AGREEMENT AND PLAN OF MERGER

 

EXHIBIT 2.1

 

AGREEMENT AND PLAN OF MERGER

 

dated as of

 

December 21, 2004

 

by and between

 

BELMONT BANCORP.

 

and

 

SKY FINANCIAL GROUP, INC.

 

TABLE OF CONTENTS

 

 

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TABLE OF CONTENTS

(continued)

 

 

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TABLE OF CONTENTS

(continued)

 

 

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This AGREEMENT AND PLAN OF MERGER , dated as of December 21, 2004 (this “Agreement” ), is by and between Belmont Bancorp. ( “Belmont” ) and Sky Financial Group, Inc. ( “Sky” ).

 

RECITALS

 

A. Belmont . Belmont is a bank holding company and an Ohio corporation, having its principal place of business in St. Clairsville, Ohio.

 

B. Sky . Sky is a financial holding company and an Ohio corporation, having its principal place of business in Bowling Green, Ohio.

 

C. Intentions of the Parties . It is the intention of the parties to this Agreement that the business combinations contemplated hereby be treated as a “reorganization” under Section 368(a) of the Internal Revenue Code of 1986, as amended.

 

D. Board Action . The respective Boards of Directors of each of Sky and Belmont have determined that it is in the best interests of their respective companies and their shareholders to consummate the strategic business combinations provided for herein.

 

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

 

1.01 Certain Definitions . The following terms are used in this Agreement with the meanings set forth below:

 

“Acquisition Proposal” means any tender or exchange offer, proposal for a merger, consolidation or other business combination involving Belmont or any of its Subsidiaries, or any proposal or offer to acquire in any manner 25% or more of any class of equity securities in, or 25% or more of the assets or deposits of, Belmont or any of its Subsidiaries, other than the transactions contemplated by this Agreement.

 

“ 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).

 

“Average NMS Closing Price” has the meaning set forth in Section 8.01(e).

 

“Bank” means Belmont National Bank, a national banking association that is a wholly-owned subsidiary of Belmont.

 

“Belmont” has the meaning set forth in the preamble to this Agreement.

 

“Belmont Affiliate” has the meaning set forth in Section 6.07.

 

“Belmont Articles” means the Articles of Incorporation of Belmont, as amended.

 

“Belmont Board” means the Board of Directors of Belmont.

 

“Belmont Code” means the Bylaws of Belmont.

 

“Belmont Common Shares” means the common stock, par value $0.25 per share, of Belmont.

 

“Belmont Financial Statements” has the meaning set forth in Section 5.03(g).

 

“Belmont Meeting” has the meaning set forth in Section 6.02.

 

“Belmont Off Balance Sheet Transaction” has the meaning set forth in Section 5.03(q)(i).

 

“Belmont Preferred Shares” collectively means the 70,000 shares of preferred stock, without par value, as to which the Belmont Board has not made any designations in accordance with the Belmont Articles, and the 20,000 shares of Series A Convertible Preferred Stock, par value $.0001 per share, as to which the Belmont Board has designated rights and preferences in accordance with the Belmont Articles.

 

“Belmont Recommendation” has the meaning set forth in Section 6.02.

 

“Belmont SEC Documents” has the meaning set forth in Section 5.03(g).

 

“Belmont Shares” means the Belmont Common Shares and Belmont Preferred Shares

 

“Belmont Stock Plans” means the option plans and agreements of Belmont and its Subsidiaries pursuant to which rights to purchase Belmont Common Shares are outstanding immediately prior to the Effective Time pursuant to the Belmont Bancorp. 2001 Stock Option Plan.

 

“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).

 

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“Claim” has the meaning set forth in Section 6.16(a).

 

“COBRA” has the meaning set forth in Section 6.17(b).

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Compensation and Benefit Plans” has the meaning set forth in Section 5.03(m).

 

“Confidentiality Agreement” means the Confidentiality Agreement between Sky and Belmont, dated November 8, 2004.

 

“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.

 

“Dissenting Shares” means Belmont 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 Belmont” or “Belmont employees” shall be deemed to mean employees of Bank.

 

“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

 

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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).

 

“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.

 

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“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.

 

“Material Adverse Effect” means, with respect to Sky or Belmont, any effect that (a) is material and adverse to the condition (financial or otherwise), results of operations, assets, liabilities or business of Sky and its Subsidiaries taken as a whole, or Belmont and its Subsidiaries taken as a whole, respectively, or (b) would materially impair the ability of either Sky or Belmont 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 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 or (iv) 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).

 

“NASD” means The National Association of Securities Dealers.

 

“NASDAQ” means The NASDAQ Stock Market, Inc.’s National Market System.

 

“New Certificates” has the meaning set forth in Section 3.04(a).

 

“ODFI” means the Ohio Department of Commerce, Division of Financial Institutions.

 

“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.

 

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“Out of Pocket Expenses” has the meaning set forth in Section 8.03 (c).

 

“Parent Merger” has the meaning set forth in Section 2.01.

 

“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).

 

“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, ODFI, FRB and the FDIC) or the supervision or regulation of it or any of its subsidiaries.

 

“Related Person” means any Person (or family member of such Person) (a) that directly or indirectly, controls, or is under common control with, Belmont or any of its Affiliates, (b) that serves as a director, officer, employee, partner, member, executor or trustee of Belmont or any of its Affiliates or Subsidiaries (or in any other similar capacity), (c) that has, or is a member of a group having, direct or indirect beneficial ownership (as defined for purposes of Rule 13d-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 Belmont 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 Belmont 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

 

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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.

 

“Sarbanes-Oxley” has the meaning set forth in Section 5.03(g)(ii).

 

“SEC” means the Securities and Exchange Commission.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations thereunder.

 

“Sky” has the meaning set forth in the preamble.

 

“Sky Articles” means the Articles of Incorporation of Sky, as amended.

 

“Sky Bank” means Sky Bank, an Ohio banking corporation that is a wholly-owned subsidiary of Sky.

 

“Sky Board” means the Board of Directors of Sky.

 

“Sky Code” means the Amended and Restated Code of Regulations of Sky.

 

“Sky Common Shares” means the common stock, without par value, of Sky.

 

“Sky’s Financial Statements” has the meaning set forth in Section 5.04(l).

 

“Sky Preferred Shares” means the serial preferred stock, par value $10.00 per share, of Sky.

 

“Sky SEC Documents” has the meaning set forth in Section 5.04(g).

 

“Sky Shares” means the Sky Common Shares and Sky Preferred Shares.

 

“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.

 

“Superior Proposal” has the meaning set forth in Section 6.06.

 

“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,

 

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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).

 

“Treasury Stock” means Belmont Common Shares held by Belmont or any of its Subsidiaries, in each case other than in a fiduciary capacity or as a result of debts previously contracted in good faith.

 

“Voting Agreements” means those certain voting agreements by and among Sky and certain Belmont shareholders.

 

ARTICLE II

 

THE MERGER

 

2.01 The Parent Merger . At the Effective Time, (a) Belmont shall be merged with and into Sky (the “Parent Merger” ) and (b) the separate corporate existence of Belmont shall cease and Sky shall survive and continue to exist as an Ohio corporation (Sky, as the surviving corporation in the Parent Merger, sometimes being referred to herein as the “Surviving Corporation” ). The Sky Articles, as in effect immediately prior to the Effective Time, shall be the Articles of Incorporation of the Surviving Corporation, and the Sky Code, as in effect immediately prior to the Effective Time, shall be the Code of Regulations of the Surviving Corporation. Sky 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 Belmont 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 Belmont’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 Sky makes such an election, Sky and Belmont shall execute an appropriate amendment to this Agreement in order to reflect such election.

 

2.02 The Subsidiary Merger . At the time determined by Sky and specified by Sky Bank in the Certificate of Merger filed with the OSS (which shall not be earlier than the Effective Time), Bank shall merge with and into Sky Bank (the “Subsidiary Merger” ) pursuant to an agreement to merge (the “Agreement to Merge” ) to be executed by Bank and Sky Bank. Upon consummation of the Subsidiary Merger, the separate corporate existence of Bank shall cease and Sky Bank shall survive and continue to exist as a state banking corporation. Sky may at any time prior to the Effective Time change the method of effecting the Subsidiary Merger

 

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(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 Belmont’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 date to be determined by Sky and Belmont in their reasonable discretion, which date shall be a reasonably short time 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 Belmont Common Shares and Belmont Rights. Except as otherwise provided in this Article III, at the Effective Time, each Belmont Common Share (excluding Treasury Stock and Belmont Common Shares held by Sky) 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) Sky Common Shares based upon a fixed exchange ratio of 0.219 Sky Common Shares for each Belmont Common Share (the “Stock Exchange Ratio” ); (ii) cash in the amount of $6.15 for each Belmont Common Share (the “Cash Exchange Amount” ); or (iii) a combination of such Sky 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 Sky Common Shares and cash, with 72.5% of the Belmont Common Shares issued and outstanding as of the Effective Time being exchanged for Sky Common Shares and 27.5% of the Belmont Common Shares issued and outstanding as of the Effective Time being exchanged for cash (collectively, the “Merger Consideration” ).

 

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(b) Election as to Outstanding Belmont Common Shares . The Belmont shareholders will have the following alternatives in connection with the exchange of their Belmont 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 Belmont Common Shares deposited with the Exchange Agent shall be converted into and become Sky 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

 

(ii) AT THE OPTION OF THE HOLDER, all of such holder’s Belmont 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 Belmont Common Shares will be converted into and become Sky Common Shares at the rate of the Stock Exchange Ratio and the remainder of such holder’s Belmont 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 Belmont Common Shares will be converted into the right to receive Sky 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 Sky Common Shares and cash as determined by Sky or, at Sky’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 shares of Belmont Common Shares will be allocated by the Exchange Agent pro rata among non-electing holders based upon the number of Belmont Common Shares for which an election has not been received by the Election Deadline in order to (A) achieve the overall ratio of seventy two and one half percent (72.5%) of Belmont Common Shares to be converted into Sky Common Shares and twenty seven and one half percent (27.5%) of Belmont Common Shares to be converted into cash, and (B) satisfy the elections made by Belmont shareholders to the greatest extent possible. Notice of such allocation shall be provided promptly to each shareholder whose Belmont Common Shares are allocated pursuant to this Section 3.01(b)(iv).

 

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(c) Treasury Shares and Shares Held by Sky . Each Belmont Common Share held as Treasury Stock or held by Sky 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 Sky shall not be deemed to be held by Sky.

 

(d) Outstanding Sky Common Shares . Each Sky 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 Belmont and Sky shall mutually agree (the “Election Form/Letter of Transmittal” ) shall be mailed to shareholders of Belmont prior to the Election Period (defined below). The “ Election Period ” shall be such period of time as Belmont and Sky shall mutually agree, within which Belmont shareholders may 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 Belmont of the Proxy Statement for the special meeting of shareholders of Belmont 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 Sky after consultation with Belmont, 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 Belmont 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 Belmont 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 Belmont, 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 Belmont 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 Belmont 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.

 

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(h) Reduction of Shares Deposited for Cash . If more than twenty seven and one half percent (27.5%) of the total number of Belmont 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 twenty seven and one half percent (27.5%) of the Belmont 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 Sky 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 Belmont Common Shares on deposit for cash pursuant to the All Cash Election and the Mixed Election as may be necessary so that the total number of shares remaining on deposit for cash pursuant to All Cash Election and the Mixed Election is twenty seven and one half percent (27.5%) of the Belmont Common Shares issued and outstanding on the Effective Date;

 

(ii) All Belmont Common Shares that are eliminated pursuant to Section 3.01(h)(i) from the shares deposited for cash shall be converted into Sky 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 Belmont 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 Belmont 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 Belmont Common Shares converted into Sky Common Shares.

 

(i) Increase of Shares Deposited for Cash . If fewer than twenty seven and one half percent (27.5%) of the total number of Belmont 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), Sky will promptly add, or cause to be added by the Exchange Agent, to such deposited shares, a sufficient number of Belmont Common Shares deposited for Sky Common Shares pursuant to the All Stock Election and the Mixed

 

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Election (subject to the limitation described in Section 3.01(h)(iv)) so that the total number of Belmont Common Shares on deposit for cash pursuant to the All Cash Election and the Mixed Election on the Effective Date is twenty seven and one half percent (27.5%) of the Belmont 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), Sky 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 Sky Common Shares pursuant to the All Stock Election and the Mixed Election, on a pro rata basis in relation to the total number of Belmont Common Shares deposited for Sky Common Shares pursuant to the All Stock Election and the Mixed Election, such whole number of Belmont Common Shares not then on deposit for cash as may be necessary so that the number of shares remaining on deposit for cash is twenty seven and one half percent (27.5%) of the Belmont Common Shares issued and outstanding on the Effective Date;

 

(ii) All Belmont Common Shares that are eliminated pursuant to Section 3.01(i)(i) from the shares to be converted into Sky Common Shares shall be converted into cash, as provided by Sections 3.01(b)(ii) and 3.01(b)(iii); and

 

(iii) Notice of such allocation shall be provided promptly to each shareholder whose Belmont 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 Sky Common Shares as reported on the primary market on which the Sky Common Shares are listed for trading (the “Sky Exchange”) on the business day immediately preceding the Effective Time, the aggregate value of the Sky Common Shares to be issued in connection with the Parent Merger would be less than 45% of the sum of the aggregate cash to be received by the holders of the Belmont Common Shares (including amounts paid to dissenters), plus the value of the Sky Common Shares to be received by the holders of the Belmont Common Shares, as consideration in connection with the Parent Merger, then Sky will increase the Stock Exchange Ratio so that the aggregate value of the Sky Common Shares to be issued to the holders of the Belmont Common Shares in connection with the Parent Merger, as determined based upon the closing price of the Sky Common Shares on the Sky Exchange on the business day immediately preceding the Effective Time, is equal to 45% of the sum of the aggregate cash to be received by the holders of the Belmont Common Shares (including amounts paid to dissenters), plus the value of the Sky Common Shares to be received by the holders of the Belmont Common Shares as consideration in connection with the Parent Merger.

 

3.02 Rights as Shareholders; Stock Transfers . At the Effective Time, the Belmont Common Shares shall no longer be outstanding and shall automatically be canceled and cease to

 

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exist and holders of Belmont Common Shares shall cease to be, and shall have no rights as, shareholders of Belmont, other than to receive any dividend or other distribution with respect to such Belmont 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 Belmont or the Surviving Corporation of any Belmont Shares (other than Dissenting Shares, if applicable).

 

3.03 Fractional Shares . Notwithstanding any other provision hereof, no fractional Sky Common Shares and no certificates or scrip therefor, or other evidence of ownership thereof, will be issued in the Parent Merger and no Sky dividend or other distribution or stock split or combination will relate to any fractional Sky Common Share, and such fractional Sky Common Shares will not entitle the owner thereof to vote or to any rights of a security holder of Sky; instead, Sky shall pay to each holder of Belmont Common Shares who would otherwise be entitled to a fractional Sky Common Share (after taking into account all Old Certificates delivered by such holder) an amount in cash (without interest) determined by multiplying such fractional Sky Common Share to which the holder would be entitled by the Average NMS Closing Price.

 

3.04 Exchange Procedures .

 

(a) At or prior to the Effective Time, Sky shall deposit, or shall cause to be deposited, with The Bank of New York (in such capacity, the “Exchange Agent” ), for the benefit of the holders of certificates representing Belmont Common Shares ( “Old Certificates” ), for exchange in accordance with this Article III, certificates representing the Sky 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 Sky Common Shares, being hereinafter referred to as the “Exchange Fund” ) to be paid pursuant to this Article III in exchange for outstanding Belmont Common Shares. Sky 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 Sky 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 Sky 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, Sky 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

 

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Certificate shall receive in exchange therefor (A) a New Certificate representing that number of whole Sky 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 Sky 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 Belmont Common Shares that is not registered in the transfer records of Belmont, a New Certificate representing the proper number of Sky Common Shares may be issued, and/or the cash to be paid as part of the Merger Consideration, in lieu of any fractional Sky 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 the Merger Consideration, the cash to be paid in lieu of any fractional Sky 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 Belmont Common Shares who have not theretofore complied with this Article III may look thereafter only to the Surviving Corporation for the Sky Common Shares, any dividends or distributions thereon and any cash to be paid as part of the Merger Consideration or in lieu of fractional Sky 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 Belmont Common Shares for any Sky Common Shares, any dividends or distributions thereon or any cash to be paid as part of the Merger Consideration or in lieu of fractional Sky 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 Sky 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 Belmont Common Shares converted in the Parent Merger into the right to receive such Sky 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 Sky Common Shares such holder had the right to receive upon surrender of the Old Certificates.

 

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(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 Sky, the posting by such Person of a bond in such reasonable amount as Sky 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 Sky Common Shares to which such Person is entitled pursuant to Section 3.01(a) with respect to the Belmont 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 Sky 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) Sky is entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of Belmont Common Shares and Belmont 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 thereunder, or any applicable Law. To the extent that amounts are so withheld by Sky, such withheld amounts may be treated for all purposes of this Agreement as having been paid to the holders of Belmont Common Shares and Belmont Stock Options in respect of which such deduction and withholding were made by Sky.

 

3.05 Anti-Dilution Provisions . In the event Sky changes (or establishes a record date for changing) the number of Sky 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 Sky Common Shares and the record date therefor shall be prior to the Effective Date, the Exchange Ratio shall be proportionately adjusted. In the event that Rights are issued under the Shareholder Rights Plan of Sky (then known as Citizens Bancshares, Inc.) dated July 21, 1998, and such Rights are issued between the date of this Agreement and the Effective Date, then Belmont shareholders who receive Sky 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 Sky Common Shares when such Rights were issued.

 

3.06 Treatment of Stock Options . There are currently outstanding options to purchase 314,500 Belmont Common Shares under the Belmont Stock Plan (each, a “ Belmont Stock Option ”). Each Belmont 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 Belmont Common Shares that would otherwise have been issuable upon exercise thereof, an amount in cash computed by multiplying (a) the excess, if any, of (i) the Average NMS Closing Price multiplied by the Exchange Ratio over (ii) the exercise price of such Belmont Stock Option by (b) the number of Belmont Common Shares subject to the Belmont Stock Option. Belmont 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 Belmont Stock Option to permit such

 

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termination effective at the Effective Date. Belmont may elect to pay immediately prior to the Effective Time to each holder of a Belmont 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 Belmont . 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 Belmont’s Disclosure Schedule, without the prior written consent of Sky, which consent shall not be unreasonably withheld, Belmont shall not, and shall cause each of its Subsidiaries not to:

 

(a) Ordinary Course . Conduct the business of Belmont 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 effect upon Belmont’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 Belmont Common Shares or any Rights, (ii) permit any additional Belmont 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 Belmont Common Shares to be made under the Belmont 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 Belmont Company Shares to enter into, any agreement, understanding or commitment relating to the right of holders of Belmont Company Shares to vote any Belmont 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 Belmont 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 wholly owned Subsidiaries to Belmont; (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.

 

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(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 Belmont.

 

(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, Belmont or its Subsidiaries, 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.

 

(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, Belmont or its Subsidiaries (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 Belmont Articles, Belmont Code or the Governing Documents of any of Belmont’s Subsidiaries.

 

(k) Accounting Methods . Implement or adopt any change in its accounting principles, practices or methods, other than as may be required by GAAP.

 

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(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 Belmont and its Subsidiaries, 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 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 Sky, Belmont 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 Belmont may continue to borrow from the Federal Home Loan Bank of Cincinnati 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.

 

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(s) Loans . (i) Extend credit for new loans, renewals and extensions on an unsecured basis to any Person in the aggregate over $250,000, (ii) extend credit for new loans on a secured basis to any Person in the aggregate over $750,000, (iii) extend credit for renewals or extensions on a secured basis to any Person in the aggregate over $1,000,000, (iv) extend credit originated by an unaffiliated third party to any Person in the aggregate over $150,000, or (v) extend credit for new loans, renewals and extensions of residential mortgage loans to any Person in the aggregate over $500,000.

 

(t) Capital Expenditures . Make any capital expenditures in excess of $100,000 in any one case or $500,000 in the aggregate or enter into any agreement contemplating capital expenditures in excess of $100,000 for any twelve-month period.

 

(u) Commitments . Agree or commit to do, or enter into any Contract regarding, anything that would be precluded by clauses (a) through (t).

 

4.02 Forbearances of Sky . From the date hereof until the Effective Time, except as expressly contemplated by this Agreement and/or disclosed on Sky’s Disclosure Schedule, without the prior written consent of Belmont, which consent shall not be unreasonably withheld, Sky shall not, and shall cause each of its Subsidiaries not to:

 

(a) Ordinary Course . Conduct the business of Sky 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 Sky’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).

 

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ARTICLE V

 

REPRESENTATIONS AND WARRANTIES

 

5.01 Disclosure Schedules . On or prior to the date hereof, Sky delivered to Belmont a schedule and Belmont delivered to Sky 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. Belmont’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 Belmont arising solely from actions taken in compliance with a written request of Sky.

 

5.02 Standard . No representation or warranty of Belmont or Sky contained in Section 5.03 (other than Sections 5.03(g), (h), (j), (k), (m), (p), (r), (s) and (v) (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 Belmont . Subject to Sections 5.01 and 5.02 and except as Previously Disclosed, Belmont hereby represents and warrants to Sky as follows:

 

(a) Organization, Standing and Authority . Belmont 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. Belmont is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended. Bank is a national banking association, duly organized, validly existing and in good standing under the laws of the United States of America.

 

(b) Capital Structure of Belmont . The authorized capital stock of Belmont consists solely of 17,800,000 Belmont Common Shares, of which 11,126,278 Belmont Common Shares were outstanding as of the date hereof, and 90,000 Belmont Preferred

 

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Shares, of which none were outstanding as of the date hereof. As of the date hereof, 26,917 shares of Treasury Stock were held by Belmont and none were otherwise owned by Belmont or its Subsidiaries. The outstanding Belmont 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 Belmont Common Shares authorized and reserved for issuance, (ii) Belmont did not have any Rights issued or outstanding with respect to Belmont Common Shares and (iii) Belmont did not have any commitment to authorize, issue or sell any Belmont Common Shares or Rights, except pursuant to this Agreement and the Belmont Stock Plans. Belmont 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 Belmont on any matter.

 

(c) Subsidiaries .

 

(i) (A) Belmont has Previously Disclosed a list of all of its Subsidiaries together with the jurisdiction of organization of each such Subsidiary, (B) Belmont owns, directly or indirectly, all the issued and outstanding equity securities of each of its Subsidiaries, (C) no equity securities of any of its Subsidiaries are or may become required to be issued (other than to it or its wholly-owned Subsidiaries) by reason of any Right or otherwise, (D) there are no Contracts by which any of such Subsidiaries is or may be bound to sell or otherwise transfer any equity securities of any such Subsidiaries (other than to Belmont or its wholly-owned Subsidiaries), (E) there are no Contracts relating to Belmont’s rights to vote or to dispose of any equity securities of any such Subsidiary and (F) all the equity securities of each Subsidiary held by Belmont or its Subsidiaries are fully paid and nonassessable (except pursuant to 12 U.S.C. Section 55) and are owned by Belmont or its Subsidiaries free and clear of any Liens.

 

(ii) Except as Previously Disclosed, Belmont 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 Subsidiaries and stock of the Federal Home Loan Bank of Cincinnati. Belmont has Previously Disclosed, as of the date of this Agreement, a list of all equity securities it or one of its Subsidiaries holds involving, in the aggregate, beneficial ownership or control by Belmont 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) Each of Belmont’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 in good standing in the jurisdictions where its ownership or leasing of property or the conduct of its

 

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business requires it to be so qualified. The Bank is Belmont’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 Belmont and its Subsidiaries 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 Belmont Common Shares entitled to vote on this Agreement (the “Required Belmont Vote” ) and the approval of Regulatory Authorities, Belmont 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 Bank and by Belmont as sole shareholder of Bank, 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 Belmont 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 Belmont and the Belmont Board on or before the date hereof. The Agreement to Merge, when executed by Bank, shall have been approved by the Board of Directors of Bank and by the Belmont Board, as the sole shareholder of Bank. This Agreement is a valid and legally binding obligation of Belmont, enforceable against Belmont 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). The Belmont Board has received the written opinion of Friedman, Billings, Ramsey & Co., Inc., to the effect that, as of the date hereof, the consideration to be received by the holders of Belmont Common Shares in the Parent Merger is fair to the holders of Belmont Common Shares from a financial point of view.

 

(f) 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 Belmont or any of its Subsidiaries in connection with the execution, delivery or performance by Belmont of this Agreement or to consummate the Parent Merger or the other transactions contemplated hereby except for (A) filings of applications and notices, as applicable, with Regulatory Authorities, (B) filings with the SEC and state securities authorities, and (C) the filing of the Certificates of Merger with the OSS pursuant to the OGCL. As of the date hereof, Belmont is not aware of any reason why the Requisite Regulatory Approvals (as defined in

 

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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, 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 Belmont or of any of its Subsidiaries or to which Belmont 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 Belmont 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 .

 

(i) Belmont’s Annual Reports on Form 10-K for the fiscal years ended December 31, 2002 and 2003 and all other reports, registration statements, definitive proxy statements or information statements filed or to be filed by it or any of its Subsidiaries subsequent to December 31, 2003 under the Securities Act, or under Section 13, 14 or 15(d) of the Exchange Act, in the form filed or to be filed (collectively, “Belmont SEC Documents” ) with the SEC, 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 statements therein, in light of the circumstances under which they were made, not misleading; and each of the consolidated balance sheets contained in or incorporated by reference into any such Belmont SEC Document (including the related notes and schedules thereto) fairly presents, or will fairly present, the consolidated financial position of Belmont and its Subsidiaries as of its date, and each of the consolidated statements of income, changes in shareholders’ equity, and cash flows in such Belmont SEC Documents (including any related notes and schedules thereto) fairly presents, or will fairly present, the consolidated results of operations, changes in shareholders’ equity and cash flows, as the case may be, of Belmont 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.

 

(ii) Belmont and each of its officers and directors have complied in all material respects with the applicable provisions of the Sarbanes-Oxley Act of 2002 and the related rules and regulations promulgated under such Act or the Exchange Act (“ Sarbanes-Oxley ”). Belmont has previously disclosed to Sky any

 

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of the information required to be disclosed by Belmont and certain of its officers to the Belmont Board or any committee thereof pursuant to the certification requirements contained in Form 10-K and Form 10-Q under the Exchange Act. Since the enactment of Sarbanes-Oxley, neither Belmont nor any of its Affiliates has made any Loans to any executive officer or director of Belmont in violation of Section 402 of Sarbanes-Oxley.

 

(iii) Since December 31, 2003, except as disclosed in the Belmont SEC Documents prior to the date of this Agreement, (A) Belmont and its Subsidiaries 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 (B) 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 Belmont.

 

(h) Litigation . Except as Previously Disclosed, no material litigation, claim or other proceeding before any court or governmental agency is pending against Belmont or any of its Subsidiaries and, to Belmont’s knowledge, no such litigation, claim or other proceeding has been threatened.

 

(i) Regulatory Matters .

 

(i) Neither Belmont 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 any Regulatory Authorities.

 

(ii) Neither Belmont nor any of its Subsidiaries 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.

 

(j) Compliance with Laws .

 

(i) Except as Previously Disclosed, each of Belmont 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, Sarbanes-Oxley, the Equal Credit Opportunity Act, the Fair Housing Act, the Community Reinvestment Act, the Home Mortgage Disclosure Act

 

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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, certificates of authority, orders and approvals are in full force and effect and, to Belmont’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, 2003, no notification or communication from any Regulatory Authority or Governmental Authority (1) asserting that Belmont or any of its Subsidiaries 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 Belmont’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 Belmont, 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 Belmont 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.

 

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(k) Material Contracts; Defaults . Except for this Agreement and Contracts which have been Previously Disclosed, neither Belmont nor any of its Subsidiaries is a party to, bound by or subj