SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-12
FIRST COMMUNITY BANCSHARES, INC.
--------------------------------
(Name of Registrant as Specified In Its Charter)
-------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and O-11.
1) Title of each class of securities to which transaction applies: Common
Stock
2) Aggregate number of securities to which transaction applies: 1,170,536
shares, 34,700 options, and 90,910 convertible debt securities
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule O-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): Each of the
1,044,926 issued and outstanding shares of common stock will, upon
consummation of the merger, be converted into the right to receive
$21.00 per share in cash. With respect to the 34,700 options to
purchase shares of common stock, each holder will receive a cash
payment of $21.00 per share less the exercise price per share of $9.72
(calculated on a weighted average per share basis for purposes
hereof), or $11.28. With respect to the $1,000,000 in convertible debt
securities currently outstanding, which are convertible into 90,910
shares of common stock, each holder of convertible debt will receive a
cash payment of $21.00 per share less the conversion price of $11.00
per share, or $10.00.
4) Proposed maximum aggregate value of transaction: $23,244,718.00
5) Total fee paid: $4,648.94
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule O-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
--------------------------------------
2) Form, Schedule or Registration Statement No.:
--------------------------------------
3) Filing Party:
--------------------------------------
4) Date Filed:
--------------------------------
[It is intended that these proxy materials will be released to shareholders on
or about _____________, 2003.]
FIRST COMMUNITY BANCSHARES, INC.
210 EAST HARRIMAN
BARGERSVILLE, INDIANA 46106
(317) 422-5171
April ___, 2003
Dear First Community Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders
of First Community to be held at ________ a.m., Eastern Standard Time, on
____________, ________________, 2003, at the ___________________,
__________________, Franklin, Indiana.
At the Special Meeting, you will be asked to consider and vote on the
merger of First Community with and into FCBY Merger Corporation, a recently
formed wholly-owned subsidiary of MainSource Financial Group, Inc. with the new
subsidiary being the surviving corporation. If the merger agreement is adopted
by the holders of a majority of the outstanding common shares of First Community
and if certain other conditions are satisfied, you will receive $21.00 in cash
for each common share of First Community you own.
Your Board of Directors has received the opinion from Austin
Associates, LLC, its financial advisor, to the effect that $21.00 is fair to
First Community shareholders from a financial point of view as of the date of
the merger agreement. Your Board of Directors unanimously approved the merger
agreement, believes that the merger is in the best interests of First Community
shareholders and unanimously recommends that you adopt the merger agreement at
the Special Meeting so that the transaction may be completed.
In the materials accompanying this letter, you will find a Notice of
Special Meeting of Shareholders, a proxy statement and a proxy card. These
documents more fully describe the proposed transaction and provide detailed
information regarding MainSource Financial Group, Inc. We encourage you to read
these materials carefully.
Whether or not you plan to attend the Special Meeting, please take the
time to vote by completing, signing and returning to us the enclosed proxy card.
A postage paid envelope is enclosed for your convenience. If you sign, date and
return your proxy card without indicating how you want to vote, your proxy will
be counted as a vote in favor of the transaction. Even if you plan to attend the
Special Meeting, please complete, sign and return your proxy card. By following
certain procedures discussed in the accompanying document, you can later revoke
your proxy if you wish.
PLEASE DO NOT SEND YOUR SHARE CERTIFICATES AT THIS TIME. IF THE MERGER
AGREEMENT IS ADOPTED, YOU WILL RECEIVE WRITTEN INSTRUCTIONS ON HOW TO EXCHANGE
YOUR SHARE CERTIFICATES.
Sincerely,
FIRST COMMUNITY BANCSHARES, INC.
By: /s/
-----------------------------------
Frank D. Neese
its Secretary
FIRST COMMUNITY BANCSHARES, INC.
210 EAST HARRIMAN
BARGERSVILLE, INDIANA 46106
(317) 422-5171
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON _______, 2003
Notice is hereby given that the Special Meeting of Shareholders of First
Community will be held on ___________, __________, 2003, at _____ a.m., Eastern
Standard Time, at the _________________, _________________, Franklin, Indiana.
At the Special Meeting, the shareholders will be asked to consider and vote
upon a proposal to adopt the Agreement and Plan of Merger, dated as of March 27,
2003, by and between First Community, MainSource Financial Group, Inc., and FCBY
Merger Corporation, a recently formed wholly-owned subsidiary of MainSource
Financial, and to approve the transactions contemplated by the merger agreement,
including the merger of First Community with and into FCBY Acquisition with FCBY
Acquisition being the surviving entity. A copy of the merger agreement is
attached as Annex A to the proxy statement that accompanies this notice.
Only holders of First Community common shares of record as of the close of
business on ___________, 2003, are entitled to notice of and to vote at the
Special Meeting and any adjournment or postponement of the Special Meeting.
The merger transaction will not be completed unless the merger agreement is
adopted by the affirmative vote of the holders of a majority of the First
Community common shares outstanding on the record date and entitled to vote at
the Special Meeting.
Whether or not you plan to be present at the Special Meeting, please
complete, date and sign the enclosed proxy card and return it in the enclosed
postage paid envelope. If you plan to attend the Special Meeting, please mark
the appropriate space on the enclosed proxy card.
THE FIRST COMMUNITY BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" THE APPROVAL OF THE MERGER.
By Order of the Board of Directors,
/s/ Frank Neese
Frank D. Neese, Secretary
_______________, 2003
YOUR VOTE IS IMPORTANT.
PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY. DO NOT SEND ANY
SHARE CERTIFICATES AT THIS TIME.
PROXY STATEMENT
FOR SPECIAL MEETING OF
SHAREHOLDERS OF
FIRST COMMUNITY BANCSHARES, INC.
Subject to the satisfaction of the conditions set forth in the merger
agreement, MainSource Financial Group, Inc. and First Community have agreed to
merge First Community with and into a wholly-owned subsidiary of MainSource
Financial Group, Inc. with the new subsidiary being the surviving corporation.
The merger cannot occur unless the holders of a majority of the
outstanding common shares of First Community adopt the merger agreement. The
First Community Board of Directors has scheduled a Special Meeting of
Shareholders of First Community to vote on the merger agreement as follows:
______________, 2003
_______ a.m., Eastern Standard Time
[Where]
[Address]
Franklin, IN _________
This document provides you with detailed information about the proposed
merger. Please see "WHERE YOU CAN FIND MORE INFORMATION" for additional
information about First Community and MainSource Financial Group, Inc. on file
with the Securities and Exchange Commission.
This document and proxy card are being mailed to shareholders of First
Community beginning on or about ___________, 2003
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS DETERMINED IF THIS DOCUMENT IS ACCURATE OR ADEQUATE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
YOU SHOULD BE AWARE THAT THIS IS A COMPLICATED TRANSACTION. WE URGE
FIRST COMMUNITY SHAREHOLDERS TO READ AND CONSIDER CAREFULLY THIS DOCUMENT IN ITS
ENTIRETY.
The date of this document is ______________, 2003.
TABLE OF CONTENTS
QUESTIONS AND ANSWERS ABOUT THE MERGER........................................1
SUMMARY.......................................................................3
FIRST COMMUNITY BANCSHARES, INC...............................................6
MAINSOURCE FINANCIAL GROUP, INC...............................................7
THE SPECIAL MEETING...........................................................7
Introduction..................................................................7
Matters to be Considered; Board of Directors Recommendation................7
Record Date and Voting.....................................................8
Vote Required..............................................................8
Securities Ownership Of Management Of First Community......... ...............9
Revocability of Proxies...................................................10
Solicitation of Proxies...................................................10
Dissenters' Rights........................................................10
THE MERGER...................................................................11
General...................................................................11
Background and Reasons for the Merger.....................................12
Opinion of Financial Advisor..............................................14
Conduct of Business if the Merger is not Consummated......................20
Regulatory Filings and Approvals..........................................20
THE MERGER AGREEMENT.........................................................20
Terms of the Merger.......................................................20
Exchange of Certificates..................................................21
Representations and Warranties............................................21
Conduct of Business Pending the Merger....................................22
Interests of Directors and Executive Officers.............................24
Additional Agreements.....................................................25
Conditions to the Merger..................................................26
MATERIAL FEDERAL INCOME TAX CONSEQUENCES.....................................28
WHERE YOU CAN FIND MORE INFORMATION..........................................35
ANNEX A: AGREEMENT AND PLAN OF MERGER
ANNEX B: FAIRNESS OPINION
ANNEX C: DISSENTERS' RIGHTS STATUTE
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q. WHY DO FIRST COMMUNITY AND MAINSOURCE FINANCIAL GROUP, INC. WANT TO MERGE?
A. First Community believes that the consideration offered to its shareholders
is fair and that MainSource Financial Group, Inc. is a sound merger partner.
First Community wants its customers in First Community service areas to be
served effectively and MainSource Financial desires to expand its presence in
those service areas.
Q. HOW WILL I BENEFIT?
A. The First Community Board of Directors believes that you will benefit by
receiving $21.00 in cash in exchange for each common share of First Community
that you own upon the consummation of the merger.
Q. IF I DO NOT FAVOR THE TRANSACTION, WHAT ARE MY RIGHTS?
A. If you are a shareholder of First Community as of the record date and you do
not vote in favor of the merger agreement, you will have the right under Indiana
Code Section 23-1-44-8 to demand the fair value for your common shares of First
Community. The right to make this demand is generally known as "dissenters'
rights." To perfect your dissenters' rights, you must:
o deliver to First Community before the vote is taken a written notice of
your intent to demand payment of the fair value of your common shares
if the merger is effectuated;
o not vote your common shares in favor of the merger; and
o otherwise comply strictly with all of the requirements of Indiana Code
Section 23-1-44-1 and following.
Q. WILL I OWE ANY FEDERAL INCOME TAX AS A RESULT OF THE MERGER?
A. The federal income tax consequences for each shareholder will depend in part
upon your specific situation. No ruling has been or will be sought from the
Internal Revenue Service as to the federal income tax consequences of the
merger. Generally, you will recognize a gain with respect to the cash payment
you receive, depending upon your basis in the First Community shares that you
own.
Q. WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We plan to complete the transaction as soon as possible after the Special
Meeting, assuming the required shareholder approval is obtained. The transaction
is also subject to the approval of federal bank regulatory authorities and the
satisfaction of other closing conditions. We expect the transaction to be
completed in the second quarter of calendar year 2003.
Q. WHEN AND WHERE WILL THE SPECIAL MEETING TAKE PLACE?
A. The Special Meeting will be held at _______ a.m., Eastern Standard Time, on
__________, 2003, at the _____________________, _______________________,
Franklin, Indiana.
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Q. WHAT DO I NEED TO DO NOW?
A: Just mail your completed, signed and dated proxy card in the enclosed return
envelope as soon as possible so that your First Community shares will be
represented at the Special Meeting.
Q. WHAT IS THE DIFFERENCE BETWEEN HOLDING SHARES AS A SHAREHOLDER OF RECORD AND
AS A BENEFICIAL OWNER?
A: Many First Community shareholders hold their shares through a stockbroker,
bank or other nominee rather than directly in their own name. As summarized
below, there are some distinctions between shares held of record and those owned
beneficially.
SHAREHOLDER OF RECORD
If your shares are registered directly in your name with First Community's
transfer agent, you are considered, with respect to those shares, the
shareholder of record and these proxy materials are being sent directly to you
by First Community. As a shareholder of record, you have the right to grant your
proxy directly to First Community or to vote in person at the Special Meeting.
First Community has enclosed a proxy card for your use.
BENEFICIAL OWNER
If your shares are held in a stock brokerage account or by a bank or other
nominee, you are considered the beneficial owner of the shares held in street
name and these proxy materials are being forwarded to you by your broker or
nominee who is considered, with respect to those shares, the shareholder of
record. As the beneficial owner, you have the right to direct your broker on how
to vote. Your broker or nominee has enclosed a voting instruction card for your
use. If you are a First Community shareholder whose shares are not registered in
your own name, you will need additional documentation from your record holder to
attend the Special Meeting and to vote your shares at the Special Meeting.
Q. IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your First Community shares with respect to the merger
agreement only if you provide instructions on how to vote. You should follow the
directions provided by your broker regarding how to instruct your broker to vote
your shares.
Q. MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You can change your vote at any time before your proxy is voted at the
Special Meeting. If you are the record holder of the shares, you can do this in
three ways. First, you can send First Community a written statement that you
would like to revoke your proxy, if such written notice is received prior to the
date of the Special Meeting. Second, you can send First Community a new signed
and later-dated proxy card, provided that such proxy card is received prior to
the date of the Special Meeting. Third, you can attend the Special Meeting and
vote in person. However, your attendance alone will not revoke your proxy.
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For shares held beneficially by you, but not as record holder, you may
change your vote by submitting new voting instructions to your broker or
nominee.
Q. HOW CAN I VOTE MY SHARES IN PERSON AT THE MEETING?
A: Shares held directly in your name as the shareholder of record may be voted
in person at the Special Meeting. If you choose to attend, please bring the
enclosed proxy card or proof of identification.
Q. HOW WILL MY SHARES BE VOTED IF I RETURN A BLANK PROXY CARD?
A. If you are the record holder of the shares and you sign and send in your
proxy and do not indicate how you want to vote, your proxy will be counted as a
vote in favor of the merger agreement.
Q. WHAT WILL BE THE EFFECT IF I DO NOT VOTE?
A. Not voting will have the same effect as voting against the merger agreement.
Q. SHOULD I SEND IN MY STOCK CERTIFICATE NOW?
A: No. If the merger is completed, you will receive written instructions for
exchanging your share certificates.
Q. WHO CAN ANSWER MY QUESTIONS ABOUT THE MERGER OR HOW I CAN SUBMIT MY PROXY?
A. If you have more questions about the merger or how to submit your proxy,
please call Albert R. Jackson, III at (317) ___-______.
SUMMARY
This summary highlights selected information from this document. It does
not contain all of the information that is important to you. To understand the
merger agreement more fully and for a complete description of the legal terms of
the merger agreement, you should read carefully this entire document and the
documents to which we have referred you. Page references are included in this
summary to direct you to a more complete description of certain topics discussed
in this document.
Throughout this document, the term "merger" refers to the proposed merger
of First Community with and into a wholly-owned subsidiary of MainSource
Financial with the wholly-owned subsidiary being the surviving corporation. The
term "merger agreement" refers to the Agreement and Plan of Merger, dated as of
March 27, 2003, by and between MainSource Financial, FCBY Merger Corporation and
First Community, a copy of which is included at the end of this document as
Annex A.
THE SPECIAL MEETING
(PAGE ___)
A Special Meeting of First Community's shareholders will be held on
__________________, 2003, at the _____________________________________________,
Franklin, Indiana. At the Special Meeting, the shareholders of First Community
will be asked to consider and vote upon a proposal to adopt the Agreement and
Plan of Merger, dated as of March 27, 2003, by and between MainSource Financial
Group, Inc., FCBY Merger Corporation and First Community Bancshares, Inc. and
3
to approve the transactions contemplated by the merger agreement, including the
merger of First Community with and into a wholly-owned subsidiary of MainSource
Financial.
THE COMPANIES
(PAGE ___)
First Community Bancshares, Inc.
210 East Harriman
Bargersville, Indiana 46106
(317) 422-5171
First Community is a one bank holding company which owns all of the
outstanding shares of stock of First Community Bank & Trust and First Community
Real Estate Management, Inc. First Community Bank & Trust is a state chartered
commercial bank which serves the financial needs of families and local
businesses through its main office in Bargersville and branch offices located in
Greenwood, Franklin, Indianapolis, Trafalger, Whiteland, Edinburgh and North
Vernon, Indiana. First Community Real Estate Management, Inc. is an Indiana
corporation that owns and leases branch offices to First Community Bank & Trust.
MainSource Financial Group, Inc.
210 North Broadway
Greensburg, Indiana 47240
(812) 663-0157
MainSource Financial Group, Inc., is a community-focused, multibank,
financial services oriented holding company with assets of approximately $1.2
billion. Through its three banking subsidiaries, MainSource Bank, Greensburg,
Indiana; Regional Bank, New Albany, Indiana; and Capstone Bank, Watseka,
Illinois, it operates 42 offices in 18 Indiana counties and seven offices in
three Illinois counties. Through its insurance subsidiary, MainSource Insurance,
it operates five offices in Indiana as well as one in Owensboro, Kentucky.
VOTE REQUIRED
(PAGE ___)
The affirmative vote of the holders of at least a majority of the
outstanding common shares of First Community is required to adopt the merger
agreement. Directors and executive officers of First Community have the power to
vote shares, or approximately % of the outstanding common shares of First
Community.
In connection with the execution of the merger agreement, the directors
of First Community executed voting agreements. Each voting agreement provides
that such director will vote his or her shares in favor of adoption of the
merger agreement.
DISSENTERS' RIGHTS
(PAGE ___)
If you are a shareholder of First Community as of the record date you
will have the right under Indiana Code Section 28-1-44-8 to demand the fair
value for your common shares of First Community. The right to make this demand
is generally known as "dissenters' rights." To perfect your dissenters' rights,
4
you must deliver to First Community a written notice of intent to demand payment
of the fair value of your common shares in the event the merger is effectuated
and not vote for the merger. For additional information on your dissenters'
rights, see the section of this document after this summary entitled "THE
SPECIAL MEETING - Dissenters' Rights."
REASONS FOR THE MERGER
(PAGE ___)
The Boards of Directors of First Community and MainSource Financial
have proposed the merger because each of the Boards of Directors believes the
merger is in the best interests of its corporation and shareholders.
OPINION OF FINANCIAL ADVISOR
(PAGE ___)
In deciding to approve the merger, First Community's Board of Directors
considered, among other things, the opinion of its financial advisor, Austin
Associates, LLC, that the financial consideration to be received by First
Community shareholders in the merger is fair to the shareholders of First
Community from a financial point of view as of the date of the merger agreement.
The written opinion of Austin Associates, LLC, is attached as Annex B to this
document. We encourage you to read the opinion in its entirety.
RECOMMENDATION TO SHAREHOLDERS
(PAGE ___)
The First Community Board of Directors unanimously recommends that
First Community shareholders vote in favor of the adoption of the merger
agreement and approval of the transactions contemplated by the merger agreement,
including the merger, so that the merger may be consummated.
THE MERGER
(PAGE ___)
In the merger, First Community will merge with and into FCBY Merger
Corporation, a wholly-owned subsidiary of MainSource Financial. Unless you
exercise your statutory dissenter's rights, you will receive $21.00 in cash for
each common share of First Community you own. For a complete description of what
First Community shareholders will receive in the merger, see "THE MERGER
AGREEMENT - Terms of the Merger." We encourage you to read the merger agreement
because it is the legal document that governs the merger.
INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS
(PAGE ___)
The directors and executive officers have interests in the merger in
addition to the interests of all other shareholders. Those interests include the
following:
o Each outstanding First Community option, including those held
by directors and executive officers, will be cancelled and
extinguished in exchange for a payment equal to the number of
shares subject to the options multiplied by the difference
between $21.00 and the exercise price of the options.
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o First Community Bank & Trust shall terminate its obligations
under certain Termination Agreements with certain officers.
MainSource Financial shall pay each officer a lump sum cash
payment in consideration for such termination. First Community
Bank & Trust shall enter into a new employment agreement
effective at the time of the merger with each such officer.
o First Community Bank & Trust shall terminate each Deferred
Compensation Agreement it has entered into with the members of
its Board of Directors and with its President. Each member
shall be entitled to receive any amounts accrued pursuant to
such Agreements.
o First Community Bank & Trust shall terminate its Supplemental
Executive Retirement Plan ("SERP"). Pursuant to the merger
agreement, three of the participants shall execute a waiver of
their rights upon a change in control and a consent to
terminate the SERP, two shall execute a consent to terminate
the SERP and accept a cash payment as a change in control
benefit, and the remaining participants shall elect early
retirement pursuant to the SERP and execute a waiver of their
rights upon a change in control.
o MainSource Financial will provide director and officer
liability insurance and indemnification to the former
directors and executive officers of First Community and First
Community Bank & Trust for three years after consummation of
the merger.
CONDITIONS TO COMPLETING THE MERGER
(PAGE ___)
Completion of the merger depends upon the satisfaction of a number of
conditions, including, among others, the following:
o First Community's shareholders must adopt the merger agreement
by a vote of a majority of the outstanding shares; and
o the Board of Governors of the Federal Reserve System, the
Indiana Department of Financial Institutions and any other
applicable regulatory agencies must approve the merger.
To the extent permitted by law, the merger agreement provides that
certain of the closing conditions may be waived by the party entitled to assert
them. The First Community Board of Directors does not currently intend to seek
shareholder approval of any waiver of any condition.
TERMINATION OF THE MERGER AGREEMENT
(PAGE ___)
The merger agreement may be terminated for a number of reasons,
including, among others, the following:
o by mutual agreement of the Boards of Directors of MainSource
Financial and First Community; or
6
o by the Board of Directors of MainSource Financial or First
Community if the merger is not completed on or before June 30,
2003, or if any of the conditions of the merger are not
satisfied.
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
(PAGE ___)
First Community shareholders may recognize gain, in certain
circumstances taxable as ordinary income, with respect to the cash consideration
received. No ruling has been or will be sought from the Internal Revenue Service
as to the federal income tax consequences of the merger. The tax consequences of
the merger to you may depend on the facts of your own situation. You should
consult your own tax advisor to understand fully the tax consequences of the
merger to you.
REQUIRED REGULATORY APPROVALS
(PAGE ___)
Consummation of the merger is subject to approval by the Board of
Governors of the Federal Reserve System and the Indiana Department of Financial
Institutions, who may receive comments from other government agencies and
departments.
FIRST COMMUNITY BANCSHARES, INC.
First Community is a one bank holding company which owns all of the
outstanding shares of stock of First Community Bank & Trust and First Community
Real Estate Management, Inc. First Community Bank & Trust is a state chartered
commercial bank which serves the financial needs of families and local
businesses through its main office in Bargersville and branch offices located in
Greenwood, Franklin, Indianapolis, Trafalger, Whiteland, Edinburgh and North
Vernon, Indiana. First Community Real Estate Management, Inc. is an Indiana
corporation that owns and leases branch offices to First Community Bank & Trust.
First Community common shares are traded over-the-counter and quoted on
the Nasdaq OTC Bulletin Board under the symbol "FCYBBB." On November 19, 2002,
the last trading day ending prior to the public announcement of the proposed
merger, the Nasdaq sale price for First Community common shares was $8.84. On
_______________, 2003, the last reported sales price for First Community common
shares before the printing of this document was
$__________.
MAINSOURCE FINANCIAL GROUP, INC.
MainSource Financial Group is listed on the NASDAQ Stock Market
(Nasdaq:MSFG), and is a community-focused, multi-bank financial services
oriented holding company with assets of approximately $1.2 billion. Through its
three banking subsidiaries, Capstone Bank, Watseka, Illinois; MainSource Bank,
Greensburg, Indiana; and Regional Bank, New Albany, Indiana; it operates 42
offices in 18 Indiana counties and seven offices in three Illinois counties.
Through its insurance subsidiary, MainSource Insurance, it operates five offices
in Indiana as well as one in Owensboro, Kentucky.
7
THE SPECIAL MEETING
INTRODUCTION
This document is being furnished to the shareholders of First Community
in connection with the solicitation of proxies by the First Community Board of
Directors for use at the Special Meeting of Shareholders of First Community
shareholders to be held on _________, _____________, 2003, at _____ a.m.,
Eastern Standard Time, at the _________________________________
________________, Franklin, Indiana, and at any adjournments or postponements of
the Special Meeting. Each copy of this document mailed to the shareholders of
First Community is accompanied by a proxy card furnished in connection with the
solicitation of proxies by the First Community Board of Directors for use at the
Special Meeting.
MATTERS TO BE CONSIDERED; BOARD OF DIRECTORS RECOMMENDATION
At the Special Meeting, First Community shareholders will be asked to
vote upon the following resolution:
Resolved, that the Agreement and Plan of Merger, dated as of
March 27, 2003, by and among MainSource Financial Group, Inc., FCBY
Merger Corporation and First Community Bancshares, Inc., a copy of
which is attached to the proxy statement of First Community dated
____________, 2003, and the transactions contemplated thereby,
including the merger of First Community with and into FCBY Merger
Corporation, which is a wholly-owned subsidiary of MainSource
Financial, and the cancellation of each outstanding common share of
First Community in exchange for the right to receive $21.00 cash, be
and they hereby are, adopted and approved.
The Board of Directors knows of no business that will be presented for
consideration at the Special Meeting other than the matters described in this
document.
The First Community Board of Directors has determined that the adoption
of the merger agreement is in the best interests of First Community
shareholders. ACCORDINGLY, THE FIRST COMMUNITY BOARD OF DIRECTORS RECOMMENDS
THAT SHAREHOLDERS VOTE "FOR" THE ADOPTION OF THE MERGER AGREEMENT AND THE
APPROVAL OF THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT, INCLUDING THE
MERGER. SEE "THE MERGER - BACKGROUND AND REASONS FOR THE MERGER."
SHAREHOLDERS ARE REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE
ACCOMPANYING PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. FAILURE TO RETURN
A PROPERLY EXECUTED PROXY CARD OR TO VOTE AT THE SPECIAL MEETING WILL HAVE THE
SAME EFFECT AS A VOTE AGAINST ADOPTION OF THE MERGER AGREEMENT.
RECORD DATE AND VOTING
Only the holders of record of First Community common shares as of the
close of business on _______________, 2003, are entitled to notice of and to
vote at the Special Meeting. At the close of business on the record date, there
were _________ common shares of First Community outstanding and entitled to
vote, held by approximately ___ shareholders of record and beneficially by
approximately ___ shareholders. Directors and executive officers of First
Community (as a group) were entitled to vote _______ common shares of First
8
Community, or approximately ____% of the outstanding votes entitled to be cast
at the Special Meeting, and the directors have executed agreements to vote their
shares in favor of the merger agreement. [MainSource Financial owned and was
entitled to vote 20,000 shares of First Community on the voting record date.]
Holders of record of First Community common shares as of the close of business
on the record date are entitled to one vote per share on any matter voted on at
the Special Meeting.
The presence, either in person or by proxy, of the holders of a
majority of the outstanding common shares of First Community as of the record
date is necessary to constitute a quorum at the Special Meeting. Abstentions
count for the purpose of determining a quorum at the Special Meeting.
SHAREHOLDERS SHOULD NOT FORWARD ANY SHARE CERTIFICATES WITH THEIR PROXY
CARDS. IF THE MERGER IS CONSUMMATED, SHARE CERTIFICATES SHOULD BE DELIVERED IN
ACCORDANCE WITH INSTRUCTIONS SET FORTH IN A LETTER OF TRANSMITTAL, WHICH WILL BE
SENT TO SHAREHOLDERS BY MAINSOURCE BANK, GREENSBURG, INDIANA, IN ITS CAPACITY AS
THE EXCHANGE AGENT, PROMPTLY AFTER THE MERGER IS EFFECTIVE.
VOTE REQUIRED
The affirmative vote of the holders of at least a majority of the
outstanding common shares of First Community entitled to vote on the matters to
be acted upon is required to adopt the merger agreement. THE FAILURE TO SUBMIT A
PROXY CARD OR VOTE IN PERSON AT THE SPECIAL MEETING HAS THE SAME EFFECT AS A
VOTE AGAINST ADOPTION OF THE MERGER AGREEMENT. ABSTENTIONS AND FAILURES TO VOTE
ON THIS MATTER BY A BROKER ALSO HAVE THE SAME EFFECT AS A VOTE AGAINST THE
MERGER AGREEMENT. BROKERS WHO HOLD COMMON SHARES OF FIRST COMMUNITY AS NOMINEES
WILL NOT HAVE DISCRETIONARY AUTHORITY TO VOTE SHARES WITH RESPECT TO THE MERGER
AGREEMENT ABSENT INSTRUCTIONS FROM THE BENEFICIAL OWNER. THEREFORE, BY NOT
GIVING SUCH INSTRUCTIONS, YOU WILL IN EFFECT BE VOTING AGAINST THE MERGER.
The proxy holders named in the enclosed proxy card will vote all common
shares of First Community represented by proxy cards that are properly signed
and returned by shareholders in accordance with the instructions contained on
the proxy card. You may specify your voting choices by marking the appropriate
boxes on the proxy card. IF YOU PROPERLY SIGN AND RETURN THE PROXY CARD SENT TO
YOU BY FIRST COMMUNITY BUT DO NOT SPECIFY YOUR VOTING CHOICES, YOUR SHARES WILL
BE VOTED "FOR" THE ADOPTION OF THE MERGER AGREEMENT, AS RECOMMENDED BY THE BOARD
OF DIRECTORS.
The First Community Board of Directors is not aware of any matters
other than those set forth in the Notice of Special Meeting of Shareholders of
First Community that may be brought before the Special Meeting. If any other
matters properly come before the Special Meeting, the persons named in the
accompanying proxy will vote the shares represented by all properly executed
proxies on such matters in their discretion.
SECURITIES OWNERSHIP OF MANAGEMENT OF FIRST COMMUNITY
The following table sets forth certain information with respect to the
number of common shares of First Community beneficially owned by each director
of First Community and by all directors and executive officers of First
Community as a group as of _______________, 2003. No other person is known by
management of First Community to own more than 5% of the outstanding common
shares of First Community.
9
Shares Beneficially Owned
Name and Address Number Percent
- ---------------- ------ -------
Albert R. Jackson, III 32,178(1) 3.1%
5675 N. CO RD 200W
North Vernon, Indiana 47265
Albert R. Jackson, Jr.
5745 N CO RD 200W 31,069(2) 2.9%
North Vernon, Indiana 47265
Merrill M. Wesemann, M.D. 104,179(3) 9.9%
251 E Jefferson Street
Franklin, Indiana 46131
Roy Martin Umbarger 49,115(4) 4.7%
5180 W CO RD 300N
Bargersville, Indiana 46106
Frank D. Neese 137,113(5) 12.5%
1705 North Meridian Street
Indianapolis, Indiana 46202
All Officers and Directors as a group (5 persons) 348,191 30.7%
- --------
(1) Includes 5,363 shares held jointly with his father, brother and sister as to
which he disclaims voting and dispositive power, currently exercisable options
for 7,500 shares granted under the 1996 Stock Option Plan and a Convertible Note
currently convertible into 909 shares. Mr. Jackson, III is the son of Mr.
Jackson, Jr.
(2) Includes 5,363 shares held jointly with two sons and a daughter, 2,135
shares owned by Mr. Jackson's spouse, currently exercisable options for 3,050
shares granted under the 1996 Stock Option Plan, Convertible Notes currently
convertible into 5,454 shares, and a Convertible Note owned by his spouse
currently convertible into 909 shares. Mr. Jackson, Jr. is the father of Mr.
Jackson, III.
(3) Includes 8,087 shares owned by Dr. Wesemann's spouse, currently exercisable
options for 6,050 shares granted under the 1996 Stock Option Plan, Convertible
Notes currently convertible into 3,636 shares, and a Convertible Note owned by
his spouse currently convertible into 909 shares.
(4) Includes 1,465 shares owned by Mr. Umbarger's spouse, 721 shares owned as a
joint-tenant with a son, 214 shares owned by his spouse jointly with his
daughter, currently exercisable options for 6,050 shares granted under the 1996
Stock Option Plan and Convertible Notes currently convertible into 4,545 shares.
(5) Includes 3,000 shares owned by Mr. Neese's spouse, 14,044 shares owned by
Mr. Neese's spouse in an IRA account, 53,877 shares owned in an IRA account,
6,648 shares owned through a 401(k) plan, currently exercisable options for
6,050 shares granted under the 1996 Stock Option Plan and Convertible Notes
currently convertible into 45,454 shares. Mr. Neese disclaims beneficial
ownership of the shares owned by or for the benefit of his spouse.
10
REVOCABILITY OF PROXIES
A shareholder of record may revoke a proxy at any time prior to its
exercise by:
o delivering to First Community Bancshares, Inc., 210 East
Harriman, Bargersville, Indiana 46106, Attention: Albert R.
Jackson, III, a written notice of revocation prior to the
Special Meeting,
o delivering to First Community Bancshares, Inc., 210 East
Harriman, Bargersville, Indiana 46106, Attention: Albert R.
Jackson, III, a duly executed proxy bearing a later date prior
to the Special Meeting, or
o attending the Special Meeting and voting in person.
For shares held beneficially, but not as record holder, a shareholder
may change a previous vote by submitting new voting instructions to the broker
or nominee.
The presence of a shareholder at the Special Meeting will not in and of
itself automatically revoke such shareholder's proxy. If shares are held of
record, you can vote at the Special Meeting. A beneficial holder may not vote or
revoke a proxy at the Special Meeting unless such shareholder has received a
properly executed proxy from the broker or nominee.
SOLICITATION OF PROXIES
All expenses of First Community's solicitation of proxies, including
the cost of mailing this document to you, will be paid by First Community.
Proxies may be solicited from shareholders by directors, officers and
employees by mail, in person or by telephone, facsimile or other means of
communication. Such directors, officers and employees will not receive
additional compensation, but may be reimbursed for their reasonable
out-of-pocket expenses in connection with such solicitation. Arrangements will
be made with brokerage houses, custodians, nominees and fiduciaries for the
forwarding of proxy solicitation materials to beneficial owners of shares held
of record by such brokerage houses, custodians, nominees and fiduciaries, and
First Community will reimburse such brokerage houses, custodians, nominees and
fiduciaries for their reasonable expenses incurred in connection with such
solicitation.
DISSENTERS' RIGHTS
The Indiana Business Corporation Law provides shareholders of merging
corporations with certain dissenters' rights. The dissenters' rights of First
Community shareholders are set forth in Indiana Code Chapter 23-1-44, a copy of
which is attached to this Proxy Statement as Annex C. Shareholders of First
Community will be entitled to dissenters' rights only upon strict compliance
with procedures of the Indiana Business Corporation Law.
The Indiana Business Corporation Law provides that shareholders of
First Community have the right to demand payment for the fair value of their
shares of First Community common stock immediately before the merger becomes
effective, excluding any appreciation or depreciation in the value in
anticipation of the merger, unless a court determines that such exclusion would
be inequitable. To claim this right, the shareholder must first:
11
o Deliver to First Community, before the vote is taken, written
notice of the shareholder's intent to demand payment in cash
for the shareholder's shares if the merger is consummated, and
o Not vote in favor of the merger in person or by proxy.
Dissenting shareholders may send their written notice to Albert R.
Jackson, III, Chief Executive Officer, First Community Bancshares, 34 West
Jefferson Street, P.O. Box 970, Franklin, Indiana 46160.
If the merger is approved by First Community shareholders, MainSource
Financial will send notice of dissenters' rights to those shareholders
satisfying the above conditions no later than ten (10) days after shareholder
approval has occurred. The notice will state the procedures the dissenting
shareholder thereafter must follow to exercise dissenters' rights in accordance
with Indiana law.
A shareholder of First Community who is sent such a notice must then:
o Demand payment for the shareholder's shares of First Community
common stock,
o Certify whether beneficial ownership of the shares of First
Community common stock was acquired before the dates set forth
in such notice; and
o Deposit the shareholder's certificates representing shares of
First Community common stock in accordance with the terms of
such notice.
First Community shareholders who do not demand payment or deposit the
shareholder's certificates representing shares of First Community common stock
as required and within the applicable time period are considered to have voted
such shares of First Community common stock in favor of the merger and are not
entitled to receive payment for such shares under the dissenters' rights
provision of the Indiana Business Corporation Law.
A shareholder who does not comply with the preliminary conditions
described above will not be entitled to dissenters' rights under the Indiana
Business Corporation Law. Shareholders who execute and return the enclosed proxy
but do not specify a choice on the merger proposal will be deemed to have voted
in favor of the merger and accordingly to have waived their dissenters' rights,
unless the shareholder revokes the proxy prior to its being voted.
Upon consummation of the merger, MainSource Financial will pay each
dissenting shareholder who has fully complied with all statutory requirements
and MainSource Financial's notice, and who was the beneficial owner of the First
Community common stock prior to November 20, 2002 (the date that the merger was
first publicly announced), MainSource Financial's estimate of the fair value of
each share of First Community common stock as of the time immediately prior to
the merger, excluding any appreciation in value in anticipation of the merger.
Dissenters who comply with the above procedures can object to the fair
value established by MainSource Financial by stating their estimate of the fair
value and demanding payment of the additional amount claimed as fair value.
MainSource Financial can elect to agree to the dissenters' fair value demand or
12
can commence an action in the Johnson County Circuit or Superior Court for a
judicial determination of the fair value. The court may appoint appraisers to
determine the fair value. The cost of the proceeding, including compensation and
expenses of the appraisers and counsel for the parties and experts, will be
assessed against all parties to the action in such amounts as the court finds
equitable. Each dissenter made a party to the action will be entitled to receive
the amount, if any, by which the court finds the fair value of the dissenters'
shares, plus interest, exceeds the amount paid by MainSource Financial.
The foregoing summary of the applicable provisions of Chapter 44 of
Title 23 of the Indiana Business Corporation Law is not intended to be a
complete statement of such provisions, and is qualified in its entirety by
reference to such Chapter, a copy of which is attached as Annex C. Any First
Community shareholder who intends to dissent from the merger should review the
text of Annex C carefully and should also consult with an attorney. Any
shareholder who fails to strictly follow the procedures described in the statute
will forfeit dissenters' rights.
THE MERGER
GENERAL
If the merger is consummated, First Community will be acquired by
MainSource Financial Group through the merger of First Community with and into a
wholly-owned subsidiary of MainSource Financial Group, with the wholly-owned
subsidiary being the surviving corporation.
Background of the MERGER
During the past several years, First Community's Board of Directors has
periodically reviewed and assessed the consolidations occurring in the financial
services industry, particularly among community banks. The Board's goal in
performing these reviews was, and remains, to enhance shareholder value. In
September 2002, following the public announcement of a proposed merger between a
regional bank and a community bank in which the shareholders of the community
bank received an immediate premium on the trading value of their shares, the
Board engaged in a number of informal discussions regarding the proposed terms
of the merger. Soon thereafter, the Board decided to actively explore whether a
transaction with a third party was available and whether such a transaction
would be the best way to maximize shareholder value.
In October 2002, director Frank Neese contacted the president of a
publicly traded financial institution, the Interested Party, to see if there was
interest in an acquisition of First Community. The Interested Party expressed a
desire to discuss a potential merger and a meeting between First Community and
the Interested Party was scheduled for October 22, 2002.
On October 16, 2002, at the next regularly scheduled meeting of First
Community's Board of Directors, Mr. Neese informed the Board of his discussions
with the Interested Party. The Board granted permission for Mr. Neese, Chairman
of the Board Merrill Wesemann and Chief Executive Officer Albert R. Jackson,
III, to attend the October 22, 2002 meeting and to engage in informal
discussions regarding a potential merger.
On October 22, 2002, Mr. Neese, Chairman Wesemann and Mr. Jackson
attended the meeting with representatives of the Interested Party. At this
13
meeting First Community and the Interested Party executed a confidentiality
agreement, after which First Community agreed to provide additional financial
and other information to the Interested Party for its review. Additionally,
First Community and the Interested Party discussed the strategies of the
respective institutions, results of operation, future business plans and the
advantages and disadvantages of integrating the two companies.
On October 29, 2002, Mr. Neese received a telephone call from the
President of the Interested Party in which he indicated that the Interested
Party had a high level of interest in further exploring a potential merger and
that a proposal would be delivered to First Community's Board of Directors at
its next regularly scheduled meeting on November 20, 2002. The Interested Party
further informed Mr. Neese of its preliminary valuation thoughts of $20.00 per
share in an all cash transaction. Mr. Neese reported this telephone call to
Chairman Wesemann and Mr. Jackson. Chairman Wesemann directed Mr. Neese to
contact the President of MainSource Financial, James Saner, to determine whether
MainSource Financial would also have an interest in meeting with representatives
of First Community to discuss a potential merger.
In late October and early November, 2002, Mr. Neese held several
telephone conversations with Mr. Saner of MainSource Financial. During these
conversations, First Community shared substantially the same financial and other
information that had been provided to the Interested Party. Based on its
preliminary due diligence, MainSource Financial indicated its interest in
discussing potential merger opportunities with First Community and a meeting was
scheduled for November 12, 2002 at the offices of Chairman Wesemann. Mr. Neese,
Chairman Wesemann and Mr. Jackson attended the meeting on behalf of First
Community and Mr. Saner and Mr. Don Benziger, the Senior Vice President and
Chief Financial Officer of MainSource Financial, attended the meeting on behalf
of MainSource Financial. At the meeting, the parties discussed the integration
of the two financial institutions and the advantages and disadvantages of such a
transaction. MainSource Financial also expressed a high level of interest in
further pursuing merger discussions and indicated that a proposal for the
acquisition of First Community would be presented to the Board of Directors of
First Community at its November 20, 2002, board meeting.
On November 20, 2002, during the meeting of the First Community Board
of Directors, two proposed letters of intent were presented to the directors.
The proposal from MainSource Financial offered the holder of each share of First
Community common stock $21.00 per share in cash. The proposal from the
Interested Party offered the holder of each share of First Community common
stock a combination of common stock of the Interested Party and cash with a
total valuation less than the offer presented by MainSource Financial.
Following a discussion of the terms of each proposal, including the type of
consideration to be received from each party, and the duties and
responsibilities of directors in merger transactions of this type, and after the
consideration of the factors set forth below under "Reasons for the Merger," the
First Community Board of Directors voted to accept the MainSource Financial
offer and directed the President of First Community to execute a letter of
intent containing the principle proposed terms of the merger. A joint press
release announcing the execution of the letter of intent was issued on the same
day.
On January 15, 2003, the First Community Board voted to hire Austin
Associates, LLC to perform a financial analysis of the merger consideration to
14
determine whether the proposed consideration was fair to the shareholders of
First Community from a financial point of view.
During the next several months, MainSource Financial performed
additional due diligence on First Community. Additionally, management of First
Community and its counsel met with management and counsel to MainSource
Financial on several occasions to negotiate provisions of the definitive merger
agreement. The parties exchanged several drafts of the definitive merger
agreement before the Board met to discuss the definitive merger terms.
On February 26, 2003, the Board of Directors of First Community met to
review and comment upon a proposed draft of the definitive merger agreement. The
Board commented on certain issues which remained outstanding from the previous
draft as well as new matters. The Board voted to approve the definitive merger
agreement, subject to obtaining a favorable fairness opinion from Austin
Associates, LLC and subject to the resolution of the remaining issues in the
merger agreement.
On March 27, 2003, following final approval by the boards of directors
of First Community and MainSource Financial, the parties executed the definitive
merger agreement. Under the terms of the merger agreement, First Community will
merge with and into FCBY Acquisition Corp., a wholly-owned subsidiary of
MainSource Financial, with FCBY being the surviving entity. First Community Bank
& Trust will thereby become a wholly-owned subsidiary of FCBY, which is a
wholly-owned subsidiary of MainSource Financial. Each outstanding share of
common stock of First Community will be converted into the right to receive a
cash amount equal to $21.00. In addition, each outstanding option to purchase
First Community common stock will be converted into the right to receive a cash
amount equal to $21.00 less the exercise price of the option.
Reasons for the Merger
In reaching its decision to approve the merger agreement, the First
Community Board consulted with management of First Community, as well as its
financial and legal advisors, and considered a variety of factors, including the
following:
o The First Community Board's knowledge and analysis of the current
environment of the financial services industry, which is characterized
by rapid consolidation, increased opportunities for cross-industry
expansion, evolving trends in technology and increasing nationwide and
Internet competition;
o The First Community Board's belief that the financial terms of the
merger are fair to and in the best interests of First Community as a
whole and First Community's shareholders;
o The business, operations, financial condition, earnings and prospects
of First Community and MainSource Financial. In making its
determination, the First Community Board took into account the results
of First Community's due diligence review of MainSource Financial;
o The scale, scope, strength and diversity of operations, product lines
and delivery systems that can be achieved by combining First Community
and MainSource Financial;
15
o The First Community Board's belief that the merger represents:
a. an opportunity to leverage First Community's management,
infrastructure, products, marketing and business lines over a
larger consumer, business and corporate customer base through
MainSource Financial's geographically diverse network; and
b. the possibility of achieving expense savings and operating
efficiencies through, among other things, the elimination of
duplicative efforts;
o The opinion of Austin Associates, LLC to the First Community Board
that, based upon and subject to the considerations set forth in the
opinion, the conversion price was fair from a financial point of view
to First Community shareholders (see "Proposed Merger--Fairness Opinion
of First Community's Financial Advisor");
o The likelihood of the merger being approved by the appropriate
regulatory authorities;
o Consideration of the effect of the merger on First Community's other
constituencies, including First Community's employees and the customers
and communities served by First Community, including consideration of
the opportunity for training, education and advancement of employees
within MainSource Financial or one of its affiliated companies; and
o The First Community Board's analysis of alternatives to merging with
MainSource Financial, including merging with the Interested Party or
other potential acquirors and its analysis of relevant price
information from recent comparable bank mergers which occurred in the
Midwest and across the United States.
This discussion of the information and factors considered by the First
Community Board is not intended to be exhaustive, but it does include all
material factors considered by the First Community Board. In reaching its
decision to approve and recommend the merger, the First Community Board of
Directors did not assign any relative or specific weights to these factors, and
individual directors may have given differing weights to different factors.
Based upon the foregoing and other factors, the Board of Directors of First
Community concluded that it was in the best interests of First Community and its
shareholders to merge with MainSource Financial.
FOR THE REASONS SET FORTH ABOVE, THE BOARD OF DIRECTORS OF FIRST
COMMUNITY HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AS ADVISABLE AND IN THE
BEST INTERESTS OF FIRST COMMUNITY AND ITS SHAREHOLDERS AND RECOMMENDS THAT THE
SHAREHOLDERS OF FIRST COMMUNITY VOTE FOR THE ADOPTION OF THE MERGER AGREEMENT.
OPINION OF FINANCIAL ADVISOR
First Community retained Austin Associates, LLC ("Austin") to provide a
fairness opinion in connection with the merger. Austin is an investment banking
and consulting firm specializing in community bank mergers and acquisitions.
First Community selected Austin for this opinion on the basis of Austin's
experience and expertise in representing community banks in similar
transactions.
16
In conjunction with the signing of the merger greement, Austin rendered
a written opinion to First Community's board of directors that the terms
provided for in the merger agreement were fair, from a financial point of view,
to the shareholders of First Community.
Austin was not directly involved with the solicitation of offers,
negotiations with MainSource Financial or any other party. Austin was not
involved in negotiating any parts of the merger agreement.
The preparation of a fairness opinion involves various determinations
as to the most appropriate methods of financial analysis and the application of
those methods to the particular circumstances. It is, therefore, not readily
susceptible to partial analysis or summary description. Austin believes that a
partial review of the analyses and the facts considered in its analyses could
create an incomplete or inaccurate view of the process used and the conclusions
reached by Austin in rendering its opinion. You should consider the following
when reading the discussion of Austin's opinion:
o the opinion should be read in its entirety for a full
understanding of the procedures followed, assumptions made,
matters considered and qualifications and limitations of the
review undertaken by Austin in connection with its opinion.
The summary of Austin's opinion set forth in this proxy
statement is qualified in its entirety by reference to the
full text of the opinion that is attached as Annex B to this
document.
o Austin's opinion rendered in connection with the merger does
not constitute a recommendation to any First Community
shareholder as to how he or she should vote at the special
meeting.
o no limitations were imposed on Austin by First Community's
board of directors or its management with respect to the
investigations made or the procedures followed by Austin in
rendering its opinion.
In performing its analyses, Austin made numerous assumptions with
respect to industry performance, business and economic conditions, and other
matters, many of which are beyond the control of First Community and MainSource
Financial and may not be realized. Any estimates contained in Austin's analyses
do not purport to be appraisals or necessarily reflect the prices at which the
companies or their securities may actually be sold. Except as described below,
none of the analyses performed by Austin was assigned a greater significance by
Austin than any other. The summaries of financial analyses include information
presented in tabular format. The tables should be read together with the text of
those summaries.
Austin has relied, without independent verification, upon the accuracy
and completeness of the information it reviewed for the purpose of rendering its
opinion. Austin did not undertake any independent evaluation or appraisal of the
assets and liabilities of First Community or MainSource Financial. Austin has
not reviewed any individual credit files of First Community or MainSource
Financial and has assumed that First Community's and MainSource Financial's loan
loss reserves are, in the aggregate, adequate to cover losses. Austin's opinion
is based on economic, market and other conditions existing on the date of its
opinion, and on information as of various earlier dates made
17
available to it which may not necessarily be indicative of current market
conditions.
In rendering its opinion, Austin made the following assumptions:
o the merger will be accounted for using purchase accounting in
accordance with generally accepted accounting principles;
o all material governmental, regulatory and other consents and
approvals necessary for the consummation of the merger would
be obtained without any adverse effect on First Community,
MainSource Financial or on the anticipated benefits of the
merger;
o First Community and MainSource Financial have provided all of
the information that might be material to Austin in its
review; and
In connection with its opinion, Austin reviewed:
o the Agreement;
o audited financial statements of MainSource Financial for the
five years ended December 31, 2001 and unaudited financial
statement summaries as of December 31, 2002;
o audited financial statements of First Community for the five
years ended December 31, 2001 and unaudited financial
statement summaries as of December 31, 2002;
In addition, Austin:
o compared the financial terms of the merger with the financial
terms, to the extent publicly available, of other recent
business combinations of financial institutions;
o considered the indication of value for First Community as
determined using a discounted cash flow approach and compared
the results to the MainSource Financial aggregate deal value;
and
o conducted such other studies, analyses, inquiries and
examinations, as Austin deemed appropriate.
The following is a summary of all material analyses performed by Austin
in connection with its opinion provided to the First Community Board of
Directors as of March 27, 2003. The summary does not purport to be a complete
description of the analyses performed by Austin.
Summary of Financial Terms of Agreement. Austin reviewed the financial
terms of the proposed transaction, including the form of consideration and the
resulting price per share to First Community common stock holders pursuant to
the proposed merger. Under the terms of the Agreement, each outstanding share of
First Community common stock will receive $21.00 in cash. The Agreement further
provides that stock options and convertible debt previously granted or issued by
First Community be converted into cash in an amount equal to the cash amount
less the exercise price.
18
Contribution Analysis. Austin compared the market capitalization of
MainSource Financial to First Community's aggregate deal value in the
transaction. Austin then considered First Community's contribution of certain
balance sheet and income statement measures. The following table provides
highlights to this analysis:
First
MainSource Community's
First Community Financial Contribution
--------------- --------- ------------
Market Capitalization ($Mil.) $23.2(1) $169.8 12.0%
First Community's
Market
% Contribution Capitalization
-------------- to Selected
MainSource Contribution
Income Statement First Community Financial Ratios
---------------- --------------- --------- ------
2001 Core Net Income 7.3% 92.7% 164%
2002 Net Income (Exc.
Security Gains) 2.8% 97.2% 429%
2002 Core Net Income(2) 9.5% 90.5% 126%
Balance Sheet as of December 31, 2002
-------------------------------------
Total Assets 10.4% 89.6% 115%
Total Deposits 10.4% 89.6% 115%
Shareholders' Equity 9.5% 90.5% 126%
Tangible Shareholders' Equity
12.3% 87.7% 98%
(1) Represents the transaction value at $21.00 per share plus
in-the-money value of stock equivalents.
(2) First Community's core income adjusted for normalized loan
loss provision expense of $250,000 in 2002
With respect to the contribution of First Community's balance sheet and
income in the pro forma company, each measure would indicate First Community is
receiving a premium for its contribution in the pro forma company with the
exception of tangible book value.
Merger Value. In rendering its opinion on March 27, 2003, Austin
considered the cash value per share to each common shareholder in First
Community. Based on 1,044,926 common shares at First Community, the aggregate
value to common shareholders equaled $21.9 million ($21.00 multiplied by
1,044,926 shares outstanding at First Community).
In addition, MainSource Financial agreed to convert the 34,700
outstanding options of First Community into cash. These options are exercisable
at a weighted average price of $9.72 per share. Based on the $21.00 per share
value to First Community shareholders, the "in-the-money" value of the options
measures approximately $391,000 in the aggregate.
First Community also has $1.0 million of convertible debt securities
which are convertible into 90,910 shares of common stock. MainSource Financial
agreed to convert the convertible debt into cash. Based on the $21.00 per share
value to First Community shareholders, the "in-the-money" value of the
convertible debt measures approximately $909,000 in the aggregate.
19
Therefore, when including the value of consideration for the options
and convertible debt of First Community, the aggregate value of the transaction
at March 27, 2003 was approximately $23.2 million.
Austin Associates calculated that the indicated value of $23.2 million
represented:
o 222 percent of book value at December 31, 2002;
o 224 percent of tangible book value at December 31, 2002;
o 19.6 times core net income for year end 2002;
o 49.2 times stated net income for year end 2002; and
o 8.8 percent premium over tangible equity as a percent of total
assets.
Comparable Transaction Analysis. Austin reviewed certain information
relating to bank sale transactions in the Midwest and nationally announced since
January 1, 2001 with publicly available deal values. The following chart
highlights the criteria used to select guideline transactions for comparison to
the merger.
Midwest National National
Key Seller Criteria Transactions Group 1 Group 2
------------------- ------------ ------- -------
Seller's Asset Size ($mils) $100 - $300 $100 - $300 $100 - $500
YTD ROAA > 0.0% > 0.0% 0.25% - 1.00%
Announced Date Since 01/01/01 12/31/01 12/31/01
Tangible Equity/Assets - < 10.0% < 10.0%
Return on Average Equity - - < 15.0%
# of Transactions Included 27 27 14
Austin compared the prices paid in these transactions as compared to
the transaction multiples being paid by MainSource Financial for First
Community.
National National MainSource/
Key Median Results Midwest Group 1 Group 2 Grand
------------------ ------- ------- ------- -----
Price/Earnings Multiple 16.3 x 19.9 x 31.6 x 19.6x (1)
Price/Tangible Book Value Ratio 200% 203% 202% 224%
Premium over Tangible Equity/Assets 7.3% 8.3% 7.0% 8.8%
(1) First Community's core net income adjusted for normalized loan
loss provision expense of $250,000 in 2002.
Austin concluded that the multiples paid by MainSource Financial for
First Community either approximate or exceed the median multiples paid for
comparable bank transactions based on the dates reviewed.
Discounted Cash Flow Analysis. The discounted cash flow value analysis
is a widely used valuation methodology but relies on numerous assumptions,
including asset and earnings growth rates, implied price to earnings multiples
and discount rates. The analysis does not purport to be indicative of the actual
values or expected values of First Community's common stock and does not
necessarily represent actual cost savings to be realized by MainSource
Financial.
Austin estimated the present value of future cash flows assuming First
Community would be acquired and computed the indication of value based on its
20
pro forma earnings stream including synergies. Synergies were estimated at 20
percent of First Community's stand-alone overhead expense. Pro forma overhead
expense reductions in the range of 10 to 30 percent are common in bank mergers.
The following chart highlights the key assumptions and results of the
discount cash flow analyses:
First Community's Pro Forma Actual Deal Value to
Discounted Cash Flow Key Assumptions Performance First Community
------------------------------------ ----------- ---------------
First Year Pro Forma Net Income ($000) $1,963
Fifth Year Pro Forma Net Income ($000) $2,359
Discount Rate 13.0%
Implied Price/EPS Multiple 10.0 x
Discounted Cash Flow Value ($Mil.) $23.2
$19.8
Projected cash flows were discounted at rate 13.0 percent. This rate
was selected based on Austin's experience and the expected risk-adjusted rate of
return that an acquirer in First Community would require. Based on the results
from the discounted cash flow analysis, First Community shareholders would
receive an approximate 17.2 percent increase in value with MainSource Financial
as compared to its pro forma discounted cash flow indication of value.
Pro Forma Merger Analysis. Austin performed a pro forma merger analysis
by combining the projected balance sheets and income statements to determine the
financial impact of the merger on MainSource Financial shareholders. Austin made
certain assumptions regarding the accounting treatment, acquisition adjustments
and cost savings to calculate the financial impact the merger would have on key
performance measures of the pro forma company. The pro forma merger analysis was
based in part on published earnings estimates, Austin's long-term estimated
earnings and growth rates, and estimates of the expected cost savings. Austin
assumed the transaction closed on 12/31/02 and included fully phased-in cost
savings in 2003. The following chart highlights the key results:
21
Percentage
Stand-Alone Pro Forma Change to
Pro Forma MainSource MainSource MainSource
2003 Projected Performance Results First Community(1) Financial Financial Financial
- ---------------------------------- ------------------ --------- --------- ---------
ROAA 1.33% 1.18% 1.12% (5.1%)
ROAE - 14.42% 15.34% 6.4%
Net Income ($mils) $2.0 $15.1 $16.2 6.6%
Basic Earnings Per Share - $2.23 $2.38 6.7%
Dividends Per Share - $0.70 $0.70 0%
Book Value Per Share - $16.21 $16.36 0.9%
Tangible Equity Per Share - $12.73 $10.94 (14.1%)
(1) Includes estimated cost savings.
Pro Forma Earnings and Book Value. This analysis indicates that the
merger is expected to increase MainSource Financial's stand-alone 2003 earnings
per share by 6.7 percent. MainSource Financial's pro forma tangible book value
per share would equal $10.94 representing a 14.1 percent decrease to its
stand-alone projection of $12.73. At the purchase price of $23.2 million, it
would take approximately six years for MainSource Financial to recover the
tangible book value dilution.
Additional Limiting Conditions. The opinion expressed by Austin 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 changes in the
financial condition of either MainSource Financial or First Community could
materially affect the assumptions used in preparing this opinion.
First Community has agreed to pay Austin a cash fee of $15,000 for the
issuance of its fairness opinion. None of this fee is contingent upon
shareholder approval or closing of the merger. In addition, First Community has
agreed to indemnify Austin against certain liabilities, including liabilities
under securities laws.
CONDUCT OF BUSINESS IF THE MERGER IS NOT CONSUMMATED
If the merger is not consummated, First Community will continue its
current operations. For reasons discussed under the caption, "THE MERGER -
Background and Reasons for the Merger," First Community may continue to explore
strategic alternatives, including a business combination or sale of First
Community, if the merger with MainSource Financial is not consummated.
REGULATORY FILINGS AND APPROVALS
MainSource Financial and First Community have agreed to use their
reasonable best efforts to obtain all regulatory approvals required to
consummate the merger, which include filing applications with the Board of
Governors of the Federal Reserve System and the Indiana Department of Financial
Institutions, AND HAVE MADE THE APPLICABLE REGULATORY FILINGS PRIOR TO THE DATE
OF THIS DOCUMENT. The merger cannot proceed in the absence of these regulatory
approvals. There can be no assurance that these regulatory approvals will be
obtained, and, if obtained, there can be no assurance as to the date of any such
approvals or the absence of any litigation challenging such approvals.
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MainSource Financial and First Community are not aware of any other material
governmental approvals or actions that are required prior to the parties'
consummation of the merger other than those described above.
THE MERGER AGREEMENT
The description of the merger agreement set forth below is not
complete. For full information, you should read the merger agreement, a copy of
which is attached to this document as Annex A.
TERMS OF THE MERGER
THE MERGER. The merger agreement contemplates the merger of First
Community with and into a wholly-owned subsidiary of MainSource Financial.
Immediately after the merger becomes effective, the wholly-owned subsidiary of
MainSource Financial will be the surviving corporation, and the separate
existence of First Community will cease.
EFFECTIVE TIME. As promptly as practicable after the satisfaction or
waiver of the conditions set forth in the merger agreement, the parties will
complete the merger by filing Articles of Merger with the Secretary of State of
Indiana. The merger will be effective upon the filing of the Articles of Merger
or such later date as specified in the Articles of Merger.
CANCELLATION OF THE COMMON SHARES AND OPTIONS OF FIRST COMMUNITY IN THE
MERGER. If the merger of First Community with the subsidiary of MainSource
Financial closes after the satisfaction or waiver of all of the closing
conditions, the following shall occur:
(i) each outstanding common share of First Community will be cancelled
and extinguished in consideration and exchange for the right to receive $21.00
in cash from MainSource Financial; and
(ii) each unexercised option to purchase First Community's common
shares will be canceled and converted into the right to receive in cash $21.00
per share less the exercise price of such option.
EXCHANGE OF CERTIFICATES
EXCHANGE AGENT. MainSource Bank, Greensburg, Indiana will act as
exchange agent for the exchange of share certificates pursuant to the merger.
EXCHANGE PROCEDURES. As soon as practicable, but not later than one
business day following the effective time of the merger, MainSource Financial
shall deposit an amount of cash sufficient to make payment of the merger
consideration to each record holder of common shares of First Community and each
holder of outstanding unexercised options of First Community that are converted
into the right to receive cash in the merger. As soon as practicable after the
effective time of the merger, the exchange agent shall mail or make available to
each record holder of common shares or options a notice and letter of
transmittal disclosing the effectiveness of the merger and the procedure for
exchanging each such record holder's common shares, options or promissory notes.
First Community shareholders will be required to follow the instructions and
surrender their certificates representing First Community common shares,
together with the properly executed letter of transmittal, and any other
required documents, to MainSource Bank. Such shareholders will then be entitled
23
to receive $21.00 in cash for each First Community common share held and such
option holders will be entitled to receive $21.00 in cash minus the exercise
price of each unexercised option. No interest will be paid on any merger
consideration.
DISSENTING SHARES. Any holder of First Community shares who has
properly exercised dissenters' rights shall be entitled to payment for such
shares pursuant to Indiana law. If, in accordance with Indiana law, any holder
of dissenting shares shall forfeit such right to payment of the fair value of
such shares, such shares shall thereupon be deemed to have been converted into
and to have become exchangeable for, as of the effective time of the merger, the
right to receive $21.00 per share.
REPRESENTATIONS AND WARRANTIES
In the merger agreement, each of MainSource Financial and First
Community provide customary representations and warranties relating to, among
other things:
o organization, standing and power;
o capital structure;
o corporate authority to enter into and perform the merger
agreement;
o conflicts with other agreements;
o securities documents and financial statements;
o changes in the party's business since the date of the most
recent financial statements;
o absence of undisclosed liabilities;
o information provided to the other parties and to the First
Community shareholders; and
o brokers.
In the merger agreement, First Community also makes additional
representations and warranties relating to, among other things:
o allowance for credit losses;
o environmental matters;
o no default in First Community's charter documents or other
material contracts;
o compliance with licenses, permits and applicable laws;
o actions and proceedings;
o taxes;
o material agreements;
o employee benefit plans;
o subsidiaries;
o agreements with bank regulators;
o applicability of the business combination provisions of
Indiana law;
o vote required;
o title to property;
o corporate documents, books and records;
o insurance;
o potential competing interests of insiders;
o software;
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o interest rate risk management instruments;
o the due execution and delivery of certain modification and
termination agreements.
MainSource Financial represented and warranted that neither it nor any
of its affiliates or associates beneficially owns more than ten percent (10%) of
First Community's common shares and that it has or has timely access to
sufficient funds to perform its obligations under the merger agreement.
CONDUCT OF BUSINESS PENDING THE MERGER
First Community agreed that until the merger is effective, it will
conduct its business operations in the ordinary and usual course, consistent
with past practice, and will seek to preserve intact its business organization,
keep available the service of its directors, officers and employees, and
preserve its relationships with customers, suppliers and others having business
dealings with it. The merger agreement provides that First Community shall not,
and shall cause its subsidiaries not to, without the prior approval of
MainSource Financial:
o issue, sell, grant, dispose of or otherwise encumber any
shares of capital stock, other than upon the exercise of stock
options or the conversion of convertible debt securities;
o purchase any of First Community's common shares;
o effect any recapitalization, reclassification, stock dividend,
stock split or like change in capitalization;
o declare, set aside, make or pay any dividend or other
distribution, except for regular quarterly cash dividends not
to exceed $0.05 per share;
o adopt a plan of complete or partial liquidation, dissolution,
merger consolidation, restructuring, recapitalization or other
reorganization;
o amend its Articles of Incorporation or Bylaws;
o acquire or dispose of assets or securities, except in the
ordinary course of business;
o incur any indebtedness for borrowed money or make any loans or
investments other than in the ordinary course of a banking
business;
o increase the rate of compensation of any of its directors,
officers or employees;
o pay or agree to pay any pension, retirement allowance,
severance or other employee benefit not required by existing
benefit plans;
o enter into or modify any employment, severance or termination
agreement with any director, officer or employee;
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o enter into or modify any employee benefit arrangement;
o make or commit to make any capital expenditures;
o make any material changes in its customary methods of
marketing;
o change its method of accounting;
o offer any new deposit, loan or investment product or service
or modify any of its lending or investment policies;
o take any action that would make any of the representations and
warranties made by First Community in the merger agreement
inaccurate in any material respect at the effective time of
the merger; or
o take any action that would adversely affect the ability of
MainSource Financial to obtain regulatory approval for the
merger.
NO SOLICITATION. The merger agreement provides that First Community
shall not initiate, solicit or encourage inquiries or proposals, furnish any
information or participate in any discussions or negotiations with any person in
connection with any merger, acquisition or consolidation, or any acquisition or
purchase of all or a substantial portion of the assets of or equity interests in
First Community. The merger agreement does not, however, prohibit First
Community from furnishing information to, or entering into discussions,
negotiations or an agreement with any person who makes an unsolicited bona fide
proposal for any transaction described above, or from disclosing to First
Community's shareholders a position with respect to the unsolicited proposal, if
the Board of Directors, after consulting with and being advised by legal
counsel, determines in good faith that such actions are required to fulfill its
fiduciary obligations under the law.
First Community is not permitted to enter into such other acquisition
proposal except concurrently with the termination of the merger agreement.
ADDITIONAL AGREEMENTS
ACCESS TO INFORMATION. First Community and its subsidiaries shall
afford MainSource Financial and its representatives reasonable access to its
books, records, properties, personnel and representatives. MainSource Financial
shall hold such information that is non-public in confidence, unless required to
disclose such information by subpoena, civil investigative demand or other
similar process.
SHAREHOLDERS MEETING. First Community shall duly call, give notice of,
convene and hold a meeting of its shareholders for the purpose of voting on the
approval of the merger. The Board of Directors of First Community will recommend
the approval of the merger to the shareholders unless such a recommendation
would violate Indiana law.
REASONABLE EFFORTS. MainSource Financial and First Community will use
all reasonable efforts to take all actions necessary to consummate the merger,
including obtaining the approvals or consents by the Board of Governors of the
Federal Reserve System, the Indiana Department of Financial Institutions and any
other governmental agencies as are required.
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FINANCIAL STATEMENTS. First Community shall make available to
MainSource Financial copies of:
o any monthly or quarterly unaudited consolidated financial
statements for periods ended after [September 30, 2002]; and
o any audited consolidated financial statements for any year
ended after [September 30, 2002].
EXPENSES. Whether or not the merger is consummated, all costs and
expenses incurred in connection with the merger shall be paid by the party
incurring such expense.
INDEMNIFICATION. For a period of three (3) years after the effective
time of the merger, MainSource Financial shall indemnify, defend and hold
harmless the officers and directors of First Community [and its subsidiaries]
against claims, losses or damages, including expenses in advance of final
disposition, arising out of or based on the merger to the full extent permitted
by First Community's Articles of Incorporation or By-Laws or Indiana law.
EMPLOYEE BENEFIT PLANS. As soon as feasible after the merger,
MainSource Financial shall provide each employee of a First Community subsidiary
with such employee benefits as MainSource Financial provides to employees of its
subsidiaries from time to time, including life, medical, hospitalization and
disability insurance and sick pay, personal leave and retirement plan benefits.
MainSource Financial shall credit such employees for years of service at First
Community prior to the merger for purposes of eligibility to participate,
vesting, eligibility to receive benefits, and benefit accrual.
Directors and officers of First Community's subsidiaries shall be
provided with such directors' and officers' liability insurance as MainSource
Financial provides to the directors and officers of its subsidiaries.
AFFILIATE SHAREHOLDERS' VOTE. Each member of First Community's Board of
Directors shall continue to own and not sell, assign or encumber his shares of
common stock of First Community, except as otherwise provided in the merger
agreement, and shall vote his shares in favor of the merger.
RELEASES. Each member of the Board of Directors of First Community and
its subsidiaries shall execute a general release of all parties to the merger
from any claims against such entities, except for claims arising out of the
merger agreement, claims resulting from moneys on deposit with subsidiaries of
First Community or MainSource Financial, claims for compensation accrued and
vested, and claims arising from deferred compensation or other similar
agreements.
EMPLOYMENT AGREEMENTS. Within 7 days of the execution of the merger
agreement, First Community shall deliver executed employment agreements between
First Community Bank & Trust and certain employees.
REDEMPTION OF CONVERTIBLE DEBT. Prior to Closing, First Community shall
cause all outstanding convertible debt securities of First Community to be
concelled or converted into common stock of the Company in accordance with the
terms of such securities.
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CONDITIONS TO THE MERGER
CONDITIONS TO OBLIGATIONS OF MAINSOURCE FINANCIAL AND FIRST COMMUNITY.
The obligations of MainSource Financial and First Community to effect the merger
are subject to the satisfaction or waiver of the following conditions, among
others:
o the merger agreement must be validly adopted by the requisite
vote of the shareholders of First Community;
o all necessary approvals, consents, authorizations, exemptions
or waivers (including any required by any federal or state
governmental body or agency) must be obtained and all waiting
periods required by law must have expired;
o none of the parties shall be subject to any statute, rule,
regulation, injunction or other order or decree which shall
have been enacted by any governmental authority which
prohibits, restricts or makes illegal completion of the merger
and no proceeding initiated by any governmental entity seeking
an order, injunction or decree issued by any court or agency
of competent jurisdiction preventing the completion of the
merger shall be pending; and
o no action shall have been taken or statute or rule enacted
which, in connect with a necessary governmental approval,
imposes any condition or restriction on any party that impacts
the business or economic benefits of the merger such that
consummation of the merger is rendered inadvisable.
CONDITIONS TO OBLIGATIONS OF MAINSOURCE FINANCIAL. The obligations of
MainSource Financial to effect the merger are subject to the satisfaction or
waiver of the following conditions:
o the representations and warranties made by First Community in
the merger agreement are true and correct in all material
respects at the time of the closing;
o First Community and the members of its Board of Directors
shall have complied in all material respects with its
obligations under the merger agreement;
o First Community shall have delivered to MainSource Financial
certain certificates of officers of First Community certifying
that conditions to closing have been satisfied;
o First Community shall have obtained any necessary consents or
approvals to the succession of MainSource Financial to any
obligation, right or interest of First Community; and
o First Community Bank & Trust and certain employees shall have
executed and delivered employment agreements within 7 days of
the execution of the merger agreement.
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CONDITIONS TO OBLIGATIONS OF FIRST COMMUNITY. The obligations of First
Community to effect the merger shall be subject to the satisfaction or waiver of
the following conditions:
o the representations and warranties made by MainSource
Financial in the merger agreement are true and correct in all
material respects at the time of the closing;
o MainSource Financial and its wholly-owned subsidiary shall
have complied in all material respects with its obligations
under the merger agreement;
o MainSource Financial shall have delivered to First Community
certain certificates of officers of MainSource Financial
certifying that conditions to closing have been satisfied;
o MainSource Financial shall have obtained any consents or
approvals required as a result of the transactions
contemplated by the merger agreement; and
o First Community shall have received an opinion from Austin
Associates, LLC that the merger is fair to the shareholders of
First Community from a financial point of view.
TERMINATION. The merger agreement may be terminated:
o by mutual agreement of MainSource Financial and First
Community;
o by the Board of Directors of MainSource Financial or First
Community if:
(a) the approval of the shareholders of First Community
to the merger is not obtained at a meeting called for
that purpose;
(b) the merger has not been consummated on or before June
30, 2003; provided, however, if such non-occurrence
is due to either party's material breach of the
merger agreement, the Board of Directors of such
breaching party shall not have the right to terminate
the merger agreement;
(c) any court or governmental entity shall have issued an
order or taken any action enjoining or prohibiting
the merger;
(d) the other party has breached a term of the merger
agreement which would give rise to a failure of
condition and such breach cannot be or has not been
cured within thirty (30)days, provided that the
terminating party must not been in breach of any term
of the agreement;
o by the Board of Directors of First Community or MainSource
Financial if any event has occurred or circumstance has arisen
or been discovered that would preclude satisfaction of any of
the conditions that such party is subject to under the merger
agreement as of the date of such determination; or
o by the Board of Directors of First Community if the Board of
Directors of First Community shall have
29
approved, and First Community shall have entered into, a
written agreement to engage in a merger, consolidation or
other business combination involving First Community with any
person other than MainSource Financial or any affiliate of
MainSource Financial; provided that First Community is not
then in breach of the merger agreement and First Community has
complied with its obligations under the merger agreement in
connection with its receipt of the alterative merger proposal.
BREAK-UP FEE. First Community is required to pay a break-up fee of
$460,000 to MainSource Financial upon termination of the merger agreement by
either First Community or MainSource Financial if, subject to certain
exceptions: (a) the merger agreement is terminated for any of the following
reasons; and (b) within twelve (12) months of such termination First Community
enters into a written agreement to engage in a transaction whereby First
Community is to be acquired by any person other than MainSource Financial or any
affiliate of MainSource Financial:
o the merger agreement is terminated by the mutual written
consent of First Community and MainSource Financial;
o the merger agreement is terminated by First Community or
MainSource Financial because the merger is not consummated on
or before June 30, 2003, if at the time of termination First
Community is in material breach of any of its representations,
warranties or covenants under the merger agreement that would
give rise to a failure of condition and such breach cannot be
cured within 30 days;
o the merger agreement is terminated because a court or
governmental entity has issued an order or taken action
enjoining or prohibiting the merger, if at the time of
termination First Community is in material breach of any of
its representations, warranties or covenants under the merger
agreement that would give rise to a failure of condition and
such breach cannot be cured within 30 days;
o the merger agreement is terminated by MainSource Financial as
a result of a breach by First Community of a representation,
warranty or covenant under the merger agreement that would
give rise to a failure of condition and such breach cannot be
cured within 30 days;
o the merger agreement is terminated by MainSource Financial
because a condition to its obligation to effect the merger is
not capable of being satisfied; or
o the merger agreement is terminated by First Community because
it has approved and entered into a definitive agreement of an
alternative merger transaction.
INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS
TREATMENT OF STOCK OPTIONS. At the time the merger is effective, each
outstanding option to purchase First Community common shares will be cancelled
and extinguished, and the holders of such stock options will be entitled to
receive cash from MainSource Financial in the amount of the difference between
(a) the product of (i) the difference between $21.00 and the exercise price per
share of such stock option, multiplied by (ii) the number of common shares
30
subject to such stock option, less (b) applicable federal and state tax
withholding obligations of the holder of such stock option.
As of _________, 2003, options to purchase 34,700 shares were
outstanding, of which the directors and executive officers of First Community
held options to purchase a total of ______ shares. All of the options issued by
First Community had exercise prices less than $21.00 per share and therefore are
expected to receive option cancellation payments.
Each holder of a stock option will be required to execute an option
cancellation agreement in order to receive payment for the option.
TERMINATION AGREEMENTS. Three (3) employees of a subsidiary of First
Community, Albert R. Jackson, III, Keith Lindauer and Dean Jackson, are parties
to Termination Agreements with First Community Bank & Trust dated as of July 28,
1999. Each of the Termination Agreements provides that in the event of a change
in control, which includes the acquisition by another company of 100% of the
voting stock of First Community, and in the event the employment of the employee
is terminated for any reason other than good cause within 180 days of the change
in control, the employee is entitled to receive a lump sum equal to 299% of his
average total compensation for the prior three (3) years. At the effective time
of the merger, and as condition to each party's obligation to close the merger,
each employee shall execute a waiver of his rights under the Termination
Agreements and those agreements shall be terminated. In consideration for this
waiver and termination, MainSource Financial and each employee shall execute
employment agreements effective at the time of the merger and continuing until
December 31, 2004, and MainSource Financial shall pay each employee a lump sum
cash payment of $240,000 for Albert R. Jackson, III, $175,000 for Keith Lindauer
and $144,000 for Dean Jackson. Upon execution of the employment agreements, each
employee shall also receive a $25,000 signing bonus.
DEFERRED COMPENSATION AGREEMENTS. Each member of the Board of Directors
of First Community Bank & Trust, including Albert R. Jackson, Jr., Merrill M.
Wesemann, Frank D. Neese and Roy M. Umbarger, and Albert R. Jackson, III, in his
capacity as an executive officer of First Community Bank & Trust, are parties to
Deferred Compensation Agreements with First Community Bank & Trust. These
agreements permit the deferral by the director or officer of a portion of the
compensation received by such director or officer into an account maintained by
First Community Bank & Trust with an annual interest rate as determined by the
Board of Directors of First Community Bank & Trust. Pursuant to the merger
agreement, all of the Deferred Compensation Agreements will terminate effective
as of the closing of the merger and all amounts accrued thereunder will be paid
to such persons.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. Certain directors and executive
officers of First Community Bank & Trust (8 persons) are participants in the
First Community Bank & Trust Supplemental Executive Retirement Plan ("SERP").
Under the SERP, a participant who has obtained 72 years of age, is serving as a
director or employee at that time, and has completed at least three years of
participation in the SERP is entitled to received annual payments for the rest
of his life (or a minimum of ten years) equal to 100% of the average of the
director fees such person received or would have received had such person been a
director each year for the most recent three-year period. A participant who has
completed at least five years of employment or service as a director with First
Community may elect early retirement on or after attaining age 65. A
31
participant electing early retirement is entitled to receive the actuarial
equivalent (present value) of the normal retirement benefit described above.
Upon a change in control, the definition of which includes the merger,
each participant in the SERP is deemed to have remained in the employ of First
Community Bank & Trust until his normal retirement age (72 years old), and may
commence receipt of the actuarial equivalent of his normal retirement benefit at
any time after the termination of his employment or service on the Board.
Pursuant to the merger agreement, the participants in the SERP shall execute and
deliver the following at the closing at the merger:
o each of Albert R. Jackson, III, Keith Lindauer and Dean
Jackson shall execute a waiver of their rights upon a change
in control and a consent to terminate the SERP;
o Don Goeb and Roy M. Umbarger shall each execute a consent to
terminate the SERP and accept, as a change in control benefit,
$107,212 for Mr. Goeb and $107,212 for Mr. Umbarger; and
o each of Albert R. Jackson, Jr., Merrill M. Wesemann and Frank
D. Neese shall elect early retirement from the Board of
Directors of First Community Bank & Trust and shall execute a
waiver of their rights upon a change in control.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of material federal income tax consequences
of the merger to First Community shareholders. It is assumed for purposes of
this discussion that the common shares are held as "capital assets" within the
meaning of Section 1221 of the Internal Revenue Code. The tax consequences to
each shareholder will depend in part upon such shareholder's particular
situation. Generally, shareholders will recognize gain, if any, up to the amount
of cash received, depending upon such shareholder's basis in the First Community
common shares that such shareholder owns. Similarly, if a shareholder is a
dissenting shareholder who receives cash in payment for such dissenting
shareholder's common shares, such shareholder will recognize gain, if any, up to
the amount of cash such dissenting shareholder receives, based upon such
dissenting shareholder's basis in the First Community common shares that such
dissenting shareholder owns.
Special tax consequences not described in this document may be
applicable to particular classes of taxpayers, such as financial institutions,
insurance companies, tax-exempt organizations, broker-dealers, traders in
securities that elect to mark to market, persons that hold common shares as part
of a straddle or conversion transaction, persons who are not citizens or
residents of the United States and shareholders who acquired their common shares
through the exercise of an employee stock option or otherwise as compensation.
The foregoing disclosure is for general information only and is based upon the
Internal Revenue Code, its legislative history, existing and proposed
regulations thereunder, published rulings and decisions, all as currently in
effect as of the date hereof, and all of which are subject to change, possibly
with retroactive effect. No ruling has been or will be sought from the Internal
Revenue Service on the United States federal income tax consequences of the
merger. Tax consequences under state, local and foreign laws are not addressed
in this document. All shareholders should consult with their own tax advisors as
to the particular tax consequences of the merger, including the
32
applicability and effect of the alternative minimum tax and any state, local or
foreign income and other tax laws and of changes in such tax laws.
WHERE YOU CAN FIND MORE INFORMATION
First Community and MainSource Financial each file reports, proxy
statements and other information with the Securities and Exchange Commission
("SEC"). You may read and copy any reports, statements or other information that
First Community and MainSource Financial file at the SEC's public reference
rooms in Washington, D.C., New York, New York, and Chicago, Illinois. (The
address of the public reference room in Washington, D.C. is 450 Fifth Street,
N.W., Washington, D.C. 20549). Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. First Community's and MainSource
Financial's public filings are also available to the public from commercial
document retrieval services and at the Internet World Wide Web site maintained
by the SEC at http://www.sec.gov. Reports, proxy statements and other
information regarding MainSource Financial also may be inspected at the offices
of The Nasdaq Stock Market, 9801 Washingtonian Boulevard, Gaithersburg, Maryland
20878.
If you would like to request any documents from First Community or
MainSource Financial, please do so in writing or by telephone by _______, 2003,
to receive them before the First Community Special Meeting at the following
addresses and telephone numbers:
First Community Bancshares, Inc.
34 West Jefferson
Franklin, Indiana 46106
(317) 346-7230
MainSource Financial Group, Inc.
201 North Broadway
Greensburg, Indiana 47240
(812) 663-4812
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT TO
VOTE YOUR SHARES AT THE SPECIAL MEETING OF SHAREHOLDERS OF FIRST COMMUNITY.
FIRST COMMUNITY AND MAINSOURCE FINANCIAL HAVE NOT AUTHORIZED ANYONE TO PROVIDE
YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS DOCUMENT.
YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS DOCUMENT IS
ACCURATE AS OF ANY DATE OTHER THAN THE DATE OF THIS DOCUMENT, AND THE MAILING OF
THIS DOCUMENT TO SHAREHOLDERS SHALL NOT CREATE ANY IMPLICATION TO THE CONTRARY.
33