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EXHIBIT 2
AGREEMENT OF MERGER AND PLAN OF REORGANIZATION
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AGREEMENT OF MERGER AND PLAN OF REORGANIZATION
BY AND AMONG
FARMERS & MERCHANTS BANCORP, INC.,
an Ohio Corporation
THE FARMERS & MERCHANTS STATE BANK,
an Ohio
State-Chartered Commercial Bank
KNISELY FINANCIAL CORP,
an Indiana Corporation
AND
KNISELY BANK,
an
Indiana State-Chartered Commercial Bank
SEPTEMBER 7, 2007
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TABLE OF CONTENTS
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ARTICLE 1. TERMS OF THE
MERGER........................................... 1
Section 1.1
Terms of the Bank
Merger................................. 1
Section 1.2
Effect of the Bank
Merger................................ 2
Section 1.3
Conversion and
Exchange of Shares:....................... 2
Section 1.4
Treatment of
Transaction as an "Asset Sale" and
Allocation of the Merger Consideration...................
3
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF KNISELY AND KNISELY
BANK.... 3
Section 2.1
Organization and
Capital Stock........................... 4
Section 2.2
Authorization; No
Defaults............................... 4
Section 2.3
Subsidiaries.............................................
5
Section 2.4
Financial
Information.................................... 5
Section 2.5
Absence of
Changes....................................... 6
Section 2.6
Agreements with
Banking Authorities...................... 6
Section 2.7
Tax
Matters.............................................. 6
Section 2.8
Litigation...............................................
7
Section 2.9
Employment Agreements,
Supplemental Retirement
Plans, etc...............................................
7
Section 2.10
Reports..................................................
8
Section 2.11
Investment Portfolio.....................................
8
Section 2.12
Loan Portfolio...........................................
8
Section 2.13
Employee Matters and ERISA...............................
9
Section 2.14
Title to Properties; Insurance...........................
11
Section 2.15
Environmental Matters....................................
12
Section 2.16
Compliance with Americans with Disabilities Act..........
12
Section 2.17
Compliance with Law......................................
13
Section 2.18
Brokerage................................................
13
Section 2.19
Material Contracts.......................................
13
Section 2.20 No
Undisclosed Liabilities............................... 14
Section 2.21
Delivery of Documents....................................
14
Section 2.22
Interim Events...........................................
14
Section 2.23
Books and Records........................................
14
Section 2.24
Deposit Insurance........................................
14
Section 2.25 No
Regulatory Filings.................................... 14
Section 2.26
Statements True and Correct..............................
14
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF F&M AND F&M
BANK............ 15
Section 3.1
Organization.............................................
15
Section 3.2
Authorization............................................
15
Section 3.3
Financial
Information.................................... 16
Section 3.4
Reports..................................................
16
Section 3.5
Compliance with
Law...................................... 16
Section 3.6
Financing for the
Transaction............................ 16
ARTICLE 4. AGREEMENTS OF KNISELY AND KNISELY
BANK........................ 16
Section 4.1
Conduct of
Business...................................... 16
Section 4.2
Breaches.................................................
20
Section 4.3
Submission to
Shareholders............................... 20
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Section 4.4
Distribution to
Knisely Shareholders..................... 20
Section 4.5
Consummation of
Agreement; Regulatory Approvals.......... 20
Section 4.6
Environmental
Reports.................................... 20
Section 4.7
Access to
Information.................................... 21
Section 4.8
Press
Release............................................ 22
Section 4.9
Acquisition
Proposals.................................... 22
Section 4.10
Title Insurance and Surveys..............................
22
Section 4.11
Conforming Accounting and Reserve Policies;
Restructuring Expenses...................................
23
Section 4.12
Cooperation on Conversion of Systems.....................
24
Section 4.13
Disposition of Knisely Bank 401(k) Plan..................
24
Section 4.14
Other Welfare Benefit Plans..............................
25
ARTICLE 5. AGREEMENTS OF F&M AND F&M
BANK................................ 25
Section 5.1
Regulatory
Approvals..................................... 25
Section 5.2
Breaches.................................................
25
Section 5.3
Consummation of
Agreement................................ 25
Section 5.4
Director and Officer
Indemnification..................... 25
Section 5.5
Employee
Benefits........................................ 26
Section 5.6
Severance................................................
26
Section 5.7
Employee Transition
Plan................................. 27
Section 5.8
Coverage in F&M of
Benefit Plans......................... 27
Section 5.9
Further
Matters.......................................... 28
ARTICLE 6. CONDITIONS PRECEDENT TO
MERGERS............................... 28
Section 6.1
Conditions of
F&M's and F&M Bank's Obligations........... 28
Section 6.2
Conditions of
Knisely's and Knisely Bank's Obligations... 29
ARTICLE 7. TERMINATION OR
ABANDONMENT.................................... 30
Section 7.1
Mutual
Agreement......................................... 30
Section 7.2
Breach of
Representations or Agreements.................. 30
Section 7.3
Environmental Reports,
Title Insurance and Surveys....... 30
Section 7.4
Failure of
Conditions.................................... 30
Section 7.5
Approval
Denied.......................................... 31
Section 7.6
Shareholder Approval
Denial.............................. 31
Section 7.7
Lapse of
Time............................................ 31
Section 7.8
Failure to
Recommend..................................... 31
Section 7.9
Acceptance of Superior
Proposal.......................... 31
Section 7.10
Effect of Termination and Abandonment....................
31
Section 7.11
Liquidated Damages.......................................
32
ARTICLE 8. THE CLOSING OF THE BANK
MERGER................................ 32
Section 8.1
The
Closing.............................................. 32
Section 8.2
The Closing
Date......................................... 32
Section 8.3
Actions at
Closing....................................... 33
ARTICLE 9. GENERAL
PROVISIONS............................................ 34
Section 9.1
Confidential
Information................................. 34
Section 9.2
Return of
Documents...................................... 34
Section 9.3
Notices..................................................
34
Section 9.4
Survival of
Representations and Agreements............... 35
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Section 9.5
Entire
Agreement......................................... 35
Section 9.6
Headings and
Captions.................................... 35
Section 9.7
Waiver, Amendment or
Modification........................ 35
Section 9.8
Rules of
Construction.................................... 35
Section 9.9
Counterparts.............................................
36
Section 9.10
Successors and Assigns...................................
36
Section 9.11
Governing Law; Assignment................................
36
Section 9.12 No
Third Party Beneficiaries............................. 36
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APPENDIX
Appendix A
Bank Merger Agreement
EXHIBITS
Exhibit 4.1
Retained Loan (Confidential)
Exhibit 4.3
Agreement of Directors of Knisely and Knisely Bank
Concerning Agreement of Merger
Exhibit 5.6
Termination and Release Agreement
Exhibit 5.6(b) Form of Employment
Agreement with Michael K. Ruch
SCHEDULES
Section 2.1(c) Stock Options,
Warrants, etc.
Section 2.1(d) Replacement
Certificates Issued without Affidavits of Lost
Certificates
Section 2.6
Agreements with Banking Authorities
Section 2.7(a) Tax Matters
Section 2.8
Litigation
Section 2.9
Employment Agreements, Supplemental Retirement Plans
Section 2.12(b)
Substandard, Doubtful or Loss Loans
Section 2.12(c)
Loan Reserves
Section 2.12(d)
Loan Participations
Section 2.13(b)
Compliance with Employment Laws; Labor Disputes
Section 2.13(c)
Employee List
Section 2.13(d)
Employee Benefit Plans
Section 2.13(f)
Employee Plan Violations
Section 2.13(k)
Parachute Payments
Section 2.13(l)
Nonqualified Deferred Compensation Plans
Section 2.14 Title to
Properties
Section 2.15(b)
Environmental Disclosures
Section 2.16 Compliance
with Americans with Disabilities Act
Section 2.19 Material
Contracts
Section 2.20
Undisclosed Liabilities
Section 2.22 Interim
Events
Section 5.6(b) Retention
Agreements
<PAGE>
AGREEMENT OF MERGER
AND
PLAN OF REORGANIZATION
THIS
AGREEMENT OF MERGER AND PLAN OF REORGANIZATION (this "AGREEMENT"),
is
made and entered into as of September 7, 2007 by and among FARMERS
& MERCHANTS
BANCORP, INC., an Ohio corporation ("F&M"), KNISELY FINANCIAL
CORP, an Indiana
corporation ("KNISELY"), THE FARMERS & MERCHANTS STATE BANK, an
Ohio
state-chartered commercial bank ("F&M BANK"), and KNISELY BANK,
an Indiana
state-chartered commercial bank ("KNISELY BANK").
WITNESSETH:
WHEREAS, F&M is a corporation duly organized and existing under
the laws of
the State of Ohio and a registered bank holding company under the
Bank Holding
Company Act of 1956, as amended, holding one hundred percent (100%)
of the
issued and outstanding shares of common stock of F&M Bank, both
with their
principal places of business in Archbold, Ohio; and
WHEREAS, Knisely is a corporation duly organized and existing under
the
laws of the State of Indiana and a registered bank holding company
under the
Bank Holding Company Act of 1956, as amended, holding one hundred
percent (100%)
of the issued and outstanding shares of common stock of Knisely
Bank, with its
principal place of business in Butler, Indiana; and
WHEREAS, F&M Bank is a banking institution duly organized and
existing
under the laws of the State of Ohio with its principal banking
office located in
Archbold, Ohio; and
WHEREAS, Knisely Bank is a banking institution duly organized and
existing
under the laws of the State of Indiana with its principal banking
office in
Butler, Indiana; and
WHEREAS, it is the desire of F&M, F&M Bank, Knisely and
Knisely Bank to
effect a transaction whereby Knisely Bank will be merged with and
into F&M Bank
and Knisely will remain as a separate corporation after such bank
merger; and
WHEREAS, the Boards of Directors of F&M, F&M Bank, Knisely,
and Knisely
Bank, respectively, have approved this Agreement and authorized its
execution.
NOW,
THEREFORE, in consideration of the premises and the mutual terms
and
provisions set forth in this Agreement, the parties agree as
follows:
ARTICLE 1. TERMS OF THE MERGER
Section 1.1 TERMS OF THE BANK MERGER. Subject to the terms and
conditions of this Agreement, the Bank Merger Agreement attached
hereto as
Appendix A, Title 11 of the Ohio Revised Code, as amended, (the
"OHIO BANKING
CODE"), and Title 28 of the Indiana Code (the "INDIANA BANKING
CODE"), Knisely
Bank shall be merged with and into F&M Bank. F&M Bank shall
be the "CONTINUING
BANK" and shall continue its corporate existence as provided under
Section
1115.11 of the Ohio Banking Code (hereinafter such merger shall be
referred to
as the "BANK MERGER").
1
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Section 1.2 EFFECT OF THE BANK MERGER.
(a) GENERAL DESCRIPTION. Upon the effectiveness of the Bank
Merger,
the
separate existence of Knisely Bank shall cease and the Continuing
Bank
shall possess all of the rights, privileges, immunities, powers
and
franchises and shall be subject to all of the duties and
liabilities of
Knisely Bank existing immediately prior to the effectiveness of the
Bank
Merger, and the Continuing Bank shall continue to be a bank
organized and
existing under the laws of the State of Ohio and shall continue to
be a
wholly-owned subsidiary of F&M.
(b) NAME AND OFFICES. The name of the Continuing Bank shall
continue
to
be "The Farmers & Merchants State Bank." Its principal banking
office
shall continue to be located at 307 North Defiance Street,
Archbold, Ohio
43502. All branches of Knisely Bank shall become legally
established
branches of the Continuing Bank.
(c) BOARD OF DIRECTORS. The Board of the Directors of the
Continuing
Bank
shall consist of the same individuals that served as the Board
of
Directors of F&M Bank immediately prior to the effective date
of the Bank
Merger, until such time as their successors have been elected and
have been
qualified.
(d) OFFICERS. The Officers of the Continuing Bank shall consist of
the
same
individuals that served as the Officers of F&M Bank immediately
prior
to
the effective date of the Bank Merger, until such time as their
successors have been elected and have been qualified.
(e) ARTICLES OF INCORPORATION AND CODE OF REGULATIONS. The Articles
of
Incorporation and Code of Regulations of F&M Bank in effect
immediately
prior to the effectiveness of the Bank Merger shall be and remain
the
Articles of
Incorporation and Code of Regulations of the Continuing Bank
without change, until the same shall be amended or replaced as
therein
provided.
(f) ASSETS, LIABILITIES, AND OBLIGATIONS. All assets and all
rights,
franchises and interests of F&M Bank and Knisely Bank,
respectively, in and
to
every type of property, all debts due on whatever account and all
choses
in
action shall be taken and be deemed transferred to and vest in
the
Continuing Bank by virtue of the Bank Merger without any order or
other
action on the part of any court or otherwise, and the Continuing
Bank shall
be
responsible for all liabilities and obligations of F&M Bank and
Knisely
Bank, respectively, by virtue of the Bank Merger, all with the
effect
provided in Section 1115.11 of the Ohio Banking Code and Section
28-2-17-21
of
the Indiana Code.
Section 1.3 CONVERSION AND EXCHANGE OF SHARES: At the Effective
Time
(as defined in Section 8.2 hereof) of the Bank Merger, all of the
4,000 issued
and outstanding shares of common stock, $1.00 par value, of Knisely
Bank (the
"KNISELY BANK COMMON STOCK"), by virtue of the Bank Merger shall be
converted
into the right to receive $10,200,000 in the aggregate in cash (the
"MERGER
CONSIDERATION"); provided, however, that such Merger Consideration
shall be
increased or decreased, as applicable, by the change in Knisely
Bank's Net
Retained Earnings (as defined below) from June 1, 2007 through the
date
immediately prior to the Closing Date (as defined in Section 8.1.)
The change in
Net Retained Earnings of Knisely Bank included in the Merger
Consideration shall
be determined by: (i) calculating the net income of Knisely Bank
from June 1,
2007 through the date immediately prior to the Closing Date in
2
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accordance with GAAP with the agreed upon amount deemed to be the
"Net Income"
of Knisely Bank, and deducting from such Net Income (ii) the amount
of dividends
paid from Knisely Bank to Knisely for the period June 1, 2007
through the
Closing Date, but excluding from such amount of dividends the
Retained Loan (as
defined in Section 4.1 (a)(i) of this Agreement) which will be
distributed by
dividend from Knisely Bank to Knisely, and further deducting (iii)
the amount of
the cumulative-effect adjustment to retained earnings on the date
of Closing, if
any, resulting from the application of Financial Accounting
Standards Board EITF
06-04 ("FASB EITF 06-04"), whether or not such adjustment is
required as of such
date by GAAP, as required by Section 2.9 hereof.
Section 1.4 TREATMENT OF TRANSACTION AS AN "ASSET SALE" AND
ALLOCATION
OF THE MERGER CONSIDERATION. The Merger Consideration shall be
allocated among
the assets of Knisely Bank as set forth in a schedule (the
"Allocation
Schedule") mutually agreed to by F&M, F&M Bank and Knisely
within thirty (30)
days after the Closing Date; provided that if the parties are not
able to
mutually agree to an allocation within sixty (60) days after the
Closing Date,
F&M and F&M Bank shall determine an appropriate and
reasonable allocation after
consultation with its accountants and the accountants representing
Knisely. Each
of F&M, F&M Bank, Knisely and Knisely Bank, as necessary,
shall sign and submit
all necessary forms (including Form 8594) to report the transaction
contemplated
herein for federal, state and foreign income tax purposes in
accordance with the
Allocation Schedule, and shall not take a position for tax purposes
inconsistent
therewith. The Merger Consideration shall be allocated as provided
by Treasury
Regulation Section 1.1060-1. This Section 1.4 shall survive the
Closing Date,
without limitation.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF KNISELY AND KNISELY
BANK
On or prior to the
date hereof, Knisely and Knisely Bank have delivered to
F&M a schedule (the "DISCLOSURE SCHEDULE") setting forth, among
other things,
items, the disclosure of which are necessary or appropriate either
in response
to an express disclosure requirement contained in a provision
hereof or as an
exception to one or more representations or warranties contained in
this Article
2 or to one or more of its covenants contained in Article 4.
Knisely's and
Knisely Bank's representations, warranties and covenants contained
in this
Agreement shall not be deemed to be untrue, incorrect or to have
been breached
as a result of effects on Knisely or Knisely Bank arising solely
from actions
taken in compliance with a written request from F&M. Knisely
and Knisely Bank
may update and amend the Disclosure Schedule until the Effective
Time; provided
that if such amendment would result in a Material Adverse Change,
F&M and F&M
Bank still shall have the rights of termination provided in Section
7.4 and
6.1(a) hereof. When used in this Agreement, and specifically this
Article 2,
"knowledge" of Knisely or Knisely Bank shall mean the actual
knowledge of the
any of the officers or any of the members of the Board of Directors
of Knisely
or Knisely Bank or knowledge that a reasonable person in the
position of such
officer or member of the Board of Directors should have if
appropriately
fulfilling their duty to Knisely or Knisely Bank when acting in
such capacity.
Subject to the foregoing, Knisely and Knisely Bank hereby make
the
following representations and warranties to F&M:
3
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Section 2.1 ORGANIZATION AND CAPITAL STOCK.
(a) Knisely is a corporation duly incorporated and in good
standing
under the laws of the State of Indiana, is a registered bank
holding
company under the Bank Holding Company Act of 1956, as amended, and
has the
corporate power and authority to own all of its property and
assets, to
incur all of its liabilities and to carry on its business as now
being
conducted.
(b) Knisely has authorized capital stock of 10,000 shares of
common
stock, $1.00 par value per share, 4,000 shares of which are issued
and
outstanding and 6,000 of which are authorized but unissued. All of
the
issued and outstanding shares of Knisely common stock are duly and
validly
issued and outstanding, fully paid and non-assessable. None of
the
outstanding shares of Knisely common stock has been issued in
violation of
any
preemptive rights of the current or past shareholders of Knisely or
in
violation of any applicable federal or state securities laws or
regulations.
(c) Except as set forth in Section 2.1(b) there are no shares
of
capital stock or other
equity securities of Knisely outstanding and, except
as
disclosed in SECTION 2.1(C) OF THE DISCLOSURE SCHEDULE, there are
no
outstanding options, warrants, rights to subscribe for, calls,
or
commitments of any character whatsoever relating to, or securities
or
rights convertible into or exchangeable for, shares of the capital
stock of
Knisely or contracts, commitments, understandings or arrangements
by which
Knisely is or may be obligated to issue additional shares of its
capital
stock or options, warrants or rights to purchase or acquire any
additional
shares of its capital stock.
(d) Except as disclosed in SECTION 2.1(D) OF THE DISCLOSURE
SCHEDULE,
each
certificate representing shares of Knisely common stock issued
by
Knisely in replacement of any certificate theretofore issued by it
which
was
claimed by the record holder thereof to have been lost, stolen
or
destroyed was issued by Knisely only upon receipt of an affidavit
of lost
stock certificate which contains an indemnity agreement in favor
of
Knisely.
Section 2.2 AUTHORIZATION; NO DEFAULTS.
(a) The Boards of Directors of Knisely and Knisely Bank has each,
by
all
appropriate action, approved this Agreement and the Bank Merger and
has
authorized the execution of this Agreement on its behalf by its
duly
authorized officers and the performance, respectively, by Knisely
and
Knisely Bank of its obligations hereunder.
(b) Nothing in the Articles of Incorporation or Bylaws of Knisely
or
Knisely Bank, as amended, or in any agreement, instrument,
decree,
proceeding, law or regulation (except as specifically referred to
in or
contemplated by this Agreement) by or to which Knisely or Knisely
Bank is
bound or subject, would prohibit either Knisely or Knisely Bank
from
entering into and consummating, or would be violated or breached
by
Knisely's or Knisely Bank's consummation of, this Agreement and
the
transactions contemplated herein and the Mergers on the terms
and
conditions herein contained.
(c) This Agreement has been duly and validly executed and delivered
by
Knisely and Knisely Bank and constitutes a legal, valid and
binding
obligation of Knisely and Knisely Bank, enforceable against Knisely
and
Knisely Bank in accordance with its terms, and, except for the
approval by
Knisely, as the sole shareholder of Knisely Bank,
4
<PAGE>
and
Knisely's shareholders, no other corporate acts or proceedings
are
required to be taken by Knisely or Knisely Bank to authorize the
execution,
delivery and performance of this Agreement.
(d) Knisely or Knisely Bank is not, and will not be by reason of
the
consummation of the transactions contemplated herein, in default
under or
in
violation of any provision of, nor will the consummation of the
transactions contemplated herein afford any party a right to
accelerate any
indebtedness under, Knisely's or Knisely Bank's Articles of
Incorporation
or
Bylaws, any promissory note, indenture or other evidence of
indebtedness
or
security therefor, or any lease, contract, or other commitment
or
agreement to which Knisely or Knisely Bank is a party or by which
Knisely
or
Knisely Bank or their property is bound.
(e) Except for the requisite approvals of and filings with the
Board
of
Governors of the Federal Reserve System and its delegates (the
"FRB"),
the
Federal Deposit Insurance Corporation ("FDIC"), the Ohio Division
of
Financial Institutions ("ODFI"), the Indiana Department of
Financial
Institutions ("IDFI"), the Ohio Secretary of State and the
Indiana
Secretary of State, no notice to, filing with, authorization by, or
consent
or
approval of, any federal or state regulatory authority is necessary
for
the
execution and delivery of this Agreement or the consummation of
the
Mergers by Knisely and Knisely Bank.
Section 2.3 SUBSIDIARIES. Knisely Bank is duly organized and
validly
existing under the laws of the State of Indiana and has the
corporate power to
own its properties and assets, to incur its liabilities and to
carry on its
business as now being conducted. Knisely owns of record and
beneficially free
and clear of all liens and encumbrances all of the 4,000
outstanding shares of
the capital stock of Knisely Bank. Knisely has no other direct or
indirect
subsidiaries. There are no options, warrants or rights outstanding
to acquire
any capital stock of Knisely Bank and no person or entity has any
other right to
purchase or acquire any unissued shares of stock of Knisely Bank,
nor does
Knisely Bank have any obligation of any nature with respect to its
unissued
shares of stock. Except for the ownership of readily marketable
securities,
Federal Home Loan Bank, Federal Reserve Bank or Independent Bankers
Bank stock,
neither Knisely nor Knisely Bank is a party to any partnership or
joint venture
or owns an equity interest in any other business or enterprise.
Section 2.4 FINANCIAL INFORMATION. The audited consolidated
balance
sheets of Knisely and Knisely Bank as of December 31, 2006 and
2005, and the
related consolidated statements of income, changes in equity
capital, and cash
flows, for the three years ended December 31, 2006, together with
the notes
thereto; and the quarterly Reports of Condition and Income of
Knisely Bank as
filed with the FDIC for the quarter ended June 30, 2007, (the
"KNISELY BANK
REPORTS"); all of which have been previously furnished by Knisely
to F&M
(collectively the "KNISELY FINANCIAL STATEMENTS"), together with
all subsequent
financial statements filed with the FDIC prior to the Effective
Date, shall have
been prepared in accordance with generally accepted accounting
principles
("GAAP") applied on a consistent basis (except as disclosed therein
and except
for regulatory reporting differences required with respect to
Knisely Bank's
Reports) and fairly present the consolidated financial position and
the
consolidated results of operations, changes in shareholders' equity
and cash
flows of Knisely and Knisely Bank in all material respects as of
the dates and
for the periods indicated (subject, in the case of interim
financial statements,
to normal recurring year-end adjustments, none of which are
5
<PAGE>
material). Knisely and Knisely Bank each does not have any material
liability,
fixed or contingent, except to the extent set forth in the Knisely
Financial
Statements or incurred in the ordinary course of business since the
date of the
most recent Knisely Financial Statement.
Section 2.5 ABSENCE OF CHANGES. Since December 31, 2006, there has
not
been any Material Adverse Change with respect to Knisely or Knisely
Bank. For
purposes of this Agreement, "MATERIAL ADVERSE CHANGE" means, with
respect to
Knisely or Knisely Bank, any change that (a) is both material and
adverse to the
financial position, results of operations, business or future
prospects of
Knisely or Knisely Bank, other than (i) the effects of any change
attributable
to or resulting from changes in economic conditions, laws,
regulations or
accounting guidelines (GAAP or otherwise) applicable to depository
institutions
generally, or in general, levels of interest rates, (ii) payments
associated
with the Bank Merger, (iii) charges required under Section 4.11
hereof, or (iv)
actions or omissions of either Knisely or Knisely Bank taken with
the prior
informed written consent of F&M in contemplation of the
transactions
contemplated by this Agreement; or (b) would materially impair the
ability of
either Knisely or Knisely Bank to perform its obligations under
this Agreement
or otherwise materially threaten or materially impede the
consummation of the
Bank Merger and the other transactions contemplated by this
Agreement.
Section 2.6 AGREEMENTS WITH BANKING AUTHORITIES. Except as
otherwise
disclosed in SECTION 2.6 OF THE DISCLOSURE SCHEDULE, neither
Knisely nor Knisely
Bank is subject (or has been subject during the last five (5)
years) to any
order (other than orders applicable to banks generally) or is a
party (or has
been a party during the last five (5) years) to any agreement,
memorandum of
understanding or voluntary board resolution with any federal or
state agency
charged with the supervision or regulation of banks or bank holding
companies,
including without limitation the IDFI, the FDIC and the FRB.
Section 2.7 TAX MATTERS.
(a) Knisely and Knisely Bank have each filed with the
appropriate
governmental agencies all federal, state and local income,
franchise,
excise, income tax withholding, payroll, sales, use, real and
personal
property, information and other tax returns and reports required to
be
filed by it and has paid all taxes required to be paid by it and
has
withheld and remitted all amounts required to be withheld or
remitted
on or before their due date. Except as set forth in SECTION 2.7(A)
OF
THE DISCLOSURE SCHEDULE, neither Knisely nor Knisely Bank is
(i)
delinquent in the payment of any taxes or withheld amounts shown
on
such returns or reports or on any assessments received by it for
such
taxes or withheld amounts; (ii) aware of any pending or
threatened
examination for income, payroll or excise taxes for any year by
the
Internal Revenue Service (the "IRS") or taxes of any type by any
state
or local tax agency; (iii) subject to any agreement extending
the
period for assessment, payment or collection of any federal, state,
or
local tax; or (iv) a party to any action or proceeding with, nor
has
any claim been asserted against it by, any court,
administrative
agency or commission or other federal, state or local
governmental
authority or instrumentality ("GOVERNMENTAL AUTHORITY") for
assessment
or collection of taxes.
(b) Knisely, effective for its tax year beginning January 1,
1997, properly elected under Section 1362 of the Code to be treated
as
an S Corporation for federal
6
<PAGE>
income tax purposes and that election has remained in effect for
all
taxable years of Knisely beginning on and after January 1, 1997.
At
all times since January 1, 1997, Knisely has satisfied the
eligibility
requirements for an S Corporation set forth in Section 1361 of
the
Code and applicable Treasury Regulations. The S Corporation
election
of Knisely has not been revoked and no event has occurred with
respect
to Knisely or its shareholders that would constitute the basis for
the
termination of the S Corporation election of Knisely.
(c) At all times since January 1, 1997, Knisely Bank has been a
wholly owned subsidiary of Knisely. Effective for the tax year
beginning January 1, 1997, Knisely properly elected under
Section
1361(b)(3)(B)(ii) of the Code ("Q-SUB ELECTION") to treat Knisely
Bank
as a qualified subchapter "S" subsidiary as defined in Section
1361(b)(3)(B) ("Q-SUB"). At all times since January 1, 1997,
Knisely
Bank has satisfied the requirements to be treated as a Q-Sub and
the
Q-Sub Election of Knisely related to Knisely Bank has not been
revoked
and no event has occurred that would constitute the basis for
the
termination of the Q-Sub Election for Knisely Bank.
(d) None of the tax returns of Knisely or Knisely Bank has been
audited by the IRS or any state tax agency for any period since
December 31, 2001. Neither Knisely nor Knisely Bank is the subject
of
any threatened action or proceeding by any Governmental Authority
for
assessment or collection of taxes.
(e) The reserve for taxes in the unaudited financial statements
of Knisely Bank for the quarter ended June 30, 2007, is, in the
opinion of management, adequate to cover all of the tax liabilities
of
Knisely and Knisely Bank (including, without limitation, income
taxes
and franchise fees) as of such date in accordance with GAAP.
(f) Knisely has not filed any consolidated federal income tax
return with an "affiliated group" (within the meaning of Section
1505
of the Internal Revenue Code of 1986, as amended) (the "CODE")
where
Knisely was not the common parent of the group. Neither Knisely
nor
Knisely Bank is, or has been, a party to any tax allocation
agreement
or arrangement pursuant to which it has any contingent or
outstanding
liability to anyone other than Knisely or Knisely Bank.
(g) Knisely has adequately disclosed in all of its federal
income
tax returns all positions taken therein that could give rise to
a
substantial understatement of federal income tax and has
reasonable
basis for the treatment of each such position, all within the
meaning
of Section 6662 of the Code.
Section 2.8 LITIGATION. Except as set forth in SECTION 2.8 OF
THE
DISCLOSURE SCHEDULE and except for foreclosure and other collection
proceedings
commenced in the ordinary course of business by Knisely Bank with
respect to
loans in default with respect to which no counter claims have been
asserted
against Knisely Bank, there is no litigation, claim or other
proceeding pending
or threatened before any judicial, administrative or regulatory
agency or
tribunal against or involving Knisely or Knisely Bank, or to which
any of the
properties of Knisely or Knisely Bank is subject.
Section 2.9 EMPLOYMENT AGREEMENTS, SUPPLEMENTAL RETIREMENT PLANS,
ETC.
Except as set forth in SECTION 2.9 OF THE DISCLOSURE SCHEDULE,
neither Knisely
nor Knisely Bank is a party
7
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to or bound by any written or oral contract for the employment,
retention,
engagement, or severance of any current or former officer,
employee, member of
the board of directors, agent, consultant or other person or
entity, including
but not limited to any supplemental retirement plan agreements,
endorsement
method split dollar plan agreements and similar agreements. As of
the date of
the execution of this Agreement and the date of Closing, all
expenses and
liabilities regarding such agreements, including any amounts due or
to become
due as a result of the execution of this Agreement (other than the
RAs defined
in Section 5.6(b) hereof), have been, or will be prior to Closing,
properly
accounted for and accrued for in the Knisely Financial Statements.
In making
this representation, Knisely expressly agrees to give effect to
FASB EITF 06-04,
adopted through a cumulative-effect adjustment to retained earnings
on the date
of Closing, whether or not such is as of such date required by
GAAP.
Section 2.10 REPORTS. Since January 1, 2005, Knisely and Knisely
Bank
have filed all reports, notices and other statements, together with
any
amendments required to be made with respect thereto, if any, that
they were
required to file with (i) the FRB, (ii) the FDIC, (iii) the IDFI,
and (iv) any
other governmental authority with jurisdiction over Knisely or
Knisely Bank. As
of their respective dates, each of such reports and documents,
including the
financial statements, exhibits and schedules thereto, complied in
all material
respects with the relevant statutes, rules and regulations enforced
or
promulgated by the regulatory authority with which they were
filed.
Section 2.11 INVESTMENT PORTFOLIO. All United States Treasury
securities, obligations of other United States Government agencies
and
corporations, obligations of States of the United States and their
political
subdivisions, and other investment securities classified as "held
to maturity"
held by Knisely and Knisely Bank, as reflected in the latest
balance sheet in
the Knisely Financial Statements, are carried in the aggregate at
no more than
cost adjusted for amortization of premiums and accretion of
discounts. All
United States Treasury securities, obligations of other United
States Government
agencies and corporations, obligations of States of the United
States and their
political subdivisions, and other investment securities classified
as "available
for sale" held by Knisely and Knisely Bank, as reflected in the
latest balance
sheet in the Knisely Financial Statements, are carried in the
aggregate at
market value. Provisions for losses have been made on all such
securities which
have had a decline in value deemed "other than temporary" as
defined in SEC
Staff Accounting Bulletin No. 59. None of the investments reflected
in the
Knisely Financial Statements as of and for the quarter ended June
30, 2007, and
none of the investments made by Knisely or Knisely Bank since June
30, 2007, are
subject to any restriction, whether contractual or statutory, which
materially
impairs the ability of Knisely or Knisely Bank to dispose freely of
such
investment at any time.
Section 2.12 LOAN PORTFOLIO.
(a) All loans shown in the Knisely Financial Statements at June
30,
2007, or which were entered into after June 30, 2007, but before
the
Closing Date, were and will be made in all material respects for
good,
valuable and adequate consideration in the ordinary course of the
business
of
Knisely Bank, in accordance in all material respects with sound
banking
practices, and are not subject to any material defenses, set offs
or
counterclaims, including without limitation any such as are
afforded by
usury or truth in lending laws, except as may be provided by
bankruptcy,
insolvency or similar laws or by general principles of equity. The
notes or
other evidences of indebtedness evidencing such loans and all forms
of
pledges, mortgages and other collateral documents and
8
<PAGE>
security agreements are, and will be, enforceable, valid, true and
genuine
and
what they purport to be. Knisely and Knisely Bank have complied,
and
will
prior to the Closing Date comply, with all laws and regulations
relating to such loans, Knisely and Knisely Bank have not sold,
purchased
or
entered into any loan participation arrangement except where
such
participation is on a pro rata basis according to the
respective
contributions of the participants to such loan amount. Knisely has
no
knowledge that any condition of property in which Knisely Bank has
an
interest as collateral to secure a loan violates the Environmental
Laws
(defined in Section 2.15(a)) or obligates Knisely Bank or the owner
or
operator of such property to remedy, stabilize, neutralize or
otherwise
alter the environmental condition of such property.
(b) Except as set forth in SECTION 2.12(B) OF THE DISCLOSURE
SCHEDULE,
as
of June 30, 2007, Knisely Bank had no loan in excess of $10,000
that has
been
classified by regulatory examiners or management of Knisely Bank
as
"Substandard," "Doubtful" or "Loss" or in excess of $10,000 that
has been
identified by accountants or auditors (internal or external) as
having a
significant risk of uncollectability. As of the date hereof, the
most
recent loan watch list of Knisely Bank and a list of all loans in
excess of
$10,000 that Knisely Bank has determined to be ninety (90) days or
more
past
due with respect to principal or interest payments or has placed
on
nonaccrual status are set forth in Section 2.12(b) of the
Disclosure
Schedule.
(c) Except as set forth in SECTION 2.12(C) OF THE DISCLOSURE
SCHEDULE,
the
reserves, the allowance for possible loan and lease losses and
the
carrying value for real estate owned which are shown on the
Knisely
Financial Statements are, in the reasonable opinion of management
of
Knisely, adequate in all respects under the requirements of GAAP
applied on
a
consistent basis to provide for possible losses on items for
which
reserves were made, on loans and leases outstanding and real estate
owned
as
of the respective dates.
(d) Set forth in SECTION 2.12(D) OF THE DISCLOSURE SCHEDULE is a
true,
accurate and complete list of all loans in which Knisely Bank has
any
participation interest or which have been made with or through
another
financial institution on a recourse basis against Knisely Bank.
Section 2.13 EMPLOYEE MATTERS AND ERISA.
(a) Neither Knisely nor Knisely Bank has entered into any
collective
bargaining agreement with any labor organization with respect to
any group
of
employees of Knisely or Knisely Bank, and there is no present
effort or
existing proposal to attempt to unionize any group of employees of
Knisely
or
Knisely Bank.
(b) Except as set forth in SECTION 2.13(B) OF THE DISCLOSURE
SCHEDULE,
(i) Knisely and
Knisely Bank are and have been in material compliance with
all
applicable laws respecting employment and employment practices,
terms
and
conditions of employment and wages and hours, including,
without
limitation, any such laws respecting employment discrimination
and
occupational safety and health requirements, and neither Knisely
nor
Knisely Bank is engaged in any unfair labor practice; (ii) there is
no
unfair labor practice complaint against Knisely or Knisely Bank
pending or
threatened before the National Labor Relations Board; (iii) there
is no
labor dispute, strike, slowdown or stoppage actually pending or
threatened
against or directly affecting
9
<PAGE>
Knisely or Knisely Bank; and (iv) neither Knisely nor Knisely Bank
has
experienced any material work stoppage or other material labor
difficulty
during the past five (5) years.
(c) SECTION 2.13(C) OF THE DISCLOSURE SCHEDULE contains a complete
and
accurate list of the following information for each employee of
Knisely and
Knisely Bank: name; job title or department, as applicable; hire
date; 2006
bonus paid; and 2006 and 2007 salary.
(d) Except as may be disclosed in SECTION 2.13(D) OF THE
DISCLOSURE
SCHEDULE, neither Knisely nor Knisely Bank maintains, contributes
to or
participates in or has any liability under any employee benefit
plans, as
defined in Section 3(3) of the Employee Retirement Income Security
Act of
1974, as amended ("ERISA"), including any nonqualified employee
benefit
plans or deferred compensation, bonus, stock or incentive plans, or
other
employee benefit or fringe benefit programs for the benefit of
former or
current employees or directors (or their beneficiaries or
dependents) of
Knisely or Knisely Bank (the "EMPLOYEE BENEFIT PLANS"). Knisely and
Knisely
Bank
have provided to F&M true and complete copies of the
following
documents with respect to each Employee Benefit Plan: (i) a written
plan
document (or a written description of any Employee Benefit Plan
which is
not
written) and all related trust agreements, insurance and other
contracts (including policies), summary plan descriptions,
summaries of
material modifications, registration statements (including all
attachments), prospectuses and communications distributed to
plan
participants, (ii) the three most recent annual reports on Form
5500, with
accompanying schedules and attachments, filed with respect to each
Employee
Benefit Plan required to make such a filing, if applicable (iii)
the most
recent actuarial valuation for each Employee Benefit Plan subject
to Title
IV
of ERISA, if applicable, (iv) the most recent favorable
determination
letter issued for each Employee Benefit Plan which is intended to
be
qualified under Section 401(a) of the Code (and, if an application
for such
determination is pending, a copy of the application for such
determination), if applicable, and (v) all correspondence within
the last
four
years between the IRS and/or the Department of Labor and Knisely
or
Knisely Bank (or their agents) with respect to any Employee Benefit
Plan.
(e) Neither Knisely nor Knisely Bank participates in, nor has it
in
the
past five (5) years participated in or had any obligation to
contribute
to
any multiemployer plan (within the meaning of Section 3(37) or
4001(a)(3) of ERISA) (a "Multiemployer Plan").
(f) Except as may be disclosed in SECTION 2.13(F) OF THE
DISCLOSURE
SCHEDULE, each Employee Benefit Plan is now and always has been
operated in
all
material respects in accordance with its terms and the requirements
of
all
applicable Laws including, without limitation, ERISA and the Code.
No
claim is pending or threatened with respect to any Employee Benefit
Plan
(other than a routine claim for benefits for which plan
administrative
review procedures have not been exhausted) for which Knisely or
Knisely
Bank
would be liable after June 30, 2007.
(g) Each Employee Benefit Plan that is intended to be qualified
under
Section 401(a) of the Code has timely received a favorable
determination
letter from the IRS since January 2002, stating that the Employee
Benefit
Plan
is so qualified. To the knowledge of Knisely and Knisely Bank, no
fact
or
event has occurred since the date of
10
<PAGE>
such
determination letter or letters from the IRS to adversely affect
the
tax-qualified status of any such Employee Benefit Plan.
(h) There has not been any prohibited transaction (within the
meaning
of
Section 406 of ERISA or Section 4975 of the Code) with respect to
any
Employee Benefit Plan (other than transactions to which a valid
Prohibited
Transaction Exemption approved by the Department of Labor
applies).
(i) Neither Knisely nor Knisely Bank maintains any Employee
Benefit
Plan
subject to the minimum funding requirements of Section 412 of
the
Code. Neither Knisely nor any of its affiliates has any liability
or
knowledge of potential liability as a result of the underfunding of
any
Employee Benefit Plan subject to Section 412 of the Code. Neither
Knisely
nor
Knisely Bank has incurred any liability under Title IV of ERISA
(other
than
liability for premiums to the Pension Benefit Guaranty
Corporation
arising in the ordinary course), including, without limitation,
any
liability in connection with the termination of an Employee Benefit
Plan
subject to Title IV of ERISA.
(j) All filings required by ERISA and the Code as to each
Employee
Benefit Plan have been timely filed, including annual reports on
Form 5500,
and
all notices and disclosures to participants required by either
ERISA or
the
Code, including all notices required under ERISA Section 601 et
seq.
and
Code Section 4980B.
(k) Except as described in SECTION 2.13(K) OF THE DISCLOSURE
SCHEDULE,
no
payment or benefit which will or may be made by Knisely or Knisely
Bank
to
any person who is a "disqualified individual" (as defined in
Code
Section 280G and the
regulations thereunder) of Knisely or Knisely Bank
will
be an "excess parachute payment" within the meaning of Section
280G(b)
of
the Code.
(l) Except as described in SECTION 2.13(L) OF THE DISCLOSURE
SCHEDULE,
neither Knisely nor
Knisely Bank are parties to any Employee Benefit Plan
or
other arrangement that is a "nonqualified deferred compensation
plan"
subject to Section 409A of the Code. Each such nonqualified
deferred
compensation plan has been administered since January 1, 2005 in
good faith
compliance with the requirements of Section 409A of the Code and
IRS Notice
2005-1.
Section 2.14 TITLE TO PROPERTIES; INSURANCE. SECTION 2.14 TO
THE
DISCLOSURE SCHEDULE sets forth a list of all real property owned or
leased by
Knisely or Knisely Bank and a reasonable description of the size,
use and
location thereof. Except as described in SECTION 2.14 OF THE
DISCLOSURE
SCHEDULE, Knisely and Knisely Bank have marketable title, insurable
at standard
rates, free and clear of all liens, charges and encumbrances
(except taxes which
are a lien but not yet payable and liens, charges or encumbrances
reflected in
the Knisely Financial Statements and easements, rights-of-way, and
other
restrictions which do not interfere with the current use of such
properties,
and, in the case of Other Real Estate Owned, as such real estate is
internally
classified on the books of Knisely or Knisely Bank, rights of
redemption under
applicable law) to all real properties reflected on the Knisely
Financial
Statements as being owned by Knisely or Knisely Bank. To the
knowledge of
management of Knisely and Knisely Bank, all real properties are
currently being
used in compliance with all zoning laws, and there are no
encroachments or other
violations of law with respect to any such property. All leasehold
interests
used by Knisely and Knisely Bank in their operations are held
pursuant to lease
agreements that are valid and enforceable in accordance with their
terms, and no
party to any
11
<PAGE>
such lease agreement is currently in default thereunder. No
leasehold interest
is subject to any superior mortgage or other lien. To the knowledge
of
management of Knisely and Knisely Bank, all such properties comply
with all
applicable private agreements, zoning requirements and other
governmental laws
and regulations relating thereto, and there are no condemnation
proceedings
pending or threatened with respect to such properties. Knisely and
Knisely Bank
have valid title or other ownership rights under licenses to all
intangible
personal or intellectual property used by Knisely or Knisely Bank
in their
respective businesses free and clear of any claim, defense or right
of any other
person or entity, subject only to rights of the licensor pursuant
to applicable
license agreements, which rights do not materially adversely
interfere with the
use or enjoyment of such property. All insurable real and personal
properties
owned or held by Knisely and Knisely Bank are insured in such
amounts, and
against fire and other risks insured against by extended coverage
and public
liability insurance, as, in the reasonable opinion of management of
Knisely, is
customary with companies of the same size and in the same business.
Section 2.14
of the Disclosure Schedule also contains a listing of all claims
made by Knisely
or Knisely Bank within the last five (5) years under any insurance
policy
involving $5,000 or more for any single claim.
Section 2.15 ENVIRONMENTAL MATTERS.
(a) As used in this Agreement, "ENVIRONMENTAL LAWS" means all
local,
state and federal environmental, health and safety laws and
regulations in
all
jurisdictions in which the parties hereto have done business or
owned
property, including, without limitation, the Federal Resource
Conservation
and
Recovery Act, the Federal Comprehensive Environmental Response,
Compensation and Liability Act, the Federal Clean Water Act, the
Federal
Clean Air Act, and the Federal Occupational Safety and Health
Act.
(b) To the knowledge of management and the members of the board
of
directors of Knisely and Knisely Bank, neither the conduct nor
operation of
Knisely or Knisely Bank nor any condition of any property
previously owned
by
Knisely or Knisely Bank and used in its business operations or
the
condition of any property previously owned by Knisely or Knisely
Bank but
not
used in its business operations, violates or violated
Environmental
Laws
or, except as described in SECTION 2.15(B) OF THE DISCLOSURE
SCHEDULE,
contained or contains any underground storage tank, and no
condition or
event has occurred with respect to it or any such property that,
with
notice or the passage
of time, or both, would constitute a violation of
Environmental Laws or obligate Knisely or Knisely Bank to
remedy,
stabilize, neutralize or otherwise alter the environmental
condition of any
such
property. Neither Knisely nor Knisely Bank has received any
notice
from
any person or entity that Knisely or Knisely Bank or the operation
of
any
facilities or any property owned by Knisely or Knisely Bank is or
was
in
violation of any Environmental Laws or that Knisely or Knisely Bank
is
responsible for the cleanup of any pollutants, contaminants, or
hazardous
or
toxic wastes, substances or materials at, on or beneath any
such
property. All permits required of Knisely or Knisely Bank for
its
operations on any properties owned or leased by it have been
obtained and
are
listed on SECTION 2.15(B) OF THE DISCLOSURE SCHEDULE. Knisely
and
Knisely Bank are in compliance with the terms, conditions and
provisions of
all
such permits.
Section 2.16 COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT.
Except
as set provided in SECTION 2.16 OF THE DISCLOSURE SCHEDULE, TO the
knowledge of
management of
12
<PAGE>
Knisely and Knisely Bank are in compliance with all material
applicable
provisions of the Americans with Disabilities Act (the "ADA") and
no action
under the ADA against Knisely or Knisely Bank or any of their
properties has
been initiated or has been threatened.
Section 2.17 COMPLIANCE WITH LAW. Knisely and Knisely Bank have
all
material licenses, franchises, permits and other governmental
authorizations
that are legally required to enable them to conduct their
respective businesses
as presently conducted and are in compliance with all applicable
laws and
regulations or, in the event that they are not in compliance with
all applicable
laws and regulations, any such non-compliance will not cause a
Material Adverse
Change.
Section 2.18 BROKERAGE. Except for a fee payable to Renninger
&
Associates, LLC in connection with it acting as financial adviser
and issuing a
fairness opinion to Knisely, there are no existing claims or
agreements for
brokerage commissions, finders' fees, investment banking fees, or
similar
compensation in connection with the Mergers payable by Knisely or
Knisely Bank.
Any such fees and expenses payable to Renninger & Associates,
LLC shall be paid
by Knisely and not by Knisely Bank.
Section 2.19 MATERIAL CONTRACTS. Except as set forth in SECTION
2.19
OF THE DISCLOSURE SCHEDULE, neither Knisely nor Knisely Bank is a
party to or
bound by any oral or written:
(a) agreement, security agreement, pledge agreement, contract
or
indenture under which it has borrowed or will borrow money or
pursuant to
which it has granted any lien on any of its assets (not including
federal
funds and money deposited, including without limitation, checking
and
savings accounts and certificates of deposit);
(b) guaranty of any obligation for the borrowing of money or
otherwise, excluding endorsements made for collection and
guarantees made
in
the ordinary course of business and letters of credit issued in
the
ordinary course of business;
(c) agreement with any present or former officer, director or
shareholder, including but not limited to, agreements for the
payment of
any
deferred compensation, (except for deposit or loan agreements
entered
into
in the ordinary course of business);
(d) any lease or license of personal property (whether tangible
or
intangible, including intellectual property and software), whether
as
licensor or licensee involving payments or receipts in excess of
$5,000;
(e) contract or commitment for the purchase of materials, supplies
or
other real or personal property in an amount in excess of $5,000 or
for the
performance of services involving an amount in excess of
$5,000;
(f) joint venture or partnership agreement or arrangement; or
(g) contract, agreement or other commitment not made in the
ordinary
course of business and involving payments or receipts in excess of
$5,000.
(h) All of the contracts listed in Section 2.19 of the
Disclosure
Schedule (1) are currently in full force and effect, (2) represent
due and
valid obligations of the parties thereto, and (3) are enforceable
against
each
of the parties thereto in accordance with their terms. Neither
Knisely
nor
Knisely Bank is in default with respect to any such
13
<PAGE>
contract, and neither Knisely nor Knisely Bank is aware of any
default by
any
other party to any such contract.
Section 2.20 NO UNDISCLOSED LIABILITIES. Knisely and Knisely Bank
do
not have any liability, whether asserted or unasserted, whether
absolute or
contingent, whether accrued or unaccrued, whether liquidated or
unliquidated,
and whether due or to become due (and there is no past or present
fact,
situation, circumstance, condition or other basis for any present
or future
action, suit or proceeding, hearing, charge, complaint, claim or
demand against
Knisely or Knisely Bank giving rise to any such liability) required
in
accordance with GAAP to be reflected on the consolidated balance
sheet of
Knisely or the notes thereto, except (i) for liabilities set forth
or reserved
against in the Knisely Financial Statements, (ii) for normal
fluctuations in the
amount of the liabilities referred to in clause (i) above or other
liabilities
occurring in the ordinary course of business of Knisely and Knisely
Bank since
the date of the most recent balance sheet included in the Knisely
Financial
Statements, which such fluctuations in the aggregate are not
material to Knisely
and Knisely Bank taken as a whole, (iii) liabilities relating to
the possible
sale of Knisely or other transactions contemplated by this
Agreement, and (iv)
as may be disclosed in SECTION 2.20 OF THE DISCLOSURE SCHEDULE.
Section 2.21 DELIVERY OF DOCUMENTS. Final and complete copies of
each
document, plan or contract listed and described in the Disclosure
Schedule have
been provided to F&M. Neither Knisely nor Knisely Bank nor any
other party
thereto is in default under any such contract and there has not
occurred any
event that with the lapse of time or the giving of notice, or both,
would
constitute such a default.
Section 2.22 INTERIM EVENTS. Except as provided in SECTION 2.22 OF
THE
DISCLOSURE SCHEDULE, since June 30, 2007, neither Knisely nor
Knisely Bank has
paid or declared any dividend or made any other distribution to
shareholders or
taken any action which if taken after the date of this Agreement
would require
the prior written consent of F&M pursuant to Section 4.1
hereof.
Section 2.23 BOOKS AND RECORDS. The books and records of Knisely
and
Knisely Bank have been fully, properly and accurately maintained in
all material
respects, there are no material inaccuracies or discrepancies of
any kind
contained or reflected therein, and they fairly present the
financial position
of Knisely and Knisely Bank.
Section 2.24 DEPOSIT INSURANCE. The deposits of Knisely Bank
are
insured by the FDIC up to applicable limits and in accordance with
the Federal
Deposit Insurance Act, as amended, and Knisely Bank has paid or
properly
reserved or accrued for all current premiums and assessments with
respect to
such deposit insurance, if any.
Section 2.25 NO REGULATORY FILINGS. There are no filings, notices
or
submissions required to be made by Knisely or Knisely Bank with any
regulatory
authority in connection with obtaining approval for the Bank
Merger.
Section 2.26 STATEMENTS TRUE AND CORRECT. None of the
information
supplied or to be supplied by Knisely or Knisely Bank for inclusion
in any
documents to be filed with the FRB, FDIC, ODFI, IDFI or any other
regulatory
authority in connection with the Merger will, at the respective
times such
documents are filed, be false or misleading with respect to any
material fact or
omit to state any material fact necessary in order to make the
statements
therein not misleading.
14
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ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF F&M AND F&M
BANK
F&M and F&M Bank hereby make the following representations
and warranties
to Knisely:
Section 3.1 ORGANIZATION. F&M is a corporation duly
incorporated and
validly existing under the laws of the State of Ohio and is a
registered bank
holding company under the Bank Holding Company Act of 1956, as
amended, and it
has the corporate power and authority to own all of its property
and assets, to
incur all of its liabilities, and to carry on its business as it is
now being
conducted. F&M Bank is a commercial bank duly incorporated and
validly existing
under the laws of the State of Ohio, and has the corporate power
and authority
to own all of its property and assets, to incur all of its
liabilities, and to
carry on its business as it is now being conducted.
Section 3.2 AUTHORIZATION.
(a) The Boards of Directors of F&M and F&M Bank have each,
by all
appropriate action, approved this Agreement and the Bank Merger and
has
authorized the execution of this Agreement on its behalf by its
respective
duly
authorized officers and the performance, respectively, by F&M
and F&M
Bank
of its respective obligations hereunder.
(b) Nothing in the Articles of Incorporation or Code of Regulations
of
F&M or F&M Bank, or in any agreement, instrument, decree,
proceeding, law
or
regulation (except as specifically referred to in or contemplated
by
this
Agreement) by or to which F&M or F&M Bank is bound or
subject would
prohibit either of them from entering into and consummating, or
would be
violated or breached by either of their consummation of this
Agreement and
the
transactions contemplated herein on the terms and conditions
herein
contained.
(c) This Agreement has been duly and validly executed and delivered
by
F&M and F&M Bank and constitutes a legal, valid and binding
obligation of
each
of them, enforceable against each of them in accordance with
its
terms, and no other corporate acts or proceedings are required to
be taken
by
F&M or F&M Bank to authorize the execution, delivery and
performance of
this
Agreement.
(d) Neither F&M nor F&M Bank is, and will not be by reason
of the
consummation of the transactions contemplated herein be, in default
under
or
in violation of any provision of, nor will the consummation of
the
transactions contemplated herein afford any party a right to
accelerate any
indebtedness under, F&M's or F&M Bank's Articles of
Incorporation or Code
of
Regulations, any promissory note, indenture, or other evidence
of
indebtedness or security therefore, or any lease, contract, or
other
commitment or agreement to which F&M or F&M Bank is a party
or by which
either of them or their property is bound.
(e) Except for the requisite approvals of and filings with the
FRB,
the
FDIC, the ODFI, the IDFI and the Ohio Secretary of State, no notice
to,
filing with, authorization by, or consent or approval of, any
federal or
state regulatory authority is necessary for the execution and
delivery of
this
Agreement or the consummation of the Bank Merger by F&M and
F&M Bank.
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Section 3.3 FINANCIAL INFORMATION. The audited consolidated
balance
sheets of F&M and its subsidiaries as of December 31, 2006 and
2005 and related
consolidated statements of income, changes in shareholders' equity
and cash
flows for the three years ended December 31, 2006, together with
the notes
thereto included in F&M's most recent 10-K as filed with
Securities and Exchange
Commission (the "SEC"), and the unaudited consolidated balance
sheet and the
related unaudited consolidated statement of income, changes in
shareholders'
equity and cash flows of F&M and its subsidiaries for the
period ended June 30,
2007 included in F&M's Quarterly Report on Form 10-Q as filed
with the SEC
(collectively, the "F&M FINANCIAL STATEMENTS"), all of which
have been
previously furnished by F&M to Knisely, together with all
subsequent financial
statements and reports prepared prior to the Effective Date, shall
have been
prepared in accordance with generally accepted accounting
principles applied on
a consistent basis (except as disclosed therein) and fairly present
the
consolidated financial position and the consolidated results of
operations,
changes in shareholders' equity and cash flows of F&M and its
consolidated
subsidiaries as of the dates and for the periods indicated
(subject, in the case
of interim financial statements, to normal recurring year-end
adjustments, none
of which will be material). F&M and its subsidiaries each does
not have any
material liability, fixed or contingent, except as set forth in the
F&M
Financial Statements or incurred in the ordinary course of business
since the
date of the most recent F&M Financial Statement.
Section 3.4 REPORTS. Since January 1, 2005 F&M and F&M Bank
have filed
all reports, notices and other statements, together with any
amendments required
to be made with respect thereto, that it was required to file with
(i) the SEC,
(ii) the FRB, (iii) the FDIC, (iv) the ODFI or (v) any other
governmental
authority with jurisdiction over F&M or F&M Bank. As of
their respective dates,
each of such reports and documents, as amended, including the
financial
statements, exhibits and schedules thereto, complied in all
material respects
with the relevant statutes, rules and regulations enforced or
promulgated by the
regulatory authority with which they were filed, and did not
contain any untrue
statement of a material fact or omit to state any material fact
required to be
stated therein or necessary in order to make the statements
therein, in light of
the circumstances under which they were made, not misleading.
Section 3.5 COMPLIANCE WITH LAW. Each of F&M and F&M Bank
has all
licenses, franchises, permits and other governmental authorizations
that are
legally required to enable them to conduct their respective
businesses as
presently conducted and are in compliance in all material respects
with all
applicable laws and regulations.
Section 3.6 FINANCING FOR THE TRANSACTION. F&M and F&M
Bank,
collectively, have sufficient internal financial resources to allow
them to
perform their obligations under this Agreement and do not intend to
seek any
outside funding to assist in consummation of the transactions
contemplated
hereunder. F&M and F&M Bank believe that they will be,
immediately following the
Bank Merger, in material compliance with all applicable capital
regulations of
federal banking agencies having jurisdiction over F&M and
F&M Bank.
ARTICLE 4. AGREEMENTS OF KNISELY AND KNISELY BANK
Section 4.1 CONDUCT OF BUSINESS.
(a) Knisely and Knisely Bank shall continue to carry on its
business
and
the discharge or incurrence of its obligations and liabilities only
in
the
ordinary course of business as heretofore conducted and, by way
of
amplification and not limitation with
16
<PAGE>
respect to such obligation, Knisely and Knisely Bank will not,
without the
prior written consent of F&M, which consent will not be
unreasonably
withheld:
(i) DIVIDENDS. Neither Knisely nor Knisely Bank shall declare
or
pay any dividend or make any other distribution to
shareholders,
whether in cash, stock or other property; provided that Knisely
Bank
may pay to Knisely and Knisely may in turn pay to its
shareholders
cash dividends in an amount that do not exceed the Net Earnings
of
Knisely Bank from June 1, 2007 through the day immediately prior
to
the Closing Date, and, provided further, that immediately prior to
the
Effective Time Knisely Bank may pay as a dividend to Knisely the
note
and all security documents related to the loan listed on
Confidential
Exhibit 4.1 (the "RETAINED LOAN"); or
(ii) ISSUANCES OF STOCK. Issue any common or other capital
stock
or any options, warrants or other rights to subscribe for or
purchase
common or any other capital stock or any securities convertible
into
or exchangeable for any capital stock or permit any additional
shares
of Knisely common stock or capital stock of Knisely Bank to
become
subject to grants of employee or director stock options,
restricted
stock grants, or similar stock-based employee or director rights;
or
(iii) REDEMPTIONS OF STOCK. Directly or indirectly redeem,
purchase or otherwise acquire (except for shares acquired in
satisfaction of a debt previously contracted) any of their own
common
or any other capital stock or form a new subsidiary; or
(iv) REORGANIZATIONS. Effect a split, reverse split,
reclassification, or other similar change in or of any common or
other
capital stock or otherwise reorganize or recapitalize; or
(v) AMENDMENTS TO ORGANIZATIONAL DOCUMENTS. Change their
Articles
of Incorporation or Bylaws; or
(vi) WAGES AND BENEFIT PLANS. Except in the ordinary course of
business consistent with past practices and except as contemplated
by
this Agreement (including severance payments anticipated to be paid
by
F&M as described in Section 5.6 hereof), pay or agree to
pay,
conditionally or otherwise, any additional compensation
(including
bonuses) or severance benefit or otherwise make any changes
with
respect to the fees or compensation payable or to become payable
to
management consultants, directors, officers or salaried employees
or,
except as required b
