB shall promptly inform Farmers or a designated Farmers Entity upon
receiving notice of any legal, administrative, arbitration or other proceedings,
demands, notices, audits or investigations (by any federal, state or local
commission, agency or board) relating to the alleged liability of FSSB or any
FSSB Subsidiary under any labor or employment law.
6.3. Access to Properties and Records. Subject to Section 12.1 hereof,
FSSB shall permit Farmers or a designated Farmers Entity access upon reasonable
notice to its properties and those of the FSSB Subsidiaries, and shall disclose
and make available to Farmers or a designated Farmers Entity to the extent
permitted by applicable law during normal business hours all of its books,
papers and records relating to the assets, properties, operations, obligations
and liabilities, including, but not limited to, all books of account (including
the general ledger), tax records, minute books of directors' (other than minutes
that discuss any of the transactions contemplated by this Agreement or any other
subject matter FSSB reasonably determines should be treated as confidential or
privileged) and shareholders' meetings, organizational documents, bylaws,
material contracts and agreements, filings with any regulatory authority,
litigation files (to the extent not resulting in waiver of attorney-client
privilege), plans affecting employees, and any other business activities or
prospects in which Farmers may have a reasonable interest. FSSB shall provide
and shall request its auditors to provide Farmers or a designated Farmers Entity
with such historical financial information regarding it (and related audit
reports and consents) as Farmers or a designated Farmers Entity may request for
securities disclosure purposes. FSSB and each FSSB Subsidiary shall permit, upon
reasonable notice, Farmers or a designated Farmers Entity at its own expense to
cause a "phase I environmental audit" and a
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"phase II environmental audit" to be performed at any physical location owned or
occupied by FSSB or any FSSB Subsidiary. Farmers shall indemnify and hold
harmless FSSB for any claim, suit, liability, cost, expense or damages
whatsoever arising out of or related to such environmental audits or any other
inspection or due diligence activity conducted on FSSB's premises.
6.4. Financial and Other Statements.
(a) Promptly upon receipt thereof, FSSB will furnish to Farmers copies of
each annual, interim or special audit of the books of FSSB and the FSSB
Subsidiaries made by its independent accountants and copies of all internal
control reports submitted to FSSB by such accountants in connection with each
annual, interim or special audit of the books of FSSB and the FSSB Subsidiaries
made by such accountants.
(b) Promptly after FSSB's board meeting but no later than thirty (30) days
after the end of each month, FSSB will deliver to Farmers a consolidated balance
sheet and a consolidated statement of operations, without related notes, for
such month prepared in accordance with current financial reporting practices.
(c) FSSB will advise Farmers promptly of the receipt of any examination
report of any Bank Regulator with respect to the condition or activities of FSSB
or any of the FSSB Subsidiaries.
(d) With reasonable promptness, FSSB will furnish to Farmers such
additional financial data that FSSB possesses and as Farmers may reasonably
request, including without limitation, detailed monthly financial statements and
loan reports.
6.5. Maintenance of Insurance. FSSB shall maintain and cause the FSSB
Subsidiaries to maintain, insurance in such amounts as are reasonable to cover
such risks as are customary in relation to the character and location of its
properties and the nature of its business.
6.6. Disclosure Supplements. From time to time prior to the Effective
Time, FSSB will promptly supplement or amend the FSSB Disclosure Schedule
delivered in connection herewith with respect to any matter hereafter arising
which, if existing, occurring or known at the date of this Agreement, would have
been required to be set forth or described in such FSSB Disclosure Schedule or
which is necessary to correct any information in such FSSB Disclosure Schedule
which has been rendered materially inaccurate thereby.
6.7. Consents and Approvals of Third Parties. FSSB shall use all
commercially reasonable efforts, and shall cause each FSSB Subsidiary to use all
commercially reasonable efforts to obtain as soon as practicable all consents
and approvals of any other Persons necessary or desirable for the consummation
of the transactions contemplated by this Agreement.
6.8. All Reasonable Efforts. Subject to the terms and conditions herein
provided, FSSB agrees to use all commercially reasonable efforts to take, or
cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
except to the extent that such action, in the good faith determination of the
board of directors of FSSB after consultation with legal counsel, may result in
a breach of fiduciary duty by the FSSB board of directors.
6.9. Failure to Fulfill Conditions. In the event that FSSB determines
that a condition to its obligation to complete the Merger cannot be fulfilled
and that it will not waive that condition, it will promptly notify Farmers.
6.10. No Solicitation. From and after the date hereof until the
termination of this Agreement, neither FSSB, nor any FSSB Subsidiary, nor any of
their respective officers, directors, employees, representatives, agents and
Affiliates (including, without limitation, any investment banker, attorney or
accountant retained by FSSB or any of the FSSB Subsidiaries), will, directly or
indirectly, initiate, solicit or knowingly encourage (including by way of
furnishing non-public information or assistance) any inquiries or the making of
any proposal that constitutes, or may reasonably be expected to lead to, any
Acquisition Proposal (as defined below), or enter into or maintain or continue
discussions or negotiate with any Person in furtherance of such inquiries or to
obtain an Acquisition Proposal or agree to or endorse any Acquisition Proposal,
or authorize or permit any of its officers, directors, or employees or any of
its Subsidiaries or any investment banker, financial advisor, attorney,
accountant or other representative retained by any of its Subsidiaries to take
any such action, and FSSB shall notify Farmers orally
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(within one business day) and in writing (as promptly as practicable) of all of
the relevant details relating to all inquiries and proposals which it or any of
its Subsidiaries or any such officer, director or employee, or, to FSSB's
Knowledge, investment banker, financial advisor, attorney, accountant or other
representative of FSSB may receive relating to any of such matters, provided,
however, that nothing contained in this Section 6.10 shall prohibit the Board of
Directors of FSSB from (i) complying with its disclosure obligations under
federal or state law; or (ii) furnishing information to, or entering into
discussions or negotiations with, any person or entity that makes an unsolicited
Acquisition Proposal, if, and only to the extent that, (A) the Board of
Directors of FSSB determines in good faith (after consultation with its
financial and legal advisors), taking into account all legal, financial and
regulatory aspects of the proposal and the Person making the proposal, that such
proposal, if consummated, is reasonably likely to result in a transaction more
favorable to FSSB's shareholders from a financial point of view than the Merger;
(B) the Board of Directors of FSSB determines in good faith (after consultation
with its financial and legal advisors) that the failure to furnish information
to or enter into discussions with such Person would likely cause the Board of
Directors to breach its fiduciary duties to shareholders under applicable law
(such proposal that satisfies clause (A) and (B) being referred to herein as a
"Superior Proposal"); and (C) FSSB promptly notifies Farmers of such inquiries,
proposals or offers received by, any such information requested from, or any
such discussions or negotiations sought to be initiated or continued with FSSB
or any of its representatives indicating, in connection with such notice, the
name of such Person and the material terms and conditions of any inquiries,
proposals or offers, and receives from such Person an executed confidentiality
agreement in form and substance identical in all material respects to the
confidentiality agreements that FSSB and IBT entered into. For purposes of this
Agreement, "Acquisition Proposal" shall mean any proposal or offer as to any of
the following (other than the transactions contemplated hereunder) involving
FSSB or any of its Subsidiaries: (i) any merger, consolidation, share exchange,
business combination, or other similar transactions; (ii) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition of 25% or more of the
assets of FSSB and the FSSB Subsidiaries, taken as a whole, in a single
transaction or series of transactions; (iii) any sale or tender offer or
exchange offer for 25% or more of the outstanding shares of capital stock of
FSSB or the filing of a registration statement under the Securities Act in
connection therewith; or (iv) any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of the
foregoing.
6.11. Sarbanes-Oxley Certification of Financial Statements. The Chief
Executive Officer and the Chief Financial Officer of FSSB shall certify the FSSB
Financial Statements in the form attached as Exhibit A.
6.12. FSSB Audit for 2005. FSSB's external audit for the year ending
December 31, 2005 shall be conducted by an auditor that is independent from FSSB
in accordance with Section 201 of the Sarbanes-Oxley Act of 2002 and the
regulations promulgated thereunder.
ARTICLE VII -- COVENANTS OF FARMERS
7.1. Conduct of Business. During the period from the date of this
Agreement to the Effective Time, except with the written consent of FSSB, which
consent will not be unreasonably withheld, conditioned or delayed, Farmers and
IBT will, and they will cause each Farmers Entity to: conduct its business only
in the usual, regular and ordinary course consistent with past practices; use
reasonable efforts to preserve intact its business organization and assets and
maintain its rights and franchises; and voluntarily take no action that would:
(i) adversely affect the ability of the parties to obtain the Regulatory
Approvals or materially increase the period of time necessary to obtain such
approvals; (ii) adversely affect its ability to perform its covenants and
agreements under this Agreement; (iii) result in the representations and
warranties contained in Article V of this Agreement not being true and correct
on the date of this Agreement or at any future date on or prior to the Closing
Date or in any of the conditions set forth in Article IX hereof not being
satisfied; (iv) change or waive any provision of its Articles of Incorporation,
except as required by law; or (v) change any method, practice or principle of
accounting, except as may be required from time to time by GAAP (without regard
to any optional early adoption date) or any Bank Regulator responsible for
regulating IBT, Isabella Bank and Trust or Farmers. Additionally, IBT will not
declare an extraordinary dividend or distribution on shares of IBT Common Stock.
7.2. Disclosure Supplements. From time to time prior to the Effective
Time, Farmers and IBT will promptly supplement or amend the Farmers Entity
Disclosure Schedule delivered in connection herewith with
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respect to any matter hereafter arising which, if existing, occurring or known
at the date of this Agreement, would have been required to be set forth or
described in such Farmers Entity Disclosure Schedule or which is necessary to
correct any information in such Farmers Entity Disclosure Schedule which has
been rendered inaccurate thereby.
7.3. Consents and Approvals of Third Parties. Farmers shall use all
commercially reasonable efforts to obtain as soon as practicable all consents
and approvals of any other Persons necessary or desirable for the consummation
of the transactions contemplated by this Agreement.
7.4. All Reasonable Efforts. Subject to the terms and conditions herein
provided, Farmers agrees to use all commercially reasonable efforts to take, or
cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
7.5. Failure to Fulfill Conditions. In the event that Farmers determines
that a condition to its obligation to complete the Merger cannot be fulfilled
and that it will not waive that condition, it will notify FSSB.
7.6. Employee Benefits. Farmers and IBT shall, from and after the
Effective Time until January 1, 2008, continue the defined contribution plan of
FSSB in effect immediately preceding the Effective Time. Effective January 1,
2008, or as required by ERISA, Farmers and IBT shall cause the employee pension
benefit plans of IBT (as defined under ERISA) to be adopted by Farmers for all
FSSB employees who were employed as of the Effective Time (the "Former FSSB
Employees"). All Former FSSB Employees who become participants in an IBT
employee pension benefit plan covered under ERISA shall, for purposes of
determining eligibility for and for any applicable vesting periods of such
employee benefits only (and not for benefit accrual purposes) be given credit
for meeting eligibility and vesting requirements in such plans for service as an
employee of FSSB or any predecessor thereto prior to the Effective Time. All
Former FSSB Employees who become participants in the plans of IBT shall receive
aggregate annual employer contributions of 15% of salary into such plans. To the
extent said contributions do not equal at least 15% of salary, said shortfall
shall be made up as additional salary or pursuant to a contribution to a non-
qualified plan for affected employees, as determined in the sole discretion of
Farmers. This Agreement shall not be construed to limit the ability of Farmers
or the Farmers Entities to terminate the employment of any employee or to review
employee pension benefits programs from time to time and to make such changes as
it may deem appropriate. Farmers and IBT shall, from and after the Effective
Time, continue in effect any material welfare benefit plan, life insurance,
group health plan or disability plan in which the employees of FSSB participated
immediately prior to the Effective Time (or an arrangement providing
substantially similar benefits). Farmers and the Farmers Entities shall not take
any action which would adversely affect the employees of FSSB participation in
or materially reduce any benefits under any such plan or arrangement. Nothing
contained in this subsection shall limit Farmers' or any Farmers Entity's right
to amend or terminate any plan or arrangement to conform such plan or
arrangement to statutory or regulatory requirements applicable to such plan or
arrangement.
7.7. Access to Properties and Records. Subject to Section 12.1 hereof,
Farmers and IBT shall permit FSSB access upon reasonable notice to their
properties, and shall disclose and make available to FSSB to the extent
permitted by applicable law during normal business hours all of its books,
papers and records relating to the assets, properties, operations, obligations
and liabilities, including, but not limited to, all books of account (including
the general ledger), tax records, minute books of directors' (other than minutes
that discuss any of the transactions contemplated by this Agreement or any other
subject matter IBT reasonably determines should be treated as confidential or
privileged) and shareholders' meetings, organizational documents, bylaws,
material contracts and agreements, filings with any regulatory authority,
litigation files (to the extent not resulting in waiver of attorney-client
privilege), plans affecting employees, and any other business activities or
prospects in which FSSB may have a reasonable interest. IBT shall provide and
shall request IBT's auditors to provide FSSB with such historical financial
information regarding it (and related audit reports and consents) as FSSB may
request.
7.8. Financial and Other Statements.
(a) Promptly upon receipt thereof, IBT shall furnish to FSSB copies of each
annual, interim or special audit of the books of IBT made by its independent
accountants and copies of all internal control reports submitted to IBT by such
accountants in connection with each annual, interim or special audit of the
books of IBT made by such accountants.
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(b) Promptly after IBT's board meeting but no later than thirty (30) days
after the end of each month, Farmers shall cause IBT to deliver to FSSB a
consolidated balance sheet and a consolidated statement of operations, without
related notes, for such month prepared in accordance with current financial
reporting practices.
(c) Farmers and IBT shall advise FSSB promptly of the receipt of any
examination report of any Bank Regulator with respect to the condition or
activities of IBT, Farmers or any IBT Subsidiaries.
(d) With reasonable promptness, IBT shall furnish to FSSB such additional
financial data that IBT possesses and as FSSB may reasonably request, including
without limitation, detailed monthly financial statements and loan reports.
7.9. Directors and Officers Indemnification; Insurance.
(a) From and after the Effective Time through the fifth anniversary of the
Effective Time, Farmers and the Farmers Entities (collectively the "Indemnifying
Party") shall indemnify and hold harmless each present and former director,
officer and employee of FSSB,determined as of the Effective Time (the
"Indemnified Parties") against any costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages or liabilities
incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of matters existing or occurring at or prior to the Effective Time, whether
asserted or claimed prior to, at or after the Effective Time, arising in whole
or in part out of or pertaining to the fact that he or she was a director or officer employee, fiduciary or agent of FSSB or any FSSB Subsidiary or isthe corporation or was serving at the request of FSSB or any FSSB Subsidiary asthe corporation. A corporation also has the power to indemnify a director or officer employee, fiduciary or agent of another corporation, partnership, joint
venture, trust or other enterprise, including without limitation matters related
to the negotiation, executionfor expenses that actually and performance of this Agreement or the
consummation of the Merger, to the fullest extent which indemnification is
permitted under the applicable provisions of the Michigan Banking Code, MCL
487.13904 through 487.13907, as in effect on the date hereof or in the event any
subsequent amendment thereto expands the permissible scope of indemnification,
then as amended.
(b) Any Indemnified Party wishing to claim indemnification under this
Section 7.9 hereof, upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify the Indemnifying Party, but the failure to
so notify shall not relieve the Indemnifying Party of any liability it may have
to such Indemnified Party if such failure does not actually prejudice the
Indemnifying Party. In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time), (i) the
Indemnifying Party shall have the right to assume the defense thereof and the
Indemnifying Party shall not be liable to such Indemnified Parties for any legal
expenses of other counsel or any other expenses subsequentlyreasonably were incurred by such
Indemnified Partiesthem in connection with the defense thereof, exceptaction, suit, or proceeding if that if the
Indemnifying Party elects not to assume such defense or counsel for the
Indemnified Parties advises that there are issues which raise conflicts of
interest between the Indemnifying Party and the Indemnified Parties, the
Indemnified Parties may retain counsel which is reasonably satisfactory to the
Indemnifying Party, and the Indemnifying Party shall pay, promptly as statements
therefore are received, the reasonable fees and expenses of such counsel for the
Indemnified Parties (which may not exceed one firm in any jurisdiction), (ii)
the Indemnified Parties will cooperate in the defense of any such matter, (iii)
the Indemnifying Party shall not be liable for any settlement effected without
its prior written consent, and (iv) the Indemnifying Party shall have no
obligation hereunder in the event that a federal or state banking agency or a
court of competent jurisdiction shall determine that indemnification of an
Indemnified Party in the manner contemplated hereby is prohibited by applicable
laws and regulations.
(c) Prior to the Effective Time, Farmers shall cause the persons serving as
directors and officers of FSSB and any FSSB Subsidiaries immediately prior to
the Effective Time to be covered by the directors' and officers' liability
insurance policy maintained by FSSB for a period of five years after the
Effective Time (provided that Farmers may substitute therefore policies of at
least the same coverage and amounts containing terms and conditions which are
not materially less advantageous than such policy or single premium tail
coverage with policy limits equal to FSSB's existing coverage limits) with
respect to acts or omissions occurring prior to the Effective Time which were
committed by such directors and officers in their capacities as such.
(d) If Farmers or any of its successors or assigns shall consolidate with
or merge into any other entity and shall not be the continuing or surviving
entity of such consolidation or merger or shall transfer all or substantially
all of its
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assets to any other entity, then and in each case, proper provisions shall be
made so that the successors and assigns of Farmers or the surviving company
shall assume the obligations set forth in this Section 7.9 hereof prior to or
simultaneously with the consummation of such transaction.
ARTICLE VIII -- REGULATORY AND OTHER MATTERS
8.1. Meetings of Shareholders. FSSB will (i) as promptly as practicable
after the Merger Registration Statement is declared effective by the SEC, take
all steps necessary to duly call, give notice of, convene and hold a meeting of
its shareholders for the purpose of considering this Agreement and the Merger,
and for such other purposes as may be, in FSSB's reasonable judgment, necessary
or desirable (the "FSSB Shareholders Meeting"), (ii) in connection with the
solicitation of proxies with respect to the FSSB Shareholders Meeting, have its
Board of Directors recommend approval of this Agreement to the FSSB Shareholders
unless the Board of Directors shall have determined that such recommendation
would violate its fiduciary duties under applicable law; and (iii) cooperate and
consult with Farmers with respect to each of the foregoing matters.
8.2. Proxy Statement -- Prospectus; Merger Registration Statement.
(a) For the purposes (x) of registering IBT Common Stock to be offered to
holders of FSSB Common Stock in connection with the Merger with the SEC under
the Securities Act and (y) of holding the FSSB Shareholders Meeting, Farmers and
the Farmers Entities shall draft and prepare, and FSSB shall cooperate in the
preparation of, the Merger Registration Statement, including a proxy statement
and prospectus satisfying all applicable requirements of applicable state
securities and banking laws, and of the Securities Act and the Exchange Act, and
the rules and regulations thereunder (such proxy statement/prospectus in the
form mailed by FSSB to the FSSB shareholders, together with any and all
amendments or supplements thereto, being herein referred to as the "Proxy
Statement-Prospectus"). Farmers and the Farmers Entities shall provide FSSB and
its counsel with appropriate opportunity to review and comment on the Proxy
Statement-Prospectus prior to the time it is initially filed with the SEC or any
amendments are filed with the SEC. Farmers shall cause IBT to file the Merger
Registration Statement, including the Proxy Statement-Prospectus, with the SEC.
Each of Farmers and the Farmers Entities and FSSB shall use their best efforts
to have the Merger Registration Statement declared effective under the
Securities Act as promptly as practicable after such filing, and FSSB shall
thereafter promptly mail the Proxy Statement-Prospectus to its shareholders.
Farmers and the Farmers Entities shall also use its best efforts to obtain all
necessary state securities law or "Blue Sky" permits and approvals required to
carry out the transactions contemplated by this Agreement, and FSSB shall
furnish all information concerning FSSB and the holders of FSSB Common Stock as
may be reasonably requested in connection with any such action.
(b) Each party acknowledges that time is of the essence in connection with
the preparation and filing of the Merger Registration Statement. Farmers shall
cause IBT to advise FSSB promptly after IBT receives notice of the time when the
Merger Registration Statement has become effective or any supplement or
amendment has been filed, of the issuance of any stop order or the suspension of
the qualifications of the shares of IBT Common Stock issuable pursuant to the
Merger Registration Statement, or the initiation or threat of any proceeding for
any such purpose, or of any request by the SEC for the amendment or supplement
of the Merger Registration Statement, or for additional information, and Farmers
shall cause IBT to provide FSSB with as many copies of such Merger Registration
Statement and all amendments thereto promptly upon the filing thereof as FSSB
may reasonably request.
(c) FSSB and Farmers and the Farmers Entities shall promptly notify the
other party if at any time it becomes aware that the Proxy Statement-Prospectus
or the Merger Registration Statement contains any untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading. In such event, FSSB
shall cooperate with IBT in the preparation of a supplement or amendment to such
Proxy Statement-Prospectus that corrects such misstatement or omission, and
Farmers shall cause IBT to file an amended Merger Registration Statement with
the SEC, and each of FSSB and Farmers and the Farmers Entities shall mail an
amended Proxy Statement-Prospectus to FSSB's shareholders.
8.3. Regulatory Approvals. Each of FSSB and Farmers and the Farmers
Entities will cooperate with the other and use all reasonable efforts to
promptly prepare and, within 30 days after the date hereof or as soon
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thereafter as practicable, file all necessary documentation to obtain all
necessary permits, consents, waivers, approvals and authorizations of the FRB,
FDIC and the Bureau and any other third parties and governmental bodies
necessary to consummate the transactions contemplated by this Agreement. FSSB
and Farmers and the Farmers Entities shall furnish each other and each other's
counsel with all information concerning themselves, their Subsidiaries,
directors, officers and shareholders and such other matters as may be necessary
or advisable in connection with any application, petition or other statement
made by or on behalf of FSSB or Farmers and the Farmers Entities to any Bank
Regulator or governmental body in connection with the Merger and the other
transactions contemplated by this Agreement. Each party acknowledges that time
is of the essence in connection with the preparation and filing of the
documentation referred to above. FSSB shall have the right to review in advance
all characterizations of the information relating to FSSB and any of its
Subsidiaries which appear in any filing made in connection with the transactions
contemplated by this Agreement with any governmental body.
8.4. Affiliates. FSSB shall use all reasonable efforts to cause each
director, executive officer and other person who is an "affiliate" (for purposes
of Rule 145 under the Securities Act) of FSSB to deliver to Farmers, as soon as
practicable after the date of this Agreement, and at least thirty (30) days
prior to the date of the FSSB Shareholders Meeting, a written agreement, in the
form of Exhibit B hereto, providing that such person will not sell, pledge,
transfer or otherwise dispose of any shares of IBT Common Stock to be received
by such "affiliate" as a result of the Merger otherwise than in compliance with
the applicable provisions of the Securities Act and the rules and regulations
thereunder.
8.5. Employment Agreements. As of the Closing Date, Surviving Corporation
shall: (i) enter into a two year employment agreement with FSSB's President in
the form attached hereto as Exhibit C; and (ii) enter into employment agreements
with FSSB's then current employees in the form attached hereto as Exhibit G.
8.6. Post-Closing Operations. At and after the Closing Date, Farmers and
FSSB agree that:
(a) Surviving Corporation shall be a state of Michigan chartered
commercial bank.
(b) All banking offices of FSSB will remain open.
(c) There will be no layoffs at FSSB as a result of the Merger.
(d) The deferred compensation plan for directors of FSSB shall be
continued.
(e) The executive supplemental income plan for officers of FSSB shall
be continued.
ARTICLE IX -- CLOSING CONDITIONS
9.1. Conditions to Each Party's Obligations Under This Agreement. The
respective obligations of each party under this Agreement shall be subject to
the fulfillment at or prior to the Closing Date of the following conditions,
none of which may be waived:
(a) Shareholder Approval. This Agreement and the transactions
contemplated hereby shall have been approved by the requisite vote of the
shareholders of FSSB.
(b) Injunctions. None of the parties hereto shall be subject to any
order, decree or injunction of a court or agency of competent jurisdiction,
and no statute, rule or regulation shall have been enacted, entered,
promulgated, interpreted, applied or enforced by any Governmental Entity or
Bank Regulator, that enjoins or prohibits the consummation of the
transactions contemplated by this Agreement.
(c) Regulatory Approvals. All required Regulatory Approvals shall
have been obtained and shall remain in full force and effect and all
waiting periods relating thereto shall have expired; and no such Regulatory
Approval shall include any condition or requirement, excluding standard
conditions that are normally imposed by the regulatory authorities in bank
merger transactions, that would, in the good faith reasonable judgment of
the Board of Directors of Farmers, materially and adversely affect the
business, operations, financial condition, property or assets of the
combined enterprise of FSSB and Farmers or otherwise materially impair the
value of FSSB to Farmers and the Farmers Entities.
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(d) Effectiveness of Merger Registration Statement. The Merger
Registration Statement shall have become effective under the Securities Act
and no stop order suspending the effectiveness of the Merger Registration
Statement shall have been issued, and no proceedings for that purpose shall
have been initiated or threatened by the SEC and, if the offer and sale of
IBT Common Stock in the Merger is subject to the blue sky laws of any
state, shall not be subject to a stop order of any state securities
commissioner.
(e) Fairness Opinion. FSSB and Farmers shall have received an opinion
from Austin Associates, LLC, reasonably acceptable to them, dated as of the
date of this Agreement and renewed as of a date approximately the date of
the Proxy Statement-Prospectus to the effect that the terms of the Merger
are fair to FSSB's shareholders and IBT's shareholders from a financial
point of view as of that date and such opinion shall not have been
subsequently withdrawn.
(f) Federal Tax Opinion. FSSB and Farmers shall have received an
opinion of Foster, Swift, Collins & Smith, P.C. counsel to Farmers and IBT
("Farmers' Counsel"), in form and substance reasonably satisfactory to both
FSSB and Farmers, substantially to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion which are
consistent with the state of facts existing at the Effective Time, the
Merger will be treated as a reorganization within the meaning of Section
368(a) of the Code. In rendering such opinion, Farmers' Counsel may require
and rely upon representations and covenants, including those contained in
certificates of officers of FSSB, Farmers, IBT, and others reasonably
satisfactory to such counsel.
(g) No Burdensome Condition. None of the Regulatory Approvals shall
impose any term, condition or restriction upon FSSB, Farmers or any of
their respective Affiliates that FSSB or Farmers, in good faith, reasonably
determines would so materially adversely affect the economic or business
benefits of the transactions contemplated by this Agreement to FSSB or
Farmers as to render inadvisable in the reasonable good faith judgment of
FSSB or Farmers, the consummation of the Merger.
9.2. Conditions to the Obligations of Farmers under this Agreement. The
obligations of Farmers under this Agreement shall be further subject to the
satisfaction of the conditions set forth in Sections 9.2(a) through 9.2(e) at or
prior to the Closing Date, which shall be waiveable by Farmers:
(a) Representations and Warranties. Each of the representations and
warranties of FSSB set forth in this Agreement shall be true and correct as
of the date of this Agreement and upon the Closing Date with the same
effect as though all such representations and warranties had been made at
the Closing Date (except to the extent such representations and warranties
speak as of an earlier date); and FSSB shall have delivered to Farmers a
certificate to such effect signed by the Chief Executive Officer and the
Chief Financial Officer of FSSB as of the Closing.
(b) Agreements and Covenants. FSSB shall have performed in all
material respects all obligations and complied in all material respects
with all agreements or covenants to be performed or complied with by it at
or prior to the Effective Time, and Farmers shall have received a
certificate signed on behalf of FSSB by the Chief Executive Officer and
Chief Financial Officer of FSSB to such effect dated as of the Effective
Time.
(c) Permits, Authorizations, Etc. FSSB and the FSSB Subsidiaries
shall have obtained any and all material permits, authorizations, consents,
waivers, clearances or approvals required to be obtained by it for the
lawful consummation of the Merger.
(d) Dissenters' Rights. The holders of no more than 10% of the FSSB
Common Stock shall have indicated their intention to seek dissenters'
rights of appraisal.
(e) Legal Opinion. Farmers shall have received the opinion of Bodman
LLP, counsel to FSSB, dated the Closing Date, in substantially the form
shown on Exhibit D.
FSSB will furnish Farmers with such certificates of its officers or others
and such other documents to evidence fulfillment of the conditions set forth in
this Section 9.2 as Farmers may reasonably request.
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9.3. Conditions to the Obligations of FSSB under this Agreement. The
obligations of FSSB under this Agreement shall be further subject to the
satisfaction of the conditions set forth in Sections 9.3(a) through 9.3(f) at or
prior to the Closing Date, which shall be waiveable by FSSB:
(a) Representations and Warranties. Each of the representations and
warranties of Farmers and IBT set forth in this Agreement shall be true and
correct as of the date of this Agreement and upon the Closing Date with the
same effect as though all such representations and warranties had been made
at the Closing Date (except to the extent such representations and
warranties speak as of an earlier date); and Farmers shall have delivered
to FSSB a certificate to such effect signed by the Chief Executive Officer
and the Chief Financial Officer of Farmers and IBT as of the Closing.
(b) Agreements and Covenants. Farmers and IBT shall have performed in
all material respects all obligations and complied in all material respects
with all agreements or covenants to be performed or complied with by it at
or prior to the Effective Time, and FSSB shall have received a certificate
signed on behalf of Farmers by the Chief Executive Officer and Chief
Financial Officer of Farmers and IBT to such effect dated as of the
Effective Time.
(c) Permits, Authorizations, Etc. Farmers and the Farmers Entities
shall have obtained any and all material permits, authorizations, consents,
waivers, clearances or approvals required to be obtained by it for the
lawful consummation of the Merger.
(d) Payment of Merger Consideration. IBT shall have delivered the
Exchange Fund to the Exchange Agent on or before the Closing Date.
(e) Legal Opinion. FSSB shall have received the opinion of Foster,
Swift, Collins & Smith, P.C., counsel to Farmers and IBT, dated the Closing
Date, in substantially the form shown on Exhibit E.
(f) Fairness Opinion. FSSB shall have received an opinion from
Donnelly Penman and Partners, dated as of the date approximately the date
of the Proxy Statement-Prospectus to the effect that the terms of the
Merger are fair to FSSB's shareholders from a financial point of view as of
that date and such opinion shall not have been subsequently withdrawn.
Farmers will furnish FSSB with such certificates of its officers or others and
such other documents to evidence fulfillment of the conditions set forth in this
Section 9.3 as FSSB may reasonably request.
ARTICLE X -- THE CLOSING
10.1. Time and Place. Subject to the provisions of Articles IX and XI
hereof, the Closing of the transactions contemplated hereby shall take place at
the offices of IBT, 200 East Broadway, Mt. Pleasant, Michigan, at 10 a.m., or at
such other place or time upon which Farmers and FSSB mutually agree.
10.2. Deliveries at the Closing. At Closing there shall be delivered to
Farmers and FSSB the certificates and other documents and instruments required
to be delivered at the Closing under Article IX hereof. At or prior to the
Closing, Farmers shall deliver the Merger Consideration as set forth under
Section 9.3(d) hereof.
ARTICLE XI -- TERMINATION, AMENDMENT AND WAIVER
11.1. Termination. This Agreement may be terminated at any time prior to
the Closing Date, whether before or after approval of the Merger by the
shareholders of FSSB:
(a) At any time by the mutual written agreement of Farmers and FSSB;
(b) By Farmers or FSSB (provided, that the terminating party is not
then in material breach of any representation, warranty, covenant or other
agreement contained herein) if there shall have been a material breach of
any of the representations or warranties set forth in this Agreement on the
part of the other party, which breach by its nature cannot be cured prior
to the Termination Date or shall not have been cured within 30 days after
written notice of such breach by the terminating party to the other party;
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(c) By Farmers or FSSB (provided, that the terminating party is not
then in material breach of any representation, warranty, covenant or other
agreement contained herein) if there shall have been a material failure to
perform or comply with any of the covenants or agreements set forth in this
Agreement on the part of the other party, which failure by its nature
cannot be cured prior to the Termination Date or shall not have been cured
within 30 days after written notice of such failure by the terminating
party to the other party;
(d) By Farmers or FSSB, if the Closing shall not have occurred by the
Termination Date, or such later date as shall have been agreed to in
writing by Farmers and FSSB; provided, that no party may terminate this
Agreement pursuant to this Section 11.1(d) if the failure of the Closing to
have occurred on or before said date was due to such party's material
breach of any representation, warranty, covenant or other agreement
contained in this Agreement;
(e) By Farmers or FSSB, if the shareholders of FSSB shall have voted
at the FSSB Shareholders Meeting on the transactions contemplated by this
Agreement and such vote shall not have been sufficient to approve such
transactions;
(f) By Farmers or FSSB, if (i) final action has been taken by a Bank
Regulator whose approval is required in connection with this Agreement and
the transactions contemplated hereby, which final action (x) has become
unappealable and (y) does not approve this Agreement or the transactions
contemplated hereby, (ii) any Bank Regulator whose approval or non-
objection is required in connection with this Agreement and the
transactions contemplated hereby has stated in writing that it will not
issue the required approval or nonobjection, or (iii) any court of
competent jurisdiction or other governmental authority shall have issued an
order, decree, ruling or taken any other action restraining, enjoining or
otherwise prohibiting the Merger and such order, decree, ruling or other
action shall have become final and unappealable;
(g) By the Board of Directors of either party (provided, that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained herein) in the event that
any of the conditions precedent to the obligations of such party to
consummate the Merger cannot be satisfied or fulfilled by the date
specified in Section 11.1(d) of this Agreement;
(h) By the Board of Directors of Farmers if FSSB has received a
Superior Proposal and the Board of Directors of FSSB has entered into an
acquisition agreement with respect to the Superior Proposal, terminated
this Agreement, withdrawn its recommendation of this Agreement, has failed
to make such recommendation or has modified or qualified its recommendation
in a manner adverse to Farmers;
(i) By the Board of Directors of FSSB if FSSB has received a Superior
Proposal and the Board of Directors of FSSB has made a determination to
accept such Superior Proposal; provided that FSSB shall not terminate this
Agreement pursuant to this Section 11.1(i) and enter into a definitive
agreement with respect to the Superior Proposal until the expiration of
five (5) business days following Farmers' receipt of written notice
advising Farmers that FSSB has received a Superior Proposal, specifying the
material terms and conditions of such Superior Proposal (and including a
copy thereof with all accompanying documentation, if in writing)
identifying the person making the Superior Proposal and stating whether
FSSB intends to enter into a definitive agreement with respect to the
Superior Proposal. After providing such notice, FSSB shall provide a
reasonable opportunity to Farmers during the five business-day period to
make such adjustments in the terms and conditions of this Agreement as
would enable FSSB to proceed with the Merger on such adjusted terms.
11.2. Effect of Termination.
(a) In the event of termination of this Agreement pursuant to any provision
of Section 11.1, this Agreement shall forthwith become void and have no further
force, except that (i) the provisions of Sections 11.2, 12.1, 12.2, 12.6, 12.9,
12.10, and any other Section which, by its terms, relates to post-termination
rights or obligations, shall survive such termination of this Agreement and
remain in full force and effect.
(b) If this Agreement is terminated, expenses and damages of the parties
hereto shall be determined as follows:
(i) Except as provided below, whether or not the Merger is
consummated, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated by this Agreement shall be paid
by the
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party incurring such expenses; provided, however, if the Merger is not
consummated due to the failure to obtain any necessary Regulatory Approval,
Farmers shall reimburse FSSB for its actual costs and expenses incurred by
FSSB after March 9, 2006 in connection with this Agreement and the
transactions contemplated by this Agreement including, without limitation,
fees and expenses of its attorneys, accountants and financial advisors.
(ii) In the event of a termination of this Agreement because of a
willful breach of any representation, warranty, covenant or agreement
contained in this Agreement, the breaching party shall remain liable for
any and all damages, costs and expenses, including all reasonable
attorneys' fees, sustained or incurred by the non-breaching party as a
result thereof or in connection therewith or with respect to the
enforcement of its rights hereunder.
11.3. Amendment, Extension and Waiver. Subject to applicable law, at any
time prior to the Effective Time (whether before or after approval thereof by
the shareholders of FSSB), the parties hereto by action of their respective
Boards of Directors, may (a) amend this Agreement, (b) extend the time for the
performance of any of the obligations or other acts of any other party hereto,
(c) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto, or (d) waive compliance
with any of the agreements or conditions contained herein; provided, however,
that after any approval of this Agreement and the transactions contemplated
hereby by the shareholders of FSSB, there may not be, without further approval
of such shareholders, any amendment of this Agreement which reduces the amount
or value, or changes the form of, the Merger Consideration to be delivered to
FSSB's shareholders pursuant to this Agreement. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto. Any agreement on the part of a party hereto to any extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party, but such waiver or failure to insist on strict compliance
with such obligation, covenant, agreement or condition shall not operate as a
waiver of, or estoppel with respect to, any subsequent or other failure. Any
termination of this Agreement pursuant to Article XI may only be effected upon a
vote of a majority of the entire Board of Directors of the terminating party.
ARTICLE XII -- MISCELLANEOUS
12.1. Confidentiality. Except as provided below, Farmers and FSSB each
agree:
(a) Treatment; Restricted Access. All information furnished to the
other party or its Affiliates pursuant to this Agreement shall be treated
as strictly confidential and shall not be disclosed to any other person,
natural or corporate, except for its employees, attorneys, accountants,
regulators, and financial advisers who are reasonably believed to have a
need for such information in connection with the Merger.
(b) No Other Use. No party shall make any use, other than related to
the Merger, of any information it may come to know as a direct result of a
disclosure by the other party, its subsidiaries, directors, officers,
employees, attorneys, accountants, or advisers or that may come into its
possession from any other confidential source during the course of its
investigation.
(c) Excepted Information. The provisions of this section shall not
preclude the parties or their respective subsidiaries, from using or
disclosing information that is readily ascertainable from public
information or trade sources, known by it before the commencement of
discussions between the parties or subsequently developed by it or its
subsidiaries independent of any investigation under this Agreement,
received from any other person who is not Affiliates with a party and who
is not under any obligation to keep such information confidential, or
reasonably required to be included in any filing or application required by
any governmental or regulatory agency.
(d) Prohibit Insider Trading. The parties shall each take reasonable
steps to assure that any person who receives nonpublic information
concerning the Merger or the other party will treat the information
confidentially as provided in this section and not directly or indirectly
buy or sell, or advise or encourage other persons to buy or sell, FSSB
Common Stock or IBT Common Stock until such information is properly
disclosed to the public.
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12.2. Public Announcements. FSSB and Farmers shall cooperate with each
other in the development and distribution of all news releases and other public
disclosures with respect to this Agreement, and except as may be otherwise
required by law, neither FSSB nor Farmers shall issue any news release, or other
public announcement or communication with respect to this Agreement unless such
news release or other public announcement or communication has been mutually
agreed upon by the parties hereto.
12.3. Survival. All representations, warranties and covenants in this
Agreement or in any instrument delivered pursuant hereto shall expire and be
terminated and extinguished at the Effective Time, except for those covenants
and agreements contained herein which by their terms apply in whole or in part
after the Effective Time.
12.4. Notices. All notices or other communications hereunder shall be in
writing and shall be deemed given if delivered by receipted hand delivery or
mailed by prepaid registered or certified mail (return receipt requested) or by
recognized overnight courier addressed as follows:
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: (a) as of the
date delivered by hand; (b) three (3) business days after being delivered to the
U.S. mail, postage prepaid; or (c) one (1) business day after being delivered to
the overnight courier.
12.5. Parties in Interest. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any party hereto without
the prior written consent of the other party, and that (except as provided in
Article III of this Agreement) nothing in this Agreement is intended to confer
upon any other person any rights or remedies under or by reason of this
Agreement.
12.6. Complete Agreement. This Agreement, including the Exhibits and
Disclosure Schedules hereto and the documents and other writings referred to
herein or therein or delivered pursuant hereto, and the Confidentiality
Agreements referred to in Section 12.1, contains the entire agreement and
understanding of the parties with respect to its subject matter. There are no
restrictions, agreements, promises, warranties, covenants or undertakings
between the parties other than those expressly set forth herein or therein. This
Agreement supersedes all prior agreements and understandings (other than the
Confidentiality Agreements referred to in Section 12.1 hereof) between the
parties, both written and oral, with respect to its subject matter.
12.7. Counterparts. This Agreement may be executed in one or more
counterparts all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
12.8. Severability. In the event that any one or more provisions of this
Agreement shall for any reason be held invalid, illegal or unenforceable in any
respect, by any court of competent jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement and the
parties shall use their reasonable efforts to substitute a valid, legal and
enforceable provision which, insofar as practical, implements the purposes and
intents of this Agreement.
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12.9. Governing Law. This Agreement shall be governed by the laws of
Michigan, without giving effect to its principles of conflicts of laws.
12.10. Interpretation. When a reference is made in this Agreement to
sections or exhibits, such reference shall be to a section of or exhibit to this
Agreement unless otherwise indicated. The recitals hereto constitute an integral
part of this Agreement. References to sections include subsections, which are
part of the related section. The table of contents, index and headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. Whenever the words
"include", "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation". The phrases "the date
of this Agreement", "the date hereof" and terms of similar import, unless the
context otherwise requires, shall be deemed to refer to the date set forth in
the Recitals to this Agreement.
12.11. Specific Performance. The parties hereto agree that irreparable
damage would occur in the event that the provisions contained in this Agreement
were not performed in accordance with its specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions thereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
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IN WITNESS WHEREOF, Farmers, FSSB and IBT have caused this Agreement to be
executed by their duly authorized officers as of the date first set forth above.
Farmers State Bank of Breckenridge
By: /s/ Timothy M. Miller
------------------------------------
Timothy M. Miller
President and CEO
Dated: May 2, 2006
The Farwell State Savings Bank
By: /s/ Herbert R. Miller
------------------------------------
Herbert R. Miller
Chairman of the Board
Dated: April 28, 2006
IBT Bancorp, Inc.
By: /s/ Dennis P Angner
------------------------------------
Dennis P. Angner
President and CEO
Dated: May 2, 2006
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AUSTINASSOCIATES LOGO
August 18, 2006
Board of Directors
IBT Bancorp, Inc.
200 East Broadway
Mount Pleasant, MI 48858
and
Board of Directors
The Farwell State Savings Bank
399 West Main Street
Farwell, MI 48622
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view, to IBT Bancorp, Inc. ("IBT") and The Farwell State Savings Bank
("Farwell") and their respective shareholders of the terms of the Amended and
Restated Agreement and Plan of Merger dated as of April 28, 2006 ("Agreement")
between IBT, Farwell, and Farmers State Bank of Breckenridge ("Farmers").
Farmers is a wholly-owned subsidiary of IBT. The terms of the Agreement provide
for the merger of Farwell with and into Farmers. At the effective time of the
merger, Farmers will change its name to FSB Bank.
The terms of the Agreement provide for each outstanding share of Farwell
common stock to be exchanged for 3.0382 shares of IBT common stock plus $29.00
in cash. IBT will not issue fractional shares in connection with the merger;
instead, fractional shares shall be settled in cash.
In carrying out our engagement, we have reviewed and analyzed material
bearing upon the financial and operating condition of IBT and Farwell, including
but not limited to the following: (i) the Agreement; (ii) the financial
statements of IBT and Farwell for the period 2001 through year-to-date March 31,
2006; (iii) certain other publicly available information regarding IBT and
Farwell; (iv) publicly available information regarding the performance of
certain other companies whose business activities were believed by Austin
Associates to be generally comparable to those of IBT and Farwell; (v) the
financial terms, to the extent publicly available, of certain comparable
transactions; and (vi) such other analysis and information as we deemed
relevant.
AUSTINASSOCIATES LOGO
B-1
AUSTINASSOCIATES LOGO
Page 2
Members of the Board
August 18, 2006
In our review and analysis, we relied upon and assumed the accuracy and
completeness of the financial and other information provided to us or publicly
available, and have not attempted to verify the same. We have made no
independent verification as to the status of individual loans made by IBT or
Farwell, and have instead relied upon representations and information concerning
loans of IBT and Farwell in the aggregate.
In addition, we have assumed in the course of obtaining the necessary
approvals for the transaction, no condition will be imposed that will have a
material adverse effect on the contemplated benefits of the transaction to IBT
or Farwell and their respective shareholders.
This opinion is based on economic and market conditions and other
circumstances existing on, and information made available as of, the date
hereof. This opinion is limited to the fairness of the financial terms of the
Agreement to IBT and Farwell and their respective shareholders, and does not
address the underlying business decision by the Boards of Directors to pursue
the merger.
Austin Associates will receive a contingent fee based on consummation of
the transaction. In addition, IBT and Farwell have agreed to indemnify Austin
Associates against certain liabilities.
Based upon our analysis and subject to the qualifications described herein,
we believe that as of the date of this letter the terms of the Agreement are
fair, from a financial point of view, to IBT and Farwell and their respective
shareholders.
-S- SIGNATURE
Austin Associates, LLC
B-2
APPENDIX C
June 30, 2006
Board of Directors
The Farwell State Savings Bank
399 W. Main St.
Farwell, Michigan 48622-0099
Members of the Board of Directors:
You have requested our opinion as to the fairness, from a financial point
of view, to the shareholders of Farwell State Savings Bank ("Farwell") of the
exchange ratio and cash consideration provided for pursuant to the Agreement and
Plan of Merger, dated as of December 22, 2005 to which IBT Bancorp, Inc. ("IBT")
will acquire Farwell. On May 2, 2006 IBT, Farmers State Bank of Breckenridge
("Farmers") and Farwell entered into an amended and restated Agreement and Plan
of Merger (the "Amended Agreement") to substitute Farmers as the acquiring
entity. In accordance with the terms of the Amended Agreement, Farwell will
merge with Farmers, with Farmers as the surviving entity. Concurrently, each
share of Farwell common stock issued and outstanding immediately prior to the
effective time of the merger shall be converted into the right to receive 3.0382
shares of IBT common stock plus $29.00 in cash.
Donnelly Penman & Partners ("Donnelly Penman") is an investment-banking
firm of recognized standing. As part of our investment banking services, we are
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, private placements and valuations for
stock plans, corporate and other purposes. We are acting as financial advisor to
Farwell in connection with the Merger and will receive a fee from Farwell for
our services pursuant to the terms of our engagement letter with Farwell, dated
as of January 18, 2006 (the "Engagement Letter").
In arriving at its opinion, Donnelly Penman engaged in discussions with
members of the management teams of each of Farwell and IBT concerning the
historical and current business operations, financial conditions and prospects
of Farwell and IBT and reviewed:
- the Agreement and Plan of Merger dated December 22, 2005 and the Amended
and Restated Agreement and Plan of Merger dated May 2, 2006;
- the most recent draft dated June 29, 2006 of the Form S-4 Registration
Statement relating to the merger;
- certain publicly-available information for IBT, including each of the
Annual Reports to Stockholders and Annual Reports on Form 10-K for the
years ended December 31, 2003, 2004 and 2005 and the quarterly reports on
Form 10-Q for the quarter ended March 31, 2006;
- certain information, including financial forecasts, relating to earnings,
assets, liabilities and prospects of IBT furnished by senior management
of IBT;
- Independent Auditor's Report for Farwell State Bank for the years ended
December 31, 2005 and 2004 and the unaudited condensed balance sheet and
statement of income for the three months ended March 31, 2006 and March
31, 2005;
- certain information, including financial forecasts, relating to earnings,
assets, liabilities and prospects of Farwell furnished by senior
management of Farwell;
- IBT's senior management projected earnings estimates for fiscal years
2006 through 2010, which were deemed reasonable by IBT management;
- Farwell's senior management projected earnings estimates for fiscal years
2006 through 2010, which were deemed reasonable by Farwell management;
- the amount and timing of the cost savings expected to result from the
merger furnished by senior management of IBT;
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- the financial condition and operating results of IBT and Farwell compared
to the financial conditions and operating results of certain other
financial institutions that Donnelly Penman deemed comparable;
- various valuation analyses of Farwell and IBT Donnelly Penman performed
including dividend discount analyses, analysis of comparable transactions
and analysis of comparable companies; and
- such other information, financial studies, analyses and investigations
and such other factors that Donnelly Penman deemed relevant for the
purposes of its opinion.
In conducting its review and arriving at its opinion, as contemplated under
the terms of its engagement by Farwell, Donnelly Penman, with the consent of IBT
and Farwell, relied, without independent investigation, upon the accuracy and
completeness of all financial and other information provided to it by IBT and
Farwell or upon publicly-available information. Donnelly Penman did not
undertake any responsibility for the accuracy, completeness or reasonableness
of, or any obligation independently to verify, such information. Donnelly Penman
further relied upon the assurance of management of IBT and Farwell that they
were unaware of any facts that would make the information provided or available
to Donnelly Penman incomplete or misleading in any respect. Donnelly Penman did
not make any independent evaluations, valuations or appraisals of the assets or
liabilities of IBT or Farwell. Donnelly Penman did not review any individual
credit files of IBT or Farwell and assumed that the aggregate allowances for
credit losses for IBT and Farwell were adequate to cover such losses. Donnelly
Penman's opinion was necessarily based upon economic and market conditions and
other circumstances as they existed and evaluated by Donnelly Penman on the date
of its opinion. Donnelly Penman does not have any obligation to update its
opinion, unless requested by Farwell in writing to do so, and Donnelly Penman
expressly disclaims any responsibility to do so in the absence of any written
request by Farwell.
No limitations were imposed by Farwell on Donnelly Penman on the scope of
Donnelly Penman's investigation or the procedures to be followed by Donnelly
Penman in rendering this opinion. The form and amount of the consideration to be
paid to Farwell or its shareholders were determined through arms length
negotiations between Farwell and IBT.
In our analyses, we have made numerous assumptions with respect to industry
performance, business and economic conditions, and other matters, many of which
are beyond the control of Farwell. Any estimates contained in our analyses are
not necessarily indicative of future results or value, which may be
significantly more or less favorable than such estimates. Estimates of values of
companies do not purport to be appraisals or to necessarily reflect the prices
at which companies or their securities actually may be sold. No company or
merger utilized in our analyses was identical to Farwell, IBT or the Merger.
Accordingly, such analyses are not based solely on arithmetic calculations;
rather, they involve complex considerations and judgments concerning differences
in financial and operating characteristics of the relevant companies, the timing
of the relevant mergers and prospective buyer interests, as well as other
factors that could affect the public trading markets of Farwell or companies to
which it is being compared. None of the analyses performed by us was assigned a
greater significance than any other.
We hereby consent to the reference to our opinion in the prospectus and
proxy statement to be issued pursuant to the Amended Agreement and to the
inclusion of the foregoing opinion in the prospectus and proxy statement
relating to the meeting of stockholders of Farwell. In giving such consent, we
do not thereby admit that we come within the category of persons whose consent
is required under Section 7 of the Securities Act of 1933 or the rules and
regulations of the Securities and Exchange Commission thereunder. Further, we
express no view as to the price or trading range for shares of the common stock
of IBT following the consummation of the Merger.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, it is our opinion that, as of June 30, 2006,
the exchange ratio and cash consideration to be received by Farwell shareholders
under the Amended Agreement is fair, from a financial point of view, to the
shareholders of Farwell.
Very truly yours,
Donnelly Penman & Partners
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APPENDIX D
Section 3706(2)(b) of the Michigan
Banking Code of 1999
A shareholder of the existing bank, existing savings bank, or existing
association who votes against the consolidation, or who has given notice in
writing to that bank or association at or before the meeting called for the
purpose of considering the agreement of consolidation that the shareholder
dissents from the consolidation, is entitled to receive in cash from the
consolidated organization the fair value of all shares held by the shareholder,
if and when the consolidation is consummated, upon written request made to the
consolidated organization at any time within 30 days after the date of
consummation of the consolidation, accompanied by the surrender of the stock
voted in dissent by the shareholder. Upon the filing of the written request and
the surrender of stock certificates, if any, the shareholder shall cease to have
any of the rights of a shareholder except the right to be paid the fair value of
the shareholder's shares. The request having been made shall not be withdrawn
except with the written consent of the consolidated organization. The fair value
of the shares shall be determined, as of the date on which the meeting of
shareholders of the existing bank, existing savings bank, or existing
association was held adopting the agreement of consolidation, by a qualified and
independent appraiser selected by the commissioner upon written request
submitted by a dissenting shareholder entitled to receive the fair value of his
or her shares. The appraiser selected shall file a written appraisal with the
commissioner, who in turn shall forward copies to all interested parties. The
valuation determined by the appraiser is final and binding on all parties as to
the fair value of the shares. The consolidated organization shall pay to each
dissenting shareholder entitled the fair value of his or her shares within 30
days following the receipt of the written appraisal. The fees and expenses of
the appraisal, which shall be approved by the commissioner, shall be paid by the
consolidated organization. The agreement of consolidation shall provide the
manner of disposing of the shares of the existing bank, existing savings bank,
or existing association surrendered by the dissenting shareholders.
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PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Articles of Incorporation of IBT provide that its directors and
officers are to be indemnified as of right to the fullest extent permitted under
the Michigan Business Corporation Act. Under the Michigan Business Corporation
Act, directors, officers, employees or agents are entitled to indemnification
against expenses (including attorneys' fees) whenever they successfully defend
legal proceedings brought against them by reason of the fact that they hold such
a position with the corporation. In addition, with respect to actions not
brought by or in the right of the corporation, indemnification is permitted
under the Michigan Business Corporation Act for expenses (including attorneys'
fees), judgments, fines, penalties and reasonable settlement if it is determined
that the person seeking indemnification acted in good faith and in a manner he
or shethe person reasonably believed to be in orand not opposed to the best interests of the corporation or its shareholders, and with respect to a criminal proceedings, heaction or sheproceeding, if the person had no reasonable cause to believe that his or herthe conduct was unlawful.
With respect to actions broughtany derivative action, under the Michigan Business Corporation Act, a corporation is empowered to indemnify a person who was or is a party, or is threatened to be made a party, to a threatened, pending, or completed action or suit, by or in the right of the corporation indemnification is permitted underto procure a judgment in its favor by reason of the Michigan Business Corporation Act for
expenses (including attorneys' fees) and reasonable settlements, if it is
determinedfact that the person seeking indemnificationis or was a director or officer of the corporation for expenses, including attorneys’ fees and amounts paid in settlement, actually and reasonably incurred by the person in connection with the action or suit, if the person acted in good faith and in a manner he or shethe person reasonably believed to be in orand not opposed to the best interests of the corporation or its shareholders; provided, indemnification isshareholders. With limited exceptions, a corporation may not permitted ifindemnify a person for a claim, issue, or matter in which the person is found liable to the corporation, unless the court
in which the action or suit was brought has determined that indemnification is
faircorporation.
27
Item 21. Exhibits and reasonable in view of all the circumstances of the case.
In addition to the available indemnification, IBT's Articles of
Incorporation, as amended, limit the personal liability of the members of its
Board of Directors for monetary damages with respect to claims by IBT or its
shareholders resulting from certain negligent acts or omissions.
Under an insurance policy maintained by IBT, the directors and officers of
IBT are insured within the limits and subject to the limitations of the policy,
against certain expenses in connection with the defense of certain claims,
actions, suits or proceedings, and certain liabilities which might be imposed as
a result of such claims, action, suits or proceedings, which may be brought
against them by reason of being or having been such directors and officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
A. EXHIBITS. THE FOLLOWING EXHIBITS ARE FILED AS PART OF THIS REGISTRATION
STATEMENT:
Financial Statement Schedules.
(a)Exhibits:
| Number | Description | ||||
| 3.1 | Amended Articles of Incorporation | ||||
| 3.2 | Amendment to the Articles of Incorporation | ||||
| 3.3 | Amendment to the Articles of Incorporation | ||||
| 3.4 | Amendment to the Articles of Incorporation | ||||
| 3.5 | Amendment to the | ||||
| 3.6 | Amended Bylaws of | ||||
| 3.7 | Amendment to Bylaws of Registrant (incorporated herein by reference to Exhibit 3 of the Registrant’s Form 8-K Current Report filed on November 22, 2006). | ||||
| 3.8 | Amendment to Bylaws of Registrant (incorporated herein by reference to Exhibit 3 of the Registrant’s Form 8-K Current Report filed on August 28, 2009). | ||||
| 3.9 | Amendment to Bylaws of Registrant (incorporated herein by reference to Exhibit 3 of the Registrant’s Form 8-K Current Report filed on December 23, 2009). | ||||
| 4.1 | Indenture, dated as of June 2, 2021, by and between Isabella Bank Corporation and UMB Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 of the Registrant’s Form 8-K Current Report filed June 2, 2021). | ||||
| 4.2 | Form of 3.25% Fixed-to-Floating Rate Subordinated Note due 2031 of Isabella Bank Corporation (included in Exhibit 4.1). | ||||
| 10.1 | Subordinated Note Purchase Agreement, dated as of June 2, 2021, by and among Isabella Bank Corporation and the several Purchasers (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K Current Report filed June 2, 2021). | ||||
| 10.2 | Registration Rights Agreement, dated as of June 2, 2021, by and among Isabella Bank Corporation and the several Purchasers (incorporated by reference to Exhibit 10.2 of the Registrant’s Form 8-K Current Report filed June 2, 2021). | ||||
| 24.1 | Power of Attorney (included on the signature page | ||||
(b)Financial Statement Schedules:
All schedules for which provision is made in Regulation S-Xthe applicable accounting regulations of the Securities and Exchange Commission have been omitted because they either are not required, under the related instructionsamounts which would otherwise be required to be shown with respect to any item are not material, are inapplicable or the required information has already been includedprovided elsewhere or incorporated by reference in the financial statements of IBT Bancorp, Inc. or notes thereto.
C. OPINIONS OF FINANCIAL ADVISOR.
The form of opinion of Austin Associates, LLC is included as Appendix B to
the prospectus and proxyregistration statement.
The form of opinion of Donnelly Penman & Partners is included as Appendix C
to the prospectus and proxy statement.
ITEM
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Item 22. UNDERTAKINGS.
Undertakings.
(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. Notwithstanding the foregoing, any increase or decrease in the volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low end or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation“Calculation of Registration Fee"Fee” table in the effective registration statement; and
(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 such information in the registration statement;"
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.
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(3) To remove formfrom registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(5) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant'sregistrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in thethis 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.
(5) The undersigned registrant hereby undertakes to deliver or cause
to be delivered with the proxy statement-prospectus, to each person to whom
the proxy statement-prospectus is sent or given, the latest annual report
to security holders that is incorporated by reference in the proxy
statement-prospectus and furnished pursuant to and meeting the requirements
of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934.
(6) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement,
by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(7) The undersigned registrant undertakes that every prospectus: (i)
that is filed pursuant to the paragraph immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Securities Act
of 1933 and is used in connection with an offering of securities subject to
Rule 415, shall be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that,
for purposes of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(8)
(c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
(b)
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(d) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4,10(b)Items 4, 10(b), 11 or 13 of this form,Form, within one (1) business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.
(c)
(e) 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 thethis registration statement when it became effective.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrantregistrant has duly causecaused this pre-effective Amendment No. 1 to this Registration Statementregistration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Mt. Pleasant, State of Michigan, on the 16ththis 21st day of August, 2006.
IBT BANCORP, INC.
By: /s/ Dennis P. Angner
------------------------------------
Dennis P. Angner
July, 2021.
| ISABELLA BANK CORPORATION | ||||||||
| By: | ||||||||
| Jae A. Evans | ||||||||
| President and Chief Executive Officer | ||||||||
POWER OF ATTORNEY
Each person whose signature appears below appoints Jae A. Evans and Chief Executive
Officer
Neil M. McDonnell, and each of them, either of whom may act without the joinder of the other, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution in each, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement and any registration statement (including any amendment thereto) for this offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or would do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this pre-
effective Amendment No. 1 to this Registration Statementregistration statement has been signed below by the following persons in the capacities indicated on the dates indicated.
July 21, 2021.
| Signature | Title | Date | ||||||||||||
| /s/ Jeffrey J. Barnes | Director | July 21, 2021 | ||||||||||||
| Dr. Jeffrey J. Barnes | ||||||||||||||
| /s/ Jill Bourland | Director | July 21, 2021 | ||||||||||||
| Jill Bourland | ||||||||||||||
| /s/ Jae. A. Evans | President, Chief Executive Officer (Principal Executive Officer), and Director | July 21, 2021 | ||||||||||||
| Jae A. Evans | ||||||||||||||
| /s/ Jennifer L. Gill | Controller | July 21, 2021 | ||||||||||||
| Jennifer L. Gill | ||||||||||||||
| /s/ G. Charles Hubscher | Director | July 21, 2021 | ||||||||||||
| G. Charles Hubscher | ||||||||||||||
| /s/ Thomas L. Kleinhardt | Director | July 21, 2021 | ||||||||||||
| Thomas L. Kleinhardt | ||||||||||||||
| /s/ David J. Maness | Director | July 21, 2021 | ||||||||||||
| David J. Maness | ||||||||||||||
| /s/ Neil M. McDonnell | Chief Financial Officer (Principal Financial Officer) | July 21, 2021 | ||||||||||||
| Neil M. McDonnell | ||||||||||||||
| /s/ Richard L. McGuirk | Director | July 21, 2021 | ||||||||||||
| Richard L. McGuirk | ||||||||||||||
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| Signature | Title | Date | ||||||||||||
| /s/ Sarah R. Opperman | Director | July 21, 2021 | ||||||||||||
| Sarah R. Opperman | ||||||||||||||
| /s/ Chad R. Payton | Director | July 21, 2021 | ||||||||||||
| Chad R. Payton | ||||||||||||||
| Director | ||||||||||||||
| Vicki L. Rupp | ||||||||||||||
| /s/ Jerome Schwind | Vice President and | July 21, 2021 | ||||||||||||
| Jerome Schwind | ||||||||||||||
| /s/ Gregory V. Varner | Director | July 21, 2021 | ||||||||||||
| Gregory V. Varner | ||||||||||||||
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