SHUMAKER, LOOP & KENDRICK, LLP
NORTH COURTHOUSE SQUARE
1000 JACKSON
Thomas C. Blank TOLEDO, OHIO 43624-1573 OTHER OFFICE LOCATIONS:
(419) 321-1394 TELEPHONE (419) 241-9000 CHARLOTTE
tblank@slk-law.com FAX (419) 241-6894 COLUMBUS
___________ TAMPA
November 2, 2005
VIA EDGAR SUBMISSION & E-MAIL
United States Securities and Exchange Commission
Division of Corporation Finance
Office of Mergers and Acquisitions
100 F Street, N.E.
Washington, D.C. 20549
RE: MERCHANTS BANCORP, INC.
Schedule 13E-3
Filed September 6, 2005
SEC File No. 5-80876
Preliminary Proxy Statement on Schedule 14A
Filed September 6, 2005
SEC File No. 0-49771
To Whom It May Concern:
On behalf of Merchants Bancorp, Inc., Hillsboro, Ohio, and in response to
the comment letter dated October 17, 2005, this opinion is being provided
contemporaneously with the revised filing of the above referenced submissions.
BACKGROUND
This firm has served as special counsel to Merchants Bancorp, Inc. (the
"Company") and MBI Merger Sub, Inc. ("MBI"), each of which is a corporation
chartered and organized under the laws of the State of Ohio. MBI is the
wholly-owned subsidiary of the Company. The Company has proposed to execute a
going-private transaction pursuant to Rule 13e-3
United States Securities and Exchange Commission
Division of Corporation Finance
Office of Mergers and Acquistions
November 2, 2005
under the Securities Exchange Act of 1934 by merging MBI with and into the
Company (the "Going-Private Merger"). To facilitate the Going-Private Merger,
the Company has proposed amending its Amended and Restated Articles of
Incorporation to authorize the issuance of a new class of preferred stock (the
"Series A Preferred Stock"). Pursuant to the terms of the Merger Agreement, the
Company proposes to issue shares of Series A Preferred Stock to certain holders
of its Common Stock in exchange for some or all of their shares of Common Stock.
Following the proposed transactions, the Company will have outstanding shares of
Common Stock held of record by approximately 226 shareholders and outstanding
shares of Series A Preferred Stock held of record by as many as 280
shareholders.
In our capacity as special counsel to the Company and MBI, we have
examined and relied upon the following (collectively the "Documents"): (a) the
Amended and Restated Articles of Incorporation and Code of Regulations of the
Company; (b) the proposed amendment to Article of FOURTH of the Amended and
Restated Articles of Incorporation of the Company; and (c) the Merger Agreement.
We have also examined originals or copies certified to our satisfaction of all
certificates, agreements and other documents which we deemed necessary or
appropriate for the purposes of providing this opinion, and have taken into
account the relevant provisions of Ohio law discussed below.
ANALYSIS OF OHIO LAW
Section 1701.04 of the Ohio Revised Code sets forth a listing of those
items which must be included in any Ohio corporation's initial articles of
incorporation. Specifically, this section provides that the initial articles
must include "the express terms, if any, of the shares; and if the shares are
classified, the designation of each class, the authorized number and par value
per share, if any, of the shares of each class, and the express terms of the
shares of each class." In addition, Section 1701.69 of the Ohio Revised Code
provides authority for Ohio corporations to amend their articles to: "authorize
shares of a new class or classes;" or "change issued or unissued shares of any
class, whether with or without par value, into the same or a different number of
shares of any class with or without par value, theretofore or then authorized."
Section 1701.06 designates the "Express Terms" of shares under Ohio law.
Paragraph A of this section provides that "[t]he express terms of shares may
include statements specifying any of the following:
(1) Dividend or distribution rights, which may be cumulative or
noncumulative; at a specified rate, amount, or proportion; with or
without further participation rights; and in preference to, junior
to, or on a parity in whole or in part with dividend or distribution
rights of shares of any other class;
(2) Liquidation rights, preferences, and price;
(3) Redemption rights and price;
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United States Securities and Exchange Commission
Division of Corporation Finance
Office of Mergers and Acquistions
November 2, 2005
(4) Sinking fund requirements, which may require the corporation to
provide a sinking fund out of earnings or otherwise for the purchase
or redemption of the shares or for dividends or distributions on
them;
(5) Voting rights, which may be full, limited, or denied, except as
otherwise required by law;
(6) Pre-emptive rights, or the denial or limitation of them;
(7) Conversion rights;
(8) Restrictions on the issuance of shares;
(9) Rights of alteration of express terms;
(10) The division of any class of shares into series;
(11) The designation and authorized number of shares of each series;
(12) The right of the directors, subject to any limitations that may be
stated, to adopt amendments to the articles determining, in whole or
in part, the express terms, within the limits set forth in this
chapter, of any class of shares before the issuance of any shares of
that class, or of one or more series within a class before the
issuance of any shares of that series; and
(13) Any other relative, participating, optional, or other special rights
and privileges of, and qualifications or restrictions on, the rights
of holders of shares of any class or series.
The proposed amendment to Article FOURTH of the Company's Amended and
Restated Articles of Incorporation provides that the Corporation is authorized
to issue Four Million Five Hundred Thousand (4,500,000) shares of Common Stock,
all of which shall be without par value, and One Hundred Forty Thousand
(140,000) shares of Series A Preferred Stock, all of which shall be without par
value. The proposed amendment also delineates the express terms of each class of
stock, a general comparison of which is set forth in the table below.
TERM COMPARISON CHART
- --------------------------------------------------------------------------------------------------------
TERM COMMON STOCK SERIES A PREFERRED STOCK
- ------------------- ------------------------------------- -------------------------------------
Voting Rights One vote on all matters per share; None
cumulative voting in the election of
directors
Preemptive Rights None None
Dividend Rights As declared by the board out of funds As declared by the board out of funds
legally available therefore; no legally available therefore;
dividend payable unless first paid to preference over holders of Common
holders of Series A Preferred Stock Stock
Conversion Rights None None
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United States Securities and Exchange Commission
Division of Corporation Finance
Office of Mergers and Acquistions
November 2, 2005
Transfer Rights Freely transferable Freely transferable insofar as
transfer would not increase record
ownership
Liquidation Rights Subordinated to holders of Series A Preference over holders of Common
Preferred Stock - Holders are entitled to
receive the "Principal Amount" of
$23.00 per share prior to any
distribution to holders of Common
Stock
Redemption Not redeemable Redeemable at Company's option after
Provisions 5th year following issuance or in
connection with a "Change in Control"
event
Antidilution Rights None Adjustments tied to adjustments in
the number of outstanding Common
Shares
Term Perpetual Term Series A Preferred Stock mature on
the 20th anniversary following the
date of issuance, at which time all
holders thereof will receive the
principal amount of $23.00 per share
In the present case, the express terms of the Common Stock and the Series
A Preferred Stock differ in certain significant respects. With respect to any
liquidation of the Company during the term of the Series A Preferred Stock,
holders thereof are entitled to receive the Principal Amount of their investment
prior to any pro rata liquidating distributions to holders of Common Stock. The
shares of Common Stock possess voting rights with one vote per Common Share,
while the shares of Series A Preferred Stock have no voting rights. In addition,
the Common Stock is perpetual, while the Series A Preferred Stock has a term of
20 years at the completion of which all holders thereof will receive the
Principal Amount of their investment. The series A Preferred Stock is also
redeemable at the election of the Company any time after the fifth year
following the date of issuance or at any time in connection with certain change
in control transactions. Finally, shares of Common Stock held by non-affiliates
are freely transferable, while shares of Series A Preferred Stock are subject to
certain restrictions on transfer designed to keep the record number of holders
at a static level.
OPINION
Based solely upon our examination of the Documents and the foregoing
analysis of the relevant provisions of Ohio law, it is our opinion that the
differences in the express terms of the Common and Series A Preferred Stock, as
delineated in the proposed amendment to Article FOURTH of the Company's Amended
and Restated Articles of Incorporation, are sufficient to cause such securities
to constitute two separate classes of capital stock under
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United States Securities and Exchange Commission
Division of Corporation Finance
Office of Mergers and Acquistions
November 2, 2005
Ohio law. The foregoing opinion is solely for your benefit in connection with
the transactions described herein.
Sincerely,
/s/ Shumaker, Loop & Kendrick, LLP
Shumaker, Loop & Kendrick, LLP
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