THE MERGER
1.01
The Merger
.
(a) General
Description. Upon the terms and subject to the conditions of this Agreement,
at the Effective Time (as defined in Article IX) hereof, KFI shall merge with and into and under the Articles of Incorporation of Horizon (the
Merger
). Horizon shall survive the Merger (sometimes hereinafter referred to as the
Surviving Corporation
) and shall continue its corporate existence under the laws of the State of Indiana pursuant to the provisions of and with the effect provided in the Indiana Business Corporation Law (the
IBCL
), as amended.
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(b)
Name, Officers and Directors
. The name of the Surviving Corporation shall be
Horizon Bancorp
. Its principal office shall be located at 515 Franklin Street, Michigan City, Indiana 46360. The officers of Horizon serving at the Effective Time shall continue to serve as the officers of the Surviving
Corporation, until such time as their successors shall have been duly elected and have qualified or until their earlier resignation, death or removal from office. The directors of the Surviving Corporation following the Effective Time shall be those
individuals serving as directors of Horizon at the Effective Time, until such time as their successors have been duly elected and have qualified or until their earlier resignation, death, or removal as a director.
(c)
Articles of Incorporation and Bylaws
. The Articles of Incorporation and Bylaws of Horizon in existence at the Effective Time
shall remain the Articles of Incorporation and Bylaws of the Surviving Corporation following the Effective Time, until such Articles of Incorporation and Bylaws shall be further amended as provided by applicable law.
(d)
Effect of the Merger
. At the Effective Time, the title to all assets, real estate and other property owned by KFI shall vest
in Surviving Corporation as set forth in Indiana Code
Section 23-1-40-6,
as amended, without reversion or impairment. At the
Effective Time, all liabilities of KFI shall become liabilities of the Surviving Corporation as set forth in Indiana Code
Section 23-1-40-6,
as amended.
(e)
Integration
. At the Effective Time and subject to the terms and conditions of this Agreement, the parties hereto currently intend
to effectuate, or cause to be effectuated, the Merger, pursuant to the terms of this Agreement and the IBCL, and this Agreement shall also constitute the plan of merger pursuant to Indiana Code
Section 23-1-40-1.
If required, the parties agree to enter into a separate short-form plan of merger evidencing the terms required by Indiana Code
Section 23-1-40-1. The
parties agree to cooperate and to take all reasonable actions prior to or following the Effective
Time, including executing all requisite documentation, as may be reasonably necessary to effect the Merger in accordance with the terms and conditions hereof.
1.02
Reservation of Right to Revise Structure
. At Horizons election, the Merger may alternatively be
structured so that (a) KFI is merged with and into any other direct or indirect wholly-owned subsidiary of Horizon or (b) any direct or indirect wholly-owned subsidiary of Horizon is merged with and into KFI;
provided
,
however
, that no such change shall, subject to
Section
2.02(d)
, (1) alter or change the amount or kind of the Merger Consideration (as defined in
Section 2.01
) or the treatment of the holders of common stock, $10.00 par
value per share, of KFI (the
KFI Common Stock
), (2) prevent the parties from obtaining the opinions of counsel referred to in
Sections 7.01(h)
and
7.02(h)
or otherwise cause the transaction to fail to qualify for the
tax treatment described in
Section 1.03
, or (3) materially impede or delay consummation of the transactions contemplated by this Agreement. In the event of such an election, the parties agree to execute an appropriate amendment to this
Agreement (to the extent such amendment only changes the method of effecting the business combination and does not substantively affect this Agreement or the rights and obligations of the parties or their respective shareholders) in order to reflect
such election.
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1.03
Tax Free Reorganization
. Horizon and KFI intend for the
Merger to qualify as a reorganization within the meaning of Section 368(a) and related sections of the Internal Revenue Code of 1986, as amended (the
Code
), and that this Agreement shall constitute a plan of
reorganization for purposes of Sections 354 and 361 of the Code, and agree to cooperate and to take such actions as may be reasonably necessary to assure such result.
1.04
Absence of Control
. Subject to any specific provisions of the Agreement, it is the intent of the
parties to this Agreement that neither Horizon nor KFI by reason of this Agreement shall be deemed (until consummation of the transactions contemplated here) to control, directly or indirectly, the other party or any of its respective Subsidiaries
(as defined in the introductory paragraphs to
Article III
and
Article IV
) and shall not exercise or be deemed to exercise, directly or indirectly, a controlling influence over the management or policies of such other party or any
of its respective Subsidiaries.
1.05
Bank Merger
. The parties will cooperate and use reasonable best
efforts to effect the merger of FSB with and into Horizon Bank (the
Bank Merger
) at the Effective Time of the Merger pursuant to a merger agreement to be agreed upon between the parties. At the effective time of the Bank Merger,
the separate corporate existence of FSB will terminate. Horizon Bank will be the surviving bank and will continue its corporate existence under applicable law. The Articles of Association of Horizon Bank, as then in effect, will be the Articles of
Association of the surviving bank, the Bylaws of Horizon Bank, as then in effect, will be the Bylaws of the surviving bank, and the Board of Directors and officers of Horizon Bank will continue as the Board of Directors and officers of the surviving
bank.
1.06
Dissenters
Rights
. Notwithstanding anything to the contrary
contained in this Agreement, to the extent appraisal rights are available to holders of KFI Common Stock pursuant to the provisions of any applicable Law (as defined in
Section 3.05(a)
), including Chapter 44 of the IBCL, any shares of
KFI Common Stock held by a Person (as defined in
Section (e)
) who objects to the Merger, whose shares were not voted in favor of the Merger and who complies with and satisfies all of the provisions of the applicable Law concerning the rights
of such Person to dissent from the Merger and to require appraisal of such Persons shares and who has not withdrawn such objection or waived such rights prior to the Effective Time (collectively with respect to all such KFI shareholders,
the
Dissenting Shares
), shall not be converted pursuant to
Section 2.01
, but shall become the right to receive such consideration as may be determined to be due the holder of such Dissenting Shares pursuant to
applicable Law;
provided, however
, that each Dissenting Share held by a Person at the Effective Time who shall, after the Effective Time, withdraw the demand for appraisal or lose the right of appraisal, in either case pursuant to applicable
Law, shall be deemed to have been converted, as of the Effective Time, into the right to receive the consideration as is determined in accordance with
Article II
.
ARTICLE II.
MANNER AND BASIS OF EXCHANGE OF STOCK
2.01
Merger Consideration
. Subject to the terms and conditions of this Agreement, at the Effective
Time, each share of KFI Common Stock issued and outstanding immediately prior to the Effective Time (other than Dissenting Shares, shares held as treasury stock of KFI
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and shares held directly or indirectly by Horizon, except shares held in a fiduciary capacity or in satisfaction of a debt previously contracted, if any; collectively, the
Exempt KFI
Stock
) shall become and be converted into the right to receive in accordance with this
Article II
, at the election of the holder thereof and as provided in and subject to the provisions of
Sections 2.02
and
1.01(f)
,
either (or a combination of): (i) 3.0122 shares of Horizon common stock (the
Exchange Ratio
) (as adjusted in accordance with the terms of this Agreement), without par value (the aggregate stock consideration to be paid in the
Merger is referred to herein as the
Stock Consideration
), or (ii) $81.75 in cash (the aggregate cash consideration to be paid in the Merger is referred to herein as the
Cash Consideration
) (with the Stock
Consideration and the Cash Consideration collectively referred to herein as the
Merger Consideration
);
provided
,
however
, that the KFI stockholders owning less than 100 shares of KFI Common Stock as of the Effective
Time will only be entitled to receive $81.75 per share in cash and will not be entitled to receive any of the Stock Consideration.
2.02
Election Procedures
.
(a)
Cash and Stock Elections
. An election form and other appropriate and customary
transmittal materials (which shall specify that delivery shall be effected, and risk of loss and title to certificates shall pass, only upon proper delivery of such certificates to Computershare, Inc., as Horizons stock transfer agent (the
Exchange Agent
)) in such form as designated by Horizon and the Exchange Agent (the
Election Form
), shall be mailed prior to the anticipated Closing Date on such date as KFI and Horizon shall mutually agree upon
(the
Mailing Date
) to each holder of record of KFI Common Stock as of five (5) business days prior to the Mailing Date. Each Election Form shall permit the holder of record of KFI Common Stock (or in the case of nominee record
holders, the beneficial owner through proper instructions and documentation) to (i) elect to receive the Cash Consideration for all or a portion of such holders shares of KFI Common Stock (a
Cash Election
), (ii) elect to
receive the Stock Consideration for all or a portion of such holders shares of KFI Common Stock (a
Stock Election
), or (iii) make no election with respect to the receipt of the Cash Consideration or the Stock Consideration
(a
Non-Election
);
provided
,
however
, that, notwithstanding any other provision of this Agreement to the contrary, but subject to
Section
2.02(d)
, no more than 193,338 shares of KFI Common Stock (the
Stock Conversion Number
) shall be converted into the Stock Consideration and the remaining shares of KFI Common Stock issued and outstanding immediately prior to the Effective Time shall be converted into the Cash Consideration
(the
Cash Consideration Number
). Shares of KFI Common Stock as to which a Cash Election has been made are referred to herein as
Cash Election Shares
. Shares of KFI Common Stock as to which a Stock Election has
been made are referred to herein as
Stock Election Shares
. Shares of KFI Common Stock as to which no election has been made (or as to which an Election Form is not properly completed and returned in a timely fashion) are referred
to herein as
Non
-Election
Shares
. The aggregate number of shares of KFI Common Stock with respect to which a Stock Election has been made is referred to herein as the
Stock Election Number
.
(b)
Delivery of Election
. To be effective, a properly completed Election Form shall be
received by the Exchange Agent on or before 5:00 p.m., Eastern Time, on such date as mutually agreed upon by the parties (which date shall be at least five (5) business days prior to the anticipated Closing Date and shall be publicly announced by
Horizon as soon as practicable
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prior to such date) (the
Election Deadline
), accompanied by the certificates representing KFI Common Stock as to which such Election Form is being made or by an appropriate
guarantee of delivery of such certificates, as set forth in the Election Form, from a member of any registered national securities exchange or a commercial bank or trust company in the United States;
provided
,
however
, that any such
guarantee shall be subject to the condition that such certificates are in fact delivered to the Exchange Agent by the time required in such guarantee of delivery and failure to deliver the certificates covered by such guarantee of delivery within
the time set forth in such guarantee shall be deemed to invalidate any otherwise properly made election, unless otherwise determined by Horizon, in its sole discretion. For shares of KFI Common Stock (if any) held in book entry form, Horizon shall
establish procedures for delivery of such shares, which procedures shall be reasonably acceptable to KFI. If a holder of KFI Common Stock either (i) does not submit a properly completed Election Form in a timely fashion or (ii) revokes the
holders Election Form prior to the Election Deadline (without later submitting a properly completed Election Form prior to the Election Deadline), the shares of KFI Common Stock held by such holder shall be designated Non-Election Shares. All
Election Forms shall automatically be revoked, and all certificates returned, if the Exchange Agent is notified in writing by Horizon and KFI that this Agreement has been terminated. Subject to the terms of this Agreement and of the Election Form,
the Exchange Agent shall have reasonable discretion to determine whether any election, revocation or change has been properly or timely made and to disregard immaterial defects in any Election Form, and any good faith decisions of the Exchange Agent
regarding such matters shall be binding and conclusive. Neither Horizon nor the Exchange Agent shall be under any obligation to notify any Person of any defect in an Election Form
.
(c)
Allocation
. The allocation among the holders of shares of KFI Common Stock of rights to receive the Cash Consideration and the
Stock Consideration will be made as set forth in this
Section
2.02(c) (with the Exchange Agent to determine, consistent with
Section
2.02(a), whether fractions of Cash Election Shares, Stock Election Shares or
Non-Election Shares, as applicable, shall be rounded up or down).
(i)
Aggregate Stock Consideration Oversubscribed
.
If the Stock Election Number exceeds the Stock Conversion Number, then all Cash Election Shares and all Non-Election Shares shall be converted into the right to receive the Cash Consideration, and, subject to
Section 2.04
hereof, each holder
of Stock Election Shares will be entitled to receive the Stock Consideration in respect of that number of Stock Election Shares held by such holder equal to the product obtained by multiplying (x) the number of Stock Election Shares held by such
holder by (y) a fraction, the numerator of which is the Stock Conversion Number and the denominator of which is the Stock Election Number, with the remaining number of such holders Stock Election Shares being converted into the right to
receive the Cash Consideration;
(ii)
Aggregate Stock Consideration Undersubscribed
. If the Stock Election Number is
less than the Stock Conversion Number (the amount by which the Stock Conversion Number exceeds the Stock Election Number being referred to herein as the
Shortfall Number
), then all Stock Election Shares shall be converted into the
right to receive the Stock Consideration and the Non-Election Shares and the Cash Election Shares shall be treated in the following manner:
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(A)
Adjustment to Non-Election Share Allocation Only
. If the Shortfall
Number is less than or equal to the number of Non-Election Shares, then all Cash Election Shares shall be converted into the right to receive the Cash Consideration and, subject to Section 2.04 hereof, each holder of Non-Election Shares shall
receive the Stock Consideration in respect of that number of Non-Election Shares held by such holder equal to the product obtained by multiplying (x) the number of Non-Election Shares held by such holder by (y) a fraction, the numerator of which is
the Shortfall Number and the denominator of which is the total number of Non-Election Shares, with the remaining number of such holders Non-Election Shares being converted into the right to receive the Cash Consideration; or
(B)
Adjustment to Both Non-Election Share Allocation and Cash Election Share Allocation
. If the Shortfall Number exceeds
the number of Non-Election Shares, then all Non-Election Shares shall be converted into the right to receive the Stock Consideration, and, subject to Section 2.04 hereof, each holder of Cash Election Shares shall receive the Stock Consideration in
respect of that number of Cash Election Shares equal to the product obtained by multiplying (x) the number of Cash Election Shares held by such holder by (y) a fraction, the numerator of which is the amount by which the Shortfall Number exceeds the
total number of Non-Election Shares and the denominator of which is the total number of Cash Election Shares, with the remaining number of such holders Cash Election Shares being converted into the right to receive the Cash Consideration.
(d)
Discretion to Adjust Stock Consideration.
In the event
the parties hereto are unable to obtain the opinions of counsel
referred to in
Sections 7.01(h)
and
7.02(h)
or the Merger otherwise fails to qualify for the tax treatment described in
Section 1.03
, then Horizon may, in its sole discretion, increase the number of shares of KFI Common Stock
entitled to receive Stock Consideration by the minimum amount necessary to enable such tax opinions to be rendered and for the Merger to otherwise qualify for the tax treatment described in
Section 1.03
.
2.03
Anti-Dilution Adjustments
. If Horizon changes (or establishes a record date for changing) the
number of shares of Horizon common stock issued and outstanding prior to the Effective Time by way of a stock split, stock dividend, or similar transaction with respect to the outstanding Horizon common stock, and the record date therefor shall be
prior to the Effective Time, the Exchange Ratio shall be adjusted so the shareholders of KFI at the Effective Time shall receive, in the aggregate, such number of shares of Horizon common stock representing the same percentage of the outstanding
shares of Horizon common stock as would have been represented by the number of shares of Horizon common stock the shareholders of KFI would have received if any of the foregoing actions had not occurred. No adjustment shall be made under this
Section 2.03
solely as a result of Horizon changing its cash dividend levels or issuing additional shares of Horizon common stock provided it receives value for such shares or such shares are issued in connection with a Horizon employee
benefit plan or similar plan.
2.04
No Fractional Shares
. Notwithstanding any other provision in
this Agreement, no fractional shares of Horizon common stock and no certificates or scrip therefor, or other
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evidence of ownership thereof, will be issued in the Merger; instead, Horizon shall pay to each holder of KFI Common Stock who otherwise would be entitled to a fractional share of Horizon common
stock an amount in cash (without interest) determined by multiplying such fraction by the average of the daily closing sales prices of a share of Horizons common stock, rounded to the nearest cent, during the fifteen (15) consecutive trading
days immediately preceding the second business day prior to the Closing Date;
provided
,
however
, that closing sales prices shall only be used for days during which such shares are actually traded on the NASDAQ Global Select Market.
2.05
Exchange Procedures
.
(a) At and after the Effective Time, each certificate representing outstanding shares of KFI Common Stock (other than the Exempt KFI Stock)
shall represent only the right to receive the Merger Consideration in accordance with the terms of this Agreement. At or prior to the Effective Time, Horizon shall reserve a sufficient number of shares of Horizon common stock to be issued as part of
the Merger Consideration.
(b) As promptly as practicable after the Effective Time (and provided KFI has delivered to the Exchange Agent
all information which is necessary for the Exchange Agent to perform its obligations hereunder), the Exchange Agent shall mail to each holder of KFI Common Stock who did not surrender, or who improperly surrendered, such shareholders stock
certificates representing his or her shares of KFI Common Stock (the
Old Certificates
) to the Exchange Agent, a letter of transmittal providing instructions as to the transmittal to the Exchange Agent of the Old Certificates in
exchange for the issuance of the Stock Consideration and/or the Cash Consideration applicable thereto in exchange for the Old Certificates pursuant to the terms of this Agreement.
(c) Horizon shall cause a certificate representing that number of whole shares of Horizon common stock that each holder of KFI Common Stock
has the right to receive pursuant to
Section 2.01
and
2.02
and/or a check in the amount of such holders proportionate share of the Cash Consideration, as applicable, and any cash in lieu of fractional shares or dividends or
distributions which such holder shall be entitled to receive, if any, to be delivered to such shareholder as soon as reasonably practicable after delivery to Horizon of the Old Certificates (or bond or other indemnity satisfactory to Horizon if any
of such certificates are lost, stolen or destroyed) owned by such shareholder accompanied by a properly completed and executed letter of transmittal, in the form and substance satisfactory to Horizon, and any other documents required by this
Agreement or reasonably requested by Horizon or the Exchange Agent. No interest will be paid on any Merger Consideration that any such holder shall be entitled to receive pursuant to this
Article II
upon such delivery.
(d) No dividends or other distributions on Horizon common stock with a record date occurring after the Effective Time shall be paid to the
holder of any unsurrendered Old Certificate representing shares of KFI Common Stock converted in the Merger into the right to receive shares of Horizon common stock until the holder thereof surrenders such Old Certificates in accordance with this
Article II
. After becoming so entitled in accordance with this
Section 2.05
, the record holder thereof also shall be entitled to receive any such dividends or other distributions, without any interest thereon, which theretofore had
become payable with respect to
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shares of Horizon common stock such holder had the right to receive upon surrender of the Old Certificate.
(e) The stock transfer books of KFI shall be closed immediately upon the Effective Time and from and after the Effective Time there shall be
no transfers on the stock transfer records of KFI of any shares of KFI Common Stock. If, after the Effective Time, Old Certificates are presented to Horizon, they shall be canceled and exchanged for the Merger Consideration deliverable in respect
thereof pursuant to this Agreement in accordance with the procedures set forth in this
Article II
.
(f) Horizon shall be entitled
to rely upon KFIs stock transfer books to establish the identity of those individuals, partnerships, corporations, trusts, joint ventures, organizations or other entities (each, a
Person
) entitled to receive the Merger
Consideration, which books shall be conclusive with respect thereto. In the event of a dispute with respect to ownership of stock represented by any Old Certificate, Horizon shall be entitled to deposit any Merger Consideration represented thereby
in escrow with an independent third party selected by Horizon and thereafter be relieved from any and all liability with respect to any claims thereto.
(g) If any Old Certificate shall have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the Person claiming
such Old Certificate to be lost, stolen, or destroyed and, if required by Horizon, the posting by such Person of a bond or other indemnity satisfactory to Horizon as indemnity against any claim that may be made against it with respect to such Old
Certificate, Horizon will issue in exchange for such affidavit of lost, stolen, or destroyed Old Certificate, the Merger Consideration deliverable in respect thereof pursuant to, and in accordance with, the other terms and conditions of this
Article II
.
(h) Notwithstanding anything in this Agreement to the contrary, at the Effective Time, all shares of KFI Common Stock
that are held as treasury stock of KFI or owned by Horizon (other than shares held in a fiduciary capacity or in satisfaction of a debt previously contracted) shall be cancelled and shall cease to exist, and no stock of Horizon or other
consideration shall be exchanged therefor.
(i) Notwithstanding the foregoing, no party hereto shall be liable to any former holder of KFI
Common Stock for any amount properly delivered to a public official pursuant to applicable abandoned property, escheat or similar laws.
(j) If outstanding certificates for shares of KFI Common Stock are not surrendered or the payment for them is not claimed prior to the date on
which the Merger Consideration payable therefor would otherwise escheat to, or become the property of any governmental unit or agency, the unclaimed Merger Consideration shall, to the extent permitted by abandoned property and any other applicable
law, become the property of Horizon (and to the extent not in its possession shall be delivered to it), free and clear of all claims or interest of any Person previously entitled thereto. Neither the Exchange Agent nor any party to this Agreement
shall be liable to any holder of shares of KFI Common Stock for any Merger Consideration paid to a public official pursuant to applicable abandoned property, escheat or similar laws.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF KFI
On or prior to the date hereof, KFI has delivered to Horizon a schedule (the
KFI Disclosure Schedule
) setting forth, among
other things, items the disclosure of which is 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 III
or to one or more of its covenants contained in
Article V
.
For the purpose of this Agreement, and in relation
to KFI, a
Material Adverse Effect
means any effect that (i) is material and adverse to the results of operations, properties, assets, liabilities, conditions (financial or otherwise), value or business of KFI and its
Subsidiaries (as defined below in this introduction to
Article III
) on a consolidated basis, or (ii) would materially impair the ability of KFI or any of its Subsidiaries to perform its obligations under this Agreement or any related
agreement or otherwise materially threaten or materially impede the consummation of the Merger and the other transactions contemplated by this Agreement;
provided
,
however
, that Material Adverse Effect on KFI shall not be deemed to
include the impact of (a) changes in banking and similar laws of general applicability to banks or their holding companies or interpretations thereof by courts or governmental authorities, (b) changes in GAAP or regulatory accounting
requirements applicable to banks or their holding companies generally, (c) effects of any action or omission taken with the prior written consent of Horizon or at the direction of Horizon, (d) changes resulting from professional expenses
(such as legal, accounting and investment bankers fees) incurred in connection with this Agreement or the transactions contemplated herein, (e) the impact of the announcement of this Agreement and the transactions contemplated hereby, and
compliance with this Agreement on the business, financial condition or results of operations of KFI and its Subsidiaries, and (f) the occurrence of any military or terrorist attack within the United States or any of its possessions or offices.
For the purpose of this Agreement, and in relation to KFI and its Subsidiaries,
knowledge
means those facts that are
actually known by the executive officers of KFI and its Subsidiaries. Additionally, for the purpose of this Agreement, and in relation to KFI, its
Subsidiaries
shall mean any entity which is required to be consolidated with KFI
for financial reporting purposes pursuant to United States generally accepted accounting principles (
GAAP
).
Accordingly, KFI hereby represents and warrants to Horizon as follows, except as set forth in its Disclosure Schedule:
3.01
Organization and Authority
.
(a) KFI is a corporation duly organized and validly existing under the laws of the state of Indiana and is a registered bank holding company
under the BHC Act. KFI has full power and authority (corporate and otherwise) to own and lease its properties as presently owned and leased and to conduct its business in the manner and by the means utilized as of the date hereof. KFI has previously
provided Horizon with a complete list of its Subsidiaries. Except for
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FSB, KFI owns directly no voting stock or equity securities of any corporation, partnership, association or other entity.
(b) FSB is an Indiana state chartered bank existing under the laws of the State of Indiana. FSB has full power and authority (corporate and
otherwise) to own and lease its properties as presently owned and leased and to conduct its business in the manner and by the means utilized as of the date hereof. FSB owns no voting stock or equity securities of any corporation, partnership,
association or other entity.
3.02
Authorization
.
(a) KFI has the requisite corporate power and authority to enter into this Agreement and to perform its obligations hereunder, subject to the
fulfillment of the conditions precedent set forth in
Sections 7.02(e)
and
(f)
hereof. This Agreement and its execution and delivery by KFI have been duly authorized and approved by the Board of Directors of KFI and, assuming due
execution and delivery by Horizon, constitutes a valid and binding obligation of KFI, subject to the terms and conditions hereof, and is enforceable in accordance with its terms, except to the extent limited by general principles of equity and
public policy and by bankruptcy, insolvency, fraudulent transfer, reorganization, liquidation, moratorium, readjustment of debt or other laws of general application relating to or affecting the enforcement of creditors rights.
(b) Neither the execution of this Agreement nor consummation of the Merger contemplated hereby: (i) conflicts with or violates the
Articles of Incorporation or Bylaws of KFI or the charter documents of any of KFIs Subsidiaries; (ii) conflicts with or violates any local, state, federal or foreign law, statute, ordinance, rule or regulation (provided that the
approvals of or filings with applicable government regulatory agencies or authorities required for consummation of the Merger are obtained) or any court or administrative judgment, order, injunction, writ or decree; (iii) conflicts with,
results in a breach of or constitutes a default under any note, bond, indenture, mortgage, deed of trust, license, lease, contract, agreement, arrangement, commitment or other instrument to which KFI or any of its Subsidiaries is a party or by which
KFI or any of its Subsidiaries is subject or bound; (iv) results in the creation of or gives any Person the right to create any lien, charge, claim, encumbrance or security interest, or results in the creation of any other rights or claims of
any other party (other than Horizon) or any other adverse interest, upon any right, property or asset of KFI or any of its Subsidiaries; or (v) terminates or gives any Person the right to terminate, accelerate, amend, modify or refuse to
perform under any note, bond, indenture, mortgage, agreement, contract, lease, license, arrangement, deed of trust, commitment or other instrument to which KFI or any of its Subsidiaries is bound or with respect to which KFI or any of its
Subsidiaries is to perform any duties or obligations or receive any rights or benefits.
(c) Other than in connection or in compliance
with the provisions of the applicable federal and state banking, securities, antitrust and corporation statutes, all as amended, and the rules and regulations promulgated thereunder, no notice to, filing with, exemption by or consent,
authorization or approval of any governmental agency or body is necessary for consummation of the Merger by KFI.
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3.03
Capitalization.
(a) As of the date of this Agreement, the authorized capital stock of KFI consists of 700,000 shares of KFI Common Stock, $10.00 par value per
share, 297,444 shares of which are issued and outstanding, and no shares of preferred stock. As of immediately prior to the Effective Time, there shall be 297,444 shares of KFI Common Stock outstanding. Such issued and outstanding shares of KFI
Common Stock have been duly and validly authorized by all necessary corporate action of KFI, are validly issued, fully paid and nonassessable and have not been issued in violation of any pre-emptive rights. KFI has no capital stock authorized,
issued or outstanding other than as described in this
Section 3.03(a)
and has no intention or obligation to authorize or issue any other capital stock or any additional shares of stock or securities convertible into stock. Each share of KFI
Common Stock is entitled to one vote per share.
(b) Except as set forth in
Section 3.03(b)
of the KFI Disclosure Schedule, all of
the issued and outstanding shares of capital stock or other equity ownership interests of each Subsidiary of KFI are owned by KFI, directly or indirectly, free and clear of all liens, pledges, charges, claims, encumbrances, restrictions, security
interests, options and pre-emptive rights and of all other rights or claims of any other Person with respect thereto.
(c) There are no
options, warrants, commitments, calls, puts, agreements, understandings, arrangements or subscription rights relating to any shares of KFI Common Stock or any shares of capital stock of KFIs Subsidiaries, or any securities convertible into or
representing the right to purchase or otherwise acquire any common stock or debt securities of KFI or its Subsidiaries, by which KFI is or may become bound. KFI does not have any outstanding contractual or other obligation to repurchase, redeem or
otherwise acquire any of the issued and outstanding shares of KFI Common Stock. To KFIs knowledge, there are no voting trusts, voting arrangements, buy-sell agreements or similar arrangements affecting the capital stock of KFI or its
Subsidiaries.
(d) Except as set forth in
Section 3.03(d)
of the KFI Disclosure Schedule, KFI has no knowledge of any Person which
beneficially owns (as defined in Rule 13d-3 under the Securities Exchange Act of 1934 (the
1934 Act
)) 10% or more of the outstanding shares of KFI Common Stock.
3.04
Organizational Documents
. The Articles of Incorporation and Bylaws of KFI and any similar governing
documents for each of KFIs Subsidiaries, representing true, accurate and complete copies of such corporate documents in effect as of the date of this Agreement, are attached to and included in
Section 3.04
of the KFI Disclosure
Schedule.
3.05
Compliance with Law
.
(a) None of KFI or any of its Subsidiaries is currently in material violation of, and during the preceding five (5) years, none has been in
material violation of, any local, state, federal or foreign law, statute, regulation, rule, ordinance, order, restriction or requirement, and none is in violation of any order, injunction, judgment, writ or decree of any court or government agency
or body (collectively, the
Law
). KFI and its Subsidiaries possess and hold all licenses, franchises, permits, certificates and other authorizations necessary for the continued conduct of
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their business without interference or interruption, except where the failure to possess and hold the same would not have a Material Adverse Effect, and such licenses, franchises, permits,
certificates and authorizations are transferable (to the extent required) to Horizon at the Effective Time without any restrictions or limitations thereon or the need to obtain any consents of government agencies or other third parties other than as
set forth in this Agreement.
(b)
Section 3.05(b)
of the KFI Disclosure Schedule sets forth, as of the date hereof, a schedule of
all officers (vice presidents and higher) and directors of KFI who have outstanding loans from KFI or any of its Subsidiaries, and there has been no default on, or forgiveness or waiver of, in whole or in part, any such loan during the two (2) years
immediately preceding the date hereof.
(c) All of the existing offices and branches of FSB have been legally authorized and established
in accordance with all applicable federal, state and local laws, statutes, regulations, rules, ordinances, orders, restrictions and requirements. FSB has no approved but unopened offices or branches.
3.06
Accuracy of Information Provided to Horizon
. KFI agrees that the information concerning KFI or any of
its Subsidiaries that is provided or to be provided by KFI to Horizon for inclusion or that is included in the Registration Statement or Proxy Statement (each as defined in
Section 6.02
), and any other documents to be filed with any
regulatory authority or governmental entity in connection with the Merger and the other transactions contemplated by this Agreement will: (a) at the respective times such documents are filed and, in the case of the Registration Statement, when it
becomes effective and, with respect to the Proxy Statement, when mailed, not 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, in light of the
circumstances under which they were made, not misleading; or (b) in the case of the Proxy Statement or any amendment thereof or supplement thereto, at the time of the KFI Shareholders Meeting, not be false or misleading with respect to any
material fact, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of any proxy for the meeting in connection with which the Proxy Statement shall be mailed.
Notwithstanding the foregoing, KFI shall have no responsibility for the truth or accuracy of any information with respect to Horizon or any of its Subsidiaries or any of their affiliates contained in the Registration Statement or the Proxy Statement
or in any document submitted to, or other communication with, any regulatory agency or governmental body.
3.07
Litigation and Pending Proceedings
.
(a) Except for lawsuits described in
Section 3.07(a)
of the KFI Disclosure Schedule and lawsuits involving collection of delinquent
accounts, there are no claims, actions, suits, proceedings, mediations, arbitrations or investigations pending or threatened against KFI or any of its Subsidiaries, and to KFIs knowledge there is no basis for any claim, action, suit,
proceeding, litigation, arbitration or investigation against KFI or any of its Subsidiaries.
(b) Neither KFI nor any of its Subsidiaries
is: (i) subject to any outstanding judgment, order, writ, injunction or decree of any court, arbitration panel or governmental agency or authority; (ii) presently charged with or under governmental investigation with respect to, any
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actual or alleged violations of any law, statute, rule, regulation or ordinance; or (iii) the subject of any pending or threatened proceeding by any government regulatory agency or authority
having jurisdiction over their respective business, assets, capital, properties or operations.
3.08
Financial Statements and Reports
.
(a) KFI has delivered to Horizon copies of the following financial statements and reports
of KFI and its Subsidiaries, including the notes thereto (collectively, the
KFI Financial Statements
):
(i) Consolidated balance sheets and the related consolidated statements of earnings, consolidated statements of cash flows, and
consolidated statements of changes in shareholders equity of KFI as of and for the fiscal years ended December 31, 2012, 2013 and 2014;
(ii) internal (unaudited) consolidated balance sheet and income statement as of and for the nine months ended
September 30, 2015 (without footnotes); and
(iii) Call Reports (
Call Reports
) for FSB for the
periods ending on December 31, 2012, 2013 and 2014, and September 30, 2015.
(b) The KFI Financial Statements present fairly in
all material respects the consolidated financial position of KFI as of and at the dates shown and the consolidated results of operations, (if presented) cash flows and (if presented) changes in shareholders equity for the periods covered
thereby and are complete, correct, represent bona fide transactions, and have been prepared from the books and records of KFI and its Subsidiaries. The KFI Financial Statements described in clause (i) above are audited financial statements and have
been prepared in conformance with GAAP, except as may otherwise be indicated in any accountants notes or reports with respect to such financial statements.
(c) Since September 30, 2015 on a consolidated basis, KFI and its Subsidiaries have not incurred any material liability other than in the
ordinary course of business consistent with past practice.
3.09
Material Contracts
.
(a) As of the date of this Agreement, and except as disclosed by
Section 3.09(a)
of the KFI Disclosure Schedule, neither KFI nor any of
its Subsidiaries, nor any of their respective assets, businesses, or operations, is a party to, or is bound or affected by, or receives benefits under (collectively, the
Material Contracts
):
(i) any contract relating to the borrowing of money in excess of $50,000 by KFI or any of its Subsidiaries or the guarantee by
KFI or any of its Subsidiaries of any such obligation (other than contracts pertaining to fully-secured repurchase agreements, and trade payables, and contracts relating to borrowings or guarantees made in the ordinary course of business),
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(ii) any contract containing covenants that limit the ability of KFI or any of
its Subsidiaries to compete in any line of business or with any Person, or to hire or engage the services of any Person, or that involve any restriction of the geographic area in which, or method by which, KFI or any of its Subsidiaries may carry on
its business (other than as may be required by Law (as defined in
Section 3.05(a)
) or any Governmental Authority (as defined in
Section 5.13
)), or any contract that requires it or any of its Subsidiaries to deal exclusively or on a
sole source basis with another party to such contract with respect to the subject matter of such contract,
(iii) any contract for, with respect to, or that contemplates, a possible merger, consolidation, reorganization,
recapitalization, joint venture, or other business combination, or asset sale or sale of equity securities not in the ordinary course of business consistent with past practice, with respect to KFI or any of its Subsidiaries,
(iv) any contract deemed material by KFI or FSB for the continued operations of KFI and/or FSB by Horizon or any of its
Subsidiaries after the Effective Time,
(v) any lease of real or personal property providing for total aggregate lease
payments by or to KFI or its Subsidiaries during the remaining term of the agreement in excess of $50,000 or having a remaining term in excess of two years, other than financing leases entered into in the ordinary course of business in which KFI or
any of its Subsidiaries is the lessor,
(vi) any contract that involves total aggregate expenditures or receipts by KFI or
any of its Subsidiaries in excess of $50,000 during the remaining term of the agreement or having a remaining term in excess of two years, or
(vii) each licensing agreement or other contract with respect to patents, trademarks, copyrights, or other intellectual
property, including software agreements and including agreements with current or former employees, consultants or contractors regarding the appropriation or the nondisclosure of any of its intellectual property.
(b) With respect to each of KFIs Material Contracts: (i) each such Material Contract is in full force and effect; (ii) neither
KFI nor any of its Subsidiaries is in default thereunder, as such term or concept is defined in each such Material Contract; (iii) neither KFI nor any of its Subsidiaries has repudiated or waived any material provision of any such Material
Contract; (iv) to KFIs knowledge, no other party to any such Material Contract is in default; and (v) a true and complete copy of each such Material Contract has been previously delivered to Horizon.
(c) Neither KFI nor any of its Subsidiaries have entered into any interest rate swaps, caps, floors, option agreements, futures and forward
contracts, or other similar risk management arrangements, whether entered into for KFIs own account or for the account of one or more of its Subsidiaries or their respective customers.
3.10
Absence of Undisclosed Liabilities
. Except as provided in the KFI Financial Statements and except for
unfunded loan commitments and obligations on letters of credit to customers of KFIs Subsidiaries made in the ordinary course of business, except for trade payables incurred in the ordinary course of such Subsidiaries business, and except
for the
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transactions contemplated by this Agreement and obligations for services rendered pursuant thereto, none of KFI or any of its Subsidiaries has, nor will have at the Effective Time, any
obligation, agreement, contract, commitment, liability, lease or license made outside of the ordinary course of business, nor, to KFIs knowledge, does there exist any circumstances resulting from transactions effected or events occurring on or
prior to the date of this Agreement or from any action omitted to be taken during such period which could reasonably be expected to result in any such obligation, agreement, contract, commitment, liability, lease or license. None of KFI or any of
its Subsidiaries is delinquent in the payment of any amount due pursuant to any trade payable, and each has properly accrued for such payables in accordance with GAAP.
3.11
Title to Properties
.
(a)
Section 3.11(a)
of the KFI Disclosure Schedule includes a list of all real property owned (including other real estate owned
(
OREO
)) and leased by KFI or any Subsidiary. KFI or one of its Subsidiaries, as the case may be, has marketable title in fee simple to all owned real property (including, without limitation, all real property used as bank premises
and all OREO); marketable title to all personal property reflected in the KFI Financial Statements as of September 30, 2015, other than personal property disposed of in the ordinary course of business since September 30, 2015; the right to
use by valid and enforceable written lease or contract all other real property which KFI or any of its Subsidiaries uses in its respective business; marketable title to, or right to use by terms of a valid and enforceable written lease or contract,
all other tangible and intangible property used in its respective business to the extent material thereto; and marketable title to all material property and assets acquired (and not disposed of) or leased since September 30, 2015. All of such
owned properties and assets are owned by KFI or its Subsidiaries free and clear of all land or conditional sales contracts, mortgages, liens, pledges, restrictions, options, security, interests, charges, claims, rights of third parties or
encumbrances of any nature except: (i) as set forth in
Section 3.11(a)
of the KFI Disclosure Schedule; (ii) as specifically noted in reasonable detail in the KFI Financial Statements; (iii) statutory liens for taxes not yet
delinquent or being contested in good faith by appropriate proceedings; (iv) pledges or liens required to be granted in connection with the acceptance of government deposits or granted in connection with repurchase or reverse repurchase
agreements; and (v) easements, encumbrances and liens and other matters of record, imperfections of title and other limitations which are not material in amount and which do not detract from the value or materially interfere with the present or
contemplated use of any of the properties subject thereto or otherwise materially impair the use thereof for the purposes for which they are held or used. All real property owned or leased by KFI or its Subsidiaries is in compliance in all respects
with all applicable zoning and land use laws and there are no encroachments or other violations of law with respect to any such property. All such properties also comply in all material respects 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. All real property, machinery, equipment, furniture and fixtures owned or
leased by KFI or its Subsidiaries that is material to their respective businesses is in good operating condition for its intended purpose (ordinary wear and tear excepted) and has been and is being maintained and repaired in the ordinary condition
of business.
(b) After the date hereof, Horizon shall be entitled, at its own cost, to obtain new commitments for, and policies of title
insurance or surveys in respect of, any real property owned
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or leased by KFI or its Subsidiaries. Within thirty (30) days after the later of Horizons receipt of such surveys and title commitments, Horizon shall notify KFI of any objections to any
exceptions, conditions or other matters contained in or set forth in any survey or title commitment other than Standard Permitted Exceptions (the
Unpermitted Exceptions
). The term
Standard Permitted Exceptions
shall include (i) liens for real estate taxes and assessments not yet delinquent; and (ii) utility, access and other easements, rights of way, restrictions and exceptions existing on the real estate owned or leased by KFI as shown in the title
commitments or surveys, none of which impair such real property for the use and business being conducted thereon in any material respect. Within ten (10) days after receipt of such written notice of Unpermitted Exceptions from Horizon, KFI shall
commence using its best efforts to cure any such Unpermitted Exceptions to the satisfaction of Horizon prior to the Closing. If KFI agrees to cure the Unpermitted Exceptions but is unable to cure the Unpermitted Exceptions to the reasonable
satisfaction of Horizon prior to the Closing, or does not agree to do so, Horizon may either: (i) waive the uncured Unpermitted Exceptions and close the transactions contemplated by this Agreement; or (ii) if such Unpermitted Exceptions decrease the
value of the property by more than $100,000 in the reasonable and good faith estimate of Horizon or would require the expenditure of monies (including legal fees and costs) in excess of $100,000 to cure such Unpermitted Exceptions, reduce the Cash
Consideration by the amount Horizon and KFI reasonably determine will be required to remove or cure the Unpermitted Exceptions (or provide a reasonable alternative thereto).
(c) With respect to all real property presently or formerly owned, leased or used by KFI or any of its Subsidiaries, to the knowledge of KFI,
KFI, its Subsidiaries and each of the prior owners, have conducted their respective business in material compliance with all applicable federal, state, county and municipal laws, statutes, regulations, rules, ordinances, orders, directives,
restrictions and requirements relating to, without limitation, responsible property transfer, underground storage tanks, petroleum products, air pollutants, water pollutants or storm water or process waste water or otherwise relating to the
environment, air, water, soil or toxic or hazardous substances or to the manufacturing, recycling, handling, processing, distribution, use, generation, treatment, storage, disposal or transport of any hazardous or toxic substances or petroleum
products (including polychlorinated biphenyls, whether contained or uncontained, and asbestos-containing materials, whether friable or not), including, without limitation, the Federal Solid Waste Disposal Act, the Hazardous and Solid Waste
Amendments, the Federal Clean Air Act, the Federal Clean Water Act, the Occupational Health and Safety Act, the Federal Resource Conservation and Recovery Act, the Toxic Substances Control Act, the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 and the Superfund Amendments and Reauthorization Act of 1986, all as amended, and regulations of the Environmental Protection Agency, the Nuclear Regulatory Agency, the Army Corps of Engineers, the Department
of Interior, the United States Fish and Wildlife Service and any state department of natural resources or state environmental protection agency now or at any time thereafter in effect (collectively,
Environmental Laws
). There are
no pending or threatened claims, actions or proceedings by any local municipality, sewage district or other governmental entity against KFI or any of its Subsidiaries with respect to the Environmental Laws, and, to KFIs knowledge, there is no
reasonable basis or grounds for any such claim, action or proceeding. To the knowledge of KFI, no environmental clearances are required for the conduct of the business of KFI or any of its Subsidiaries as currently conducted or the consummation of
the Merger or any of the other transactions contemplated hereby. To the knowledge of KFI,
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neither KFI nor any of its Subsidiaries is the owner, or has been in the chain of title or the operator or lessee, of any property on which any substances have been used, stored, deposited,
treated, recycled or disposed of, other than in compliance with Environmental Laws and which substances, if known to be present on, at or under such property, would require clean-up, removal, treatment, abatement, response costs, or any other
remedial action under any Environmental Law. To the knowledge of KFI, neither KFI nor any of its Subsidiaries has any liability for any clean-up or remediation under any of the Environmental Laws with respect to any real property.
3.12
Loans and Investments
.
(a)
Section 3.12(a)
of the KFI Disclosure Schedule contains (i) a list of each loan by FSB that has been classified by regulatory
examiners or management as Other Loans Especially Mentioned, Substandard, Doubtful or Loss or that has been identified by accountants or auditors (internal or external) as having a significant risk of
uncollectability as of September 30, 2015, (ii) the most recent loan watch list of FSB and a list of all loans which have been determined to be thirty (30) days or more past due with respect to principal or interest payments, have been placed
on nonaccrual status, or have been designated as Troubled Debt Restructuring (
TDR
) loans, and (iii) a description of all unfunded loan commitments (and loans currently under consideration) of the types and amounts described in
Section 5.03(a)(iv)
of this Agreement. KFI and FSB have not sold, purchased or entered into any loan participation arrangement which was outstanding at September 30, 2015, except where such participation is on a pro rata basis according
to the respective contributions of the participants to such loan amount.
Section 3.12(a)
of the KFI Disclosure Schedule also contains a true, accurate and complete list of all loans in which FSB has any participation interest or which have
been made with or through another financial institution on a recourse basis against FSB.
(b) All loans reflected in the KFI Financial
Statements as of September 30, 2015 and which have been made, extended, renewed, restructured, approved, amended or acquired since September 30, 2015: (i) have been made for good, valuable and adequate consideration in the ordinary
course of business; (ii) constitute the legal, valid and binding obligation of the obligor and any guarantor named therein, except to the extent limited by general principles of equity and public policy or by bankruptcy, insolvency, fraudulent
transfer, reorganization, liquidation, moratorium, readjustment of debt or other laws of general application relative to or affecting the enforcement of creditors rights; (iii) are evidenced by notes, instruments or other evidences of
indebtedness which are true, genuine and what they purport to be; and (iv) are secured by perfected security interests or recorded mortgages naming FSB as the secured party or mortgagee (unless by written agreement to the contrary).
(c) The allowance for loan and lease losses and the carrying value for OREO which are shown on the KFI Financial Statements are, in the
judgment of management of KFI, adequate in all respects under the requirements of GAAP to provide for possible losses on items for which reserves were made, on loans and leases outstanding and OREO as of the respective dates.
(d) None of the investments reflected in the KFI Financial Statements as of and for the twelve months ended September 30, 2015, and none
of the investments made by any Subsidiary of KFI since September 30, 2015 are subject to any restriction, whether contractual or
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statutory, which materially impairs the ability of such Subsidiary to dispose freely of such investment at any time. Neither KFI nor any of its Subsidiaries is a party to any repurchase
agreements with respect to securities. 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 KFI and FSB, as reflected in the latest balance sheet in the KFI 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 KFI and FSB, as reflected in the latest balance sheet in the KFI Financial Statements, are carried in the aggregate at market value. Provisions for losses have been made on all such securities
that have had a decline in value deemed other than temporary as defined in SEC Staff Accounting Bulletin No. 59.
3.13
Indebtedness
. Except as set forth in
Section 3.13
of the KFI Disclosure Schedule and except for customer deposits and ordinary trade payables and FHLB advances, neither KFI nor any of its Subsidiaries has, and none will
have at the Effective Time, any indebtedness for borrowed money.
3.14
No Shareholder Rights
Plan
. KFI has no outstanding shareholder rights plan or any other plan, program or agreement involving, restricting, prohibiting or discouraging a change in control or merger of KFI or which reasonably could be considered an anti-takeover
mechanism.
3.15
Employee Benefit Plans
.
(a) With respect to the employee benefit plans, as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
(
ERISA
), sponsored or otherwise maintained by any member of a controlled group of corporations under Code Section 414(b) of which KFI is or was a member, and any trade or business (whether or not incorporated) which is or was
under common control with KFI under Code Section 414(c), and all other entities which together with KFI are or were prior to the date hereof treated as a single employer under Code Section 414(m) or 414(o) (an
ERISA Affiliate
),
whether written or oral, in which KFI or any ERISA Affiliate participates as a participating employer, or to which KFI or any ERISA Affiliate contributes, or any nonqualified employee benefit plans or deferred compensation, bonus, stock, performance
share, phantom stock or incentive plans or arrangements, or other employee benefit or fringe benefit programs for the benefit of former or current employees or directors (or their beneficiaries or dependents) of KFI or any ERISA Affiliate, and
including any such plans which have been terminated, merged into another plan, frozen or discontinued since January 1, 2009 (individually,
KFI Plan
and collectively,
KFI Plans
), KFI represents and warrants,
except as set forth in
Section 3.15(a)
of the KFI Disclosure Schedule:
(i) All such KFI Plans have, on a continuous
basis since their adoption, been, in all material respects, maintained in compliance with their respective terms and with the requirements prescribed by all applicable statutes, orders and governmental rules or
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regulations, including without limitation, ERISA and the Department of Labor (
Department
) Regulations promulgated thereunder and the Code and Treasury Regulations promulgated
thereunder.
(ii) All KFI Plans intended to constitute tax-qualified plans under Code Section 401(a) have complied in form
since their adoption and have been timely amended to comply in all material respects with all applicable requirements of the Code and the Treasury Regulations and each such Plan either (A) has received a determination letter from the Internal
Revenue Service upon which KFI may rely regarding such plans tax qualified status under the Code, or (B) is a pre-approved volume submitter or prototype plan that is the subject of an opinion letter issued by the Internal Revenue Service.
(iii) All KFI Plans that provide for payments of nonqualified deferred compensation (as defined in Code Section
409A(d)(1)) have, in all material respects, been (A) operated in good faith compliance with the applicable requirements of Code Section 409A and applicable guidance thereunder since January 1, 2005, and (B) amended to comply in written form
with Code Section 409A and the Treasury Regulations promulgated thereunder.
(iv) No KFI Plan (or its related trust) holds
any stock or other securities of KFI and no KFI Plan allows for the granting of any awards over or with respect to any stock or other securities of KFI.
(v) Neither KFI, an ERISA Affiliate, nor to the knowledge of KFI, any other fiduciary as defined in ERISA Section 3(21)(A)
of a KFI Plan has engaged in any transaction that may subject KFI, any ERISA Affiliate or any KFI Plan to a civil penalty imposed by ERISA Section 502 or any other provision of ERISA or excise taxes under Code Section 4971, 4975, 4976, 4977, 4979 or
4980B.
(vi) All obligations required to be performed by KFI or any ERISA Affiliate under any provision of any KFI Plan
have been performed by it in all material respects and, neither KFI nor any ERISA Affiliate is, in any material respect, in default under or in violation of any provision of any KFI Plan.
(vii) All required reports and descriptions for the KFI Plans have, in all material respects, been timely filed and distributed
to participants and beneficiaries, and all notices required by ERISA or the Code with respect to all KFI Plans have been proper as to form and timely given.
(viii) No event has occurred which would reasonably constitute grounds for an enforcement action by any party under Part 5 of
Title I of ERISA with respect to any KFI Plan.
(ix) There are no examinations, audits, enforcement actions or proceedings,
or any other investigations, pending or threatened by any governmental agency involving any KFI Plan.
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(x) There are no actions, suits, proceedings or claims pending (other than
routine claims for benefits) or threatened against KFI or any ERISA Affiliate in connection with any KFI Plan or the assets of any KFI Plan.
(xi) Any KFI Plan may be amended and terminated at any time without any material liability and these rights have always been
maintained by KFI and its ERISA Affiliates.
(b) KFI has provided or made available to Horizon true, accurate and complete copies and, in
the case of any plan or program which has not been reduced to writing, a materially complete summary, of all of the following KFI Plans, as applicable:
(i) All current pension, retirement, profit-sharing, savings, stock purchase, stock bonus, stock ownership, stock option,
restricted stock, restricted stock unit, phantom stock, performance share and stock appreciation right plans, all amendments thereto, and, if required under the reporting and disclosure requirements of ERISA, all current summary plan descriptions
thereof (including any modifications thereto);
(ii) All current employment, deferred compensation (whether funded or
unfunded), salary continuation, change in control, consulting, bonus, severance, and collective bargaining, agreements, arrangements or understandings;
(iii) All current executive and other incentive compensation plans, programs and agreements;
(iv) All current group insurance, medical, and prescription drug arrangements, policies or plans;
(v) All other current incentive, welfare or employee benefit plans, understandings, arrangements or agreements, maintained or
sponsored, participated in, or contributed to by KFI for its current or former directors, officers or employees;
(vi) All
reports filed with the Internal Revenue Service or the Department within the preceding three (3) years by KFI or any ERISA Affiliate with respect to any KFI Plan;
(vii) All current participants in such plans and programs and all participants with benefit entitlements under such plans and
programs; and
(viii) Valuations or allocation reports for any defined contribution and defined benefit plans as of the
most recent allocation and valuation dates.
(c) Except as disclosed in
Section 3.15(c)
of the KFI Disclosure Schedule, no current
or former director, officer or employee of KFI or any ERISA Affiliate (i) is entitled to or may become entitled to any benefit under any KFI Plans that are welfare benefit plans (as defined in ERISA Section 3(1)) after termination of employment with
KFI or any ERISA Affiliate, except to the extent such individuals may be entitled to continue their group health care coverage pursuant to Code Section 4980B, or (ii) is currently receiving, or entitled to commence receiving,
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a disability benefit under a long-term or short-term disability plan that is a KFI Plan maintained by KFI or an ERISA Affiliate.
(d) With respect to all KFI Plans that are group health plans as defined in ERISA Section 607(1), sponsored or maintained by KFI or any ERISA
Affiliate, no director, officer, employee or agent of KFI or any ERISA Affiliate has engaged in any action or failed to act in such a manner that, as a result of such action or failure to act, would cause a tax to be imposed on KFI or any ERISA
Affiliate under Code Section 4980B(a), or would cause a penalty to be imposed under ERISA and the regulations promulgated thereunder. With respect to all such plans, all applicable provisions of Code Section 4980B and ERISA Sections 601-606 have
been complied with by KFI or any ERISA Affiliate, and all other provisions of ERISA and the regulations promulgated thereunder have been complied with in all material respects.
(e) Except as disclosed in
Section 3.15(e)
of the KFI Disclosure Schedule, there are no collective bargaining, employment, management,
consulting, deferred compensation, change in control, reimbursement, indemnity, retirement, early retirement, severance or similar plans or agreements, commitments or understandings, or any employee benefit or retirement plan or agreement, binding
upon KFI or any ERISA Affiliate, and no such agreement, commitment, understanding or plan is under discussion or negotiation by management with any employee or group of employees, any member of management or any other Person.
(f) Except as disclosed in
Section 3.15(f)
of the KFI Disclosure Schedule, no Voluntary Employees Beneficiary Association
(
VEBA
), as defined in Code Section 501(c)(9), is sponsored or maintained by KFI or any ERISA Affiliate.
(g) Except as
contemplated in this Agreement or as disclosed in
Section 3.15(g)
of the KFI Disclosure Schedule, there are no benefits or liabilities under any employee benefit plan or program that will be accelerated or otherwise come due as a result of
the transactions contemplated by the terms of this Agreement.
(h) Neither KFI nor any of its ERISA Affiliates has ever sponsored,
maintained, participated in, contributed to or had any obligation with respect to any plan that is subject to Code Section 412 or Title IV of ERISA, that is or has been subject to Sections 4063 or 4064 of ERISA or that is a multiple employer
welfare arrangement, as defined in Section 3(40) of ERISA. Neither KFI nor any of its ERISA Affiliates has ever participated in or had any obligation to contribute to a multiemployer plan, as defined in Section 3(37) of ERISA.
(i) Except as disclosed in
Section 3.15(i)
of the KFI Disclosure Schedule, as a result, directly or indirectly, of the transactions
contemplated by this Agreement (including without limitation any termination of employment relating thereto and occurring prior to, at or following the Effective Time), KFI, its ERISA Affiliates and their respective successors will not be obligated
to make a payment that would be characterized as an excess parachute payment to an individual who is a disqualified individual, as such terms are defined in Code Section 280G.
(j) Except as contemplated by this Agreement, neither KFI nor any ERISA Affiliate has made any promises or commitments, whether legally
binding or not, to create any new plan, agreement or arrangement, or to modify or change in any material way KFI Plans.
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3.16
Labor and Employment Matters
. KFI is and has been in
compliance with all applicable Laws relating to labor and employment, including those relating to wages, hours, collective bargaining, unemployment compensation, workers compensation, equal employment opportunity, age and disability
discrimination, immigration control, employee classification, information privacy and security, payment and withholding of taxes. To the knowledge of KFI, no employee with annual compensation of $50,000 or more plans to terminate his or her
employment with KFI or any Subsidiary. Within the past three (3) years, there has not been, and as of the date of this Agreement there is not pending or threatened, any labor dispute, work stoppage, labor strike or lockout against KFI. No employee
of KFI or any of its Subsidiaries is covered by an effective or pending collective bargaining agreement or similar labor agreement. To KFIs knowledge, there has not been any activity on behalf of any labor organization or employee group to
organize any such employees. Except as set forth on
Section 3.16
of the KFI Disclosure Schedule, no employee or independent contractor of KFI or any of its Subsidiaries is a party to any employment agreement, confidentiality, non
-
disclosure or proprietary information agreement, non-compete agreement, non-solicitation agreement or any similar agreement
with KFI or any of its Subsidiaries (the
Employee
Agreements
), and neither KFI, any Subsidiary or any employee or independent contractor is in violation of any such Employee Agreement. KFI is in compliance with all notice and other requirements under the Worker Adjustment and Retraining
Notification Act of 1988, and any other similar applicable foreign, state, or local laws relating to facility closings and layoffs.
3.17
Obligations to Employees
. All material obligations and liabilities of and all payments by KFI or any ERISA Affiliate and all KFI Plans, whether arising by operation of law, by contract or by past custom, for payments to trusts
or other funds, to any government agency or authority or to any present or former director, officer, employee or agent (or his or her heirs, legatees or legal representatives) have been and are being paid to the extent required by applicable law or
by the plan, trust, contract or past custom or practice, and adequate actuarial accruals and reserves for such payments have been and are being made by KFI or an ERISA Affiliate in accordance with GAAP and applicable law applied on a consistent
basis and sound actuarial methods with respect to the following: (a) withholding taxes or unemployment compensation; (b) KFI Plans; (c) employment, salary continuation, change in control, consulting, retirement, early retirement, severance
or reimbursement; and (d) collective bargaining plans and agreements. All accruals and reserves referred to in this
Section 3.17
are correctly and accurately reflected and accounted for in the KFI Financial Statements and the books,
statements and records of KFI.
3.18
Taxes, Returns and Reports
. Each of KFI and its Subsidiaries
has since January 1, 2010 (a) duly and timely filed all federal, state, local and foreign tax returns of every type and kind required to be filed, and each such return is true, accurate and complete; (b) paid or otherwise adequately
reserved in accordance with GAAP for all taxes, assessments and other governmental charges due or claimed to be due upon it or any of its income, properties or assets; and (c) not requested an extension of time for any such payments (which
extension is still in force). KFI has established, and shall establish in the Subsequent KFI Financial Statements (as defined in
Section 5.11
), in accordance with GAAP, a reserve for taxes in the KFI Financial Statements adequate to cover all
of KFI and its Subsidiaries tax liabilities (including, without limitation, income taxes, payroll taxes and withholding, and franchise fees) for the periods then ending. Neither KFI nor any of its Subsidiaries has, nor will any of them have,
any liability for
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taxes of any nature for or with respect to the operation of its business, from the date hereof up to and including the Effective Time, except to the extent set forth in the Subsequent KFI
Financial Statements (as defined in
Section 3.08(a)
) or as accrued or reserved for on the books and records of KFI or its Subsidiaries. Except as set forth in
Section 3.18
of the KFI Disclosure Schedule, neither KFI nor any of its
Subsidiaries is currently under audit by any state or federal taxing authority. Except as set forth in
Section 3.18
of the KFI Disclosure Schedule, no federal, state or local tax returns of KFI or any of its Subsidiaries have been audited by
any taxing authority during the past five (5) years.
3.19
Deposit Insurance
. The deposits of
FSB are insured by the Federal Deposit Insurance Corporation in accordance with the Federal Deposit Insurance Act, as amended, to the fullest extent provided by applicable law, and KFI or FSB has paid, prepaid or properly reserved or accrued for all
current premiums and assessments with respect to such deposit insurance.
3.20
Insurance
.
Section 3.20
of the KFI Disclosure Schedule contains a true, accurate and complete list of all policies of insurance (including, without limitation, bankers blanket bond, directors and officers
liability insurance, property and casualty insurance, group health or hospitalization insurance and insurance providing benefits for employees) owned or held by KFI or any of its Subsidiaries on the date hereof or with respect to which KFI or any of
its Subsidiaries pays any premiums. Each such policy is in full force and effect and all premiums due thereon have been paid when due.
3.21
Books and Records
. The books of account, minute books, stock record books and other records of KFI and its Subsidiaries are complete and correct in all material respects and have been maintained in accordance with the KFIs
business practices and all applicable Laws, including the maintenance of an adequate system of internal controls required by such Laws. The minute books of KFI and each of its Subsidiaries contain accurate and complete records in all material
respects of all meetings held of, and corporate action taken by, its respective shareholders, boards of directors and committees of the boards of directors. At the Closing, all of those books and records will be in the possession of KFI and its
Subsidiaries.
3.22
Broker
s, Finder
s or Other Fees
. Except for
reasonable fees and expenses of KFIs attorneys and accountants and the contractually-agreed fees and expenses of Austin Associates LLC (
Austin
), KFIs investment banker under the agreement identified on
Section
3.22
of the KFI Disclosure Schedule, all of which shall be paid or accrued by KFI at or prior to the Effective Time, no agent, broker or other Person acting on behalf of KFI or any of its Subsidiaries or under any authority of KFI or any of its
Subsidiaries is or shall be entitled to any commission, brokers or finders fee or any other form of compensation or payment from any of the parties hereto relating to this Agreement or the Merger or other transactions contemplated
hereby.
3.23
Interim Events
. Except as otherwise permitted hereunder or disclosed on
Section
3.23
of the KFI Disclosure Schedule, since September 30, 2015, neither KFI nor any of its Subsidiaries has:
(a) Experienced any
events, changes, developments or occurrences which have had, or are reasonably likely to have, a Material Adverse Effect on KFI;
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(b) Suffered any damage, destruction or loss to any of its properties, not fully paid by
insurance proceeds, in excess of $100,000 individually or $250,000 in the aggregate;
(c) Declared, distributed or paid any dividend or
other distribution to its shareholders, except for payment of dividends as permitted by Section 5.03(a)(ii) hereof;
(d) Repurchased,
redeemed or otherwise acquired shares of its common stock, issued any shares of its common stock or stock appreciation rights or sold or agreed to issue or sell any shares of its common stock, including the issuance of any stock options, or any
right to purchase or acquire any such stock or any security convertible into such stock or taken any action to reclassify, recapitalize or split its stock;
(e) Granted or agreed to grant any increase in benefits payable or to become payable under any pension, retirement, profit sharing, change in
control, health, bonus, insurance or other welfare benefit plan or agreement to employees, officers or directors of KFI or a Subsidiary;
(f) Increased the salary of (or granted any bonus to) any director, officer or employee, except for normal increases in the ordinary course of
business and in accordance with past practices, or entered into any employment contract, indemnity agreement or understanding with any officer or employee or installed or amended any existing employee welfare, pension, retirement, change in control,
stock option, stock appreciation, stock dividend, profit sharing or other similar plan or arrangement;
(g) Leased, sold or otherwise
disposed of any of its assets except in the ordinary course of business or leased, purchased or otherwise acquired from third parties any assets except in the ordinary course of business;
(h) Except for the Merger and other transactions contemplated by this Agreement, merged, consolidated or sold shares of its (or any of its
Subsidiaries) common stock, agreed to merge or consolidate KFI or any of its Subsidiaries with or into any third party, agreed to sell any shares of its (or any of its Subsidiaries) common stock or acquired or agreed to acquire any
stock, equity interest, assets or business of any third party;
(i) Incurred, assumed or guaranteed any material obligation or liability
(fixed or contingent) other than obligations and liabilities incurred in the ordinary course of business;
(j) Mortgaged, pledged or
subjected to a lien, security interest, option or other encumbrance any of its assets except for tax and other liens which arise by operation of law and with respect to which payment is not past due and except for pledges or liens: (i) required
to be granted in connection with acceptance by FSB of government deposits; or (ii) granted in connection with repurchase or reverse repurchase agreements;
(k) Canceled, released or compromised any loan, debt, obligation, claim or receivable other than in the ordinary course of business;
(l) Entered into any transaction, contract or commitment other than in the ordinary course of business;
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(m) Agreed to enter into any transaction for the borrowing or loaning of monies, other than in
the ordinary course of its lending business;
(n) Amended their articles of incorporation, charter or bylaws or adopted any resolutions by
their board of directors or shareholders with respect to the same; or
(o) Conducted its business in any manner other than substantially
as it was being conducted prior to September 30, 2015.
3.24
Insider Transactions
. Except as
set forth in
Section 3.24
of the KFI Disclosure Schedule, during the preceding 5 years, no officer or director of KFI or any of its Subsidiaries or member of the immediate family or related interests (as such terms are
defined in Regulation O) of any such officer or director has currently, or has had during such time period, any direct or indirect interest in any property, assets, business or right which is owned, leased, held or used by KFI or any Subsidiary
or in any liability, obligation or indebtedness of KFI or any Subsidiary, except for deposits of FSB, securities issued by KFI, and interests in compensatory arrangements.
3.25
Indemnification Agreements
.
(a) Neither KFI nor any of its Subsidiaries is a party to any indemnification, indemnity or reimbursement agreement, contract, commitment or
understanding to indemnify any present or former director, officer, employee, shareholder or agent against liability or hold the same harmless from liability other than as expressly provided in the Articles of Incorporation or Bylaws of KFI or the
charter documents of a Subsidiary.
(b) During the preceding five (5) years, no claims have been made against or filed with KFI or any of
its Subsidiaries nor have any claims been threatened against KFI or a Subsidiary, for indemnification against liability or for reimbursement of any costs or expenses incurred in connection with any legal or regulatory proceeding by any present or
former director, officer, shareholder, employee or agent of KFI or any of its Subsidiaries.
3.26
Shareholder Approval
. The affirmative vote of the holders of a majority of the KFI Common Stock (which are issued and outstanding on the record date relating to the meeting of shareholders contemplated by
Section 5.01
of this
Agreement) is required for shareholder approval of this Agreement and the Merger.
3.27
Intellectual
Property
.
(a) KFI and its Subsidiaries own, or are licensed or otherwise possess sufficient legally enforceable rights to use,
all material Intellectual Property (as defined in
Section 3.27(e)
) that is used by KFI or its Subsidiaries in their respective businesses as currently conducted. Neither KFI nor any of its Subsidiaries has (A) licensed any Intellectual
Property owned by it or its Subsidiaries in source code form to any third party or (B) entered into any exclusive agreements relating to Intellectual Property owned by it.
(b) KFI and its Subsidiaries have not infringed or otherwise violated any material Intellectual Property rights of any third party during the
preceding five (5) years. There is no
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claim asserted or threatened against KFI and/or its Subsidiaries or any indemnitee thereof concerning the ownership, validity, registerability, enforceability, infringement, use or licensed right
to use any Intellectual Property.
(c) To KFIs knowledge, no third party has infringed, misappropriated or otherwise violated KFI or
its Subsidiaries Intellectual Property rights during the preceding five (5) years. There are no claims asserted or threatened by KFI or its Subsidiaries, nor has KFI or its Subsidiaries decided to assert or threaten a claim, that (i) a third
party infringed or otherwise violated any of their Intellectual Property rights; or (ii) a third partys owned or claimed Intellectual Property interferes with, infringes, dilutes or otherwise harms any of their Intellectual Property rights.
(d) To the extent KFI has designated any of its information, materials or processes a trade secret, KFI and its Subsidiaries have taken
reasonable measures to protect the confidentiality of all trade secrets that are owned, used or held by them.
(e) For purposes of this
Agreement,
Intellectual Property
shall mean all patents, trademarks, trade names, service marks, domain names, database rights, copyrights, and any applications therefor, mask works, technology, know-how, trade secrets, inventory,
ideas, algorithms, processes, computer software programs or applications (in both source code and object code form), and tangible or intangible proprietary information or material and all other intellectual property or proprietary rights.
3.28
Information Technology
. The KFI IT Assets operate and perform, in all material respects, in a manner
that permits KFI and its Subsidiaries to conduct their respective businesses as currently conducted, and no Person has gained unauthorized access to any of the KFI IT Assets which has resulted in, or could reasonably be expected to result in, a
Material Adverse Effect, each in the reasonable judgment of Horizon, and (ii) KFI and its Subsidiaries (A) have implemented reasonable backup and disaster recovery technology consistent with industry practices and as required by Law or any
Governmental Authority, and (B) are compliant with all data protection and privacy laws and regulations as well as their own policies relating to data protection and the privacy and security of personal data and the non-public personal information
of their respective customers and employees, and with their own privacy policies and commitments to their respective customers and employees relating to the foregoing, except for immaterial failures to comply or immaterial violations. No claims are
pending or threatened in writing against KFI or any Subsidiary alleging a violation of any Persons privacy rights or rights regarding the protection of personally identifiable information or other non-public information. For purposes of this
Agreement,
KFI IT Assets
means computers, computer software, firmware, middleware, servers, workstations, routers, hubs, switches, data communications lines, and all other information technology equipment, and all associated
documentation owned by KFI or its Subsidiaries or licensed or leased by KFI or its Subsidiaries (excluding any public networks).
3.29
Community Reinvestment Act
. FSB received a rating of satisfactory or better in its most recent examination or interim review with respect to the Community Reinvestment Act.
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3.30
Bank Secrecy and Anti-Money Laundering
Compliance
. Neither KFI nor any of its Subsidiaries has received any notice or communication from any regulatory authority alleging violation of, or noncompliance with, any legal requirement concerning bank secrecy or anti-money laundering,
including the Currency and Foreign Transactions Reporting Act, the Money Laundering Control Act of 1986, Annunzio-Wylie Anti-Money Laundering Act, the Money Laundering Suppression Act of 1994, and the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (also known as the USA PATRIOT Act) (each such legal requirement and the rules promulgated thereunder, a
BSA/AML Law
). KFI and its Subsidiaries have not
been cited, fined or otherwise notified of any failure by it to comply with a BSA/AML Law which has not been cured. To the knowledge of KFI and its Subsidiaries, there are no facts or circumstances that could form the basis for assertion of any
proceeding against KFI or its Subsidiaries under any BSA/AML Law that, if determined adversely to KFI or its Subsidiaries, could reasonably be expected to adversely affect KFI or its Subsidiaries.
3.31
Agreements with Regulatory Agencies
. Except as set forth in
Section 3.31
of the KFI
Disclosure Schedule, neither KFI nor any of its Subsidiaries is subject to any cease-and-desist, consent order or other order or enforcement action issued by, or is a party to any written agreement, consent agreement or memorandum of understanding
with, or is a party to any commitment letter or similar undertaking to, or is subject to any order or directive by, or has been ordered to pay any civil money penalty by, or has been, during the preceding five (5) years, a recipient of any
supervisory letter from, or, during the preceding five (5) years, has adopted any policies, procedures or board resolutions at the request or suggestion of any regulatory agency or other governmental entity that currently restricts in any material
respect the conduct of its business or that in any material manner relates to its capital adequacy, its ability to pay dividends, its credit or risk management policies, its management or its business, other than those of general application that
apply to similarly situated bank holding companies or their subsidiaries, whether or not set forth in
Section 3.31
of the KFI Disclosure Schedule (a
KFI Regulatory Agreement
), nor has KFI or any of its Subsidiaries been
advised, during the preceding five (5) years, by any regulatory agency or other governmental entity that it is considering issuing, initiating, ordering, or requesting any such KFI Regulatory Agreement. There are no refunds or restitutions required
to be paid as a result of any criticism of any regulatory agency or body cited in any examination report of KFI or any of its Subsidiaries as a result of an examination by any regulatory agency or body, or set forth in any accountants or
auditors report to KFI or any of its Subsidiaries.
3.32
Approval Delays
. To KFIs
knowledge, there is no reason why the granting of any of the Regulatory Approvals (as defined in
Section 7.01(e)
) would be denied or unduly delayed.
3.33
Internal Controls
. KFI and its Subsidiaries have devised and maintain a system of internal
accounting controls sufficient, in the reasonable opinion of management of KFI and FSB, to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with GAAP. During the preceding three (3) years, (i) through the date hereof, neither KFI nor any of its Subsidiaries has received or otherwise had or obtained knowledge of any material complaint, allegation, assertion or claim, whether written or
oral, regarding the accounting or auditing practices, procedures,
A-32
methodologies or methods of KFI or any of its Subsidiaries or their respective internal accounting controls, including any material complaint, allegation, assertion or claim that KFI or any of
its Subsidiaries has engaged in questionable accounting or auditing practices, and (ii) no attorney representing KFI or any of its Subsidiaries, whether or not employed by KFI or any of its Subsidiaries, has reported evidence of a violation of
securities laws, breach of fiduciary duty or similar violation by KFI or any of its officers, directors, employees or agents to the Board of Directors of KFI or any committee thereof or to any director or officer of KFI.
3.34
Fiduciary Accounts
. KFI and each of its Subsidiaries has properly administered all accounts for which
it acts as a fiduciary, including, without limitation, accounts for which it serves as a trustee, agent, custodian, personal representative, guardian, conservator or investment advisor, in accordance with the terms of the governing documents and
applicable laws and regulations. Neither KFI nor any of its Subsidiaries, nor any of their respective directors, officers or employees, has committed any breach of trust, to KFIs knowledge, with respect to any fiduciary account and the records
for each such fiduciary account are true and correct and accurately reflect the assets of such fiduciary account.
3.35
Fairness Opinion
. KFI has received an opinion from Austin Associates, LLC to the effect that, as of the date of this Agreement, the Merger Consideration to be received by the stockholders of KFI pursuant to this Agreement is fair for
such stockholders from a financial point of view. Such opinion has not been amended or rescinded as of the date of this Agreement.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF HORIZON
On or prior to the date hereof, Horizon has delivered to KFI a schedule (the
Horizon Disclosure Schedule
) setting forth,
among other things, items the disclosure of which is 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 IV
or to one or more of its covenants contained in
Article V
or
Article VI
.
For the purpose of this
Agreement, and in relation to Horizon and its Subsidiaries (as defined in this introduction to
Article IV
), a
Material Adverse Effect on Horizon
means any effect that (i) is material and adverse to the results of
operations, properties, assets, liabilities, condition (financial or otherwise), value or business of Horizon and its Subsidiaries on a consolidated basis, or (ii) would materially impair the ability of Horizon or any of its Subsidiaries to perform
its obligations under this Agreement or any related agreement or otherwise materially threaten or materially impede the consummation of the Merger and the other transactions contemplated by this Agreement;
provided
,
however
, that
Material Adverse Effect on Horizon shall not be deemed to include the impact of (a) changes in banking and similar laws of general applicability to banks or savings associations or their holding companies or interpretations thereof by courts or
governmental authorities, (b) changes in GAAP or regulatory accounting requirements applicable to banks, savings associations, or their holding companies generally, (c) the impact of the announcement of this Agreement and the transactions
contemplated hereby, and compliance with this Agreement on the business, financial condition or results of operations of Horizon and its Subsidiaries, (d) changes resulting from professional
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expenses (such as legal, accounting and investment bankers fees) incurred in connection with this Agreement or the transactions contemplated herein, and (e) the occurrence of any military
or terrorist attack within the United States or any of its possessions or offices; provided that in no event shall a change in the trading price of the shares of Horizon common stock, by itself, be considered to constitute a Material Adverse Effect
on Horizon and its Subsidiaries taken as a whole (it being understood that the foregoing proviso shall not prevent or otherwise affect a determination that any effect underlying or caused by such decline has resulted in a Material Adverse Effect).
For the purpose of this Agreement, and in relation to Horizon and its Subsidiaries,
knowledge
means those facts that
are actually known by the executive officers of Horizon. Additionally, for the purpose of this Agreement, and in relation to Horizon, its
Subsidiaries
shall mean any entity which is required to be consolidated with Horizon for
financial reporting purposes pursuant to GAAP.
Accordingly, Horizon represents and warrants to KFI as follows, except as set forth in the
Horizon Disclosure Schedule:
4.01
Organization and Authority
.
(a) Horizon is a corporation duly organized and validly existing under the laws of the State of Indiana and is a registered bank holding
company under the BHC Act. Horizon has full power and authority (corporate and otherwise) to own and lease its properties as presently owned and leased and to conduct its business in the manner and by the means utilized as of the date hereof.
(b) Horizon Bank is a national bank chartered and existing under the laws of the United States. Horizon Bank has full power and authority
(corporate and otherwise) to own and lease its properties as presently owned and leased and to conduct its business in the manner and by the means utilized as of the date hereof.
(c) Each of Horizons Subsidiaries other than Horizon Bank is duly organized and validly existing under the laws of its jurisdiction of
organization, and has full power and authority (corporate and otherwise) to own and lease its properties as presently owned and leased and to conduct its business in the manner and by the means utilized as of the date hereof.
4.02
Authorization
.
(a) Horizon has the requisite corporate power and authority to enter into this Agreement and to perform its obligations hereunder, subject to
the fulfillment of the conditions precedent set forth in
Sections 7.01(d)
,
(e)
,
(f)
and
(k)
hereof. This Agreement and its execution and delivery by Horizon have been duly authorized and approved by the Board of Directors
of Horizon and, assuming due execution and delivery by KFI, constitutes a valid and binding obligation of Horizon, subject to the terms and conditions hereof, and is enforceable in accordance with its terms, except to the extent limited by general
principles of equity and public policy and by bankruptcy, insolvency, fraudulent transfer, reorganization, liquidation, moratorium, readjustment of debt or other laws of general application relating to or affecting the enforcement of creditors
rights.
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(b) Neither the execution of this Agreement nor consummation of the Merger contemplated hereby:
(i) conflicts with or violates the Articles of Incorporation or Bylaws of Horizon or the charter documents of any of Horizons Subsidiaries; (ii) conflicts with or violates any local, state, federal or foreign law, statute, ordinance,
rule or regulation (provided that the approvals of or filings with applicable government regulatory agencies or authorities required for consummation of the Merger are obtained) or any court or administrative judgment, order, injunction, writ
or decree; (iii) conflicts with, results in a breach of or constitutes a default under any note, bond, indenture, mortgage, deed of trust, license, lease, contract, agreement, arrangement, commitment or other instrument to which Horizon or any
of its Subsidiaries is a party or by which Horizon or any of its Subsidiaries is subject or bound; (iv) results in the creation of or gives any Person the right to create any lien, charge, claim, encumbrance or security interest, or results in
the creation of any other rights or claims of any other party (other than KFI) or any other adverse interest, upon any right, property or asset of Horizon or any of its Subsidiaries; or (v) terminates or gives any Person the right to terminate,
accelerate, amend, modify or refuse to perform under any note, bond, indenture, mortgage, agreement, contract, lease, license, arrangement, deed of trust, commitment or other instrument to which Horizon or any of its Subsidiaries is bound or with
respect to which Horizon or any of its Subsidiaries is to perform any duties or obligations or receive any rights or benefits.
(c) Other
than in connection or in compliance with the provisions of the applicable federal and state banking, securities, antitrust and corporation statutes, all as amended, and the rules and regulations promulgated thereunder, no notice to, filing
with, exemption by or consent, authorization or approval of any governmental agency or body is necessary for consummation of the Merger by Horizon.
4.03
Capitalization
. As of the date of this Agreement, the authorized capital stock of Horizon
consists of (i) 22,500,000 shares of Horizon common stock, 11,995,324 shares of which are issued and outstanding (and which includes shares of restricted stock), (ii) 1,000,000 shares of preferred stock, 12,500 of which are issued and outstanding as
Senior Noncumulative Perpetual Preferred Stock, Series B, $.01 par value, and (iii) options to purchase 165,091 shares of Horizon common stock. Such issued and outstanding shares have been duly and validly authorized by all necessary corporate
action of Horizon, are validly issued, fully paid and nonassessable and have not been issued in violation of any pre-emptive rights. Each share of Horizon common stock is entitled to one vote per share.
4.04
Compliance with Law
.
(a) None of Horizon or any of its Subsidiaries is currently in violation of, and during the preceding five (5) years, none has been in
violation of any Law, except where such violation would not have a Material Adverse Effect on Horizon. Horizon and its Subsidiaries possess and hold all licenses, franchises, permits, certificates and other authorizations necessary for the continued
conduct of their business without interference or interruption, except where the failure to possess and hold the same would not have a Material Adverse Effect on Horizon.
(b) Horizon is not subject to any understandings or commitments with, and there are no orders or directives of, any government regulatory
agencies or authorities with respect to the financial condition, results of operations, business, assets or capital of Horizon or its
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Subsidiaries. There are no refunds or restitutions required to be paid as a result of any criticism of any regulatory agency or body cited in any examination report of Horizon or any of its
Subsidiaries as a result of an examination by any regulatory agency or body, or set forth in any accountants or auditors report to Horizon or any of its Subsidiaries.
(c) Since the enactment of the Sarbanes-Oxley Act of 2002 (the
Sarbanes-Oxley Act
), Horizon, to its knowledge, has been and
is in compliance in all material respects with the applicable provisions of the Sarbanes-Oxley Act.
(d) All of the existing offices and
branches of Horizon Bank have been legally authorized and established in accordance with all applicable federal, state and local laws, statutes, regulations, rules, ordinances, orders, restrictions and requirements, except such as would not have a
Material Adverse Effect on Horizon.
4.05
Absence of Undisclosed Liabilities
. Except (i) as
provided in the Horizon financial statements included in its SEC Reports (as defined in
Section 4.15
), (ii) for unfunded loan commitments and obligations on letters of credit to customers of Horizons Subsidiaries made in the ordinary
course of business, (iii) for trade payables incurred in the ordinary course of business, (iv) for the transactions contemplated by this Agreement, and (v) any other transactions which would not result in a material liability, none of Horizon or any
of its Subsidiaries has any obligation, agreement, contract, commitment, liability, lease or license that except where the aggregate of the amount due under such obligations, agreements, contracts, commitments, liabilities, leases or licenses would
not have a Material Adverse Effect on Horizon, nor, to Horizons knowledge, does there exist any circumstances resulting from transactions effected or events occurring on or prior to the date of this Agreement or from any action omitted to be
taken during such period which could reasonably be expected to result in any such obligation, agreement, contract, commitment, liability, lease or license. None of Horizon or any of its Subsidiaries is delinquent in the payment of any material
amount due pursuant to any trade payable, and each has properly accrued for such payables in accordance with GAAP, except where the failure to so accrue would not constitute a Material Adverse Effect on Horizon.
4.06
Accuracy of Information Provided to KFI
. Horizon agrees that the information concerning Horizon
or any of its Subsidiaries that is provided or to be provided by Horizon to KFI for inclusion or that is included in the Registration Statement or Proxy Statement and any other documents to be filed with any regulatory authority or governmental
entity in connection with the Merger and the other transactions contemplated by this Agreement will at the respective times such documents are filed and, in the case of the Registration Statement, when it becomes effective and, with respect to the
Proxy Statement, when mailed, not 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, in light of the circumstances under which they were made, not
misleading. Notwithstanding the foregoing, Horizon shall have no responsibility for the truth or accuracy of any information with respect to KFI or any of its Subsidiaries or any of their affiliates contained in the Registration Statement or the
Proxy Statement or in any document submitted to, or other communication with, any regulatory authority or governmental entity.
4.07
Financial Statements and Reports
.
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(a) The following financial statements and reports of Horizon and its Subsidiaries, including the
notes thereto (collectively, the
Horizon Financial Statements
)
are publicly available:
(i)
consolidated balance sheets and the related consolidated statements of income, consolidated statements of cash flows, and consolidated statements of changes in shareholders equity of Horizon as of and for the fiscal years ended
December 31, 2012, 2013 and 2014;
(ii) internal (unaudited) consolidated balance sheet and income statement as of and
for the nine months ended September 30, 2015 (without footnotes); and
(iii) Call Reports for Horizon Bank as of the
close of business on December 31, 2012, 2013 and 2014, and September 30, 2015.
(b) The Horizon Financial Statements present
fairly, in all material respects, the consolidated financial position of Horizon as of and at the dates shown and the consolidated results of operations for the periods covered thereby and are complete, correct, represent bona fide transactions, and
have been prepared from the books and records of Horizon and its Subsidiaries. The Horizon Financial Statements described in clause (i) above are audited financial statements and have been prepared in conformance with GAAP, except as may otherwise
be indicated in any accountants notes or reports with respect to such financial statements.
(c) Since September 30, 2015, on a
consolidated basis, Horizon and its Subsidiaries have not incurred any material liability other than in the ordinary course of business consistent with past practice.
4.08
Adequacy of Reserves
. The reserves, the allowance for loan and lease losses and the carrying
value for real estate owned which are shown on the Horizon Financial Statements are, in the judgment of management of Horizon, adequate, in all material respects, under the requirements of GAAP 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.
4.09
Litigation and Pending Proceedings
.
(a) Except for lawsuits involving collection of delinquent accounts and other matters
involving Horizon or its Subsidiaries in the ordinary course of its business, there are no claims, actions, suits, proceedings, mediations, arbitrations or investigations pending and served against Horizon or any of its Subsidiaries or threatened in
any court or before any government agency or authority, arbitration panel or otherwise against Horizon or any of its Subsidiaries which, if determined adversely to Horizon or any of its Subsidiaries, would have a Material Adverse Effect on Horizon.
(b) Neither Horizon nor any of its Subsidiaries is: (i) subject to any outstanding judgment, order, writ, injunction or decree of any
court, arbitration panel or governmental agency or authority; (ii) presently charged with or under governmental investigation with respect to, any actual or alleged violations of any law, statute, rule, regulation or ordinance; or (iii) the
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subject of any pending or threatened proceeding by any government regulatory agency or authority having jurisdiction over their respective business, assets, capital, properties or operations.
4.10
Taxes, Returns and Reports
. Each of Horizon and its Subsidiaries has since January 1, 2010
(a) duty and timely filed all material federal, state, local and foreign tax returns of every type and kind required to be filed, and each such return is true, accurate and complete in all material respects; (b) paid or otherwise adequately reserved
in accordance with GAAP for all taxes, assessments and other governmental charges due or claimed to be due upon it or any of its income, properties or assets, unless being contested in good faith; and (c) not requested an extension of time for any
such payments (which extension is still in force). Horizon has established, and shall establish in future publicly-filed financial statements, in accordance with GAAP, a reserve for taxes in the Horizon Financial Statements adequate to cover all of
Horizons and its Subsidiaries tax liabilities (including, without limitation, income taxes, payroll taxes and withholding, and franchise fees) for the periods then ending. Neither Horizon nor any of its Subsidiaries, to their knowledge, has,
nor will any of them have, any liability for material taxes of any nature for or with respect to the operation of its business, from the date hereof up to and including the Effective Time, except to the extent set forth in Horizons future
publicly-filed financial statements and as accrued or reserved for on the books and records of Horizon or its Subsidiaries. Neither Horizon nor any of its Subsidiaries is currently under audit by any state or federal taxing authority. Except as
disclosed in
Section 4.10
of the Horizon Disclosure Schedule, no federal, state or local tax returns of Horizon or any of its Subsidiaries have been audited by any taxing authority during the past five (5) years.
4.11
Deposit Insurance
. The deposits of Horizon Bank are insured by the Federal Deposit
Insurance Corporation in accordance with the Federal Deposit Insurance Act, as amended, to the fullest extent provided by applicable law, and Horizon or Horizon Bank has paid or properly reserved or accrued for all current premiums and assessments
with respect to such deposit insurance.
4.12
Bank Secrecy and Anti
-Money
Laundering Compliance
. Neither Horizon nor any of its Subsidiaries has received any notice or communication from any regulatory authority alleging violation of, or noncompliance with, any BSA/AML
Law. Horizon and its Subsidiaries have not been cited, fined or otherwise notified of any failure by it to comply with a BSA/AML Law which has not been cured. To the knowledge of Horizon and its Subsidiaries, there are no facts or circumstances that
could form the basis for assertion of any proceeding against Horizon or its Subsidiaries under any BSA/AML Law that, if determined adversely to Horizon or its Subsidiaries, could reasonably be expected to adversely affect Horizon or its
Subsidiaries.
4.13
Community Reinvestment Act
. Horizon Bank received a rating of
satisfactory or better in its most recent examination or interim review with respect to the Community Reinvestment Act.
4.14
Approval Delays
. To the knowledge of Horizon, there is no reason why the granting of any of the Regulatory Approvals would be denied or unduly delayed.
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4.15
Horizon Securities and Exchange Commission Filings
.
Horizon has filed all material reports and other filings with the Securities and Exchange Commission (the
SEC
) required to be filed by it (
SEC Reports
). All such SEC Reports were true, accurate and complete in
all material respects as of the dates of the SEC Reports, and no such filings contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements, at the time and in the light of the
circumstances under which they were made, not false or misleading. As of the date of this Agreement, there are no outstanding or unresolved comments in any comment letters received by Horizon, and to the knowledge of Horizon, none of the SEC Reports
is the subject of any ongoing review by the SEC.
4.16
No Shareholder Approval
. No vote or consent of
any of the holders of Horizons capital stock is required by law, stock purchase agreement, or NASDAQ listing requirements for Horizon to enter into this Agreement and to consummate the Merger.
4.17
Agreements with Regulatory Agencies
. Neither Horizon nor any of its Subsidiaries is subject to any
cease-and-desist, consent order or other order or enforcement action issued by, or is a party to any written agreement, consent agreement or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is
subject to any order or directive by, or has been ordered to pay any civil money penalty by, or has been, during the preceding five (5) years, a recipient of any supervisory letter from, or, during the preceding five (5) years, has adopted any
policies, procedures or board resolutions at the request or suggestion of any regulatory agency or other governmental entity that currently restricts in any material respect the conduct of its business or that in any material manner relates to its
capital adequacy, its ability to pay dividends, its credit or risk management policies, its management or its business, other than those of general application that apply to similarly situated bank holding companies or their subsidiaries, whether or
not set forth in the Horizon Disclosure Schedule (a
Horizon Regulatory Agreement
), nor has Horizon or any of its Subsidiaries been advised, during the preceding five (5) years, by any regulatory agency or other governmental entity
that it is considering issuing, initiating, ordering, or requesting any such Horizon Regulatory Agreement. There are no refunds or restitutions required to be paid as a result of any criticism of any regulatory agency or body cited in any
examination report of Horizon or any of its Subsidiaries as a result of an examination by any regulatory agency or body, or set forth in any accountants or auditors report to Horizon or any of its Subsidiaries.
ARTICLE V.
CERTAIN COVENANTS
KFI
covenants and agrees with Horizon and covenants and agrees to cause its Subsidiaries to act as follows (and Horizon covenants and agrees with KFI as follows):
5.01
Shareholder Approval
. KFI shall submit this Agreement to its shareholders for approval and adoption at
a meeting to be called and held in accordance with applicable law and the Articles of Incorporation and Bylaws of KFI (the
KFI Shareholders Meeting
) as soon as reasonably practicable after the date of this Agreement and the
effectiveness of the Registration Statement. Subject to
Section 5.06
hereof, the Board of Directors of KFI shall recommend to KFIs shareholders that such shareholders approve and adopt this Agreement and the Merger
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contemplated hereby and will solicit proxies voting in favor of this Agreement from KFIs shareholders. Additionally, each director and executive officer of KFI and FSB shall agree to vote
any shares of KFI Common Stock he or she owns, beneficially or of record, in favor of the Merger pursuant to the agreement attached hereto as
Exhibit 5.01
.
5.02
Other Approvals
.
(a) KFI shall proceed expeditiously, cooperate fully and use commercially reasonable efforts to assist Horizon in procuring, upon terms and
conditions consistent with the condition set forth in
Section 7.01(e)
hereof, all consents, authorizations, approvals, registrations and certificates, in completing all filings and applications and in satisfying all other requirements
prescribed by law which are necessary for consummation of the Merger on the terms and conditions provided in this Agreement at the earliest possible reasonable date.
(b) KFI will use commercially reasonable efforts to obtain any required third party consents to agreements, contracts, commitments, leases,
instruments and documents described in the KFI Disclosure Schedule and to which KFI and Horizon agree are material.
(c) Any written
materials or information provided by KFI to Horizon for use by Horizon in any filing with any state or federal regulatory agency or authority shall not contain any untrue or misleading statement of material fact or shall omit to state a material
fact necessary to make the statements contained therein, in light of the circumstances in which they are made, not false or misleading.
5.03
Conduct of Business
.
(a) After the date of this Agreement and until the Effective Time or until this Agreement is
terminated as herein provided, each of KFI and its Subsidiaries shall: (1) carry on its business diligently, substantially in the manner as is presently being conducted and in the ordinary course of business; (2) use commercially
reasonable efforts to preserve its business organization intact, keep available the services of the present officers and employees and preserve its present relationships with customers and Persons having business dealings with it; (3) use
commercially reasonable efforts to maintain all of the properties and assets that it owns or utilizes in the operation of its business as currently conducted in good operating condition and repair, reasonable wear and tear excepted;
(4) maintain its books, records and accounts in the usual, regular and ordinary manner, on a basis consistent with prior years and in compliance in all material respects with all statutes, laws, rules and regulations applicable to them and
to the conduct of its business; and (5) not knowingly do or fail to do anything which will cause a breach of, or default in, any contract, agreement, commitment, obligation, understanding, arrangement, lease or license to which it is a party or by
which it is or may be subject or bound. Specifically, by way of example but not limitation, after the date of this Agreement and until the Effective Time or until this Agreement is terminated as herein provided, KFI will not, and will cause its
Subsidiaries to not, without the prior written consent of Horizon:
(i) make any changes in its capital stock (including,
without limitation, any stock issuance, stock split, stock dividend, recapitalization or reclassification), authorize a class of stock, or issue any stock, issue or grant any warrant, option, right, or other
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agreement of any character relating to its authorized or issued capital stock or any securities convertible into shares of such stock, or redeem any of its outstanding shares of common stock or
other securities;
(ii) distribute or pay any dividends on its shares of common stock, or authorize a stock split, or make
any other distribution to its shareholders;
provided, however
, each of the Subsidiaries may pay cash dividends to KFI or FSB in the ordinary course of business for payment of reasonable and necessary business and operating expenses of KFI or
FSB and expenses of the Merger;
provided further
, to provide funds for KFIs dividends to its shareholders in accordance with this Agreement;
provided further
, KFI may pay its normal quarterly cash dividend of $0.25 per share to
its shareholders which shall not be increased in per share amount;
provided further
, at Horizons request and except to the extent prohibited by Law or any bank regulatory agency, FSB shall pay dividends to KFI;
provided
further
, no dividend may be paid for the quarterly period in which the Merger is scheduled to be consummated or consummated if during such period KFIs shareholders will become entitled to receive dividends on their shares of Horizon common
stock received pursuant to this Agreement;
(iii) purchase or otherwise acquire any investment security for their own
account that exceeds $1,000,000 individually or purchase or otherwise acquire any security other than U.S. Treasury or other governmental obligations or asset-backed securities issued or guaranteed by United States governmental or other governmental
agencies, in either case having an average remaining life of three (3) years or less, or sell any investment security owned by them other than sales made in the ordinary course of business as previously conducted during the past three (3) years and
in accordance with applicable laws and regulations or engage in any activity that would be inconsistent with the classification of investment securities as either held to maturity or available for sale;
(iv) make, renew or otherwise modify any loan, loan commitment, letter of credit or other extension of credit (individually, a
Loan
and collectively,
Loans
) to any Person if the Loan is an existing credit on the books of KFI or any Subsidiary and classified as Other Loans Especially Mentioned, Substandard,
Doubtful or Loss in an amount in excess of $250,000. FSB also shall not make, purchase, renew, modify, amend, or extend the maturity of (1) any new commercial Loan in excess of $500,000;
provided
, that FSB may, without
the consent of Horizon, renew, modify, amend or extend the maturity of existing performing commercial loans (which are not classified or non-accrual) with existing principal balances of $750,000 or less, (2) any 1 to 4 family, residential mortgage
Loan with a loan to value in excess of 80% (unless private mortgage insurance is obtained) or any other 1 to 4 family, residential mortgage Loan in excess of $417,000, (3) any consumer Loan in excess of $75,000, (4) any home equity Loan or line of
credit in excess of $100,000, or (5) any Loan participation;
provided
, that KFI may take any such action in respect of any such Loan or Loans if the Chief Credit Officer of Horizon shall be provided with notice of the proposed action in
writing and Horizon shall not provide written objection to the taking of such proposed action within three (3) business days of being provided with such notice (the lack of such objection being deemed prior written consent of Horizon for purposes of
this Section);
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(v) acquire any assets of any other Person by any means (other than personal
property acquired in foreclosure or otherwise in the ordinary course of collection of indebtedness owed to FSB) or foreclose upon or otherwise take title to or possession or control of, any real property without first obtaining a Phase I
environmental report thereon, prepared by a reliable and qualified Person acceptable to Horizon, which indicates that the real property is free of pollutants, contaminants or hazardous materials;
provided
,
however
, that neither KFI nor
FSB shall be required to obtain such a report with respect to single family, non-agricultural residential property of one acre or less to be foreclosed upon unless KFI has reason to believe that such property might contain such hazardous materials
or otherwise might be contaminated;
(vi) except for normal annual compensation increases not to exceed 3.0% granted to
employees and except as contemplated by this Agreement (including severance and change in control payments anticipated to be paid as described in
Section 5.23
and
Section 6.03(h)
hereof), pay or agree to pay, conditionally or
otherwise, any additional compensation (including bonuses) or severance benefit, take any action that would give rise to an acceleration of the right to payment, or otherwise make any changes with respect to the fees or compensation payable (or to
become payable) to consultants, directors, officers or salaried employees or, except as required by law and except as contemplated by this Agreement, adopt or make any change in any KFI Plan or other arrangement (including any agreement for
indemnification) or payment made to, for or with any of such consultants, directors, officers or employees;
(vii) fail to
accrue, pay, discharge and satisfy all debts, liabilities, obligations and expenses, including, without limitation, trade payables, incurred in the regular and ordinary course of business as such debts, liabilities, obligations and expenses become
due, unless the same are being contested in good faith;
(viii) except for obligations disclosed in this Agreement,
short-term FHLB advances, federal funds purchased by FSB, trade payables and similar liabilities and obligations incurred in the ordinary course of business and the payment, discharge or satisfaction in the ordinary course of business of liabilities
reflected in the KFI Financial Statements or the Subsequent KFI Financial Statements, borrow any money or incur any indebtedness in an aggregate amount exceeding $50,000;
(ix) change in its accounting methods, except as may be necessary and appropriate to conform to (1) changes in tax law
requirements, (2) changes in GAAP or regulatory accounting principles, as required by KFIs independent auditors or its regulatory authorities, or (3) changes requested by Horizon pursuant to this Agreement;
(x) make, change or revoke any material tax election, file any material amended tax return, enter into any closing agreement
with respect to a material amount of taxes, settle any material tax claim or assessment or surrender any right to claim a refund of a material amount of taxes;
(xi) make application for the opening or closing of any, or open or close any, branch or automated banking facility;
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(xii) waive, release, grant or transfer any material rights of value or enter
into, amend, or terminate any contract, agreement, lease, commitment, understanding, arrangement or transaction or incur any liability or obligation (other than as contemplated by
Section 5.03(a)(iv)
hereof and legal, accounting and
investment banking or financial advisory fees related to the Merger) requiring payments by KFI or any of its Subsidiaries which exceed $50,000, whether individually or in the aggregate (other than trade payables or otherwise incurred in the ordinary
course of business) or which contain any financial commitment extending more than twelve (12) months following the date of this Agreement;
(xiii) except as already committed in writing as of the date of this Agreement, make any capital expenditures in excess of
$50,000 individually or $250,000 in the aggregate;
(xiv) except as required by applicable law or regulation: (1) implement
or adopt any material change in its interest rate risk management or hedging policies, procedures or practices; (2) fail to follow its existing policies or practices with respect to managing its exposure to interest rate risk; or (3) fail to use
commercially reasonable means to avoid any material increase in its aggregate exposure to interest rate risk;
(xv) take
any action that would change FSBs loan loss reserves that is not in compliance with FSBs policy and past practices consistently applied and in compliance with GAAP;
(xvi) except as already committed in writing as of the date of this Agreement, cancel, release or compromise any indebtedness
in excess of $50,000 owing to KFI or any Subsidiary or any claims which KFI or any Subsidiary may possess, or voluntarily waive any material rights with respect thereto;
(xvii) pay, discharge, settle or compromise any litigation, claim, action, arbitration or other proceeding against KFI or any
Subsidiary unless such payment, discharge, settlement or compromise does not require KFI or any Subsidiary to pay any monies, incur any obligation or admit any wrongdoing or liability;
(xviii) take any action that is intended or is reasonably likely to result in (A) any of its representations or warranties set
forth in this Agreement being or becoming untrue at any time at or prior to the Effective Time, (B) any of the conditions to the Merger set forth in this Agreement not being satisfied, or (C) a breach of any provision of this Agreement; except, in
each case, as may be required by applicable law;
(xix) maintain the rate of interest paid by FSB on any deposit product,
including without limitation on certificates of deposit, in a manner and pursuant to policies inconsistent with past practices;
(xx) amend the Articles of Incorporation or Bylaws of KFI, or similar governing documents of any of its Subsidiaries;
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(xxi) maintain an allowance for loan and lease losses which is not adequate in
all material respects under the requirements of GAAP to provide for possible losses, net of recoveries, relating to Loans previously charged off, on Loans and leases outstanding;
(xxii) take any action or fail to take any action that would, or would be likely to, prevent, impede or delay the Merger from
qualifying as a reorganization as defined by Section 368(a) of the Code; or
(xxiii) agree or commit to do, or enter into
any contract regarding, anything that would be precluded by this Section.
5.04
Insurance
. KFI and its
Subsidiaries shall maintain, or cause to be maintained, in full force and effect, insurance on its assets, properties and operations, fidelity coverage and directors and officers liability insurance in such amounts and with regard to
such liabilities and hazards as are currently insured by KFI or its Subsidiaries as of the date of this Agreement.
5.05
Accruals for Loan Loss Reserve and Expenses
.
(a) Prior to the Effective Time, KFI shall and shall cause its
Subsidiaries to make, consistent with GAAP and applicable banking laws and regulations, such appropriate accounting entries in its books and records and use commercially reasonable efforts to take such other actions as KFI and its Subsidiaries shall
deem to be necessary or desirable in anticipation of the Merger including, without limitation, accruals or the creation of reserves for employee benefits and Merger-related expenses.
(b) KFI recognizes that Horizon may have adopted different loan and accounting policies and practices (including loan classifications and
levels of loan loss allowances). Subject to applicable law (including without limitation applicable banking laws and regulations and GAAP), from and after the date hereof KFI shall consult and cooperate in good faith with Horizon with respect to
conforming the loan and accounting policies and practices of KFI to those policies and practices of Horizon for financial accounting and/or income tax reporting purposes, as reasonably specified in each case in writing from Horizon to KFI, based
upon such consultation and subject to the conditions in Section 5.05(d).
(c) Subject to applicable law (including without limitation
applicable banking laws and regulations and GAAP), KFI shall consult and cooperate in good faith with Horizon with respect to determining, as reasonably specified in a written notice from Horizon to KFI, based upon such consultation and subject to
the conditions in Section 5.05(d), the amount and the timing for recognizing for financial accounting and/or income tax reporting purposes of KFIs expenses of the Merger.
(d) Subject to applicable law (including without limitation applicable banking laws and regulations and GAAP), KFI and FSB shall make such
conforming changes and entries as contemplated in Section 5.05(b) and Section 5.05(c) above, but in no event prior to the 5th day next preceding the Closing Date and only after Horizon acknowledges that all conditions to its obligation to consummate
the Merger have been satisfied and certifies to KFI that Horizon will at the Effective Time deliver to KFI the certificate contemplated in Section 7.02(g).
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(e) KFIs representations, warranties and covenants contained in this Agreement shall not be
deemed to be untrue or breached in any respect for any purpose as a consequence of any modifications or changes undertaken at Horizons request in compliance with Section 5.05(d).
5.06
Acquisition Proposals
.
(a) KFI will, and will cause each of its Subsidiaries to, and its and their respective officers, directors and representatives (including
Austin) to, immediately cease and cause to be terminated any existing solicitations, discussions or negotiations with any Person concerning an Acquisition Proposal (as defined in
Section 5.06(e)
). During the period from the date of this
Agreement through the Effective Time, KFI shall not terminate, amend, modify or waive any material provision of any confidentiality or similar agreement to which KFI or any of its Subsidiaries is a party (other than any involving Horizon).
(b) Except as permitted in this
Section 5.06
, KFI shall not, and shall cause its Subsidiaries and any of their respective directors,
officers and representatives (including Austin) not to, (i) solicit, initiate or knowingly encourage or facilitate, or take any other action designed to, or that could reasonably be expected to facilitate (including by way of furnishing
non-public information) any inquiries with respect to an Acquisition Proposal, or (ii) initiate, participate in or knowingly encourage any discussions or negotiations or otherwise knowingly cooperate in any way with any Person regarding an
Acquisition Proposal;
provided
,
however
, that, at any time prior to obtaining the approval of the Merger by KFIs shareholders, if KFI receives a bona fide Acquisition Proposal that the KFI Board of Directors determines in good
faith constitutes a Superior Proposal (as defined in
Section 5.06(f)
) that was not solicited after the date hereof and did not otherwise result from a breach of KFIs obligations under this
Section 5.06
, KFI may furnish, or cause
to be furnished, non-public information with respect to KFI and its Subsidiaries to the Person who made such proposal (provided that all such information has been provided to Horizon prior to or at the same time it is provided to such Person) and
may participate in discussions and negotiations regarding such proposal if (A) the KFI Board of Directors determines in good faith, and following consultation with financial advisors and outside legal counsel, that failure to do so would be
reasonably likely to result in a breach of its fiduciary duties to KFIs shareholders under applicable law and (B) prior to taking such action, KFI has used its best reasonable efforts to enter into a confidentiality agreement with respect
to such proposal that contains a standstill agreement on customary terms. Without limiting the foregoing, it is agreed that any violation of the restrictions contained in the first sentence of this
Section 5.06(b)
by any representative
(including Austin) of KFI or its Subsidiaries shall be a breach of this
Section 5.06
by KFI.
(c) Neither the KFI Board of
Directors nor any committee thereof shall (or shall agree or resolve to) (i) fail to make, withdraw or modify in a manner adverse to Horizon or propose to withdraw or modify in a manner adverse to Horizon (or take any action inconsistent with) the
recommendation by such KFI Board of Directors or any such committee of this Agreement or the Merger, or approve or recommend, or propose to recommend, the approval or recommendation of any Acquisition Proposal (any of the foregoing being referred to
herein as an
Adverse Recommendation Change
), or (ii) cause or permit KFI or FSB to enter into any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement, option agreement,
joint venture agreement, partnership agreement or other
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agreement (each, an
Acquisition Agreement
) constituting or related to, or which is intended to or would be reasonably likely to lead to, any Acquisition Proposal (other than a
confidentiality agreement referred to in
Section 5.06(b)
). Notwithstanding the foregoing, at any time prior to the special meeting of KFIs shareholders to approve the Merger, the KFI Board of Directors may, in response to a Superior
Proposal, effect an Adverse Recommendation Change,
provided
, that the KFI Board of Directors determines in good faith, after consultation with its outside legal counsel and financial advisors, that the failure to do so would be reasonably
likely to result in a breach of its fiduciary duties to the shareholders of KFI under applicable Law, and
provided
,
further
, that the KFI Board of Directors may not effect such an Adverse Recommendation Change unless (A) the KFI
Board shall have first provided prior written notice to Horizon (an
Adverse Recommendation Change Notice
) that it is prepared to effect an Adverse Recommendation Change in response to a Superior Proposal, which notice shall, in
the case of a Superior Proposal, attach the most current version of any proposed written agreement or letter of intent relating to the transaction that constitutes such Superior Proposal (it being understood that any amendment to the financial terms
or any other material term of such Superior Proposal shall require a new notice and a new ten (10) business day period) and (B) Horizon does not make, within ten (10) business days after receipt of such notice, a proposal that would, in the
reasonable good faith judgment of the KFI Board of Directors (after consultation with financial advisors and outside legal counsel), cause the offer previously constituting a Superior Proposal to no longer constitute a Superior Proposal or that the
Adverse Recommendation Change is no longer required to comply with the KFI Boards fiduciary duties to the shareholders of KFI under applicable law. KFI agrees that, during the ten (10) business day period prior to its effecting an Adverse
Recommendation Change, KFI and its officers, directors and representatives shall negotiate in good faith with Horizon and its officers, directors, and representatives regarding any revisions to the terms of the transactions contemplated by this
Agreement proposed by Horizon.
(d) In addition to the obligations of KFI set forth in paragraphs (a), (b) and (c) of this
Section
5.06
, KFI shall as promptly as possible, and in any event within two (2) business days after KFI first obtains knowledge of the receipt thereof, advise Horizon orally and in writing of (i) any Acquisition Proposal or any request for
information that KFI reasonably believes could lead to or contemplates an Acquisition Proposal or (ii) any inquiry KFI reasonably believes could lead to any Acquisition Proposal, the terms and conditions of such Acquisition Proposal, request or
inquiry (including any subsequent amendment or other modification to such terms and conditions) and the identity of the Person making any such Acquisition Proposal or request or inquiry. In connection with any such Acquisition Proposal, request or
inquiry, if there occurs or is presented to KFI any offer, material change, modification or development to a previously made offer, letter of intent or any other material development, KFI (or its outside counsel) shall (A) advise and confer with
Horizon (or its outside counsel) regarding the progress of negotiations concerning any Acquisition Proposal, the material resolved and unresolved issues related thereto and the material terms (including material amendments or proposed amendments as
to price and other material terms) of any such Acquisition Proposal, request or inquiry, and (B) promptly upon receipt or delivery thereof provide Horizon with true, correct and complete copies of any document or communication related thereto.
(e) For purposes of this Agreement,
Acquisition Proposal
shall mean (i) any inquiry, proposal or offer from any Person or
group of Persons (other than as contemplated by this Agreement) relating to, or that could reasonably be expected to lead to, any direct or indirect
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acquisition or purchase, in one transaction or a series of transactions, of (A) assets or businesses that constitute 20% or more of the revenues, net income or assets of KFI and its Subsidiaries,
taken as a whole, or (B) 20% or more of any class of equity securities of KFI or any of its Subsidiaries; (ii) any tender offer or exchange offer that, if consummated, would result in any Person beneficially owning 20% or more of any class of equity
securities of KFI or any of its Subsidiaries; (iii) any merger, consolidation, business combination, recapitalization, liquidation, dissolution, joint venture, binding share exchange or similar transaction involving KFI, FSB or any of its other
Subsidiaries pursuant to which any Person or the shareholders of any Person would own 20% or more of any class of equity securities of KFI, FSB, or any of KFIs other Subsidiaries or of any resulting parent company of KFI or FSB; or
(iv) any other transaction the consummation of which could reasonably be expected to impede, interfere with, prevent or materially delay the Merger or that could reasonably be expected to dilute materially the benefits to Horizon of the
transactions contemplated hereby, other than the transactions contemplated hereby. For purposes of this
Section 5.06
, a
Person
shall include a natural Person, or any legal, commercial, or Governmental Authority, including,
a corporation, general partnership, joint venture, limited partnership, limited liability company, trust, business association, group acting in concert, or any Person acting in a representative capacity.
(f) For purposes of this Agreement,
Superior Proposal
shall mean any Acquisition Proposal (but changing the references to
20% or more in the definition of
Acquisition Proposal
to 50% or more) that the KFI Board determines in good faith (after having received the advice of its financial advisors), to be (i) materially more
favorable to the shareholders of KFI from a financial point of view and its other constituencies than the Merger (taking into account all the terms and conditions of such proposal and this Agreement (including any break-up fees, expense
reimbursement provisions and conditions to consummation and any changes to the financial terms of this Agreement proposed by Horizon in response to such offer or otherwise)) and (ii) reasonably capable of being completed without undue delay
taking into account all financial, legal, regulatory and other aspects of such proposal.
5.07
Press
Releases
. Horizon and KFI shall use reasonable efforts (i) to develop a joint communications plan with respect to this Agreement and the transactions contemplated hereby, (ii) to ensure that all press releases and other public statements
with respect to this Agreement and the transactions contemplated hereby shall be consistent with such joint communications plan, and (iii) except where (and to the extent that) such prior consultation is not reasonably possible due to time
considerations in respect of any announcement required by applicable law or by obligations pursuant to any listing agreement with or rules of the NASDAQ Global Select Market, to consult with each other before issuing any press release or otherwise
making any public statement with respect to this Agreement or the transactions contemplated hereby.
5.08
Changes and Supplements to Disclosure Schedules
. KFI shall promptly supplement, amend and update, upon the occurrence of any change prior to the Effective Time, and as of the Effective Time, the KFI Disclosure Schedule with respect to
any matters or events hereafter arising which, if in existence or having occurred as of the date of this Agreement, would have been required to be set forth or described in the KFI Disclosure Schedule or this Agreement and including, without
limitation, any fact which, if existing or known as of the date hereof, would have made any of the representations or warranties of KFI contained herein
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incorrect, untrue or misleading. No such supplement, amendment or update shall have any effect for the purposes of determining satisfaction of the conditions set forth in
Article VII
or
become part of the KFI Disclosure Schedule unless Horizon shall have first consented in writing with respect thereof.
5.09
Failure to Fulfill Conditions
. In the event KFI determines that a condition to its obligation to complete the Merger cannot be fulfilled, it will promptly notify Horizon.
5.10
Access; Information
.
(a) Horizon and KFI, and their representatives and agents, shall, upon reasonable notice to the other party, at all times during normal
business hours prior to the Effective Time, have full and continuing access to the properties, facilities, operations, books and records of the other party. Horizon and KFI, and their representatives and agents may, prior to the Effective Time, make
or cause to be made such reasonable investigation of the operations, books, records and properties of the other party and their Subsidiaries and of their financial and legal condition as deemed necessary or advisable to familiarize themselves with
such operations, books, records, properties and other matters;
provided
,
however
, that such access or investigation shall not interfere unnecessarily with the normal business operations of KFI or Horizon or either of their
Subsidiaries. In addition, after receipt of all Regulatory Approvals, KFI shall cooperate with Horizon to facilitate introductions to FSBs customers and key business partners and referral sources.
(b) No investigation by Horizon or KFI shall affect the representations and warranties made by KFI or Horizon herein.
(c) Any confidential information or trade secrets received by Horizon, KFI or their representatives or agents in the course of such
examination will be treated confidentially, and any correspondence, memoranda, records, copies, documents and electronic or other media of any kind containing such confidential information or trade secrets or both shall be destroyed by Horizon or
KFI, as applicable, or at Horizons or KFIs request, returned to Horizon or KFI, as applicable, in the event this Agreement is terminated as provided in
Article VIII
hereof;
provided
,
however
, that the parties may
retain such received confidential information to comply with applicable law or regulation or professional standard or bona fide internal compliance policy requirements. Additionally, any confidential information or trade secrets received by Horizon
or KFI, or either of their agents or representatives in the course of their examinations (whether conducted prior to or after the date of this Agreement) shall be treated confidentially and in accordance with the Confidentiality Agreement (as
defined in
Section 11.08
). This
Section 5.10
will not require the disclosure of any information to Horizon or KFI which would be prohibited by law.
(d) Except to the extent prohibited by Law or any bank regulatory agency, in order to provide for a smooth transition after the Closing,
beginning on the date of this Agreement, the Chairman of Horizon, or his designees, shall be entitled to receive notice of and a representative of Horizon shall be entitled to attend as an observer, all regular and special meetings of the Board of
Directors and all committees of KFI and any of its Subsidiaries, including, without limitation, the loan committee, asset/liability committee, investment committee, the executive
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committee, and any other committee of KFI or its Subsidiaries;
provided
,
however
, KFI shall not be required to permit any Horizon representative to remain present during any
discussion of this Agreement and the transactions contemplated hereby or during any other matter that the respective Board of Directors has reasonably determined to be confidential with respect to the participation of Horizon. KFI shall also provide
Horizon with copies of minutes and consents from all such Board and committee meetings no later than fourteen (14) days thereafter.
5.11
Financial Statements
. As soon as internally available after the date of this Agreement, KFI will deliver to Horizon any additional audited consolidated financial statements which are prepared on its behalf or at its direction, the
monthly consolidated unaudited balance sheets and profit and loss statements of KFI prepared for its internal use, FSBs Call Reports for each quarterly period completed prior to the Effective Time, all other financial reports or statements
submitted to regulatory authorities after the date hereof, and all other financial statements and financial information reasonably requested by Horizon (collectively,
Subsequent KFI Financial Statements
). The Subsequent KFI
Financial Statements will be prepared on a basis consistent with past accounting practices and GAAP (to the extent applicable) and shall present fairly the financial condition and results of operations as of the dates and for the periods presented
(except in the case of unaudited financial statements or Call Report information for the absence of notes and/or
year-end
adjustments).
5.12
Environmental
.
(a) If requested by Horizon, KFI will cooperate with an environmental consulting firm designated by Horizon that is reasonably acceptable to
KFI (the
Designated Environmental Consultant
) in connection with the conduct, at any time after the date hereof (the
Investigation Period
), by the Designated Environmental Consultant of Phase I environmental
site assessments and any other investigation reasonably requested by Horizon on all real property (except single family, non-agricultural residential property of one acre or less) owned or leased by KFI or any of its Subsidiaries as of the date of
this Agreement or acquired thereafter, including OREO. Horizon will proceed with such assessments, testing and investigations as soon as reasonably practicable after the date of this Agreement and will diligently work to pursue such assessments,
testing and investigations through completion. Horizon shall furnish true and complete copies of any reports of the Designated Environmental Consultant that it receives with respect to any KFI property, promptly upon Horizons receipt of such
reports. Horizon shall be responsible for the costs of all environmental site assessments, investigations or testing requested by Horizon from the Designated Environmental Consultant.
(b) If the Designated Environmental Consultants good faith estimate, based upon the results of the Phase I environmental studies and
other diligence and investigation conducted by the Designated Environmental Consultant, of the dollar amount, if any, that KFI and its Subsidiaries would be required to expend due to a violation of applicable Environmental Laws for all of the KFI
properties (the
Environmental Liabilities
) for clean-up and remediation relating to pollutants, contaminants, wastes, toxic substances, petroleum, petroleum products and any other materials regulated under the Environmental Laws
with respect to KFIs or its Subsidiaries owned or leased real properties (including OREO) or any adjoining properties (the
Estimated Clean-Up Costs
, as further adjusted pursuant to this
Section 5.12
), is in
excess of $50,000 (the
Environmental Liability Threshold
), Horizon shall deliver to KFI (not later
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than ten (10) business days of its receipt of the Designated Environmental Consultants good faith estimate) a written notice (an
Environmental Cost Notice
) describing the
nature of such Environmental Liabilities and the course of action proposed to be taken by Horizon or its Subsidiaries (if it were to become the owner of such properties as a result of the Merger) to remediate or otherwise address the environmental
problems and providing an estimate of the out of pocket cost of such remediation expected to be incurred (if different from the Estimated Clean-Up Costs). If KFI disagrees with Horizons estimate of the amount of out of pocket costs of such
remediation or the course of action proposed by Horizon, KFI shall deliver to Horizon a written notice of such objection (an
Environmental Cost Objection
) within five (5) business days of KFIs receipt of the Environmental
Cost Notice. No later than five (5) business days following Horizons receipt of an Environmental Cost Objection, one or more members of senior management of Horizon and KFI having authority to resolve the dispute shall meet (in person or by
telephone) and shall negotiate in good faith in an attempt to resolve the difference set forth in the Environmental Cost Objection. Regardless of whether the parties reach a resolution of the dispute within two (2) business days of the first such
meeting, subsection
(c)
shall apply.
(c) The Estimated Clean-up Costs shall be deemed to have been established for purposes of
this
Section 5.12
: (i) if Horizon does not receive an Environmental Cost Objection, as of the last date that an Environmental Cost Objection would have been timely under subsection
(b)
above, or (ii) if an Environmental Cost Objection
is delivered to Horizon and finally resolved as set forth in subsection
(b)
hereof or if it remains unresolved under such subsection (in which event the Estimated Clean-Up Costs shall be as set forth in the Environmental Cost Notice), then as
of the date of such resolution or on the third business day if unresolved (as the case may be) (as applicable, the
Environmental Costs Determination Date
). Following the establishment of the Estimated Clean-up Costs, if the
Estimated Clean-Up Costs are (A) between $50,000 and $350,000, then Horizon shall have the right to reduce the Cash Consideration by the Estimated Clean-up Costs, or (B) more than $350,000, then Horizon shall have the right to either (1) reduce the
Cash Consideration by the Estimated Clean-up Costs or (2) terminate this Agreement pursuant to
Section 8.01(c)(iv)
, which termination right shall be Horizons sole remedy in such event.
5.13
Governmental Reports and Shareholder Information
. Promptly upon its becoming available, KFI shall
furnish to Horizon one (1) copy of each financial statement, report, notice, or proxy statement sent by KFI to any Governmental Authority or to KFIs shareholders, and of any order issued by any Governmental Authority in any proceeding to which
KFI is a party. For purposes of this Agreement,
Governmental Authority
shall mean any government (or any political subdivision or jurisdiction thereof), court, bureau, agency or other governmental entity having or asserting
jurisdiction over the applicable party or its business, operations or properties.
5.14
Adverse
Actions
. KFI shall not knowingly take any action that is intended or is reasonably likely to result in (a) any of its representations and warranties set forth in this Agreement being or becoming untrue in any respect at any time at or prior
to the Effective Time, (b) any of the conditions to the Merger set forth in
Article VII
not being satisfied, (c) a material violation of any provision of this Agreement or (d) a material delay in the consummation of the Merger except, in each
case, as may be required by applicable law or regulation.
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5.15
Employee Benefits and Employees
.
(a) Neither the terms of
Section 6.03
hereof nor the provision of any employee benefits by Horizon or any of its Subsidiaries to
employees of KFI or any of its Subsidiaries shall: (a) create any employment contract, agreement or understanding with or employment rights for, or constitute a commitment or obligation of employment to, any of the officers or employees of KFI or
any of its Subsidiaries; or (b) prohibit or restrict Horizon or its Subsidiaries, whether before or after the Effective Time, from changing, amending or terminating any employee benefits provided to its employees from time to time.
(b) Before the date that is sixty (60) days prior to Closing, Horizon will use its best efforts to notify KFI of the employees Horizon intends
to retain after the Effective Time. Prior to the Closing Date, KFI shall be responsible for timely giving any notices to, and terminating, any employees whose employment will not be continued by Horizon, and KFI shall pay any and all amounts which
are then due and payable to such employees in connection with the termination of their employment, including, without limitation, all accrued vacation and sick pay and the severance amounts contemplated by
Section 6.03(h)
of this Agreement.
(c) Before Closing, with KFIs prior consent (which consent shall not be unreasonably withheld), Horizon may conduct such training
and other programs as it may, in its reasonable discretion and at its sole expense, elect to provide for those employees who will be continuing employment with Horizon;
provided
,
however
, that such training and other programs shall not
materially interfere with or prevent the performance of the normal business operations of KFI.
5.16
Noncompetition Agreements
. Concurrently with the execution of this Agreement, KFI shall cause to be delivered to Horizon a non-competition, non-solicitation and non-disclosure agreement executed by each of J. Gregory Maxwell, Kristi
Manwaring, Lindy Breeden, and Michael Walters in a form acceptable to Horizon (the
Noncompetition Agreements
).
5.17
Termination of KFI 401(k) Plan
.
(a) KFI maintains the Farmers State Bank Employees 401(k) Savings Plan (the
KFI 401(k) Plan
). KFI shall make contributions to the KFI 401(k) Plan between the date hereof and the Effective Time consistent with the terms of the KFI 401(k) Plan and past practices, including, without limitation, elective
deferral contributions of those KFI 401(k) Plan participants who are employed by KFI or its Subsidiaries.
(b) No later than ten (10) days
prior to the Closing Date, KFI, pursuant to the provisions of the KFI 401(k) Plan, shall, subject to review and approval by Horizon: (i) adopt resolutions to terminate, subject to the consummation of the Merger, the KFI 401(k) Plan, consistent with
the provisions of Code Section 401(k)(10), effective as of a date that is not later than the day before the Effective Time (the
Plan Termination Date
) and (ii) amend the KFI 401(k) Plan effective as of a date not later than the
Plan Termination Date to freeze participation in and benefit accruals under the KFI 401(k) Plan and to provide that no distributions of accrued benefits shall be made from the KFI 401(k) Plan, or its related employee benefit trust,
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subsequent to the Plan Termination Date until such time as the Internal Revenue Service issues a favorable determination letter to the effect that the plan termination does not adversely affect
the KFI 401(k) Plans qualification for favorable income tax treatment under the Code, other than distributions required by the terms of the KFI 401(k) Plan to be made upon retirement, death, disability, or termination of employment, or any
other event, other than the plan termination, that requires a distribution from the KFI 401(k) Plan. Notwithstanding the preceding provisions, participants with outstanding plan loans under the KFI 401(k) Plan as of the Effective Time shall be
permitted to continue repaying such outstanding loans (subject to the terms and conditions of such plan and the related loan procedures) on and after the Effective Time and until such time as plan termination distributions are paid pursuant to the
preceding sentence. At such time as the loans are required to be repaid or will be taxed to the borrower if not repaid (the
401(k) Loan Repayment Date
), FSB or its successor, if any, shall cause loans to be made, outside of any
tax-qualified retirement plan, to those FSB employees who had loans outstanding under the 401(k) Plan as of the 401(k) Loan Repayment Date, in an amount not to exceed the outstanding loan balance as of the 401(k) Loan Repayment Date,
provided
that any such FSB employee completes any necessary documentation and is determined to qualify for such loan under applicable loan policies and underwriting standards of FSB. Each such refinancing loan shall have a fixed rate of interest not to
exceed four percent (4.0%) per annum and shall have an amortization period not to exceed the remaining term of the loan granted under the 401(k) Plan.
(c) At a time to be mutually agreed upon by KFI and Horizon, KFI will file, or cause to be filed, with the Internal Revenue Service an
application for a favorable determination letter upon termination of the KFI 401(k) Plan (IRS Form 5310 and related attachments) requesting the issuance to KFI of the favorable determination letter described in the preceding subsection
(b)
. A
copy of the competed and filed IRS Form 5310 shall be provided to Horizon at least five (5) business days prior to the Effective Time.
(d) Any contributions due to the KFI 401(k) Plan for the period prior to the Plan Termination Date, and not yet paid on the Plan Termination
Date, will be contributed by KFI as soon as administratively feasible following the Plan Termination Date.
(e) KFI shall continue in full
force and effect, until the Effective Time: (i) the fidelity bond, if any, issued to KFI as described in ERISA Section 412; and (ii) the ERISA fiduciary liability insurance policy currently in effect, if any, for the benefit of the covered
fiduciaries of the KFI 401(k) Plan.
5.18
Disposition of Welfare Benefit and Sec. 125 Plans
.
(a) All fully insured welfare benefit (health, dental/vision, life/AD&D, LTD), and Internal Revenue Code Section 125, or
cafeteria, plans currently sponsored by KFI or FSB shall be terminated as of the Effective Time, unless Horizon determines that any such plan shall be continued past the Effective Time. KFI shall take, or cause to be taken, all actions
necessary to terminate all of KFIs and any Subsidiarys group insurance policies as of the Effective Time, unless otherwise instructed by Horizon.
(b) As of the Effective Time, and to the extent not prohibited by applicable law, KFI shall take, or cause to be taken, all actions necessary
to assign any and all applicable group
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insurance policies to Horizon and to provide Horizon all necessary financial, enrollment, eligibility, contractual and other information related to its welfare benefit and cafeteria plans to
assist Horizon in the administration of such plans, unless Horizon determines that any or all of the group insurance policies should be terminated as of the Effective Time.
(c) From the date of this Agreement through the Effective Time, KFI shall continue to: (i) pay the applicable insurance premiums necessary to
continue the benefits under KFIs fully insured welfare benefit plans; (ii) contribute to the cafeteria plan the pre-tax amounts which the cafeteria plan participants elect to defer from compensation; and (iii) pay all eligible claims incurred,
in accordance with the terms and conditions of such plan, under the cafeteria plans health and dependent care flexible spending accounts prior to the Effective Time.
(d) As of the date of the termination of the KFI cafeteria plan, the balances in the health and dependent care flexible spending accounts
thereunder shall be transferred to the applicable components of the Horizon cafeteria plan. Benefit and compensation deferral elections in effect at that time shall be continued under the Horizon cafeteria plan, subject to subsequent changes as
provided in the Horizon plan. All benefit payments related to the transferred balances shall be made in accordance with the Horizon cafeteria plan.
5.19
FSB Merger
. Prior to the Effective Time, KFI shall, and cause FSB to, cooperate with Horizon and
take such action as reasonably requested by Horizon and necessary to (i) merge FSB with and into Horizon Bank as of the Effective Time, or (ii) reconstitute the directors and officers of FSB as of the Effective Time to be the same as the directors
and officers of Horizon Bank at the Effective Time, and amend the Articles of Incorporation and Bylaws of FSB as of the Effective Time or make such other changes as Horizon Bank may request if necessary to accomplish the same.
5.20
Cooperation on Conversion of Systems
. KFI agrees to commence immediately after the date of this
Agreement (and continue until Closing or completed) using its best efforts to ensure an orderly transfer of information, processes, systems and data to Horizon and to otherwise assist Horizon in facilitating the conversion of all of KFIs
systems into, or to conform with, Horizons systems (including cooperating with Horizon in the training of KFIs and its Subsidiaries employees on Horizons systems), so that, as of the Closing, the systems of KFI are readily
convertible to Horizons systems to the fullest extent possible without actually converting them prior to the Closing. KFI and Horizon shall meet on a regular basis to discuss and plan for the conversion of KFIs data processing and
related electronic informational systems to those used by Horizon, which planning shall include, without limitation: (i) discussion of possible termination by KFI of third-party service provider arrangements effective at or following the Effective
Time; (ii) non-renewal of personal property leases and software licenses used by KFI in connection with its systems operations; and (iii) retention of outside consultants and additional employees to assist with the conversion and outsourcing, as
appropriate, of proprietary or self-provided system services.
5.21
Installation/Conversion of
Equipment
. Prior to Closing, at times mutually agreeable to Horizon and KFI, Horizon may, at Horizons sole expense, install teller equipment, platform equipment, security equipment, and computers, at the KFI and FSB offices, branches and
ATM locations, and KFI shall cooperate with Horizon in connection with such installation;
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provided
,
however
, that such installations shall not interfere with the normal business activities and operations of KFI or FSB or require material alterations to KFIs or
FSBs facilities.
5.22
Supplemental Life Insurance
Agreements (BOLI)
. Prior to the
Effective Time, KFI shall, or shall cause FSB to, take any and all action necessary to terminate in accordance with the terms and conditions thereof and without resulting liability to Horizon or any of its affiliates, the Farmers State Bank
Supplemental Life Insurance Agreements dated January 1, 2008, with each of J. Gregory Maxwell, Lindy Breeden, and Rebecca Baker. For those participants that become employees of Horizon after the Closing and during their employment with Horizon
thereafter, they shall be eligible to participate in Horizons group life insurance plan which generally provides for a death benefit equal to two (2) times their then-current annual salary with a maximum limit of $500,000.
5.23
Employment Agreements
. KFI agrees to pay out all amounts payable pursuant to the employment agreements
between FSB and (i) J. Gregory Maxwell dated September 20, 2012, (ii) Michael E. Walters dated September 20, 2012, (iii) Lindy Breeden dated September 20, 2012, and (iv) Kristi Manwaring dated September 23, 2015, (collectively,
the
Employment Agreements
), as identified in the KFI Disclosure Schedule, as if the change in control payments contemplated by the Employment Agreements had been triggered by the Merger, provided that all such agreements shall be
amended with the written consent of the affected parties prior to the Effective Time to ensure and expressly provide that no payment shall be made under such agreements or under any other plan, arrangement or agreement applicable to the individual
that would constitute an excess parachute payment (as such term is defined in Section 280G of the Code), and to the extent any such payment would constitute an excess parachute payment, the payment will be reduced to $1.00
less than the amount that would be considered an excess parachute payment. The payment of such amounts shall be contingent upon Ms. Manwaring and Messrs. Maxwell, Walters and Breeden entering into a mutual termination of employment
agreement in a form acceptable to Horizon (the
Mutual Termination of Employment Agreements
), and Ms. Manwaring and Messrs. Maxwell, Walters and Breeden entering into the Noncompetition Agreements. Such payments will be made in a
lump sum no later than the Effective Time.
5.24
Assumption of SERP Agreement
. At the Effective Time,
Horizon agrees to assume that certain Farmers State Bank Salary Continuation Agreement dated January 1, 2008, with J. Gregory Maxwell, and make the future scheduled payments thereunder in monthly installments. Horizon, FSB and Maxwell agree to
cooperate to amend such agreement if necessary to be in compliance with Section 409A of the Code.
ARTICLE
VI.
COVENANTS OF HORIZON
Horizon covenants and agrees with KFI and covenants and agrees to cause its Subsidiaries to act as follows (and KFI covenants and agrees with
Horizon as follows):
6.01
Approvals
. Horizon shall have primary responsibility of the
preparation, filing and costs of all bank regulatory applications required for consummation of the Merger, and all
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parties shall file such applications as promptly as practicable after the execution of this Agreement not to exceed 60 days. Horizon and KFI shall provide to the others counsel copies of
all applications filed and copies of all material written communications with all state and federal bank regulatory agencies relating to such applications. Horizon and KFI shall cooperate fully and use commercially reasonable efforts to procure,
upon terms and conditions reasonably acceptable to each of them, all consents, authorizations, approvals, registrations and certificates, to complete all filings and applications and to satisfy all other requirements prescribed by law which are
necessary for consummation of the Merger on the terms and conditions provided in this Agreement.
6.02
SEC
Registration
.
(a) As soon as practicable following the date of this Agreement, KFI (with the assistance of Horizon as
appropriate) shall prepare the required proxy disclosures, in accordance with the rules and regulations of the SEC, to be used in connection with the KFI shareholders meeting to obtain approval for the merger (the
Proxy
Statement
), and Horizon shall prepare and file with the SEC a registration statement on an appropriate form under the Securities Act of 1933, as amended (the
1933 Act
) Act covering the shares of Horizon common stock to
be issued pursuant to this Agreement, in which the Proxy Statement will be included. Such registration statement and any amendments and supplements thereto are referred to in this Agreement as the
Registration Statement
. Horizon
shall use its best reasonable efforts to cause the same to become effective and thereafter, until the Effective Time or termination of this Agreement, to keep the same effective and, if necessary, amend and supplement the same. Horizon shall, as
soon as practicable after filing the Registration Statement (but not to exceed 75 days), make all filings required to obtain all blue sky exemptions, authorizations, consents or approvals required for the issuance of Horizon common stock.
(b) The parties shall use reasonable best efforts to respond (with the assistance of the other party) as promptly as practicable to any
comments of the SEC with respect thereto. If prior to the Effective Time any event occurs with respect to KFI, Horizon or any Subsidiary of KFI or Horizon, respectively, or any change occurs with respect to information supplied by or on behalf of
KFI or Horizon, respectively, for inclusion in the Proxy Statement or the Registration Statement that, in each case, is required to be described in an amendment of, or a supplement to, the Proxy Statement or the Registration Statement, KFI or
Horizon, as applicable, shall promptly notify the other of such event, and KFI or, Horizon, as applicable, shall cooperate in the prompt filing with the SEC of any necessary amendment or supplement to the Proxy Statement and the Registration
Statement and, as required by applicable Law, in disseminating the information contained in such amendment or supplement to KFIs shareholders and to Horizons shareholders.
(c) Horizon will use reasonable best efforts to list for trading on the NASDAQ Global Select Market (subject to official notice of issuance)
prior to the Effective Time, the shares of Horizon common stock to be issued in the Merger.
6.03
Employee
Benefit Plans and Employee Payments
.
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(a) Horizon shall make available to the officers and employees of KFI or any Subsidiary who
continue as employees of Horizon or any Subsidiary after the Effective Time (
Continuing Employees
), substantially the same employee benefits as are generally available to all Horizon employees, except where different benefits are
required by other provisions of this Agreement.
(b) Horizon and KFI agree to address any issues related to the differences between the
vacation and paid time off policies of KFI and any Subsidiary (including, without limitation, any banked paid time) and the vacation and paid time off policies of Horizon, and communicate the proposed reconciliation of the policies to the Continuing
Employees prior to the Effective Time. Effective as of the later of the Effective Time or the date on which the Horizon vacation and paid time off policies are made available to the Continuing Employees, such Continuing Employees will be subject to
the terms and conditions of the Horizon vacation/paid time off policy in place for similarly situated employees of Horizon, with credit given for all prior years of service with KFI or any Subsidiary for purposes of determining vacation pay
eligibility and the amount of such vacation pay.
(c) Continuing Employees will receive credit for prior service with KFI or its
Subsidiaries, or their predecessors, for purposes of eligibility and vesting (but not benefit accrual) under the employee benefit plans of Horizon and its Subsidiaries.
(d) To the extent a KFI employee benefit plan is terminated at or prior to the Effective Time, Continuing Employees shall become eligible to
participate in Horizons similar employee benefit plans as of the Effective Time. Horizon will use its reasonable best efforts to: (i) avoid subjecting Continuing Employees to any waiting periods or additional pre-existing condition limitations
under the health and dental plans of Horizon or its Subsidiaries in which they are eligible to participate than they otherwise would have been subject to under the health and dental plans of KFI; and (ii) give credit under the applicable plan for
any deductibles and co-insurance payments made by such Continuing Employees under the corresponding KFI plan during the balance of the then current 12-month period of coverage.
(e) To the extent permitted under the terms of any tax-qualified retirement plan maintained by Horizon after the Effective Time and subject to
the terms and conditions thereof, such plan shall accept eligible rollover distributions (within the meaning of Code Section 402(c)(4)) of cash amounts received from the KFI 401(k) Plan with respect to any Continuing Employees.
(f) Horizon may elect to continue to maintain all fully insured employee welfare benefit and cafeteria plans currently in effect at the
Effective Time until such time as Horizon determines, in its sole discretion, to modify or terminate any or all of those plans. Claims incurred under the employee welfare benefit and cafeteria plans prior to plan termination shall be paid in
accordance with the applicable plans claim submission procedures and deadlines.
(g) Until the Effective Time, KFI or a Subsidiary
of KFI, whichever is applicable, shall be liable for all obligations for continued health coverage pursuant to Section 4980B of the Code and Sections 601 through 609 of ERISA (
COBRA
) for eligible employees who incur a qualifying
event before the Effective Time. Horizon or a Horizon Subsidiary, whichever is
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applicable, shall, after the Effective Time, be liable for (i) all obligations for continued health coverage under COBRA with respect to each qualified beneficiary of KFI or a Subsidiary of KFI
who incurs a termination on and after the Effective Time, and (ii) for continued health coverage under COBRA from and after the Effective Time for each qualified beneficiary of KFI or a Subsidiary of KFI who incurs a qualifying event before the
Effective Time.
(h) Except for J. Gregory Maxwell, Lindy Breeden, Michael E. Walters, and Kristi Manwaring, and any other employee
receiving a separate change in control, severance or similar payment in connection with the Closing of the Merger, those employees of FSB as of the Effective Time (i) who are still employed by FSB and who Horizon or its Subsidiaries elect not to
employ after the Effective Time or who are terminated other than for cause within twelve (12) months after the Effective Date; and (ii) who sign and deliver a termination and release agreement in a form acceptable to Horizon, shall be entitled to
severance pay equal to one (1) week of pay, at their base rate of pay in effect at the time of termination, for each full year of continuous service with FSB with a minimum of four (4) weeks and a maximum of twenty-six (26) weeks. Such employees
will receive their severance in a lump-sum payment. Furthermore, any of such terminated employees shall be entitled to continuation coverage under Horizon Banks group health plans as required by COBRA, subject to timely election and payment of
the applicable COBRA premium by such terminated employees. In addition, Horizon, at its expense will provide group career counseling for the FSB employees who will not be continuing with Horizon and will make professional career counseling services
available through its internal employee assistance program of up to four (4) visits per employee. Nothing in this Section shall be deemed to limit or modify Horizons or Horizon Banks at-will employment policy or any employees at
will employment status.
6.04
Adverse Actions
. Horizon shall not knowingly take any action that is
intended or is reasonably likely to result in (a) any of its representations and warranties set forth in this Agreement being or becoming untrue in any respect at any time at or prior to the Effective Time, (b) any of the conditions to the Merger
set forth in
Article VII
not being satisfied, or (c) a material violation of any provision of this Agreement.
6.05
D&O Insurance and Indemnification
.
(a) Subject to the limits of applicable federal banking law and
regulations, Horizon shall indemnify and hold harmless (including the advancement of expenses as incurred) each present and former director and officer of KFI and its Subsidiaries, including FSB (each, an
Indemnified Party
) for a
period of six (6) years following the Effective Time, against any costs or expenses (including reasonable attorneys fees), judgments, fines, losses, claims, damages or liabilities incurred in connection with any claim, action, suit, proceeding
or investigation, whether civil, criminal, administrative or investigative, arising out of or pertaining to matters existing or occurring at or prior to the Effective Time, whether asserted or claimed prior to, at or after the Effective Time, to the
same extent (and subject to the making of the same findings as to eligibility for such indemnification and/or advancement of expenses) that such Indemnified Party would have been indemnified (or entitled to advancement of expenses) as a director or
officer of KFI or any of its Subsidiaries under applicable Indiana law or KFIs or any such Subsidiaries articles of incorporation or bylaws as in effect as of the date of this Agreement.
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(b) Horizon shall cause the persons serving as officers and directors of KFI and FSB immediately
prior to the Effective Time to be covered for a period of six (6) years after the Effective Time by the directors and officers liability insurance policy currently maintained by KFI (the
Existing Policy
) or by a
comparable or better policy (the
Replacement Policy
). Prior to the Effective Time, as instructed by Horizon, KFI shall cause the applicable broker of record for its Existing Policy and its existing Crime (Bond) Policy to be
assigned to Horizons designee. Such assignments in favor of Horizons designee shall be executed by KFI with sufficient time to allow Horizon and its designee to place the insurance required by this Section. The Existing Policy or
Replacement Policy, subject to policy terms and conditions, shall provide coverage with respect to covered acts or omissions occurring prior to the Effective Time;
provided
,
however
, that Horizon shall not be required to pay annual
premiums for the Existing Policy (or for any Replacement Policy) in excess of 150% of the annual premium for the current annual term of the Existing Policy (the
Maximum Amount
); and,
provided
,
further
,
however
, that, if notwithstanding the use of reasonable efforts to do so, Horizon is unable to maintain or obtain the insurance called for by this
Section 6.05(b)
, Horizon shall obtain as much comparable insurance as is available for
the Maximum Amount. Horizons obligations within this
Section 6.05(b)
apply solely and exclusively to the Existing Policy and the existing Crime (Bond) Policy at each policys current limits of insurance, as well as its other terms,
conditions, exclusions and annual premium as of the date of this Agreement, and which must be continuously maintained in force by KFI without interruption, cancellation or amendment until the Effective Time or Horizons obligations within this
Section shall cease.
(c) The provisions of this
Section 6.05
shall survive the Effective Time and are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party and his or her heirs and personal representatives.
(d) In the event that
either Horizon or any of its successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing or surviving entity of such consolidation or merger, or (ii) transfers all or substantially all of its
properties and assets to any Person, then, and in each such case, proper provision shall be made so that the successors and assigns of Horizon shall assume the obligations set forth in this
Section 6.05
.
6.06
Changes and Supplements to Horizon Disclosure Schedules
. Horizon shall promptly supplement, amend
and update, upon the occurrence of any change prior to the Effective Time, and as of the Effective Time, the Horizon Disclosure Schedule with respect to any matters or events hereafter arising which, if in existence or having occurred as of the date
of this Agreement, would have been required to be set forth or described in the Horizon Disclosure Schedule or this Agreement and including, without limitation, any fact which, if existing or known as of the date hereof, would have made any of the
representations or warranties of Horizon contained herein materially incorrect, untrue or misleading. No such supplement, amendment or update shall have any effect for the purposes of determining satisfaction of the conditions set forth in
Article VII
or become part of the Horizon Disclosure Schedule unless KFI shall have first consented in writing with respect thereof.
6.07
Kosciusko County Advisory Board
. As soon as reasonably practical after the Closing Date, Horizon
agrees to form a Kosciusko County Advisory Board and add
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representatives to the advisory board from the KFI and FSB Board and from the communities served by FSB, as mutually agreed upon.
6.08
Issuance of Horizon Common Stock
. The Horizon Common Stock to be issued by Horizon to the
shareholders of KFI pursuant to this Agreement will, on the issuance and delivery to such shareholders pursuant to this Agreement, be duly authorized, validly issued, fully paid and nonassessable. The Horizon common stock to be issued to the
shareholders of KFI pursuant to this Agreement are and will be free of any preemptive rights of the shareholders of Horizon or any other person, firm or entity. The Horizon common stock to be issued to the shareholders of KFI pursuant to this
Agreement will not be subject to any restrictions on transfer arising under the 1933 Act, except for Horizon common stock issued to any shareholder of KFI who may be deemed to be an affiliate (under the Securities Act) of Horizon after
completion of the Merger pursuant to Rule 145 of the Securities Act.
ARTICLE VII.
CONDITIONS PRECEDENT TO THE MERGER
7.01
Conditions Precedent to Horizon
s Obligations
. The obligation of Horizon to
consummate the Merger is subject to the satisfaction and fulfillment of each of the following conditions on or prior to the Effective Time, unless waived in writing by Horizon:
(a)
Representations and Warranties at Effective Time
. Each of the representations and warranties of KFI contained in this
Agreement shall be true, accurate and correct in all material respects at and as of the Effective Time as though such representations and warranties had been made or given on and as of the Effective Time (except that representations and warranties
that by their express terms speak as of the date of this Agreement or some other date shall be true and correct only as of such date).
(b)
Covenants
. Each of the covenants and agreements of KFI shall have been fulfilled or complied with in all material respects
from the date of this Agreement through and as of the Effective Time.
(c)
Deliveries at Closing
. Horizon shall have received
from KFI at the Closing (as defined in
Section 10.01
) the items and documents, in form and content reasonably satisfactory to Horizon, set forth in
Section 10.02(b)
.
(d)
Registration Statement Effective
. Horizon shall have registered its shares of Horizon common stock to be issued to
shareholders of KFI in accordance with this Agreement with the SEC pursuant to the 1933 Act, and all state securities and blue sky approvals, authorizations and exemptions required to offer and sell such shares shall have been received by Horizon.
The Registration Statement with respect thereto shall have been declared effective by the SEC and no stop order shall have been issued or threatened.
(e)
Regulatory Approvals
. All regulatory approvals required to consummate the transactions contemplated hereby (
Regulatory
Approvals
) shall have been obtained and shall remain in full force and effect and all statutory waiting periods in respect thereof shall have expired and no such approvals shall contain any conditions, restrictions or requirements which
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the Board of Directors of Horizon reasonably determines in good faith would (i) following the Effective Time, have a Material Adverse Effect on KFI or (ii) reduce the benefits of the
transactions contemplated hereby to such a degree that Horizon would not have entered into this Agreement had such conditions, restrictions or requirements been known at the date hereof.
(f)
Shareholder Approval
. The shareholders of KFI shall have approved and adopted this Agreement as required by applicable law and
the terms of this Agreement. The total number of the Dissenting Shares shall be no greater than five percent (5%) of the number of shares of KFI Common Stock outstanding as of the date of this Agreement.
(g)
Officers
Certificate
. KFI shall have delivered to Horizon a certificate signed by its President and its
Secretary, dated as of the Effective Time, certifying that: (i) the representations and warranties of KFI contained in
Article III
are true, accurate and correct in all respects on and as of the Effective Time, subject to the standard
specified in
Section 7.01(a)
; (ii) all the covenants of KFI have been complied with in all material respects from the date of this Agreement through and as of the Effective Time; and (iii) KFI has satisfied and fully complied with all
conditions necessary to make this Agreement effective as to it.
(h)
Tax Opinion
. The Board of Directors of Horizon shall have
received a written opinion of the law firm of Barnes & Thornburg LLP, dated as of the Effective Time, in form and content reasonably satisfactory to Horizon, to the effect that the Merger to be effected pursuant to this Agreement will constitute
a tax-free reorganization under the Code (as described in
Section 1.03
hereof) to each party hereto and to the shareholders of KFI, except with respect to the Cash Consideration and the cash received by the shareholders of KFI for fractional
shares resulting from application of the Exchange Ratio and pursuant to
Section 2.04
hereof. In rendering such opinion, counsel may require and rely upon customary representation letters of the parties hereto and rely upon customary
assumptions.
(i)
280G Opinion
. Horizon shall have received a letter of tax advice, in a form satisfactory to Horizon, from
KFIs outside, independent certified public accountants to the effect that any amounts that are paid by KFI before the Effective Time, or required under the Employment Agreements, other agreements or arrangements existing prior to the Effective
Time, or this Agreement (or other plans or agreements entered into in connection with this Agreement) to be paid at or after the Effective Time, to Persons who are disqualified individuals in respect of KFI, its Subsidiaries or their successors, and
that otherwise should be allowable as deductions for federal income tax purposes, should not be disallowed as deductions for such purposes by reason of Section 280G of the Code.
(j)
Material Proceedings
. None of Horizon, KFI, or any of their Subsidiaries, shall be subject to any statute, rule, regulation,
injunction, order or decree, which shall have been enacted, entered, promulgated or enforced, which prohibits, prevents or makes illegal the completion of the Merger, and no material claim, litigation or proceeding shall have been initiated or
threatened relating to the Agreement or the Merger or seeking to prevent the completion of the Merger.
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(k)
Listing
. The shares of Horizon common stock to be issued in the Merger shall have
been approved for listing on the NASDAQ Global Select Market, subject to official notice of issuance.
(l)
Notice of Termination of
Data Processing Agreement
. FSB shall have provided notice of termination to FiServ Solutions, Inc. under that certain Master Agreement, dated June 25, 2010 (including related exhibits and schedules), as amended, between FSB and FiServ.
(m)
Noncompetition Agreements
. J. Gregory Maxwell, Michael Walters, Lindy Breeden and Kristi Manwaring shall have executed
and delivered the Noncompetition Agreements to Horizon.
(n)
Termination of Existing Employment Agreements
. J. Gregory
Maxwell, Michael Walters, Lindy Breeden and Kristi Manwaring shall have executed and delivered the Mutual Termination of Employment Agreements to Horizon.
(o)
KFI Adjusted Consolidated Shareholder
s Equity
. As of the end of the month prior to the Effective Time, the KFI
Adjusted Consolidated Shareholders Equity (as defined in this
Section 7.01(o)
), shall not be less than $16.197 million.
KFI Adjusted Consolidated Shareholders
Equity
shall be the consolidated
shareholders equity of KFI and FSB determined in accordance with GAAP consistently applied for prior periods;
provided, however
, that (A) any accruals established by KFI pursuant to
Section 5.05(b)
; (B) any changes to the
valuation of the KFI investment portfolio attributed to ASC 320, whether upward or downward, from September 30, 2015 until the measurement date; (C) the aggregate expenses of attorneys, accountants, consultants, financial advisors and other
professional advisors incurred by KFI in connection with this Agreement or the transactions contemplated hereby; (D) any amounts paid or payable to any director, officer or employee of KFI or any Subsidiary of KFI under any contract, severance
arrangement, benefit plan or employment practice of KFI and all other payroll and non-payroll related costs and expenses, including agreed upon adjustments to the SERP accrual; (E) costs associated with the termination of the 401(k) Plan; and, (F)
costs associated with the termination of the Data Processing Agreement set forth in Section 7.01(l); in each case incurred or to be incurred by KFI through the Effective Time in connection with this Agreement and the transactions contemplated
hereby, will not reduce or impact the calculation of the KFI Adjusted Consolidated Shareholders Equity for purposes of this Section.
(p)
Consents
. KFI shall have obtained or caused to be obtained (a) all written consents, if any, required under the Material
Contracts, and (b) all permits, authorizations, other written consents, permissions and approvals as required for the lawful consummation of this Merger and as required under all agreements, contracts, appointments, indentures, plans, trusts or
other arrangements with third parties required to effect the transactions contemplated by this Agreement.
7.02
Conditions Precedent to KFI
s Obligations
. The obligation of KFI to
consummate the Merger is subject to the satisfaction and fulfillment of each of the following conditions on or prior to the Effective Time, unless waived in writing by KFI:
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(a)
Representations and Warranties at Effective Time
. Each of the representations and
warranties of Horizon contained in this Agreement shall be true, accurate and correct in all material respects on and as of the Effective Time as though the representations and warranties had been made or given at and as of the Effective Time
(except that representations and warranties that by their express terms speak as of the date of this Agreement or some other date shall be true and correct only as of such date).
(b)
Covenants
. Each of the covenants and agreements of Horizon shall have been fulfilled or complied with in all material respects
from the date of this Agreement through and as of the Effective Time.
(c)
Deliveries at Closing
. KFI shall have received from
Horizon at the Closing the items and documents, in form and content reasonably satisfactory to KFI, listed in
Section 10.02(a)
hereof.
(d)
Registration Statement Effective
. Horizon shall have registered its shares of Horizon common stock to be issued to
shareholders of KFI in accordance with this Agreement with the SEC pursuant to the 1933 Act, and all state securities and blue sky approvals, authorizations and exemptions required to offer and sell such shares shall have been received by Horizon.
The Registration Statement with respect thereto shall have been declared effective by the SEC and no stop order shall have been issued or threatened.
(e)
Regulatory Approvals
. All Regulatory Approvals shall have been obtained and shall remain in full force and effect and all
statutory waiting periods in respect thereof shall have expired.
(f)
Shareholder Approval
. The shareholders of KFI shall have
approved and adopted this Agreement as required by applicable law and the terms of this Agreement.
(g)
Officers
Certificate
. Horizon shall have delivered to KFI a certificate signed by its CEO and its Secretary, dated as of the Effective Time, certifying that: (i) the representations and warranties of Horizon contained in
Article IV
are true,
accurate and correct in all respects on and as of the Effective Time subject to the standard specified in
Section 7.02(a)
above; (ii) all the covenants of Horizon have been complied with in all material respects from the date of this
Agreement through and as of the Effective Time; and (iii) Horizon has satisfied and fully complied with all conditions necessary to make this Agreement effective as to it.
(h)
Tax Opinion
. The Board of Directors of KFI shall have received a written opinion of the law firm of Barnes & Thornburg
LLP, dated as of the Effective Time, in form and content reasonably satisfactory to KFI, to the effect that the Merger to be effected pursuant to this Agreement will constitute a tax-free reorganization under the Code (as described in
Section
1.03
hereof) to each party hereto and to the shareholders of KFI, except with respect to the Cash Consideration and the cash received by the shareholders of KFI for fractional shares resulting from application of the Exchange Ratio and pursuant
to
Section 2.04
hereof. In rendering such opinion, counsel may require and rely upon customary representation letters of the parties hereto and rely upon customary assumptions.
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(i)
Listing
. The shares of Horizon common stock to be issued in the Merger shall have
been approved for listing on the NASDAQ Global Select Market, subject to official notice of issuance.
(j)
Material
Proceedings
. None of Horizon, KFI, or any Subsidiary of Horizon or KFI, shall be subject to any statute, rule, regulation, injunction, order or decree, which shall have been enacted, entered, promulgated or enforced, which prohibits,
prevents or makes illegal the completion of the Merger, and no material claim, litigation or proceeding shall have been initiated or threatened relating to this Agreement or the Merger or seeking to prevent the completion of the Merger.
ARTICLE VIII.
TERMINATION OF MERGER
8.01
Termination
. This Agreement may be terminated and abandoned at any time prior to the Closing Date, only as follows:
(a) by the mutual written consent of Horizon and KFI;
(b) by either of KFI or Horizon by written notice to the other:
(i) if this Agreement and the Merger are not approved by the requisite vote of the shareholders of KFI at the meeting of
shareholders of KFI contemplated in
Section 5.01
;
(ii) (x) if any Governmental Authority of competent jurisdiction
shall have issued an order, decree, judgment or injunction or taken any other action that permanently restrains, enjoins or otherwise prohibits or makes illegal the consummation of the Merger, and such order, decree, judgment, injunction or other
action shall have become final and non-appealable, or (y) if any consent or approval of any Governmental Authority whose consent or approval is required to consummate the Merger has been denied and such denial (despite the reasonable best efforts of
the parties hereto to appeal or reverse such denial) has become final and non-appealable; or (z) any application, filing or notice for a regulatory approval has been withdrawn at the request or recommendation of the applicable Governmental
Authority;
provided, however
, that the right to terminate this Agreement under this
Section 8.01(b)(ii)
shall not be available to a party whose failure (or the failure of any of its affiliates) to fulfill any of its obligations
(excluding warranties and representations) under this Agreement has been the cause of or resulted in the occurrence of any event described in clauses (x), (y) and (z) above;
(iii) if the consummation of the Merger shall not have occurred on or before December 31, 2016 (the
Outside
Date
);
provided
that the right to terminate this Agreement under this
Section 8.01(b)(iii)
shall not be available to any party whose breach of any provision of this Agreement causes the failure of the Merger to occur on or
before the Outside Date; or
(c) by written notice from Horizon to KFI, if:
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(i) any event shall have occurred which is not capable of being cured prior to
the Outside Date and would result in any condition set forth in
Section 7.01
not being satisfied prior to the Outside Date;
(ii) KFI breaches or fails to perform any of its representations, warranties or covenants contained in this Agreement, which
breach or failure to perform would give rise to the failure of a condition set forth in
Section 7.01
, and such condition is incapable of being satisfied by the Outside Date or such breach has not been cured by KFI within twenty (20) business
days after KFIs receipt of written notice of such breach from Horizon;
(iii) there shall have occurred after the
date of this Agreement any event, change, condition, circumstance or state of facts, or aggregation of events, changes, conditions, circumstance or state of facts, that has had or would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect, whether or not covered by insurance, on KFI; or
(iv) Horizon elects to exercise its
right to terminate pursuant to
Section 3.11(b)
or
Section 5.12
.
(d) by written notice from KFI to Horizon if:
(i) any event shall have occurred which is not capable of being cured prior to the Outside Date and would result in any
condition set forth in
Section 7.02
not being satisfied prior to the Outside Date;
(ii) Horizon breaches or fails
to perform any of its representations, warranties or covenants contained in this Agreement, which breach or failure to perform would give rise to the failure of a condition set forth in
Section 7.02
and such condition is incapable of being
satisfied by the Outside Date or such breach has not been cured by Horizon within twenty (20) business days after Horizons receipt of written notice of such breach from KFI; or
(iii) there shall have occurred after the date of this Agreement any event, change, condition, circumstance or state of facts,
or aggregation of events, changes, conditions, circumstances or state of facts that has had or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, whether or not covered by insurance, on Horizon.
(e) by written notice from Horizon to KFI:
(i) if the KFI Board of Directors shall fail to include its recommendation to approve the Merger in the Proxy Statement;
(ii) in the event of an Adverse Recommendation Change or an Adverse Recommendation Change Notice;
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(iii) if the KFI Board shall approve any Acquisition Proposal or publicly
recommend that the holders of KFI Common Stock accept or approve any Acquisition Proposal; or
(iv) if KFI shall have
entered into, or publicly announced its intention to enter into, a definitive agreement, agreement in principle or letter of intent with respect to any Acquisition Proposal.
(f) by written notice by Horizon to KFI if a quorum could not be convened at the meeting of shareholders of KFI contemplated in
Section
5.01
or at a reconvened meeting held at any time prior to or on the Outside Date.
(g) by written notice by KFI to Horizon at any time
during the five (5) day period commencing on the Determination Date if, and only if both of the following conditions are satisfied, such termination to be effective on the tenth (10
th
) day
following the Determination Date:
(i) the Horizon Market Value on the Determination Date is less than $20.39; and
(ii) the number obtained by dividing the Horizon Market Value by the Initial Horizon Market Value shall be less than the number
obtained by dividing (A) the Final Index Price by (B) the Initial Index Price
minus
0.15;
subject
,
however
, to the following three
sentences. If KFI elects to exercise its termination right pursuant to this
Section 8.01(g)
, it shall give prompt written notice thereof to Horizon. During the five (5) business day period commencing with its receipt of such notice, Horizon
shall have the option to increase the Exchange Ratio to equal the lesser of (i) a quotient, the numerator of which is equal to the product of the Initial Horizon Market Value, the Exchange Ratio (as then in effect), and the Index Ratio
minus
0.15 and the denominator of which is equal to the Horizon Market Value on the Determination Date; or (ii) the quotient determined by dividing the Initial Horizon Market Value by the Horizon Market Value on the Determination Date, and multiplying the
quotient by the product of the Exchange Ratio (as then in effect) and 0.85. If within such five (5) business day period, Horizon delivers written notice to KFI that it intends to proceed with the Merger by paying such additional consideration as
contemplated by the preceding sentence, and notifies KFI of the revised Exchange Ratio, then no termination shall have occurred pursuant to this
Section 8.01(g)
, and this Agreement shall remain in full force and effect in accordance with its
terms (except that the Exchange Ratio shall have been so modified).
For purposes of this
Section 8.01(g)
, the following terms
shall have the meanings indicated below:
Determination Date
shall mean the first date on which all Regulatory
Approvals (and waivers, if applicable) and all other approvals and consents necessary for consummation of the Merger have been received (disregarding any waiting period).
Final Index Price
means the average of the daily closing value of the Index for the fifteen (15) consecutive trading days
immediately preceding the Determination Date.
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Index
means the SNL Small Cap U.S. Bank and Thrift Index or, if such Index is
not available, such substitute or similar Index as substantially replicates the SNL Small Cap U.S. Bank and Thrift Index.
Index
Ratio
means the Final Index Price divided by the Initial Index Price.
Initial Horizon Market Value
means
$25.58, adjusted as indicated in the last sentence of this
Section 8.01(g)
.
Initial Index Price
means the
closing value of the Index on the date of this Agreement.
Horizon Market Value
means the average of the daily closing
sales prices of a share of Horizons common stock, rounded to the nearest cent, during the fifteen (15) consecutive trading days immediately preceding the Determination Date;
provided, however
, that closing sales prices shall only be
used for days during which Horizons shares are actually traded on the NASDAQ Global Select Market.
If Horizon or any company
belonging to the Index declares or effects a stock dividend, split-up, combination, exchange of shares or similar transaction between the date of this Agreement and the Determination Date, the prices for the common stock of such company shall be
appropriately adjusted for the purposes of applying this
Section 8.01(g)
.
8.02
Effect of
Termination
.
(a) Subject to the remainder of this
Section 8.02
, in the event of the termination of this Agreement
pursuant to
Section 8.01
, this Agreement shall forthwith become null and void and have no effect, without any liability on the part of Horizon or KFI and each of their respective subsidiaries, directors, officers, employees, advisors, agents,
or shareholders and all rights and obligations of any party under this Agreement shall cease, except for the agreements contained in
Sections 5.06
and
8.02
and
Article XI
, which shall remain in full force and effect and survive
any termination of this Agreement;
provided
,
however
, that nothing contained in this Agreement, including this
Section 8.02
, except for the amounts payable pursuant to subsections (b), (c) or (d), shall relieve any party
hereto from liabilities or damages arising out of any fraud or intentional breach by such party of any of its representations, warranties, covenants or other agreements contained in this Agreement or any related agreement.
(b) KFI shall pay to Horizon an amount in cash equal to $1,226,000 (the
Termination Fee
) if:
(i) this Agreement is terminated by Horizon pursuant to
Section 8.01(e)
; or
(ii) this Agreement is terminated by either party pursuant to
Section 8.01(b)(i)
as a result of the failure of
KFIs shareholders to approve the Agreement and the Merger by the requisite vote or by Horizon pursuant to
Section 8.01(f)
and, in each case, prior to the date that is twelve (12) months after such termination KFI or any of its
Subsidiaries enters into any Acquisition Agreement or any Acquisition Proposal is consummated (regardless of whether such Acquisition Proposal is made or consummated before or after termination of this Agreement); or
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(iii) this Agreement is terminated by either KFI or Horizon pursuant to
Section 8.01(b)(iii)
and (A) prior to the date of such termination, an Acquisition Proposal was made, and (B) prior to the date that is twelve (12) months after such termination, KFI or any of its Subsidiaries enters into any
Acquisition Agreement or any Acquisition Proposal is consummated.
(iv) this Agreement is terminated by Horizon pursuant to
Section 8.01(c)(i)
,
(ii)
or
(iii)
as a result of an intentional, willful or grossly negligent breach or nonperformance by KFI of any representation, warranty, or covenant contained in this Agreement.
(c) Any fee due under
Section 8.02(b)
shall be paid by KFI by wire transfer of same day funds:
(i) in the case of
Section 8.02(b)(i)
or
(iv)
, concurrently with such termination; and
(ii) in the case of
Section 8.02(b)(ii)
or
Section 8.02(b)(iii)
, on the earlier of the date KFI enters into such
Acquisition Agreement or consummates such Acquisition Proposal.
(d) In the event Horizon would be entitled to the Termination Fee
pursuant to
Section 8.02(b)
, then Horizon may elect, in its sole discretion, to (i) terminate this Agreement and require the payment of such Termination Fee, in which event the Termination Fee shall be the sole and exclusive remedy for such
termination event and such fee shall constitute liquidated damages;
provided
,
however
, this Agreement shall not be terminated until the Termination Fee is paid in full, or (ii) not terminate this Agreement and institute a proceeding at
law or in equity to specifically enforce this Agreement and/or recover all of its damages arising hereunder, including all of its costs, fees and expenses (including reasonable attorneys and accountants fees and expenses). KFI
acknowledges that the agreements contained in this
Section 8.02
are an integral part of the transactions contemplated by this Agreement, and that, without these agreements, Horizon would not have entered into this Agreement. Accordingly, if
KFI fails promptly to pay the Termination Fee, and, in order to obtain such payment, Horizon commences a suit that results in a judgment against KFI for the Termination Fee, KFI shall also pay to Horizon its reasonable costs and expenses (including
attorneys and accountants fees and expenses) in connection with such suit and any appeal relating thereto, together with interest at the national prime rate in effect on the date such payment was required to be made.
ARTICLE IX.
EFFECTIVE TIME OF THE MERGER
Upon the terms and subject to the conditions specified in this Agreement, the Merger shall become effective on the day and at the time
specified in the Articles of Merger of Horizon and KFI as filed with the Indiana Secretary of State (the
Effective Time
). Unless otherwise mutually agreed to by the parties hereto, the parties shall cause the Effective Time
to occur within ten (10) business days after the later to occur of (a) all conditions precedent to the Merger
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set forth in this Agreement have been fulfilled, and (b) all waiting periods in connection with the bank regulatory applications filed for the approval of the Merger have expired.
ARTICLE X.
CLOSING
10.01
Closing Date and Place
. So long as all conditions precedent set forth in
Article VII
hereof have been satisfied and fulfilled, the closing of the Merger (the
Closing
) will take place on the date
determined to be the date of the Effective Time by
Article IX
hereof (the
Closing Date
) at a location to be reasonably determined by Horizon.
10.02
Deliveries
.
(a) At the Closing, Horizon will deliver to KFI the following:
(i) the officers certificate contemplated by
Section 7.02(g)
hereof;
(ii) copies of all Regulatory Approvals necessary to consummate the Merger;
(iii) copies of the resolutions adopted by the Board of Directors of Horizon, certified by the Secretary of Horizon relative to
the approval of this Agreement and the Merger;
(iv) the tax opinion required by
Section 7.02(h)
hereof;
(v) evidence of the purchase of director and officer liability insurance for the benefit of the Indemnified Parties in
accordance with
Section 6.05
; and
(vi) such other documents and information as KFI or its legal counsel may
reasonably request.
(b) At the Closing, KFI will deliver to Horizon the following:
(i) the officers certificate contemplated by
Section 7.01(g)
hereof;
(ii) copies of the resolutions adopted by the Board of Directors and shareholders of KFI certified by the Secretary of KFI
relative to the approval of this Agreement and the Merger;
(iii) the tax opinion required by
Section 7.01(h)
hereof;
(iv) the 280G opinion required by
Section 7.01(i)
hereof; and
(v) such other documents and information as Horizon or its legal counsel may reasonably request.
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ARTICLE XI.
MISCELLANEOUS
11.01
No Assignment
. This Agreement and the recitals hereof shall be binding upon and inure to the benefit of and be enforceable by the respective parties hereto and their respective successors and assigns;
provided
,
however
, that neither this Agreement nor any of the rights, interests or obligations of the respective parties hereto under this Agreement may be assigned by any party hereto without the prior written consent of the other parties hereto.
Except as provided by
Section 6.05
(dealing with rights to indemnification and advancements of expenses, and the rights to insurance coverage, provided to certain persons), the representations, warranties, covenants and agreements contained
in this Agreement, as well as the documents and instruments referred to herein, are for the sole benefit of the parties hereto and their successors and assigns, and they will not be construed as conferring any rights on any other Persons, other than
the right of KFI, on behalf of its shareholders, to pursue damages in the event of fraud or an intentional breach of this Agreement as provided in
Section 8.02(a)
hereof.
11.02
Waiver; Amendment
.
(a) The parties hereto may by an instrument in writing: (i) extend the time for the performance of or otherwise amend any of the covenants,
conditions or agreements of the other parties under this Agreement; (ii) waive any inaccuracies in the representations or warranties of the other parties contained in this Agreement or in any document delivered pursuant hereto or thereto; (iii)
waive the performance by the other parties of any of the covenants or agreements to be performed by it or them under this Agreement; or (iv) waive the satisfaction or fulfillment of any condition, the nonsatisfaction or nonfulfillment of which is a
condition to the right of the party so waiving to consummate the Merger. The waiver by any party hereto of a breach of or noncompliance with any provision of this Agreement will not operate or be construed as a continuing waiver or a waiver of any
other or subsequent breach or noncompliance hereunder.
(b) This Agreement may be amended, modified or supplemented only by a written
agreement executed by the parties hereto.
11.03
Notices
. All notices, requests and other
communications hereunder will be in writing and will be deemed to have been duly given if delivered by hand and receipted for, delivered by certified United States Mail, return receipt requested, first class postage pre-paid, or delivered by
overnight express receipted delivery service as follows:
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If to Horizon:
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with a copy (which shall not constitute notice) to:
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Horizon Bancorp
515 Franklin Street
Michigan City, IN 46360
Attn: Craig M. Dwight
CEO
and Chairman
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Barnes & Thornburg LLP
11 South Meridian Street
Indianapolis, IN 46204-3535
Attn: Curt W. Hidde
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And
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If to KFI:
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with a copy (which shall not constitute notice) to:
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Kosciusko Financial, Inc.
102 E. Main Street
Mentone, IN 46539
Attn:
J. Gregory Maxwell
President and CEO
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Rockhill Pinnick LLP
105 E. Main Street
Warsaw, IN 46580
Attn:
Stanley E. Pequignot
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or such substituted address or Person as any of them has given to the other in writing. All such notices, requests or other
communications shall be effective: (a) if delivered by hand, when delivered; (b) if mailed in the manner provided herein, five (5) business days after deposit with the United States Postal Service; or (c) if delivered by overnight express delivery
service, on the next business day after deposit with such service.
11.04
He
a
dings
. The headings in this Agreement have been inserted solely for ease of reference and should not be considered in the interpretation or construction of this Agreement.
11.05
Severability
. In case any one or more of the provisions contained herein shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal or
unenforceable provision or provisions had never been contained herein.
11.06
Counterparts;
Facsimile
. This Agreement may be executed in any number of counterparts and by facsimile, each of which will be an original, but such counterparts shall together constitute one and the same instrument.
11.07
Governing Law; Enforcement; Specific Performance; Jury Trial
. This Agreement (and any and all other
documents, agreements and instruments entered into in connection with the Merger and any related transaction; collectively, the
Related Agreements
) shall be governed by and construed in accordance with the laws of the State of
Indiana and applicable federal laws, without regard to principles of conflicts of law. The parties agree that irreparable damage would occur in the event that any provision of this Agreement or any Related Agreement was not performed in accordance
with its specific terms on a timely basis or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or other equitable relief to prevent breaches of this Agreement or any Related Agreement and to
enforce specifically the terms and provisions of this Agreement or any Related Agreement, this being in addition to any other remedy to which they are entitled at law or in
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equity.
WAIVER OF JURY TRIAL.
EACH OF THE PARTIES HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY, IN ANY MATTERS (WHETHER SOUNDING IN TORT, CONTRACT OR
OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR ANY RELATED AGREEMENT.
11.08
Entire Agreement
. This Agreement and the Exhibits hereto supersede all other prior or
contemporaneous understandings, commitments, representations, negotiations or agreements, whether oral or written, among the parties hereto relating to the Merger or matters contemplated herein and constitute the entire agreement between the parties
hereto, except as otherwise provided herein and except for the confidentiality letter agreement dated October 13, 2015, by and between the parties (the
Confidentiality Agreement
). Upon the execution of this Agreement by all
the parties hereto, any and all other prior writings of either party relating to the Merger, will terminate and will be rendered of no further force or effect. The parties hereto agree that each party and its counsel reviewed and revised this
Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party will not be employed in the interpretation of this Agreement or any amendments or exhibits hereto.
11.09
Survival of Representations, Warranties or Covenants
. Except as set forth in the following
sentence, none of the representations, warranties or covenants of the parties will survive the Effective Time or the earlier termination of this Agreement, and thereafter the parties will have no further liability with respect thereto. The covenants
contained in
Sections 5.06
,
5.07
, and
8.02
and this
Article XI
shall survive termination of this Agreement and remain in full force and effect. The covenants contained in
Sections 1.01
,
1.05
,
1.06
,
2.05
,
5.17
,
5.18
,
5.19
,
5.22
,
5.23
,
5.24
,
6.03
,
6.05
,
6.07
, and all of the provisions of this
Article XI
shall survive the Effective Time.
11.10
Expenses
. Except as provided elsewhere in this Agreement, each party to this Agreement shall
pay its own expenses incidental to the Merger contemplated hereby.
11.11
Certain
References
. Whenever in this Agreement a singular word is used, it also will include the plural wherever required by the context and
vice-versa,
and the masculine or neuter gender shall include the
masculine, feminine and neuter genders. Except expressly stated otherwise, all references in this Agreement to periods of days shall be construed to refer to calendar, not business, days. The term
business day
will mean any day
except Saturday and Sunday when Horizon Bank, in Michigan City, Indiana, is open for the transaction of business.
[S
IGNATURE
P
AGE
F
OLLOWS
.]
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I
N
W
ITNESS
W
HEREOF
, Horizon and KFI have made and
entered into this Agreement as of the day and year first above written and have caused this Agreement to be executed, attested in counterparts and delivered by their duly authorized officers.
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H
ORIZON
B
ANCORP
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By:
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/s/ Craig M. Dwight
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Craig M. Dwight, CEO & Chairman
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K
OSCIUSKO
F
INANCIAL
, I
NC
.
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By:
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/s/ J. Gregory Maxwell
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J. Gregory Maxwell, President and CEO
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