AGREEMENT AND PLAN OF MERGER
BETWEEN
BEDFORD BANCSHARES, INC.
AND
FNB CORPORATION
--------------------------------
March 20, 2003
TABLE OF CONTENTS
Page
ARTICLE 1
The Merger and Related Matters
1.1 Definitions.................................................... 2
1.2 The Merger..................................................... 2
1.3 Name and Continuing Operations................................. 2
1.4 Management of FNB and Bedford Federal.......................... 2
1.5 The Closing and Effective Date................................. 3
ARTICLE 2
Basis and Manner of Conversion
2.1 Conversion of BBI Stock........................................ 3
2.2 Allocation..................................................... 4
2.3 Election....................................................... 4
2.4 Allocation of Cash Election Shares............................. 5
2.5 Allocation of Stock Election Shares............................ 5
2.6 No Allocation.................................................. 6
2.7 Computations................................................... 6
2.8 Cancellation of Shares......................................... 6
ARTICLE 3
Manner of Exchange
3.1 Exchange Procedures............................................ 6
3.2 Distributions with Respect to Unexchanged Shares............... 8
3.3 No Fractional Securities....................................... 8
3.4 Certain Adjustments............................................ 8
3.5 Rights of Dissenting Shareholders.............................. 8
ARTICLE 4
Representations and Warranties
4.1 Representations and Warranties of BBI.......................... 8
(a) Organization, Standing and Power......................... 8
(b) Authority................................................ 9
(c) Capital Structure........................................ 9
(d) Ownership Capital Structure and
Organization of Bedford Federal..................... 10
(e) Financial Statements..................................... 10
(f) Absence of Undisclosed Liabilities....................... 11
(g) Legal Proceedings; Compliance with Laws.................. 11
(h) Regulatory Approvals..................................... 11
(i) Labor Relations.......................................... 12
(j) Tax Matters.............................................. 12
(k) Property................................................. 12
(l) Reports.................................................. 12
(m) Employee Benefit Plans and Other
Compensatory Arrangements.......................... 12
(n) Investment Securities.................................... 14
(o) Certain Contracts........................................ 14
(p) Insurance................................................ 14
(q) Loans, OREO and Allowance for Loan Losses................ 15
(r) Absence of Material Changes and Events................... 16
(s) Statements True and Correct.............................. 16
(t) Brokers and Finders...................................... 16
(u) Repurchase Agreements.................................... 16
(v) Trust Accounts........................................... 16
(w) Environmental Matters.................................... 16
(x) Investment Banking Letter................................ 18
4.2 Representations and Warranties of FNB........................... 18
(a) Organization, Standing and Power......................... 18
(b) Authority................................................ 18
(c) Capital Structure........................................ 19
(d) Ownership of the FNB Subsidiaries; Capital Structure
of the FNB Subsidiaries; and Organization of the FNB
Subsidiaries........................................... 19
(e) Financial Statements..................................... 20
(f) Absence of Undisclosed Liabilities....................... 20
(g) Legal Proceedings; Compliance with Laws.................. 20
(h) Regulatory Approvals..................................... 21
(i) Labor Relations.......................................... 21
(j) Tax Matters.............................................. 21
(k) Property................................................. 21
(l) Reports.................................................. 22
(m) Employee Benefit Plans and
Other Compensatory Arrangements........................ 22
(n) Investment Securities.................................... 23
(o) Certain Contracts........................................ 23
(p) Insurance................................................ 23
(q) Loans, OREO, and Allowance for Loan Losses............... 24
(r) Absence of Material Changes and Events................... 25
(s) Statements True and Correct.............................. 25
(t) Brokers and Finders...................................... 25
(u) Repurchase Agreements.................................... 25
(v) Administration of Trust Accounts......................... 25
(w) Environmental Matters.................................... 26
(x) Investment Banking Letter................................ 27
ARTICLE 5
Conduct Prior to the Effective Date
5.1 Access to Records and Properties................................ 27
5.2 Confidentiality................................................. 27
5.3 Registration Statement, Proxy Statement and
Shareholder Approval............................................ 28
5.4 Operation of the Business of FNB and BBI........................ 28
5.5 Dividends....................................................... 30
5.6 No Solicitation................................................. 30
5.7 Regulatory Filings.............................................. 30
5.8 Public Announcements............................................ 30
5.9 Notice of Breach................................................ 31
5.10 Accounting Treatment............................................ 31
5.11 Merger Consummation............................................. 31
5.12 FNB Acquisition Transaction..................................... 31
5.13 Affiliate Agreements............................................ 31
5.14 Exchange Listing................................................ 31
ARTICLE 6
Additional Agreements
6.1 Conversion of Stock Options..................................... 31
6.2 Benefit Plans................................................... 32
6.3 Indemnification................................................. 34
6.4 Continuation of Bedford Directors............................... 34
ARTICLE 7
Conditions to the Merger
7.1 Conditions to Each Party's Obligations to Effect the Merger..... 35
(a) Shareholder Approval..................................... 35
(b) Regulatory Approvals..................................... 35
(c) Registration Statement................................... 35
(d) Tax Opinion.............................................. 35
(e) Opinions of Counsel...................................... 35
(f) Legal Proceedings........................................ 35
(g) Amendment of the Bedford Federal ESOP.................... 36
(h) Notice of Termination of the Bedford Pension Plan........ 36
7.2 Conditions to Obligations of FNB................................ 36
(a) Representations and Warranties........................... 36
(b) Performance of Obligations............................... 36
(c) Affiliate Agreements..................................... 36
(d) Investment Banking Letter................................ 36
7.3 Conditions to Obligations of BBI................................ 37
(a) Representations and Warranties........................... 37
(b) Performance of Obligations............................... 37
(c) Investment Banking Letter................................ 37
ARTICLE 8
Termination
8.1 Termination..................................................... 37
8.2 Effect of Termination........................................... 38
8.3 Non-Survival of Representations, Warranties and Covenants....... 38
8.4 Expenses........................................................ 38
ARTICLE 9
General Provisions
9.1 Entire Agreement................................................ 40
9.2 Waiver and Amendment............................................ 40
9.3 Descriptive Headings............................................ 40
9.4 Governing Law................................................... 40
9.5 Notices......................................................... 40
9.6 Counterparts.................................................... 41
9.7 Severability.................................................... 41
9.8 Subsidiaries.................................................... 42
Exhibit 1.4(a) - Addendum to Employment Agreement for Xxxxxx X. Xxxx
Exhibit 1.4(b) - Non-Competition Agreement for Xxxxxx X. Xxxx
Exhibit A - Plan of Merger between Bedford Bancshares, Inc. and
FNB Corporation
Exhibit B - Affiliate Agreement
Exhibit C - Certificates of Directors of BBI and Bedford Federal
Savings Bank and Directors of FNB
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered
into as of March 20, 2003, by and between FNB CORPORATION, a Virginia
corporation with its principal office located in Christiansburg, Virginia
("FNB"), and BEDFORD BANCSHARES, INC., a Virginia corporation with its principal
office located in Bedford, Virginia ("BBI").
WITNESSETH:
WHEREAS, FNB and BBI (together, the "Companies") desire to affiliate,
so that Bedford Federal Savings Bank ("Bedford Federal") will be a wholly-owned
subsidiary of FNB; and
WHEREAS, FNB and BBI have agreed to the affiliation of their two
companies through a merger under Virginia law, as a result of which BBI would
merge with and into FNB and the shareholders of BBI will become shareholders of
FNB, all as more specifically provided in this Agreement and the Plan of Merger
in the form attached hereto as Exhibit A (the "Plan"); and
WHEREAS, the Boards of Directors of the Companies each believe it is in
the best interests of their respective corporations and their shareholders to
affiliate as provided herein and that the respective shareholder values of FNB
and BBI can be maximized over time through this affiliation; and
WHEREAS, the Boards of Directors of the Companies each believe that the
transaction contemplated in this Agreement is in the best interests of the
communities they serve and of their respective employees; and
WHEREAS, the Boards of Directors of the Companies each believe that
after the affiliation the holding company structure should provide management
and technical assistance and support for recruitment, training and retention of
skilled officers and employees to their affiliates in order to enable the
combined organization to operate more efficiently; and
WHEREAS, the respective Boards of Directors of the Companies have
resolved that the transactions described herein are in the best interests of the
parties and their respective shareholders and have authorized and approved the
execution and delivery of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the parties hereby agree as follows:
ARTICLE 1
The Merger and Related Matters
1.1 Definitions. Any term defined anywhere in this Agreement shall have
the meaning ascribed to it for all purposes of this Agreement (unless expressly
noted to the contrary). In addition:
(a) The term "knowledge" when used with respect to a party shall mean
the knowledge of any "Executive Officer" of such party, as such term is defined
in Regulation O, (12 C.F.R. 215).
(b) The term "Material Adverse Effect", when applied to a party, shall
mean an event, occurrence or circumstance which (a) has or is reasonably likely
to have a material adverse effect on the financial position, results of
operations or business of the party and its subsidiaries, taken as a whole, or
(b) would materially impair the party's ability to perform its obligations under
this Agreement or the consummation of the Merger and the other transactions
contemplated by this Agreement; provided, however, that material adverse effect
and material impairment shall not be deemed to include the impact of (i) changes
in banking and similar laws of general applicability or interpretations thereof
by courts or governmental authorities, (ii) changes in generally accepted
accounting principles or regulatory accounting requirements applicable to
thrifts, banks, savings and loan holding companies and bank holding companies,
generally, (iii) actions or omissions of FNB or Bedford Federal taken with the
prior written consent of the other in contemplation of the transactions
contemplated hereby, and (iv) the Merger and related expenses associated with
the transactions contemplated by this Agreement on the operating performance of
the parties to this Agreement.
(c) The term "Previously Disclosed" by a party shall mean information
set forth in a written disclosure letter that is delivered by that party to the
other party prior to or contemporaneously with the execution of this Agreement
and specifically designated as information "Previously Disclosed" pursuant to
this Agreement. The inclusion of a given item in such written disclosure letter
shall not be deemed a conclusion or admission that such item (or any other item)
is material or has a Material Adverse Effect. Information disclosed for one
section shall constitute disclosure for other sections whether or not
specifically referenced.
1.2 The Merger. Subject to the terms and conditions of this Agreement,
at the Effective Date as defined in Section 1.5 hereof, BBI will be merged with
and into FNB (the "Merger"). At the Effective Date, the Merger shall have the
effect as provided in Section 13.1-721 of the Virginia Stock Corporation Act.
1.3 Name and Continuing Operations. The name and banking offices of
Bedford Federal will not change as a result of the Merger. After the Effective
Date, FNB shall continue to be headquartered in Christiansburg, Virginia.
1.4 Management of FNB and Bedford Federal. Except as noted hereinafter,
the directors, officers and employees of Bedford Federal will not change as a
result of the Merger except that an individual selected by FNB shall be
appointed to the Board of Bedford Federal.
-2-
On the Effective Date, the number of Directors of FNB shall be increased by two
members who shall be individuals recommended by the BBI Board and selected by
FNB, at least one of whom shall be independent as such term is defined at the
time of such appointments under the Marketplace Rules of The Nasdaq Stock
Market, Inc., and who shall then be appointed to the Board of FNB. At the next
annual meeting of shareholders of FNB, management of FNB will recommend to
shareholders that the two new members be elected as members of the Board of FNB.
In addition, as of the Effective Date, FNB shall enter into an Addendum to
Employment Agreement for Xxxxxx X. Xxxx, as attached hereto as Exhibit 1.4(a).
In addition, as of the Effective Date, FNB shall enter into an agreement with
Xxxxxx X. Xxxx in which FNB agrees to pay Xx. Xxxx $50,000 each year for two
years in consideration for his agreement not to compete with FNB and its
affiliates for a period of two years from the Effective Date, as provided in a
Non-competition Agreement attached hereto as Exhibit 1.4(b).
1.5 The Closing and Effective Date. The closing of the transactions
contemplated by this Agreement and the Plan of Merger shall take place at the
offices of FNB in Christiansburg, Virginia or at such other place as may be
mutually agreed upon by the parties. The Merger shall become effective on the
date shown on the Certificate of Merger issued by the State Corporation
Commission of Virginia (the "SCC") effecting the Merger (the "Effective Date").
Unless otherwise agreed upon in writing by the chief executive officers of FNB
and BBI, subject to the conditions to the obligations of the parties to effect
the Merger as set forth in Article 7, the parties shall use their best efforts
to cause the Effective Date to occur on the first day of the month following the
month in which the conditions set forth in Sections 7.1(a) and 7.1(b) are
satisfied. All documents required by the terms of this Agreement to be delivered
at or prior to consummation of the Merger will be exchanged by the parties at
the closing of the Merger (the "Merger Closing"), which shall be held on or
before the Effective Date. FNB and BBI shall execute and deliver to the SCC
Articles of Merger containing a Plan of Merger in substantially the form of
Exhibit A hereto.
ARTICLE 2
Basis and Manner of Conversion
2.1 Conversion of BBI Stock. At the Effective Date, by virtue of the
Merger, each share of the common stock, par value $0.10 per share, of BBI ("BBI
Common Stock") issued and outstanding immediately prior to the Effective Date
will be converted into either cash (the "Cash Consideration") or shares of
common stock, par value $5.00 per share, of FNB ("FNB Common Stock"), the "Stock
Consideration" (which Stock Consideration together with the Cash Consideration
shall be the "Merger Consideration"), in each case as the holder thereof shall
have elected or be deemed to have elected in accordance with Section 2.3 hereof.
In the case that the Market Value of FNB Common Stock (as defined later
in this Section 2.1) is equal to or more than $23.50 per share and less than or
equal to $26.00 per share, the Stock Consideration will equal 0.9135 shares of
FNB Common Stock for each outstanding share of BBI Common Stock and the Cash
Consideration will equal to 0.9135 times the Market Value of a share of FNB
Common Stock for each outstanding share of BBI Common Stock. In the case that
the Market Value of FNB Common Stock is more than $26.00 per share and less than
$30.00 per share, the Stock Consideration of 0.9135 shares of FNB Common Stock
for each
-3-
outstanding share of BBI Common Stock will be decreased by .0133625 shares of
FNB Common Stock for each $0.50 increase in Market Value between $26.00 per
share and $30.00 per share and the Cash Consideration will be adjusted
accordingly. In the case that the Market Value of FNB Common Stock is equal to
or greater than $30.00 per share and equal to or less than $32.50 per share, the
Stock Consideration will equal 0.8066 shares of FNB Common Stock for each
outstanding share of BBI Common Stock and the Cash Consideration will equal
0.8066 times the Market Value of a share of FNB Common Stock for each
outstanding share of BBI Common Stock.
The Market Value of FNB Common Stock will be the average of the last
reported sales prices per share of FNB Common Stock as reported on the NASDAQ
Exchange Composite Transactions Tape (as reported in The Wall Street Journal,
or, if not reported thereby, another authoritative source as chosen by FNB) for
the thirty consecutive full trading days on such exchange (even if FNB Common
Stock does not trade in each such day) ending at the close of trading on the
tenth calendar day before the Effective Date (the "Market Value" and the
"Measurement Period"). The ratio of shares of FNB's Common Stock that will be
exchanged for each outstanding share of BBI Common Stock shall be referred to
herein as the "Exchange Ratio" and shall be rounded to the nearest thousandth
decimal point.
2.2 Allocation. Notwithstanding anything in this Agreement to the
contrary, the aggregate amount of cash to be issued to shareholders of BBI in
the Merger shall not be less than twenty percent (20%) of the aggregate value of
the Merger Consideration (the "Cash Amount"); provided that FNB shall have the
option to change the Cash Number and the Stock Number to more closely follow the
actual elections of BBI shareholders pursuant to this Article 2, so long as such
modification to the Cash Number and the Stock Number does not prevent the
condition set forth in Section 7.1(d) from being satisfied and in no event shall
the number of shares of FNB Common Stock issued to BBI shareholder be less than
1,301,122 nor more than 1,473,562 shares, subject to further adjustment to the
extent the number of shares of BBI Common Stock shall increase as a result of
the exercise of BBI Options to acquire BBI Common Stock prior to the Effective
Date as permitted by Section 6.1 of this Agreement and for the effect of any
share adjustments to the extent that shares of FNB Common Stock are utilized by
the Bedford Federal ESOP trust (as defined in Section 6.2(c)), to repay the
Bedford Federal ESOP loan on or after the Effective Date. As used in this
Agreement, the Cash Number shall mean the aggregate number of shares of BBI
Common Stock to be converted into the right to receive the Cash Consideration in
the Merger, which shall be equal to the Cash Amount divided by the applicable
Cash Consideration per share of BBI Common Stock. The number of shares of BBI
Common Stock to be converted into the right to receive Stock Consideration (the
"Stock Number") will be equal to (i) the number of shares of BBI Common Stock
issued and outstanding immediately prior to the Effective Date of the Merger
less (ii) the sum of (A) the Cash Number and (B) the aggregate number of shares
of BBI Common Stock to be exchanged for cash pursuant to Section 3.3.
2.3 Election. Subject to allocation in accordance with the provisions
of this Article, each record holder of shares of BBI Common Stock issued and
outstanding immediately prior to the Election Deadline (as defined in Section
3.1(i)) will be entitled, in accordance with Section 3.1, (i) to elect to
receive in respect of shares held in such manner (A) Cash Consideration (a "Cash
Election") or (B) Stock Consideration (a "Stock Election") on a share-by-share
basis thus,
-4-
making an election for all Cash Consideration, all Stock Consideration, or a
mixture thereof or (ii) to indicate that such record holder has no preference as
to the receipt of Cash Consideration or Stock Consideration for all such shares
held by such holder (a "Non-Election"). Shares of BBI Common Stock in respect of
which a Non-Election is made or as to which no election is made (collectively,
"Non-Election Shares") shall be deemed by the Exchange Agent (as defined in
Section 3.1(i)) to be shares in respect of which Cash Elections or Stock
Elections have been made, as the Exchange Agent, as directed by FNB, shall
determine. Holders of record of shares of BBI Common Stock who hold such shares
as nominees, trustees or in other representative capacities (a "Representative")
may submit multiple Forms of Election (as hereinafter defined), provided that
each such Form of Election covers all the shares of BBI Common Stock held by
that Representative for a particular beneficial owner.
2.4 Allocation of Cash Election Shares. In the event that the aggregate
number of shares in respect of which Cash Elections have been made (the "Cash
Election Shares") exceeds the Cash Number, all shares of BBI Common Stock in
respect of which Stock Elections have been made (the "Stock Election Shares")
and all Non-Election Shares will be converted into the right to receive Stock
Consideration (and cash in lieu of fractional interests in accordance with
Section 3.3), and Cash Election Shares will be converted into the right to
receive Cash Consideration or Stock Consideration in the following manner:
(i) the number of Cash Election Shares covered by each Form of Election
(as defined in Section 3.1(i)) to be converted into Cash Consideration will be
determined by multiplying the number of Cash Election Shares covered by such
Form of Election by a fraction, (A) the numerator of which is the Cash Number
and (B) the denominator of which is the aggregate number of Cash Election Shares
rounded down to the nearest whole number; and
(ii) all Cash Election Shares not converted into Cash Consideration in
accordance with Section 2.4(i) will be converted into the right to receive Stock
Consideration (and cash in lieu of fractional interests in accordance with
Section 3.3).
Provided, however, that cash in lieu of fractional interests and cash to be paid
in connection with rights of dissenting shareholders, as provided in Sections
3.3 and 3.5, respectively, shall not be included in any determination of whether
this Section 2.4 shall be given effect.
2.5 Allocation of Stock Election Shares. In the event that the
aggregate number of Stock Election Shares exceeds the Stock Number, all Cash
Election Shares and all Non-Election Shares (together, the " Cash Shares") will
be converted into the right to receive Cash Consideration, and all Stock
Election Shares will be converted into the right to receive Cash Consideration
or Stock Consideration in the following manner:
(i) the number of Stock Election Shares covered by each Form of
Election to be converted into Cash Consideration will be determined by
multiplying the number of Stock Election Shares covered by such Form of Election
by a fraction, (A) the numerator of which is the Cash Number less the number of
Cash Shares and (B) the denominator of which is the aggregate number of Stock
Election Shares,
-5-
rounded down to the nearest whole number, provided that in no event shall the
maximum number of shares to be issued by FNB pursuant to which a Stock Election
is made exceed 1,473,562 shares and in no event shall the minimum number of
shares to be issued by FNB pursuant to which a Stock Election is made be less
than 1,301,122 shares, subject to further adjustment to the extent the number of
shares of BBI Common Stock shall increase as a result of the exercise of BBI
Options to acquire BBI Common Stock prior to the Effective Date as permitted by
Section 6.1 of this Agreement and for the effect of any share adjustments to the
extent that shares of FNB Common Stock are utilized by the Bedford Federal ESOP
trust to repay the Bedford Federal ESOP loan on or after the Effective Date; and
(ii) all Stock Election Shares not converted into Cash Consideration in
accordance with Section 2.5(i) will be converted into the right to receive Stock
Consideration (and cash in lieu of fractional interests in accordance with
Section 3.3).
2.6 No Allocation. In the event that neither Section 2.4 nor Section
2.5 is applicable, all Cash Election Shares will be converted into the right to
receive Cash Consideration, all Stock Election Shares will be converted into the
right to receive Stock Consideration (and cash in lieu of fractional interests
in accordance with Section 3.3) and Non-Election Shares will be converted into
the right to receive Cash Consideration or Stock Consideration (and cash in lieu
of fractional interests in accordance with Section 3.3) as the Exchange Agent,
as directed by FNB, shall determine.
2.7 Computations. The Exchange Agent will make all computations to give
effect to this Article 2.
2.8 Cancellation of Shares. As of the Effective Date of the Merger, all
such shares of BBI Common Stock will no longer be outstanding and automatically
be cancelled and retired and will cease to exist and each holder of a
certificate formerly representing any such shares of BBI Common Stock (a "BBI
Certificate") will cease to have any rights with respect thereto, except the
right to receive Merger Consideration and any additional cash in lieu of
fractional shares of FNB Common Stock to be issued or paid in consideration
therefor upon surrender of such BBI Certificate in accordance with Article 3,
without interest, subject to rights of dissenting shareholders as provided under
Section 3.5.
ARTICLE 3
Manner of Exchange
3.1 Exchange Procedures.
(i) Not more than 5 days after the Merger has been approved by the
shareholders of FNB and BBI (the "Mailing Date"), Registrar and Transfer
Company, Cranford, New Jersey, as the exchange agent (the "Exchange Agent"),
will mail a form of election (the "Form of Election") to each shareholder of
record of BBI as of a record date as close as practicable to the date of mailing
and mutually agreed
-6-
to by BBI and FNB. In addition, the Exchange Agent will use its best efforts to
make the Form of Election available to the persons who become shareholders of
BBI during the period between such record date and the Effective Date. Any
election to receive Merger Consideration will have been properly made only if
the Exchange Agent shall have received on the thirtieth (30th) business day
immediately after the Mailing Date (the "Election Deadline"), a Form of Election
properly completed and accompanied by a BBI Certificate ("Certificate(s)") for
the shares to which such Form of Election relates, acceptable for transfer on
the books of BBI (or an appropriate guarantee of delivery), as set forth in such
Form of Election. An election may be revoked only by written notice received by
the Exchange Agent prior to 5:00 p.m. on the Election Deadline. If an election
is so revoked, the Certificate(s) (or guarantee of delivery, as appropriate) to
which such election relates will be promptly returned to the person submitting
the same to the Exchange Agent.
(ii) As soon as reasonably practicable after the Effective Date, but in
no event later than five (5) calendar days thereafter, the Exchange Agent will
mail to each holder of record of a Certificate, whose shares of BBI Common Stock
were converted into the right to receive Merger Consideration and those who
failed to return a properly completed Form of Election, (i) a letter of
transmittal (which will specify that delivery will be effected, and risk of loss
and title to the Certificates will pass, only upon delivery of the Certificates
to the Exchange Agent and will be in such form and have such other provisions as
the Exchange Agent may specify consistent with this Agreement) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for the Merger Consideration.
(iii) With respect to properly made elections in accordance with
Section 3.1(i), and upon surrender in accordance with Section 3.1(ii) of a
Certificate for cancellation to the Exchange Agent, together with such letter of
transmittal, duly executed, and such other documents as may reasonably be
required by the Exchange Agent, the holder of such Certificate will be entitled
to receive in exchange therefor the Merger Consideration that such holder has
the right to receive pursuant to the provisions of Article 2, and the
Certificate so surrendered will forthwith be canceled. In the event of a
transfer of ownership of Shares that are not registered in the transfer records
of BBI, as the case may be, payment may be issued to a person other than the
person in whose name the Certificate so surrendered is registered if such
Certificate is properly endorsed or otherwise in proper form for transfer and
the person requesting such issuance pays any transfer or other taxes required by
reason of such payment to a person other than the registered holder of such
Certificate or establishes to the satisfaction of FNB that such tax has been
paid or is not applicable. Until surrendered as contemplated by this Section
3.1, each Certificate will be deemed at any time after the Effective Date to
represent only the right to receive upon such surrender the Merger Consideration
that the holder thereof has the right to receive in respect of such Certificate
pursuant to the provisions of Article 2. No interest will be paid or will
-7-
accrue on any cash payable to holders of Certificates pursuant to the provisions
of Article 2.
3.2 Distributions with Respect to Unexchanged Shares. No dividends or
other distributions with respect to the shares of BBI Common Stock with a record
date after the Effective Date shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of BBI Common Stock represented thereby,
and no cash payment in lieu of any fractional shares shall be paid to any such
holder pursuant to Section 3.3. Subject to the effect of unclaimed property,
escheat and other applicable laws, following surrender of any such Certificate,
there shall be paid to the holder of the Certificate representing whole shares
of BBI Common Stock issued in exchange therefor, without interest, (i) at the
time of such surrender, the amount of any cash payable in lieu of a fractional
share of BBI Common Stock to which such holder is entitled pursuant to Section
3.3, and (ii) the amount of dividends or other distributions, if any, with a
record date after the Effective Date.
3.3 No Fractional Securities. No FNB Certificates or scrip representing
fractional shares of FNB Common Stock shall be issued upon the surrender for
exchange of Certificates, and such fractional shares shall not entitle the owner
thereof to vote or to any other rights of a holder of FNB Common Stock. A holder
of Shares converted in the Merger who would otherwise have been entitled to a
fractional share of FNB Common Stock shall be entitled to receive a cash payment
(without interest) in lieu of such fractional share in an amount determined by
multiplying (i) the fractional share interest to which such holder would
otherwise be entitled by (ii) the equivalent exchange value of FNB Common Stock
in the Merger.
3.4 Certain Adjustments. If, after the date hereof and on or prior to
the Effective Date, the outstanding shares of BBI Common Stock shall be changed
into a different number of shares by reason of any reclassification,
recapitalization, split-up, combination or exchange of shares, or any dividend
payable in stock or other securities is declared thereon with a record date
within such period, or any similar event shall occur, the Merger Consideration
will be adjusted accordingly to provide to the holders of BBI Common Stock,
respectively, the same economic effect as contemplated by this Agreement prior
to such reclassification, recapitalization, split-up, combination, exchange or
dividend or similar event.
3.5 Rights of Dissenting Shareholders. Shareholders of FNB and BBI who
object to the Merger will be entitled to the rights and remedies set forth in
sections 13.1-729 through 13.1-741 of the Virginia Stock Corporation Act.
ARTICLE 4 Representations and Warranties
4.1 Representations and Warranties of BBI. BBI represents and warrants
to FNB as follows:
(a) Organization, Standing and Power. (1) BBI is a corporation duly
organized, validly existing and in good standing under the laws of Virginia. It
has all requisite corporate power and authority to carry on its business as now
being conducted and to own and operate its assets, properties and business, and
BBI has the corporate power and authority to
-8-
execute and deliver this Agreement and perform the respective terms of this
Agreement and Plan of Merger. BBI is duly registered as a unitary savings and
loan holding company under 12 X.X.X.xx. 1467a. Bedford Federal and Central
Virginia Financial Services are the only subsidiaries of BBI and are
wholly-owned by it. Bedford Federal is a federal savings bank, duly organized,
validly existing and in good standing under the laws of the United States, is in
compliance in all material respects with all rules and regulations promulgated
by any relevant regulatory authority, has all requisite corporate power and
authority to carry on its business as now being conducted and to own and operate
its assets, properties and business, is an "insured bank" as defined in the
Federal Deposit Insurance Act and applicable regulations thereunder, and its
deposits are insured to the fullest extent allowed by law by the Federal Deposit
Insurance Corporation.
(2) Except as Previously Disclosed, neither BBI nor Bedford Federal
(collectively with BBI, the "BBI Companies") owns any equity securities of any
other corporation or entity.
(b) Authority. (1) The execution and delivery of this Agreement and the
Plan of Merger and the consummation of the Merger have been duly and validly
authorized by all necessary corporate action on the part of BBI, except the
approval of shareholders. The Agreement has been approved by a unanimous vote of
BBI's Board of Directors and represents the legal, valid, and binding obligation
of BBI, enforceable against BBI in accordance with its terms (except in all such
cases as enforceability may be limited by applicable bankruptcy, insolvency,
merger, moratorium or similar laws affecting the enforcement of creditors'
rights generally and except that the availability of the equitable remedy of
specific performance or injunctive relief is subject to the discretion of the
court before which any proceeding may be brought).
(2) Neither the execution and delivery of the Agreement, the
consummation of the transactions contemplated therein, nor the compliance by BBI
with any of the provisions thereof will (i) conflict with or result in a breach
of any provision of the Articles of Incorporation or Bylaws of BBI, (ii) except
as Previously Disclosed, constitute or result in the breach of any term,
condition or provision of, or constitute default under, or give rise to any
right of termination, cancellation or acceleration with respect to, or result in
the creation of any lien, charge or encumbrance upon, any property or assets of
the BBI Companies pursuant to (A) any note, bond, mortgage, indenture, or (B)
any material license, agreement, lease or other instrument or obligation, to
which any of the BBI Companies is a party or by which any of them or any of
their properties or assets may be bound, or (iii) subject to the receipt of the
requisite approvals referred to in Section 5.7, violate any order, writ,
injunction, decree, statute, rule or regulation applicable to any of the BBI
Companies or any of their properties or assets.
(c) Capital Structure. The authorized capital stock of BBI consists of
2,750,000 shares of common stock, par value $0.10 per share ("BBI Common
Stock"), of which 2,016,368 shares are issued and outstanding, fully paid and
nonassessable, not subject to shareholder preemptive rights, and not issued in
violation of any agreement to which BBI is a party or otherwise bound, or of any
registration or qualification provisions of any federal or state securities laws
and outstanding options to purchase 114,124 shares of BBI Common Stock;
-9-
250,000 shares of preferred stock, par value $0.10 per share ("BBI Preferred
Stock"), none of which shares are issued and outstanding. Except as Previously
Disclosed, there are no outstanding understandings or commitments of any
character pursuant to which BBI and any of the BBI Companies could be required
or expected to issue shares of capital stock.
(d) Ownership, Capital Structure, and Organization of Bedford Federal.
(1) BBI does not own, directly or indirectly, 5% or more of the outstanding
capital stock or other voting securities of any corporation, bank or other
organization actively engaged in business except Bedford Federal and a service
corporation wholly-owned by BBI, Central Virginia Financial Services. The
outstanding shares of capital stock of Bedford Federal have been duly authorized
and are validly issued, and are fully paid and nonassessable and all such shares
are owned by BBI free and clear of all liens, claims and encumbrances and were
not issued in violation of any agreement or of any regulation or qualification
provisions of federal or state securities laws. No rights are authorized, issued
or outstanding with respect to the capital stock of Bedford Federal and there
are no agreements, understandings or commitments relating to the right of BBI to
vote or to dispose of said shares. None of the shares of capital stock of
Bedford Federal has been issued in violation of the preemptive rights of any
person.
(2) Bedford Federal is a duly organized federal savings bank, validly
existing and in good standing under applicable laws. Bedford Federal (i) has
full corporate power and authority to own, lease and operate its properties and
to carry on its business as now conducted except where the absence of such power
or authority would not have a material adverse effect on the financial
condition, results of operations or business of BBI on a consolidated basis, and
(ii) is duly qualified to do business in the states of the United States and
foreign jurisdictions where its ownership or leasing of property or the conduct
of its business requires such qualification and where failure to do qualify
would have a material adverse effect on the financial condition, results of
operations or business of BBI on a consolidated basis. Bedford Federal has all
federal, state, local and foreign governmental authorizations and licenses
necessary for it to own or lease its properties and assets and to carry on its
business as it is now being conducted, except where failure to obtain such
authorization or license would not have a material adverse effect on its
business.
(e) Financial Statements. BBI's Annual Report on Form 10-KSB for the
fiscal year ended September 30, 2002, and all other documents filed or to be
filed subsequent to September 30, 2002, under Sections 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934, as amended (together with the rules and
regulations thereunder, the "Exchange Act"), in the form filed with the SEC (in
each such case, the "BBI Financial Statements") 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 made therein, in light of
the circumstances under which they were made, not misleading; and each of the
balance sheets in or incorporated by reference into the BBI Financial Statements
(including the related notes and schedules thereto) fairly presents and will
fairly present the financial position of the entity or entities to which it
relates as of its date and each of the statements of income and changes in
stockholders' equity and cash flows or equivalent statements in the BBI
Financial Statements (including any related notes and schedules thereto) fairly
presents and will fairly present the results of operations, changes in
stockholders' equity and changes in cash flows, as the case may be, of the
-10-
entity or entities to which it relates for the periods set forth therein, in
each case in accordance with generally accepted accounting principles
consistently applied to banks and savings and loan holding companies during the
periods involved, except as may be noted therein, subject to normal and
recurring year-end audit adjustments in the case of unaudited statements.
(f) Absence of Undisclosed Liabilities. At September 30, 2002, and at
any subsequent date reflected in such BBI Financial Statements, none of the BBI
Companies had any obligation or liability (contingent or otherwise) of any
nature which were not reflected in the BBI Financial Statements, except for
those which in the aggregate are immaterial or have been Previously Disclosed.
(g) Legal Proceedings; Compliance with Laws. Except as Previously
Disclosed, there are no actions, suits or proceedings instituted or pending or,
to the knowledge of BBI, threatened or probable of assertion against any of the
BBI Companies, or against any property, asset, interest or right of any of them,
that are reasonably expected to have, either individually or in the aggregate, a
Material Adverse Effect on the financial condition of BBI on a consolidated
basis or that are reasonably expected to threaten or impede the consummation of
the transactions contemplated by this Agreement. None of the BBI Companies is a
party to any agreement or instrument or subject to any judgment, order, writ,
injunction, decree or rule that might reasonably be expected to have a material
adverse effect on the condition (financial or otherwise), business or prospects
of BBI on a consolidated basis. Except as Previously Disclosed, as of the date
of this Agreement, none of the BBI Companies nor any of their 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, any federal or state governmental agency or authority charged
with the supervision or regulation of depository institutions or mortgage
lenders or engaged in the insurance of deposits which restricts or purports to
restrict in any material respect the conduct of the business of it or any of its
subsidiaries or properties, or in any manner relates to the capital, liquidity,
credit policies or management of it; and except as Previously Disclosed, none of
the BBI Companies has been advised by any such regulatory authority that such
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 or similar submission. To the
best knowledge of BBI, the BBI Companies have complied in all material respects
with all laws, ordinances, requirements, regulations or orders applicable to its
business (including environmental laws, ordinances, requirements, regulations or
orders).
(h) Regulatory Approvals. BBI knows of no reason why the regulatory
approvals referred to in Section 7.1(b) should not be obtained without the
imposition of any condition of the type referred to in Section 7.1(b). Bedford
Federal is in material compliance with the applicable provisions of the
Community Reinvestment Act and the regulations promulgated thereunder, and
Bedford Federal currently has a CRA rating of satisfactory or better. To the
knowledge of BBI, there is no fact or circumstance or set of facts or
circumstances that would cause Bedford Federal to fail to comply with such
provisions or cause the rating of Bedford Federal to fall below satisfactory.
-11-
(i) Labor Relations. None of the BBI Companies is a party to, or is
bound by any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization, nor is it the subject of
a proceeding asserting that is has committed an unfair labor practice (within
the meaning of the National Labor Relations Act) or seeking to compel it to
bargain with any labor organization as to wages and conditions of employment,
nor is there any strike or other labor dispute involving it, pending or, to the
best of its knowledge, threatened, nor is it aware of any activity involving its
employees seeking to certify a collective bargaining unit or engaging in any
other organizational activity.
(j) Tax Matters. The BBI Companies have filed all federal, state, and
local tax returns and reports required to be filed, and all taxes shown by such
returns to be due and payable have been paid or are reflected as a liability in
the BBI Financial Statements or are being contested in good faith and have been
Previously Disclosed. Except to the extent that liabilities therefore are
specifically reflected in the BBI Financial Statements, there are no federal,
state or local tax liabilities of the BBI Companies other than liabilities that
have arisen since December 31, 2001, all of which have been properly accrued or
otherwise provided for on the books and records of the BBI Companies. Except as
Previously Disclosed, no tax return or report of any of the BBI Companies is
under examination by any taxing authority or the subject of any administrative
or judicial proceeding, and no unpaid tax deficiency has been asserted against
any of the BBI Companies by any taxing authority.
(k) Property. Except as Previously Disclosed or reserved against in the
BBI Financial Statements, all of the BBI Companies have good and marketable
title free and clear of all material liens, encumbrances, charges, defaults or
equities of whatever character to all of the material properties and assets,
tangible or intangible, reflected in the BBI Financial Statements as being owned
by the BBI Companies as of the dates thereof. To the best knowledge of BBI, all
buildings, and all fixtures, equipment, and other property and assets which are
material to its business on a consolidated basis, held under leases or subleases
by the BBI Companies are held under valid instruments enforceable in accordance
with their respective terms, subject to bankruptcy, insolvency, merger,
moratorium and similar laws. The buildings, structures, and appurtenances owned,
leased, or occupied by the BBI Companies are, to the best knowledge of BBI, in
good operating condition, in a state of good maintenance and repair and (i)
comply with applicable zoning and other municipal laws and regulations, and (ii)
there are no defects therein which materially interfere with BBI's business
operations.
(l) Reports. Since January 1, 2000, the BBI Companies have filed all
reports and statements, together with any amendments required to be made with
respect thereto, that were required to be filed with the OTS, the SEC, the
Federal Reserve, the SCC, and any other governmental or regulatory authority or
agency having jurisdiction over their operations.
(m) Employee Benefit Plans and Other Compensatory Arrangements. (1) As
soon as practicable, BBI will deliver for FNB's review true and complete copies
of all material pension, retirement, profit-sharing, deferred compensation,
stock option, bonus, vacation or other material incentive plans or agreements,
all material medical, dental or other health plans, all cafeteria or flexible
benefits plans, all life insurance plans and all other material employee
compensation, benefit plans or fringe benefit plans and any related trust or
other
-12-
funding instrument, including, without limitation, all "employee benefit plans"
as that term is defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), currently adopted, maintained by,
sponsored in whole or in part by, or contributed to by BBI or Bedford Federal
for the benefit of current or former employees, retirees or other beneficiaries
eligible to participate (collectively, the "BBI Benefit Plans"). Any of the BBI
Benefit Plans which is an "employee pension benefit plan," as that term is
defined in Section 3(2) of ERISA, is referred to herein as a "BBI ERISA Plan."
(2) No BBI Benefit Plan is or has been a "multiemployer plan," as
defined in Section 3(37) of ERISA.
(3) Except as Previously Disclosed, all BBI Benefit Plans, and the
reporting and disclosure relating thereto, are in compliance in form and in
operation with the applicable terms of ERISA, the Internal Revenue Code of 1986,
as amended (the "IRC"), and any other applicable laws, rules and regulations the
breach or violation of which could result in a material liability to BBI on a
consolidated basis. In the case of any plan intended to be qualified under IRC
Section 401, compliance with such qualification requirements shall mean the
timely adoption of all plan amendments and the receipt of a current, favorable
determination letter from the Internal Revenue Service based on laws changes
effective through 2001 for which the remedial amendment period under Section
401(b) of the Code has ended and the operation of the plan in accordance with
its terms or in accordance with any subsequently enacted law for which such
remedial amendment period for adopting plan amendments has not yet ended.
(4) No BBI ERISA Plan which is subject to the minimum funding standards
of Section 302 of ERISA or IRC Section 412 has any "unfunded current liability,"
as that term is defined in Section 302(d)(8)(A) of ERISA, and the present fair
market value of the assets of any such plan which is a "defined benefit plan,"
as that term is defined in Section 3(35) of ERISA, exceeds the plan's "benefit
liabilities," as that term is defined in Section 4001(a)(16) of ERISA, when
determined under actuarial factors that would apply if the plan was terminated
in accordance with all applicable legal requirements.
(5) Except as Previously Disclosed, there are no issues or disputes
with respect to any BBI Benefit Plan or the administration thereof currently
existing between any employer participating therein, or any trustee or other
fiduciary thereunder, and any governmental agency, any current or former
participant of such plan or beneficiary of any such employee, or any other
person or entity other than claims for benefits in the ordinary course of the
administration of such plan.
(6) Except as Previously Disclosed, as provided under Title IV of ERISA
or as otherwise specifically provided in this Agreement, there are no
restrictions on the rights of BBI or Bedford Federal to amend or terminate any
BBI Benefit Plan without incurring any liability thereunder other than for
benefits accrued to the date of the termination.
(7) Except as Previously Disclosed or as otherwise specifically
provided in this Agreement, neither the execution and delivery of this Agreement
nor the consummation of the transactions described herein will (i) result in any
payment to any person
-13-
(including without limitation any severance compensation or payment,
unemployment compensation, "golden parachute" or "change in control" payment, or
otherwise) becoming due under any plan or agreement to any director, officer,
employee or consultant, (ii) increase any benefits otherwise payable under any
plan or agreement, or (iii) result in any acceleration of the time of payment or
vesting of any such benefit.
(n) Investment Securities. Except as Previously Disclosed and except
for pledges to secure public and trust deposits and obligations under agreements
pursuant to which any of the BBI Companies has sold securities subject to an
obligation to repurchase, none of the investment securities reflected in the BBI
Financial Statements is subject to any restriction, contractual, statutory, or
otherwise, which would materially impair the ability of the holder of such
investment to dispose freely of any such investment at any time.
(o) Certain Contracts. (1) Except as Previously Disclosed, neither BBI
nor any BBI subsidiary is a party to, or is bound by, (i) any material
agreement, arrangement or commitment, (ii) any agreement, indenture or other
instrument relating to the borrowing of money by BBI or Bedford Federal or the
guarantee by BBI or Bedford Federal of any such obligation, (iii) any agreement,
arrangement or commitment relating to the employment of a consultant or the
employment, election, retention in office or severance of any present or former
director or officer, (iv) any agreement to make loans or for the provision,
purchase or sale of goods, services or property between BBI or Bedford Federal
and any director or officer of BBI or Bedford Federal, or any member of the
immediate family or affiliate of any of the foregoing, or (v) any agreement
between BBI or Bedford Federal and any 5% or more shareholder of BBI; in each
case other than agreements entered into in the ordinary course of the banking
business of BBI or Bedford Federal consistent with past practice.
(2) Neither BBI or Bedford Federal, nor to the knowledge of BBI, the
other party thereto, is in default under any material agreement, commitment,
arrangement, lease, insurance policy or other instrument whether entered into in
the ordinary course of business or otherwise, nor has there occurred any event
that, with the lapse of time or giving of notice or both, would constitute such
a default, other than defaults of loan agreements by borrowers from BBI or
Bedford Federal in the ordinary course of its business.
(p) Insurance. A complete list of all policies or binders of fire,
liability, product liability, workmen's compensation, vehicular and other
insurance held by or on behalf of the BBI Companies has previously been
furnished to FNB and all such policies or binders are valid and enforceable in
accordance with their terms, are in full force and effect, and insure against
risks and liabilities to the extent and in the manner customary for the industry
and are deemed appropriate and sufficient by BBI. The BBI Companies are not in
default with respect to any provision contained in any such policy or binder and
have not failed to give any notice or present any claim under any such policy or
binder in due and timely fashion. None of the BBI Companies has received notice
of cancellation or non-renewal of any such policy or binder. None of the BBI
Companies has knowledge of any inaccuracy in any application for such policies
or binders, any failure to pay premiums when due or any similar state of facts
or the occurrence of any event that is reasonably likely to form the basis for
any material claim against it not fully covered (except to the extent of any
applicable deductible) by the policies or binders
-14-
referred to above. None of the BBI Companies has received notice from any of its
insurance carriers that any insurance premiums will be increased materially in
the future or that any such insurance coverage will not be available in the
future on substantially the same terms as now in effect.
(q) Loans, OREO, and Allowance for Loan Losses. (1) Except as
Previously Disclosed, and except for matters which individually or in the
aggregate, do not materially adversely effect the Merger or the financial
condition of BBI, to BBI's knowledge each loan reflected as an asset in the BBI
Financial Statements or the financial statements of Bedford Federal (i) is
evidenced by notes, agreements, or other evidences of indebtedness which are
true, genuine and what they purport to be, (ii) to the extent secured, has been
secured by valid liens and security interests which 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, and
other laws of general applicability relating to or affecting creditors' rights
and to general equity principles. All loans and extensions of credit which are
subject to regulation of the Federal Reserve which have been made by BBI and
Bedford Federal comply therewith.
(2) The classification on the books and records of BBI and Bedford
Federal of loans and/or non-performing assets as nonaccrual, troubled debt
restructuring, OREO or other similar classification, complies in all material
respects with generally accepted accounting principles and applicable regulatory
accounting principles.
(3) Except for liens, security interests, claims, charges, or such
other encumbrances as have been appropriately reserved for in the BBI Financial
Statements or are not material, title to the OREO is good and marketable, and
there are no adverse claims or encumbrances on the OREO. All title, hazard and
other insurance claims and mortgage guaranty claims with respect to the OREO
have been timely filed and neither BBI nor Bedford Federal has been received any
notice of denial of any such claim.
(4) BBI and Bedford Federal are in possession of all of the OREO or, if
any of the OREO remains occupied by the mortgagor, eviction or summary
proceedings have been commenced or rental arrangements providing for market
rental rates have been agreed upon and BBI and/or Bedford Federal are diligently
pursuing such eviction of summary proceedings or such rental arrangements.
Except as Previously Disclosed, no legal proceeding or quasi-legal proceeding is
pending or, to the knowledge of BBI and Bedford Federal, threatened concerning
any OREO or any servicing activity or omission to provide a servicing activity
with respect to any of the OREO.
(5) Except as Previously Disclosed, all loans made by any of the BBI
Companies to facilitate the disposition of OREO are performing in accordance
with their terms.
(6) The allowance for possible loan losses shown on the BBI Financial
Statements was, and the allowance for possible loan losses shown on the
financial statements of BBI as of dates subsequent to the execution of this
Agreement will be, in each case as of the dates thereof and in the judgment of
BBI's management, adequate in all material respects to
-15-
provide for possible losses, net of recoveries relating to loans previously
charged off, on loans outstanding (including accrued interest receivable) of the
BBI Companies and other extensions of credit (including letters of credit and
commitments to make loans or extend credit) by BBI.
(r) Absence of Material Changes and Events. Since September 30, 2002,
(i) the BBI Companies have conducted their respective businesses in the ordinary
and usual course consistent with past practices, and (ii) no event has occurred
or circumstance arisen that, in the aggregate, has had or is reasonably likely
to have a Material Adverse Effect on the BBI Companies.
(s) Statements True and Correct. None of the information supplied or to
be supplied by BBI for inclusion in the Registration Statement, the proxy
statement/prospectus or any other document to be filed with the SEC or any other
regulatory authority in connection with the transactions contemplated hereby,
will, at the respective time such documents are filed, and, in the case of the
Registration Statement, when it becomes effective and with respect to the proxy
statement/prospectus, when first mailed to FNB shareholders, be false or
misleading with respect to any material fact or omit to state any material fact
necessary in order to make the statements therein not misleading, or, in the
case of the proxy statement/prospectus or any supplement thereto, at the time of
the FNB Shareholders' Meeting or BBI Shareholders' Meeting, be false or
misleading with respect to any material fact or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of any proxy for the FNB Shareholders' Meeting. All documents
that BBI is responsible for filing with the SEC or any other regulatory
authority in connection with the transactions contemplated hereby will comply as
to form in all material respects with the provisions of applicable law,
including applicable provisions of federal and state securities law.
(t) Brokers and Finders. Neither BBI nor Bedford Federal, nor any of
their respective officers, directors or employees, has employed any broker,
finder or financial advisor or incurred any liability for any fees or
commissions in connection with the transactions contemplated herein, except for
McDonald Investments, Inc.
(u) Repurchase Agreements. With respect to all agreements pursuant to
which BBI or Bedford Federal has purchased securities subject to an agreement to
resell, if any, BBI or Bedford Federal, as the case may be, has a valid,
perfected first lien or security interest in 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.
(v) Trust Accounts. Bedford Federal does not provide trust services.
(w) Environmental Matters. (1) Except as Previously Disclosed, to the
best of BBI's knowledge, neither BBI nor Bedford Federal owns or leases any
properties affected by toxic waste, radon gas or other hazardous conditions or
constructed in part with the use of asbestos. Each of BBI and Bedford Federal is
in substantial compliance with all Environmental Laws applicable to real or
personal properties in which it has a direct fee ownership or, with respect to a
direct interest as lessee, applicable to the leasehold premises or, to the best
knowledge of BBI and Bedford Federal, the premises on which the leasehold is
situated. Neither
-16-
BBI nor Bedford Federal has received any communication alleging that BBI or
Bedford Federal is not in such compliance and, to the best knowledge of BBI and
Bedford Federal, there are no present circumstances (including Environmental
Laws that have been adopted but are not yet effective) that would prevent or
interfere with the continuation of such compliance.
(2) There are no legal, administrative, arbitral or other claims,
causes of action or governmental investigations of any nature, seeking to
impose, or that could result in the imposition, on BBI and Bedford Federal of
any liability arising under any Environmental Laws pending or, to the best
knowledge of BBI and Bedford Federal, threatened against (A) BBI or Bedford
Federal, (B) any person or entity whose liability for any Environmental Claim,
BBI or Bedford Federal has or may have retained or assumed either contractually
or by operation of law, or (C) any real or personal property which BBI or
Bedford Federal owns or leases, or has been or is judged to have managed or to
have supervised or participated in the management of, which liability might have
a material adverse effect on the business, financial condition or results of
operations of BBI. BBI and Bedford Federal are not subject to any agreement,
order, judgment, decree or memorandum by or with any court, governmental
authority, regulatory agency or third party imposing any such liability.
(3) To the best knowledge of BBI and Bedford Federal, there are no
legal, administrative, arbitral or other proceedings, or Environmental Claims or
other claims, causes of action or governmental investigations of any nature,
seeking to impose, or that could result in the imposition, on BBI or Bedford
Federal of any liability arising under any Environmental Laws pending or
threatened against any real or personal property in which BBI or Bedford Federal
holds a security interest in connection with a loan or a loan participation
which liability might have a material adverse effect on the business, financial
condition or results of operations of BBI. BBI and Bedford Federal are not
subject to any agreement, order, judgment, decree or memorandum by or with any
court, governmental authority, regulatory agency or third party imposing any
such liability.
(4) With respect to all real and personal property owned or leased by
BBI or Bedford Federal, other than OREO, BBI has made available to FNB copies of
any environmental audits, analyses and surveys that have been prepared relating
to such properties. With respect to all OREO held by BBI or Bedford Federal and
all real or personal property which BBI or Bedford Federal has been or is judged
to have managed or to have supervised or participated in the management of, BBI
has made available to FNB the information relating to such OREO available to
BBI. BBI and Bedford Federal are in compliance in all material respects with all
recommendations contained in any environmental audits, analyses and surveys
relating to any of the properties, real or personal, described in this
subsection (4).
(5) There are no past or present actions, activities, circumstances,
conditions, events or incidents, including, without limitation, the release,
emission, discharge or disposal of any Materials of Environmental Concern, that
could reasonably form the basis of any Environmental Claim or other claim or
action or governmental investigation that could result in the imposition of any
material liability arising under any Environmental Laws currently in effect or
adopted but not yet effective against BBI or Bedford Federal or against any
person or entity
-17-
whose liability for any Environmental Claim BBI or Bedford Federal has or may
have retained or assumed either contractually or by operation of law.
(x) Investment Banking Letter. BBI has received a written opinion in
form and substance satisfactory to BBI from McDonald Investments, Inc. addressed
to BBI, which opinion is dated as of the date of the Agreement, to the effect
that the terms of the Merger, including the Exchange Ratio, are fair, from a
financial point of view, to BBI.
4.2 Representations and Warranties of FNB. FNB represents and warrants
to BBI as follows:
(a) Organization, Standing and Power. (1) FNB is a corporation duly
organized, validly existing and in good standing under the laws of Virginia. It
has all requisite corporate power and authority to carry on its business as now
being conducted and to own and operate its assets, properties and business, and
FNB has the corporate power and authority to execute and deliver this Agreement
and perform the respective terms of this Agreement and Plan of Merger. FNB is
duly registered as a bank holding company under the Bank Holding Company Act of
1956. First National Bank and FNB Salem Bank & Trust, National Association are
each a wholly owned subsidiary of FNB, are each a national banking association,
duly organized, validly existing and in good standing under the laws of the
United States, are each in compliance in all material respects with all rules
and regulations promulgated by any relevant regulatory authority, each has all
requisite corporate power and authority to carry on its business as now being
conducted and to own and operate its assets, properties and business, are each
an "insured bank" as defined in the Federal Deposit Insurance Act and applicable
regulations thereunder and their deposits are insured to the fullest extent
allowed by law by the Bank Insurance Fund of the Federal Deposit Insurance
Corporation.
(2) FNB has Previously Disclosed its subsidiary corporations (and the
subsidiaries thereof) (the "FNB Subsidiaries" and, collectively with FNB, the
"FNB Companies"). Except as Previously Disclosed, none of the FNB Companies owns
any equity securities of any other corporation or entity.
(b) Authority. (1) The execution and delivery of this Agreement and the
Plan of Merger and the consummation of the Merger have been duly and validly
authorized by all necessary corporate action on the part of FNB, except the
approval of shareholders. The Agreement represents the legal, valid, and binding
obligation of FNB, enforceable against FNB in accordance with its terms (except
in all such cases as enforceability may be limited by applicable bankruptcy,
insolvency, merger, moratorium or similar laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought).
(2) Neither the execution and delivery of the Agreement, the
consummation of the transactions contemplated therein, nor the compliance by FNB
with any of the provisions thereof will (i) conflict with or result in a breach
of any provision of the Articles of Incorporation or Bylaws of FNB, (ii) except
as Previously Disclosed, constitute or result in the
-18-
breach of any term, condition or provision of, or constitute default under, or
give rise to any right of termination, cancellation or acceleration with respect
to, or result in the creation of any lien, charge or encumbrance upon, any
property or assets of the FNB Companies pursuant to (A) any note, bond,
mortgage, indenture, or (B) any material license, agreement, lease or other
instrument or obligation, to which any of the FNB Companies is a party or by
which any of them or any of their properties or assets may be bound, or (iii)
subject to the receipt of the requisite approvals referred to in Section 4.7,
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to any of the FNB Companies or any of their properties or assets.
(c) Capital Structure. The authorized capital stock of FNB consists of:
25,000,000 shares of common stock, par value $5.00 per share ("FNB Common
Stock"), of which 5,813,897 shares are issued and outstanding, fully paid and
nonassessable, not subject to shareholder preemptive rights, and not issued in
violation of any agreement to which FNB is a party or otherwise bound, or of any
registration or qualification provisions of any federal or state securities
laws. The shares of FNB Common Stock to be issued in exchange for shares of BBI
Common Stock upon consummation of the Merger will have been duly authorized and,
when issued in accordance with the terms of this Agreement, will be validly
issued, fully paid and nonassessable and subject to no preemptive rights. Except
as Previously Disclosed, there are no outstanding understandings or commitments
of any character pursuant to which FNB and any of the FNB Companies could be
required or expected to issue shares of capital stock.
(d) Ownership of the FNB Subsidiaries; Capital Structure of FNB
Subsidiaries; and Organization of the FNB Subsidiaries. (1) FNB does not own,
directly or indirectly, 5% or more of the outstanding capital stock or other
voting securities of any corporation, bank or other organization actively
engaged in business except as Previously Disclosed. The outstanding shares of
capital stock of each FNB Subsidiary have been duly authorized and are validly
issued, and are fully paid and nonassessable and all such shares are owned by
FNB or an FNB Subsidiary free and clear of all liens, claims and encumbrances
and were not issued in violation of any agreement or of any regulation or
qualification provisions of federal or state securities laws. No rights are
authorized, issued or outstanding with respect to the capital stock of any FNB
Subsidiary and there are no agreements, understandings or commitments relating
to the right of FNB to vote or to dispose of said shares. None of the shares of
capital stock of any FNB Subsidiary has been issued in violation of the
preemptive rights of any person.
(2) Each FNB Subsidiary is a duly organized corporation or association,
validly existing and in good standing under applicable laws. Each FNB Subsidiary
(i) has full corporate power and authority to own, lease and operate its
properties and to carry on its business as now conducted except where the
absence of such power or authority would not have a material adverse effect on
the financial condition, results of operations or business of FNB on a
consolidated basis, and (ii) is duly qualified to do business in the states of
the United States and foreign jurisdictions where its ownership or leasing of
property or the conduct of its business requires such qualification and where
failure to do qualify would have a material adverse effect on the financial
condition, results of operations or business of FNB on a consolidated basis.
Each FNB Subsidiary has all federal, state, local and foreign governmental
authorizations and licenses necessary for it to own or lease its properties and
assets and to carry
-19-
on its business as it is now being conducted, except where failure to obtain
such authorization or license would not have a material adverse effect on the
business of such FNB Subsidiary.
(e) Financial Statements. FNB's Annual Report on Form 10-K for the
fiscal year ended December 31, 2001, and all other documents filed or to be
filed subsequent to December 31, 2001 under Sections 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934, as amended (together with the rules and
regulations thereunder, the "Exchange Act"), in the form filed with the SEC (in
each such case, the "FNB Financial Statements") 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 made therein, in light of
the circumstances under which they were made, not misleading; and each of the
balance sheets in or incorporated by reference into the FNB Financial Statements
(including the related notes and schedules thereto) fairly presents and will
fairly present the financial position of the entity or entities to which it
relates as of its date and each of the statements of income and changes in
stockholders' equity and cash flows or equivalent statements in the FNB
Financial Statements (including any related notes and schedules thereto) fairly
presents and will fairly present the results of operations, changes in
stockholders' equity and changes in cash flows, as the case may be, of the
entity or entities to which it relates for the periods set forth therein, in
each case in accordance with generally accepted accounting principles
consistently applied to banks and bank holding companies during the periods
involved, except as may be noted therein, subject to normal and recurring
year-end audit adjustments in the case of unaudited statements.
(f) Absence of Undisclosed Liabilities. At December 31, 2001, and at
any subsequent date reflected in such FNB Financial Statements, none of the FNB
Companies had any obligation or liability (contingent or otherwise) of any
nature which were not reflected in the FNB Financial Statements, except for
those which in the aggregate are immaterial or have been Previously Disclosed.
(g) Legal Proceedings; Compliance with Laws. Except as Previously
Disclosed, there are no actions, suits or proceedings instituted or pending or,
to the best knowledge of FNB, threatened or probable of assertion against any of
the FNB Companies, or against any property, asset, interest or right of any of
them, that are reasonably expected to have, either individually or in the
aggregate, a Material Adverse Effect on the financial condition of FNB on a
consolidated basis or that are reasonably expected to threaten or impede the
consummation of the transactions contemplated by this Agreement. None of the FNB
Companies is a party to any agreement or instrument or subject to any judgment,
order, writ, injunction, decree or rule that might reasonably be expected to
have a material adverse effect on the condition (financial or otherwise),
business or prospects of FNB on a consolidated basis. Except as Previously
Disclosed, as of the date of this Agreement, none of the FNB Companies nor any
of their 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, any federal or state governmental agency or authority
charged with the supervision or regulation of depository institutions or
mortgage lenders or engaged in the insurance of deposits which restricts or
purports to restrict in any material respect the conduct of the business of it
or any of its subsidiaries or properties, or in any manner relates to the
capital, liquidity, credit policies or management of it; and except as
Previously Disclosed, none of the
-20-
FNB Companies has been advised by any such regulatory authority that such
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 or similar submission. To the
best knowledge of FNB, the FNB Companies have complied in all material respects
with all laws, ordinances, requirements, regulations or orders applicable to its
business (including environmental laws, ordinances, requirements, regulations or
orders).
(h) Regulatory Approvals. FNB knows of no reason why the regulatory
approvals referred to in Section 7.1(b) should not be obtained without the
imposition of any condition of the type referred to in Section 7.1(b). First
National is in material compliance with the applicable provisions of the
Community Reinvestment Act and the regulations promulgated thereunder, and First
National currently has a CRA rating of satisfactory or better. To the knowledge
of FNB, there is no fact or circumstance or set of facts or circumstances that
would cause First National to fail to comply with such provisions or cause the
rating of First National to fall below satisfactory.
(i) Labor Relations. None of the FNB Companies is a party to, or is
bound by any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization, nor is it the subject of
a proceeding asserting that is has committed an unfair labor practice (within
the meaning of the National Labor Relations Act) or seeking to compel it to
bargain with any labor organization as to wages and conditions of employment,
nor is there any strike or other labor dispute involving it, pending or, to the
best of its knowledge, threatened, nor is it aware of any activity involving its
employees seeking to certify a collective bargaining unit or engaging in any
other organizational activity.
(j) Tax Matters. The FNB Companies have filed all federal, state, and
local tax returns and reports required to be filed, and all taxes shown by such
returns to be due and payable have been paid or are reflected as a liability in
the FNB Financial Statements or are being contested in good faith and have been
Previously Disclosed. Except to the extent that liabilities therefor are
specifically reflected in the FNB Financial Statements, there are no federal,
state or local tax liabilities of the FNB Companies other than liabilities that
have arisen since December 31, 2001, all of which have been properly accrued or
otherwise provided for on the books and records of the FNB Companies. Except as
Previously Disclosed, no tax return or report of any of the FNB Companies is
under examination by any taxing authority or the subject of any administrative
or judicial proceeding, and no unpaid tax deficiency has been asserted against
any of the FNB Companies by any taxing authority.
(k) Property. Except as disclosed or reserved against in the FNB
Financial Statements, all of the FNB Companies have good and marketable title
free and clear of all material liens, encumbrances, charges, defaults or
equities of whatever character to all of the material properties and assets,
tangible or intangible, reflected in the FNB Financial Statements as being owned
by the FNB Companies as of the dates thereof. To the best knowledge of FNB, all
buildings, and all fixtures, equipment, and other property and assets which are
material to its business on a consolidated basis, held under leases or subleases
by the FNB Companies are held under valid instruments enforceable in accordance
with their respective terms, subject to bankruptcy, insolvency, merger,
moratorium and similar laws. The buildings, structures, and
-21-
appurtenances owned, leased, or occupied by the FNB Companies are, to the best
knowledge of FNB, in good operating condition, in a state of good maintenance
and repair and (i) comply with applicable zoning and other municipal laws and
regulations, and (ii) there are no latent defects therein.
(l) Reports. Since January 1, 2000, the FNB Companies have filed all
reports and statements, together with any amendments required to be made with
respect thereto, that were required to be filed with the OCC, the SEC, the
Federal Reserve, the SCC, and any other governmental or regulatory authority or
agency having jurisdiction over their operations.
(m) Employee Benefit Plans and Other Compensatory Arrangements. (1) As
soon as practicable, FNB will provide a summary for BBI, or deliver for BBI's
review true and complete copies, of all material pension, retirement,
profit-sharing, deferred compensation, stock option, bonus, vacation or other
material incentive plans or agreements, all material medical, dental or other
health plans, all cafeteria or flexible benefits plans, all life insurance plans
and all other material employee compensation, benefit plans or fringe benefit
plans and any related trust or other funding instrument, including, without
limitation, all "employee benefit plans" as that term is defined in Section 3(3)
of the ERISA, currently adopted, maintained by, sponsored in whole or in part
by, or contributed to by FNB or any FNB Subsidiary for the benefit of current or
former employees, retirees or other beneficiaries eligible to participate
(collectively, the "FNB Benefit Plans").
(2) No FNB Benefit Plan is or has been a "multiemployer plan," as
defined in Section 3(37) of ERISA.
(3) Except as Previously Disclosed, all FNB Benefit Plans, and the
reporting and disclosure relating thereto, are in compliance in form and in
operation with the applicable terms of ERISA, the IRC, and any other applicable
laws, rules and regulations the breach or violation of which could result in a
material liability to FNB on a consolidated basis. In the case of any plan
intended to be qualified under IRC Section 401, compliance with such
qualification requirements shall mean the timely adoption of all plan amendments
and the receipt of a current, favorable determination letter from the Internal
Revenue Service based on laws changes effective through 2001 for which the
remedial amendment period under Section 401(b) of the Code has ended and the
operation of the plan in accordance with its terms or in accordance with any
subsequently enacted law for which such remedial amendment period for adopting
plan amendments has not yet ended.
(4) No FNB ERISA Plan which is subject to the minimum funding standards
of Section 302 of ERISA or IRC Section 412 has any "unfunded current liability,"
as that term is defined in Section 302(d)(8)(A) of ERISA, and the present fair
market value of the assets of any such plan which is a "defined benefit plan,"
as that term is defined in Section 3(35) of ERISA, exceeds the plan's "benefit
liabilities," as that term is defined in Section 4001(a)(16) of ERISA, when
determined under actuarial factors that would apply if the plan was terminated
in accordance with all applicable legal requirements.
-22-
(n) Investment Securities. Except for pledges to secure public and
trust deposits and obligations under agreements pursuant to which any of the FNB
Companies has sold securities subject to an obligation to repurchase, none of
the investment securities reflected in the FNB Financial Statements is subject
to any restriction, contractual, statutory, or otherwise, which would impair
materially the ability of the holder of such investment to dispose freely of any
such investment at any time.
(o) Certain Contracts. (1) Except as Previously Disclosed, neither FNB
nor any FNB subsidiary is a party to, or is bound by, (i) any material
agreement, arrangement or commitment, (ii) any agreement, indenture or other
instrument relating to the borrowing of money by FNB or any FNB Subsidiary or
the guarantee by FNB or any FNB Subsidiary of any such obligation, (iii) any
agreement, arrangement or commitment relating to the employment of a consultant
or the employment, election, retention in office or severance of any present or
former director or officer, (iv) any agreement to make loans or for the
provision, purchase or sale of goods, services or property between FNB or any
FNB Subsidiary and any director or officer of FNB or any FNB Subsidiary, or any
member of the immediate family or affiliate of any of the foregoing, or (v) any
agreement between FNB or any FNB Subsidiary and any 5% or more shareholder of
FNB; in each case other than agreements entered into in the ordinary course of
the banking business of FNB or a FNB Subsidiary consistent with past practice.
(2) Neither FNB or any FNB Subsidiary, nor to the knowledge of FNB, the
other party thereto, is in default under any material agreement, commitment,
arrangement, lease, insurance policy or other instrument whether entered into in
the ordinary course of business or otherwise, nor has there occurred any event
that, with the lapse of time or giving of notice or both, would constitute such
a default, other than defaults of loan agreements by borrowers from FNB or a FNB
Subsidiary in the ordinary course of its business.
(p) Insurance. A complete list of all policies or binders of fire,
liability, product liability, workmen's compensation, vehicular and other
insurance held by or on behalf of the FNB Companies has previously been
furnished to BBI and all such policies or binders are valid and enforceable in
accordance with their terms, are in full force and effect, and insure against
risks and liabilities to the extent and in the manner customary for the industry
and are deemed appropriate and sufficient by FNB. The FNB Companies are not in
default with respect to any provision contained in any such policy or binder and
have not failed to give any notice or present any claim under any such policy or
binder in due and timely fashion. None of the FNB Companies has received notice
of cancellation or non-renewal of any such policy or binder. None of the FNB
Companies has knowledge of any inaccuracy in any application for such policies
or binders, any failure to pay premiums when due or any similar state of facts
or the occurrence of any event that is reasonably likely to form the basis for
any material claim against it not fully covered (except to the extent of any
applicable deductible) by the policies or binders referred to above. None of the
FNB Companies has received notice from any of its insurance carriers that any
insurance premiums will be increased materially in the future or that any such
insurance coverage will not be available in the future on substantially the same
terms as now in effect.
-23-
(q) Loans, OREO, and Allowance for Loan Losses. (1) Except as
Previously Disclosed, and except for matters which individually or in the
aggregate, do not materially adversely affect the Merger or the financial
condition of FNB, to FNB's best knowledge each loan reflected as an asset in the
FNB Financial Statements or the financial statements of any FNB Subsidiary (i)
is evidenced by notes, agreements, or other evidences of indebtedness which are
true, genuine and what they purport to be, (ii) to the extent secured, has been
secured by valid liens and security interests which 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, and
other laws of general applicability relating to or affecting creditors' rights
and to general equity principles. All loans and extensions of credit which are
subject to regulation of the Federal Reserve which have been made by FNB and the
FNB Subsidiaries comply therewith.
(2) The classification on the books and records of FNB and each FNB
Subsidiary of loans and/or non-performing assets as nonaccrual, troubled debt
restructuring, OREO or other similar classification, complies in all material
respects with generally accepted accounting principles and applicable regulatory
accounting principles.
(3) Except for liens, security interests, claims, charges, or such
other encumbrances as have been appropriately reserved for in the FNB Financial
Statements or are not material, title to the OREO is good and marketable, and
there are no adverse claims or encumbrances on the OREO. All title, hazard and
other insurance claims and mortgage guaranty claims with respect to the OREO
have been timely filed and neither FNB nor any FNB Subsidiary has been received
any notice of denial of any such claim.
(4) FNB and each FNB Subsidiary are in possession of all of the OREO
or, if any of the OREO remains occupied by the mortgagor, eviction or summary
proceedings have been commenced or rental arrangements providing for market
rental rates have been agreed upon and FNB and/or each FNB Subsidiary are
diligently pursuing such eviction of summary proceedings or such rental
arrangements. Except as Previously Disclosed, no legal proceeding or quasi-legal
proceeding is pending or, to the knowledge of FNB and each FNB Subsidiary,
threatened concerning any OREO or any servicing activity or omission to provide
a servicing activity with respect to any of the OREO.
(5) Except as Previously Disclosed, all loans made by any of the FNB
Companies to facilitate the disposition of OREO are performing in accordance
with their terms.
(6) The allowance for possible loan losses shown on the FNB Financial
Statements was, and the allowance for possible loan losses shown on the
financial statements of FNB as of dates subsequent to the execution of this
Agreement will be, in each case as of the dates thereof, adequate in all
material respects to provide for possible losses, net of recoveries relating to
loans previously charged off, on loans outstanding (including accrued interest
receivable) of the FNB Companies and other extensions of credit (including
letters of credit and commitments to make loans or extend credit) by FNB.
-24-
(r) Absence of Material Changes and Events. Since December 31, 2002,
(i) the FNB Companies have conducted their respective businesses in the ordinary
and usual course consistent with past practices, and (ii) no event has occurred
or circumstance arisen that, in the aggregate, has had or is reasonably likely
to have a Material Adverse Effect on the FNB Companies.
(s) Statements True and Correct. None of the information supplied or to
be supplied by FNB for inclusion in the Registration Statement, the proxy
statement/prospectus or any other document to be filed with the SEC or any other
regulatory authority in connection with the transactions contemplated hereby,
will, at the respective time such documents are filed, and, in the case of the
Registration Statement, when it becomes effective and with respect to the proxy
statement/prospectus, when first mailed to BBI shareholders, be false or
misleading with respect to any material fact or omit to state any material fact
necessary in order to make the statements therein not misleading, or, in the
case of the proxy statement/prospectus or any supplement thereto, at the time of
the BBI Shareholders' Meeting or FNB Shareholders' Meeting, be false or
misleading with respect to any material fact or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of any proxy for the BBI Shareholders' Meeting. All documents
that FNB is responsible for filing with the SEC or any other regulatory
authority in connection with the transactions contemplated hereby will comply as
to form in all material respects with the provisions of applicable law,
including applicable provisions of federal and state securities law.
(t) Brokers and Finders. Neither FNB nor any FNB Subsidiary, nor any of
their respective officers, directors or employees, has employed any broker,
finder or financial advisor or incurred any liability for any fees or
commissions in connection with the transactions contemplated herein, except for
The Xxxxxx Xxxxxx Company.
(u) Repurchase Agreements. With respect to all agreements pursuant to
which FNB or any FNB Subsidiary has purchased securities subject to an agreement
to resell, if any, FNB or such FNB Subsidiary, as the case may be, has a valid,
perfected first lien or security interest in 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.
(v) Administration of Trust Accounts. FNB and FNB Subsidiaries have
properly administered, in all respects material and which could reasonably be
expected to be material to the business, operations or financial condition of
FNB and FNB Subsidiaries, taken as a whole, all accounts for which they act as
fiduciaries including but not limited to accounts for which they serve as
trustees, agents, custodians, personal representatives, guardians, conservators
or investment advisors, in accordance with the terms of the governing documents
and applicable state and federal law and regulation and common law. Neither FNB
nor a FNB Subsidiary, nor any director, officer or employee of FNB or a FNB
Subsidiary has committed any breach of trust with respect to any such fiduciary
account which is material to or could reasonably be expected to be material to
the business, operations or financial condition of FNB, or a FNB Subsidiary,
taken as a whole, and the accountings for each such fiduciary account are true
and correct in all material respects and accurately reflect the assets of such
fiduciary account in all material respects.
-25-
(w) Environmental Matters. (1) Except as Previously Disclosed, to the
best of FNB's knowledge, neither FNB nor any FNB Subsidiary owns or leases any
properties affected by toxic waste, radon gas or other hazardous conditions or
constructed in part with the use of asbestos. Each of FNB and the FNB
Subsidiaries is in substantial compliance with all Environmental Laws applicable
to real or personal properties in which it has a direct fee ownership or, with
respect to a direct interest as lessee, applicable to the leasehold premises or,
to the best knowledge of FNB and the FNB Subsidiaries, the premises on which the
leasehold is situated. Neither FNB nor any FNB Subsidiary has received any
Communication alleging that FNB or such FNB Subsidiary is not in such compliance
and, to the best knowledge of FNB and the FNB Subsidiaries, there are no present
circumstances (including Environmental Laws that have been adopted but are not
yet effective) that would prevent or interfere with the continuation of such
compliance.
(2) There are no legal, administrative, arbitral or other claims,
causes of action or governmental investigations of any nature, seeking to
impose, or that could result in the imposition, on FNB and the FNB Subsidiaries
of any liability arising under any Environmental Laws pending or, to the best
knowledge of FNB and the FNB Subsidiaries, threatened against (A) FNB or any FNB
Subsidiary, (B) any person or entity whose liability for any Environmental
Claim, FNB or any FNB Subsidiary has or may have retained or assumed either
contractually or by operation of law, or (C) any real or personal property which
FNB or any FNB Subsidiary owns or leases, or has been or is judged to have
managed or to have supervised or participated in the management of, which
liability might have a material adverse effect on the business, financial
condition or results of operations of FNB. FNB and the FNB Subsidiaries are not
subject to any agreement, order, judgment, decree or memorandum by or with any
court, governmental authority, regulatory agency or third party imposing any
such liability.
(3) To the best knowledge of FNB and the FNB Subsidiaries, there are no
legal, administrative, arbitral or other proceedings, or Environmental Claims or
other claims, causes of action or governmental investigations of any nature,
seeking to impose, or that could result in the imposition, on FNB or any FNB
Subsidiary of any liability arising under any Environmental Laws pending or
threatened against any real or personal property in which FNB or any FNB
Subsidiary holds a security interest in connection with a loan or a loan
participation which liability might have a material adverse effect on the
business, financial condition or results of operations of FNB. FNB and the FNB
Subsidiaries are not subject to any agreement, order, judgment, decree or
memorandum by or with any court, governmental authority, regulatory agency or
third party imposing any such liability.
(4) With respect to all real and personal property owned or leased by
FNB or any FNB Subsidiary, other than OREO, FNB has made available to BBI copies
of any environmental audits, analyses and surveys that have been prepared
relating to such properties. With respect to all OREO held by FNB or any FNB
Subsidiary and all real or personal property which FNB or any FNB Subsidiary has
been or is judged to have managed or to have supervised or participated in the
management of, FNB has made available to BBI the information relating to such
OREO available to FNB. FNB and the FNB Subsidiaries are in compliance in all
material
-26-
respects with all recommendations contained in any environmental audits,
analyses and surveys relating to any of the properties, real or personal,
described in this subsection (4).
(5) There are no past or present actions, activities, circumstances,
conditions, events or incidents, including, without limitation, the release,
emission, discharge or disposal of any Materials of Environmental Concern, that
could reasonably form the basis of any Environmental Claim or other claim or
action or governmental investigation that could result in the imposition of any
liability arising under any Environmental Laws currently in effect or adopted
but not yet effective against FNB or any FNB Subsidiary or against any person or
entity whose liability for any Environmental Claim FNB or any FNB Subsidiary has
or may have retained or assumed either contractually or by operation of law.
Neither FNB, nor any FNB subsidiary, nor any of their respective officers,
directors, and employees, will take any action that would result in the Merger
not constituting a tax free transaction within the meaning of Section 368 of the
IRC.
(x) Investment Banking Letter. FNB has received a written opinion in
form and substance satisfactory to FNB from The Xxxxxx Xxxxxx Company addressed
to FNB, which opinion is dated as of the date of the Agreement, to the effect
that the terms of the Merger, including the Exchange Ratio, are fair, from a
financial point of view, to FNB.
ARTICLE 5
Conduct Prior to the Effective Date
5.1 Access to Records and Properties. BBI will keep FNB, and FNB will
keep BBI advised of all material developments relevant to their respective
businesses prior to consummation of the Merger. Prior to the Effective Date,
FNB, on the one hand, and BBI on the other, agree to give to the other party
reasonable access to all the premises and books and records (including tax
returns filed and those in preparation) of it and its subsidiaries and to cause
its officers to furnish the other with such financial and operating data and
other information with respect to the business and properties as the other shall
from time to time request for the purposes of verifying the warranties and
representations set forth herein; provided, however, that any such investigation
shall be conducted in such manner as not to interfere unreasonably with the
operation of the respective business of the other.
5.2 Confidentiality. Between the date of this Agreement and the
Effective Date, FNB and BBI each will maintain in confidence, and cause its
directors, officers, employees, agents and advisors to maintain in confidence,
and not use to the detriment of the other party, any written, oral or other
information obtained in confidence from the other party or a third party in
connection with this Agreement or the transactions contemplated hereby unless
such information is already known to such party or to others not bound by a duty
of confidentiality or unless such information becomes publicly available through
no fault of such party, unless use of such information is necessary or
appropriate in making any filing or obtaining any consent or approval required
for the consummation of the transactions contemplated hereby or unless the
furnishing or use of such information is required by or necessary or appropriate
in connection
-27-
with legal proceedings. If the Merger is not consummated, each party will return
or destroy as much of such written information as may reasonably be requested.
5.3 Registration Statement, Proxy Statement and Shareholder Approval.
The Board of Directors of BBI and FNB each will duly call and will hold a
meeting of their respective shareholders as soon as practicable for the purpose
of approving the Merger (the "BBI Shareholders' Meeting" and the "FNB
Shareholders' Meeting," respectively); and, subject to the fiduciary duties of
the Board of Directors of BBI and of FNB (as advised in writing by its counsel),
BBI and FNB each shall use its best efforts to solicit and obtain votes of the
holders of its Common Stock in favor of the Merger and will comply with the
provisions in their respective Articles of Incorporation and Bylaws relating to
the call and holding of a meeting of shareholders for such purpose. BBI and FNB
each will use its best efforts to deliver to the other party a certificate
signed by each member of its respective Board of Directors with respect to that
member's voting of shares at a meeting of stockholders to approve the Agreement
(such certificate being in the form attached as Exhibit C to this Agreement) as
of the date of execution of this Agreement, and BBI and FNB each will use its
best efforts to facilitate that each member of the Board of Directors of BBI and
FNB shall vote all shares of BBI Common Stock and FNB Common Stock under his or
her control (and not held in a fiduciary capacity) in favor of the Merger; and
BBI and FNB each shall, subject to its fiduciary duty, at the other's request,
recess or adjourn the meeting if such recess or adjournment is deemed by the
other to be necessary or desirable. FNB and BBI will prepare jointly the proxy
statement/prospectus to be used in connection with the BBI Shareholders' Meeting
and the FNB Shareholders' Meeting (the "Joint Proxy Statement"). FNB will
prepare and file with the SEC the Registration Statement, of which such Joint
Proxy Statement shall be a part and will use its best efforts to have the
Registration Statement declared effective as promptly as possible. When the
Registration Statement or any post-effective amendment or supplement thereto
shall become effective, and at all times subsequent to such effectiveness, up to
and including the date of the Meetings, such Registration Statement and all
amendments or supplements thereto, with respect to all information set forth
therein furnished or to be furnished by BBI relating to the BBI Companies and by
FNB relating to the FNB Companies, (i) will comply in all material respects with
the provisions of the Securities Act of 1933 and any other applicable statutory
or regulatory requirements, including applicable state blue-sky and securities
laws, and (ii) 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 contained therein not misleading; provided, however, in no event
shall any party hereto be liable for any untrue statement of a material fact or
omission to state a material fact in the Registration Statement made in reliance
upon, and in conformity with, written information concerning another party
furnished by such other party specifically for use in the Registration
Statement.
5.4 Operation of the Business of FNB and BBI.
(a) From the date hereof to the Effective Date, BBI and FNB will
operate their respective businesses substantially as presently operated and only
in the ordinary course, and, consistent with such operation, will use their best
efforts to preserve intact their relationships with persons having business
dealings with them.
-28-
(b) Without limiting the generality of the foregoing, BBI shall not,
and will cause Bedford Federal not to, without the prior written consent of FNB,
which consent shall not be unreasonably withheld:
(1) Make any change in its authorized capital stock, make any awards
under its Management Stock Bonus Plan, or issue or sell any additional shares
of, securities convertible into or exchangeable for, or options, warrants or
rights to purchase, its capital stock, nor shall it purchase, redeem or
otherwise acquire any of its outstanding shares of capital stock, except to the
extent that additional shares of BBI Common Stock shall be issued in conformity
with Section 6.1 hereof upon the exercise of BBI Options as Previously
Disclosed.
(2) Voluntarily make any changes in the composition of its officers,
directors or other key management personnel.
(3) Make any change in the compensation or title of any officer,
director or key management employee or make any change in the compensation or
title of any other employee, other than consistent with past practices in the
ordinary course of business, any of which change shall be reported promptly to
FNB.
(4) Enter into any bonus, incentive compensation, stock option,
deferred compensation, profit sharing, thrift, retirement, pension, group
insurance or other benefit or any employment or consulting agreement, provided,
however, bonuses and incentive payments for calendar year 2003 may be made
consistent with past practices.
(5) Incur any obligation or liability (whether absolute or contingent,
excluding suits instituted against it), make any pledge, or encumber any of its
assets, nor dispose of any of its assets in any other manner, except in the
ordinary course of its business and for adequate value, and, excluding FHLB
borrowings consistent with past practice.
(6) Except as permitted by Section 5.4(b)(1) hereof, issue or contract
to issue any shares of its Common Stock, options for shares of its Common Stock,
or securities exchangeable for or convertible into such shares;
(7) Knowingly waive any right of substantial value;
(8) Enter into material transactions otherwise than in the ordinary
course of its business;
(9) Alter, amend or repeal its Bylaws or Articles of Incorporation;
(10) Propose or take any other action which would make any
representation or warranty in Section 4.1 hereof untrue; or
(11) Increase the employer contribution rate or amount, or accelerate
the time of payment of employer contributions beyond a chronological pro rata
accrual and payment, to the Bedford Federal ESOP (as defined in Section 6.2(c)),
its 401(k) plan and the
-29-
Bedford Federal Pension Plan (as defined in Section 6.2(e)), provided, however,
contributions to the Bedford Federal ESOP needed to service the scheduled
principal and interest payments on the Bedford Federal ESOP indebtedness prior
to the Effective Date (after taking into account dividends on unallocated ESOP
shares which may be used to service such indebtedness) may in any event be made
consistent with past practices, and provided, further, in accordance with
Section 6.2(c) herein, as of the Effective Date or as soon thereafter as
practical assets attributable to unallocated BBI shares held as collateral on
the Bedford Federal ESOP indebtedness shall be utilized to repay such
indebtedness and the remaining assets attributable to such unallocated BBI
shares shall be allocated in accordance with Section 6.2(c) and the terms of
such Bedford Federal ESOP.
5.5 Dividends. BBI may declare and pay only regular quarterly cash
dividends in the ordinary course of business consistent with past practice,
equal to $0.13 per share of BBI Common Stock, from the date of this Agreement
through the Effective Date, provided that any dividend declared or payable on
the shares of BBI Common Stock in the quarterly period during which the
Effective Date occurs shall, unless agreed upon in writing by FNB and BBI, be
declared with a record date prior to the Effective Date only if the normal
record date for payment of the corresponding quarterly dividend to holders of
FNB Common Stock is before the Effective Date.
5.6 No Solicitation. Without the prior written consent of FNB, BBI
shall not, and shall cause its officers, directors, agents, advisors and
affiliates not to, solicit or encourage inquires or proposals with respect to,
furnish any information relating to, or participate in any negotiations or
discussions concerning, an Acquisition Transaction (as hereinafter defined);
provided, however, that nothing contained in this Section 5.6 shall prohibit the
Board of Directors of BBI from furnishing information to, or entering into
discussions or negotiations with, any person or entity that makes an
unsolicited, written bona fide proposal regarding an Acquisition Transaction if,
and only to the extent that (A) the Board of Directors of BBI concludes in good
faith, after consultation with and consideration of the written advice of
outside counsel, that the failure to furnish such information or enter into such
discussions or negotiations would constitute a breach of its fiduciary duties to
shareholders under applicable law, and (B) the Board of Directors of BBI
concludes in good faith that the proposal regarding the Acquisition Transaction
contains an offer of consideration that is superior to the consideration set
forth herein. BBI shall immediately notify FNB orally and in writing of its
receipt of any such proposal or inquiry. For purposes of this Agreement,
"Acquisition Transaction" means any merger, consolidation, share exchange, joint
venture, business combination or similar transaction or any purchase of all or
any material portion of the assets of an entity.
5.7 Regulatory Filings. FNB and BBI shall prepare jointly all
regulatory filings required to consummate the transactions contemplated by the
Agreement and the Plan of Merger and submit the filings for approval with the
OTS, the Federal Reserve Board and the SCC, and any other governing regulatory
authority, as soon as practicable after the date hereof. FNB and BBI shall use
their best efforts to obtain approvals of such filings.
5.8 Public Announcements. Each party will consult with the other before
issuing any press release or otherwise making any public statements with respect
to the Merger and shall
-30-
not issue any such press release or make any such public statement prior to such
consultations except as may be required by law.
5.9 Notice of Breach. FNB and BBI will give written notice to the other
promptly upon becoming aware of the impending or threatened occurrence of any
events which would cause or constitute a breach of any of the representations,
warranties or covenants made to the other party in this Agreement and will use
its best efforts to prevent or promptly remedy the same.
5.10 Accounting Treatment. FNB and BBI acknowledge that the Merger
shall be accounted for as a purchase under generally accepted accounting
principles.
5.11 Merger Consummation. Subject to the terms and conditions of this
Agreement, each party shall use its 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, as promptly as
practicable so as to permit consummation of the Merger at the earliest possible
date, consistent with Section 1.5 herein, and to otherwise enable consummation
of the transactions contemplated hereby and shall cooperate fully with the other
parties hereto to that end, and each of FNB and BBI shall use, and shall cause
each of their respective subsidiaries to use, its best efforts to obtain all
consents (governmental or other) necessary or desirable for the consummation of
the transactions contemplated by this Agreement.
5.12 FNB Acquisition Transaction. Nothing contained in this Agreement
shall prevent FNB from entering into an Acquisition Transaction with a third
party so long as FNB and its successors comply with the terms of the Merger with
BBI.
5.13 Affiliate Agreements. BBI shall use its best efforts to cause each
director, executive officer and other person who is an "affiliate" of BBI under
Rule 145 of the Securities Act to deliver to FNB as soon as practicable, and
prior to the mailing of the proxy statement/prospectus, executed affiliate
agreements in the form of Exhibit B attached hereto providing that such person
will comply with Rule 145 and will vote in favor of the Merger.
5.14 Exchange Listing. FNB shall use its reasonable best efforts to
list, prior to the Effective Date, on the NASDAQ Exchange, subject to official
notice of issuance, the shares of FNB Common Stock to be issued to the holders
of BBI Common Stock pursuant to the Merger; and FNB shall give all notices and
make all filings with NASDAQ required in connection with the transaction
contemplated herein.
ARTICLE 6
Additional Agreements
6.1 Conversion of Stock Options. BBI agrees to use its best efforts and
to exercise all of its discretionary powers, as well as to cause the "Committee"
under its 1994 Stock Option Plan, to prevent the exercise of any stock options
outstanding on or after the date of this Agreement (other than incentive stock
options described in Section 422 of the IRC) and to cash out all unexercised
outstanding stock options pursuant to Section 13(b) of the 1994 Stock Option
-31-
Plan no later than the Effective Date. On the Effective Date, all rights with
respect to BBI Common Stock pursuant to stock options ("BBI Options") granted by
BBI in compliance herewith under a BBI stock option plan which are outstanding
on the Effective Date, whether or not they are exercisable, shall be exchanged
for cash paid by BBI on the Effective Date in an amount by which the applicable
Cash Consideration per share of BBI Common Stock (determined in accordance with
Section 2.1) exceeds the BBI Option exercise price.
6.2 Benefit Plans.
(a) Effective with the consummation of the Merger, the Management Stock
Bonus Plan and any and all stock option plans of BBI and Bedford Federal shall
be terminated and all unawarded shares (and the Merger Consideration
attributable thereto) shall be forfeited. In addition, the Bedford Federal
health and dental plans, long term disability plan, and term life insurance plan
shall be continued through December 31, 2004; the Bedford Federal vacation and
sick leave plans shall be continued through December 31, 2004 (subject to the
modification noted below regarding cashouts of unused vacation on cessation of
employment); the Bedford Federal ESOP (as defined in Section 6.2(c)) shall be
amended, continued and merged as provided Section 6.2(c) below; and
participation in FNB's Employee Stock Ownership Plan and 401(k) plan shall be
made available to all Bedford Federal eligible employees no later than January
1, 2005 as provided Section 6.2(c) and (d), respectively, below. Also, the
Bedford Federal Pension Plan (as defined in Section 6.2(e)) shall be amended to
provide for full vesting as of the Effective Date and shall be terminated at or
after the Effective Date as provided in Section 6.2(e). Finally, unused vacation
accrued as of the Effective Date shall be cashed out at cessation of employment
under Bedford Federal's vacation payment policy in effect at the Effective Date
as provided in Section 6.2(f) for one year after the Effective Date. Otherwise,
after consummation of the Merger, at the option of FNB (which may be applied on
a plan or program by plan or program basis) and subject to FNB's best efforts,
employees of Bedford Federal shall be entitled to participate either (x) in one
or more combined plans or programs of FNB and Bedford Federal on substantially
the same basis as similarly situated employees of FNB or First National (taking
into account all applicable factors, including but not limited to position,
employment classification, age, length of service, pay, part time or full time
status, and the like, as well as changes made in such plans and programs in the
future), or (y) in plans and programs which, subject to changes required by
applicable laws or by limitations imposed by insurance companies providing plan
benefits, are comparable to (or a continuation of), and provide for
participation on substantially the same basis, as Bedford Federal's employee
benefit plans and programs currently in effect. If and to the extent option (x)
is effectuated:
(1) (A) Coverage under FNB's plans and programs shall be available to
each employee of Bedford Federal and, where applicable, his or her dependents
without regard to any waiting period, evidence or requirement of insurability,
actively at work requirement or preexisting condition exclusion or limitation
(except to the extent and in the manner any such waiting period, evidence or
requirement of insurability, actively at work requirement or exclusion or
limitation applies to such employee or dependents immediately prior to the
effectuation of option (x)) and (B) amounts paid or payable by employees for
health care
-32-
expenses for any portion of the annual benefit period prior to the date as of
which option (x) becomes effective shall be credited in satisfaction of any
deductible requirement and any out-of-pocket limit for the balance of the annual
benefit period which includes such date.
(2) FNB shall treat service with BBI and Bedford Federal before the
consummation of the Merger as service with FNB for purposes of eligibility to
begin participation and vesting (but not benefit accruals, except in the case of
a continuation of any plan maintained by BBI or Bedford Federal) for purposes of
all employee benefit and seniority based plans and programs, including but not
limited to annual, sick and personal leave accruing following the consummation
of the Merger.
Nothing contained in this Section is intended to provide any third
party beneficiary rights in any current or former employee, or any spouse or
dependent thereof, of BBI, Bedford Federal, FNB or any FNB Subsidiary, except as
otherwise required by ERISA or other applicable law (determined without regard
to third party beneficiary contract law).
(b) Except to extent individually negotiated replacement contracts or
settlement agreements are entered into, FNB shall honor all employment
severance, consulting and other compensation contracts and agreements Previously
Disclosed and executed in writing by BBI on the one hand and any individual
current or former director, officer or employee thereof on the other hand,
copies of which have been previously delivered by BBI to FNB.
(c) Effective with the consummation of the Merger, the ESOP loan under
the Bedford Federal Savings Bank Employee Stock Ownership Plan (the "Bedford
Federal ESOP") shall be paid off at or shortly after the Effective Date by use
of the Merger Consideration attributable to unallocated BBI shares held by the
Bedford Federal ESOP trust to satisfy the then outstanding Bedford Federal ESOP
loan, the balance of the Merger Consideration attributable to such unallocated
BBI shares shall be allocated to participants in the Bedford Federal ESOP as
earnings on trust assets in accordance with the terms of the Bedford Federal
ESOP allocation provisions in effect as of the date of this Agreement (subject,
however, to such changes, if any, as may be required by applicable law), the
Bedford Federal ESOP accrued benefits of all Bedford Federal ESOP participants
who are BBI or Bedford Federal employees at the Effective Date shall be fully
vested, and the Bedford Federal ESOP shall be continued on an unleveraged basis
and then merged into the FNB Employee Stock Ownership Plan no later than January
1, 2005, with participation in the FNB Employee Stock Ownership Plan extended to
eligible employees of Bedford Federal as of the time of such plan merger. FNB
shall treat service with BBI and Bedford Federal before the consummation of the
Merger as service with FNB for purposes of eligibility to begin participation,
vesting and future benefit accrual under its Employee Stock Ownership Plan. In
addition, FNB agrees to cause Bedford Federal to make a contribution to the
Bedford Federal ESOP for the 2004 calendar year in an amount equal to five
percent (5%) of covered pay thereunder (or, if the Bedford Federal ESOP is
merged into FNB's Employee Stock Ownership Plan prior to December 31, 2004, a
pro rata contribution for the portion of such year prior to any such plan
merger).
-33-
(d) Effective no later than January 1, 2005, FNB shall make
participation in its 401(k) plan available to the eligible employees of Bedford
Federal. FNB shall treat service with BBI and Bedford Federal before the
consummation of the Merger as service with FNB for purposes of eligibility to
begin participation, vesting and future benefit accrual under its 401(k) plan.
(e) Effective with the consummation of the Merger, the accrued benefits
under the Bedford Federal Savings Bank Money Purchase Pension Plan (the "Bedford
Federal Pension Plan") of all Bedford Federal Pension Plan participants who are
BBI or Bedford Federal employees at the Effective Date shall be fully vested,
and the Bedford Federal Pension Plan shall be terminated at or about the
Effective Date. Bedford Federal agrees to give timely notice of the proposed
termination of the Bedford Federal Pension Plan to participants and
beneficiaries entitled to plan benefits effective contingent on the consummation
of the Merger and as of, or at a date after, the Effective Date as determined by
FNB.
(f) Vacation accrued as of the Effective Date and unused (determined by
first using any vacation accrued at the Effective Date) at the date of cessation
of employment of any BBI or Bedford Federal employee employed at the Effective
Date shall be cashed out in accordance with Bedford Federal's vacation cashout
policy in effect at the Effective Date (which policy shall remain unchanged from
the policy in effect at the date of this Agreement without FNB's written
consent) in the event of such BBI or Bedford Federal employee's cessation of
employment with FNB and its affiliates within one year after the Effective Date.
Any other accrued and unused vacation will be forfeited in accordance with FNB's
vacation policy.
6.3 Indemnification. Following the Effective Date, FNB shall indemnify
and hold harmless any person who has rights to indemnification from BBI, to the
maximum extent permitted under Virginia law and in accordance with BBI's
Articles of Incorporation or Bylaws, as in effect on the date of this Agreement,
to the extent legally permitted to do so, with respect to matters occurring on
or prior to the Effective Date. FNB further agrees that any such person who has
rights to indemnification pursuant to this Section 6.3 is expressly made a third
party beneficiary of this Section 6.3 and may directly, in such person's
personal capacity, enforce such rights through an action at law or in equity or
through any other manner or means of redress allowable under Virginia law to the
same extent as if such person were a party hereto. Without limiting the
foregoing, in any case in which corporate approval may be required to effectuate
any indemnification, FNB shall direct, at the election of the party to be
indemnified, that the determination of permissibility of indemnification shall
be made by independent counsel mutually agreed upon between FNB and the
indemnified party. Upon written application, and in accordance with, and to the
extent permitted by, Virginia law, FNB will advance reasonable expenses to any
person who has rights to indemnification from BBI. FNB shall use its reasonable
best efforts to maintain BBI's existing directors' and officers' liability
policy, or some other policy, including FNB's existing policy, providing at
least comparable coverage, covering persons who are currently covered by such
insurance of BBI for a period of 5 years after the Effective Date on terms no
less favorable than those in effect on the date hereof.
6.4 Continuation of Bedford Directors. Bedford Directors continuing to
serve for a minimum period of 36 months from the Effective Date shall receive
monthly fees in the same
-34-
amount as those paid to them as of December 31, 2002. Bedford Directors not
continuing to serve for a minimum period of 36 months from the Effective Date
shall be appointed as an advisory director for a period ending 36 months from
the Effective Date and shall receive monthly fees in the same amount as those
having been paid by Bedford Federal as of December 31, 2002. As of the Effective
Date, any Bedford Emeritus Director shall continue to serve as a emeritus
director for the remainder of their one year term.
ARTICLE 7
Conditions to the Merger
7.1 Conditions to Each Party's Obligations to Effect the Merger. The
respective obligations of each of FNB and BBI to effect the Merger and the other
transactions contemplated by this Agreement shall be subject to the fulfillment
or waiver at or prior to the Effective Date of the following conditions:
(a) Shareholder Approval. Shareholders of BBI and FNB shall have
approved all matters relating to this Agreement and the Merger required to be
approved by such shareholders in accordance with Virginia law.
(b) Regulatory Approvals. This Agreement and the Plan of Merger shall
have been approved by the Federal Reserve, the SCC, the Office of Thrift
Supervision and any other regulatory authority whose approval is required for
consummation of the transactions contemplated hereby, and such approvals shall
not have imposed any condition or requirement which would so materially
adversely impact the economic or business benefits of the transactions
contemplated by this Agreement as to render inadvisable the consummation of the
Merger in the reasonable opinion of the Board of Directors of FNB or BBI.
(c) Registration Statement. The Registration Statement shall have been
declared effective and shall not be subject to a stop order or any threatened
stop order.
(d) Tax Opinion. FNB and BBI shall have received an opinion of Xxxxxxxx
Xxxxxxx LLP, or other counsel reasonably satisfactory to FNB and BBI, to the
effect that the Merger will constitute a merger within the meaning of Section
368 of the IRC and that no gain or loss will be recognized by the shareholders
of BBI to the extent they receive FNB Common Stock solely in exchange for their
BBI Common Stock in the Merger.
(e) Opinions of Counsel. BBI shall have delivered to FNB and FNB shall
have delivered to BBI opinions of counsel, dated as of the Effective Date, as to
such matters as they may each reasonably request with respect to the
transactions contemplated by this Agreement and in a form reasonably acceptable
to each of them.
(f) Legal Proceedings. Neither FNB nor BBI shall be subject to any
order, decree or injunction of a court or agency of competent jurisdiction which
enjoins or prohibits the consummation of the Merger.
-35-
(g) Amendment of the Bedford Federal ESOP. Prior to the Merger, the
Bedford Federal ESOP (as defined in Section 6.2(c)) shall have been amended to
eliminate the provisions thereof requiring full vesting of accrued benefits due
to consummation of the Merger (except as otherwise provided in Section 6.2(c)
hereof) and termination of such plan on the consummation of a transaction such
as the Merger. The provisions of the Bedford Federal ESOP relating to
satisfaction of any acquisition loan and allocation to participants of the
remaining value of collateral not used to satisfy any acquisition loan need not
be revised.
(h) Notice of Termination of the Bedford Pension Plan. Prior to the
Merger, if requested by FNB, Bedford Federal shall have given timely notice of
the proposed termination of the Bedford Federal Pension Plan (as defined in
Section 6.2(e)) to participants and beneficiaries entitled to plan benefits
effective contingent on the consummation of the Merger and as of, or at a date
after, the Effective Date as determined by FNB.
7.2 Conditions to Obligations of FNB. The obligations of FNB to effect
the Merger shall be subject to the fulfillment or waiver at or prior to the
Effective Date of the following additional conditions:
(a) Representations and Warranties. Each of the representations and
warranties contained herein of BBI shall be true and correct in all material
respects as of the date of this Agreement and upon the Effective Date with the
same effect as though all such representations and warranties had been made on
the Effective Date, except (i) for any such representations and warranties made
as of a specified date, which shall be true and correct as of such date, (ii) as
expressly contemplated by this Agreement, or (iii) for representations and
warranties the inaccuracies of which relate to matters that, individually or in
the aggregate, do not result in a Material Adverse Effect with respect to BBI or
materially adversely affect the Merger and the other transactions contemplated
by this Agreement and FNB shall have received a certificate or certificates
signed by the Chief Executive Officer and Chief Financial Officer of BBI dated
the Effective Date, to such effect.
(b) Performance of Obligations. BBI shall have performed in all
material respects all obligations required to be performed by it under this
Agreement prior to the Effective Date, and FNB shall have received a certificate
signed by the Chief Executive Officer of BBI to that effect.
(c) Affiliate Agreements. BBI shall use its best efforts to obtain from
each director and shareholder of BBI who may be deemed by counsel for FNB to be
an "affiliate" of BBI within the meaning of Rule 145 under the Securities Act of
1933 an executed Affiliate Agreement described in Section 5.13 hereof.
(d) Investment Banking Letter. FNB shall have received a written
opinion in form and substance satisfactory to FNB from The Xxxxxx Xxxxxx Company
addressed to FNB dated as of the date of the Agreement to the effect that the
terms of the Merger, including the Exchange Ratio, are fair, from a financial
point of view, to FNB. In the event that the shareholders of FNB are required
under applicable law to vote to approve the Merger, FNB shall have received an
update to the written opinion in form and substance satisfactory to FNB from
-36-
The Xxxxxx Xxxxxx Company addressed to FNB to be dated the date the Proxy
Statement/Prospectus is mailed to shareholders of FNB, to the effect that the
terms of the Merger, including the Exchange Ratio, are fair, from a financial
point of view, to FNB.
7.3 Conditions to Obligations of BBI. The obligations of BBI to effect
the Merger shall be subject to the fulfillment or waiver at or prior to the
Effective Date of the following additional conditions:
(a) Representations and Warranties. Each of the representations and
warranties contained herein of FNB shall be true and correct in all material
respects as of the date of this Agreement and upon the Effective Date with the
same effect as though all such representations and warranties had been made on
the Effective Date, except (i) for any such representations and warranties made
as of a specified date, which shall be true and correct as of such date, (ii) as
expressly contemplated by this Agreement, or (iii) for representations and
warranties the inaccuracies of which relate to matters that, individually or in
the aggregate, do not result in a Material Adverse Effect with respect to FNB or
materially adversely affect the Merger and the other transactions contemplated
by this Agreement and BBI shall have received a certificate or certificates
signed by the Chief Executive Officer and Chief Financial Officer of FNB dated
the Effective Date, to such effect.
(b) Performance of Obligations. FNB shall have performed in all
material respects all obligations required to be performed by it under this
Agreement prior to the Effective Date, and BBI shall have received a certificate
signed by Chief Executive Officer of FNB to that effect.
(c) Investment Banking Letter. BBI shall have received a written
opinion in form and substance satisfactory to BBI from McDonald Investments,
Inc. addressed to BBI dated as of the date of the Agreement to the effect that
the terms of the Merger, including the Exchange Ratio, are fair, from a
financial point of view, to BBI. BBI shall have received an update to the
written opinion in form and substance satisfactory to BBI from McDonald
Investments, Inc. addressed to BBI to be dated the date the Proxy
Statement/Prospectus is mailed to shareholders of BBI, to the effect that the
terms of the Merger, including the Exchange Ratio, are fair, from a financial
point of view, to BBI.
ARTICLE 8
Termination
8.1 Termination. Notwithstanding any other provision of this Agreement,
and notwithstanding the approval of this Agreement and the Plan of Merger by the
shareholders of FNB and BBI, this Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Date:
(a) By the mutual consent of the Board of Directors of each of FNB and
BBI;
(b) By the respective Boards of Directors of FNB or BBI if the
conditions set forth in Section 7.1 have not been met or waived by FNB and BBI;
-37-
(c) By the Board of Directors of FNB if the conditions set forth in
Section 7.2 have not been met or waived by FNB;
(d) By the Board of Directors of BBI if the conditions set forth in
Section 7.3 have not been met or waived by BBI;
(e) By the respective Boards of Directors FNB or BBI if the Merger is
not consummated by December 1, 2003.
(f) By the Board of Directors of BBI, within five business days after
the end of the Measurement Period (as defined in Section 2.1), if the Market
Value of FNB Common Stock (as defined in Section 2.1) is less than $23.50.
(g) By the Board of Directors of FNB, within five business days after
the end of the Measurement Period (as defined in Section 2.1), if the Market
Value of FNB Common Stock (as defined in Section 2.1) is greater than $32.50.
(h) By the Board of Directors of FNB upon a Termination Event in
accordance with 8.4(b).
8.2 Effect of Termination. In the event of the termination and
abandonment of this Agreement and the Merger pursuant to Section 8.1, this
Agreement shall become void and have no effect, except that (i) the last
sentence of Section 5.2 and all of Sections 5.8 and 8.4 shall survive any such
termination and abandonment and (ii) no party shall be relieved or released from
any liability arising out of an intentional breach of any provision of this
Agreement.
8.3 Non-Survival of Representations, Warranties and Covenants. Except
for Sections 1.3, 1.4, Article 2, Article 3, 6.2, 6.3, 6.4, 8.4 and Article 9 of
this Agreement, none of the respective representations and warranties,
obligations, covenants and agreements of the parties shall survive the Effective
Date, provided that no such representations, warranties, obligations, covenants
and agreements shall be deemed to be terminated or extinguished so as to deprive
FNB or BBI (or any director, officer, or controlling person thereof) of any
defense in law or equity which otherwise would be available against the claims
of any person, including without limitation any shareholder or former
shareholder of either FNB or BBI.
8.4 Expenses. The parties provide for the payment of expenses as
follows:
(a) Except as provided below, each of the parties shall bear and pay
all costs and expenses incurred by it in connection with the transactions
contemplated herein, including fees and expenses of its own financial
consultants, accountants and counsel, except that printing expenses shall be
shared equally between FNB and BBI.
(b) In the event FNB terminates this Agreement based on the occurrence
of a Termination Event (as defined below), BBI shall pay to FNB a termination
fee of Five Hundred Thousand Dollars ($500,000.00) in cash within five business
days after written notice of such
-38-
termination. For the purposes of this Agreement, a "Termination Event" shall
mean any of the following events or transactions occurring after the date
hereof:
(i) BBI, without having received FNB's prior written consent, shall
have entered into an agreement with any person to (A) acquire, merger or
consolidate, or enter into any similar transaction, with BBI, (B) purchase,
lease or otherwise acquire all or substantially all of the assets of BBI, or (C)
purchase or otherwise acquire directly from BBI securities representing 20% or
more of the voting power of BBI;
(ii) any person shall have acquired beneficial ownership or the right
to acquire beneficial ownership of 20% or more of the outstanding shares of BBI
Common Stock after the date hereof (the term "beneficial ownership" for purposes
of this Agreement having the meaning assigned thereto in Section 13(d) of the
Exchange Act, and the regulations promulgated thereunder); or
(iii) any person shall have made a bona fide proposal to BBI by public
announcement or written communication that is or becomes the subject of public
disclosure to acquire BBI by merger, shares exchange, consolidation, purchase of
all or substantially all of its assets or any other similar transaction, and
following such bona fide proposal the shareholders of BBI vote not to approve
the Agreement.
Notwithstanding the foregoing, BBI shall not be obligated to pay to FNB
the termination fee described in this Section 8.4(b) in the event that at or
prior to such time as such fee becomes payable (i) FNB and BBI validly terminate
this Agreement pursuant to Section 8.1(a) or (ii) FNB or BBI validly terminates
this Agreement pursuant to Sections 8.1(b) (other than as a result of such
Termination Event), 8.1(c) (other than as a result of such Termination Event),
8.1(d) (other than as a result of such Termination Event), 8.1(e) (other than as
a result of such Termination Event)), 8.1(f) (other than as a result of such
Termination Event), or 8.1(g) (other than as a result of such Termination
Event). Upon payment of the termination fee and any other amounts that may be
due by BBI to FNB hereunder, this Agreement shall terminated as provided in
Section 8.2.
(c) If this Agreement is terminated by FNB or BBI because of a willful
and material breach by the other of any representation, warranty, covenant,
undertaking or restriction set forth herein, and provided that the terminating
party shall not have been in breach (in any material respect) of any
representation and warranty, covenant, undertaking or restriction contained
herein, then the breaching party shall bear and pay all such reasonable and
documented costs and expenses of the other party actually incurred, including
fees and expenses of consultants, investment bankers, accountants, counsel,
printers, and persons involved in the transactions contemplated by this
Agreement, including the preparation of the Registration Statement and the Proxy
Statement.
(d) Except for the payment of the termination fee which shall be paid
as required by Section 8.4(b), final settlement with respect to the payment of
other fees and
-39-
expenses by the parties shall be made within thirty (30) days after the
termination of this Agreement.
ARTICLE 9
General Provisions
9.1 Entire Agreement. This Agreement contains the entire agreement
among FNB and BBI with respect to the Merger and the related transactions and
supersedes all prior arrangements or understandings with respect thereto.
9.2 Waiver and Amendment. Any term or provision of this Agreement may
be waived in writing at any time by the party which is, or whose shareholders
are, entitled to the benefits thereof, and this Agreement may be amended or
supplemented by written instructions duly executed by the parties hereto at any
time, whether before or after the meeting of BBI shareholders and FNB
shareholders referred to in Section 7.1(a) hereof, except statutory requirements
and requisite approvals of shareholders and regulatory authorities.
9.3 Descriptive Headings. Descriptive headings are for convenience only
and shall not control or affect the meaning and construction of any provisions
of this Agreement.
9.4 Governing Law. Except as required otherwise or otherwise indicated
herein, this Agreement shall be construed and enforced according to the laws of
the Commonwealth of Virginia.
9.5 Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally,
telecopied or sent by recognized overnight courier service or registered or
certified mail, postage prepaid, addressed as follows:
If to FNB:
Xxxxxx X. Xxxxxxxx, President
FNB Corporation
000 Xxxxx Xxxxx
X. X. Xxx 000
Xxxxxxxxxxxxxx, Xxxxxxxx 00000
(Tel. 000-000-0000)
(Fax: 000-000-0000)
-40-
Copies to:
Xxxxx X. Xxxxx, Esquire
First National Bank
P. O. Xxx 000
Xxxxxxxxxxxxxx, Xxxxxxxx 00000
(Tel. 000-000-0000)
(Fax: 000-000-0000)
Xxxx X. Xxxxxxx, III, Esquire
Xxxxxxxx Xxxxxxx LLP
0000 Xxxx Xxxx Xxxxxx, 00xx Floor (23219)
P. O. Xxx 0000
Xxxxxxxx, Xxxxxxxx 00000-0000
(Tel. 000-000-0000)
(Fax: 000-000-0000)
If to BBI:
Xxxxxx X. Xxxx
President and Chief Executive Officer
Bedford Bancshares, Inc.
000 X. Xxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
(Tel: 000-000-0000)
(Fax: 000-000-0000)
Copy to:
Xxxxxxx Xxxxx, Esq.
Xxxxxxx Spidi & Xxxxx, PC
0000 Xxx Xxxx Xxxxxx, X.X.
Xxxxxxxxxx, XX 00000
(Tel. 000-000-0000)
(Fax: 000-000-0000)
9.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts together
shall constitute one and the same agreement.
9.7 Severability. In the event any provisions of this Agreement shall
be held invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any other provisions
hereof. Any provision of this Agreement held invalid or unenforceable only in
part or degree shall remain in full force and effect to the extent not held
invalid or unenforceable. Further, the parties agree that a court of competent
jurisdiction may
-41-
reform any provision of this Agreement held invalid or unenforceable so as to be
valid and enforceable and to reflect the intended agreement of the parties
hereto.
9.8 Subsidiaries. All representations, warranties, and covenants
herein, where pertinent, include and shall apply to the Subsidiaries of the
party making such representations, warranties, and covenants.
-42-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in counterparts by their duly authorized officers and their corporate
seals to be affixed hereto, all as of the dates first written above.
FNB Corporation
By:/s/Xxxxx X. Xxxxx
----------------------------------
Xxxxx X. Xxxxx
Executive Vice President and CAO
Bedford Bancshares, Inc.
By:/s/Xxxxxx X. Xxxx
----------------------------------
Xxxxxx X. Xxxx
President and
Chief Executive Officer
ATTEST:
/s/Xxxxx X. Xxxxxx
----------------------------------
Xxxxx X. Xxxxxx
Secretary
-43-
