<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ........ to ..........
Commission File Number 2-76280
FARMERS NATIONAL BANCORP
(Exact name of registrant as specified in its charter)
MARYLAND 52-1241460
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 CHURCH CIRCLE, ANNAPOLIS, MARYLAND 21401
(Address of principal executive offices)
(Zip Code)
(410) 263-2603
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES ...X... NO......
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
CLASS OUTSTANDING AT JULY 31, 1994
----- ----------- -- ---- -- ----
Common stock, $1.00 par value 2,699,056 shares
<PAGE>
FARMERS NATIONAL BANCORP
INDEX
PART I. Financial Information Page Number
ITEM I. Financial Statements
Consolidated Balance Sheets
June 30, 1994 and December 1993 1
Consolidated Statements of Income
Six Months Ended June 30, 1994 and 1993 2
Three Months Ended June 30, 1994 and 1993 4
Consolidated Statements of Changes in
Stockholders' Equity
Six Months Ended June 30, 1994 and 1993 6
Three Months Ended June 30, 1994 and 1993 7
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1994 and 1993 8
Three Months Ended June 30, 1994 and 1993 9
Notes to Consolidated Financial Statements 10
ITEM 2. Managements's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II. Other Information
Items 1 Through 6(B) 14
Signatures 16
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FARMERS NATIONAL BANCORP
CONSOLIDATED BALANCE SHEETS
(dollars in thousand)
<TABLE>
<CAPTION>
June 30, 1994 Dec. 31, 1993
-------------- -------------
(unaudited)
<S> <C> <C>
Assets
Cash and due from banks $ 32,025 $ 30,460
Interest bearing deposits with banks 2,336 2,328
Federal funds sold 12,900 42,400
Investment securities
Available for sale 44,535 100,639
Held to maturity - fair value of
$278,197 (1994) and $217,779 (1993) 282,319 216,237
--------- ---------
Total investment securities 326,854 316,876
Loans 316,133 303,423
Less: allowance for loan losses (5,710) (5,558)
--------- ---------
Net loans 310,423 297,865
Premises and equipment, net 9,123 9,182
Other real estate owned 2,170 2,100
Accrued income and other assets 13,990 12,998
--------- ---------
Total Assets $709,821 $714,209
========= =========
Liabilities
Noninterest bearing demand deposits $ 84,455 $ 84,680
Interest bearing demand deposits 199,456 204,481
Savings deposits 168,810 162,175
Time deposits 165,075 168,621
--------- ---------
Total deposits 617,796 619,957
Federal funds purchased and securities sold
under agreement to repurchase 8,932 10,481
Liabilities for borrowed money 4,631 6,976
Accrued expenses and other liabilities 6,529 6,855
--------- ---------
Total Liabilities 637,888 644,269
--------- ---------
Stockholders' Equity
Common stock, par value $1 per share; shares
authorized 10,000,000; shares issued 2,699,056 2,699 2,699
Surplus 29,728 29,728
Retained earnings 39,506 37,513
--------- ---------
Total Stockholders' Equity 71,933 69,940
--------- ---------
Total Liabilities and Stockholders' Equity $709,821 $714,209
========= =========
See accompanying notes.
</TABLE>
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<PAGE>
FARMERS NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ending June 30,
1994 1993
------- -------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $13,549 $13,814
Interest on deposits with banks 70 70
Interest on federal funds sold 471 322
Interest and dividends on investment securities:
Taxable interest and dividend income 5,788 6,949
Tax-exempt interest and dividend income 1,740 1,371
------- -------
Total interest and dividends on investment
securities 7,528 8,320
------- -------
Total Interest Income 21,618 22,526
------- -------
INTEREST EXPENSE
Interest on deposits:
Time deposits of $100,000 or more 517 596
Other deposits 7,521 7,864
------- -------
Total interest on deposits 8,038 8,460
Interest on Federal funds purchased and securities
sold under agreement to repurchase 131 115
Interest on borrowed money 53 45
------- -------
Total Interest Expense 8,222 8,620
------- -------
Net Interest Income 13,396 13,906
PROVISION FOR LOAN LOSSES 396 871
------- -------
Net Interest Income After Provision for Loan Losses 13,000 13,035
------- -------
NONINTEREST INCOME
Trust income 311 222
Service charges on deposit accounts 1,258 1,300
Other service charges and commissions 248 235
Gains (losses) on investment securities 29 --
Other income 457 454
------- -------
Total Noninterest Income $ 2,303 $ 2,211
------- -------
</TABLE>
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<PAGE>
FARMERS NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, dollars in thousands)
(Continued)
<TABLE>
<CAPTION>
Six Months Ending June 30,
1994 1993
------- -------
<S> <C> <C>
NONINTEREST EXPENSE
Salaries and employee benefits $ 4,896 $ 4,627
Net occupancy expense 578 531
Furniture and equipment expense 813 693
FDIC Insurance Expense 689 674
Other expenses 1,854 1,976
------- -------
Total Noninterest Expense 8,830 8,501
------- -------
Income Before Income Taxes 6,473 6,745
Income Taxes 1,686 1,883
------- -------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 4,787 4,862
Cumulative effect of Accounting Change (1) -- 1,431
------- -------
NET INCOME $ 4,787 $ 6,293
======= =======
PER SHARE DATA
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE $1.77 $1.80
Cumulative effect of Accounting Change (1) -- .53
----- -----
NET INCOME $1.77 $2.33
===== =====
DIVIDENDS DECLARED $ .60 $ .50
===== =====
<FN>
(1) Benefit as of January 1, 1993 due to adoption of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes.
</TABLE>
See accompanying notes.
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<PAGE>
FARMERS NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ending June 30,
1994 1993
------- -------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 6,866 $ 6,859
Interest on deposits with banks 35 3
Interest on federal funds sold 226 178
Interest and dividends on investment securities:
Taxable interest and dividend income 2,965 3,447
Tax-exempt interest and dividend income 876 693
------- -------
Total interest and dividends on investment
securities 3,841 4,140
------- -------
Total Interest Income 10,968 11,180
------- -------
INTEREST EXPENSE
Interest on deposits:
Time deposits of $100,000 or more 246 292
Other deposits 3,821 3,881
------- -------
Total interest on deposits 4,067 4,173
Interest on Federal funds purchased and securities
sold under agreement to repurchase 74 56
Interest on borrowed money 22 17
------- -------
Total Interest Expense 4,163 4,246
------- -------
Net Interest Income 6,805 6,934
PROVISION FOR LOAN LOSSES 172 478
------- -------
Net Interest Income After Provision for Loan Losses 6,633 6,456
------- -------
NONINTEREST INCOME
Trust income 138 75
Service charges on deposit accounts 647 672
Other service charges and commissions 142 126
Gains (losses) on investment securities -- --
Other income 231 232
------- -------
Total Noninterest Income $ 1,158 $ 1,105
------- -------
</TABLE>
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<PAGE>
FARMERS NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, dollars in thousands)
(Continued)
<TABLE>
<CAPTION>
Three Months Ending June 30,
1994 1993
------- -------
<S> <C> <C>
NONINTEREST EXPENSE
Salaries and employee benefits $ 2,459 $ 2,296
Net occupancy expense 279 263
Furniture and equipment expense 402 333
FDIC Insurance Expense 345 337
Other expenses 927 962
------- -------
Total Noninterest Expense 4,412 4,191
------- -------
Income Before Income Taxes 3,379 3,370
Income Taxes 894 943
------- -------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 2,485 2,427
Cumulative effect of Accounting Change (1) -- --
------- -------
NET INCOME $ 2,485 $ 2,427
======= =======
PER SHARE DATA
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE $ .92 $ .90
Cumulative effect of Accounting Change (1) -- --
----- -----
NET INCOME $ .92 $ .90
===== =====
DIVIDENDS DECLARED $ .30 $ .25
===== =====
<FN>
(1) Benefit as of January 1, 1993 due to adoption of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes.
</TABLE>
See accompanying notes.
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<PAGE>
FARMERS NATIONAL BANCORP
CONSOLIDATED STATEMENT OF CHANGES
IN FINANCIAL POSITION
(unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ending June 30,
1994 1993
------- -------
<S> <C> <C>
COMMON STOCK
Balance, beginning of period $ 2,699 $ 2,699
------- -------
Balance, end of period $ 2,699 $ 2,699
======= =======
SURPLUS
Balance, beginning of period $29,728 $29,728
------- -------
Balance, end of period $29,728 $29,728
======= =======
RETAINED EARNINGS
Balance, beginning of period $37,513 $29,406
Net Income 4,787 6,293
Cash dividends ($.60 per share in 1994,
$.50 per share in 1993) (1,620) (1,349)
Change in net unrealized holding
gains (losses) on investment securities (1,174) --
------- -------
Balance, end of period $39,506 $34,350
======= =======
</TABLE>
See accompanying notes.
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<PAGE>
FARMERS NATIONAL BANCORP
CONSOLIDATED STATEMENT OF CHANGES
IN FINANCIAL POSITION
(unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ending June 30,
1994 1993
------- -------
<S> <C> <C>
COMMON STOCK
Balance, beginning of period $ 2,699 $ 2,699
------- -------
Balance, end of period $ 2,699 $ 2,699
======= =======
SURPLUS
Balance, beginning of period $29,728 $29,728
------- -------
Balance, end of period $29,728 $29,728
======= =======
RETAINED EARNINGS
Balance, beginning of period $38,098 $32,597
Net Income 2,485 2,427
Cash dividends ($.30 per share in 1994,
$.25 per share in 1993) (810) (674)
Change in net unrealized holding
gains (losses) on investment securities (267) --
------- -------
Balance, end of period $39,506 $34,350
======= =======
</TABLE>
See accompanying notes.
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<PAGE>
FARMERS NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ending June 30,
1994 1993
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,787 $ 6,293
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of accounting change -- (1,431)
Provision for loan losses 396 871
Depreciation and amortization 753 648
Decrease (increase) in accrued
income and other assets (358) (171)
Increase (decrease) in accrued
expenses and other liabilities (326) (480)
Other, net 700 1,038
-------- --------
Net cash provided by operating activities 5,952 6,768
-------- --------
INVESTING ACTIVITIES
Net decrease (increase) in interest
bearing balances with banks (8) 1,997
Maturities, sales and principal payments
of investment securities 87,993 69,464
Funds invested in investment securities (100,440) (79,510)
Net (increase) in loans (13,095) (4,219)
Expenditures for premises and equipment (662) (1,099)
-------- --------
Net cash provided by (applied to)
investing activities (26,212) (13,367)
-------- --------
FINANCING ACTIVITIES
Net increase (decrease) in deposits (2,161) 7,904
Net increase (decrease) in
short-term borrowings (3,869) 841
Repayments of long-term debt (25) (23)
Cash dividends paid (1,620) (1,349)
-------- --------
Net cash provided by (applied to)
financing activities (7,675) 7,373
-------- --------
Net increase (decrease) in cash and
cash equivalents (27,935) 774
Cash and cash equivalents at
beginning of period 72,860 64,082
-------- --------
Cash and cash equivalents at end of period $ 44,925 $ 64,856
======== ========
NONCASH INVESTING ACTIVITIES
Transfer from loans to
other real estate owned $ 70 $ --
Net unrealized holding gains
(losses) on investment securities (1,174) --
======== =========
</TABLE>
See accompanying notes
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<PAGE>
FARMERS NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ending June 30,
1994 1993
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,485 $ 2,427
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of accounting change -- --
Provision for loan losses 172 478
Depreciation and amortization 379 320
Decrease (increase) in accrued
income and other assets 199 247
Increase (decrease) in accrued
expenses and other liabilities (1,510) (917)
Other, net 261 521
--------- ---------
Net cash provided by operating activities 1,986 3,076
--------- ---------
INVESTING ACTIVITIES
Net decrease (increase) in interest
bearing balances with banks (2) 2,998
Maturities, sales and principal payments
of investment securities 32,440 34,281
Funds invested in investment securities (37,726) (37,866)
Net (increase) in loans (11,824) (1,815)
Expenditures for premises and equipment (297) (621)
--------- ---------
Net cash provided by (applied to)
investing activities (17,409) (3,023)
--------- ---------
FINANCING ACTIVITIES
Net increase (decrease) in deposits 159 17,285
Net increase (decrease) in
short-term borrowings 204 3,215
Repayments of long-term debt (13) (12)
Cash dividends paid (810) (674)
--------- --------
Net cash provided by (applied to)
financing activities (460) 19,814
--------- --------
Net increase (decrease) in cash and
cash equivalents (15,883) 19,867
Cash and cash equivalents at
beginning of period 60,808 44,989
--------- ---------
Cash and cash equivalents at end of period $ 44,925 $ 64,856
========= =========
NONCASH INVESTING ACTIVITIES
Transfer from loans to
other real estate owned $ 70 $ --
Net unrealized holding gains
(losses) on investment securities (267) --
========= =========
</TABLE>
See accompanying notes
-9-
<PAGE>
FARMERS NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of normal recurring
adjustments) in conformity with generally accepted accounting principles
necessary to present fairly the financial position as of June 30, 1994, and
December 31, 1993, and the results of operations and cash flows for the six and
three month periods ended June 30, 1994 and 1993. Certain reclassifications have
been made to amounts previously reported to conform with the classification made
in 1994.
NOTE 2. EARNING PER SHARE
Earning per share are based on the 2,699,056 weighted average number of
shares outstanding in both 1994 and 1993.
NOTE 3. SUBSEQUENT EVENT
On July 1, 1994, Farmers National Bancorp announced that it had entered
into an Agreement and Plan of Reorganization with First Virginia Banks, Inc.
pursuant to which First Virginia Banks, Inc. will acquire Bancorp by means of
a merger in which Bancorp stockholders will receive 1.5 shares of First
Virginia's common stock in exchange for each share of Bancorp stock, provided
that, at the election of the holders, up to 30% of all outstanding Bancorp
shares may be exchanged for cash at $58.53 per share. If First Virginia is
advised by its independent accountants that it cannot otherwise qualify to
treat the merger as a purchase for accounting purposes, then in addition to
those Bancorp shares as to which stockholders elect to receive cash or exercise
dissenters' rights under Maryland law to receive the appraised value of their
shares in cash, an additional number of Bancorp shares shall be exchanged on
a pro rata basis for cash at $58.53 per share so that the aggregate number of
(i) those shares exchanged for cash and (ii) those shares as to which
dissenters' rights are exercised is equal to at least 10.1% of all outstanding
shares of Bancorp stock.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Total assets of Farmers National Bancorp ("Bancorp") were $710 million as of
June 30, 1994, a 0.9 percent increase over the $703 million of June 30, 1993,
and a 0.6 percent decrease from the $714 million of December 31, 1993. The lack
of asset growth in 1994 is the result of flat deposits and minimal loan demand.
Total deposits were $618 million as of June 30, 1994, a slight increase of 0.5
percent over the $615 million a year ago and a decrease of 0.4 percent from year
end 1993.
As the banking industry continues to experience an erosion of deposits to mutual
funds and other nonbanking investments, Bancorp has continued to maintained it's
deposit base. However, there has been a shift in deposit products. The slight
decrease in interest bearing transaction accounts and significant decrease in
certificates of deposits was offset by the increase in regular savings accounts
as the consumer continues to deposit funds to accounts with liquidity and
adequate yield in anticipation of rising interest rates during 1994.
To improve the yield on earning assets, the balance of federal funds was reduced
and invested in short term government securities and the loan portfolio. While
loan demand still remains light, Bancorp has experienced increased consumer
activity during the second quarter. As a result, total loans outstanding equaled
$316 million at June 30, 1994, an increase of 4.2 percent over December 31,
1993.
Nonperforming loans, which are loans nonaccruing or past due more than 90 days,
increased slightly compared to a year ago, but still represent only 1.37 percent
of outstanding loans as of June 30, 1994. High credit quality is reflected in
the .08 percent ratio of net charge-offs to average loans outstanding for the
six month period in 1994.
An interim regulatory policy revision on the classification of investment
securities pursuant to Financial Accounting Standards Board Statement No. 115
"Accounting for Certain Investments in Debt and Equity Securities" ("FASB 115")
enabled Bancorp to re-evaluate it's investment portfolio. Prior to the
implementation of FASB 115, Bancorp had the ability and intent to hold its
investment securities to maturity. Therefore, during the second quarter, a
portion of the portfolio that had been classified as available for sale was
reclassified as held to maturity.
Shareholder equity as of June 30, 1994 totaled $72 million, a 2.9 percent
increase over the December 31, 1993 total of $70 million, and a 7.7 percent
increase over the June 30, 1993 total of $67 million. Book value per share was
$26.65, $25.91 and $24.74 respectively. During 1994, the source of increased
equity was retained earnings which increased 8.4 percent. However, the recording
of unrealized losses on investment securities pursuant to FASB 115 offset a
portion of the increase.
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<PAGE>
As indicated by the following table, all Bancorp's capital ratios continue to be
well above minimum regulatory capital standards.
Regulatory As of As of As of
Requirements 6/30/94 12/31/93 6/30/93
Leverage ratio 3.0% to 5.0% 10.2% 9.8% 9.5%
Tier 1 capital ratio 4.0% 19.1% 18.3% 17.9%
Total capital ratio 8.0% 20.4% 19.5% 19.2%
On July 1, 1994, Farmers National Bancorp announced that it had entered into an
Agreement and Plan of Reorganization with First Virginia Banks, Inc. See Item 5
for additional information.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30
For the six months ended June 30, 1994 Farmers National Bancorp had earnings of
$4.8 million or $1.77 per share, a slight decrease from the comparative 1993
earnings of $4.9 million or $1.80 per share. However, a one time accounting
change which represented the effect of implementing the Statement of Financial
Accounting Standard (SFAS) No. 109 "Accounting for Income Taxes" was recorded
during 1993, which added $1.4 million or $.53 per share to earnings. As a
result, 1993 six month earnings were $6.3 million or $2.33 per share. The flat
earnings are due primarily to a decrease in the net interest margin, offset by a
reduced provision for loan losses and continued control of overhead expenses.
The yield on average earning assets was 6.92 percent in 1994, a decrease of 41
basis points from the 1993 yield of 7.33 percent. The rate paid on interest
bearing liabilities was 3.03 percent in 1994, a decrease of 19 basis points
below the 3.22 percent paid in 1993. As a result, the net interest spread of
3.89 percent was 22 basis points lower than in 1993. The decrease in the
interest spread coupled with a lack of earning asset growth produced the 3.4
percent loss in net interest income.
In 1994 the provision for possible loan losses totaled $396 thousand, compared
to $871 thousand in 1993. The decrease in the loan loss provision reflects the
improved credit quality as well as the modest growth of the loan portfolio. Net
charge-offs for the first half of 1994 totaled $243 thousand, a substantial
decrease from the $534 thousand recorded for the comparable period in 1993.
Management feels the 1.80 percent reserve for possible loan losses to total
loans is adequate, based on current portfolio composition and quality.
Noninterest income in 1994 totaled $2.3 million, an increase of 4.2 percent over
1993. The entire increase was due to a 40.1 percent growth of trust revenue
generated by an upward adjustment of fees, a greater volume of managed assets,
and several estate settlements. The gain on investment securities was the profit
from the cash payment of an equity stock exchange.
-12-
<PAGE>
Noninterest expense increased 3.9 percent reflecting management's continued
emphasis on controlling overhead costs. Salaries and employee benefits, which
represent more than half the total, grew 5.8 percent. The added expenses are
attributable to merit increases, higher benefit costs, and increased consumer
loan staff. The cost of new teller equipment is reflected in the increased
furniture and equipment increase of 17.3 percent. Included in other expenses is
the item of legal and consultant fees which decreased substantially in 1994.
Annualized noninterest expense expressed as a percentage of average assets was
2.5 percent both years. The efficiency ratio, which is noninterest expense
divided by net operating revenue, was 56.3 percent, and compares very favorably
with our peers.
RESULTS OF OPERATIONS - QUARTER ENDED JUNE 30
Net operating income for the second quarter of 1994 was $2.5 million, an 8.0
percent increase over the first quarter total of $2.3 million, and a 2.4 percent
increase compared to the same period in 1993. On a per share basis earnings
totaled $.92, $.85, and $.90 respectively.
For the second quarter of 1994 net interest income was $6.8 million compared to
$6.9 million in 1993, a decrease of 1.9 percent. The decrease is due to a
continued decline in the yield on earning assets while interest expense paid on
deposits has leveled. The net interest spread for the second quarter of 1994 was
3.93 percent compared to 4.06 percent during the same period in 1993, and a
slight improvement over the 3.84 percent of the first quarter of 1994. The
quarterly rise in 1994 is the result of several federal reserve interest rate
increases during the second quarter which raised the prime rate from 6.00 to
7.25 percent.
The 64.0 percent reduction in the loan loss provision in the second quarter of
1994 compared to 1993 is the result of a substantial decrease in net charge offs
and an improvement in the quality and composition of the loan portfolio. As a
result, net interest income after the loan loss provision totaled $6.6 million
for the three months ended June 30, 1994, an increase of 2.7 percent over the
comparable period in 1993.
Noninterest income continued to increase moderately during the second quarter,
with the primary growth generated by higher trust department revenues. Service
charges and fees collected from deposit account activities decreased slightly
during the comparable periods due to the consumer maintaining higher account
balances, thereby reducing charges.
During the second quarter of 1994, noninterest expense increased 5.3 percent
over the same period in 1993. Salaries and employee benefit costs experienced
the largest dollar increase due to increased medical and retirement costs and
the addition of staff to expand the consumer loan business. The 20.7 percent
increase in furniture and fixture expense was the result of the installation of
new teller equipment and branch technology to more efficiently serve customers.
Most other expense categories increased slightly, consistent with increased
volumes and inflation.
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<PAGE>
PART II - OTHER INFORMATION
Items 1 through 6(b).
Management notes that no occurrences have taken place during the reporting
period which require disclosure under any of the captioned headings except as
noted below.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Stockholders of Farmers National Bancorp was held on
April 26, 1994. The following directors were nominated and elected as Class II
directors:
Directors Number of Shares Number of Shares
Voted FOR AUTHORITY WITHHELD
John B. Melvin 2,138,288 26,393
Charles L. Schelberg 2,138,225 26,456
Donald S. Taylor 2,134,260 30,421
William W. Simmons 2,138,288 26,393
Louis Hyatt 2,137,288 27,393
Directors whose term in office continued after the Annual Meeting are:
M. Virginia Meredith, Joseph S. Quimby, W. Calvin Gray, Jr., John M. Suit, II,
Alexander V. Sandusky, Raymond C. Shockley, Jesse L. Adams, Cary L. Meredith,
Jr., L. Tayloe Lewis, Jr., Edward B. Lauer, James D. Edwards and W. Robert
Newnam.
In addition, at the Annual Meeting the stockholders ratified the selection of
Stegman & Company as independent public accountants for Bancorp for 1994 by an
affirmative vote of 2,047,690; shares voted against ratification were 23,611
and shares abstained were 73,748.
Item 5. OTHER INFORMATION
On July 1, 1994, Farmers National Bancorp announced that it had entered
into an Agreement and Plan of Reorganization with First Virginia Banks, Inc.
pursuant to which First Virginia Banks, Inc. will acquire Bancorp by means of
a merger in which Bancorp stockholders will receive 1.5 shares of First
Virginia's common stock in exchange for each share of Bancorp stock, provided
that, at the election of the holders, up to 30% of all outstanding Bancorp
shares may be exchanged for cash at $58.53 per share. If First Virginia is
advised by its independent accountants that it cannot otherwise qualify to
treat the merger as a purchase for accounting purposes, then in addition to
those Bancorp shares as to which stockholders elect to receive cash or exercise
dissenters' rights under Maryland law to receive the appraised value of their
shares in cash, an additional number of Bancorp shares shall be exchanged on a
pro rata basis for cash at $58.53 per share so that the aggregate number of
(i) those shares exchanged for cash and (ii) those shares as to which
dissenters' rights are exercised is equal to at least 10.1% of all outstanding
shares of Bancorp stock. Attached to this Quarterly Report on Form 10-Q as
Exhibit 2 is a copy of the Agreement and Plan of Reorganization between
Bancorp and First Virginia.
-14-
<PAGE>
On July 7, 1994, Bancorp filed a Current Report on Form 8-K disclosing
the execution of the Agreement and Plan of Reorganization.
The merger of Bancorp and First Virginia contemplated by the Agreement and
Plan of Reorganization is subject to various conditions set forth in the
Agreement and Plan of Reorganization, including approval of the merger by
Bancorp's stockholders and state and federal regulatory authorities. Another
such condition was the satisfactory completion of an audit of Bancorp and its
subsidiaries by First Virginia to confirm that Bancorp's consolidated
stockholders' equity was not less than $68.5 million as of June 30, 1994.
By letter dated July 27, 1994, First Virginia advised Bancorp that the audit
has been completed and this condition satisfied. Certain other conditions to
consummation of the merger remain outstanding.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits Description
-------- -----------
(2) Agreement and Plan of Reorganization dated July 1, 1994
Reports on Form 8-K
-------------------
Current Report on Form 8-K of Farmers National Bancorp dated July 7,
1994 is hereby incorporated by reference.
-15-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FARMERS NATIONAL BANCORP
/s/ JOHN M. SUIT, II
Date: August 9, 1994 -----------------------------------------
John M. Suit, II
President and Chief Executive Officer
/s/ LOUIS A. SUPANEK
Date: August 9, 1994 -----------------------------------------
Louis A. Supanek
Vice President and Treasurer
-16-
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit Page
- - ------- --- ---------------------- ----
2 Agreement and Plan of Reorganization dated 18
July 1, 1994
-17-
<PAGE>
EXHIBIT 2
AGREEMENT AND PLAN OF REORGANIZATION
between
FIRST VIRGINIA BANKS, INC.
and
FARMERS NATIONAL BANCORP
July 1, 1994
-18-
<PAGE>
INDEX
Page
----
ARTICLE 1.
THE MERGER
1.1 The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Effective Date and Closing Date . . . . . . . . . . . . . . . . . . . . 3
1.3 Dissenting Bancorp Stockholders . . . . . . . . . . . . . . . . . . . . 3
1.4 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.5 Participation Agreements. . . . . . . . . . . . . . . . . . . . . . . . 5
1.6 Employment Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.7 Board Member. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.8 Employment of First Virginia Officer. . . . . . . . . . . . . . . . . . 7
1.9 Bank Conversions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.10 Continued Existence of Farmers. . . . . . . . . . . . . . . . . . . . . 8
1.11 Directors of Banks. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.12 Director Compensation . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.13 Treatment of Employees. . . . . . . . . . . . . . . . . . . . . . . . . 8
1.14 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE II.
EVENTS PRECEDING EFFECTIVENESS
2. Events. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Bancorp . . . . . . . . . . . . . . . 10
(a) Organization and Authority . . . . . . . . . . . . . . . . . . . . 11
(b) Capital Structure. . . . . . . . . . . . . . . . . . . . . . . . . 11
(c) Corporate Authority. . . . . . . . . . . . . . . . . . . . . . . . 11
(d) Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(e) Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 12
(f) Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . 12
(g) No Material Adverse Changes. . . . . . . . . . . . . . . . . . . . 13
(h) Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(i) Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(j) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(k) Contracts and Commitments. . . . . . . . . . . . . . . . . . . . . 14
(l) Accuracy of Information Supplied . . . . . . . . . . . . . . . . . 15
(m) Bancorp and its Subsidiaries' Employee Benefit Plans . . . . . . . 16
(n) Defined Benefit and Deferred Contribution Plans. . . . . . . . . . 16
(o) Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . 17
i
<PAGE>
(p) Loan Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(q) Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . 18
(r) Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(s) Applicable Takeover Laws . . . . . . . . . . . . . . . . . . . . . 19
(t) Charter Provisions . . . . . . . . . . . . . . . . . . . . . . . . 19
3.2 Representations and Warranties of First Virginia. . . . . . . . . . . . 20
(a) Organization, Standing and Power . . . . . . . . . . . . . . . . . 20
(b) Capital Structure. . . . . . . . . . . . . . . . . . . . . . . . . 20
(c) Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(d) Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 21
(e) No Material Adverse Change . . . . . . . . . . . . . . . . . . . . 21
(f) Accuracy of Information Supplied . . . . . . . . . . . . . . . . . 21
(g) First Virginia Common Stock to be Issued . . . . . . . . . . . . . 22
(h) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(i) Tax Representations. . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE IV.
CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE DATE
4.1 Conduct of the Business of Bancorp and its Subsidiaries' Prior
to the Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.2 Forbearances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.3 No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.4 Compliance with Tax-Free Provisions . . . . . . . . . . . . . . . . . . 24
4.5 Access and Information. . . . . . . . . . . . . . . . . . . . . . . . . 24
4.6 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.7 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.8 Meeting of Bancorp Stockholders . . . . . . . . . . . . . . . . . . . . 26
4.9 Affiliates of Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.10 Insurance Applications. . . . . . . . . . . . . . . . . . . . . . . . . 26
4.11 Bank Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.12 Applications to the Maryland Bank Commissioner. . . . . . . . . . . . . 26
4.13 Federal Reserve Applications. . . . . . . . . . . . . . . . . . . . . . 26
4.14 Changes Requested by First Virginia . . . . . . . . . . . . . . . . . . 26
ARTICLE V.
COVENANTS OF FIRST VIRGINIA
5.1 Issuance of Stock and Payment of Cash . . . . . . . . . . . . . . . . . 27
5.2 Stock Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.3 Preparation of Registration Statement . . . . . . . . . . . . . . . . . 28
5.4 Applications to the Maryland Bank Commissioner. . . . . . . . . . . . . 28
5.5 Application to the Bureau of Financial Institutions . . . . . . . . . . 28
5.6 Federal Reserve Applications. . . . . . . . . . . . . . . . . . . . . . 28
5.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.8 Directors' and Officers' Liability Insurance. . . . . . . . . . . . . . 29
5.9 Effect of Future Transactions . . . . . . . . . . . . . . . . . . . . . 29
5.10 Executive Employment Agreements . . . . . . . . . . . . . . . . . . . . 30
ii
<PAGE>
ARTICLE VI.
CONDITIONS PRECEDENT TO FIRST VIRGINIA'S OBLIGATIONS HEREUNDER
6.1 Representations, Warranties . . . . . . . . . . . . . . . . . . . . . . 30
6.2 No Adverse Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.3 Audit of Bancorp and its Subsidiaries . . . . . . . . . . . . . . . . . 31
6.4 Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.5 Events Preceding the Effective Date . . . . . . . . . . . . . . . . . . 31
6.6. No Adverse Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE VII.
CONDITIONS PRECEDENT TO BANCORP'S OBLIGATIONS HEREUNDER
7.1 Representations, Warranties and Covenants . . . . . . . . . . . . . . . 31
7.2 Events Preceding the Effective Date . . . . . . . . . . . . . . . . . . 32
7.3 No Adverse Proceedings or Events. . . . . . . . . . . . . . . . . . . . 32
7.4 No Adverse Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.5. Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.6. Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.7. Fairness Opinion. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE VIII.
TAX OPINION AND RESTRICTIONS CONCERNING THE RESALE OF FIRST
VIRGINIA COMMON STOCK BY AFFILIATES OF BANCORP
8.1 Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.2 Restrictions on Affiliates. . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE IX.
TERMINATION, AMENDMENT AND SURVIVAL OF REPRESENTATIONS
9.1 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.3 Survival of Representations and Covenants . . . . . . . . . . . . . . . 36
9.4 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.6 Entire Agreement in Effect. . . . . . . . . . . . . . . . . . . . . . . 37
9.7 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
iii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") dated this 1st
day of July, 1994 by and between FIRST VIRGINIA BANKS, INC. ("First Virginia"),
a Virginia corporation with its main office at 6400 Arlington Boulevard, Falls
Church, Virginia 22042-2336 and FARMERS NATIONAL BANCORP ("Bancorp"), a Maryland
corporation and a registered bank holding company, with its main office at 5
Church Circle, Annapolis, Maryland 21401 (First Virginia and Bancorp each being
referred to herein as a "Party" and collectively referred to herein as
"Parties").
W I T N E S E T H:
WHEREAS, the Boards of Directors of First Virginia and Bancorp deem it
advisable and in the best interests of the Parties and their stockholders that
Bancorp be acquired by First Virginia through a merger (the "Merger") of Bancorp
with and into First Virginia pursuant to a Plan of Merger in the form attached
hereto as Exhibit A (the "Plan of Merger"); and
WHEREAS, the Parties desire to provide for certain undertakings,
conditions, warranties, representations and covenants in connection with the
transactions contemplated hereby.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, agreements, representations and warranties herein contained, the
Parties agree as follows:
ARTICLE 1.
THE MERGER
1.1 THE MERGER. Upon performance of all covenants and obligations of the
Parties contained in this Agreement and upon the terms and conditions contained
herein, on the Effective Date of the Merger, Bancorp shall be merged with and
into First Virginia, pursuant to the Plan of Merger, the terms of which are
incorporated herein by reference to the same extent as if fully set forth
herein. The Plan of Merger provides for the terms of the Merger, the mode of
carrying the same into effect and the basis and manner of converting the
outstanding shares of Bancorp Common Stock, $1.00 par value per share (the
"Bancorp Common Stock") into shares of First Virginia Common Stock, $1.00 par
value per share (the "First Virginia Common Stock"). As a result of the Merger,
each share of Bancorp Common Stock outstanding on the Effective Date (other than
"Dissenting Shares" as hereinafter defined) will be converted into
<PAGE>
1.5 shares of First Virginia Common Stock, proportionately adjusted for any
stock split, stock dividends or other similar capital adjustments between the
date of this Agreement and the Effective Date. No fractional shares of First
Virginia Common Stock shall be issued to Bancorp stockholders. In lieu thereof,
each Bancorp stockholder shall receive upon surrender of his Bancorp Common
Stock an amount in cash equal to the amount of any fractional share he would
otherwise be entitled to receive multiplied by the average of the closing prices
per share of First Virginia Common Stock as reported by THE WALL STREET JOURNAL
under the heading "New York Stock Exchange--Composite Transactions" or any
comparable heading then in use, for each of the last ten trading days ending on
the tenth trading day prior to the Effective Date of the Merger.
Holders of shares of Bancorp Common Stock will be given the option of
exchanging their shares for $58.53 per share in cash, provided that the number
of shares that may be exchanged for cash, when added to Dissenting Shares (as
defined in Section 1.3), shall not exceed 30% of the shares of Bancorp Common
Stock outstanding immediately prior to the Effective Date. The cash election
must be made at the time Bancorp stockholders vote on the Merger and once such
vote has been taken, cash elections shall be irrevocable. If the aggregate of
(i) shares for which a cash election is made and (ii) Dissenting Shares exceed
30% of the shares of Bancorp Common Stock outstanding immediately prior to the
Effective Date of the Merger, First Virginia first will pay cash for shares
submitted for cash exchange by each holder of 100 or fewer shares of Bancorp
Common Stock (if such holder has submitted all his shares for cash exchange) and
then will pay cash for shares submitted for cash pro rata. Shares not exchanged
for cash after proration will be exchanged for First Virginia Common Stock at
the exchange ratio provided above. If (i) the aggregate of (A) shares as to
which a cash election is made and (B) Dissenting Shares is less than 10.1% of
the total number of shares of Bancorp Common Stock outstanding immediately prior
to the Effective Date of the Merger and (ii) First Virginia is advised by its
independent accountants that it cannot otherwise qualify to treat the Merger as
a purchase for accounting purposes after First Virginia has used all reasonable
efforts to qualify for such purchase accounting treatment by repurchasing
outstanding shares of First Virginia Common Stock, then First Virginia will pay
to Bancorp stockholders, other than for Dissenting Shares and shares for which a
cash election is made, a pro rata cash payment equal in an aggregate amount to
the difference between (i) the amount of cash that would have been paid if there
were no Dissenting Shares and holders of 10.1% of the total number of shares of
Bancorp Common Stock outstanding immediately prior to the Effective Date of the
Merger had elected cash at $58.53 per share in exchange for that percentage of
shares of Bancorp Common Stock and (ii) the aggregate amount of cash paid to
Bancorp stockholders electing cash and holders of Dissenting Shares (for
purposes of this calculation only, holders of
2
<PAGE>
Dissenting Shares shall be assumed to be entitled to receive $58.53 cash per
Dissenting Share). The pro rata cash payment payable to each Bancorp
stockholder (other than for Dissenting Shares and shares for which a cash
election is made) as provided in the immediately preceding sentence shall be in
exchange for that number of shares of Bancorp Common Stock held by such
stockholder immediately prior to the Effective Date equal to the amount of such
cash payment divided by $58.53, and the remaining shares of Bancorp Common Stock
held by such Stockholder immediately prior to the Effective Date will be
converted into shares of First Virginia Common Stock at the exchange ratio and
upon the terms and conditions provided above.
Stockholders who elect to exchange some or all of their shares of Bancorp
Common Stock for cash must submit to Bancorp certificates for the shares being
exchanged for cash at or prior to the meeting of Bancorp stockholders referred
to in Paragraph 4.8. If the Merger is approved by Bancorp stockholders at this
meeting, a stockholder's election to receive cash is irrevocable and Bancorp
will retain certificates for shares submitted for cash purchase until either (i)
termination of this Agreement, upon which Bancorp will return such certificates
or (ii) the Effective Date of the Merger when the exchange agent will exchange
such certificates for cash to the extent required by this Agreement and the Plan
of Merger.
1.2 EFFECTIVE DATE AND CLOSING DATE. The Effective Date of the Merger
shall be the date specified in the Articles of Merger filed with both the
Maryland State Department of Assessments and Taxation pursuant to the Maryland
General Corporation Law and the Articles of Merger filed with the Virginia State
Corporation Commission pursuant to the Virginia Stock Corporation Act. The
Closing Date shall be the date when all documents, including officers'
certificates, legal opinions, shareholder resolutions and agreements shall be
exchanged between the parties hereto. The Closing Date shall be a date mutually
agreed to by First Virginia and Bancorp but in any case shall be on or after the
date of Bancorp's Special Meeting of Stockholders called to consider the Merger.
1.3 DISSENTING BANCORP STOCKHOLDERS. Stockholders of Bancorp shall have
the rights provided in Section 3-202 ET SEQ. of the Corporations and
Associations Article of the Annotated Code of Maryland. Notwithstanding
anything in this Agreement to the contrary, shares of Bancorp Common Stock which
are issued and outstanding immediately prior to the Effective Date of the Merger
and which are held by a stockholder who has exercised in accordance with
applicable law the right (to the extent such right is available by law) to
demand and receive payment of the fair value of his shares of Bancorp Common
Stock ("Dissenting Shares" and the holders of Dissenting Shares being
"Dissenting Stockholders") pursuant to Maryland law shall not be converted into
or be
3
<PAGE>
exchangeable for the right to receive the consideration provided in Section 1.1
of this Agreement, unless and until such holder shall fail to perfect his right
to receive payment of such fair value or shall have effectively withdrawn or
lost such right. If such holder shall have so failed to perfect his right to
receive payment of such fair value or shall have effectively withdrawn or lost
such right, each of his shares of Bancorp Common Stock shall thereupon be deemed
to have been converted into, at the Effective Date of the Merger, the right to
receive shares of First Virginia Common Stock together with any required pro
rata cash payment (if applicable) as provided in Paragraph 1.1. Prior to the
Effective Date, Bancorp shall comply with all notice and other provisions of the
above-mentioned sections of the Maryland Code and shall keep First Virginia
fully advised thereof and shall give First Virginia prompt notice of any demands
received from Dissenting Stockholders and the opportunity to participate in all
negotiations and proceedings with respect to any such demands. Bancorp shall
not, except with the prior written consent of First Virginia, voluntarily make
any payment with respect to or settle any such demands for payment.
1.4 EMPLOYEE BENEFITS. Employees of Bancorp and its subsidiaries (each
subsidiary of Bancorp is hereinafter referred to as "Subsidiary" or collectively
as the "Subsidiaries") will be eligible to participate in all of First
Virginia's employee benefit programs, provided they meet the eligibility
requirements of those programs. Except for First Virginia's Post Retirement
Medical Program, service with Bancorp and its Subsidiaries shall be considered
service with First Virginia for purposes of eligibility, vesting and benefits
under all these programs except as otherwise provided in paragraphs (a) and (b)
below.
(a) Bancorp currently has a pension plan known as The Farmers
National Bank of Maryland Pension Plan (the "Farmers' Pension Plan"). With the
mutual agreement of Bancorp and First Virginia, the Farmers' Pension Plan will
either be terminated or merged into First Virginia's Pension Trust Plan. If it
is terminated, participants in that plan would receive (either at retirement or
otherwise in accordance with the provisions of that plan) all of their pension
benefits which are vested and accrued in the plan as of the termination date and
Farmers' Pension Plan participants, as well as other employees of Bancorp and
its Subsidiaries, would be credited for years of employment with Bancorp and the
Subsidiaries prior to the Effective Date of the Merger solely for purposes of
determining eligibility and vesting under First Virginia's Pension Trust Plan,
but not for purposes of determining accrued benefits. If the Farmers' Pension
Plan is merged into First Virginia's Pension Trust Plan, then Farmers' Pension
Plan participants would receive credit under First Virginia's Pension Trust Plan
for their prior service with Farmers, not only for purposes of determining
eligibility and vesting, but also for determining accrued benefits, provided
that First Virginia, in its sole discretion, determines that the Farmers'
4
<PAGE>
Pension Plan is adequately funded to support the level of benefits for prior
service under the merged plan.
(b) With respect to the Farmers National Bank of Maryland Profit
Sharing Plan (the "Farmers' Plan"), a contribution shall be determined under
that plan's terms and made to that plan for each full calendar year before the
Effective Date and the portion of the calendar year in which the Merger occurs
that precedes the Effective Date of the Merger. With the mutual agreement of
Bancorp and First Virginia, the Farmers' Plan will either be terminated or
merged into First Virginia's Employees Thrift Plan (the "Thrift Plan"). With
respect to the Thrift Plan, for purposes of determining eligibility and vesting
under the Thrift Plan, employees of Bancorp and its Subsidiaries will be
credited with years of employment with Bancorp and its Subsidiaries prior to the
Effective Date of the Merger.
(c) With respect to First Virginia's Nonqualified Profit Sharing
Plan, all employees of Bancorp and its Subsidiaries as of the Effective Date of
the Merger shall be able to participate in that plan and participate in the
benefits for the plan year in which the merger is completed (which participation
in the year of Merger will be pro-rated based on the period of time during that
year that employees of Bancorp and its Subsidiaries are covered by that plan).
(d) Any sick or vacation leave that has been accrued by an employee
of Bancorp and its Subsidiaries as of the Effective Date shall not be disturbed,
and the number of days of paid vacation which an employee at Bancorp and its
Subsidiaries has accrued as of the Effective Date shall not be adversely
affected by the Merger during that year.
1.5 PARTICIPATION AGREEMENTS. First Virginia will observe and perform, or
cause to be observed and performed the terms and conditions of the Participation
Agreements issued under the "Farmers National Bank of Maryland Executive
Benefits Plan" (the "FNB Plan") to John M. Suit, II, Louis A. Supanek, Frank T.
Lowman, III and Ross J. Selby as the FNB Plan is amended and in effect on the
date of this Agreement, provided, however, that the FNB Plan will be further
amended on or prior to the Effective Date, by written instrument reasonably
satisfactory in form and content to the Parties, to provide that (a) any
benefits these officers receive from the First Virginia Pension Trust Plan (in
addition to the benefits they receive from Social Security and from
participation in the Farmers' Pension Plan) will reduce on a dollar for dollar
basis the benefits they receive from their Participation Agreements at
retirement, (b) their benefits will become fully vested under the FNB Plan (i)
if there is a change of control of First Virginia (as hereinafter defined) or
(ii) upon discharge as to each of them who is discharged other than for cause
(as hereinafter defined) on or after the Effective Date, and (c) after
5
<PAGE>
the Effective Date, no amendment to or termination of the FNB Plan may be made
without the written consent of each holder of a Participation Agreement whose
rights would be affected in any respect by the amendment or termination. First
Virginia will observe and perform, or cause to be observed and performed, the
terms and conditions of the Participation Agreements with Charles L. Schelberg
and Glenwood L. Gish, as amended and in effect on the date of this Agreement
and, subsequent to the Effective Date, will continue paying retirement benefits
to those persons pursuant to those Agreements. First Virginia also will observe
and perform, or cause to be observed and performed the terms and conditions of
the Participation Agreement dated July 1, 1986, as amended by a Release dated
June 19, 1989, with Thomas G. Moore. First Virginia will guarantee the payment
of all benefits due and payable after the Effective Date under the Participation
Agreements with Messrs. Suit, Supanek, Lowman, Selby, Schelberg, Gish and Moore
pursuant to the terms of an irrevocable and unconditional written guaranty of
payment, reasonably satisfactory in form and content to Bancorp, to be executed
and delivered by First Virginia on the Closing Date. The First Virginia Trust
Agreement covering the Nonqualified Deferred Compensation Programs with Chemical
Bank (rabbi trust) shall be amended on or prior to the Effective Date, by
written instrument reasonably satisfactory in form and content to Bancorp, to
provide that the liabilities under the FNB Plan and the Participation Agreements
shall be funded out of the assets of that trust and all insurance policies owned
by Farmers National Bank of Maryland or Bancorp and insuring the life of any
participants in the FNB Plan shall be transferred, assigned and contributed to
that trust for the purpose of funding the FNB Plan and the Participation
Agreements. As used in this Paragraph 1.5, (x) a change in control of First
Virginia shall occur when (i) any person, together with all other persons
controlling, controlled by, or under common control with that person, acquires
the right to vote or control the voting of 20% of the shares of stock having the
power to vote for the election of directors of First Virginia, (ii) First
Virginia consolidates with or mergers into any person and shall not be the
continuing or surviving corporation of such consolidation or merger, (iii) First
Virginia permits any person, other than Bancorp, to merge into or consolidate
with First Virginia and First Virginia shall be the continuing or surviving
corporation but, in connection with such merger or consolidation, the then
outstanding shares of First Virginia Common Stock shall be changed into or
exchanged for stock or other securities of First Virginia or any other person or
cash or any other property or the outstanding shares of First Virginia Common
Stock immediately prior to such merger or consolidation shall after such merger
or consolidation represent less than 50% of the outstanding shares and share
equivalents of the merged or consolidated entity, or (iv) First Virginia sells
or otherwise transfers all or substantially all of its assets to any person; and
(y) an employee is discharged other than for cause if (i) his discharge was for
other than (A) fraud or gross misconduct, (B) continuous and substantial
violation of a
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rule, regulation or policy of First Virginia after written notice from First
Virginia, (C) gross negligence, or (D) continuous and substantial failure of the
employee to perform his duties after written notice from First Virginia or (ii)
the employee resigns from his employment because (A) he is demoted in position,
authority or status from his position with Farmers National Bank of Maryland on
the date of this Agreement, (B) his duties and responsibilities change
significantly from those at the date of this Agreement, (C) the location of his
place of employment is changed from Annapolis, Maryland or the Washington/
Baltimore metropolitan area or (D) his duties are changed to require a
significantly greater amount of travel than the travel required in the
performance of his duties prior to the date of this Agreement or (iii) his
salary is reduced below his salary in effect on the date of this Agreement.
1.6 EMPLOYMENT AGREEMENT. On the Effective Date First Virginia will enter
into an employment agreement between First Virginia and John M. Suit, II, under
which Mr. Suit will agree to be employed by Farmers National Bank of Maryland
("Farmers") as President and Chief Executive Officer for three years following
the Effective Date of the Merger.
1.7 BOARD MEMBER. Following the Effective Date of the Merger, First
Virginia will amend its Bylaws to add an additional director to its Board of
Directors and the Nominating Committee of the First Virginia Board of Directors
will recommend for nomination and election to the Board a Bancorp director
designated by Bancorp.
1.8 EMPLOYMENT OF FIRST VIRGINIA OFFICER. Following the Effective Date,
Farmers will employ an officer to be designated by First Virginia to work as a
member of Farmers' senior management to assist in the development of Farmers'
consumer loan activities and assist in the implementation of First Virginia
policies, procedures, marketing programs, etc.
1.9 BANK CONVERSIONS. On or before the Effective Date of the Merger and
subject to approval of the appropriate regulatory authorities, Bancorp will
convert Farmers and Atlantic National Bank ("Atlantic") from national banks to
state chartered, Federal Reserve member banks pursuant to Maryland law and the
regulations of the Comptroller of the Currency and the Federal Reserve Board.
Bancorp shall file the Plans of Conversion and the proposed Articles of
Incorporation with the Maryland Bank Commissioner. The new Articles of
Incorporation of Farmers shall include the new name "Farmers Bank of Maryland"
or "The Farmers Bank of Maryland", subject to regulatory approval. On or before
the Effective Date of the Merger, Bancorp agrees to make Caroline County Bank
("Caroline") a Federal Reserve member bank. Farmers, Atlantic and Caroline are
sometimes referred to in this Agreement collectively as the "Banks" and
individually as a "Bank."
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1.10 CONTINUED EXISTENCE OF FARMERS. First Virginia will maintain Farmers
as a wholly owned subsidiary bank named "The Farmers Bank of Maryland" or
"Farmers Bank of Maryland" until at least December 31, 1998.
1.11 DIRECTORS OF BANKS. During the 24 month period after the Effective
Date, First Virginia will take all requisite action to elect as members of the
boards of directors of each of the Banks those persons serving as directors of
each of the Banks immediately prior to the Effective Date except for those
persons (1) who vote against the Merger at Bancorp's Special Meeting of
Stockholders called to consider the Merger or (2) who are seventy-two years old
as of the Effective Date. From and after the Effective Date, First Virginia
will not permit Farmers to adopt a mandatory retirement age of less than 75
years for continued service on Farmers' Board of Directors by the person serving
as Chairman of the Board immediately prior to the Effective Date.
1.12 DIRECTOR COMPENSATION. During the 24 month period after the Effective
Date, First Virginia will cause the members of the boards of directors of each
of the Banks to be paid compensation for their service as directors in amounts
(i) in the case of Atlantic and Caroline, total compensation to each director
for each calendar year not less than $5,000, and (ii) in the case of Farmers,
compensation to each director for each calendar year not less than a $5,000
annual retainer plus $200 for each board of directors meeting (to be held
monthly) and committee meeting attended.
1.13 TREATMENT OF EMPLOYEES. After the Effective Date, First Virginia
will, and will cause each of the Banks and its other subsidiaries to, use its
best efforts to minimize terminations of the employees of Bancorp and its
Subsidiaries and provide for their continued employment with First Virginia's
organization, and give priority to displaced employees of Bancorp and its
Subsidiaries equal to that given to employees of First Virginia and its present
subsidiaries in filling positions within First Virginia and its subsidiaries for
a period of 60 days after notification of job elimination, or until termination
of employment, whichever is later, so long as: (i) performance requirements are
met, (ii) the job elimination is related to the Merger, and (iii) the job
elimination notification is given or the job elimination occurs within one year
after the Effective Date. In the case of any employee of Bancorp or its
Subsidiaries who has been employed by Bancorp or any of its Subsidiaries for a
period of ten years or more as of the Effective Date and who is discharged
without cause within one year after the Effective Date, First Virginia will pay
to each such employee severance pay in an amount equal to four weeks pay at the
rate of compensation in effect for such employee on the date of discharge.
Notwithstanding anything contained herein to the contrary, the Parties hereto do
not intend that any third party shall have, nor shall any third party be deemed
to
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have, any right to enforce the provisions of this Paragraph 1.13 or assert any
claim in connection with this Paragraph 1.13.
1.14 CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the meanings set forth below:
(a) "material" means material to Bancorp or First Virginia (as the case
may be) and its respective subsidiaries, taken as a whole, and determined in
light of the facts and circumstances of the matter in question; provided, that
any specific monetary amount stated in this Agreement with respect to
materiality shall determine materiality in that instance.
(b) "Material Adverse Effect," with respect to a person, means an event,
change or occurrence which, individually or in the aggregate, (i) is reasonably
likely to result in a reduction in the consolidated stockholders' equity of such
person and its subsidiaries, taken as a whole, by the amount equal to or greater
than five percent (5%) of the consolidated stockholders' equity of such person
and its subsidiaries, taken as a whole, as reflected in the consolidated balance
sheet of such person as of June 30, 1994, or (ii) which has a material adverse
impact on the ability of such person to consummate the Merger contemplated by
this Agreement, provided that in determining whether a Material Adverse Effect
has occurred under either (i) or (ii), the adverse impact of changes in laws or
regulations or accounting rules of general applicability or interpretations
thereof shall not be included and any decreases in capital under Financial
Accounting Standards No. 115 attributable to general increases in interest rates
or other effects attributable to interest rate fluctuations also will not be
included.
(c) "person" includes an individual, corporation, partnership, limited
liability company, association, trust or unincorporated organization.
(d) "to the knowledge of" or "to the best of the knowledge of" Bancorp or
First Virginia or similar phrases includes the knowledge of the current
directors and the current executive officers (including the knowledge of the
chief executive officer and chief financial officer after internal inquiry) of
Bancorp or First Virginia, as the case may be.
ARTICLE II.
EVENTS PRECEDING EFFECTIVENESS.
2. EVENTS. On or before the Effective Date the following shall have
occurred:
(a) a majority of the entire Boards of Directors of First Virginia
and Bancorp shall have approved this Agreement;
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(b) the Boards of Directors of Farmers and Atlantic each shall have
approved a Plan of Conversion and a new charter for each of Farmers and Atlantic
to become a state chartered, Federal Reserve Member Bank;
(c) the Comptroller of the Currency, the Board of Governors of the
Federal Reserve System and the Maryland Bank Commissioner shall have approved
the conversion of Farmers and Atlantic from national banks into state chartered,
Federal Reserve member banks and the Board of Governors of the Federal Reserve
System shall have approved the membership application of Caroline;
(d) the Federal Reserve shall have approved the merger of Bancorp
into First Virginia pursuant to the Bank Holding Company Act and the acquisition
of all of Bancorp's Subsidiaries;
(e) the Maryland Bank Commissioner shall have approved the merger of
Bancorp into First Virginia and the acquisition by First Virginia of Bancorp's
Subsidiaries.
(f) the Bureau of Financial Institutions of the Virginia State
Corporation Commission shall have approved the Merger pursuant to the provisions
of Section 6.1-406 of the Code of Virginia;
(g) a registration statement on Form S-4 containing the proxy
statement for Bancorp shall have been filed with the Securities and Exchange
Commission (the "SEC") pertaining to the shares of First Virginia Common Stock
to be issued in connection with this Agreement and the Plan of Merger (the
"Registration Statement"), the Registration Statement shall have become
effective, and no stop order shall have been entered with regard to such
Registration Statement;
(h) this Agreement and the Plan of Merger shall have been submitted
to the stockholders of Bancorp and approved by an affirmative vote of the
holders of at least two-thirds of all the outstanding shares of Bancorp entitled
to vote; and
(i) Articles of Merger containing the provisions required by, and
executed in accordance with, the Maryland General Corporation Law and the
Virginia Stock Corporation Act (the "Articles of Merger"), shall have been filed
with the Maryland State Department of Assessments and Taxation and the Virginia
State Corporation Commission.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES.
3.1 REPRESENTATIONS AND WARRANTIES OF BANCORP. Bancorp represents and
warrants to First Virginia the following:
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(a) ORGANIZATION AND AUTHORITY. Bancorp is a corporation duly in-
corporated, validly existing and in good standing under the laws of the State of
Maryland. Each of Bancorp's Subsidiaries is duly incorporated, validly existing
and in good standing under the laws of the jurisdiction in which it is
incorporated. Each has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
Bancorp and its Subsidiaries have delivered to First Virginia complete and
correct copies of (1) their charters and all amendments thereto to the date
hereof and (2) their Bylaws as amended to the date hereof.
(b) CAPITAL STRUCTURE.
(1) As of the date of this Agreement, the authorized capital
stock of Bancorp consists of 10,000,000 shares of Common Stock, $1.00 par value
per share. As of the date hereof, 2,699,056 shares of Bancorp Common Stock were
outstanding, all of which were validly issued, fully paid and nonassessable.
Bancorp has authorized Preferred Stock but there are no shares of Preferred
Stock outstanding. No options to purchase Bancorp Common Stock have been
issued.
(2) Bancorp has no commitments to issue or sell any such shares
or any securities or obligations convertible into or exchangeable for such
shares, or given any person the right to subscribe for or acquire any such
shares and no securities or obligations representing such rights are out-
standing.
(c) CORPORATE AUTHORITY. The execution of this Agreement and the
Plan of Merger and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by the Board of Directors of Bancorp. This
Agreement and the Plan of Merger are valid and binding obligations of Bancorp
and no further corporate authorization on the part of Bancorp is necessary to
consummate the transactions contemplated hereby or thereby except the approval
of the stockholders of Bancorp pursuant to applicable law. Except as otherwise
disclosed in writing to First Virginia, neither the execution and delivery of
this Agreement and the Plan of Merger nor the consummation in accordance with
the terms of the transactions contemplated hereby and thereby nor compliance by
Bancorp or any of its Subsidiaries with any provision hereof or thereof will (i)
conflict with or result in a breach of any provision of their charters or bylaws
or give rise to any right of termination, cancellation or acceleration under any
of the terms, conditions or provisions of any material note, bond, mortgage,
indenture, license, agreement or other instrument or obligation to which Bancorp
or any of its Subsidiaries is a party or by which Bancorp and its Subsidiaries
or any of their properties or assets may be bound in any instance in which such
right of termination, cancellation or acceleration if exercised would have a
Material Adverse Effect, or (ii) violate any order, writ,
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injunction, decree, statute, rule or regulation applicable to Bancorp or its
Subsidiaries or any of their properties or assets in any instance in which such
violation would have a Material Adverse Effect. Except for consents the lack of
which would not have a Material Adverse Effect, and except as otherwise
disclosed in writing to First Virginia, no consent is required in connection
with the execution and delivery by Bancorp of this Agreement or the Plan of
Merger except for the consents, approvals, and satisfaction of conditions
hereinafter set forth and consummation by Bancorp and its Subsidiaries of the
transactions contemplated hereby.
(d) SUBSIDIARIES. Bancorp owns all the issued and outstanding shares
of Farmers, Atlantic and Caroline as well as Farmers National Land Corporation
and Farmers National Mortgage Corporation. Farmers owns all of the issued and
outstanding shares of Colonial Securities Corporation. Bancorp has and will
have on the Effective Date no other subsidiaries.
(e) FINANCIAL STATEMENTS. Bancorp has delivered to First Virginia
its 1993 Annual Report to Stockholders and Form 10-K and Bancorp has also
delivered its Quarterly Report on Form 10-Q for the period ended March 31, 1994
which includes (1) Unaudited Consolidated Balance Sheet as of March 31, 1994 and
Audited Consolidated Balance Sheet as of December 31, 1993; (2) Unaudited
Consolidated Statements of Changes in Stockholders' Equity for the three months
ended March 31, 1994 and 1993; (3) Unaudited Consolidated Statement of Income
for the three months ended March 31, 1994 and 1993 and (4) the Unaudited
Consolidated Statements of Cash Flow for the three months ended March 31, 1994
and 1993 together with the Notes to those Consolidated Statements (the
"Financial Statements"). Subject to required yearend adjustments and the
absence of certain footnote information in the unaudited statements, the
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated or as more particularly set forth therein. The Unaudited Consolidated
Balance Sheets included as a part of the Financial Statements present fairly as
of March 31, 1994 the consolidated financial position and assets and liabilities
of Bancorp. The Unaudited Consolidated Statements of Income present fairly the
consolidated results of operations of Bancorp for the periods indicated.
(f) ABSENCE OF UNDISCLOSED LIABILITIES. Except to the extent
reflected or reserved against in the Financial Statements or as disclosed in
writing to First Virginia, neither Bancorp nor any of its Subsidiaries as of the
date of this Agreement has any liabilities or obligations of any nature (other
than contingent liabilities that have been disclosed in writing to First
Virginia) that would have a Material Adverse Affect or any liabilities in the
nature of employment contracts with, or agreements to pay bonuses to any of its
directors, officers or employees, other than liabilities or obligations incurred
in the ordinary course of
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business, none of which liabilities or obligations would have, individually or
in the aggregate, a Material Adverse Effect on Bancorp and its Subsidiaries.
(g) NO MATERIAL ADVERSE CHANGES. Since March 31, 1994, there has
been no material adverse change in the assets or liabilities or in the business
or condition (financial or otherwise) of Bancorp or its Subsidiaries that would
have, individually or in the aggregate, a Material Adverse Effect on Bancorp and
its Subsidiaries, which has not been previously disclosed to First Virginia.
(h) TAX MATTERS. Bancorp and its Subsidiaries have filed all tax
returns required to be filed for each of the five years ended December 31, 1992
(and an extension request for filing income tax returns for the year ended
December 31, 1993 has been timely filed by Bancorp), and have paid or set up an
adequate reserve for the payment of all taxes required to be paid in respect of
the periods covered by such returns and have set up an adequate reserve for the
payment of all income, property, sales, employment, franchise or other taxes
anticipated to be payable in respect of the period subsequent to the last of
said periods and for the payment of all other taxes, except where the failure to
do so would not have a Material Adverse Effect. Bancorp and its Subsidiaries
will not have any material liability for any such taxes in excess of the amounts
so paid or the reserve so established and Bancorp and its Subsidiaries are not
delinquent in the payment of any material tax assessment or governmental charge.
No material deficiencies for any tax assessment or governmental charge have been
proposed, asserted or assessed against Bancorp and its Subsidiaries which would
not be covered by existing reserves and, as of the date of this Agreement, no
requests for waivers for the time to assess any such taxes are pending. All of
the Bancorp's Subsidiaries have timely filed all information returns for
customers required to be filed by the IRS and to the best of its knowledge, has
complied with all IRS requirements regarding the certification of taxpayer
identification numbers of customers and backup withholding, except where failure
to do so would not have, individually or in the aggregate, a Material Adverse
Effect on Bancorp and its Subsidiaries.
(i) PROPERTY.
(1) Bancorp and its Subsidiaries own all operating real
properties reflected as owned by them in the Financial Statements free and clear
of all mortgages, liens, pledges, charges or encumbrances of any nature
whatsoever (collectively, "Encumbrances") that are material to the financial
condition, results of operations or business of Bancorp and its Subsidiaries
taken as a whole, except (i) liens for current taxes not yet due and payable,
(ii) mortgages, deeds of trust or other Encumbrances reflected in the Financial
Statements, (iii) such imperfections of
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title, easements and other Encumbrances as do not materially detract from or
interfere with the present use of such operating real properties subject thereto
or affected thereby, (iv) Encumbrances incurred in the ordinary course of
business after the date of this Agreement with the written consent of First
Virginia which shall not be unreasonably withheld, and (v) Encumbrances
disclosed in writing to First Virginia.
(2) As of the date of this Agreement, substantially all tangible
real or personal property and assets material to the business operation or
financial condition of Bancorp and its Subsidiaries on a consolidated basis
which are owned by them or in which any of them has an interest (other than a
security interest) are in substantially good operating condition and repair,
ordinary wear and tear excepted.
(3) All leases material to Bancorp and its Subsidiaries on a
consolidated basis pursuant to which Bancorp and its Subsidiaries lease real
property are valid and effective in accordance with their respective terms,
subject to bankruptcy, insolvency, reorganization, moratorium and similar laws,
and there is not, under any such leases, any material existing default by
Bancorp and its Subsidiaries or any event which with notice or lapse of time or
both would constitute such a material default.
(j) LITIGATION. Other than as has been set forth to First Virginia
in writing, neither Bancorp nor any of its Subsidiaries is a party to any
pending or, to the best of Bancorp's knowledge and belief, threatened claim,
action, suit, investigation or proceeding, nor is subject to any order, judgment
or decree except for matters which in the aggregate will not have and cannot
reasonably be expected to have a Material Adverse Effect on Bancorp and its
Subsidiaries. Except as previously disclosed in writing to First Virginia,
neither Bancorp nor any of its Subsidiaries is subject to any agreement,
memorandum or understanding or similar arrangement with any regulatory authority
restricting its operations or requiring that certain actions be taken, and,
neither Bancorp nor any of its Subsidiaries has received any notification from
any governmental or regulatory authority, or the staff thereof, asserting that
it is not in compliance with any statutes, regulations or ordinances which such
authority enforces, noncompliance with which could reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on Bancorp and
its Subsidiaries. For the purposes of this paragraph, a threatened claim shall
mean any claim which has been actually and overtly asserted against Bancorp or
its Subsidiaries in a written communication delivered to an officer of Bancorp.
(k) CONTRACTS AND COMMITMENTS. Except as reflected in the Financial
Statements or as previously disclosed in writing to First Virginia, neither
Bancorp nor its Subsidiaries has as of the
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date hereof and, except to the extent consented to in writing by First Virginia,
will not have on the Effective Date:
(1) any bonus, stock option plans, deferred compensation plans,
profit-sharing, retirement arrangements or other fringe benefit plans (other
than those terminable at will by Bancorp or a Subsidiary) nor any outstanding
calls, commitments or agreements of any character requiring the issuance of
shares of its capital stock;
(2) any debt obligations for borrowed money (including
guaranties or agreements to acquire such debt obligations of others) except for
debt obligations incurred or acquired in the ordinary course of its banking
business;
(3) any outstanding loans for any person other than those made
in the ordinary course of Bancorp's banking business;
(4) any outstanding loan participations with any of its
directors, officers, stockholders or employees;
(5) any agreement for services or for the purchase or
disposition of any equipment or supplies except those incurred in the ordinary
course of business;
(6) any lease of personal property with annual rentals
aggregating $50,000 or more;
(7) any agreement or contract with any third party for the
provision of data processing or other services to Bancorp or its Subsidiaries
which involves payment by Bancorp or its Subsidiaries of more than $5,000 per
month and which (i) has more than six months to run from the date of this
Agreement or (ii) may not be canceled by Bancorp or its Subsidiaries as
appropriate on 180 days notice or less without penalty.
(8) any outstanding loans to its officers, directors,
significant stockholders (collectively "insiders"), or to firms, partnerships or
corporations in which any insiders are partners, executive officers, directors
or significant stockholders or to any entity which would be a "related interest"
of an insider as defined in 12 C.F.R. Section 215.2(1) made at rates of interest
more favorable or involving greater risks of collectibility than similar loans
made to outsiders.
(l) ACCURACY OF INFORMATION SUPPLIED. As of their respective filing
dates, Bancorp's Annual Reports on Form 10-K for the fiscal years ended
December 31, 1993 and 1992 and proxy statement for 1994, and any other filings
made from and after the date hereof with the SEC pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (such filings being
collectively referred to herein as the "Bancorp Filings") complied
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in all material respects with the regulations of the SEC, and none of the
Bancorp Filings, as of the respective dates thereof, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein not misleading.
The information which has been or will be supplied by Bancorp to First Virginia
for inclusion in the Registration Statement or any amendment thereto pertaining
to the transactions contemplated hereby (the "Registration Statement") filed
with the Securities and Exchange Commission ("the "SEC") or the Prospectus
contained therein (the "Prospectus"), at the time the Registration Statement
becomes effective will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein in order to make
the statements not misleading, provided that information as of a later date
shall be deemed to modify information of an earlier date.
(m) BANCORP AND ITS SUBSIDIARIES' EMPLOYEE BENEFIT PLANS. Bancorp
and its Subsidiaries have delivered to First Virginia or its counsel and filed
with the appropriate governmental authority, as to each employee benefit plan
subject to the Employee Retirement Income Security Act of 1974 ("ERISA"), a true
and correct copy of (i) the most recent annual report (Form 5500, 5500-C or
5500-R, as appropriate) filed with the Internal Revenue Service ("IRS"), (ii)
each IRS favorable determination letter or opinion letter for each such Plan, as
applicable, (iii) such Plan documents, (iv) each such Plan, (v) each applicable
Summary Plan Description, and (vi) the most recent actuarial report or valuation
relating to each tax-qualified Deferred Compensation Plan that was delivered to
Bancorp or one of its Subsidiaries by the actuary or recordkeeper for such Plan.
(n) DEFINED BENEFIT AND DEFERRED CONTRIBUTION PLANS. Farmers
currently maintains a defined benefit plan which is the Farmers' Pension Plan
and a defined contribution plan which is the Farmers' Plan (the "Plans" or
individually, the "Plan"). Bancorp and its Subsidiaries have no other defined
benefit or defined contribution plan. Bancorp represents with respect to each
Plan that: (i) to the best knowledge of Bancorp based on due inquiry, it
substantially complies in all material respects with all applicable provisions
of ERISA the breach or violation of which would have a Material Adverse Effect;
(ii) all material reporting and disclosure requirements of ERISA imposed upon
the Plan have been substantially complied with, (iii) to the best knowledge of
Bancorp based on due inquiry, the Plan has not engaged in any material
transaction prohibited by Title I of ERISA or Section 4975 of the Internal
Revenue Code of 1986 as amended (the "Code") for which an exemption is not
applicable; (iv) the minimum funding standards in Section 302 of ERISA and
Section 412 of the Code, do not apply with respect to the Farmers' Plan; (v) no
material contributions to the Plan from Bancorp are currently past due; (vi) the
Plan is not subject to any partial plan terminations that would
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have a Material Adverse Effect; (vii) the Plan does not have any material
property (other than shares of Bancorp Common Stock) which does not have a
readily ascertainable value; (viii) the Plan does not own any employer security
or real property as defined in ERISA Section 407 (other than shares of Bancorp
Common Stock); (ix) to the best knowledge of Bancorp based on due inquiry, no
proceedings, investigation, filing, or other matters are pending before the IRS,
the Department of Labor, the Pension Benefit Guaranty Corporation, or other
public or quasi-public body in connection with the Plan except for such matters
as may have been instituted by Bancorp by virtue of the Merger contemplated by
this Agreement or which if adversely determined or resolved would not have a
Material Adverse Effect on Bancorp and its Subsidiaries; and (x) to the best
knowledge of Bancorp based on due inquiry, the Plan is qualified in all material
respects under Section 401(a) and other applicable provisions of the Code
including, in the case of the Farmers Plan, Section 401(K).
(o) ENVIRONMENTAL MATTERS. For purposes of this subsection, the
following term shall have the indicated meaning:
"Environmental Law" means any federal, state or local law,
statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, order, judgment, decree, injunction
or agreement with any governmental entity relating to (i) the
protection, preservation or restoration of the environment (including,
without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface soil, subsurface soil, plant and animal
life or any other natural resource), and/or (ii) the use, storage,
recycling, treatment, generation, transportation, processing,
handling, labeling, production, release or disposal of Hazardous
Substances. The term "Environmental Law" includes without limitation
(i) the Comprehensive Environmental Response, Compensation and
Liability Act, as amended, 42 U.S.C. Section 9601, et seq; the
Resource Conservation and Recovery Act, as amended, 42 U.S.C. Section
6901, et seq; the Clean Air Act, as amended, 42 U.S.C. Section 7401,
et seq; the Federal Water Pollution Control act, as amended, 33 U.S.C.
Section 1251, et seq; the Toxic Substances Control Act, as
amended, 15 U.S.C. Section 9601, et seq; the Emergency Planning and
Community Right to Know Act, 42 U.S.C. Section 11001, et seq; the Safe
Drinking Water Act, 42 U.S.C. Section 300f, et seq; and all comparable
state and local laws, and (ii) any common law (including without
limitation common law that may impose strict liability) that may
impose liability or obligations for injuries or damages due to, or
threatened as a result of, the presence of or exposure to any
Hazardous Substance.
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Except as otherwise disclosed in writing to First Virginia, to the best
knowledge of Bancorp after internal inquiry, neither Bancorp, any of its
Subsidiaries, nor any properties owned or operated by Bancorp or any of its
Subsidiaries or in which such entity has a security interest, has been or is in
violation of or liable under any Environmental Law, except for such violations
or liabilities that are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Bancorp and its Subsidiaries. To the
best knowledge of Bancorp after internal inquiry, there are no actions, suits or
proceedings, or demands, claims, notices or investigations (including without
limitation notices, demand letters or requests for information from any
environmental agency) instituted, pending or threatened relating to the
liability of any properties owned or operated by Bancorp or any of its
Subsidiaries or in which such entity has a security interest under any
Environmental Law, except for liabilities or violations that would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.
(p) LOAN PORTFOLIO. Except as disclosed in writing to First
Virginia, each loan outstanding on the books of Farmers, Atlantic or Caroline
(hereinafter referred to as the "Banks" or individually as the "Bank") is in all
respects what it purports to be, was made in the ordinary course of business,
was not known to be uncollectible at the time it was made, and was made
substantially in accordance with the respective Bank's standard loan policies as
in effect at the time made. The records of the Banks regarding all loans
outstanding on its books are accurate in all material respects. The reserves
for possible loan losses (subject to yearend adjustments) on the outstanding
loans of the Banks and the reserves for the real estate owned by the Banks as
reflected in the Financial Statements, have been established in accordance with
generally accepted accounting principles and with the requirements of the FDIC,
and in the best judgment of the management of the Banks, are adequate to absorb
all known and anticipated loan losses in the loan portfolio of the Banks, and
any losses associated with other real estate owned or held by the Banks. Except
for those loans disclosed to First Virginia, no loan in excess of $100,000 has
been classified as of the date hereof by the Banks or regulatory examiners as
"Other Loans Specifically Mentioned", "Substandard", "Doubtful" or "Loss".
Except as has been disclosed to First Virginia, each loan reflected as an asset
on the Financial Statements is the legal, valid and binding obligation of the
obligor and any guarantor, subject to bankruptcy, insolvency, reorganization,
moratorium and similar laws, and no defense, offset or counterclaim has been
asserted with respect to any such loan which, if successful, would have a
Material Adverse Effect on Bancorp and its Subsidiaries.
(q) COMPLIANCE WITH LAWS. Except as previously disclosed in writing
to First Virginia, neither Bancorp nor any of its Subsidiaries (i) is in
violation of any law, order or permit
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applicable to its business, except for violations which are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect or
(ii) has received any notification or communication from any agency or federal,
state or local government or any regulatory authority or the staff thereof (a)
asserting that either Bancorp or its Subsidiaries is not in compliance with any
law or order which such governmental authority or regulatory authority enforces,
which noncompliance could reasonably be expected to have a Material Adverse
Effect; or (b) threatening to revoke any material permits, or (c) requiring
either Bancorp or its Subsidiaries (1) to enter into or consent to the issuance
of a cease and desist order, formal agreement, directive, commitment or
memorandum of understanding or (2) to adopt any Board resolution or similar
undertaking which restricts materially the conduct of its business, or in any
manner relates to its capital adequacy, its management, or the payment of
dividends.
(r) INSURANCE. Bancorp and its Subsidiaries are presently insured,
and since December 31, 1993 have been insured, for reasonable amounts with
financially sound and reputable insurance companies, against such risks as
companies engaged in a similar business would, in accordance with good business
practice, customarily be insured. All of the insurance policies and bonds
maintained by Bancorp and its Subsidiaries are in full force and effect, Bancorp
and its Subsidiaries are not in material default thereunder, and all material
claims thereunder have been filed in due and timely fashion, except where the
failure to make any such claim or to have such insurance or bond coverage would
not have, individually or in the aggregate, a Material Adverse Effect on Bancorp
and its Subsidiaries. Bancorp and its Subsidiaries have no knowledge of any
material inaccuracy in any application for such policies or binders, any failure
to pay premiums when due or any similar state of facts that might form the basis
for termination of any such insurance. Bancorp and its Subsidiaries have no
knowledge of any state of facts or of the occurrence of any event that is
reasonably likely to form the basis for any claim against it not fully covered
(except to he extent of any applicable deductible) by the policies or binders
referred to above except claims that would not have a Material Adverse Effect.
(s) APPLICABLE TAKEOVER LAWS. Bancorp has taken all necessary action
to exempt the transactions contemplated by this Agreement from any applicable
Maryland takeover law.
(t) CHARTER PROVISIONS. Bancorp has taken all action so that the
entering into this Agreement and the consummation of the Merger and the other
transactions contemplated by this Agreement will be exempt from any change of
control or anti-takeover provisions of the Charter, Bylaws, or other governing
instruments of Bancorp or any of its Subsidiaries and will not restrict or
impair the ability of First Virginia to vote, or otherwise to exercise the
rights of a stockholder with respect to, shares of any
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of Bancorp's Subsidiaries that may be acquired or controlled by First Virginia.
3.2 REPRESENTATIONS AND WARRANTIES OF FIRST VIRGINIA. First Virginia
represents and warrants to Bancorp as follows:
(a) ORGANIZATION, STANDING AND POWER. First Virginia is a
corporation duly organized, validly existing and in good standing under the laws
of the Commonwealth of Virginia, has all requisite corporate power and authority
to own, lease and operate its properties and to carry on its business as now
being conducted, and is duly registered as a bank holding company under the Bank
Holding Company Act.
(b) CAPITAL STRUCTURE. As of March 31, 1994, and as shown by the
1994 First Quarter Report to Stockholders, the authorized capital stock of First
Virginia consisted of 60,000,000 shares of Common Stock, par value $1.00 per
share, of which approximately 32,424,000 shares were issued and outstanding as
of such date and 3,000,000 shares of Preferred Stock, par value $10.00 per
share, of which 79,618 shares were issued and outstanding at such date. As of
March 31, 1994, 1,125,727 shares of Common Stock were reserved: 115,237 for the
conversion of Preferred Stock and 622,513 for stock options and stock
appreciation rights and 387,977 for bank acquisitions. As of the date hereof
and as of the Effective Date, all outstanding shares of capital stock of First
Virginia have been validly issued and are fully paid and nonassessable.
(c) AUTHORITY. The execution and delivery of this Agreement and the
Plan of Merger and the consummation of the transactions contemplated hereby have
been duly and validly authorized by the Board of Directors of First Virginia, no
approval of the stockholders of First Virginia is required to consummate the
transaction herein and therein, and this Agreement and the Plan of Merger are
valid and binding obligations of First Virginia. Neither the execution and
delivery of this Agreement and the Plan nor the consummation of the transactions
contemplated hereby or thereby, nor compliance by First Virginia with any of the
provisions hereof or thereof will (i) conflict with or result in a breach of any
provision of First Virginia's Articles of Incorporation or Bylaws, or a default
or give rise to any right of termination, cancellation or acceleration under any
of the terms, conditions or provisions of any material note, bond, mortgage,
indenture, license, agreement or other instrument, or violation to which First
Virginia is a party or by which it or any of its properties or assets may be
bound in any instance in which such right of termination, cancellation or
acceleration if exercised would have a Material Adverse Effect, or (ii) violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
First Virginia or any of its properties or assets in any instance in which such
violation would have a Material Adverse Effect.
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Except for consents the lack of which would not have a Material Adverse Effect,
no consent or approval by any governmental authority is required for the
execution and delivery by First Virginia of this Agreement and the Plan of
Merger except for the approval of all the applicable regulatory agencies and
meeting of conditions hereinafter set forth, the consummation by First Virginia
of the transactions contemplated hereby and thereby.
(d) FINANCIAL STATEMENTS. The consolidated financial statements of
First Virginia contained in First Virginia's 1994 First Quarter Report to
Stockholders and heretofore delivered by it to Bancorp have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated, all as more particularly set forth in
the notes to such financial statements. Each of the balance sheets contained in
such statements presents fairly as of its date the consolidated financial
condition and assets and liabilities of First Virginia. The income statements,
statements of stockholders' equity and statements of changes in financial
position contained in such statements present fairly the consolidated results of
operations of First Virginia for the periods indicated.
(e) NO MATERIAL ADVERSE CHANGE. Since the date of the financial
statements described in Section 3.2(d) above, there has been no material adverse
change in the assets or liabilities or in the business or condition (financial
or otherwise), results of operations or prospects of First Virginia that would
have, individually or in the aggregate, a Material Adverse Effect on First
Virginia and its Subsidiaries.
(f) ACCURACY OF INFORMATION SUPPLIED. As of their respective filing
dates, First Virginia's Annual Reports on Form 10-K for the fiscal years ended
December 31, 1992 and 1993 and proxy statement dated March 8, 1994, and any
other filings made from and after the date hereof with the SEC pursuant to the
Exchange Act (such filings being collectively referred to herein as the "First
Virginia Filings") complied in all material respects with the regulations of the
SEC, and none of the First Virginia Filings, as of the respective dates thereof,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements made
therein not misleading. The information which has been or will be supplied by
First Virginia for inclusion in the proxy statement to be distributed to the
stockholders of Bancorp (the "Proxy Statement") in respect of the Merger or any
amendment or supplement thereto will not contain any untrue statement of a
material fact nor omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein not misleading;
provided, that information of a later date shall be deemed to modify information
of an earlier date.
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(g) FIRST VIRGINIA COMMON STOCK TO BE ISSUED. Each share of First
Virginia Common Stock issued in connection with the consummation of the Merger
to stockholders of Bancorp will be validly issued, fully paid and nonassessable.
(h) LITIGATION. Except as reflected in the First Virginia Filings,
there are no actions, proceedings or investigations pending or, to the best of
First Virginia's knowledge and belief, threatened against First Virginia or any
First Virginia subsidiary which, if adversely determined, would have a Material
Adverse Effect on the financial conditions or operations of First Virginia and
its subsidiaries. Neither First Virginia nor any of its bank subsidiaries is
subject to any agreement, memorandum of understanding or similar arrangement
with any regulatory authority restricting its operations or requiring that
certain actions be taken, and, neither First Virginia nor any of its bank
subsidiaries has received any notification from any governmental or regulatory
authority, or the staff thereof, asserting that it is not in compliance
with any statutes, regulations or ordinances which such authority enforces,
noncompliance with which could reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on First Virginia and its
Subsidiaries.
(i) TAX REPRESENTATIONS. First Virginia has no present plan or
intention to sell or dispose any of the assets of Bancorp or its Subsidiaries
after the Effective Date of the Merger, except for (i) sales, transfers or other
distributions made in the ordinary course of business and (ii) transfers
described in Section 368(a)(2)(C) of the Internal Revenue Code of 1986, as
amended (the "Code"); First Virginia has no present plan or intention to
reacquire any of the shares of First Virginia Common Stock it will issue to
stockholders of Bancorp pursuant to the Merger; and following the Effective Date
First Virginia will continue the historic businesses of Bancorp and its
Subsidiaries as presently conducted.
ARTICLE IV.
CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE DATE.
4.1 CONDUCT OF THE BUSINESS OF BANCORP AND ITS SUBSIDIARIES' PRIOR TO THE
EFFECTIVE DATE. During the period from the date of this Agreement to the
Effective Date, Bancorp and its Subsidiaries shall conduct their operations
according to the ordinary and usual course of business consistent with current
practices and use their best efforts to maintain and preserve their business
organizations, employees and advantageous business relationships and retain the
services of their executive officers. Following the date of this Agreement,
Bancorp and First Virginia will coordinate the record and payment dates for each
regular quarterly dividend of Bancorp and First Virginia so that the
stockholders of Bancorp will be
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entitled to receive either a Bancorp or First Virginia regular dividend for each
fiscal quarter commencing prior to the Effective Date.
4.2 FORBEARANCES.
(a) During the period from the date of this Agreement to the
Effective Date, neither Bancorp nor its Subsidiaries shall without the prior
written consent of First Virginia:
(i) make any changes to their Charters or Bylaws;
(ii) adjust, split, combine or reclassify its Common Stock; make,
declare or pay any dividend (except that Bancorp may declare or pay its normal
dividend at a quarterly rate of $.30 per share on its regular quarterly payment
dates in accordance with Paragraph 4.1) or make any other distribution on, or
directly or indirectly redeem, purchase or otherwise acquire, any shares of
their capital stock or any securities or obligations convertible into or
exchangeable for any shares of their capital stock, or grant any stock options
or stock appreciation rights or give any person any right or warrant to acquire
any shares of their capital stock;
(iii) enter any contract or commitment or incur or agree to incur
any liability or make any capital expenditures except in the normal course of
business;
(iv) except as provided in Paragraph 1.5, increase in any manner
the compensation or fringe benefits of any of their directors, officers, agents
or employees or pay any pension or retirement allowance not required by any
existing plan or agreement to any such directors, officers, agents or employees
or become a party to, amend or commit itself to any pension, retirement, profit
sharing, welfare benefit plan or agreement or employment agreement with or for
the benefit of any employee or officer or other person other than payments
consistent with past practices and current incentive compensation plans,
increases which are not material and other increases consented to by First
Virginia in writing;
(v) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business; or
(vi) merge or consolidate or agree to merge or consolidate with
or into any other corporation.
4.3 NO SOLICITATION. Unless and until this Agreement shall have been
terminated pursuant to its terms, from and after the date hereof neither Bancorp
nor its Subsidiaries nor any of their executive officers, directors, or agents
shall, directly or indirectly, encourage, solicit or initiate discussions or
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negotiations with any person (other than First Virginia) concerning any merger,
sale of substantial assets, tender offer, sale of shares of stock or similar
transaction involving Bancorp or its Subsidiaries (an "Acquisition Proposal") or
disclose, directly or indirectly, to any person in connection with an
Acquisition Proposal any information not customarily disclosed to the public
concerning Bancorp or its Subsidiaries, afford to any other person access to the
properties, books or records of Bancorp or its Subsidiaries in connection with
an Acquisition Proposal or otherwise assist any person preparing to make or who
has made such an Acquisition Proposal, or enter into any agreement with any
third party providing for a business combination transaction, equity investment
or sale of significant amount of assets, except in a situation in which a
majority of the full Board of Directors of Bancorp has determined in good faith,
upon advice of counsel, that such Board has a fiduciary duty to consider and
respond to a bona fide Acquisition Proposal by a third party (which Acquisition
Proposal was not directly or indirectly solicited by Bancorp or its Subsidiaries
or any of their respective officers, directors, representatives, agents or
affiliates after the date of this Agreement) and provides written notice of its
intention to consider such Acquisition Proposal and the material terms thereof
to First Virginia at least five days before responding to the Acquisition
Proposal provided, however, that if such Acquisition Proposal by its terms
requires a response in a shorter period, Bancorp shall provide such notice
within one business day after it receives the Acquisition Proposal and may
thereafter respond in an appropriate fashion. Bancorp and its Subsidiaries will
promptly communicate to First Virginia the identity of the offeror and the terms
of any Acquisition Proposal which it may receive in respect to any of the
foregoing transactions.
4.4 COMPLIANCE WITH TAX-FREE PROVISIONS. Neither Bancorp nor First
Virginia shall take any action prior to or after the Effective Date of the
Merger which would disqualify the Merger as a tax free reorganization under
Section 368(a) of the Internal Revenue Code of 1986 as amended.
4.5 ACCESS AND INFORMATION. Bancorp and its Subsidiaries will permit
First Virginia to conduct audits of their books and records within 30 days of
the date of this Agreement and First Virginia will advise Bancorp of the results
within 30 days of the date of this Agreement. Such audits may include an
examination of loan files, accounts receivable and accounts payable, tax
returns, agreements, schedule of assets owned, investment portfolio and all
other items deemed necessary by First Virginia. Bancorp and First Virginia will
give to the officers, accountants, counsel and authorized representatives of the
other Party access to its properties, books and records and those of its
subsidiaries and will furnish the other Party with such additional financial and
operating data and other information as to its business and properties and those
of its subsidiaries as the other Party may
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from time to time request. Bancorp and its Subsidiaries and their officers and
directors will cooperate with First Virginia and its representatives and counsel
in the preparation of any documents or other materials which may be required in
connection with the applications to the Federal Reserve Bank of Richmond, the
Virginia State Corporation Commission and the Maryland Bank Commissioner and
First Virginia's registration statement on Form S-4 as filed with the SEC or in
connection with any other documents or materials required by any governmental
agency, stock exchange or association of securities dealers. First Virginia
will cooperate with and furnish such information to, and cause its directors and
officers and those of its subsidiaries to cooperate with and furnish such
information to, Bancorp as it may request in connection with the preparation of
the proxy statement for the special meeting of the stockholders of Bancorp to
consider the Merger. First Virginia shall return the results of its audit
review to Bancorp's Board of Directors if First Virginia terminates this
Agreement pursuant to Paragraph 9.2(g).
4.6 CONFIDENTIALITY. First Virginia and Bancorp shall cause its advisers
and agents to maintain the confidentiality of all confidential information
furnished to it by the other party concerning its and its subsidiaries'
businesses, operations, and financial positions and shall not use such
information for any purpose except in furtherance of the transactions
contemplated by this Agreement. If this Agreement is terminated prior to the
Effective Date of the Merger, each party shall promptly return all documents and
copies thereof, and all work papers containing confidential information received
from the other party. In the event that either Bancorp or First Virginia should
violate any of the terms of this paragraph, they agree that the party who is not
in violation would have an inadequate remedy at law for such violation and may,
therefore, seek an injunction without the necessity of bond, to prevent or halt
any violation hereof and the parties hereto agree not to raise any defense that
the party who is not in violation of this paragraph has an adequate remedy at
law. Bancorp and First Virginia further acknowledge and agree that in the event
of a violation of the terms and conditions of this paragraph that the party who
is not in violation shall have any and all remedies available at law or equity
and shall not be limited to the remedy of injunctive relief.
4.7 CONSENTS. From the date of this Agreement to the Effective Date,
Bancorp will use all reasonable efforts to obtain the written consents or
approvals of all private third parties whose consent or approval is required
with regard to the transactions contemplated by this Agreement, under the terms
of any lease, mortgage, indenture or other agreement to which Bancorp or any of
its Subsidiaries is a party or by which any of their assets is bound.
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4.8 MEETING OF BANCORP STOCKHOLDERS. Bancorp will duly call and will
convene a meeting of its stockholders to act upon the transactions contemplated
hereby as soon as practicable, will recommend approval of this Agreement to its
stockholders, and will use its best efforts to obtain a favorable vote thereon.
The calling and holding of such meetings and all transactions, documents and
information related thereto will be in compliance with all applicable laws. The
proxy statement for the stockholders' meeting of Bancorp will be contained in
the Registration Statement.
4.9 AFFILIATES OF BANCORP. Bancorp will promptly (a) furnish to First
Virginia and its counsel such information as may be necessary to determine those
persons who may be deemed to be affiliates of Bancorp within the meaning of Rule
144 and Rule 145 under the Securities Act of 1933 and (b) use their best efforts
to obtain from any person who may be deemed to be such an affiliate such
undertakings and agreements substantially in the form of Exhibit B, attached.
4.10 INSURANCE APPLICATIONS. Bancorp and its Subsidiaries agree to
complete and deliver to First Virginia within 30 days from the date of this
Agreement the insurance applications necessary to include insurance coverage for
the Banks' property, casualty and fidelity risks and include liability coverage
for the Banks' directors and officers under First Virginia's directors and
officers liability insurance policy.
4.11 BANK CONVERSION. As provided under Section 1.9 of this Agreement,
Bancorp and the Banks will make the necessary filings with the Maryland Bank
Commissioner and the Comptroller of the Currency to convert Farmers and Atlantic
into state chartered, Federal Reserve member banks.
4.12 APPLICATIONS TO THE MARYLAND BANK COMMISSIONER. Bancorp and its
Subsidiaries, jointly with First Virginia, will prepare and file with the
Maryland Bank Commissioner applications requesting approval for First Virginia
to acquire both Bancorp and its Subsidiaries pursuant to the provisions of
Maryland law and will use their best efforts to secure favorable action by the
Maryland Bank Commissioner on such applications.
4.13 FEDERAL RESERVE APPLICATIONS. Bancorp and its Subsidiaries, jointly
with First Virginia, will prepare and file with the Federal Reserve,
applications requesting approval for the Merger as well as an application to
make the Banks members of the Federal Reserve System and will use its best
efforts to secure favorable action by the Federal Reserve on such applications.
4.14 CHANGES REQUESTED BY FIRST VIRGINIA. At the request of First Virginia
and upon receipt by Bancorp of a written instrument signed by First Virginia and
reasonably satisfactory in form and
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content to Bancorp, containing (i) an irrevocable and unconditional written
waiver by First Virginia of all conditions to the obligations of First Virginia
under this Agreement to consummate the Merger and the other transactions
contemplated hereby, and (ii) the agreement of First Virginia that the requested
actions described below will not be deemed, individually or in the aggregate or
in combination with any other facts or circumstances, to constitute or have a
Material Adverse Effect on Bancorp and its Subsidiaries, then on the last
business day prior to the Effective Date of the Merger Bancorp shall, and
Bancorp shall cause each of its Subsidiaries to, establish such additional
accruals, reserves and charge-offs, through appropriate entries in its
accounting books and records, as may be necessary to conform the accounting and
credit loss reserve practices and methods of Bancorp and its Subsidiaries to
those of First Virginia (as such practices and methods are to be applied from
and after the Effective Date of the Merger) and to First Virginia's plans with
respect to the conduct of the business of Bancorp and the Banks following the
Effective Date of the Merger. Any such accruals, reserves and charge-offs shall
not be deemed to cause any representation and warranty of Bancorp to not be true
and accurate as of the Effective Date of the Merger.
ARTICLE V.
COVENANTS OF FIRST VIRGINIA.
5.1 ISSUANCE OF STOCK AND PAYMENT OF CASH. First Virginia will issue and
deliver or cause to be delivered the shares of First Virginia Common Stock as
called for by Paragraph 1.1 of this Agreement.
5.2 STOCK ADJUSTMENTS. Nothing in this Agreement shall limit the right of
First Virginia to issue or agree to issue any of its stock or other securities
in any manner and for any consideration permitted by law prior to or after the
Effective Date; provided, however, that if First Virginia takes any action which
establishes prior to the Effective Date a record date or an effective date for a
stock dividend on its common stock, a split-up, any combination of its common
stock, or any distribution on shares of its common stock other than cash
dividends, First Virginia will take all such action as shall be necessary in
order that the Bancorp Common Stock will be converted in the Merger into
additional shares of First Virginia Common Stock which would have been delivered
to the holders of Bancorp Bank Common Stock if the Merger had been made ef-
fective immediately before such record or effective date; provided, however,
that there shall be no adjustment of First Virginia Common Stock by reason of
First Virginia issuing or agreeing to issue, on such terms as it may determine,
First Virginia Common Stock for cash or property, in exchange for shares of
stock of any other corporation or on account of mergers or
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consolidations before, after or simultaneously with the consummation of the
Merger.
5.3 PREPARATION OF REGISTRATION STATEMENT. First Virginia will prepare
the Registration Statement and any amendments thereto, file the Registration
Statement with the SEC, use its best efforts to secure its effectiveness and
promptly after the effective date of the Registration Statement, mail and
deliver copies of the proxy statement contained therein to the Bancorp
stockholders for use by its management to solicit proxies for use at its
stockholder's meetings.
5.4 APPLICATIONS TO THE MARYLAND BANK COMMISSIONER. First Virginia,
jointly with Bancorp, will prepare and file with the Maryland Bank Commissioner
applications requesting approval for First Virginia to acquire Bancorp and its
Subsidiaries and will use its best efforts to secure favorable action by the
Maryland Bank Commissioner on such applications.
5.5 APPLICATION TO THE BUREAU OF FINANCIAL INSTITUTIONS. First Virginia
will prepare and file with the Bureau of Financial Institutions of the Virginia
State Corporation Commission an application requesting the approval to acquire
the Banks and will use its best efforts to secure favorable action by the Bureau
of Financial Institutions on such application.
5.6 FEDERAL RESERVE APPLICATIONS. First Virginia will prepare and file
with the Federal Reserve, applications requesting approval for the Merger as
well as applications to make the Banks members of the Federal Reserve System and
will use its best efforts to secure favorable action by the Federal Reserve on
such applications.
5.7 INDEMNIFICATION. From and after the Effective Date through the sixth
anniversary of the Effective Date, First Virginia agrees to indemnify and hold
harmless each present and former director and officer of Bancorp and its
Subsidiaries (the "Indemnified Parties") against all costs, expenses (including
reasonable attorneys' fees), judgments, fines, losses, claims, damages and
liabilities (collectively, "Costs") incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of matters existing or occurring on
or prior to the Effective Date, whether asserted or claimed prior to, on or
after the Effective Date, to the fullest extent that Bancorp would have been
permitted under Maryland law and its charter and Bylaws as in effect on the date
hereof to indemnify such Indemnified Party, and First Virginia shall also
advance costs and expenses, including reasonable attorneys' fees, as incurred by
each Indemnified Party to the fullest extent permitted under Maryland Law and
Bancorp's charter and Bylaws as in effect on the date hereof, provided the
Indemnified Party to whom costs and expenses
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are advanced provides a written affirmation of the Indemnified Party's good
faith belief that the standard of conduct necessary for indemnification by
Bancorp under applicable Maryland law has been met and the Indemnified Party's
undertaking to repay such advances if it is ultimately determined that such
person is not entitled to indemnification. In the event any claim, action,
suit, proceeding or investigation is threatened, asserted or commenced within
such six-year period, all rights to indemnification in respect of such claim,
action, suit, proceeding or investigation shall continue until the final and
nonappealable disposition thereof.
5.8 DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. Effective as of the
Effective Date and continuing at least until the sixth anniversary of the
Effective Date, First Virginia shall use all reasonable efforts to cause to be
obtained directors' and officers' liability insurance under First Virginia's
Executive Liability Insurance Policy (as disclosed to Bancorp prior to the date
hereof) covering all present and former directors and officers of Bancorp and
its Subsidiaries, so that coverage thereunder for all such present and former
directors and officers shall be effective on and after the Effective Date for
claims arising from facts or events which occurred or existed on or before the
Effective Date. If First Virginia cannot obtain such insurance for such
directors and officers of Bancorp and all of its Subsidiaries on or before the
Effective Date, First Virginia shall use all reasonable efforts to cause to be
maintained in effect, for the present and former directors and officers of
Bancorp and its Subsidiaries for whom coverage cannot be obtained under such
policy of First Virginia, the current policies of directors' and officers'
liability insurance maintained by Bancorp and its Subsidiaries (the "Existing
Policies"), so that coverage for such present and former directors and officers
shall remain in effect after the Effective Date through at least the sixth
anniversary of the Effective Date, for claims arising from facts or events which
occurred or existed on or before the Effective date; provided, however, that
First Virginia shall not be obligated to expend for coverage of such directors
and officers under First Virginia's Executive Liability Insurance Policy and the
Existing Policies any aggregate amount per annum in excess of 200% of the amount
of the annual premiums paid as of the date hereof by Bancorp and its
Subsidiaries for the Existing Policies (the "Maximum Amount"). If the amount
of the annual premiums necessary to maintain or procure such insurance coverage
exceeds the Maximum Amount, First Virginia shall maintain the most advantageous
policies of directors' and officers' insurance obtainable for annual premiums
equal to the Maximum Amount, covering those persons covered by the Existing
Policies for claims arising from acts or events which occurred or existed on or
before the Effective Date.
5.9 EFFECT OF FUTURE TRANSACTIONS. If First Virginia or any of its
successors or assigns (i) shall consolidate with or merge
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into any other corporation or entity and shall not be the continuing or
surviving corporation or entity of such consolidation or merger or (ii) shall
transfer all or substantially all of its assets to any individual, corporation
or other entity, then and in each such case, proper provisions shall be made so
that the successors and assigns of First Virginia shall assume the obligations
of First Virginia set forth in Paragraphs 5.7 and 5.8.
5.10 EXECUTIVE EMPLOYMENT AGREEMENTS. First Virginia covenants that
immediately following the Effective Date it will enter into employment
agreements with Frank T. Lowman, III, Louis A. Supanek and Ross J. Selby under
which each of those individuals will be employed by Farmers for a period of two
years following the Effective Date in the respective positions held by each of
them on the Effective Date, and in each case at an annual salary not less than
that received by such individual on the Effective Date, and otherwise on terms
substantially similar to the terms contained in the employment agreement for
John M. Suit, II provided for in Paragraph 1.6.
ARTICLE VI.
CONDITIONS PRECEDENT TO FIRST VIRGINIA'S OBLIGATIONS HEREUNDER.
Unless waived in writing by First Virginia in its sole discretion, all
obligations of First Virginia hereunder to effect the Merger shall be subject to
the fulfillment prior to or at the Effective Date of the following conditions:
6.1 REPRESENTATIONS, WARRANTIES. The representations and warranties of
Bancorp herein contained shall be true in all material respects as of the
Effective Date, shall be deemed made again at and as of the Effective Date and
shall be true in all material respects as if so made again; Bancorp shall have
performed all of the obligations and complied with all of the covenants required
by this Agreement to be performed or complied with by it on or prior to the
Effective Date in all material respects and First Virginia shall receive from
Bancorp officers' certificates in such detail as First Virginia may reasonably
request dated the day of the Effective Date and signed by the president, cashier
or secretary to the foregoing effect.
6.2 NO ADVERSE CHANGES. There shall not have been any material adverse
changes in the financial position, results of operations, assets, liabilities or
business of Bancorp and its Subsidiaries, taken as a whole, from March 31, 1994,
the date of the Financial Statements referred to in Paragraph 3.1(e) above, to
the Effective Date, which changes, individually or in the aggregate, have or
constitute a Material Adverse Effect on Bancorp and its Subsidiaries.
30
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6.3 AUDIT OF BANCORP AND ITS SUBSIDIARIES. The audit of Bancorp and its
Subsidiaries conducted pursuant to Paragraph 4.5 shall reflect stockholders'
equity of Bancorp and its Subsidiaries on a consolidated basis of not less than
$68.5 million as of June 30, 1994. For purposes of the audit and this
Agreement, consolidated stockholders' equity shall be determined in accordance
with generally accepted accounting principles applied on a consistent basis with
Bancorp's prior financial statements; provided, however, that (a) no deduction
shall be made from consolidated stockholders' equity by reason of the
application of Financial Accounting Standard No. 115 on account of general
increases in interest rates or other effects attributable to interest rate
fluctuations, and (b) non-disclosures or disclosures made by Bancorp to First
Virginia before or after the signing of this Agreement shall not affect
inclusion or exclusion of an item from the audit process.
6.4 LEGAL OPINION. First Virginia shall have received a written opinion,
dated as of the Effective Date, from Miles & Stockbridge, counsel to Bancorp, in
form reasonably satisfactory to First Virginia, which shall cover matters
customary in transactions of this nature.
6.5 EVENTS PRECEDING THE EFFECTIVE DATE. Each of the events set forth in
Paragraphs 2(a)-2(i) shall have occurred.
6.6. NO ADVERSE PROCEEDINGS. No action or proceeding against First
Virginia, Bancorp or its Subsidiaries or the consummation of the transactions
contemplated by this Agreement shall have been instituted or threatened or any
investigations or inquiries undertaken that might eventuate in any such action
or proceeding.
ARTICLE VII.
CONDITIONS PRECEDENT TO BANCORP'S OBLIGATIONS HEREUNDER.
Unless waived in writing by Bancorp in its sole discretion, all obligations
of Bancorp hereunder to effect the Merger shall be subject to the fulfillment
prior to or at the Effective Date of the following conditions:
7.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and
warranties of First Virginia herein contained shall be true in all material
respects as of the Effective Date, shall be deemed made again at and as of the
Effective Date and shall be true in all material respects as if so made again.
First Virginia shall have performed all obligations and complied with all
covenants required by this Agreement to be performed or complied with by it on
or prior to the Effective Date in all material respects and Bancorp shall have
received from First Virginia an officer's certificate in such detail as Bancorp
may reasonably
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request dated the Effective Date and signed by its president, cashier or
secretary to the foregoing effect.
7.2 EVENTS PRECEDING THE EFFECTIVE DATE. Each of the events set forth in
Paragraphs 2(a)-2(i) shall have occurred.
7.3 NO ADVERSE PROCEEDINGS OR EVENTS. No action or proceeding against
Bancorp or its Subsidiaries or First Virginia or the consummation of the
transactions contemplated by this Agreement shall have been instituted or
threatened or any investigations or inquiries undertaken that might eventuate in
any such action or proceeding.
7.4 NO ADVERSE CHANGES. There shall not have been any material adverse
change in the financial position, results of operations, assets, liabilities or
business of First Virginia and its Subsidiaries taken as a whole from March 31,
1994 to the Effective Date, which changes, individually or in the aggregate,
have or constitute a Material Adverse Effect, provided, however, that a merger
or acquisition or the announcement of a merger or acquisition involving First
Virginia or a subsidiary of First Virginia and requiring the issuance of First
Virginia Common or Preferred Stock or cash will not be considered for purposes
of this section as an "adverse change" in the financial position, results of
operations, assets, liabilities or business of First Virginia.
7.5. LEGAL OPINION. Bancorp shall have received a written opinion, dated as
of the Effective Date, of inhouse counsel to First Virginia, in form reasonably
satisfactory to Bancorp, which shall cover matters customary in transactions of
this nature.
7.6. TAX OPINION. Bancorp shall have received the written Tax Opinion (as
hereinafter defined), dated as of the Effective Date, in form satisfactory to
Bancorp and in accordance with Paragraph 8.1.
7.7. FAIRNESS OPINION. If a change of control of First Virginia (as
defined in Paragraph 1.5) occurs on or prior to the effective date of the
Registration Statement, or if on or prior to the effective date of the
Registration Statement First Virginia enters into an agreement or announces its
intention to enter into an agreement providing for a change of control of First
Virginia, then it shall be a condition precedent under this Article VII that
Bancorp shall have received thereafter and before the date on which the SEC
declares the Registration Statement effective the written opinion of its
independent financial advisor, reasonably satisfactory to Bancorp, to the effect
that the consideration to be received by stockholders of Bancorp pursuant to the
Merger is fair from a financial point of view.
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ARTICLE VIII.
TAX OPINION AND RESTRICTIONS CONCERNING THE RESALE OF FIRST
VIRGINIA COMMON STOCK BY AFFILIATES OF BANCORP
8.1 TAX OPINION. First Virginia and Bancorp agree to jointly obtain a tax
opinion (the "Tax Opinion") at First Virginia's expense, reasonably satisfactory
to Bancorp, from Miles & Stockbridge, counsel to Bancorp, which opinion may be
relied on by Bancorp and its stockholders to the effect that:
(a) the Merger will constitute a reorganization within the meaning of
Code Section 368(a)(1)(A) and Bancorp and First Virginia will each be "a party
to a reorganization" within the meaning of Code Section 368(b);
(b) no gain or loss will be recognized by Bancorp or First Virginia
upon the transfer of Bancorp's assets to First Virginia pursuant to the Merger
and the assumption by First Virginia of the liabilities of Bancorp pursuant to
the Merger;
(c) the gain, if any, realized by a holder of shares of Bancorp
Common Stock upon receipt of shares of First Virginia Common Stock and/or cash
in exchange for shares of Bancorp Common Stock pursuant to the Merger will be
recognized but not in excess of the amount of cash received; and no loss will be
recognized by those Bancorp stockholders who exchange their shares of Bancorp
Common Stock for shares of First Virginia Common Stock pursuant to the Merger;
and
(d) the basis of First Virginia Common Stock to be received by
Bancorp stockholders will be the same as the basis of Bancorp Common Stock
surrendered in exchange therefor and the holding period of the First Virginia
Common Stock to be received by Bancorp stockholders will include the period
during which Bancorp Common Stock surrendered in exchange therefor was held
provided the Bancorp Common Stock was held as a capital asset by such Bancorp
stockholder at the Effective Date.
8.2 RESTRICTIONS ON AFFILIATES. Each of the executive officers and
directors of Bancorp shall, prior to or on the Effective Date, execute and
deliver to First Virginia a written representation substantially in the form of
Exhibit B of this Agreement to the effect that no disposition will be made by
that person of any shares of First Virginia Common Stock received after the
Effective Date except within the limits and in accordance with the applicable
provisions of Paragraph C, E, F, and G of Rule 144 under the Securities Act of
1933.
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ARTICLE IX.
TERMINATION, AMENDMENT AND SURVIVAL OF REPRESENTATIONS.
9.1 AMENDMENT. This Agreement and the Plan of Merger attached hereto may
be amended at any time prior to the Effective Date; provided that any such
amendment is in writing and is approved by the Board of Directors of each of the
parties hereto and provided, further, that subsequent to the meeting in which
this Agreement is approved by stockholders of Bancorp, no amendment shall be
made in the exchange rate which decreases the consideration to Bancorp's
stockholders without the approval of stockholders holding two-thirds of all
issued and outstanding shares of Bancorp Common Stock.
9.2 TERMINATION. Notwithstanding any other provision to the contrary of
this Agreement, and notwithstanding the approval of this Agreement by the
stockholders of Bancorp, this Agreement and the Plan of Merger may be terminated
and the Merger abandoned (without any obligation by First Virginia or Bancorp to
renegotiate the Agreement) at any time prior to the Effective Date:
(a) By mutual consent of the Board of Directors of First Virginia and the
Board of Directors of Bancorp; or
(b) By the Board of Directors of either Bancorp or First Virginia
(provided that the terminating Party is not then in material breach of any
representation, warranty, covenant, or other agreement contained in this
Agreement) in the event of a material breach by the other Party of any
representation or warranty contained in this Agreement which cannot be or has
not been cured within thirty (30) days after the giving of written notice to the
breaching Party of such breach; provided, however, that a material breach of a
representation or warranty shall be deemed to exist only if, when aggregated
with all other such breaches, the breach has or constitutes a Material Adverse
Effect; or
(c) By the Board of Directors of either First Virginia or Bancorp
(provided that the terminating Party is not then in material breach of any
representation, warranty, covenant or other agreement contained in this
Agreement) in the event of a material breach by the other Party of any covenant
or agreement contained in this Agreement which cannot be or has not been cured
within thirty (30) days after the giving of written notice to the breaching
Party of such breach; or
(d) By the Board of Directors of either First Virginia or Bancorp if (i)
the Federal Reserve Board or the Maryland Bank Commissioner deny approval of the
Merger and the time period for all appeals or requests for reconsideration has
run or (ii) the Comptroller of the Currency, the Federal Reserve Board or the
Maryland Bank Commissioner deny the conversion of either Farmers or
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Atlantic into state-chartered, Federal Reserve member banks or (iii) the Federal
Reserve Board denies the application of Caroline to become a member bank in the
Federal Reserve System;
(e) By the Board of Directors of either Bancorp or First Virginia in the
event the Merger should not become effective within nine months of the date of
this Agreement, in each case only if the failure to consummate the Merger is not
caused by any breach of the Agreement by the Party electing to terminate; or
(f) By the Board of Directors of either Bancorp or First Virginia
(provided that the terminating Party is not then in material breach of any
representation, warranty, covenant or other agreement contained in this
Agreement) in the event that any of the conditions precedent to the obligations
of such Party to consummate the Merger cannot be satisfied or fulfilled within
nine months of the date of this Agreement; or
(g) By the Board of Directors of First Virginia, at any time prior to the
30th day after execution of this Agreement in the event that First Virginia
determines, after its audit of Bancorp and its Subsidiaries referred to in
Paragraph 4.5, that the financial conditions of Bancorp and its Subsidiaries,
taken as a whole as of the date of completion of the audit, do not meet the
standards described in Paragraph 6.3; or
(h) By the Board of Directors of First Virginia if the holders of more
than 10% of the outstanding shares of Bancorp Common Stock validly exercise
appraisal rights under Maryland law or if the holders of more than 20% of the
outstanding shares of Bancorp Common Stock vote against the Merger;
(i) By the Board of Directors of Bancorp if the average of the closing
prices of First Virginia Common Stock as reported in The Wall Street Journal
under the heading "New York Stock Exchange --Composite Transactions" or any
comparable heading then in use declines to $30 per share or less for any period
of ten consecutive trading days during the sixty day period immediately prior to
the Effective Date; or
(j) By the Board of Directors of Bancorp if Bancorp receives an
Acquisition Proposal which the Board of Directors of Bancorp determines in good
faith in accordance with Paragraph 4.3 that it must consider, and which
Acquisition Proposal a majority of the full Board of Directors of Bancorp
further determines to approve and to recommend to the stockholders of Bancorp
for approval.
In the event of the termination of this Agreement and the Plan of Merger and the
abandonment of the Merger pursuant to this Paragraph 9.2, other than the
provisions of Paragraphs 4.6 and 9.4 which shall survive such termination, this
Agreement and the Plan of Merger shall become void and have no effect, without
any liability
35
<PAGE>
on the part of either Party or its directors, officers or stockholders.
Notwithstanding the foregoing, nothing contained in this Paragraph 9.2 shall
relieve either Party from liability for any breach of this Agreement.
9.3 SURVIVAL OF REPRESENTATIONS AND COVENANTS. The respective
warranties, representations, obligations and agreements of the Parties hereto
shall not survive the Effective Date of the Merger except for the obligations
and agreements set forth in Paragraphs 1.1, 1.3, 1.4, 1.5, 1.6, 1.7, 1.8, 1.10,
1.11, 1.12, 1.13, 4.4, 4.6, 5.1, 5.2, 5.7, 5.8, 5.9, 5.10, 8.2, 9.4, 9.5, 9.6,
9.7 and 9.8 of this Agreement and Sections 2, 3.1, 3.2, 3.3, 3.4, 3.5 and 4 of
the Plan of Merger.
9.4 EXPENSES. Whether or not the transactions herein are consummated,
First Virginia shall pay all expenses and fees in connection with this Agreement
and the Merger provided for herein; provided, however, that Bancorp and the
Banks shall pay (a) all of their legal expenses and fees including the expenses
for converting the Banks to state chartered, Federal Reserve members, except the
fee of Miles & Stockbridge with respect to the Tax Opinion which fee shall be
paid by First Virginia, and (b) all the expenses and fees of their advisors,
including but not limited to their investment banker, their counsel (except with
respect to the Tax Opinion as provided above) and their accountant, in
connection with the Merger. Notwithstanding the foregoing, after the date of
this Agreement if Bancorp terminates this Agreement and the Plan of Merger
pursuant to Paragraph 9.2(j), Bancorp covenants and agrees (which covenant and
agreement shall survive termination of this Agreement) if and when a definitive
written agreement for consummation of an Acquisition Proposal with a third party
(other than First Virginia) is fully executed by the parties thereto, to cause
such third party to pay to First Virginia by wire transfer within one business
day after such execution the sum of $3,160,000 as liquidated damages for all
losses and damages suffered by First Virginia as a result of the Merger not
being consummated, including, without limitation, the direct costs and expenses
(including fees and expenses of First Virginia's financial consultants, printing
costs, accountants and counsel) incurred by First Virginia in negotiating and
carrying out the Merger and the indirect costs and expenses incurred by First
Virginia in connection with the Merger, including First Virginia's management
time devoted to negotiation and preparation for such transaction. In the event
such third party shall refuse to pay such amount, the amount shall be an
obligation of Bancorp and shall be paid by Bancorp promptly upon notice to
Bancorp by First Virginia.
9.5 NOTICES. All notices, requests, demands and other communications
under or connected with this Agreement shall be in writing and (a) if to First
Virginia shall be addressed to First Virginia Banks, Inc. 6400 Arlington
Boulevard, Falls Church, Virginia 22042-2336, Attention: Barry J. Fitzpatrick,
Executive
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<PAGE>
Vice President, with copies to its counsel, Christopher M. Cole, Vice President
and Assistant General Counsel and (b) if to Bancorp shall be addressed to
Farmers National Bancorp, 5 Church Circle, Annapolis, Maryland 21401,
Attention: Charles L. Schelberg, Chairman, with a copy to its counsel, Miles &
Stockbridge, a Professional Corporation, 10 Light Street, Baltimore, Maryland
21202, Attention: Lowell R. Bowen.
9.6 ENTIRE AGREEMENT IN EFFECT. This Agreement, including Exhibits A and
B, is intended by the Parties to and does constitute the entire agreement of the
Parties with respect to the transactions contemplated hereunder. This Agreement
including the Plan of Merger attached hereto supersedes any and all other prior
understandings and agreements between the Parties hereto and it may not be
changed, waived, discharged or terminated orally but only in writing by a party
against which enforcement of the change, waiver, or discharge or termination is
sought.
9.7 GENERAL. The paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. This Agreement and the Plan of Merger
attached hereto may be executed simultaneously in two or more counterparts, each
of which shall be deemed an original, all of which shall become one and the same
instrument. This Agreement and the Plan of Merger attached hereto shall inure
to the benefit of and be binding upon the parties hereto and their respective
successors; it shall not be assigned. It is intended and agreed by the Parties
that in addition to the rights of Bancorp's stockholders after consummation of
the Merger, the persons benefitted by the provisions of Paragraphs 1.5, 1.11,
1.12, 5.7, 5.8 and 5.9 of this Agreement and Section 2 of the Plan of Merger
shall be deemed third party beneficiaries of such provisions, and such persons
and their heirs and personal representatives shall be entitled to enforce the
agreements and obligations of First Virginia under such provisions after the
Effective Date of the Merger.
9.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Virginia.
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IN WITNESS WHEREOF, First Virginia and Bancorp have caused this Agreement
to be duly executed by their respective chairmen or presidents and their
respective seals to be hereunto affixed and attested by their respective
cashiers or secretaries thereunto duly authorized as of the date first written
above.
ATTEST: FIRST VIRGINIA BANKS, INC.
/s/ THOMAS P. JENNINGS By /s/ ROBERT H. ZALOKAR
- - ------------------------------- -----------------------------------------
Thomas P. Jennings, Robert H. Zalokar, Chairman
Vice President and of the Board and Chief
Secretary Executive Officer
ATTEST: FARMERS NATIONAL BANCORP
/s/ NORMA K. BEHLKE By /s/ JOHN M. SUIT, II
- - ------------------------------- -----------------------------------------
Secretary John M. Suit, II
President
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<PAGE>
EXHIBIT A
PLAN OF MERGER
OF
FARMERS NATIONAL BANCORP
INTO
FIRST VIRGINIA BANKS, INC.
1. THE PARTIES. Farmers National Bancorp a Maryland corporation
("Bancorp") shall merge with and into First Virginia Banks, Inc. (the "Merger"),
a Virginia corporation ("First Virginia") (collectively referred to herein as
the "Constituent Corporations"). First Virginia shall be (as is hereinafter
called when reference is made to it at and after the consummation of the Merger)
the Surviving Corporation. The name of the Surviving Corporation shall be First
Virginia Banks, Inc. The Merger shall become effective at a time specified in
the Articles of Merger filed with both the Virginia State Corporation Commission
and the Maryland State Department of Assessments and Taxation (the "Effective
Date").
2. ARTICLES OF INCORPORATION; BYLAWS. At the Effective Date, the Ar-
ticles of Incorporation and Bylaws of the Surviving Corporation shall be the
Articles of Incorporation and Bylaws of First Virginia as in effect immediately
prior to the Effective Date. First Virginia acknowledges and agrees that the
rights of all persons accrued or existing on or before the Effective Date of the
Merger under Article Seventh, clause (2) and Article Ninth of the charter of
Bancorp shall survive the consummation of the Merger.
3. EFFECT OF THE MERGER ON CAPITAL STOCK, ASSETS, LIABILITIES AND
CAPITALIZATION OF BANCORP AND FIRST VIRGINIA.
3.1 CONVERSION OF STOCK OF BANCORP. At the Effective Date, each
issued and outstanding share of Bancorp Common Stock other than treasury shares
shall by virtue of the Merger and without any action by the holder thereof be
converted in accordance with the provisions of Section 3.2 hereof, into shares
of First Virginia Common Stock which shall be validly issued, fully paid and
nonassessable or cash. Each share of the Common Stock of the Surviving
Corporation which shall be issued and outstanding prior to the Merger shall
continue to be issued and outstanding.
3.2 CONVERSION RATE. At the Effective Date of the Merger:
(a) CONVERSION OF STOCK. Each share of Bancorp Common Stock which is
issued and outstanding as of the Effective Date of the
<PAGE>
Merger (other than shares exchanged for cash and Dissenting Shares) shall, and
without any action by the holder thereof, be converted into 1.5 shares of First
Virginia Common Stock, proportionately adjusted for any stock split, stock
dividends or other similar capital adjustments between the date of the Agreement
and Plan of Reorganization between the Parties hereto (the "Agreement") and the
Effective Date of the Merger by First Virginia. No fractional shares of First
Virginia Common Stock shall be issued to Bancorp stockholders. In lieu thereof,
each Bancorp stockholder shall receive upon surrender of his Bancorp Common
Stock an amount in cash equal to the amount of any fractional share he would
otherwise be entitled to receive multiplied by the average of the closing prices
per share of First Virginia Common Stock as reported in THE WALL STREET JOURNAL
under the heading "New York Stock Exchange--Composite Transactions" or any
comparable heading then in use, for each of the last ten trading days ending on
the tenth trading day prior to the Effective Date of the Merger.
(b) CASH ELECTION. Holders of shares of Bancorp Common Stock will be
given the option of exchanging their shares for $58.53 per share in cash,
provided that the number of shares that may be exchanged for cash, when added to
Dissenting Shares (as defined below) shall not exceed 30% of the shares of
Bancorp Common Stock outstanding immediately prior to the Effective Date of the
Merger. The cash election must be made at the time the Bancorp stockholders
vote on the Merger and once such vote has been taken, the cash election shall be
irrevocable. If the aggregate of (i) shares as to which a cash election is made
and (ii) Dissenting Shares exceeds 30% of the shares of Bancorp Common Stock
outstanding immediately prior to the Effective Date of the Merger, First
Virginia first will pay cash for shares submitted for cash exchange by each
holder of 100 or fewer shares of Bancorp Common Stock (if such holder has
submitted all his shares for cash exchange) and then will pay cash for shares
submitted for cash pro rata. Shares not exchanged for cash after proration will
be exchanged for First Virginia Common Stock at the exchange ratio provided
above. If (i) the aggregate of (A) shares as to which a cash election is made
and (B) Dissenting Shares is less than 10.1% of the total number of shares of
Bancorp Common Stock outstanding immediately prior to the Effective Date of the
Merger and (ii) First Virginia is advised by its independent accountants that it
cannot otherwise qualify to treat the Merger as a purchase for accounting
purposes after First Virginia has used all reasonable efforts to qualify for
such purchase accounting treatment by repurchasing outstanding shares of First
Virginia Common Stock, then First Virginia will pay to Bancorp stockholders,
other than for Dissenting Shares and shares for which a cash election is made, a
pro rata cash payment equal in an aggregate amount to the difference between (i)
the amount of cash that would have been paid if there were no Dissenting Shares
and holders of 10.1% of the total number of shares of Bancorp Common Stock
outstanding immediately prior to the Effective Date of the Merger had elected
cash at $58.53 per share in exchange for that percentage of shares of Bancorp
Common Stock and (ii) the aggregate amount of cash paid to Bancorp stockholders
electing cash
<PAGE>
and holders of Dissenting Shares (for purposes of this calculation only, holders
of Dissenting Shares shall be assumed to be entitled to receive $58.53 cash per
Dissenting Share). The pro rata cash payment payable to each Bancorp
stockholder (other than for Dissenting Shares and shares for which a cash
election is made) as provided in the immediately preceding sentence shall be in
exchange for that number of shares of Bancorp Common Stock held by such
stockholder immediately prior to the Effective Date equal to the amount of such
cash payment divided by $58.53, and the remaining shares of Bancorp Common Stock
held by such Stockholder immediately prior to the Effective Date will be
converted into shares of First Virginia Common Stock at the exchange ratio and
upon the terms and conditions provided above.
Bancorp stockholders who elect to exchange some or all of their shares of
Bancorp Common Stock for cash must submit to Bancorp certificates for the shares
being exchanged for cash at or prior to the meeting of Bancorp stockholders
called to consider the Merger. If the Merger is approved by Bancorp
stockholders at this meeting, a stockholder's election to receive cash is
irrevocable and Bancorp will retain certificates for shares submitted for cash
purchase until either (1) termination of the Agreement and this Plan of Merger,
upon which Bancorp will return such certificates or (2) the Effective Date of
the Merger when the exchange agent will exchange such certificates for cash to
the extent required by the Agreement and this Plan of Merger.
(c) After the Effective Date of the Merger, each holder of a certificate
for theretofore outstanding shares of Bancorp Common Stock, upon surrender of
such certificate to the exchange agent designated by First Virginia (the
"Exchange Agent"), unless previously surrendered to Bancorp in connection with
the exercise of the cash option, and a letter of transmittal which shall be
mailed to each holder of a certificate for theretofore outstanding shares of
Bancorp Common Stock by the Exchange Agent promptly following the Effective Date
of the Merger, shall be entitled to receive in exchange therefor a certificate
or certificates representing the number of full shares of First Virginia Common
Stock for which shares of Bancorp Common Stock theretofore represented by the
certificate or certificates so surrendered shall have been exchanged as provided
in the Agreement and this Plan of Merger, or cash if the cash option provided
above is properly elected, or in the event of a pro rata cash payment as
provided above, a combination of cash and First Virginia Common Stock. Until so
surrendered, each outstanding certificate which, prior to the Effective Date of
the Merger, represented Bancorp Common Stock, will be deemed evidence of the
right to receive either (i) the number of full shares of First Virginia Common
Stock into which the number of shares of Bancorp Common Stock formerly
represented thereby may be converted in accordance with the exchange ratio
provided above, or (ii) $58.53 cash per share multiplied by the number of shares
of Bancorp Common Stock formerly represented by such certificate if the cash
option provided above was properly elected, or (iii) a combination thereof as
provided above; and
<PAGE>
after the Effective Date of the Merger (unless the cash option is properly
elected) will be deemed for all corporate purposes of First Virginia to evidence
ownership of the number of full shares of First Virginia Common Stock into which
the shares of Bancorp Common Stock formerly represented thereby were converted.
With respect to shares of First Virginia Common Stock into which shares of
Bancorp Common Stock are converted pursuant to the Merger, until such
outstanding certificates formerly representing Bancorp Common Stock are
surrendered, no dividend payable to holders of record of First Virginia Common
Stock for any period as of any date subsequent to the Effective Date of the
Merger shall be paid to the holder of such outstanding certificates in respect
thereof. After the Effective Date of the Merger, there shall be no further
registry transfer on the records of Bancorp of shares of Bancorp Common Stock.
If a certificate representing such shares is presented to First Virginia, it
shall be cancelled and exchanged for a certificate representing shares of First
Virginia Common Stock and/or cash as herein provided. Upon surrender of
certificates of Bancorp Common Stock in exchange for First Virginia Common
Stock, there shall be paid to the record holder of the certificates of First
Virginia Common Stock issued in exchange therefor (i) the amount of dividends
theretofore paid with respect to such full shares of First Virginia Common Stock
as of any date subsequent to the Effective Date of the Merger which have not
been paid to a public official pursuant to abandoned property laws and (ii) at
the appropriate payment date the amount of dividends with a record date after
the Effective Date of the Merger but prior to surrender and a payment date
subsequent to surrender. No interest shall be payable with respect to such
dividends upon surrender of outstanding certificates. Subject to the
immediately preceding two sentences, whenever a dividend or other distribution
is declared by First Virginia on First Virginia Common Stock, the record date
for which is on or after the Effective Date of the Merger, the declaration shall
include dividends or other distributions on all shares of First Virginia Common
Stock issuable pursuant to the Merger as provided above, whether or not
certificates for those shares of First Virginia Common Stock have then been
issued as provided above.
3.3 DISSENTING BANCORP SHARES. Notwithstanding anything in this Plan of
Merger to the contrary, shares of Bancorp Common Stock which are issued and
outstanding immediately prior to the Effective Date of the Merger and which are
held by a stockholder who exercised in accordance with applicable law the right
(to the extent such right is available by law) to demand and receive payment of
the fair value of his shares of Bancorp Common Stock pursuant to Maryland law
(the "Dissenting Shares") shall be canceled and shall not be converted into or
be exchangeable for the right to receive the consideration provided in Section
3.2 of this Plan of Merger, but the holders thereof shall be entitled to payment
of the fair market value of such shares in accordance with Maryland law subject
to the procedures and conditions specified under Maryland law unless and until
such holder shall fail to
<PAGE>
perfect his right to dissent or shall have effectively withdrawn or lost such
right as the case may be. If such holder shall have failed to perfect or shall
have effectively withdrawn or lost such right, his shares of Bancorp Common
Stock shall thereupon be deemed at the Effective Date of the Merger to have been
converted into the right to receive the consideration provided in Section 3.2 of
this Plan of Merger.
3.4 ASSETS. The Surviving Corporation shall possess all the rights,
interest, privileges, immunities, powers, franchises, concessions, certificates
of authority of a public as well as a private nature of each of First Virginia
and Bancorp and all property, real and personal, and every interest therein, and
all debts and other obligations due on whatever account, and all other choses in
action and all and every interest of, or belonging to, or due to each of First
Virginia and Bancorp and the title to all real estate or any interest therein,
vested in either of Bancorp or First Virginia, shall not revert or be in any way
impaired by reason of the Merger.
3.5 LIABILITIES. The Surviving Corporation shall be liable for
liabilities of Bancorp and all valid debts, liabilities, duties and obligations
of Bancorp shall thenceforth attach to the Surviving Corporation and may be
enforced against it to the same extent as if said debts, liabilities, duties and
obligations had been originally incurred or contracted by it and neither the
rights of creditors nor any liens upon the property of either Bancorp or First
Virginia shall be impaired by the Merger.
4. BOARD OF DIRECTORS AND OFFICERS. From and after the Effective Date,
the directors of the Surviving Corporation shall be the directors of First
Virginia immediately prior to the Effective Date and the officers of the
Surviving Corporation shall be the officers of First Virginia immediately prior
to the Effective Date.
5. CONDITIONS. Consummation of the Merger is subject to the following
conditions:
(i) approving vote of the holders of a two-third's of the outstanding
shares of Bancorp Common Stock entitled to vote; (ii) the approval of the Merger
by the Board of Directors of the Federal Reserve System, the Maryland Bank
Commissioner and the State Corporation Commission of Virginia; and (iii) the
satisfaction of all other conditions to the Merger as contained in the
Agreement.
6. TERMINATION AND ABANDONMENT. This Plan of Merger may be terminated
and the Merger abandoned as provided in Paragraph 9.2 of the Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Plan of Merger as
of the 1stday of July, 1994.
ATTEST: FIRST VIRGINIA BANKS, INC.
/s/ THOMAS P. JENNINGS By /s/ ROBERT H. ZALOKAR
- - -------------------------------- -----------------------------------------
Thomas P. Jennings, Vice Robert H. Zalokar, Chairman
President and Secretary of the Board and Chief
Executive Officer
ATTEST: FARMERS NATIONAL BANCORP
/s/ NORMA K. BEHLKE By /s/ JOHN M. SUIT, II
- - -------------------------------- -----------------------------------------
Secretary John M. Suit, II
President
<PAGE>
EXHIBIT B
TO: PRINCIPAL OFFICERS, DIRECTORS, AND STOCKHOLDERS OF FARMERS NATIONAL BANCORP
Re: Restrictions on Resale of First Virginia Common Stock
The Federal Securities Laws impose certain limitations on the resale of
securities of publicly owned companies acquired by principal officers and
directors in merger-type transactions. We are required to note these
restrictions in the proxy statement and to receive your acknowledgment and
agreement to these restrictions.
As to the acquisition of Farmers National Bancorp ("Bancorp") by First
Virginia, these restrictions, in summary, are as follows:
For a period of two years from the date of the acquisition, any principal
officer or director of Bancorp may not resell, in any three-month period, more
than approximately 300,000 shares of First Virginia Common Stock acquired
pursuant to the merger. In addition, such securities must be sold in brokers'
transactions or in a transaction with a market maker. A broker's transaction is
defined as a transaction in which a broker (i) does no more than execute the
order to sell the security, receiving no more than the customary broker's
commission and (ii) neither solicits nor arranges for the solicitation of orders
to buy the security in anticipation of or in connection with the transaction. A
more detailed description of these restrictions is as follows:
Although the issuance of securities of First Virginia Banks, Inc. in the
proposed merger will be registered under the Securities Act and will be issued
in compliance with any applicable state laws relating to securities, any public
reoffering or sale of such securities by any person who is an "affiliate" of
Bancorp at the time the Agreement is submitted to a vote of Bancorp stockholders
and who thus could be deemed an "underwriter" will, under current law, require
either (i) the further registration under the Securities Act of the securities
of First Virginia to be sold or (ii) compliance with Rule 145 under the
Securities Act (as described below) or (iii) the availability of another
exemption from such registration. An "affiliate" is defined as a "controlling
person", which could mean, generally, a stockholder owning 10% or more of
Bancorp's stock or a director or principal officer of Bancorp. Compliance with
Rule 145 requires compliance with certain of the provisions of Rule 144 under
the Securities Act. Under such provisions, "affiliates" are only able to
sell, in any three-month period, the greater of (i) 1% of the securities of the
class outstanding as shown by First Virginia's most recent report or statement,
(ii) the average weekly reported volume of trading in those securities on all
national securities exchanges
<PAGE>
EXHIBIT B, Continued
and reported through the national quotation system of a registered securities
association (i.e., NASDAQ), or (iii) to the extent such figures are available,
the average weekly volume of trading in the securities reported through the
consolidated transaction reporting system mandated by Rule 17a-15 under the
Securities Exchange Act of 1934 for the same four-week period. In addition, if
an "affiliate" acts in concert with another person for the purpose of any such
sales, the sales of all persons acting in concert would be limited in the
aggregate to such maximum number of securities in any three-month period. Two
additional requirements of Rule 144 which must be satisfied in complying with
Rule 145 are that (1) First Virginia must have been current for a period of
twelve months prior to the sale in the filing of all reports required by the
Securities and Exchange Commission (a condition which First Virginia presently
fulfills and which it will endeavor to fulfill in the future), and (2) First
Virginia securities must be sold in brokers' transactions or in a transaction
directly with a market maker in the First Virginia security involved. A
broker's transaction is defined as a transaction in which a broker (i) does no
more than execute the order to sell the security, receiving no more than the
customary broker's commission and (ii) neither solicits nor arranges for the
solicitation of orders to buy the security in anticipation of or in connection
with the transaction.
If you have any questions about these restrictions either at present or in
the future, please feel free to contact me.
Please acknowledge your receipt of and agreement to these restrictions by
signing a copy of this letter and returning it to me.
Very truly yours,
Christopher M. Cole
Vice President and Assistant
General Counsel
CMC:nel
ACKNOWLEDGED AND AGREED:
___________________________________
(Name and date)
