UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(D) OF
THE
SECURITIES EXCHANGE ACT OF 1934
Date
of Report (Date of earliest event reported): April 21, 2016
CHEVIOT
FINANCIAL CORP.
(Exact Name of Registrant
as Specified in Charter)
Maryland
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001-35399
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90-0789920
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(State
or Other Jurisdiction)
of
Incorporation)
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(Commission File No.)
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(I.R.S.
Employer
Identification
No.)
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3723 Glenmore Avenue, Cheviot, Ohio
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45211
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(Address of Principal Executive Offices)
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(Zip Code)
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Registrant's telephone number, including area code:
(513)
661-0457
Not Applicable
(Former name
or former address, if changed since last report)
Check the appropriate box below if the
Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions
(see General Instruction A.2. below):
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x
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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¨
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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¨
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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¨
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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This Current Report on Form 8-K is being
filed pursuant to a memorandum of understanding (the “MOU”) regarding the settlement of certain litigation relating
to the Agreement and Plan of Merger (the “Merger Agreement”), dated as of November 23, 2015, between Cheviot Financial
Corp. (“Cheviot”) and MainSource Financial Group, Inc. (“MainSource”), pursuant to which Cheviot
would be merged with and into MainSource, with MainSource as the surviving entity (the “Merger”).
The MOU relates to two putative class action
lawsuits filed in the Court of Common Pleas, Hamilton, Ohio, Civil Division, challenging the proposed merger and naming as defendants
Cheviot, its directors, and MainSource (collectively, the “defendants”). These actions are captioned: (1)
Raymond
J. Neiheisel v. Cheviot Financial Corp., et al.
, Case No. A1600359 (filed January 15, 2016); and (2)
Stephen Bushansky
v. Steven Hausfeld, et al.
, Case No. A1600936 (filed February 16, 2016) (together, the “Actions”). On February
29, 2016, each plaintiff filed an amended complaint. On March 24, 2016, the court consolidated the actions under
Raymond J.
Neiheisel v. Cheviot Financial Corp., et al.
, Case No. A1600359 (collectively, the “Actions”). The amended consolidated
complaint alleges, among other things, that the directors of Cheviot breached their fiduciary duties of due care, independence,
good faith and fair dealing to the stockholders of Cheviot, that the consideration to be received by the stockholders is inadequate
and undervalues Cheviot, that the Merger Agreement includes improper deal-protection devices that purportedly lock up the Merger
and may operate to prevent other bidders from making successful competing offers for Cheviot, that the deal protection devices
unreasonably inhibit the ability of the directors of Cheviot to act with respect to investigating and pursuing superior proposals
and alternatives and that the Merger Agreement involves conflicts of interest. The complaint further alleges that Cheviot and
MainSource aided and abetted the alleged breaches of fiduciary duty by the directors of Cheviot. The amended consolidated complaint
also alleges that the registration statement on Form S-4, initially filed with the Securities and Exchange Commission (the “SEC”)
on February 11, 2016 in connection with the Merger, provides materially misleading and incomplete information rendering the stockholders
of Cheviot unable to make an informed decision with respect to the Merger.
On April 21, 2016, defendants and
lead plaintiffs entered into the MOU, which provides for the settlement of the Actions. The MOU contemplates, among other things,
that Cheviot will make certain supplemental disclosures relating to the merger, all of which are set forth below. Although the
defendants deny the allegations made in the Actions (including the amended consolidated complaint) and believe that no supplemental
disclosure is required under applicable laws, in order to avoid the burden and expense of further litigation, Cheviot agreed to
make such supplemental disclosures pursuant to the terms of the MOU.
The settlement contemplated by the MOU
is subject to confirmatory discovery and customary conditions, including court approval following notice to Cheviot’s stockholders.
A hearing will be scheduled at which the Court of Common Pleas will consider the fairness, reasonableness and adequacy of the
settlement. If the settlement is finally approved by the court, it will resolve and release all claims by stockholders of Cheviot
challenging any aspect of the Merger, the Merger Agreement, and any disclosure made in connection therewith, pursuant to terms
that will be disclosed to stockholders prior to final approval of the settlement. There can be no assurance that the court will
approve the settlement contemplated by the MOU. If the court does not approve the settlement, or if the settlement is otherwise
disallowed, the proposed settlement as contemplated by the MOU may be terminated. The proposed settlement will not affect the
amount of the merger consideration that Cheviot’s stockholders are entitled to receive in the Merger.
SUPPLEMENT TO PROXY STATEMENT/PROSPECTUS
In connection with the settlement of
the Actions, Cheviot has agreed to make these supplemental disclosures to the Proxy Statement/Prospectus. This supplemental information
should be read in conjunction with the Proxy Statement/Prospectus, which should be read in its entirety. Defined terms used but
not defined herein have the meanings set forth in the Proxy Statement/Prospectus. Without admitting in any way that any of the
disclosures below are material or required by the federal securities laws, state fiduciary law, or any other applicable rule,
statute, regulation or law, Cheviot makes the following additional disclosures:
The following disclosure replaces the second sentence of
the first full paragraph on page 40
The board also discussed the regulatory
and business risk associated with remaining independent and executing a business plan to deliver increased value to stockholders,
including the reputational risks and costs associated with a proxy fight, and that there was a good possibility that in such event
either or both directors up for re-election at the next annual meeting may not be re-elected based upon the Company’s stockholder
profile. The board also considered comments that members of the board of directors had received from various stockholders with
respect to Cheviot's ability to provide value to stockholders as an independent company, including such stockholders’ belief
that Cheviot should sell itself in a merger transaction at this time.
The following disclosure is inserted following the first
sentence of the first full paragraph on page 40
Such risks also involved: (1) how Cheviot could receive a stockholder
proposal to sell the company; (2) how Cheviot could be subjected to a costly proxy fight; or (3) how, through negotiated agreements,
Cheviot’s investors could want to put representatives on Cheviot’s board, who would then force Cheviot to sell the
company.
The following disclosure is added before the first full
paragraph on page 41
At the meeting of Cheviot’s board
of directors on October 21, 2015, Cheviot’s board of directors was also provided the following information regarding two
prior acquisitions by MainSource:
Target Company
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Announcement
Date
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Assets
($000)
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Deal
Value
($mm)
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Price/Tangible
Book Value
(X)
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Price/Latest
Twelve
Months
Estimated
Earnings
Per Share
(X)
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Tangible
Common
Equity/Tangible
Assets
(%)
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Non-
Performing
Assets/Assets
(%)
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Latest Twelve
Months Return
on Assets
(%)
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MBT Bancorp
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4/7/2014
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225,187
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34
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1.42
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19.6
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10.63
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%
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2.55
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0.83
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1st Independence Financial Group
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2/27/2008
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347,718
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36
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1.33
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NM
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7.93
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%
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1.82
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(1.40
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)
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NM - Not Meaningful
The following disclosure is added following the third full
paragraph on page 41
On November 16, 2015, counsel for MainSource
provided to counsel for Cheviot proposals relating to consulting and post-merger employment for certain officers of Cheviot, including
a proposal with respect to Mr. Reitzes.
The following disclosure is added before the first paragraph
on page 55
KBW’s presentation materials to the
Cheviot board of directors on November 23, 2015 contained, among other things, the individual price/book value per share, price/tangible
book value per share and price/LTM EPS trading multiples of the selected companies included in “Selected Companies Group
A”, which had a high price/book value per share multiple of 1.33x and a low price/book value per share multiple of 0.78x,
a high price/tangible book value per share multiple of 1.35x and a low price/tangible book value per share multiple of 0.79x,
and a high price/LTM EPS multiple of 23.3x and a low price/LTM EPS multiple of 13.9x (excluding the price/LTM EPS multiples of
Central Federal Corporation and HopFed Bancorp, Inc. that were greater than 30.0x and the price/LTM EPS multiple of Centrue Financial
Corporation, which completed a recapitalization on March 31, 2015). Excluded price/LTM EPS multiples were not reflected in the
bottom quartile, mean, median and top quartile data for “Selected Companies Group A” indicated in the selected companies
analysis.
The following disclosure is added following the last table
on page 56
KBW’s presentation materials to the
Cheviot board of directors on November 23, 2015 contained, among other things, the individual price/book value per share, price/tangible
book value per share and price/LTM EPS trading multiples of the selected companies included in “Selected Companies Group
B” to the extent publicly
available, which had a high price/book value per share multiple
of 1.29x and a low price/book value per share multiple of 0.68x, a high price/tangible book value per share multiple of 1.29x
and a low price/tangible book value per share multiple of 0.68x, and a high price/LTM EPS multiple of 27.5x and a low price/LTM
EPS multiple of 16.2x (excluding the price/LTM EPS multiples of ASB Bancorp, Inc., Chicopee Bancorp, Inc., Coastway Bancorp, Inc.,
MSB Financial Corp. and Prudential Bancorp, Inc. that were greater than 30.0x). Excluded price/LTM EPS multiples were not reflected
in the bottom quartile, mean, median and top quartile data for “Selected Companies Group B” indicated in the selected
companies analysis.
The following disclosure is added following the first table
on page 60
KBW’s presentation materials to the
Cheviot board of directors on November 23, 2015 contained, among other things, the individual transaction multiples and premiums
for the selected transactions in “Selected Transactions Group A”, which had a high transaction price/tangible book
value multiple of 1.95x and a low transaction price/tangible book value multiple of 0.84x, a high core deposit premium of 11.2%
and a low core deposit premium of (0.8)%, a high transaction price/ LTM EPS multiple of 56.9x and a low transaction price/LTM
EPS multiple of 4.3x (excluding the transaction price/LTM EPS multiple of the Bear State Financial, Inc./Metropolitan National
Bank transaction that was greater than 70.0x), and a high one-day market premium of 88.7% and a low one-day market premium of
6.5% (excluding the one-day market premiums of the First Midwest Bancorp, Inc./Great Lakes Financial Resources, Inc. transaction
and the Peoples Bancorp Inc./Ohio Heritage Bancorp, Inc. transaction). The excluded transaction price/LTM EPS multiple and excluded
one-day market premiums were not reflected in the bottom quartile, average, median and top quartile data for “Selected Transactions
Group A” indicated in the selected transactions analysis.
The following disclosure is added following the first table
on page 61
KBW’s presentation materials to the
Cheviot board of directors on November 23, 2015 contained, among other things, the individual transaction multiples and premiums
for the selected transactions in “Selected Transactions Group B”, which had a high transaction price/tangible book
value multiple of 1.47x and a low transaction price/tangible book value multiple of 0.98x, a high core deposit premium of 13.1%
and a low core deposit premium of (0.5)%, a high transaction price/ LTM EPS multiple of 60.0x and a low transaction price/LTM
EPS multiple of 21.4x (excluding the transaction price/ LTM EPS multiples of the Hamilton Bancorp, Inc./Fraternity Community Bancorp,
Inc. transaction and the F.N.B. Corporation/OBA Financial Services, Inc. transaction that were negative or greater than 70.0x),
and a high one-day market premium of 38.4% and a low one-day market premium of 7.1%. Excluded transaction price/ LTM EPS multiples
were not reflected in the bottom quartile, average, median and top quartile data for “Selected Transactions Group B”
indicated in the selected transaction analysis.
The following disclosure replaces the first full paragraph
on page 62, with additional language underlined
Discounted Cash Flow Analysis.
KBW
performed a discounted cash flow analysis of Cheviot to estimate a range for the implied equity value of Cheviot. In this analysis,
KBW used financial forecasts and projections relating to the earnings and assets of Cheviot prepared by and provided to KBW by
Cheviot management, and assumed discount rates ranging from 12.0% to 16.0%
, which discount rates were selected taking into
account a capital asset pricing model implied cost of capital calculation using, among other things, the 10-year treasury yield
and Cheviot’s “2 Year Raw Daily Beta” per FactSet Research Systems as of November 20, 2015 and certain cost
of capital data from the Duff & Phelps 2014 Valuation Handbook (including the size premium under the 10z sub-decile for companies
with market capitalizations between $3.0 million and $115.9 million)
. The ranges of values were derived by adding (i) the
present value of the estimated free cash flows that Cheviot could generate over the five-year period from 2016 to 2020 as a standalone
company, and (ii) the present value of Cheviot's implied terminal value at the end of such period. KBW assumed that Cheviot would
maintain a tangible common equity to tangible asset ratio of 9.0% and would retain sufficient earnings to maintain that level.
Estimated free cash flows were calculated generally as any portion of estimated earnings in excess of the retained amount assumed.
In calculating the terminal value of Cheviot, KBW applied a range of 13.0x to 17.0x estimated 2021 earnings. This discounted
cash flow analysis resulted in a range of implied values per share of Cheviot common stock of $11.36 per share to $14.11 per share.
The following disclosure is inserted prior to the last sentence
of the last full paragraph on page 62
KBW received aggregate fees of approximately $550,000 for serving
as financial advisor to MainSource in connection with its acquisition of MBT Bancorp in October 2014 and its acquisition of certain
branches of Old National Bancorp in August 2015.
The following disclosure is inserted prior to the last paragraph
under the section “Certain Prospective Financial Information Provided by Cheviot” on page 65, which begins “The
inclusion of the foregoing financial projections ...”
Below in tabular format is certain prospective financial information
for Cheviot for the fiscal years 2016 to 2020 that was provided to KBW (but not MainSource) by Cheviot’s management and
utilized and relied upon by KBW, as described in “—Opinion of Cheviot's Financial Advisor”:
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For
the Year Ending December 31,
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2016
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2017
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2018
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2019
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2020
(1)
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Net Income (in millions)
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$
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4.1
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$
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4.4
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$
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4.8
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$
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5.2
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$
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5.4
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Earnings Per Share
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$
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0.61
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$
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0.65
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$
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0.71
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$
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0.77
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$
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0.81
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(1)
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Based on an assumed post-2019 annual long-term earnings growth
rate of 5%.
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Additional Information for Stockholders
In connection with the Merger, MainSource
has filed with the SEC a Registration Statement on Form S-4 that includes a Proxy Statement of Cheviot and a Prospectus of
MainSource (the “Proxy Statement/Prospectus”), as well as other relevant documents concerning the proposed transaction.
A copy of the definitive Proxy Statement/Prospectus, along with a form of proxy, has been mailed to the shareholders of record
of Cheviot as of February 24, 2016. This communication is not a substitute for the Proxy Statement/Prospectus or any other document
that Cheviot may file with the SEC or send to its stockholders regarding the Merger. STOCKHOLDERS ARE URGED TO READ THE REGISTRATION
STATEMENT AND THE PROXY STATEMENT/PROSPECTUS REGARDING THE MERGER AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, AS WELL
AS ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY CONTAIN IMPORTANT INFORMATION. A free copy of the Proxy Statement/Prospectus,
as well as other filings containing information about MainSource and Cheviot, may be obtained at the SEC’s Internet site
(http://www.sec.gov). You may also obtain these documents, free of charge, from MainSource at www.mainsourcebank.com under the
tab “Investor Relations” and from Cheviot at www.cheviotsavings.com under the tab “Investor Relations”.
Alternatively, these documents can be obtained free of charge from MainSource upon written request to MainSource Financial Group, Inc.,
Attn: Corporate Secretary, 2105 North State Road 3 Bypass Greensburg, Indiana 47240 or by calling (812) 663-673 or from Cheviot
upon written request to Cheviot Financial Corp., Attn: Investor Relations, 3723 Glenmore Avenue, Cheviot, Ohio 45211 or by calling
(513) 661-0457.
MainSource and Cheviot and certain of their
directors and executive officers may be deemed to be participants in the solicitation of proxies from the stockholders of Cheviot
in connection with the proposed merger. Information about the directors and executive officers of MainSource is set forth in the
proxy statement for MainSource’s 2016 annual meeting of shareholders, as filed with the SEC on a Schedule 14A on March 23,
2016. Information about the directors and executive officers of Cheviot is set forth in Cheviot’s Annual Report on Form
10-K for the year ended December 31, 2015, as filed with the SEC on March 11, 2016. Additional information regarding
the interests of those participants and other persons who may be deemed participants in the transaction may be obtained by reading
the Proxy Statement/Prospectus regarding the Merger. Free copies of the Proxy Statement/Prospectus may be obtained as described
in the preceding paragraph.
Forward-Looking Statements
This Current Report on Form 8-K contains
certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements
include, but are not limited to, statements about the expected timing, completion, financial benefits and other effects of the
Merger. Forward-looking statements can
be identified by the use of the words “anticipate,”
“believe,” “expect,” “intend,” “could” and “should,” and other words
of similar meaning. These forward-looking statements express management’s current expectations or forecasts of future
events and, by their nature, are subject to risks and uncertainties and there are a number of factors that could cause actual
results to differ materially from those in such statements. Factors that might cause such a difference include, but are
not limited to: expected cost savings, synergies and other financial benefits from the proposed merger might not be realized within
the expected time frames and costs or difficulties relating to integration matters might be greater than expected; the requisite
shareholder and regulatory approvals for the proposed merger might not be obtained; market, economic, operational, liquidity,
credit and interest rate risks associated with MainSource’s and Cheviot’s businesses, competition, government legislation
and policies; ability of MainSource and Cheviot to execute their respective business plans (including the proposed acquisition
of Cheviot); changes in the economy which could materially impact credit quality trends and the ability to generate loans
and gather deposits; failure or circumvention of either MainSource’s or Cheviot’s internal controls; failure or disruption
of our information systems; significant changes in accounting, tax or regulatory practices or requirements; new legal obligations
or liabilities or unfavorable resolutions of litigations; other matters discussed in this Current Report and other factors identified
in MainSource’s and Cheviot’s Annual Reports on Form 10-K and other periodic filings with the SEC. These
forward-looking statements are made only as of the date of this Current Report, and neither MainSource nor Cheviot undertakes
an obligation to release revisions to these forward-looking statements to reflect events or conditions after the date of this
Current Report.
Item 9.01
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Financial Statements and Exhibits.
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Not applicable.
SIGNATURES
Pursuant to the requirements
of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,
hereunto duly authorized.
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CHEVIOT FINANCIAL CORP.
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DATE: April 21, 2016
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By:
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/s/ Scott T. Smith
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Scott T. Smith
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Chief Financial Officer
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Cheviot (NASDAQ:CHEV)
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