| ITEM 1.01. | Entry into a Material Definitive Agreement. |
On July 12, 2021, F.N.B. Corporation (“F.N.B.”), the parent company of First National Bank of Pennsylvania, and Howard Bancorp, Inc. (“Howard”), the parent company of Howard Bank, entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which Howard will merge with and into F.N.B. As a result of the merger, the separate corporate existence of Howard will cease and F.N.B. will continue as the surviving corporation (the “Merger”). The Merger is expected to be completed in early 2022, subject to approval by Howard stockholders, and receipt of required regulatory and other approvals and satisfaction of customary closing conditions. Immediately after the Merger is completed, Howard Bank, a Maryland-chartered bank, will merge with and into First National Bank of Pennsylvania, a national association, with First National Bank of Pennsylvania being the surviving entity.
Subject to the terms and conditions of the Merger Agreement and in connection with the Merger, holders of Howard Common Stock, par value $.01 per share (“Howard Common Stock”), will have the right to receive shares of F.N.B. common stock at a fixed exchange ratio of 1.80 shares of F.N.B. common stock for each share of Howard Common Stock (the “Exchange Ratio”), and cash in lieu of any fractional shares (the “Merger Consideration”). Any shares of Howard Common Stock that are held by Howard and its subsidiaries (other than in a fiduciary, custodial, agency or similar capacity) will be cancelled without receipt of any stock or cash consideration. The Merger is expected to qualify as a tax-free exchange for Howard stockholders.
Additionally, at the effective time of the Merger, each outstanding Howard stock option will be assumed and converted into a fully vested option to purchase a number of shares of F.N.B. common stock (rounded down to the nearest whole share) equal to the product obtained by multiplying the number of shares of Howard Common Stock subject to the option and the Exchange Ratio, at an exercise price (rounded up to the nearest whole cent) obtained by dividing the per share exercise price under the option by the Exchange Ratio. The Howard stock options otherwise will continue to be subject to the same terms and conditions which applied immediately before the completion of the Merger. Immediately before the effective time of the Merger, each outstanding Howard restricted stock unit, if and to the extent provided under the terms of the applicable award agreement, will become fully-vested and will be converted, as of the effective time of the Merger, into the right to receive, without interest, the Merger Consideration. Any other Howard restricted stock units that are not fully vested pursuant to the terms of the applicable award agreement will convert into F.N.B. restricted stock unit awards (and will be adjusted so that its holder will be entitled to receive a number of shares of F.N.B. common stock (rounded down to the nearest whole share) equal to the product obtained by multiplying the number of shares of Howard Common Stock subject to such Howard restricted stock units immediately prior to the effective time of the Merger and the Exchange Ratio) and will otherwise continue to be subject to the same terms and conditions in effect immediately before the Merger.
The Merger Agreement provides that, as of the effective time of the Merger, F.N.B. will appoint two current directors of the Howard board of directors, to be mutually selected by the parties, to serve as the Chairperson and Vice Chairperson of the F.N.B. Mid-Atlantic Regional Advisory Board, for a minimum term of two years.
The Merger Agreement contains various customary representations, warranties and covenants by Howard and F.N.B., including among others, covenants relating to the conduct of their respective businesses during the interim period between the execution of the Merger Agreement and the effective time of the Merger. Howard has also agreed to call a meeting of its stockholders to consider and vote upon a proposal to approve the Merger. Additionally, Howard agreed that it will not solicit or knowingly encourage proposals for an alternative business combination transaction or, subject to certain exceptions, enter into discussions or furnish information in connection with any proposals for alternative business combination transactions.
The Merger will not be completed unless a number of customary closing conditions are met, including, among others: approval of the Merger by Howard stockholders; the effectiveness of the Form S-4 registration statement to be filed by F.N.B. with the Securities and Exchange Commission (the “SEC”) for the F.N.B. common stock to be issued in the Merger; authorization for listing on the New York Stock Exchange of the F.N.B. common stock to be issued in the Merger; receipt of required regulatory and other approvals, including the approvals of the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the Maryland Office of the Commissioner of Financial Regulation, and the expiration of all applicable statutory waiting periods; the accuracy of the representations and warranties of each party specified in the Merger Agreement; each party’s receipt of an opinion from its tax counsel to the effect that the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended; and the absence of any injunctions, court orders or other legal restraints preventing the completion of the Merger.
The Merger Agreement provides for termination rights which may be exercised by Howard or F.N.B. upon the occurrence of certain events, such as the following: a required regulatory approval is denied by final, non-appealable action of a governmental entity; the parties fail to complete the Merger by June 30, 2022; the other party has breached a representation, warranty or covenant which would prevent a closing condition from being satisfied and the breach is not or cannot be cured within 30 days; or the Howard stockholders have failed to approve the Merger. In addition, during a specified period prior to the closing of the Merger, if the average closing price of F.N.B. common stock is less than 80% of its average closing price over the 10 trading days immediately prior to the execution of the Merger Agreement, and F.N.B. common stock underperforms a specified peer group index by more than 20%, then Howard may terminate the Merger Agreement; provided, that, F.N.B. will have a right to increase the exchange ratio to prevent these thresholds from being triggered in the event that Howard seeks to exercise this right. In addition, Howard may terminate the Merger Agreement to enter into an alternative business combination transaction pursuant to a “superior proposal,” as defined by the Merger Agreement. If the Merger Agreement is terminated under certain circumstances, Howard has agreed to pay F.N.B. a termination fee of $15.0 million.
In connection with the Merger Agreement, certain stockholders of Howard, including each director Howard, entered into a voting agreement with F.N.B. in which he or she has agreed, among other things, to vote the shares of Howard Common Stock owned beneficially or of record by such stockholder in favor of the Merger Agreement and the Merger at the special meeting of Howard’s stockholders at which these matters are to be considered.
The foregoing summary of the Merger Agreement and the voting agreements does not purport to be complete and is qualified in its entirety by reference to the complete text of those agreements. As such, the Merger Agreement, which is attached hereto as Exhibit 2.1, is incorporated herein by reference; and the forms of voting agreements, which are exhibits to the Merger Agreement, are also incorporated herein by reference.
