Exhibit (2)C
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, THEREFOR, 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. 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 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, 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, 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 therefore 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 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 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
therefore, 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 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 U.S.C. 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; 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 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.
(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 therefor 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 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 (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 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
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 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 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 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 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 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 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.
(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.
(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.
(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.
(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 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 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.
(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 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 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 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 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).
(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 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.
(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 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;
(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 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 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)
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 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.
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:_________________________
Xxxxxx X. Xxxxxxxx
President and Chief Executive Officer
ATTEST:
_________________________
Secretary
Bedford Bancshares, Inc.
By:_________________________
President and Chief Executive Officer
ATTEST:
_________________________
Secretary
EXHIBIT A
PLAN OF MERGER
BETWEEN
BEDFORD BANCSHARES, INC.
AND
FNB CORPORATION
Pursuant to this Plan of Merger ("Plan of Merger"), Bedford Bancshares,
Inc. ("BBI"), a Virginia corporation, shall merge with and into FNB
Corporation ("FNB"), a Virginia corporation in a merger under Section 13.1-
716 of the Virginia Stock Corporation Act.
ARTICLE 1
Terms of the Merger
1.1 The Merger. Subject to the terms and conditions of the Agreement
and Plan of Merger, dated as of March 20, 2003, between FNB and BBI (the
"Merger Agreement"), at the Effective Date, BBI shall merge with and into FNB
which shall be the surviving corporation. Each outstanding share of common
stock of BBI shall be converted into and exchanged for shares of the common
stock of FNB and/or cash in accordance with Article 2 of this Plan of Merger
pursuant to a merger under Section 13.1-716 of the Virginia Stock Corporation
Act (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. Terms
not otherwise defined herein will have the meanings given to them in the
Merger Agreement.
1.2 Articles of Incorporation and Bylaws. The Articles of
Incorporation of FNB shall be the Articles of Incorporation of the surviving
corporation following the Effective Date until amended or repealed. The
Bylaws of FNB shall be the Bylaws of the surviving corporation following the
Effective Date until amended or repealed in accordance with the terms of such
Bylaws.
1.3 Management of Surviving Corporation. 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. 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
appointment 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 to the Merger Agreement 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 to the Merger
Agreement as Exhibit 1.4(b).
ARTICLE 2
Manner of Converting Shares
2.1 Conversion of BBI Stock and Stock Options. 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 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 hundredth 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) of the Merger Agreement
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 the Merger 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. As used in this Plan of Merger, 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, 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, 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 the Merger
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 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 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
Treatment of Stock Options
4.1 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 the Merger 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 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 with the Merger
Agreement 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.
ARTICLE 5
Termination
5.1 Termination. This Plan of Merger may be amended or terminated
prior to the Effective Date as provided in the Merger Agreement, subject to
the provisions of the Virginia Stock Corporation Act.
EXHIBIT B
AFFILIATE AGREEMENT
THIS AFFILIATE AGREEMENT (the "Agreement") dated as of March 20, 2003,
between FNB CORPORATION, a Virginia corporation ("FNB") and each of the
individuals listed on Schedule A attached hereto (collectively, the "BBI
Stockholders").
WHEREAS, FNB and BEDFORD BANCSHARES, INC. ("BBI") have entered into an
Agreement and Plan of Merger, dated as of March 20, 2003, and a related Plan
of Merger (collectively, the "Affiliation Agreement") pursuant to which BBI
shall merge with and into FNB (the "Affiliation");
WHEREAS, each of the BBI Stockholders is the beneficial and registered
owner of, and has or shares the right to vote and dispose of, the number of
shares of common stock, without par value, of BBI ("BBI Common Stock") set
forth opposite such BBI Stockholder's name on Schedule A hereto, excluding
shares held in a fiduciary capacity, (the "Shares") and has rights by option
or otherwise to acquire additional shares of BBI Common Stock also set forth
opposite such BBI Stockholder's name on Schedule A hereto;
WHEREAS, the Shares amount to an aggregate of __________ shares of BBI
Common Stock, which constitute as of this date approximately __________
percent of the issued and outstanding shares of BBI Common Stock; and
WHEREAS, as a condition and inducement to entering into the Affiliation
Agreement, FNB has requested that the BBI Stockholders agree, and the BBI
Stockholders have agreed, to support the Affiliation.
NOW, THEREFORE, to induce FNB to enter into the Affiliation Agreement
and in consideration of mutual covenants, representations, warranties, and
agreements set forth herein and in the Affiliation Agreement, and intending
to be legally bound hereby, the parties hereto agree as follows:
1. Agreement to Vote. At such time as BBI conducts a meeting of its
stockholders, including any adjournments thereof, to approve the Affiliation
Agreement, each BBI Stockholder shall vote or cause to be voted all of such
BBI Stockholder's Shares in favor of the Affiliation Agreement, unless FNB is
in material default with respect to any covenant, representation, warranty or
agreement with respect to it contained in the Affiliation Agreement or the
Affiliation Agreement provides otherwise.
2. Agreement to Cooperative. In addition to the specific matters
provided for elsewhere herein, each BBI Stockholder shall take all reasonable
action requested by FNB and BBI to facilitate the consummation of the
Affiliation and the transactions contemplated by the Affiliation Agreement.
3. Securities Act of 1933. No BBI Stockholder shall sell, transfer or
otherwise dispose of the shares of common stock, par value $5.00 per share,
of FNB ("FNB Common Stock") such BBI Stockholder will receive in connection
with the Affiliation, unless such sale, transfer or disposition is in
compliance with Rule 145 promulgated by the Securities and Exchange
Commission under the Securities Act of 1933, as amended.
4. Covenants of BBI Stockholders. Each of the BBI Stockholders,
severally and not jointly, covenants as follows:
(a) Restrictions on Transfer. During the term of this Agreement and
except as agreed to by FNB, such BBI Stockholder shall not pledge,
hypothecate, grant a security interest in, sell, transfer or otherwise
dispose of or encumber any of the Shares owned by him or her and will not
enter into any agreement, arrangement or understanding (other than a proxy
for the purpose of voting his or her shares in accordance with Section 1
hereof) which would during that term (i) restrict, (ii) establish a right of
first refusal to, or (iii) otherwise relate to the transfer or voting of the
Shares owned by such BBI Stockholder.
(b) Other Acquisition Proposals. Until the earlier of (i) the
consummation of the Affiliation or (ii) the termination of the Affiliation
Agreement in accordance with its terms, the BBI Stockholder will not,
directly or indirectly:
(x) vote any Shares, or cause or permit any of the Shares to be
voted, in favor of any other merger, consolidation, plan of liquidation,
sale of assets, reclassification or other transaction involving BBI that
would have the effect of any person, other than FNB, acquiring control
over BBI or any substantial portion of the assets of BBI, except as
otherwise provided in the Affiliation Agreement. As used herein, the
term "control" means (1) the ability to direct the voting of 10 percent
or more of the outstanding voting securities of a person having ordinary
voting power in the election of directors or (2) the ability to direct
the management and policies of a person whether through ownership of
securities, through any contract, arrangement or understanding or
otherwise.
(y) sell or otherwise transfer any of the Shares or cause or
permit any of the Shares to be sold or otherwise transferred
(i) pursuant to any tender offer, exchange offer or similar proposal
made by any person other than FNB or an affiliate of FNB, (ii) to any
person known by such BBI Stockholder to be seeking to obtain control of
BBI or any substantial portion of the assets of BBI or to any other
person (other than FNB or an affiliate of FNB) under circumstances where
such sale or transfer may reasonably be expected to assist a person
seeking to obtain such control or (iii) for the principal purpose of
avoiding the obligations of such BBI Stockholder under this Agreement.
(c) Additional Shares. The provisions of Section 1 and Subparagraph
(a) above shall apply to all Shares currently owned and hereafter acquired by
each of the BBI Stockholders, except for shares held or acquired in a
fiduciary capacity.
5. Capacity Only as a BBI Stockholder. It is understood and agreed
that this Agreement relates solely to the capacity of such BBI Stockholder as
a stockholder or other beneficial owner of the Shares and is not in any way
intended to affect the exercise by such BBI Stockholder of his or her
responsibilities as a director or officer of BBI. It is further understood
and agreed that the term "Shares" shall not include any securities
beneficially owned by the BBI Stockholder as a trustee or fiduciary, and that
this Agreement is not in any way intended to affect the exercise by the BBI
Stockholder of his or her fiduciary responsibility in respect of any such
securities.
6. Termination. This Agreement shall terminate upon the earlier of
the termination of the Affiliation Agreement, or one year following the
effective date of the Affiliation. In the event of the termination of this
Agreement, there shall be no liability or obligation thereunder on the part
of each BBI Stockholder, or BBI, or FNB or their respective officers or
directors, except that nothing in this Section 6 shall relieve any party
hereto from any liability for breach of this Agreement prior to such
termination.
7. Specific Performance. The parties hereto acknowledge that
irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed by the applicable party hereto in
accordance with their specific terms or were otherwise breached. Each of the
parties hereto shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement by the other and to enforce specifically the terms
and provisions hereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which it is
entitled at law or in equity and that each party waives the posting of any
bond or security in connection with any proceeding related thereto.
8. Amendments. This Agreement may not be modified, amended, altered
or supplemented except upon the execution and delivery of a written agreement
executed by all of the parties hereto.
9. Governing Law. This Agreement shall in all respects be governed by
and construed in accordance with the laws of the Commonwealth of Virginia
without regard to the conflict of law principles thereof.
10. Benefit of Agreement. This Agreement shall be binding upon and
inure to the benefit of, and shall be enforceable by, the parties hereto and
their respective personal representatives, successors and assigns, except
that neither party may transfer or assign any of its respective rights or
obligations hereunder without the prior written consent of the other party
or, if by FNB, in accordance with the Affiliation Agreement.
11. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, FNB and the BBI Stockholders have caused this
Agreement to be duly executed as of the day and year first above written.
FNB CORPORATION
By: _________________________
BBI STOCKHOLDERS
____________________________________ __________________________________
____________________________________ __________________________________
____________________________________ __________________________________
____________________________________ __________________________________
____________________________________ __________________________________
____________________________________ __________________________________
EXHIBIT C
CERTIFICATE OF THE DIRECTORS OF
BEDFORD BANCSHARES, INC. AND
BEDFORD FEDERAL SAVINGS BANK
Reference is made to the Agreement and Plan of Merger, dated as of March
20, 2003 (the "Agreement"), among Bedford Bancshares, Inc. ("BBI") and FNB
Corporation. Capitalized terms used herein have the meanings given to them
in the Agreement.
Each of the following persons, being all of the directors of BBI and
Bedford Federal Savings Bank, express their intention to vote or cause to be
voted all shares of BBI common stock which are held by such person, or over
which such person exercises full voting control (other than shares with
respect to which such person exercises control in a fiduciary capacity, as to
which no agreement is made hereby), in favor of the Merger.
______________________________ ______________________________
______________________________ ______________________________
______________________________ ______________________________
______________________________ ______________________________
______________________________ ______________________________
______________________________
CERTIFICATE OF THE DIRECTORS OF
FNB CORPORATION
Reference is made to the Agreement and Plan of Merger, dated as of March
20, 2003 (the "Agreement"), among Bedford Bancshares, Inc. and FNB
Corporation ("FNB"). Capitalized terms used herein have the meanings given
to them in the Agreement.
Each of the following persons, being all of the directors of FNB,
express their intention to vote or cause to be voted all shares of FNB common
stock which are held by such person, or over which such person exercises full
voting control (other than shares with respect to which such person exercises
control in a fiduciary capacity, as to which no agreement is made hereby), in
favor of the Merger.
______________________________ ______________________________
______________________________ ______________________________
______________________________ ______________________________
______________________________ ______________________________
______________________________ ______________________________
______________________________
