SEC Form DEFM14A filed by Level One Bancorp, Inc.

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

 

Filed by the Registrant  ☒                             Filed by a Party other than the Registrant  ☐

Check the appropriate box:

 

☐		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 Rule §240.14a-12

Level One Bancorp, Inc.

(Name of Registrant as Specified in its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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YOUR VOTE IS VERY IMPORTANT

PROSPECTUS OF FIRST MERCHANTS CORPORATION AND

PROXY STATEMENT OF LEVEL ONE BANCORP, INC.

 

 

The Board of Directors of First Merchants Corporation (“First Merchants”) and the Board of Directors of Level One Bancorp, Inc. (“Level One”) have approved an Agreement and Plan of Merger, dated as of November 4, 2021 (the “Merger Agreement”), pursuant to which Level One has agreed to merge with and into First Merchants (the “Merger”). Following the Merger, the combined company will have 126 full-service branch locations in four states (namely, Indiana, Michigan, Ohio and Illinois) and approximately $17.6 billion in assets, $10.8 billion in loans, $14.4 billion in deposits, and total shareholders’ equity of $2.1 billion, in each case based on data as of September 30, 2021.

If the Merger Agreement is approved by shareholders holding greater than fifty percent (50%) of the outstanding shares of Level One common stock and the Merger is subsequently completed, each share of Level One common stock owned by a Level One shareholder will be converted into the right to receive (i) a 0.7167 (the “Exchange Ratio”) share of First Merchants common stock, and (ii) $10.17 in cash (collectively, the “Merger Consideration”). First Merchants will pay cash for any fractional shares resulting from application of the Exchange Ratio. The Exchange Ratio is subject to adjustments for stock splits, stock dividends, recapitalization, or similar transactions.

First Merchants common stock is listed on the Nasdaq Global Select Market under the symbol “FRME.” On November 3, 2021, the last business day prior to the public announcement of the Merger, the closing price of a share of First Merchants common stock was $43.50, which, after giving effect to the Exchange Ratio of 0.7167 and $10.17 per share in cash consideration, results in an implied value of approximately $41.35 per share of Level One common stock as of such date. On January 7, 2022, the latest practicable date before the date of this proxy statement and prospectus, the closing price of a share of First Merchants common stock was $45.57, which, after giving effect to the Exchange Ratio of 0.7167 and $10.17 per share in cash consideration, results in an implied value of approximately $42.83 per share of Level One common stock as of such date. You should obtain a current market quotation for First Merchants before you vote.

In addition, each share of 7.50% Non-Cumulative Perpetual Preferred Stock, Series B, of Level One, with a liquidation preference of $2,500 per share (“Level One preferred stock”), will be converted into the right to receive one (1) share of a newly created Series A preferred stock of First Merchants having voting powers, preferences and special rights that are substantially identical to those of the Level One preferred stock (“First Merchants preferred stock”). Likewise, following the completion of the Merger, each outstanding Level One depositary share representing a 1/100th interest in a share of Level One preferred stock will become a First Merchants depositary share and will represent a 1/100th interest in a share of First Merchants preferred stock. The depositary shares representing a 1/100th interest in a share of Level One preferred stock are currently listed on the Nasdaq Global Select Market under the symbol “LEVLP.” The depositary shares representing a 1/100th interest in a share of First Merchants preferred stock are expected to be listed on the Nasdaq Global Select Market upon completion of the Merger under the symbol “FRMEP.”

We cannot complete the Merger unless shareholders holding greater than fifty percent (50%) of the issued and outstanding shares of common stock of Level One vote to approve the Merger Agreement. Holders of depositary shares representing interests in shares of Level One preferred stock and the holder of the Level One preferred stock are not entitled to and are not requested to vote at the Level One special meeting. Level One will hold a special meeting of its shareholders to vote on this merger proposal. Your vote is very important. Whether or not you plan to attend the shareholder meeting, please take the time to vote by completing the enclosed proxy

card and mailing it in the enclosed envelope. If you sign, date and mail your proxy card without indicating how you want to vote, your proxy will be counted as a vote in favor of the Merger Agreement. Not returning your card will have the same effect as a vote against the Merger Agreement.

The date, time and place of the meeting are as follows:

March 1, 2022, 9:00 a.m., local time

32991 Hamilton Court

Farmington Hills, Michigan 48334

 

 

This proxy statement and prospectus provides you with detailed information about the special meeting and the proposed Merger. It also contains or references information about Level One and First Merchants. You can also get information about First Merchants from publicly available documents that have been filed with the Securities and Exchange Commission.

 

 

We strongly support the Merger of our companies. The Board of Directors of Level One recommends that you vote in favor of the Merger Agreement.

 

Chief Executive Officer		Chairman and Chief Executive Officer
FIRST MERCHANTS CORPORATION		LEVEL ONE BANCORP, INC.

For a discussion of certain risk factors which you should consider in evaluating the Merger, see “Risk Factors” beginning on page 24. We encourage you to read this entire document carefully.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued pursuant to this proxy statement and prospectus or determined if this proxy statement and prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

These securities are not savings or deposit accounts or other obligation of any bank or non-bank subsidiary of either of our companies, and they are not insured by the Federal Deposit Insurance Corporation, the Deposit Insurance Fund or any other federal or state governmental agency.

Proxy statement and prospectus dated January 13, 2022, and first mailed to Level One shareholders on or about January 18, 2022.

ADDITIONAL INFORMATION

This document incorporates important business and financial information about First Merchants from other documents filed by First Merchants with the Securities and Exchange Commission (“SEC”) that are not delivered with or included in this document. This information (including the documents incorporated herein by reference) is available to you without charge upon your written or oral request. You may request these documents in writing or by telephone at the following addresses and telephone numbers:

First Merchants Corporation

200 East Jackson Street

Muncie, Indiana 47305

Attention: Brian T. Hunt,

Corporate Secretary

Telephone: (765) 747-1500

In addition, if you are a Level One shareholder and have questions about the Merger or the Level One special meeting, need additional copies of this proxy statement and prospectus, or need to obtain proxy cards or other information related to the proxy solicitation, you may contact the following:

Level One Bancorp, Inc.

32991 Hamilton Court

Farmington Hills, MI 48334

Attention: Investor Relations

Telephone: (888) 880-5663

To ensure timely delivery, requests for documents should be made no later than five (5) business days prior to the date of the special meeting of the Level One shareholders. Accordingly, if you would like to make such a request, please do so by February 22, 2022, in order to receive the requested information before the meeting.

You can also obtain copies of the documents incorporated by reference in this document through the SEC’s website at www.sec.gov. See “WHERE YOU CAN FIND ADDITIONAL INFORMATION” on page 107.

LEVEL ONE BANCORP, INC.

32991 Hamilton Court

Farmington Hills, Michigan 48334

NOTICE OF SPECIAL MEETING OF

SHAREHOLDERS TO BE HELD ON

MARCH 1, 2022

To Our Shareholders:

We will hold a special meeting of the shareholders of Level One Bancorp, Inc. (“Level One”) on March 1, 2022, at 9:00 a.m., local time, at 32991 Hamilton Court, Farmington Hills, Michigan 48334.

The purposes of the special meeting are the following:

 

1.

Merger Proposal. To consider and vote upon a proposal to approve the Agreement and Plan of Merger, dated as of November 4, 2021 (the “Merger Agreement”), between First Merchants Corporation (“First Merchants”) and Level One (the “Merger Proposal”).

 

2.

Adjournment Proposal. To approve one (1) or more adjournments of the Level One special meeting, if necessary or appropriate, to solicit additional proxies in favor of the Merger Proposal (the “Adjournment Proposal”).

The proxy statement and prospectus describes the Merger Agreement and the proposed merger of Level One with and into First Merchants (the “Merger”) in detail and includes, as Annex A, the complete text of the Merger Agreement. We urge you to read these materials for a description of the Merger Agreement and the proposed Merger. In particular, you should carefully read the section captioned “Risk Factors” beginning on page 24 of the accompanying proxy statement and prospectus for a discussion of certain risk factors relating to the Merger. The Board of Directors of Level One has fixed the close of business on January 10, 2022, as the record date for determining those shareholders who are entitled to notice of, and to vote at, the special meeting and any adjournment or postponement of the special meeting. Approval of the Merger Proposal requires the affirmative vote of shareholders holding greater than fifty percent (50%) of the outstanding shares of Level One common stock. Approval of the Adjournment Proposal requires the affirmative vote of at least a majority of the shares of Level One common stock voting at the meeting, in person or by proxy, so long as a quorum is present.

Holders of depositary shares representing interests in the shares of Level One preferred stock and the holder of Level One preferred stock are not entitled to and are not requested to vote at the Level One special meeting.

Please note that due to the public health impact of the COVID-19 pandemic, attendees at the special meeting will be required to wear protective face coverings and adhere to social distancing guidelines at all times and may be subject to health screening procedures, including a temperature check, upon entering the building. Seating may be limited to comply with applicable directives and guidelines from the state of Michigan and the Centers for Disease Control and Prevention.

The Level One Board of Directors recommends that you vote “FOR” (1) approval of the Merger Proposal; and (2) approval of the Adjournment Proposal.

Whether or not you plan to attend the special meeting in person, please submit your proxy over the internet or by completing, signing, and dating the enclosed proxy card and returning it as soon as possible using the enclosed postage-prepaid envelope. If you attend the special meeting, you may vote in person if you wish, even if you have previously submitted your proxy. Not submitting your proxy will have the same effect as a vote against the Merger Proposal.

By Order of the Board of Directors

Patrick J. Fehring

Chairman and Chief Executive Officer

January 13, 2022

Farmington Hills, Michigan

FORWARD-LOOKING STATEMENTS

This document, and the information included or incorporated by reference into it, contain forward-looking statements made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements can often, but not always, be identified by the use of words like “believe,” “continue,” “pattern,” “estimate,” “project,” “intend,” “anticipate,” “expect” and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may,” or similar expressions. These forward-looking statements include, but are not limited to, statements relating to the benefits of the proposed Merger between First Merchants and Level One, including future financial and operating results, cost savings, enhanced revenues, and accretion/dilution to reported earnings that may be realized from the Merger, as well as other statements of expectations regarding the Merger, and other statements of First Merchants’ goals, intentions and expectations; statements regarding First Merchants’ business plan and growth strategies; statements regarding the asset quality of First Merchants’ loan and investment portfolios; and estimates of First Merchants’ risks and future costs and benefits, whether with respect to the Merger or otherwise.

These forward-looking statements are subject to significant risks, assumptions and uncertainties that may cause results to differ materially from those set forth in forward-looking statements, including, among other things: the risk that the businesses of the First Merchants and Level One will not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected; expected revenue synergies and cost savings from the Merger may not be fully realized or realized within the expected time frame; revenues following the Merger may be lower than expected; customer and employee relationships and business operations may be disrupted by the Merger; the ability to obtain required regulatory and shareholder approvals, and the ability to complete the Merger on the expected time frame; possible changes in economic and business conditions; the existence or exacerbation of general geopolitical instability and uncertainty; the ability of First Merchants to integrate recent acquisitions and attract new customers; possible changes in monetary and fiscal policies, and laws and regulations; the effects of easing restrictions on participants in the financial services industry; the cost and other effects of legal and administrative cases; possible changes in the credit worthiness of customers and the possible impairment of collectability of loans; fluctuations in market rates of interest; competitive factors in the banking industry; changes in the banking legislation or regulatory requirements of federal and state agencies applicable to banks and bank holding companies; continued availability of earnings and excess capital sufficient for the lawful and prudent declaration of dividends; changes in market, economic, operational, liquidity, credit and interest rate risks associated with First Merchants’ and Level One’s businesses; the severity and duration of the COVID-19 pandemic and its impact on general economic and financial market conditions and First Merchants’ and Level One’s businesses, results of operations, and financial condition; and other risks and factors identified in First Merchants’ filings with the SEC.

Neither First Merchants nor Level One undertakes any obligation to update any forward-looking statement, whether written or oral, relating to the matters discussed herein unless required to under the federal securities laws. In addition, First Merchants’ and Level One’s past results of operations do not necessarily indicate either of their anticipated future results, whether the Merger is effectuated or not.

TABLE OF CONTENTS

 

		Page
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SHAREHOLDER MEETING			1
SUMMARY			6
SELECTED CONSOLIDATED FINANCIAL DATA			16
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF FIRST MERCHANTS			17
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF LEVEL ONE			18
UNAUDITED PRO FORMA SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA OF FIRST MERCHANTS			19
RISK FACTORS			24
THE LEVEL ONE SPECIAL MEETING			32
General Information			32
Matters To Be Considered			32
Vote Required			32
Voting Agreement			32
Proxies			33
Solicitation of Proxies			33
Recommendation of the Level One Board of Directors			33
Other Matters			34
Beneficial Ownership of Level One Common Stock by Certain Shareholders			34
MERGER PROPOSAL			37
ADJOURNMENT PROPOSAL			37
THE MERGER			38
Description of the Merger			38
Merger Consideration			38
Treatment of Level One Equity Awards			39
Exchange of Shares			39
Effect of the Merger on First Merchants Shareholders			40
Background of the Merger			40
First Merchants’ Reasons for the Merger			48
Level One’s Reasons for the Merger			49
Opinion of Level One’s Financial Advisor			53
Certain Unaudited Prospective Financial Information of Level One			65
Registration of First Merchants Securities			67
Nasdaq Global Select Market Listing			67
Regulatory Approvals			67
Effective Date of the Merger			68
Dissenters’ Rights in the Merger			68
Interests of Certain Persons in the Merger			68
THE MERGER AGREEMENT			71
Description of the Merger			71
Representations and Warranties			71
Conditions to Completion of the Merger			72
Termination; Waiver; Amendment			74
Restrictions Affecting the Parties Prior to Completion of the Merger			76
Fees and Expenses			77
Management After the Merger			77
Indemnification and Insurance of Level One Directors and Officers			78
Employee Benefit Plans			78
Voting Agreement			79
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES			80
Tax Consequences of the Merger Generally			80
Tax Consequences to First Merchants, First Merchants Shareholders and Level One			81

		Page
Tax Consequences of the Merger to U.S. Holders of Level One Common Stock			81
Tax Consequences of the Merger to U.S. Holders of Level One Preferred Stock			82
Information Reporting and Backup Withholding			83
Reporting Requirements			84
DESCRIPTION OF FIRST MERCHANTS			85
Business			85
Incorporation of Certain Information Regarding First Merchants by Reference			85
DESCRIPTION OF LEVEL ONE			86
Business			86
Incorporation of Certain Information Regarding Level One by Reference			86
DESCRIPTION OF NEW FIRST MERCHANTS PREFERRED STOCK			87
DESCRIPTION OF NEW FIRST MERCHANTS DEPOSITARY SHARES			95
COMPARISON OF COMMON STOCK			98
LEGAL MATTERS			106
EXPERTS			106
SHAREHOLDER PROPOSALS FOR NEXT YEAR			106
WHERE YOU CAN FIND ADDITIONAL INFORMATION			107
ANNEX A: AGREEMENT AND PLAN OF MERGER			A-1
ANNEX B: VOTING AGREEMENT			B-1
ANNEX C: OPINION OF PIPER SANDLER & CO.			C-1

QUESTIONS AND ANSWERS ABOUT THE MERGER

AND THE SHAREHOLDER MEETING

 

Q:	What am I voting on?

 

A:

As a holder of Level One common stock, you are being asked to vote to approve the Merger Agreement, pursuant to which Level One will merge with and into First Merchants, as discussed under the heading “MERGER PROPOSAL” beginning on page 37 (the “Merger Proposal”). First Merchants would be the surviving entity in the Merger, and Level One would no longer be a separate company.

You are also being asked to vote on a proposal to adjourn the Level One special meeting, if necessary or appropriate, to solicit additional proxies in favor of the Merger Proposal (which we refer to as the “Adjournment Proposal”). Completion of the Merger is not conditioned upon approval of this additional proposal.

Holders of depositary shares representing interests in shares of Level One preferred stock and the holder of the Level One preferred stock are not entitled to and are not requested to vote at the Level One special meeting.

 

Q:	How do I vote my shares without attending the special meeting?

 

A:	Whether you hold shares directly or in street name, you may direct your vote without attending the special meeting. If you are a shareholder of record, you may vote by granting a proxy as follows:

 

•

By Mail - You may vote by mail by signing and dating your proxy card and mailing it in the envelope provided. You should sign your name exactly as it appears on the proxy card. If you are signing in a representative capacity (for example as guardian, trustee, custodian, attorney or officer of a corporation), you should indicate your name and title or capacity.

 

•

By Internet - You may vote by internet at www.cstproxyvote.com by entering the control number found on your proxy card and following the instructions.

Your vote over the internet is valid as authorized by the Michigan Business Corporation Act.

For shares held in street name, you should follow the voting instructions provided by your broker or nominee. You may complete and mail a voting instruction card to your broker or nominee or, in some cases, submit voting instructions by telephone or the internet. If you provide specific voting instructions by mail, telephone, or internet, your broker or nominee will vote your shares as you have directed. If you hold your shares in street name, please note that only your brokerage firm can sign a proxy on your behalf. The Board of Directors urges you to contact the person responsible for your account today and instruct them to execute a proxy on your behalf for the special meeting.

 

Q:	How do I vote my shares in person at the special meeting?

 

A:	Even if you plan to attend the special meeting, we encourage you to vote by mail or internet so your vote will be counted if you later decide not to attend the special meeting.

If you choose to vote at the special meeting:

 

•

If you are a shareholder of record, to vote your shares at the special meeting you should bring the enclosed proxy card and proof of identity.

 

•

If you hold your shares in street name, you must obtain a proxy in your name from your bank, broker or other holder of record, proof of beneficial ownership, such as a recent brokerage statement or letter from your bank or broker, and proof of identity in order to vote at the special meeting.

 

1

Bring the proxy (for record holders) or proof of beneficial ownership (for street name holders), such as a recent brokerage statement or a letter from your bank or broker, and proof of identity for admission to the special meeting.

 

Q:	Why are First Merchants and Level One proposing to merge?

 

A:

We believe the Merger is in the best interests of both companies and our respective shareholders. Level One and First Merchants believe that the Merger will bring together two complementary institutions to create a strategically, operationally and financially strong company that is positioned for further growth. The Merger will give the combined company greater scale and geographic diversity, not only for serving existing customers more efficiently, but also for future expansion. We believe the Merger will enhance our capabilities to provide banking and financial services to our customers and strengthen the competitive position of the combined organization.

You should review the background of and reasons for the Merger described in greater detail beginning on page 40.

 

Q:	What will holders of Level One common stock receive in the Merger?

 

A:

If the Merger Agreement is approved by the common shareholders of Level One and the Merger is subsequently completed, each share of Level One common stock owned by a Level One shareholder will be converted into (i) a 0.7167 (the “Exchange Ratio”) share of First Merchants’ common stock (“First Merchants common stock”), and (ii) $10.17 in cash (collectively, the “Merger Consideration”). Each Level One common shareholder that would otherwise be entitled to receive a fractional share of First Merchants common stock will receive cash in lieu of such fractional share. The Exchange Ratio is subject to adjustments for stock splits, stock dividends, recapitalization, or similar transactions.

Because the Exchange Ratio is fixed (except for customary anti-dilution adjustments), the value of the Merger Consideration that you will receive will depend on the market price of First Merchants common stock when you receive your shares of First Merchants common stock. The implied per share value of the Merger Consideration, based upon First Merchants’ closing stock price on January 7, 2022, the most recent practicable trading day before this proxy statement and prospectus was finalized, was $42.83 per share. No assurance can be given that the current market price of First Merchants common stock will be equivalent to the market price of First Merchants common stock on the date that shares of First Merchants common stock are received by a Level One shareholder or at any other time. You should obtain current market prices for shares of First Merchants common stock which is listed on the Nasdaq Global Select Market under the symbol “FRME.”

 

Q:	What if I am a holder of Level One depositary shares or the related Level One preferred stock?

 

A:	If you are a holder of Level One depositary shares or the related Level One preferred stock, no action will be required of you. You are not entitled to vote on the Merger Proposal or the Adjournment Proposal.

As part of the Merger, each share of 7.50% Non-Cumulative Perpetual Preferred Stock, Series B, of Level One, with a liquidation preference of $2,500 per share (“Level One preferred stock”), will be converted into the right to receive one (1) share of a newly created Series A preferred stock of First Merchants having voting powers, preferences and special rights that are substantially identical to those of Level One preferred stock (“First Merchants preferred stock”). Likewise, following the completion of the Merger, each outstanding Level One depositary share representing a 1/100th interest in a share of Level One preferred stock will become a First Merchants depositary share and will represent a 1/100th interest in a share of First Merchants preferred stock. The depositary shares representing a 1/100th interest in a share of Level One preferred stock are currently listed on the Nasdaq Global Select Market under the symbol “LEVLP.” The depositary shares representing a 1/100th interest in a share of First Merchants preferred stock are expected to be listed on the Nasdaq Global Select Market under the symbol “FRMEP” upon completion of the Merger.

 

2

Q:	What risks should holders of Level One common stock consider before voting on the Merger Proposal?

 

A:	Holders of Level One common stock should carefully review the section captioned “RISK FACTORS” beginning on page 24.

 

Q:	Will First Merchants’ shareholders receive any shares or cash as a result of the Merger?

 

A:	No. After the Merger, First Merchants shareholders will continue to own the same number of First Merchants shares they owned before the Merger.

 

Q:	How will the Merger affect Level One’s outstanding equity awards?

 

A:

Level One uses equity awards to assist it in attracting, retaining and rewarding key employees and directors. The Merger Agreement provides that, immediately prior to the effective time of the Merger (the “Effective Time”), each then outstanding restricted stock award granted to Level One employees and directors, whether unvested or vested, will be exchanged for shares of Level One common stock according to their respective award agreement terms. Upon issuance of the shares of Level One common stock to a holder of restricted stock as provided above, any award agreement between Level One and such holder and the holder’s rights under the award will terminate and be of no further force or effect.

The Merger Agreement also provides that, at the Effective Time, each outstanding option to purchase shares of Level One common stock (a “Level One Option”) granted to employees and directors under Level One equity incentive plans (“Level One Option Plans”), whether vested or unvested, will cease to represent an option with respect to Level One common stock and will be converted by virtue of the Merger and without any action on the part of the holder of that Level One Option, into an option (as converted, a “First Merchants Option”) with respect to a number of shares of First Merchants common stock equal to the product of (i) the aggregate number of shares of Level One common stock subject to the Level One Option, multiplied by (ii) the sum of (A) the Exchange Ratio and (B) $10.17 divided by the First Merchants Average Price (such sum being the “Option Conversion Ratio”). As of the Effective Time, First Merchants will assume each of the Level One Option Plans under which options are outstanding and unexercised as of the Effective Time. All First Merchants Options will continue to have, and be subject to, the same terms and conditions set forth in the applicable Level One Option Plans and the applicable options or award agreements, except as provided under the Merger Agreement. The exercise price per share of a First Merchants Option delivered in exchange for a Level One Option will be equal to (i) the per share exercise price of such Level One Option immediately prior to the Effective Time divided by (ii) the Option Conversion Ratio.

The term “First Merchants Average Price” means the volume weighted average trading price of a share of First Merchants common stock as reported by Bloomberg, L.P. for the ten (10) days that First Merchants common stock trades on the Nasdaq Global Select Market preceding the fourth (4th) calendar day prior to the Effective Time. The First Merchants Average Price will be appropriately and proportionately adjusted to reflect any share adjustments resulting from any stock splits, stock dividends, recapitalization, or similar transactions.

 

Q:	When is the Merger expected to be completed?

 

A:	We are working to complete the Merger as quickly as possible. We must first obtain the necessary regulatory approvals and the approval of Level One shareholders at the special meeting. We currently expect to complete the Merger during the first half of 2022.

 

3

Q:	What are the tax consequences of the Merger to holders of Level One common stock and Level One preferred stock?

 

A:

The Merger is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), and it is a condition to the closing of the Merger that Dentons Bingham Greenebaum LLP and Barack Ferrazzano Kirschbaum & Nagelberg LLP deliver opinions, effective as of the date of the Merger, to First Merchants and Level One, respectively, to that effect. Such opinions will comply with the regulations and guidance of the SEC with respect to the persons entitled to rely on tax opinions contained in the Registration Statement on Form S-4, of which this proxy and prospectus is a part. However, neither Level One nor First Merchants has requested or received a ruling from the Internal Revenue Service (the “IRS”) that the merger will qualify as a reorganization. If the Merger qualifies as a reorganization, then, in general, a U.S. Holder (as defined in the section captioned “MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES” beginning on page 80) exchanging Level One common stock will not recognize gain (or loss) as a result of their receiving shares of First Merchants common stock in the Merger, but will recognize gain (but not loss) in an amount not to exceed the cash received as part of the Merger Consideration, and will recognize gain or loss with respect to any cash received in lieu of fractional shares of First Merchants common stock. The tax consequences of the merger to holders of Level One’s preferred stock will depend on the personal circumstances of the shareholder and the treatment of the applicable shares of Level One preferred stock exchanged and the First Merchants preferred stock series received by such holders. See “MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES” beginning on page 80.

Your individual tax consequences will depend on your personal situation. You should consult your tax advisor for a full understanding of the tax consequences of the Merger to you.

 

Q:	Are holders of Level One common stock or Level One depositary shares and the related Level One preferred stock entitled to dissenters’ rights?

 

A:	No. Holders of Level One common stock and holders of Level One depositary shares and the related Level One preferred stock are not entitled to dissenters’ rights under the Michigan Business Corporation Act and Level One’s Articles of Incorporation and Bylaws.

 

Q:	What do holders of Level One common stock need to do now?

 

A:

Holders of Level One common stock should carefully read and consider the information contained in this document and any information incorporated herein by reference. Then, please submit your proxy by completing, signing, and dating the enclosed proxy card and returning it as soon as possible using the enclosed postage-prepaid envelope so that your shares can be voted at the special shareholder meeting. If a returned proxy card is signed but does not specify how you wish to vote your shares, your proxy will be voted “FOR” the: (1) approval of the Merger Proposal; and (2) approval of the Adjournment Proposal.

 

Q:	What if I don’t vote or I abstain from voting?

 

A:

As a holder of Level One common stock, if you do not vote or you abstain from voting, your abstention will count as a vote “AGAINST” the Merger Proposal. The vote on the Adjournment Proposal requires that there be more votes in favor than against. As a result, abstentions and broker non-votes will have no effect on the Adjournment Proposal.

 

Q:	If my shares are held by my broker in “street name,” will my broker vote my shares for me?

 

A:

Your broker will vote any shares you hold in “street name” only if you provide instructions to your broker on how to vote your shares. You should follow the directions provided by your broker to vote your shares. If you do not provide your broker with instructions on how to vote your shares held in “street name,” your broker will not be permitted to vote your shares, which will have the effect of a vote “AGAINST” the Merger and will not be counted for purposes of the Adjournment Proposal.

 

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Q:	May I change my vote after I have submitted my proxy?

 

A:

Yes. You can change your vote at any time before your proxy is voted at the special meeting. You can do this in one of three ways. First, you can send a written notice stating that you revoke your proxy. Second, you can complete and submit a new proxy, dated at a date later than your most recent proxy. Please submit your notice of revocation and/or new proxy card to Level One Bancorp, Inc., 32991 Hamilton Court, Farmington Hills, Michigan 48334, Attention: Gregory A. Wernette, Corporate Secretary. Third, you may attend the special meeting and vote in person. Simply attending the special meeting, however, will not revoke your proxy. You must request a ballot and vote the ballot at the meeting.

 

Q:	What constitutes a quorum?

 

A:

The presence, in person or by proxy, of shareholders holding at least a majority of the issued and outstanding shares of Level One entitled to vote as of January 10, 2022, the record date for the special meeting, will constitute a quorum for the special meeting. On the record date, there were 7,733,726 shares of Level One common stock outstanding and entitled to vote at the special meeting.

 

Q:	Should I send in my stock certificate(s) now?

 

A:

No. After the Merger is completed, an exchange agent designated by First Merchants will send you written instructions for exchanging Level One stock certificates for the consideration to be received in the Merger. Any shares of Level One common stock held in book-entry form will be automatically exchanged for shares of First Merchants common stock. If you are a First Merchants shareholder, you should retain your certificates, as you will continue to hold the First Merchants shares you currently own.

 

Q:	Whom should I contact if I have other questions about the Merger Agreement or the Merger?

 

A:	You may contact:

Level One Bancorp, Inc.

Attention: Investor Relations

32991 Hamilton Court

Farmington Hills, MI 48334

Telephone: (888) 880-5663

 

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RISK FACTORS

In addition to general investment risks and the other information contained in or incorporated by reference into this proxy statement and prospectus, including the matters addressed under the section “FORWARD-LOOKING STATEMENTS,” you should carefully consider the following risk factors in deciding how to vote for the Merger Proposal presented in this proxy statement and prospectus. You should also consider the other information in this proxy statement and prospectus and the other documents incorporated by reference into this proxy statement and prospectus. See “WHERE YOU CAN FIND ADDITIONAL INFORMATION” on page 107.

Risk Factors Relating to the Merged Company and Its Industry

Combining the two companies may be more difficult, costly or time consuming than expected and the anticipated benefits and costs savings of the Merger may not be realized.

Even though First Merchants has acquired other financial services businesses in the past, the success of the Merger with Level One will depend on a number of factors, including, but not limited to, the merged company’s ability to:

 

•

integrate Level One’s operations with the operations of First Merchants;

 

•

maintain existing relationships with First Merchants’ depositors and Level One’s depositors to minimize withdrawals of deposits subsequent to the acquisition;

 

•

maintain and enhance existing relationships with borrowers of First Merchants and Level One;

 

•

achieve projected net income of First Merchants Bank and expected cost savings and revenue enhancements from the merged company;

 

•

control the incremental non-interest expense to maintain overall operating efficiencies;

 

•

retain and attract key and qualified management, lending and other banking personnel; and

 

•

compete effectively in the communities served by First Merchants and Level One, and in nearby communities.

First Merchants’ failure to successfully integrate Level One into its business may adversely affect its financial condition and results of operations.

The value of the consideration to be received by Level One shareholders in the Merger will fluctuate.

If the Merger is completed, Level One shareholders will receive a number of shares of First Merchants common stock based on a fixed Exchange Ratio of 0.7167 share of First Merchants common stock for each share of Level One common stock. Because the market value of First Merchants common stock may (and likely will) fluctuate, the value of the stock consideration you receive for your shares may also fluctuate. The market value of First Merchants common stock could fluctuate for any number of reasons, including those specific to First Merchants and those that influence trading prices of equity securities generally. As a result, you will not know the exact value of the shares of First Merchants common stock you will receive at the time you must vote your shares. The value of First Merchants common stock on the closing date of the Merger may be greater or less than the market price of First Merchants common stock on the record date, on the date of this proxy statement and prospectus or on the date of the special meeting.

We encourage you to obtain a current market quotation for First Merchants common stock because the value of any First Merchants shares you receive may be more or less than the value of such shares as of the date of this document.

 

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The merged company’s allowance for credit losses may not be adequate to cover actual loan losses.

The merged company’s loan customers may not repay their loans according to their terms, and the customers’ collateral securing the payment of their loans may be insufficient to assure repayment. As of September 30, 2021, approximately 70% of the merged company’s loans are comprised of commercial real estate and commercial lines of credit and term and development loans, which can result in higher loan loss experience than residential loans in economic downturns. The underwriting, review and monitoring that will be performed by the merged company’s officers and directors cannot eliminate all of the risks related to these loans.

Each of First Merchants and Level One makes various assumptions and judgments about the collectability of their respective loan portfolios and provide an allowance for losses based on a number of factors. If the assumptions are wrong or the facts and circumstances subsequently and materially change, the allowance for credit losses and Merger-related credit marks may not be sufficient to cover the merged company’s loan losses. The merged company may have to increase its allowance for credit losses in the future, which could decrease its net income.

Deterioration in loan quality will adversely affect the merged company’s results of operations and financial condition.

Each of First Merchants and Level One seek to mitigate the risks inherent in their respective loan portfolios by adhering to sound underwriting practices. Their lending strategies also include emphasizing diversification on a geographic, industry and customer level, regular credit quality reviews and management reviews of large credit exposures and loans experiencing deterioration of credit quality. There is continuous review of their loan portfolios, including internally administered loan “watch” lists and independent loan reviews. These evaluations take into consideration identified credit problems, as well as the possibility of losses inherent in the loan portfolio that are not specifically identified. Although First Merchants and Level One believe their underwriting and loan review procedures are appropriate for the various kinds of loans they make, the merged company’s results of operation and financial condition will be adversely affected in the event the quality of their respective loan portfolios deteriorates. As of September 30, 2021, First Merchants had $51.9 million in non-performing assets and Level One had $12.9 million in non-performing assets.

Changes in interest rates may reduce the merged company’s net interest income.

Like other financial institutions, the merged company’s net interest income is its primary revenue source. Net interest income is the difference between interest earned on loans and investments and interest expense incurred on deposits and other borrowings. The merged company’s net interest income will be affected by changes in market rates of interest, the interest rate sensitivity of its assets and liabilities, prepayments on its loans and investments and limits on increases in the rates of interest charged on its residential real estate loans.

The merged company will not be able to predict or control changes in market rates of interest. Market rates of interest are affected by regional and local economic conditions, as well as monetary policies of the Federal Reserve Board. The following factors also may affect market interest rates:

 

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inflation;

 

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slow or stagnant economic growth or recession;

 

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unemployment;

 

•

money supply;

 

•

international disorders;

 

•

instability in domestic and foreign financial markets; and

 

•

other factors beyond the merged company’s control.

 

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Each of First Merchants and Level One has policies and procedures designed to manage the risks from changes in market interest rates; however, despite risk management, changes in interest rates could adversely affect the merged company’s results of operations and financial condition.

Changes in economic conditions and the geographic concentration of the merged company’s markets could adversely affect the merged company’s financial condition.

The merged company’s success will depend to a great extent upon the general economic conditions of the Midwest Region of the United States. Unlike larger banks that are more geographically diversified, the merged company will provide banking and financial services to customers primarily located in these areas. Favorable economic conditions may not exist in the merged company’s markets.

A continued economic slowdown could have the following consequences:

 

•

loan delinquencies may increase;

 

•

problem assets and foreclosures may increase;

 

•

demand for the products and services of Level One and First Merchants may decline; and

 

•

collateral for loans made by Level One and First Merchants may decline in value, in turn reducing customers’ borrowing power, and reducing the value of assets and collateral associated with existing loans.

The COVID-19 pandemic may delay and adversely affect the completion of the Merger.

The COVID-19 pandemic has created economic and financial disruptions that have adversely affected, and are likely to continue to adversely affect, the business, financial condition, liquidity, capital and results of operations of First Merchants and Level One. If the effects of the COVID-19 pandemic cause continued or extended decline in the economic environment and the financial results of First Merchants or Level One, or the business operations of First Merchants or Level One are further disrupted as a result of the COVID-19 pandemic, efforts to complete the Merger and integrate the businesses of First Merchants and Level One may also be delayed and adversely affected. Additional time may be required to obtain the requisite regulatory approvals and/or the regulators may impose additional requirements on First Merchants or Level One that must be satisfied prior to completion of the Merger, which could delay and adversely affect the completion of the Merger.

The combined company may be unable to retain Level One personnel successfully after the Merger is completed, and the combined company’s ability to implement its growth strategy may be harmed if it is unable to attract additional key personnel.

The success of the Merger will depend in part on the combined company’s ability to retain the talents and dedication of key employees currently employed by Level One. It is possible that these employees may decide not to remain with Level One while the Merger is pending or with the combined company after the Merger is consummated. If key employees terminate their employment, or if an insufficient number of employees are retained to maintain effective operations, the combined company’s business activities may be adversely affected and management’s attention may be diverted from successfully integrating Level One to hiring suitable replacements, all of which may cause the combined company’s business to suffer.

In addition, the combined company’s continued growth and future success will depend, in part, on its ability to attract, motivate and retain highly qualified senior and middle management and other skilled employees. Competition for employees is intense, and the process of identifying and retaining key personnel with the combination of skills and attributes required to execute the combined company’s business strategy may be lengthy.

 

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For various reasons, including the impact of the COVID-19 pandemic, First Merchants may not be able to locate suitable replacements for any key employees who leave the combined company, or to offer employment to potential replacements on reasonable terms, which could cause the combined company’s business to suffer.

Anti-takeover defenses may delay or prevent future mergers.

Provisions contained in First Merchants’ Articles of Incorporation and Bylaws and certain provisions of Indiana law could make it more difficult for a third party to acquire First Merchants, even if doing so might be beneficial to First Merchants shareholders. See “COMPARISON OF COMMON STOCK – Anti-Takeover Provisions” on page 103. These provisions could limit the price that some investors might be willing to pay in the future for shares of First Merchants common stock and may have the effect of delaying or preventing a change in control.

If the Merger is not completed, the parties will have incurred substantial expenses without realizing the expected benefits.

First Merchants and Level One have incurred substantial expenses in connection with the transactions described in this proxy statement and prospectus. The completion of the Merger depends on the satisfaction of several conditions. We cannot guarantee that these conditions will be met. Level One expects to incur approximately $11.3 million in pre-tax Merger-related expenses and First Merchants expects to incur approximately $7.8 million in pre-tax Merger-related expenses, which include legal, accounting and financial advisory expenses and which excludes any contract termination fees, if applicable. Although some of these expenses will not be incurred if the Merger is not completed, others will and such expenses could have a material adverse impact on the financial condition of First Merchants and Level One because they would not have realized the expected benefits of the Merger. There can be no assurance that the Merger will be completed.

The Merger Agreement may be terminated in accordance with its terms and the Merger may not be completed, which could have a negative impact on Level One.

The Merger Agreement with First Merchants is subject to a number of conditions which must be fulfilled in order to close. Those conditions include: Level One shareholder approval, regulatory approvals, the continued accuracy of certain representations and warranties by both parties and the performance by both parties of certain covenants and agreements. There can be no assurance that the Merger will be completed.

In addition, certain circumstances exist where Level One may choose to terminate the Merger Agreement, including the acceptance of a superior acquisition proposal. See “THE MERGER – Exchange of Level One Common Stock” for a more complete discussion of the consideration to be paid in the Merger and “THE MERGER AGREEMENT-Termination; Waiver; Amendment” for a more complete discussion of the circumstances under which the Merger Agreement could be terminated. There can be no assurance that the conditions to closing the Merger will be fulfilled or that the Merger will be completed.

If the Merger Agreement is terminated, there may be various consequences to Level One, including:

 

•

Level One’s businesses may have been adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the Merger, without realizing any of the anticipated benefits of completing the Merger; and

 

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Level One will have incurred substantial expenses in connection with the Merger, without realizing any of the anticipated benefits of completing the Merger.

If the Merger Agreement is terminated by Level One due to its acceptance of a superior acquisition proposal or by First Merchants due to the failure of Level One’s Board of Directors to recommend approval of the Merger Agreement to its shareholders by reason of a superior acquisition proposal or for certain related reasons, then

 

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Level One has agreed pay to First Merchants a $11,130,000 termination fee. The payment of the termination fee could have a material adverse effect on Level One’s financial condition, and there can be no assurance that Level One would be able to complete a transaction with a party willing to pay an equivalent or more attractive price than the price First Merchants has agreed to pay in the Merger.

The termination fee and the restrictions on solicitation contained in the Merger Agreement may discourage other companies from trying to acquire Level One.

Until the completion of the Merger, with some exceptions, Level One is prohibited from soliciting, initiating, encouraging or participating in any discussion of or otherwise considering any inquiries or proposals that may lead to an acquisition proposal, such as a merger or other business combination transaction, with any person other than First Merchants. In addition, Level One has agreed to pay a termination fee of $11,130,000 to First Merchants if the Level One Board of Directors does not recommend approval of the Merger Agreement to the Level One shareholders by reason of a superior acquisition proposal. These provisions could discourage other companies from trying to acquire Level One even though such other companies might be willing to offer greater value to Level One’s shareholders than First Merchants has offered in the Merger Agreement. The payment of the termination fee also could have a material adverse effect on Level One’s financial condition.

The market price of First Merchants common stock after the Merger may be affected by factors different from those affecting the shares of Level One or First Merchants currently.

Upon completion of the Merger, holders of Level One common stock will become holders of First Merchants common stock. First Merchants’ business differs in important respects from that of Level One, and, accordingly, the results of operations of the combined company and the market price of First Merchants common stock after the completion of the Merger may be affected by factors different from those currently affecting the independent results of operations of each of First Merchants and Level One. First Merchants is, and will continue to be, subject to the risks described in First Merchants’ Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as updated by subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, all of which are filed with the SEC and incorporated by reference into this proxy statement and prospectus. See the documents incorporated by reference in this proxy statement and prospectus and referred to under “WHERE YOU CAN FIND ADDITIONAL INFORMATION” on page 107.

Level One shareholders will have a reduced ownership and voting interest after the Merger and will exercise less influence over management.

Level One’s shareholders currently have the right to vote in the election of the Level One Board of Directors and on other matters affecting Level One. When the Merger occurs, each Level One shareholder will become a shareholder of First Merchants with a percentage ownership of the combined organization that is smaller than the shareholder’s percentage ownership of Level One. Because of this, Level One’s shareholders will have less influence over the management and policies of First Merchants than they now have over the management and policies of Level One.

The fairness opinion received by the Level One Board of Directors in connection with the Merger prior to the signing of the Merger Agreement has not been updated to reflect changes in circumstances since the date of such opinion.

The written opinion rendered by Piper Sandler, financial advisor to Level One, dated November 1, 2021, was based upon information available as of November 1, 2021. Piper Sandler’s opinion has not been updated to reflect changes that may occur or may have occurred after the date on which it was delivered, including changes to the operations and prospects of Level One or First Merchants, changes in general market and economic conditions, or other changes. Any such changes may alter the relative value of Level One or First Merchants, or the prices of shares of Level One common stock or First Merchants common stock by the time the Merger is

 

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completed. The written opinion does not speak as of the date the Merger will be completed or as of any date other than the date referenced in such written opinion. For a description of the opinion that Level One received from its financial advisor, please see “THE MERGER – Opinion of Level One’s Financial Advisor,” beginning on page 53.

In connection with the merger, First Merchants will assume Level One’s outstanding debt obligations and preferred stock, and the combined company’s level of indebtedness following the completion of the Merger could adversely affect the combined company’s ability to raise additional capital and to meet its obligations under its existing indebtedness.

In connection with the Merger, First Merchants will assume Level One’s outstanding indebtedness and Level One’s obligations related to its outstanding preferred stock. First Merchants’ existing debt, together with any future incurrence of additional indebtedness, and the assumption of Level One’s outstanding preferred stock, could have important consequences for the combined company’s creditors and the combined company’s shareholders. For example, it could:

 

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limit the combined company’s ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes;

 

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restrict the combined company from making strategic acquisitions or cause the combined company to make non-strategic divestitures;

 

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restrict the combined company from paying dividends to its shareholders;

 

•

increase the combined company’s vulnerability to general economic and industry conditions; and

 

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require a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on the combined company’s indebtedness and dividends on the preferred stock, thereby reducing the combined company’s ability to use cash flows to fund its operations, capital expenditures and future business opportunities.

Following completion of the Merger, holders of First Merchants common stock will be subject to the prior dividend and liquidation rights of the holders of the new First Merchants preferred stock that First Merchants will issue upon completion of the Merger. Holders of Level One depositary shares (and related shares of Level One preferred stock), which will be converted into new First Merchants depositary shares (and related shares of new First Merchants preferred stock), as well as holders of shares of new First Merchants preferred stock that First Merchants may issue in the future, would receive, upon the combined company’s voluntary or involuntary liquidation, dissolution or winding up, before any payment is made to First Merchants common stock, their liquidation preferences as well as any accrued and unpaid distributions. These payments would reduce the remaining amount of the combined company’s assets, if any, available to holders of its common stock. As of the date of this joint proxy statement/prospectus, First Merchants does not have any shares of preferred stock outstanding.

General market conditions and unpredictable factors, including conditions and factors different from those affecting Level One preferred stock currently, could adversely affect market prices for shares of new First Merchants preferred stock shares once new First Merchants preferred stock is issued.

There can be no assurance about the market prices for new First Merchants preferred stock that will be issued upon completion of the Merger. Several factors, many of which are beyond the control of First Merchants, could influence the market prices of new First Merchants preferred stock, including:

 

•

whether the combined company declares or fails to declare dividends on new First Merchants preferred stock from time to time;

 

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real or anticipated changes in the credit ratings assigned to new First Merchants preferred stock or other First Merchants securities;

 

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the combined company’s creditworthiness;

 

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interest rates;

 

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developments in the securities, credit and housing markets, and developments with respect to financial institutions generally;

 

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the market for similar securities; and

 

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economic, corporate, securities market, geopolitical, public health (including the ongoing effects of the COVID-19 pandemic), regulatory or judicial events that affect the combined company, the banking industry or the financial markets generally.

Shares of new First Merchants preferred stock will be equity interests and will not constitute indebtedness. As such, new First Merchants preferred stock will rank junior to all indebtedness of, and other non-equity claims on, the combined company with respect to assets available to satisfy claims. The market prices for new First Merchants preferred stock following the Merger may be affected by factors different from those currently affecting the Level One preferred stock.

Risk Factors Relating to the Merger

Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the Merger.

The transactions contemplated in the Merger Agreement cannot be completed until First Merchants receives necessary regulatory approvals, which include the approval of the Federal Deposit Insurance Corporation and Indiana Department of Financial Institutions. In determining whether to grant these approvals, the regulators consider a variety of factors, including the regulatory standing of each party and the factors described under “THE MERGER – Regulatory Approvals.” These approvals could be delayed or not obtained at all, including due to any or all of the following: an adverse development in either party’s regulatory standing, or any other factors considered by regulators in granting such approvals; governmental, political or community group inquiries, investigations or opposition; changes in legislation or the political environment, including as a result of changes of the U.S. executive administration, Congressional leadership and regulatory agency leadership; or impacts and disruptions resulting from the COVID-19 pandemic.

These regulators may impose conditions on the completion of the Merger or the Bank Merger or require changes to the terms of the Merger or the Bank Merger. There can be no assurance that regulators will not impose any such conditions, limitations, obligations or restrictions or that such conditions, limitations, obligations or restrictions will not have the effect of delaying or preventing completion of the Merger or the Bank Merger or imposing additional costs on or limiting the revenues of the combined company following the Merger and the Bank Merger or otherwise reducing the anticipated benefits of the Merger or the Bank Merger, any of which might have an adverse effect on the combined company following the Merger. Regulatory approvals could also be impacted based on the status of any ongoing investigation of either party or its customers, including subpoenas to provide information or investigations, by a federal, state or local governmental agency.

Certain of Level One’s directors and executive officers have interests in the Merger that may differ from the interests of Level One’s shareholders.

Level One shareholders should be aware that some of Level One’s executive officers and directors have interests in the Merger and have arrangements that are different from, or in addition to, those of Level One shareholders generally. Level One’s Board of Directors was aware of and considered these interests, among other matters, when making its decision to approve and adopt the Merger Agreement, and in recommending that Level One shareholders vote in favor of approving the Merger Agreement.

 

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For a description of these interests, see “THE MERGER – Interests of Certain Persons in the Merger” on page 68.

Level One and First Merchants will be subject to business uncertainties and contractual restrictions while the Merger is pending.

Uncertainty about the effect of the Merger on employees and customers may have an adverse effect on Level One or First Merchants. These uncertainties may impair Level One’s or First Merchants’ ability to attract, retain and motivate key personnel until the Merger is completed, and could cause customers and others that deal with Level One or First Merchants to seek to change existing business relationships with Level One or First Merchants. Retention of certain employees by Level One or First Merchants may be challenging while the Merger is pending, as certain employees may experience uncertainty about their future roles with Level One or First Merchants. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with Level One or First Merchants, Level One’s and/or First Merchants’ business could be harmed. In addition, subject to certain exceptions, each of Level One and First Merchants has agreed to operate its business in the ordinary course prior to closing. See “THE MERGER AGREEMENT – Restrictions Affecting the Parties Prior to Completion of the Merger” on page 76 for a description of the restrictive covenants applicable to Level One and First Merchants while the Merger is pending.

The shares of First Merchants common stock to be received by Level One shareholders as a result of the Merger will have different rights from the shares of Level One common stock.

Upon completion of the Merger, Level One shareholders will become First Merchants shareholders and their rights as shareholders will be governed by the First Merchants Articles of Incorporation and Bylaws. The rights associated with Level One common stock may be different from the rights associated with First Merchants common stock. Please see “COMPARISON OF COMMON STOCK” beginning on page 98 for a discussion of the different rights associated with First Merchants common stock.

The Merger may fail to qualify as a tax-free reorganization for federal tax purposes, resulting in your recognition of taxable gain or loss in respect of your shares of Level One common stock.

Level One and First Merchants intend for the Merger to qualify as a tax-free “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code. Although the IRS will not provide a ruling on the matter, each of Level One and First Merchants will, as a condition to closing, obtain an opinion from its respective legal counsel that the Merger will constitute a “reorganization” for federal tax purposes. Such opinions will comply with the regulations and guidance of the SEC with respect to the persons entitled to rely on tax opinions contained in the Registration Statement on Form S-4, of which this proxy and prospectus is a part. These opinions do not bind the IRS or prevent the IRS from adopting a contrary position. If the Merger does not qualify as a “reorganization” within the meaning of Section 368(a) of the Code, then a U.S. holder of Level One common stock or Level One preferred stock may be required to recognize any gain or loss equal to the difference between (1) the sum of the fair market value of either First Merchants common stock First Merchants preferred stock received by the U.S. holder of Level One common stock or Level One preferred stock and the amount of cash, if any, received by the U.S. holder of Level One common stock or Level One preferred stock in the Merger, and (2) the adjusted tax basis of such U.S. holder in the Level One common stock or Level One preferred stock exchanged therefor.

 

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THE LEVEL ONE SPECIAL MEETING

Special Meeting of Shareholders of

Level One Bancorp, Inc.

General Information

We are furnishing this document to the shareholders of Level One in connection with the solicitation by the Board of Directors of Level One of proxies for use at the Level One special meeting of shareholders to be held on March 1, 2022, at 9:00 a.m., local time, at 32991 Hamilton Court, Farmington Hills, Michigan 48334. This document is first being mailed to Level One shareholders on or about January 18, 2022, and includes the notice of Level One special meeting, and is accompanied by a form of proxy.

Matters To Be Considered

The purposes of the special meeting are as follows:

 

1.

Merger Proposal. To consider and vote upon a proposal to approve the Merger Agreement, pursuant to which Level One will merge with and into First Merchants and, immediately thereafter, Level One Bank will be consolidated and merged with and into First Merchants Bank, as discussed under the section titled “MERGER PROPOSAL” beginning on page 37.

 

2.

Adjournment Proposal. To approve one (1) or more adjournments of the Level One special meeting, if necessary or appropriate, to solicit additional proxies in favor of the Merger Proposal.

Pursuant to the Merger Agreement, Level One will merge into First Merchants. The Merger Agreement is attached to this document as Annex A and is incorporated in this document by reference. For a description of the Merger Agreement, see “THE MERGER AGREEMENT,” beginning on page 71.

Vote Required

Approval of the Merger Proposal requires the affirmative vote of greater than fifty percent (50%) of the outstanding shares of Level One common stock. Approval of the Adjournment Proposal only requires the affirmative vote of at least a majority of the shares of Level One common stock cast at the meeting, in person or by proxy, so long as a quorum is present. As provided by the Michigan Business Corporation Act, an abstention is not a “vote cast.” Abstentions from voting and broker non-votes, if any, on Proposal 2 (the Adjournment Proposal) are not treated as votes cast and, therefore, will have no effect on the outcome of the passage of the proposal. Level One has fixed January 10, 2022, as the record date for determining those Level One shareholders entitled to notice of, and to vote at, the special meeting. Accordingly, if you were a holder of record of Level One common stock at the close of business on January 10, 2022, you will be entitled to notice of and to vote at the special meeting. Each share of Level One common stock you own on the record date entitles you to one (1) vote on each matter presented at the special meeting. At the close of business on the record date of January 10, 2022, there were 7,733,726 shares of Level One common stock outstanding held by approximately 175 shareholders of record.

Holders of depositary shares representing interests in shares of Level One preferred stock and the holder of the Level One preferred stock are not entitled to and are not requested to vote at the Level One special meeting.

Voting Agreement

As of the record date, Level One’s Board of Directors had voting power with respect to an aggregate of 2,664,522 shares of Level One common stock outstanding, representing 34.5% of the outstanding shares on that date. As of the record date, the members of Level One’s Board of Directors and Level One’s executive officers together had power to vote, or caused to be voted, an aggregate of 2,815,324 shares of Level One common stock outstanding, representing 36.4% of the outstanding shares on that date. Each member of the Board of Directors of

 

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Level One and each executive officer entered into a voting agreement with First Merchants to cause all shares of Level One common stock owned by them of record or beneficially to be voted in favor of the Merger Proposal. See “THE MERGER AGREEMENT – Voting Agreement” on page 79. The Voting Agreement is attached to this document as Annex B and is incorporated in this document by reference.

Proxies

If you are a Level One shareholder, you should have received a proxy card for use at the Level One special meeting with this proxy statement and prospectus. The accompanying proxy card is for your use in voting at the special meeting if you are unable or do not wish to attend the special meeting in person. The shares represented by proxies properly signed and returned will be voted at the special meeting as instructed by the Level One shareholder giving the proxies. Proxy cards that are properly signed and returned but do not have voting instructions will be voted “FOR” approval of the Merger Proposal and “FOR” approval of the Adjournment Proposal.

If you deliver a properly signed proxy card, you may revoke your proxy at any time before it is exercised by:

 

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delivering to the Corporate Secretary of Level One at or prior to the special meeting a written notice of revocation addressed to Level One Bancorp, Inc., 32991 Hamilton Court, Farmington Hills, Michigan 48334, Attention: Gregory A. Wernette, Corporate Secretary; or

 

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delivering to Level One at or prior to the special meeting a properly completed proxy card having a later date; or

 

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voting in person by ballot at the special shareholders meeting.

Because approval of the Merger Proposal requires the affirmative vote of greater than fifty percent (50%) of the outstanding shares of Level One common stock, abstentions will have the same effect as voting “AGAINST” approval of the Merger Proposal. Accordingly, your Board of Directors urges all Level One shareholders to vote by proxy by completing, dating and signing the accompanying proxy and returning it promptly in the enclosed postage-paid envelope. Abstentions and broker non-votes will have no effect on the Adjournment Proposal since it only requires a majority of the shares of Level One common stock voting at the meeting. You should not send stock certificates with your proxy card.

Solicitation of Proxies

Level One will bear the entire cost of soliciting proxies from and mailing proxies to its shareholders in connection with the Level One special meeting. In addition to solicitation of proxies by mail, proxies may be solicited personally or by telephone by directors, officers and certain employees of Level One, who will not be specially compensated for such soliciting.

In soliciting proxies, no one has any authority to make any representations and warranties about the Merger or the Merger Proposal in addition to or contrary to the provisions stated in this document. No statement regarding the Merger, the Merger Agreement or the Merger Proposal should be relied upon except as expressly stated in this document.

Recommendation of the Level One Board of Directors

Level One’s Board of Directors has approved the Merger Agreement. Level One’s Board of Directors believes that the Merger is fair to and in the best interests of Level One and its shareholders. The Board recommends that the Level One shareholders vote “FOR” approval of the Merger Proposal and “FOR” approval of the Adjournment Proposal. See “THE MERGER – Level One’s Reasons for the Merger” on page 49.

 

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Other Matters

The special meeting of Level One shareholders has been called for the purposes set forth in the Notice to Level One shareholders included in this document. Your Board of Directors is unaware of any matter for action by shareholders at the special meeting other than as stated in the Notice or in this proxy statement and prospectus. However, the enclosed proxy will give discretionary authority to the persons named in the proxy with respect to matters which are not known to your Board of Directors as of the date hereof and which may properly come before the special meeting. It is the intention of the persons named in the proxy to vote with respect to such matters in accordance with the recommendations of the Board of Directors of Level One or, if no recommendations are given, in their best judgment. The approval of the transaction of any other business that may properly come before the special meeting generally requires more votes to be cast in favor of the proposal than are cast against it.

Beneficial Ownership of Level One Common Stock by Certain Shareholders

The following table sets forth information as of January 10, 2022, regarding the beneficial ownership of Level One common stock by:

 

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each shareholder known by Level One to beneficially own more than 5% of its outstanding common stock;

 

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each of Level One’s directors;

 

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each of Level One’s named executive officers; and

 

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all of Level One’s directors and executive officers as a group.

Beneficial ownership has been determined in accordance with the rules of the SEC. These rules generally provide that a person is the beneficial owner of securities if such person has or shares the power to vote or direct the voting of securities, or to dispose or direct the disposition of securities, or has the right to acquire such powers within 60 days. For purposes of calculating each person’s percentage ownership, common stock issuable pursuant to options exercisable within 60 days are included as outstanding and beneficially owned for that person or group, but are not deemed outstanding for the purposes of computing the percentage ownership of any other person. Except as disclosed in the footnotes to this table and subject to applicable community property laws, Level One believes that each person identified in the table has sole voting and investment power over all of the shares shown opposite such person’s name.

The percentage of beneficial ownership is based on 7,733,726 shares of Level One common stock outstanding as of January 10, 2022.

 

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Except as otherwise provided, the address for each shareholder listed in the table below is: c/o Level One Bancorp, Inc., 32991 Hamilton Court, Farmington Hills, Michigan 48334.

 

Name of Beneficial Owner		Shares of Common Stock Owned				Percent of Class
5% Shareholders
The Banc Funds Company, LLC			672,563	(1)			8.7	%
Manulife Financial Corporation			389,424	(2)			5.0	%
Directors and Named Executive Officers
Patrick J. Fehring			280,316	(3)			3.6	%
Barbara E. Allushuski			25,455				*
Victor L. Ansara			80,484	(4)			1.0	%
James L. Bellinson			774,433	(5)			10.0	%
Michael A. Brillati			26,879				*
Shukri W. David			99,821	(6)			1.3	%
Thomas A. Fabbri			725,055	(7)			9.4	%
Jacob W. Haas			10,874				*
Mark J. Herman			46,284	(8)			*
Steven H. Rivera			44,106				*
Stefan Wanczyk			658,983	(9)			8.5	%
Gregory A. Wernette			72,468	(10)			*
David C. Walker			74,163	(11)			1.0	%
All directors and executive officers as a group (16 persons)			3,021,092	(12)			38.0	%

 

*	Indicates one percent or less.

(1)

Consists of: (i) 112,533 shares held by Banc Fund VIII L.P. (“BF VIII”), an Illinois Limited Partnership; (ii) 320,788 shares held by Banc Fund IX L.P. (“BF IX”), an Illinois Limited Partnership; and (iii) 239,242 shares held by Banc Fund X L.P. (“BF X”), an Illinois Limited Partnership. The general partner of BF VIII is MidBanc VIII L.P. (“MidBanc VIII”), whose principal business is to be a general partner of BF VIII. The general partner of BF IX is MidBan IX L.P. (“MidBan IX”), whose principal business is to be a general partner of BF IX. The general partner of BF X is MidBan X L.P. (“MidBan X”), whose principal business is to be a general partner of BF X. The general partner of MidBanc VIII, MidBan IX, and MidBan X is The Banc Funds Company, L.L.C. (“TBFC”), whose principal business is to be a general partner of MidBanc VIII, MidBan IX, and MidBan X. TBFC is an Illinois corporation whose principal shareholder is Charles J. Moore. Mr. Moore has been the manager of BF VIII, BF IX, and BF X since their respective inceptions. As manager, Mr. Moore has voting and dispositive power over the securities of the issuer held by each of those entities. As the controlling member of TBFC, Mr. Moore will control TBFC, and therefore each of the Partnership entities directly and indirectly controlled by TBFC. The principal office address is 20 North Wacker Drive, Suite 3300, Chicago, Illinois 60606. This information is based on Amendment No. 1 to Schedule 13G filed with the SEC on February 9, 2021.

(2)

Consists of: (i) 386,324 shares held by Manulife Investment Management (US) LLC (“MIM (US)”), a Delaware limited liability company; and (ii) 3,100 shares held by Manulife Investment Management Limited, a Canadian entity (“MIML”). MIM (US) and MIML are indirect, wholly-owned subsidiaries of Manulife Financial Corporation (“MFC”), a Canadian corporation. The principal office address of MFC and MIML is 200 Bloor Street East, Toronto, Ontario, Canada, M4W 1E5. The principal office address of MIM (US) is 197 Clarendon Street, Boston, Massachusetts 02116. This information is based on Schedule 13G filed with the SEC on February 3, 2021.

(3)

Consists of: (i) 90,566 shares held by Mr. Fehring individually; (ii) 67,500 shares held by the Patrick J. Fehring Trust; (iii) 25,000 shares held by Fifth Third Bank Trustee-FBO Patrick J Fehring SD IRA; (iv) 28,750 shares owned by the JoAnn M. Fehring Trust; and (v) 68,500 shares subject to stock options that are currently exercisable or are exercisable within 60 days of January 10, 2022. Mr. Fehring is the beneficiary of, and has voting and investment power over the shares held by, the Patrick J. Fehring Trust

 

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and Fifth Third Bank Trustee-FBO Patrick J Fehring SD IRA. Mr. Fehring has shared voting and investment power over the shares held by the JoAnn M. Fehring Trust.

(4)	Consists of: (i) 71,984 shares held by Mr. Ansara; and (ii) 8,500 shares subject to stock options that are currently exercisable or are exercisable within 60 days of January 10, 2022.

(5)

Consists of: (i) 722,521 shares held by Mr. Bellinson individually; (ii) 43,412 shares held by the James L. Bellinson Living Trust; and (iii) 8,500 shares subject to stock options that are currently exercisable or are exercisable within 60 days of January 10, 2022. Mr. Bellinson is the beneficiary of, and has voting and investment power over the shares held by, the James L. Bellinson Living Trust.

(6)

Consists of: (i) 87,385 shares held by Shudun Holdings LLC; (ii) 3,379 shares held by Dr. David individually; (iii) 557 shares held by the Dunia David Trust; and (iv) 8,500 shares subject to stock options that are currently exercisable or are exercisable within 60 days of January 10, 2022. Dr. David is the beneficiary of, and has voting and investment power over the shares held by Shudun Holdings LLC. Dr. David has shared voting and investment power over the shares held by the Dunia David Trust.

(7)

Consists of: (i) 709,797 shares held by TRSD Holdings, LP; and (ii) 15,258 shares held by Mr. Fabbri individually. Mr. Fabbri is the general partner of, and has voting and investment power over the shares held by, TRSD Holdings, LP. Mr. Fabbri disclaims beneficial ownership of the shares owned by TRSD Holdings, LP, except to the extent of his pecuniary interests therein.

(8)	Consists of: (i) 37,784 shares held by Mr. Herman individually; and (ii) 8,500 shares subject to stock options that are currently exercisable or are exercisable within 60 days of January 10, 2022.

(9)	Consists of: (i) 653,315 shares held by Mr. Wanczyk; and (ii) 5,668 shares subject to stock options that are currently exercisable or are exercisable within 60 days of January 10, 2022.

(10)	Consists of: (i) 35,468 shares held by Mr. Wernette individually; and (ii) 37,000 shares subject to stock options that are currently exercisable or are exercisable within 60 days of January 10, 2022.

(11)	Consists of: (i) 7,500 shares held by the David Walker Trust; and (ii) 66,663 shares held by Mr. Walker individually. Mr. Walker is the beneficiary of, and has voting and investment power over the shares held by, the David Walker Trust.

(12)	Includes an aggregate of 212,311 shares subject to stock options that are currently exercisable or are exercisable within 60 days of January 10, 2022.

 

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MERGER PROPOSAL

Level One is asking its shareholders to approve the Merger Proposal. Holders of Level One common stock should read this proxy statement and prospectus carefully and in its entirety, including the annexes, for more detailed information concerning the Merger Agreement and the Merger. A copy of the Merger Agreement is attached to this proxy statement and prospectus as Annex A.

After careful consideration, the Board of Directors of Level One approved and adopted the Merger Agreement and determined it to be advisable and in the best interest of Level One and its shareholders. See “THE MERGER – Level One’s Reasons for the Merger; Recommendation of Level One’s Board of Directors” included elsewhere in this proxy statement and prospectus for a more detailed discussion of the Level One Board of Directors’ recommendation.

For the reasons discussed in this proxy statement and prospectus, the Board of Directors of Level One determined that the Merger Agreement and the transactions contemplated by the Merger Agreement are advisable and in the best interests of Level One and its shareholders, and adopted and approved the Merger Agreement. The Board of Directors of Level One recommends that Level One shareholders vote “FOR” approval of the Merger Proposal.

ADJOURNMENT PROPOSAL

The Level One special meeting may be adjourned to another time or place, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Level One special meeting to approve the Merger Proposal.

If, at the Level One special meeting, the number of shares of Level One common stock present or represented and voting in favor of the Merger Proposal is insufficient to approve the Merger Proposal, Level One intends to move to adjourn the Level One special meeting in order to enable the Board of Directors of Level One to solicit additional proxies for approval of the Merger Proposal. In that event, Level One will ask its shareholders to vote upon the Adjournment Proposal, but not the Merger Proposal.

In this Adjournment Proposal, Level One is asking its shareholders to authorize the holder of any proxy solicited by the Board of Directors of Level One, on a discretionary basis, to vote in favor of adjourning the Level One special meeting to another time and place for the purpose of soliciting additional proxies, including the solicitation of proxies from Level One shareholders who have previously voted.

The Board of Directors of Level One recommends a vote “FOR” the Adjournment Proposal.

 

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