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Item 1.01
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Entry into a Material Definitive Agreement
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On August 23, 2016,
First Defiance Financial Corp. (“First Defiance”) entered into a definitive agreement and plan of merger (the “Agreement”)
to acquire Commercial Bancshares, Inc. (“Commercial Bancshares”), the holding company of The Commercial Savings Bank
(“Commercial Bank”). The Agreement provides for the merger of Commercial Bancshares with and into First Defiance (the
“Merger”), with First Defiance as the surviving corporation, and the merger of Commercial Bank with and into First
Federal Bank of the Midwest (“First Federal”), a wholly owned subsidiary of First Defiance, with First Federal as the
surviving bank in the merger. The Boards of Directors of First Defiance and Commercial Bancshares have approved the Merger and
the Agreement.
At the effective time
and as a result of the Merger, a shareholder of Commercial Bancshares will have the right to receive for each Commercial Bancshares
common share owned either $51.00 in cash or 1.1808 shares of First Defiance common stock (“First Defiance Shares”),
subject to total consideration being paid 80% in First Defiance Shares and 20% in cash as provided in the Agreement. Based upon
the twenty-day average closing price of First Defiance Shares of $43.19 ending August 22, 2016, the transaction is valued at approximately
$63 million in the aggregate, including an additional cash payment of approximately $1.5 million to cancel outstanding options.
The Agreement contains
customary covenants from First Defiance and Commercial Bancshares, including, among others, covenants relating to (1) the conduct
of Commercial Bancshares’ business during the interim period between the execution of the Agreement and the closing of the
Merger, (2) Commercial Bancshares’ obligation to facilitate its shareholders’ consideration of, and vote upon, the
Agreement and the transactions contemplated thereby, (3) the recommendation by the Board of Directors of Commercial Bancshares
in favor of the approval by its shareholders of the Agreement and the transactions contemplated thereby, and (4) Commercial Bancshares’
non-solicitation obligations relating to alternative business combination transactions.
The Merger is expected
to close in the first quarter of 2017, pending the satisfaction of various, customary closing conditions, including the approval
of Commercial Bancshares’ shareholders and bank regulatory authorities, the accuracy of the representations and warranties
of each party (subject to certain exceptions), and the performance in all material respects by each party of its obligations under
the Agreement. The Agreement contains certain termination rights for both First Defiance and Commercial Bancshares, and further
provides that, upon termination of the Agreement under specified circumstances, Commercial Bancshares will be required to pay First
Defiance a termination fee of $2,400,000.
Each of the members
of the Board of Directors of Commercial Bancshares has signed a voting agreement (“Voting Agreement”) and agreed to
vote his or her shares in favor of adoption of the Agreement at the Commercial Bancshares shareholder meeting. The form of Voting
Agreement is included as Exhibit B to Exhibit 2.1.
The foregoing description
of the Agreement and Voting Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the
Agreement and form of Voting Agreement, which are filed as Exhibit 2.1 to this Form 8-K and are incorporated herein by reference.
The Agreement and the
above description of the Agreement and related transactions have been included to provide investors and security holders with information
regarding the terms of the Agreement. They are not intended to provide any other factual information about First Defiance, Commercial
Bancshares or their respective subsidiaries or affiliates. The representations, warranties and covenants contained in the Agreement
were made only for purposes of that agreement and as of specific dates, were solely for the benefit of the parties to the Agreement
and may be subject to limitations agreed upon by the parties, including being qualified by confidential disclosures made by each
party to the other for the purposes of allocating contractual risk between them that differs from those applicable to investors.
Investors should not rely on the representations, warranties or covenants or any description thereof as characterizations of the
actual state of facts or condition of First Defiance, Commercial Bancshares or any of their respective subsidiaries, affiliates
or businesses. Moreover, information concerning the subject matter of the representations, warranties and covenants may change
after the date of the Agreement, which subsequent information may or may not be fully reflected in public disclosures by First
Defiance or Commercial Bancshares. Accordingly, investors should read the representations and warranties in the Agreement not in
isolation but only in conjunction with the other information about First Defiance or Commercial Bancshares and their respective
subsidiaries and affiliates that the respective companies include in reports, statements and other filings they make with the Securities
and Exchange Commission (“SEC”).