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Looking for a partner, Talmer attracted Chemical and a 'substantially larger party'

Troy,Mich.-based Talmer BancorpInc. had held exploratory discussions with other institutions abouta potential transaction, but none indicated that it was interested in pursuinga business combination with Talmer at that time, except for Midland,Mich.-based Chemical FinancialCorp. and one "substantially larger party," according toa Form S-4 filed March 31.

That party,however, on or around July 28, 2015, advised Talmer that it was not going tomake a merger consideration proposal, in part because it was not willing tooffer a level of merger consideration that it believed would be acceptable toTalmer.

The dayafter, Talmer CEO David Provost and Chemical CEO David Ramaker spoke at lengthon the telephone regarding a potential "transformational" merger.Provost and Ramaker had earlier met way back in August 2014, to discussmanagement philosophies and the concept of a potential business combination.

On Dec. 21,2015, and Dec. 22, 2015, the parties negotiated the terms of a letter of intentfor the transaction.

On Dec. 22,2015, the Talmer Strategic Initiatives Committee met to discuss the status ofthe potential Chemical merger, and to review a draft preliminary, nonbindingletter and term sheet, referred to as the "letter of intent," thefiling said.

The letterof intent contemplated merger consideration to Talmer shareholders composed of90% Chemical stock and 10% cash.

Theexchange ratio, viewed on a 100% stock merger consideration equivalent basis,was between 0.50 and 0.525 Chemical share for each Talmer share. Based on theclosing price of $34.65 for Chemical's shares on Dec. 17, 2015, the range ofthe exchange ratio set forth in the letter of intent, viewed on a 100% stockmerger consideration equivalent basis, indicated an implied value range of themerger consideration of between $17.32 and $18.19.

Based onthe closing price of $34.65 for Chemical's shares on Dec. 17, 2015, andassuming a 100% stock merger consideration equivalent exchange ratio of 0.525,the implied value of the merger consideration of $18.19 for each Talmer sharerepresented a 4.3% premium over Talmer's stock price of $17.44 on the same day.

On Jan. 5,the Talmer board held a meeting. Discussed were the financial aspects of thepotential merger, including the exchange ratio range set forth in the letter ofintent and the impact of the recent decline and volatility in bank stock pricessince the Dec. 22, 2015, meeting of the Talmer Strategic Initiatives Committeeon the implied transaction statistics for the merger. Based on the closingprice of Chemical's shares on Jan. 4 of $33.01, and assuming a 100% stockmerger consideration equivalent exchange ratio of 0.525, the implied value ofthe merger consideration was reduced to $17.33 which represented a 1.8%discount to the closing price of Talmer's shares as of the same date.

At ameeting of the Talmer board held Jan. 25, Talmer financial adviser Keefe Bruyette& Woods Inc. made a presentation to the Talmer Board regarding thefinancial aspects of the proposed transaction and rendered to the Talmer boardan opinion that the merger consideration in the proposed merger was fair, froma financial point of view, to Talmer common stockholders.

The Talmerboard considered the fact that, based on Chemical's closing share price of$30.69 on Jan. 22, the implied value of the merger consideration per share ofTalmer was $16.11, which represented a 2.5% discount to Talmer's closing shareprice on the same day. However, the Talmer board also considered that therecent share price declines of Chemical and Talmer appeared to be part ofoverall stock market declines and not the result of any developments specificto the fundamental financial results of Talmer or Chemical, which did notappear to have changed in any material respect over the prior month.

The TalmerBoard was advised that the recent decline in Chemical's stock price hadprovided additional leverage for Talmer to use in negotiating for mergerconsideration that was at the highest end of the range set forth in the letterof intent, notwithstanding the fact that that the stock price volatility hadnot affected the relative contributions of the parties with respect to assets,loans, deposits, tangible common equity or net income. The proposed mergerconsideration of 0.4725 Chemical common share and $1.61 in cash for each Talmercommon share reflected a 100% stock merger consideration equivalent exchangeratio of 0.525, based on Chemical's closing stock price on Jan. 22. Managementreported that it had insisted on an exchange ratio at the highest end of thepossible range negotiated in the letter of intent.

Themergeragreement was enteredinto on Jan. 25.