Exhibit 2.1
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
DATED AS OF
JANUARY 15, 2007
BY AND BETWEEN
MORGAN BANCORP, INC.
AND
LNB BANCORP, INC.
TABLE OF CONTENTS
PAGE
----
ARTICLE I CERTAIN DEFINITIONS......................................... 1
ARTICLE II THE MERGER.................................................. 9
2.01 The Parent Merger.......................................... 9
2.02 The Subsidiary Merger...................................... 9
2.03 Effectiveness of the Parent Merger......................... 9
2.04 Effective Date and Effective Time.......................... 9
ARTICLE III CONSIDERATION; EXCHANGE PROCEDURES.......................... 10
3.01 Merger Consideration....................................... 10
3.02 Rights as Shareholders; Stock Transfers.................... 14
3.03 Fractional Shares.......................................... 14
3.04 Exchange Procedures........................................ 15
3.05 Anti-Dilution Provisions................................... 17
3.06 Treatment of Stock Options................................. 17
ARTICLE IV ACTIONS PENDING ACQUISITION................................. 17
4.01 Forbearances of Morgan..................................... 17
4.02 Forbearances of Parent..................................... 21
ARTICLE V REPRESENTATIONS AND WARRANTIES.............................. 22
5.01 Disclosure Schedules....................................... 22
5.02 Standard................................................... 22
5.03 Representations and Warranties of Morgan................... 22
5.04 Representations and Warranties of Parent................... 35
ARTICLE VI COVENANTS................................................... 42
6.01 Reasonable Best Efforts.................................... 42
6.02 Shareholder Approval....................................... 42
6.03 Registration Statement..................................... 42
6.04 Press Releases............................................. 43
6.05 Access; Confidentiality.................................... 44
6.06 Acquisition Proposals...................................... 45
6.07 Affiliate Agreements....................................... 46
6.08 Takeover Laws.............................................. 46
6.09 No Rights Triggered........................................ 47
6.10 Conformance of Policies and Practices...................... 47
6.11 Transition................................................. 47
6.12 Facilities Optimization.................................... 48
6.13 Investments................................................ 48
6.14 NASDAQ Listing or Notification............................. 48
6.15 Regulatory Applications.................................... 48
6.16 Indemnification............................................ 49
TABLE OF CONTENTS
(continued)
PAGE
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6.17 Employee Benefits.......................................... 50
6.18 Notification of Certain Matters........................... 51
6.19 Dividend Coordination...................................... 51
6.20 Tax Treatment.............................................. 52
6.21 No Breaches of Representations and Warranties.............. 52
6.22 Consents................................................... 52
6.23 Insurance Coverage......................................... 52
6.24 Correction of Information.................................. 52
6.25 Supplemental Assurances.................................... 52
6.26 Regulatory Matters......................................... 53
6.27 Parent Board of Directors.................................. 53
ARTICLE VII CONDITIONS TO CONSUMMATION OF THE PARENT MERGER............. 54
7.01 Conditions to Each Party's Obligation to Effect the Parent
Merger..................................................... 54
7.02 Conditions to Obligation of Morgan......................... 54
7.03 Conditions to Obligation of Parent......................... 55
7.04 Frustration of Closing Conditions.......................... 56
ARTICLE VIII TERMINATION................................................. 56
8.01 Termination................................................ 56
8.02 Effect of Termination and Abandonment; Enforcement of
Agreement.................................................. 58
8.03 Termination Fee; Expenses.................................. 58
ARTICLE IX MISCELLANEOUS............................................... 59
9.01 Survival................................................... 59
9.02 Waiver; Amendment.......................................... 60
9.03 Counterparts............................................... 60
9.04 Governing Law.............................................. 60
9.05 Expenses................................................... 60
9.06 Notices.................................................... 60
9.07 Entire Agreement; No Third Party Beneficiaries............. 61
9.08 Interpretation; Effect..................................... 61
9.09 Waiver of Jury Trial....................................... 62
9.10 Severability............................................... 62
9.11 Assignment................................................. 62
9.12 Submission to Jurisdiction................................. 62
Exhibit A Form of Voting Agreement
Exhibit B Form of Morgan Affiliate Agreement
Exhibit C Form of Employment Agreement for W. A. Dougherty
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This AGREEMENT AND PLAN OF MERGER, dated as of January 15, 2007 (this
"Agreement"), is by and between Morgan Bancorp, Inc., an Ohio corporation
("Morgan") and LNB Bancorp, Inc., an Ohio corporation ("Parent").
RECITALS
A. The Proposed Transaction. Upon the terms and conditions of this
Agreement, the parties intend to effect a strategic business combination
pursuant to which Morgan will merge with and into Parent. Parent will be the
surviving corporation in the Parent Merger (as defined below). It is the
intention of Parent that, immediately following the Parent Merger, Morgan Bank,
National Association, a national banking association that is a wholly-owned
subsidiary of Morgan ("Morgan Bank"), will merge with and into The Lorain
National Bank, a national banking association that is a wholly-owned subsidiary
of Parent ("Lorain National"), with Lorain National being the surviving bank.
B. Board Determinations. The respective boards of directors of Morgan and
Parent have each determined that the Parent Merger and the other transactions
contemplated hereby are consistent with, and will further, their respective
business strategies and goals, and are in the best interests of their respective
shareholders and, therefore, have approved, this Agreement, the Parent Merger
and the other transactions contemplated hereby.
C. Intended Tax Treatment. The parties intend the Parent Merger to be
treated as a reorganization under Section 368(a) of the Internal Revenue Code of
1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual covenants, representations, warranties and agreements contained herein,
intending to be legally bound hereby, the parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
The following terms are used in this Agreement with the meanings set forth
below:
"Acquisition Proposal" means, other than with respect to the Parent Merger,
any offer, proposal or inquiry, whether in writing or otherwise, relating to, or
any Third Party indication of interest in, (a) any acquisition, purchase or
other similar transaction, direct or indirect, of 20% or more of the
consolidated assets of Morgan and its Subsidiary or over 20% of any class of
equity or voting securities of Morgan or its Subsidiary (or Morgan securities
convertible or exchangeable into any such equity or voting securities) whose
assets, individually or in the aggregate, constitute more than 20% of the
consolidated assets of Morgan, (b) any tender offer (including a self-tender
offer), exchange offer or other similar transaction that, if consummated, would
result in such Third Party beneficially owning 20% or more of any class of
equity or voting securities of Morgan or its Subsidiary (or Morgan securities
convertible or exchangeable into any such equity or voting securities) whose
assets, individually or in the aggregate, constitute more than 20% of the
consolidated assets of Morgan, (c) a merger, consolidation, share exchange,
business combination, sale of substantially all the assets, reorganization,
recapitalization, liquidation, dissolution or other similar transaction
involving Morgan or its Subsidiary whose assets, individually or in the
aggregate, constitute more than 20% of the consolidated assets of Morgan or (d)
any other transaction the consummation of which would reasonably be expected to
materially impede, interfere with, prevent or delay the Parent Merger or that
would reasonably be expected to dilute materially the benefits to Parent of the
transactions contemplated hereby.
"Affiliate" means, with respect to any Person, another Person that directly
or indirectly, through one or more intermediaries, controls, is controlled by or
is under common control with, such first Person.
"Agreement" means this Agreement, as amended or modified from time to time
in accordance with Section 9.02.
"Agreement to Merge" has the meaning set forth in Section 2.02.
"All Cash Election" has the meaning set forth in Section 3.01(b)(ii).
"All Stock Election" has the meaning set forth in Section 3.01(b)(i).
"Cash Exchange Amount" has the meaning set forth in Section 3.01(a).
"Change in Recommendation" has the meaning set forth in Section 8.01(g).
"Claim" has the meaning set forth in Section 6.16(a).
"COBRA" has the meaning set forth in Section 6.17(a).
"Code" has the meaning set forth in the preamble to this Agreement.
"Compensation and Benefit Plans" has the meaning set forth in Section
5.03(m).
"Confidentiality Agreement" means the Confidentiality Agreement between
Parent and Morgan, dated August 24, 2006.
"Consultants" has the meaning set forth in Section 5.03(m).
"Contract" means, with respect to any Person, any agreement, indenture,
undertaking, debt instrument, contract, lease, understanding or other
commitment, whether oral or in writing, to which such Person or any of its
Subsidiaries is a party or by which any of them is bound or to which any of
their properties is subject.
"Costs" has the meaning set forth in Section 6.16(a).
"Directors" has the meaning set forth in Section 5.03(m).
"Disclosure Schedule" has the meaning set forth in Section 5.01.
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"Dissenting Shares" means Morgan Common Shares with respect to which rights
pursuant to Section 1701.85 of the OGCL have been properly exercised.
"Effective Date" means the date on which the Effective Time occurs, as
provided for in Section 2.04.
"Effective Time" means the effective time of the Parent Merger, as provided
for in Section 2.04.
"Election" has the meaning set forth in Section 3.01(e).
"Election Deadline" has the meaning set forth in Section 3.01(e).
"Election Form/Letter of Transmittal" has the meaning set forth in Section
3.01(e).
"Election Period" has the meaning set forth in Section 3.01(e).
"Employees" has the meaning set forth in Section 5.03(m)(i). All references
herein to "employees of Morgan" or "Morgan employees" shall be deemed to mean
employees of Morgan Bank.
"Employment Agreement" means the form of employment agreement between
Parent and William A. Dougherty, Morgan's Chief Executive Officer, the form of
which is attached hereto as Exhibit C, which is an inducement to Parent's
willingness to enter into this Agreement.
"Environmental Laws" means all applicable local, state and federal
environmental, health and safety Laws, permits, authorizations, common Law or
agency requirement, including, without limitation, the Resource Conservation and
Recovery Act, the Comprehensive Environmental Response, Compensation and
Liability Act, the Clean Water Act, the Federal Clean Air Act, and the
Occupational Safety and Health Act, each as amended, regulations promulgated
thereunder, and state counterparts.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" has the meaning set forth in Section 5.03(m)(iii).
"ERISA Affiliate Plan" has the meaning set forth in Section 5.03(m)(iii).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder.
"Exchange Agent" has the meaning set forth in Section 3.04(a).
"Excluded Representations" has the meaning set forth in Section 5.02.
"Exchange Fund" has the meaning set forth in Section 3.04(a).
"FDIA" has the meaning set forth in Section 5.03(dd).
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"FDIC" means the Federal Deposit Insurance Corporation.
"Fill Offer" has the meaning set forth in Section 8.01(e).
"Fill Option" has the meaning set forth in Section 8.01(e).
"FRB" means the Federal Reserve Board.
"GAAP" means generally accepted accounting principles as adopted for U.S.
accounting principles, practices and methods.
"Governing Documents" means with respect to any Person, such Person's
articles or certificate of incorporation and its code of regulations/bylaws, or
similar governing document.
"Governmental Authority" means any court, administrative agency or
commission or other federal, state or local governmental authority or
instrumentality.
"Indemnified Party" has the meaning set forth in Section 6.16(a).
"Information" has the meaning set forth in Section 6.05(c).
"Intellectual Property Rights" has the meaning set forth in Section
5.03(ff).
"IRS" has the meaning set forth in Section 5.03(m)(ii).
The term "knowledge" means, with respect to a party hereto, knowledge after
due inquiry of any officer of that party with the title of not less than a
senior vice president.
"Law" means any federal, state, foreign or local statute, law, rule or
regulation or any order, decision, decree, injunction, judgment, award or decree
of any Governmental Authority.
"Lien" means any charge, mortgage, pledge, security interest, restriction,
claim, lien or encumbrance of any nature whatsoever.
"Loans" means loans, leases, extensions of credit (including guarantees),
commitments to extend credit and other similar assets or obligations, as the
case may be.
"Lorain National" has the meaning set forth in the preamble to this
Agreement.
"Material Adverse Effect" means, with respect to Parent or Morgan, any
effect that (a) is material and adverse to the condition (financial or
otherwise), results of operations, assets, liabilities or business of Parent and
its Subsidiaries taken as a whole, or Morgan and its Subsidiary taken as a
whole, respectively, or (b) would materially impair the ability of either Parent
or Morgan to perform its obligations under this Agreement or otherwise
materially threaten or materially impede the consummation of the Parent Merger
and the other transactions contemplated by this Agreement; provided, however,
that Material Adverse Effect shall not be deemed to include the impact of (i)
changes in banking and similar Laws of general applicability or interpretations
thereof by Governmental Authorities or other changes affecting depository
institutions generally that do not have a materially more adverse effect on such
party than that experienced by similarly situated financial services companies,
including changes in general economic conditions and changes in prevailing
interest and deposit rates that do not have a materially more adverse effect on
such party than that
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experienced by similarly situated financial services companies, (ii) any
modifications or changes to valuation policies and practices in connection with
the Parent Merger or restructuring charges taken in connection with the Parent
Merger, in each case in accordance with GAAP, (iii) changes resulting from
expenses (such as legal, accounting and investment bankers' fees) incurred in
connection with this Agreement or the transactions contemplated herein, (iv)
changes resulting from the announcement or pendency of this Agreement and the
transactions contemplated thereby, or (v) actions or omissions of a party that
have been waived in accordance with Section 9.02 hereof.
"Material Interest" has the meaning set forth in the definition of "Related
Person."
"Merger Consideration" has the meaning set forth in Section 3.01(a).
"Mixed Election" has the meaning set forth in Section 3.01(b)(iii).
"Morgan" has the meaning set forth in the preamble to this Agreement.
"Morgan Affiliate" has the meaning set forth in Section 6.07.
"Morgan Articles" means the Articles of Incorporation of Morgan, as
amended.
"Morgan Bank" has the meaning set forth in the preamble to this Agreement.
"Morgan Board" means the Board of Directors of Morgan.
"Morgan Code" means Morgan's Code of Regulations.
"Morgan Common Shares" means common shares, no par value per share, of
Morgan.
"Morgan Financial Statements" has the meaning set forth in Section 5.03(g).
"Morgan Meeting" has the meaning set forth in Section 6.02.
"Morgan Off Balance Sheet Transaction" has the meaning set forth in Section
5.03(v).
"Morgan Recommendation" has the meaning set forth in Section 6.02.
"Morgan Stock Plan" means the option plan and agreements of Morgan and its
Subsidiary pursuant to which rights to purchase Morgan Common Shares are
outstanding immediately prior to the Effective Time pursuant to the Morgan
Bancorp 1999 Stock Option Plan.
"NASD" means The National Association of Securities Dealers, Inc.
"NASDAQ" means The NASDAQ Stock Market, Inc.'s National Market System.
"New Certificates" has the meaning set forth in Section 3.04(a).
5
"OGCL" means the Ohio General Corporation Law.
"Old Certificates" has the meaning set forth in Section 3.04(a).
"OSS" means the Office of the Secretary of State of the State of Ohio.
"Out-of-Pocket Expenses" has the meaning set forth in Section 8.03(c).
"Parent" has the meaning set forth in the preamble to this Agreement.
"Parent Articles" means the Second Amended Articles of Incorporation of
Parent.
"Parent Board" means the Board of Directors of Parent.
"Parent Code" means the Amended Code of Regulations of Parent.
"Parent Common Shares" means the common stock, without par value, of
Parent. (together with the preferred share purchase rights attached thereto
issued pursuant to that certain Rights Agreement (the "Rights Agreement"), dated
as of October 24, 2000, by and between Parent and The Registrar and Transfer
Company, as rights agent, as amended May 17, 2006.
"Parent Financial Statements" has the meaning set forth in Section 5.04(l).
"Parent Merger" has the meaning set forth in Section 2.01.
"Parent Preferred Shares" means the serial preferred shares, no par value
per share, of Parent.
"Parent Reference Price" has the meaning set forth in Section 8.01(e).
"Parent SEC Documents" has the meaning set forth in Section 5.04(g).
"Parent Shares" means the Parent Common Shares and Parent Preferred Shares.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pension Plan" has the meaning set forth in Section 5.03(m)(ii).
"Person" means any individual, bank, savings bank, corporation,
partnership, limited liability company, association, joint-stock company,
business trust or unincorporated organization.
"Previously Disclosed" by a party means information set forth in its
Disclosure Schedule.
"Proxy Statement/Prospectus" has the meaning set forth in Section 6.03(a).
"Proxy Statement" has the meaning set forth in Section 6.03(a).
"Registration Statement" has the meaning set forth in Section 6.03(a).
6
"Regulatory Authority" means any federal or state governmental agency or
authority charged with the supervision or regulation of financial institutions
(or their holding companies) or issuers of securities or engaged in the issuance
of deposits (including, without limitation, the OCC, FRB and the FDIC) or the
supervision or regulation of it or any of its subsidiaries.
"Regulatory Reporting Document" has the meaning set forth in Section
5.03(g)(i).
"Related Person" means any Person (or family member of such Person) (a)
that directly or indirectly, controls, or is under common control with, Morgan
or any of its Affiliates, (b) that serves as a director, officer, employee,
partner, member, executor or trustee of Morgan or any of its Affiliates or
Subsidiary (or in any other similar capacity), (c) that has, or is a member of a
group buying, direct or indirect beneficial ownership (as defined for purposes
of Rule 13c1-3 under the Exchange Act) of voting securities or other voting
interests representing at least five percent of the outstanding voting power or
equity securities or other equity interests representing at least five percent
of the outstanding equity interests (a "Material Interest") in Morgan or any of
its Affiliates or (d) in which any Person (or family member of such Person) that
falls under (a), (b) or (c) above directly or indirectly holds a Material
Interest or serves as a director, officer, employee, partner, member, executor
or trustee (or in any other similar capacity).
"Required Morgan Vote" has the meaning set forth in Section 5.03(d).
"Required Party" has the meaning set forth in Section 6.05(c).
"Requisite Regulatory Approvals" has the meaning set forth in Section
7.01(b).
"Rights" means, with respect to any Person, securities or obligations
convertible into or exercisable or exchangeable for, or giving any Person any
right to subscribe for or acquire, or any options, calls or commitments relating
to, or any stock appreciation right or other instrument the value of which is
determined in whole or in part by reference to the market price or value of,
shares of capital stock of such Person.
"Rights Agreement" has the meaning set forth in the definition of "Parent
Common Shares."
"Sarbanes-Oxley" means the Sarbanes-Oxley Act of 2002 and the rules and
regulations thereunder.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"Stock Exchange Ratio" has the meaning set forth in Section 3.01(a).
"Subsidiary" and "Significant Subsidiary" have the meanings ascribed to
them in Rule 1-02 of Regulation S-X of the SEC.
"Subsidiary Merger" has the meaning set forth in Section 2.02.
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"Superior Proposal" means a bona fide, unsolicited written Acquisition
Proposal for at least a majority of the Morgan Common Shares then outstanding on
terms that the Board of Directors of Morgan determines in good faith by a
majority vote (excluding any members of the Board of Directors that are not
independent of the Third Party making such Acquisition Proposal), after
considering the advice of Roetzel & Andress, Morgan's independent legal counsel
and a financial advisor of nationally recognized reputation, and after taking
into account all terms and conditions of such Acquisition Proposal, including
all legal, financial, regulatory, timing and other aspects of the Acquisition
Proposal and the Third Party making such Acquisition Proposal (including the
conditions precedent to (or other conditionality in respect of) consummation of
such Acquisition Proposal relative to those required pursuant to this
Agreement), are more favorable from a financial point of view to Morgan's
shareholders than the Parent Merger and other transactions contemplated by this
Agreement.
"Surviving Corporation" has the meaning set forth in Section 2.01.
"Takeover Laws" has the meaning set forth in Section 5.03(o).
"Tax" and "Taxes" means all federal, state, local or foreign taxes,
charges, fees, levies or other assessments, however denominated, including,
without limitation, all net income, gross income, gains, gross receipts, sales,
use, ad valorem, goods and services, capital, production, transfer, franchise,
windfall profits, license, withholding, payroll, employment, disability,
employer health, excise, estimated, severance, stamp, occupation, property,
environmental, unemployment or other taxes, custom duties, fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any taxing authority.
"Tax Returns" means any return, amended return or other report (including
elections, declarations, disclosures, schedules, estimates and information
returns) required to be filed with respect to any Tax.
"Termination Fee" has the meaning set forth in Section 8.03(a).
"Third Party" means any Person, including as defined in Section 13(d) of
the Exchange Act, other than the Parent or any of its Affiliates.
"Treasury Stock" means Morgan Common Shares held by Morgan or its
Subsidiary, in each case other than in a fiduciary capacity or as a result of
debts previously contracted in good faith.
"Voting Agreements," the form of which is attached hereto as Exhibit A,
pursuant to which, among other things, certain shareholders have agreed to vote
all of their Morgan Common Shares in favor of approval of this Agreement, the
Parent Merger and any other matters required to be approved or adopted in order
to effect the Parent Merger and the other transactions contemplated hereby, and
are an inducement to Parent's willingness to enter into this Agreement.
"Walkaway Right" has the meaning set forth in Section 8.01(e).
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ARTICLE II
THE MERGER
2.01 The Parent Merger.
At the Effective Time, (a) Morgan shall be merged with and into Parent
(the "Parent Merger") and (b) the separate corporate existence of Morgan shall
cease and Parent shall survive and continue to exist as an Ohio corporation
(Parent, as the surviving corporation in the Parent Merger, sometimes being
referred to herein as the "Surviving Corporation"). The Parent Articles, as in
effect immediately prior to the Effective Time, shall be the Articles of
Incorporation of the Surviving Corporation, and the Parent Code, as in effect
immediately prior to the Effective Time, shall be the Code of Regulations of the
Surviving Corporation. Parent may at any time prior to the Effective Time change
the method of effecting the Parent Merger (including, without limitation, the
provisions of this Article II) if and to the extent it deems such change to be
necessary, appropriate or desirable; provided, however, that no such change
shall (i) alter or change the amount or kind of consideration to be issued to
holders of Morgan Common Shares as provided for in Article III of this Agreement
(subject to adjustment as provided in Sections 3.05 and 8.01(e)), (ii) adversely
affect the tax treatment of Morgan's shareholders as a result of receiving the
Merger Consideration or (iii) materially impede or delay consummation of the
transactions contemplated by this Agreement. If Parent makes such an election,
Parent and Morgan shall execute an appropriate amendment to this Agreement in
order to reflect such election.
2.02 The Subsidiary Merger.
At the time determined by Parent, Morgan Bank shall merge with and
into Lorain National (the "Subsidiary Merger") pursuant to an agreement to merge
(the "Agreement to Merge") to be executed by Morgan Bank and Lorain National.
Upon consummation of the Subsidiary Merger, the separate corporate existence of
Morgan Bank shall cease and Lorain National shall survive and continue to exist
as a national banking association. Parent may at any time prior to the Effective
Time change the method of effecting the Subsidiary Merger (including, without
limitation, the provisions of this Section 2.02) if and to the extent it deems
such change to be necessary, appropriate or desirable; provided, however, that
no such change shall adversely affect the tax treatment of Morgan's shareholders
as a result of receiving the Merger Consideration.
2.03 Effectiveness of the Parent Merger.
Subject to the satisfaction or waiver of the conditions set forth in
Article VII, the Parent Merger shall become effective upon the occurrence of the
filing in the office of the OSS of a Certificate of Merger for the Parent Merger
in accordance with Section 1701.81 of the OGCL, or such later date and time as
may be set forth in such filing.
2.04 Effective Date and Effective Time.
Subject to the satisfaction or waiver of the conditions set forth in
Article VII, the parties shall cause the effective date of the Parent Merger
(the "Effective Date") to occur on a
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date to be determined by Parent and Morgan in their reasonable discretion, which
date shall be within 30 days after the last of the conditions set forth in
Article VII shall have been satisfied or waived in accordance with the terms of
this Agreement; provided, however, that no such designation shall cause the
Effective Date to fall after the date specified in Section 8.01(c) hereof or
after the date or dates on which any Regulatory Authority approval or any
extension thereof expires. The time on the Effective Date when the Parent Merger
shall become effective is referred to as the "Effective Time."
ARTICLE III
CONSIDERATION; EXCHANGE PROCEDURES
3.01 Merger Consideration.
Subject to the provisions of this Agreement, at the Effective Time,
automatically by virtue of the Parent Merger and without any action on the part
of any Person:
(a) Outstanding Morgan Common Shares. Except as otherwise provided in
this Article III, at the Effective Time, each Morgan Common Share
(excluding Treasury Stock and Morgan Common Shares held by Parent) issued
and outstanding immediately prior to the Effective Time shall, by virtue of
the Parent Merger and on the Effective Date, be converted at the election
of the holder thereof (in accordance with the election and allocation
procedures set forth in Section 3.01(b), (e), (h), and (i)) into either (i)
Parent Common Shares based upon a fixed exchange ratio of 3.162 Parent
Common Shares for each Morgan Common Share (the "Stock Exchange Ratio");
(ii) cash in the amount of $52.00 for each Morgan Common Share (the "Cash
Exchange Amount"); or (iii) a combination of such Parent Common Shares and
cash, as more fully set forth in Section 3.01(b)(iii).
Subject to adjustment for cash paid in lieu of fractional shares in
accordance with Section 3.03, it is understood and agreed that the
aggregate consideration will be a mixture of Parent Common Shares and cash,
with 50% of the Morgan Common Shares issued and outstanding as of the
Effective Time being exchanged for Parent Common Shares and 50% of the
Morgan Common Shares issued and outstanding as of the Effective Time being
exchanged for cash (collectively, the "Merger Consideration").
(b) Election as to Outstanding Morgan Common Shares. The Morgan
shareholders will have the following alternatives in connection with the
exchange of their Morgan Common Shares in connection with the Parent Merger
(which alternatives shall in each case be subject to the allocation
procedures set forth in Sections 3.01(h) and (i)):
(i) AT THE OPTION OF THE HOLDER, all of such holder's Morgan
Common Shares deposited with the Exchange Agent shall be converted
into and become Parent Common Shares at the Stock Exchange Ratio (such
election, the "All Stock Election"); provided, however, that
fractional shares will not be issued and cash (payable by check) will
be paid in lieu thereof as provided in Section 3.03; or
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(ii) AT THE OPTION OF THE HOLDER, all of such holder's Morgan
Common Shares deposited with the Exchange Agent shall be converted
into and become cash (payable by check) at the Cash Exchange Amount
(such election, the "All Cash Election"); or
(iii) AT THE OPTION OF THE HOLDER, any whole number of such
holder's Morgan Common Shares will be converted into and become Parent
Common Shares at the rate of the Stock Exchange Ratio and the
remainder of such holder's Morgan Common Shares deposited with the
Exchange Agent shall be converted into and become cash (payable by
check) at the rate of the Cash Exchange Amount (such election, the
"Mixed Election"); provided, however, that fractional shares will not
be issued and cash (payable by check) will be paid in lieu thereof as
provided in Section 3.03; or
(iv) IF NO ELECTION (AS DEFINED IN SECTION 3.01(e)) IS MADE BY
THE HOLDER BY THE ELECTION DEADLINE (AS DEFINED IN SECTION 3.01(e)),
all of such holder's Morgan Common Shares will be converted into the
right to receive Parent Common Shares as set forth in Section
3.01(b)(i), cash as set forth in Section 3.01(b)(ii), or any
combination of Parent Common Shares and cash as determined by Parent
or, at Parent's direction, by the Exchange Agent at the Stock Exchange
Ratio and the Cash Exchange Amount, as applicable; provided, however,
that fractional shares will not be issued and cash will be paid in
lieu thereof as provided in Section 3.03. Such Morgan Common Shares
will be allocated by the Exchange Agent pro rata among non-electing
holders based upon the number of Morgan Common Shares for which an
election has not been received by the Election Deadline in order to
(A) achieve the overall ratio of 50% Morgan Common Shares to be
converted into Parent Common Shares and 50% of Morgan Common Shares to
be converted into cash, and (B) satisfy the elections made by Morgan
shareholders to the greatest extent possible. Notice of such
allocation shall be provided promptly to each shareholder whose Morgan
Common Shares are allocated pursuant to this Section 3.01(b)(iv).
(c) Treasury Shares and Shares Held by Parent. Each Morgan Common
Share held as Treasury Stock or held by Parent immediately prior to the
Effective Time shall be canceled and retired at the Effective Time and no
consideration shall be issued in exchange therefor. For purposes of this
provision, shares held by Subsidiaries of Parent shall not be deemed to be
held by Parent.
(d) Outstanding Parent Common Shares. Each Parent Common Share issued
and outstanding immediately prior to the Effective Time shall remain issued
and outstanding and shall be unaffected by the Parent Merger.
(e) Procedures for Election. An election form and other appropriate
transmittal materials in such form as Morgan and Parent shall mutually
agree (the "Election Form/Letter of Transmittal") shall be mailed to
shareholders of Morgan prior to the Election Period (defined below). The
"Election Period" shall be such period of time as Morgan and Parent shall
mutually agree, within which Morgan shareholders may
11
validly elect the form of Merger Consideration set forth in Section 3.01(b)
(the "Election") that they will receive, occurring between (i) the date of
the mailing by Morgan of the Proxy Statement for the special meeting of
shareholders of Morgan at which this Agreement is presented for approval
and (ii) five days prior to the Effective Date. The "Election Deadline"
shall be the time, specified by Parent after consultation with Morgan, on
the last day of the Election Period, which shall be no earlier than the
fifth trading day prior to the Effective Date.
(f) Perfection of the Election. An Election shall be considered to
have been validly made by a Morgan shareholder only if (i) the Exchange
Agent (as defined in Section 3.04) shall have received an Election
Form/Letter of Transmittal properly completed and executed by such
shareholder, accompanied by a certificate or certificates representing the
Morgan Common Shares as to which such Election is being made, duly endorsed
in blank or otherwise in form acceptable for transfer on the books of
Morgan, or containing an appropriate guaranty of delivery in the form
customarily used in transactions of this nature from a member of a national
securities exchange or a member of the NASD or a commercial bank or trust
company in the United States and (ii) such Election Form/Letter of
Transmittal and such certificate(s) or such guaranty of delivery shall have
been received by the Exchange Agent prior to the Election Deadline.
(g) Withdrawal of Election. Any Morgan shareholder may at any time
prior to the Election Deadline revoke its election and either (i) submit a
new Election Form/Letter of Transmittal in accordance with the procedures
in Section 3.01(f), or (ii) withdraw the certificate(s) for Morgan Common
Shares deposited therewith by providing written notice that is received by
the Exchange Agent by 5:00 p.m., local time for the Exchange Agent, on the
business day prior to the Election Deadline. Elections may be similarly
revoked if this Agreement is terminated.
(h) Reduction of Shares Deposited for Cash. If more than 50% of the
total number of Morgan Common Shares issued and outstanding have, at the
Election Deadline, been deposited with the Exchange Agent for cash pursuant
to the All Cash Election and the Mixed Election and not withdrawn pursuant
to Section 3.01(g), the Exchange Agent will promptly eliminate from the
shares deposited pursuant to the All Cash Election and the Mixed Election
(subject to the limitations described in Section 3.01(h)(iv)), a sufficient
number of such shares so that the total number of shares remaining on
deposit for cash pursuant to the All Cash Election and the Mixed Election
is 50% of the Morgan Common Shares issued and outstanding on the Effective
Date. After giving effect to Section 3.01(b)(iv), such elimination will be
effected as follows:
(i) Subject to the limitations described in Section 3.01(h)(iv),
the Exchange Agent will eliminate from the shares deposited for cash
pursuant to the All Cash Election and the Mixed Election, and will add
or cause to be added to the shares deposited for Parent Common Shares,
on a pro rata basis in relation to the total number of shares
deposited pursuant to the All Cash Election and the Mixed Election
minus the number of shares so deposited by the holders described in
Section 3.01(h)(iv), such whole number of Morgan Common Shares on
deposit for cash pursuant to the All Cash Election and the Mixed
Election as may be
12
necessary so that the total number of shares remaining on deposit for
cash pursuant to All Cash Election and the Mixed Election is 50% of
the Morgan Common Shares issued and outstanding on the Effective Date;
(ii) All Morgan Common Shares that are eliminated pursuant to
Section 3.01(h)(i) from the shares deposited for cash shall be
converted into Parent Common Shares as provided by Sections 3.01(b)(i)
and 3.01(b)(iii);
(iii) Notice of such allocation shall be provided promptly to
each shareholder whose Morgan Common Shares are eliminated from the
shares on deposit for cash pursuant to Section 3.01(h)(i); and
(iv) Notwithstanding the foregoing, the holders of 100 or fewer
Morgan Common Shares of record on the date of this Agreement who have
elected the All Cash Election shall not be required to have any of
their Morgan Common Shares converted into Parent Common Shares.
(i) Increase of Shares Deposited for Cash. If fewer than 50% of the
total number of Morgan Common Shares issued and outstanding have, at the
Election Deadline, been deposited with the Exchange Agent for cash pursuant
to the All Cash Election and the Mixed Election and not withdrawn pursuant
to Section 3.01(g), Parent will promptly add, or cause to be added by the
Exchange Agent, to such deposited shares, a sufficient number of Morgan
Common Shares deposited for Parent Common Shares pursuant to the All Stock
Election and the Mixed Election (subject to the limitation described in
Section 3.01(h)(iv)) so that the total number of Morgan Common Shares on
deposit for cash pursuant to the All Cash Election and the Mixed Election
on the Effective Date is 50% of the Morgan Common Shares issued and
outstanding on the Effective Date. After giving effect to Section
3.01(b)(iv), such addition will be effected as follows:
(i) Subject to the limitation described in Section 3.01(h)(iv),
Parent will add or cause to be added to the shares deposited for cash,
and the Exchange Agent will eliminate or cause to be eliminated from
the shares deposited for Parent Common Shares pursuant to the All
Stock Election and the Mixed Election, on a pro rata basis in relation
to the total number of Morgan Common Shares deposited for Parent
Common Shares pursuant to the All Stock Election and the Mixed
Election, such whole number of Morgan Common Shares not then on
deposit for cash as may be necessary so that the number of shares
remaining on deposit for cash is 50% of the Morgan Common Shares
issued and outstanding on the Effective Date;
(ii) All Morgan Common Shares that are eliminated pursuant to
Section 3.01(i)(i) from the shares to be converted into Parent Common
Shares shall be converted into cash, as provided by Sections
3.01(b)(ii) and 3.01(b)(iii); and
13
(iii) Notice of such allocation shall be provided promptly to
each shareholder whose Morgan Common Shares are added to the shares on
deposit for cash pursuant to Section 3.01(i)(i).
(j) Notwithstanding anything in this Agreement to the contrary, to
preserve the status of the Parent Merger as a tax-free reorganization
within the meaning of Section 368(a)(1)(A) of the Code, if, based upon the
closing price of the Parent Common Shares as reported on the primary market
on which the Parent Common Shares are listed for trading (the "Parent
Exchange") on the business day immediately preceding the Effective Time,
the aggregate value of the Parent Common Shares to be issued in connection
with the Parent Merger would be less than 50% of the sum of the aggregate
cash to be received by the holders of the Morgan Common Shares (including
amounts paid to dissenters), plus the value of the Parent Common Shares to
be received by the holders of the Morgan Common Shares, as consideration in
connection with the Parent Merger, then Parent will increase the Stock
Exchange Ratio so that the aggregate value of the Parent Common Shares to
be issued to the holders of the Morgan Common Shares in connection with the
Parent Merger, as determined based upon the closing price of the Parent
Common Shares on the Parent Exchange on the business day immediately
preceding the Effective Time, is equal to 50% of the sum of the aggregate
cash to be received by the holders of the Morgan Common Shares (including
amounts paid to dissenters), plus the value of the Parent Common Shares to
be received by the holders of the Morgan Common Shares as consideration in
connection with the Parent Merger.
3.02 Rights as Shareholders; Stock Transfers.
At the Effective Time, the Morgan Common Shares shall no longer be
outstanding and shall automatically be canceled and cease to exist and holders
of Morgan Common Shares shall cease to be, and shall have no rights as,
shareholders of Morgan, other than to receive any dividend or other distribution
with respect to such Morgan Common Shares with a record date occurring prior to
the Effective Time, the consideration provided under this Article III and the
appraisal rights in the case of Dissenting Shares. After the Effective Time,
there shall be no transfers on the stock transfer books of Morgan or the
Surviving Corporation of any Morgan Common Shares (other than Dissenting Shares,
if applicable).
3.03 Fractional Shares.
Notwithstanding any other provision hereof, no fractional Parent
Common Shares and no certificates or scrip therefor, or other evidence of
ownership thereof, will be issued in the Parent Merger and no Parent dividend or
other distribution or stock split or combination will relate to any fractional
Parent Common Share, and such fractional Parent Common Shares will not entitle
the owner thereof to vote or to any rights of a security holder of Parent;
instead, Parent shall pay to each holder of Morgan Common Shares who would
otherwise be entitled to a fractional Parent Common Share (after taking into
account all Old Certificates delivered by such holder) an amount in cash
(without interest) determined by multiplying such fractional Parent Common Share
to which the holder would be entitled by $52.00.
14
3.04 Exchange Procedures.
(a) At or prior to the Effective Time, Parent shall deposit, or shall
cause to be deposited, with Registrar and Transfer Company (in such
capacity, the "Exchange Agent"), for the benefit of the holders of
certificates representing Morgan Common Shares ("Old Certificates"), for
exchange in accordance with this Article III, certificates representing the
Parent Common Shares ("New Certificates") and an estimated amount of cash
(such cash and New Certificates, together with any dividends or
distributions with a record date occurring on or after the Effective Date
with respect thereto and any cash to be paid in lieu of fractional Parent
Common Shares, being hereinafter referred to as the "Exchange Fund") to be
paid pursuant to this Article III in exchange for outstanding Morgan Common
Shares. Parent shall make available directly or indirectly to the Exchange
Agent, from time to time as needed, cash sufficient to pay cash in lieu of
fractional Parent Common Shares pursuant to Section 3.03 and any dividends
and other distributions pursuant to Section 3.04(e).
(b) No interest will be paid on any cash, including any cash to be
paid in lieu of fractional Parent Common Shares or in respect of dividends
or distributions that any such Person shall be entitled to receive pursuant
to this Article III.
(c) Promptly after the Effective Time, but not later than 10 days
thereafter, Parent shall cause the Exchange Agent to mail to each holder of
record of an Old Certificate that was converted pursuant to Section 3.01
(i) a form of letter of transmittal (the "Letter of Transmittal")
specifying that delivery will be effected, and risk of loss and title to
the Old Certificates will pass, only upon proper delivery of the Old
Certificates to the Exchange Agent and (ii) instructions and procedures for
surrendering such Old Certificates in exchange for the New Certificates.
Upon surrender of an Old Certificate for cancellation to the Exchange
Agent, together with such Letter of Transmittal, duly executed, the holder
of such Old Certificate shall receive in exchange therefor (A) a New
Certificate representing that number of whole Parent Common Shares that
such holder has the right to receive pursuant to the provisions of this
Article III, and/or (B) a check in an amount equal to the sum of the cash
to be paid to such holder as part of the Merger Consideration, the cash to
be paid in lieu of any fractional Parent Common Shares to which such holder
is entitled pursuant to Section 3.03 and/or the cash to be paid in respect
of any dividends or distributions to which such holder may be entitled
pursuant to Section 3.04(e), after giving effect to any required tax
withholdings, and the Old Certificate so surrendered shall forthwith be
canceled. In the event of a transfer of ownership of Morgan Common Shares
that is not registered in the transfer records of Morgan, a New Certificate
representing the proper number of Parent Common Shares may be issued,
and/or the cash to be paid as part of the Merger Consideration, in lieu of
any fractional Parent Common Shares and/or in respect of any dividends or
distributions may be paid, to a transferee if the Old Certificate is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer, and by evidence that any applicable
stock transfer taxes have been paid. Until surrendered as contemplated by
this Section 3.04(c), each Old Certificate will be deemed at any time after
the Effective Time to represent only the right to receive upon such
surrender a New Certificate and/or a check in an amount equal to the sum of
the cash to be paid as part of
15
the Merger Consideration, the cash to be paid in lieu of any fractional
Parent Common Shares and/or the cash to be paid in respect of any dividends
or distributions to which the holder may be entitled pursuant to Section
3.04(e) hereof.
(d) Promptly following the date that is six months after the Effective
Time, the Exchange Agent shall deliver to the Surviving Corporation all
cash, certificates and other documents in its possession relating to the
transactions described in this Agreement; and any holders of Morgan Common
Shares who have not theretofore complied with this Article III may look
thereafter only to the Surviving Corporation for the Parent Common Shares,
any dividends or distributions thereon and any cash to be paid as part of
the Merger Consideration or in lieu of fractional Parent Common Shares to
which they are entitled pursuant to this Article III, in each case, without
any interest thereon. Notwithstanding the foregoing, neither the Exchange
Agent nor any party hereto shall be liable to any former holder of Morgan
Common Shares for any Parent Common Shares, any dividends or distributions
thereon or any cash to be paid as part of the Merger Consideration or in
lieu of fractional Parent Common Shares delivered to a public official
pursuant to applicable abandoned property, escheat or similar Laws.
(e) No dividends or other distributions with respect to Parent Common
Shares with a record date occurring on or after the Effective Date shall be
paid to the holder of any unsurrendered Old Certificate representing Morgan
Common Shares converted in the Parent Merger into the right to receive such
Parent Common Shares until the holder thereof shall be entitled to receive
New Certificates in exchange therefor in accordance with the procedures set
forth in this Section 3.04. After becoming so entitled in accordance with
this Section 3.04, 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 Parent Common
Shares such holder had the right to receive upon surrender of the Old
Certificates.
(f) If any Old Certificate has 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 Parent, the
posting by such Person of a bond in such reasonable amount as Parent may
direct as indemnity against any claim that may be made against it with
respect to such Old Certificate, the Exchange Agent shall deliver in
exchange for such lost, stolen or destroyed Old Certificate (i) the number
of Parent Common Shares to which such Person is entitled pursuant to
Section 3.01(a) with respect to the Morgan Common Shares formerly
represented thereby, and/or (ii) a check in an amount equal to the sum of
the cash to be paid to such Person as part of the Merger Consideration, the
cash to be paid in lieu of any fractional Parent Common Shares to which
such Person is entitled pursuant to Section 3.03 and/or the cash to be paid
in respect of any dividends or distributions to which such Person may be
entitled pursuant to Section 3.04(e).
(g) Parent is entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of Morgan Common
Shares and Morgan Stock Options such amounts as it is required to deduct
and withhold with respect to the making of such payment under the Code and
the rules and regulations promulgated
16
thereunder, or any applicable Law. To the extent that amounts are so
withheld by Parent, such withheld amounts may be treated for all purposes
of this Agreement as having been paid to the holders of Morgan Common
Shares and Morgan Stock Options in respect of which such deduction and
withholding were made by Parent.
3.05 Anti-Dilution Provisions.
In the event Parent changes (or establishes a record date for
changing) the number of Parent Common Shares issued and outstanding between the
date hereof and the Effective Date as a result of a stock split, stock dividend,
recapitalization, reclassification, split up, combination, exchange of shares,
readjustment or similar transaction with respect to the outstanding Parent
Common Shares and the record date therefor shall be prior to the Effective Date,
the Stock Exchange Ratio shall be proportionately adjusted. In the event that
Rights are issued under the Rights Agreement, and such Rights are issued between
the date of this Agreement and the Effective Date, then Morgan shareholders who
receive Parent Common Shares as a result of the Parent Merger shall additionally
receive Rights on the Effective Date to the same extent they would have received
Rights if they had held such Parent Common Shares when such Rights were issued.
3.06 Treatment of Stock Options.
There are currently outstanding options to purchase 74,500 Morgan
Common Shares under the Morgan Stock Plan (each, a "Morgan Stock Option"). Each
Morgan Stock Option that is outstanding and unexercised immediately prior to the
Effective Time, whether or not then vested and exercisable, shall be terminated
immediately prior to the Effective Time and each grantee thereof shall be
entitled to receive, in lieu of the Morgan Common Shares, that would otherwise
have been issuable upon exercise thereof, an amount in cash computed by
multiplying (a) the excess of (i) $52.00 over (ii) the exercise price of such
Morgan Stock Option by (b) the number of Morgan Common Shares subject to the
Morgan Stock Option. Morgan shall use commercially reasonable efforts to take or
cause to be taken all action necessary to obtain a written consent from each
holder of a Morgan Stock Option to permit such termination effective at the
Effective Date. Morgan may elect to pay immediately prior to the Effective Time
to each holder of a Morgan Stock Option from whom a written consent has been
obtained pursuant to the preceding sentence the aggregate amount to which such
holder is entitled pursuant to this Section 3.06.
ARTICLE IV
ACTIONS PENDING ACQUISITION
4.01 Forbearances of Morgan.
From the date hereof until the earlier of the Effective Time and the
termination of this Agreement, except as expressly contemplated by this
Agreement and/or disclosed on Morgan's Disclosure Schedule, without the prior
written consent of Parent, which consent shall not be unreasonably withheld,
Morgan shall not, and shall cause its Subsidiary not to:
17
(a) Ordinary Course. Conduct the business of Morgan and its Subsidiary
other than in the ordinary and usual course consistent with past practice
or fail to use reasonable efforts to preserve intact their business
organizations and assets and maintain their rights, franchises and existing
relations with customers, suppliers, employees and business associates, or
voluntarily take any action which, at the time taken, is reasonably likely
to have an adverse effect upon Morgan's ability to perform any of its
material obligations under this Agreement.
(b) New Activities. Engage in any material new activities or lines of
business or make any material changes to its existing activities or lines
of business.
(c) Capital Stock. Other than pursuant to Rights Previously Disclosed
and outstanding on the date hereof, (i) issue, sell or otherwise permit to
become outstanding, or authorize the creation of, any additional Morgan
Common Shares or any Rights, (ii) permit any additional Morgan Common
Shares to become subject to new grants of employee or director stock
options, other Rights or similar stock-based employee rights, (iii) permit
any purchases of Morgan Common Shares to be made under the Morgan Stock
Plan, (iv) effect any recapitalization, reclassification, stock split or
like change in capitalization or (iv) enter into, or take any action to
cause any holders of Morgan Common Shares to enter into, any agreement,
understanding or commitment relating to the right of holders of Morgan
Common Shares to vote any Morgan Common Shares, or cooperate in any
formation of any voting trust or similar arrangement relating to such
shares, other than the Voting Agreements.
(d) Dividends, Etc. (i) Make, declare, pay or set aside for payment
any dividend or distribution on any shares of its capital stock, other than
(A) quarterly cash dividends on Morgan Common Shares in an amount not to
exceed the per share amount declared and paid in its most recent quarterly
cash dividend, with record and payment dates consistent with past practice,
and (B) dividends from its wholly owned Subsidiary to Morgan; (ii)
otherwise declare or make any distribution on any shares of its capital
stock; or (iii) directly or indirectly adjust, split, combine, redeem,
reclassify, purchase or otherwise acquire any shares of its capital stock.
(e) Subsidiaries. (i) Issue, sell or otherwise permit to become
outstanding, (ii) transfer, mortgage, encumber or otherwise dispose of
(iii) permit the creation of any Lien in respect of, or (iv) amend or
modify the terms of, any equity interests held in a Subsidiary of Morgan.
(f) Compensation; Employment Agreements; Etc. Enter into, amend,
modify, renew or terminate any employment, consulting, severance, change in
control or similar agreements or arrangements with any director, officer or
employee of, or independent contractor with respect to, Morgan or its
Subsidiary, or grant any salary, wage or other increase or increase any
employee benefit (including incentive or bonus payments), except (i) for
normal individual increases in compensation to employees in the ordinary
and usual course of business consistent with past practice, (ii) for other
changes that are required or made advisable by applicable Law, and (iii) to
satisfy Previously Disclosed contractual obligations existing as of the
date hereof.
18
(g) Benefit Plans. Enter into, establish, adopt, amend, modify or
terminate (except (i) as may be required by applicable Law, (ii) to satisfy
Previously Disclosed contractual obligations existing as of the date hereof
or (iii) the regular annual renewal of insurance Contracts) any pension,
retirement, stock option, stock purchase, savings, profit sharing, deferred
compensation, consulting, bonus, group insurance or other employee benefit,
incentive or welfare contract, plan or arrangement, or any trust agreement
(or similar arrangement) related thereto, in respect of any director,
officer or employee of, or independent contractor with respect to, Morgan
or its Subsidiary (or any dependent or beneficiary of any of the foregoing
Persons), or take any action to accelerate the vesting or exercisability
of, or the payment or distribution with respect to, stock options,
restricted stock or other compensation or benefits payable thereunder,
other than pursuant to this Agreement.
(h) Dispositions. Sell, transfer, mortgage, encumber or otherwise
dispose of or permit the creation of any Lien for sales of Loans, debt
securities or similar investments (except for a Lien for Taxes not yet due
and payable) in respect of, or discontinue any portion of, any of its
assets, deposits, business or properties except in the ordinary and usual
course of business consistent with past practice.
(i) Acquisitions. Acquire (other than by way of foreclosures or
acquisitions of control in a bona fide fiduciary capacity or in
satisfaction of debts previously contracted in good faith, in each case in
the ordinary and usual course of business consistent with past practice)
all or any portion of, the assets, business, deposits or properties of any
other entity, or acquire mortgage servicing rights, except in connection
with existing correspondent lending relationships in the ordinary and usual
course of business consistent with past practice.
(j) Governing Documents. Amend the Morgan Articles, Morgan Code or the
Governing Documents of Morgan's Subsidiary.
(k) Accounting Methods. Implement or adopt any change in its
accounting principles, practices or methods, other than as may be required
by GAAP.
(l) Contracts. Except in the ordinary and usual course of business
consistent with past practice, enter into or terminate any material
contract (as defined in Section 5.03(k)) or amend or modify in any material
respect any of its existing material contracts, or enter into any new
contract that would be required to be disclosed pursuant to the standards
set forth in Section 5.03(k).
(m) Claims. Settle any claim, action or proceeding, except for any
claim, action or proceeding that does not involve precedent for other
material claims, actions or proceedings and that involve solely money
damages in an amount, individually or in the aggregate for all such
settlements, that is immaterial to Morgan and its Subsidiary, taken as a
whole.
(n) Adverse Actions. (i) Take any action while knowing that such
action would, or is reasonably likely to, prevent or impede the Parent
Merger from qualifying as
19
a reorganization within the meaning of Section 368(a) of the Code; or (ii)
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 material respect at any time at
or prior to the Effective Time, (B) any of the conditions to the Parent
Merger set forth in Article VII not being satisfied or (C) a material
violation of any provision of this Agreement except, in each case, as may
be required by applicable Law or (iii) engage in any new line of business
or make any acquisition that would not be permissible for a United States
bank holding company (as defined in the Bank Holding Company Act of 1956)
or would subject Parent, Morgan or any Subsidiary of either to material
regulation by a Regulatory Authority that does not presently regulate such
company or to regulation by a Regulatory Authority that is materially
different from current regulation.
(o) Risk Management. Except as required by applicable Law, (i)
implement or adopt any material change in its credit risk and interest rate
risk management and hedging policies and other risk management policies,
procedures or practices; (ii) fail to follow its existing policies or
practices with respect to managing its exposure to credit and interest rate
and other risk; or (iii) fail to use commercially reasonable means to avoid
any material increase in its aggregate exposure to interest rate risk.
(p) Indebtedness. Incur, cancel, release, assign, modify, assume,
guarantee, endorse or otherwise as an accommodation become responsible for
the obligations of any other Person with respect to any indebtedness for
borrowed money in an amount in excess of $500,000; provided, however, that
Morgan may continue to borrow from the Federal Home Loan Bank of
Cincinnati, National City Bank and/or Great Lakes Bankers Bank in
accordance with past practices.
(q) Related Party Transactions. Make any payment of cash or other
consideration to, or make any Loan to or on behalf of, or enter into, amend
or grant a consent or waiver under, or fail to enforce, any Contract with,
any Related Person.
(r) Taxes. Make or change any material election with respect to Taxes,
settle any material Tax audit or proceeding, enter into any Tax closing
agreement or request any Tax private letter or similar ruling.
(s) Loans. Extend credit for new loans, renewals and extensions on a
secured or unsecured basis, except in accordance with the lending limits
set forth in Morgan's loan policy dated July 27, 2006 and pursuant to
historic business practices, which policy shall not be modified without the
prior written consent of Parent.
(t) Capital Expenditures. Make any capital expenditures in excess of
$50,000 in any one case or $100,000 in the aggregate or enter into any
agreement contemplating capital expenditures in excess of $100,000 for any
twelve-month period.
(u) Capitalization Status. Fail to maintain Morgan Bank's status as a
"well-capitalized" bank within the meaning of the risk-based capital
guidelines issued by the Board of Governors of the Federal Reserve System;
provided that, for purposes of this
20
clause (u), charges relating to the transactions contemplated by this
Agreement shall be excluded from the determination of such status.
(v) Commitments. Agree or commit to do, or enter into any Contract
regarding, anything that would be precluded by clauses (a) through (u).
4.02 Forbearances of Parent.
From the date hereof until the Effective Time, except as expressly
contemplated by this Agreement and/or disclosed on Parent's Disclosure Schedule,
without the prior written consent of Morgan, which consent shall not be
unreasonably withheld, Parent shall not, and shall cause each of its
Subsidiaries not to:
(a) Ordinary Course. Conduct the business of Parent and its
Subsidiaries other than in the ordinary and usual course consistent with
past practice or fail to use reasonable efforts to preserve intact their
business organizations and assets and maintain their rights, franchises and
existing relations with customers, suppliers, employees and business
associates, or voluntarily take any action which, at the time taken, is
reasonably likely to have an adverse affect upon Parent's ability to
perform any of its material obligations under this Agreement.
(b) Accounting Methods. Implement or adopt any change in its
accounting principles, practices or methods, other than as may be required
by GAAP.
(c) Adverse Actions. (i) Take any action while knowing that such
action would, or is reasonably likely to, prevent or impede the Parent
Merger from qualifying as a reorganization within the meaning of Section
368(a) of the Code; (ii) 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
material respect at any time at or prior to the Effective Time, (B) any of
the conditions to the Parent Merger set forth in Article VII not being
satisfied or (C) a material violation of any provision of this Agreement
except, in each case, as may be required by applicable Law.
(d) Risk Management. Except as required by applicable Law, (i) fail to
follow its existing policies or practices with respect to managing its
exposure to credit and interest rate hedging policies and other risk, or
(ii) fail to use commercially reasonable means to avoid any material
increase in its aggregate exposure to interest rate risk.
(e) Commitments. Agree or commit to do, or enter into any Contract
regarding, anything that would be precluded by clauses (a) through (d).
21
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.01 Disclosure Schedules.
On or prior to the date hereof, Parent delivered to Morgan a schedule
and Morgan delivered to Parent a schedule (respectively, its "Disclosure
Schedule") setting forth, among other things, items, the disclosure of which are
necessary or appropriate either in response to an express disclosure requirement
contained in a provision hereof or as an exception to one or more
representations or warranties contained in Section 5.03 or 5.04 or to one or
more of its respective covenants contained in Article IV and Article VI;
provided, however, that (a) no such item is required to be set forth in a
Disclosure Schedule as an exception to a representation or warranty if its
absence would not be reasonably likely to result in the related representation
or warranty being deemed untrue or incorrect under the standard established by
Section 5.02, and (b) the mere inclusion of an item in a Disclosure Schedule as
an exception to a representation or warranty shall not be deemed an admission by
a party that such item represents a material exception or fact, event or
circumstance or that such item is reasonably likely to have or result in a
Material Adverse Effect on the party making the representation. Morgan's
representations, warranties and covenants contained in this Agreement shall not
be deemed to be untrue, incorrect or to have been breached as a result of
effects on Morgan arising solely from actions taken in compliance with a written
request of Parent.
5.02 Standard.
No representation or warranty of Morgan or Parent contained in Section
5.03 (other than Sections 5.03(h), (i), (k), (l), (n), (q), (s), (t) and (w)
(collectively, the "Excluded Representations")) or 5.04 shall be deemed untrue
or incorrect, and no party hereto shall be deemed to have breached a
representation or warranty, as a consequence of the existence of any fact, event
or circumstance unless such fact, circumstance or event, individually or taken
together with all other facts, events or circumstances inconsistent with any
representation or warranty contained in Section 5.03 (other than the Excluded
Representations) or 5.04 (without giving effect to any limitation set forth in
Section 5.03 (other than in the Excluded Representations) or 5.04 arising from
the use of the words "material" or "materially" or the phrase "Material Adverse
Effect" or similar qualifiers) has had, or is reasonably likely to have, a
Material Adverse Effect.
5.03 Representations and Warranties of Morgan.
Subject to Sections 5.01 and 5.02 and except as Previously Disclosed,
Morgan hereby represents and warrants to Parent as follows:
(a) Organization, Standing and Authority. Morgan is a corporation duly
organized, validly existing and in good standing under the Laws of the
State of Ohio and any foreign jurisdictions where its ownership or leasing
of property or assets or the conduct of its business requires it to be so
qualified. Morgan is registered as a bank holding company under the Bank
Holding Company Act of 1956, as amended. Morgan Bank is a national banking
association, duly organized, validly existing and in good standing under
the laws of the United States of America. Morgan Bank is not required to
22
be qualified to do business in any state or in any foreign jurisdictions
where it owns or leases property or assets or conducts its business.
(b) Capital Structure of Morgan. The authorized capital stock of
Morgan consists solely of 600,000 Morgan Common Shares, of which 466,302
Morgan Common Shares were outstanding as of the date hereof. As of the date
hereof, no shares of Treasury Stock were held by Morgan and none were
otherwise owned by Morgan or its Subsidiary. The outstanding Morgan Common
Shares have been duly authorized, are validly issued and outstanding, fully
paid and nonassessable, and are not subject to any preemptive rights (and
were not issued in violation of any preemptive rights). As of the date
hereof, (i) there were no Morgan Common Shares authorized and reserved for
issuance, and (ii) Morgan did not have any commitment to authorize, issue
or sell any Morgan Common Shares or Rights, except pursuant to this
Agreement and the Morgan Stock Plan. Morgan does not have outstanding any
bonds, debentures, notes or other obligations the holders of which have the
right to vote (or that are convertible into or exercisable for securities
having the right to vote) with the shareholders of Morgan on any matter.
(c) Subsidiaries.
(i) (A) Morgan has Previously Disclosed a list of all of its
Subsidiaries together with the jurisdiction of organization of each
such Subsidiary, (B) Morgan owns, directly or indirectly, all the
issued and outstanding equity securities of its Subsidiary, (C) no
equity securities of its Subsidiary is or may become required to be
issued (other than to it or its wholly-owned Subsidiary) by reason of
any Right or otherwise, (D) there are no Contracts by which of such
Subsidiary is or may be bound to sell or otherwise transfer any equity
securities of such Subsidiary (other than to Morgan or its
wholly-owned Subsidiary), (E) there are no Contracts relating to
Morgan's rights to vote or to dispose of any equity securities of any
such Subsidiary and (F) all the equity securities of the Subsidiary
held by Morgan or its Subsidiary are fully paid and nonassessable
(except pursuant to 12 U.S.C. Section 55) and are owned by Morgan or
its Subsidiary free and clear of any Liens.
(ii) Except as Previously Disclosed, Morgan does not own
beneficially, directly or indirectly, any equity securities or similar
interests of any Person, or any interest in a partnership or joint
venture of any kind, other than its Subsidiary. Morgan has Previously
Disclosed, as of the date of this Agreement, a list of all equity
securities it or its Subsidiary holds involving, in the aggregate,
beneficial ownership or control by Morgan or any such Subsidiary of 5%
or more of any class of the issuer's voting securities or 25% or more
of any class of the issuer's securities, including a description of
any such issuer and the percentage of the issuer's voting and/or
non-voting securities and, as of the Effective Time, no additional
Persons would need to be included on such a list.
(iii) Morgan's Subsidiary has been duly organized and is validly
existing in good standing under the Laws of the jurisdiction of its
organization,
23
and is duly qualified to do business and in good standing in the
jurisdictions where its ownership or leasing of property or the
conduct of its business requires it to be so qualified. Morgan Bank is
Morgan's only depository institution Subsidiary, and it (A) is an
"insured depository institution" as defined in the Federal Deposit
Insurance Act and the applicable regulations thereunder and (B) has a
rating of "Satisfactory" or better under the Community Reinvestment
Act of 1977 as of the date of this Agreement.
(d) Corporate Power; Authorized and Effective Agreement. Each of
Morgan and its Subsidiary has full corporate power and authority to carry
on its business as it is now being conducted and to own all its properties
and assets. Subject to the adoption of this Agreement by the holders of the
requisite number of outstanding Morgan Common Shares entitled to vote on
this Agreement (the "Required Morgan Vote") and the approval of Regulatory
Authorities, Morgan has the corporate power and authority to execute,
deliver and perform its obligations under this Agreement and to consummate
the transactions contemplated hereby and thereby, and, subject to approval
by the board of directors of Morgan Bank and by Morgan as sole shareholder
of Morgan Bank, Morgan Bank has the corporate power and authority to
consummate the Subsidiary Merger as contemplated by Section 2.02.
(e) Corporate Authority. Subject to adoption of this Agreement by the
Required Morgan Vote (which is the only shareholder vote required thereon),
this Agreement and the transactions contemplated hereby have been
authorized by all necessary corporate action of Morgan and the Morgan Board
on or before the date hereof. The Agreement to Merge, when executed by
Morgan Bank, shall have been approved by the Board of Directors of Morgan
Bank and by the Morgan Board, as the sole shareholder of Morgan Bank. This
Agreement is a valid and legally binding obligation of Morgan, enforceable
against Morgan in accordance with its terms (except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer and similar Laws of general applicability
relating to or affecting creditors' rights or by general equity principles
and except to the extent such enforceability may be limited by laws
relating to the safety and soundness of insured depository institutions as
set forth in 12 U.S.C. Section 1818(b) or the appointment of a conservator
by the FDIC).
(f) Fairness Opinion. The Morgan Board has received the written
opinion of Ryan Beck & Co., Inc., to the effect that, as of the date
hereof, the consideration to be received by the holders of Morgan Common
Shares in the Parent Merger is fair to the holders of Morgan Common Shares
from a financial point of view, which opinion will be updated by Ryan Beck
& Co., Inc. and provided to the Morgan Board on the date of the Proxy
Statement.
(g) Regulatory Filings; No Defaults.
(i) No consents or approvals of, or filings or registrations
with, any Governmental Authority or with any third party are required
to be made or obtained by Morgan or any of its Subsidiaries in
connection with the execution, delivery or performance by Morgan of
this Agreement or to consummate the
24
Parent Merger or the other transactions contemplated hereby except for
(A) filings of applications and notices, as applicable, with
Regulatory Authorities, and (B) the filing of the Certificates of
Merger with the OSS pursuant to the OGCL. As of the date hereof,
Morgan is not aware of any reason why the Requisite Regulatory
Approvals (as defined in Section 7.01(b)) will not be received without
the imposition of a condition, restriction or requirement of the type
described in Section 7.01(b).
(ii) Subject to receipt of the regulatory and shareholder
approvals referred to above and expiration of related regulatory
waiting periods, and required filings under federal and state
securities Laws by Parent, except as Previously Disclosed, the
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby do not and will
not (A) constitute a breach or violation of, or a default under, or
give rise to any Lien, any acceleration of remedies or any right of
termination under, any Law, governmental permit or license, or
Contract of Morgan or its Subsidiary or to which Morgan or its
Subsidiary or properties is subject or bound, (B) constitute a breach
or violation of, or a default under, the Governing Documents of Morgan
or its Subsidiary or (C) require any consent or approval under any
such Law, governmental permit or license, or governmental Contract.
(h) Regulatory Reports; Material Adverse Effect.
(i) Morgan (A) has delivered to Parent copies of the audited
consolidated balance sheets and the related audited consolidated
statements of income, shareholders' equity and cash flows (including
related notes and schedules) of Morgan and its consolidated Subsidiary
as of and for each of the three full fiscal years ended December 31,
2005, and of the unaudited balance sheet and the related unaudited
statement of income, as of and for the three and nine months ended
September 30, 2006 and 2005 (the "Morgan Financial Statements"), and
(B) has furnished Parent with a true and complete copy of each
material report filed by Morgan with the Federal Reserve Board or by
its Subsidiary with any Regulatory Authorities from and after January
1, 2001 (each, a "Regulatory Reporting Document"), which are all the
material documents that Morgan or its Subsidiary was required to file
with the Regulatory Authorities since such date and all of which
complied when filed in all material respects with all applicable laws
and regulations.
(ii) The Morgan Financial Statements (as of the dates thereof and
for the periods covered thereby) (A) are in accordance with the books
and records of Morgan and its Subsidiary, which are complete and
accurate in all material respects and which have been maintained in
accordance with good business practices, and (B) present fairly the
consolidated financial position and the consolidated results of
operations, changes in shareholders' equity and cash flows of Morgan
and its Subsidiary as of the dates and for the periods indicated. The
Morgan Financial Statements have been prepared in accordance with
GAAP, subject in the case of unaudited interim financial statements
for the three and nine
25
months ended September 30, 2006 to normal recurring year-end
adjustments and except for the absence of certain footnote information
in such unaudited interim financial statements. Neither S.R.
Snodgrass, AC nor any other firm of independent certified public
accountants has prepared or delivered to Morgan any management letters
that express any material concerns or issues regarding Morgan's
internal controls, accounting practices or financial conditions since
January 1, 2001.
(iii) To the knowledge of Morgan, S.R. Snodgrass, AC, which has
expressed its opinion with respect to the audited financial statements
of Morgan and its Subsidiaries included in the Morgan Financial
Statements (including the related notes), is and has been throughout
the periods covered by such financial statements an independent
registered public accounting firm with respect to Morgan within the
meaning of the Securities Act and the related rules of the SEC and the
requirements of the Public Company Accounting Oversight Board.
(i) Litigation. Except as Previously Disclosed, no material
litigation, claim or other proceeding before any court or governmental
agency is pending against Morgan or its Subsidiary and, to Morgan's
knowledge, no such litigation, claim or other proceeding has been
threatened.
(j) Regulatory Matters.
(i) Neither Morgan nor its Subsidiary or properties is a party to
or is subject to any order, decree, agreement, memorandum of
understanding or similar arrangement with, or a commitment letter or
similar submission to, or extraordinary supervisory letter from any
Regulatory Authorities.
(ii) Neither Morgan nor its Subsidiary has been advised by any
Regulatory Authority that such Regulatory Authority is contemplating
issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such order, decree, agreement, memorandum
of understanding, commitment letter, supervisory letter or similar
submission.
(k) Compliance with Laws.
(i) Except as Previously Disclosed, each of Morgan and its
Subsidiary:
(A) is in material compliance with all Laws applicable
thereto or to the employees conducting such businesses,
including, without limitation, the USA Patriot Act of 2001, the
International Money Laundering Abatement and Anti-Terrorist
Financing Act of 2001, the Equal Credit Opportunity Act, the Fair
Housing Act, the Community Reinvestment Act, the Home Mortgage
Disclosure Act and all other applicable fair lending Laws and
other Laws relating to discriminatory business practices;
26
(B) has all material permits, licenses, authorizations,
orders and approvals of, and has made all filings, applications
and registrations with, all Regulatory Authorities and
Governmental Authorities that are required in order to permit
them to own or lease their properties and to conduct their
businesses as presently conducted; all such permits, licenses,
certificates of authority, orders and approvals are in full force
and effect and, to Morgan's knowledge, no suspension or
cancellation of any of them is threatened or would reasonably be
expected to occur, and all such filings, applications and
registrations are current; and
(C) has received, since December 31, 2005, no notification
or communication from any Regulatory Authority or Governmental
Authority (1) asserting that Morgan or its Subsidiary is not in
material compliance with any of the statutes, regulations, or
ordinances that such Regulatory Authority or Governmental
Authority enforces, (2) threatening to revoke any license,
franchise, permit, or governmental authorization (nor, to
Morgan's knowledge, do any grounds for any of the foregoing
exist) or (3) restricting or disqualifying their activities
(except for restrictions generally imposed by rule, regulation or
administrative policy on banking organizations generally);
(D) is not aware of any pending or threatened investigation,
review or disciplinary proceedings by any Governmental Authority
against Morgan, its Subsidiary or any officer, director or
employee thereof;
(E) is not subject to any order or decree issued by, or a
party to any agreement or memorandum of understanding with, or a
party to any commitment letter or similar undertaking to, or
subject to any order or directive by, or a recipient of any
supervisory letter from, and has not adopted any board
resolutions at the request of, any Governmental Authority and has
not been advised by any Governmental Authority that it is
considering issuing or requesting any such agreement or other
action; and
(ii) None of Morgan or its Subsidiary has engaged in any of the
practices listed in Office of the Comptroller of the Currency Advisory
Letter AL 2000-7 as "indications that an institution may be engaging
in abusive lending violations" or as practices that "may suggest the
potential for fair lending violations" or has originated, owned or
serviced or currently owns or services any Loan subject to the
requirements of Section 226.32 of title 12 of the Code of Federal
Regulations.
(l) Material Contracts; Defaults. Except for this Agreement and
Contracts which have been Previously Disclosed, neither Morgan nor its
Subsidiary is a party to, bound by or subject to any Contract (i) that is a
"material contract" within the meaning of Item 601(b)(10) of the SEC's
Regulation S-K or (ii) that restricts or limits in any way the conduct of
business by Morgan or its Subsidiary (including without limitation a
non-
27
compete or similar provision). Neither Morgan nor its Subsidiary nor, to
Morgan's knowledge, any other party thereto is in material default under
any Contract to which it is a party, by which its respective assets,
business, or operations may be bound or materially affected in any way, or
under which it or its respective assets, business, or operations receive
material benefits, and there has not occurred any event that, with the
lapse of time or the giving of notice or both, would constitute such a
material default. Morgan has Previously Disclosed a complete and accurate
listing and copies of the following materials (other than those that have
been performed completely and those related to loans made by Morgan Bank,
deposits in Morgan Bank, investment securities held by Morgan or Morgan
Bank, or borrowings by the Morgan Bank): (A) each Contract that involves
performance of services or delivery of goods or materials by Morgan or any
of its Subsidiaries of an amount or value in excess of $25,000 annually
with a remaining term greater than one year; and (B) each Contract that
involves expenditures or receipts of Morgan or its Subsidiaries in excess
of $25,000 annually with a remaining term greater than one year, including
but not limited to consulting, systems, software, ATM, network, telephone,
communications, data processing, reporting, armored transportation, guard,
security, security monitoring, janitorial, landscaping, maintenance, credit
card, check printing, marketing or other service agreements.
(m) No Brokers. No action has been taken by Morgan that would give
rise to any valid claim against any party hereto for a brokerage
commission, finder's fee or other like payment with respect to the
transactions contemplated by this Agreement, except for the fees to be paid
to Ryan Beck & Co., Inc.
(n) Employee Benefit Plans.
(i) Section 5.03(n)(i) of Morgan's Disclosure Schedule contains a
complete and accurate listing of all existing bonus, incentive,
deferred compensation, pension, retirement, profit-sharing, thrift,
savings, employee stock ownership, stock bonus, stock purchase,
restricted stock, stock option, severance, welfare and fringe benefit
plans, employment or severance agreements and all similar practices,
policies and arrangements other than those described in Department of
Labor Reg. Sections 2510.3-1(b) through (k), 2510.3-2(d) and
2510.3-3(b) maintained or contributed to by Morgan or its Subsidiary
and in which any employee or former employee (the "Employees"),
consultant or former consultant (the "Consultants") or director or
former director (the "Directors") of Morgan or its Subsidiary
participates or to which any such Employees, Consultants or Directors
are a party (the "Compensation and Benefit Plans"). However,
Compensation and Benefit Plans does not include plans, funds,
programs, policies, practices or procedures maintained or funded by
Employees, Consultants, Officers or Directors for their own benefit or
for the benefit of their employees such as individual retirement
arrangements or plans described in Section 401(a) of the Code
benefiting (or intended to benefit) themselves or other persons who
are not Employees. Neither Morgan nor its Subsidiary has any
commitment to create any additional Compensation and Benefit Plan or
to modify or change any existing Compensation and Benefit Plan, except
as otherwise
28
contemplated by Section 4.01(g) of this Agreement or as required by
applicable Law.
(ii) Each Compensation and Benefit Plan has been operated and
administered in all material respects in accordance with its terms and
with applicable Law, including, but not limited to, ERISA, the Code,
the Age Discrimination in Employment Act, or any regulations or rules
promulgated thereunder, and all filings, disclosures and notices
required by ERISA, the Code, the Age Discrimination in Employment Act
and any other applicable Law have been timely made. Each Compensation
and Benefit Plan that is an "employee pension benefit plan" within the
meaning of Section 3(2) of ERISA (a "Pension Plan") and that is
intended to be qualified under Section 401(a) of the Code has received
(or has applied for or will timely apply for) a favorable
determination letter from the Internal Revenue Service ("IRS"), and
Morgan is not aware of any circumstances likely to result in
revocation of any such favorable determination letter. There is no
material pending or, to the knowledge of Morgan, threatened legal
action, suit or claim relating to the Compensation and Benefit Plans
other than routine claims for benefits thereunder. Neither Morgan nor
its Subsidiary has engaged in a transaction, or omitted to take any
action, with respect to any Compensation and Benefit Plan that would
reasonably be expected to subject Morgan or any of its Subsidiaries to
a tax or penalty imposed by either Section 4975 of the Code or Section
502 of ERISA, assuming for purposes of Section 4975 of the Code that
the taxable period of any such transaction expired as of the date
hereof.
(iii) No liability (other than for payment of premiums to the
PBGC that have been made or will be made on a timely basis) under
Title IV of ERISA has been or is expected to be incurred by Morgan or
its Subsidiary with respect to any ongoing, frozen or terminated
"single-employer plan," within the meaning of Section 4001(a)(15) of
ERISA, currently or formerly maintained by any of them, or any
single-employer plan of any entity (an "ERISA Affiliate") that is
considered one employer with Morgan under Section 4001(a)(14) of ERISA
or Section 414(b) or (c) of the Code (an "ERISA Affiliate Plan"). None
of Morgan, its Subsidiary nor any ERISA Affiliate has contributed, or
has been obligated to contribute, to a multiemployer plan under
Subtitle E of Title IV of ERISA at any time since September 26, 1980.
Except as Previously Disclosed, neither Morgan nor its Subsidiary
maintains or contributes to or is obligated to contribute to (or ever
maintained, contributed to or was obligated to contribute to) any
program subject to Section 412 of the Code or Title IV of ERISA. To
the knowledge of Morgan and its Subsidiary, there is no pending
investigation or enforcement action by the Department of Labor or IRS
or any other governmental agency with respect to any Compensation and
Benefit Plan.
(iv) All contributions required to be made under the terms of any
Compensation and Benefit Plan or any other plan maintained by an
entity that is considered to be related to Morgan under Section 414(b)
or (c) of the Code have
29
been timely made in cash or have been reflected on the Morgan
Financial Statements as of December 31, 2005.
(v) Neither Morgan nor its Subsidiary has any obligations to
provide retiree health and life insurance or other retiree death
benefits under any Compensation and Benefit Plan, other than benefits
mandated by Section 4980B of the Code or those derived from a Pension
Plan. There has been no communication to Employees by Morgan or its
Subsidiary that would reasonably be expected to promise or guarantee
such Employees retiree health or life insurance or other retiree death
benefits on a permanent basis.
(vi) Morgan and its Subsidiary do not maintain any Compensation
and Benefit Plans covering foreign Employees.
(vii) With respect to each Compensation and Benefit Plan, if
applicable, Morgan has provided or made available to Parent, true and
complete copies of existing: (A) the current versions of Compensation
and Benefit Plan documents and all subsequently adopted amendments
thereto; (B) the current versions of trust instruments and insurance
Contracts; (C) two most recent Forms 5500 filed with the IRS; (D) most
recent summary plan description; (E) most recent determination letter
issued by the IRS; (F) any Form 5310 or Form 5330 filed within the
past year with the IRS; and (G) most recent nondiscrimination tests
performed under ERISA and the Code (including 401(k) and 401(m)
tests).
(viii) Except as disclosed on Section 5.03(n)(viii) of Morgan's
Disclosure Schedule, the consummation of the transactions contemplated
by this Agreement would not, directly or indirectly (including,
without limitation, as a result of any termination of employment prior
to or following the Effective Time) reasonably be expected to (A)
entitle any Employee, Consultant or Director to any payment (including
severance pay or similar compensation) or any increase in
compensation, (B) result in the vesting or acceleration of any
benefits under any Compensation and Benefit Plan or (C) result in any
material increase in benefits payable under any Compensation and
Benefit Plan.
(ix) Neither Morgan nor its Subsidiary maintains any compensation
plans, programs or arrangements the payments under which would not
reasonably be expected to be deductible as a result of the limitations
under Section 162(m) of the Code and the regulations issued
thereunder.
(x) Except as disclosed on Section 5.03(n)(x) of Morgan's
Disclosure Schedule, as a result, directly or indirectly, of the
transactions contemplated by this Agreement (including, without
limitation, as a result of any termination of employment prior to or
following the Effective Time), none of Parent, Morgan or the Surviving
Corporation, or any of their respective Subsidiaries will 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 Section 280G of the Code) of Morgan on a
consolidated basis, without
30
regard to whether such payment is reasonable compensation for personal
services performed or to be performed in the future.
(o) Labor Matters. Neither Morgan nor its Subsidiary is a party to or
is bound by any Contract, collective bargaining agreement or other
understanding with a labor union or labor organization, nor is Morgan or
its Subsidiary the subject of a proceeding asserting that it or any such
Subsidiary has committed an unfair labor practice (within the meaning of
the National Labor Relations Act) or seeking to compel Morgan or such
Subsidiary to bargain with any labor organization as to wages or conditions
of employment, nor is there any strike or other labor dispute involving it
or its Subsidiary pending or, to Morgan's knowledge, threatened, nor is
Morgan aware of any activity involving its Subsidiary's employees seeking
to certify a collective bargaining unit or engaging in other organizational
activity.
(p) Takeover Laws. Assuming Parent is not an "interested shareholder"
as that term is defined under Section 1704.01(C)(8) of the OGCL as of the
date hereof, and will not be prior to the Morgan Board's approval of the
Voting Agreements, Morgan has taken all action required to be taken by it
in order to exempt this Agreement and the transactions contemplated hereby
from, and this Agreement, the Voting Agreements and the transactions
contemplated hereby are exempt from, (i) the requirements of any
"moratorium," "control share," "fair price," "affiliate transaction,"
"business combination" or other antitakeover Laws of the State of Ohio
(collectively, "Takeover Laws") applicable to it and (ii) any other
applicable provision of the Governing Documents of Morgan or its
Subsidiary.
(q) Environmental Matters. Except as Previously Disclosed, to Morgan's
knowledge, neither the conduct nor operation of Morgan or its Subsidiaries
nor any condition of any property presently or previously owned, leased or
operated by any of them (including, without limitation, in a fiduciary or
agency capacity), or on which any of them holds a Lien, violates or
violated Environmental Laws and to Morgan's knowledge, no condition has
existed or event has occurred with respect to any of them or any such
property that, with notice or the passage of time, or both, is reasonably
likely to result in liability under Environmental Laws. To Morgan's
knowledge, neither Morgan nor its Subsidiary has received any notice from
any Person that Morgan or its Subsidiary or the operation or condition of
any property ever owned, leased, operated, or held as collateral or in a
fiduciary capacity by any of them are or were in violation of or otherwise
are alleged to have liability under any Environmental Law, including, but
not limited to, responsibility (or potential responsibility) for the
cleanup or other remediation of any pollutants, contaminants, or hazardous
or toxic wastes, substances or materials at, on, beneath, or originating
from any such property.
(r) Tax Matters.
(i) Except as Previously Disclosed, all material Tax Returns that
are required to be filed by or with respect to Morgan and its
Subsidiary have been duly filed, (ii) all Taxes shown to be due on the
Tax Returns referred to in clause (i) have been paid in full as
required, (iii) except as Previously Disclosed, none of
31
the Tax Returns referred to in clause (i) the statute of limitations
of which is still open has been examined by the IRS or the appropriate
state, local or foreign taxing authority, (iv) all deficiencies
asserted or assessments made as a result of any examination of a
taxing authority have been paid in full, (v) no issues that have been
raised by the relevant taxing authority in connection with the
examination of any of the Tax Returns referred to in clause (i) are
currently pending, and (vi) no waivers of statutes of limitations have
been given by or requested with respect to any Taxes of Morgan or its
Subsidiary. Morgan has made or will make available to Parent true and
correct copies of the United States federal income Tax Returns filed
by Morgan and its Subsidiary for each of the three most recent fiscal
years ended on or before December 31, 2005. Neither Morgan nor its
Subsidiary has any liability with respect to income, franchise or
similar Taxes that accrued on or before the end of the most recent
period covered by the Morgan Financial Statements in excess of the
amounts accrued with respect thereto that are reflected in the Morgan
Financial Statements. As of the date hereof, neither Morgan nor its
Subsidiary has any reason to believe that any conditions exist that
might prevent or impede the Parent Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code. No
Tax is required to be withheld pursuant to Section 1445 of the Code as
a result of the transactions contemplated by this Agreement.
(s) Risk Management Instruments. Neither Morgan nor any Morgan
Subsidiary has any interest rate swaps, caps, floors, option agreements,
futures and forward Contracts or other similar risk management
arrangements.
(t) Accounting Controls. Each of Morgan and its Subsidiaries has
devised and maintained systems of internal accounting controls sufficient
to provide reasonable assurances, in the judgment of the Morgan Board, that
(i) all material transactions are executed in accordance with management's
general or specific authorization; (ii) all material transactions are
recorded as necessary to permit the preparation of financial statements in
conformity with GAAP consistently applied with respect to any criteria
applicable to such statements, (iii) access to the material property and
assets of Morgan and its Subsidiaries is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for items is compared with the actual levels at reasonable
intervals and appropriate action is taken with respect to any differences.
(u) Books and Records. The books and records of Morgan and its
Subsidiary have been fully, properly and accurately maintained in all
material respects, have been maintained in accordance with sound business
practices and there are no material inaccuracies or discrepancies of any
kind contained or reflected therein and they fairly reflect the substance
of events and transactions included therein.
(v) Insurance. Section 5.03(v) of Morgan's Disclosure Schedule sets
forth a list of all of the insurance policies, binders, or bonds maintained
by Morgan or its Subsidiary. Morgan and its Subsidiary are insured with
reputable insurers against such risks and in such amounts as the management
of Morgan reasonably has determined to be
32
prudent in accordance with industry practices. All such insurance policies
are in full force and effect; Morgan and its Subsidiary are not in material
default thereunder; and all claims thereunder have been filed in due and
timely fashion.
(w) Morgan Off Balance Sheet Transactions. Section 5.03(w) of Morgan's
Disclosure Schedule sets forth a true and complete list of all affiliated
Morgan entities, including, without limitation, all special purpose
entities, limited purpose entities and qualified special purpose entities,
in which Morgan or its Subsidiary or any officer or director of Morgan or
its Subsidiary has an economic or management interest. Section 5.03(w) of
Morgan's Disclosure Schedule also sets forth a true and complete list of
all transactions, arrangements, and other relationships between or among
any such Morgan affiliated entity, on the one hand, and Morgan, its
Subsidiary, and any officer or director of Morgan or its Subsidiary, on the
other hand, that are not reflected in the consolidated financial statements
of Morgan (each, a "Morgan Off Balance Sheet Transaction"), along with the
following information with respect to each such Morgan Off Balance Sheet
Transaction: (i) the business purpose, activities, and economic substance;
(ii) the key terms and conditions; (iii) the potential risk to Morgan or
its Subsidiary; (iv) the amount of any guarantee, line of credit, standby
letter of credit or commitment, or any other type of arrangement, that
could require Morgan or its Subsidiary to fund any obligations under any
such transaction; and (v) any other information that could have a Material
Adverse Effect on Morgan or its Subsidiary.
(x) Disclosure. The information Previously Disclosed by Morgan, when
taken together with the representations and warranties contained in this
Section 5.03, do not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
and information contained therein, in the light of the circumstances in
which they are being made, not misleading.
(y) Material Adverse Change. Since December 31, 2005, (i) Morgan and
its Subsidiary have conducted their respective businesses in the ordinary
and usual course consistent with past practice (excluding matters related
to this Agreement and the transactions contemplated hereby) and have not
taken any action that, if it had been in effect, would have violated or
been inconsistent with the provisions of Section 4.01 hereto and (ii) no
event has occurred or circumstance arisen that, individually or taken
together with all other facts, circumstances and events (described in any
paragraph of Section 5.03 or otherwise), has had or is reasonably likely to
have a Material Adverse Effect on Morgan.
(z) Absence of Undisclosed Liabilities. Except (i) as reflected in
Morgan's unaudited balance sheet at September 30, 2006 or liabilities
described in any notes thereto or (ii) for liabilities incurred in the
ordinary course of business since September 30, 2006 consistent with past
practice or in connection with this Agreement or the transactions
contemplated hereby, neither Morgan nor its subsidiary has any material
liabilities or obligations of any nature.
(aa) Properties. Morgan and its Subsidiary have good and (as to real
estate) marketable title, free and clear of all Liens to all of the
properties and assets, real and
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personal, reflected on the Morgan Financial Statements as being owned by
Morgan as of December 31, 2005 or acquired after such date, except (i)
statutory Liens for amounts not yet due and payable, (ii) pledges to secure
deposits and borrowings and other Liens incurred in the ordinary and usual
course of banking business, (iii) such imperfections of title, easements,
Liens, defaults or equitable interests, if any, as do not affect the use of
properties or assets subject thereto or affected thereby or otherwise
materially impair business operations at such properties, (iv) dispositions
and encumbrances in the ordinary course of business and (v) Liens on
properties acquired in foreclosure or on account of debts previously
contracted. All leases pursuant to which Morgan or its Subsidiary, as
lessee, leases real or personal property (except for leases that have
expired by their terms or that Morgan or such Subsidiary has agreed to
terminate since the date hereof) are with unrelated third parties that are
not Related Persons and are held under valid leases or subleases
enforceable in accordance with their respective terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other Laws affecting creditors' rights
generally and to general equity principles) without default thereunder by
the lessee or, to Morgan's knowledge, the lessor. Morgan has Previously
Disclosed a complete and accurate listing and copies of each lease, rental
or occupancy agreement, license, installment and conditional sale
agreement, and other Contracts affecting the ownership of, leasing of,
title to, use of, or any leasehold or other interest in, any real or
personal property (except personal property leases and installment and
conditional sales agreements having a value per item or aggregate payments
of less than $25,000 and with terms of less than one year).
(bb) Loans. Except as Previously Disclosed, each Loan reflected as an
asset in the Morgan Financial Statements and each balance sheet date
subsequent thereto, other than any Loan the unpaid balance of which does
not exceed $200,000, (i) is evidenced by notes, agreements or other
evidences of indebtedness that are true, genuine and what they purport to
be, (ii) to the extent secured, has been secured by valid liens and
security interests that have been perfected, and (iii) is the legal, valid
and binding obligation of the obligor named therein, enforceable in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
conveyance and other Laws of general applicability relating to or affecting
creditors' rights and to general equity principles. Except as Previously
Disclosed, as of the date of this Agreement, Morgan Bank is not a party to
a Loan with any director, executive officer or 5% shareholder of Morgan or
any of its Subsidiaries or any Person controlling, controlled by or under
common control with any of the foregoing. All Loans that have been made by
Morgan Bank and that are subject either to Section 22(g) or (h) of the
Federal Reserve Act, as amended, comply therewith.
(cc) Allowance for Loan Losses. The allowance for loan losses
reflected on the Morgan Financial Statements, as of their respective dates,
is adequate in all material respects under the requirements of GAAP and
applicable regulatory requirements and guidelines to provide for reasonably
anticipated losses on outstanding Loans, net of recoveries.
(dd) Repurchase Agreements. With respect to all agreements pursuant to
which Morgan or its Subsidiary has purchased securities subject to an
agreement to resell, if any, Morgan or such Subsidiary, as the case may be,
has a valid, perfected first lien or
34
security interest in or evidence of ownership in book entry form of the
government securities or other collateral securing the repurchase
agreement, and the value of such collateral equals or exceeds the amount of
the debt secured thereby.
(ee) Deposit Insurance. The deposits of Morgan Bank are insured by the
FDIC in accordance with The Federal Deposit Insurance Act ("FDIA"), and
Morgan Bank has paid all assessments and filed all reports required by the
FDIA.
(ff) Related Party Transactions. Except as Previously Disclosed,
Morgan and its Subsidiary have not entered into any transactions with a
Related Person.
(gg) Intellectual Property. Morgan and its Subsidiary own or have a
valid right to use all material patents, trademarks, trade names, service
marks, domain names, copyrights, and any applications and registrations
therefor, technology, trade secrets, know-how, computer software and
tangible and intangible proprietary information and materials
(collectively, the "Intellectual Property Rights") as are necessary in
connection with the business of Morgan and its Subsidiary, taken as a
whole. Morgan has Previously Disclosed a complete and accurate listing of
each material registration, licensing agreement or other Contract with
respect to Intellectual Property Rights, including agreements with current
or former employees, consultants or contractors regarding the appropriation
or the non-disclosure of any of the intellectual property of Morgan or its
Subsidiaries. To the knowledge of Morgan, neither Morgan nor its Subsidiary
have infringed, misappropriated or violated in any material respect any
Intellectual Property Rights of any third party, and no third party has
infringed, misappropriated or violated any Intellectual Property Rights
owned or exclusively licensed by or to Morgan or its Subsidiary.
5.04 Representations and Warranties of Parent.
Subject to Sections 5.01 and 5.02 and except as Previously Disclosed
in a paragraph of its Disclosure Schedule corresponding to the relevant
paragraph below, Parent hereby represents and warrants to Morgan as follows:
(a) Organization, Standing and Authority. Parent is a corporation duly
organized, validly existing and in good standing under the Laws of the
State of Ohio. Parent is duly qualified to do business and is in good
standing in the State of Ohio and any foreign jurisdictions where its
ownership or leasing of property or assets or the conduct of its business
requires it to be so qualified. Parent is registered as a financial holding
company under the Bank Holding Company Act of 1956, as amended. Lorain
National is a national banking association, duly organized, validly
existing and in good standing under the laws of the United States of
America. Lorain National is not required to be qualified to do business in
any state or in any foreign jurisdictions where it owns or leases property
or assets or conducts its business.
(b) Parent Shares.
(i) The authorized capital stock of Parent consists of 16,000,000
shares, of which (A) 15,000,000 shares are Parent Common Shares, $1.00
par
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value, of which 6,443,673 shares were issued and outstanding and
328,194 shares were held in the treasury of Parent as of the close of
business on the trading day immediately preceding the date hereof, and
(B) 1,000,000 shares are Parent Preferred Shares, no par value per
share, of which no shares are outstanding as of the date hereof.
Pursuant to the Rights Agreement, a dividend distribution of one Right
is attached to each outstanding Parent Common Share to shareholders of
record at the close of business on November 6, 2000 and thereafter,
until the Distribution Date (as defined in the Rights Agreement). Each
Right entitles the registered holder to purchase from the Company
units of Parent Preferred Shares, at an exercise price of $60 per
Right. The outstanding Parent Common Shares have been duly authorized
and are validly issued and outstanding, fully paid and nonassessable,
and subject to no preemptive rights (and were not issued in violation
of any preemptive rights).
(ii) The Parent Common Shares to be issued in exchange for Morgan
Common Shares in the Parent Merger, when issued in accordance with the
terms of this Agreement, will be duly authorized, validly issued,
fully paid and nonassessable and subject to no preemptive rights. As
of the date hereof there are, and as of the Effective Time there will
be, sufficient authorized and unissued Parent Common Shares to enable
Parent to issue in the Parent Merger the portion of the Merger
Consideration consisting of Parent Common Shares.
(c) Subsidiaries. Parent has Previously Disclosed a list of all its
Subsidiaries together with the jurisdiction or organization of each
Subsidiary. Each of Parent's Subsidiaries has been duly organized and is
validly existing in good standing under the Laws of the jurisdiction of its
organization, and is duly qualified to do business and is in good standing
in the jurisdictions where its ownership or leasing of property or the
conduct of its business requires it to be so qualified and, except as
Previously Disclosed, it owns, directly or indirectly, all the issued and
outstanding equity securities of each of its Subsidiaries.
(d) Corporate Power. Each of Parent and its Subsidiaries has the
corporate power and authority to carry on its business as it is now being
conducted and to own all its properties and assets; and Parent has the
corporate power and authority to execute, deliver and perform its
obligations under this Agreement and to consummate the transactions
contemplated hereby and thereby.
(e) Corporate Authority; Authorized and Effective Agreement. This
Agreement and the transactions contemplated hereby have been authorized by
all necessary corporate action of Parent and the Parent Board prior to the
date hereof and no shareholder approval is required on the part of Parent.
The Agreement to Merge, when executed by Lorain National, shall have been
approved by the Board of Directors of Lorain National and by the Parent
Board, as the sole shareholder of Lorain National. This Agreement is a
valid and legally binding agreement of Parent, enforceable in accordance
with its terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
similar Laws of general applicability relating to or affecting creditors
rights or by general equity principles and
36
except to the extent such enforceability may be limited by laws relating to
the safety and soundness of insured depository institutions as set forth in
12 U.S.C. Section 1818(b) or the appointment of a conservator by the FDIC).
(f) Regulatory Approvals; No Defaults.
(i) No consents or approvals of, or filings or registrations
with, any Governmental Authority or with any third party are required
to be made or obtained by Parent or any of its Subsidiaries in
connection with the execution, delivery or performance by Parent of
this Agreement or to consummate the Parent Merger or the other
transactions contemplated hereby except for (A) the filing of
applications and notices, as applicable, with the Regulatory
Authorities; (B) the filing and declaration of effectiveness of the
Registration Statement; (C) the filing of the Certificates of Merger
with the OSS pursuant to the OGCL; (D) such filings as are required to
be made or approvals as are required to be obtained under the
securities or "Blue Sky" Laws of various states in connection with the
issuance of Parent Common Shares in the Parent Merger; and (E) receipt
of the approvals set forth in Section 7.01(b). As of the date hereof,
Parent is not aware of any reason why the Requisite Regulatory
Approvals (as defined in Section 7.01(b)) will not be received without
the imposition of a condition, restriction or requirement of the type
described in Section 7.01(b).
(ii) Subject to the satisfaction of the requirements referred to
in the preceding paragraph and expiration of the related waiting
periods, and required filings under federal and state securities Laws,
the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby do not and will
not (A) constitute a breach or violation of, or a default under, or
give rise to any Lien, any acceleration of remedies or any right of
termination under, any Law, governmental permit or license, or
Contract of Parent or of any of its Subsidiaries or to which Parent or
any of its Subsidiaries or properties is subject or bound, (B)
constitute a breach or violation of, or a default under, the Governing
Documents of Parent or any of its Subsidiaries, or (C) require any
consent or approval under any such Law, governmental permit or
license, or governmental Contract.
(g) Financial Reports and SEC Documents; Material Adverse Effect.
Parent's Annual Report on Form 10-K for the fiscal years ended December 31,
2004 and 2005, and all other reports, registration statements, proxy
statements or information statements filed, or which have been or are to be
filed by it or any of its Subsidiaries with the SEC subsequent to December
31, 2005, under the Securities Act, or under Section 13, 14 or 15(d) of the
Exchange Act, in the form filed or to be filed, together with any
amendments required to be made with respect thereto, that were required to
be filed with any applicable Governmental Authority under any applicable
Law (collectively, "Parent SEC Documents") as of the date filed, (A)
complied or will comply in all material respects with the applicable
requirements under the Securities Act or the Exchange Act, as the case may
be, and (B) did not and will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the
37
statements therein, in light of the circumstances under which they were
made, not misleading; and each of the balance sheets or statements of
condition contained in or incorporated by reference into any such Parent
SEC Document (including the related notes and schedules thereto) fairly
presents, or will fairly present, the financial position of Parent and its
Subsidiaries as of its date, and each of the statements of income or
results of operations and changes in shareholders' equity and cash flows or
equivalent statements in such Parent SEC Documents (including any related
notes and schedules thereto) fairly presents, or will fairly present, the
results of operations, changes in shareholders' equity and cash flows, as
the case may be, of Parent and its Subsidiaries for the periods to which
they relate, in each case in accordance with GAAP consistently applied
during the periods involved, except in each case as may be noted therein,
subject to normal year-end audit adjustments and the absence of footnotes
in the case of unaudited statements.
(h) Litigation; Regulatory Action.
(i) No material litigation, claim or other proceeding before any
court or governmental agency is pending against Parent or any of its
Subsidiaries and, to Parent's knowledge, no such litigation, claim or
other proceeding has been threatened.
(ii) Neither Parent nor any of its Subsidiaries or properties is
a party to or is subject to any order, decree, agreement, memorandum
of understanding or similar arrangement with, or a commitment letter
or similar submission to, or extraordinary supervisory letter from a
Regulatory Authority, nor has Parent or any of its Subsidiaries been
advised by a Regulatory Authority that such agency is contemplating
issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such order, decree, agreement, memorandum
of understanding, commitment letter, supervisory letter or similar
submission.
(i) Compliance with Laws.
(i) Each of Parent and its Subsidiaries:
(A) is in material compliance with all Laws applicable
thereto or to the employees conducting such businesses,
including, without limitation, the USA Patriot Act of 2001, the
International Money Laundering Abatement and Anti-Terrorist
Financing Act of 2001, the Equal Credit Opportunity Act, the Fair
Housing Act, the Community Reinvestment Act, the Home Mortgage
Disclosure Act and all other applicable fair lending Laws and
other Laws relating to discriminatory business practices;
(B) has all material permits, licenses, authorizations,
orders and approvals of, and has made all filings, applications
and registrations with, all Regulatory Authorities and
Governmental Authorities that are required in order to permit
them to own or lease their properties and to conduct their
businesses as presently conducted; all such permits, licenses,
38
certificates of authority, orders and approvals are in full force
and effect and, to Parent's knowledge, no suspension or
cancellation of any of them is threatened or would reasonably be
expected to occur, and all such filings, applications and
registrations are current;
(C) has received, since December 31, 2005, no notification
or communication from any Regulatory Authority or Governmental
Authority (1) asserting that Parent or any of its Subsidiaries is
not in compliance with any of the statutes, regulations, or
ordinances that such Regulatory Authority or Governmental
Authority enforces, (2) threatening to revoke any license,
franchise, permit, or governmental authorization (nor, to
Parent's knowledge, do any grounds for any of the foregoing
exist) or (3) restricting or disqualifying their activities
(except for restrictions generally imposed by rule, regulation or
administrative policy on banking organizations generally);
(D) is not aware of any pending or threatened investigation,
review or disciplinary proceedings by any Governmental Authority
against Parent, any of its Subsidiaries or any officer, director
or employee thereof;
(E) is not subject to any order or decree issued by, or a
party to any agreement or memorandum of understanding with, or a
party to any commitment letter or similar undertaking to, or
subject to any order or directive by, or a recipient of any
supervisory letter from, and has not adopted any board
resolutions at the request of, any Governmental Authority and has
not been advised by any Governmental Authority that it is
considering issuing or requesting any such agreement or other
action; and
(ii) None of Parent or its Subsidiaries has engaged in any of the
practices listed in Office of the Comptroller of the Currency Advisory
Letter AL 2000-7 as "indications that an institution may be engaging
in abusive lending violations" or as practices that "may suggest the
potential for fair lending violations" or has originated, owned or
serviced or currently owns or services any Loan subject to the
requirements of Section 226.32 of title 12 of the Code of Federal
Regulations.
(j) Brokerage and Finder's Fees. Parent has not employed any broker,
finder, or agent, or agreed to pay or incurred any brokerage fee, finder's
fee, commission or other similar form of compensation in connection with
this Agreement or the transactions contemplated hereby, except for the fees
to be paid to Austin Associates, LLC.
(k) Takeover Laws. Parent has taken all action required to be taken by
it in order to exempt this Agreement and the transactions contemplated
hereby from, and this Agreement and the transactions contemplated hereby
are exempt from, the requirements of any Takeover Laws applicable to Parent
and the Rights Agreement.
39
(l) Tax Matters. (i) Except as Previously Disclosed, all material Tax
Returns that are required to be filed by or with respect to Parent and its
Subsidiaries have been duly filed, (ii) all Taxes shown to be due on the
Tax Returns referred to in clause (i) have been paid in full as required,
(iii) except as Previously Disclosed, none of the Tax Returns referred to
in clause (i) the statute of limitations of which is still open has been
examined by the IRS or the appropriate state, local or foreign taxing
authority, (iv) all deficiencies asserted or assessments made as a result
of any examination of a taxing authority have been paid in full, (v) no
issues that have been raised by the relevant taxing authority in connection
with the examination of any of the Tax Returns referred to in clause (i)
are currently pending, and (vi) except as Previously Disclosed, no waivers
of statutes of limitations have been given by or requested with respect to
any Taxes of Parent or its Subsidiaries. Neither Parent nor any of its
Subsidiaries has any liability with respect to income, franchise or similar
Taxes that accrued on or before the end of the most recent period covered
by the Parent SEC Documents filed prior to the date hereof in excess of the
amounts accrued with respect thereto that are reflected in the financial
statements included in the Parent SEC Documents filed on or prior to the
date hereof (the "Parent Financial Statements"). As of the date hereof,
neither Parent nor any of its Subsidiaries has any reason to believe that
any conditions exist that might prevent or impede the Parent Merger from
qualifying as a reorganization with the meaning of Section 368(a) of the
Code.
(m) Books and Records. Except for the minutes relating to the process
leading to this Agreement and the transactions contemplated hereunder, the
books and records of Parent and its Subsidiaries have been fully, properly
and accurately maintained in all material respects, have been maintained in
accordance with sound business practices and the requirements of Section
13(b)(2) of the Exchange Act, and there are no material inaccuracies or
discrepancies of any kind contained or reflected therein, and they fairly
present the substance of events and transactions included therein.
(n) Disclosure. The information Previously Disclosed by Parent, when
taken together with the representations and warranties contained in this
Section 5.04, do not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
and information contained therein, in light of the circumstances in which
they are being made, not misleading.
(o) Material Adverse Change. Since December 31, 2005, Parent has not,
on a consolidated basis, suffered a change in its business, financial
condition or results of operations, except as disclosed in the Parent SEC
Documents filed prior to the date of this Agreement, that has had or could
reasonably be expected to have a Material Adverse Effect on Parent and its
Subsidiaries taken as a whole.
(p) Absence of Undisclosed Liabilities and Changes. Except as
disclosed in the Parent's Regulatory filings filed with the SEC prior to
the date hereof, none of the Parent or its Subsidiaries has any obligation
or liability (whether or not required to be reflected in financial
statements prepared in accordance with GAAP or otherwise), that,
individually or in the aggregate, would reasonably be expected to
constitute or have a Material Adverse Effect on the Parent, and, since
December 31, 2005, on a consolidated
40
basis the Parent and its Subsidiaries have not incurred any liability other
than in the ordinary course of business consistent with past practice.
(q) Deposit Insurance. The deposits of Lorain National are insured by
the FDIC in accordance with the FDIA, and Lorain National has paid all
assessments and filed all reports required by the FDIA.
(r) Allowance for Loan Losses. The allowance for loan losses reflected
on the Parent Financial Statements, as of their respective dates, is
adequate in all material respects under the requirements of GAAP and
applicable regulatory requirements and guidelines to provide for reasonably
anticipated losses on outstanding Loans, net of recoveries.
(s) Sarbanes-Oxley Act. Parent is in compliance with the provisions of
the Sarbanes-Oxley Act (including, without limitation, Section 404), and
the certifications provided and to be provided pursuant to Sections 302 and
906 thereof are accurate.
(t) Accounting Controls. Each of Parent and its Subsidiaries has
devised and maintained systems of internal accounting controls sufficient
to provide reasonable assurances, in the judgment of the Parent Board, that
(i) all material transactions are executed in accordance with management's
general or specific authorization; (ii) all material transactions are
recorded as necessary to permit the preparation of financial statements in
conformity with GAAP consistently applied with respect to any criteria
applicable to such statements, (iii) access to the material property and
assets of Parent and its Subsidiaries is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for items is compared with the actual levels at reasonable
intervals and appropriate action is taken with respect to any differences.
(u) Sophisticated Investor. Parent has such knowledge and experience
in financial and business matters that it is capable of evaluating the
merits of an investment in the Morgan Common Shares, and the matters
discussed in this Agreement.
(v) Due Diligence. Prior to the execution of this Agreement, Parent
received Morgan's Disclosure Schedule, as well as inspected, reviewed, and
evaluated such documents, reports, financial statements, business records,
and corporate records of Morgan as were provided by Morgan and as requested
by Parent, met with and interviewed such officers, directors, employees and
others as requested by its consultants, attorneys, employees, and
representatives in the performance of its due diligence.
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ARTICLE VI
COVENANTS
6.01 Reasonable Best Efforts.
(a) Subject to the terms and conditions of this Agreement, each of
Morgan and Parent agrees to use its reasonable best efforts in good faith
to take, or cause to be taken, all actions, and to do, or cause to be done,
all things necessary, proper or desirable, or advisable under applicable
Laws, so as to permit consummation of the Parent Merger and the Subsidiary
Merger as promptly as practicable and otherwise to enable consummation of
the transactions contemplated hereby and shall cooperate fully with the
other party hereto to that end.
(b) Without limiting the generality of Section 6.01(a), Morgan shall
use its reasonable best efforts to obtain the consent or approval of all
Persons party to a material Contract with Morgan or its Subsidiary, to the
extent such consent or approval is required in order to consummate the
Parent Merger and the Subsidiary Merger or for the Surviving Corporation to
receive the benefits of such Contract.
6.02 Shareholder Approval.
Morgan agrees to take, in accordance with applicable Law and the
Morgan Articles and Morgan Code, all action necessary to convene an appropriate
meeting of its shareholders to consider and vote upon the adoption of this
Agreement and any other matters required to be approved or adopted by Morgan's
shareholders for consummation of the Parent Merger and the transactions
contemplated hereby (including any adjournment or postponement, the "Morgan
Meeting"), and to solicit shareholder approval, as promptly as practicable after
the Registration Statement is declared effective. The Morgan Board shall
recommend that Morgan's shareholders adopt this Agreement at the Morgan Meeting
(the "Morgan Recommendation"), unless with respect to such recommendation, the
Morgan Board, after consultation with Roetzel & Andress, Morgan's independent
legal counsel, determines in good faith that it would constitute a breach of its
applicable fiduciary duties. The obligation of Morgan to hold the Morgan Meeting
shall not be affected by any Acquisition Proposal or any other event or
circumstance.
6.03 Registration Statement.
(a) Parent agrees to prepare pursuant to all applicable Laws a
registration statement on Form S-4 (the "Registration Statement") to be
filed by Parent with the SEC in connection with the issuance of Parent
Common Shares in the Parent Merger (including the proxy statement and
prospectus and other proxy solicitation materials of Morgan constituting a
part thereof (the "Proxy Statement") and all related documents). Morgan
agrees to cooperate, and to cause its Subsidiary to cooperate, with Parent,
its counsel and its accountants, in preparation of the Registration
Statement and the Proxy Statement; and provided that Morgan and its
Subsidiary have cooperated as required above, Parent agrees to file the
Proxy Statement and the Registration Statement (together, the "Proxy
Statement/Prospectus") with the SEC as promptly as reasonably practicable
42
but not later than 45 days after the date of this Agreement. Parent and
Morgan shall cause the Proxy Statement/Prospectus to comply as to form and
substance in all material respects with the applicable requirements of the
Exchange Act, the Securities Act and the rules of the NASDAQ. Each of
Morgan and Parent agrees to use all reasonable efforts to cause the Proxy
Statement/Prospectus to be declared effective under the Securities Act as
promptly as reasonably practicable after filing thereof. Parent also agrees
to use all reasonable efforts to obtain, prior to the effective date of the
Registration Statement, all necessary state securities Law or "Blue Sky"
permits and approvals required to carry out the transactions contemplated
by this Agreement. Morgan agrees to furnish to Parent all information
concerning Morgan, its Subsidiary, officers, directors and shareholders as
may be reasonably requested in connection with the foregoing. Morgan shall
use all reasonable best efforts to cause the Proxy Statement to be mailed
to its shareholders at the earliest practicable date after the Proxy
Statement/Prospectus is declared effective.
(b) Each of Morgan and Parent agrees, as to itself and its
Subsidiaries, that none of the information supplied or to be supplied by it
for inclusion or incorporation by reference in (i) the Registration
Statement will, at the time the Registration Statement and each amendment
or supplement thereto, if any, becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Proxy Statement and any
amendment or supplement thereto will, at the date of mailing to the Morgan
shareholders and at the time of the Morgan Meeting, as the case may be,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading or any statement that, in the light of
the circumstances under which such statement is made, will be false or
misleading with respect to any material fact, or that will omit to state
any material fact necessary in order to make the statements therein not
false or misleading or necessary to correct any statement in any earlier
statement in the Proxy Statement or any amendment or supplement thereto.
Each of Morgan and Parent further agrees that if it shall become aware
prior to the Effective Date of any information furnished by it that would
cause any of the statements in the Proxy Statement to be false or
misleading with respect to any material fact, or to omit to state any
material fact necessary to make the statements therein not false or
misleading, to promptly inform the other party thereof and to take the
necessary steps to correct the Proxy Statement.
(c) Parent agrees to advise Morgan, promptly after Parent receives
notice thereof, of the time when the Registration Statement has become
effective or any supplement or amendment has been filed, of the issuance of
any stop order or the suspension of the qualification of Parent Shares for
offering or sale in any jurisdiction, of the initiation or threat of any
proceeding for any such purpose, or of any request by the SEC for the
amendment or supplement of the Registration Statement or for additional
information.
6.04 Press Releases.
Parent and Morgan will consult with each other before issuing any
press release, written employee communication or other written shareholder
communication with respect to the
43
Merger or this Agreement and will not issue any such communication or make any
such public statement without the prior consent of the other party, which will
not be unreasonably withheld or delayed; provided that a party may, without the
prior consent of the other party (but after prior consultation, to the extent
practicable under the circumstances), issue such communication or make such
public statement as may be required by applicable law or securities exchange
rules; provided, however, that such party shall immediately inform the other
party of the issuance of such public communication or the making of such public
statement. Parent and Morgan will cooperate to develop all public communications
and make appropriate members of management available at presentations related to
the transactions contemplated hereby as reasonably requested by the other party.
6.05 Access; Confidentiality.
(a) Morgan shall, upon reasonable notice and subject to applicable
Laws relating to the exchange of information, afford Parent and its
officers, employees, counsel, accountants and other authorized
representatives, such access during normal business hours throughout the
period prior to the Effective Time to the books, records (including,
without limitation, tax returns and work papers of independent auditors),
properties, personnel and to such other information as Parent may
reasonably request and, during such period, it shall furnish promptly to
Parent (i) a copy of each material report, schedule and other document
filed by it pursuant to federal or state securities or banking Laws, and
(ii) all other information concerning the business, properties and
personnel of Morgan as Parent may reasonably request.
(b) Parent shall, upon reasonable notice and subject to applicable
Laws relating to the exchange of information, afford Morgan and its
officers, employees, counsel, accountants and other authorized
representatives, such access during normal business hours throughout the
period prior to the Effective Time to the books, records (including,
without limitation, tax returns and work papers of independent auditors),
and to such other information as Morgan may reasonably request and, during
such period, it shall furnish promptly to Morgan (i) a copy of each
material report, schedule and other document filed by it pursuant to
federal or state securities or banking Laws, and (ii) all other information
concerning the business or properties of Parent as Morgan may reasonably
request.
(c) Each of Morgan and Parent agrees that it will not, and will cause
its representatives not to, use any information obtained pursuant to this
Section 6.05 (as well as any other information obtained prior to the date
hereof in connection with the entering into of this Agreement) for any
purpose unrelated to the consummation of the transactions contemplated by
this Agreement. Except for the use of information in connection with the
Registration Statement described in Section 6.03 hereof and any other
governmental filings required in order to complete the transactions
contemplated by this Agreement, all information (collectively, the
"Information") received by each of Morgan and Parent, pursuant to the terms
of this Agreement shall be kept in strictest confidence; provided, however,
that, subsequent to the filing of the Registration Statement with the SEC,
this Section 6.05 shall not apply to information included in the
Registration Statement or to be included in the Proxy Statement/Prospectus
to be sent to
44
the shareholders of Morgan and Parent under Section 6.03. Morgan and Parent
agree that the Information will be used only for the purpose of completing
the transactions contemplated by this Agreement. Subject to the
requirements of Law, each party shall keep confidential, and shall cause
its representatives to keep confidential, all Information and documents
obtained (as well as any other Information obtained prior to the date
hereof in connection with the entering into of this Agreement) unless such
Information (i) was already known to such party, (ii) becomes available to
such party from other sources not known by such party to be bound by a
confidentiality obligation, (iii) is disclosed with the prior written
approval of the party to which such information pertains, (iv) is or
becomes readily ascertainable from published information or trade sources
or (v) is such that such party is required by Law or court order to
disclose. If either party is required or reasonably believes that it is
required to disclose any information described in this Section 6.05(c) by
(A) Law, (B) any court of competent jurisdiction or (C) any inquiry or
investigation by any Governmental Authority that is lawfully entitled to
require any such disclosure, such party (the "Required Party") shall, so
far as it is lawful, notify the other party of such required disclosure on
the same day that the Required Party (1) is notified of a request for such
disclosure from the relevant Governmental Authority or (2) determines that
such disclosure is required, whichever is earlier. Immediately thereafter,
and to the extent practical on the same day, and subject to applicable
Laws, the parties shall discuss and use their reasonable best efforts to
agree as to the mandatory nature, the required timing and the required
content of such disclosure. The Required Party shall furnish only that
portion of the information described in this Section 6.05 that is legally
required to be disclosed and shall exercise its reasonable best efforts to
obtain an order or other reliable assurance that confidential treatment
will be accorded to the information described in this Section 6.05 so
furnished. In the event that this Agreement is terminated or the
transactions contemplated by this Agreement shall otherwise fail to be
consummated, each party shall promptly cause all copies of documents or
extracts thereof containing Information and data as to another party hereto
to be returned to the party that furnished the same. No investigation by
either party of the business and affairs of the other shall affect or be
deemed to modify or waive any representation, warranty, covenant or
agreement in this Agreement, or the conditions to either party's obligation
to consummate the transactions contemplated by this Agreement.
(d) During the period from the date of this Agreement to the Effective
Time, Morgan shall promptly furnish Parent with copies of all monthly and
other interim financial statements produced in the ordinary and usual
course of business as the same shall become available.
6.06 Acquisition Proposals.
Morgan agrees that it shall not, and shall cause its Subsidiary and
its Subsidiary' officers, directors, agents, advisors and Affiliates not to,
solicit or encourage inquiries or proposals with respect to, or engage in any
negotiations concerning, or provide any confidential information to, or have any
discussions with, any Person relating to, any Acquisition Proposal; provided,
however, that nothing contained in this Agreement shall prevent the Morgan Board
from (a) making any disclosure to its shareholders if, in the good faith
judgment of the Morgan Board, after having consulted with and considered the
advice of Roetzel & Andress, independent
45
legal counsel to the Morgan Board, failure so to disclose would be a breach of
its fiduciary duties under applicable Law; provided further, however, that any
such disclosure regarding an Acquisition Proposal shall be deemed to be a Change
in Recommendation unless the Morgan Board reaffirms the Morgan Recommendation;
(b) before the date of the Morgan Meeting, providing (or authorizing the
provision of) information to, or engaging in (or authorizing) such discussions
or negotiations with, any Person who has made an unsolicited bona fide written
Acquisition Proposal received after the date of this Agreement that did not
result from a breach of this Section 6.06; or (c) recommending such an
Acquisition Proposal to its shareholders if and only to the extent that, in the
case of actions referred to in clause (b) and/or (c), (i) such Acquisition
Proposal is, or is reasonably expected to lead to, a Superior Proposal, (ii) the
Morgan Board, after having consulted with and considered the advice of Roetzel &
Andress, independent legal counsel to Morgan, determines in good faith that
providing such information or engaging in such negotiations or discussions, or
making such recommendation is required in order to discharge the directors'
fiduciary duties to Morgan and its shareholders in accordance with applicable
Law, and (iii) Morgan receives from such Person a confidentiality agreement
substantially in the form of the Confidentiality Agreement. Morgan also shall
immediately cease and cause to be terminated any activities, discussions or
negotiations conducted prior to the date of this Agreement with any parties
other than Parent, with respect to any of the foregoing. Morgan shall promptly
(within one business day) advise Parent following the receipt by Morgan of any
Acquisition Proposal and the material terms thereof (including the identity of
the Person making such Acquisition Proposal), and advise Parent of any
developments (including any change in such terms) with respect to such
Acquisition Proposal promptly upon the occurrence thereof. Morgan agrees that
neither it nor its Subsidiary shall terminate, amend, modify or waive any
provision of or release any of its rights under any confidentiality or
standstill agreement to which it is a party. Morgan shall enforce, to the
fullest extent permitted under applicable Law, the provisions of any such
agreement, including, but not limited to, by obtaining injunctions to prevent
any breaches of such agreements and to enforce specifically the terms and
provisions thereof in any court having jurisdiction. Nothing contained in this
Section 6.06 or any other provision of this Agreement will prohibit Morgan or
the Morgan Board from notifying any third party that contacts Morgan on an
unsolicited basis after the date of this Agreement concerning an Acquisition
Proposal of Morgan's obligations under this Section 6.06.
6.07 Affiliate Agreements.
Not later than the 15th day prior to the mailing of the Proxy
Statement, Morgan shall deliver to Parent a schedule of each Person that, to its
knowledge, is or is reasonably likely to be, as of the date of the Morgan
Meeting, deemed to be an "affiliate" of Morgan (each, a "Morgan Affiliate") as
that term is used in Rule 145 under the Securities Act. Morgan shall cause each
Person who may be deemed to be a Morgan Affiliate to execute and deliver to
Morgan on or before the date of mailing of the Proxy Statement an agreement in
the form attached hereto as Exhibit B.
6.08 Takeover Laws.
No party hereto shall take any action that would cause the
transactions contemplated by this Agreement to be subject to requirements
imposed by any Takeover Law and each of them shall take all necessary steps
within its control to exempt (or ensure the
46
continued exemption of) the transactions contemplated by this Agreement from, or
if necessary challenge the validity or applicability of, any applicable Takeover
Law, as now or hereafter in effect.
6.09 No Rights Triggered.
Morgan shall take all reasonable steps necessary to ensure that the
entering into of this Agreement and the consummation of the transactions
contemplated hereby and any other action or combination of actions, or any other
transactions contemplated hereby, do not and will not result in the grant of any
rights to any Person (a) under the Governing Documents of Morgan or (b) under
any material Contract to which it or its Subsidiary is a party except, in each
case, as Previously Disclosed or contemplated by this Agreement.
6.10 Conformance of Policies and Practices.
Prior to the Effective Date, Morgan shall, consistent with GAAP and on
a basis mutually satisfactory to it and Parent, modify and change its loan,
litigation and real estate valuation policies and practices (including loan
classifications and levels of reserves) as well as other management and
operating policies and practices so as to be applied on a basis that is
consistent with that of Parent. Morgan shall not be obligated to take any such
action pursuant to this Section 6.10 earlier than 15 days prior to the Effective
Date, and unless and until Parent acknowledges that all conditions to the
obligations of Parent to consummate the Parent Merger have been satisfied and
certifies to Morgan that Parent's representations and warranties, subject to
Section 5.02, are true and correct as of such date and that Parent is otherwise
materially in compliance with this Agreement.
6.11 Transition.
Morgan and its Subsidiary shall reasonably cooperate with Parent and
its Subsidiaries in order to facilitate an orderly transition of the management
of the business of Morgan and its Subsidiary to Parent and in order to
facilitate the integration of the operations of Morgan and Parent and their
Subsidiaries and to permit the coordination of their related operations on a
timely basis. To accelerate to the earliest time possible following the
Effective Time the realization of synergies, operating efficiencies and other
benefits expected to be realized by Morgan and Parent as a result of the Parent
Merger, Morgan shall and shall cause its Subsidiary to consult with Parent on
all strategic and operational matters to the extent such consultation is not in
violation of applicable Laws, including Laws regarding the exchange of
information and other Laws regarding competition. Morgan shall and shall cause
its Subsidiary to make available to Parent at the facilities of Morgan and its
Subsidiary, where determined by Parent to be appropriate and necessary, office
space in order to assist Parent in observing all operations and reviewing all
matters concerning Morgan's affairs. Without in any way limiting the provisions
of Section 6.05(b), Parent, its Subsidiaries, officers, employees, counsel,
financial advisors and other representatives shall, upon reasonable written
notice to Morgan, be entitled to review the operations and visit the facilities
of Morgan and its Subsidiary at all times as may be deemed reasonably necessary
by Parent in order to accomplish the foregoing arrangements. Notwithstanding the
foregoing, nothing contained in this Agreement gives Parent, directly or
indirectly, the right to control or direct or to unreasonably interfere with
Morgan's operations
47
prior to the Effective Time. Prior to the Effective Time, Morgan shall exercise,
consistent with the terms and conditions of this Agreement, complete control and
supervision over its and its Subsidiary' respective operations.
6.12 Facilities Optimization.
Prior to the Effective Time, Morgan shall cooperate with Parent and
use its reasonable best efforts in the filing of regulatory applications and/or
the provision of such notices as may be required in order to permit the
optimization of the combined organization's branch network at the time the
Subsidiary Merger occurs.
6.13 Investments.
Following the receipt of all required regulatory and shareholder
approvals necessary to consummate the Parent Merger, Morgan shall sell, prior to
the Effective Time, the number and type of securities held in Morgan's portfolio
as may be requested by Parent. Morgan shall not be obligated to take any such
action pursuant to this Section 6.13 earlier than 15 days prior to the Effective
Date, and unless and until Parent acknowledges that all conditions to the
obligations of Parent to consummate the Parent Merger have been satisfied and
certifies to Morgan that Parent's representations and warranties, subject to
Section 5.02, are true and correct as of such date and that Parent is otherwise
materially in compliance with this Agreement.
6.14 NASDAQ Listing or Notification.
As required by NASDAQ, Parent shall file a NASDAQ Notification Form
for Listing of Additional Shares and/or Change in the Number of Shares
Outstanding, with respect to Parent Common Shares to be issued to the holders of
Morgan Common Shares in the Parent Merger.
6.15 Regulatory Applications.
(a) Parent and Morgan and their respective Subsidiaries shall
cooperate and use their respective reasonable best efforts to prepare,
within 45 days of the execution of this Agreement, all documentation and
requests for regulatory approval, to timely effect all filings and to
obtain all permits, consents, approvals and authorizations of all third
parties and Governmental Authorities and Regulatory Authorities necessary
to consummate the transactions contemplated by this Agreement. Each of
Parent and Morgan, and their respective legal counsel, shall have the right
to review in advance, and to the extent practicable each will consult with
the other, in each case subject to applicable Laws relating to the exchange
of information, with respect to, and shall be provided in advance so as to
reasonably exercise its right to review in advance, all material written
information submitted to any third party or any Governmental Authority or
Regulatory Authority in connection with the transactions contemplated by
this Agreement. In exercising the foregoing right, each of the parties
hereto agrees to act reasonably and as promptly as practicable. Each party
hereto agrees that it will consult with the other party hereto with respect
to the obtaining of all material permits, consents, approvals and
authorizations of all third parties and Governmental Authorities or
Regulatory Authorities necessary or advisable to consummate the
transactions
48
contemplated by this Agreement and each party will keep the other party
apprised of the status of material matters relating to completion of the
transactions contemplated hereby.
(b) Each party agrees, upon request, to furnish the other party with
all information concerning itself, its Subsidiaries, directors, officers
and shareholders and such other matters as may be reasonably necessary or
advisable in connection with any filing, notice or application made by or
on behalf of such other party or any of its Subsidiaries to any third
party, Governmental Authority or Regulatory Authority.
6.16 Indemnification.
(a) Following the Effective Date, Parent shall indemnify, defend and
hold harmless the present and former directors, officers and employees of
Morgan and its Subsidiary (each, an "Indemnified Party") against all costs
or expenses (including reasonable attorneys' fees), judgments, fines,
losses, claims, damages or liabilities (collectively, "Costs") incurred in
connection with any claim, action, suit, proceeding or investigation,
whether civil, criminal, administrative or investigative, arising out of
actions or omissions occurring on or prior to the Effective Time
(including, without limitation, the transactions contemplated by this
Agreement) (each, a "Claim") to the fullest extent permitted by Law.
(b) For a period of three (3) years from the Effective Time, Parent
shall procure directors' and officers' liability insurance that serves to
reimburse personally the present and former officers and directors of
Morgan or its Subsidiary (determined as of the Effective Time) with respect
to claims against such directors and officers arising from facts or events
that occurred before the Effective Time and such insurance will have
substantially the same terms as Morgan's current directors' and officers'
liability insurance; provided, however, that in no event will Parent be
required to expend on an annual basis, as the cost of maintaining such
coverage, more than 200% of the current annual amount for such insurance;
provided, further, that if the annual premiums of such insurance coverage
exceed such amount, then Parent will be obligated to obtain a policy with
the best coverage available for a cost up to but not exceeding such amount.
(c) Any Indemnified Party wishing to claim indemnification under
Section 6.16(a), upon learning of any claim, action, suit, proceeding or
investigation described above, shall promptly notify Parent thereof;
provided that the failure so to notify shall not affect the obligations of
Parent under Section 6.16(a) unless and to the extent that Parent is
actually prejudiced as a result of such failure. In the event of a Claim
(whether arising before or after the Effective Time), (i) Parent shall have
the right to assume the defense thereof and Parent shall not be liable to
such Indemnified Parties for any legal expenses of other counsel or any
other expenses subsequently incurred by such Indemnified Parties in
connection with the defense thereof, except that if Parent elects not to
assume such defense or counsel for the Indemnified Parties advises that
there are issues that raise conflicts of interest between Parent and the
Indemnified Parties, the Indemnified Parties may retain counsel
satisfactory to them, and Parent shall pay all reasonable fees and expenses
of such counsel for the Indemnified Parties promptly as statements
therefore are received; provided, however, that Parent shall be obligated
pursuant to this paragraph (c)
49
to pay for only one firm of counsel for all Indemnified Parties in any
jurisdiction unless the use of one counsel for such Indemnified Parties
would present such counsel with a conflict of interest, (ii) the
Indemnified Parties will cooperate in the defense of any such matter and
(iii) Parent shall not be liable for any settlement effected without its
prior written consent, which consent shall not be unreasonably withheld;
and provided, further, that Parent shall not have any obligation hereunder
to any Indemnified Party when and if a court of competent jurisdiction
shall ultimately determine, and such determination shall have become final
and nonappealable, that the indemnification of such Indemnified Party in
the manner contemplated hereby is prohibited by applicable Law.
(d) If Parent or any of its successors or assigns shall consolidate
with or merge into any other entity and shall not be the continuing or
surviving entity of such consolidation or merger or shall transfer all or
substantially all of its assets to any entity, then and in each case,
proper provision shall be made so that the successors and assigns of Parent
shall assume the obligations set forth in this Section 6.16.
(e) The provisions of this Section 6.16 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party and his or
her heirs and representatives.
6.17 Employee Benefits.
(a) From and after the Effective Time, Morgan employees shall continue
to participate in the Morgan employee benefit plans in effect at the
Effective Time unless and until Parent, in its sole discretion, shall
determine that Morgan employees shall, subject to applicable eligibility
requirements, participate in employee benefit plans of Parent and that all
or some of the Morgan plans shall be terminated or merged into certain
employee benefit plans of Parent. Morgan employees continuing to be
employed by Parent shall receive credit for service at Morgan and its
Subsidiary for eligibility and vesting purposes (but not for benefit
calculation purposes) under Parent's employee benefit plans and shall not
be subject to any exclusion or penalty for pre-existing conditions that
were covered under Morgan's welfare plans immediately prior to the
Effective Date, or to any waiting period relating to such coverage, except
in each case as otherwise required by applicable Law. Any employees
terminated by Parent shall be paid for all of their unused vacation and
sick time and shall be entitled to elect so-called "COBRA" in accordance
with, and subject to, the provisions of Code Section 4980B(f).
(b) Parent agrees to make all severance, change of control or similar
payments to any Morgan employees in accordance with the employment and
retention Contracts set forth in Section 6.17(b) of Morgan's Disclosure
Schedule. Notwithstanding anything to the contrary in this Agreement or
elsewhere, immediately prior to the Effective Time, Morgan shall pay those
Morgan employees who are entitled to a change of control payment in
connection with the transactions contemplated by this Agreement in
accordance with the agreements set forth in Section 6.17(b) of Morgan's
Disclosure Schedule, the payment to which each such employee is entitled in
accordance with the terms of such employee's agreement.
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(c) Excepting the individuals covered by employment and retention
Contracts set forth in Section 6.17(b) of Morgan's Disclosure Schedule,
Parent agrees (i) that any officer or employee of Morgan or its Subsidiary
who is terminated on or after the Effective Date shall be entitled to
receive severance pay in an amount equal to two weeks salary for each year
of service, with a minimum of four weeks severance pay to be payable to
each such terminated officer or employee.
(d) It is understood and agreed that nothing in this Section 6.17 or
elsewhere in this Agreement shall be deemed to be a Contract of employment
or be construed to give said employees any rights other than as employees
at will under applicable Law and, with exception to the rights granted
pursuant to Section 6.16 or 6.17(b), said employees shall not be deemed to
be third-party beneficiaries of such provisions.
6.18 Notification of Certain Matters.
(a) Each of Morgan and Parent shall give prompt notice to the other of
any fact, event or circumstance known to it that (i) is reasonably likely,
individually or taken together with all other facts, events and
circumstances known to it, to result in any Material Adverse Effect with
respect to it or (ii) would cause or constitute a material breach (without
regard to any materiality, Material Adverse Effect or similar qualifier
included in any representation, warranty, covenant or agreement) of any of
its representations, warranties, covenants or agreements contained herein.
(b) Morgan shall promptly notify Parent of any written notice or other
bona fide communication from any Person alleging that the consent of such
Person is or may be required as a condition to the Parent Merger.
(c) Morgan and its Subsidiary shall, prior to the Effective Date,
notify its insurers in writing of all known incidents, events and
circumstance that would reasonably be expected to give rise to a claim
against Morgan or its Subsidiary, as applicable.
(d) Morgan shall notify Parent within two business days of the receipt
of any summons, subpoena, complaint, or regulatory inquiry or whistleblower
notice involving Morgan or its Subsidiary.
(e) Morgan shall promptly provide Parent with a copy of any Suspicious
Activity Report filed with any regulatory agency.
(f) Morgan shall promptly notify Parent of the intended filing of
collections litigation against any customer of Morgan if the principal
balance is in excess of $100,000.
6.19 Dividend Coordination.
It is agreed by the parties hereto that they will cooperate to assure
that as a result of the Parent Merger, during any applicable quarter, there
shall not be a payment of both a Parent and a Morgan dividend for Morgan
shareholders.
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6.20 Tax Treatment.
Between the date of this Agreement and the Effective Time, each of
Parent and Morgan agrees (a) not to take any actions that would adversely affect
the ability of Morgan and its shareholders to characterize the Parent Merger as
a tax-free reorganization under Section 368(a) of the Code, and (b) to take such
action as may be reasonably required, if such action may be reasonably taken to
reverse the impact of any past actions that would adversely impact the ability
for the Parent Merger to be characterized as a tax-free reorganization under
Section 368(a) of the Code. Parent and Morgan shall use reasonable best efforts
to cause the Parent Merger to qualify as a reorganization within the meaning of
Section 368(a) of the Code and to obtain the Tax opinion set forth in Section
7.02(c) hereof. This Agreement is intended to constitute a "plan of
reorganization" within the meaning of Treas. Reg. Sec. 1.368-2(g). Officers of
Parent and Morgan shall execute and deliver to Roetzel & Andress, counsel to
Morgan, certificates containing appropriate representations at such time or
times as may be reasonably requested by such law firm, including the effective
date of the Registration Statement and the Effective Date, in connection with
their delivery of the opinion, pursuant to Section 7.02(c) hereof, with respect
to the Tax treatment of the Parent Merger. Neither Parent nor Morgan shall take
or cause to be taken any action that would cause to be untrue (or fail to take
or cause not to be taken any action that would cause to be untrue) any of such
certificates and representations.
6.21 No Breaches of Representations and Warranties.
Between the date of this Agreement and the Effective Time, without the
written consent of the other party, each of Parent and Morgan shall not do any
act or suffer any omission of any nature whatsoever that would cause any of the
representations or warranties made in Article V of this Agreement to become
untrue or incorrect, subject to Section 5.02.
6.22 Consents.
Each of Parent and Morgan shall use its best efforts to obtain any
required consents to the transactions contemplated by this Agreement.
6.23 Insurance Coverage.
Morgan shall cause the policies of insurance listed in the Disclosure
Schedule to remain in effect between the date of this Agreement and the
Effective Date.
6.24 Correction of Information.
Each of Parent and Morgan shall promptly correct and supplement any
information furnished under this Agreement so that such information shall be
correct and complete in all material respects at all times, and shall include
all facts necessary to make such information correct and complete in all
material respects at all times.
6.25 Supplemental Assurances.
(a) On the date the Registration Statement becomes effective and on
the Effective Date, Morgan shall deliver to Parent a certificate signed by
its principal
52
executive officer and its principal financial officer to the effect, to
such officers' knowledge, that the information contained in the
Registration Statement relating to the business and financial condition and
affairs of Morgan, does not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
(b) On the date the Registration Statement becomes effective and on
the Effective Date, Parent shall deliver to Morgan a certificate signed by
its chief executive officer and its chief financial officer to the effect,
to such officers' knowledge, that the Registration Statement (other than
the information contained therein relating to the business and financial
condition and affairs of Morgan) does not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
6.26 Regulatory Matters.
Parent, Morgan and each of their Subsidiaries shall cooperate and each
of them agrees to use its reasonable best efforts to remediate any order,
decree, agreement, memorandum of understanding or similar agreement by Morgan or
its Subsidiary with, or a commitment letter, board resolution or similar
submission by Morgan or its Subsidiary to, or supervisory letter from any
Regulatory Authority to Morgan or its Subsidiary, to the satisfaction of such
Regulatory Authority.
6.27 Parent Board of Directors; Advisory Board.
As of the Effective Time, the individual listed in Section 6.27 of the
Morgan Disclosure Schedule shall be appointed to Parent's Board of Directors,
and such individual shall become a member of Class II of the Parent's Board of
Directors whose terms will expire at Parent's 2009 annual meeting. If any such
individual is unable or unwilling to serve as of the Effective Date, his or her
replacement shall be selected by Morgan. Following the Effective Time, Parent
shall form an advisory board with respect to the Morgan Bank business.
6.28 Use of Morgan Name.
Following the Effective Time, Parent agrees to use commercially
reasonable efforts to continue the use of the name or service mark of "Morgan
Bank" in Summit County, Ohio in connection with its operations and conduct of
business.
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ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE PARENT MERGER
7.01 Conditions to Each Party's Obligation to Effect the Parent Merger.
The respective obligation of each of Parent and Morgan to consummate
the Parent Merger is subject to the fulfillment prior to the Effective Time of
each of the following conditions:
(a) Shareholder Approval. This Agreement shall have been duly adopted
by the Required Morgan Vote.
(b) Regulatory Approvals. All regulatory approvals set forth in
Section 7.01(b) of the Morgan Disclosure Schedule required to consummate
the transactions contemplated hereby, including the Parent Merger, shall
have been obtained and shall remain in full force and effect and all
statutory waiting periods in respect thereof shall have expired (all such
approvals and the expiration of all such waiting periods, the "Requisite
Regulatory Approvals") and no such approvals shall contain (i) any
conditions, restrictions or requirements that the Parent Board reasonably
determines would either before or after the Effective Time have or will
have a Material Adverse Effect on Parent and its Subsidiaries taken as a
whole after giving effect to the consummation of the Parent Merger, or (ii)
any conditions, restrictions or requirements that are not customary and
usual for approvals of such type and that the Parent Board reasonably
determines would either before or after the Effective Date be unduly
burdensome.
(c) No Injunction. No Regulatory Authority or Governmental Authority
of competent jurisdiction shall have enacted, issued, promulgated, enforced
or entered any statute, rule, regulation, judgment, decree, injunction or
other order (whether temporary, preliminary or permanent) that is in effect
and prohibits, prevents or makes illegal the consummation of the
transactions contemplated by this Agreement.
(d) Registration Statement. The Registration Statement shall have
become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the
SEC.
7.02 Conditions to Obligation of Morgan.
The obligation of Morgan to consummate the Parent Merger is also
subject to the fulfillment or written waiver by Morgan prior to the Effective
Time of each of the following conditions:
(a) Representations and Warranties. The representations and warranties
of Parent set forth in this Agreement shall be true and correct, subject to
Section 5.02, as of the date of this Agreement and as of the Effective Date
as though made on and as of the Effective Date (except that representations
and warranties that by their terms speak as of
54
the date of this Agreement or some other date shall be true and correct as
of such date), and Morgan shall have received a certificate, dated the
Effective Date, signed on behalf of Parent by the Chief Executive Officer
and the Chief Financial Officer of Parent to such effect.
(b) Performance of Obligations of Parent. Parent shall have performed
in all material respects all obligations required to be performed by it
under this Agreement at or prior to the Effective Time, and Morgan shall
have received a certificate, dated the Effective Date, signed on behalf of
Parent by the Chief Executive Officer and the Chief Financial Officer of
Parent to such effect.
(c) Tax Opinion. Morgan shall have received an opinion of Roetzel &
Andress, counsel to Morgan, dated the Effective Date, to the effect that,
on the basis of facts, representations and assumptions set forth in such
opinion, (i) the Parent Merger constitutes a "reorganization" within the
meaning of Section 368(a) of the Code and (ii) no gain or loss will be
recognized by shareholders of Morgan who receive solely Parent Common
Shares in exchange for Morgan Common Shares, other than the gain or loss to
be recognized as to cash received in lieu of fractional Parent Common
Shares. In rendering its opinion, such counsel may require and rely upon
representations contained in letters from Morgan and Parent.
(d) Directors' and Officers' Liability Insurance. Parent shall have
bound coverage for the directors' and officers' liability insurance to the
extent required by Section 6.16(b) of this Agreement.
(e) Material Adverse Effect. From the date of this Agreement, there
shall not have occurred any Material Adverse Effect on Parent and its
Subsidiaries taken as a whole, or any change, condition, event or
development that, individually or in the aggregate, has resulted in or
could reasonably be expected to result in a Material Adverse Effect on
Parent and its Subsidiaries taken as a whole.
7.03 Conditions to Obligation of Parent.
The obligation of Parent to consummate the Parent Merger is also
subject to the fulfillment or written waiver by Parent prior to the Effective
Time of each of the following conditions:
(a) Representations and Warranties. The representations and warranties
of Morgan set forth in this Agreement shall be true and correct, subject to
Section 5.02, as of the date of this Agreement and as of the Effective Date
as though made on and as of the Effective Date (except that representations
and warranties that by their terms speak as of the date of this Agreement
or some other date shall be true and correct as of such date), and Parent
shall have received a certificate, dated the Effective Date, signed on
behalf of Morgan by the Chief Executive Officer and the Chief Financial
Officer of Morgan to such effect.
(b) Performance of Obligations of Morgan. Morgan shall have performed
in all material respects all obligations required to be performed by it
under this Agreement
55
at or prior to the Effective Time, and Parent shall have received a
certificate, dated the Effective Date, signed on behalf of Morgan by the
Chief Executive Officer and the Chief Financial Officer of Morgan to such
effect.
(c) Material Adverse Effect. From the date of this Agreement, there
shall not have occurred any Material Adverse Effect on Morgan and its
Subsidiary taken as a whole, or any change, condition, event or development
that, individually or in the aggregate, has resulted in or could reasonably
be expected to result in a Material Adverse Effect on Morgan and its
Subsidiary taken as a whole.
(d) Affiliate Agreements. Parent shall have received the agreements
referred to in Section 6.07 from each Morgan Affiliate.
7.04 Frustration of Closing Conditions.
Neither Parent nor Morgan may rely on the failure of any condition set
forth in Section 7.01, 7.02 or 7.03, as the case may be, to be satisfied if such
failure was caused by such party's failure to use reasonable best efforts to
consummate the Parent Merger and the other transactions contemplated by this
Agreement, as required by and subject to Section 6.01.
ARTICLE VIII
TERMINATION
8.01 Termination.
This Agreement may be terminated, and the Parent Merger may be
abandoned at any time prior to the Effective Time, whether before or after
shareholder approval:
(a) Mutual Consent. At any time prior to the Effective Time, by the
mutual consent of Parent and Morgan, if the Parent Board and Morgan Board
so determine by vote of a majority of the members of each of the Parent
Board and the Morgan Board.
(b) Breach. At any time prior to the Effective Time, by Parent or
Morgan, upon written notice to the other party, if its Board of Directors
so determines by vote of a majority of the members of its entire Board, in
the event of either: (i) a breach by the other party of any representation
or warranty contained herein (subject to the standard set forth in Section
5.02), which breach cannot be or has not been cured within 30 days after
the giving of written notice to the breaching party of such breach; or (ii)
a breach by the other party of any of the covenants or agreements contained
herein, which breach cannot be or has not been cured within 30 days after
the giving of written notice to the breaching party of such breach,
provided that such breach (whether under (i) or (ii)) would be reasonably
likely, individually or in the aggregate with other breaches, to result in
a Material Adverse Effect.
(c) Delay. At any time prior to the Effective Time, by Parent or
Morgan, upon written notice to the other party, if its Board of Directors
so determines by vote of a majority of the members of its entire Board, in
the event that the Parent Merger is not
56
consummated by September 30, 2007; provided, however, that the right to
terminate this Agreement pursuant to this Section 8.01(c) shall not be
available to any party whose failure to comply with any provision hereof
has been the cause, or resulted in, the failure of the Effective Time to
occur on or before such date.
(d) No Governmental Approval. By Morgan or Parent, upon written notice
to the other party, if its Board of Directors so determines by vote of a
majority of the members of its entire Board, in the event (i) any
Governmental Authority of competent jurisdiction which must grant a
Requisite Regulatory Approval has denied approval of the Parent Merger and
the other transactions contemplated by this Agreement and such denial has
become final and non-appealable; or (ii) any Governmental Authority or
Regulatory Authority of competent jurisdiction shall have issued an order,
decree or ruling or taken any other action permanently restraining,
enjoining or otherwise prohibiting the Parent Merger, and such order,
decree, ruling or other action has become final and non-appealable.
(e) Parent Common Shares. By Morgan, upon written notice to Parent, in
the event that: (i) the market value of a Parent Common Share, based on the
average closing price for Parent Common Shares for the twenty (20) trading
days ending on the tenth (10th) trading day prior to the date then
established for the Effective Date (such value referred to herein as the
"Parent Reference Price"), is less than $13.16, appropriately adjusted for
any stock splits, reverse stock splits, stock dividends, recapitalizations
or other similar transactions, and (ii) the Parent Reference Price
represents a decline as a percentage of $16.44, that exceeds by more than
10% the decline, if any, in the SNL Bank Index during the period beginning
on the last trading day prior to signing and ending on the tenth (10th)
trading day prior to the date then established for the Effective Date (the
"Walkaway Right"); provided, however, that in the event Morgan determines
to exercise the Walkaway Right, Parent may, at its option (the "Fill
Option"), for a period of ten business days commencing on the date that
Morgan provides written notice of such determination, offer to distribute
to Morgan's shareholders, in connection with the Merger Consideration, the
number of shares of Parent Common Shares necessary for the Stock Exchange
Ratio per share to equal $41.61 divided by the Parent Reference Price (the
"Fill Offer"). In the event Parent determines not to exercise the Fill
Option, it will so advise Morgan in writing, and thereafter, for a period
of three business days Morgan may exercise its right to terminate this
Agreement pursuant to this Section 8.01(e). If Parent determines to
exercise the Fill Option, Morgan shall accept the Fill Offer and shall no
longer be entitled to a right of termination under this Section 8.01(e).
(f) Superior Proposal. At any time prior to the adoption of this
Agreement by Morgan's shareholders contemplated by Section 7.01(a), by
Morgan, if Morgan's Board so determines by vote of a majority of the
members of the entire Morgan Board if (i) Morgan is not in breach of any
material term of this Agreement including Section 6.06, (ii) the Morgan
Board authorized Morgan, subject to complying with the terms of this
Agreement, to enter into a definitive written agreement concerning a
transaction that constitutes a Superior Proposal, (iii) Morgan notifies
Parent in writing that it intends to enter into such an agreement as soon
as practicable upon termination of this Agreement, attaching the most
current version of such agreement to such notice and (iv) at least five
57
business days elapse after Parent receives the notice provided for in
clause (iii) above and the Morgan Board continues to consider the
Acquisition Proposal to be a Superior Proposal after taking into account in
good faith any amendment or modification to this Agreement proposed by
Parent during such five business day period.
(g) Change in Recommendation. By Parent, upon written notice to
Morgan, if (i) in connection with the presentation of this Agreement to
Morgan's shareholders as contemplated by Section 7.01(a), the Morgan Board
shall have failed to make the Morgan Recommendation; or withdrawn, modified
or qualified (or proposed to withdraw, modify or qualify) in any manner
adverse to Parent, the Morgan Recommendation; or taken any other action or
made any other statement in connection with the Morgan Meeting inconsistent
with the Morgan Recommendation (any such action in this clause (i), a
"Change in Recommendation"), whether or not permitted by the terms of this
Agreement, (ii) materially breached its obligations under this Agreement by
reason of a failure to call the Morgan Meeting in accordance with Section
6.02 or the failure to prepare and mail to its shareholders the Proxy
Statement/Prospectus in accordance with Section 6.02 or (iii) the Morgan
Board takes the actions described in Section 6.06(c).
(h) Shareholder Approval. By Morgan or Parent, upon written notice to
the other party, if the Required Morgan Vote shall not have been obtained
upon a vote for that purpose taken at a duly convened Morgan Meeting.
8.02 Effect of Termination and Abandonment; Enforcement of Agreement.
In the event of termination of this Agreement and the abandonment of
the Parent Merger pursuant to this Article VIII, no party to this Agreement
shall have any liability or further obligation to any other party hereunder
except (a) as set forth in Sections 8.03 and 9.01; and (b) that termination will
not relieve a breaching party from liability for any material breach of this
Agreement giving rise to such termination. Notwithstanding anything contained
herein to the contrary, the parties hereto agree that irreparable damage will
occur in the event that a party breaches any of its obligations, duties,
covenants and agreements contained herein. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches or
threatened breaches of this Agreement and to enforce specifically the terms and
provisions of this Agreement in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled by Law or in equity.
8.03 Termination Fee; Expenses.
(a) Morgan shall pay to Parent, by wire transfer of immediately
available funds, a termination fee in the amount of $1,000,000 (the
"Termination Fee") if:
(i) this Agreement is terminated by Morgan pursuant to Section
8.01(f); or
(ii) (A) this Agreement is terminated by Parent pursuant to
Section 8.01(b)(ii) or 8.01(g), or by Parent or Morgan pursuant to
Section 8.01(h); (B) at any time after the date of this Agreement and
prior to any such termination, an Acquisition Proposal with respect to
Morgan shall have been publicly announced,
58
publicly proposed or commenced; and (C) within 18 months after the
date of such termination, Morgan shall have entered into an agreement
relating to an Acquisition Proposal or any Acquisition Proposal shall
have been consummated.
(b) The Termination Fee shall be payable (i) on the date of
termination of this Agreement in the case of clause (a)(i) above; and (ii)
two business days after the first to occur of the execution of the
agreement relating to an Acquisition Proposal or consummation of the
Acquisition Proposal in the case of clause (a)(ii) above. Upon payment of
the Termination Fee in accordance with this Section 8.03(b), Morgan shall
have no further liability to Parent at law or in equity with respect to
such termination under Section 8.01(f), 8.01(b) or 8.01(g), with respect to
any Out-of-Pocket Expenses under Section 8.03(c), or with respect to this
Agreement.
(c) In the event that this Agreement is terminated (i) by Morgan
pursuant to Section 8.01(b), as a result of a breach by Parent, (ii) by
Parent pursuant to Section 8.01(b)(i), as a result of a breach by Morgan,
or (iii) by either party pursuant to Section 8.01(c), as a result of the
other party's failure to comply with any provision hereof which failure was
the cause, or resulted in, the failure of the Effective Time to occur on or
before the date specified in Section 8.01(c), then the other party shall
promptly (but not later than two business days after receipt of notice of
such termination from the terminating party) pay to the terminating party
an amount equal to all documented out-of-pocket expenses and fees incurred
by the terminating party (including, without limitation, fees and expenses
payable to all legal, accounting, financial, public relations and other
professional advisors arising out of or in connection with or related to
the Parent Merger or the other transactions contemplated by this Agreement)
("Out-of-Pocket Expenses"). Upon payment of such Out-of-Pocket Expenses in
accordance with this Section 8.03(c), the other party shall have no further
liability to the terminating party at law or in equity with respect to such
termination under Section 8.01(b) by Morgan, Section 8.01(b)(i) by Parent,
or Section 8.01(c) by either party, or with respect to this Agreement.
(d) If either Parent or Morgan fails to pay all amounts due to the
other party on the dates specified, then the breaching party shall pay all
costs and expenses (including legal fees and expenses) incurred by the
other party in connection with any action or proceeding (including the
filing of any lawsuit) taken by it to collect such unpaid amounts, together
with interest on such unpaid amounts at the prime lending rate prevailing
at such time, as published in the Wall Street Journal, from the date such
amounts were required to be paid until the date actually received by either
Morgan or Parent, as the case may be.
ARTICLE IX
MISCELLANEOUS
9.01 Survival.
None of the representations or warranties in this Agreement or any
instrument delivered pursuant to this Agreement shall survive the Effective
Time. The covenants and
59
agreements in this Agreement shall survive after the date of this Agreement in
accordance with their terms.
9.02 Waiver; Amendment.
Prior to the Effective Time, any provision of this Agreement may be
(a) waived by the party benefited by the provision, or (b) amended or modified
at any time, in each case, by an agreement in writing between the parties hereto
executed in the same manner as this Agreement, except that after the Morgan
Meeting, this Agreement may not be amended if it would violate Section
1701.78(G) of the OGCL or the federal securities Laws.
9.03 Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall be considered one and the same agreement and shall become effective
when both counterparts have been signed by each of the parties, and delivered to
the other party, it being understood that both parties need not sign the same
counterparts.
9.04 Governing Law.
This Agreement shall be governed by, and interpreted in accordance
with, the Laws of the State of Ohio applicable to contracts made and to be
performed entirely within such State (except to the extent that mandatory
provisions of federal Law are applicable).
9.05 Expenses.
Each party hereto will bear all expenses incurred by it in connection
with this Agreement and the transactions contemplated hereby, except that
printing and mailing expenses and all fees to be paid to Regulatory Authorities
and the SEC in connection with the transactions contemplated by this Agreement
shall be borne by Parent.
9.06 Notices.
All notices, requests and other communications hereunder to a party
shall be in writing and shall be deemed given (a) on the date of delivery if
personally delivered, or telecopied (with confirmation), (b) on the first
business day following date of dispatch if delivered by a recognized next-day
courier service, or (c) on the third business day following the date of mailing
if mailed by registered or certified mail (return receipt requested), postage
prepaid. All notices shall be delivered to such party at its address set forth
below or such other address as such party may specify by notice to the parties
hereto.
If to Morgan, to:
Morgan Bancorp, Inc.
178 West Streetsboro Street
Hudson, OH 44236
Attn: William A. Dougherty
Facsimile: (800) 309-6487
60
With a copy to:
Roetzel & Andress
222 South Main Street
Akron, OH 44308
Attn: Kevin C. O'Neil
Fax: (330) 376-4577
If to Parent, to:
LNB Bancorp, Inc.
457 Broadway,
Lorain, OH 44052
Attn: Daniel E. Klimas
Facsimile: (440) 244-4815
With a copy to:
Calfee, Halter & Griswold LLP
1400 McDonald Investment Center
800 Superior Avenue
Cleveland, OH 44114
Attn: John J. Jenkins
Facsimile: (216) 241-0816
9.07 Entire Agreement; No Third Party Beneficiaries.
This Agreement and all schedules and exhibits attached hereto,
together with the Voting Agreements (executed copies of which have been
delivered to Parent prior to the execution of this Agreement) represent the
entire agreement of the parties hereto with reference to the transactions
contemplated hereby and thereby and this Agreement supersedes any and all other
oral or written agreements or understandings heretofore made. Except for
Sections 6.16 and 6.17(c) hereof, nothing in this Agreement, whether express or
implied, is intended to confer upon any Person, other than the parties hereto or
their respective successors, any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
9.08 Interpretation; Effect.
When a reference is made in this Agreement to Sections, Exhibits or
Schedules, such reference shall be to a Section of, or Exhibit or Schedule to,
this Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and are not part of
this Agreement. Whenever the words "include," "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation." References herein to "transaction contemplated by this Agreement"
include the Parent Merger as well as the other transactions contemplated hereby
and the transactions contemplated by the Voting Agreements. No rule of
construction against the
61
draftsperson shall be applied in connection with the interpretation or
enforcement of this Agreement. Whenever this Agreement shall require a party to
take an action, such requirement shall be deemed to constitute an undertaking by
such party to take, to cause its Subsidiaries to take, and to use its reasonable
best efforts to cause its other Affiliates to take, appropriate action in
connection therewith. All references to "dollars" or "$" mean the lawful
currency of the United States unless otherwise indicated. Any reference in this
Agreement to any Law, rule or regulation shall be deemed to include a reference
to any amendments, revisions or successor provisions to such Law, rule or
regulation.
9.09 Waiver of Jury Trial.
Each of the parties hereto hereby irrevocably waives any and all right
to trial by jury in any legal proceeding arising out of or related to this
Agreement or the transactions contemplated hereby.
9.10 Severability.
Any term or provision of this Agreement that is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity or unenforceability and, unless the effect of
such invalidity or unenforceability would prevent the parties from realizing the
major portion of the economic benefits of the Parent Merger that they currently
anticipate obtaining therefrom, shall not render invalid or unenforceable the
remaining terms and provisions of this Agreement or affect the validity or
enforceability of any of the terms or provisions of this Agreement in any other
jurisdiction. If any provision of this Agreement is so broad as to be
unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
9.11 Assignment.
Neither this Agreement nor any of the rights, interests or obligations
of the parties hereunder shall be assigned by either of the parties hereto
(whether by operation of Law or otherwise) without the prior written consent of
the other party, and any attempt to make any such assignment without such
consent shall be null and void. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and permitted assigns.
9.12 Submission to Jurisdiction.
Each party hereto irrevocably submits to the jurisdiction of (a) the
Court of Common Pleas of Lorain County, Ohio and (b) the United States District
Court for the Northern District of Ohio, for the purposes of any suit, action or
other proceeding arising out of this Agreement or any transaction contemplated
hereby. Each party hereto agrees to commence any action, suit or proceeding
relating hereto either in the United States District Court for the Northern
District of Ohio, or, if such suit, action or other proceeding may not be
brought in such court for reasons of subject matter jurisdiction, in the Court
of Common Pleas of Lorain County, Ohio. Each party hereto irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit
or proceeding arising out of this Agreement or the transactions contemplated
hereby in (i) the Court of Common Pleas of Lorain County, Ohio or (ii) the
United
62
States District Court for the Northern District of Ohio and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient forum. Each party hereto further irrevocably
consents to the service of process out of any of the aforementioned courts in
any such suit, action or other proceeding by the mailing of copies thereof by
mail to such party at its address set forth in this Agreement, such service of
process to be effective upon acknowledgment of receipt of such registered mail;
provided that nothing in this Section 9.12 shall affect the right of any party
to serve legal process in any other manner permitted by Law. The consent to
jurisdiction set forth in this Section 9.12 shall not constitute a general
consent to service of process in the State of Ohio and shall have no effect for
any purpose except as provided in this Section 9.12. The parties hereto agree
that final judgment in any such suit, action or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on the judgment or in any
other manner provided by Law.
63
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in counterparts by their duly authorized officers, all as of the day
and year first above written.
ATTEST MORGAN BANCORP, INC.
By: /s/ J. Martin Erbaugh By: /s/ William A. Dougherty
--------------------------------- ------------------------------------
Name: J. Martin Erbaugh Name: William A. Dougherty
------------------------------- Title: President and CEO
Title: Secretary
LNB BANCORP, INC.
By: /s/ Daniel E. Klimas
------------------------------------
Name: Daniel E. Klimas
Title: President and CEO
64
Exhibit A
FORM OF VOTING AGREEMENT
This VOTING AGREEMENT (this "Agreement") is entered into on January 15,
2007, by and between LNB Bancorp, Inc., an Ohio corporation ("LNB"), and the
party signing this agreement (the "Shareholder"), a resident of the State of
Ohio solely in his individual capacity as beneficial owner of Common Shares, no
par value per share (the "Common Shares"), of Morgan Bancorp, Inc., an Ohio
corporation ("Morgan").
WHEREAS, the Shareholder has sole or shared power to vote the Common Shares
listed on the signature page hereto (all shares of such stock now owned and
which may hereafter be acquired by the Shareholder prior to the termination of
this Agreement, except Common Shares held by the Shareholder in a fiduciary
capacity, shall be referred to herein as the "Control Shares"); and
WHEREAS, LNB and Morgan propose to enter into an Agreement and Plan of
Merger, dated as of the date hereof (the "Merger Agreement"), which provides,
among other things, that Morgan will merge with and into LNB pursuant to the
Parent Merger (this and other capitalized terms used and not defined herein
shall have the meanings given to such terms in the Merger Agreement);
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, the
parties hereby agree as follows:
A. VOTING OF CONTROL SHARES
1.1 Voting Agreement. The Shareholder hereby agrees that during the time
this Agreement is in effect, at any meeting of the shareholders of Morgan,
however called, and in any action by consent of the shareholders of Morgan, the
Shareholder shall vote the Control Shares: (i) in favor of the Parent Merger and
the Merger Agreement (as amended from time to time) and (ii) against any
proposal for any recapitalization, merger, sale of assets or other business
combination between Morgan and any person or entity other than LNB, or any other
action or agreement that would result in a breach of any covenant,
representation or warranty or any other obligation or agreement of Morgan under
the Merger Agreement or that would result in any of the conditions to the
obligations of Morgan under the Merger Agreement not being fulfilled. Nothing
contained in this Agreement shall be deemed to vest in LNB any direct or
indirect ownership of the Control Shares.
B. REPRESENTATIONS AND WARRANTIES
The Shareholder hereby represents and warrants to LNB as follows:
2.1 Authority Relative to this Agreement. The Shareholder has all necessary
power and authority or capacity to execute and deliver this Agreement, to
perform his obligations hereunder and to consummate the transactions
contemplated hereby. This Agreement has been duly and
validly executed and delivered by the Shareholder and constitutes a legal, valid
and binding obligation of the Shareholder, enforceable against the Shareholder
in accordance with its terms.
2.2 No Conflict.
(a) The execution and delivery of this Agreement by the Shareholder
does not, and the performance of this Agreement by the Shareholder will not (i)
conflict with or violate any law, rule, judgment or decree applicable to the
Shareholder or the Control Shares, or (ii) result in any breach of or constitute
a default (or event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment or
acceleration of, or result in the creation of, a lien or encumbrance on any of
the Control Shares.
(b) The execution and delivery of this Agreement by the Shareholder
does not, and the performance of this Agreement by the Shareholder will not,
require any consent or approval of, or filing with or notification to, any
regulatory body.
C. MISCELLANEOUS
3.1 Termination. This Agreement shall terminate on the earlier to occur of
(i) the Effective Time and (ii) the date of termination of the Merger Agreement
for any reason whatsoever.
3.2 Specific Performance. The Shareholder agrees that irreparable damage
would occur in the event any provision of this Agreement was not performed in
accordance with the terms hereof and that LNB shall be entitled to specific
performance of the terms hereof, in addition to any other remedy at law or in
equity.
3.3 Entire Agreement. This Agreement constitutes the entire agreement
between the parties and supersedes all prior agreements and understandings with
respect to the subject matter hereof.
3.4 Amendment. This Agreement may not be amended except by an instrument in
writing signed by all the parties hereto.
3.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio applicable to contracts made and
to be performed entirely within such State.
3.6 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
3.7 Assignments. This Agreement shall not be assigned by operation of law
or otherwise.
3.8 Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
2
3.9 Fiduciary Duty. Anything in this Agreement to the contrary
notwithstanding, this Agreement will not require the Shareholder to take any
action or omit to take any action if, after consultation with independent legal
counsel, the Shareholder determines in good faith that the action or the failure
to take such action would constitute, or could reasonably be expected to
constitute, a breach of the Shareholder's fiduciary duties as a director or
officer of Morgan or otherwise under applicable Ohio or federal law, or Morgan's
Articles or Code of Regulations.
*****
3
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day first written above.
SHAREHOLDER LNB BANCORP, INC.
By:
- ------------------------------------- ------------------------------------
[Signature] Name: Daniel E. Klimas
Title: President and CEO
- -------------------------------------
[Print Name]
- -------------------------------------
[Number of Common Shares]
4
Exhibit B
FORM OF MORGAN AFFILIATE AGREEMENT
_________, 2007
LNB Bancorp, Inc.
457 Broadway
Lorain, Ohio 44052-1769
Ladies and Gentlemen:
I have been advised that as of the date hereof I may be deemed to be an
"Affiliate" of Morgan Bancorp, Inc. ("Morgan"), as that term is defined for
purposes of Paragraphs (c) and (d) of Rule 145 of the Rules and Regulations (the
"Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") promulgated under the Securities Act of 1933, as amended (the
"Act").
Pursuant to the terms of the Agreement and Plan of Merger by and between LNB
Bancorp, Inc. ("LNB") and Morgan dated as of January 15, 2007 (the "Merger
Agreement"), I may receive LNB common shares ("LNB Common Shares") in exchange
for Morgan common shares ("Morgan Common Shares").
This letter is being delivered pursuant to Section 6.07 of the Merger Agreement.
I represent and warrant to LNB that in such event:
A. I will sell, assign or transfer the LNB Common Shares that I receive only in
compliance with the Act and the Rules and Regulations.
B. I have carefully read this letter and the Merger Agreement. I have discussed
their requirements and limitations upon my ability to sell, transfer or
otherwise dispose of the LNB Common Shares received, with legal counsel.
C. I understand that LNB is relying on the representations I am making in this
letter.
D. I have been advised that the issuance of the LNB Common Shares issued to me
pursuant to the Parent Merger will have been registered with the Commission
under the Act on a Registration Statement on Form S-4. However, I have also been
advised that since I may be deemed to be an Affiliate under the Rules and
Regulations at the time the merger between LNB and Morgan (the "Parent Merger")
was submitted for a vote of the shareholders of Morgan, that the LNB Common
Shares must be held by me unless my subsequent sale, transfer or distribution of
LNB Common Shares has been (i) registered under the Act; (ii) made in conformity
with the volume and other limitations under Rule 145 promulgated by the
Commission under the Act to which I have submitted to LNB satisfactory evidence
of compliance, or (iii) in a transaction in which, in the opinion of counsel
reasonably acceptable
to LNB or in accordance with a no-action letter from the Commission, some other
exemption from registration is available with respect to any such proposed sale,
transfer or other disposition of the LNB Common Shares.
E. I understand that stop transfer instructions will be given to LNB's transfer
agent with respect to any LNB Common Shares that I receive in the Parent Merger
and that there will be placed on my certificates for such LNB Common Shares, a
legend stating in substance:
"The shares represented by this certificate have been issued or transferred to
the registered holder as a result of a transaction to which Rule 145 under the
Securities Act of 1933, as amended (the "Act"), applies. The shares represented
by this certificate may not be sold, transferred or assigned, and the issuer
shall not be required to give effect to any attempted sale, transfer or
assignment, except pursuant to (i) an effective registration statement under the
Act, (ii) a transaction permitted by Rule 145 and as to which the issuer has
received reasonable and satisfactory evidence of compliance with the provisions
of Rule 145, or (iii) a transaction in which, in the opinion of counsel
satisfactory to the issuer, such sale, transfer or assignment is exempt from
registration under the Securities Act of 1933, as amended."
The restrictive legend above shall be promptly removed and any stop order
instructions with respect thereto shall be canceled upon receipt of advice from
Calfee, Halter & Griswold LLP, or other counsel satisfactory to LNB, that such
actions are appropriate under the then-existing circumstances.
AFFILIATE
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[Signature]
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[Print Name]
LNB BANCORP, INC.
By:
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Its:
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