As filed with the Securities and Exchange Commission on October 15, 1998
Registration No. 333-_____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ACNB CORPORATION
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(Exact name of registrant as specified in its charter)
Pennsylvania 6022
- ---------------------------- ----------------------------
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
23-2233457
---------------------------------
(I.R.S. Employer Identification No.)
ACNB CORPORATION Ronald L. Hankey, President
675 Old Harrisburg Road ACNB CORPORATION
Post Office Box 3129 675 Old Harrisburg Road
Gettysburg, Pennsylvania 117325-0129 Gettysburg, Pennsylvania 17325-0129
(717) 334-3161 (717) 334-3161
- ------------------------------------- -----------------------------------
(Address, including ZIP Code, and (Name, address, including ZIP Code,
telephone number, including area code, and telephone number, including
of registrant's principal executive area code, of agent for service)
offices)
With A Copy To:
Nicholas Bybel, Jr., Esquire
B. Tyler Lincoln, Esquire
Shumaker Williams, P.C.
Post Office Box 88
Harrisburg, Pennsylvania 17108
Telephone: (717) 763-1121
Approximate date of commencement of the proposed sale of the securities to the
public: As soon as practicable after the effective date of the Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [X]
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
Title of Each Amount Proposed Maximum Proposed Maximum
Class of Securities to be Offering Price Aggregate
Being Registered Registered Per Unit Offering Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock,
par value $2.50
per share 561,968 (1)(2) $22.91 $12,874,686.88
<CAPTION>
Title of Each Amount of
Class of Securities Registration
Being Registered Fee
- ---------------------------------------------------------------------------
<S> <C>
Common Stock,
par value $2.50
per share $3,798.03
<FN>
(1) Shares to be issued in the Merger (as defined herein) computed in
accordance with Rule 457(f)(2), solely for the purpose of calculating the
registration fee, based upon book value of Farmers Common Stock (as defined
herein), June 30, 1998, the latest practicable date prior to the date of
filing of this Registration Statement.
(2) Based on maximum number of shares of Registrant's Common Stock that may be
issued in connection with the proposed transaction. In accordance with Rule
416, this Registration Statement shall also register any additional shares
of Registrant's common stock that may become issuable to prevent dilution
resulting from stock splits, stock dividends or similar transactions as
provided by the Agreement relating to the transaction.
</FN>
</TABLE>
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to such
Section 8(a), may determine.
<PAGE>
[FARMERS NATIONAL BANCORP, INC. LETTERHEAD]
November 11, 1998
Dear Shareholder:
We invite you to attend the Special Meeting of Shareholders of Farmers
National Bancorp, Inc. (the "Corporation"), the holding company for Farmers
National Bank of Newville ("FNB"), to be held at One West Big Spring Avenue,
Newville, Pennsylvania 17241-0156, on Tuesday, December 15, 1998, at 2:00 p.m.
(the "Meeting"). The Meeting is being held as a result of the proposed
acquisition of the Corporation and of FNB by ACNB Corporation ("ACNB"), a $466
million bank holding company with 14 community banking offices in Pennsylvania.
The attached Notice of Special Meeting and Proxy Statement/Prospectus
describe the formal business to be transacted at the Meeting. During the
Meeting, we will also report on the operations of the Corporation. Directors and
officers of the Corporation will be present to respond to any questions that our
shareholders may have.
The purpose of the Meeting is to consider and vote upon the Agreement and
Plan of Reorganization dated as of July 28, 1998, (the "Agreement"), among the
Corporation, FNB, ACNB and ACNB North, Inc., a corporate subsidiary of ACNB that
was organized to facilitate the acquisition of the Corporation and of FNB. The
Agreement provides for the merger of ACNB North, Inc., with and into the
Corporation (the "Merger") and the conversion of each outstanding share of the
Corporation's common stock into 2.266 shares of common stock of ACNB. Completion
of the Merger is subject to certain conditions, including the approval of the
Agreement by the required vote of the Corporation's shareholders at the Meeting
and approval by various regulatory agencies.
Garland McPherson & Associates, Inc., the Corporation's financial advisor,
has advised the Board of Directors that in its opinion the consideration that
you are to receive in the Merger is fair, from a financial point of view. The
Board of Directors has carefully considered the Agreement and has agreed that
the Merger is in the best interests of the Corporation and its shareholders.
Accordingly, the Board of Directors recommends that you vote "FOR" approval of
the Agreement.
The attached Proxy Statement/Prospectus provides important information
about the Merger. We urge you to read it carefully.
Sincerely,
Edgar S. Heberlig,
Chairman of the Board of Directors
PLEASE DO NOT SEND IN YOUR STOCK CERTIFICATES AT THIS TIME
<PAGE>
FARMERS NATIONAL BANCORP, INC.
One West Big Spring Avenue
Post Office Box 156
Newville, Pennsylvania 17241-0156
(717) 776-5312
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 15, 1998
NOTICE IS HEREBY GIVEN that the Special Meeting of Shareholders (the "Meeting")
of Farmers National Bancorp, Inc. ("Farmers"), the holding company of Farmers
National Bank of Newville ("FNB"), will be held at One West Big Spring Avenue,
Newville, Pennsylvania 17241 on Tuesday, December 15, 1998, at 2:00 p.m. We
enclose a Proxy Card and a Proxy Statement/Prospectus for the Meeting.
The Meeting is for the purpose of considering and acting upon the following
matters:
1. Approval and adoption of the Agreement and Plan of Reorganization, dated as
of July 28, 1998 (the "Agreement") by and among ACNB Corporation ("ACNB"),
ACNB North, Inc. ("ACNB North"), Farmers and FNB. Pursuant to the
Agreement, ACNB North will merge with and into Farmers and Farmers will
become a wholly-owned subsidiary of ACNB. FNB will become a wholly-owned,
second-tier subsidiary of ACNB. Upon the consummation of the Merger, each
Farmers shareholder will receive, in exchange for each share of common
stock of Farmers, par value $0.50 per share (the "Farmers Common Stock"),
2.266 shares of the common stock of ACNB, par value $2.50 per share (the
"ACNB Common Stock"), as provided for in the Agreement;
2. Adjournment of the Meeting to a later date, if necessary, to permit further
solicitation of proxies in the event there are not sufficient votes at the
time of the Meeting to constitute a quorum or to approve the Agreement; and
3. Other matters as may properly come before the Meeting or any adjournment
thereof that are incidental to the foregoing.
Any action may be taken on any one of the foregoing proposals at the Meeting on
the date specified above, or on any date or dates to which, by original or later
adjournment, the Meeting may be adjourned. Pursuant to Farmers Bylaws, the Board
of Directors has fixed the close of business on November 9, 1998, as the record
date for determination of the shareholders entitled to notice of and to vote at
the Meeting and any adjournments or postponements thereof.
Your participation in the Meeting, in person or by proxy, is important
regardless of the number of shares you own. Approval of the Merger requires the
affirmative vote of the holders of 66 2/3% of the outstanding shares of common
stock. An abstention or failure to vote has the same effect as
<PAGE>
voting against the Agreement. Therefore, we urge you, even if you plan to attend
the Meeting, to complete, sign, date and return the enclosed proxy card in the
enclosed postage-paid envelope as soon as possible to assure that your shares
will be voted at the Meeting. If you do attend the Meeting and wish to vote in
person, you may do so by giving written notice of your decision to the Secretary
of the Corporation so that your Proxy will be superseded by any ballot that you
submit at the Meeting. On behalf of the Board of Directors, I thank you for your
support and urge you to vote "FOR" approval of the Agreement.
Please sign and date the enclosed Proxy Card, which is solicited by the Board of
Directors, and mail it promptly in the enclosed envelope. The giving of your
proxy does not affect your right to vote in person in the event you attend the
Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Newville, Pennsylvania /s/ Edgar S. Heberlig
-------------------------------------
November 11, 1998 Edgar S. Heberlig,
Chairman of the Board of Directors
and President
<PAGE>
PROXY STATEMENT/PROSPECTUS
ACNB CORPORATION
PROSPECTUS FOR
561,968 SHARES OF COMMON STOCK
PAR VALUE $2.50 PER SHARE
FARMERS NATIONAL BANCORP, INC.
PROXY STATEMENT FOR
SPECIAL MEETING OF SHAREHOLDERS
DECEMBER 15, 1998
The Board of Directors of Farmers National Bancorp, Inc. ("Farmers"), the
holding company of Farmers National Bank of Newville ("FNB"), furnishes this
Proxy Statement/Prospectus to you in connection with the solicitation of proxies
to be used at the Special Meeting of Shareholders of Farmers (the "Meeting"),
which will be held at One West Big Spring Avenue, Newville, Pennsylvania 17241
on Tuesday, December 15, 1998, at 2:00 p.m. Farmers first mailed the
accompanying Notice of Special Meeting, Proxy Card and this Proxy
Statement/Prospectus to shareholders on or about November 11, 1998.
At the Meeting, holders of record of common stock of Farmers, par value
$.50 per share (the "Farmers Common Stock"), as of November 9, 1998 (the "Record
Date") will consider and vote upon the approval and adoption of the Agreement
and Plan of Reorganization, dated as of July 28, 1998, (the "Agreement") by and
among ACNB Corporation ("ACNB"), ACNB North, Inc. ("ACNB North"), Farmers and
FNB. We attach a copy of the Agreement as Annex A. In addition to voting on the
Agreement, you, as shareholders of Farmers, may be asked to consider and vote
upon approval of the postponement or adjournment of the Meeting, in the event
there are not sufficient votes cast in person or by proxy at the Meeting to
constitute a quorum or to approve the Agreement, and such other matters as may
properly come before the Meeting or any adjournments thereof.
The Agreement provides that ACNB North will merge with and into Farmers,
Farmers will become a wholly-owned subsidiary of ACNB, under the name "ACNB
North, Inc.," and FNB will become a wholly-owned, second-tier subsidiary of ACNB
(the "Merger"). Upon the consummation of the Merger, each Farmers shareholder
will have a right to receive 2.266 shares of common stock of ACNB, par value
$2.50 per share (the "ACNB Common Stock") for each share of Farmers Common
Stock.
Neither ACNB Common Stock nor Farmers Common Stock is traded on The Nasdaq
Stock Market or any stock exchange.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or passed upon the
accuracy or adequacy of this Proxy Statement/Prospectus. Any representation to
the contrary is a criminal offense.
The shares of ACNB common stock issuable in the Merger are not savings
accounts, deposits or other obligations of a bank or savings institution and are
not insured by the Federal Deposit Insurance Corporation or any other
governmental agency. This Proxy Statement/Prospectus does not cover any resales
of the ACNB Common Stock issuable in the Merger by any shareholders deemed to be
affiliates of Farmers or of ACNB. No person is authorized to make use of this
Proxy Statement/Prospectus in connection with such resales, although such stock
may be traded without use of this Proxy Statement/Prospectus by former
shareholders of Farmers who are not deemed to be affiliates of Farmers or ACNB.
No person is authorized to give any information or to make any
representations other than those contained in this Proxy Statement/Prospectus
and, if given or made, such other information or representations must not be
relied upon as having been authorized by ACNB or Farmers. This Proxy
Statement/Prospectus does not constitute an offer to sell, or a solicitation of
an offer to buy, any security other than the securities covered by this Proxy
Statement/Prospectus, or the solicitation of a proxy to or from any person in
any jurisdiction where it is unlawful to make such offer or solicitation of an
offer or proxy solicitation. Neither the delivery of this Proxy
Statement/Prospectus nor any distribution of securities made hereunder shall,
under any circumstances, create any implication that there has been no change in
the information about ACNB or Farmers contained in this Proxy
Statement/Prospectus since the date hereof.
The date of this Proxy Statement/Prospectus is November 11, 1998.
<PAGE>
This Proxy Statement/Prospectus constitutes a prospectus of ACNB filed as
part of a registration statement filed with the Securities and Exchange
Commission relating to the 561,968 shares of ACNB Common Stock issuable pursuant
to the Agreement. All information contained in this Proxy Statement/Prospectus
with respect to ACNB and its subsidiaries has been supplied by ACNB, and all
information with respect to Farmers and its respective subsidiaries has been
supplied by Farmers.
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY ......................................................... 1
The Meeting.............................................. 1
Vote Required............................................ 1
Forward-Looking Statements............................... 1
Farmers and FNB.......................................... 2
ACNB..................................................... 2
Available Information.................................... 2
The Merger............................................... 3
Opinions of Financial Advisor............................ 4
Recommendations of the Board of Directors................ 4
Dissenters' Rights....................................... 4
Federal Income Tax Consequences of the Merge............. 5
Accounting Treatment..................................... 5
Comparison of Shareholder Rights......................... 5
Conditions to the Merger................................. 6
Operations After the Merger.............................. 6
Termination of the Merger................................ 6
Expenses................................................. 7
Dividends................................................ 7
Adjournment of the Meeting............................... 7
COMPARATIVE PER SHARE DATA ....................................... 8
General.................................................. 8
Market Value of Securities............................... 9
SELECTED FINANCIAL DATA. ........................................ 10
THE MEETING ..................................................... 13
General ................................................ 13
Voting, Revocation and Solicitation of Proxies ......... 13
Voting Securities and Security Ownership ............... 15
Other Matters .......................................... 17
Auditors of Farmers .................................... 17
APPROVAL OF THE MERGER ......................................... 17
Background of the Merger, Reasons and Recommendation
of the Board of Directors ........................... 17
Vote Required ............................................ 18
i
<PAGE>
Page
Opinion of Financial Advisor ............................. 19
Dissenters' Rights ....................................... 23
Terms of the Merger ...................................... 26
Regulatory Approvals of Farmers............................ 41
Interests of Certain Persons in the Merger................. 42
Management and Operations Following the Merger............. 43
Accounting Treatment of the Merger ....................... 44
Income Tax Consequences of the Merger .................... 44
DESCRIPTION OF ACNB AND ITS COMMON STOCK ........................ 46
Information Concerning ACNB .............................. 46
Incorporation by Reference................................. 46
General .................................................. 47
Common Stock ............................................. 47
Pennsylvania Anti-Takeover Law Provisions ................ 48
Provisions in ACNB's Articles of
Incorporation and Bylaws .............................. 49
COMPARISON OF SHAREHOLDER RIGHTS ................................ 50
Introduction. ............................................ 50
Dividends ................................................ 52
Limitations on Directors' Liability ...................... 52
Indemnification .......................................... 52
DIVIDENDS AND MARKET PRICES OF SECURITIES ....................... 53
ACNB ..................................................... 53
Farmers .................................................. 53
REGULATIONS AFFECTING DIVIDENDS ................................. 54
BUSINESS OF FARMERS ............................................. 54
General .................................................. 54
Services ................................................. 55
Regulation ............................................... 55
Competition .............................................. 57
Employees ................................................ 58
Certain Relationships and Related Party Transactions ..... 58
Litigation ............................................... 58
Properties ............................................... 58
Impact of the Year 2000 Issue ............................ 59
IMPACT OF THE YEAR 2000 ISSUE ON ACNB ........................... 60
ii
<PAGE>
Page
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF FARMERS ................. 62
Balance Sheet Analysis .................................. 63
Income Statement Analysis ............................... 68
ADJOURNMENT OF THE MEETING ..................................... 70
INDEPENDENT ACCOUNTANTS ........................................ 70
EXPERTS ........................................................ 70
LEGAL OPINIONS ................................................. 70
OTHER MATTERS.................................................... 71
ADDITIONAL INFORMATION........................................... 71
INDEX TO FINANCIAL STATEMENTS
FARMERS NATIONAL BANCORP, INC..................................... F-1
ANNEX A AGREEMENT ........................................ A-1
ANNEX B OPINION OF GARLAND McPHERSON & ASSOCIATES, INC. .. B-1
ANNEX C DISSENTERS' RIGHTS PROVISIONS .................... C-1
This Proxy Statement/Prospectus incorporates important business and
financial information about ACNB that is not included or delivered with the
document. This information is available, without charge, to Farmer's
shareholders. Please direct requests to the Secretary, ACNB Corporation, 675 Old
Harrisburg Road, P. O. Box 3129, Gettysburg, Pennsylvania 17325-0129, telephone
number (717) 334-3161. In order to ensure timely delivery of the documents in
advance of the Meeting, you should make your request no later than December 8,
1998.
iii
<PAGE>
SUMMARY
The following summary of the material aspects of the Merger is not intended
to be complete and is qualified in its entirety by the more detailed discussion
elsewhere or incorporated by reference in this Proxy Statement/Prospectus and
its Appendices. We urge you to read the entire Proxy Statement/Prospectus,
including the Appendices hereto, in order for you to understand the Merger
fully.
The Meeting
We will hold the Meeting to vote on the Merger at One West Big Spring
Avenue, Newville, Pennsylvania on Tuesday, December 15, 1998, at 2:00 p.m. At
the Meeting, those shareholders who hold shares of Farmers Common Stock, as of
November 9, 1998, the Record Date, will consider and vote upon the approval and
adoption of the Agreement. In addition, shareholders of Farmers may consider and
vote upon the approval of the adjournment of the Meeting, in the event there are
not sufficient votes cast in person or by proxy at the Meeting to constitute a
quorum or to approve the Agreement. You may also be asked to vote on such other
matters as may properly come before the Meeting or any adjournments thereof.
Each share entitled to vote at the Meeting is entitled to one vote. The
presence, in person or by proxy, of at least a majority of the total number of
shares of Farmers Common Stock outstanding and entitled to vote as of the Record
Date will be required to constitute a quorum at the Meeting.
Vote Required
Approval of the Agreement requires the affirmative vote of the holders of
66 2/3% of the outstanding shares of Farmers Common Stock. Directors and
executive officers are expected to vote substantially all of the __________
shares held by them, representing approximately ___________ percent of the
Farmers Common Stock outstanding at the Record Date and entitled to vote at the
Meeting, "FOR" approval of the Agreement.
Forward-Looking Statements
This Proxy Statement/Prospectus contains and incorporates by reference
certain statements that constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements include all statements regarding the intent, belief
or current expectations regarding the matters discussed or incorporated by
reference in this Proxy Statement/Prospectus (including statements as to
"beliefs," "expectations," "anticipations," "intentions" or similar words) and
all statements that are not statements of historical fact. Such statements are
subject to risks, uncertainties and assumptions, including, but not limited to,
trends for the continued growth of the business of ACNB and Farmers, the
realization of anticipated revenues, profitability and cost synergies of the
combined companies, and other risks and uncertainties. Should one or more of
these risks or uncertainties materialize or should underlying assumptions prove
incorrect, actual results,
1
<PAGE>
performance or achievements in 1999 and beyond could differ materially from
those expressed in, or implied by, such forward-looking statements.
Farmers and FNB
Farmers is a Pennsylvania business corporation formed on August 14, 1991,
and functions as the bank holding company for FNB. Farmers' principal business
has been directing, planning and coordinating the business activities of FNB.
FNB is a national banking association headquartered in Newville,
Pennsylvania, which conducts business through three offices. One office is
located in Newville (the main office). The second office is located in West
Pennsboro Township, Pennsylvania. The third office, also located in West
Pennsboro Township, is open two afternoons each week.
Farmers' executive offices are located at One West Big Spring Avenue,
Newville, Pennsylvania 17241, and its telephone number is (717) 776-5312. We
discuss Farmers and FNB in more detail at "BUSINESS OF FARMERS," below.
ACNB
ACNB is a bank holding company whose sole activity consists of owning and
supervising Adams County National Bank (the "Bank"), its depository subsidiary.
ACNB was incorporated in Pennsylvania on November 9, 1983. Its executive offices
are located at 675 Old Harrisburg Road, Gettysburg, Pennsylvania 17325, and its
telephone number is (717) 334-3161.
ACNB and the Bank have the same Board of Directors. ACNB presently has no
significant operations other than serving as a holding company. The Bank engages
in a full-service commercial and consumer banking and trust business. With its
main office at 675 Old Harrisburg Road, Gettysburg, Pennsylvania, the Bank
provides financial services to its customers through its community banking
network of fourteen full-service offices located throughout Adams County,
Pennsylvania, and in Hanover, York County, Pennsylvania.
The Bank's officers conduct the day-to-day management of the Bank, subject
to review by its board of directors, thereby permitting the Bank to retain
substantial autonomy to better service its market in day-to-day operations. We
discuss ACNB in more detail in "DESCRIPTION OF ACNB AND ITS COMMON STOCK,"
below.
Available Information
ACNB is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, accordingly, files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information filed with the Commission are available for inspection
2
<PAGE>
and copying at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and at World Trade Center, Suite
1300, New York, New York 10048. Copies of such documents may also be obtained
from the Public Reference Section of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. ACNB is an
electronic filer with the Commission. The Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of the Commission Web site is: http://www.sec.gov.
Neither the ACNB Common Stock nor the Farmers Common Stock is authorized
for quotation on The National Association of Securities Dealers ("NASD")
Automatic Quotations ("NASDAQ") National Market System or any stock exchange.
This Proxy Statement/Prospectus forms a part of a Registration Statement on
Form S-4 that ACNB has filed with the Commission under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the ACNB Common Stock
issuable in the Merger (the "Registration Statement"). This Proxy
Statement/Prospectus does not contain all of the information in the Registration
Statement, certain parts of which are omitted in accordance with the
Commission's rules and regulations. You may inspect and copy the Registration
Statement, including any amendments and exhibits thereto as stated above.
Statements contained in this Proxy Statement/Prospectus as to the contents of
any contract or other document are not necessarily complete, and we refer you,
in each case to the copy of such contract or other document, filed as an exhibit
to the Registration Statement. We also qualify our discussions, in all respects,
by such reference.
The Merger
In the Merger, Farmers will become a wholly-owned subsidiary of ACNB and
FNB will become a wholly-owned, second-tier subsidiary of ACNB. The parties
propose to effect the Merger by means of a merger of ACNB North with and into
Farmers. Farmers will survive Merger (sometimes referred to as the "Surviving
Corporation"), and continue business as a second-tier subsidiary of ACNB. Upon
the consummation of the Merger, Farmers shareholders will receive 2.266 shares
of ACNB Common Stock in exchange for each share of Farmers Common Stock (the
"Merger Consideration"). Farmers shareholders will receive a cash payment in
lieu of any fractional share of ACNB Common Stock that the Farmers shareholders
would otherwise be entitled to receive. The last reported sale price of ACNB
Common Stock was $____ per share on November __, 1998. Consummation of the
Merger is conditioned upon, among other things, the approval of the Agreement by
the requisite vote of Farmers' shareholders and by various regulatory agencies.
3
<PAGE>
Under the terms of the Agreement, Farmers shareholders will receive
approximately 561,968 shares of ACNB Common Stock will be exchanged for the
outstanding Farmers Common Stock.
Farmers and ACNB have the right to terminate the Agreement under certain
circumstances, including if the Merger is not consummated by June 30, 1999. The
parties have the right to extend the time for closing beyond June 30, 1999, by
mutually amending the Agreement.
ACNB and Farmers propose to close the transaction in the first quarter of
1999, after receipt of all required regulatory approvals, including receipt of
approval of Farmers' shareholders (the "Effective Date"). We discuss the Merger
in more detail in "APPROVAL OF THE MERGER," below.
Opinion of Financial Advisor
The Farmers Board of Directors asked Garland McPherson & Associates, Inc.
("GM&A"), Farmers' financial advisor, to render an opinion that the Merger
Consideration is fair, from a financial point of view, to shareholders of
Farmers. We recommend that you read the opinion, which is attached to this Proxy
Statement/Prospectus as Annex B, and "APPROVAL OF THE MERGER - Opinion of
Financial Advisor," below. You should read the opinion in its entirety and pay
particular attention to the assumptions made and other matters considered by
GM&A in rendering the opinion.
Recommendations of the Board of Directors
The consideration to be received by Farmers' shareholders in the
transaction was negotiated by the Farmers Board of Directors in light of various
factors, including Farmers' and ACNB's recent operating results, current
financial condition and perceived future prospects. The Farmers Board of
Directors believes that the Merger is in the best interests of Farmers'
shareholders and recommends that Farmers' shareholders vote "FOR" approval of
the Agreement.
Dissenters' Rights
The Pennsylvania Business Corporation Law of 1988, as amended (the "BCL")
grants to certain shareholders, including the holders of Farmers Common Stock,
the right to dissent from approval of the Merger, and to demand and receive the
"fair value" of their shares of Farmers Common Stock rather than the Merger
Consideration. In order to assert these dissenters' rights, a Farmers
shareholder must:
* file a written notice of intent to dissent with Farmers before the
shareholder vote at the Meeting;
* not vote in favor of the Merger;
4
<PAGE>
* file a written demand for payment and deposit the certificates
representing his or her shares in accordance with the terms of the
notice to demand payment that Farmers will send; and
* comply with certain other statutory procedures set forth in the BCL.
If you return your proxy without voting instructions, your proxy will be voted
in favor of the Agreement, and you will forfeit any dissenters' rights that you
may have with respect to the Merger. A copy of the applicable sections of the
BCL are attached to this Proxy Statement/Prospectus as Annex C. If you deviate
from the procedures set forth in the statutory provisions, you may forfeit your
dissenters' rights with respect to the Merger. Accordingly, if you wish to
assert dissenters' rights we urge you to read carefully "APPROVAL OF THE
MERGER--Dissenters' Rights" and Annex C to this Proxy Statement/Prospectus.
Federal Income Tax Consequences of the Merger
ACNB and Farmers anticipate that the Merger will be a tax-free
reorganization for federal income tax purposes and that Farmers shareholders
will recognize no gain or loss on the exchange of their Farmers Common Stock for
ACNB Common Stock (other than with respect to cash received in lieu of
fractional shares and cash received upon exercise of dissenters' rights, if
any). You should consult with your own tax advisers regarding the tax
consequences of the Merger with respect to your own particular circumstances.
See "APPROVAL OF THE MERGER--Income Tax Consequences of the Merger."
Accounting Treatment
Farmers and ACNB intend that the Merger be accounted for as a pooling of
interests for financial accounting purposes. See "APPROVAL OF THE
MERGER--Accounting Treatment of the Merger."
Comparison of Shareholder Rights
Upon the consummation of the Merger, holders of Farmers Common Stock will
become shareholders of ACNB, a Pennsylvania business corporation. Farmers and
ACNB are each organized as Pennsylvania business corporations and, accordingly,
the rights of former Farmers shareholders after the Merger will continue to be
governed by the BCL as well as the articles of incorporation and bylaws of ACNB
(referred to as the "ACNB Articles" and ACNB Bylaws"). Certain differences exist
in the rights of the shareholders of ACNB and Farmers. These differences are due
to the differences in the ACNB Articles and ACNB Bylaws and the articles of
incorporation and bylaws of Farmers (referred to as the "Farmers Articles" and
Farmers Bylaws"). A discussion of these differences is set forth in "COMPARISON
OF SHAREHOLDER RIGHTS," below.
5
<PAGE>
Conditions to the Merger
Consummation of the Merger is subject to various conditions, including
notice to or approval of the Merger by the Board of Governors of the Federal
Reserve System ("Federal Reserve Board") and by the Pennsylvania Department of
Banking (the "Department of Banking"). On _______________, 1998, ACNB filed a
Notice, meeting the requirements of approval of the Merger under Section 3 of
the Bank Holding Company Act of 1956, as amended (the "Banking Code"), and
pursuant to Section 225.14 of Federal Reserve Board Regulations, with the
Federal Reserve Bank of Philadelphia (the "FRB Notice"). ACNB filed Application
with the Department of Banking, pursuant to Sections 112 and 115 of the Banking
Code (the "PA Application"). We await action on these Applications.
The Merger is also subject to satisfaction of various other conditions
specified in the Agreement, including the approval of the Agreement by the
requisite vote of Farmers' shareholders and the satisfaction of the criteria
necessary to permit a pooling of interests for accounting purposes. In the event
that more than 10% of the outstanding shares of Farmers are covered through the
exercise of dissenters' rights, the criteria for pooling-of-interest treatment
will not be satisfied. See "APPROVAL OF THE MERGER--Terms of the
Merger--Conditions Precedent" and "APPROVAL OF THE MERGER--Dissenters' Rights."
Operations After the Merger
The Agreement provides that, on the Effective Date, two persons, mutually
agreed upon by ACNB and Farmers, who have previously served as directors of
Farmers will be appointed to the ACNB Board of Directors. In addition, the
directors of FNB on the Effective Date, together with Ronald L. Hankey and
Carolyn H. Kough, will serve as members of the FNB Board of Directors following
the Merger. See "APPROVAL OF THE MERGER - Management and Operations Following
the Merger."
Termination of the Merger
The Agreement provides that, whether before or after its approval by the
shareholders of Farmers, the Agreement may be terminated and the transactions
described in the Agreement abandoned at any time prior to the Effective Date:
* by the mutual written consent of ACNB and Farmers, if a majority of
the entire board of directors votes to terminate the Agreement;
* by Farmers in the event (a) of a material breach by ACNB of any
representation, warranty, covenant or agreement contained in the
Agreement that is not cured within 30 days after written notice of the
breach is given to ACNB by Farmers, (b) by written notice to ACNB that
any condition precedent to Farmers'
6
<PAGE>
obligations as set forth in Article VI of the Agreement has not been
met or waived by Farmers at the time that the condition can no longer
be satisfied;
* by ACNB in the event (a) of a material breach by Farmers or FNB of any
representation, warranty, covenant or agreement contained in the
Agreement that is not cured within 30 days after written notice of the
breach is given to Farmers by ACNB, or (b) that any condition
precedent to ACNB's obligations as set forth in Article VI of the
Agreement has not been met or waived by ACNB at the time that the
condition can no longer be satisfied; or
* by ACNB or Farmers if the Merger is not consummated by June 30, 1999,
unless the failure to so consummate by such time is due to the breach
of any representation, warranty or covenant contained in the Agreement
by the party seeking to terminate; provided, however, that such date
may be extended by the written agreement of the parties. Expenses
If the Agreement is terminated, in accordance with its terms: (i) by the
mutual, written consent of Farmers and ACNB; or (ii) by Farmers or ACNB in the
event the Merger is not consummated by June 30, 1999, the termination shall be
without cost, liability or expense on the part of any party to the other
parties. In all other instances, termination of the Agreement shall be without
cost, liability or expense on the part of any party to the other parties, unless
the breach of a representation, warranty or covenant is caused by the willful
conduct or gross negligence of the party, in which event such party will be
liable to the other parties for all out-of-pocket costs and expenses.
Dividends
The Agreement provides that Farmers shall only declare and pay quarterly
cash dividends in an amount not in excess of $0.17 per share during the third
and fourth calendar quarters of 1998.
Adjournment of the Meeting
In the event that an insufficient number of votes are cast in person or by
proxy at the Meeting to approve and adopt the Agreement, the Farmers Board of
Directors intends to adjourn the Meeting to a later date to permit the further
solicitation of sufficient votes to approve the Agreement. The affirmative vote
of a majority of the shares represented and voting at the Meeting is required in
order to approve any such adjournment.
The Farmers Board of Directors recommends that shareholders vote "FOR" the
proposal to adjourn the Meeting if necessary to permit further solicitation of
proxies to approve the Agreement.
7
<PAGE>
COMPARATIVE PER SHARE DATA
General
We set forth on the following table selected comparative per share data for
each of ACNB and Farmers on a historical basis, and selected unaudited pro forma
comparative per share data assuming the Merger had been consummated as of the
beginning of the earliest period presented for earnings per share and dividends
per share and as of the end of the period presented for book value per share.
The unaudited pro forma financial data has been prepared giving effect to the
Merger as a pooling-of-interests. The pro forma data is not necessarily
indicative of results that would have been achieved had the transaction been
consummated on such date and should not be construed as representative of future
operations. The information presented should be read in conjunction with the
historical consolidated financial statements, and notes thereto, of ACNB and of
Farmers incorporated by reference or appearing elsewhere in this Proxy
Statement/Prospectus, and we urge you to do so.
Six Months Ended Year Ended December 31,
June 30, 1998 1997 1996 1995
---------------- --------------------------
ACNB Historical per share:
Net income - Basic $ .70 $ 1.38 $ 1.34 $1.22
Net income - Diluted .70 1.38 1.34 1.22
Cash dividends declared .38 .79 1.70 .66
Book value 10.17 10.02 9.37 9.70
Farmers Historical per share [1]:
Net income - Basic $ 1.18 $ 2.18 $ 1.92 $ 1.66
Net income - Diluted 1.18 2.18 1.92 1.66
Cash dividends declared 0.30 0.50 0.45 0.425
Book value 22.91 22.03 20.36 18.90
Pro Forma per ACNB
Common Share:
Net income - Basic $ .68 $ 1.34 $ 1.29 $ 1.17
Net income - Diluted .68 1.34 1.29 1.17
Cash dividends declared .36 .73 1.55 .61
Book value 10.16 9.99 9.33 9.57
Pro Forma Equivalent per Farmers
Common Share [2]:
Net income - Basic $ 1.54 $ 3.04 $ 2.92 $ 2.65
Net income - Diluted 1.54 3.04 2.92 2.65
Cash dividends declared .82 1.65 3.51 1.38
Book value 23.02 22.64 21.14 21.01
[1] Farmers historical amounts are adjusted for the stock split in 1997.
[2] Pro Forma amounts per share were calculated by taking the corresponding per
share amounts for ACNB and Farmers combined and multiplying that by an
exchange ratio which gives effect to the exchange of 2.266 shares of ACNB
common stock for each outstanding share of Farmers at each reporting date.
8
<PAGE>
Market Value of Securities
There is no established public trading market for ACNB Common Stock.
However, bids for ACNB Common Stock are quoted on the over-the-counter
Electronic Bulletin Board Interdealer System. Trading in ACNB Common Stock is
limited and sporadic. The absence of an established market may affect the prices
at which ACNB's shares are traded. Subject to the foregoing, the sale price of
ACNB Common Stock on July 27, 1998, the last trading date before the
announcement of the Merger, was $29.25 per share.
There is no established trading market for Farmers Common Stock. Trading in
Farmers Common Stock is limited and sporadic. In addition, Farmers is not
subject to the requirement of filing periodic reports with the Commission. The
absence of an established market may affect the prices at which Farmers' shares
are traded. Subject to the foregoing, the most recent sale of Farmers Common
Stock prior to July 27, 1998, the last trading date before announcement of the
Merger, was a sale of 146 shares at $33.75 per share on June 30, 1998.
9
<PAGE>
SELECTED FINANCIAL DATA
We set forth on the following tables certain selected consolidated
historical summary financial data, for the periods and as of the dates
indicated, for ACNB and for Farmers. This data is derived from and should be
read in conjunction with, and is qualified in its entirety by, the consolidated
financial statements of ACNB and of Farmers, including the notes thereto,
incorporated by reference or appearing elsewhere in this Proxy
Statement/Prospectus. Interim unaudited data for the six month periods ended
June 30, 1998, and 1997 reflects, in the opinion of ACNB's and Farmers'
respective managements, all adjustments necessary for a fair presentation of
such data. Results for the periods ended June 30, 1998, and 1997 are not
necessarily indicative of results which may be expected for any other periods or
for the fiscal years as a whole.
10
<PAGE>
<TABLE>
ACNB Historical
(Dollars in thousands except per share data)
<CAPTION>
At or for the Six Months
Ended June 30, At or for the Year Ended December 31,
------------------------- -------------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings Data
Net interest income $10,142 $10,061 $20,151 $18,770 $17,776
Provision for loan
and lease losses 180 90 210 30 0
Other income 1,106 920 1,920 1,986 1,627
Other expense 5,576 5,481 11,064 10,129 9,809
Income before taxes 5,492 5,410 10,797 10,597 9,594
Net income 3,674 3,623 7,229 7,109 6,459
Basic earnings per
common share .70 .68 1.38 1.34 1.22
Dividends declared
per common share .38 .36 .79 1.70 .66
Balance Sheet Data
Assets 483,940 466,342 466,837 472,445 459,353
Loans and leases,
net of unearned
income 341,904 340,183 341,238 324,927 323,128
Deposits 408,491 399,075 395,573 403,127 392,243
Shareholders'
equity 54,471 50,731 52,618 49,436 51,463
Shareholders' equity
per share (book
value) 10.37 9.66 10.02 9.37 9.70
Selected Ratios
Return on average
assets 1.56 1.58 1.55 1.53 1.41
Return on average
shareholders'
equity 14.01 14.65 14.14 14.77 12.84
Average shareholders'
equity to assets 11.26 10.88 11.27 10.46 11.20
Net interest yield 4.50 4.53 4.50 4.20 4.03
Net charge-offs to
average loans and
leases .03 .03 .06 .04 .03
Allowance for loan
and lease losses
to period-end loans
and leases .95 .93 .93 .98 1.01
Nonperforming assets to
period-end loans and
leases and OREO .97 1.04 .83 .98 1.20
- --------------------
</TABLE>
11
<PAGE>
<TABLE>
Farmers Historical
(Dollars in thousands except per share data)
<CAPTION>
At or for the Six Months
Ended June 30, At or for the Year Ended December 31,
---------------------- -------------------------------------
1998 1997 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Earnings Data
Net interest income $ 822 $ 815 $1,663 $1,538 $1,481
Provision for loan
and lease losses 0 0 0 0 0
Other income 91 79 140 122 54
Other expense 507 479 1,047 975 945
Income before taxes 406 415 756 685 590
Net income 293 295 541 480 415
Basic earnings per
common share 1.18 1.19 2.18 1.92 1.66
Dividends declared per
common shar .30 .23 .50 .45 .425
Balance Sheet Data
Assets $42,765 $41,446 $41,221 $40,730 $37,871
Loans, net of
unearned income 16,457 15,843 16,486 15,612 14,991
Deposits 36,657 35,776 35,481 35,360 32,890
Shareholders' equity 5,681 5,276 5,464 5,090 4,725
Shareholders' equity
per share (book value) 22.91 21.27 22.03 20.36 18.90
Selected Ratios
Return on average
assets 1.39 1.43 1.31 1.22 1.11
Return on average
shareholders' equity 10.38 11.32 10.05 9.54 8.91
Average shareholders'
equity to assets 13.38 12.57 12.48 12.78 12.49
Net interest yield 4.42 4.40 4.48 4.31 4.41
Net charge-offs to
average loans .01 .04 .11 .05 .01
Allowance for loan losses
to period-end loans 1.08 1.17 1.07 1.24 1.34
Nonperforming assets
to period-end
loans and OREO 2.94 3.46 2.61 2.81 1.12
</TABLE>
12
<PAGE>
THE MEETING
General
We furnish this Proxy Statement/Prospectus in connection with the
solicitation of proxies by the Farmers Board of Directors to be used at the
Meeting that will be held at One West Big Spring Avenue, Newville, Pennsylvania
on Tuesday, December 15, 1998, at 2:00 p.m.
At the Meeting, holders of record of Farmers Common Stock as of the Record
Date may consider and vote upon:
* the approval and adoption of the Agreement;
* the approval of the adjournment or postponement of the Meeting, in the
event there are not sufficient votes cast in person or by proxy at the
Meeting to approve the Agreement; and
* such other matters as may properly come before the Meeting or any
adjournments thereof.
Pursuant to the Agreement, Farmers will become a wholly-owned subsidiary of
ACNB by means of a merger of ACNB North with and into Farmers. Thereupon, FNB
will become a wholly-owned second tier subsidiary of ACNB. Upon the consummation
of the Merger and as set forth in the Agreement, Farmers' shareholders will
receive in exchange for each share of Farmers Common Stock, 2.266 shares of ACNB
Common Stock.
The last reported sale price of ACNB Common Stock as reported on the
over-the-counter Electronic Bulletin Board Interdealer System was $_____ per
share on November __, 1998. Consummation of the Merger is conditioned upon,
among other things, the approval of the Agreement by the requisite 66 2/3% vote
of Farmers' shareholders.
All information set forth in this Proxy Statement/Prospectus that relates
to ACNB has been provided or verified by ACNB. All information which relates to
Farmers has been provided or verified by Farmers.
Voting, Revocation and Solicitation of Proxies
The presence, in person or by proxy, of at least a majority of the total
number of shares of the Farmers Common Stock outstanding and entitled to vote on
the Record Date, November 9, 1998, is required to constitute a quorum at the
Meeting. As of the Record Date there were 248,000 shares of Farmers Common Stock
outstanding and entitled to vote. Shareholders who execute proxies retain the
right to revoke them at any time. Unless revoked, the shares
13
<PAGE>
represented by proxies will be voted at the Meeting and all adjournments or
postponements thereof. Proxies may be revoked by:
* written notice to the Secretary of Farmers;
* the filing of a later dated proxy prior to a vote being taken on a
particular proposal at the Meeting; or
* by attendance at the Meeting and voting in person.
Your attendance alone will not revoke a proxy. If you wish to revoke a
previously written proxy, please give written notice of revocation to Farmers
Bancorp, Inc., One West Big Spring Avenue, P. O. Box 156, Newville, Pennsylvania
17241-0156, Attention: Carolyn Kough.
If a quorum is not present at the time the Meeting is convened, or if for
any other reason Farmers believes additional time should be allowed for the
solicitation of proxies or for the satisfaction of conditions to the Merger or
the transactions contemplated thereby, Farmers may adjourn the Meeting with a
vote of the holders of a majority of the voting power represented by the Farmers
Common Stock present at the Meeting. If Farmers proposes to adjourn the Meeting,
the persons named in the enclosed proxy card will vote all shares for which they
have voting authority in favor of the adjournment. A proxy that withholds
discretionary authority or that is voted against the Merger will not voted in
favor of any adjournment or postponement of the Meeting.
Proxies solicited by the Farmers Board of Directors will be voted in
accordance with the directions given in the proxies. Where no instructions are
indicated, proxies will be voted in favor of each of the proposals set forth in
this Proxy Statement/Prospectus. The proxy confers discretionary authority on
the persons named as proxyholders to vote with respect to matters incidental to
the conduct of the Meeting. If any other business is presented at the Meeting,
proxies will be voted by the proxyholders in their best judgment. Proxies marked
as abstentions will not be counted as votes cast. In addition, shares held in
street name that have been designated by brokers on proxy cards as not voted
will not be counted as votes cast. Proxies marked as abstentions or as broker
no-votes:
* will be treated as shares present for purposes of determining whether
a quorum is present; and
* will have the same effect as a vote against the Merger proposal.
The cost of soliciting proxies will be borne by Farmers. Farmers will
reimburse brokerage firms and other custodians, nominees and fiduciaries for
reasonable expenses incurred by them in sending proxy materials to the
beneficial owners of Farmers Common Stock. In
14
<PAGE>
addition to solicitations by mail, directors, officers and regular employees of
Farmers may solicit proxies personally or by telegraph or telephone without
additional compensation.
Voting Securities and Security Ownership
Holders of record of Farmers Common Stock as of the close of business on
the Record Date are entitled to one vote for each share then held. As of the
Record Date, there were 248,000 shares of Farmers Common Stock issued and
outstanding and entitled to vote, of which approximately _______ shares or
_____% were held by directors and executive officers of Farmers. There were
approximately 248 shareholders of record of Farmers on the Record Date.
The following table sets forth, as of the Record Date, the persons who own
of record or who are known by the Board of Directors to be the beneficial owners
of more than five percent (5%) of the Corporation's outstanding Common Stock.
Except as noted below, each holder has sole voting and investment power with
respect to shares of Farmers Common Stock listed as beneficially owned by the
person or entity.
Shares Beneficially
Name and Address Owned (1) Percent of Class
- ---------------- --------- ----------------
Myra M. Bistline 15,180 6.07%
c/o John Bistline
27 Goodyear Road
Carlisle, PA 17013
Dana P. Brandt 18,088 7.23%
39 Mill Road
Newville, PA 17241
Edgar S. Heberlig 12,644 5.05%
200 Mount Rock Road
Newville, PA 17241
Orrstown Financial Services, Inc. 13,980 5.59%
P.O. Box 250
Orrstown, PA 17257
- -------------------------
(1) The securities "beneficially owed" by an individual are determined in
accordance with the definitions of "beneficial ownership" set forth in the
General Rules and Regulations of the Securities Exchange Commission and may
include securities owned by or for the individual's spouse and minor
children and any other relative who has the same home, as well as
securities to which the individual has or shares voting or investment power
or has the right to acquire beneficial ownership within 60 days after
September 30, 1998. Beneficial ownership may be disclaimed as to certain of
the securities.
15
<PAGE>
The following table sets forth as of the Record Date, the amount and
percentage of the Farmers Common Stock beneficially owned by each executive
officer, each director, and all officers and directors of Farmers as a group.
All shares are individually owned unless otherwise indicated.
Name of Individual Amount and Nature of
or Identity of Group Beneficial Ownership (1) (2) Percent of Class (11) (13)
- -------------------- ---------------------------- --------------------------
Current Class A Directors
(To serve until 1999)
Dana P. Brandt 18,088 (2) 7.24%
J. Thomas Derick 2,760 (3) 1.10%
Frank A. Reeder 2,610 1.04%
Current Class B Directors
(To serve until 2000)
Frank C. Egger 2,510 1.00%
Edgar S. Heberlig 12,644 (4) 5.05%
Mervin J. Morrison 3,000 (5) 1.20%
Current Class C Directors
(To serve until 1998)
W. Irvin Nelson 8,720 (6) 3.48%
Harry L. Wheeler 3,690 (7) 1.47%
All Officers and Directors
as a Group (9 persons) 75,734 23.28%
- -------------------------
(1) The securities "beneficially owned" by an individual are determined in
accordance with the definitions of "beneficial ownership" set forth in the
General Rules and Regulations of the Securities and Exchange Commission and
may include securities owned by or for the individual's spouse and minor
children and any other relative who has the same home, as well as
securities to which the individual has or shares voting or investment power
or has the right to acquire beneficial ownership within 60 days after
September 30, 1998. Beneficial ownership may be disclaimed as to certain of
the securities.
(2) Includes 6,602 shares held individually by his spouse.
(3) Includes 760 shares held jointly with his spouse.
(4) Includes 1,000 shares held jointly with his spouse.
(5) Includes 1,000 shares held jointly with his spouse.
(6) Includes 6,720 shares held jointly with his spouse.
(7) Includes 730 shares held jointly with his spouse.
(8) Less than 1% unless otherwise indicated.
16
<PAGE>
Other Matters
The Farmers Board of Directors is not aware of any business to come before
the Meeting other than those matters described in this Proxy
Statement/Prospectus. However, if any other matters should properly come before
the Meeting that are incidental to the matters described in this Proxy
Statement/Prospectus, Farmers intends that proxies in the accompanying form will
be voted in respect thereof in accordance with the judgment of the person or
persons voting the proxies.
Auditors of Farmers
The firm of Greenawalt & Company, P.C. has been appointed as Farmers'
independent auditors for the year ended December 31, 1998. Greenawalt & Company,
P.C. is located at 400 West Main Street, Mechanicsburg, Pennsylvania 17055.
APPROVAL OF THE MERGER
This section of the Proxy Statement/Prospectus describes the material terms
and provisions of the proposed Merger, including the principal provisions of the
Agreement and related transactions. A copy of the Agreement is attached to this
Proxy Statement/Prospectus as Annex A. All shareholders are urged to read the
Agreement in its entirety.
The Agreement provides that, subject to the satisfaction or waiver (where
permissible) of certain conditions, which are described more fully herein and
therein, Farmers will be merged with, into and under the charter of ACNB North
and FNB will become a second-tier wholly-owned subsidiary of ACNB. In connection
with the Merger, each outstanding share of Farmers Common Stock will be
converted into the right to receive and become exchangeable for 2.266 shares of
ACNB Common Stock plus cash in lieu of any fractional shares of ACNB Common
Stock.
Background of the Merger, Reasons and Recommendation of the Board of Directors
The Board of Directors of Farmers has for several years, as part of its
long-range planning practices, periodically reviewed and evaluated the various
strategic options and alternatives available to Farmers. In particular, the
Board has considered the relative merits of maintaining the independence of
Farmers and FNB and of merging Farmers and/or FNB with a larger financial
institution in light of current economic, financial and regulatory conditions
and their impact on the financial services industry. The Board has also
considered the desirability of increasing the value and liquidity of the stock
held by shareholders by arranging a merger in which Farmers' shareholders would
receive publicly-traded stock in a larger banking organization. The Board's
primary consideration in taking the actions that led to the execution of the
Agreement was to provide a fair financial return to shareholders and increase
the liquidity of their stock, while maintaining, to the extent possible, local
identity and autonomy for FNB in
17
<PAGE>
order to serve Farmers' other constituencies, the community, and FNB's customers
and employees. The Board concluded that in a rapidly changing, increasingly
competitive market for financial services, Farmers can compete more effectively
as a part of a larger banking organization with more resources and a wider range
of products and services than those that Farmers currently offers.
Through the Merger, Farmers believes that it can expand its resources and
its range of products and services on an accelerated timetable as compared to
reliance on internal growth. In general, Farmers is entering into the Merger
because it believes it can better maximize shareholders' long-term return
through an affiliation with a larger, more diversified financial institution.
Farmers' Board of Directors believes that ACNB's greater resources will enable
FNB to offer expanded services to its customers and the communities it serves.
In addition, the Merger with ACNB will increase the liquidity of the stock
held by Farmers' shareholders by exchanging it for stock in a larger banking
organization. Pursuant to the Agreement, ACNB has agreed to apply to the NASD
for qualification for quotation on the NASDAQ National Market System or NASDAQ
Small Cap Stocks, as appropriate, within 180 days of consummation of the Merger.
Neither Farmers nor ACNB can assure that the ACNB Common Stock will be accepted
for listing by the NASDAQ.
In considering the Merger, Farmers' Board of Directors considered, among
other things discussed herein, the financial terms of the Merger, the structure
of the transaction, the historic and current financial performance of ACNB, the
commitment of ACNB to the communities its subsidiary serves, the operating
culture of ACNB, and the opinion of its financial advisor as to the fairness of
the transaction, from a financial point of view, to shareholders.
The consideration that you are to receive in the Merger as a Farmers'
shareholder was negotiated by the Board of Directors of Farmers in light of
various factors, including Farmers' and ACNB's recent operating results, current
financial condition and perceived future prospects. GM&A has advised the Board
of Directors that, in its opinion, the consideration to be received by Farmers'
shareholders pursuant to the Merger is fair, from a financial point of view. A
copy of the GM&A opinion dated as of the date of this Proxy Statement/Prospectus
is attached hereto as Annex B.
The Farmers Board of Directors believes that the Merger is in the best
interests of Farmers' shareholders and recommends that Farmers' shareholders
vote "FOR" approval of the Agreement.
Vote Required
The affirmative vote of holders of 66 2/3% of the outstanding shares of
Farmers Common Stock is required to approve the Agreement. Farmers' directors
and executive officers are expected to vote substantially all of the _______
shares held by them, representing
18
<PAGE>
approximately _______ percent of the Farmers Common Stock outstanding at the
Record Date and entitled to vote at the Meeting, "FOR" approval of the
Agreement.
Opinion of Financial Advisor
General
Pursuant to an engagement letter dated June 19, 1998, (the "Engagement
Letter") the Farmers Board retained GM&A to render financial advisory and
investment banking services to Farmers in connection with the possible sale of
Farmers (the "Transaction").
GM&A, as part of its investment banking and bank consulting business, is
engaged in the valuation of financial institution securities for a variety of
purposes, including mergers and acquisitions, and the determination of adequate
consideration in merger and acquisition transactions. The Farmers Board selected
GM&A on the basis of its experience in and knowledge of the banking industry and
its ability to evaluate the fairness of the Transaction from a financial point
of view. GM&A acted exclusively for the Farmers Board in rendering its fairness
opinion and has received fees from Farmers in rendering its fairness opinion and
has received fees from Farmers in rendering its services. There are no other
material relationships between GM&A, its affiliates and representatives and
Farmers or its affiliates.
The full text of the GM&A Opinion is attached as Annex B to this Proxy
Statement/Prospectus and is incorporated herein by reference. We urge you to
read the GM&A Opinion in its entirety for a description of the procedures
followed, assumptions made, matters considered and qualifications and
limitations on the review undertaken by GM&A in connection therewith. The
following summary of the GM&A Opinion is qualified in its entirety by the full
text of the GM&A Opinion. The per share Merger Consideration was determined by
negotiation between Farmers and ACNB and was not determined by GM&A.
In rendering the GM&A Opinion, GM&A:
* reviewed the historical financial performances, current financial
positions and general prospects of Farmers and ACNB;
* reviewed the Agreement;
* reviewed the Proxy Statement/Prospectus;
* reviewed and analyzed the stock market performance of Farmers and
ACNB;
* studied and analyzed the operations, historical financial statements
and future prospects of Farmers;
19
<PAGE>
* reviewed the respective history of dividends paid by the two
institutions;
* considered the terms and conditions of the proposed Transaction as
compared with the terms and conditions of comparable bank mergers and
acquisitions;
* met to discuss with various senior officers of Farmers and ACNB the
foregoing as well as other matters it believed relevant to its
opinion; and
* conducted such other analyses, studies and investigations as were
deemed appropriate.
GM&A relied without independent verification upon the accuracy and
completeness of all the financial and other information reviewed by and
discussed with it for purposes of its opinion. With respect to the Farmers
financial forecasts reviewed by GM&A in rendering its opinion, GM&A assumed that
such financial forecasts were reasonably prepared on the basis reflecting the
best currently available estimates and judgments of the management of Farmers as
to the future financial performance of Farmers. GM&A did not make an independent
evaluation or appraisal of the assets (including loans) or liabilities of
Farmers or ACNB nor was it furnished with any such appraisal. GM&A also did not
independently verify, and has relied on and assumed, that all allowances for
loan losses set forth in the balance sheets of Farmers and ACNB were adequate
and complied fully with all applicable law, regulatory policy and sound banking
practice as of the date of such financial statements.
In connection with rendering the GM&A Opinion, GM&A performed a variety of
financial analyses. Although the evaluation of the fairness, from a financial
point of view of the Transaction and of the consideration to be paid in the
Transaction was to some extent a subjective one based on the experience and
judgment of GM&A and not merely the result of mathematical analysis of financial
data, GM&A principally relied on the financial evaluation methodology summarized
below in its determinations. GM&A believes its analyses must be considered as a
whole and that selecting portions of such analyses and factors considered by
GM&A without considering all such analyses and factors could create an
incomplete view of the process underlying GM&A's Opinion. In its analysis, GM&A
made numerous assumptions with respect to business, market, monetary and
economic conditions, industry performance and other matters, many of which are
beyond Farmers' and ACNB's control. Any estimates contained in GM&A's analyses
are not necessarily indicative of future results or values, which may be
significantly more or less favorable than such estimates.
The following is a summary of selective analyses prepared by GM&A and
analyzed by GM&A in connection with the GM&A Opinion.
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Comparable Company Analysis
GM&A compared selected financial and operating data for Farmers with those
of a peer group of rural banking organizations with assets between $25 and $50
million. This data included, but was not limited to: return on average assets,
return on average equity, certain capital adequacy ratios and certain asset
quality ratios. GM&A excluded securities gains and other items of a
non-recurring nature in computing profitability ratios. The analysis showed that
Farmers' return on average assets was 1.3% compared to the peer group median of
1.2%; its return on equity was 10.4% compared to the peer group median of 13.3%;
its leverage ratio was 13.1% compared to the peer group median of 8.9%; its
non-performing loans measured 1.0% of total loans compared to the peer group
median of 0.8%; and its loan loss reserve as a percentage of nonaccrual loans
was 77% compared to the peer group median of 696%.
GM&A compared selected financial and operating data for ACNB with a group
of Pennsylvania, Maryland and Virginia banking organizations that consisted of
F&M Bancorp, F&M National Corporation, FCNB Corp., First Virginia Banks, Inc.,
Harleysville National Corporation, JeffBanks, Inc., Keystone Financial, Inc.,
MainStreet BankGroup, Mason-Dixon Bancshares, Inc., Mercantile Bankshares
Corporation, National Penn Bancshares, Inc., Provident Bankshares Corporation,
Sandy Spring Bancorp, Inc., Sterling Financial Corporation, and Susquehanna
Bancshares, Inc. This data included, but was not limited to: return on average
assets, return on average equity, certain capital adequacy ratios and certain
asset quality ratios. GM&A excluded securities gains and other items of a
non-recurring nature in computing profitability ratios. The analysis showed that
ACNB's return on average assets was 1.6% compared to the peer group median of
1.2%; its return on equity was 14.2% compared to the peer group median of 12.6%;
its ratio of equity to assets was 11.2% compared to the peer group median of
8.6%; its non-performing loans measured 1.0% of total loans compared to the peer
group median of 0.9%; and its loan loss reserve as a percentage of nonaccrual
loans was 96% compared to the peer group median of 180%.
GM&A also compared stock market data for ACNB with the same group of
banking organizations. The analysis showed that the average ratio of trading
price to tangible book value per share for the expanded peer group was 271% as
compared to 276% for ACNB. In addition, the group's average stock price to
earnings per share before non-recurring items was 21.5 compared to 20.2 for
ACNB.
Analysis of Selected Merger and Acquisition Transactions
GM&A compared the multiples of tangible book value and latest twelve
months' earnings of the Transaction with the multiples associated with bank
mergers in Pennsylvania that were announced since September 1, 1997. GM&A also
compared the multiples of book value and latest twelve months' earnings of the
Transaction with the multiples associated with selected recently announced
acquisitions of banking institutions with total assets less than $75 million.
However, no company or transaction used in any of these analyses is identical to
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Farmers or ACNB. Accordingly, an analysis of the results of the foregoing is not
mathematical; rather, it involves complex considerations and judgements
concerning the differences in financial and operating characteristics of the
companies and other factors that would affect the public trading values of the
companies or company to which they are being compared.
Discounted Dividend Analysis
Using discounted dividend analysis, GM&A estimated the present value of the
future dividend streams that Farmers could produce over a five-year period under
various earnings growth assumptions. GM&A also estimated the terminal value for
Farmers by applying an earnings multiple of twenty. The dividend streams and
terminal value were discounted to determine the present value using discount
rates ranging from 10.8% to 12.8%.
GM&A also used discounted dividend analysis to estimate the present value
of the future dividend streams that ACNB could produce over a five-year period
under various earnings growth assumptions. GM&A also estimated the terminal
value for ACNB Common Stock by applying an earnings multiple of twenty. The
dividend streams and terminal value were discounted to determine the present
value using discount rates ranging from 10.8% to 12.8%.
Pro Forma Merger Analysis
GM&A analyzed, using projections and discussions with managements of
Farmers and ACNB, certain pro forma effects resulting from the Transaction based
on the proposed consideration. The analysis examined the projected impact
(including management's estimates of transaction related savings) on earnings
per share and book value per share of ACNB.
In reaching its opinion as to fairness, none of the analyses performed by
GM&A was assigned a greater significance by GM&A than any other. As a result of
its consideration of the aggregate of all factors present and analyses
performed, GM&A reached the conclusion, and opines, that the consideration, as
set forth in the Agreement, is fair, from a financial point of view, to holders
of Farmers' securities.
In connection with delivering the GM&A Opinion, GM&A updated certain of its
analyses and reviewed the assumptions on which such analyses were based and the
factors considered therewith.
GM&A, as part of its investment banking business, is regularly engaged in
the valuation of assets, securities and companies in connection with various
types of asset and securities transactions, including mergers, acquisitions,
private placements, and valuation for various other purposes and in the
determination of adequate consideration in such transactions.
In delivering its opinion, GM&A assumed that in the course of obtaining the
necessary regulatory and governmental approvals for the Transaction, no
restrictions will be imposed on
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Farmers or ACNB that would have a material adverse affect on the contemplated
benefits of the Transaction. GM&A also assumed that there would not occur any
change in applicable law or regulation that would cause a material adverse
change in the prospects or operations of ACNB after the Effective Date. Pursuant
to the terms of the Engagement Letter, Farmers has paid GM&A $20,000 and has
agreed to reimburse GM&A for its reasonable out-of-pocket expenses. Whether or
not the Merger is consummated, Farmers has agreed to indemnify GM&A and certain
related persons against certain liabilities relating to or arising out of its
engagement.
The full text of the Opinion of GM&A, as of the date of this Proxy
Statement/Prospectus, which sets forth assumptions made and matters considered,
is attached hereto as Annex B to this Proxy Statement/Prospectus. We urge you to
read the Opinion in its entirety. GM&A's Opinion is directed only to the
consideration to be received by shareholders in the Transaction and does not
constitute a recommendation to you as to how you should vote at the Special
Meeting.
Dissenters' Rights
General
Pursuant to the BCL, you, as a holder of Farmers Common Stock, have the
right to dissent from the Merger and to obtain payment of the "fair value" of
your shares in the event that the Merger is consummated.
If you contemplate exercising your right to dissent, we urge you to read
carefully the provisions of Subchapter D of Chapter 15 of the BCL attached to
this Proxy Statement/Prospectus as Annex C. The following is a summary of the
steps to be taken if you want to exercise your right to dissent, and should be
read in connection with the full text Subchapter D of Chapter 15 of the BCL. You
must take each step in the indicated order and in strict compliance with the
applicable provisions of the statute in order to perfect your dissenters'
rights. Your failure to comply with the aforesaid steps will result in your
receiving the consideration contemplated by the Agreement in the event that the
Merger is consummated.
Any written notice or demand, required in connection with the exercise of
dissenters' rights, before the Effective Date, must be sent to Farmers Bancorp.,
Inc. at One West Big Spring Avenue, P.O. Box 156, Newville, Pennsylvania
17241-0156, Attention: Carolyn Kough and after the Effective Date must be sent
to ACNB Corporation, 675 Old Harrisburg Road, Gettysburg, Pennsylvania
17325-0129, Attention: Ronald L. Hankey, President.
Fair Value
The term "fair value" means the value of a share of Farmers Common Stock
immediately before consummation of the Merger taking into account all relevant
factors, but excluding any appreciation or depreciation in anticipation of the
Merger.
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Notice of Intention to Dissent
If you wish to dissent, you must:
* file with Farmers, prior to the vote of shareholders on the Merger at
the Meeting, a written notice of intention to demand payment of the
fair value of your shares of Farmers Common Stock if the Merger is
effected;
* effect no change in your beneficial ownership of Farmers Common Stock
from the date of the notice through the Effective Time; and
* refrain from voting your Farmers Common Stock for approval of the
Agreement.
Neither a proxy nor a vote against approval of the Merger will constitute the
necessary written notice of intention to dissent.
Notice to Demand Payment
If the Agreement is approved by the required vote of shareholders, Farmers
or ACNB will mail a notice to all dissenters who gave due notice of intention to
demand payment and who refrained from voting for approval of the Agreement. The
notice will state where and when a written demand for payment must be sent and
where certificates for Farmers Common Stock must be deposited in order to obtain
payment. The notice will include a form for demanding payment and a copy of
Subchapter D of Chapter 15 of the BCL. The time set for receipt of the demand
for payment and deposit of stock certificates will be not less than 30 days from
the date of mailing of the notice.
Failure to Comply with Notice to Demand Payment, etc.
If you fail to timely demand payment or fail to timely deposit your share
certificates, as required by the notice, you will forfeit your dissenters'
rights and you will receive shares of ACNB Common Stock, as determined in
conformity with the Agreement.
Payment of Fair Value of Shares
Promptly after the Effective Time, or upon timely receipt of demand for
payment if the Merger already has been consummated, ACNB will either remit to
dissenters who have made demand and have deposited their stock certificates the
amount that ACNB estimates to be the fair value of the Farmers Common Stock or
give written notice that no such remittance is being made. The remittance or
notice will be accompanied by:
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* a closing balance sheet and statement of income of Farmers for a
fiscal year ending not more than 16 months before the date of
remittance or notice together with the latest available interim
financial statements;
* a statement of the estimate of the fair value of the Farmers Common
Stock; and
* a notice of the right of the dissenter to demand supplemental payment
under the BCL accompanied by a copy of Subchapter D of Chapter 15 of
the BCL.
Estimate by Dissenter of Fair Value of Shares
If a dissenter believes that the amount stated or remitted is less than the
fair value of the Farmers Common Stock, the dissenter may send to ACNB his or
her own estimate of the fair value of the Farmers Common Stock, which shall be
deemed to be a demand for payment of the amount of the deficiency. If ACNB
remits payment of its estimated value of a dissenter's Farmers Common Stock and
the dissenter does not file his or her own estimate within 30 days after the
mailing by ACNB of its remittance, the dissenter will be entitled to no more
than the amount remitted by ACNB.
Valuation Proceedings
If any demands for payment remain unsettled within 60 days after the latest
to occur of:
* the Effective Date;
* timely receipt by Farmers or ACNB of any demands for payment; or
* timely receipt by Farmers or ACNB of any estimates by dissenters of
the fair value.
Then, ACNB may file in the Court of Common Pleas of Dauphin County (the "Dauphin
County Court") an application requesting that the fair value of the Farmers
Common Stock be determined by the Dauphin County Court. If this happens, all
dissenters, wherever residing, whose demands have not been settled, shall be
made parties to the proceeding as in an action against their shares, and a copy
of the application will be served on each such dissenter.
If ACNB were to fail to file such an application, then any dissenter, on
behalf of all dissenters who have made a demand and who have not settled their
claim against ACNB, may file an application in the name of ACNB at any time
within the 30-day period after the expiration of the 60-day period and request
that the fair value be determined by the Dauphin County Court. The fair value
determined by the Dauphin County Court may, but need not, equal the dissenters'
estimates of fair value. If no dissenter files such an application, then each
dissenter entitled to do so shall be paid the estimate of the fair value of the
Farmers
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Common Stock and no more, and may bring an action to recover any amount not
previously remitted, plus interest at a rate the Dauphin County Court finds fair
and equitable.
ACNB intends to negotiate in good faith with any dissenting shareholders.
If after negotiation a claim cannot be settled, then ACNB intends to file an
application requesting that the fair value of the Farmers Common Stock be
determined by the Dauphin County Court.
Costs and Expenses
The costs and expenses of any valuation proceedings in the Dauphin County
Court, including the reasonable compensation and expenses of any appraiser
appointed by the Dauphin County Court to recommend a decision on the issue of
fair value, will be determined by the Dauphin County Court and assessed against
ACNB except that any part of the costs and expenses may be apportioned and
assessed by the Dauphin County Court against all or any of the dissenters who
are parties and whose action in demanding supplemental payment the Dauphin
County Court finds to be dilatory, obdurate, arbitrary, vexatious or in bad
faith.
Terms of the Merger
We discuss the material terms of the Agreement below. Our description does
not purport to be complete and is qualified in its entirety by reference to the
Agreement, a copy of which is attached as Annex A to this Proxy
Statement/Prospectus and is incorporated by reference herein. We urge you to
read the entire Agreement.
Effect of the Merger
Pursuant to the Agreement, ACNB North will merge with and into Farmers,
with Farmers as the surviving entity, as a result of which Farmers will become a
direct, wholly-owned subsidiary of ACNB, and FNB, a national bank, will become a
second-tier subsidiary of ACNB. The name of the Surviving Corporation in the
Merger will be "ACNB North, Inc."
Exchange Ratio
Under the terms of the Agreement on the Effective Date, each outstanding
share of Farmers Common Stock will become the right to receive 2.266 shares of
ACNB Common Stock.
At the Effective Time (as defined in the Agreement, the "Effective Time"),
each share of Farmers Common Stock issued and outstanding (other than shares
held by those who are exercising appraisal rights pursuant to the BCL and shares
held by ACNB other than shares held in a fiduciary capacity or in satisfaction
of a debt previously contracted) shall become and be converted into the right to
receive 2.266 shares of ACNB Common Stock. As of the Effective Time, each share
of Farmers Common Stock held by ACNB, other than shares held in a fiduciary
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capacity or in satisfaction of a debt previously contracted, will be canceled,
and no exchange or payment will be made with respect thereto.
The shares of common stock of ACNB North and FNB issued and outstanding
immediately prior to the Effective Time shall remain outstanding and unchanged
after the Merger, and shall thereafter constitute all of the issued and
outstanding shares of the capital stock of the Surviving Corporation and FNB,
respectively. At such time, all of the capital stock of FNB will be owned by the
Surviving Corporation and all of the shares of the Surviving Corporation will be
owned by ACNB.
If prior to the Effective Date, the outstanding shares of ACNB Common Stock
are increased or decreased through a reclassification, stock dividend, stock
split or reverse stock split, or other similar change, appropriate adjustment
will be made to the Exchange Ratio.
Fractional Shares
We will not issue fractional shares of ACNB Common Stock. ACNB will furnish
to you, if you are otherwise entitled to a fractional share, a check for an
amount of cash equal to such fraction of a share of ACNB Common Stock
represented by the certificates so surrendered in accordance with the Exchange
Ratio.
Representations and Warranties
The representations and warranties of ACNB, ACNB North, Farmers and FNB are
set forth in Article III of the Agreement. We recommend that you read Article
III in its entirety. The representations and warranties relate, among other
things, to:
* representations as to corporate existence and authority and the
ability of each party to carry out the transactions as contemplated by
the Agreement;
* capitalization;
* subsidiaries;
* no violations of law;
* regulatory reports and financial statements;
* the absence of certain changes or events;
* the absence of material litigation not otherwise disclosed;
* the absence of regulatory actions;
* labor and employee benefits matters;
* environmental matters;
* board action;
* fees;
* compliance with laws;
* taxes, material contracts and agreements;
* regulatory and capital compliance;
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* fully paid assessments;
* Year 2000 compliance except as otherwise disclosed; and
* information to be provided in the Proxy Statement/Prospectus.
Farmers and FNB have made additional representations as to:
* the status of title to assets;
* the adequacy of allowances for losses on loans;
* the inapplicability of certain anti-takeover provisions;
* the material interests of certain persons;
* insurance;
* dividends;
* books and records;
* labor matters;
* fairness opinions;
* fidelity bonds;
* the condition of tangible assets; and
* loans by FNB.
On the Effective Date, ACNB, Farmers and FNB must each present to the other
certificates evidencing the continued accuracy of their representations and
warranties.
Covenants
The Agreement also contains certain affirmative and negative covenants of
all of the parties. Farmers has agreed, among other things, that:
* it shall direct and use its best efforts to cause its officers,
directors, employees, agents and representatives not to initiate,
solicit or encourage inquiries regarding the making of any merger
proposal or any proposal to purchase any significant portion of the
assets or equity securities of Farmers or FNB and, subject to the
fiduciary obligations of its directors as determined upon consultation
with counsel, it will not engage in any negotiations or discussions or
provide any confidential information in connection with any such
proposal;
* it will cooperate with ACNB in the preparation of this Proxy
Statement/Prospectus and the filing thereof as part of ACNB's
Registration Statement and preparation of all required regulatory
applications;
* it will take all required action to call the Meeting;
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* subject to the fiduciary duties of the Farmers Board of Directors and
the receipt of an updated fairness opinion as of the date of this
Proxy Statement/Prospectus, it will use its best efforts to obtain
approval of the Agreement; and
* it will furnish to ACNB a list of all persons known to be affiliates
of Farmers within the meaning of Rule 145 under the Securities Act and
will use its best efforts to cause any such person to deliver a
written agreement providing that such person will not sell, pledge,
transfer or otherwise dispose of the shares of ACNB Common Stock
received pursuant to the Merger except in compliance with the
Securities Act and the rules and regulations thereunder and after such
time as financial results covering at least 30 days of post-merger
combined operations have been published.
During the period prior to the effectiveness of the Merger, Farmers and FNB
are required to provide ACNB and its representatives with reasonable access to
their respective books, records, employees, properties and such other
information as ACNB may reasonably request and to provide ACNB with copies of
their respective financial statements periodically.
ACNB is required to provide Farmers and FNB with copies of all of its
filings with the Commission pursuant to the Exchange Act, together with
applications filed with regulatory authorities and certain other information.
Conduct of Business Pending the Merger
Farmers, FNB, ACNB and ACNB North have all agreed to cooperate with each
other in completing the transactions described in the Agreement and to refrain
from taking or making any commitment to take any actions that would cause any of
the representations or warranties of each party as set forth in the Agreement
not to be true or correct in all material respects.
Pursuant to the Agreement, Farmers and FNB have each agreed to carry on
their business in the usual, regular and ordinary course of business, consistent
with past practices and to maintain and preserve intact their respective
business organizations, assets, leases, properties, advantageous business
relationships and other items, to use their reasonable efforts to retain the
services of their officers and key employees, to refrain from taking any action
which, to their knowledge, could materially delay or adversely affect Farmers or
FNB in general or their ability to obtain any approvals, consents or waivers of
any governmental authorities necessary for the consummation of the Merger, and
to not knowingly take any action that is reasonably likely to have a Material
Adverse Effect (as defined in the Agreement) on Farmers.
In addition, during the period pending the Merger, Farmers and FNB have
each agreed that they will:
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* use all reasonable efforts to carry on the ordinary course of
business, consistent with customary business practices of prudently
managed banks;
* use all reasonable efforts to preserve the present business
organization, retain the services of their present officers and
employees, maintain good relationships with their employees, and
maintain their relationships with their customers and suppliers;
* maintain all of their properties (including real and tangible personal
properties) in good repair and condition;
* use all reasonable efforts to preserve or collect any and all of their
claims or causes of actions;
* keep in force and effect all insurance policies;
* perform and maintain all material obligations under material
agreements, contracts, instruments and other commitments to which
either Farmers or FNB is a party to or may be bound by or which
relates to or effects properties, assets and business of Farmers or
FNB;
* maintain all books of accounts and other records in the ordinary
course of business;
* comply in all material respects with all statutes, laws, ordinances,
rules and regulations of federal, state, county, local and municipal
governments;
* refrain from amending the Articles of Incorporation or Bylaws of
either Farmers or FNB;
* refrain from entering into or assuming any material contract,
incurring any material liability or obligation, acquiring or disposing
of any property or asset, or engaging in any transaction or subjecting
any of Farmers' or FNB's property or assets to any material lien,
claim, charge, or encumbrance of any kind;
* refrain from taking or permitting the taking of any action which would
constitute a breach of any representation, warranty or covenant, as
set forth in the Agreement;
* refrain from declaring, setting aside or paying any dividend or making
any other distribution in respect to Farmers' or FNB's capital stock,
except as provided in the Agreement;
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* refrain from authorizing, purchasing, issuing or selling (including
derivatives) debt or equity securities of Farmers' or any securities
convertible into Farmers' Common Stock;
* refrain from increasing the rate of compensation of, paying bonuses or
severance compensation to, or entering into any employment, severance,
deferred compensation or other agreement with any officer, director,
employee or consultant of Farmers or FNB, beyond general salary
increases to individual employees in the ordinary course of business
and consistent with past practices;
* refrain from entering into certain related party transactions as
contemplated in the Agreement (this does not include related party
transactions stemming from the extensions of credit made in accordance
with all applicable laws, regulations and rules and in the ordinary
course of business);
* refrain from effecting any capitalization, reclassification, stock
dividend, stock split, or like changes in the capitalization of either
Farmers or FNB;
* refrain from entering into or substantially modifying any employee
benefit, incentive, or welfare contract, or plan or arrangement or any
trust agreement related to employee benefits, in respect to any of
Farmers' or FNB's directors, officers or employees;
* refrain from merging with or into, or consolidating with, or being
purchased or acquired by, any other corporation, financial
institution, entity or person (or agreeing to such a transaction) or
permitting (or agreeing to permit) any like corporate transaction;
* refrain from acquiring control over any other firm, financial
institution, corporation or organization or creating new subsidiaries;
* refrain from soliciting or encouraging inquiries or proposals
concerning any acquisition or purchase of all or a substantial equity
interest or portion of the assets in or of Farmers or FNB or any
business combination with Farmers or FNB, other than as contemplated
by the Agreement;
* refrain from authorizing or permitting any officer, director, agent or
affiliate of it to do any of the above;
* refrain from changing any method, practice or principal of accounting,
as may be required by generally accepted accounting principles or any
applicable regulations or partake in any actions that would preclude
satisfaction of the conditions as
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contained in the Agreement relating to financial accounting treatment
of the merger;
* refrain from making any loans or other credit facility commitments in
excess of $100,000 (including without limitations lines of credit and
letters of credit) to any affiliate or compromising, extending,
renewing or modifying any new or any such outstanding commitment;
* refrain from entering into any swap or similar commitment, agreement
or arrangement that is not consistent with past practices and which
increases the credit or interest rate risk over levels existing as
those of December 31, 1997;
* refrain from entering into any derivative, cap or floor, or similar
agreement except in the ordinary course of business and consistent
with past practices;
* refrain from entering into any participation arrangements or proposals
of extensions of credit in excess of $250,000 or renewing, extending,
or modifying any outstanding participation arrangements or approvals;
* refrain from selling, exchange or otherwise disposing of any
investment securities or loans that are held for sale prior to
scheduled maturity and other than pursuant to policies agreed upon
from time to time by the parties;
* refrain from purchasing any security for investment not rated "A" or
higher by either Standard & Poors or Moody's Investor Services;
* refrain from waiving, releasing, granting, or transferring any rights
of value or modifying or changing in any material respect any existing
agreement to which Farmers or FNB is a party, other than in the
ordinary course of business consistent with past practices; or
* refrain from knowingly taking any action that would, under any
statute, regulation or administrative practice of any regulatory
agency, materially or adversely effect the ability of any party to the
Agreement to obtain any required approvals for consummation of the
transaction.
The respective obligations of the parties to effect the Merger shall be
subject to the satisfaction or waiver of the following common conditions prior
to the Effective Time:
* all of the transactions contemplated by the Agreement shall be
approved by the requisite vote of the shareholders of Farmers in
accordance with applicable law;
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* the parties shall have procured all regulatory approvals, consents or
waivers of governmental authorities, or other persons who are
necessary or appropriate to consummate the transaction contemplated by
the Agreement and no such approval shall impose any condition or
requirement that, in the opinion of the Boards of Directors of either
ACNB or ACNB North, renders the consummation of the Merger
inadvisable;
* all requirements subscribed by law which are necessary to consummate
the transactions contemplated by the Agreement have been satisfied;
* no parties subject to the Agreement shall be subject to any order,
common decree or injunction of court or agency of competent
jurisdiction, which enjoins or prohibits the consummation of any
transaction contemplated by the Agreement, and no litigation or
proceeding shall be pending against any of the parties or their
subsidiaries brought by any governmental agency seeking to prevent the
consummation of the transactions contemplated by the Agreement;
* no statute, rule, regulation, order, injunction or decree shall have
been enacted, entered, promulgated or enforced by any governmental
authority which prohibits, restricts or makes illegal the consummation
of any of the transactions contemplated by the Agreement;
* the ACNB Common Stock to be issued pursuant to the Agreement shall be
duly registered under Federal Securities laws and registered or
qualified under securities or "Blue Sky Laws" of all states in which
such action is required for the issuance of such shares and
distribution to Farmers' shareholders entitled to receive such shares;
or
* receipt of a favorable ruling from the Internal Revenue Service
("IRS"), an opinion of Shumaker Williams, P. C. or opinion from an
accounting firm acceptable to ACNB to the tax effects of the
transactions contemplated under the Agreement (in the event that a
ruling is sought from IRS, Farmers and ACNB shall cooperate and each
shall furnish to the other and to the IRS such information and
representations deemed necessary or advisable by ACNB and Farmers'
counsel).
The obligations of ACNB and ACNB North to effect the Merger shall be
subject to the satisfaction or waiver of the following conditions prior to the
Effective Time:
* all of Farmers' and FNB's representations and warranties as contained
in the Agreement are true and correct in all material respect as of
the Effective Date;
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* Farmers and FNB shall have performed each of the covenants under the
Agreement;
* an "agreed upon procedures" letter dated the Effective Date, in form
and substance satisfactory to ACNB, shall be furnished to ACNB by
Greenawalt & Company, P.C., or such other accounting firm as is
acceptable to the parties;
* Farmers or FNB shall not experience an event which may reasonably be
expected to result in a Material Adverse Effect (as defined in the
Agreement) on the financial condition, properties, assets, business or
results of operations of Farmers or FNB;
* as of the date of closing, the Merger shall meet all of the
requirements for pooling of interest accounting treatment under
generally accepted accounting principles and under the rules of the
SEC;
* ACNB shall receive an executed counterpart of an affiliates agreement
by the persons indicated in the Agreement and in the form contemplated
by ACNB;
* prior to Closing, all issued and outstanding options, warrants or
rights to acquire any equity interest in either Farmers or FNB shall
have been canceled and no compensation or other rights will be payable
or exchangeable in the Merger in respect to any such rights which
remain unexercised at the Effective Time;
* no more than seven (7%) percent (17,360 shares) of the issued and
outstanding shares of Farmers shall have exercised their statutory
appraisal or Dissenters' Rights;
* no environmental problem of the kind contemplated by the Agreement and
not previously disclosed in the Annex to the Agreement shall have been
discovered which would or which could materially and adversely effect
the condition financially or otherwise of the assets, liabilities,
business, operations or future prospects of Farmers or FNB;
* within sixty (60) days of the execution of the Agreement, ACNB shall
have determined that the medical, health, insurance and employee
benefit plans or programs of Farmers and/or FNB do not contain any
provisions or clauses which would, upon assumption by ACNB, require
ACNB to provide benefits or incur costs in excess of those provided
for or paid by ACNB to or on behalf of its existing employees;
* within sixty (60) days of the execution of the Agreement, ACNB shall
have established to their satisfaction that Farmers' balance sheet
fairly represents the
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financial condition, assets and liabilities of Farmers as of June 30,
1998, and that since June 30, 1998, there have not been any material
or adverse changes in the condition of Farmers or FNB; and
* all litigation pending against Farmers or FNB which, in the aggregate,
would have a Material Adverse Effect (as defined in the Agreement) on
Farmers' consolidated operations or future prospects, shall have been
settled or otherwise resolved on terms satisfactory to ACNB.
The obligations of Farmers to effect the Merger shall be subject to the
satisfaction or waiver of the following conditions prior to the Effective Time:
* all of ACNB's and ACNB North's representations, warranties and
covenants shall be true and correct in all material respects on the
Effective Date and ACNB and ACNB North shall have performed each of
the covenants as required by the Agreement;
* there shall not occur any change in the financial conditions,
properties, or business or results of operations of ACNB or ACNB
North, which might reasonably be expected to result in a Material
Adverse Effect (as defined in the Agreement) on ACNB or the material
subsidiaries taken as a whole;
* the status of all pending litigation that might reasonably be expected
to result in a Material Adverse Effect (as defined in the Agreement)
on ACNB or the material subsidiaries taken as a whole shall be
satisfactory to Farmers; and
* Farmers shall have received both a satisfactory fairness opinion from
Garland, McPherson and Associates no later than the mail date of the
Proxy Statement/Prospectus completed in connection with the
contemplated transactions and a certificate stating the number of
whole shares of ACNB and cash payable for fractional shares required
to complete the contemplated transactions shall be delivered to the
Exchange Agent (as defined in the Agreement).
ACNB has also agreed that it will not knowingly take any action or
knowingly cause its material subsidiaries to take any action which would
materially adversely affect or delay its ability to obtain any necessary
approvals, consents or waivers of any governmental authority required for the
transactions described in the Agreement or that is reasonably likely to have a
material adverse effect on ACNB, on a consolidated basis.
Dividends
The Agreement provides that Farmers shall not declare, pay or set aside any
dividend or other distribution in respect of its capital stock except in
conformity with past practice as to the
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amount and timing of such dividends, with increases in conformity with past
practices, it being understood on the basis of Farmers' representations of past
practice that a dividend of $0.14 per share for the first quarter of 1998, $0.16
per share for the second quarter of 1998, $0.17 per share for the third quarter
of 1998 and is consistent with the past practice of Farmers as to amount and
timing of dividends.
Conditions Precedent
In addition to the approval by the shareholders, the Merger is contingent
upon the satisfaction of a number of conditions, including, among others,
* all required approvals, consents, or waivers, including without
limitation, approval by the Federal Reserve Board and the Department
of Banking, and all applicable statutory waiting periods shall have
expired except those approvals for which failure to obtain would not,
individually or in the aggregate, have a Materially Adverse Effect (as
defined in the Agreement) on ACNB, ACNB North, Farmers or FNB;
* all other requirements prescribed by law which are necessary to the
consummation of the transactions contemplated by the Agreement shall
have been satisfied;
* the absence of any order, decree or injunction of a court or agency of
competent jurisdiction which would enjoin or prohibit the consummation
of the Merger, or any litigation or proceeding pending against ACNB or
Farmers or their subsidiaries by any governmental agency seeking to
prevent consummation of the transactions described in the Agreement;
* the absence of any statute, rule, regulation, order, injunction or
decree enacted, entered, promulgated or enforced by any governmental
authority which would prohibit, restrict or make illegal consummation
of the Merger;
* the Merger shall meet the requirements for pooling-of-interests
accounting treatment under generally accepted accounting principles
and under the accounting rules of the Commission and ACNB shall have
received a letter from Stambaugh o Ness, P.C. to such effect;
* the Registration Statement shall have been filed by ACNB with the
Commission under the Securities Act and shall have been declared
effective prior to the time this Proxy Statement/Prospectus is first
mailed to the shareholders of Farmers, and no stop order with respect
to the effectiveness of the Registration Statement shall have been
issued, and the ACNB Common Stock to be issued pursuant to
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the Agreement shall have been registered or qualified under the
securities or "blue sky" laws in all states in which such action is
required; and
* a ruling from the Internal Revenue Service, or an opinion of counsel,
regarding the tax consequences of the Merger, shall have been
delivered in accordance with the terms of the Agreement.
Additionally, the obligations of ACNB and ACNB North to effect the Merger
are subject to satisfaction of the following conditions prior to the Effective
Time:
* each of the representations and warranties of Farmers and FNB
contained in the Agreement shall be true and correct in all material
respects as of the Closing, each of Farmers and FNB shall have
performed each of the covenants and agreements material to its
operations and prospects contained in the Agreement, and certificates
to such effect shall have been delivered to ACNB and ACNB North;
* ACNB shall have been furnished an "agreed upon procedures" letter
dated the Effective Date, in form and substance satisfactory to ACNB
to the effect that, based upon procedures performed with respect to
the financial condition of Farmers, FNB and affiliates, for a period
from December 31, 1997, to a specified date not more than five days
prior to such letter, nothing has come to their attention that would
indicate that there has been a change in the capitalization of Farmers
or FNB on a consolidated basis, or any material adjustments would be
required to the audited financial statements for the period ended
December 31, 1997, in order for them to be in conformity with
generally accepted accounting principles applied on a consistent basis
with that of prior periods;
* there shall not have occurred any change in the financial condition,
properties, assets, business or results of operation of Farmers or FNB
which, individually or in the aggregate, has had or might reasonably
be expected to result in a Material Adverse Effect on Farmers or FNB
other than changes resulting from changes in banking laws or
regulations or changes in generally accepted accounting principles, or
interpretations thereof, that affect the banking or thrift industries;
* ACNB shall have received from each person identified by Farmers to be
an affiliate of Farmers an executed counterpart of an affiliates
agreement in the form contemplated by the Agreement; and
* except as otherwise provided in the Agreement, all issued and
outstanding options, warrants or rights to acquire Farmers Common
Stock or any capital stock of FNB shall have been canceled.
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* holders of no more than 7% of the issued and outstanding shares of
Farmers (17,360 shares) shall have exercised dissenters' rights;
* no environmental problem of the kind contemplated in Article III of
the Agreement and not previously disclosed shall have been discovered
that would, or that potentially could, materially and adversely affect
the conditions (financial or otherwise), assets, liabilities,
business, operations or future prospects of Farmers or FNB;
* litigation pending against Farmers or FNB that, individually or in the
aggregate, would have a Material Adverse Effect on Farmers'
consolidated operations or future prospects, shall have been settled
or otherwise resolved on terms satisfactory to ACNB.
The obligations of Farmers and FNB to effect the Merger are subject to
satisfaction of the following conditions prior to the Effective Time:
* each of the representations and warranties of ACNB and ACNB North
contained in the Agreement shall be true and correct in all material
respects as of the Closing, each of ACNB and ACNB North shall have
performed each of the covenants and agreements material to its
operations and prospects contained in the Agreement, and certificates
to such effect shall have been delivered to Farmers;
* there shall not have occurred any change in the financial condition,
properties, assets, business or results of operation of ACNB or ACNB
North, which individually or in the aggregate, had or might reasonably
be expected to result in a Material Adverse Effect on ACNB or the
Subsidiaries (as defined in the Agreement) taken as a whole;
* Farmers shall have received an updated opinion from GM&A, dated as of
a date no later than the date this Proxy Statement/Prospectus is
mailed to the Farmers shareholders in connection with the Merger and
not subsequently withdrawn, to the effect that the Merger
Consideration is fair to Farmers' shareholders from a financial point
of view;
* a certificate for the required number of whole shares of the ACNB
Common Stock, as determined in accordance with Section 2.1 of the
Agreement, and cash payable for the fractional shares interests, shall
have irrevocably been delivered to Registrar and Transfer Company
(ACNB's transfer agent), as Exchange Agent; and
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* the status of all pending litigations that might reasonably be
expected to result in a Materially Adverse Effect to ACNB or its
subsidiaries taken as a whole shall be satisfactory to Farmers.
Waiver; Amendment
Prior to the Effective Time, any provision of the Agreement may be:
* waived by the party benefitted by the provision; or
* amended or modified at any time (including the structure of the
transaction) by an agreement in writing between the parties approved
by their respective boards of directors, except that no amendment or
waiver may be made that would change the form or the amount of the
Merger Consideration or otherwise have the effect of prejudicing the
Farmers shareholders' interest in the Merger Consideration following
the Meeting.
Closing; Effective Date; Termination
The Agreement provides that the Closing will occur at such time and place
as shall be agreed upon by the parties, but no later than the 30th business day
after:
* the last approval of required governmental authorities is granted and
any related waiting periods expire;
* the lifting, discharge or dismissal of any stay of any such
governmental approval or of any injunction against the Merger; and
* all shareholder approvals required by the parties pursuant to the
Agreement are received.
The Merger, and the transactions described by the Agreement, will become
effective at 11:59 p.m. on the day the articles of merger are filed with the
Pennsylvania Department of State. The presentation of the articles of merger for
acceptance and filing is subject to the rights of the boards of directors of
ACNB and Farmers to terminate the Agreement under certain circumstances. ACNB
and Farmers propose to effect the Merger in the first quarter of 1999.
The Agreement provides that, whether before or after its approval by the
shareholders of Farmers, it may be terminated and the transactions contemplated
in the Agreement abandoned at any time prior to the Effective Date:
* by the mutual, written consent of ACNB and Farmers, if the board of
directors of each so determines by majority vote of the members of the
entire board;
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* by Farmers if (a) there has been a material breach by ACNB of any
representation, warranty, covenant or agreement contained in the
Agreement which is not cured within 30 days after written notice of
such breach is given to ACNB by Farmers, or (b) any condition
precedent to Farmers' obligations as set forth in Article VI of the
Agreement has not been met or waived by Farmers at such time as such
condition can no longer be satisfied;
* by ACNB in the event (a) of a material breach by Farmers or FNB of any
representation, warranty, covenant or agreement contained in the
Agreement which is not cured within 30 days after written notice of
such breach is given to Farmers by ACNB or (b) any condition precedent
to ACNB's obligations as set forth in Article VI of the Agreement has
not been met or waived by ACNB at such time as such condition can no
longer be satisfied; or
* by ACNB or Farmers if the Merger and the transactions described in the
Agreement are not consummated by June 30, 1999, unless the parties
agree to extend the time by which such closing must occur.
Expenses
If the Agreement is terminated, in accordance with the terms of the
Agreement: (i) by the mutual, written consent of Farmers and ACNB; or (ii) by
Farmers or ACNB in the event the Merger is not consummated by June 30, 1999,
then termination shall be without cost, expense or liability on the part of any
party to the other party. In all other instances, termination of the Agreement
shall be without cost, liability or expense on the part of any party to the
other parties, unless the breach of a representation, warranty or covenant is
caused by the willful conduct or gross negligence of the party, in which event
such party will be liable to the other parties for all out-of-pocket costs and
expenses.
Exchange of Stock Certificates
At the Effective Date, without any further action on the part of
shareholders, each share of Farmers Common Stock that is issued and outstanding
as of the Effective Date (other than (i) shares the holders of which (each a
"Dissenting Shareholder") are exercising appraisal rights pursuant to the BCL
(the "Dissenters' Shares"), if any, and (ii) shares held directly or indirectly
by ACNB, except for shares held in a fiduciary capacity or in satisfaction of a
debt previously contracted) shall automatically become and be converted into the
right to receive 2.266 shares of ACNB Common Stock. As of the Effective Date,
any shares held directly or indirectly by ACNB, except in a fiduciary capacity
or in satisfaction of a debt previously contracted, shall be canceled and
retired and cease to exist and no exchange or payment shall be made with respect
thereto.
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After the Effective Date, ACNB shall send transmittal materials and
instructions for surrendering of Farmers certificates.
To the extent permitted by law, in the event that any certificates
representing shares of Farmers Common Stock have not been surrendered for
exchange in accordance with the Agreement on or before the second anniversary of
the Effective Time, ACNB may at any time thereafter, with or without notice to
the holders of record of such shares, sell for the accounts of any or all of
such holders any or all of the shares of ACNB Common Stock the holders are
entitled to receive. Any sale may be made by public or private sale or sale at
any broker's board or on any securities exchange in such manner and at such
times as ACNB shall determine. The net proceeds of any such sale shall be held
for holders of the certificates, to be paid to them upon surrender of the
certificates for exchange.
In the event any outstanding certificates for shares of Farmers Common
Stock shall have been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the person claiming such certificates to be lost, stolen or
destroyed and the posting by such person of a bond in such amount as ACNB may
direct as indemnity against any claim that may be made against it with respect
to such certificates, ACNB will issue in exchange for such lost, stolen or
destroyed certificates, the shares of ACNB Common Stock into which such
certificates have been converted pursuant to the Exchange Ratio.
Application for Listing
Pursuant to the Agreement, ACNB has agreed to use its best efforts to
apply, within 180 days of consummation of the Merger, to the NASD to qualify for
quotation of the ACNB Common Stock on the NASDAQ National Market System or
NASDAQ Small Cap Stocks, as applicable. We cannot assure that the ACNB Common
Stock will be accepted for such listing.
Regulatory Approvals of Farmers
The Merger involves the acquisition of a bank holding company registered
under the Bank Holding Company Act of 1956, as amended ("Holding Company Act"),
therefore, it is subject to notice to or approval of the Federal Reserve Board
under the Holding Company Act. ACNB submitted the FRB Notice regarding the
acquisition of Farmers to the Federal Reserve Bank of Philadelphia on October
__, 1998. In reviewing the FRB Notice, the Federal Reserve Board considers:
* the financial and managerial resources of ACNB and Farmers;
* the effect of the transaction on competition in the markets served by
ACNB and Farmers;
* the convenience and needs of the public; and
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* among other things, ACNB's and Farmers' record of performance in
helping to meet local credit needs.
In addition to the foregoing, Federal Reserve Board may object to the
transaction based upon its assessment of the impact of the Year 2000 Issue on
the parties to the Merger. See, BUSINESS OF FARMERS--Impact of the Year 2000
Issue; IMPACT OF THE YEAR 2000 ISSUE ON ACNB; and MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF FARMERS--Impact of
the Year 2000 Issue.
The approval of the Department of Banking under Section 112 and Section 115
of the Banking Code must also be obtained before the Merger may be consummated.
The Department of Banking will consider factors similar to those examined by the
Federal Reserve Board. ACNB submitted the PA Application to the Department of
Banking on October __, 1998.
The Merger cannot proceed in the absence of the requisite regulatory
approvals. To date, however, none of the required approvals have been obtained
in respect of the Merger, and we cannot assure that all such regulatory
approvals will be obtained, and, if the Merger is approved, we cannot assure the
date of any such approval. In addition, we cannot assure that any such approvals
will not contain a condition or requirement that causes the approvals to fail to
satisfy the conditions set forth in the Agreement. Likewise, we cannot assure
that the U.S. Department of Justice will not challenge the Merger or, if such
challenge is made, the result thereof.
Interests of Certain Persons in the Merger
Certain members of Farmers' management and the Farmers Board may be deemed
to have interests in the Merger in addition to their interests as shareholders
of Farmers generally. These include, among other things, provisions in the
Agreement relating to indemnification and employment. You will find additional
information about certain persons who may have an interest in the Merger in the
following section entitled "Management and Operations Following the Merger."
As of the Record Date, the directors and executive officers of Farmers
beneficially own approximately __________ shares of Farmers Common Stock.
Pursuant to the Agreement, ACNB has agreed to indemnify the present and
former officers, directors, employees and agents of Farmers and FNB against
certain liabilities arising prior to the effective time of the Merger to the
full extent then permitted by the Farmers Articles and Farmers Bylaws, the
charter and bylaws of FNB, each as in effect on the date of the Agreement.
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Under the terms of the Agreement, ACNB and its affiliates have agreed to
employ the employees, in good standing and actively at work on the Effective
Date, of Farmers and FNB, who in their current positions with compensation no
less than their current levels of compensation, with such changes in the future
as may be appropriate, as determined by FNB's Board of Directors.
Notwithstanding the foregoing, ACNB retains the right to terminate any of the
continuing employees at any time following the Effective Date for "Good Reason",
as that term is defined by ACNB. All benefits of the continuing employees will
be maintained at a level not less than equal to the benefits enjoyed by the
employees of Farmers prior to the Effective Date, with such changes in the
future as may be appropriate, as determined by FNB's Board of Directors. The
continuing employees are also eligible to apply for any positions available at
ACNB, or any of its subsidiaries. Farmers and FNB employees who remain employees
of the surviving corporation or FNB after the Effective Date, will be entitled
to credit for past service with Farmers or FNB for purposes of eligibility,
vesting and accrual and to participate in employee health, welfare, pension and
fringe benefit plans, or whatever stock option, bonus or incentive plans or
other fringe benefit programs may be in effect for employees of ACNB and its
subsidiaries.
Management and Operations Following the Merger
The Agreement provides that two (2) persons who are mutually agreed upon by
ACNB and Farmers and who previously served as directors of Farmers shall be
appointed to the Board of Directors of ACNB, one person to serve as a Class 1
Director, one person to serve as a Class 2 Director, and each shall serve until
such time as his successor has been duly elected, qualified, or appointed. ACNB
agreed to waive any mandatory retirement requirements contained in its by-laws
so far as such requirement pertains to such two persons.
The Agreement also provides that the directors of FNB immediately prior to
the Effective Date will constitute the directors of FNB immediately following
the Merger, with the addition of Carolyn H. Kough and Ronald L. Hankey. Each
non-employee director will receive compensation of $2,850 per year. Each
non-employee director will receive $265.00 per meeting actually attended,
committee fees of $80.00 per hours, a seminar fee of $250.00 per half day and
$400.00 per full day seminar, plus applicable expenses, as compensation for
services rendered in their capacity as a Director.
At the Effective Time, (i) the articles of incorporation and bylaws of ACNB
North in effect immediately prior to the Effective Time will be the articles of
incorporation and bylaws of the Surviving Corporation, and (ii) the directors
and officers of ACNB North immediately prior to the Effective Time will be the
directors and officers of the Surviving Corporation. At and immediately
following the Effective Time, the directors of FNB shall consist of the persons
who were members of the FNB Board of Directors immediately prior to the
Effective Time, and Ronald L. Hankey and Carolyn H. Kough. Additionally, the
ACNB Board of Directors, shall elect two persons, nominated by the Farmers Board
of Directors and acceptable to the ACNB
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Board of Directors, in its reasonable discretion, to become members of the ACNB
Board of Directors on the Effective Date.
Accounting Treatment of the Merger
The Merger is intended to be treated as a pooling of interests for
accounting purposes in accordance with generally accepted accounting principles
and under the accounting rules of the Commission. As a condition to the
consummation of the Merger, ACNB is to receive a letter from its independent
accountants, Stambaugh o Ness, P.C., that the Merger will be treated as a
pooling of interests. In order to preserve the intended accounting treatment of
the Merger as a pooling of interests, the Agreement also requires as a condition
to the obligations of ACNB and ACNB North under the Agreement that each person
deemed to be an "affiliate" of Farmers enter into an agreement not to sell
shares of ACNB Common Stock acquired in the Merger until financial results
covering at least 30 days of post-Merger combined operations have been
published.
Income Tax Consequences of the Merger
The following discussion summarizes the anticipated federal income tax
consequences of the Merger. ACNB and Farmers believe that for federal income tax
purposes:
* the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), and Farmers and ACNB will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Code;
* no gain or loss will be recognized by Farmers or ACNB by reason of the
Merger;
* except for cash received in lieu of fractional shares, no income, gain
or loss generally will be recognized by Farmers shareholders on the
exchange of their shares of Farmers Common Stock for shares of ACNB
Common Stock;
* the basis of the ACNB Common Stock to be received by the Farmers
shareholders generally will be, in each instance, the same as the
basis of the Farmers Common Stock surrendered in exchange therefor;
* the holding period of the ACNB Common Stock to be received by the
shareholders of Farmers generally will include the period during which
the Farmers Common Stock surrendered in exchange therefor has been
held, provided that the Farmers Common Stock surrendered is held as a
capital asset on the date of the exchange pursuant to the Merger; and
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* the payment of cash to the Farmers shareholders in lieu of their
fractional share interests of ACNB Common Stock generally will be
treated as having been received as a distribution in full payment in
exchange for the fractional share interest of ACNB Common Stock which
such shareholders would otherwise be entitled to receive and will
qualify as capital gain or loss.
The obligations of the parties to consummate the Merger are conditioned
upon receipt of a ruling from the Internal Revenue Service (the "IRS") or an
opinion of counsel substantially to the effect that the federal income tax
consequences of the Merger are as summarized above. Unlike a ruling from the
IRS, an opinion of counsel would have no binding effect on the IRS. Such ruling
or opinion would not deal with all of the tax considerations that may be
relevant to particular Farmers shareholders, such as shareholders who are
dealers in securities, foreign persons, tax-exempt entities or the impact of the
alternative minimum tax. Such ruling or opinion would not address any state,
local or foreign tax considerations, any federal estate, gift, employment,
excise or other non-income tax considerations.
The foregoing constitutes only a general description of the federal income
tax consequences of the Merger, without consideration of the particular facts
and circumstances of your situation. We recommend that you consult your own tax
advisors as to particular facts and circumstances which may be unique to you and
not common to shareholders as a whole and also as to any estate, gift, state,
local or foreign tax consequences arising out of the Merger and/or any sale of
ACNB common stock received in the Merger.
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DESCRIPTION OF ACNB AND ITS COMMON STOCK
Information Concerning ACNB
ACNB is a Pennsylvania business corporation registered as a bank holding
company with its headquarters in Adams County, Pennsylvania. As a bank holding
company, ACNB engages in general commercial and retail banking and bank-related
business through its commercial bank subsidiary. ACNB owns all of the
outstanding shares of Adams County National Bank and ACNB North. ACNB owns all
the outstanding shares of Adams County National Bank (hereinafter the "Bank").
ACNB and the Bank have the same Board of Directors. ACNB, organized in 1983,
presently has no significant operations other than serving as a holding company.
The Bank engages in a full-service commercial and consumer banking and trust
business. With its main office at 675 Old Harrisburg Road, Gettysburg,
Pennsylvania, the Bank provides financial services to its customers through its
community banking network of fourteen full-service offices located through Adams
County, Pennsylvania, and in Hanover, York County, Pennsylvania. As of December
31, 1997, ACNB had a total of 157 full-time and 60 part-time employees.
Incorporation by Reference
Certain documents previously filed by ACNB with the Commission pursuant to
the Exchange Act or the Securities Act, as the case may be, are hereby
incorporated by reference in this Proxy Statement/Prospectus as follows:
* the Definitive Proxy Statement on Schedule 14A for the Annual Meeting
of Shareholders on May 5, 1998;
* the Annual Report on Form 10-K for the year ended December 31, 1997;
* the Quarterly Report on Form 10-Q for the quarter ended March 31,
1998;
* the Quarterly Report on Form 10-Q for the quarter ended June 30, 1998;
and
* the Current Report on Form 8-K filed July 30, 1998.
All documents filed by ACNB pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date hereof and prior to the consummation of the
Merger shall be deemed to be incorporated by reference herein and to be a part
hereof from the date of filing thereof. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Proxy Statement/Prospectus to the
extent that a statement contained herein, or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein,
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement/Prospectus. All information appearing
in this Proxy Statement/Prospectus should be read in conjunction with, and is
qualified in its entirety by, the information and financial
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statements (including notes thereto) appearing in the documents incorporated
herein by reference, except to the extent set forth in the immediately preceding
statement.
General
ACNB is authorized to issue 20,000,000 shares of ACNB Common Stock. As of
September 30, 1998, ACNB had approximately 5,253,278 shares of ACNB Common Stock
issued and outstanding. At September 30, ACNB had approximately 3,001
shareholders of record. This does not reflect the number of persons or entities
who hold their stock in nominee or street name through various brokerage firms.
Registrar and Transfer Company is the transfer agent and registrar for ACNB
Common Stock.
Common Stock
Dividends
Holders of ACNB Common Stock are entitled to receive dividends as may be
declared by the ACNB Board of Directors out of funds legally available therefor.
ACNB is a holding company, therefore, the funds required by ACNB to enable it to
pay dividends are derived predominantly from the dividends paid to ACNB by its
subsidiary. ACNB's ability to pay dividends is dependent upon the earnings,
financial condition and ability to pay dividends of ACNB's subsidiaries,
principally the Bank. Payment of dividends by the Bank is subject to a number of
regulatory restrictions. See "REGULATIONS AFFECTING DIVIDENDS." The Bank is
presently permitted to pay dividends without prior approval under such
regulatory requirements. At December 31, 1997, an aggregate of $3,199,000 was
available for the payment of dividends to ACNB. ACNB has historically paid
dividends on or about March 15, June 15, September 15, and December 15 of each
year.
Liquidation
In the event of liquidation, dissolution or winding up of ACNB, ACNB
shareholders are entitled to share ratably in all assets remaining after payment
of liabilities, subject to prior distribution rights of ACNB Preferred Stock, if
any, then outstanding. On September 30, 1998, no shares of ACNB Preferred Stock
were issued or outstanding, or authorized for issuance under the ACNB Articles.
Voting
Holders of ACNB Common Stock are entitled to one vote for each share held
by them at all meetings of the shareholders and are not entitled to cumulate
their votes for the election of directors.
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No Preemptive Rights
Holders of ACNB Common Stock do not have preemptive rights.
Pennsylvania Anti-Takeover Law Provisions
The BCL and the ACNB Articles and ACNB Bylaws provide numerous provisions
that may be deemed to be anti-takeover in nature, both as to purpose and as to
effect. There are four major anti-takeover provisions under the BCL relating to
corporations that have their securities registered with the Commission under
Section 12 of the Securities Act. ACNB is subject to the statutory
"anti-takeover provisions" of the BCL, including Subchapters 25E, F, G and H of
the BCL.
Subchapter 25E (relating to control transactions) provides that if any
person or group acquires 20% or more of the voting power of a covered
corporation, the remaining shareholders may demand from such person or group the
fair value of their shares, including a proportionate amount of any control
premium.
Subchapter 25F (relating to business combinations) delays for five years
and imposes conditions upon "business combinations" between an "interested
shareholder" and the corporation. The term "business combination" is defined
broadly to include various transactions utilizing a corporation's assets for
purchase price amortization or refinancing purposes. An "interested shareholder"
is defined generally as the beneficial owner of at least 20% of a corporation's
voting shares.
Subchapter 25G (relating to control-share acquisitions) prevents a person
who has acquired 20% or more of the voting power of a covered corporation from
voting such shares unless the "disinterested" shareholders approve such voting
rights. Failure to obtain such approval exposes the owner to the risk of a
forced sale of the shares to the issuer. If shareholder approval is obtained,
the corporation is also subject to Subchapters 25I and J of the BCL. Subchapter
25I provides for a minimum severance payment to certain employees terminated
within two years of the approval. Subchapter 25J prohibits the abrogation of
certain labor contracts prior to their stated date of expiration.
Subchapter 25H (relating to disgorgement) applies in the event that: (i)
any person or group publicly discloses that the person or group may acquire
control of the corporation; or (ii) a person or group acquires (or publicly
discloses an offer or intent to acquire) 20% or more of the voting power of the
corporation and, in either case, sells shares within 18 months thereafter. Any
profits from sales of equity securities of the corporation by the person or
group during the 18-month period belong to the corporation if the securities
that were sold were acquired during the 18-month period or within 24 months
prior thereto.
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Subchapters 25E, F, G and H contain a wide variety of transactional and
status exemptions, exclusions and safe harbors.
In addition, the BCL permits an amendment of the corporation's articles or
other corporate action, if approved by shareholders generally, to provide
mandatory special treatment for specified groups of nonconsenting shareholders
of the same class by providing, for example, that shares of common stock held
only by designated shareholders of record, and no other shares of common stock,
shall be cashed out at a price determined by the corporation, subject to
applicable dissenters' rights.
The BCL also provides that directors may, in discharging their duties,
consider the interests of a number of different constituencies, including
shareholders, employees, suppliers, customers, creditors and the communities in
which the corporation is located. Directors are not required to consider the
interests of shareholders to a greater degree than other constituencies'
interests. The BCL expressly provides that directors do not violate their
fiduciary duties solely by relying on poison pills or the anti-takeover
provisions of the BCL.
Provisions in ACNB's Articles of Incorporation and Bylaws
Certain provisions of the ACNB Articles and ACNB Bylaws may have the effect
of making more difficult non-negotiated tender or exchange offers or other
attempts to take over or acquire ACNB's business. These provisions may
discourage some potential acquirors from attempting such a transaction on terms
that some shareholders might favor.
The ACNB Articles authorize ACNB to issue 20,000,000 shares of Common
Stock. As of September 30, 1998, ACNB has approximately 14,746,722 shares of
authorized but unissued shares of ACNB Common Stock. Following the Merger, ACNB
would have approximately 14,184,754 shares of authorized but unissued ACNB
Common Stock. As a general matter, the existence of unissued and unreserved
shares of stock provides a board of directors with the ability to cause the
issuance of shares of stock under circumstances that might prevent or render
more difficult or costly the completion of a takeover.
The ACNB Articles and the ACNB Bylaws provide that the directors shall be
divided into three classes with not more than 8 directors in Class 1 and in
Class 2 and not more than 9 directors in Class 3. The entire Board of Directors
is to consist of not less than 5 or more than 25 shareholders, with each class
serving for staggered three year terms. The number of directors in each class is
determined by resolution of a majority of ACNB's shareholders.
The ACNB Bylaws establish advance notice procedures with regard to the
nomination, other than by management, of candidates for election as directors.
The ACNB Board of Directors is authorized to amend the ACNB Bylaws, subject
to the right of the shareholders to change such action by a majority vote.
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<PAGE>
COMPARISON OF SHAREHOLDER RIGHTS
Introduction
Upon the consummation of the Merger, you will become a shareholder of ACNB.
Your rights are presently governed by Farmers Articles and Farmers Bylaws.
Certain of your rights will continue to be governed by the BCL, while other
rights will be governed by the ACNB Articles and the ACNB Bylaws. There are
certain differences between ACNB's and Farmers' articles and bylaws. The
following discussion is not intended to be a complete statement of all
differences affecting your rights, but summarizes material differences and is
qualified in its entirety by reference to applicable Pennsylvania corporate laws
and the articles of incorporation and bylaws of ACNB and Farmers. See
"DESCRIPTION OF ACNB AND ITS COMMON STOCK - Incorporation by Reference" and
"ADDITIONAL INFORMATION."
ACNB Common Stock, unlike Farmers Common Stock, is registered with the
Commission under Section 12(g) of the Securities Act. As a result, ACNB is
subject to the periodic reporting, proxy solicitation and insider trading
requirements of the Securities Act, which do not apply to Farmers. Pursuant to
these requirements, ACNB makes available to shareholders, potential investors in
the general public a significant amount of information regarding ACNB in the
form of proxy statements, periodic reports and other Commission filings. In
addition, directors, executive officers and 10% beneficial shareholders of ACNB
are subject to the insider reporting requirements and short-swing profit
recapture provisions of Section 16 of the Exchange Act.
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<PAGE>
<TABLE>
<CAPTION>
FARMERS
-------
<S> <C>
Title Common Stock, $0.50 par value per share
Shares Authorized 1,000,000
Shares Issued and Outstanding --
Preemptive Rights None
Voting: Election of Directors Non-cumulative
Classification of Board of Directors Board of Directors divided into 3 classes
with 3 year terms; 1/3 of directors
elected each year
Voting: Other Matters
Mergers, Consolidations, Liquidations Approval by vote of 80% of outstanding
Sales of Substantially All Assets shares of Common Stock or 66 2/3% of
outstanding shares of Common Stock if
received approved of 80% of the Board of
Directors
Special Shareholder Meetings Upon request of Chairman, President, a
majority of the Board or Executive
Committee or any shareholders entitled to
cast at least 40% of the votes that all
shareholders area entitled to cast
Authorization to Issue
Additional Shares Approval by a majority of the Board
Repurchase of Additional Shares
Stock Incentive Plan No
Dissenters' Rights Yes
Dividend Reinvestment Plan No
Market No established market
Registered Under Exchange Act No
<CAPTION>
ACNB
----
<S> <C>
Title Common Stock, $2.50 par value per share
Shares Authorized 20,000,000
Shares Issued and Outstanding --
Preemptive Rights None
Voting: Election of Directors Non-cumulative
Classification of Board of Directors Board of Directors divided into 3 classes
with 3 year terms; 1/3 of directors
elected each year
Voting: Other Matters One vote for each share owned of record
Mergers, Consolidations, Liquidations Approval by vote of 75% of outstanding
Sales of Substantially All Assets shares of Common Stock.
Special Shareholder Meetings Upon request by a majority of the Board
of Directors, or shareholders entitled to
cast 1/3 of the votes that all
shareholders are entitled to cast at the
meeting.
Authorization to Issue Approval by a majority vote of the Board
Additional Shares of Directors
Repurchase of Additional Shares Stock can be repurchased up to the extent
of unrestricted or unreserved undivided
profits and as much of its unrestricted
surplus as has been made available for
such purpose by the prior affirmative
vote of shareholders; stock cannot be
repurchased when the Holding Company
is insolvent or would be made insolvent
by the purchase; and no more than 10
percent of the outstanding shares can be
repurchased in any twelve (12) month
period without prior regulatory approval
Stock Incentive Plan No
Dissenters' Rights Yes
Dividend Reinvestment Plan No
Market No established market
Registered Under Exchange Act Yes
51
</TABLE>
<PAGE>
Dividends
Pennsylvania law generally permits a corporation to pay dividends unless,
after giving effect thereto, the corporation would be unable to pay its debts as
they become due in the usual course of business or the total assets of the
corporation would be less than the sum of its total liabilities. As holding
companies, the ability of Farmers and ACNB to pay dividends is largely dependent
upon receipt of dividends from their respective subsidiary depository
institutions. Payment of dividends by these subsidiaries is subject to a number
of regulatory restrictions. For a summary of these regulatory considerations,
see "REGULATIONS AFFECTING DIVIDENDS."
Limitations on Directors' Liability
The BCL permits the shareholders of a Pennsylvania corporation to adopt a
bylaw provision relieving a director (but not an officer) of personal liability
for monetary damages in certain circumstances. The ACNB Bylaws contain such a
provision but Farmers Bylaws do not contain such a provision.
Indemnification
The BCL provides that a business corporation may indemnify directors,
officers and other agents against liabilities they may incur as such provided
that the particular person acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal proceeding, had no reasonable
cause to believe his or her conduct was unlawful. In the case of actions against
a director, officer or other agent by or in the right of the corporation, the
power to indemnify extends only to expenses (not judgments and amounts paid in
settlement) and such power generally does not exist if the person otherwise
entitled to indemnification shall have been adjudged to be liable to the
corporation unless it is judicially determined that, despite the adjudication of
liability but in view of all the circumstances of the case, the person is fairly
and reasonably entitled to indemnification for specified expenses. Under the
BCL, the corporation is required to indemnify directors, officers or other
agents against expenses they may incur in defending actions against them in such
capacities if they are successful on the merits or otherwise in the defense of
such actions. Under the BCL, a corporation may pay the expenses of a director,
officer or other agent incurred in defending an action or proceeding in advance
of the final disposition thereof upon receipt of an undertaking from such person
to repay the amounts advanced unless it is ultimately determined that such
person is entitled to indemnification from the corporation. The ACNB Bylaws and
the Farmers Bylaws provide indemnification of directors, officers and other
agents and advancement of expenses as generally permitted by law.
The BCL grants a corporation broad authority to indemnify its directors,
officers and other agents for liabilities and expenses incurred in such
capacity, except in circumstances where
52
<PAGE>
the act or failure to act giving rise to the claim for indemnification is
determined by a court to have constituted willful misconduct or recklessness.
DIVIDENDS AND MARKET PRICES OF SECURITIES
ACNB
ACNB Common Stock is traded in the over-the-counter Electronic Bulletin
Board Interdealer System under the symbol "ACNB." As of September 30, 1998,
there were approximately 5,253,278 shares outstanding and approximately 3,001
shareholders of record. In the table below, we set forth the high and low bid
prices of ACNB Common Stock as reported on the over-the-counter Electronic
Bulletin Board Interdealer System for the first two quarters of calendar 1998,
and the four quarters of calendar 1997 and calendar 1996. We also set forth
below the cash dividends declared during such periods. The last sale price on
July 27, 1998, the last trading day before the announcement of the Merger, was
$29.25 per share. Because of the absence of an established public trading
market, the reported sales are not necessarily indicative of market value. The
most recent sale of which management is aware is a trade of _______ shares of
ACNB Common Stock that occurred on November ___, 1998 for $_______ per share.
The cash dividends declared during such periods are also set forth in the table.
1998 1997
-------------------------- ----------------------------
Cash Cash
Bid Price Dividend Bid Price Dividend
High Low Paid High Low Paid
---- --- ---- ---- --- ------
1st Quarter $25.63 $23.38 $0.19 $17.50 $16.00 $0.18
2nd Quarter $27.50 $25.63 $0.19 $18.25 $16.63 $0.18
3rd Quarter $22.75 $18.25 $0.19
4th Quarter $24.25 $22.75 $0.24
1996
----------------------------
Cash
Bid Price Dividend
High Low Paid
---- --- ------
1st Quarter $18.25 $16.00 $1.17
2nd Quarter $16.25 $16.00 $0.17
3rd Quarter $17.00 $16.25 $0.18
4th Quarter $16.25 $16.00 $0.18
Farmers
There is no established public trading market for Farmers' Common Stock and
there has been only limited and sporadic trading in Farmers Common Stock. On
September 30, 1998, there were 248,000 shares outstanding and approximately 248
shareholders of record. Because of the absence of an established public trading
market, the reported sales are not necessarily indicative of market value. The
most recent sale of which management is aware is a trade of 146 shares of
Farmers Common Stock that occurred in June, 1998 for $33.75 per share. In the
table below, we set forth the cash dividends declared for the first two quarters
of 1998 and the four quarters of calendar 1997 and 1996.
53
<PAGE>
1998 1997 1996
------------------- -------------------- ------------
Dividends Dividends Dividends
Declared Declared Declared
--------- -------- --------
1st Quarter $0.14 $0.10 $
2nd Quarter $0.16 $0.13 $0.25
3rd Quarter $ $0.13 $
4th Quarter $ $0.14 $0.65
REGULATIONS AFFECTING DIVIDENDS
The ability of ACNB and Farmers to pay dividends is largely dependent upon
receipt of dividends from its commercial bank subsidiary, Adams County National
Bank or FNB, as the case may be. Both federal and state laws impose restrictions
on the ability of Adams County National Bank and FNB to pay dividends. The
Federal Reserve Board, the Office of the Comptroller of the Currency (the
"Comptroller") and the Federal Deposit Insurance Corporation ("FDIC") have
issued policy statements that provide that, as a general matter, insured banks
and holding companies may pay dividends only out of current operating earnings.
Under federal law, the approval of the Comptroller is required for the
payment of dividends in any calendar year by a subsidiary national bank if the
total of all dividends declared by such bank in a calendar year exceeds that
bank's net profits for that year combined with its retained net profits for the
preceding two calendar years. Moreover, no dividends may be paid by a national
bank if its "losses" equal or exceed its undivided profits account, and no
dividend may be paid in an amount in excess of its "net profits then on hand."
In addition, the Comptroller may find a dividend payment which otherwise meets
the criteria specified in the law, nonetheless to constitute an unsafe or
unsound practice.
BUSINESS OF FARMERS
General
Farmers, a Pennsylvania business corporation, is a bank holding company
whose sole operating subsidiary is FNB, a national banking association. Farmers
was organized at the direction of the FNB Board of Directors on August 14, 1991,
to acquire all of the capital stock of FNB pursuant to a Plan of Reorganization
adopted by the FNB Board of Directors and subsequently approved by the
shareholders of FNB. Under the terms of the Plan of Reorganization, the common
stock of FNB was converted into the right to receive shares of Farmers Common
Stock, and FNB became a wholly-owned subsidiary of Farmers. Farmers'
headquarters is located at the main office of FNB.
54
<PAGE>
As of December 31, 1997, Farmers (on a consolidated basis) had total assets
of $41,220,594, total deposits of $35,481,302 and total shareholders' equity of
$5,464,209. At September 30, 1998, Farmers had approximately 248 shareholders of
record.
Farmers acts as a holding company and does not directly engage in any
substantial business activities. Farmers functions primarily as a holder of all
of FNB's capital stock. As a bank holding company subject to the jurisdiction of
the Federal Reserve Board, Farmers has the legal capacity to acquire or form
additional subsidiaries, including other banks and companies engaged in
nonbanking activities which the Federal Reserve Board has found to be so closely
related to banking or managing or controlling banks as to be a proper incident
thereto. Holding companies may also directly engage in such related nonbanking
activities. The types of nonbanking activities which are currently permissible
are subject to change by the Federal Reserve Board. Although Farmers has no
present plans to engage in such activities, it may choose to do so in the
future.
Services
FNB, established in 1909, is a national banking association under the
supervision of the Comptroller. FNB's main office is located at One West Big
Spring Avenue, Newville, Pennsylvania 17241.
FNB conducts a general commercial banking business embracing substantially
all of the traditional lending and deposit functions of a local commercial bank
in Pennsylvania. FNB's services include accepting time, demand and savings
deposits, including interest-bearing accounts, regular savings accounts, money
market accounts and fixed and variable rate certificates of deposit. FNB's
services also include making secured and unsecured commercial loans, including
construction, agricultural and mortgage loans. Additional services include
providing consumer loans, residential mortgage loans, home equity lines of
credit, revolving credit loans, small business loans, student loans and
financing on new car and truck loans.
FNB also offers travelers checks and safe deposit facilities. In addition
to regular business hours, FNB offers 24 hour, seven days a week automated
banking services through its MAC system membership. FNB does not provide trust
or agency facilities, as do some of its competitors, nor does it currently
transact international business.
In addition to its main office and administration center, FNB has three
full-service branch offices in Cumberland County, Pennsylvania, one of which is
open two afternoons each week.
Regulation
Farmers is registered as a bank holding company under the Holding Company
Act, and is therefore subject to regulation by the Federal Reserve Board.
Farmers is required to file periodic reports of its operations with, and is
subject to inspection by, the Federal Reserve Board.
55
<PAGE>
Under the policy of the Federal Reserve Board with respect to bank holding
company operations, a bank holding company is deemed to serve as a source of
financial strength to its subsidiary depository institutions and to commit
resources to support such institutions in circumstances where it might not do so
absent such policy. The Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA") requires a bank holding company to guarantee that any
"undercapitalized" (as such term is defined in the statute) insured depository
institution subsidiary will comply with the terms of any capital restoration
plan filed by such subsidiary with its appropriate federal banking agency.
Farmers, as an "affiliate" of FNB within the meaning of the Federal Reserve
Act, is subject to certain restrictions under the Holding Company Act regarding
extensions of credit to it by FNB, investments in the stock or other securities
of Farmers by FNB and the use of stock or other securities of Farmers as
collateral for loans by FNB to any borrower. Further, under the Holding Company
Act and Federal Reserve Board regulations, a bank holding company and its
subsidiaries are prohibited from engaging in certain arrangements in connection
with any extension of credit. These provisions generally provide that a bank may
not extend credit, lease or sell property or furnish any service or fix or vary
the consideration for any of the foregoing to a customer on the condition or
requirement that the customer provide some additional credit, property or
service to the bank, the bank's holding company or any other subsidiary of the
bank's holding company, or on the condition or requirement that the customer not
obtain other credit, property or services from a competitor of the bank, the
bank's holding company or any other subsidiary of the bank's holding company.
FNB, as a nationally chartered bank, is subject to the National Bank Act,
as amended. It is subject to the supervision of, and to regular examinations by,
the Comptroller and is required to furnish periodic reports to the Comptroller.
The earnings of FNB are affected by the policies of regulatory authorities,
including the Comptroller, the Federal Reserve Board and the FDIC. An important
function of the Federal Reserve System is to regulate the money supply and
interest rates. Among the instruments used to implement those objectives are
open market operations in United States government securities, changes in
reserve requirements against member bank deposits, and limitations on interest
rates that member banks may pay on time and savings deposits. These instruments
are used in varying combinations to influence overall growth and distribution of
bank loans, investments, and deposits, and their use may also affect rates
charged on loans or paid for deposits.
FNB is a member of the Federal Reserve System and, therefore, the policies
and regulations of the Federal Reserve Board have had and will continue to have
a significant effect on its deposits, loans, and investment growth, as well as
the rate of interest earned and paid, and are expected to affect FNB's
operations in the future. The effect of such policies and regulations upon the
future business and earnings of FNB cannot be predicted. The Federal Reserve
System also regulates the activities of Farmers.
56
<PAGE>
FDICIA requires prompt corrective action against undercapitalized
institutions and has established five capital categories. These are well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized. Well capitalized institutions
significantly exceed the required minimum level for each capital measure
(currently, risk-based and leverage). Adequately capitalized includes depository
institutions that meet the required minimum level for each capital measure.
Undercapitalized represents depository institutions that fail to meet the
required minimum level for any relevant capital measure. Significantly
undercapitalized describes depository institutions that are significantly below
the minimum capital requirements. Currently FNB and Farmers are considered well
capitalized.
Under the Community Reinvestment Act, as amended ("CRA"), as implemented by
regulations of the Comptroller, a bank has a continuing and affirmative
obligation, consistent with its safe and sound operation, to help meet the
credit needs of its entire community, including low and moderate income
neighborhoods. The CRA does not establish requirements or programs for financial
institutions nor does it limit an institution's discretion to develop the types
of products and services that it believes are best suited to its particular
community, consistent with the CRA. The CRA requires the Comptroller to assess
an institution's record of meeting the credit needs of its community and to take
such record into account in its evaluation of certain applications by such
institution. The CRA requires public disclosure of an institution's CRA rating
and requires that the Comptroller provide a written evaluation of an
institution's CRA performance utilizing a four-tiered description rating system.
An institution's CRA rating is considered in determining whether to grant
charters, branches and other deposit facilities, relocations, mergers,
consolidations and acquisitions. A less than satisfactory performance may be the
basis for denying an application. In 1993, FNB received a satisfactory rating.
Competition
FNB's principal market is in Cumberland County, Pennsylvania where it
competes for deposits and loans. In this area, FNB competes primarily with other
banks, savings and loan associations, mutual savings banks and credit unions, as
well as brokerage firms and insurance companies. FNB also competes with mortgage
bankers and finance companies in certain aspects of its lending business. The
primary factors in competing for deposits are the ability to offer attractive
rates and the convenience of office locations. The primary factors in the
competition for loans are interest rates, loan origination fees and the range of
products and services offered. Competition for origination of real estate loans
normally comes from other commercial banks, thrift institutions, mortgage
bankers, mortgage brokers and insurance companies. Many of its competitors have
significantly greater financial resources than FNB and larger branch networks.
Some of these competitors also have advantages as a result of the different
regulations under which they operate and other factors, including size and
convenience of location.
The business of FNB is not dependent upon any single customer and the loss
of any single or any few customers would not have a material adverse impact upon
FNB.
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<PAGE>
Employees
At December 31, 1997, FNB had 20 full-time and 1 part-time employees. FNB
is not subject to a collective bargaining agreement and it believes that its
relations with its employees are good. Farmers presently has no employees.
Certain Relationships and Related Party Transactions
There have been no material transactions between Farmers and FNB nor any
material transactions proposed with any director or executive officer of Farmers
and FNB or any associate of the foregoing persons. Farmers and FNB have had, and
intend to continue to have, banking and financial transactions in the ordinary
course of business with directors and officers of Farmers and FNB and their
associates on comparable terms and with similar interest rates as those
prevailing from time to time for other customers of Farmers and FNB.
Total loans outstanding from Farmers and FNB at December 31, 1997, to
Farmers' and FNB's officers and directors as a group and members of their
immediate families and companies in which they had an ownership interest of 10%
or more was $156,704.29 or approximately 2.87% of the total equity capital of
Farmers. Loans to such persons were made in the ordinary course of business,
were made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons, and did not involve more than the normal risk of collectibility
or present other unfavorable features. The aggregate amount of indebtedness
outstanding as of the latest practicable date, September 30, 1998, to the above
described group was $38,540.19.
Litigation
The nature of FNB's business generates a certain amount of litigation
involving matters arising in the ordinary course of business. At the present
time no material proceedings are pending or are known to be threatened or
contemplated against FNB by government authorities or any other person or
entity. There is no litigation or material proceedings by government authorities
or any other person or entity pending, or known to be threatened or
contemplated, against Farmers.
Properties
FNB owns its main office, which houses the administration center of FNB and
Farmers, free and clear of any lien. FNB's main office is located in the central
business district of Newville, Pennsylvania at One West Big Spring Avenue.
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Impact of the Year 2000 Issue
The following section contains forward-looking statements which involve
risks and uncertainties. The actual impact on Farmers of the Year 2000 issue
could materially differ from that which is anticipated in the forward-looking
statements as a result of certain factors identified below.
The "Year 2000 Issue" is the result of some computer programs having been
written using two digits rather than four to define the applicable year.
Computer systems that have date-sensitive software or date-sensitive hardware
may recognize a date using "00" as the Year 1900 rather than the Year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send statements, or engage in similar normal business activities.
Based on formalized assessment and testing, Farmers has determined that its
mission critical computer systems should properly use dates beyond December 31,
1999. Farmers' existing core processing program files have been tested using
test data, with the results analyzed and verified for accuracy. Although testing
through January 10, 2000, has been completed, additional testing will be
conducted for dates extending beyond 2000. Although test information generated
by the system into the year 2000 indicates that Farmers' system is compliant, if
the system were not compliant, the Year 2000 issue could have a material adverse
impact on the operations of Farmers.
Farmers has initiated formal communications with all of its vendors and
large commercial customers to determine the extent to which Farmers is
vulnerable as a result of the failure of those third parties to remediate their
own Year 2000 Issue. For significant vendors, Farmers will validate that they
are Year 2000 compliant by December 31, 1998, or make plans to switch to a new
vendor or system that is compliant. For insignificant vendors, Farmers will not
necessarily validate that they are Year 2000 compliant. However, for any
insignificant vendor who responds that they will not be compliant by December
31, 1998, Farmers will seek a new vendor or system that is compliant. For large
commercial loan customers, Farmers will take appropriate action based upon each
customer's response.
Farmers has used both internal and external resources to identify,
reprogram and test its software and hardware for Year 2000 compliance. Farmers
plans to complete the Year 2000 project no later than December 31, 1998, for all
critical systems. The total cost of the Year 2000 project was determined to be
immaterial and is not expected to have a material effect on the results of
operations of Farmers.
As a bank holding company, Farmers and its subsidiary are subject to
the regulation and oversight of various banking regulators. Their oversight
includes the provision of specific timetables, programs and guidance regarding
Year 2000 issues. Regulatory examination of the
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holding company and its subsidiary's Year 2000 programs are conducted on a
quarterly basis and reports are submitted by Farmers' subsidiary to banking
regulators on a periodic basis.
IMPACT OF THE YEAR 2000 ISSUE ON ACNB
The following section contains forward-looking statements which involve
risks and uncertainties. The actual impact of the Year 2000 issue on ACNB could
materially differ from that which is anticipated in these forward-looking
statements as a result of certain factors identified below.
The "Year 2000 Issue" is the result of computer programs having been
written using two digits rather than four to define the applicable year. Any of
ACNB's computer systems that have date-sensitive software or date-sensitive
hardware may recognize a date using "00" as the Year 1900 rather than the Year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send statements, or engage in similar normal business
activities.
Based on an ongoing assessment, ACNB has determined that it will be
required to modify or replace portions of its software and hardware so that its
computer systems will properly use dates beyond December 31, 1999. ACNB
presently believes that as a result of modifications to existing software and
hardware and conversions to new software and hardware, the Year 2000 Issue can
be mitigated. However, if such modifications and conversions are not made, or
are not completed on a timely basis, the Year 2000 Issue could have a material
adverse impact on the operations of ACNB.
ACNB has initiated formal communications with all of its vendors and large
commercial customers to determine the extent to which ACNB is vulnerable to
those third parties' failure to remediate their own Year 2000 Issue. ACNB's
estimated Year 2000 project costs include the costs and time associated with the
impact of a third party's Year 2000 Issue, and are based on presently available
information.
For significant vendors, ACNB will validate that they are Year 2000
compliant by December 31, 1998, or make plans to switch to a new vendor or
system that is compliant. For insignificant vendors, ACNB will not necessarily
validate that they are Year 2000 compliant. However, for any insignificant
vendor who responds that they will not be compliant by December 31, 1998, ACNB
will seek a new vendor or system that is compliant. For large commercial loan
customers, ACNB will take appropriate action based upon the customer's response.
ACNB will use both internal and external resources to reprogram, or
replace, and test its software and hardware for Year 2000 modifications.
Concurrent with the Year 2000 project, ACNB will also be converting all its
major data processing systems, both hardware and software, to current
technology. ACNB plans to complete both the Year 2000 and systems conversion
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projects within 18 months or no later than June 30, 1999, for all critical
systems. The total cost of the Year 2000 and systems conversion projects is
estimated at $201,000 to $296,000. Of the total projects' cost, approximately
$91,000 is attributable to the purchase of new software and hardware. The
remaining $110,000 to $205,000 will be expensed as incurred over the calendar
years 1997, 1998 and 1999. These costs are not expected to have a material
effect on the results of operations of ACNB.
The costs of the projects and the date on which ACNB plans to complete both
the Year 2000 modifications and systems conversions are based on management's
best estimates, which were derived using numerous assumptions of future events
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially from
those plans. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct all relevant computer codes, and
similar uncertainties.
A remediation contingency plan has been developed for mission-critical
systems, as called for by regulatory guidelines for year 2000. Mission critical
systems include transaction processing, new loan and deposit generation, and
trust account servicing. This contingency plan identifies scheduled completion
dates and trigger dates. The trigger date is the date ACNB would implement the
contingency plan.
A detailed business resumption contingency plan is currently under
development with a target completion date of December 31, 1998. This plan
includes required mainframe and PC based applications, third-party
relationships, environmental and proprietary programs. The resumption
contingency plan calculates a risk factor for each core business line and/or
product. Based upon the calculated risk factor, such business resumption
contingency plan will be designed and tested.
As a bank holding company, ACNB and its subsidiaries are subject to the
regulation and oversight of various banking regulators. Their oversight includes
the provision of specific timetables, programs and guidance regarding Year 2000
issues.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF FARMERS
The following pages of this report present management's discussion and
analysis of the consolidated financial condition and results of operations of
Farmers, and its wholly-owned subsidiary FNB.
Farmers is a one-bank holding company headquartered in Newville,
Pennsylvania. Farmers' wholly-owned subsidiary is FNB. FNB is engaged in
commercial banking activities that provide financial services to both consumer
and commercial customers. As a national bank, FNB is subject to the supervision,
examination and regulation of the Office of the Comptroller of the Currency. The
Bank is a member of the FDIC and the deposits of the Bank's customers are
insured by the agency.
The following discussion is intended to focus on and highlight certain
information regarding Farmers. This discussion should be read in conjunction
with the Consolidated Financial Statements and related notes appearing elsewhere
in this report.
Certain statements in this document may be considered to be
"forward-looking statements" as that term is defined in the U.S. Private
Securities Litigation Reform Act of 1995, such as statements that include the
words "expect", "estimate", "project", "anticipate", "should", "intend",
"probability", "risk", "target", "objective" and similar expressions or
variations on such expressions. In particular, this document includes
forward-looking statements relating, but not limited to, Farmers' potential
exposures to various types of market risks, such as interest rate risk and
credit risk. Such statements are subject to certain risks and uncertainties. For
example, certain of the market risk disclosures are dependent on choices about
key model characteristics and assumptions and are subject to various
limitations. By their nature, certain of the market risk disclosures are only
estimates and could be materially different from what actually occurs in the
future. As a result, actual income gains and losses could materially differ from
those that have been estimated. Other factors that could cause actual results to
differ materially from those estimated by the forward-looking statements
contained in this document include, but are not limited to: general economic
conditions in market areas in which Farmers has significant business activities
or investments; the monetary and interest rate policies of the Board of
Governors of the Federal Reserve System; inflation; deflation; unanticipated
turbulence in interest rates; changes in laws, regulations and taxes; changes in
competition and pricing environments; natural disasters; the inability to hedge
certain risks economically; the adequacy of loss reserves; acquisitions or
restructurings; technological changes; changes in consumer spending and saving
habits; and the success of Farmers in managing the risks involved in the
foregoing.
62
<PAGE>
Balance Sheet Analysis
Investment Securities
Farmers National Bancorp, Inc. (the Bank) follows the provisions of
Statement of Financial Accounting Standards "SFAS" No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," which requires among other
things, that debt and equity securities classified as available for sale be
reported at fair value with unrealized gains and losses excluded from earnings
and reported in a separate component of shareholders, equity, net of income
taxes. The net effect of unrealized gains or losses, caused by marking an
available for sale portfolio to market, causes fluctuations in the level of
shareholders' equity and equity-related financial ratios as the market value of
the securities fluctuate. As of June 30, 1998, the application of SFAS 115
resulted in an increase in shareholders' equity of $5,000.
Total securities of $17,525,000 decreased $2,273,000 from June 30, 1997 to
June 30, 1998. The June 30, 1997 level of securities was also lower than the
total securities at December 31, 1996 and 1997 of $18,334,000 and $19,842,000,
respectively.
Investment securities for the period ended December 31, 1997 are summarized
as follows:
<TABLE>
FARMERS NATIONAL BANCORP, INC.
INVESTMENT SECURITIES
<CAPTION>
U.S.
Government Taxable
and Federal State and Other Equivalent
December 31, 1997 Agencies Municipal Securities Total Yield
(in thousands)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amortized Cost
Within one year $5,366 $1,210 $150 $6,726 5.99%
After one year through
five years 8,860 2,666 234 11,760 6.27%
After five years through
ten years 0 0 0 0 0.00%
After ten years 1,104 204 0 1,308 8.61%
No set maturity 0 0 37 37 5.14%
------ ------ ----- ------
Total $15,330 $4,080 $421 $19,831
Fair Value $15,504 $4,107 $421 $20,032
Taxable equivalent
yield 6.27% 6.52% 5.96%
</TABLE>
The weighted average yield of tax exempt obligations has been calculated on a
taxable equivalent basis using an effective tax rate of 34%.
The June 30, 1998 federal funds sold of $5,308,000 exceeded the June 30,
1997 balance of $2,807,000. Federal funds sold at June 30, 1998 were also higher
than the December 31, 1997 balance of $1,790,000 and the December 31, 1996
balance of $3,681,000. Federal funds averaged $2,876,000 for all of 1997
compared to $3,468,000 in 1996. June, 1998 year to date average federal funds
sold was $3,300,000.
63
<PAGE>
Interest-bearing deposits in banks of $625,000 at June 30, 1998, were
higher than June 30, 1997 balance when there were more. The December 31, 1997
and 1996 balances were $625,000 and $32,000, respectively.
Loans
The Bank grants installment, commercial and residential loans to customers
primarily in Cumberland County, Pennsylvania, and its contiguous counties.
Although the Bank has a diversified loan portfolio, a substantial portion of its
debtors' ability to honor their contracts is dependent on the local economy.
There are no concentrations of loans to any one industry group which exceed 10%
of total loans.
Loans grew 3.9% from $15,843,000 at June 30, 1997 to $16,457,000 at June
30, 1998. Real estate loans represented $13,057,000 or 79.2% of total loans at
December 31, 1997. Consumer and commercial loans represented 12.3% and 8.5%,
respectively, of total loans at December 31, 1997. The June 30, 1998 loan
portfolio decreased $29,000 from $16,486,000 at December 31, 1997. Loan demand
has been soft during the first half of 1998.
Major classifications of loans are summarized as follows at December 31,
1995, 1996 and 1997:
<TABLE>
<CAPTION>
In thousands 1997 1996 1995
----- ------ ----
<S> <C> <C> <C>
Consumer $1,440 $1,191 $1,139
Commercial and financial 1,402 1,238 1,168
Real estate - commercial 2,229 2,334 1,867
Real estate - residential 10,828 10,260 10,239
Student loans 587 589 578
------ ------ -------
Total loans $16,486 $15,612 $14,991
======= ======= =======
</TABLE>
The following table outlines the repricing opportunities for all loans
outstanding as of December 31, 1997. Loans with immediately adjustable rates are
included in the within one year column. Loans with rates that are adjustable at
some time over the life of the loan are included under the heading when they
become adjustable. All fixed rate loans are included under the heading in which
they mature.
64
<PAGE>
<TABLE>
Repricing Period
-------------------------------------------------------
Within After One
One Year Through After Five
In thousands Year Five Years Years Total
--------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
Consumer $ 81 $1,154 $205 $1,440
Commercial and financial 621 371 410 1,402
Real estate - commercial 39 51 2,139 2,229
Real estate - residential 496 349 9,983 10,828
Student loans 384 31 172 587
----- ------ ------ --------
Total loans $1,621 $1,956 $12,909 $16,486
Loans with predetermined
interest rates $441 $1,956 $12,909 $15,306
Loans with variable
interest rates 1,180 0 0 1,180
------- ------- ------- -------
Total loans $1,621 $1,956 $12,909 $16,486
</TABLE>
Allowance for Possible Loan Losses
The provision for loan losses is based upon a credit review of the loan
portfolio, past loan loss experience, current economic conditions and other
pertinent factors which form a basis for determining the adequacy of the
allowance for possible loan losses. In the opinion of management, the aggregate
amount reserved is deemed to be adequate to absorb future loan losses.
The allowance for possible loan losses of $178,000 at June 30, 1998 and
$186,000 at June 30, 1997 were 1.08% and 1.17%, respectively, of total loans.
The $176,000 allowance for possible loan losses at December 31, 1997 was 1.06%
of loans and the $193,000 allowance for loan losses at December 31, 1996 was
1.23% of loans.
65
<PAGE>
Transactions in the valuation portion of the allowance for loan losses for
the past three years at December 31, are shown below:
<TABLE>
<CAPTION>
In thousands 1997 1996 1995
----- ---- -----
<S> <C> <C> <C>
Balance of allowance for
loan losses at beginning of period $193 $201 $203
------ ---- ----
Loans charged off:
Consumer 21 11 8
Commercial and financial 0 0 0
Real estate - commercial 0 0 0
Real estate - residential 0 0 0
Student loans 0 0 0
---- --- ----
Total loans charged off 21 11 8
Recoveries of charged off loans:
Consumer 4 3 6
Commercial and financial 0 0 0
Real estate - commercial 0 0 0
Real estate - residential 0 0 0
Student loans 0 0 0
----- --- ----
Total recoveries 4 3 6
Net loans charged off 17 8 2
Provision for possible loan losses 0 0 0
Balance of allowance for loan
losses at end of period $176 $193 $201
==== ==== ====
TOTAL LOAN BALANCES (in thousands)
- --------------------------------------------------------------------------------
Average total loans $16,016 $15,350 $14,484
Total loans at year end 16,486 15,612 14,991
RATIOS
- --------------------------------------------------------------------------------
Net charge offs to:
Average total loans 0.11% 0.05% 0.01%
Total loans at year end 0.10% 0.05% 0.01%
Allowance for loan losses 9.66% 4.15% 1.00%
Allowance for loan losses to:
Average total loans 1.10% 1.26% 1.39%
Total loans at year end 1.07% 1.24% 1.34%
</TABLE>
66
<PAGE>
Allocation of the allowance for loan losses for years 1997, 1996 and 1995
is shown below:
<TABLE>
<CAPTION>
1997 1996 1995
----- ---- ----
% of % of % of
(In thousands) Gross Gross Gross
Amount Loans Amount Loans Amount Loans
-------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Consumer $7 0.04% $9 0.06% $7 0.05%
Commercial and financial 9 0.05% 5 0.03% 21 0.14%
Real estate - commercial 0 0.00% 0 0.00% 0 0.00%
Real estate - residential 26 0.16% 25 0.16% 24 0.16%
Student loans 0 0.00% 0 0.00% 0 0.00%
Unallocated 134 0.81% 154 0.99% 149 0.99%
----- ------- ---- ----- --- -----
Total $176 1.07% $193 1.24% $201 1.34%
</TABLE>
Nonperforming Assets
The following table presents information concerning the aggregate amount of
nonperforming assets at December 31:
<TABLE>
<CAPTION>
In thousands 1997 1996 1995
----- ---- ----
<S> <C> <C> <C>
Nonaccrual loans $268 $ 98 $ 0
90 days past due still accruing 163 340 168
Restructured loans 0 0 0
Other real estate owned 0 0 0
---- ----- ------
Total nonperforming assets $431 $438 $168
</TABLE>
The gross interest income that would have been recorded on nonaccrual loans
at December 31, 1997 and 1996 under original terms was approximately $25 and $9,
respectively. The amounts of interest income on these loans that was included in
net income for those years was approximately $15 and $8, respectively.
Time Deposits
Total deposits of $36,657,000 at June 30, 1998 were $881,000 higher than
the $35,776,000 deposit level at June 30, 1997. The increase was due mainly to a
$929,000 gain in time deposits. The June 30, 1998 deposits grew $1,176,000 from
the December 31, 1997 balance
67
<PAGE>
of $35,481,000 and $416,000 from December 31, 1996 deposit balance of
$35,360,000 to June 30, 1997.
Time deposits in denominations of $100,000 or more at December 31 are
summarized as follows:
In thousands
1997 1996
---- ----
Time certificates of deposit $1,822 $1,161
Other time deposits 100 100
Maturities of time deposits of $100,000
or more outstanding at December 31, 1997
are summarized as follows:
Three months or less $ 235
Over three through six months $ 213
Over six through twelve months $ 749
Over twelve months $ 725
-------
Total $1,922
Capital
Various regulatory agencies require banks to maintain a leverage ratio of
core capital to total assets at a prescribed level, currently 4 percent. In
addition, bank regulators have issued risk-based capital guidelines. Under such
guidelines, minimum ratios of core capital and total qualifying capital as a
percentage of risk-weighted assets and certain off-balance-sheet items of 4
percent and 8 percent, respectively, are required.
At June 30, 1998, the Bank met all capital requirements. Shareholders'
equity was $5,681,000 or 13.3% of total assets and 33.1% of total risk-weighted
assets, while total qualifying capital was 34.2% of total risk-weighted assets.
Income Statement Analysis
Results of Operations
Net income for the six month period ending June 30, 1998 of $293,000, was
$2,000 less than the $295,000 net income for the same period ending June 30,
1997. Net interest income was up $7,000, but was offset by a greater rise in
non-interest expense. The annualized return on average shareholders' equity was
10.52% at June 30, 1998, compared to 11.38% at June 30,
68
<PAGE>
1997. The December 31, 1997 net income of $541,000 was higher than the December
31, 1996 and 1995 net income of $480,000 and $415,000, respectively. Earnings
per share were $1.18 for the first six months of 1998, compared to $1.19 for the
same period in 1997.
Net Interest Income
Net interest income at June 30, 1998 of $822,000 was $7,000 higher than the
June 30, 1997 net interest income of $815,000. This increase is primarily due to
the change in the mix of earning assets during the first six months of 1998,
compared to the same period in 1997. Lower yielding average investments balances
were $383,000 lower in the first six months of 1998, compared to the same period
of 1997. This reduction in funds, plus deposit growth, was used to fund a
$752,000 increase in the average higher yielding loans during this period. The
net interest margin narrowed from 4.39% for the six month period ending June 30,
1997, to 4.32% for the same period in 1998.
Net interest income at December 31, 1997 of $1,663,000 was higher than the
December 31, 1996 and 1995 net interest income of $1,538,000 and $1,481,000,
respectively. The net interest margin for the twelve month period ending
December 31, 1997 of 4.48% was higher than the 4.31% at December 31, 1996 and
the 4.41% at December 31, 1995.
Provision for Loan Losses
The provision for loan losses for the first six months of 1998 was $-0-,
compared to $-0- for the same period in 1997. The provision for loan losses for
the entire year of 1997, 1996 and 1995 was $-0-.
Other Income
Other income increased 15.2% from $79,000 during the first six months of
1997, to $91,000 during the same period in 1998. This increase was the result of
an increase in fee income but in no particular fee type. Other income for the
entire year of 1997 of $141,000 was $19,000 higher than 1996 other income of
$122,000.
Other Operating Expenses
Other expenses of $507,000 for the first six months of 1998, was $28,000
higher than the same period in 1997. This increase in 1998 is the result of an
increase in salaries and employee benefits. Other expenses for the entire year
of 1997 of $1,047,000 was $71,000 higher than the same period in 1996. The
increase in other expenses in 1997 is related to salaries and employee benefits.
69
<PAGE>
ADJOURNMENT OF THE MEETING
Approval of the Agreement requires the affirmative vote of the holders of
66 2/3% of all outstanding shares of the Farmers Common Stock. If there is an
insufficient number of votes cast in person or by proxy at the Meeting to
approve the Agreement, the Farmers Board of Directors intends to adjourn the
Meeting to a later date to permit further solicitation of votes in favor of the
Agreement. The affirmative vote of a majority of the shares represented and
voting at the Meeting is required in order to approve any such adjournment. The
place and date to which the Meeting would be adjourned would be announced at the
Meeting. Under the Farmers Bylaws, it shall not be necessary to give any notice
of the time and place of the adjourned meeting other than the announcement at
the Meeting.
The Farmers Board of Directors recommends that shareholders vote "FOR" the
proposal to adjourn the Meeting if necessary to permit further solicitation of
proxies to approve the Agreement.
INDEPENDENT ACCOUNTANTS
ACNB has engaged Stambaugh o Ness, P.C., independent accountants, to audit
its financial statements for the year ended December 31, 1998.
Farmers has engaged Greenawalt & Company, P.C., independent accountants, to
audit its financial statements for the year ended December 31, 1998.
EXPERTS
The consolidated balance sheets of ACNB as of December 31, 1997, and 1996
and the related consolidated statements of income, changes in shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1997, incorporated by reference in this Proxy Statement/Prospectus, have
been incorporated herein in reliance on the report of Stambaugh o Ness, P.C.,
independent accountants, given upon the authority of that firm as experts in
accounting and auditing.
The consolidated balance sheet of Farmers as of December 31, 1997, and
1996, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1997, appearing in this Proxy Statement/Prospectus,
have been included herein in reliance on the report of Greenawalt & Company,
P.C., independent accountants, given upon the authority of that firm as experts
in accounting and auditing.
LEGAL OPINIONS
The legality of the ACNB Common Stock to be issued in connection with the
Merger is being passed upon by Shumaker Williams, P.C., Camp Hill, Pennsylvania,
counsel to ACNB.
70
<PAGE>
OTHER MATTERS
The Board of Directors of Farmers knows of no other matters than those
discussed in this Proxy Statement/Prospectus that will be presented at the
Meeting. However, if any other matters are properly brought before the Meeting
and any adjournment or postponement thereof, any proxy given pursuant to this
solicitation will be voted in accordance with the recommendations of management
of Farmers.
ADDITIONAL INFORMATION
ACNB has filed a Registration Statement with the Commission in respect of
the shares of ACNB Common Stock to be issued in connection with the Merger. The
Registration Statement contains certain additional information that has been
omitted from this Proxy Statement/Prospectus in accordance with the rules and
regulations of the Commission. The Registration Statement may be examined at the
Commission in Washington, D.C. Copies of the Registration Statement may be
obtained from the Commission upon payment of the prescribed fee or free of
charge from the Commission website: http://www.sec.gov.
71
<PAGE>
INDEX TO FINANCIAL STATEMENTS
FARMERS NATIONAL BANCORP, INC.
Page
Independent Auditors' Report................................... F-2
Consolidated Balance Sheets -
December 31, 1997 and 1996 .............................. F-3
Consolidated Statements Of Income -
years ended December 31, 1997, 1996 and 1995 ............ F-4
Consolidated Statement of Changes in Shareholders' Equity -
years ended December 31, 1995, 1996 and 1997.............. F-5
Consolidated Statements of Cash Flows
years ended December 31, 1997, 1996 and 1995 ............ F-6
Notes to Consolidated Financial Statements -
December 31, 1997, 1996 and 1995 ......................... F-7-F-25
<PAGE>
GREENAWALT & COMPANY, P.C.
Certified Public Accountants
P. O. Box 6
400 West Main Street
Mechanicsburg, Pennsylvania 17055
INDEPENDENT AUDITORS' REPORT
Shareholders
Farmers National Bancorp, Inc.
Newville, Pennsylvania
We have audited the accompanying consolidated balance sheets of Farmers
National Bancorp, Inc. and subsidiary as of December 31, 1997 and 1996 and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Farmers National Bancorp,
Inc. and subsidiary as of December 31, 1997 and 1996 and the consolidated
results of their operations and their consolidated cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
----------------------------------
GREENAWALT & COMPANY, P.C.
January 8, 1998, except for Note 20,
as to which the date is September 23, 1998
Mechanicsburg, Pennsylvania
F-2
<PAGE>
<TABLE>
FARMERS NATIONAL BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
1997 1996
---------------- ----------
ASSETS
---------
<S> <C> <C>
Cash and due from banks $ 1,712,543 $ 2,413,926
Federal funds sold 1,790,000 3,681,000
Interest bearing deposits 625,000 -0-
------------ ----------------
Total cash and cash equivalents 4,127,543 6,094,926
Interest bearing deposits -0- 32,000
Investment securities being held to maturity 14,180,762 14,421,356
Investment securities available for sale 5,661,613 3,912,976
Loans, net 16,310,565 15,419,045
Premises and equipment 401,063 357,224
Accrued interest receivable 370,306 342,603
Other assets 168,742 149,732
------------ ------------
Total assets $ 41,220,594 $ 40,729,862
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
---------------------------------------
Deposits
Demand, noninterest bearing $ 7,165,850 $ 6,858,200
Demand, interest bearing 5,976,360 6,784,065
Savings 6,525,927 6,521,984
Time 15,813,165 15,195,854
---------- ----------
Total deposits 35,481,302 35,360,103
Accrued interest payable 132,519 132,998
Other liabilities 142,564 147,182
------------ ------------
Total liabilities 35,756,385 35,640,283
---------- ----------
Shareholders' equity
Common stock, $.50 par value,
1,000,000 shares authorized,
250,000 shares issued and outstanding 125,000 125,000
Surplus 710,000 710,000
Retained earnings 4,671,895 4,255,017
Net unrealized gain (loss) on securities
available for sale 7,314 (438)
--------------- --------------
5,514,209 5,089,579
Less: Treasury stock, 2,000
shares, at cost (50,000) -0-
------------ ----------------
Total shareholders' equity 5,464,209 5,089,579
----------- -----------
Total liabilities and shareholders'
equity $ 41,220,594 $ 40,729,862
========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
FARMERS NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
------------ ------------ ---------
<S> <C> <C> <C>
Interest income
Loans, including fees $ 1,526,438 $ 1,486,243 $ 1,410,916
Investment securities
- taxable 999,404 910,452 792,451
Investment securities - tax exempt 140,010 88,385 108,521
Federal funds sold 155,626 183,255 179,444
Interest bearing deposits 2,864 10,653 42,468
------------ ----------- -----------
Total interest income 2,824,342 2,678,988 2,533,800
--------- --------- ---------
Interest expense on deposits
Demand 175,963 178,376 233,813
Savings 181,596 189,127 212,281
Time 804,129 773,344 606,597
---------- ---------- ----------
Total interest expense 1,161,688 1,140,847 1,052,691
Net interest income 1,662,654 1,538,141 1,481,109
Provision for possible
loan losses -0- -0- -0-
--------------- --------------- ---------------
Net interest income
after provision
for possible loan losses 1,662,654 1,538,141 1,481,109
--------- --------- ---------
Other income
Exchange 113,728 97,202 75,992
Service charges and fees 27,047 24,761 19,743
Gain (loss) on sales of securities -0- -0- (41,974)
-------------- -------------- ----------
Total other income 140,775 121,963 53,761
---------- ---------- -----------
Other expense
Salaries and employee benefits 615,229 555,834 533,662
Occupancy expenses, net 40,849 34,230 29,672
Equipment expenses 85,514 99,008 76,345
Federal deposit insurance
assessment 3,872 2,000 37,322
Other expenses 301,478 284,470 268,131
---------- ---------- ----------
Total other expense 1,046,942 975,542 945,132
--------- ---------- ----------
Income before income taxes 756,487 684,562 589,738
Applicable federal income taxes 215,609 204,808 175,209
---------- ---------- ----------
Net income $ 540,878 $ 479,754 $ 414,529
========== ========== ==========
Net income per share $ 2.18 $ 1.92 $ 1.66
============= ============= =============
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
FARMERS NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<CAPTION>
Common Retained
Stock Surplus Earnings
------- ------- ----------
<S> <C> <C> <C>
Balance, January 1, 1995 $125,000 $710,000 $3,579,484
Net income, 1995 414,529
Cash dividends,
$.425 per share (106,250)
Change in net unrealized
gain (loss) on securities
available-for-sale
------------ ------------- ----------------
Balance, December 31, 1995 125,000 710,000 3,887,763
Net income, 1996 479,754
Cash dividends,
$.45 per share (112,500)
Change in net unrealized
gain (loss) on securities
available-for-sale
------------- ------------ -----------------
Balance, December 31, 1996 125,000 710,000 4,255,017
Net income, 1997 540,878
Cash dividends,
$.50 per share (124,000)
Purchase of 2,000 shares
of Treasury Stock
gain (loss) on securities
available-for-sale
------------- ----------- -----------
Balance, December 31, 1997 $ 125,000 $ 710,000 $ 4,671,895
======= ======= =========
<CAPTION>
FARMERS NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
Net Unrealized
Gains (Losses)
on Securities Total
Available- Treasury Shareholders'
for-Sale Stock Equity
---------------- -------- ------------
<S> <C> <C> <C>
Balance, January 1, 1995 $ (101,135) $ -0- $ 4,313,349
Net income, 1995 414,529
Cash dividends,
$.425 per share (106,250)
Change in net unrealized
gain (loss) on securities
available-for-sale 103,590 103,590
------------- ------------ ------------
Balance, December 31, 1995 2,455 -0- 4,725,218
Net income, 1996 479,754
Cash dividends,
$.45 per share (112,500)
Change in net unrealized
gain (loss) on securities
available-for-sale (2,893) (2,893)
----------------- -------------- ----------
Balance, December 31, 1996 (438) -0- 5,089,579
Net income, 1997 540,878
Cash dividends,
$.50 per share (124,000)
Purchase of 2,000 shares
of Treasury Stock (50,000) (50,000)
Change in net unrealized
gain (loss) on securities
available-for-sale 7,752 7,752
-------------- ---------- -------------
Balance, December 31, 1997 $ 7,314 $ (50,000) $ 5,464,209
=============== ========== ===========
The accompanying notes are an integral part of these financial statements.
F-5
</TABLE>
<PAGE>
FARMERS NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
----- ----- ----
Cash flows from operating activities
Net income $ 540,878 $ 479,754 $ 414,529
Adjustments to reconcile
net income to net cash provided
(used) by operating activities
Depreciation, amortization and
accretion 87,416 161,269 246,294
Deferred taxes (2,861) (1,027) (3,162)
(Gains) losses on sales of
securities -0- -0- 41,974
Increase (decrease) in accrued
interest payable (479) 20,532 49,051
Increase (decrease) in other
liabilities (4,618) 3,764 (10,065)
Decrease (increase) in accrued
interest receivable (27,703) (40,101) 47,791
Decrease (increase) in
other assets (20,143) 30,836 (35,472)
------------ ------------ ----------
Net cash provided by (used in)
operating activities 572,490 655,027 750,940
------------ ----------- ----------
Cash flows from investing activities
Securities held to maturity
Proceeds from maturities 6,235,000 4,855,000 5,950,000
Purchases (6,034,931) (5,585,859) (4,175,967)
Securities available for sale
Proceeds from maturities 2,300,000 650,000 115,000
Proceeds from sales -0- -0- 2,720,999
Purchases (4,038,020) (2,590,595) (1,850,000)
Net decrease (increase) in
interest bearing deposits 32,000 322,000 409,975
Net decrease (increase) in loans (891,520) (629,526) (634,414)
Purchases of premises and
equipment (89,601) (34,853) (104,633)
------------ ----------- ---------
Net cash provided by (used in)
investing activities (2,487,072) (3,013,833) 2,430,960
---------- ---------- ---------
Cash flows from financing activities
Net increase (decrease)
in deposits 121,199 2,470,119 239,189
Purchase of treasury stock (50,000) -0- -0-
Dividends paid (124,000) (112,500) (106,250)
----------- --------- ---------
Net cash provided by
(used in) financing
activities (52,801) 2,357,619 132,939
------------ --------- ----------
Net increase (decrease)
in cash and cash
equivalents (1,967,383) (1,187) 3,314,839
Cash and cash equivalents,
beginning 6,094,926 6,096,113 2,781,274
---------- --------- ---------
Cash and cash equivalents,
ending $ 4,127,543 $ 6,094,926 $ 6,096,113
========= ========= =========
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
FARMERS NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
1. Summary of significant accounting policies
Farmers National Bancorp, Inc. and its wholly-owned subsidiary, Farmers
National Bank, provide loan, deposit and other commercial banking services
through one full service and three limited service offices in Newville,
Cumberland County. The Corporation competes with several other financial
institutions to provide its services to individuals, businesses,
municipalities and other organizations.
The accounting and reporting policies followed by the Corporation and
subsidiary conform to generally accepted accounting principles and to
general practices within the banking industry. The following paragraphs
briefly describe the more significant accounting policies:
Basis of financial statement presentation
The Corporation's consolidated financial statements include the accounts of
the parent corporation and its subsidiary. Material intercompany accounts
and transactions have been eliminated.
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the balance sheet date, and income and expenses for the
period then ended. Actual results could differ significantly from those
estimates. The material estimate that is particularly susceptible to
significant change relates to the determination of the allowance for
possible loan losses.
Cash and cash equivalents
Cash and cash equivalents, for purposes of the statement of cash flows,
consists of the Bank's cash and due from banks and federal funds sold.
Generally, federal funds are purchased and sold for one day periods.
Investment securities
Investment securities available for sale are those securities that the
Corporation intends to hold for an indefinite period of time, but not
necessarily to maturity. Any decision to sell a security classified as
available for sale would be based on various factors, including movements
in interest rates, changes in the maturity mix of the Corporation's assets
and liabilities, liquidity needs, regulatory considerations and other
similar factors. Investment securities available for sale are carried at
fair value. Unrealized gains or losses are reported as changes in
shareholders' equity net of the related deferred tax effect. Any realized
gains or losses, based on the amortized cost of specific securities sold,
are included in current operations.
F-7
<PAGE>
FARMERS NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd.)
DECEMBER 31, 1997, 1996 AND 1995
1. Summary of significant accounting policies (Cont'd.)
Investment securities (Cont'd.)
Investment securities held to maturity are those securities that the
Corporation has both the intent and ability to hold to maturity regardless
of changes in market conditions, liquidity needs or changes in general
economic conditions. These securities are carried at cost adjusted for
amortization of premiums and accretion of discounts, which are included as
adjustments to interest income over their contractual lives.
Loans
Loans are stated at face value net of any unearned income. Interest is
computed based on the principal balances outstanding and is credited to
income as earned. Loan fees collected net of the costs of originating the
loans are deferred and recognized as an adjustment of the yield on the
related loan.
The accrual of interest on loans is discontinued when, in management's
judgment, it is determined that the collection of interest, but not
necessarily principal, is doubtful.
Allowance for possible loan losses
The allowance for possible loan losses is maintained at a level believed
adequate by management to absorb potential losses in the loan portfolio.
Management's determination of the adequacy of the allowance is based on an
evaluation of the portfolio, past loan loss experience, current economic
conditions, volume, growth and composition of the loan portfolio,
collateral pledged, and other relevant factors. The allowance is increased
by provisions charged to operations and the recovery of amounts previously
charged off. The allowance is decreased by loans charged off when
management's evaluation reflects permanent impairment of loan principal.
Premises and equipment
Premises, equipment and leasehold improvements are stated at cost less
accumulated depreciation and amortization. Depreciation is computed using
the straight-line method for financial reporting and the straight-line and
accelerated methods for income tax purposes. When property is retired or
disposed of, the cost and related accumulated depreciation are removed from
the accounts, and any resulting gain or loss is reflected in operations.
Major additions or replacements are capitalized, while repairs and
maintenance are charged to expense as incurred.
F-8
<PAGE>
FARMERS NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd.)
DECEMBER 31, 1997, 1996 AND 1995
1. Summary of significant accounting policies (Cont'd.)
Compensated absences
The Corporation allows employees to accumulate unused sick days up to
a maximum of 80 days. Vacation days must be used annually and are not
allowed to accumulate. The Corporation accrues compensated absences
based on the accumulated unused sick days at December 31 annually at
the then existing rate of compensation.
Federal income taxes
The provision for income taxes is based on income as reported in the
financial statements. Certain items of income and expense are
recognized in different periods for financial reporting purposes than
for federal income tax purposes. Deferred income taxes are provided
for in the financial statements for such temporary differences.
Pension Plan
Pension plan costs for the Corporation's defined benefit pension plan
are accounted for in accordance with the requirements of Statement of
Financial Accounting Standards No. 87. The projected unit credit
method is utilized for measuring net periodic pension cost over the
employee's service life. This plan was frozen in March, 1993 (See Note
14).
The Corporation maintains a defined contribution pension plan (401-K)
covering substantially all employees. Employees may elect to defer
from 1% to 15% of compensation annually. Employer contributions to the
plan are discretionary and are determined annually (See Note 14).
Per share data
Net income and dividends per share are computed based upon the
weighted average number of shares outstanding during each year,
adjusted retroactively for stock splits and/or stock dividends.
F-9
<PAGE>
FARMERS NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd.)
DECEMBER 31, 1997, 1996 AND 1995
1. Summary of significant accounting policies (Cont'd.)
Off balance sheet financial instruments
In the ordinary course of business the Corporation has entered into
off balance sheet financial instruments consisting of commitments to
extend credit and standby letters of credit. Such financial
instruments are recorded in the financial statements when they become
payable.
Reclassifications
Certain 1995 and 1996 amounts have been reclassified to conform to the
1997 presentation.
2. Restrictions on cash and due from banks
The Bank is required to maintain average reserve balances with the
Federal Reserve Bank. The average amount of these reserve balances for
the years 1997 and 1996 approximated $214,000 and $190,000,
respectively. In addition, the Bank's main correspondents may require
average compensating balances as part of their agreement to provide
services.
F-10
<PAGE>
FARMERS NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd.)
DECEMBER 31, 1997, 1996 AND 1995
3. Investment securities
The amortized cost and estimated fair values of investment securities are
reflected in the following schedules.
Gross Gross
Amortized Unrealized Unrealized
Held-to-maturity Cost Gains Losses Fair Value
----------------- --------- ---------- ---------- -----------
1997
-----
U.S. Treasury and other
U.S. Government agencies $ 9,801,872 $ 167,330 $ 3,858 $ 9,965,344
State and municipal 3,995,312 26,009 -0- 4,021,321
Other securities 383,578 33 -0- 383,611
------------ ----------- ---------- -----------
Total $ 14,180,762 $ 193,372 $ 3,858 $14,370,276
========== ======= ======== ==========
1996
----
U.S. Treasury and other
U.S. Government agencies $ 11,838,617 $ 273,425 $ 29,925 $12,082,117
State and municipal 2,453,158 14,851 536 2,467,473
Other securities 129,581 -0- 339 129,242
------------ ----------- --------- -----------
Total $ 14,421,356 $ 288,276 $ 30,800 $ 14,678,832
========== ======= ====== ==========
Gross Gross
Amortized Unrealized Unrealized
Available-for-sale Cost Gains Losses Fair Value
------------------ --------- ---------- -------- -----------
1997
----
U.S. Treasury and other
U.S. Government agencies $ 5,528,284 $ 11,913 $ 964 $ 5,539,233
State and municipal 85,187 143 -0- 85,330
Other securities 37,050 -0- -0- 37,050
------------ ------------ --------- -----------
Total $ 5,650,521 $ 12,056 $ 964 $ 5,661,613
========== ========= ======== ==========
1996
-----
U.S. Treasury and other
U.S. Government agencies $ 3,793,670 $ 8,000 $ 12,421 $ 3,789,249
State and municipal 86,640 37 -0- 86,677
Other securities 37,050 -0- -0- 37,050
------------ ------------ --------- ------------
Total $ 3,917,360 $ 8,037 $ 12,421 $ 3,912,976
========== ========== ====== ==========
F-11
<PAGE>
FARMERS NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd.)
DECEMBER 31, 1997, 1996 AND 1995
3. Investment securities (Cont'd.)
The amortized cost and fair value of debt securities at December 31, 1997, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because issuers may have the right to prepay obligations
with or without call or prepayment penalties.
Amortized
Held-to-maturity Cost Fair Value
--------------- -------- ----------
Due in one year or less $ 5,871,452 $ 5,884,727
Due after one year through five years 7,001,176 7,032,838
Due after five years through ten years -0- -0-
Due after ten years 1,308,134 1,452,711
----------- -----------
Total $ 14,180,762 $ 14,370,276
========== ==========
Amortized
Available-for-sale Cost Fair Value
----------------- -------- ----------
Due in one year or less $ 855,104 $ 856,191
Due after one year through five years 4,758,367 4,768,372
Due after five years through ten years -0- -0-
Due after ten years -0- -0-
No scheduled maturities (FRB and
ACBB stock) 37,050 37,050
------------ -------------
Total $ 5,650,521 $ 5,661,613
========== ===========
A summary of net unrealized gains (losses) on investment securities
available for sale at December 31 is as follows:
1997 1996 1995
------------ ------------ --------
Gross unrealized gains (losses) $ 11,082 $ (663) $ 3,720
Related deferred tax asset (liability) (3,768) 225 (1,265)
------ -------- ------
Net unrealized gain (loss) on $ 7,314 $ (438) $ 2,455
securities available for sale ======= ======= ======
F-12
<PAGE>
FARMERS NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd.)
DECEMBER 31, 1997, 1996 AND 1995
3. Investment securities (Cont'd.)
The bank is required to maintain a stock balance of $25,050 with the
Federal Reserve Bank which is included with investment securities
available-for-sale.
Securities with an amortized cost of $196,166 and $400,751 and fair
values of $200,179 and $416,394 at December 31, 1997 and 1996,
respectively, were pledged as collateral for public deposits and for
other purposes as required or permitted by law.
4. Loans
Loans at December 31 consisted of the following:
1997 1996
---------------- ----------
Consumer $ 1,439,988 $ 1,191,018
Commercial and financial 1,402,173 1,237,902
Real estate - commercial 2,228,675 2,334,161
Real estate - residential 10,907,467 10,334,242
Student loans 587,040 589,653
------------ ------------
16,565,343 15,686,976
Less: Deferred loan fees (78,909) (74,542)
Allowance for possible loan losses (175,869) (193,389)
----------- -----------
Loans, net $ 16,310,565 $ 15,419,045
========== ==========
The Corporation, in the ordinary course of business, has loan, deposit and
other routine transactions with its executive officers, directors and
entities in which they have principal ownership. Loans are made to such
related parties at substantially the same credit terms as other borrowers
and do not represent more than the usual risk of collection. Activity for
these related party loans for the years ended December 31, 1997 and 1996 is
as follows:
F-13
<PAGE>
FARMERS NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd.)
DECEMBER 31, 1997, 1996 AND 1995
4. Loans (Cont'd.)
1997 1996
-------------- ---------
Balance, January 1 $ 81,891 $ 53,875
New loans 123,000 41,212
Payments (48,187) (13,196)
-------- --------
$ 156,704 $ 81,891
======== ========
Balance, December 31
Included within the loan portfolio are loans on which the Bank has
discontinued the accrual of interest. Such loans totaled $268,186, $98,104
and $-0- at December 31, 1997, 1996 and 1995, respectively. If interest
income had been recorded on all non-accrual loans outstanding during 1997,
1996 and 1995, interest income would have been increased by approximately
$10,604, $500 and $-0-, respectively.
5. Allowance for possible loan losses
An analysis of the changes in the allowance for possible loan losses for
the years ended December 31, 1997, 1996 and 1995 is as follows:
1997 1996 1995
---- ---- ----
Balance, January 1 $ 193,389 $ 201,149 $ 202,687
Provision charged to operations -0- -0- -0-
Recoveries on charged off loans 4,276 2,995 6,693
Loans charged off (21,796) (10,755) (8,231)
------- ------- --------
Balance, December 31 $ 175,869 $ 193,389 $ 201,149
======= ======= =======
F-14
<PAGE>
FARMERS NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd.)
DECEMBER 31, 1997, 1996 AND 1995
6. Concentrations of credit risk
Substantially all of the Corporation's business activity, including
loans and loan commitments, is with customers located within
Cumberland County of Pennsylvania. The portfolio is diversified with
no single industry comprising greater than ten percent of the total
loans outstanding. A large portion of the portfolio is secured by real
estate as reflected in the classification of loans in Note 4.
7. Financial instruments with off balance sheet risk
The Corporation is a party to financial instruments with off balance
sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments consist primarily
of commitments to extend credit -- typically residential mortgage
loans and commercial loans -- and, to a lesser extent, standby letters
of credit. Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized on
the balance sheet.
The Corporation's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for
commitments to extend credit and standby letters of credit is
represented by the contractual amount of those instruments. The
Corporation uses the same credit policies in making commitments and
conditional obligations as it does for on balance sheet instruments.
The Corporation does not anticipate any material losses from those
commitments.
Commitments to extend credit are agreements to lend to a customer as
long as there are no violations of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of
the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. The Corporation evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Corporation upon extensions of
credit, is based on management's credit evaluation of the customer.
Collateral held varies but may include accounts receivable, inventory,
property, plant and equipment, and income-producing commercial
properties. On loans secured by real estate, the Corporation generally
requires loan to value ratios of no greater than 80%.
F-15
<PAGE>
FARMERS NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd.)
DECEMBER 31, 1997, 1996 AND 1995
7. Financial instruments with off balance sheet risk (Cont'd.)
Standby letters of credit are conditional commitments issued by the
Corporation to guarantee the performance of a customer to a third
party. Those guarantees are primarily issued to support public and
private borrowing arrangements, including commercial paper, bond
financing, and similar transactions. The terms of the letters of
credit vary and may have renewal features. The credit risk involved in
using letters of credit is essentially the same as that involved in
extending loans to customers. The Corporation holds collateral
supporting those commitments for which collateral is deemed necessary.
A summary of the Corporation's exposure for loan commitments and
standby letters of credit at December 31, 1997 and 1996 is as follows:
1997 1996
------------ --------
Commitments to extend credit $ 150,500 $ 231,741
Standby letters of credit 153,037 153,037
--------- ---------
Total $ 303,537 $ 384,778
======= =======
8. Premises and equipment
Premises and equipment at December 31 consisted of the following:
Estimated Useful Life 1997 1996
--------------------- --------------- ----------
Land $ 47,000 $ 47,000
Bank premises 15 to 50 years 397,946 347,720
Leasehold improvements 5 to 10 years 83,658 83,658
Furnishings and equipment 3 to 20 years 492,978 453,604
---------- ---------
1,021,582 931,982
Accumulated depreciation (620,519) (574,758)
-------- --------
Total $ 401,063 $ 357,224
========== =========
Depreciation charged to operating expense in 1997, 1996 and 1995 totaled
$45,762, $49,022 and $43,323, respectively.
F-16
<PAGE>
FARMERS NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd.)
DECEMBER 31, 1997, 1996 AND 1995
9. Time deposits
Scheduled maturities of time deposits at December 31, 1997 are as follows:
1998 $ 11,634,790
1999 3,165,430
2000 766,915
2001 213,030
2002 33,000
2003 and thereafter -0-
----------------
Total $ 15,813,165
==========
10. Time certificates of deposit
Time certificates of deposit of $100,000 or more at December 31, 1997
and 1996 amounted to $1,822,159 and $1,161,112, respectively.
Interest expense on time certificates of deposit of $100,000 or more
approximated $75,633, $68,377 and $43,000 in 1997, 1996 and 1995,
respectively.
11. Common stock
Net income per share, dividends per share and weighted average shares
outstanding references reflect the effects of a two-for-one stock
split declared November 26, 1996, effective as of January 2, 1997.
12. Lease commitments
In 1995, the Corporation entered into an agreement to lease office
space for a branch bank operation. Under terms of the agreement, the
Corporation leases the space for a ten year period with one five year
renewal option. Lease payments total $4,800 annually for the first
five years, with a $600 annual increase in each of the last five years
of the initial term. The Corporation is responsible for certain
insurance charges and real estate tax increases. Future minimum net
lease rentals are as follows:
1998 $ 4,800
1999 4,800
2000 5,100
2001 5,700
2002 6,300
2003 and thereafter 18,300
F-17
<PAGE>
FARMERS NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd.)
DECEMBER 31, 1997, 1996 AND 1995
13. Federal income taxes
Income tax expense (benefit) for the years ended December 31, 1997,
1996 and 1995 and the related effective income tax rates are comprised
of the following items:
<TABLE>
1997 1996
------------------- ------------------
Amount Rate Amount Rate
----- ------ ------ ----
<S> <C> <C> <C> <C>
Tax at statutory rates $ 257,205 34.00% $ 232,751 34.00%
Tax exempt income (48,105) (6.36) (31,905) (4.67)
Interest paid to carry
tax exempt items 6,403 .85 4,420 .66
Other items 106 .01 (458) (.07)
----------- --------- ---------- --------
Total $ 215,609 28.50% $ 204,808 29.92%
======= ===== ======= =====
<CAPTION>
1995
--------------------
Amount Rate
------- ----
<S> <C> <C>
Tax at statutory rates $ 200,511 34.00%
Tax exempt income (39,311) (6.67)
Interest paid to carry
tax exempt items 14,986 2.54
Other items (977) (.16)
--------- --------
Total $ 175,209 29.71%
======= ======
</TABLE>
Deferred income tax results from income and expense items which are
recognized for financial statement purposes in different reporting
periods than for federal income tax purposes. The current and deferred
portions of applicable income taxes (benefits) were as follows:
1997 1996 1995
------------ ------------ --------
Current tax payable $ 218,470 $ 205,835 $ 178,371
Deferred tax (benefit) (2,861) (1,027) (3,162)
-------- --------- ---------
Applicable federal
income tax $ 215,609 $ 204,808 $ 175,209
======= ======= =======
F-18
<PAGE>
FARMERS NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd.)
DECEMBER 31, 1997, 1996 AND 1995
13. Federal income taxes (Cont'd.)
The Corporation provides deferred taxes, at the 34% statutory tax
rate, on cumulative temporary differences. Components of deferred tax
assets and liabilities at December 31 are as follows:
1997 1996
------------ --------
Deferred tax assets
Allowance for loan loss $ 21,161 $ 27,117
Loans, including fees 5,663 8,495
Investment securities -0- 226
Compensated absences 21,222 19,421
Deferred compensation 28,181 21,982
-------- --------
76,227 77,241
-------- --------
Deferred tax liabilities
Accumulated depreciation 27,595 27,937
Pension 4,874 8,181
Investment securities 3,768 -0-
--------- -----------
36,237 36,118
-------- --------
Net deferred tax assets $ 39,990 $ 41,123
======== ========
14. Pension plans
The Corporation sponsored a noncontributory defined benefit pension plan
covering substantially all of its employees. In March, 1993, the
Corporation froze the plan and the benefits at the then existing amounts.
Plan benefits are based on years of service and average compensation. The
funding policy had been to contribute annually the amount necessary to fund
the current normal cost and to amortize the past service funding base over
40 years, while staying within the maximum deductible amount for federal
income taxes.
The following schedule sets forth the plan's funded status and amounts
recognized in the Bank's balance sheets at December 31, 1997, 1996 and
1995:
1997 1996 1995
------------- ------------ --------
Service cost-benefits earned
during the year $ -0- $ -0- $ -0-
Interest cost on projected benefit
obligation 27,247 29,727 29,225
Actual return on plan assets (23,330) (31,328) (30,583)
Net amortization and deferral 5,811 10,466 2,247
--------- ------- ---------
Net periodic pension expense $ 9,728 $ 8,865 $ 889
========= ======== ==========
F-19
<PAGE>
FARMERS NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd.)
DECEMBER 31, 1997, 1996 AND 1995
14. Pension plans (Cont'd.)
Actuarial present value of accumulated plan benefits:
1997 1996
-------------- ---------
Projected benefit obligation (all vested) 649,900 $ 544,931
Plan assets at fair value, primarily
annuity contracts 510,610 493,085
----------- ---------
Projected benefit obligation in excess 139,290 51,846
of plan assets
Unrecognized gain or (loss) 24,767 114,375
Unrecognized net transition liability (178,391) (190,283)
-------- --------
Accrued (prepaid) pension expense $ 14,334 $ (24,062)
========== =========
Assumptions used:
Weighted average discount rate 5.00% 6.00%
Weighted average rate of compensation increase N/A N/A
Expected long-term rate of return on plan assets 6.00% 6.00%
In March, 1993, the Corporation adopted a defined contribution pension plan
(401-K) covering all employees with over one year of service and completing
more than 1,000 hours of service per year. Employees may elect to defer
from 1% to 15% of compensation (subject to IRS limitations) which vest
immediately. Employer contributions to the plan are discretionary, and do
not vest until the employee has completed five years of service.
Contributions to the plan totaled $38,328, $35,411 and $34,259 for the
years ended December 31, 1997, 1996 and 1995, respectively.
15. Deferred compensation
In 1993, the Corporation entered into a "Salary Continuation Plan
Agreement" with an employee/officer of the Bank in recognition of the many
years of service the employee has provided to the Bank. Under terms of the
agreement, the Corporation credits $15,000 plus a 5% interest accrual
factor to the employee's account annually. Amounts in the account are fully
vested and may be withdrawn upon the employee's separation of service.
Amounts charged to compensation during the years ended December 31, 1997,
1996 and 1995 totaled $18,232, $17,365 and $17,288, respectively.
F-20
<PAGE>
FARMERS NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd.)
DECEMBER 31, 1997, 1996 AND 1995
16. Regulatory matters and shareholders' equity
The Corporation is subject to various regulatory capital requirements
administered by its primary federal regulator, the Federal Deposit
Insurance Corporation (FDIC). Failure to meet the minimum regulatory
capital requirements can initiate certain mandatory, and possible
additional discretionary actions by regulators, that if undertaken,
could have a direct material affect on the Corporation and the
consolidated financial statements. Under the regulatory capital
adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines involving
quantitative measures of the Bank's assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification under the
prompt corrective action guidelines are also subject to qualitative
judgments by the regulators about components, risk weightings and
other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios of:
total risk-based capital and Tier I capital to riskweighted assets (as
defined in the regulations), and Tier I capital to adjusted total
assets (as defined). Management believes, as of December 31, 1997,
that the Bank meets all the capital adequacy requirements to which it
is subject.
As of December 31, 1997, the most recent notification from the FDIC,
the Bank was categorized as well capitalized under the regulatory
framework for prompt corrective action. To remain categorized as well
capitalized, the Bank will have to maintain minimum total risk-based,
Tier I risk-based and Tier I leverage ratios as disclosed in the table
below. There are no conditions or events since the most recent
notification that management believes have changed the Bank's prompt
corrective action category.
F-21
<PAGE>
FARMERS NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd.)
DECEMBER 31, 1997, 1996 AND 1995
16. Regulatory matters and shareholders' equity (Cont'd.)
The Bank's actual and required capital amounts and ratios are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
For Capital
Actual Adequacy Purposes
---------------------- ---------------------
Amount Ratio Amount Ratio
------- ----- ------ -----
<S> <C> <C> <C> <C>
As of December 31, 1997
Total Risk-Based Capital
(to Risk-Weighted Assets) $5,633 35.5% >$1,271 >8.0%
- -
Tier I Capital
(to Risk-Weighted Assets) $5,457 34.4% > $ 635 >4.0%
- -
Tier I Capital
(to Adjusted Total Assets) $5,457 13.1% >$1,656 >4.0%
- -
As of December 31, 1996
Total Risk-Based Capital
(to Risk-Weighted Assets) $5,219 36.0% >$1,159 >8.0%
- -
Tier I Capital
(to Risk-Weighted Assets) $5,038 34.8% >$ 579 >4.0%
- -
Tier I Capital
(to Adjusted Total Assets) $5,038 12.3% >$1,635 >4.0%
- -
<CAPTION>
To Be Well Capital-
ized Under The
Prompt Corrective
Action Provisions
-------------------
Amount Ratio
------ -----
<S> <C> <C>
As of December 31, 1997
Total Risk-Based Capital
(to Risk-Weighted Assets) >$1,588 >10.0%
- -
Tier I Capital
(to Risk-Weighted Assets) >$ 953 > 6.0%
- -
Tier I Capital
(to Adjusted Total Assets) >$2,070 > 5.0%
- -
As of December 31, 1996
Total Risk-Based Capital
(to Risk-Weighted Assets) >$1,449 >10.0%
- -
Tier I Capital
(to Risk-Weighted Assets) >$ 869 > 6.0%
- -
Tier I Capital
(to Adjusted Total Assets) >$2,044 > 5.0%
- -
</TABLE>
Certain restrictions exist regarding the ability of the Bank to
transfer funds to the Corporation in the form of cash dividends, loans
or advances. The approval of the Comptroller of the Currency is
required to pay dividends in excess of earnings retained in the
current year plus retained net profits for the preceding two years. As
of December 31, 1997, $1,092,411 of undistributed earnings of the
Bank, included in consolidated retained earnings, was available for
distribution to the Corporation as dividends without prior regulatory
approval.
Under national banking laws, the Bank is also limited as to the amount
it may loan to the Corporation, unless such loans are collateralized
by specific obligations.
17. Additional cash flow information
Cash paid during the years ended December 31 for interest and income
taxes is as follows:
1997 1996 1995
------------ ------------ --------
Interest $1,162,167 $1,120,315 $1,003,639
Federal income taxes $ 233,435 $ 178,400 $ 265,540
F-22
<PAGE>
FARMERS NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd.)
DECEMBER 31, 1997, 1996 AND 1995
18. Parent company only financial statements
Balance sheet - December 31 1997 1996
- --------------------------- ----------------- -----------
Assets
Cash $ 389 $ 51,495
Investment in subsidiary 5,463,820 5,038,084
--------- ---------
Total Assets $ 5,464,209 $ 5,089,579
========= =========
Liabilities
None $ -0- $ -0-
-------------- --------------
Shareholder's equity
Common Stock 125,000 125,000
Surplus 710,000 710,000
Retained earnings 4,671,895 4,255,017
Net unrealized gains (losses) on
securities available for sale 7,314 (438)
------------ ------------
5,514,209 5,089,579
Less: Treasury stock, 2,000
shares, at cost (50,000) -0-
---------- --------------
5,464,209 5,089,579
--------- ---------
Total shareholders' equity
Total liabilities and shareholders'
equity $ 5,464,209 $ 5,089,579
========= =========
F-23
<PAGE>
FARMERS NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd.)
DECEMBER 31, 1997, 1996 AND 1995
18. Parent company only financial statements (Cont'd.)
Statement of income -
year ended December 31 1997 1996 1995
- ---------------------- ------------ ------------ --------
Income
Dividends from subsidiary $ 131,500 $ 170,500 $ 113,750
------- ------- -------
Expenses
Amortization -0- 9,302 9,302
Others, primarily
professional fees 8,606 7,165 6,840
--------- --------- ---------
Total expenses 8,606 16,467 16,142
--------- -------- --------
Income before income taxes and
equity in undistributed net
income of subsidiary 122,894 154,033 97,608
Applicable income taxes -0- -0- -0-
-------- -------- ---------
122,894 154,033 97,608
Undistributed net income of
subsidiary 417,984 325,721 316,921
------- ------- -------
Net income $ 540,878 $ 479,754 $ 414,529
======= ======= =======
Statement of cash flows -
year ended December 31 1997 1996 1995
- ---------------------- ----- ----- ----
Operating activities
Net income $ 540,878 $ 479,754 $ 414,529
Adjustments to
reconcile net income to
net cash provided by
operating activities
Amortization -0- 9,302 9,302
Undistributed net
income of subsidiary (417,984) (325,721) (316,921)
-------- -------- --------
Cash provided by
operating activities 122,894 163,335 106,910
--------- ------- -------
Financing activities
Purchase of Treasury
Stock (50,000) -0- -0-
Dividends paid (124,000) (112,500) (106,250)
-------- -------- --------
Net cash used in financing
activities (174,000) (112,500) (106,250)
-------- -------- --------
Net increase (decrease)
in cash and (51,106) 50,835 660
cash equivalents
Cash and cash equivalents,
beginning 51,495 660 -0-
-------- ------------ -----------
Cash and cash equivalents,
ending $ 389 $ 51,495 $ 660
========== ========== ==========
F-24
<PAGE>
FARMERS NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd.)
DECEMBER 31, 1997, 1996 AND 1995
19. Contingencies
The Corporation is subject to numerous claims and lawsuits which arise
primarily in the normal course of business. At December 31, 1997,
there were no such claims which, in the opinion of management, would
have a material adverse effect on the financial position of the
Corporation.
20. Subsequent event
On July 28, 1998, the Board of Directors executed an Agreement and
Plan of Reorganization (the "Agreement") among the Corporation, the
Bank and ACNB Corporation ("ACNB") headquartered in Gettysburg,
Pennsylvania. The Agreement provides that the affiliation will be
effected by means of a merger of the Corporation and a subsidiary of
ACNB. In the merger, each shareholder of the Corporation will receive
2.266 shares of ACNB common stock in exchange for each share of the
Corporation's stock, subject to certain terms, conditions and
limitations set forth in the Agreement.
Completion of the merger is subject to approval by various regulatory
agencies and the shareholders of the Corporation.
F-25
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF THE TWENTY-EIGHTH DAY OF JULY, 1998
BY AND AMONG
ACNB CORPORATION,
ACNB NORTH, INC.
FARMERS NATIONAL BANCORP, INC.
AND
FARMERS NATIONAL BANK OF NEWVILLE
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF THE TWENTY-EIGHTH DAY OF JULY, 1998
BY AND AMONG
ACNB CORPORATION,
ACNB NORTH, INC.
FARMERS NATIONAL BANCORP, INC.
AND
FARMERS NATIONAL BANK OF NEWVILLE
TABLE OF CONTENTS
Page(s)
ARTICLE I
THE PLAN OF MERGER
SECTION 1.1 The Merger, Closing: Effective Time .......................2
ARTICLE II
CONVERSION OF SHARES AND
EXCHANGE OF STOCK CERTIFICATES
SECTION 2.1 Conversion of Shares........................................3
SECTION 2.2 Exchange of Stock Certificates..............................4
SECTION 2.3 Other Matters...............................................7
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of Farmers Bancorp
and Farmers National......................................8
SECTION 3.2 Representations and Warranties of ACNB....................25
SECTION 3.3 Representations and Warranties of ACNB North..............28
ARTICLE IV
COVENANTS OF FARMERS BANCORP AND FARMERS NATIONAL
SECTION 4.1 Conduct of Business.......................................29
SECTION 4.2 Best Efforts..............................................32
SECTION 4.3 Access to Properties and Records..........................33
SECTION 4.4 Subsequent Financial Statements...........................33
SECTION 4.5 Board and Committee Minutes...............................34
SECTION 4.6 Update Schedule...........................................34
SECTION 4.7 Notice....................................................34
SECTION 4.8 Other Proposals...........................................34
SECTION 4.9 Dividends.................................................34
SECTION 4.10 Core Deposits.............................................35
SECTION 4.11 Affiliate Letters.........................................35
SECTION 4.12 No Purchases or Sales of ACNB Common Stock
During Price Determination Period........................35
SECTION 4.13 Accounting Treatment......................................35
SECTION 4.14 Press Releases............................................35
SECTION 4.15 Phase I Environmental Audit...............................36
<PAGE>
ARTICLE V
COVENANTS OF ACNB AND ACNB NORTH
SECTION 5.1 Best Efforts..............................................36
SECTION 5.2 Access to Properties and Records..........................37
SECTION 5.3 Subsequent Financial Statements...........................37
SECTION 5.4 Update Schedule...........................................37
SECTION 5.5 Notice....................................................37
SECTION 5.6 No Purchase or Sales of ACNB Common Stock
During Price Determination Period........................37
SECTION 5.7 Publicity.................................................38
SECTION 5.8 Indemnification...........................................38
ARTICLE VI
CONDITIONS TO CONSUMMATION
SECTION 6.1 Common Conditions.........................................38
SECTION 6.2 Conditions to Obligations of ACNB and ACNB North..........40
SECTION 6.3 Conditions to the Obligations of Farmers Bancorp
and Farmers National ....................................42
ARTICLE VII
TERMINATION
SECTION 7.1 Termination...............................................43
SECTION 7.2 Effect of Termination.....................................44
SECTION 7.3 Expenses..................................................45
ARTICLE VIII
POST MERGER AGREEMENTS
SECTION 8.1 Employees.................................................45
SECTION 8.2 Officers..................................................45
SECTION 8.3 Directors.................................................46
SECTION 8.4 Farmers National Board of Directors.......................46
SECTION 8.5 Certain Matters...........................................46
SECTION 8.6 NASDAQ Listing............................................46
ARTICLE IX
OTHER MATTERS
SECTION 9.1 Certain Definitions; interpretation.......................47
SECTION 9.2 Survival..................................................48
SECTION 9.3 Parties in Interest.......................................48
SECTION 9.4 Captions..................................................48
SECTION 9.5 Severability..............................................48
SECTION 9.6 Access; Confidentiality...................................48
SECTION 9.7 Waiver and Amendment......................................49
SECTION 9.8 Counterparts..............................................49
SECTION 9.9 Governing Law.............................................49
SECTION 9.10 Expenses..................................................49
SECTION 9.11 Notices...................................................49
SECTION 9.12 Entire Agreement: Etc.....................................50
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION dated as of the twenty-eighth day of
July, 1998 (this "Plan" or this "Agreement"), is entered into by and among ACNB
Corporation, a Pennsylvania corporation ("ACNB"), ACNB North, Inc., a
Pennsylvania corporation, ("ACNB North"), Farmers National Bancorp, Inc., a
Pennsylvania corporation ("Farmers Bancorp"), and Farmers National Bank of
Newville, a national banking association ("Farmers National").
RECITALS:
WHEREAS, ACNB is a Pennsylvania bank holding company; and
WHEREAS, ACNB North is a wholly-owned subsidiary of ACNB created solely to
facilitate the transactions described in this Agreement; and
WHEREAS, Farmers Bancorp is a Pennsylvania bank holding company; and
WHEREAS, Farmers National is the wholly-owned national bank subsidiary of
Farmers Bancorp; and
WHEREAS, the boards of directors of ACNB, ACNB North, Farmers Bancorp and
Farmers National have each determined that it is in the best interests of their
respective shareholders for ACNB North to statutorily merge with and into
Farmers Bancorp (the "Merger") as a result of which Farmers National will become
a wholly-owned, second tier subsidiary of ACNB, all upon the terms and subject
to the conditions set forth herein; and
WHEREAS, the parties desire to make certain representations, warranties,
covenants and agreements in connection with this Agreement and to set forth the
conditions to the Merger; and
WHEREAS, Farmers Bancorp and ACNB North desire to merge in the manner
provided for herein and to adopt this Agreement as a plan of reorganization and
to consummate such plan in accordance with the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of their mutual promises and obligations
hereunder, the parties hereto, intending to be legally bound hereby, adopt and
make this Agreement and prescribe the terms and conditions hereof and the manner
and basis of carrying it into effect, which shall be as follows:
1
<PAGE>
ARTICLE I
THE PLAN OF MERGER
SECTION 1.1 The Merger; Closing; Effective Time.
(a) Subject to the terms and conditions of this Agreement and in accordance
with the applicable laws of the Commonwealth of Pennsylvania, at the
Effective Time (as defined in Section 1.1(c)), ACNB North shall be merged
with and into Farmers Bancorp and the separate corporate existence of ACNB
North shall thereupon cease. Farmers Bancorp shall be the surviving
corporation in the Merger (sometimes hereinafter referred to as the
"Surviving Corporation") and shall continue to be governed by the laws of
the Commonwealth of Pennsylvania and shall be a registered bank holding
company under the Bank Holding Company Act of 1956, as amended, and the
separate corporate existence of Farmers Bancorp with all its rights,
privileges, immunities, powers and franchises shall continue unaffected by
the Merger. The name of the Surviving Corporation shall be "ACNB North,
Inc.". The Merger shall have the effects specified in the Pennsylvania
Business Corporation Law of 1988, as amended (the "PBCL"').
(b) The closing of the Merger (the "Closing") shall take place at such place
and time and on such date, following three (3) business days' notice to
Farmers Bancorp, as shall be agreed upon by all parties, which date shall
not be later than the 30th business day after (i) the last approval of
required governmental authorities is granted and any related waiting
periods expire, (ii) the lifting, discharge or dismissal of any stay of any
such governmental approval or of any injunction against the Merger and
(iii) all shareholder approvals required by the parties hereunder are
received.
(c) Immediately following the Closing, and provided that this Agreement has not
been terminated or abandoned pursuant to Article VII hereof, ACNB North and
Farmers Bancorp will cause articles of merger (the "Articles of Merger") to
be delivered and properly filed with the Department of State of the
Commonwealth of Pennsylvania (the "Department of State"). The Merger shall
become effective at 11:59 p.m. on the day on which the Closing occurs and
Articles of Merger are filed with the Department of State or such later
date as may be specified in the Articles of Merger (the "Effective Time").
The "Effective Date" when used herein means the day on which the Effective
Time for the Merger occurs.
(d) At the Effective Time, the articles of incorporation and bylaws of ACNB
North in effect immediately prior to the Effective Time shall be the
articles of incorporation and bylaws of the Surviving Corporation. At the
Effective Time, the directors and officers of ACNB North immediately prior
to the Effective Time shall be and become the directors and officers of the
Surviving Corporation with such additions or deletions as ACNB, in its sole
discretion, may determine.
2
<PAGE>
ARTICLE II
CONVERSION OF SHARES AND
EXCHANGE OF STOCK CERTIFICATES
SECTION 2.1 Conversion of Shares.
On the Effective Date (as defined in Section 1.1(c) of this Agreement) the
shares of Farmers Bancorp Common Stock (defined below) then outstanding shall be
converted into shares of ACNB Common Stock (defined below), as follows:
(a) General.
--------
Subject to the provisions of this Article II, each share of Farmers Bancorp
Common Stock, par value $0.50 per share ("Farmers Bancorp Common Stock")
issued and outstanding immediately before the Effective Date shall, on the
Effective Date, be converted into and become, without any action on the
part of the holder thereof, the right to receive 2.266 shares of ACNB
Common Stock, par value, $2.50 per share ("ACNB Common Stock") (the
"Exchange Ratio"). Subject to the provisions of Section 2.1(b), the
aggregate number of shares of ACNB Common Stock to be issued under this
Agreement shall not exceed 561,968 shares and the Exchange Ratio shall be
2.266.
(b) Anti-dilution Provision.
------------------------
In the event that ACNB shall at any time before the Effective Date: (i)
declare or pay a dividend in shares of ACNB Common Stock, (ii) combine the
outstanding shares of ACNB Common Stock into a smaller number of shares, or
(iii) subdivide the outstanding shares of ACNB Common Stock into a greater
number of shares, or (iv) reclassify the shares of ACNB stock, then the
Exchange Ratio shall be proportionately adjusted accordingly.
(c) No Fractional Shares.
----------------------
No fractional shares of ACNB Common Stock, and no scrip or certificates
therefor, shall be issued in connection with the Merger. In lieu of the
issuance of any fractional share to which he would otherwise be entitled,
each former shareholder of Farmers Bancorp shall receive in cash an amount
equal to the fair market value of his fractional interest, which fair
market value shall be determined by multiplying such fraction by the
Closing Market Price (as defined in Section 2.1(d) of this Article II).
(d) Closing Market Price.
---------------------
For purposes of this Agreement, the Closing Market Price shall be the
arithmetic average of the per share closing prices for ACNB Common Stock
for the twenty (20) trading days immediately preceding the date which is
five (5) business days before the Effective Date, as reported by two market
makers in ACNB Common Stock listed in ACNB's 1998 Annual Report to
Shareholders; or, in the event that neither of these firms is then making a
market in ACNB Common Stock by two brokerage firms then making a market in
ACNB Common Stock to be selected by ACNB and approved by Farmers Bancorp.
The foregoing twenty (20) trading days are hereinafter sometimes referred
to as the "Price Determination
3
<PAGE>
Period". (For example, if November 2, 1998 were to be the Effective Date,
then the Price Determination Period would be September 28, 29, 30, October
1, 2, 5, 6, 7, 8, 9, 12, 13, 14, 15, 16, 19, 20, 21, 22, 23, 1998.)
(e) Farmers Bancorp Treasury Stock.
-------------------------------
Each share of Farmers Bancorp Common Stock issued and held in the treasury
of Farmers Bancorp as of the Effective Date, if any, shall be canceled, and
no cash, stock, or other property shall be delivered in exchange therefor.
(f) ACNB Common Stock.
------------------
(i) Each share of ACNB Common Stock issued and outstanding immediately
prior to the Effective Date, shall, on and after the Effective Date,
continue to be issued and outstanding as an identical share of ACNB
Common Stock.
(ii) Each share of ACNB Common Stock issued and held in the treasury of
ACNB as of the Effective Date, if any, shall, on and after the
Effective Date, continue to be issued and held in the treasury of
ACNB.
(g) ACNB North Common Stock.
------------------------
Each share of ACNB North Common Stock issued and outstanding immediately
prior to the Effective Date, shall, on and after the Effective Date,
continue to be issued and outstanding as an identical share of ACNB North
Common Stock by virtue of and after the Merger, shall be converted into and
thereafter constitute the issued and outstanding shares of the capital
stock of the Surviving Corporation.
SECTION 2.2 Exchange of Stock Certificates.
Farmers Bancorp Common Stock certificates shall be exchanged for ACNB
Common Stock certificates in accordance with the following procedures:
(a) Exchange Agent.
---------------
The transfer agent of ACNB shall act as exchange agent (the "Exchange
Agent") to receive Farmers Bancorp Common Stock certificates from the
holders thereof and to exchange such stock certificates for ACNB Common
Stock certificates and (if applicable) to pay cash for fractional shares of
Farmers Bancorp Common Stock pursuant to Section 2.1(c) above. The Exchange
Agent shall, on or promptly after the Effective Date, mail to each former
shareholder of Farmers Bancorp a notice specifying the procedures to be
followed in surrendering such shareholder's Farmers Bancorp Common Stock
certificates.
(b) Surrender of Certificates.
---------------------------
As promptly as possible after receipt of the Exchange Agent's notice, each
former shareholder of Farmers Bancorp shall surrender his Farmers Bancorp
Common Stock certificates to the Exchange Agent; provided, that if any
former shareholder of Farmers Bancorp shall be unable to surrender his
Farmers Bancorp Common Stock certificates due to loss or mutilation
thereof, he
4
<PAGE>
may make a constructive surrender by following procedures comparable to
those customarily used by ACNB for issuing replacement certificates to ACNB
shareholders whose ACNB Common Stock certificates have been lost or
mutilated. Upon receiving a proper actual or constructive surrender of
Farmers Bancorp Common Stock certificates from a former Farmers Bancorp
shareholder, the Exchange Agent shall issue to such shareholder, in
exchange therefor, an ACNB Common Stock certificate representing the whole
number of shares of ACNB Common Stock into which such shareholder's shares
of Farmers Bancorp Common Stock have been converted in accordance with this
Article II, together with a check in the amount of any cash to which such
shareholder is entitled, pursuant to Section 2.1(c) of this Agreement, in
lieu of the issuance of a fractional share.
(c) Dividend Withholding.
----------------------
Dividends, if any, payable by ACNB after the Effective Date to any former
shareholder of Farmers Bancorp who has not prior to the payment date
surrendered his Farmers Bancorp Common Stock certificates may, at the
option of ACNB, be withheld. Any dividends so withheld shall be paid,
without interest, to such former shareholder of Farmers Bancorp upon proper
surrender of his Farmers Bancorp Common Stock certificates.
(d) Failure to Surrender Certificates.
-----------------------------------
All Farmers Bancorp Common Stock certificates must be surrendered to the
Exchange Agent within two (2) years after the Effective Date. In the event
that any former shareholder of Farmers Bancorp shall not have properly
surrendered his Farmers Bancorp Common Stock certificates within two (2)
years after the Effective Date, the shares of ACNB Common Stock that would
otherwise have been issued to him may, at the option of ACNB, be sold and
the net proceeds of such sale, together with the cash (if any) to which he
is entitled in lieu of the issuance of a fractional share and any
previously accrued dividends, shall be held in a non-interest bearing
account for his benefit. From and after any such sale, the sole right of
such former shareholder of Farmers Bancorp shall be the right to collect
such net proceeds, cash and accumulated dividends. Subject to all
applicable laws of escheat, such net proceeds, cash and accumulated
dividends shall be paid to such former shareholder of Farmers Bancorp,
without interest, upon proper surrender of his Farmers Bancorp Common Stock
certificates.
(e) Expenses of Share Surrender and Exchange.
-----------------------------------------
All costs and expenses associated with the foregoing surrender and exchange
procedure shall be borne by ACNB. Notwithstanding the foregoing, no party
hereto will be liable to any holder of Farmers Bancorp Common Stock for any
amount paid in good faith to a public official or agency pursuant to any
applicable abandoned property, escheat or similar law.
(f) Exchange Procedures.
---------------------
Each certificate for shares of Farmers Bancorp Common Stock delivered for
exchange under this Article II must be endorsed in blank by the registered
holder thereof or be accompanied by a power of attorney to transfer such
shares endorsed in blank by such holder. If more than one certificate is
surrendered
5
<PAGE>
at one time and in one transmittal package for the same shareholder
account, the number of whole shares of ACNB Common Stock for which
certificates will be issued pursuant to this Article II will be computed on
the basis of the aggregate number of shares represented by the certificates
so surrendered. If shares of Farmers Bancorp Common Stock or payments of
cash are to be issued or made to a person other than the one in whose name
the surrendered certificate is registered, the certificate so surrendered
must be properly endorsed in blank, with signature(s) guaranteed, or
otherwise in proper form for transfer, and the person to whom certificates
for shares of ACNB Common Stock is to be issued or to whom cash is to be
paid shall pay any transfer or other taxes required by reason of such
issuance or payment to a person other than the registered holder of the
certificate for shares of Farmers Bancorp Common Stock which are
surrendered. As promptly as practicable after the Effective Date, ACNB
shall send, or cause to be sent, to each shareholder of record of Farmers
Bancorp Common Stock, transmittal materials for use in exchanging
certificates representing Farmers Bancorp Common Stock for certificates
representing ACNB Common Stock into which the former have been converted in
the Reorganization and Merger.
(g) Closing of Stock Transfer Books; Cancellation of Farmers Bancorp
Certificates.
---------------------------------------------------------------------
Upon the Effective Date, the stock transfer books for Farmers Bancorp
Common Stock will be closed and no further transfers of shares of Farmers
Bancorp Common Stock will thereafter be made or recognized. All
certificates for shares of Farmers Bancorp Common Stock surrendered
pursuant to this Article II will be canceled by ACNB.
(h) Rights Evidenced by Certificate.
--------------------------------
Each certificate for shares of ACNB Common Stock issued in exchange for
certificates of Farmers Bancorp Common Stock pursuant to Section 2.2(f)
hereof will be dated as of the Effective Date and be entitled to dividends
and all other rights and privileges pertaining to such shares of ACNB
Common Stock from the Effective Date. Until surrendered, each certificate
theretofore evidencing shares of Farmers Bancorp Common Stock will, from
and after the Effective Date, evidence solely the right to receive
certificates for shares of ACNB Common Stock pursuant to Section 2.2(f)
hereof. If certificates for shares of Farmers Bancorp Common Stock are
exchanged for ACNB Common Stock at a date following one or more record
dates for the payment of dividends or of any other distribution on the
shares of ACNB Common Stock subsequent to the Effective Date, ACNB will pay
cash in an amount equal to dividends theretofore payable on such ACNB
Common Stock and pay or deliver any other distribution to which holders of
shares of ACNB Common Stock have theretofore become entitled. No interest
will accrue or be payable in respect of dividends or cash otherwise payable
under this Section 2.2 upon surrender of certificates for shares of ACNB
Common Stock. Notwithstanding the foregoing, no party hereto will be liable
to any holder of Farmers Bancorp Common Stock for any amount paid in good
faith to a public official or agency pursuant to any applicable abandoned
property, escheat or similar law. Until such time as certificates for
shares of Farmers Bancorp Common Stock
6
<PAGE>
are surrendered by a Farmers Bancorp shareholder to ACNB for exchange, ACNB
shall have the right to withhold dividends or any other distributions,
without interest, on the shares of the ACNB Common Stock issuable to such
shareholder.
(i) Payment Procedures.
-------------------
As soon as practical after the Effective Date, ACNB shall make payment of
the cash consideration provided for in Section 2.1(c) to each person
entitled thereto.
(j) Unclaimed Shares.
-----------------
In the event that any certificates for shares of Farmers Bancorp Common
Stock have not been surrendered for exchange in accordance with this
Section on or before the second anniversary of the Effective Time, ACNB may
at any time thereafter, with or without notice to the holders of record of
such certificates, sell for the accounts of any or all of such holders any
or all of the shares of ACNB Common Stock which such holders are entitled
to receive under Section 2.1(a) hereof (the "Unclaimed Shares"). Any such
sale may be made by public or private sale or sale at any broker's board or
on any securities exchange in such manner and at such times as ACNB shall
determine. If, in the opinion of counsel for ACNB, it is necessary or
desirable, any Unclaimed Shares may be registered for sale under the
Securities Act of 1933, as amended (the "Securities Act") and applicable
state laws. ACNB shall not be obligated to make any sale of Unclaimed
Shares if it shall determine not do so, even if notice of sale of the
Unclaimed Shares has been given. The net proceeds of any such sale of
Unclaimed Shares shall be held for holders of the unsurrendered
certificates for shares of Farmers Bancorp Common Stock whose Unclaimed
Shares have been sold, to be paid to them upon surrender of the
certificates for shares of Farmers Bancorp Common Stock. From and after any
such sale, the sole right of the holders of the unsurrendered certificates
for shares of Farmers Bancorp Common Stock whose Unclaimed Shares have been
sold shall be the right to collect the net sale proceeds held by ACNB for
their respective accounts, and such holders shall not be entitled to
receive any interest on such net sale proceeds held by ACNB.
SECTION 2.3 Other Matters.
(a) Notwithstanding any term of this Agreement to the contrary, ACNB may, in
its discretion at any time prior to the Effective Time, designate a direct
or indirect wholly-owned subsidiary to substitute for ACNB North as the
constituent corporation in the Merger by written notice to Farmers Bancorp
so long as the exercise of this right does not cause a material delay in
consummation of the transactions contemplated herein. ACNB shall also have
the right to cause ACNB North, or such substitute, to be the Surviving
Corporation of the Merger described at Section 1.1(a), so long as the
exercise of such right does not have a material adverse effect on the
interests of the Farmers Bancorp shareholders or cause a material delay in,
or otherwise adversely affect, consummation of the transactions
contemplated herein; if such right is exercised, this Agreement shall be
deemed to be modified to accord such change.
7
<PAGE>
(b) Nothing set forth in this Agreement or any Exhibit hereto shall be
construed:
(i) to preclude ACNB or ACNB North from acquiring or assuming, or to limit
in any way the right of ACNB or ACNB North to acquire or assume, prior
to or following the Effective Date, the stock, assets or liabilities
of any other financial services institution or other corporation or
entity, whether by issuance or exchange of ACNB Common Stock, or
otherwise;
(ii) to preclude ACNB or ACNB North from issuing, or to limit in any way
the right of either of them to issue, prior to or following the
Effective Date, ACNB Common Stock, ACNB Preferred Stock or other
securities;
(iii)to preclude ACNB from granting options at any time with respect to
ACNB Common Stock, ACNB Preferred Stock or other securities;
(iv) to preclude option holders of ACNB from exercising options at any time
with respect to ACNB Common Stock, ACNB Preferred Stock or other
securities; or
(v) to preclude ACNB or ACNB North from taking, or to limit in any way the
right of either of them to take, any other action not expressly and
specifically prohibited by the terms of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of Farmers Bancorp and Farmers
National.
Farmers Bancorp and Farmers National represent and warrant to ACNB and ACNB
North (and the word "it" in this Article III refers to Farmers Bancorp, Farmers
National and each subsidiary of either) that, as of even date herewith and
except as specifically disclosed in the Annex of disclosure schedules included
herewith, as follows:
(a) Corporate Organization and Qualification.
-----------------------------------------
Farmers Bancorp is a corporation duly incorporated, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania and is in
good standing as a foreign corporation in each jurisdiction where the
properties owned, leased or operated, or the business conducted, by Farmers
Bancorp requires such qualification, except for such failure to qualify or
be in such good standing which, when taken together with all other such
failures, would not have a Material Adverse Effect on Farmers Bancorp and
its subsidiaries, taken as a whole. Farmers Bancorp is a registered bank
holding company under the Bank Holding Company Act of 1956, as amended.
Farmers Bancorp owns, directly or indirectly all of the issued and
outstanding shares of capital stock of Farmers National. Farmers National
is a national banking association
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duly organized, validly existing and in good standing under the laws of the
United States of America. Farmers Bancorp and Farmers National each have
the requisite corporate and other power and authority (including all
federal, state, local and foreign governmental authorizations) to carry on
their respective businesses as now being conducted and to own its
properties and assets. Farmers Bancorp has made available to ACNB a
complete and correct copy of the articles of incorporation and bylaws of
Farmers Bancorp, and Farmers National has made available to ACNB and ACNB
North a complete and correct copy of the charter and bylaws of Farmers
National and such charter or articles, as applicable, and such bylaws are
in full force and effect as of the date hereof.
(b) Authorized Capital.
-------------------
The authorized capital stock of Farmers Bancorp consists of one million
(1,000,000) shares of Farmers Bancorp Common Stock, of which 248,000 shares
were issued and outstanding as of the date of this Agreement and 2,000
shares were issued and held as treasury shares as of the date of this
Agreement. The stock of Farmers National consists of five hundred thousand
(500,000) shares of common stock, $1.00 par value per share, of which one
hundred and twenty-five thousand (125,000) shares of common stock were
issued and outstanding as of the date of this Agreement; all of these are
held by Farmers Bancorp. All of the outstanding shares of capital stock of
Farmers Bancorp and Farmers National have been duly authorized and are
validly issued, fully paid and nonassessable. Neither Farmers Bancorp nor
Farmers National has any shares of capital stock reserved for issuance.
Neither Farmers Bancorp nor Farmers National has any outstanding bonds,
debentures, notes or other obligations the holders of which have the right
to vote (or convertible into or exercisable for securities having the right
to vote) with shareholders on any matter. The shares of Farmers National's
common stock owned by Farmers Bancorp are owned free and clear of all
liens, pledges, security interests, claims or other encumbrances. The
outstanding shares of capital stock of Farmers Bancorp and Farmers National
have not been issued in violation of any preemptive rights. Except as set
forth in Annex 3.1 (b) and in Annex 3.1(m), there are no outstanding
subscriptions, options, warrants, rights, convertible securities or other
agreements or commitments of any character relating to the issued or
unissued capital stock or other securities of Farmers Bancorp and Farmers
National. After the Effective Time, Farmers Bancorp will have no obligation
which is being assumed by ACNB or ACNB North which will result in any
obligation to issue, transfer or sell any shares of capital stock pursuant
to any Employee Plan (as defined in Section 3.1 (m)).
(c) Subsidiaries.
-------------
The only subsidiaries of Farmers Bancorp are as listed and described at
Annex 3.l(c). The only subsidiaries of Farmers National are as listed and
described at Annex 3.1(c). Each such subsidiary is duly organized and
existing as a corporation, is in good standing under the laws of the
jurisdiction in which it was organized, and has adequate corporate power to
carry on its business as now conducted. All of the outstanding capital
stock of all such subsidiaries has been validly issued, is fully paid and
nonassessable (other than as provided at 12 U.S.C.ss.55) and is owned by
Farmers Bancorp or Farmers National, free and clear of
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all liens, security interests and encumbrances. All such subsidiaries are
organized under Pennsylvania law and make no use of fictitious names in the
conduct of their respective businesses.
(d) Corporate Authority.
-------------------
Subject only to approval of this Agreement by the holders of the number of
votes required by Farmers Bancorp's articles of incorporation or bylaws
cast by all holders of Farmers Bancorp Common Stock (without any minority,
class or series voting requirement), and, subject to the regulatory
approvals specified in Section 6.1(b) hereof, Farmers Bancorp and Farmers
National each has the requisite corporate power and authority, and legal
right, and has taken all corporate action necessary in order to execute and
deliver this Agreement and to consummate the transactions applicable to
either Farmers Bancorp or Farmers National contemplated hereby. This
Agreement has been duly and validly executed and delivered by Farmers
Bancorp and Farmers National and constitutes the valid and binding
obligations of Farmers Bancorp and Farmers National enforceable against
each, in accordance with its terms, except to the extent enforcement is
limited by bankruptcy, insolvency and other similar laws affecting
creditors' rights or the application by a court of equitable principles.
(e) No Violations.
--------------
The execution, delivery and performance of this Agreement by it does not,
and the consummation of the transactions contemplated hereby by it will
not, constitute
(i) subject to receipt of the required regulatory approvals specified in
Section 6.1(b), a breach or violation of, or a default under, any law,
rule or regulation or any judgment, decree, order, governmental permit
or license, to which it (or any of its respective properties) is
subject, which breach, violation or default would have a Material
Adverse Effect on it, or enable any person to enjoin the Merger,
(ii) a breach or violation of, or a default under Farmers Bancorp's
articles of incorporation, the charter of Farmers National, or the
bylaws of either of them, or
(iii)except as disclosed in Annex 3.1(e), a breach or violation of, or a
default under (or an event which with due notice or lapse of time or
both would constitute a default under), or result in the termination
of, accelerate the performance required by, or result in the creation
of any lien, pledge, security interest, charge or other encumbrance
upon any of the properties or assets of it under any of the terms,
conditions or provisions of any note, bond, indenture, deed of trust,
loan agreement or other agreement, instrument or obligation to which
it is a party, or to which any of its respective properties or assets
may be bound, or affected, except for any of the foregoing that,
individually or in the aggregate, would not have a Material Adverse
Effect on it or enable any person to enjoin the Merger; and the
consummation of the transactions contemplated hereby, will not require
any approval, consent or waiver under any such law, rule, regulation,
judgment, decree, order, governmental permit or license or the
approval, consent or waiver of any other party to any such agreement,
indenture or instrument, other than (w) all required approvals,
consents and waivers of governmental authorities, (x) the approval of
its shareholders referred to in Section 6.1(a), (y) any such approval,
consent or waiver that already has been obtained, and (z) any other
approvals, consents or waivers, the absence of which, individually or
in the
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aggregate, would not result in a Material Adverse Effect on it or
enable any person to enjoin the Merger.
(f) Reports.
(i) Farmers Bancorp's consolidated statement of financial condition as of
December 31, 1997 previously provided to ACNB and each statement of
financial condition provided after the date hereof to ACNB (including
in each case any related notes and schedules) as required by Section
4.4 hereof fairly presents or will fairly present the financial
position of it as of its date and each of the statements of income and
shareholders' equity and of cash flows provided therewith (including
in each case any related notes and schedules), fairly presents or will
fairly present the results of operations, shareholders' equity and
cash flows, as the case may be, of it for the periods set forth
therein (subject, in the case of unaudited interim statements, to
normal year- end audit adjustments that are not material in amount or
effect), in each case in accordance with generally accepted accounting
principles consistently applied during the periods involved, except as
maybe noted therein.
(ii) Except as set forth in Annex 3.1(f), it has timely filed all material
reports, registrations and statements, together with any amendments
required to be made with respect thereto, that it was required to file
since January 1, 1998 with (A) the Office of the Comptroller of the
Currency (the "OCC"), (B) the Federal Deposit Insurance Corporation
(the "FDIC"), (C) the Board of Governors of the Federal Reserve System
(the "Board"), (D) any state banking department or commission or other
regulatory authority ("State Regulator") and collectively with the
OCC, the FDIC, and the Board, the "Farmers Bancorp Regulatory
Agencies", and (F) any other regulatory authority, and all other
material reports and statements required to be filed by it since
January 1, 1998 including, without limitation, any report or statement
required to be filed pursuant to the laws, rules or regulations of the
United States or any Farmers Bancorp Regulatory Agency, and has paid
all fees and assessments due and payable in connection therewith, and
no such report, registration or statement contains any material
misstatement or omission or is otherwise in material noncompliance
with any law, regulation or requirement.
(g) Absence of Certain Changes or Events.
--------------------------------------
Since January 1, 1998 to the date hereof, it has not incurred any material
liability, except in the ordinary course of its business consistent with
past practice, nor has there been any change in the financial condition,
properties, assets, business, results of operations or prospects of it
which, individually or in the aggregate, has had, or might reasonably be
expected to result in, a Material Adverse Effect on it.
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(h) Taxes.
-----
Its federal income tax returns have been examined and closed or otherwise
closed by operation of law through 1988. All federal, state, local and
foreign tax returns, including, but not limited to, any and all
Pennsylvania tax filings arising under the Bank Shares Tax, Single Excise
Tax and the Amended 1989 Bank Shares Tax and/or similar taxes, required to
be filed by it or on its behalf, have been timely filed, or requests for
extensions have been timely filed and any such extension shall have been
granted and not have expired, and, to the knowledge of management, all such
filed returns are complete and accurate in all material respects. All taxes
shown on such returns, and all taxes required to be shown on returns for
which extensions have been granted, have been paid in full or adequate
provision has been made for any such taxes on its balance sheet (in
accordance with generally accepted accounting principles) other than those
taxes which are being contested in appropriate forums in proceedings which
are being diligently pursued. Adequate provision has been made on its
balance sheet (in accordance with generally accepted accounting principles
consistently applied) for all federal, state, local and foreign tax
liabilities for periods subsequent to those for which returns have been
filed. There is no audit examination, deficiency, or refund litigation
pending or, to the knowledge of Farmers Bancorp or Farmers National,
threatened, with respect to any taxes that could result in a determination
that would have a Material Adverse Effect on it. All taxes, interest,
additions and penalties due with respect to completed and settled
examinations or concluded litigation relating to it have been paid in full
or adequate provision has been made for any such taxes on its balance sheet
(in accordance with generally accepted accounting principles). It has not
executed an extension or waiver of any statute of limitations on the
assessment or collection of any tax due that is currently in effect.
(i) Litigation and Liabilities.
---------------------------
Except as set forth in Annex 3.1(i), there are no
(i) civil, criminal or administrative actions, suits, claims, hearings,
investigations or proceedings before any court, governmental agency or
otherwise pending or, to the knowledge of management, threatened
against it or
(ii) obligations or liabilities, whether or not accrued (contingent or
otherwise, including, without limitation, those relating to
environmental and occupational safety and health matters, or any other
facts or circumstances of which its management is aware that could
reasonably be expected to result in any claims against or obligations
or liabilities of it), that, alone or in the aggregate, are reasonably
likely to have a Material Adverse Effect on it or to hinder or delay,
in any material respect, consummation of the transactions contemplated
by this Agreement.
(j) Absence of Regulatory Actions.
--------------------------------
It is not a party to any cease and desist order, written agreement or
memorandum of understanding with, or a party to any commitment letter or
similar undertaking to, or is subject to any order or directive by, or is a
recipient of any extraordinary supervisory letter from, or has adopted any
board resolutions at the request of, federal or state governmental
authorities, including, without limitation, the Farmers Bancorp Regulatory
Agencies, charged with the supervision or regulation of financial or
depository institutions or engaged
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in the insurance of bank deposits, nor has it been advised by any Farmers
Bancorp Regulatory Agency that such body is contemplating issuing or
requesting (or is considering the appropriateness of issuing or requesting)
any such order, directive, written agreement, memorandum of understanding,
extraordinary supervisory letter, commitment letter, board resolution or
similar undertaking.
(k) Agreements.
(i) Except as set forth in Annex 3.1(k) attached hereto, as of the date of
this Agreement, it is not a party to, or bound by, any oral or
written:
(A) "material contract" as such term is defined in Item 601(b)(10) of
Regulation S-K promulgated by the SEC;
(B) consulting agreement not terminable on thirty (30) days or less
notice involving the payment of more than $10,000 per annum, in
the case of any such agreement;
(C) agreement with any officer or other key employee the benefits of
which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction of the nature
contemplated by this Agreement;
(D) agreement with respect to any officer providing any term of
employment or compensation guarantee extending for a period
longer than one year or for a payment in excess of $10,000;
(E) agreement or plan, including any stock option plan, stock
appreciation rights plan, employee stock ownership plan,
restricted stock plan or stock purchase plan, any of the benefits
of which will be increased, or the vesting of the benefits of
which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any
of the benefits of which will be calculated on the basis of any
of the transactions contemplated by this Agreement;
(F) agreement containing covenants that limit its ability to compete
in any line of business or with any person, or that involve any
restriction on the geographic area in which, or method by which,
it may carry on its business (other than as may be required by
law or any regulatory agency);
(G) agreement, contract or understanding, other than this Agreement,
regarding the capital stock of Farmers Bancorp and/or Farmers
National or committing to dispose of some or all of the capital
stock
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or substantially all of the assets of Farmers Bancorp and/or
Farmers National; or
(H) collective bargaining agreement, contract, or other agreement or
understanding with a labor union or labor organization.
(ii) It is not in default under or in violation of any provision of any
note, bond, indenture, mortgage, deed of trust, loan agreement, lease
or other agreement to which it is a party or to which any of its
respective properties or assets is subject, other than such defaults
or violations as could not reasonably be expected, individually or in
the aggregate, to have a Material Adverse Effect on it.
(1) Labor Matters. It is not the subject of any proceeding asserting that it
has committed an unfair labor practice or seeking to compel it to bargain
with any labor organization as to wages and conditions of employment, nor
is there any strike, other labor dispute or organizational effort involving
it pending or threatened.
(m) Employee Benefit Plans. Annex 3.1(m) contains a complete list of all
pension, retirement, stock option, stock purchase, stock ownership,
savings, stock appreciation right, profit sharing, deferred compensation,
consulting, bonus, group insurance, severance and other employee benefits,
incentive and welfare policies, contracts, plans and arrangements, and all
trust agreements related thereto, in respect to any of its present or
former directors, officers or other employees (hereinafter referred to
collectively as the "Employee Plans").
(i) All of the Employee Plans comply in all material respects with all
applicable requirements of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), the Code and other applicable laws; it
has not engaged in a "prohibited transaction" (as defined in Section
406 of ERISA or Section 4975 of the Code) with respect to any Employee
Plan which is likely to result in any material penalties, taxes or
other events under Section 502(i) of ERISA or Section 4975 of the Code
which would have a Material Adverse Effect on it.
(ii) No liability to the Pension Benefit Guaranty Corporation has been or
is expected by it to be incurred with respect to any Employee Plan
which is subject to Title IV of ERISA ("Pension Plan"), or with
respect to any "singleemployer plan" (as defined in Section 4001
(a)(15) of ERISA) currently or formerly maintained by it or any entity
which is considered one employer with Farmers Bancorp or Farmers
National under Section 4001 of ERISA or Section 414 of the Code (an
"ERISA Affiliate").
(iii)No Pension Plan or single-employer plan of an ERISA Affiliate had an
"accumulated funding deficiency" (as defined in Section 302 of ERISA
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(whether or not waived)) as of the last day of the end of the most
recent plan year ending prior to the date hereof; all contributions to
any Pension Plan or single-employer plan of an ERISA Affiliate that
were required by Section 302 of ERISA and were due prior to the date
hereof have been made on or before the respective dates on which such
contributions were due; the fair market value of the assets of each
Pension Plan or single-employer plan of an ERISA Affiliate exceeds the
present value of the "benefit liabilities" (as defined in Section
4001(a)(16) of ERISA) under such Pension Plan or single employer plan
of an ERISA Affiliate as of the end of the most recent plan year with
respect to the respective Pension Plan or single-employer plan of an
ERISA Affiliate ending prior to the date hereof, calculated on the
basis of the actuarial assumptions used in the most recent actuarial
valuation for such Pension Plan or single-employer plan of an ERISA
Affiliate as of the date hereof; and no notice of a "reportable event"
(as defined in Section 4043 of ERISA) for which the 30-day reporting
requirement has not been waived has been required to be filed for any
Pension Plan or single-employer plan of an ERISA Affiliate within the
12-month period ending on the date hereof.
(iv) Neither has it provided, nor is it required to provide, security to
any Pension Plan or to any single-employer plan of an ERISA Affiliate
pursuant to Section 401(a)(29) of the Code.
(v) Neither it nor any ERISA Affiliate has contributed to any
"multi-employer plan," as defined in Section 3(37) of ERISA, on or
after September 26, 1980.
(vi) Each Employee Plan of it which is an "employee pension benefit plan"
(as defined in Section 3(2) of ERISA) and which is intended to be
qualified under Section 401(a) of the Code (a "Qualified Plan") has
received a favorable determination letter from the Internal Revenue
Service ("IRS") covering the requirements of the Tax Equity and Fiscal
Responsibility Act of 1982, the Retirement Equity Act of 1984 and the
Deficit Reduction Act of 1984 and the Tax Reform Act of 1986; it is
not aware of any circumstances likely to result in revocation of any
such favorable determination letter; each such Employee Plan has been
amended to reflect the requirements of subsequent legislation
applicable to such plans; and each Qualified Plan has complied at all
relevant times in all material respects with all applicable
requirements of Section 401(a) of the Code.
(vii)Each Qualified Plan which is an "employee stock ownership plan" (as
defined in Section 4975(e)(7) of the Code) has at all relevant times
satisfied all of the applicable requirements of Sections 409 and
4975(e)(7) of the Code and the regulations thereunder.
(viii) Neither it nor any ERISA Affiliate has committed any act or omission
or engaged in any transaction that has caused it to incur, or created
a material
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risk that it may incur, liability for any excise tax under Sections
4971 through 4980B of the Code, other than excise taxes which
heretofore have been paid and fully reflected in its financial
statements.
(ix) There is no pending or threatened litigation, administrative action or
proceeding relating to any Employee Plan, other than routine claims
for benefits.
(x) There has been no announcement or legally binding commitment by it to
create an additional Employee Plan, or to amend an Employee Plan,
except for amendments required by applicable law which do not
materially increase the cost of such Employee Plan, and it does not
have any obligations for retiree health and life benefits under any
Employee Plan that cannot be terminated without incurring any
liability thereunder.
(xi) The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby will not result in any payment or
series of payments by Farmers Bancorp or Farmers National to any
person which is an "excess parachute payment" (as defined in Section
280G of the Code) under any Employee Plan, increase any benefits
payable under any Employee Plan, or accelerate the time of payment or
vesting of any such benefit.
(xii)All annual reports have been filed timely with respect to each
Employee Plan, it has made available to ACNB a true and correct copy
of (A) reports on the applicable form of the Form 5500 series filed
with the IRS for plan years beginning after 1987, (B) such Employee
Plan, including amendments thereto, (C) each trust agreement and
insurance contract relating to such Employee Plan, including
amendments thereto, (D) the most recent summary plan description for
such Employee Plan, including amendments thereto, if the Employee Plan
is subject to Title I of ERISA, (E) the most recent actuarial report
or valuation if such Employee Plan is a Pension Plan and (F) the most
recent determination letter issued by the IRS if such Employee Plan is
a Qualified Plan.
(xiii) There are no retiree health benefit plans except as required to be
maintained by COBRA.
(n) Title to Assets.
----------------
It has good and marketable title to its properties and assets (other than
property as to which it is lessee), except for (i) such items shown in the
Farmers Bancorp consolidated financial statements or notes thereto; (ii)
liens on real property for current real estate taxes not yet delinquent; or
(iii) such defects in title which would not, individually or in the
aggregate, have a Material Adverse Effect on it. With respect to any
property leased by it, there are no defaults by it, or any of the other
parties thereto, or any events which, with the giving of notice or lapse of
time or both, would become defaults by it or any of the other parties
thereto, under any of
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such leases, except for such defaults or events which would not,
individually or in the aggregate, have a Material Adverse Effect on it; and
all such leases are in full force and effect and are enforceable against
it, as the case may be, and there is no circumstance existing as of the
date of this Agreement which causes or would cause such leases to be
unenforceable against any of the other parties thereto except as the same
may be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the rights of creditors generally as well as
principles of equity to the extent enforcement by a court of equity is
required.
(o) Compliance with Laws.
---------------------
It has all permits, licenses, certificates of authority, orders and
approvals of, and has made all filings, applications and registrations
with, federal, state, local and foreign governmental or regulatory bodies
that are required in order to permit it to carry on its business as it is
presently conducted and the absence of which could, individually or in the
aggregate, have a Material Adverse Effect on it; all such permits,
licenses, certificates of authority, orders and approvals are in full force
and effect, and no suspension or cancellation of any of them is threatened.
(p) Fees.
-----
Except as set forth in Annex 3.1(p) attached hereto, neither it nor any of
its respective officers, directors, employees or agents has employed any
broker or finder or incurred any liability for any financial advisory fees,
brokerage fees, commissions, or finder's fees, and no broker or finder has
acted directly or indirectly for it in connection with this Agreement or
the transactions contemplated hereby.
(q) Environmental Matters.
----------------------
For purposes of this Section 3.1, the following terms 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: 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 the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling,
production, release or disposal of Hazardous Substances. The term
Environmental Law includes without limitation: the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42
U.S.C. ss.9601, et seq., the Resource Conservation and Recovery Act,
as amended, 42 U.S.C. ss.6901, et seq., the Clean Air Act, as amended,
42 U.S.C. ss.7401, et seq., the Federal Water Pollution Control Act,
as amended, 33 U.S.C. ss.1251, et seq., the Toxic Substances Control
Act, as amended, 15 U.S.C. ss.9601, et seq., the Emergency Planning
and Community Right to Know Act, 42 U.S.C. ss.11001, et seq., the Safe
Drinking Water Act, 42 U.S.C. ss.300f, et seq., and all comparable
state and local laws; and any common law (including without limitation
common law that may impose strict liability) that may impose liability
or obligation for injuries or damages
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due to, or threatened as a result of, the presence of or exposure to
any Hazardous Substance.
"Hazardous Substance" means any substance presently listed, defined,
designated or classified as hazardous, toxic, radioactive or dangerous
or otherwise regulated under any Environmental Law, whether by type or
by quantity, including any material containing any such substance as a
component. Hazardous Substances include without limitation petroleum
or any derivative or by-product thereof, asbestos, radioactive
material, and polychlorinated biphenyls.
"Farmers National Loan Portfolio Properties and Other Properties
Owned" means those properties serving as collateral for loans in
Farmers National's loan portfolio, or properties owned or operated by
Farmers National (including, without limitation, in a fiduciary
capacity).
Except as set forth on Annex 3.1(q) hereto:
(i) Neither Farmers Bancorp nor Farmers National has been or is in
violation of or liable under any Environmental Law.
(ii) To the knowledge of Farmers Bancorp and Farmers National, none of
the Farmers National Loan Portfolio Properties and Other
Properties Owned have been or are in violation of or liable under
any Environmental Law.
(iii)Neither Farmers Bancorp nor Farmers National has any knowledge
that any environmental contaminant, pollutant, toxic or hazardous
waste or other similar substance has been generated, used,
stored, processed, disposed of or discharged onto any of the real
estate now or previously owned or acquired (including without
limitation any real estate acquired by means of foreclosure or
exercise of any other creditor's right) or leased by Farmers
National, except as disclosed on Annex 3.1(q). In particular,
without limiting the generality of the foregoing sentence, except
as disclosed on Annex 3.1(q), neither Farmers Bancorp nor Farmers
National have any knowledge that: (i) any materials containing
asbestos have been used or incorporated in any building or other
structure or improvement located on any of the real estate now or
previously owned or acquired (including without limitation any
real estate acquired by means of foreclosure or exercise of any
other creditor's right) or leased by Farmers Bancorp or Farmers
National; (ii) any electrical transformers, fluorescent light
fixtures with ballasts or other equipment containing PCB's are or
have been located on any of the real estate now or previously
owned or acquired (including without limitation any real estate
acquired by means of foreclosure or exercise of any other
creditor's right) or leased by Farmers Bancorp or Farmers
National; (iii) any underground storage tanks for the storage of
gasoline, petroleum products or other toxic
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or hazardous substances are or have ever been located on any of
the real estate now or previously owned or acquired (including
without limitation any real estate acquired by means of
foreclosure or exercise of any other creditor's right) or leased
by Farmers Bancorp or Farmers National.
(iv) Except as previously disclosed in Annex 3.1(q), there is no
legal, administrative, arbitration or other proceeding, claim,
action, cause of action or governmental investigation of any
nature seeking to impose, or that, to the knowledge of Farmers
Bancorp or Farmers National, could result in the imposition on
Farmers Bancorp or Farmers National of any liability arising
under any local, state or federal environmental statute,
regulation or ordinance including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, pending or threatened against Farmers
Bancorp or Farmers National; to the knowledge of Farmers Bancorp
and Farmers National, there is no reasonable basis for any such
proceeding, claim, action or governmental investigation; and
neither Farmers Bancorp nor Farmers National is subject to any
agreement, order, judgment, decree or memorandum by or with any
court, governmental authority, regulatory agency or third party
imposing any such liability.
(r) Allowance.
----------
The allowance for loan and lease losses shown on Farmers Bancorp's
consolidated statement of financial condition as of December 31, 1997 was,
and the allowance for loan and lease losses shown on Farmers Bancorp's
consolidated statement of financial condition for periods ending after the
date of this Agreement will be, in the opinion of management of Farmers
Bancorp and Farmers National, adequate, as of the date thereof, under
generally accepted accounting principles applicable to commercial banks and
all other applicable regulatory requirements for all losses reasonably
anticipated in the Ordinary Course of Business as of the date thereof based
on information available as of such date. It has disclosed to ACNB in
writing prior to the date hereof the amounts of all loans, leases,
advances, credit enhancements, other extensions of credit, commitments and
interest-bearing assets of it that it has classified internally as "Other
Loans Specially Mentioned," "Special Mention," "Substandard," "Doubtful,"
"Loss," "Classified," "Criticized," "Credit Risk Assets," "Concerned Loans"
or words of similar import, and it shall disclose promptly to ACNB after
the end of each quarter after the date hereof and on the Effective Date the
amount of each such classification. It has disclosed to ACNB in writing
prior to the date hereof the amounts of all overdrafts occurring since
January 1, 1998 and it shall disclose promptly to ACNB after the end of
each quarter after the date hereof and on the Effective Date the amount of
such overdrafts. The OREO and in-substance foreclosures included in any of
its non-performing assets are carried net of reserves at the lower of cost
or market value based on current independent appraisals or current
management appraisals.
19
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(s) Anti-takeover Provisions Applicable.
--------------------------------------
The provisions of Chapter 25 of the PBCL relating to protection of
shareholders do not apply to Farmers Bancorp, this Agreement, the Merger
and the transactions contemplated hereby.
(t) Material Interests of Certain Persons.
---------------------------------------
Except as noted in Annex 3.1(t), none of its respective officers or
directors, or any "associate" (as such term is defined in Rule 12b-2 under
the Securities Exchange Act of 1934 (the "Exchange Act")) of any such
officer or director, has any material interest in any material contract or
property (real or personal), tangible or intangible, used in or pertaining
to its business.
(u) Insurance.
----------
It is presently insured, and has been insured, in the amounts, with the
companies and since the periods set forth in Annex 3.1(u). All of the
insurance policies and bonds maintained by it are in full force and effect,
it is not in default thereunder and all material claims thereunder have
been filed in due and timely fashion. In the judgment of its management,
such insurance coverage is adequate.
(v) Dividends.
----------
The only dividends or other distributions which it has made on its capital
stock since January 1, 1997 are set forth in Annex 3.1(v).
(w) Books and Records.
-------------------
Its books and records have been, and are being, maintained in accordance
with applicable legal and accounting requirements and reflect in all
material respects the substance of events and transactions that should be
included therein.
(x) Board Action.
--------------
Its board of directors (at a meeting duly called and held) has been duly
convened and by the requisite vote of the directors (a) determined that the
Merger is advisable and in the best interests of it and its shareholders,
(b) approved this Agreement and the transactions contemplated hereby, and
(c) directed that the Agreement be submitted for consideration by its
shareholders at the Farmers Bancorp Shareholders' Meeting (as hereafter
defined) with the recommendation of the board of directors that the
shareholders approve the merger and the transactions contemplated thereby.
(y) Fairness Opinions.
------------------
Its board of directors has received a written opinion, a copy of which has
been furnished to ACNB, to the effect that the consideration to be received
by its shareholders pursuant to this Agreement, at the time of its
execution, is fair to such holders from a financial point of view.
(z) Fidelity Bonds.
----------------
Since at least December 31, 1990, Farmers National has continuously
maintained fidelity bonds insuring it against acts of dishonesty by its
employees in such amounts as is customary for a bank of its size. Since
December 31, 1990, the aggregate amount of all potential claims under such
bonds has not exceeded $10,000 and neither Farmers Bancorp nor Farmers
National is aware of any facts which would reasonably form the basis of a
claim under such bonds. Neither Farmers Bancorp nor Farmers National has
reason to believe that its fidelity coverage
20
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will not be renewed by its carrier on substantially the same terms as its
existing coverage.
(aa) Condition of Tangible Assets.
-----------------------------
Except as set forth in Annex 3.1(aa), all buildings, structures and
improvements on the real property owned or leased by it are in good
condition, ordinary wear and tear excepted, and are free from
structural defects in all material respects. The equipment, including
heating, air conditioning and ventilation equipment owned by it, is in
good operating condition, ordinary wear and tear excepted. The
operation and use of the property in the business conform in all
material respects to all applicable laws, ordinances, regulations,
permits, licenses and certificates.
(bb) Loans by Farmers National.
--------------------------
Since December 31, 1994 and except as shown on Annex 3.1(bb), in the
aggregate, the loans by Farmers National have been lawfully made,
constitute valid debts of the obligors, have been incurred in the
Ordinary Course of Business, are subject to the terms of payment as
shall have been agreed upon between Farmers National and each
customer, and Farmers National does not know of any applicable set-off
or counterclaim which in the aggregate would have a Material Adverse
Effect on it. A list of all loans thirty (30) days or more past due as
of May 30, 1998, and as of the last day of each month for each of the
preceding twelve (12) months thereto is attached hereto as Annex
3.1(bb)-A. No part of the amount collectible under any loan is
contingent upon performance by Farmers National of any obligation and
no agreement for participation, in which Farmers National has
relinquished or agreed to share control with a participation in
management of the facility, or agreement providing for deductions or
discounts have been made with respect to any part of such debts,
except as expressly disclosed in Annex 3.1(bb). Farmers National does
not know of any pending, threatened or expected actions in connection
with any material loans or commitments presently or previously made by
Farmers National relating to claims based on theories of "lenders'
liability" or any other basis.
(cc) Regulatory Compliance - OCC.
-----------------------------
Farmers National is in compliance in all material respects with the
applicable rules and regulations of the OCC, except as noted in Annex
3.1(cc).
(dd) Regulatory Compliance - FDIC.
------------------------------
Except as noted on Annex 3.1(dd) hereto and except where the failure
to comply would not have a Material Adverse Effect on it, it is in
compliance in all material respects with the rules and regulations of
the FDIC to the extent such rules and regulations are deemed
applicable by regulatory determination.
(ee) Capital Compliance.
-------------------
As of the date of this Agreement, Farmers National was in compliance
with the minimum capital requirements applicable to national banking
associations, including as to leverage ratio requirements, tangible
capital requirements and risk based capital requirements.
21
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(ff) Year 2000 Compliance.
----------------------
Farmers Bancorp and Farmers National are in compliance with all
requirements announced or promulgated by the Farmers Bancorp
Regulatory Agencies and by the Federal Financial Institutions
Examination Council in connection with Year 2000 preparedness and
compliance.
(gg) Assessments Fully Paid.
------------------------
All payments, fees and charges assessed by appropriate state and
federal agencies against Farmers National, and due on or prior to the
date of this Agreement, have been paid in full.
(hh) Annual Reports and Financial Statements.
----------------------------------------
Farmers Bancorp has delivered to ACNB true and complete copies of (i)
its Balance Sheets, Statements of Earnings, Statements of
Stockholders' Equity and Statements of Cash Flows of Farmers Bancorp
for the years ended December 31, 1997, 1996 and 1995, certified by
independent public accountants, and (ii) Farmers Bancorp's Quarterly
Reports for the quarter ended March 31, 1998, containing unaudited
consolidated balance sheets of Farmers Bancorp as at such dates and
unaudited consolidated statements of earnings and cash flows of
Farmers Bancorp for the three month period reflected therein. Farmers
Bancorp has also delivered to ACNB true and correct copies of its
annual reports to shareholders for the years 1997, 1996 and 1995. All
such reports (collectively, the "Farmers Bancorp Reports") (i) comply
in all material respects with the requirements of the Financial
Accounting Standards Board ("FASB") and the American Institute of
Certified Public Accountants, (ii) do not contain any untrue statement
of a material fact and (iii) do not omit to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading. No documents to be filed by Farmers Bancorp
with the SEC or any regulatory agency in connection with this
Agreement, or the transactions contemplated hereby will contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they are made, not
misleading. All documents which Farmers Bancorp is responsible for
filing with the SEC or any regulatory agency in connection with the
Merger will comply as to form in all material respects with the
requirements of applicable law.
(ii) Proxy Statement/Prospectus, Etc.
----------------------------------
Except for information relating to ACNB and its subsidiaries and pro
forma financial information reflecting the combined operations of ACNB
and Farmers Bancorp, neither (i) the Proxy Statement/Prospectus (as
defined herein at Section 5.1(b)) or any amendment or supplement
thereto, at the time it is filed with the SEC, at the time the
Registration Statement (as defined hereinafter at Section 5.1(b)) is
declared effective, at the time the Proxy Statement/Prospectus is
mailed to the shareholders of Farmers Bancorp or at the date of the
meeting of the Farmers Bancorp shareholders at which the shareholders
will consider this Agreement (the "Farmers Bancorp Shareholders'
Meeting") nor (ii) any other documents to be filed by Farmers Bancorp
with the SEC or any regulatory agency in connection with this
Agreement, or the transactions contemplated hereby,
22
<PAGE>
will contain any untrue statement of material fact or omit to state
any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they
are made, not misleading.
(jj) Significant Customers.
-----------------------
All significant customers of Farmers Bancorp are identified in Annex
3.1(jj). For purposes of this Section 3.1, a "significant customer"
shall mean any customer who, at any time between January 1, 1997 and
the date of this Agreement, had or has (i) aggregate outstanding loans
in the amount of $50,000 or more, or (ii) aggregate daily deposits in
the amount of $50,000 or more.
(kk) Complete and Accurate Disclosure.
---------------------------------
Neither this Agreement (insofar as it relates to Farmers Bancorp,
Farmers Bancorp Common Stock and Farmers Bancorp's involvement in the
transactions contemplated hereby) nor any financial statement,
schedule (including without limitation the Annexes attached hereto),
certificate, or other statement or document delivered by Farmers
Bancorp to ACNB and ACNB North in connection herewith contains any
statement which, at the time and in light of the circumstances under
which it is made, is false or misleading with respect to any material
fact or omits to state any material fact necessary to make the
statements contained herein or therein not false or misleading. In
particular, without limiting the generality of the foregoing sentence,
the information provided and the representations made by Farmers
Bancorp to ACNB in connection with the Registration Statement, both at
the time such information and representations are provided and made
and at the time of the Closing, will be true and accurate in all
material respects and will not contain any false or misleading
statement with respect to any material fact or omit to state any
material fact necessary (i) to make the statements made therein not
false or misleading, or (ii) to correct any statement contained in an
earlier communication with respect to such information or
representations which has become false or misleading.
(ll) Beneficial Ownership of ACNB Common Stock.
--------------------------------------------
Prior to the Effective Date, Farmers Bancorp and its officers and
directors will not in the aggregate own beneficially (within the
meaning of SEC Rule 13d-3(d)(1)) more than five percent (5%) of the
outstanding shares of ACNB Common Stock.
(mm) Non-Registration Under the 1934 Act.
-------------------------------------
Farmers Bancorp Common Stock is neither registered nor required to be
registered under Section 12 of the Securities Exchange Act of 1934
(the "1934 Act") and is not subject to the periodic reporting
requirements imposed by Section 13 or 15(d) of the 1934 Act.
(nn) Deposit Insurance.
------------------
The deposits of Farmers National are insured by the Bank Insurance
Fund, as administered by the Federal Deposit Insurance Corporation
("FDIC") in accordance with the Federal Deposit Insurance Act, and
Farmers National has paid all assessments and filed all reports
required by the Federal Deposit Insurance Act.
23
<PAGE>
(oo) Repurchase Agreements.
----------------------
With respect to any agreement pursuant to which Farmers Bancorp has
purchased securities subject to an agreement to resell, if any,
Farmers Bancorp has a valid, perfected first lien or security interest
in the government securities or other collateral securing the
repurchase agreement, and the value of such collateral equals or
exceeds the amount of the debt secured thereby. Except as disclosed on
Annex 3.1(oo), which identifies location and type of securities,
Farmers Bancorp maintains physical possession of purchased securities
that are subject to an agreement to resell.
(pp) Assumability of Contracts and Leases.
----------------------------------------
Except as disclosed on Annex 3.1(pp), all Material Contracts between
Farmers Bancorp or Farmers National and any other entity or person are
assumable and assignable and do not contain any term or provision that
would accelerate or increase payments that would otherwise be due by
Farmers Bancorp or Farmers National to such person or entity, or
change or modify the provisions or terms of such leases, contracts and
agreements by reason of this Agreement or the transactions
contemplated hereby. Except as disclosed on Annex 3.1(pp), each lease
pursuant to which Farmers Bancorp or Farmers National, as lessee,
leases real or personal property is valid and in effect in accordance
with its respective terms, and there is not, under any of such leases,
on the part of the lessee, any material existing default or any event
which with notice or lapse of time, or both, would constitute such a
default, other than defaults which would not individually or in the
aggregate have a material adverse effect on the financial condition,
business, prospects, or operating results of Farmers Bancorp.
(qq) Absence of Questionable Payments.
-----------------------------------
From and after December 31, 1992 neither Farmers Bancorp nor Farmers
National has, nor, to the knowledge of Farmers Bancorp or Farmers
National, has any director, officer, agent, employee, consultant or
other person associated with or acting on behalf of, Farmers Bancorp
or Farmers National (i) used any Farmers Bancorp or Farmers National
corporate funds for unlawful contributions, gifts, entertainment or
unlawful expenses relating to political activity; or (ii) made any
direct or indirect unlawful payments to governmental officials from
any Farmers Bancorp or Farmers National corporate funds, or
established or maintained any unlawful or unrecorded accounts with
funds received from Farmers Bancorp or Farmers National.
(rr) Powers of Attorney; Guarantees.
--------------------------------
Except as set forth on Annex 3.1(rr), Farmers National does not have
any power of attorney outstanding, or any obligation or liability
either actual, constructive or contingent, as guarantor, surety,
cosigner, endorser, co-maker or indemnitor in respect of the
obligation of any person, corporation, partnership, joint venture,
association, organization or other entity, except for letters of
credit issued in the Ordinary Course of Business which are listed on
Annex 3.1(rr)
(ss) Adjustable Rate Mortgages.
-------------------------
Farmers National has made all interest rate adjustments to any
mortgage loan according to the terms of said mortgage loan and has
complied
24
<PAGE>
and is in compliance in all material respects with all federal, state
and other applicable laws, rules and regulations, including orders,
writs, decrees, injunctions and other requirements of any court or
governmental authorities having jurisdiction over adjustable rate
mortgages.
(tt) CRA Compliance.
-----------------
Farmers National has received a satisfactory compliance rating and has
received a satisfactory Community Reinvestment Act rating. Farmers
National has no knowledge of any facts or circumstances which would
prevent it from receiving such satisfactory ratings upon its next
appropriate examination.
(uu) Derivatives.
------------
Except as set forth on Annex 3.1(uu), Farmers National does not own or
hold any derivatives, "caps", or "floors", in its investment
portfolio.
(vv) Accuracy of Representations.
---------------------------
Until, and as of Closing, Farmers Bancorp will promptly notify ACNB if
any of the representations contained in this Section 3.1 cease to be
true and correct subsequent to the date hereof. Further, no
representations made by Farmers Bancorp or Farmers National pursuant
to this Agreement contain any untrue statement of material fact or
omit to state a material fact necessary to make the statements not
misleading.
SECTION 3.2 Representations and Warranties of ACNB.
ACNB represents and warrants to Farmers Bancorp and Farmers National that,
as of even date herewith and except as specifically disclosed in the Annex of
disclosure schedules included herewith, as follows:
(a) Authority.
----------
The execution and delivery of this Agreement and the consummation of the
transactions contemplated herein have been duly and validly authorized by
the Board of Directors of ACNB, and no other corporate action on the part
of ACNB is necessary to authorize the approval of this Agreement or the
consummation of the transactions contemplated herein. This Agreement has
been duly executed and delivered by ACNB and, assuming due authorization,
execution and delivery by Farmers Bancorp, receipt of required regulatory
approvals and the approval of the Farmers Bancorp shareholders, constitutes
a valid and binding obligation of ACNB, enforceable against ACNB in
accordance with its terms, except to the extent enforcement is limited by
bankruptcy, insolvency and other similar laws affecting creditor's rights
or principles of equity. Assuming regulatory approval, the execution,
delivery and consummation of this Agreement will not constitute a violation
or breach of or default under the Articles of Incorporation or the Bylaws
of ACNB or any statute, rule, regulation, order, decree, directive,
agreement, indenture or other instrument to which ACNB is a party or by
which ACNB or any of its properties are bound.
25
<PAGE>
(b) Organization and Standing.
----------------------------
ACNB is a business corporation that is duly organized, validly existing and
in good standing under the laws of the Commonwealth of Pennsylvania. ACNB
is a registered bank holding company under the Bank Holding Company Act of
1956, as amended, and has full power and lawful authority to own and hold
its properties and to carry on its present business. ACNB owns, directly or
indirectly all of the issued and outstanding shares of capital stock of
ACNB North, Inc. and Adams County National Bank. Adams County National Bank
is a national banking association validly existing and in good standing
under the laws of the United States, and is duly authorized to engage in
the banking business as an insured bank under the Federal Deposit Insurance
Act, as amended. Adams County National Bank is authorized to engage in
trust activities.
(c) Capitalization.
---------------
The authorized capital stock of ACNB consists of twenty million
(20,000,000) shares of common stock, par value Two Dollars and Fifty Cents
($2.50) per share ("ACNB Common Stock") of which, as of the date of this
Agreement, 5,253,278 shares were issued and outstanding. All outstanding
shares of ACNB Common Stock have been duly issued and are validly
outstanding, fully paid and nonassessable. The shares of ACNB Common Stock
to be issued in connection with the Merger have been duly authorized and,
when issued in accordance with the terms of this Agreement, will be validly
issued, fully paid and nonassessable.
(d) Articles of Incorporation and Bylaws.
----------------------------------------
The copies of the Articles of Incorporation, as amended, and of the Bylaws,
as amended, of ACNB which have been delivered to Farmers Bancorp are true,
correct, and complete in all material respects.
(e) Annual Reports and Financial Statements.
-------------------------------------------
ACNB has delivered to Farmers Bancorp true and complete copies of (i)
ACNB's Annual Report on Form 10-K for ACNB's fiscal year ended December 31,
1997, containing consolidated balance sheets of ACNB at December 31, 1997
and December 31, 1996 and consolidated statements of earnings, changes in
shareholders' equity and cash flows of ACNB for the three years ended
December 31, 1997, 1996 and 1995, and such financial statements have been
certified by Stambaugh-Ness, P.C., and (ii) ACNB's Quarterly Report on Form
10-Q for the quarter ended March 31, 1998, containing unaudited
consolidated balance sheets of ACNB as at such date and unaudited
consolidated statement of earnings and cash flows of ACNB for the
three-month period reflected therein. ACNB has also delivered to Farmers
Bancorp true and correct copies of its annual reports on Form 10-K for the
years 1997, 1996 and 1995, together with its annual reports to shareholders
for the same periods. All such reports (collectively, the "ACNB Reports")
(i) comply in all material respects with the requirements of the rules and
regulations of the SEC, (ii) do not contain any untrue statement of a
material fact and (iii) do not omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. No
documents to be filed by ACNB with the SEC or any regulatory agency in
connection with this Agreement, or the transactions contemplated hereby
will contain any untrue statement of a material fact
26
<PAGE>
or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they are made, not misleading. All documents which ACNB is
responsible for filing with the SEC or any regulatory agency in connection
with the Merger will comply as to form in all material respects with the
requirements of applicable law.
(f) Absence of Undisclosed Liabilities.
-----------------------------------
Except as disclosed in Annex 3.2(f) or as reflected noted or adequately
reserved against in the ACNB Balance Sheet, at March 31, 1998, ACNB had no
material liabilities (whether accrued, absolute, contingent or otherwise)
which are required to be reflected, noted or reserved against therein under
generally accepted accounting principles or which are in any case or in the
aggregate material. Except as described in Annex 3.2(f), since June 30,
1998, ACNB has not incurred any such liability other than liabilities of
the same nature as those set forth in the ACNB Balance Sheet, all of which
have been reasonably incurred in the Ordinary Course of Business.
(g) Absence of Changes.
-------------------
Since March 31, 1998, there has not been any material and adverse change in
the condition (financial or otherwise), assets, liabilities, business,
operations or future prospects of ACNB.
(h) Litigation.
-----------
Except as disclosed in Annex 3.2(h): (i) there is no litigation,
investigation or proceeding pending, or to the knowledge of ACNB
threatened, that involves ACNB or its properties and that, if determined
adversely to ACNB, would materially and adversely affect the condition
(financial or otherwise), assets, liabilities, business, operations or
future prospects of ACNB; (ii) there are no outstanding orders, writs,
injunctions, decrees, consent agreements, memoranda of understanding or
other directives of any federal, state or local court or governmental
authority or of any arbitration tribunal against ACNB which materially and
adversely affect the condition (financial or otherwise), assets,
liabilities, business, operations or future prospects of ACNB or restrict
in any manner the right of ACNB to conduct its business as presently
conducted; and (iii) ACNB is not aware of any fact or condition presently
existing that might give rise to any litigation, investigation or
proceeding which, if determined adversely to ACNB, would materially and
adversely affect the condition (financial or otherwise), assets,
liabilities, business, operations or future prospects of ACNB. For purposes
of this Section 3.2(h), ACNB shall be deemed to include Adams County
National Bank.
(i) Proxy Statement/Prospectus.
---------------------------
At the time the Proxy Statement/Prospectus (as defined in Section 5.1 of
this Agreement) is mailed to the shareholders of Farmers Bancorp and at all
times subsequent to such mailing, up to and including the Effective Date,
the Proxy Statement/Prospectus (including any pre- and post-effective
amendments and supplements thereto), with respect to all information
relating to ACNB, ACNB North and Adams County National Bank, ACNB Common
Stock, and actions taken and statements made by ACNB, ACNB North and Adams
County National Bank in connection with the transactions contemplated
herein (other than information
27
<PAGE>
provided by Farmers Bancorp to ACNB, ACNB North and Adams County National
Bank), will: (i) comply in all material respects with applicable provisions
of the 1933 Act and the 1934 Act and the pertinent rules and regulations
thereunder; and (ii) not contain any statement which, at the time and in
light of the circumstances under which it is made, is false or misleading
with respect to any material fact, or omits to state any material fact that
is necessary to be stated therein in order (A) to make the statements
therein not false or misleading, or (B) to correct any statement in an
earlier communication with respect to the Proxy Statement/Prospectus which
has become false or misleading.
(j) Year 2000 Compliance.
---------------------
ACNB and Adams County National Bank are in compliance with all requirements
announced or promulgated by the ACNB Regulatory Agencies and by the Federal
Financial Institutions Examination Council in connection with Year 2000
preparedness and compliance.
(k) CRA Compliance.
----------------
Adams County National Bank has received a satisfactory compliance rating
and has received a satisfactory Community Reinvestment Act rating. ACNB has
no knowledge of any facts or circumstances which would prevent it from
receiving such satisfactory ratings upon its next appropriate examination.
(l) Environmental Matters.
-----------------------
There is no activity or condition on or in any property owned, occupied,
leased or held as security by ACNB or Adams County National Bank that would
subject ACNB or Adams County National Bank to damages, penalties,
injunctive relief or cleanup costs under any Environmental Law that
individually or in the aggregate would have a Material Adverse Effect on
ACNB on a consolidated basis.
(m) Allowance.
----------
The allowance for loan and lease losses shown on ACNB's consolidated
statement of financial condition as of December 31, 1997 was, and the
allowance for loan and lease losses shown on ACNB's consolidated statement
of financial condition for periods ending after the date of this Agreement
will be, in the opinion of management of ACNB and Adams County National
Bank, adequate, as of the date thereof, under generally accepted accounting
principles applicable to commercial banks and all other applicable
regulatory requirements for all losses reasonably anticipated in the
Ordinary Course of Business as of the date thereof based on information
available as of such date.
SECTION 3.3 Representations and Warranties of ACNB North.
(a) Organization.
-------------
ACNB North is a corporation duly organized, validly existing and duly
subsisting under the laws of the Commonwealth of Pennsylvania. All of the
outstanding shares of capital stock of ACNB North have been validly issued,
are fully paid and nonassessable and are owned directly by ACNB free and
clear of any lien, charge or other encumbrance.
28
<PAGE>
(b) Authority.
---------
ACNB North has the corporate power and authority to enter into this
Agreement and to carry out its obligations hereunder. The execution,
delivery and performance of this Agreement by ACNB North and the
consummation of the transactions described herein have been duly and
validly authorized by all necessary corporate actions (including without
limitation shareholder action) in respect thereof on the part of ACNB
North. This Agreement is a valid and binding obligation of ACNB North,
enforceable against ACNB North in accordance with its terms, except to the
extent enforcement is limited by bankruptcy, insolvency and other similar
laws affecting creditor's rights or general principles of equity.
(c) Capitalization.
---------------
The authorized capital stock of ACNB North consists of ten million
(10,000,000) shares of common stock, par value $1.00 per share ("ACNB North
Common Stock"). All outstanding shares of ACNB North Common Stock have been
duly issued and are validly outstanding, fully paid and nonassessable and
are owned by ACNB as sole shareholder.
(d) Approval.
--------
ACNB will, as the sole shareholder of ACNB North, vote to approve this
Agreement and the Merger.
ARTICLE IV
COVENANTS OF FARMERS BANCORP AND FARMERS NATIONAL
SECTION 4.1 Conduct of Business.
Except as otherwise consented to by ACNB and ACNB North in writing, Farmers
Bancorp and Farmers National shall each:
(a) use all reasonable efforts to carry on its business in, and only in, the
ordinary course of business consistent with customary business practices of
prudently managed banks (hereinafter referred to as "Ordinary Course of
Business").
(b) to the extent consistent with prudent business judgment, use all reasonable
efforts to preserve its present business organization, to retain the
services of its present officers and employees, to maintain good
relationships with its employees, and to maintain its relationships with
customers, suppliers and others having business dealings with Farmers
Bancorp or Farmers National;
(c) maintain all of Farmers Bancorp's and Farmers National's structures,
equipment and other real property and tangible personal property in good
repair, order and condition, except for ordinary wear and tear and damage
by unavoidable casualty;
(d) use all reasonable efforts to preserve or collect all material claims and
causes of action belonging to Farmers Bancorp and Farmers National;
29
<PAGE>
(e) keep in full force and effect all insurance policies now carried by Farmers
Bancorp and Farmers National;
(f) perform in all material respects each of Farmers Bancorp's and Farmers
National's obligations under all material agreements, contracts,
instruments and other commitments to which Farmers Bancorp or Farmers
National is a party or by which Farmers Bancorp or Farmers National may be
bound or which relate to or affect its properties, assets and business;
(g) maintain its books of account and other records in the Ordinary Course of
Business;
(h) comply in all material respects with all statutes, laws, ordinances, rules
and regulations, decrees, orders, consent agreements, examination reports,
memoranda of understanding and other federal, state, county, local and
municipal governmental directives applicable to Farmers Bancorp and Farmers
National and to the conduct of its business;
(i) not amend Farmers Bancorp's or Farmers National's Articles of Incorporation
or Bylaws;
(j) not enter into or assume any material contract, incur any material
liability or obligation, make any material commitment, acquire or dispose
of any property or asset or engage in any transaction or subject any of
Farmers Bancorp's or Farmers National's properties or assets to any
material lien, claim, charge, or encumbrance of any kind whatsoever;
(k) not take or permit to be taken any action which would constitute a breach
of any representation, warranty or covenant set forth in this Agreement;
(l) not declare, set aside or pay any dividend or make any other distribution
in respect of Farmers Bancorp and Farmers National Common Stock, except as
provided in Section 4.9 of this Article IV;
(m) not authorize, purchase, issue or sell (or authorize, issue or grant
options, warrants or rights to purchase or sell) any shares of Farmers
Bancorp Common Stock or any other equity or debt securities of Farmers
Bancorp or any securities convertible into Farmers Bancorp Common Stock;
(n) not increase the rate of compensation of, pay a bonus or severance
compensation to, or enter into any employment, severance, deferred
compensation or other agreement with any officer, director, employee or
consultant of Farmers Bancorp or Farmers National, except that Farmers
Bancorp or Farmers National may grant general salary increases to
individual employees in the ordinary course of business consistent with
past practice.
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(o) not enter into any related party transaction of the kind contemplated in
Section 3.1(k) of this Agreement except such related party transactions
relating to extensions of credit made in accordance with all applicable
laws, regulations and rules and in the Ordinary Course of Business on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable arm's length transactions with
other persons that do not involve more than the normal risk of
collectability or present other unfavorable features and after disclosure
of such to ACNB;
(p) not change the presently outstanding number of shares or effect any
capitalization, reclassification, stock dividends, stock split or like
change in capitalization;
(q) not enter into or substantially modify (except as may be required by
applicable law) any pension, retirement, stock option, stock warrant, stock
purchase, stock appreciation right, savings, profit sharing, deferred
compensation, severance, consulting, bonus, group insurance or other
employee benefit, incentive or welfare contract, or plan or arrangement, or
any trust agreement related thereto, in respect to any of its directors,
officers, or other employees;
(r) not merge with or into, or consolidate with, or be purchased or acquired
by, any other corporation, financial institution, entity, or person (or
agree to any such merger, consolidation, affiliation, purchase or
acquisition) or permit (or agree to permit) any other corporation,
financial institution, entity or person to be merged with it or consolidate
or affiliate with any other corporation, financial institution, entity or
person; acquire control over any other firm, financial institution,
corporation or organization or create any subsidiary; acquire, liquidate,
sell or dispose (or agree to acquire, liquidate, sell or dispose) of any
assets other than in the Ordinary Course of Business and consistent with
prior practice;
(s) not solicit or encourage inquiries or proposals with respect to, furnish
any information relating to, or participate in any negotiations or
discussions concerning any acquisition or purchase of all or a substantial
equity interest or portion of the assets in or of Farmers Bancorp or
Farmers National or any business combination with Farmers Bancorp or
Farmers National other than as contemplated by this Agreement, or authorize
or permit any officer, director, agent or affiliate of it to do any of the
above; or fail to notify ACNB immediately if any such inquiries or
proposals are received by, any such information is requested from, or any
such negotiations are sought to be initiated with Farmers Bancorp or
Farmers National;
(t) not change any method, practice or principle of accounting except as may be
required by generally accepted accounting principles or any applicable
regulation or take any action that would preclude satisfaction of the
condition to closing contained in Section 6.2(d) relating to financial
accounting treatment of the Merger;
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(u) not make any loan or other credit facility commitment in excess of $100,000
(including without limitation, lines of credit and letters of credit) to
any affiliate or compromise, expand, renew or modify any such outstanding
commitment;
(v) not enter into any swap or similar commitment, agreement or arrangement
which is not consistent with past practice and which increases the credit
or interest rate risk over the levels existing at December 31, 1997;
(w) not enter into any derivative, cap or floor or similar commitment,
agreement or arrangement, except in the Ordinary Course of Business and
consistent with past practices;
(x) not enter into any participation arrangements or approvals of extensions of
credit in excess of $250,000 or renew, expand or modify any outstanding
participation arrangements or approvals;
(y) not take any action which would result in any of the representations and
warranties of Farmers Bancorp or Farmers National set forth in this
Agreement becoming untrue as of any date after the date hereof;
(z) not sell, exchange or otherwise dispose of any investment securities or
loans that are held for sale, prior to scheduled maturity and other than
pursuant to policies agreed upon from time to time by the parties;
(aa) not purchase any security for its investment portfolio not rated "A"
or higher by either Standard & Poor's Corporation or Moody's Investor
Services, Inc.;
(bb) not waive, release, grant or transfer any rights of value or modify or
change in any material respect any existing agreement to which Farmers
Bancorp or Farmers National is a party, other than in the Ordinary
Course of Business consistent with past practice;
(cc) not knowingly take any action that would, under any statute,
regulation or administrative practice of any regulatory agency,
materially or adversely affect the ability of any party to this
Agreement to obtain any required approvals for consummation of the
transaction; and
(dd) not agree to any of the foregoing items (i) through (cc).
SECTION 4.2 Best Efforts.
Farmers Bancorp and Farmers National shall cooperate with ACNB and ACNB
North and each shall use its best efforts to do or cause to be done all things
necessary or appropriate on its part in order to fulfill the conditions
precedent set forth in Article VI of this Agreement and to
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consummate this Agreement. In particular, without limiting the generality of the
foregoing sentence, Farmers Bancorp and Farmers National shall:
(a) cooperate with ACNB and ACNB North in the preparation of all required
applications for regulatory approval of the transactions contemplated by
this Agreement and in the preparation of the Registration Statement (as
defined in Section 5.1(b) of this Agreement);
(b) call a special or annual meeting of its shareholders and take, in good
faith, all actions which are necessary or appropriate on its part in order
to secure the approval and adoption of this Agreement by its shareholders
at that meeting, including recommending the approval of such agreement by
the shareholders of Farmers Bancorp and Farmers National;
(c) suspend any dividend reinvestment and/or stock repurchase plan, as soon as
practicable; and
(d) modify the Articles of Incorporation or Bylaws or any other documents of
Farmers Bancorp or Farmers National reasonably requested by ACNB necessary
to effectuate the transactions contemplated hereby.
SECTION 4.3 Access to Properties and Records.
Farmers Bancorp and Farmers National shall give to ACNB, ACNB North and
their authorized representatives (including without limitation their counsel,
accountants, economic and environmental consultants and other designated
representatives) reasonable access during normal business hours to all
properties, books, contracts, documents and records of Farmers Bancorp or
Farmers National as ACNB or ACNB North may reasonably request, subject to the
obligations of ACNB, ACNB North and their authorized representatives to maintain
the confidentiality of all non-public information concerning Farmers Bancorp or
Farmers National obtained by reason of such access.
SECTION 4.4 Subsequent Financial Statements.
Between the date of execution of this Agreement and the Effective Date,
Farmers Bancorp shall promptly prepare and deliver to ACNB and ACNB North as
soon as practicable all internal monthly and quarterly financial statements,
reports to shareholders and reports to regulatory authorities prepared by or for
Farmers Bancorp, including all audit reports submitted to Farmers Bancorp by
independent auditors in connection with each annual, interim or special audit of
the books of Farmers Bancorp made by such accountants. In particular, without
limiting the generality of the foregoing sentence, Farmers Bancorp shall deliver
to ACNB and ACNB North as soon as practicable a balance sheet as of June 30,
1998 and a related statement of income for the six (6) months then ended (which
financial statements are hereinafter referred to as the "June 30, 1998 Financial
Statements"). The representations and warranties set forth in Section 3.1(hh) of
this Agreement shall apply to the June 30, 1998 Financial Statements.
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SECTION 4.5 Board and Committee Minutes.
Farmers Bancorp and Farmers National shall provide to ACNB, within 15 days
after any meeting of the Board of Directors, or any committee thereof, or any
senior or executive management committee, a copy of the minutes of such meeting.
SECTION 4.6 Update Schedule.
Farmers Bancorp and Farmers National shall promptly disclose to ACNB and
ACNB North in writing any change, addition, deletion or other modification to
the information set forth in the Annexes to this Agreement. Notwithstanding the
foregoing, disclosures made subsequent to the date of this Agreement shall not
relieve Farmers Bancorp or Farmers National from any and all liabilities for
prior statements and disclosures to ACNB and ACNB North.
SECTION 4.7 Notice.
Farmers Bancorp and Farmers National shall promptly notify ACNB and ACNB
North in writing of any actions, claims, investigations, proceedings or other
developments which, if pending or in existence on the date of this Agreement,
would have been required to be disclosed to ACNB and ACNB North in order to
ensure the accuracy of the representations and warranties set forth in this
Agreement or which otherwise could materially and adversely affect the condition
(financial or otherwise), assets, liabilities, business operations or future
prospects of Farmers Bancorp or Farmers National.
SECTION 4.8 Other Proposals.
Farmers Bancorp and Farmers National shall not, nor shall either of them
permit any officer, director, employee, agent, consultant, counsel or other
representative to, directly or indirectly, solicit, encourage, initiate or
engage in discussions or negotiations with, or respond to requests for
information, inquiries or other communications from any persons other than ACNB
or ACNB North concerning the fact of, or the terms and conditions of, this
Agreement, or concerning any acquisition of Farmers Bancorp or Farmers National,
or any assets or business thereof (except that Farmers Bancorp officers may
respond to inquiries from analysts, regulatory authorities and holders of
Farmers Bancorp Common Stock in the Ordinary Course of Business); and Farmers
Bancorp shall notify ACNB immediately if any such discussions or negotiations
are sought to be initiated with Farmers Bancorp by any such person other than
ACNB or if any such requests for information, inquiries, proposals or
communications are received from any person other than ACNB.
SECTION 4.9 Dividends.
Between the date of this Agreement and the Effective Date, Farmers Bancorp
shall only declare and pay cash dividends as provided herein. Farmers Bancorp
shall only pay regular quarterly cash dividends in an amount not in excess of
$.17 per share during each of the third and fourth calendar quarters of 1998.
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SECTION 4.10 Core Deposits.
Farmers National shall use commercially reasonable efforts to maintain
deposits.
SECTION 4.11 Affiliate Letters.
Farmers Bancorp shall deliver or cause to be delivered to ACNB or ACNB
North, at or before the Closing (as defined in Section 1.1(b) of this
Agreement), a letter or agreement from each officer, director and shareholder of
Farmers Bancorp who may be deemed to be an "affiliate" (as that term is defined
for purposes of Rules 145 and 405 promulgated by the SEC under the 1933 Act) of
Farmers Bancorp, in form and substance satisfactory to ACNB and ACNB North,
under the terms of which each such officer, director or shareholder acknowledges
and agrees to abide by all limitations imposed by the 1933 Act and by all rules,
regulations and releases promulgated thereunder with respect to the sale or
other disposition of the shares of ACNB Common Stock to be received by such
person pursuant to this Agreement.
SECTION 4.12 No Purchases or Sales of ACNB Common Stock During Price
Determination Period.
Neither Farmers Bancorp, Farmers National nor any executive officer or
director of Farmers Bancorp or Farmers National nor any shareholder of Farmers
Bancorp who may be deemed to be an "affiliate" (as that term is defined for
purposes of Rules 145 and 405 promulgated by the SEC under the 1933 Act) of
Farmers Bancorp shall purchase or sell, or submit a bid to purchase or an offer
to sell, directly or indirectly, any shares of ACNB Common Stock or any options,
rights or other securities convertible into shares of ACNB Common Stock during
the Price Determination Period.
SECTION 4.13 Accounting Treatment.
Farmers Bancorp acknowledges that ACNB presently intends to treat the
business combination contemplated by this Agreement as a "pooling of interests"
for financial reporting purposes. Neither Farmers Bancorp nor Farmers National
shall take (and shall use its best efforts not to permit any of its directors,
officers, employees, shareholders, agents, consultants or other representatives
to take) any action which would preclude ACNB from treating such business
combination as a "pooling of interests" for financial reporting purposes.
SECTION 4.14 Press Releases.
Neither Farmers Bancorp nor Farmers National shall issue any press release
related to this Agreement or the transactions contemplated hereby as to which
ACNB has not given its prior written consent, and shall consult with ACNB as to
the form and substance of other public disclosures related thereto; provided,
however, that nothing contained herein shall prohibit Farmers Bancorp or Farmers
National from making any disclosure which its counsel deems reasonably
necessary.
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SECTION 4.15 Phase I Environmental Audit.
Farmers Bancorp and Farmers National shall permit, if ACNB elects to do so
at its own expense, a "phase I environmental audit" to be performed at any
physical location owned or occupied on the date hereof by Farmers Bancorp or
Farmers National.
ARTICLE V
COVENANTS OF ACNB AND ACNB NORTH
From the date of this Agreement until the Effective Date (as defined in
Section 1.1(c) of this Agreement), ACNB and ACNB North covenant and agree to do
the following:
SECTION 5.1 Best Efforts.
ACNB and ACNB North shall cooperate with Farmers Bancorp and Farmers
National and shall use their best efforts to do or cause to be done all things
necessary or appropriate on their part in order to fulfill the conditions
precedent set forth in Article VI of this Agreement and to consummate this
Agreement. In particular, without limiting the generality of the foregoing
sentence, ACNB and ACNB North agree to do the following:
(a) Applications for Regulatory Approval.
ACNB and ACNB North shall promptly prepare and file, with the cooperation
and assistance of Farmers Bancorp and Farmers National, all required
applications for regulatory approval of the transactions contemplated by
this Agreement.
(b) Registration Statement.
ACNB shall promptly prepare, with the cooperation and assistance of Farmers
Bancorp, and file with the SEC, a registration statement under the 1933 Act
(the "Registration Statement") for the purpose of registering the shares of
ACNB Common Stock to be issued under the provisions of this Agreement. ACNB
may rely upon all information provided to it by Farmers Bancorp in this
connection and ACNB shall not be liable for any untrue statement of a
material fact or any omission to state a material fact in the Registration
Statement or in the proxy statement and prospectus (the "Proxy
Statement/Prospectus") which is prepared as a part thereof, if such
statement is made by ACNB in reliance upon any information provided to ACNB
by Farmers Bancorp or by its agents and representatives. ACNB will advise
Farmers Bancorp, after it receives notice thereof, of the time when the
Registration Statement or any Pre- or Post-Effective Amendment thereto has
become effective or any supplement or amendment has been filed.
(c) State Securities Laws.
ACNB and ACNB North, with the cooperation of Farmers Bancorp and Farmers
National, shall promptly take all such actions as may be necessary or
appropriate in order to comply with all applicable securities laws of any
state having jurisdiction over the transactions contemplated by this
Agreement.
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SECTION 5.2 Access to Properties and Records.
ACNB and ACNB North shall give to Farmers Bancorp and Farmers National and
to its authorized representatives (including without limitation counsel,
accountants, economic and environmental consultants and other designated
representatives) reasonable access during normal business hours to all
properties, books, contracts, documents and records of ACNB, ACNB North and
Adams County National Bank as they may reasonably request, subject to their
obligation and the obligation of their authorized representatives to maintain
the confidentiality of all non-public information concerning ACNB, ACNB North or
Adams County National Bank obtained by reason of such access.
SECTION 5.3 Subsequent Financial Statements.
Between the date of execution of this Agreement and the Effective Date,
ACNB shall promptly prepare and deliver to Farmers Bancorp as soon as
practicable each Quarterly Report to ACNB's shareholders and any Annual Report
to ACNB's shareholders normally prepared by ACNB. The representations and
warranties set forth in Sections 3.2 of this Agreement shall apply to the
financial statements set forth in the foregoing Quarterly Reports and any Annual
Report to ACNB's shareholders.
SECTION 5.4 Update Schedule.
ACNB and ACNB North shall promptly disclose to Farmers Bancorp and Farmers
National in writing any change, addition, deletion or other modification to the
information set forth in its Annexes to this Agreement.
SECTION 5.5 Notice.
ACNB and ACNB North shall promptly notify Farmers Bancorp and Farmers
National in writing of any actions, claims, investigations or other developments
which, if pending or in existence on the date of this Agreement, would have been
required to be disclosed to them in order to ensure the accuracy of the
representations and warranties set forth in this Agreement or which otherwise
could materially and adversely affect the condition (financial or otherwise),
assets, liabilities, business, operations or future prospects of ACNB and ACNB
North.
SECTION 5.6 No Purchase or Sale of ACNB Common Stock During Price
Determination Period.
Neither ACNB nor any subsidiary of ACNB, nor any executive officer or
director of ACNB or any subsidiary of ACNB, nor any shareholder of ACNB who may
be deemed to be an "affiliate" (as that term is defined for purposes of Rules
145 and 405 promulgated by the SEC under the 1933 Act) of ACNB, shall purchase
or sell, or submit a bid to purchase or an offer to sell, directly or
indirectly, any shares of ACNB Common Stock or any options, rights or other
securities convertible into shares of ACNB Common Stock during the Price
Determination Period; provided, however, that ACNB may purchase shares of ACNB
Common Stock in the Ordinary Course of Business during
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the Price Determination Period pursuant to ACNB's employee benefit plans, stock
option plans or ACNB's dividend reinvestment and stock purchase plan.
SECTION 5.7 Publicity.
ACNB shall provide to Farmers Bancorp, for review and comment, copies of
any public disclosure or press releases related to this Agreement and the
transactions contemplated hereby, prior to any public release of such
disclosure.
SECTION 5.8 Indemnification.
On and after the Effective Time, ACNB shall indemnify and hold harmless all
former and present directors, officers, employees and agents of Farmers Bancorp
and Farmers National for all losses, claims, damages, costs, expenses,
liabilities or judgments or amounts that are paid in settlement (with the
approval of ACNB, which approval shall not be unreasonably withheld) in
connection with any claim, action, suit, proceeding or investigation based in
whole or in part on the operation of the business of Farmers Bancorp or Farmers
National prior to the Effective Time, to the fullest extent permitted under the
articles of incorporation of Farmers Bancorp, the charter of Farmers National,
and the bylaws of each, as in effect as of the date of the execution of this
Agreement.
ARTICLE VI
CONDITIONS TO CONSUMMATION
SECTION 6.1 Common Conditions.
The respective obligations of the parties to effect the Merger shall be
subject to the satisfaction or waiver prior to the Effective Time of the
following conditions:
(a) The Agreement and the transactions contemplated hereby shall have been
approved by the requisite vote of the shareholders of Farmers Bancorp and
ACNB (if applicable) in accordance with applicable law.
(b) All approvals, consents or waivers required by any of the Farmers Bancorp
Regulatory Agencies or the ACNB Regulatory Agencies with respect to this
Agreement (including the Merger) and the transactions contemplated hereby
including, without limitation, the approvals, notices to, consents or
waivers of (i) the Board, and (ii) the Pennsylvania Department of Banking
(the Farmers Bancorp Regulatory Agencies and the ACNB Regulatory Agencies,
are, collectively the "Regulatory Agencies") shall have been obtained and
shall remain in full force and effect, and all applicable statutory waiting
periods (including without limitation all applicable statutory waiting
periods relating to the Merger) shall have expired; and the parties shall
have procured all other regulatory approvals, consents or waivers of
governmental authorities or other persons that are necessary or appropriate
to the
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consummation of the transactions contemplated by this Agreement except
those approvals, consents or waivers, if any, of which failure to obtain
would not, individually or in the aggregate, have a Material Adverse Effect
on ACNB, ACNB North, Farmers Bancorp or Farmers National (after giving
effect to the transaction contemplated hereby); provided, however, that no
such approval shall have imposed any condition or requirement which in the
opinion of the board of directors of ACNB or ACNB North renders
consummation of the Merger inadvisable.
(c) All other requirements prescribed by law which are necessary to the
consummation of the transactions contemplated by this Agreement shall have
been satisfied.
(d) No party hereto shall be subject to any order, decree or injunction of a
court or agency of competent jurisdiction which enjoins or prohibits the
consummation of the Merger or any other transaction contemplated by this
Agreement, and no litigation or proceeding shall be pending against any of
the parties herein or any of their subsidiaries brought by any governmental
agency seeking to prevent consummation of the transactions contemplated
hereby.
(e) No statute, rule, regulation, order, injunction or decree shall have been
enacted, entered, promulgated or enforced by any governmental authority
which prohibits, restricts or makes illegal consummation of the Merger or
any other transaction contemplated by this Agreement.
(f) The Registration Statement shall have been filed (the date of which is
referred to herein as the "Filing Date") by ACNB with the SEC under the
1933 Act, and shall have been declared effective prior to the time the
Proxy Statement/ Prospectus is first mailed to the shareholders of Farmers
Bancorp, and no stop order with respect to the effectiveness of the
Registration Statement shall have been issued; the ACNB Common Stock to be
issued pursuant to this Agreement shall be duly registered or qualified
under the securities or "blue sky" laws of all states in which such action
is required for purposes of the initial issuance of such shares and the
distribution thereof to the shareholders of Farmers Bancorp entitled to
receive such shares.
(g) A ruling from the IRS or an opinion of Shumaker Williams, P.C., or from an
accounting firm acceptable to ACNB to the effect that:
(i) The Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code and Farmers Bancorp, ACNB and ACNB North
will each be a "party to a reorganization" within the meaning of
Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Farmers Bancorp, ACNB or ACNB
North by reason of the Merger;
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(iii)Except for cash received in lieu of fractional shares and cash
received by Farmers Bancorp Shareholders who exercise their
dissenter's rights, no gain or loss will be recognized by the
shareholders of Farmers Bancorp who receive solely ACNB Common Stock
upon the exchange of their shares of Farmers Bancorp Common Stock for
shares of ACNB Common Stock;
(iv) The tax basis of the ACNB Common Stock to be received by the Farmers
Bancorp shareholders will be, in each instance, the same as the basis
of the Farmers Bancorp Common Stock surrendered in exchange therefor;
(v) The holding period of the ACNB Common Stock received by a Farmers
Bancorp shareholder receiving ACNB Common Stock will include the
period during which the Farmers Bancorp Common Stock surrendered in
exchange therefor was held;
(vi) Cash received by a Farmers Bancorp shareholder in lieu of a fractional
share interest of ACNB Common Stock or upon exercise of dissenter's
rights will be treated as having been received as a distribution in
full payment in exchange for the fractional share interest of ACNB
Common Stock, or the tax basis in the shares surrendered, as the case
may be, which he would otherwise be entitled to receive and will
qualify as capital gain or loss; and
(vii)Subject to any limitations imposed under Sections 381 and 382 of the
Code, ACNB North, as the survivor to the Merger, will carry-over and
take into account all accounting items and tax attributes of Farmers
Bancorp, including but not limited to earning and profits, methods of
accounting, and tax basis and holding periods of Farmers Bancorp.
In case a ruling from the IRS is sought, Farmers Bancorp and ACNB
shall cooperate and each shall furnish to the other and to the IRS
such information and representations as shall, in the opinion of
counsel for ACNB and Farmers Bancorp, be necessary or advisable to
obtain such ruling.
SECTION 6.2 Conditions to Obligations of ACNB and ACNB North.
The obligations of ACNB and ACNB North to effect the Merger shall be
subject to the satisfaction or waiver prior to the Effective Time of the
following additional conditions:
(a) Each of the representations and warranties of Farmers Bancorp and Farmers
National contained in this Agreement shall be true and correct in all
material respects as of the Effective Date as if made on such date (or on
the date when made in the case of any representation or warranty which
specifically relates to an earlier date); each of Farmers Bancorp and
Farmers National shall have performed each of its covenants and agreements
contained in this Agreement; and ACNB and ACNB North shall have received
certificates signed by the President and the Cashier of Farmers
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National and the President and Secretary of Farmers Bancorp, dated as of
the date of the Closing, to the foregoing effect.
(b) Greenawalt & Company, or such other accounting firm as is acceptable to the
parties, shall have furnished to ACNB an "agreed upon procedures" letter,
dated the Effective Date, in form and substance satisfactory to ACNB to the
effect that, based upon a procedure performed with respect to the financial
condition of Farmers Bancorp, Farmers National and affiliates, for the
period from December 31, 1997 to a specified date not more than five (5)
days prior to the date of such letter, including but not limited to (a)
their inspection of the minute books of Farmers Bancorp, Farmers National
and affiliates, (b) inquiries made by them of officers and other employees
of Farmers Bancorp, Farmers National and affiliates responsible for
financial and accounting matters as to transaction, and events during the
period, as to consistency of accounting procedures with prior periods and
as to the existence and disclosure of any material contingent liabilities,
and (c) of other specified procedures and inquiries performed by them,
nothing has come to their attention that would indicate that (A) during the
period from December 31, 1997 to a specified date not more than five (5)
days prior to the date of such letter, there was any change in the
capitalization of Farmers Bancorp or Farmers National on a consolidated
basis, or (B) any material adjustments would be required to the audited
financial statements for the period ended December 31, 1997 in order for
them to be in conformity with generally accepted accounting principles
applied on a consistent basis with that of prior periods.
(c) There shall not have occurred any change in the financial condition,
properties, assets, business or results of operation of Farmers Bancorp or
Farmers National which, individually or in the aggregate, has had or might
reasonably be expected to result in a Material Adverse Effect on Farmers
Bancorp or Farmers National.
(d) The Merger shall as of the date of the Closing meet the requirements for
pooling-of-interests accounting treatment under generally accepted
accounting principles and under the accounting rules of the SEC, and ACNB
shall have received a letter from Stambaugh-Ness, P.C. in form and
substance reasonably satisfactory to ACNB as to the matters specified in
Section 6.2 (d).
(e) ACNB shall have received from each of the persons identified by Farmers
Bancorp pursuant to Section 4.11 hereof an executed counterpart of an
affiliate's agreement in the form contemplated by such Section.
(f) Except as otherwise provided in this Agreement, prior to Closing, all
issued and outstanding options, warrants or rights to acquire Farmers
Bancorp Common Stock or any capital stock of Farmers National ("Farmers
National Common Stock") shall have been canceled. No compensation or other
rights will be payable or exchangeable in the Merger in respect of any such
rights which remain unexercised at the Effective Time.
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(g) Dissenting Shareholders. Holders of no more than seven percent (7.0%) of
the issued and outstanding shares of Farmers Bancorp (17,360 shares) shall
have exercised their statutory appraisal or Dissenters' Rights.
(h) Environmental Matters. No environmental problem of the kind contemplated in
Section 3.1(q) of Article III of this Agreement and not previously
disclosed on Annex 3.1(q) shall have been discovered which would, or which
potentially could, materially and adversely affect the condition (financial
or otherwise), assets, liabilities, business, operations or future
prospects of Farmers Bancorp or Farmers National; provided, that for
purposes of determining the materiality of an undisclosed environmental
problem or problems, the definition of "material" shall be governed by the
proviso to Section 9.1 of this Agreement. The result of any "phase I
environmental audit" conducted pursuant to Section 4.15 with respect to
owned or occupied bank premises shall be reasonably satisfactory to ACNB.
(i) Benefit Plans. ACNB shall have determined within sixty (60) days of the
execution of this Agreement that the medical, health, insurance, and
employee benefit plans or programs of Farmers Bancorp and/or Farmers
National do not contain any provision or term which, upon assumption by
ACNB on the Effective Date, would require ACNB to provide benefits or incur
cost in excess of those provided or paid by ACNB to or on behalf of its
existing employees.
(j) Financial Confirmation. Within sixty (60) days of the execution of this
Agreement, ACNB (and their accountants if the advice of such accountants is
deemed necessary or desirable by ACNB) shall have established to their
satisfaction that Farmers Bancorp's Balance Sheet fairly presents the
financial condition, assets and liabilities of Farmers Bancorp as at June
30, 1998, and that, since June 30, 1998 there has not been any material and
adverse change in the condition (financial or otherwise), assets,
liabilities, business, operations or future prospects of Farmers Bancorp or
Farmers National.
(k) Litigation. All litigation pending against Farmers Bancorp or Farmers
National which, individually or in the aggregate, would have a Material
Adverse Effect on Farmers Bancorp's consolidated operations or future
prospects, shall have been settled or otherwise resolved on terms
satisfactory to ACNB.
SECTION 6.3 Conditions to the Obligations of Farmers Bancorp and Farmers
National.
The obligations of Farmers Bancorp to effect the Merger shall be subject to
the satisfaction or waiver prior to the Effective Time of the following
additional conditions:
(a) Each of the representations, warranties and covenants of ACNB and ACNB
North contained in this Agreement shall be true and correct in all material
respects on the Effective Date as if made on such date (or on the date when
made in the case of any representation or warranty which specifically
relates to an earlier date); ACNB and
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ACNB North shall have performed each of its covenants and agreements, which
are material to its operations and prospects, contained in this Agreement;
and Farmers Bancorp shall have received certificates signed by the
President and Secretary or Vice President or Assistant Secretary of ACNB
and ACNB North.
(b) There shall not have occurred any change in the financial condition,
properties, assets or business or results of operation of ACNB and ACNB
North which, individually or in the aggregate, has had or might reasonably
be expected to result in a Material Adverse Effect on ACNB or the Material
Subsidiaries taken as a whole.
(c) The status of all pending litigation that might reasonably be expected to
result in a Materially Adverse Effect to ACNB or the Material Subsidiaries
taken as a whole, shall be satisfactory to Farmers Bancorp.
(d) Farmers Bancorp shall have received an updated opinion from Garland
McPherson & Associates, Inc. as of a date no later than the date of the
Proxy Statement/Prospectus mailed to the Farmers Bancorp shareholders in
connection with the Merger to the effect that the Merger consideration is
fair to Farmers Bancorp's shareholders from a financial point of view.
(e) A certificate for the required number of whole shares of ACNB Common Stock,
as determined in accordance with Section 2.1(a), and cash payable for the
fractional shares interests shall have been delivered to the Exchange
Agent, subject to Section 2.2 of this Agreement.
ARTICLE VII
TERMINATION
SECTION 7.1 Termination.
This Agreement may be terminated, and the Merger abandoned, prior to the
Effective Date, either before or after its approval by the shareholders of
Farmers Bancorp:
(a) by the mutual, written consent of Farmers Bancorp and ACNB if the board of
directors of each so determines by a vote of a majority of the members of
the entire Board;
(b) by Farmers Bancorp if (i) by written notice to ACNB that there has been a
material breach by ACNB of any representation, warranty, covenant or
agreement contained herein and such breach is not cured or not curable
within thirty (30) days after written notice of such breach is given to
ACNB by Farmers Bancorp or (ii) by written notice to ACNB that any
condition precedent to Farmers Bancorp's obligations as set forth in
Article VI of this Agreement has not been met or waived by Farmers Bancorp
at
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such time as such condition can no longer be satisfied through no fault of
Farmers Bancorp or Farmers National, on June 30, 1999.
(c) by ACNB by written notice to the other parties, in the event (i) of a
material breach by Farmers Bancorp or Farmers National of any
representation, warranty, covenant or agreement contained herein and such
breach is not cured or not curable within thirty (30) days after written
notice of such breach is given to Farmers Bancorp by ACNB or (ii) any
condition precedent to ACNB's obligations as set forth in Article VI of
this Agreement has not been met or waived by ACNB at such time as such
condition can no longer be satisfied, through no fault of ACNB or ACNB
North, on June 30, 1999.
(d) by ACNB or Farmers Bancorp by written notice to the other, in the event
that the Merger is not consummated by June 30, 1999, unless the failure to
so consummate by such time is due to the breach of any representation,
warranty or covenant contained in this Agreement by the party seeking to
terminate, provided, however, that such date may be extended by the written
agreement of the parties hereto.
(e) within thirty (30) days of the date of this Agreement, by ACNB or ACNB
North by giving written notice to Farmers Bancorp, if any matter or thing
has come to the attention of ACNB or ACNB North in the course of their due
diligence investigation, or otherwise, with respect to Farmers Bancorp or
Farmers National that lead them to believe that it would be inadvisable for
ACNB or ACNB North, in their sole and exclusive judgment, to proceed with
the transactions contemplated by this Agreement.
(f) within thirty (30) days of the date of this Agreement, by Farmers Bancorp
or Farmers National by giving written notice to ACNB, if any matter or
thing has come to the attention of Farmers Bancorp or Farmers National in
the course of their due diligence investigation, or otherwise, with respect
to ACNB or ACNB North that lead them to believe that it would be
inadvisable for Farmers Bancorp or Farmers National, in their sole and
exclusive judgment, to proceed with the transactions contemplated by this
Agreement.
SECTION 7.2 Effect of Termination.
In the event of the termination of this Agreement as provided above, this
Agreement shall thereafter become void and have no effect, except that the
provisions of Section 3.1(p) (Fees), Sections 4.3 and 5.2 (relating to
confidentiality and return of documents), Sections 4.14 (Press Releases and
Publicity) and Sections 7.3 and 9.10 (Expenses) of this Agreement shall survive
any such termination and abandonment.
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SECTION 7.3 Expenses.
Any termination of this Agreement pursuant to Sections 7.1(a) or 7.l(d)
hereof shall be without cost, expense or liability on the part of any party to
the others. Any termination of this Agreement pursuant to Section 7.1(b) or
7.1(c) hereof shall also be without cost, liability or expense on the part of
any party to the others, unless the breach of a representation or warranty or
covenant is caused by the willful conduct or gross negligence of a party or the
circumstances of, in which event said party shall be liable to the other parties
for all out-of pocket costs and expenses, including without limitation,
reasonable legal, accounting and investment banking fees and expenses, incurred
by such other party in connection with their entering into this Agreement and
their carrying out of any and all acts contemplated hereunder ("Expenses"). Any
termination of this Agreement pursuant to Section 7.1(e) or (f) hereof shall
also be without cost, liability or expense on the part of any party to the
others, unless the termination is caused by willful misrepresentation or fraud
of, in the case of Section 7.1(e), Farmers Bancorp or Farmers National, in which
event Farmers Bancorp shall be liable to ACNB and ACNB North for all Expenses,
and in the case of Section 7.1(f), ACNB or ACNB North, in which event ACNB shall
be liable to Farmers Bancorp and Farmers National for all Expenses.
ARTICLE VIII
POST MERGER AGREEMENTS
SECTION 8.1 Employees.
(a) Farmers National's employees who are employed in good standing and actively
at work as of the Effective Date (the "Continuing Employees") shall be
employed and retained in their current positions with compensation no less
than current levels of compensation, with such changes in the future as may
be appropriate, as determined by Farmers National's Board of Directors.
Notwithstanding the foregoing, ACNB shall retain the right to terminate any
of the Continuing Employees at any time following the Effective Date for
"Good Reason", as that term shall be defined by ACNB.
(b) After the Effective Date, all benefits of the Continuing Employees will be
maintained at a level not less than equal to the benefits enjoyed by the
employees of Farmers National prior to the Effective Date, with such
changes in the future as may be appropriate, as determined by Farmers
National's Board of Directors.
(c) After the Effective Date, Continuing Employees shall be eligible to apply
for any positions available at ACNB, or any of its subsidiaries.
SECTION 8.2 Officers.
Farmers National's officers who are employed in good standing and actively
at work as of the Effective Date (the "Continuing Officers") shall be employed
and retained in their current
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management positions with compensation at least equal to their current levels of
compensation, with such changes in the future as may be appropriate, as
determined by Farmers National's Board of Directors. Notwithstanding the
foregoing, ACNB shall retain the right to terminate any of the Continuing
Officers at any time following the Effective Date for "Good Reason", as that
term shall be defined by ACNB.
SECTION 8.3 Directors.
On the Effective Date, two (2) persons who are mutually agreed upon by ACNB
and Farmers Bancorp and who previously served as directors of Farmers Bancorp
shall be appointed to the board of directors of ACNB, one person to serve as a
Class 1 Director, one person to serve as a Class 2 Director, and each shall
serve until such time as his successor has been duly elected, qualified, or
appointed. ACNB agrees to waive any mandatory retirement requirements contained
in its by-laws so far as such requirement pertains to such two persons.
SECTION 8.4 Farmers National Board of Directors.
(a) Composition; Term; Duties. Immediately following the Effective Time, the
Board of Directors of Farmers National shall consist of the members of the
board immediately preceding the Effective Time, with the addition of Ms.
Carolyn H. Kough and Mr. Ronald L. Hankey. Following the Effective Date,
ACNB, consistent with its fiduciary duties, shall continue to recommend on
an annual basis that the then current members of the Board of Directors of
Farmers National be re-elected.
(b) Compensation. Following the Effective Date, each member of the Farmers
National board of directors shall receive an annual retainer of two
thousand eight hundred and fifty dollars ($2,850) for each year in which
such director attends at least 10 meetings of the Farmers National board of
directors, a monthly fee of two hundred and sixty-five dollars ($265.00)
for each meeting of the board of directors attended, committee fees of
eighty dollars ($80) per hours, a seminar fee of two hundred and fifty
dollars ($250) per half day and four hundred dollars ($400) per full day
seminar, plus applicable expenses, as compensation for services rendered in
their capacity as a Director.
SECTION 8.5 Certain Matters.
ACNB shall continue the separate corporate existence of Farmers National as
an operating subsidiary, with the corporate name "Farmers National Bank of
Newville", with such changes in the future as may be appropriate, as determined
by Farmers National's Board of Directors. ACNB shall use its best efforts to
maintain the level of customer service and community support as has been the
custom of Farmers Bancorp and Farmers National.
SECTION 8.6 NASDAQ Listing.
Within one hundred and eighty (180) days following the Effective Date, ACNB
shall use its best efforts to apply to the National Association of Securities
Dealers ("NASD") and qualify for
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quotation of ACNB Common Stock on the National Association of Securities Dealers
Automatic Quotations ("NASDAQ") National Market System or NASDAQ Small Cap
Stocks, as applicable. Notwithstanding the foregoing, ACNB shall be under no
obligation to make application to the NASD for listing of ACNB Common Stock on
NASDAQ if such application and/or listing is deemed impractical or inadvisable
by ACNB's financial and/or legal advisors.
ARTICLE IX
OTHER MATTERS
SECTION 9.1 Certain Definitions; interpretation.
As used in this Agreement, the following terms shall have the meanings
indicated:
"Material" means material to the party in question (as the case may
be) and its respective subsidiaries, taken as a whole.
"Material Adverse Effect," with respect to a person, means any
condition, event, change or occurrence that has or results in an
effect which is material and adverse to (A) the financial condition,
properties, assets, business or results of operations of such person
and its subsidiaries, taken as a whole, or (B) the ability of such
person to perform its obligations under, and to consummate the
transactions contemplated by, this Agreement. In the case of Farmers
National, receipt of a CAMELS rating in connection with a safety and
soundness examination which is lower than the rating given to Farmers
National in connection with the safety and soundness examination most
recently reported prior to the date of this Agreement shall be deemed
to have a "Material Adverse Effect" on Farmers National.
"Person" includes an individual, corporation, partnership,
association, trust or unincorporated organization.
"Subsidiary," with respect to a person, means any other person
controlled by such person.
When a reference is made in this Agreement to Exhibits, Sections, Annexes or
Schedules, such reference shall be to a Section of, or Annex or Schedule to,
this Agreement unless otherwise indicated. The table of contents, tie sheet and
headings contained in this Agreement are for ease of reference only and shall
not affect the meaning or interpretation of this Agreement. Whenever the words
"include," "includes," or "including" are used in this Agreement, they shall be
deemed followed by the words "without limitation". Any singular term in this
Agreement shall be deemed to include the plural, and any plural term the
singular.
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SECTION 9.2 Survival.
The representations, warranties and agreements of the parties set forth in
this Agreement shall not survive the Effective Time, and shall be terminated and
extinguished at the Effective Time, and from and after the Effective Time none
of the parties hereto shall have any liability to the other on account of any
breach or failure of any of those representations, warranties and agreements;
provided, however, that the foregoing clause shall not (i) apply to agreements
of the parties which by their terms are intended to be performed either in whole
or in part after the Effective Time, and (ii) shall not relieve any person of
liability for fraud, deception or intentional misrepresentation.
SECTION 9.3 Parties in Interest.
This Agreement shall be binding upon and inure solely to the benefit of
each party hereto and their respective successors and assigns, and, other than
the right to receive the consideration payable in the Merger pursuant to Article
II hereof, is not intended to and shall not confer upon any other person any
rights, benefits or remedies of any nature whatsoever under or by reason of this
Agreement.
SECTION 9.4 Captions.
The captions contained in this Agreement are for reference purposes only
and are not part of this Agreement.
SECTION 9.5 Severability.
If any provision of this Agreement or the application thereof to any party
or circumstance shall be invalid or unenforceable to any extent, the remainder
of this Agreement and the application of such provisions to other parties or
circumstances shall not be affected thereby and shall be enforced to the
greatest extent permitted by law.
SECTION 9.6 Access; Confidentiality.
The parties hereby agree to conduct the investigations and discussions
contemplated by Section 4.3 and Section 5.2 of this Agreement in a manner so as
to not interfere unreasonably with normal operations and customer and employee
relationships. If the transactions contemplated by this Agreement are not
consummated, the parties hereby agree to destroy or return all documents and
records obtained from the other or their respective representatives during the
course of any investigation and will cause all information with respect to the
other party obtained pursuant to this Agreement or preliminarily thereto to be
kept confidential, except to the extent such information becomes public through
no fault of the party which has obtained such information or any of its
respective representatives or agents and except to the extent disclosure of any
such information is legally required. Each party hereby agrees to give the other
party prompt notice of any contemplated disclosure where such disclosure is so
legally required.
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SECTION 9.7 Waiver and Amendment.
Prior to the Effective Time, any provision of this Agreement may be: (i)
waived by the party benefitted by the provision; or (ii) amended or modified at
any time (including the structure of the transaction) by an agreement in writing
between the parties hereto approved by their respective boards of directors,
except that no amendment or waiver may be made that would change the form or the
amount of the merger consideration or otherwise have the effect of prejudicing
the Farmers Bancorp shareholders' interest in the merger consideration following
the Farmers Bancorp Shareholders' Meeting.
SECTION 9.8 Counterparts.
This Agreement may be executed in counterparts, each of which shall be
deemed to constitute an original, but all of which together shall constitute one
and the same instrument.
SECTION 9.9 Governing Law.
This Agreement shall be governed by, and interpreted in accordance with,
the laws of the Commonwealth of Pennsylvania, or, to the extent it may control,
federal law, without reference to the choice of law principles thereof.
SECTION 9.10 Expenses.
Subject to the provisions of Section 7.3 hereof, each party hereto will
bear all Expenses incurred by it in connection with this Agreement and the
transactions contemplated hereby; provided, however, that all filing and other
fees (other than federal and state income taxes) required to be paid to any
governmental agency or authority in connection with the consummation of the
transactions contemplated hereby shall be paid by ACNB.
SECTION 9.11 Notices.
All notices, requests, acknowledgments and other communications hereunder
to a party shall be in writing and shall be deemed to have been duly given when
delivered by hand, telecopy, telegram or telex (confirmed in writing) to such
party at its address set forth below or such other address as such party may
specify by notice to the other party hereto.
If to Farmers Bancorp, to:
Farmers National Bancorp, Inc.
1 W. Big Spring Avenue
P.O. Box 156
Newville, PA 17241-0156
Attention: Mr. Edgar S. Heberlig
Chairman of the Board of Directors
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If to Farmers National, to:
Farmers National Bank of Farmers National
1 W. Big Spring Avenue
P.O. Box 156
Newville, PA 17241-0156
Attention: Mr. Mervin J. Morrison
President
If to ACNB, to:
ACNB Corporation
P. O. Box 3129
Gettysburg, PA 17325
Attention: Mr. Ronald L. Hankey
President and Chief Executive Officer
If to ACNB North, to:
ACNB North, Inc.
c/o ACNB Corporation
P. O. Box 3129
Gettysburg, PA 17325
Attention: Mr. Ronald L. Hankey
President and Chief Executive Officer
SECTION 9.12 Entire Agreement; Etc.
This Agreement, together with such other agreements as are executed by the
parties in connection herewith, on the date hereof, represents the entire
understanding of the parties hereto with reference to the transactions
contemplated hereby and supersedes any and all other oral or written agreements
heretofore made. All terms and provisions of this Agreement, together with such
other agreements as are executed by the parties in connection herewith, on the
date hereof, shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Nothing in this Agreement is
intended to confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Agreement except as expressly provided.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
ACNB CORPORATION
/s/ John W. Krichten /s/ Ronald L. Hankey
- -------------------------- ----------------------------
John W. Krichten, Secretary By: Ronald L. Hankey
Title: President and Chief Executive Officer
ACNB NORTH, INC.
/s/ John W. Krichten /s/ Ronald L. Hankey
- -------------------------- -----------------------------
John W. Krichten, Secretary By: Ronald L. Hankey
Title: President and Chief Executive Officer
FARMERS NATIONAL BANCORP, INC.
/s/ W. Irvin Nelson /s/ Edgar S. Heberlig
- -------------------------- ---------------------------------
W. Irvin Nelson, Secretary By: Edgar S. Heberlig
Title: Chairman of the Board of Directors
FARMERS NATIONAL BANK OF NEWVILLE
/s/ James E. Showvaker /s/ Mervin J. Morrison
- ------------------------- ----------------------------------
James E. Showvaker, Cashier By: Mervin J. Morrison
Title: President
<PAGE>
ANNEX B
OPINION OF GARLAND MCPHERSON & ASSOCIATES, INC.
<PAGE>
[GARLAND McPHERSON & ASSOCIATES, INC. LETTERHEAD]
_______________, 1998
The Board of Directors
Farmers National Bancorp, Inc.
1 West Big Spring Avenue
Newville, PA 17241
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the shareholders of Farmers National Bancorp, Inc. ("FNB") of the
Agreement and Plan of Reorganization (the "Agreement") pursuant to which FNB
will combine with and into ACNB Corporation ("ACNB") by means of a merger. Under
the terms of the Agreement, each outstanding share of FNB common stock will be
converted into 2.266 shares of ACNB common stock.
Garland McPherson & Associates, Inc., as part of its investment banking and bank
consulting business, is engaged in the valuation of financial institution
securities for a variety of purposes, including mergers and acquisitions, and
the determination of adequate consideration in such transactions.
For purposes of this opinion, we reviewed and analyzed information pertaining to
the financial and operating condition of FNB and ACNB. This review included, but
was not limited to: (i) the Agreement and Plan of Reorganization; (ii) financial
and other information which was publicly available or provided to us by FNB and
ACNB; (iii) certain financial information relating to the banking industry in
general; (iv) the respective history of dividends paid by the two institutions;
(v) our evaluation of future prospects for the merged institution; (vi) terms
and conditions of comparable merger transactions and (vii) such other financial
reviews, analyses, and investigations as we deemed appropriate.
In rendering our opinion, we conducted discussions with members of senior
management of FNB and ACNB concerning their respective businesses and prospects
and have relied on the accuracy and completeness of information and
representations delivered to us by FNB and ACNB and their officers, directors,
counsel, and other agents. We have not independently verified the information
reviewed by us (either publicly available or provided to us by FNB and ACNB)
and, in rendering our opinion, have relied upon such information as being
complete and accurate in all material respects.
We have assumed that the allowances for loan losses indicated on the balance
sheets of FNB and ACNB as of June 30, 1998 are adequate to cover such losses. We
have not reviewed the loan files
<PAGE>
The Board of Directors _______________, 1998
Farmers National Bancorp, Inc. Page 2
of FNB or ACNB, nor did we make an independent valuation or appraisal of the
assets and liabilities of FNB and ACNB.
We assumed that in the course of obtaining the necessary regulatory approvals
for the Merger, no restrictions will be imposed on ACNB that would have a
material adverse effect on the contemplated benefits of the Merger to FNB. We
further assumed that no change would occur in applicable law or regulation that
would cause a material adverse change in the prospects or operations of ACNB
after the Merger. We express no opinion as to the tax consequences of the merger
to FNB and its shareholders.
Our conclusion is based on the market, economic and other conditions prevailing
as of the date hereof and the current conditions and prospects of FNB and ACNB.
Events occurring subsequent to this date could materially affect the assumptions
and conclusions contained in our opinion. We express no opinion as to what the
value of ACNB common stock will be at the time the Merger is consummated. Our
opinion pertains only to the financial consideration of the Merger and does not
constitute a recommendation to the Board of FNB nor a recommendation as to how
FNB shareholders should vote with regard to the Merger.
Based upon and subject to the foregoing, it is our opinion as of the date
hereof, that the exchange and the ACNB consideration to be received is fair,
from a financial point of view, to the shareholders of Farmers National Bancorp,
Inc.
Sincerely,
Garland McPherson & Associates, Inc.
<PAGE>
ANNEX C
PENNSYLVANIA BUSINESS CORPORATION LAW OF 1988, AS AMENDED
EXCERPTS FROM SUBCHAPTER 19C
<PAGE>
PENNSYLVANIA BUSINESS CORPORATION LAW OF 1988, AS AMENDED
EXCERPTS FROM SUBCHAPTER 19C
Section 1930. Dissenters rights
(a) General rule. If any shareholder of a domestic business corporation
that is to be a party to a merger or consolidation pursuant to a plan
of merger or consolidation objects to the plan of merger or
consolidation and complies with the provisions of Subchapter D of
Chapter 15 (relating to dissenters rights), the shareholder shall be
entitled to the rights and remedies of dissenting shareholders therein
provided, if any. See also section 1906(c) (relating to dissenters
rights upon special treatment).
SUBCHAPTER 15D
Dissenters Rights
Section:
1571. Application and effect of subchapter.
1572. Definitions.
1573. Record and beneficial holders and owners.
1574. Notice of intention to dissent.
1575. Notice to demand payment.
1576.Failure to comply with notice to demand payment, etc. 1577. Release of
restrictions or payment for shares. 1578. Estimate by dissenter of fair
value of shares. 1579. Valuation proceedings generally. 1580. Costs and
expenses of valuation proceedings.
Section 1571. Application and effect of Subchapter.
(a) General rule. Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to dissent
from, and to obtain payment of the fair value of his shares in the
event of, any corporate action, or to otherwise obtain fair value for
his shares, where this part expressly provides that a shareholder
shall have the rights and remedies provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special
treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share exchanges).
Section 1932(c) (relating to dissenters rights in asset transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
<PAGE>
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a restriction on
transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
Section 2705(d) (relating to dissenters rights upon renewal of
election).
Section 2907(a) (relating to proceedings to terminate breach of
qualifying conditions).
Section 7104(b)(3) (relating to procedure).
(b) Exceptions.
(1) Except as otherwise provided in paragraph (2), the holders of the
shares of any class or series of shares that, at the record date
fixed to determine the shareholders entitled to notice of and to
vote at the meeting at which a plan specified in any of section
1930, 1931(d), 1932(c) or 1952(d) is to be voted on, are either:
(i) listed on a national securities exchange; or
(ii) held of record by more than 2,000 shareholders;
shall not have the right to obtain payment of the fair value of
any such shares under this subchapter.
(2) Paragraph (1) shall not apply to and dissenters rights shall be
available without regard to the exception provided in that
paragraph in the case of:
(i) Shares converted by a plan if the shares are not converted
solely into shares of the acquiring, surviving, new or other
corporation or solely into such shares and money in lieu of
fractional shares.
(ii) Shares of any preferred or special class unless the
articles, the plan or the terms of the transaction entitle
all shareholders of the class to vote thereon and require
for the adoption of the plan or the effectuation of the
transaction the affirmative vote of a majority of the votes
cast by all shareholders of the class.
(iii)Shares entitled to dissenters rights under section 1906(c)
(relating to dissenters rights upon special treatment).
(3) The shareholders of a corporation that acquires by purchase, lease,
exchange or other disposition all or substantially all of the shares,
property or assets of another corporation by the issuance of shares,
obligations or otherwise, with or without assuming the liabilities of
the other corporation and with or without the intervention of another
corporation or other person, shall not be
<PAGE>
entitled to the rights and remedies of dissenting shareholders
provided in this subchapter regardless of the fact, if it be the case,
that the acquisition was accomplished by the issuance of voting shares
of the corporation to be outstanding immediately after the acquisition
sufficient to elect a majority or more of the directors of the
corporation.
(c) Grant of optional dissenters rights. The bylaws or a resolution of the
board of directors may direct that all or a part of the shareholders
shall have dissenters rights in connection with any corporate action
or other transaction that would otherwise not entitle such
shareholders to dissenters rights.
(d) Notice of dissenters rights. Unless otherwise provided by statute, if
a proposed corporate action that would give rise to dissenters rights
under this subpart is submitted to a vote at a meeting of
shareholders, there shall be included in or enclosed with the notice
of meeting:
(1) a statement of the proposed action and a statement that the
shareholders have a right to dissent and obtain payment of the
fair value of their shares by complying with the terms of this
subchapter; and
(2) a copy of this subchapter.
(e) Other statutes. The procedures of this subchapter shall also be
applicable to any transaction described in any statute other than this
part that makes reference to this subchapter for the purpose of
granting dissenters rights.
(f) Certain provisions of articles ineffective. This subchapter may not be
relaxed by any provision of the articles.
(g) Cross references. See sections 1105 (relating to restriction on
equitable relief), 1904 (relating to de facto transaction doctrine
abolished) and 2512 (relating to dissenters rights procedure).
Section 1572. Definitions.
The following words and phrases when used in this subchapter shall have the
meanings given to them in this section unless the context clearly indicates
otherwise:
"Corporation." The issuer of the shares held or owned by the dissenter
before the corporate action or the successor by merger, consolidation,
division, conversion or otherwise of that issuer. A plan of division may
designate which of the resulting corporations is the successor corporation
for the purposes of this subchapter. The successor corporation in a
division shall have sole responsibility for payments to dissenters and
other liabilities under this subchapter except as otherwise provided in the
plan of division.
<PAGE>
"Dissenter." A shareholder or beneficial owner who is entitled to and does
assert dissenters rights under this subchapter and who has performed every
act required up to the time involved for the assertion of those rights.
"Fair value." The fair value of shares immediately before the effectuation
of the corporate action to which the dissenter objects, taking into account
all relevant factors, but excluding any appreciation or depreciation in
anticipation of the corporate action.
"Interest." Interest from the effective date of the corporate action until
the date of payment at such rate as is fair and equitable under all of the
circumstances, taking into account all relevant factors, including the
average rate currently paid by the corporation on its principal bank loans.
Section 1573. Record and beneficial holders and owners.
(a) Record holders of shares. A record holder of shares of a business
corporation may assert dissenters rights as to fewer than all of the
shares registered in his name only if he dissents with respect to all
the shares of the same class or series beneficially owned by any one
person and discloses the name and address of the person or persons on
whose behalf he dissents. In that event, his rights shall be
determined as if the shares as to which he has dissented and his other
shares were registered in the names of different shareholders.
(b) Beneficial owners of shares. A beneficial owner of shares of a
business corporation who is not the record holder may assert
dissenters rights with respect to shares held on his behalf and shall
be treated as a dissenting shareholder under the terms of this
subchapter if he submits to the corporation not later than the time of
the assertion of dissenters rights a written consent of the record
holder. A beneficial owner may not dissent with respect to some but
less than all shares of the same class or series owned by the owner,
whether or not the shares so owned by him are registered in his name.
Section 1574. Notice of intention to dissent.
If the proposed corporate action is submitted to a vote at a meeting of
shareholders of a business corporation, any person who wishes to dissent
and obtain payment of the fair value of his shares must file with the
corporation, prior to the vote, a written notice of intention to demand
that he be paid the fair value for his shares if the proposed action is
effectuated, must effect no change in the beneficial ownership of his
shares from the date of such filing continuously through the effective date
of the proposed action and must refrain from voting his shares in approval
of such action. A dissenter who fails in any respect shall not acquire any
right to payment of the fair value of his shares under this subchapter.
Neither a proxy nor a vote against the proposed corporate action shall
constitute the written notice required by this section.
<PAGE>
Section 1575. Notice to demand payment.
(a) General rule. If the proposed corporate action is approved by the
required vote at a meeting of shareholders of a business corporation,
the corporation shall mail a further notice to all dissenters who gave
due notice of intention to demand payment of the fair value of their
shares and who refrained from voting in favor of the proposed action.
If the proposed corporate action is to be taken without a vote of
shareholders, the corporation shall send to all shareholders who are
entitled to dissent and demand payment of the fair value of their
shares a notice of the adoption of the plan or other corporate action.
In either case, the notice shall:
(1) State where and when a demand for payment must be sent and
certificates for certificated shares must be deposited in order
to obtain payment.
(2) Inform holders of uncertificated shares to what extent transfer
of shares will be restricted from the time that demand for
payment is received.
(3) Supply a form for demanding payment that includes a request for
certification of the date on which the shareholder, or the person
on whose behalf the shareholder dissents, acquired beneficial
ownership of the shares.
(4) Be accompanied by a copy of this subchapter.
(b) Time for receipt of demand for payment. The time set for receipt of
the demand and deposit of certificated shares shall be not less than
30 days from the mailing of the notice.
Section 1576. Failure to comply with notice to demand payment, etc.
(a) Effect of failure of shareholder to act. A shareholder who fails to
timely demand payment, or fails (in the case of certificated shares)
to timely deposit certificates, as required by a notice pursuant to
section 1575 (relating to notice to demand payment) shall not have any
right under this subchapter to receive payment of the fair value of
his shares.
(b) Restriction on uncertificated shares. If the shares are not
represented by certificates, the business corporation may restrict
their transfer from the time of receipt of demand for payment until
effectuation of the proposed corporate action or the release of
restrictions under the terms of section 1577(a) (relating to failure
to effectuate corporate action).
(c) Rights retained by shareholder. The dissenter shall retain all other
rights of a shareholder until those rights are modified by
effectuation of the proposed corporate action.
<PAGE>
Section 1577. Release of restrictions or payment for shares.
(a) Failure to effectuate corporate action. Within 60 days after the date
set for demanding payment and depositing certificates, if the business
corporation has not effectuated the proposed corporate action, it
shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason
of the demand for payment.
(b) Renewal of notice to demand payment. When uncertificated shares have
been released from transfer restrictions and deposited certificates
have been returned, the corporation may at any later time send a new
notice conforming to the requirements of section 1575 (relating to
notice to demand payment), with like effect.
(c) Payment of fair value of shares. Promptly after effectuation of the
proposed corporate action, or upon timely receipt of demand for
payment if the corporate action has already been effectuated, the
corporation shall either remit to dissenters who have made demand and
(if their shares are certificated) have deposited their certificates
the amount that the corporation estimates to be the fair value of the
shares, or give written notice that no remittance under this section
will be made. The remittance or notice shall be accompanied by:
(1) The closing balance sheet and statement of income of the issuer
of the shares held or owned by the dissenter for a fiscal year
ending not more than 16 months before the date of remittance or
notice together with the latest available interim financial
statements.
(2) A statement of the corporation's estimate of the fair value of
the shares.
(3) A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy
of this subchapter.
(d) Failure to make payment. If the corporation does not remit the amount
of its estimate of the fair value of the shares as provided by
subsection (c), it shall return any certificates that have been
deposited and release uncertificated shares from any transfer
restrictions imposed by reason of the demand for payment. The
corporation may make a notation on any such certificate or on the
records of the corporation relating to any such uncertificated shares
that such demand has been made. If shares with respect to which
notation has been so made shall be transferred, each new certificate
issued therefor or the records relating to any transferred
uncertificated shares shall bear a similar notation, together with the
name of the original dissenting holder or owner of such shares. A
transferee of such shares shall not acquire by such transfer any
rights in the corporation other than those that the original dissenter
had after making demand for payment of their fair value.
<PAGE>
Section 1578. Estimate by dissenter of fair value of shares.
(a) General rule. If the business corporation gives notice of its estimate
of the fair value of the shares, without remitting such amount, or
remits payment of its estimate of the fair value of a dissenter's
shares as permitted by section 1577(c) (relating to payment of fair
value of shares) and the dissenter believes that the amount stated or
remitted is less than the fair value of his shares, he may send to the
corporation his own estimate of the fair value of the shares, which
shall be deemed a demand for payment of the amount or the deficiency.
(b) Effect of failure to file estimate. Where the dissenter does not file
his own estimate under subsection (a) within 30 days after the mailing
by the corporation of its remittance or notice, the dissenter shall be
entitled to no more than the amount stated in the notice or remitted
to him by the corporation.
Section 1579. Valuation proceedings generally.
(a) General rule. Within 60 days after the latest of:
(1) effectuation of the proposed corporate action;
(2) timely receipt of any demands for payment under Section 1575
(relating to notice to demand payment); or
(3) timely receipt of any estimates pursuant to section 1578
(relating to estimate by dissenter of fair value of shares);
if any demands for payment remain unsettled, the business corporation
may file in court an application for relief requesting that the fair
value of the shares be determined by the court.
(b) Mandatory joinder of dissenters. All, dissenters, wherever residing,
whose demands have not been settled shall be made parties to the
proceeding as in an action against their shares. A copy of the
application shall be served on each such dissenter. If a dissenter is
a nonresident, the copy may be served on him in the manner provided or
prescribed by or pursuant to 42 Pa.C.S. Ch. 53 (relating to bases of
jurisdiction and interstate and international procedure).
(c) Jurisdiction of the court. The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive
evidence and recommend a decision on the issue of fair value. The
appraiser shall have such power and authority as may be specified in
the order of appointment or in any amendment thereof.
<PAGE>
(d) Measure of recovery. Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares
is found to exceed the amount, if any, previously remitted, plus
interest.
(e) Effect of corporation's failure to file application. If the
corporation fails to file an application as provided in subsection
(a), any dissenter who made a demand and who has not already settled
his claim against the corporation may do so in the name of the
corporation at any time within 30 days after the expiration of the
60-day period. If a dissenter does not file an application within the
30-day period, each dissenter entitled to file an application shall be
paid the corporation's estimate of the fair value of the shares and no
more, and may bring an action to recover any amount not previously
remitted.
Section 1580. Costs and expenses of valuation proceedings.
(a) General rule. The costs and expenses of any proceeding under section
1579 (relating to valuation proceedings generally), including the
reasonable compensation and expenses of the appraiser appointed by the
court, shall be determined by the court and assessed against the
business corporation except that any part of the costs and expenses
may be apportioned and assessed as the court deems appropriate against
all or some of the dissenters who are parties and whose action in
demanding supplemental payment under section 1578 (relating to
estimate by dissenter of fair value of shares) the court finds to be
dilatory, obdurate, arbitrary, vexatious or in bad faith.
(b) Assessment of counsel fees and expert fees where lack of good faith
appears. Fees and expenses of counsel and of experts for the
respective parties may be assessed as the court deems appropriate
against the corporation and in favor of any or all dissenters if the
corporation failed to comply substantially with the requirements of
this subchapter and may be assessed against either the corporation or
a dissenter, in favor of any other party, if the court finds that the
party against whom the fees and expenses are assessed acted in bad
faith or in a dilatory, obdurate, arbitrary or vexatious manner in
respect to the rights provided by this subchapter.
(c) Award of fees for benefits to other dissenters. If the court finds
that the services of counsel for any dissenter were of substantial
benefit to other dissenters similarly situated and should not be
assessed against the corporation, it may award to those counsel
reasonable fees to be paid out of the amounts awarded to the
dissenters who were benefitted.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Subchapter D of Chapter 17 of the Pennsylvania Business Corporation Law of
1988, as amended (15 Pa. C.S. ss.ss.1101-4162) ("BCL") provides that a business
corporation shall have the power under certain circumstances to indemnify its
directors, officers, employees and agents against certain expenses incurred by
them in connection with any threatened, pending or completed action, suit or
proceeding.
Articles 9 and 10 of the Bylaws of ACNB Corporation provide for the
indemnification of its directors, officers, employees and agents in accordance
with, and to the maximum extent permitted by, the provisions of Subchapter D of
Chapter 17 of the BCL.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits:
2.1 Agreement and Plan of Reorganization dated July 28, 1998, among
the Farmers National Bancorp, Inc., Farmers National Bank of
Newville, ACNB Corporation and ACNB North, Inc. (Included as
Annex A to the Joint Proxy Statement/Prospectus contained
herein.)
3(i) Articles of Incorporation of ACNB Corporation. (Incorporated by
reference to Exhibit 3 to ACNB's Annual Report on Form 10-K for
the year ended December 31, 1994, filed with the Commission on
March 25, 1995.)
3(ii)Bylaws of ACNB Corporation, as amended and restated.
(Incorporated by reference to Exhibit 3(ii) to ACNB's Current
Report on Form 8-K filed with the Commission on March 25, 1998.)
4.1 Articles of Incorporation of ACNB Corporation. (Included at
Exhibit 3(i) hereto.)
4.2 Bylaws of ACNB Corporation, as amended and restated. (Included at
Exhibit 3(ii) hereto.)
5 Opinion of Shumaker Williams, P.C. re: legality of the ACNB
Corporation Common Stock being registered.
8 Form of Opinion of Shumaker Williams, P.C. re: Tax Matters.
II-1
<PAGE>
10 Executed Employment Agreement dated as of January 1, 1998,
between Adams County National Bank, ACNB Corporation and Ronald
L. Hankey. (Incorporated by reference to Exhibit 99 of ACNB
Corporation's Current Report on Form 8-K filed with the
Commission on March 25, 1998.)
11 Statement re: Computation of Per Share Earnings. (Included at
page [11] of the Joint Proxy Statement/Prospectus contained
herein.)
12 Statement re: Computation of Ratios. (Incorporated by reference
to Exhibit 11 to Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998, filed with the Commission on
August 6, 1998.)
13 Annual Report of ACNB Corporation (Incorporated by reference to
Exhibit 13, of Registrant's Annual Report on Form 10-K, for the
year ended December 31, 1997, filed with the Commission on March
27, 1998.)
21 Subsidiaries of Registrant.
23.1 Consent of Shumaker Williams, P.C. (included in Exhibit 5).
23.2 Consent of Garland McPherson & Associates, Inc.
23.3 Consent of Greenawalt & Company, P.C.
23.4 Consent of Stambaugh o Ness, P.C.
24 Power of Attorney. (Included on Signature Page.)
99.1 Form of Farmers Bancorp, Inc. Proxy.
99.2 Letter to Shareholders of Farmers Bancorp, Inc. (Included in
Proxy Statement contained herein.)
99.3 Notice of Meeting. (Included in Proxy Statement contained
herein.)
99.4 Statute Relating to Dissenters' Rights. (Included as Annex C to
the Proxy Statement contained herein.)
(b) Financial Statement Schedules:
None required.
(c) Opinion of Financial Advisor:
None.
II-2
<PAGE>
Item 22. Undertakings.
(a) 1. The undersigned Registrant hereby undertakes as follows:
(A) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement: (i) to
include any prospectus required by Section 10(a)(3) of 1933 Act; (ii) to
reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement; (iii) to include any material information with respect to the
plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement;
Provided, however, that paragraphs (1)(A)(i) and (1)(A)(ii) above do
not apply if the registration statement is on Form S-3 or Form S-8 and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registration
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
(B) That, for the purpose of determining any liability under the 1933
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(C) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
2. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the 1933 Act, each filing of the registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to be
the initial bona fide offering thereof.
3. The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to the reofferings
by persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The registrant undertakes that every prospectus (i) that is filed pursuant
to the preceding paragraph, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an
II-3
<PAGE>
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the 1933 Act, each such post-operative amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
4. Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the bylaws of the registrant, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one (1) business day of receipt
of such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supplement by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Gettysburg, Commonwealth
of Pennsylvania on October 13, 1998.
ACNB CORPORATION
By: /s/ Ronald L. Hankey
----------------------------
Ronald L. Hankey
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ronald L. Hankey and John W. Krichten, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or either of them, or their or his
substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Capacity Date
-------- ----
/s/ Ronald L. Hankey President, Chief Executive October 13, 1998
- ------------------------ Officer and Director
Ronald L. Hankey
/s/ John W. Krichten Senior Vice President October 14, 1998
- ------------------------ and Cashier, Chief Financial
John W. Krichten Officer/Financial Accounting
/s/ Philip P. Asper
- ------------------------ Director October 13, 1998
Philip P. Asper
- ------------------------ Director October __, 1998
Guy F. Donaldson
II-5
<PAGE>
- ------------------------ Director October __, 1998
Frank Elsner, Jr.
/s/ Richard L. Galusha Director October 13, 1998
- ------------------------
Richard L. Galusha
/s/ D. Richard Guise Director and Vice Chairman October 13, 1998
- ------------------------ of the Board
D. Richard Guise
- ------------------------ Director October __, 1998
Philip M. Jones
- ------------------------ Director October __, 1998
Wayne E. Lau
/s/ William B. Lower Director October 13, 1998
- ------------------------
William B. Lower
/s/ Paul G. Pitzer Director October 13, 1998
- ------------------------
Paul G. Pitzer
/s/ Thomas A. Ritter Director October 13, 1998
- ------------------------
Thomas A. Ritter
- ------------------------ Director October __, 1998
Ralph S. Sandoe
/s/ Marian B. Schultz Director October 13, 1998
- ------------------------
Marion B. Schultz
- ------------------------ Director October __, 1998
L. Robert Snyder
/s/ Jennifer L. Weaver Director October 13, 1998
- ------------------------
Jennifer L. Weaver
II-6
<PAGE>
EXHIBIT INDEX
Page Number
In Sequential
Number Title Number System
------ ----- -------------
2.1 Agreement and Plan of Reorganization dated July
28, 1998, among the Farmers National Bancorp, Inc.,
Farmers National Bank of Newville, ACNB Corporation
and ACNB North, Inc. (Included as Annex A to the
Joint Proxy Statement/Prospectus contained herein.)
3(i) Articles of Incorporation of ACNB Corporation.
(Incorporated by reference to Exhibit 3 to ACNB's
Annual Report on Form 10-K for the year ended
December 31, 1994, filed with the Commission on
March 25, 1995.)
3(ii) Bylaws of ACNB Corporation, as amended and
restated. (Incorporated by reference to Exhibit 3(ii)
to ACNB's Current Report on Form 8-K filed with the
Commission on March 25, 1998.)
4.1 Articles of Incorporation of ACNB Corporation.
(Included at Exhibit 3(i) hereto.)
4.2 Bylaws of ACNB Corporation, as amended and restated.
(Included at Exhibit 3(ii) hereto.)
5 Opinion of Shumaker Williams, P.C. re: legality of
the ACNB Corporation Common Stock being registered.
8 Form of Opinion of Shumaker Williams, P.C. re: Tax Matters.
10 Executed Employment Agreement dated as of
January 1, 1998, between Adams County National Bank,
ACNB Corporation and Ronald L. Hankey.
(Incorporated by reference to Exhibit 99 of
ACNB Corporation's Current Report on Form 8-K filed
with the Commission on March 25, 1998.)
11 Statement re: Computation of Per Share Earnings.
(Included at page [11] of the Joint Proxy Statement/
Prospectus contained herein.)
12 Statement re: Computation of Ratios. (Incorporated
by reference to Exhibit 11 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998,
filed with the Commission on August 6, 1998.)
13 Annual Report of ACNB Corporation (Incorporated by
reference to Exhibit 13, of Registrant's Annual Report on
Form 10-K, for the year ended December 31, 1997, filed with
the Commission on March 27, 1998.)
II-7
<PAGE>
21 Subsidiaries of Registrant.
23.1 Consent of Shumaker Williams, P.C. (included in Exhibit 5).
23.2 Consent of Garland McPherson & Associates, Inc.
23.3 Consent of Greenawalt & Company, P.C.
23.4 Consent of Stambaugh o Ness, P.C.
24 Power of Attorney. (Included on Signature Page.)
99.1 Form of Farmers Bancorp, Inc. Proxy.
99.2 Letter to Shareholders of Farmers Bancorp,
Inc. (Included in Proxy Statement contained herein.)
99.3 Notice of Meeting. (Included in Proxy Statement
contained herein.)
99.4 Statute Relating to Dissenters' Rights.
(Included as Annex C to the Proxy Statement contained
herein.)
SHUMAKER WILLIAMS, P.C.
3425 SIMPSON FERRY ROAD
CAMP HILL, PENNSYLVANIA 17108
(717) 763-1121
November 11, 1998
Board of Directors
ACNB Corporation
675 Old Harrisburg Road
Gettysburg, PA 17325
RE: Registration Statement on Form S-4
Our File No. 742-98
Ladies/Gentlemen:
In connection with the proposed offering of up to 561,968 shares of
common stock, par value $2.50 per share (the "Common Stock"), by ACNB
Corporation (the "Company"), covered by the Company's Registration Statement on
Form S-4 (the "Registration Statement") filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
Common Stock, we, as special counsel to the Company, have reviewed:
1. Articles of Incorporation of the Company;
2. The Bylaws of the Company;
3. Resolutions adopted by the Board of Directors of the Company
relating to the Registration Statement, certified by the
Secretary of the Company;
4. The Registration Statement; and
5. Copies of the certificates representing shares of the
Common Stock.
<PAGE>
Based on our review of the foregoing, it is our opinion that:
a. The Company has been duly incorporated under the laws of the
Commonwealth of Pennsylvania and is validly existing and in good
standing under the laws of the Commonwealth; and
b. The Common Stock covered by the Registration Statement has been
duly authorized and, when issued pursuant to the terms described
in the Registration Statement, will be legally issued by the
Company and fully paid and non-assessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and the reference to us in the related Proxy Statement/Prospectus. In
giving this consent, we do not thereby admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
/s/Shumaker Williams, P.C.
--------------------------
SHUMAKER WILLIAMS, P.C.
Board of Directors Board of Directors
ACNB Corporation Farmers National Bancorp, Inc.
675 Old Harrisburg Road One West Big Spring Avenue
Gettysburg, Pennsylvania 17325 Newville, Pennsylvania 17241
Re: Merger of ACNB North, Inc., a Subsidiary of
ACNB Corporation, Inc., with and into
Farmers National Bancorp, Inc.
Dear Members of the Boards:
You have asked for our opinion regarding certain federal income tax
consequences of the merger of ACNB North, Inc. (the "Corporation") with and into
Farmers National Bancorp, Inc. (the "Surviving Corporation") pursuant to which
the shareholders of the Surviving Corporation will receive voting common stock
of the Corporation's parent, ACNB Corporation (the "Holding Company").
In rendering our opinion, we have examined and relied upon the accuracy and
completeness of the facts, information, covenants, and representations contained
in originals or copies, certified or otherwise identified to our satisfaction,
of the Agreement and Plan of Reorganization, dated as of July 28, 1998, among
Holding Company, Corporation, Surviving Corporation, and Farmers National Bank
of Newville (the "Plan of Reorganization"), the ACNB Corporation Registration
Statement, Form S-4, filed with the Securities and Exchange Commission on
_________, 1998, and such other documents as we have deemed necessary or
appropriate as a basis for the opinion set forth below. In addition, we have
relied upon the facts contained in certain statements and representations made
by executives of Holding Company and Surviving Corporation, including facts
contained in written representations made by executives of Holding Company and
Surviving Corporation dated as of the date of this opinion. The transactions to
be effected pursuant to the Plan of Reorganization are hereinafter referred to
as the "merger transaction".
In rendering our opinion, we have assumed: (a) that all parties have the
legal right, power, capacity and authority to enter into and to perform all
obligations under the Plan of Reorganization; (b) the due and proper execution
and delivery of all relevant or necessary instruments and documents; (c) the
receipt of all federal and state regulatory approvals necessary to consummate
the merger transaction; and (d) the satisfaction or proper waiver of any other
conditions under the Plan of Reorganization so that the merger transaction may
be consummated. All statements in this letter
<PAGE>
regarding the federal income tax consequences of this merger transaction are
based upon the Internal Revenue Code of 1986, as amended (the "Code"), the
Treasury Regulations promulgated by the United States Department of Treasury
(the "Regulations"), current positions of the Internal Revenue Service (the
"IRS") as contained in published Revenue Rulings and Procedures, current
published administrative positions of the IRS, and existing court decisions, all
as in effect as of this date and each of which is subject to change at any time.
Our opinion is based upon and assumes the following Factual Background and
Assumptions relating to the merger transaction:
I. Factual Background
A. Surviving Corporation is a business corporation organized, under
the laws of the Commonwealth of Pennsylvania, to engage in the
business and activities associated with bank holding companies.
Surviving Corporation currently owns stock in one operating
subsidiary, Farmers National Bank of Newville, a national banking
association (the "Operating Subsidiary"). Operating Subsidiary
conducts a general commercial banking business embracing
substantially all of the traditional lending and deposit
functions of a nationally chartered commercial bank located in
Pennsylvania. Surviving Corporation is authorized to issue
1,000,000 shares of common stock, par value Fifty Cents ($.50)
per share, of which on December 31, 1997, 248,000 shares were
issued and outstanding (the "Surviving Corporation Common
Stock"). The Surviving Corporation Common Stock is the only class
of security, authorized or outstanding, of Surviving Corporation.
Surviving Corporation has approximately _______ shareholders. The
Surviving Corporation Common Stock is not publicly traded in any
established market and, therefore, no price quotes are readily
available. Recent sales of the Surviving Corporation Common Stock
have occurred solely between individuals in limited over the
counter transactions and in direct, privately negotiated
transactions. The most recent sale prior to the public
announcement of the merger on July 28, 1998, as to which
management of Surviving Corporation is aware of the sales price,
occurred on July 27, 1998, at a price of___________ Dollars ($
.00) per share.
B. Corporation is a business corporation organized under the laws of
the Commonwealth of Pennsylvania. Corporation is organized solely
to engage in the merger transaction. Corporation is authorized to
issue 10,000,000 shares of common stock, par value One Dollar
($1.00) per share (the "Corporation Common Stock"). The
Corporation Common Stock is the only class of security,
authorized or outstanding, of Corporation.
C. Holding Company is a business corporation organized, under the
laws of the Commonwealth of Pennsylvania, to engage in the
business and activities associated with bank holding companies.
Holding Company is authorized to issue 20,000,000 shares of
common stock, par value Two Dollars and Fifty Cents ($2.50) per
share
<PAGE>
(the "Holding Company Common Stock"). The Holding Company Common
Stock is the only class of security, authorized or outstanding,
of Holding Company. Holding Company will issue 561,968 shares of
Holding Company Common Stock to be exchanged for 248,000 shares
of Surviving Corporation Common Stock on a 2.266 to 1 basis in
connection with the merger transaction pursuant to Section 2.1 of
the Plan of Reorganization.
D. In accordance with the Plan of Reorganization, Corporation will
merge with and into Surviving Corporation. Upon the effective
date of the merger: (a) the separate corporate existence of
Corporation will terminate; (b) Surviving Corporation will change
its name to that of Corporation; and (c) Surviving Corporation
will continue, through Operating Subsidiary, to carry on the
banking business previously carried on by Surviving Corporation.
The approval of shareholders owning at least two-thirds of the
outstanding stock of Surviving Corporation is required to approve
the merger.
E. Pursuant to Section 2.2 of the Plan of Reorganization, the
shareholders of Surviving Corporation will be entitled to receive
2.266 shares of Holding Company Common Stock in exchange for each
share of Surviving Corporation Common Stock held by the
shareholder on the effective date of the merger.
F. Shareholders of Surviving Corporation who dissent to the merger,
if any, will receive fair value for their shares of stock in
Surviving Corporation, provided they exercise their dissenters'
rights as required under the laws of the Commonwealth of
Pennsylvania.
G. After the consummation of the merger transaction, Surviving
Corporation and Holding Company will file a consolidated return
for federal income tax purposes.
II. Assumptions
A. The merger of Corporation into Surviving Corporation, and the
operation of Operating Subsidiary as a second-tier subsidiary of
Holding Company, will enable Surviving Corporation to compete in
the marketplace more effectively as a part of a larger banking
organization with more resources and a wider range of products
and services.
B. The fair market value of Holding Company Common Stock and other
consideration received by each shareholder of Surviving
Corporation will be approximately equal to the fair market value
of Surviving Corporation Common Stock surrendered in the
exchange.
C. There is no plan or intention by the shareholders of Surviving
Corporation who own
<PAGE>
one percent (1%) or more of Surviving Corporation Stock, and to
the best of the knowledge of the management of Surviving
Corporation, there is no plan or intention of the part of the
remaining shareholders of Surviving Corporation to sell, exchange
or otherwise dispose of a number of shares of Holding Company
Common Stock received in the transaction that would reduce the
Surviving Corporation shareholders' ownership of Holding Company
Common Stock to a number of shares having a value, as of the
effective date of the merger transaction, of less than fifty
percent (50%) of the value of all of the formerly outstanding
Surviving Corporation Common Stock as of the same date. For
purposes of this assumption, shares of Surviving Corporation
Common Stock exchanged for cash or other property, surrendered by
dissenters or exchanged for cash in lieu of fractional shares of
Holding Company Common Stock will be treated as outstanding
Surviving Corporation Common Stock on the effective date of the
merger transaction. Moreover, shares of Surviving Corporation
Common Stock and shares of Holding Company Common Stock held by
Surviving Corporation shareholders and otherwise sold, redeemed,
or disposed of prior or subsequent to the transaction will be
considered in making this representation.
D. Following the merger transaction, Surviving Corporation will hold
at least ninety percent (90%) of the fair market value of its net
assets and at least seventy percent (70%) of the fair market
value of its gross assets, and at least ninety percent (90%) of
the fair market value of Corporation's net assets and at least
seventy percent (70%) of the fair market value of Corporation's
gross assets held immediately prior to the merger transaction.
For purposes of this assumption, amounts paid by Surviving
Corporation or Corporation to dissenters, amounts paid by
Surviving Corporation or Corporation to shareholders who receive
cash or other property, amounts used by Surviving Corporation or
Corporation to pay reorganization expenses, and all redemptions
and distributions (except for regular, normal dividends) made by
Surviving Corporation will be included as assets of Surviving
Corporation or Corporation, respectively, immediately prior to
the merger transaction. Surviving Corporation has not redeemed
any Surviving Corporation Common Stock, has not made any
distribution with respect to any Surviving Corporation Common
Stock, and has not disposed of any of its assets in anticipation
of or as a part of a plan for the merger transaction.
E. Prior to the merger transaction, Holding Company will be in
control of Corporation within the meaning of Code Section 368(c).
F. Surviving Corporation has no plan or intention to issue
additional shares of its stock that would result in the Holding
Company losing control of Surviving Corporation within the
meaning of Code Section 368(c).
G. Holding Company has no plan or intention to redeem or otherwise
reacquire any of its stock issued in the merger transaction.
<PAGE>
H. Holding Company has no plan or intention to liquidate Surviving
Corporation; to merge Surviving Corporation with or into another
corporation; to sell or otherwise dispose of the stock of
Surviving Corporation except for transfers of stock to
corporations controlled by Holding Company; or to cause Surviving
Corporation to sell or otherwise dispose of any of its assets or
of any of the assets acquired from Corporation in the merger
transaction, except for dispositions made in the ordinary course
of business or transfers of assets to a corporation controlled by
Surviving Corporation.
I. Corporation will have no liabilities assumed by Surviving
Corporation, and will not transfer to Surviving Corporation any
assets subject to liabilities, in the merger transaction.
J. Following the merger transaction, Surviving Corporation will
continue its historic business or use a significant portion of
its historic business assets in a business.
K. Holding Company, Corporation, Surviving Corporation, and the
shareholders of Surviving Corporation will pay their respective
expenses, if any, incurred in connection with the merger
transaction.
L. There is no intercorporate indebtedness existing between Holding
Company and Surviving Corporation or between Corporation and
Surviving Corporation that was issued or acquired, or will be
settled at a discount.
M. No two parties to the merger transaction are investment companies
as defined in Code Section 368(a)(2)(F).
N. Surviving Corporation is not under the jurisdiction of a court in
a Title 11 or similar case within the meaning of Code Section
368(a)(3)(A).
O. On the effective date of the merger transaction, the adjusted
basis and fair market value of the assets of Surviving
Corporation will exceed the sum of its liabilities, plus the
amount of liabilities, if any, to which the assets are subject.
P. In the merger transaction, shares of Surviving Corporation
representing control of Surviving Corporation , as defined in
Code Section 368(c), will be exchanged solely for voting stock of
Holding Company. For purposes of this assumption, shares of
Surviving Corporation stock exchanged for cash or other property
originating with Holding Company will be treated as outstanding
Surviving Corporation Common Stock on the date of the
transaction.
Q. At the time of the merger transaction, Surviving Corporation will
not have outstanding any warrants, options, convertible
securities, or any other type of right pursuant to which any
person could acquire stock in Surviving Corporation that, if
<PAGE>
exercised or converted, would affect Holding Company's
acquisition or retention of control of Surviving Corporation, as
defined in Code Section 368(c).
R. Holding Company does not own, nor has it owned during the past
five years, either directly or indirectly, any shares of the
stock of Surviving Corporation.
S. There is no larger integrated transaction of which the merger
transaction constitutes only one step.
T. The expenses of the merger transaction and the amount to be paid
to dissenters, if any, will not exceed ten percent (10%) of the
fair market value of the net assets of Surviving Corporation.
U. There are no fractional shares of Surviving Corporation Common
Stock outstanding and no fractional shares will be issued or
redeemed in the merger transaction.
V. None of the compensation received by any shareholder-employee of
Surviving Corporation will be separate consideration for, or
allocable to, any of their shares of the Surviving Corporation
Common Stock; none of the shares of the Holding Company Common
Stock received by any shareholder-employee will be separate
consideration for, or allocable to, any employment agreement; and
the compensation paid to any shareholder-employee will be for
services actually rendered and will be commensurate with amounts
paid to third parties bargaining at arm's-length for similar
services.
W. There is no present plan or intention to issue any of the
authorized common stock of Holding Company in excess of the
amounts described in this letter in the merger transaction.
X. The payment of cash in lieu of fractional shares of Holding
Company Common Stock is solely for the purpose of avoiding the
expense and inconvenience to the Holding Company of issuing
fractional shares and does not represent separately bargained-for
consideration.
Based on the foregoing and subject to and specifically relying upon the
aforesaid Factual Background and Assumptions and other matters herein referred
to, it is our opinion that:
1. Provided the merger of Corporation with and into Surviving Corporation
qualifies as a merger under the applicable federal and state laws, the
merger of Corporation into Surviving Corporation and the corresponding
receipt of Holding Company Common Stock by former shareholders of
Surviving Corporation will qualify as a reorganization within the
meaning of Code Section 368(a). The Holding Company, the Surviving
Corporation, and the Corporation will each be "a party to a
reorganization" within the meaning of Code Section 368(b).
<PAGE>
2. No gain or loss will be recognized to either Holding Company,
Surviving Corporation or Corporation as a result of the merger of
Corporation into Surviving Corporation and the corresponding receipt
of Holding Company Common Stock by former shareholders of Surviving
Corporation.
3. No gain or loss will be recognized to the shareholders of Surviving
Corporation upon the exchange of their Surviving Corporation Common
Stock solely for the Holding Company Common Stock pursuant to the Plan
of Reorganization, except for that gain or loss which is recognized
due to the receipt of cash which is received in lieu of the issuance
of fractional shares of Holding Company Common Stock.
4. In the case of cash received by any shareholder of Surviving
Corporation in lieu of the issuance of a fractional share of Holding
Company Common Stock, gain or loss will be recognized by such
shareholder to the extent of the difference between the amount the
cash received and the adjusted tax basis of such fractional share
interest.
5. The basis of the shares of Holding Company Common Stock to be received
by the shareholders of Surviving Corporation will be the same as the
basis of the shares of Surviving Corporation Common Stock exchanged
therefor (reduced by any amount allocable to fractional share
interests for which cash is received).
6. The holding period of the shares of the Holding Company Common Stock
to be received by the shareholders of Surviving Corporation will
include the period during which Surviving Corporation Common Stock,
surrendered in exchange therefor, was held by the shareholders of
Surviving Corporation, provided the Surviving Corporation Common Stock
was held as a capital asset in the hands of the shareholders of the
Corporation at the time of the exchange.
7. Subject to conditions and limitations under Code Sections 381, 382,
383 and 384, Regulations corresponding thereto, and certain
Regulations promulgated under Code Section 1502, where applicable,
Surviving Corporation, as the acquiring corporation in the merger,
will carry-over and take into account all accounting items and tax
attributes, if any, of Corporation.
Except as set forth above, we express no opinion as to the tax
consequences, whether Federal, state, local or foreign, to any party of the
merger transaction. The opinions set forth in this letter are given and based
upon the factual background and the existence of the assumed facts as
hereinabove set forth, all as of the date of this letter. Should any facts or
assumptions be otherwise than as hereinabove set forth or change after the date
of this letter, no opinion is made or expressed with respect thereto or as to
the legal, tax or other consequences thereof. We make no and disclaim any
opinion as to any facts occurring after the date of this letter or as to the
legal, tax or other consequences thereof. We assume no obligation to
investigate, research or determine any facts or laws, rules or regulations
occurring, existing or in effect after the date hereof, or to update or
supplement any of the opinions herein expressed to reflect any facts or
circumstances or changes in law that hereafter may occur or come to our
attention.
<PAGE>
Holding Company, Corporation and Surviving Corporation may rely upon this
opinion letter. No other person, whether natural or otherwise, may rely upon
this opinion letter, and it may not be disclosed to any other persons without
our prior written consent.
Sincerely,
SHUMAKER WILLIAMS, P.C.
Jurisdiction
of
Subsidiary Incorporation
----------- -------------
Adams County National Bank United States of America
ACNB North, Inc. Pennsylvania
CONSENT OF GARLAND McPHERSON & ASSOCIATES, INC.
We hereby consent to the inclusion of our opinion letter to the Board of
Directors of Farmers National Bancorp, Inc. (the "Company") as Annex B to the
Joint Proxy Statement/Prospectus relating to the proposed merger of the Company
with and into ACNB North, Inc., a subsidiary of ACNB Corporation, contained in
the Registration Statement on Form S-4, dated as of the date hereof, and to the
references to our firm and such opinion in the Joint Proxy Statement/Prospectus.
In giving our consent, we do not admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended (the "Act"), or the rules and regulations of the Securities and
Exchange Commission thereunder (the "Regulations"), nor do we admit that we are
experts with respect to any part of the Registration Statement within the
meaning of the term "experts" as used in the Act or the Regulations.
/s/ Garland McPherson & Associates
-----------------------------------
October 15, 1998 Garland McPherson & Associates, Inc.
Hatfield, Pennsylvania
Exhibit 23.3
GREENAWALT & COMPANY, P.C.
Certified Public Accountants
P. O. Box 6
400 West Street
Mechanicsburg, Pennsylvania 17055
(717) 766-4763
Fax: (717) 766-2731
INDEPENDENT AUDITORS' CONSENT
-----------------------------
We hereby consent to the inclusion in the Registration Statement on Form
S-4 of ACNB Corporation, filed with the Commission in connnection with the
registration of 561,968 shares of common stock, par value $2.50 per share, of
our report, dated January 8, 1998, except for Note 20, as to which the date is
September 23, 1998, relating to the consolidated balance sheets of Farmers
National Bancorp, Inc. and subsidiary as of December 31, 1997 and 1996, and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1997. We
also consent to the reference to our firm under the caption "Experts" in the
Proxy Statement/Prospectus.
/s/ Greenawalt & Company, P.C.
--------------------------------
GREENAWALT & COMPANY, P.C.
October 12, 1998
Mechanicsburg, Pennsylvania
INDEPENDENT AUDITOR'S CONSENT
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-4 of ACNB Corporation (the "Registrant"), filed with the
Commission in connection with the registration of 561,968 shares of common
stock, par value $2.50 per share, of our report, dated January 12, 1998,
relating to the consolidated statements of condition of the Registrant and
subsidiary as of December 31, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the years
in the three year period ended December 31, 1997. We also consent to the
reference to our firm under the caption "Experts" in the Proxy
Statement/Prospectus.
October 12, 1998 Stambaugh Ness, P.C.
York, Pennsylvania
FARMERS BANCORP, INC.
PROXY
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON DECEMBER 15, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Lynn E. Zeigler, and J.
Glenn Glesner, and each or any of them, proxies of the undersigned, with full
power of substitution, to vote all of the shares of Farmers Bancorp, Inc. (the
"Company") that the undersigned may be entitled to vote at the Special Meeting
of Shareholders of the Company to be held at One West Spring Avenue,
Pennsylvania on Tuesday, December 15, 1998, commencing at 2:00 p.m., prevailing
time, and at any adjournment or postponement thereof, as follows:
1. PROPOSAL TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF
REORGANIZATION.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board of Directors recommends a vote FOR this proposal.
2. PROPOSAL TO POSTPONE OR ADJOURNM THE SPECIAL MEETING TO ANOTHER TIME
AND/OR PLACE FOR THE PURPOSE OF SOLICITING ADDITIONAL PROXIES, IN THE
EVENT THAT THERE ARE NOT SUFFICIENT VOTES AT THE TIME OF THE SPECIAL
MEETING TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF REORGANIZATION
OR TO CONSTITUTE A QUORUM.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board of Directors recommends a vote FOR this proposal.
<PAGE>
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting and any adjournment or
postponement thereof.
THIS PROXY, WHEN PROPERLY SIGNED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSAL 1 AND FOR PROPOSAL 2.
Dated: , 1998
Signature of Shareholder
Signature of Shareholder
Number of Shares Held of Record on ____ __, 1998:
THIS PROXY MUST BE DATED, SIGNED BY THE SHAREHOLDER AND RETURNED PROMPTLY
TO THE CORPORATION IN THE ENCLOSED ENVELOPE. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF MORE THAN ONE TRUSTEE,
ALL SHOULD SIGN. IF A CORPORATION, PLEASE SIGN IN FULLCORPORATE NAME BY THE
PRESIDENT OR AUTHORIZED OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP
NAME BY AUTHORIZED PERSON.
