<PAGE> 1
As filed with the SEC on March , 1996 Registration No. 33-*****
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BT FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Pennsylvania 6022 25-1441348
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
BT Financial Plaza, 551 Main Street, Johnstown, Pennsylvania 15901, (814) 532-3801
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
John H. Anderson
Chairman and Chief Executive Officer
BT Financial Corporation
BT Financial Plaza, 551 Main Street, Johnstown, Pennsylvania 15901, (814) 532-3801
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
</TABLE>
Copies to:
Dennis M. Sheedy, Esq. Edward L. Lublin, Esq.
Kirkpatrick & Lockhart LLP Manatt, Phelps & Phillips LLP
1500 Oliver Building 1501 M Street, N.W.
Pittsburgh, Pennsylvania 15222 Washington, D.C. 20005
(412) 355-6500 (202) 463-4314
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this registration statement becomes effective.
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. [ ]
_________________
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==========================================================================================================================
Title of each class of Amount to be Proposed maximum Proposed maximum Amount of
securities to be registered registered(1) offering price per aggregate offering registration
unit(2) price(2) fee
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $5.00
per share ................. 212,000 $16.98 $3,600,720 $1,242.00
- --------------------------------------------------------------------------------------------------------------------------
Preferred Share Purchase
Rights.................... 212,000 N.A. N.A. N.A.
===========================================================================================================================
<FN>
(1) Represents the maximum number of shares of common stock and preferred share purchase rights of the registrant
which may be issued to holders of The Armstrong County Trust Company common stock upon consummation of the
merger described in this registration statement.
(2) Estimated solely for the purpose of calculating the amount of the registration fee, in accordance with Rule 457(f)(2),
on the basis of the book value per share of The Armstrong County Trust Company common stock as of December 31, 1995 less
cash in the amount of $596.25 to be paid per share of The Armstrong County Trust Company Common Stock. For purposes of
estimating the offering price and the registration fee, the preferred share purchase rights are not deemed to have any
material value apart from the registrant's common stock with which such rights are associated.
</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 SAID
SECTION 8(A), MAY DETERMINE.
===============================================================================
<PAGE> 2
BT FINANCIAL CORPORATION
CROSS-REFERENCE SHEET PURSUANT TO RULE 404(A) OF REGULATION C AND
ITEM 501(B) OF REGULATION S-K SETTING FORTH THE LOCATION IN THE JOINT PROXY
STATEMENT/PROSPECTUS OF THE INFORMATION REQUIRED BY PART I OF FORM S-4.
<TABLE>
<CAPTION>
Location in Proxy
------------------
Form S-4 Item Number and Caption Statement/Prospectus
-------------------------------- --------------------
<S> <C> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus . . . . . . . . . . . . . . . . . . . . . . Outside Front Cover Page; Cross Reference Sheet;
Outside Front Cover Page of Proxy
Statement/Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Available Information; Incorporation of Certain
Documents by Reference; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information . . . . . . . . . . . . . . . . . . . . . . . Summary; Comparative Per Share Data; Comparative
Market Prices; Selected Financial Information
4. Terms of the Transaction . . . . . . . . . . . . . . . . . . . . . . . Summary; The Merger; The Merger Agreement;
Comparison of Shareholder Rights; Description of
BT Financial Capital Stock
5. Pro Forma Financial Information . . . . . . . . . . . . . . . . . . . Summary; Unaudited Pro Forma Condensed Combined
Financial Information
6. Material Contracts with the Company Being Acquired . . . . . . . . . . Summary; The Meeting; The Merger; The Merger
Agreement
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters . . . . . . . . . . . *
8. Interests of Named Experts and Counsel . . . . . . . . . . . . . . . . *
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities . . . . . . . . . . . . . . . . . . . *
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants . . . . . . . . . . . . . Outside Front Cover Page; Summary; Selected
Financial Information; Certain Information
Regarding BT Financial
11. Incorporation of Certain Information by Reference . . . . . . . . . . Incorporation of Certain Documents by Reference
12. Information with Respect to S-2 or S-3 Registrants . . . . . . . . . . *
13. Incorporation of Certain Information by Reference . . . . . . . . . . *
14. Information with Respect to Registrants Other
Than S-2 or S-3 Registrants . . . . . . . . . . . . . . . . . . . . *
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies . . . . . . . . . . . . . . *
16. Information with Respect to S-2 or S-3
Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
17. Information with Respect to Companies Other Than
S-3 or S-2 Companies . . . . . . . . . . . . . . . . . . . . . . . Summary; Armstrong Selected Financial Information;
Certain Information Regarding Armstrong; Index to
Armstrong and Moxham Financial Statements
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicited . . . . . . . . . . . . . . . . Incorporation of Certain Documents By Reference;
Summary; The Meeting; The Merger
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or
in an Exchange Offer . . . . . . . . . . . . . . . . . . . . . . . *
- ---------------------
<FN>
* Not applicable or the answer is negative.
</TABLE>
<PAGE> 4
THE ARMSTRONG COUNTY
TRUST COMPANY
227 Market Street
Kittanning, PA 16201
March/April __, 1996
Dear Shareholder:
You are cordially invited to attend a special meeting of the shareholders of
The Armstrong County Trust Company ("Armstrong") to be held at Armstrong's
executive offices, 227 Market Street, Kittanning, Pennsylvania, at 2 p.m.,
Eastern Time, on March/April __, 1996.
The purpose of the meeting is to vote on adoption and approval of the
Agreement and Plan of Reorganization dated October 24, 1995, by and among
Armstrong, BT Financial Corporation, a Pennsylvania corporation ("BT
Financial"), and Johnstown Bank and Trust Company, a Pennsylvania bank and trust
company wholly owned by BT Financial ("Johnstown Bank"), as amended by the
First Amendment to Agreement and Plan of Reorganization dated March __, 1996
(the "Merger Agreement"), providing for the acquisition of Armstrong by BT
Financial through the merger of Armstrong into Johnstown Bank.
The Merger Agreement provides that at the effective time of the merger each
outstanding share of Armstrong common stock ("Armstrong Common Stock") will be
converted into 26.5 shares of BT Financial common stock ("BT Financial Common
Stock") and $596.25 in cash (the "Merger Considerations"), unless the average
closing price per share of BT Financial Common Stock on the Nasdaq Market
("NASDAQ") as reported in THE WALL STREET JOURNAL for the twenty (20)
consecutive trading days ending on the fifth trading day immediately preceding
the Closing Date (the "Valuation Period") is less than $27.50 or more than
$34.00.
If the average per share price of BT Financial Common Stock is
less than $27.50 for the Valuation Period, Armstrong may request that BT
Financial adjust the Merger Consideration by increasing the number of shares of
BT Financial Common Stock or the amount of cash included in the Merger
Consideration, or both, so as to maintain a total consideration of $1,325.00
per share of Armstrong Common Stock based on the average price per share for BT
Financial Common Stock for the Valuation Period. If BT Financial does not so
adjust the Merger Consideration, Armstrong may terminate the Merger Agreement,
and neither party will have any further liability under the Merger Agreement.
If the average price per share of BT Financial Common Stock for the Valuation
Period is more than $34.00, BT Financial will have the option to adjust the
Merger Consideration by reducing the number of shares of BT Financial Common
Stock or cash included in the Merger Consideration, or both, as determined by
Armstrong, so that the total consideration does not exceed $1,497.25 per share
of Armstrong Common Stock based on the average price per share of BT Financial
Common Stock for the Valuation Period. If at any time prior to the Closing Date
or the ninety (90) day period immediately following the Closing Date, BT
Financial enters into, or announces plans to enter into any agreement that
would result in an acquisition of BT Financial or substantially all of its
business by another entity, the Merger Consideration will remain equal to
26.5 shares of BT Financial Common Stock and $596.25 in cash for each share of
Armstrong Common Stock.
BT Financial is a multi-bank holding company organized under the laws of the
Commonwealth of Pennsylvania with headquarters in Johnstown, Pennsylvania. At
September 30, 1995, BT Financial had total assets of approximately $1.1
billion, total deposits of approximately $956 million and shareholders' equity
of approximately $99 million. BT Financial Common Stock is quoted on NASDAQ
under the symbol "BTFC". The closing price for BT Financial Common Stock on
March/April __, 1996 was $__ per share.
<PAGE> 5
Armstrong is a bank and trust company organized under the laws of the
Commonwealth of Pennsylvania. At December 31, 1995, Armstrong had total assets
of approximately $52 million, total deposits of approximately $39 million and
shareholder's equity of approximately $8 million.
The Board of Directors of Armstrong believes that the merger is in the best
interests of Armstrong and its shareholders and recommends that you vote FOR
the approval and adoption of the Agreement and Plan of Reorganization and the
transactions contemplated thereby. The attached Proxy Statement/Prospectus
explains the proposed merger in detail. Please carefully review and consider
all of this information.
It is especially important that your shares be represented and voted at the
special meeting. Please complete, sign, date and promptly return the enclosed
proxy card even if you currently plan to attend the special meeting. You may
revoke your proxy at any time before it is voted by giving written notice to
Armstrong. If you attend the meeting and vote in person, your vote will
supersede your proxy.
Sincerely,
Coleman J. Clougherty
Chairman, President and
Chief Executive Officer
<PAGE> 6
THE ARMSTRONG COUNTY TRUST COMPANY
227 Market Street
Kittanning, Pennsylvania 16201
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH/APRIL __, 1996
NOTICE IS HEREBY GIVEN that a special meeting (the "Meeting") of shareholders
of The Armstrong County Trust Company, a Pennsylvania bank and trust company
("Armstrong"), will be held on March/April __, 1996, at the executive offices
of Armstrong at 227 Market Street, Kittanning, Pennsylvania, commencing at
2 p.m., local time, to consider and vote upon the following:
1. A proposal to adopt and approve an Agreement and Plan of Reorganization
dated as of October 24, 1995 by and among Armstrong, BT Financial
Corporation, a Pennsylvania corporation ("BT Financial") and Johnstown Bank
and Trust Company, a Pennsylvania Bank and trust company wholly-owned by BT
Financial ("Johnstown Bank"), as amended by the First Amendment to Agreement
and Plan of Reorganization dated March __, 1996 (the "Merger Agreement"),
pursuant to which Armstrong will merge with and into Johnstown Bank (the
"Merger") with Johnstown Bank being the surviving corporation, upon the terms
and subject to the conditions set forth in the Merger Agreement, as more
fully described in the enclosed Proxy Statement/Prospectus; and
2. The transaction of such other business as may properly come before the
Meeting or any adjournment or postponement thereof.
Only holders of record of shares of Armstrong Common Stock at the close of
business on March/April __, 1996 are entitled to notice of and to vote at the
Meeting and any adjournment or postponement thereof.
Any shareholder entitled to vote at the Meeting will have the right to
dissent from the Merger and to obtain payment for the fair value of his shares
upon compliance with the applicable provisions of Pennsylvania law. For a
summary of the rights of Armstrong shareholders to dissent, see "The
Merger--Rights of Dissenting Shareholders" in the attached Proxy
Statement/Prospectus. A copy of Subchapter D of Chapter 15 and Section 1930 of
the Pennsylvania Business Corporation Law of 1988, which relates to dissenters'
rights, is included in the attached Proxy Statement/Prospectus as Annex C.
By Order of the Board of Directors,
Bonnie K. Rupp
Secretary
March/April __, 1996
SHAREHOLDERS ARE URGED TO MARK, DATE, SIGN AND RETURN PROMPTLY THE ENCLOSED
PROXY CARD IN THE ACCOMPANYING ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN
THE UNITED STATES. IF A SHAREHOLDER RECEIVES MORE THAN ONE PROXY CARD BECAUSE
THAT SHAREHOLDER OWNS SHARES REGISTERED IN DIFFERENT NAMES OR AT DIFFERENT
ADDRESSES, EACH PROXY CARD SHOULD BE COMPLETED AND RETURNED. YOUR COOPERATION
WILL BE APPRECIATED. ALL PROPERLY EXECUTED PROXIES RECEIVED PRIOR TO OR AT THE
MEETING WILL BE VOTED WITH RESPECT TO THE MATTER IDENTIFIED ON THE PROXY CARDS
IN ACCORDANCE WITH ANY INSTRUCTIONS THEREON AND, IF NO INSTRUCTIONS ARE GIVEN,
WILL BE VOTED FOR ADOPTION AND APPROVAL OF THE AGREEMENT AND PLAN OF
REORGANIZATION.
<PAGE> 7
____________________________________________
PROXY STATEMENT
OF
THE ARMSTRONG COUNTY TRUST COMPANY
____________________________________________
PROSPECTUS
OF
BT FINANCIAL CORPORATION
____________________________________________
This Proxy Statement/Prospectus is being furnished to holders of shares
of common stock, par value $50.00 per share ("Armstrong Common Stock"), of
The Armstrong County Trust Company, a Pennsylvania bank and trust company
("Armstrong"), in connection with the solicitation of proxies by the Board of
Directors of Armstrong (the "Armstrong Board") for use at a special meeting of
Shareholders (the "Meeting") to be held on March/April __, 1996, at the
executive offices of Armstrong at 227 Market Street, Kittanning, Pennsylvania,
and at any adjournment or postponement thereof. The purpose of the meeting is
to consider and take action on the proposed merger (the "Merger") of Armstrong
into Johnstown Bank and Trust Company ("Johnstown Bank"), a Pennsylvania bank
and trust company wholly-owned by BT Financial Corporation, a Pennsylvania
corporation ("BT Financial"), pursuant to the terms of the Agreement and Plan
of Reorganization dated as of October 24, 1995 as amended by the First
Amendment to Agreement and Plan of Reorganization dated March __, 1996 (the
"Merger Agreement") by and among Armstrong, BT Financial and Johnstown Bank,
as more fully described elsewhere in this Proxy Statement/Prospectus.
This Proxy Statement/Prospectus also constitutes a prospectus of BT Financial
Corporation, a Pennsylvania corporation ("BT Financial"), relating to a maximum
of 212,000 shares of common stock, par value $5.00 per share ("BT Financial
Common Stock"), of BT Financial to be issued to Armstrong shareholders.
The outstanding shares of BT Financial Common Stock are, and the shares
offered hereby will be, included for quotation on the Nasdaq Market ("NASDAQ").
The closing price of BT Financial Common Stock on NASDAQ as reported in
THE WALL STREET JOURNAL on March/April __, 1996 was $________ per share.
This Proxy Statement/Prospectus and the enclosed proxy card are first being
mailed to Shareholders on or about March/April __, 1996.
All information contained in this Proxy Statement/Prospectus relating to BT
Financial and its subsidiaries has been supplied by BT Financial, and all
information contained in this Proxy Statement/Prospectus relating to Armstrong
has been supplied by Armstrong.
________________________________________________
THE SHARES OF BT FINANCIAL COMMON STOCK TO BE ISSUED PURSUANT TO THIS PROXY
STATEMENT/PROSPECTUS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF BT FINANCIAL COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR NON-BANK SUBSIDIARY OF
BT FINANCIAL AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER FEDERAL OR STATE GOVERNMENT AGENCY.
________________________________________________
The date of this Proxy Statement/Prospectus is March/April __, 1996.
<PAGE> 8
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS
IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES
MADE HEREBY AND, IF GIVEN OR MADE, ANY SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY BT FINANCIAL, ARMSTRONG OR ANY
OTHER PERSON. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR A SOLICITATION
OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS NOT LAWFUL
TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF BT FINANCIAL OR ARMSTRONG SINCE THE DATE
HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
This Proxy Statement/Prospectus does not cover any resale of shares of BT
Financial Common Stock received by any person upon consummation of the Merger,
and no person is authorized to make any use of this Proxy Statement/Prospectus
in connection with any such resale.
AVAILABLE INFORMATION
BT Financial is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by BT Financial with the Commission can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549, and at the Commission's regional offices at Suite 1300, 7 World
Trade Center, New York, New York 10048, and The Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material
also can be obtained from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549 upon payment of prescribed rates.
In addition, BT Financial Common Stock is included for quotation on NASDAQ
and such reports, proxy statements and other information concerning
BT Financial should be available for inspection and copying at the offices of
the National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
BT Financial has filed with the Commission a Registration Statement on Form
S-4 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the shares of BT Financial Common Stock to be issued
pursuant to the Merger Agreement. As permitted by the rules and regulations of
the Commission, this Proxy Statement/Prospectus does not contain all of the
information set forth in the Registration Statement. Such additional
information may be obtained from the Commission's principal office in
Washington, D.C., or from the Commission's regional offices in New York or
Chicago, by the means described above for obtaining reports, proxy statements
and other information filed pursuant to the Exchange Act. Statements contained
in this Proxy Statement/Prospectus or in any document incorporated by reference
in this Proxy Statement/Prospectus as to the contents of any contract or other
document referred to herein or therein are not necessarily complete. In each
instance, reference is hereby made to the copy of such contract or other
document filed as an exhibit to the Registration Statement or such other
document and each such statement is qualified in all respects by such
reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by BT Financial (File No.
0-12377) pursuant to the Exchange Act are incorporated by reference in this
Proxy Statement/Prospectus:
1. Proxy Statement for its Annual Meeting of Shareholders held on May 14,
1995;
2. Annual Report on Form 10-K for the fiscal year ended December 31, 1994;
- 2 -
<PAGE> 9
3. Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1995;
4. Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1995;
5. Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,
1995; and
6. Current Report on Form 8-K dated December 14, 1995 (as amended).
7. Current Report on Form 8-K dated January 12, 1996.
All documents and reports filed by BT Financial pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy
Statement/Prospectus and prior to the date when the Meeting has finally been
adjourned shall be deemed to be incorporated by reference in this Proxy
Statement/Prospectus and to be part hereof from the dates of filing of such
documents and reports. Any statement contained herein or in a document or
report 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
subsequently filed document or report which 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.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS FILED BY
BT FINANCIAL WITH THE COMMISSION WHICH ARE NOT PRESENTED HEREIN OR DELIVERED
HEREWITH. SUCH DOCUMENTS (OTHER THAN THE EXHIBITS TO SUCH DOCUMENTS, UNLESS
SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE HEREIN OR THEREIN) ARE
AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO
WHOM A COPY OF THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR
ORAL REQUEST, DIRECTED TO BT FINANCIAL CORPORATION, BT FINANCIAL PLAZA, 551
MAIN STREET, JOHNSTOWN, PENNSYLVANIA 15901 (TELEPHONE NUMBER: (814) 532-3801),
ATTENTION: CORPORATE SECRETARY. IN ORDER TO ENSURE TIMELY DELIVERY OF ANY
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY MARCH/APRIL __, 1996.
- 3 -
<PAGE> 10
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Incorporation of Certain Documents by Reference . . . . . . . . . . . . . . . . . . . . . . 2
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Selected Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Comparative Per Share Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Comparative Market Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
The Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Background of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Reasons for the Merger; Recommendation of the Armstrong
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Opinion of Armstrong Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . . . . . 29
Regulatory Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Rights of Dissenting Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Resale Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
The Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Exchange Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Certain Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Indemnification Obligations of Armstrong . . . . . . . . . . . . . . . . . . . . . . . . . 39
Armstrong Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Unaudited Pro Forma Condensed Combined Financial Information . . . . . . . . . . . . . . . . 44
Description of BT Financial Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . 52
Comparison of Shareholder Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Certain Information Regarding BT Financial . . . . . . . . . . . . . . . . . . . . . . . . 61
Certain Information Regarding Armstrong . . . . . . . . . . . . . . . . . . . . . . . . . . 66
</TABLE>
- 4 -
<PAGE> 11
<TABLE>
<CAPTION>
Page
----
<S> <C>
Armstrong Market Prices and Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Management's Discussion and Analysis
of Financial Condition and Results of Operations of Armstrong . . . . . . . . . . . . . 70
Management of Armstrong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Principal Owners of Armstrong Voting Securities . . . . . . . . . . . . . . . . . . . . . 77
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Index to Armstrong and Moxham Financial Statements
Annexes
A Agreement and Plan of Reorganization
B First Amendment to Agreement and Plan of Reorganization
C Opinion of Bahia Advisors, Inc.
D Pennsylvania BCL Provisions for Dissenting Shareholders
</TABLE>
- 5 -
<PAGE> 12
SUMMARY
The following is a summary of certain information contained elsewhere in this
Proxy Statement/Prospectus. Reference is made to, and this Summary is
qualified in its entirety by, the more detailed information contained, or
incorporated by reference, in this Proxy Statement/Prospectus or contained in
the Annexes hereto. Armstrong shareholders are urged to read this Proxy
Statement/Prospectus and the Annexes hereto in their entirety.
THE COMPANIES
BT FINANCIAL
BT Financial is a multi-bank holding company located in Johnstown,
Pennsylvania with three state chartered banking subsidiaries that are members of
the Federal Reserve System: Johnstown Bank, Laurel Bank ("Laurel Bank") and
Fayette Bank ("Fayette Bank"). These banking subsidiaries conduct business
through a network of 63 offices located throughout southwestern Pennsylvania and
provide a full range of financial services to individuals, businesses and
governmental bodies, including demand, savings and time deposits, secured and
unsecured loans, and electronic data processing of payrolls. Lending services
include credit cards and consumer, real estate, commercial and industrial loans.
BT Management Trust Company, a trust company subsidiary, provides corporate
pension and personal trust and trust related services. The principal executive
offices of BT Financial are located at BT Financial Plaza, 551 Main Street,
Johnstown, Pennsylvania 15901, and its telephone number is (814) 532-3801. As
of September 30, 1995, BT Financial had consolidated total assets of $1.1
billion, consolidated total deposits of $956 million and consolidated
shareholders' equity of $99 million. See "Incorporation of Certain Documents by
Reference" and "Certain Information Regarding BT Financial."
On December 14, 1995, BT Financial acquired The Huntington National Bank of
Pennsylvania ("Huntington Bank") from Huntington Bancshares West Virginia,
Inc., for $25,500,000 in cash. Huntington Bank was merged with and into
Fayette Bank. As of September 30, 1995, Huntington Bank had total assets of
$106 million, total deposits of $81 million and total stockholder's equity of
$16 million. The acquisition of Huntington Bank was accounted for under the
purchase method of accounting.
BT Financial has also entered into an Agreement and Plan of Reorganization
(the "Moxham Agreement") dated January 12, 1996, with Moxham Bank Corporation,
a multi-bank holding company headquartered in Johnstown, Pennsylvania
("Moxham"), which provides for the merger of Moxham with and into BT Financial
(the "Moxham Merger"). At the effective time of the Moxham Merger, each
outstanding share of Moxham Common Stock is to be converted into 1.15 shares of
BT Financial Common Stock, and each share of Moxham Preferred Stock is to be
converted into 6.325 shares of BT Financial Common Stock. Immediately
following the Moxham Merger, Moxham's subsidiary banks, The Moxham National
Bank of Johnstown and The First National Bank of Garrett, will be merged with
and into Johnstown Bank. The acquisition of Moxham is to be accounted for
under the pooling of interests method of accounting. As of September 30, 1995,
Moxham had total assets of approximately $242 million, total deposits of
approximately $217 million and total shareholders' equity of approximately
$19 million.
On a pro forma basis giving effect to BT Financial's acquisition of Huntington
Bank and BT Financial's pending acquisitions of Armstrong and Moxham, BT
Financial would have had, on a consolidated basis as of September 30, 1995,
approximately $1.5 billion in assets, $1.3 billion in deposits and $125 million
in shareholders' equity.
ARMSTRONG
Armstrong is a Pennsylvania bank and trust company and a member of the FDIC
that conducts business through its main office in Kittanning, Pennsylvania. As
a commercial bank, Armstrong provides loan and deposit services to individuals
and small to medium sized businesses in its Kittanning, Pennsylvania market
area. The principal executive offices of Armstrong are located at 227 Market
Street, Kittanning, Pennsylvania 16201, and its telephone number is (412)
548-1555. As of December 31, 1995, Armstrong had total assets of approximately
- 6 -
<PAGE> 13
$52 million, total deposits of approximately $39 million and shareholders'
equity of approximately $8 million. See "The Merger--Background of the
Merger" and "Certain Information Regarding Armstrong."
THE MEETING; RECORD DATE; VOTE REQUIRED
The Meeting is scheduled to be held on March/April __, 1996, at the executive
offices of Armstrong at 227 Market Street, Kittanning, Pennsylvania, commencing
at 2 p.m., local time.
Only holders of record of shares of Armstrong Common Stock at the close of
business on March/April __, 1996 are entitled to notice of and to vote at the
Meeting. As of December 31, 1995, there were 8,000 shares of Armstrong Common
Stock outstanding held by 49 holders of record. Each holder of record of
shares of Armstrong Common Stock as of the record date is entitled to cast one
vote per share on each matter to be acted upon or which may properly come
before the Meeting.
The purpose of the Meeting is to consider and vote upon a proposal to adopt
and approve the Merger Agreement. The affirmative vote of the Shareholders
entitled to cast at least two-thirds of the votes which all Shareholders are
entitled to cast thereon is required to adopt and approve the Merger Agreement.
Each director and executive officer of Armstrong who owns shares of Armstrong
Common Stock has advised Armstrong that he or she intends to vote or direct the
vote of all shares of Armstrong Common Stock over which he or she has voting
control FOR adoption and approval of the Merger Agreement. As of March/
April __, 1996, the directors and executive officers of Armstrong were the
beneficial owners of 5,155, or approximately 64.44%, of the outstanding shares
of Armstrong Common Stock. If all shares of Armstrong Common Stock are present
at the Meeting and the directors and executive officers of Armstrong all vote as
they have stated that they intend to vote, the affirmative vote of only an
additional 178 shares (or 2.23%) of Armstrong Common Stock would be
necessary to adopt and approve the Merger Agreement.
THE MERGER
EFFECTS OF THE MERGER
At the effective time of the Merger, Armstrong will merge with and into
Johnstown Bank. Johnstown Bank will be the surviving bank in the Merger and will
continue its corporate existence under Pennsylvania law under its present name.
Pursuant to the Merger Agreement, each issued and outstanding share of
Armstrong Common Stock (other than any such shares in respect of which the
holders thereof have objected to the Merger and otherwise complied with the
applicable requirements of Pennsylvania law ("Dissenters' Shares") and treasury
shares) will be converted into the right to receive 26.5 shares of BT Financial
Common Stock and $596.25 in cash (the "Merger Consideration"), unless the
average closing price per share of BT Financial Common Stock on NASDAQ as
reported in THE WALL STREET JOURNAL for the twenty (20) consecutive trading
days ending on the fifth trading day immediately preceding the closing date
(the "Valuation Period") is less than $27.50 or more than $34.00.
If the average per share price of BT Financial Common Stock is less than
$27.50 for the Valuation Period, Armstrong may request that BT Financial adjust
the Merger Consideration by increasing the number of shares of BT Financial
Common Stock or the amount of cash included in the Merger Consideration, or
both, so as to maintain a total consideration of $1,325.00 per share of
Armstrong Common Stock based on the average price per share for BT Financial
Common Stock for the Valuation Period. If BT Financial elects not to adjust
the Merger Consideration, Armstrong may terminate the Merger Agreement, and
neither party will have any further liability under the Merger Agreement.
If the average price per share of BT Financial Common Stock for the Valuation
Period is more than $34.00, BT Financial shall have the option to adjust the
Merger Consideration by reducing the number of shares
- 7 -
<PAGE> 14
of BT Financial Common Stock or cash included in the Merger Consideration, or
both, as determined by Armstrong, so that the total consideration does not
exceed $1,497.25 per share of Armstrong Common Stock based on the average price
per share of BT Financial Common Stock for the Valuation Period. If, however,
at any time prior to the Closing Date or the ninety (90) day period immediately
following the closing date, BT Financial enters into, or announces its plans to
enter into any agreement that would result in an acquisition of BT Financial or
substantially all of its business by another entity, the Merger Consideration
shall remain equal to 26.5 shares of BT Financial Common Stock and $596.25 in
cash for each share of Armstrong Common Stock.
In negotiating the components and amount of the Merger Consideration, BT
Financial was interested in paying a combination of BT Financial Common Stock
and cash to avoid the dilution of earnings that would result from an all-stock
transaction and to minimize the reduction in capital that would result from an
all-cash transaction. Similarly, Armstrong was interested in a transaction
that would be partially tax-free and would result in Armstrong shareholders
receiving a marketable security. The exact mix of stock and cash was a result
of arms-length negotiations between the parties.
Upon consummation of the Merger, all issued and outstanding shares of
Armstrong Common Stock will cease to exist. See "The Merger Agreement--The
Merger." Shareholders who properly exercise dissenters' rights will have only
the right to receive from BT Financial payment for the "fair value" of their
shares of Armstrong Common Stock as determined in accordance with the
applicable provisions of the Pennsylvania Business Corporation Law of 1988, as
amended (the "BCL"). See "The Merger--Rights of Dissenting Shareholders."
Fractional shares of BT Financial Common Stock will not be issued in the
Merger. A Shareholder otherwise entitled to a fractional share of BT Financial
Common Stock will receive, in lieu thereof, a cash payment therefor equal to
such fraction multiplied by the closing sales price on NASDAQ for a share
of BT Financial Common Stock on the Closing Date (as defined in the Merger
Agreement) as reported in THE WALL STREET JOURNAL, or, if BT Financial Common
Stock is not traded on such date, the next succeeding day on which such stock
is traded. See "The Merger Agreement--Exchange Procedures."
Based upon the number of shares of BT Financial Common Stock and Armstrong
Common Stock on a fully diluted basis as of December 31, 1995, the price per
share of BT Financial Common Stock as of the same date and the Merger
Consideration, Armstrong shareholders will have the right to own approximately
5.54% of the outstanding shares of BT Financial Common Stock immediately
following consummation of the Merger (assuming no Dissenters' Shares).
REASONS FOR THE MERGER
BT Financial. The acquisition of Armstrong is a natural expansion of BT
Financial's geographic market into an area that is contiguous to BT Financial's
current market. See "The Merger--Background of the Merger" and "--Reasons for
the Merger; Recommendation of the Armstrong Board of Directors."
Armstrong. The Board of Directors of Armstrong has unanimously approved the
Merger Agreement and has determined that the Merger is fair to, and in the best
interests of, Armstrong and its Shareholders. The Armstrong Board of Directors
believes that the Merger will enable the Shareholders to realize significant
value when compared to the value of Armstrong Common Stock should the Merger
not occur. For a more detailed discussion of the factors considered by the
Armstrong Board in reaching its decision with respect to the Merger Agreement
and the Merger, see "The Merger--Reasons for the Merger; Recommendation of the
Armstrong Board of Directors."
RECOMMENDATION OF THE ARMSTRONG BOARD OF DIRECTORS
The Armstrong Board unanimously voted to approve the Merger Agreement and the
Merger as being in the best interests of Armstrong and Armstrong shareholders
and recommends a vote by Armstrong shareholders FOR adoption and approval of
the Merger Agreement. For a discussion of the factors considered by the
Armstrong Board in reaching
- 8 -
<PAGE> 15
its decision with respect to the Merger Agreement and the Merger and the other
transactions contemplated thereby, see "The Merger--Reasons for the Merger;
Recommendation of the Armstrong Board of Directors."
OPINION OF ARMSTRONG FINANCIAL ADVISOR
On October 24, 1995, Bahia Advisors, Inc., Armstrong's financial advisor
("Bahia"), delivered its written opinion to the Armstrong Board to the effect
that, as of the date thereof, the Merger Consideration is fair to the
Shareholders from a financial point of view. A copy of the opinion of Bahia
which sets forth the assumptions made, matters considered and limits of its
review is attached to this Proxy Statement/Prospectus as Annex C. See "The
Merger--Opinion of Armstrong Financial Advisor."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Members of Armstrong's management and the Armstrong Board have interests in
the Merger in addition to the interests of Armstrong shareholders generally. BT
Financial has agreed to indemnify all current officers and directors of
Armstrong for one year after the effective time of the Merger and to provide
officers' and directors' liability insurance coverage to those officers and
directors for one year after the effective time of the Merger. In addition, if
the Merger is consummated, members of Armstrong's management and the Armstrong
Board will own approximately 1.14% of the shares of BT Financial Common Stock
on a fully diluted basis. Mr. Clougherty will also be entitled to receive a
lump sum cash payment of $200,000, in connection with the termination of his
employment with Armstrong on the Closing Date. See "The Merger--Interests of
Certain Persons in the Merger."
EFFECTIVE TIME OF THE MERGER; TERMINATION OF THE MERGER AGREEMENT
It is anticipated that the Merger will become effective as soon as
practicable after the requisite Shareholder and regulatory approvals have been
obtained, and all applicable regulatory waiting periods have expired. There
may be a substantial period of time between when the Meeting is held and the
consummation of the Merger. See "The Merger--Regulatory Considerations" and
"The Merger Agreement--Conditions."
The Merger Agreement will terminate automatically if the Merger has not been
consummated and, therefore, the effective time of the Merger has not occurred,
by [June 30, 1996] (unless extended by mutual consent) or may be terminated
prior to such time by BT Financial or Armstrong upon the occurrence of one or
more of certain events, although the parties expect that the Merger will be
consummated before [June 30, 1996]. If the Merger has not been consummated by
[June 30, 1996], Armstrong shareholders will be notified by letter whether the
Merger has been abandoned or if the parties have agreed to extend the
termination date and what that date then is. The Merger Agreement does not
limit the possible number of extensions of the termination date or the periods
for which extension of the termination date may occur. See "The Merger
Agreement--Termination."
CONDITIONS TO THE MERGER
The obligations of BT Financial, Johnstown Bank and Armstrong to consummate
the Merger are subject to the satisfaction of certain significant conditions,
including: obtaining requisite Shareholder and regulatory approvals; the
absence of any action, proceeding, regulation or legislation to enjoin,
restrain or prohibit, or to obtain substantial damages in respect of, the
Merger Agreement or the Merger, which, in the good faith judgment of BT
Financial, would make it inadvisable to consummate the Merger or the other
transactions contemplated by the Merger Agreement; the absence of any
injunction which prohibits or restricts the consummation of the transactions
contemplated by the Merger Agreement, which, in the good faith judgment of
Armstrong, would make it inadvisable to consummate those transactions; and the
number of Dissenters' Shares being less than 800 shares of Armstrong Stock as
of the Closing Date, representing 10% of the Armstrong Common Stock expected to
be outstanding on such date. Any condition may be waived in writing by the
Party entitled to the benefit thereof. See "The Merger Agreement--Conditions."
- 9 -
<PAGE> 16
REGULATORY CONSIDERATIONS
Consummation of the Merger is subject to, and conditioned upon, receipt of all
required regulatory approvals and expiration of all applicable regulatory
waiting periods necessary to consummate the Merger, including receipt of
approvals from the Board of Governors of the Federal Reserve System (the
"Federal Reserve") and the Pennsylvania Department of Banking. Although
applications for such approvals have been filed with the relevant regulatory
authorities, there can be no assurance that the required regulatory approvals
will be obtained, and, if obtained, with what conditions. As of the date
hereof, neither the Federal Reserve nor the Pennsylvania Department of Banking
has approved the Merger. See "The Merger--Regulatory Considerations" and "The
Merger Agreement--Conditions."
DISSENTERS' RIGHTS
Under the Pennsylvania Banking Code and the BCL, the Shareholders have the
right to object to the Merger and demand to be paid in cash the "fair value" of
their shares of Armstrong Common Stock if they comply fully with all the
requirements of Subchapter D of Chapter 15 of the BCL ("Subchapter 15D"). A
copy of the provisions of Subchapter 15D and Section 1930 of the BCL are
attached hereto as Annex D. See "The Merger--Rights of Dissenting
Shareholders." It is a condition to BT Financial's obligation to consummate
the Merger that the number of Dissenters' Shares be less than 800 shares of
Armstrong Common Stock as of the Closing Date, representing 10% of the
Armstrong Common Stock expected to be outstanding on such date. See "The
Merger Agreement--Conditions." BT Financial has reserved the right to waive
this condition at any time.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
It is expected that the exchange of shares of Armstrong Common Stock for
shares of BT Financial Common Stock will qualify as a tax-free reorganization
pursuant to Section 368 of the Internal Revenue Code of 1986, as amended (the
"Code"). If the exchange does so qualify, one result will be that no gain or
loss will be recognized by any Armstrong shareholder upon the exchange of that
Armstrong shareholder's shares of Armstrong Common Stock for shares of BT
Financial Common Stock pursuant to the Merger, except in respect of cash
received for fractional shares. Another result will be that an Armstrong
shareholder will recognize gain with respect to the cash portion of the Merger
Consideration received, but not in excess of the amounts of cash received.
See "The Merger--Certain Federal Income Tax Consequences." Consummation of
the Merger is conditioned upon an opinion of Kirkpatrick & Lockhart LLP,
counsel to BT Financial, concerning the material federal income tax
consequences expected to result from the Merger, of which that section of this
Proxy Statement/Prospectus is, in part, a summary. A copy of that opinion is
filed as an exhibit to the Registration Statement.
ACCOUNTING TREATMENT
The Merger will be accounted for as a purchase for accounting purposes. See
"The Merger--Accounting Treatment."
COMPARISON OF SHAREHOLDER RIGHTS
Two major differences between the rights of shareholders of BT Financial and
the rights of shareholders of Armstrong are that provisions of the BCL, federal
law and the BT Financial articles and bylaws affect business combinations and
control share acquisitions involving BT Financial, but not Armstrong, and BT
Financial, but not Armstrong, has a shareholder rights plan. An effect of BT
Financial's shareholder rights plan may be to prevent the use of certain
takeover tactics to acquire BT Financial without the approval of BT Financial's
Board of Directors. For a more detailed description of the differences between
the rights of shareholders of the two companies and a description of the BT
Financial Common Stock, see "Comparison of Shareholder Rights" and "Description
of the Capital Stock--BT Financial."
- 10 -
<PAGE> 17
SELECTED FINANCIAL INFORMATION
The following tables set forth selected historical financial
information (unaudited) for BT Financial, for each of the five years in the
period ended December 31, 1994 and the nine-month periods ended September 30,
1995 and 1994, and for Armstrong, for each of the five years in the period
ended December 31, 1995. The selected historical financial information
(unaudited) for BT Financial for the nine-month periods ended September 30,
1995 and 1994 reflect, in the opinion of the management of BT Financial, all
adjustments (comprising only normal recurring accruals) necessary for a fair
presentation of the consolidated operating results and financial position of BT
Financial for such interim periods. Results for the interim periods are not
necessarily indicative of results for the full year or any other period. The
selected historical financial information should be read in conjunction with
the audited financial statements and other financial information for BT
Financial, incorporated by reference in this Proxy Statement/Prospectus, and
for Armstrong, included elsewhere in this Proxy Statement/Prospectus. See
"Incorporation of Certain Documents by Reference," "Management's Discussion
and Analysis of Financial Condition and Results of Operations of Armstrong" and
"Index to Armstrong and Moxham Financial Statements."
The following tables set forth selected unaudited pro forma combined
financial information giving effect to the Merger under the purchase method of
accounting for the year ended December 31, 1994 and the nine-month period ended
September 30, 1995. The unaudited pro forma financial information is prepared
based on an exchange ratio in the Merger of 26.5 shares of BT Financial Common
Stock for each share of Armstrong Common Stock, which is subject to possible
increase in certain limited circumstances. See "The Merger Agreement--The
Merger."
The selected unaudited pro forma combined financial information also gives
effect to BT Financial's acquisition of Huntington Bank on December 14, 1995,
which was accounted for under the purchase method of accounting, for the year
ended December 31, 1994 and the nine-month period ended September 30, 1995 and
BT Financial's pending acquisition of Moxham, which is expected to be accounted
for under the pooling of interests method of accounting, for the years ended
December 31, 1992, 1993 and 1994 and for the nine-month period ended
September 30, 1995. The unaudited pro forma financial information assumes that
1.15 shares of BT Financial Common Stock will be issued for each share of
Moxham Common Stock and 6.325 shares of BT Financial Common Stock will be
issued for each share of Moxham Preferred Stock.
The unaudited pro forma condensed combined financial statements do not give
effect to anticipated cost savings in connection with the Merger, and do not
purport to be indicative of the combined financial position or results of
operations of future periods or indicative of the results that actually would
have been realized had the entities been a single entity during these periods.
The selected unaudited pro forma combined financial information is derived from
the unaudited pro forma condensed combined financial statements appearing
elsewhere herein and should be read in conjunction with those statements. See
"Unaudited Pro Forma Condensed Combined Financial Information."
- 11 -
<PAGE> 18
BT FINANCIAL CORPORATION
SELECTED HISTORICAL FINANCIAL INFORMATION
(UNAUDITED)
<TABLE>
<CAPTION>
At or for Nine Months
At or for the Year Ended December 31, Ended September 30,
---------------------------------------------------------- ----------------------
1990 1991(6) 1992(7) 1993(8) 1994 1995 1994
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF
OPERATIONS
Interest income $72,634 $70,780 $69,694 $66,254 $73,239 $60,763 $54,042
Interest expense 40,731 36,457 29,136 23,143 26,212 24,917 18,925
------- ------- ------- ------ ------ ------- -------
Net interest income 31,903 34,323 40,558 43,111 47,027 35,846 35,117
Provision for loan
losses 1,225 1,414 2,858 1,975 904 1,159 557
------- ------- ------- ------ ------ ------- -------
Net interest income
after provision
for loan losses 30,678 32,909 37,700 41,136 46,123 34,687 34,560
Other income 4,546 5,208 5,922 6,894 6,974 5,462 5,324
Other expenses 25,883 28,082 31,499 33,840 37,519 27,588 28,157
------- ------- ------- ------- ------- ------ ------
Income before
income taxes 9,341 10,035 12,123 14,190 15,578 12,561 11,727
Provision for income
taxes 2,246 2,507 3,532 4,846 4,672 4,073 3,623
------- ------- ------- ------ ------ ------- -------
Income before
cumulative effect
of change in
accounting for
income taxes 7,095 7,528 8,591 9,344 10,906 8,488 8,104
Cumulative effect of
change in
accounting for
income taxes -- -- -- 113 -- -- --
------- ------- ------- ------ ------ ------- -------
Net income $ 7,095 $ 7,528 $ 8,591 $ 9,457 $10,906 $8,488 $8,104
======= ======= ======= ======= ======= ====== ======
BALANCE SHEET DATA
(Period End)
Total assets $791,104 $891,654 $906,948 $1,087,559 $1,107,575 $1,110,400 $1,094,266
Loans, net of
unearned interest 517,076 553,384 567,211 698,408 742,657 776,412 719,614
Investment securities 121,260 186,736 -- -- -- -- --
Securities available
for sale -- -- 219,800 231,508 248,281 208,928 258,270
Securities held-to-
maturity -- -- -- -- 22,911 43,151 16,948
Total deposits 689,978 781,761 809,023 956,961 948,233 955,820 957,138
Total long-term debt 12,396 10,613 8,147 12,482 9,920 7,480 9,920
Total shareholders'
equity 60,150 65,019 70,650 91,943 87,309 98,686 88,360
</TABLE>
- 12 -
<PAGE> 19
<TABLE>
<CAPTION>
At or for Nine Months
At or for the Year Ended December 31, Ended September 30,
---------------------------------------------------------- ----------------------
1990 1991(6) 1992(7) 1993(8) 1994 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA(1)
Net income $ 2.03 $ 2.18 $ 2.48 $ 2.72 $ 2.85 $2.22 $2.12
Cash dividends
declared .72 .77 .86 .99 1.10 .90 .80
Period-end book
value(2) 17.39 18.80 20.43 24.03 22.82 $25.79 $23.09
Average shares
outstanding 3,492,932 3,458,390 3,458,390 3,479,574 3,826,581 3,826,581 3,826,581
FINANCIAL RATIOS
Return on average
assets .90% .93% .97% 1.05% 1.01% 1.03% 1.01%
Return on average
shareholders' 12.21% 12.10% 12.71% 12.69% 12.30% 12.06% 12.13%
equity
Net yield on earning
assets(3) 4.61% 4.78% 5.12% 5.28% 4.80% 4.76% 4.82%
Common stock
dividend payout 35.72% 35.32% 34.51% 36.39% 38.60% 40.57% 37.77%
Average
shareholders'
equity 7.35% 7.64% 7.64% 8.24% 8.25% 8.53% 8.33%
to average assets
Primary capital
ratio 8.19% 7.82% 8.41% 9.05% 8.48% 9.50% 8.67%
at period end(4)
Net charge-offs to
average loans, net
of unearned .16% .25% .36% .29% .12% .12% .08%
interest
Nonperforming loans
to total loans, net
of unearned .71% 1.02% .60% .46% .54% .37% .61%
interest(5)
Reserve for loan
losses to period-
end loans, net of .97% .93% 1.08% 1.03% .97% .97% 1.00%
unearned interest
- -----------------------------
<FN>
(1) Per share data has been restated to reflect the 5% stock dividends
distributed on September 11, 1992, July 26, 1993 and October 14, 1994.
(2) Book Value per share, excluding the effect of net unrealized holding
gains (losses) on securities available for sale, was $24.53 and $22.78
at December 31, 1994 and 1993, respectively.
(3) Net interest income stated on a fully taxable equivalent basis divided
by average earning assets.
(4) The sum of shareholders' equity and the reserve for loan losses
divided by the sum of total assets and the reserve for loan losses.
(5) Nonperforming loans include nonaccrual loans and restructured loans.
(6) Reflects the acquisitions of certain loans and deposits of Peoples
Federal Savings Bank on September 6, 1991 and the deposits of one
branch of Atlantic Financial Savings F.A. on November 15, 1991.
(7) Reflects the acquisition of Peoples Bank One on August 14, 1992.
(8) Reflects the acquisition of FirstSouth Bancorp, Inc. on December 10,
1993.
</TABLE>
- 13 -
<PAGE> 20
ARMSTRONG COUNTY TRUST COMPANY
SELECTED HISTORICAL FINANCIAL INFORMATION
(UNAUDITED)
<TABLE>
<CAPTION>
At or for the Year Ended December 31,
------------------------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest income $2,406 $2,471 $2,478 $2,563 $3,285
Interest expense 1,195 1,063 932 856 1,485
----- ----- ----- ----- ------
Net interest income 1,211 1,408 1,546 1,707 1,800
Provision for loan losses -- -- -- -- 38
------- ------- ------ ------ ------
Net interest income
after provision for
loan losses 1,211 1,408 1,546 1,707 1,762
Other income 56 38 33 79 246
Other expenses 674 667 732 975 1,171
------ ------ ----- ----- -----
Income before income taxes 593 779 847 811 837
Provision for income taxes 145 180 246 230 190
------ --- ----- ----- -----
Income before cumulative
effect of change in
accounting for income taxes 448 599 601 581 647
Cumulative effect of change
in accounting for income
taxes -- -- 169 -- --
----- ----- ----- ---- ----
Net income $ 448 $ 599 $ 770 $581 $647
===== ===== ===== ==== ====
BALANCE SHEET DATA
(Period End)
Total assets $32,202 $38,531 $39,050 $40,795 $51,543
Loans, net of unearned
interest 4,394 6,217 6,448 9,131 11,055
Investment securities 22,779 25,464 23,542 -- --
Securities available for
sale -- -- -- 26,837 36,930
Securities held-to-
maturity -- -- -- 1,825 1,355
Total deposits 25,023 31,067 31,275 33,357 38,663
Accrued interest and
other liabilities 498 434 328 422 509
Total shareholders'
equity 6,681 7,080 7,602 7,017 8,371
</TABLE>
- 14 -
<PAGE> 21
<TABLE>
<CAPTION>
At or for the Year Ended December 31,
------------------------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net income $ 56.00 $ 74.88 $ 96.25 $ 72.66 $ 80.90
Cash dividends declared 22.00 25.00 29.00 55.75 60.75
Period-end book value
(regulatory capital) 835.13 885.00 950.25 967.13 987.38
Period-end book value
(Including FASB-115) 835.13 885.00 950.25 877.13 1,046.34
Average shares
outstanding 8,000 8,000 8,000 8,000 8,000
FINANCIAL RATIOS
Return on average assets 1.40% 1.69% 1.99% 1.46% 1.40%
Return on average
shareholders' equity 6.84% 8.71% 10.49% 7.95% 8.41%
Equity capital (regulatory)
to total assets 20.75% 18.37% 19.47% 18.97% 15.32%
Equity capital (including
FASB-115) to total assets 20.75% 18.37% 19.47% 17.20% 16.24%
</TABLE>
- 15 -
<PAGE> 22
BT FINANCIAL CORPORATION
SELECTED PRO FORMA COMBINED FINANCIAL INFORMATION
FOR ALL TRANSACTIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
1992(1) 1993(1) 1994(2) September 30, 1995(2)
---- ---- ---- ------------------
<S> <C> <C> <C> <C>
RESULTS OF
OPERATIONS
Interest income 85,293 81,013 98,881 82,342
Interest expense 36,308 29,134 37,950 36,256
------ ------ ------ ------
Net interest income 48,985 51,879 60,931 46,086
Provision for loan
losses 3,178 2,168 1,307 1,772
------ ------ ------ ------
Net interest income
after provision
for loan losses 45,807 49,711 59,624 44,314
Other income 7,026 8,205 9,021 7,069
Other expenses 38,493 41,563 50,456 37,187
Income before
income taxes 14,340 16,353 18,189 14,196
Provision for income
taxes 3,988 5,081 5,347 4,467
Income before
cumulative effect
of change in
accounting for
income taxes 10,352 11,272 12,842 9,729
Cumulative effect of
change in
accounting for
income taxes
-- 86 -- --
------ ------ ------ ------
Net income 10,352 11,358 12,842 9,729
BALANCE SHEET DATA
(Period End)
Total assets $1,102,327 $1,306,551 $1,493,345 $1,504,437
Loans, net of
unearned interest 684,209 832,421 982,434 1,015,310
Investment
securities 270,710 295,646 374,309 363,741
Securities available
for sale 270,710 295,646 351,398 320,590
Securities held-to-
maturity -- -- 22,911 43,151
Total deposits 985,894 1,156,650 1,256,259 1,291,089
Total long-term debt 8,000 12,360 22,420 19,980
Total shareholders'
equity 86,324 109,099 111,640 125,439
</TABLE>
- 16 -
<PAGE> 23
<TABLE>
<CAPTION>
Nine Months Ended
1992(1) 1993(1) 1994(2) September 30, 1995(2)
---- ---- ---- ------------------
<S> <C> <C> <C> <C>
RESULTS OF
OPERATIONS
Per Share Data
Net income $2.30 $2.48 $2.49 1.88
Cash dividends
declared .86 .99 1.10 .90
Period-end book
value 19.35 22.54 21.66 24.30
Average shares
outstanding 4,493,144 4,580,788 5,150,822 5,161,952
<FN>
(1) Reflects pending acquisition of Moxham.
(2) Reflects acquisition of Huntington Bank on December 14, 1995 and pending
acquisitions of Armstrong and Moxham.
</TABLE>
- 17 -
<PAGE> 24
COMPARATIVE PER SHARE DATA
Set forth below is selected income, book value and cash dividends per
common share data: (i) on an historical basis for BT Financial and Armstrong;
(ii) on an unaudited pro forma combined basis for BT Financial giving effect to
the Merger, assuming the Merger had been effective for the year ended December
31, 1994 and the nine months ended September 30, 1995; (iii) on an
unaudited pro forma combined basis for BT Financial, assuming the Merger and
BT Financial's acquisition of Huntington Bank had been effective for the year
ended December 31, 1994 and the nine months ended September 30, 1995, and
assuming BT Financial's pending acquisition of Moxham had been effective for
all periods presented; (iv) on an unaudited pro forma equivalent basis for
Armstrong, assuming that the Merger had been effective for the year ended
December 31, 1994 and the nine months ended September 30, 1995; and (v) on an
unaudited pro forma equivalent basis for Moxham, assuming that the Moxham
Merger had been effective for the year ended December 31, 1994 and the nine
months ended September 30, 1995 and assuming BT Financial's pending
acquisition of Moxham had been effective for all periods presented. The
unaudited pro forma combined per share information are based on the issuance of
26.5 shares of BT Financial Common Stock for each share of Armstrong Common
Stock, 1.15 shares of BT Financial Common Stock for each share of Moxham Common
Stock and 6.325 shares of BT Financial Common Stock for each share of Moxham
Preferred Stock. The information set forth below should be read in conjunction
with the respective financial statements of BT Financial incorporated by
reference in, and of Armstrong included elsewhere in, this Proxy
Statement/Prospectus and with the unaudited pro forma condensed combined
information included under "Unaudited Pro Forma Condensed Combined Financial
Information." See "Selected Financial Information," and "Index to Armstrong
and Moxham Financial Statements."
Pro Forma and Pro Forma Equivalent Per Common Share Data
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------ Nine Months Ended
1992 1993 1994(1) September 30, 1995(1)
---- ---- ---- ----------------------
<S> <C> <C> <C> <C>
Net income per common share
before cumulative effect of
accounting principle change:
BT Financial:
Historical $ 2.48 $ 2.72 $ 2.87 $ 2.20
Pro forma BT Financial and
Armstrong 2.75 2.13
Pro forma BT Financial and
Moxham 2.30 2.48 2.58 1.93
Pro forma all transactions 2.49 1.88
Armstrong:
Historical 72.63 67.50
Pro forma equivalent
Armstrong and BT 72.88 56.45
Financial
Moxham:
Historical 1.96 1.98 1.81 1.16
Pro forma equivalent
Moxham and BT Financial 2.65 2.85 2.97 2.22
Book value per common share:
BT Financial:
Historical 22.82 25.79
Pro forma BT Financial and
Armstrong 23.51 26.33
Pro forma BT Financial
and Moxham 21.04 23.80
Pro forma all transactions 21.66 24.30
Armstrong:
Historical 877.13 1,018.25
</TABLE>
- 18 -
<PAGE> 25
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------ Nine Months Ended
1992 1993 1994(1) September 30, 1995(1)
---- ---- ---- ----------------------
<S> <C> <C> <C> <C>
Pro forma equivalent
Armstrong and BT 623.02 697.75
Financial
Moxham:
Historical 17.48 19.84
Pro forma equivalent
Moxham and BT Financial 24.20 27.37
Cash dividends declared per
common share:
BT Financial:
Historical .86 .99 1.10 .90
Pro forma BT Financial
and Armstrong 1.10 .90
Pro forma BT Financial
and Moxham .86 .99 1.10 .90
Pro forma all transactions 1.10 .90
Armstrong:
Historical 55.75 50.75
Pro forma equivalent
Armstrong and BT 29.15 23.85
Financial
Moxham:
Historical .51 .58 .58 .48
Pro forma equivalent
Moxham and BT Financial .99 1.14 1.27 1.04
<FN>
(1) Includes the acquisition of Huntington Bank on December 14, 1995.
</TABLE>
- 19 -
<PAGE> 26
COMPARATIVE MARKET PRICES
The BT Financial Common Stock is included for quotation on NASDAQ.
There is no established trading market for the Armstrong Common Stock.
The table below sets forth, for the calendar quarters indicated, the
reported high and low closing sales prices of BT Financial Common Stock based
on published financial sources.
<TABLE>
<CAPTION>
BT Financial
Common Stock
---------------------
High Low
---- ---
<S> <C> <C>
1993
First Quarter . . . . . . . . . . . . . . . . . . . . . . . $30 1/2 $24 1/2
Second Quarter . . . . . . . . . . . . . . . . . . . . . . 33 28 3/4
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . 33 30
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . 31 1/2 30
1994
First Quarter . . . . . . . . . . . . . . . . . . . . . . . $31 3/4 $30
Second Quarter . . . . . . . . . . . . . . . . . . . . . . 31 28
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . 30 1/2 28
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . 29 3/4 26 1/2
1995
First Quarter . . . . . . . . . . . . . . . . . . . . . . . $29 3/4 $26
Second Quarter . . . . . . . . . . . . . . . . . . . . . . 31 1/2 29
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . 37 1/4 30 1/4
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . 37 1/2 33 1/2
</TABLE>
The closing sales prices for the BT Financial Common Stock set forth
above have not been retroactively adjusted to reflect 5% stock dividends
distributed on July 26, 1993 and October 14, 1994.
Since the market price of BT Financial Common Stock is subject to
fluctuation, the market value of the shares of BT Financial Common Stock that
holders of shares of Armstrong Common Stock will receive in the Merger may
increase or decrease prior to and after the Merger.
On October 23, 1995, the last full trading day prior to the execution
and delivery of the Merger Agreement and the public announcement thereof, the
closing sales price per share of BT Financial Common Stock on NASDAQ as
reported in THE WALL STREET JOURNAL was $36.00. On March/April __, 1996, the
most recent practicable date prior to the printing of this Proxy
Statement/Prospectus, the closing sales price per share of BT Financial Common
Stock on NASDAQ as reported in THE WALL STREET JOURNAL was $_________.
Armstrong Common Stock is not listed on any exchange, quotation system
or over-the-counter market and is not actively traded. Armstrong is aware of
the sales prices in the following transactions: On June 25, 1993, a trade of
200 shares at $1,100 per share; on February 16, 1994, a trade of 1 share at
$1,000 per share; and on November 22, 1995, the last known trade prior to the
execution of the Merger Agreement and the public announcement thereof, a trade
of 2,384 shares at $995.14 per share. The November 22, 1995 trade occurred
pursuant to a certain Stock Exchange and Redemption Agreement (the "Exchange
Agreement"), dated August 16, 1995, by and among The Farmers National Bank of
Kittanning ("Farmers"), certain shareholders of Farmers (the "Farmers
Shareholders") and certain shareholders of Armstrong (the "Armstrong
Shareholders"), including Jerome Lombardi and Lynn Durham, both directors of
Armstrong. The Exchange Agreement provided for the Farmers Shareholders to
exchange all of the shares of the Armstrong Common Stock they owned for all of
the shares of Farmers common stock ("Farmers Common Stock") owned by the
Armstrong Shareholders. The remaining shares of Farmers Common Stock owned by
the Armstrong Shareholders were redeemed by Farmers. Following the receipt of
the requisite regulatory and shareholder approvals, the transactions closed
resulting in the acquisition of
- 20 -
<PAGE> 27
1,172 and 1,212 additional shares of the Armstrong Common Stock by Mr. Lombardi
and Ms. Durham, respectively. To the knowledge of Armstrong, since the
execution and delivery of the Merger Agreement, there have been no trades of
Armstrong Common Stock, except pursuant to the Exchange Agreement.
ARMSTRONG SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS
FOR BT FINANCIAL COMMON STOCK PRIOR TO THE MEETING.
- 21 -
<PAGE> 28
THE MEETING
This Proxy Statement/Prospectus is being furnished to Armstrong
shareholders in connection with the solicitation of proxies by the Armstrong
Board for use at the Meeting to be held on March/April __, 1996 at the
executive offices of Armstrong at 227 Market Street, Kittanning, Pennsylvania,
and at any adjournment or postponement thereof. This Proxy Statement/
Prospectus and the enclosed proxy card are first being mailed to Shareholders
on or about March/April __, 1996.
At the Meeting, Armstrong shareholders will consider and vote upon a
proposal to adopt and approve the Merger Agreement and such other business as
may properly come before the Meeting or any adjournment or postponement
thereof. The Armstrong Board unanimously voted to approve the Merger Agreement
and the Merger and recommends a vote by the Shareholders FOR adoption and
approval of the Merger Agreement.
VOTING AT THE MEETING; RECORD DATE
The Armstrong Board has fixed March/April __, 1996 as the record date
for determination of holders of record of shares of Armstrong Common Stock
entitled to notice of and to vote at the Meeting. Accordingly, only holders of
record of shares of Armstrong Common Stock at the close of business on that
date are entitled to notice of and to vote at the Meeting. As of March/
April __, 1996 there were 8,000 shares of Armstrong Common Stock outstanding
held by 49 holders of record. Each holder of record of shares of Armstrong
Common Stock as of the record date is entitled to cast one vote per share,
exercisable in person or by properly executed proxy, on the proposal to adopt
and approve the Merger Agreement and any other matters properly submitted for
a vote of the Shareholders at the Meeting. The presence, in person or by
properly executed proxy, of the holders of a majority of the outstanding shares
of Armstrong Common Stock entitled to vote at the Meeting is necessary to
constitute a quorum at the Meeting. The affirmative vote of the Shareholders
entitled to cast at least two-thirds of the votes which all Shareholders are
entitled to cast thereon is required to adopt and approve the Merger Agreement.
An abstention, whether done in person or by proxy, or a failure to vote will
have the effect of a vote against the Merger Agreement.
Each director and executive officer of Armstrong who owns shares of
Armstrong Common Stock has advised Armstrong that he or she intends to vote or
direct the vote of all shares of Armstrong Common Stock over which he or she
has voting control FOR adoption and approval of the Merger Agreement. As of
March/April __, 1996, the directors and executive officers of Armstrong were the
beneficial owners of 5,155, or approximately 64.44%, of the outstanding shares
of Armstrong Common Stock. If all shares of Armstrong Common Stock are present
at the Meeting and the directors and executive officers of Armstrong all vote
as they have stated that they intend to vote, the affirmative vote of only an
additional 178 shares (or 2.23%) of the Armstrong Common Stock would be
necessary to adopt and approve the Merger Agreement.
PROXIES
All shares of Armstrong Common Stock which are entitled to vote and
are represented at the Meeting by properly executed proxies received prior to
or at the Meeting, and not revoked as of such time, will be voted at the
Meeting in accordance with the instructions indicated on those proxies. If no
instructions are indicated on any proxies solicited by the Armstrong Board
which are received prior to or at the Meeting, those proxies will be voted FOR
adoption and approval of the Merger Agreement.
It is not anticipated that any matter other than the proposal to adopt
and approve the Merger Agreement will be brought before the Meeting. If any
other matter is properly presented at the Meeting for consideration, including,
among other things, a motion to adjourn the Meeting to another time and/or
place (including, without limitation, for the purpose of soliciting additional
proxies), the persons named in the enclosed form of proxy card and acting
thereunder will have discretion to vote on such matter in accordance with their
best judgment.
- 22 -
<PAGE> 29
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing with the Secretary of Armstrong, before the taking of the vote at the
Meeting, a written notice of revocation bearing a later date than the proxy
card, (ii) duly executing a later dated proxy card relating to the same shares
and delivering it to the Secretary of Armstrong before the taking of the vote
at the Meeting or (iii) attending the Meeting and giving the Secretary of
Armstrong a written notice of revocation bearing a later date than the proxy
card, before the taking of the vote at the Meeting. Attendance at the Meeting
will not in and of itself constitute a revocation of a proxy. Any written
notice of revocation or subsequent proxy from a Shareholder should be sent so
as to be delivered to The Armstrong County Trust Company, 227 Market Street,
Kittanning, Pennsylvania 16201, Attention: Secretary, or hand delivered to
the Secretary of Armstrong, before the taking of the vote at the Meeting.
SHAREHOLDERS ARE URGED TO MARK, DATE, SIGN AND RETURN PROMPTLY THE
ENCLOSED PROXY CARD IN THE ACCOMPANYING POSTAGE-PAID ENVELOPE, EVEN IF THEY ARE
PLANNING TO ATTEND THE MEETING. ALL PROPERLY EXECUTED PROXIES RECEIVED PRIOR
TO OR AT THE MEETING WILL BE VOTED WITH RESPECT TO THE MATTER IDENTIFIED ON THE
PROXY CARDS IN ACCORDANCE WITH ANY INSTRUCTIONS THEREON AND, IF NO INSTRUCTIONS
ARE GIVEN, WILL BE VOTED FOR ADOPTION AND APPROVAL OF THE MERGER AGREEMENT.
All expenses of this solicitation will be paid by Armstrong. In
addition to solicitation by use of the mails, proxies may be solicited by
directors, officers and employees of Armstrong in person or by telephone,
telegram or other means of communication. Those directors, officers and
employees will not be additionally compensated, but may be reimbursed for
reasonable out-of-pocket expenses incurred in connection with that
solicitation. Arrangements will be made with custodians, nominees and
fiduciaries for forwarding of proxy solicitation materials to beneficial owners
of shares held of record by those custodians, nominees and fiduciaries, and
Armstrong will reimburse those custodians, nominees and fiduciaries for
reasonable out-of-pocket expenses incurred in connection therewith.
SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS.
THE MERGER
BACKGROUND OF THE MERGER
The past decade has been a period of rapid change in the banking
industry in general, and especially for the banking industry in Pennsylvania.
This period has been characterized by accelerated consolidation throughout the
United States and in Pennsylvania, and by intensified competition from
domestic and foreign banks and from non-bank financial services organizations.
This period also has been characterized by increasing requirements for
investments in technology in order to meet customer needs on an efficient,
competitive basis.
Part of BT Financial's long-term strategic plan has been to acquire
existing banks, savings and loan associations, savings banks and branches
thereof in areas contiguous to the geographical areas that its banking
subsidiaries currently serve. In connection with this strategic plan, BT
Financial periodically reviews possible candidates for acquisition.
The Board of Directors of Armstrong has continually reviewed the
strategic alternatives for maximizing shareholder value. During 1993, the
Board retained Sequoia Advisors, Inc. ("Sequoia"), a financial consulting firm
that was owned by one of the principals of Bahia, to analyze a variety of
strategic options available to Armstrong. The range of options suggested by
Sequoia and considered by the Board of Armstrong included pursuing a course of
independence and growing internally, as well as selling Armstrong in a business
combination.
In December 1993, John H. Anderson, Chairman and Chief Executive
Officer of BT Financial, had preliminary discussions with representatives of
Armstrong about the possibility of an affiliation between BT Financial,
Armstrong and another institution. These preliminary discussions continued
throughout the spring of 1994. During
- 23 -
<PAGE> 30
the spring of 1994, the Board of Armstrong received unsolicited, preliminary
proposals to acquire Armstrong from BT Financial and two other financial
institutions. The proposal from BT Financial entailed an acquisition of
Armstrong and another bank by means of a simultaneous merger of Armstrong and
the other bank into a newly formed bank subsidiary of BT Financial. If this
proposal had been accepted, each Armstrong shareholder would have received
23.8 shares of BT Financial Common Stock and $687.50 in cash in exchange for
each share of Armstrong stock. Based on a then-current market price of BT
Financial Common Stock of approximately $31.00 per share, this offer would have
resulted in a price of $1,425.30 per share of Armstrong Common Stock, which
was 1.54 times the book value for each of these banks. The Board of Armstrong
conducted preliminary discussions throughout the spring of 1994 with BT
Financial and the other two institutions that had submitted proposals.
However, none of these preliminary proposals resulted in a formal offer or a
definitive agreement to acquire Armstrong.
In July 1994, holders of a significant block of the outstanding common
stock of Armstrong (the "Selling Shareholders") retained Bahia to find a buyer
for their Armstrong Common Stock. On behalf of the Selling Shareholders, Bahia
approached a number of financial institutions in Pennsylvania, Ohio and New
York, including BT Financial, concerning the possibility of acquiring this
block of Armstrong stock. Several of these financial institutions, including
BT Financial, executed confidentiality agreements with Bahia acting on the
Selling Shareholders' behalf, and conducted a substantial amount of off-site
due diligence.
On February 22, 1995, the Board of Directors of BT Financial
authorized the management of BT Financial to make an offer to acquire
Armstrong at a price of $1,325.00 per share, consisting of 26.5 shares of BT
Financial Common Stock, which was then trading at a price of approximately
$27.00 per share, and $596.25 in cash per share, for a total consideration of
$10.6 million. As a result of Bahia's efforts, in March 1995, BT Financial
submitted a preliminary proposal to Bahia to acquire 100% of the outstanding
common stock of Armstrong on this basis. Bahia informed the Board of Armstrong
of BT Financial's interest. Thereafter, Bahia and representatives of BT
Financial had a number of discussions concerning the possibility of BT
Financial acquiring Armstrong.
The parties subsequently began to negotiate the terms of an
acquisition agreement. During this period, BT Financial also began its due
diligence investigation for the purpose of valuing Armstrong as an acquisition
candidate. Although the parties had some preliminary conversations concerning
price in February of 1995, it was not until the completion of BT Financial's
due diligence investigation and in the context of a fully negotiated
acquisition agreement that the parties agreed on the amount of the Merger
Consideration. In negotiating the components and amount of the Merger
Consideration, BT Financial was interested in paying a combination of BT
Financial Common Stock and cash to avoid the dilution of earnings that would
result from an all-stock transaction and to minimize the reduction in capital
that would result from an all-cash transaction. Similarly, Armstrong was
interested in a transaction that would be partially tax-free and would result
in the Shareholders receiving a marketable security. The exact mix of stock
and cash was a result of arms-length negotiations between the parties.
On October 24, 1995, the Armstrong Board met, reviewed the final
version of the Merger Agreement, discussed the terms of the transactions
contemplated thereby and authorized the officers of Armstrong to execute and
deliver that agreement and to work to accomplish the transactions contemplated
thereby. The Merger Agreement was executed on the same day.
REASONS FOR THE MERGER; RECOMMENDATION OF THE ARMSTRONG BOARD OF DIRECTORS
BT FINANCIAL
In BT Financial's view, the Merger will extend BT Financial's
geographic market into an area that is contiguous to BT Financial's current
market. At present, BT Finanical's subsidiary banks conduct business through
a network of 63 offices located throughout Southwestern Pennsylvania.
Subsequent to the Merger, the
- 24 -
<PAGE> 31
Armstrong office in Kittanning, Pennsylvania, will be operated as a branch of
Johnstown Bank. Johnstown Bank currently has one other branch in Armstrong
County.
ARMSTRONG
The Board of Directors of Armstrong has unanimously approved the
Merger Agreement and has determined that the Merger is fair to, and in the best
interests of, Armstrong and its Shareholders. The Board of Directors therefore
unanimously recommends that Shareholders vote FOR adoption and approval of the
Merger Agreement. The Armstrong Board of Directors believes that the Merger
will enable the Shareholders to realize significant value when compared to the
value of Armstrong Common Stock should the Merger not occur.
In reaching its determination that the Merger Agreement is fair to,
and in the best interests of, Armstrong and the Shareholders, the Armstrong
Board of Directors considered a number of factors, both from a short-term and
long-term perspective, including, without limitation, the following:
1. The Armstrong Board of Director's familiarity with and review
of Armstrong's business, financial condition, results of
operation, and prospects, including, but not limited to, its
potential growth, development, productivity and profitability;
2. The current and prospective environment in which Armstrong
operates, including national, state and local economic
conditions, Armstrong's competitive environment, the increased
regulatory burdens on financial institutions generally, the
trend towards consolidation in the financial services industry
in general and among financial institutions in Pennsylvania
and the likely effect of the foregoing factors on Armstrong's
potential growth, development, productivity and profitability;
3. The business, financial condition, results of operation,
market valuations and acquisition history of BT Financial and
the opportunity for the Shareholders to participate in any
future growth of BT Financial by obtaining BT Financial Common
Stock in the Merger;
4. A comparison of the products and services provided by
Armstrong and BT Financial, as well as the costs associated
with and relative level of resources available to Armstrong
and BT Financial, respectively, to maintain and provide future
enhancements to, and develop new products and services within
its markets;
5. The anticipated tax-free receipt of shares of BT Financial
Common Stock in the Merger (see "Certain Federal Income Tax
Consequences");
6. The absence of an established trading market for the Armstrong
Common Stock compared to the market for BT Financial Common
Stock which is included for quotation on NASDAQ;
7. The provision in the Merger Agreement permitting Armstrong to
terminate the Merger Agreement if Armstrong did not receive an
opinion from an investment advisor, in form and content
satisfactory to Armstrong, to the effect that the Merger is
fair, from a financial point of view, to Armstrong
shareholders; and
8. The possibility of a Special Dividend being declared prior to
the effective time of the Merger if Armstrong's income exceeds
a certain level. See "The Merger Agreement--Dividends".
- 25 -
<PAGE> 32
OPINION OF ARMSTRONG FINANCIAL ADVISOR
The Armstrong Board retained Bahia as its financial advisor in
connection with the Merger and requested Bahia to render its opinion as to
whether the Merger Consideration to be paid to Armstrong shareholders is
fair from a financial point of view. In requesting Bahia's advice and opinion,
the Armstrong Board did not give any special instructions to or impose any
limitations upon the scope of the investigation which Bahia might wish to
conduct to enable it to give its opinion. Bahia has delivered to Armstrong its
written opinion dated October 24, 1995, to the effect that, based upon and
subject to the matters set forth therein, as of the date thereof, the Merger
Consideration is fair to Armstrong shareholders from a financial point of view.
A copy of Bahia's opinion is attached as Annex C hereto and incorporated by
reference herein and Bahia's opinion should be read in its entirety by
Armstrong shareholders.
Bahia was selected by Armstrong to act as its financial advisor
because of Bahia's expertise in the valuation of businesses and their
securities in connection with mergers and acquisitions of financial
institutions. Bahia has not previously acted as a financial advisor to
Armstrong. Sequoia Advisors, Inc. ("Sequoia"), which was owned by one of the
principals of Bahia, provided Armstrong with financial and strategic advice
during 1993. Bahia will receive from Armstrong a fee of $175,000, plus
reimbursement of certain out-of-pocket expenses, for its services in connection
with the Merger. In addition, Armstrong has agreed to indemnify and hold
harmless Bahia and its directors, officers and employees (the "Bahia
Indemnitees") from and against any and all losses, claims, damages, costs,
liabilities and expenses related to or arising out of its services in
connection with the Merger. Armstrong will not be responsible for any such
losses, claims, damages, costs, liabilities or expenses that are determined to
have solely resulted from Bahia's willful misconduct, gross negligence or
breach of fiduciary duty in performing its services. If for any reason the
foregoing indemnification is unavailable to the Bahia Indemnitees or
insufficient to hold them harmless, then Armstrong has agreed to contribute to
the amount paid or payable to the Bahia Indemnitees as a result of such claim,
damage, loss, cost, liability or expense in such proportion as is appropriate
to reflect not only the relative benefits received by Armstrong, on the one
hand, and Bahia on the other hand, but also the relative fault of Armstrong and
Bahia as well as any relevant equitable consideration.
In the course of preparing its opinion, Bahia has reviewed and
analyzed, among other things, the following:
1. the Merger Agreement;
2. BT Financial's Annual Reports, BT Financial's Annual Reports
on Form 10-K and related financial information for the five
years ended December 31, 1994, BT Financial's Quarterly
Reports on Form 10-Q and related unaudited financial
information for the three month periods ended March 31, 1994,
June 30, 1994, September 30, 1994, March 31, 1995 and June 30,
1995, as well as unaudited financial information for each of
the one month periods ended July 31, 1995, August 31, 1995
and September 30, 1995, respectively;
3. Armstrong's Annual Reports, and related financial information
for the five years ended December 31, 1994, Armstrong's
Quarterly Reports and related unaudited financial information
for the three month periods ended March 31, 1994, June 30,
1994, September 30, 1994, March 31, 1995 and June 30, 1995 as
well as unaudited financial information for each of the one
month periods ended July 31, 1995, August 31, 1995 and
September 30, 1995, respectively;
4. Certain other public and non-public information, including
financial and operating forecasts, relating to Armstrong and
BT Financial including: (i) the historical and current
financial condition and results of operations of Armstrong and
BT Financial, including interest income, interest expense, net
interest income, net interest margin, non-interest income,
non-interest expense, earnings, dividends, internal capital
generation, book value, intangible assets, return on assets,
return on stockholders' equity, capitalization, the amount and
type of non-performing assets, loan losses and the allowance
for loan losses; and (ii) the assets and liabilities of
Armstrong and BT Financial, including, the loan and investment
portfolios, deposits, other liabilities, historical and
current liability sources and costs and liquidity;
- 26 -
<PAGE> 33
5. Discussions with members of senior management of Armstrong and
BT Financial concerning the financial condition, business,
assets and prospects of Armstrong and BT Financial,
respectively;
6. The historical market prices and trading activity for shares
of BT Financial Common Stock;
7. A comparison of the results of operation, asset composition,
and financial condition of Armstrong with those of certain
Pennsylvania-based financial institutions that were deemed
relevant to Armstrong;
8. Such other financial studies and analyses, such other
investigations performed by Bahia and such other matters as
were deemed necessary to the rendering of its opinion;
9. The valuation of BT Financial Common Stock, and a comparison
of this valuation with those of 15 publicly traded
Pennsylvania banks with assets between $500 million and $5
billion;
10. A comparison of the results of operation and financial
condition of BT Financial with those of 15 publicly traded
Pennsylvania banks with assets between $500 million and $5
billion; and
- 27 -
<PAGE> 34
11. A comparison of the proposed financial terms of the Merger
contemplated by the Merger Agreement with the financial terms
of three groups of other merger and acquisition transactions.
The first group included 16 transactions announced or completed
between January 1994 and August 1995 where the target was a
commercial bank, headquartered in Pennsylvania, and had total
assets of $200 million or less. The second group included 6
transactions announced or completed between January 1994 and
August 1995 where the target was a commercial bank,
headquartered in Pennsylvania, and had total assets of $200
million or less, an equity/assets ratio of 10% or more, and a
return on average assets ratio of 1.00% or better. The final
group included 21 transactions announced or completed between
January 1994 and August 1995 where the target was a commercial
bank, headquartered in Pennsylvania, and had total assets of
$1 billion or less.
In rendering its opinion, Bahia relied, without independent
verification, on the accuracy and completeness of the information concerning
Armstrong and BT Financial furnished by the respective institutions to Bahia
for review for purposes of its opinion, as well as publicly available
information on other financial institutions and economic data. With respect to
the financial forecasts Bahia reviewed for each institution, Bahia assumed that
they had been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the managements of each respective
institution. Armstrong and BT Financial did not restrict Bahia as to the
material it was permitted to review. Bahia did not perform or obtain any
independent appraisals or evaluations of the assets and liabilities and
potential and/or contingent liabilities of Armstrong or BT Financial. Bahia
expresses no opinion on matters of a legal, regulatory, tax or accounting
nature or the ability of the Merger as set forth in the Merger Agreement to be
consummated. Bahia's opinion was based solely upon the information available
to it and the economic, market and other circumstances as they existed as of
October 24, 1995; events occurring after that date could materially affect the
assumptions used in preparing the opinion.
In rendering its opinion, Bahia assumed that in the course of
obtaining the necessary regulatory and governmental approvals for the proposed
Merger, no restriction will be imposed on Armstrong or BT Financial that would
have a material adverse effect on the contemplated benefits of the Merger.
Bahia also assumed that there
- 28 -
<PAGE> 35
would not occur any change in applicable law or regulation that would cause a
material adverse change in the prospects or operations of Armstrong or BT
Financial after the Merger.
BAHIA'S OPINION IS DIRECTED ONLY TO THE FAIRNESS FROM A FINANCIAL
POINT OF VIEW OF THE CONSIDERATION TO BE RECEIVED BY ARMSTRONG SHAREHOLDERS AND
DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW SUCH
SHAREHOLDER SHOULD VOTE AT THE MEETING. THE SUMMARY OF THE OPINION OF BAHIA SET
FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF SUCH OPINION, A COPY OF WHICH IS ATTACHED HERETO AS ANNEX C.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Armstrong Board, Armstrong
shareholders should be aware that members of Armstrong's management and the
Armstrong Board have interests in the Merger that are in addition to the
interests of Armstrong shareholders generally. The Armstrong Board was aware
of these interests and considered them, among other matters, in approving the
Merger Agreement and the transactions contemplated thereby.
INDEMNIFICATION
After the effective time of the Merger, BT Financial, as the successor
to Armstrong, will indemnify and hold harmless any former directors, officers,
employees or agents of Armstrong who have rights to indemnification under the
articles of incorporation and bylaws of Armstrong and the BCL from and against
any and all claims, losses, liabilities or damages arising out of or in
connection with any of their activities in such capacities or on behalf of, or
at the request of, Armstrong prior to the effective time of the Merger
("Claims") in accordance with and to the extent required under the articles of
incorporation and bylaws of BT Financial and the BCL. Further, BT Financial
will be obligated to advance expenses incurred with respect to the foregoing,
as they are incurred, in each case only to the extent such advances are
required under the articles of incorporation and bylaws of BT Financial as in
effect on October 24, 1995 and the BCL. The obligations of BT Financial
described in the preceding sentences will continue in full force and effect
following the effective time of the Merger for a period of one year, although
all rights to indemnification in respect of any Claim asserted or made within
such period will continue until the final disposition of such Claim. BT
Financial will also provide officers' and directors' liability insurance
coverage for all former directors and officers of Armstrong, whether or not
they become part of the BT Financial organization after the effective time of
the Merger, to the same extent as such coverage is provided to Johnstown Bank's
officers and directors, for one year following the effective time of the
Merger.
BT Financial will also indemnify and hold harmless Armstrong and each
person, if any, who controls Armstrong within the meaning of the Securities
Act, against any losses, claims, damages or liabilities, joint or several, to
which BT Financial or such controlling persons may become subject, under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) (a) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in the Proxy Statement/Prospectus or any amendment or supplement thereto, or
any related preliminary prospectus, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading to
the extent that any such statement or omission relates to BT Financial or (b)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact or any omission or alleged omission to state a material
fact required to be stated or necessary to make the statements not misleading
in any document distributed to any Shareholder to the extent that any such
statement or omission relates to BT Financial, and will reimburse Armstrong and
each such controlling person for any legal or other expenses reasonably
incurred by Armstrong or such controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action.
BT Financial will not, however, be liable in any such case to the extent that
any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in any of the Proxy Statement/Prospectus or any amendment or supplement
thereto or any related preliminary prospectus that was made or omitted in
reliance upon and in conformity with written information furnished by Armstrong
specifically for use therein.
- 29 -
<PAGE> 36
EMPLOYMENT AGREEMENTS
On August 3, 1994, the Armstrong Board passed a resolution entitling
Mr. Coleman J. Clougherty to severance pay. In the Merger Agreement, BT
Financial agreed to pay Mr. Clougherty $200,000, so long as Mr. Clougherty
agrees to waive in writing his right to severance pay and any other obligations
Armstrong has to him.
REGULATORY CONSIDERATIONS
Consummation of the Merger is subject to, and conditioned upon, among
other things, receipt of requisite approvals from the Federal Reserve and
the Pennsylvania Department of Banking and the expiration of all regulatory
waiting periods applicable to the Merger. As of the date hereof, applications
seeking regulatory approval of the Merger have been filed with the necessary
regulatory authorities, but neither agency has yet approved the Merger.
Section 18(c) of the Federal Deposit Insurance Act of 1950, as amended
(the "FDIA"), provides that the Federal Reserve shall not approve any proposed
merger transaction which would result in a monopoly, the effect of which in
any section of the country may be substantially to lessen competition, or
to tend to create a monopoly, or which in any other manner would be in
restraint of trade.
In conducting its review of any application for approval, the
Federal Reserve is required to consider the financial and managerial resources
and future prospects of the banks concerned and the convenience and needs of
the community to be served. In addition, under the Community Reinvestment Act
of 1977, the Federal Reserve must take into account the record of performance
of the existing and proposed institutions in meeting the credit needs of the
entire community, including low- and moderate-income neighborhoods, consistent
with the safe and sound operation of such institution. The Federal Reserve
has also indicated that it will not approve a significant acquisition unless
the resulting institution has adequate capitalization, taking into account,
among other things, asset quality.
The FDIA also requires the Federal Reserve to notify the Attorney
General of the United States of the approval of any transaction such as the
Merger and generally permits an action to be brought under the antitrust laws
by the Attorney General with respect to any such transaction within 30 days
after the date of approval by the Federal Reserve which period may be shortened
to no less than 15 days after such approval by the Federal Reserve with the
concurrence of the Attorney General. Transactions such as the Merger may
generally not be consummated until the conclusion of this 30-day (or shorter)
period.
The FDIA provides for the publication of notices relating to the
federal filing noted above. If an interested party were permitted to
intervene with respect to the Merger, administrative and judicial proceedings
could substantially delay the regulatory approvals required for consummation
of the Merger.
- 30 -
<PAGE> 37
The approval of the Pennsylvania Department of Banking also must be
obtained in connection with the Merger. Pursuant to the provisions of the
Pennsylvania Banking Code, the Pennsylvania Department of Banking is required
to approve or disapprove a proposed acquisition within 60 days after receipt of
the application, the articles of merger and the applicable fee, or within an
additional period of not more than thirty days after an amendment to the
application is received within the initial sixty-day period. The Pennsylvania
Department of Banking must evaluate factors similar to those considered by the
Federal Reserve in determining whether to approve the Merger.
As of the date hereof, applications seeking regulatory approval
have been filed with the necessary regulatory authorities, but neither
agency has yet approved the Merger. There can be no assurance that the
necessary regulatory authorities will approve the Merger, and if the Merger is
approved, there can be no assurance as to the dates of such approvals. There
can also be no assurance that any such approval will not contain a condition
or requirement that would cause such approval to fail to satisfy one of the
conditions to consummation of the Merger set forth in the Merger Agreement.
There can likewise be no assurance that neither the Department of Justice nor
any complaining parties will challenge the Merger, or if such a challenge is
made, as to the results thereof.
RIGHTS OF DISSENTING SHAREHOLDERS
Any owner of shares of Armstrong Common Stock has the right under
Section 1607 of the Pennsylvania Banking Code and Subchapter 15D of the BCL to
object to the Merger and demand to be paid in cash the fair value of such shares
upon complying in full with the provisions of Subchapter 15D. THE FOLLOWING
DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF THE PROVISIONS OF SUBCHAPTER 15D
OF THE BCL OR SECTION 1607 OF THE PENNSYLVANIA CODE AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THOSE PROVISIONS, A COPY OF WHICH IS ATTACHED HERETO AS
ANNEX C. THOSE PROVISIONS MUST BE STRICTLY COMPLIED WITH OR A SHAREHOLDER'S
DISSENTERS' RIGHTS MAY BE LOST.
If an owner of shares of Armstrong Common Stock wants to exercise the
right to dissent, such owner must satisfy all of the following conditions.
First, the owner must file with Armstrong prior to the vote with respect to the
Merger a written notice of his intention to demand that he be paid the fair
value of his shares of Armstrong Common Stock if the Merger takes place. Neither
a vote in person or by proxy against adoption and approval of the Merger
Agreement nor an abstention from voting with respect to, or a failure to vote
for adoption and approval of, the Merger Agreement will constitute such a
written notice. Second, the owner must not effect any change in the beneficial
ownership of his shares of Armstrong Common Stock from the date of filing such
written notice continuously through the effective time of the Merger. Finally,
the owner must not vote in person or by proxy for adoption and approval of the
Merger Agreement. Neither an abstention from voting with respect to, nor a
failure to vote in person or by proxy against adoption and approval of, the
Merger Agreement will constitute a vote for adoption and approval of the Merger
Agreement. Unless an owner follows all these steps, he will not acquire any
right to payment of the fair value of his shares and will be conclusively
presumed to have consented to the Merger and will be bound by its terms. A
written notice of an intention to demand payment of fair value should be sent
prior to the Meeting to The Armstrong County Trust Company, 227 Market Street,
Kittanning, Pennsylvania 16201, Attention: Secretary.
A person who is the beneficial owner, but not the record holder, of
shares of Armstrong Common Stock and who desires to exercise the rights of a
dissenting shareholder may assert those rights with respect to shares held on
that person's behalf and shall be treated as a dissenting shareholder under the
terms of Section 15D if he submits to Armstrong a written consent of the record
holder of those shares to such treatment no later than the time dissenters'
rights are asserted with respect to those shares. A beneficial owner may not
dissent with respect to less than all shares of which such person is the owner,
whether or not the shares so owned are registered in such person's name.
A record holder for more than one beneficial owner may assert
dissenters' rights as to less than all of the shares registered in his name
only if that holder dissents with respect to all shares beneficially owned by a
person that are held by him and discloses the name and address of that person.
In that event, the record holder will be treated as if the shares as to which
he has dissented and the other shares held by him were registered in the names
of different persons.
- 31 -
<PAGE> 38
If the Merger Agreement is adopted and approved by the requisite vote
of the Shareholders, Armstrong or BT Financial will mail a "further notice" to
each owner who followed all of the steps described above (a "Dissenter"). The
"further notice" will: (i) state the location where and the date by which a
demand for payment must be sent and certificates formerly representing shares
of Armstrong Common Stock ("Certificates") must be deposited in order to obtain
payment, which date will not be less than 30 days after the date of mailing of
the "further notice"; (ii) inform holders of uncertificated shares to what
extent transfer of shares will be restricted from the time that demand for
payment is received; (iii) supply a form for demanding payment that includes a
request for certification of the date on which the Dissenter acquired
beneficial ownership of his shares of Armstrong Common Stock; and (iv) include
a copy of Subchapter 15D. If a Dissenter fails to timely demand payment or (in
the case of certificated shares) fails to timely deposit his Certificates as
required by the "further notice," that person will not have any right to
receive payment of the fair value of his shares.
If any shares are not represented by certificates, Armstrong or BT
Financial may restrict their transfer from the time of receipt of demand for
payment until effectuation of the Merger or the release of restrictions under
the terms of Section 1577(a) of the BCL (relating to failure to effectuate the
Merger).
The dissenter shall retain all other rights of a shareholder until
those rights are modified by the Merger.
If the Merger has not been consummated within 60 days after the date
set in the "further notice" for demanding payment and depositing Certificates,
Armstrong or BT Financial will return any deposited Certificates and release
uncertificated shares from any transfer restrictions imposed by reason of the
demand for payment. At any time thereafter, Armstrong or BT Financial may send
a new "further notice" containing the provisions described above to all
Dissenters.
Promptly after the Effective Time of the Merger, or upon timely
receipt of demand for payment if the Merger has already occurred, BT Financial
will either (i) pay the amount that BT Financial estimates is the fair value of
the Dissenters' Shares to the Dissenters who timely made demand for payment and
(if their shares are certificated) timely deposited their Certificates, or (ii)
provide written notice to those Dissenters that no payment will be made. This
payment or written notice will be accompanied by a closing balance sheet and
statement of income of Armstrong for a fiscal year ending not more than 16
months before the date of payment or notice, the latest available interim
financial statements of Armstrong, a statement of BT Financial's estimate of
the fair value of the Dissenters' Shares, a notice of the right of a Dissenter
to demand payment or supplemental payment, as the case may be, and a copy of
Subchapter 15D. If BT Financial does not pay its estimate of the fair value of
the shares of Armstrong Common Stock of any Dissenter, it must return his
deposited Certificates to him and release uncertificated shares from any
transfer restrictions imposed by reason of the demand for payment. BT
Financial may make a notation on any returned Certificate or its records
relating to any such uncertificated shares that a demand for payment of fair
value with respect to that Certificate has been made. If shares with respect
to which notation has been made shall be transferred, each new Certificate
therefor or the records relating to any transferred uncertificated shares will
bear a similar notation, together with the name of the original dissenting
holder or owner thereof. A transferee will not acquire by transfer any rights
other than those that the original Dissenter had after making demand for
payment of fair value.
If BT Financial 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 and the Dissenter believes that BT
Financial's estimate of the fair value of his shares of Armstrong Common Stock
is less than their fair value, that Dissenter should send BT Financial his own
estimate of their fair value. A Dissenter's estimate will constitute a demand
for payment of his estimate of the fair value of his shares of Armstrong Common
Stock or for payment of the difference between the two estimates if BT
Financial has paid that Dissenter its estimate. If a Dissenter does not file
with BT Financial his own estimate within 30 days after the mailing to him of
the payment of BT Financial's estimated fair value or its written notice
thereof, that Dissenter will not be entitled to receive any amount greater than
the payment remitted by BT Financial or the amount stated in that notice.
Within 60 days after the latest of (i) the effective time of the
Merger, (ii) timely receipt of any demands for payment of fair value in
response to a "further notice," or (iii) timely receipt of a Dissenter's
estimate of the fair value of his shares of Armstrong Common Stock, if any
demands for payment remains unsettled, BT Financial
- 32 -
<PAGE> 39
may file an application for relief in the Court of Common Pleas of Cambria
County, Pennsylvania (the "Allegheny Court"), requesting that the fair value of
the remaining Dissenters' Shares be determined. All Dissenters whose demands
for payment of the fair value of their Dissenters' Shares have not been settled
will be made parties to such proceeding. 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. 53 (relating to bases of jurisdiction and interstate and international
procedure). 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. Each
Dissenter who is made a party to such proceeding will be entitled to recover
the amount by which the fair value of his Dissenters' Shares exceeds any amount
previously paid to that Dissenter by BT Financial for his shares, plus
interest.
If BT Financial fails to file an application with the Cambria Court
prior to the expiration of that 60-day period, any Dissenter who has made a
demand for payment of the fair value of his Dissenters' Shares and has not
already settled his claim against BT Financial may file an application with the
Cambria Court in the name of BT Financial within 30 days after expiration of
that 60-day period. If no such Dissenter files an application within that
30-day period, all remaining Dissenters will be paid BT Financial's estimate of
the fair value of their Dissenters' Shares and will not be entitled to any
additional amounts. In any proceeding before the Cambria Court, the fair
value of the Dissenters' Shares to be determined by the Cambria Court is the
fair value of those shares immediately prior to the effective time of the
Merger, taking into account all relevant factors, but excluding any
appreciation or depreciation in anticipation of the Merger.
The costs and expenses of any proceeding to determine the fair value
of the remaining Dissenters' Shares will be determined by the Cambria Court
and assessed against BT Financial, although all or any part of those costs and
expenses may be apportioned and assessed as the Cambria Court deems
appropriate against any Dissenters who are parties to the proceeding and whose
actions in demanding supplemental payments the Cambria Court finds to be
dilatory, obdurate, arbitrary, vexatious or in bad faith. The fees and
expenses of counsel and experts for the respective parties may be assessed as
the Cambria Court deems appropriate against BT Financial and in favor of any
or all Dissenters if BT Financial failed to comply substantially with the
requirements of Subchapter 15D and may be assessed against BT Financial or any
Dissenter, in favor of any other party, if the Cambria 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 Subchapter 15D. If the Cambria Court decides that any Dissenter's
counsel provided substantial benefits to other Dissenters, but that the fees of
such counsel should not be assessed against BT Financial, then the Cambria
Court may award that counsel reasonable fees to be paid out of the amounts
awarded to those other Dissenters.
It is a condition to BT Financial's obligation to consummate the
Merger that the number of Dissenters' Shares be less than 800 shares of
Armstrong Common Stock as of the Closing Date, representing 10% of the
Armstrong Common Stock expected to be outstanding on such date. See "The
Merger Agreement--Conditions." BT Financial has reserved the right to waive
this condition at any time.
RESALE RESTRICTIONS
The shares of BT Financial Common Stock to be issued pursuant to the
Merger Agreement will be freely transferable under the Securities Act except
for shares issued to any Shareholder who may be deemed to be an affiliate of
Armstrong for purposes of Rule 145 under the Securities Act as of the date of
the Meeting. Armstrong affiliates may not sell shares of BT Financial Common
Stock acquired in the Merger except pursuant to an effective registration
statement under the Securities Act covering those shares or in compliance with
Rule 145 under the Securities Act or another applicable exemption from the
registration requirements of the Securities Act. Persons who may be deemed to
be affiliates of Armstrong generally include individuals or entities that
control, are controlled by, or are under common control with, Armstrong and may
include certain officers and directors of Armstrong as well as the principal
Shareholders. Under the Merger Agreement, BT has agreed that Armstrong
affiliates will have rights to incidental registration and registration on
request pursuant to which these affiliates may resell their shares of BT
Financial Common Stock under an effective registration statement.
- 33 -
<PAGE> 40
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Kirkpatrick & Lockhart LLP, counsel to BT Financial, will render an
opinion to BT Financial as to the principal federal income tax consequences
expected to result from the Merger.
The following is a summary of such opinion. This summary is qualified
in its entirety by reference to the full text of such opinion, including the
assumptions upon which such opinion is based. Such opinion is included as an
exhibit to the Registration Statement. Neither such opinion nor this summary
address any tax considerations under foreign, state or local laws, or the tax
considerations to shareholders other than individual United States citizens who
hold their shares of Armstrong Common Stock within the meaning of Section 1221
of the Code.
No rulings have been requested from the Internal Revenue Service as to
the federal income tax consequences of the Merger. Shareholders should be
aware that the opinion of Kirkpatrick & Lockhart LLP is not binding on the
Internal Revenue Service and the Internal Revenue Service is not precluded from
taking a different position. Shareholders should also be aware that some of
the tax consequences of the Merger are governed by provisions of the Code as to
which there are no final regulations and little or no judicial or
administrative guidance. The opinion of Kirkpatrick & Lockhart LLP is based
upon the federal income tax laws as in effect on the date of such opinion and
as those laws are currently interpreted. There can be no assurance that future
legislation, regulations, administrative rulings or court decisions will not
adversely affect the accuracy of the statements contained herein.
The federal income tax consequences discussed below are conditioned
upon, and the opinion of Kirkpatrick & Lockhart LLP is based upon, the
accuracy, as of the date hereof and at, as of and after the effective time of
the Merger, of certain assumptions, including, but not limited to, the
following (taking into account for purposes hereof all events that are
contemplated under the Merger Agreement): (A) that, pursuant to the Merger,
the former shareholders of Armstrong receive shares of BT Financial Common
Stock having a value on the date on which the effective time of the Merger
occurs of not less than forty-two percent (42%) of the value of the Armstrong
Common Stock as of the same date; (B) that following the Merger, BT Financial
will continue the historic business of Armstrong or use a significant portion
of Armstrong's historic business assets in a business; and (C) that a bona fide
corporate business purpose exists for the Merger.
BT Financial and Armstrong believe that all of the foregoing
assumptions are accurate as of the date hereof, and will be accurate at, as of
and after the effective time of the Merger. If either BT Financial or
Armstrong learns before the effective time of the Merger that such assumptions
are false and that its counsel therefore believes that the Merger is unlikely
to be treated as a tax-free reorganization, then additional shareholder
approval will be obtained before consummation of the Merger.
Kirkpatrick & Lockhart LLP has rendered an opinion to BT Financial,
based upon the assumptions set forth therein, that the Merger will have the
following federal income tax consequences:
(i) No gain or loss will be recognized by Armstrong or BT
Financial as a result of the Merger.
(ii) No gain or loss will be recognized by any Shareholder upon the
exchange of that Shareholder's shares of Armstrong Common Stock for
shares of BT Financial Common Stock pursuant to the Merger.
(iii) Shareholders will recognize gain with respect to the cash
portion of the Merger Consideration (the "Cash Consideration")
received, but not in excess of the amount of the Cash Consideration
received.
(iv) The basis of the shares of BT Financial Common Stock received
by a Shareholder (including any fractional shares) will be the same as
the basis of the shares of Armstrong Common Stock surrendered in
exchange therefor (a) decreased by the amount of the Cash
Consideration, and (b) increased by (1) the amount, if any, of the
Cash Consideration that was treated as a dividend and (2) the amount
of gain recognized by that Shareholder on the exchange (not including
any portion of such gain that is treated as a dividend).
- 34 -
<PAGE> 41
(v) If shares of Armstrong Common Stock were capital assets in the
hands of a Shareholder immediately prior to the Merger, the holding
period of the shares of BT Financial Common Stock received by that
Shareholder in the Merger will include the holding period of the
shares of Armstrong Common Stock surrendered in exchange therefor.
(vi) A Shareholder who dissents from the proposed Merger and
receives solely cash in exchange for that Shareholder's shares of
Armstrong Common Stock will be treated as having received that cash as
a distribution in redemption of those shares subject to the provisions
and limitations of Section 302 of the Code. If the distribution is
eligible for treatment as a distribution in redemption of that
Shareholder's shares, that Shareholder will recognize gain to the
extent of the consideration received less that Shareholder's adjusted
basis in those shares.
(vii) The receipt by a Shareholder of cash in lieu of a fractional
share of BT Financial Common Stock will be treated as if that
fractional share was issued to that holder in the Merger and
thereafter redeemed by BT Financial for cash. That receipt of cash by
a Shareholder will be treated as a distribution by BT Financial in
full payment in exchange for the fractional share as provided in
Section 302(a) of the Code. If the distribution is eligible for
treatment as a distribution in redemption of a Shareholder's
fractional share, that Shareholder will recognize gain to the extent
of the consideration received less that Shareholder's allocable
adjusted basis in that fractional share.
If the shares of Armstrong Common Stock exchanged are a capital asset,
any gain recognized will be capital gain to the extent described below. The
capital gain will be long-term if the shares of Armstrong Common Stock have
been held by the applicable Shareholder for more than one year. The
determination of whether a Shareholder would recognize a capital gain and/or
dividend income is made by reference to the redemption rules of Section 302 of
the Code. Under Section 302, all of the cash representing gain recognized on
the exchange will be taxed as capital gain if the deemed redemption is a
"substantially disproportionate redemption" of stock with respect to a
Shareholder or is "not essentially equivalent to a dividend." For this
purpose, the Merger will be viewed as if each Shareholder had received only BT
Financial Common Stock in the Merger and as if BT Financial had thereafter
redeemed appropriate portions of the BT Financial Common Stock in exchange for
the cash received by that Shareholder. The deemed redemption is a
"substantially disproportionate redemption" if that Shareholder's deemed
percentage share of the outstanding BT Financial Common Stock after the Merger
but before the deemed redemption is reduced by more than 20% as a result of the
deemed redemption. The deemed redemption is "not essentially equivalent to a
dividend" if that Shareholder experiences a "meaningful reduction" in his
proportionate interest in BT Financial by reason of the deemed redemption. In
general, there are no fixed rules for determining when a meaningful reduction
has occurred.
In determining whether a Shareholder has a "substantially
disproportionate redemption" or experiences a "meaningful reduction" in his
proportionate interest in BT Financial, shares of BT Financial Common Stock
which are considered to be owned by that Shareholder pursuant to certain
constructive stock ownership rules set forth in Code Section 318, as well as
shares actually owned, must be taken into account. In general, under Code
Section 318, a Shareholder constructively owns any stock which that Shareholder
has an option to acquire, or any stock owned directly or indirectly by (1) that
Shareholder's spouse (unless legally separated under court decree), children,
grandchildren or parents; (2) a partnership, trust or estate in which that
Shareholder has an interest to the extent of that Shareholder's interest; or
(3) a corporation to the extent of that Shareholder's interest, but only if
that Shareholder actually or constructively owns 50% or more in value of the
corporation's stock. Also, a Shareholder that is a partnership, trust or
estate will be considered to own stock owned by its partners, grantors or
beneficiaries, as the case may be, and a Shareholder which is a corporation
will be considered to own stock owned by any of its shareholders who owned 50%
or more in value of the corporation's stock. An S corporation and its
shareholders are treated as if they were a partnership and partners,
respectively. In many instances, stock owned constructively as a result of the
attribution rules can be attributed again to another (for example, stock owned
due to family attribution can further be attributed to a partnership), but in
other circumstances, there is no "double" attribution.
If any of the cash received by a Shareholder has the effect of a
dividend, the portion of the gain recognized equal to that Shareholder's share
of undistributed corporate earnings and profits is treated as dividend income
and
- 35 -
<PAGE> 42
the balance of the gain is capital gain. It is unclear whether it is the
earnings and profits of Armstrong which are considered or some combination of
those of Armstrong and BT Financial. It is possible that the cash distributed
might exceed the applicable earnings and profits. No loss will be recognized.
Unless an exception is available under applicable law or regulations,
31% of the cash portion of the Merger Consideration payable to a Shareholder
will be withheld unless that payee provides a tax identification number (social
security number or employer identification number) and certifies that such
number is correct on a Form W-9 which will be provided in the letter of
transmittal that will be used to exchange shares of Armstrong Common Stock for
the Merger Consideration.
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON
THE PARTICULAR CIRCUMSTANCES OF EACH SHAREHOLDER AND OTHER FACTORS, EACH
SHAREHOLDER IS URGED TO CONSULT SUCH SHAREHOLDER'S OWN TAX ADVISOR TO DETERMINE
THE PARTICULAR TAX CONSEQUENCES OF THE MERGER TO THAT SHAREHOLDER, INCLUDING
THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN INCOME, PROPERTY,
TRANSFER AND OTHER TAX LAWS.
ACCOUNTING TREATMENT
The Merger will be accounted for as a purchase for financial reporting
purposes. Under this method of accounting, BT Financial will record the
acquisition of Armstrong at its cost at the effective time of the Merger, which
cost would include the cash paid in the Merger, the fair value of the shares of
BT Financial Common Stock issued in the Merger and all direct acquisition
costs. The acquisition cost will be allocated to the acquired assets and
liabilities of Armstrong based upon their fair values at the effective time of
the Merger in accordance with generally accepted accounting principles.
Acquisition cost in excess of the fair values of the net assets acquired, if
any, will be recorded as an intangible asset and amortized over a period of 15
years for financial accounting purposes. The reported income of BT Financial
would include the operations of Armstrong after the effective time of the
Merger. See "Unaudited Pro Forma Condensed Combined Financial Information."
THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger
Agreement as amended by the First Amendment, copies of which are attached as
Annex A and B hereto and are incorporated by reference herein. This summary
is qualified in its entirety by reference to the full text of the Merger
Agreement.
THE MERGER
Upon satisfaction or waiver of the conditions set forth in the Merger
Agreement, at the effective time of the Merger, Armstrong will merge with and
into Johnstown Bank, with Johnstown Bank being the surviving corporation. At
the effective time of the Merger, the separate corporate existence of Armstrong
will cease and Johnstown Bank will succeed to all the rights, privileges,
immunities and franchises, and all the property and assets, real, personal and
mixed, of Armstrong, without the necessity for any separate conveyance or other
transfer. After the Merger, Johnstown Bank will be responsible and liable for
all liabilities and obligations of Armstrong of every kind and description, and
neither the rights of creditors, nor any liens on the property of Armstrong,
will be impaired by the Merger.
At the effective time of the Merger, each share of Armstrong Common
Stock then outstanding (except Dissenters' Shares and treasury shares) will be
converted into the Merger Consideration. On the Closing Date, by virtue of the
Merger, and without any action on the part of Armstrong shareholders, each of
the then issued and outstanding shares of Armstrong Common Stock will cease to
exist and will be deemed canceled, retired and eliminated, and all rights in
respect thereof (other than with respect to Dissenters' Shares) will cease
except the right to receive BT Financial Common Stock and cash (based upon the
Merger Consideration), regardless of whether the certificates representing such
shares are surrendered to BT Financial by Armstrong shareholders. The Merger
Consideration will be adjusted immediately prior to the effective time of the
Merger, if necessary, to reflect any consolidation, split-up,
- 36 -
<PAGE> 43
other subdivision or combination of BT Financial Common Stock, any dividend
payable in BT Financial Common Stock, or any capital reorganization involving
the reclassification of BT Financial Common Stock subsequent to the date of the
Merger Agreement and prior to such time. In the Merger Agreement, each
outstanding share of Armstrong Common Stock will be converted into the Merger
Consideration, unless the average closing price per share of BT Financial Common
Stock on NASDAQ as reported in THE WALL STREET JOURNAL for the Valuation Period
is less than $27.50 or more than $34.00. If the average per share price of BT
Financial Common Stock is less than $27.50 for the Valuation Period, Armstrong
may request that BT Financial adjust the Merger Consideration by increasing the
number of shares of BT Financial Common Stock or the amount of cash included in
the Merger Consideration, or both, so as to maintain a total consideration of
$1,325.00 per share of Armstrong Common Stock based on the average price per
share for BT Financial Common Stock for the Valuation Period. If BT Financial
does not elect to adjust the Merger Consideration, Armstrong may terminate the
Merger Agreement, and neither party will have any further liability under the
Merger Agreement. If the average price per share of BT Financial Common Stock
for the Valuation Period is more than $34.00, BT Financial shall have the option
to adjust the Merger Consideration by reducing the number of shares of BT
Financial Common Stock or cash included in the Merger Consideration, or both, as
determined by Armstrong, so that the total consideration does not exceed
$1,497.25 per share of Armstrong Common Stock based on the average price per
share of BT Financial Common Stock for the Valuation Period; provided however,
if at any time prior to the Closing Date or the ninety (90) day period
immediately following the closing date, BT Financial enters into, or announces
its plans to enter into any agreement that would result in an acquisition of BT
Financial or substantially all of its business by another entity, the Merger
Consideration shall remain equal to 26.5 shares of BT Financial Common Stock and
$596.25 in cash for each share of Armstrong Common Stock.
At the effective time of the Merger, the articles of incorporation and
bylaws of Johnstown Bank as in effect immediately prior thereto will be the
articles of incorporation and bylaws of the surviving corporation. The
directors and principal officers, respectively, of the Resulting Company from
and after the Effective Time of the Merger will be the directors and principal
officers of Johnstown Bank immediately prior thereto.
EXCHANGE PROCEDURES
After the effective time of the Merger, each holder of a Certificate,
upon surrender of such Certificate to BT Financial or its exchange agent,
together with a duly executed and completed letter of transmittal (which will
be mailed to the holders of Certificates promptly following the effective time
of the Merger), will be entitled to receive a certificate or certificates
representing the number of whole shares of BT Financial Common Stock and the
cash (payable by check) to which such holder is entitled as described above,
plus cash (payable by check) in lieu of any fractional share of BT Financial
Common Stock to which such holder would otherwise be entitled. Fractional
shares of BT Financial Common Stock will not be issued. In lieu of a
fractional share of BT Financial Common Stock, each relevant Armstrong
shareholder will receive a cash payment equal to the applicable fraction
multiplied by the closing sale price on NASDAQ for BT Financial Common Stock
on the Closing Date as reported in THE WALL STREET JOURNAL, or, if BT Financial
Common Stock is not traded on such date, the next succeeding day on which such
stock is traded. No interest will be paid or accrued on the cash payable upon
surrender of Certificates.
Until surrendered in accordance with the requirements of the Merger
Agreement, the Certificates (except for Certificates representing Dissenters'
Shares and treasury shares) will from and after the effective time of the
Merger represent for all purposes only the right to receive shares of BT
Financial Common Stock and cash as described above. Upon surrender of a
Certificate, there will be paid to the record holder of the certificate for
shares of BT Financial Common Stock issued in exchange therefor (i) on the date
of such exchange, the amount of dividends theretofore accrued and payable with
respect to such full shares of BT Financial Common Stock as of any date
subsequent to the effective time of the Merger which have not yet been paid to
a public official pursuant to abandoned property laws and (ii) on the
appropriate payment date, the amount of dividends declared with a record date
after the effective time of the Merger but prior to such surrender and a
payment date subsequent to such surrender. No interest will be payable with
respect to any such dividends.
- 37 -
<PAGE> 44
At the effective time of the Merger, (i) each share of Armstrong
Common Stock held in treasury will be canceled, retired and cease to exist and
no consideration will be paid therefor, and (ii) each Dissenters' Share will be
treated as described above (see "The Merger--Rights of Dissenting
Shareholders").
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains representations and warranties of
Armstrong, BT Financial and Johnstown Bank which are customary in transactions
of this type, including, but not limited to, representations and warranties
concerning: (a) their respective organization and capitalization; (b) the due
authorization, execution and delivery and the enforceability of the Merger
Agreement; and (c) consents or approvals required, and the lack of conflicts or
violations under applicable articles of incorporation, bylaws, instruments and
laws, with respect to the transactions contemplated by the Merger Agreement.
The Merger Agreement also contains customary representations and warranties by
Armstrong and BT Financial, including, but not limited to representations and
warranties concerning: (a) the documents to be filed with the Commission and
other regulatory agencies; (b) the conduct of business in the ordinary course
and absence of certain changes; (c) financial statements; and (d) compliance
with laws. Lastly, the Merger Agreement contains representations and
warranties of Armstrong such as (a) loans; (b) loan loss reserve; (c) core
deposits; (d) related party transactions; (e) fidelity bonds; and (f)
investments.
CERTAIN COVENANTS
Armstrong has agreed that, except with the prior written consent of BT
Financial, it will not: (i) issue any capital notes or shares of its capital
stock, declare or distribute any stock dividend, authorize a stock split, or
authorize, issue or make any other distribution of, on, or with respect to, its
capital stock, except that Armstrong may distribute regular quarterly cash
dividends for any full calendar quarter beginning with the quarter ending
December 31, 1995 of the lesser of $17.25 per share or seventy-five percent
(75%) of the net income earned by Armstrong during that quarter and a closing
dividend equal to the lesser of $17.25 per share or seventy-five percent (75%)
of the net income earned during the period between the end of the last full
calendar quarter for which a dividend was paid and ten (10) days prior to the
Closing Date; (ii) merge with, consolidate with, sell its assets to, or acquire
substantially all the assets of, any other corporation, bank or person, or
enter into any other transaction not in the ordinary course of business; (iii)
make any direct or indirect redemption, purchase or other acquisition of any of
its capital stock; (iv) create any pension or profit sharing plan, bonus,
deferred compensation, death benefit or retirement plan, or any other fringe
benefit for, enter into any employment contract (written or otherwise) with, or
grant any bonuses to, any officer, director or employee; (v) amend its articles
of incorporation or bylaws except as may be necessary to consummate the
transactions contemplated by the Merger Agreement or as required by law; (vi)
incur any liability or obligation, make any commitment or disbursement, acquire
or dispose of any property or asset, make any contract or agreement, or engage
in any transaction, except in the ordinary course of business; (vii) increase
the rate of compensation of any director, officer, employee or agent or enter
into any agreement to increase the rate of compensation of any director,
officer or employee, other than normal increases in the ordinary course of
business and consistent with past practice; (viii) unless permitted by BT
Financial, take any action which would entitle any employee to receive
severance pay prior to the Closing Date; (ix) intentionally do anything or
intentionally fail to do anything which will cause a breach or a default under
any contract, agreement, commitment or obligation to which it is a party or by
which it may be bound; (x) except for securities transactions effected in the
ordinary course of business with the prior consent of BT Financial (which
consent shall not be unreasonably withheld), make any capital expenditures in
excess of $15,000 in the aggregate; (xi) modify or extend any service bureau
contracts, hardware/software maintenance agreements, lease agreements or other
contracts that involve annual payments by Armstrong that exceed $15,000 per
contract or $50,000 in the aggregate; (xii) change its lending, borrowing,
investment, asset/liability management or other material banking policies in
any material respect, except as may be required by changes in applicable law,
regulation or regulatory directives and except that, in connection with the
closing of the transactions contemplated hereby, Armstrong shall cooperate in
good faith with BT Financial to adopt policies, practices and procedures
consistent with those utilized by BT Financial and its affiliates; (xiii) open
any branch offices; (xiv) fail to pay any tax or any other liability or charge
when due, other than charges contested in good faith by appropriate
proceedings; or (xv) make, change or revoke any tax election or make any
agreement or settlement with any taxing authority.
- 38 -
<PAGE> 45
BT Financial has agreed that any full-time employee of Armstrong
(except Coleman Clougherty) whose employment with the Johnstown Bank is
terminated, other than for cause, by BT Financial within six months after the
Merger, and not offered a comparable job with BT Financial or an affiliate of
BT Financial, will be paid severance pay equal to one week's compensation
multiplied by each year of service with Armstrong, not exceeding three months
salary (except for certain officers who will be entitled to a maximum of six
months salary).
BT Financial has also agreed that all employees of Armstrong
immediately prior to the Merger who are employed by Johnstown Bank following
the Merger ("Transferred Employees") will be entitled to participate in BT
Financial's employee benefit plans, as to which they are eligible, without
fulfilling any vesting requirement, although such employees will not be entitled
to any credit for their length of service, compensation, job classification or
position with Armstrong. BT Financial has agreed that any pre-existing
condition, limitation or exclusion in its health plans shall not apply to
Transferred Employees or their covered dependents who are covered under a
medical or hospitalization indemnity plan maintained by Armstrong on the date
of the Merger and then change coverage to a BT Financial medical or
hospitalization indemnity health plan at the time such Transferred Employees
are first given the option to enroll in BT Financial's health plans.
BT Financial has further agreed that Armstrong affiliates will have
rights to incidental registration and registration upon request. Pursuant to
such rights, Armstrong affiliates may resell their shares of BT Financial
Common Stock under an effective registration statement.
ACQUISITION PROPOSALS
Armstrong has agreed that neither it nor any of its directors,
officers or other affiliates (as defined in Rule 12b-2 under the Exchange Act)
(each, an "Affiliate") will, and that it will cause its employees, agents and
representatives (including, without limitation, any investment banking, legal
or accounting firm retained by Armstrong and any individual member or employee
of the foregoing) (each, an "Agent") not to, (i) initiate, solicit or
encourage, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer (including, without limitation, any
proposal or offer to any of them or their respective shareholders) with respect
to a merger, acquisition, consolidation, recapitalization, liquidation,
dissolution or similar transaction involving, or any purchase of all or a
substantial portion of the assets or equity securities of, Armstrong (any such
proposal or offer being hereinafter referred to as an "Acquisition Proposal")
or (ii) engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any person relating to an
Acquisition Proposal, or (iii) otherwise cooperate in any effort or attempt to
make, implement or accept an Acquisition Proposal. Notwithstanding this
undertaking, neither Armstrong nor the Armstrong Board, is prohibited from (i)
fulfilling its fiduciary duties under Pennsylvania or federal law to the
Shareholders, or (ii) permitting to occur the transactions contemplated by the
Exchange Agreement. See "Comparative Market Prices." Armstrong must notify BT
Financial immediately if any inquiries, proposals or offers related to an
Acquisition Proposal are received by, any confidential information or data is
requested from, or any negotiations or discussions related to an Acquisition
Proposal are sought to be initiated or continued with, it or any of the
above-referenced individuals or entities.
INDEMNIFICATION OBLIGATIONS OF ARMSTRONG
Armstrong will indemnify and hold harmless BT Financial and Johnstown
Bank and each person, if any, who controls BT Financial or Johnstown Bank
within the meaning of the Securities Act ("BT Financial Indemnitees") against
any losses, claims, damages or liabilities, joint or several, to which the BT
Financial Indemnitees may become subject, which (a) arise out of or are based
upon any untrue statement or alleged untrue statement of any
- 39 -
<PAGE> 46
material fact contained in the Registration Statement, this Proxy
Statement/Prospectus or any amendment or supplement hereto, or any related
preliminary prospectus, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading to the extent that
any such statement or omission was provided in writing by Armstrong to BT
Financial, or (b) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact or any omission or alleged
omission to state a material fact required to be stated or necessary to make
the statements not misleading in any document distributed to any Shareholder to
the extent that any such statement or omission was provided in writing by
Armstrong BT Financial. Armstrong is also obligated to reimburse BT Financial
Indemnitees for any legal or other expenses reasonably incurred by BT Financial
in connection with investigating or defending any such loss, claim, damage,
liability or action. Armstrong will not be liable in any such case to the
extent that any loss, claim, damage or liability arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged omission
made in any of the Registration Statement, this Proxy Statement/Prospectus or
any amendment or supplement hereto, or any related preliminary prospectus, that
was made or omitted in reliance upon and in conformity with written information
furnished by BT Financial or Johnstown Bank specifically for use herein or
therein.
If recovery is not available under the indemnification provisions of
the Merger Agreement described above for any reason other than as set forth
therein, BT Financial will be entitled to contribution from Armstrong for
liabilities and expenses, except to the extent that contribution is not
permitted under Section 11(f) of the Securities Act. In determining the amount
of contribution to which the respective parties are entitled, there will be
considered the relative benefits received by each party from the transactions
contemplated by the Merger Agreement, the parties' relative knowledge and
access to information concerning the matter with respect to which the claim was
asserted, the opportunity to correct and prevent any statement or omission, and
any other equitable considerations appropriate under the circumstances.
Armstrong, Johnstown Bank and BT Financial have agreed that it would not be
equitable if the amount of such contribution were determined by pro rata or per
capital allocations.
ARMSTRONG DIVIDENDS
Under the Merger Agreement, Armstrong may pay regular quarterly cash
dividends for any full calendar quarter beginning with the quarter ending
December 31, 1995 of the lesser of $17.25 per share or seventy-five percent
(75%) of the net income earned by Armstrong during that quarter and a closing
dividend equal to the lesser of $17.25 per share or seventy-five percent (75%)
of the net income earned during the period between the end of the last full
calendar quarter for which a dividend was paid and ten (10) days prior to the
Closing Date. In addition, Armstrong is permitted to declare and distribute
during the first quarter of 1996 a special dividend in the amount of $161,236.
CONDITIONS
The obligations of BT Financial and Johnstown Bank to consummate the
Merger are subject to the satisfaction or waiver (to the extent permitted by
law), on or before the Closing Date, of each of the following conditions, among
others: (a) each of the covenants to be performed by Armstrong under the
Merger Agreement on or before the Closing Date having been duly performed; (b)
the representations and warranties made by Armstrong in the Merger Agreement
being true and correct in all material respects on the Closing Date with the
same force and effect as though such representations and warranties had been
made on and as of such date (or as of the date when made in the case of any
representation and warranty which specifically relates to an earlier date); (c)
Armstrong shall have furnished to BT Financial a certified copy of the
resolutions duly adopted by the Armstrong Board of Directors authorizing and
approving the Merger Agreement and the transactions contemplated thereby; (d)
the Merger Agreement having been adopted and approved by the affirmative vote
of two-thirds of the votes entitled to be cast by all Shareholders; (e) BT
Financial and Johnstown Bank having received in form and substance satisfactory
to BT Financial all necessary federal and state governmental and regulatory
approvals and other consents necessary to permit consummation of the Merger
(including, but not limited to, approvals of the Federal Reserve and
the Pennsylvania Department of Banking), no such approvals and consents
requiring BT Financial or any such subsidiary to enter into any agreement or
stipulation that is inconsistent with prior Pennsylvania Department of
Banking or Federal Reserve practice or procedure, and all applicable waiting
periods required by law having expired or elapsed; (f) no action, proceeding,
regulation or legislation having been instituted or threatened before any
court, governmental agency or legislative body to enjoin, restrain or prohibit,
or to obtain
- 40 -
<PAGE> 47
substantial damages in respect of, or which is related to or arises out of, the
Merger Agreement, the consummation of the transactions contemplated thereby or
the Merger, which, in the good faith judgment of BT Financial, makes it
inadvisable to consummate such transactions; (g) subject to the cure provisions
of Section 2.07(f) of the Merger Agreement, BT Financial shall not have
discovered any material error, misstatement or omission in any information
furnished in writing or to be furnished in writing to BT Financial hereunder,
or in the information to be furnished by Armstrong and contained in the
Registration Statement; (h) since the date of the Merger Agreement, there
having not occurred any material adverse change in the business, financial
condition, results of operations or prospects of Armstrong other than changes
resulting from or attributable to (i) changes in laws or regulations, generally
accepted accounting principles, or interpretations thereof that affect the
banking industry generally or (ii) the payment of any severance benefits to Mr.
Clougherty or any other key employee pursuant to any employment arrangement, if
such payment is made by Armstrong at the request of BT Financial; (i) the
Registration Statement having been declared effective by the Commission, being
exempt or having been declared effective in each state having jurisdiction
thereover, and no stop order proceeding being pending or threatened with
respect thereto; (j) the number of Dissenters' Shares as of the Closing Date
being less than 800 shares of Armstrong Common Stock, representing 10% of the
Armstrong Common Stock expected to be outstanding on such date, but in no event
shall the total cash consideration paid by BT Financial for Armstrong Common
Stock exceed fifty percent (50%) of the total consideration paid by BT
Financial; (k) Mr. Clougherty having waived in writing all rights to severance
pay and any other obligations Armstrong has to him in exchange for the
agreement by BT Financial to pay him $200,000 on the Closing Date (see "The
Merger--Interests of Certain Persons in the Merger"); (l) Armstrong having paid
all expenses incurred thereby in connection with the transactions contemplated
by or described in the Merger Agreement, except for reasonable out-of-pocket
expenses actually incurred that the parties acknowledge have not been billed on
or before the Closing Date; (m) an opinion of Armstrong counsel on the matters
specified in Section 6.01(j) of the Merger Agreement; and (n) a tax opinion
from Kirkpatrick & Lockhart LLP on the matters specified in Section 6.01(n) of
the Merger Agreement.
The obligations of Armstrong to consummate the Merger are subject to
the satisfaction or waiver (to the extent permitted by law), on or before the
Closing Date, of each of the following conditions, among others: (a) each of
the covenants to be performed by BT Financial and Johnstown Bank under the
Merger Agreement on or before the Closing Date having been duly performed; (b)
the representations and warranties made by BT Financial and Johnstown Bank in
the Merger Agreement being true and correct in all material respects on the
Closing Date with the same force and effect as though such representations and
warranties had been made on and as of such date (or as of the date when made in
the case of any representation and warranty which specifically relates to an
earlier date); (c) BT Financial and Johnstown Bank shall have furnished to
Armstrong a copy of the resolutions duly adopted by their respective Board of
Directors authorizing the Merger Agreement and the transactions contemplated
thereby and by the shareholder of Johnstown Bank approving the Merger Agreement
and the transactions contemplated thereby; (d) BT Financial, Armstrong and
Johnstown Bank having received in form and substance satisfactory to Armstrong
all necessary federal and state governmental and regulatory approvals,
shareholder approvals and other consents necessary to permit consummation of
the Merger (including, but not limited to, approvals of the Federal Reserve,
the Pennsylvania Department of Banking and the Shareholders), and all
applicable waiting periods required by law having expired or elapsed; (e) no
injunction having been issued by any court or governmental agency which
prohibits or restricts the consummation of the transactions contemplated by the
Merger Agreement which, in the good faith judgment of Armstrong, would make it
inadvisable to consummate such transactions; (f) Armstrong shall not have
discovered any material error, misstatement or omission in any information
furnished in writing or to be furnished in writing to Armstrong hereunder, or
in the information to be furnished by BT Financial or Johnstown Bank and
contained in the Registration Statement; (g) since the date of the Merger
Agreement, there having not occurred any material adverse change in the
financial condition of BT Financial on a consolidated basis which would render
consummation of the Merger impracticable, other than changes resulting from or
attributable to changes in laws or regulations, generally accepted accounting
principles, or interpretations thereof that affect the banking industry
generally; (h) the Registration Statement having been declared effective by the
Commission, being exempt or having been declared effective in each state having
jurisdiction thereon, and no stop order proceeding being pending or threatened
with respect thereto; (i) Armstrong having received, as of the date of mailing
of this Proxy Statement/Prospectus, an opinion from its financial advisor, in
form and content satisfactory to it, to the effect that the Merger is fair,
from a financial point of view, to the
- 41 -
<PAGE> 48
Shareholders; and (j) opinion of counsel to BT Financial and Johnstown Bank on
the matters specified in Section 6.02(i) of the Merger Agreement.
Under the Merger Agreement, BT Financial has the right to perform a
Phase II environmental assessment on the property owned by Armstrong that was
previously operated as a bulk storage depot (the "Lentz Property") and a Phase I
environmental assessment on all other Armstrong property. If the results of
these assessments reveal an environmental condition with potential liability
in excess of $200,000 on the Lentz Property, or in excess of $100,000 on the
other Armstrong property, BT Financial may terminate the Merger Agreement.
TERMINATION
The Merger Agreement and the transactions contemplated thereby may be
terminated at any time prior to the Effective Time of the Merger by the mutual
consent of the Boards of Directors of Armstrong, BT Financial and Johnstown
Bank. If, at any time, Armstrong, BT Financial and Johnstown Bank agree in
writing on a Closing Date on which all conditions precedent to consummation of
the Merger are expected to be satisfied or waived and one of them postpones
that Closing Date for a reasonable period of time (which will be no more than
30 days and in no event will end later than [June 30, 1996]) to enable it to
perform any obligations under the Merger Agreement and either Armstrong, BT
Financial or Johnstown Bank refuses to consummate the Merger because all
conditions precedent to its obligations to close have not been met on the
Closing Date as postponed, then such person may immediately terminate the
Merger Agreement. In any event, the Merger Agreement and the transactions
contemplated thereby will terminate automatically on [June 30, 1996] if the
Merger has not been consummated on or before such date, unless extended by
mutual consent of Armstrong, BT Financial and Johnstown Bank. The parties,
however, expect that the Merger will be consummated before [June 30, 1996]. If
the Merger has not been consummated by [June 30, 1996], Armstrong shareholders
will be notified by letter whether the Merger has been abandoned or if the
parties have agreed to extend the termination date and what that date then is.
The Merger Agreement does not limit the possible number of extensions of the
termination date or the periods for which extension of the termination date may
occur.
In the event of any termination of the Merger Agreement: (i) certain
confidentiality provisions and other provisions relating to expenses in the
Merger Agreement will survive; (ii) if BT Financial terminates the Merger
Agreement due to the failure to satisfy a condition precedent regarding (a)
Armstrong's performance of its covenants, (b) Armstrong's representations and
warranties, (c) the failure to deliver Armstrong's certified resolutions
regarding the Merger Agreement, or (d) failure to deliver the opinion of
Kirkpatrick & Lockhart LLP that the Merger will be treated as a tax-free
reorganization under Section 368 of the Code and no gain or loss will be
recognized by the Shareholders as a result of their receipt of BT Financial
Common Stock, and satisfaction of such condition was within the control of
Armstrong, then Armstrong will reimburse BT Financial for its attorneys' fees
and other expenses reasonably incurred in connection with the transactions
described in the Merger Agreement (to the extent not already paid by Armstrong
to BT Financial or any of its subsidiaries) and such failure will constitute a
breach of the Merger Agreement and BT Financial will have all rights available
in law and at equity for such breach of contract; (iii) if Armstrong terminates
the Merger Agreement due to the failure to satisfy a condition precedent
regarding (a) BT Financial's performance of its covenants, (b) BT Financial's
representations and warranties or (c) the failure to deliver BT Financial's
certified resolutions regarding the Merger Agreement, and satisfaction of such
condition was within the control of BT Financial or any of its subsidiaries,
then BT Financial will reimburse Armstrong for its attorneys' fees and other
expenses reasonably incurred in the transactions described in the Merger
Agreement and such failure will constitute a breach of the Merger Agreement and
Armstrong will have all rights available in law and at equity for such breach
of contract; (iv) if BT Financial terminates the Merger Agreement due to the
failure to satisfy one or more of certain conditions precedent regarding
shareholder approval of the Merger Agreement, material errors, misstatements or
omissions by Armstrong, changes in Armstrong's financial condition, the failure
to deliver the opinion of Armstrong's counsel, the exceeding of the requisite
number of Dissenters' Shares or the amount of cash consideration, or
Armstrong's payment of certain expenses, then Armstrong will reimburse BT
Financial for its attorneys' fees and other expenses reasonably incurred in
connection with the transactions described in the Merger Agreement (to the
extent not already paid by Armstrong to BT Financial or any of its
subsidiaries) not to exceed $150,000, and upon payment in full thereof,
Armstrong will have no further liability or obligation to BT Financial under
the Merger Agreement; and (v) if Armstrong terminates the Merger Agreement due
to the failure to satisfy one or more of certain conditions precedent regarding
material errors, misstatements or omissions by BT Financial or Johnstown Bank,
changes in BT Financial's financial condition, or the failure to deliver the
opinion of BT Financial's and Johnstown Bank's counsel, then BT Financial will
reimburse Armstrong for its attorneys' fees and other expenses reasonably
incurred in connection with the Merger and certain transactions described in
the Merger Agreement not to exceed $150,000 and upon payment in full thereof,
BT Financial will have no further liability or obligation to Armstrong under
the Merger Agreement.
- 42 -
<PAGE> 49
EXPENSES
Except as described under "Termination" above, all expenses incurred
by Armstrong, BT Financial or Johnstown Bank in connection with or related to
the authorization, preparation and execution of the Merger Agreement, the
solicitation of Shareholder approval and all other matters related to the
closing of the transactions contemplated by the Merger Agreement, including,
without limiting the generality of the foregoing, all fees and expenses of
agents, representatives, counsel and accountants employed by any such person,
will be borne solely and entirely by the person that has incurred the same.
AMENDMENT AND WAIVER
Any of the terms or conditions of the Merger Agreement may be waived
at any time by the person which is entitled to the benefit thereof, or any of
those terms or conditions may be amended or modified in whole or in part at any
time before or after the vote of the Shareholders on the Merger Agreement to
the extent permitted by law by agreement in writing, executed in the same
manner as the Merger Agreement after authorization to do so by the Board of
Directors of each party thereto; provided, however, that such action will be
taken only if, in the judgment of the Boards of Directors of each party taking
the action, such waiver or such amendment or modification will not have a
material adverse effect on the benefits intended under the Merger Agreement to
such party and its shareholders following approval of the Merger Agreement by
the Shareholders, unless the Merger Agreement, as modified, is resubmitted to
the Shareholders for their adoption and approval.
- 43 -
<PAGE> 50
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following tables set forth unaudited pro forma condensed
combined financial information for BT Financial that gives effect to the
Merger, BT Financial's acquisition of Huntington on December 14, 1995, and BT
Financial's pending acquisition of Moxham. Both the Merger and BT Financial's
acquisition of Huntington will be accounted for under the purchase method of
accounting. The unaudited pro forma condensed combined income statement gives
effect to the Merger and the acquisition of Huntington for the year ended
December 31, 1994 and the nine-month period ended September 30, 1995. The
Merger Agreement provides for an exchange ratio of 26.5 shares of BT Financial
Common Stock for each share of Armstrong Common Stock. This exchange ratio is
subject to change in certain circumstances. See "The Merger Agreement--The
Merger." The accompanying unaudited pro forma condensed combined financial
information reflects an equivalent per share of Armstrong Common Stock at that
exchange ratio.
The unaudited pro forma condensed combined financial statements also
reflect BT Financial's pending acquisition of Moxham, which is expected to be
accounted for under the pooling of interests method of accounting. Under the
pooling of interests method of accounting, the historical book values of the
assets, liabilities and shareholders' equity of Moxham as reported on its
consolidated balance sheet, will be carried over onto the Consolidated Balance
Sheet of BT Financial after addressing conformity issues, and no goodwill or
other intangible assets will be created. BT Financial will include in its
consolidated statement of income the consolidated results of operations of
Moxham for the entire fiscal year in which the effective date of the Moxham
Merger occurs after addressing conformity issues. BT Financial will also
combine and restate its results of operations for prior periods to include the
reported consolidated results of operations of Moxham for prior periods after
addressing conformity issues. The unaudited pro forma condensed combined
income statement gives effect to the acquisition of Moxham for the three years
ended December 31, 1994 and the nine month period ended September 30, 1995.
The accompanying unaudited pro forma condensed combined financial information
assumes that in BT Financial's pending acquisition of Moxham 1.15 shares of
BT Financial Common Stock will be issued for each share of Moxham Common Stock
and 6.325 shares of BT Financial Common Stock will be issued for each share of
Moxham Preferred Stock.
This unaudited pro forma condensed combined financial information is
based on the estimates and assumptions set forth in the notes to such
statements. The pro forma adjustments made in connection with the development
of the unaudited pro forma condensed combined financial information are
preliminary and have been made solely for purposes of developing such unaudited
pro forma condensed combined financial information as necessary to comply with
the disclosure requirements of the Commission. Where applicable, the pro forma
adjustments have been separately taxed at the statutory rate of 35%. The
unaudited pro forma condensed combined financial information has been prepared
using the historical consolidated financial statements and notes thereto, which
are incorporated herein by reference. See "Incorporation of Certain Documents
by Reference." The unaudited pro forma condensed combined financial statements
do not give effect to anticipated cost savings in connection with the Merger
and do not purport to be indicative of the combined financial position or
results of operations of future periods or indicative of the results that
actually would have been realized had the entities been a single entity during
these periods.
The unaudited pro forma condensed combined financial information set
forth below should be read in conjunction with the audited financial
statements, including the notes thereto, of BT Financial that are incorporated
by reference in this Proxy Statement/Prospectus and of Armstrong and of Moxham
that appear elsewhere in this Proxy Statement/Prospectus. See "Incorporation
of Certain Documents by Reference," "Selected Financial Information," and
"Index to Armstrong and Moxham Financial Statements." The unaudited pro forma
condensed combined financial information set forth below gives effect to the
Merger under the purchase accounting method.
- 44 -
<PAGE> 51
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1995
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
BT BT
Financial Financial Pro Forma
Moxham and Armstrong and Combined
BT Pro Forma Moxham BT Pro Forma Armstrong All
Financial(1) Moxham Adjustments Pro Forma Financial(1) Armstrong Adjustments Combined Transactions
------------ ------ ----------- --------- ------------ --------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash
equivalents 43,374 8,278 51,652 43,374 1,147 (350)(6) 44,171 52,449
Money Market
Investments 4,848 2,278 7,126 4,848 170 5,018 7,296
Investment
securities 262,145 68,183 (17)(2) 330,311 262,145 37,776 (4,346)(7) 295,575 363,741
Loans, net of
unearned
interest 851,444 153,824 (748)(3) 1,004,520 851,444 10,790 862,234 1,015,310
Reserve for
loan losses (8,562) (1,942) (10,504) (8,562) (135) (8,697) (10,639)
Premises and
equipment 25,762 5,863 31,625 25,762 316 26,078 31,941
Other assets 34,109 5,274 140(4) 39,523 34,109 634 4,182(6)(8) 38,925 44,339
--------- ------- ------- --------- --------- -------- ------- --------- ---------
Total Assets 1,213,120 241,758 (625) 1,454,253 1,213,120 50,698 (514) 1,263,304 1,504,437
========= ======= ======= ========= ========= ======== ======= ========= =========
LIABILITIES:
Deposits:
Non-interest
bearing 137,117 22,908 160,025 137,117 4,610 141,727 164,635
Interest
bearing 899,285 193,847 1,093,132 899,285 33,322 932,607 1,126,454
--------- ------- ------- --------- --------- -------- ------- --------- ---------
Total deposits 1,036,402 216,755 1,253,157 1,036,402 37,932 1,074,334 1,291,089
Funds borrowed 50,492 2,675 53,167 50,492 4,000 54,492 57,167
Other
liabilities 7,560 2,184 398(2)(4) 10,142 7,560 620 8,180 10,762
Long-term debt 19,980 748 (748)(3) 19,980 19,980 0 19,980 19,980
--------- ------- ------- --------- --------- -------- ------- --------- ---------
Total
liabilities 1,114,434 222,362 (350) 1,336,446 1,114,434 42,552 0 1,156,986 1,378,998
SHAREHOLDERS'
EQUITY:
Preferred stock 0 1,378 (1,378)(5) 0 0 0 0 0
Common stock 19,133 1,801 3,815(5) 24,749 19,133 400 660(9) 20,193 25,809
Surplus 33,320 3,691 (2,447)(2)(5) 34,564 33,320 850 5,722(9) 39,892 41,136
Retained earnings 46,474 12,606 (260)(5) 58,820 46,474 6,622 (6,622)(9) 46,474 58,820
Net unrealized
holding gains
(losses) on
securities
available-
for-sale (241) (80) (5)(2) (326) (241) 274 (274)(8) (241) (326)
--------- ------- ------- --------- --------- -------- ------- --------- ---------
Total
shareholders'
equity 98,686 19,396 (275) 117,807 98,686 8,146 (514) 106,318 125,439
--------- ------- ------- --------- --------- -------- ------- --------- ---------
Total
liabilities
and
shareholders'
equity 1,213,120 241,758 (625) 1,454,253 1,213,120 50,698 (514) 1,263,304 1,504,437
========= ======= ======= ========= ========= ======== ======= ========= =========
Book value
per share 25.79 19.84 23.80 25.79 1,018.25 26.33 24.30
Shares
outstanding 3,826,581 977,637 145,734(5) 4,949,952 3,826,581 8,000 204,000(9) 4,038,581 5,161,952
</TABLE>
- 45 -
<PAGE> 52
(1) The BT Financial balance sheet figures include the pro forma results of BT
Financial's acquisition of Huntington Bank. This acquisition was closed
on 12/14/95. These pro forma results were previously filed February 27,
1996 on Form 8-K.
(2) Reflects the elimination of 792 shares of Moxham Common Stock owned by BT
Financial.
(3) Reflects the elimination of a loan from Johnstown Bank to Moxham.
(4) Reflects the recording of liability for additional supplemental
retirement benefits due certain officers upon a change in control.
(5) Reflects the issuance of 1.15 shares of BT Financial Common Stock for each
share of Moxham Common Stock, including shares issued after the conversion
of 14,000 shares of Moxham Preferred Stock. Excludes 792 current shares
of Moxham Common Stock that is owned by BT Financial. A total of
1,123,371 shares of BT Financial Common Stock will be issued to Moxham
shareholders.
(6) Reflects estimated legal, accounting and severance costs of the
acquisition.
(7) Represents the sale of certain investment securities to fund the cash paid
to Armstrong shareholders, based upon a market value of $36.00 for BT
Financial Common Stock on or around September 1995.
(8) Represents goodwill associated with the Armstrong acquisition. Asset
valuations different than book value are currently estimated to be
minimal.
(9) Represents the issuance of 26.5 shares of BT Financial Common Stock
(212,000 shares in total) for each share of Armstrong Common Stock and
cash paid to Armstrong shareholders for a total value of $11.98 million.
Pro forma adjustments to eliminate shares of Armstrong Common Stock and
issue shares of BT Financial Common Stock are represented as follows:
<TABLE>
<S> <C> <C>
Common stock (400) 1,060
Surplus (850) 6,572
Retained earnings (6,622) --
Net unrealized holding gains (losses) on
securities available-for-sale (274) --
------ -----
TOTAL SHAREHOLDERS' EQUITY (8,146) 7,632
</TABLE>
- 46 -
<PAGE> 53
PRO FORMA CONDENSED COMBINED INCOME STATEMENT FOR
NINE MONTHS ENDED SEPTEMBER 30, 1995
(In thousands, except shares and per share data)
(Unaudited)
<TABLE>
<CAPTION>
BT Financial Pro Forma
Moxham BT Financial Armstrong and Combined
BT Pro Forma and Moxham BT Pro Forma Armstrong All
Financial(1) Moxham Adjustments Pro Forma Financial(1) Armstrong Adjustments Pro Forma Transactions
------------ ------ ----------- ---------- ------------ --------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans, including
fees 53,593 10,496 (52)(2) 64,037 53,593 597 54,190 64,634
Investment
securities 12,812 2,798 15,610 12,812 1,748 (212)(4) 14,348 17,146
Money market
investments 415 140 555 415 7 422 562
--------- ------- ------- --------- --------- ----- ------- --------- ---------
Total interest
income 66,820 13,434 (52) 80,202 66,820 2,352 (212) 68,960 82,342
--------- ------- ------- --------- --------- ----- ------- --------- ---------
INTEREST EXPENSE
Deposits 25,313 6,669 31,982 25,313 955 26,268 32,937
Borrowings 1,888 178 2,066 1,888 66 1,954 2,132
Long-term debt 1,187 52 (52)(2) 1,187 1,187 0 1,187 1,187
--------- ------- ------- --------- --------- ----- ------- --------- ---------
Total interest
expense 28,388 6,899 (52) 35,235 28,388 1,021 0 29,409 36,256
--------- ------- ------- --------- --------- ----- ------- --------- ---------
NET INTEREST INCOME 38,432 6,535 44,967 38,432 1,331 (212) 39,551 46,086
Provision for loan
losses 1,519 230 1,749 1,519 23 1,542 1,772
--------- ------- ------- --------- --------- ----- ------- --------- ---------
Net interest
income after
provision for
loan losses 36,913 6,305 43,218 36,913 1,308 (212) 38,009 44,314
--------- ------- ------- --------- --------- ----- ------- --------- ---------
OTHER INCOME:
Net security gains
(losses) 40 66 106 40 170 210 276
Other 5,724 1,034 6,758 5,724 35 5,759 6,793
--------- ------- ------- --------- --------- ----- ------- --------- ---------
Total other
income 5,764 1,100 0 6,864 5,764 205 0 5,969 7,069
--------- ------- ------- --------- --------- ----- ------- --------- ---------
OTHER EXPENSES:
Salaries and
employee
benefits 15,244 3,425 18,669 15,244 328 15,572 18,997
Occupancy and
equipment
expense 4,952 896 5,848 4,952 93 5,045 5,941
Amortization of
intangible assets 1,413 23 1,436 1,413 0 214(5) 1,627 1,650
Other operating
expenses 8,409 1,863 10,272 8,409 327 8,736 10,599
--------- ------- ------- --------- --------- ----- ------- --------- ---------
Total other
expenses 30,018 6,207 0 36,225 30,018 748 214 30,980 37,187
--------- ------- ------- --------- --------- ----- ------- --------- ---------
Income Before
Income Taxes 12,659 1,198 13,857 12,659 765 (426) 12,998 14,196
Provision for
income taxes 4,247 69 4,316 4,247 225 (74)(6) 4,398 4,467
--------- ------- ------- --------- --------- ----- ------- --------- ---------
Net Income 8,412 1,129 0 9,541 8,412 540 (352) 8,600 9,729
========= ======= ======= ========= ========= ===== ======= ========= =========
Net income
per share 2.20 1.16 1.93 2.20 67.50 2.13 1.88
Dividends paid
per share .90 0.48 .90 .90 50.75 .90 .90
Weighted average
shares
outstanding 3,826,581 975,012 145,734(3) 4,947,327 3,826,581 8,000 204,000(7) 4,038,581 5,161,952
</TABLE>
- 47 -
<PAGE> 54
PRO FORMA CONDENSED COMBINED INCOME STATEMENT FOR
YEAR ENDED DECEMBER 31, 1994
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION> BT BT
Financial Financial &
BT Pro & Moxham BT Pro Armstrong Pro Forma
Financial(1) Moxham Forma Adj Pro Forma Financial(1) Armstrong Forma Adj Pro Forma Combined
------------ ------ --------- --------- ------------ --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans, including
fees 62,322 12,372 (63)(2) 74,631 62,322 659 62,981 75,290
Investment
securities 17,253 3,371 20,624 17,253 1,845 (283)(4) 18,815 22,186
Money market
investments 1,235 111 1,346 1,235 59 1,294 1,405
--------- ------- ------- --------- --------- ----- ------- --------- --------
Total interest
income 80,810 15,854 (63) 96,601 80,810 2,563 (283) 83,090 98,881
--------- ------- ------- --------- --------- ----- ------- --------- --------
INTEREST EXPENSE
Deposits 27,119 6,689 33,808 27,119 853 27,972 34,661
Borrowings 1,522 229 1,751 1,522 3 1,525 1,754
Long-term debt 1,535 63 (63)(2) 1,535 1,535 0 1,535 1,535
--------- ------- ------- --------- --------- ----- ------- --------- --------
Total interest
expense 30,176 6,981 (63) 37,094 30,176 856 0 31,032 37,950
--------- ------- ------- --------- --------- ----- ------- --------- --------
NET INTEREST INCOME 50,634 8,873 59,507 50,634 1,707 (283) 52,058 60,931
Provision for loan
losses 1,043 264 1,307 1,043 0 1,043 1,307
--------- ------- ------- --------- --------- ----- ------- --------- --------
Net interest
income after
provision for
loan losses 49,591 8,609 0 58,200 49,591 1,707 (283) 51,015 59,624
--------- ------- ------- --------- --------- ----- ------- --------- --------
OTHER INCOME
Net security gains
(losses) 249 154 403 249 37 286 440
Other 7,260 1,279 8,539 7,260 42 7,302 8,581
--------- ------- ------- --------- --------- ----- ------- --------- --------
Total other
income 7,509 1,433 0 8,942 7,509 79 0 7,588 9,021
--------- ------- ------- --------- --------- ----- ------- --------- --------
OTHER EXPENSES
Salaries and
employee benefits 20,008 4,333 24,341 20,008 422 20,430 24,763
Occupancy and
equipment expense 6,374 1,159 7,533 6,374 102 6,476 7,635
Amortization of
intangible assets 2,042 16 2,058 2,042 0 285(5) 2,327 2,343
Other operating
expenses 12,694 2,570 15,264 12,694 451 13,145 15,715
--------- ------- ------- --------- --------- ----- ------- --------- --------
Total other
expenses 41,118 8,078 0 49,196 41,118 975 285 42,378 50,456
--------- ------- ------- --------- --------- ----- ------- --------- --------
INCOME BEFORE
INCOME TAXES 15,982 1,964 0 17,946 15,982 811 (568) 16,225 18,189
Provision for
income taxes 5,005 211 5,216 5,005 230 (99)(6) 5,136 5,347
--------- ------- ------- --------- --------- ----- ------- --------- --------
NET INCOME 10,977 1,753 0 12,730 10,977 581 (469) 11,089 12,842
========= ======= ======= ========= ========= ===== ======= ========= ========
Net income
per share 2.87 1.81 2.58 2.87 72.63 2.75 2.49
Dividends paid
per share 1.10 0.58 1.10 1.10 55.75 1.10 1.10
Weighted average
shares outstanding 3,826,581 967,959 144,282(3) 4,938,822 3,826,581 8,000 204,000(7) 4,038,581 5,150,822
</TABLE>
- 48 -
<PAGE> 55
PRO FORMA CONDENSED COMBINED INCOME STATEMENT FOR
YEAR ENDED DECEMBER 31, 1993
(In thousands, except shares and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
BT Financial(1) Moxham Adjustments Combined
--------------- ------ ----------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees 49,590 11,535 (61)(2) 61,064
Investment securities 14,467 2,913 17,380
Money market investments 2,197 372 2,569
------- ------- ------ -------
Total interest income 66,254 14,820 (61) 81,013
------- ------- ------ -------
INTEREST EXPENSE
Deposits 22,471 5,956 28,427
Borrowings 336 35 371
Long-term debt 336 61 (61)(2) 336
------- ------- ------ -------
Total interest expense 23,143 6,052 (61) 29,134
------- ------- ------ -------
NET INTEREST INCOME 43,111 8,768 51,879
Provision for loan losses 1,975 193 2,168
------- ------- ------ -------
Net interest income after provision for
loan losses 41,136 8,575 0 49,711
------- ------- ------ -------
OTHER INCOME
Net security gains (losses) (4) 138 134
Other 6,898 1,173 8,071
------- ------- ------ -------
Total other income 6,894 1,311 0 8,205
------- ------- ------ -------
OTHER EXPENSE
Salaries and employee benefits 17,183 4,123 21,306
Occupancy and equipment expense 5,418 1,089 6,507
Amortization of intangible assets 1,104 23 1,127
Other operating expenses 10,135 2,488 12,623
------- ------- ------ -------
Total other expenses 33,840 7,723 0 41,563
------- ------- ------ -------
INCOME BEFORE INCOME TAXES 14,190 2,163 0 16,353
Provision for income taxes 4,846 235 5,081
------- ------- ------ -------
Income before cumulative effect of accounting
principle changes 9,344 1,928 0 11,272
Cumulative effect of change in accounting for
Income taxes 113 (27) 86
------- ------- ------ -------
Net Income 9,457 1,901 0 11,358
======= ======= ====== =======
Net income per share 2.72 1.98 2.48
Dividends paid per share 0.99 0.58 0.99
Weighted average shares outstanding 3,479,574 958,370 142,844(3) 4,580,788
</TABLE>
- 49 -
<PAGE> 56
PRO FORMA CONDENSED COMBINED INCOME STATEMENT FOR
YEAR ENDED DECEMBER 31, 1992
(In thousands, except shares and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
BT Financial Moxham Adjustments Combined
------------ ------ ----------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees 49,459 11,730 61,189
Investment securities 16,133 2,800 18,933
Money market investments 4,102 1,141 (72)(2) 5,171
------- ------- ------- -------
Total interest income 69,694 15,671 (72) 85,293
------- ------- ------- -------
INTEREST EXPENSE
Deposits 28,042 7,160 35,202
Borrowings 594 12 606
Long-term debt 500 72 (72)(2) 500
------- ------- ------- -------
Total interest expense 29,136 7,244 (72) 36,308
------- ------- ------- -------
NET INTEREST INCOME 40,558 8,427 0 48,985
Provision for loan losses 2,858 320 3,178
------- ------- ------- -------
Net interest income after provision for
loan losses 37,700 8,107 0 45,807
------- ------- ------- -------
OTHER INCOME
Net security gains (losses) 211 159 370
Other 5,711 945 6,656
------- ------- ------- -------
Total other income 5,922 1,104 0 7,026
------- ------- ------- -------
OTHER EXPENSE
Salaries and employee benefits 16,149 3,878 20,027
Occupancy and equipment expense 5,038 1,023 6,061
Amortization of intangible assets 804 23 827
Other operating expenses 9,508 2,070 11,578
------- ------- ------- -------
Total other expenses 31,499 6,994 0 38,493
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 12,123 2,217 0 14,340
Provision for income taxes 3,532 456 3,988
------- ------- ------- -------
Net Income 8,591 1,761 0 10,352
======= ======= ======= =======
Net income per share 2.48 1.96 2.30
Dividends paid per share 0.86 0.51 0.86
Weighted average shares outstanding 3,458,390 900,579 134,175(3) 4,493,144
</TABLE>
- 50 -
<PAGE> 57
FOOTNOTES TO PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME (UNAUDITED)
(1) The BT Financial income statement figures for the nine months ended
09/30/95, and for the year ended 12/31/94, include the pro forma results
of BT Financial's acquisition of Huntington Bank. The acquisition was
closed on 12/14/95. These pro forma results were previously filed on
February 27, 1996 on Form 8-K.
(2) Reflects the elimination of interest income and expense from term debt at
Moxham borrowed from BT Financial.
(3) Reflects the adjustment to weighted average shares due to the issuance of
1.15 shares of BT Financial Common Stock for each share of Moxham Common
Stock, including shares issued for the conversion of 14,000 shares of
Moxham Preferred Stock. Excludes 792 shares of Moxham Common Stock owned
by BT Financial.
(4) Reflects the reduction in income from the sale of certain investment
securities at an estimated average rate of 6.5% to fund the cash paid to
Armstrong shareholders.
(5) Reflects the amortization of goodwill over a 15 year period and
organization costs over a 5 year period. Purchase adjustments to other
assets and liabilities are estimated to be minimal and are not reflected
in the pro forma income statements.
(6) Reflects tax effect of item (4).
(7) Reflects the adjustment to weighted average shares due to the issuance of
26.5 shares of BT Financial Common Stock for each share of Armstrong
Common Stock or 212,000 shares in total.
- 51 -
<PAGE> 58
DESCRIPTION OF BT FINANCIAL CAPITAL STOCK
CAPITAL STOCK
The authorized capital stock of BT Financial consists of 10,000,000
shares of common stock having a par value of $5.00 per share, and 2,000,000
shares of preferred stock having no par value. The number of shares of BT
Financial Common Stock outstanding as of December 31, 1995 was 3,826,581. No
shares of BT Financial's preferred stock are outstanding. Except to the extent
required by governing law, rule or regulation or by NASDAQ rules (described
below), the shares of capital stock of BT Financial may be issued from time to
time by the Board of Directors of BT Financial without further approval of the
shareholders of BT Financial. The Board of Directors of BT Financial also has
the full authority permitted by law to divide the authorized and unissued
shares of preferred stock, no par value, of BT Financial into series and to fix
by resolution full, limited, multiple or fractional, or no voting rights, and
such designations, preferences, qualifications, privileges, limitations,
restrictions, options, conversion rights, redemption rights and other special
rights of any such series that may be desired.
VOTING RIGHTS. Holders of shares of BT Financial Common Stock are
entitled to cast one vote for each share held of record on all matters
submitted to a vote of shareholders of BT Financial. Holders of shares of BT
Financial Common Stock, are not entitled to cumulate votes for the election of
directors.
CLASSIFICATION OF THE BOARD OF DIRECTORS. The Board of Directors is
divided into four classes, as nearly equal in number as possible, and the term
of office of one class expires in each year.
PREEMPTIVE RIGHTS. Holders of shares of BT Financial Common Stock do
not have any preemptive rights to subscribe for or to purchase any additional
securities of BT Financial.
DIVIDENDS. Subject to any rights and preferences of any class of
stock having preference over the BT Financial Common Stock, holders of shares
of BT Financial Common Stock will be entitled to such dividends as may be
declared by the Board of Directors of BT Financial out of funds lawfully
available therefor. Cash available for dividend distribution to the holders of
BT Financial Common Stock must initially come from dividends paid to BT
Financial by its subsidiaries. Accordingly, restrictions on payment of cash
dividends by BT Financial are affected by any restrictions on the payment of
dividends by BT Financial's subsidiaries.
LIQUIDATION. Upon any liquidation, dissolution or winding up of the
affairs of BT Financial, whether voluntary or involuntary, holders of shares of
BT Financial Common Stock will be entitled to receive pro rata the remaining
assets of BT Financial after all debts and liabilities have been paid and after
the holders of any class of stock having preference over the BT Financial
Common Stock have been paid in full any sums to which they may be entitled.
NASDAQ LISTING. BT Financial Common Stock is included for quotation
on NASDAQ. In order to maintain such inclusion, approval of BT
Financial's shareholders would be required for the issuance of additional
shares of BT Financial Common Stock or securities convertible into BT Financial
Common Stock if the issuance of such securities (1) is in connection with the
acquisition of a company, is not in connection with a public offering for cash,
and the securities issued have or will have voting power equal to or in excess
of 20% of the voting power outstanding before such issuance; (2) is in
connection with the acquisition of a company in which a director, officer or
substantial shareholder of BT Financial has a 5% or greater interest (or such
persons collectively have a 10% or greater interest) and the issuance of the
securities could result in an increase in outstanding common stock or voting
power of 5% or more; (3) is in connection with a transaction other than a
public offering at a price less than the greater of book or market value, and
will equal 20% or more of the common stock or 20% or more of the voting power
outstanding before issuance; or (4) would result in a change in control of BT
Financial. Under NASDAQ rules, shareholder approval would also be required
for the establishment of a stock option or purchase plan in which stock may be
acquired by officers and directors other than a broadly-based plan in which
other security holders of BT Financial or employees of BT Financial
participate. The NASDAQ rules do not require approval of the Merger by BT
Financial shareholders.
Also under NASDAQ Rules, BT Financial may not issue any class of
security or take other corporate action with the effect of nullifying,
restricting or disparately reducing the per share voting rights of its
outstanding registered common stock. Prohibited actions include, but are not
limited to, the adoption of time-phased voting plans, the adoption of capped
voting rights, and the issuance of super-voting stock. The following actions
are presumed to have a nullifying, restricting or disparately reducing effect:
- 52 -
<PAGE> 59
(1) corporate action to impose any restriction on the voting power of shares of
common stock held by a beneficial or record holder based on the length of time
such shares have been held by such holder or based on the number of shares held
by such holder; (2) any issuance of securities through an exchange offer for
shares of an outstanding class of common stock in which the shares issued have
voting rights greater than or less than the per share voting rights of any
outstanding class of common stock; (3) any issuance of securities pursuant to a
stock dividend, or any other type of distribution of stock in which the
securities issued have voting rights greater than the per share voting rights
of any outstanding class of common stock. The following actions are presumed
not to have a nullifying, restricting or disparately reducing effect: (1) the
issuance of securities pursuant to an initial registered public offering; (2)
the issuance of any class of securities, through a registered public offering,
with voting rights not greater than the per share voting rights of any
outstanding class of common stock; (3) the issuance of any class of securities
to effect a bona fide merger or acquisition, with voting rights not greater
than the per share voting rights of any outstanding class of common stock; or
(4) corporate action pursuant to state law requiring a domestic corporation to
condition the voting rights of a beneficial or record holder of a specified
threshold percentage of voting stock on the approval of the corporation's
independent shareholders.
BT FINANCIAL SHAREHOLDER RIGHTS PLAN
On March 27, 1991, the Board of Directors of BT Financial declared a
dividend distribution of one right for each outstanding share of BT Financial
Common Stock (each a "Right," and collectively, the "Rights"). The Rights
were distributed on April 15, 1991 to shareholders of record on that date.
Each Right entitles its registered holder to purchase from BT Financial a
unit equal to nine one-thousandths (.009) of a share of BT Financial Series A
Preferred Stock at a price of $45.35 per unit (the "Exercise Price"). The
Rights are not exercisable until the Distribution Date (as defined below).
The Rights will expire at the close of business on April 15, 2001, unless
earlier redeemed or exchanged by BT Financial as described below. Rights will
be issued with the shares of BT Financial Common Stock to be issued in the
Merger, unless a Distribution Date occurs first. All currently outstanding
shares of BT Financial Common Stock have Rights associated therewith.
The Rights will be evidenced by certificates for BT Financial Common
Stock until the close of business on the tenth day (the "Distribution Date")
following the earlier to occur of (i) the date on which a person or group of
affiliated or associated persons ("Acquiring Person"), other than (A) BT
Financial, (B) any subsidiary of BT Financial, (C) any employee benefit plan or
employee stock plan of BT Financial or of any subsidiary of BT Financial, (D)
any trust or trustee, or person acting as trustee or other entity organized,
appointed, established or holding BT Financial's voting stock pursuant to the
terms of any such plan or (E) any person or group of affiliated or associated
persons which is eligible, pursuant to Rule 13d-1(b) under the Exchange Act, to
file a Statement on Schedule 13G with respect to its or their beneficial
ownership of voting stock of BT Financial, whether or not such person or group
has filed a Statement on Schedule 13G, unless such person or any of its
affiliates or associates has filed a Statement on Schedule 13D with respect to
beneficial ownership by any one or more of them of 10% or more of the voting
power of BT Financial ("Exempt Person"), has acquired, or obtained the right to
acquire, beneficial ownership of shares of voting stock having 10% or more of
the voting power of BT Financial and the public announcement of such or (ii)
the commencement of, or public announcement of an intention to make, a tender
or exchange offer (other than a tender or exchange offer by an Exempt Person)
which, if consummated, would result in the beneficial ownership of shares of
voting stock having 10% or more of the voting power of BT Financial, even if no
shares are actually purchased pursuant to such offer. Until the Distribution
Date, the Rights may only be transferred together with shares of BT Financial
Common Stock and the surrender for transfer of any certificate for shares of BT
Financial Common Stock having associated Rights will constitute the transfer of
such Rights. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Rights Certificates") will be mailed to
holders of record of shares of BT Financial Common Stock having associated
Rights as of the close of business on the Distribution Date and such separate
certificates alone will evidence the Rights from and after the Distribution
Date.
The BT Financial Series A Preferred Stock will be nonredeemable and,
unless otherwise provided in connection with the creation of a subsequent
series of preferred stock, subordinate to any other series of BT Financial's
preferred stock. BT Financial Series A Preferred Stock may not be issued
except upon exercise of Rights. Each share of BT Financial Series A Preferred
Stock will be entitled to receive when, as and if declared, a quarterly cash
dividend in an amount equal to the greater of $.25 or 110.25 times any cash
dividends, and 110.25 times the amount (payable in kind) of all non-cash
distributions (other than dividends payable in equity securities), paid on
shares of BT Financial Common Stock during the preceding quarter. Whenever
dividends are in arrears, BT Financial will be unable (i) to purchase or redeem
any shares of stock ranking junior to the Series A Preferred Stock or (ii) to
purchase any shares of Series A Preferred Stock or any shares ranking on a
parity with them, except in accordance with an offer made to all holders of
such shares upon such terms as the Board of Directors shall determine in good
faith will result in fair and equitable treatment among the respective series
and classes. BT Financial may at any time redeem such parity stock for shares
of stock ranking junior to the Series A Preferred Stock. In the event of
liquidation, the holders of shares of BT Financial Series A Preferred Stock
will be entitled to receive a liquidation payment in an amount equal to the
greater of $5,000 plus accrued and unpaid dividends or
- 53 -
<PAGE> 60
110.25 times the payment to be made per share of BT Financial Common Stock.
Each share of BT Financial Series A Preferred Stock will have 110.25 votes,
voting together with the shares of BT Financial Common Stock. In the event of
any merger, consolidation or other transaction in which the shares of BT
Financial Common Stock are exchanged, each share of BT Financial Series A
Preferred Stock will be entitled to receive 110.25 times the amount received
per share of BT Financial Common Stock. The rights of the BT Financial Series
A Preferred Stock as to dividends, liquidation and voting are protected by
anti-dilution provisions.
The number of shares of BT Financial Series A Preferred Stock issuable
upon exercise of the Rights and the Exercise Price are subject to certain
adjustments from time to time in the event of a stock dividend on, or a
subdivision or combination of, the BT Financial Common Stock. The Exercise
Price is subject to adjustment in the event of extraordinary distributions of
cash or other property to holders of shares of BT Financial Common Stock.
Unless the Rights are earlier redeemed or exchanged, if (a) at any
time after there is an Acquiring Person, BT Financial were to be involved in a
merger or other business combination (in which any shares of BT Financial
Common Stock are changed into or exchanged for other securities or assets) or
(b) more than 50% of the assets or earning power of BT Financial and its
subsidiaries (taken as a whole) were to be sold or transferred to an Acquiring
Person in one or a series of related transactions, the Rights Agreement
provides that proper provision must be made so that each holder of record of a
Right will from and after such date have the right to receive, upon payment of
the Exercise Price, that number of shares of common stock of the acquiring
company having a Fair Market Value (as such term is defined in the Rights
Agreement) at the time of such transaction equal to two times the Exercise
Price.
In addition, unless the Rights are earlier redeemed or exchanged, if
BT Financial were to be the surviving corporation in a merger or other business
combination with an Acquiring Person and the BT Financial Common Stock remained
outstanding (none of which shares were changed into or exchanged for other
securities or assets) or if an Acquiring Person engages in any of a number of
"self-dealing" transactions with BT Financial specified in the Rights Agreement
or if any person (other than an Exempt Person) or group of affiliated or
associated persons becomes the beneficial owner of shares of voting stock
having more than 10% of BT Financial's voting power (other than by purchase
pursuant to an all cash tender offer for all the voting stock which purchase
increases such person's beneficial ownership to 85% or more of the outstanding
voting power of BT Financial's voting stock) or if during such time as there is
any Acquiring Person, there is a reclassification of securities (including any
reverse stock split) or any recapitalization or reorganization of BT Financial
or any merger or consolidation of BT Financial with any of its Subsidiaries or
any other transaction or series of transactions involving BT Financial or any
of its subsidiaries any of which has the effect, directly or indirectly, of
increasing by more than 1% the proportionate share of the outstanding shares of
any class of equity of BT Financial or any of its subsidiaries or securities
exercisable for or convertible into equity securities of BT Financial or its
subsidiaries beneficially owned directly or indirectly by any Acquiring Person
or any affiliate and/or associate of any Acquiring Person, the Rights Agreement
provides that proper provision must be made so that each holder of record of a
Right, other than the Acquiring Person (whose Rights will thereupon become null
and void), will thereafter have the right to receive, upon payment of the
Exercise Price, that number of shares of BT Financial Series A Preferred Stock
having a Fair Market Value at the time of such transaction equal to two times
the Exercise Price.
Fractional shares of BT Financial Series A Preferred Stock may, at the
election of BT Financial, be evidenced by depositary receipts. BT Financial
may also issue cash in lieu of fractional shares which are not integral
multiples of one one-hundredth of a share.
At any time at or prior to the close of business on the fifteenth day
after a public announcement that a person has become an Acquiring Person, BT
Financial may redeem the Rights in whole, but not in part, at a price of $.009
per Right (the "Redemption Price"), should the BT Financial Board of Directors
determine in its sole discretion that redemption is in the best interests of BT
Financial and its shareholders, whether or not (i) any of the Rights have
theretofore been exercised, or (ii) exercise thereof at the time would be
deemed economic, or (iii) any of the transactions referred to in Section 11 or
13 of the Rights Agreement has then been proposed. Immediately upon the action
of the Board of Directors of BT Financial authorizing redemption of the Rights,
the right to exercise the Rights will terminate and the only right of the
holders of Rights will be to receive the Redemption Price.
The Board of Directors of BT Financial may, at its option, at any time
after any person becomes an Acquiring Person, exchange all or part of the then
outstanding and exercisable Rights (except for Rights beneficially owned by an
Acquiring Person or by an associate or affiliate of one and which have become
void) for BT Financial Common Stock at an exchange ratio (the "Rights Exchange
Ratio") of one share of BT Financial Common Stock per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after March 27, 1991. Notwithstanding the foregoing, the Board of
Directors is not
- 54 -
<PAGE> 61
empowered to effect such exchange at any time after any person (other than an
Exempt Person), together with all affiliates and associates of such person,
becomes the beneficial owner of 50% or more of the then outstanding voting
power. Immediately upon the action of the Board of Directors of BT Financial
ordering the exchange of any rights, the right to exercise such rights will
terminate and the only right thereafter of a holder of such Rights will be to
receive that number of shares of BT Financial Common Stock equal to the number
of such Rights held by such holder multiplied by the Rights Exchange Ratio. In
any such exchange, BT Financial may substitute Series A Preferred Stock (or
shares having the same rights, privileges and preferences) for BT Financial
Common Stock exchangeable for rights at the rate set forth in the Rights
Agreement.
Until a Right is exercised, the holders, as such, will have no rights
as a shareholder of BT Financial, including, without limitation, the right to
vote or to receive dividends.
BT Financial may from time to time supplement or amend the Rights
Agreement without the approval of any holders of Rights Certificates prior to
the Distribution Date to amend or supplement any provision which BT Financial
may deem necessary or desirable or, subsequent to the Distribution Date, to
amend or supplement any provision which BT Financial may deem necessary or
desirable and which will not adversely affect the interests of holders of
Rights (other than an Acquiring Person or any affiliate or associate thereof).
This summary description of the Rights does not purport to be complete
and is qualified in its entirety by reference to the Rights Agreement that is
attached to BT Financial's Registration Statement on Form 8-A dated April 26,
1991, which is incorporated herein by reference. A copy of that Registration
Statement can be obtained in the manner set forth under "Incorporation of
Certain Documents by Reference."
PROVISIONS AFFECTING BUSINESS COMBINATIONS AND CONTROL SHARE ACQUISITIONS
The BCL, certain federal laws and a number of provisions of BT
Financial's articles and bylaws address matters of corporate governance and
certain of the rights of shareholders so as to significantly restrict the
ability of any person to acquire the beneficial ownership of more than a certain
minimum of any class of equity security of BT Financial outstanding. The
following discussion is a general summary of provisions relating to stock
ownership and transfers, the Board of Directors and business combinations, that
may be deemed to have such "anti-takeover" effects. These and other
provisions affect shareholder rights and should be given careful attention.
The following description of certain of these provisions is necessarily general
and reference should be made in each case to the appropriate provision of the
BCL, the federal law or the articles and bylaws of BT Financial.
PENNSYLVANIA LAW
The BCL contains a number of "anti-takeover" sections that apply to
registered corporations relating to: control share acquisitions; the
disgorgement of profits by certain controlling persons; the approval of
transactions with interested shareholders; the ability of shareholders to put
their stock following a control transaction; business combinations; severance
compensation; and preservation of labor contracts. A corporation that was a
registered corporation on April 27, 1990 could opt-out of the "control share
acquisition" or "disgorgement of profits" provisions by an explicit amendment of
its bylaws adopted by its board of directors on or before July 26, 1990. A
corporation that became a registered corporation after April 27, 1990 could opt
out by an explicit provision in its original articles of incorporation or by an
explicit amendment to its articles of incorporation adopted on or before 90 days
after the corporation first becomes a registered corporation. BT Financial has
opted out of the "control share acquisitions" and "disgorgement of profits"
sections of the BCL and along with them the provisions regarding severance
compensation and the preservation of labor contracts.
- 55 -
<PAGE> 62
The approval of transactions with an interested shareholder section of the
BCL provides that certain transactions with an "interested shareholder,"
including mergers, consolidations, share exchanges and sales of assets must be
approved by the holders of a majority of disinterested shares in addition to any
other approvals that may be required. This requirement does not apply if the
transaction is approved by a disinterested majority of the board of directors,
if the consideration paid to the other shareholders in the transaction is not
less than the highest amount paid by the interested shareholder in acquiring
shares or if, immediately prior to the adoption of a plan of merger or
consolidation and thereafter until the effective date, another corporation that
is a party to the merger or consolidation owns directly or indirectly 80% or
more of each class of the constituent corporation, the business combination
section has been satisfied (if applicable), and the board of directors of the
constituent corporation has approved the plan. An "interested shareholder"
includes any shareholder who is a party to the transaction or who is treated
differently from the other shareholders and affiliates of the interested
shareholder.
Under the provision of the BCL that permits shareholders to put their
shares, shareholders of a registered corporation that becomes subject to a
"control transaction" can demand from the controlling person or group payment
in cash for his or her shares of an amount equal to the fair value of his or
her shares on the date that the "control transaction" occurred. A "control
transaction" for such purposes is the acquisition of 20% of a corporation's
voting shares by a person or group, with several exceptions.
The business combination section of the BCL prohibits any business
combination with an interested shareholder other than: a business combination
approved by the board prior to the date on which the interested shareholder
first became such or where the purchase of the shares that first made the
interested shareholder such had been approved by the board prior to the date of
such purchase; a business combination approved by the affirmative vote of a
majority of the disinterested shareholders if the interested shareholder has
beneficially owned 80% or more of the voting stock for three months and owns
such amount at the time of the vote, and if shareholders receive specified
minimum values for their shares; a business combination approved by a unanimous
vote of common shareholders; a business combination approved by a majority of
disinterested shareholders no earlier than five years after the interested
shareholder became such; or a business combination approved at a shareholders'
meeting held no earlier than five years after the interested shareholder became
such if shareholders receive specified minimum values for their shares.
Business combinations include: mergers, consolidations, share exchanges and
divisions; sales, leases, exchanges, mortgages, pledges, transfers and other
dispositions of assets having specified values; share transfers having
specified values; liquidation; dissolution; transactions that increase the
interested shareholder's voting power; and the provision of any benefit not in
proportion to shareholdings. An interested shareholder is generally any
beneficial owner of 20% of the voting shares of a corporation or an affiliate
or associate of a corporation that at any time within the five year period
prior to the date in question beneficially owned 20% of the voting shares of
the corporation.
FEDERAL LAW
The Change in Bank Control Act of 1978, as amended, prohibits
a person or group of persons from acquiring "control" of a bank holding company
unless the Federal Reserve Board has been given 60 days' prior written notice
of such proposed acquisition and, within that time period, the Federal Reserve
Board has not issued a notice disapproving the proposed acquisition or
- 56 -
<PAGE> 63
extending, for up to another 30 days, the period during which such a disapproval
may be issued. This period may be further extended under certain circumstances.
An acquisition may be made prior to the expiration of the disapproval period if
the Federal Reserve Board issues written notice of its intent not to disapprove
action.
Under a rebuttable presumption established by the Federal Reserve
Board, the acquisition of 10% or more of a class of voting stock of a bank
holding company with a class of securities registered under Section 12 of the
Exchange Act would, under the circumstances set forth in the presumption,
constitute the acquisition of control.
In addition, any "company" would be required to obtain the approval of
the Federal Reserve Board under the Bank Holding Company Act before acquiring
25% (5% in the case of an acquiror that is a bank holding company) or more of
the outstanding shares of BT Financial Common Stock, or such lesser number of
shares as constitute control over BT Financial.
TRANSACTIONS WITH INTERESTED PERSONS OF BT FINANCIAL
Article 8 of the articles of incorporation of BT Financial (the "BT
Financial Articles") states that any merger or consolidation between an
Interested Person (as defined below) or an affiliate or associate of an
Interested Person or an associate of any such affiliate or an affiliate of an
associate of an Interested Person and BT Financial or one of its subsidiaries or
any disposition of all or substantially all or a substantial part of the assets
of BT Financial or one of its subsidiaries to an Interested Person or an
affiliate or associate of an Interested Person or an associate of any such
affiliate or an affiliate of an associate of an Interested Person must be
approved by the affirmative vote of the holders of at least 80% of the
outstanding shares of capital stock of BT Financial entitled to vote for the
election of directors. This supermajority vote requirement does not apply if
the transaction is approved by a majority of the entire Board of Directors of BT
Financial prior to the time that an Interested Person becomes such or by a
majority of the entire Board of Directors of BT Financial without counting the
vote of any director who is an Interested Person or an affiliate, associate or
agent thereof or an associate or agent of any such affiliate prior to
consummation of the transaction. An Interested Person is defined in the BT
Financial Articles as any person that beneficially owns 20% or more of the
outstanding shares of capital stock of BT Financial entitled to vote for the
election of directors. The BCL has a comparable provision that would not apply
to Armstrong.
TENDER OFFERS FOR AND OTHER PROPOSALS TO ACQUIRE BT FINANCIAL
When considering any tender offer for BT Financial Common Stock or any
transaction discussed under "Transactions with Interested Persons of BT
Financial" the Board of Directors of BT Financial must consider all factors it
deems relevant, and may, but is not obligated to, consider the following
factors: (a) the amount and nature of the consideration (if any) to be
received by shareholders in relation to the then current market price, the
Board's estimate of the then current value of BT Financial in a freely
negotiated transaction and the Board's estimate of the future value of BT
Financial as an independent entity; and (b) the social and economic effects of
the transaction on the employees, depositors, customers, creditors and other
constituents of BT Financial and on the communities served by BT Financial.
"SUPERMAJORITY" PROVISIONS CONCERNING CHARTER AMENDMENTS
Under the BCL, amendments to the articles of incorporation of a
registered corporation such as BT Financial may only be proposed by its board
of directors. Except for certain amendments which do not require shareholder
approval and unless a greater vote is required by its articles of
incorporation, amendments of the articles of incorporation of a Pennsylvania
corporation must be approved by the affirmative vote of a majority of the votes
cast by all shareholders entitled to vote thereon and, if any class or series
of shares is entitled to vote as a class, the affirmative vote of a majority of
the votes cast in each such class vote.
The BT Financial Articles require the affirmative vote of the holders
of at least 80% of the outstanding shares of capital stock of BT Financial
entitled to vote for the election of directors of BT Financial, given in person
or by proxy at a meeting duly called for the purpose of voting thereon, to
amend or repeal any provision of the sections of the BT Financial Articles
relating to: transactions with Interested Persons; factors to be considered by
the Board of Directors of BT Financial in reviewing tender offers and other
transactions; classification of the Board of Directors of BT Financial; the
directors' ability to make, amend or repeal bylaws; indemnification; or the
amendment or repeal of the BT Financial Articles. All other BT Financial
Articles may be amended as provided in the BCL.
"SUPERMAJORITY" PROVISIONS CONCERNING BYLAW AMENDMENTS
The shareholders of a Pennsylvania corporation who are entitled to
vote have the power to adopt, amend and repeal the bylaws of the corporation.
The authority to adopt, amend and repeal bylaws of a corporation may be
expressly vested by the bylaws
- 57 -
<PAGE> 64
in the board of directors, subject to the power of the shareholders to override
any such action and except that a board of directors may not have the authority
to adopt or change a bylaw on any subject that is committed expressly to the
shareholders under the BCL, unless the articles of incorporation of that
corporation expressly give the board that authority.
The BT Financial Articles provide that the Board of Directors of BT
Financial has the power to make, amend and repeal the bylaws as it deems
necessary or convenient for the regulation and management of BT Financial to
the extent not inconsistent with law or the BT Financial Articles. Such power
is subject to the power of the shareholders of BT Financial to amend or repeal
bylaws of BT Financial by the affirmative vote of the holders of at least 80%
of the outstanding shares of capital stock of BT Financial entitled to vote for
the election of directors of BT Financial, given in person or by proxy at a
meeting duly called for the purpose of voting thereon.
SHAREHOLDER NOMINATIONS FOR DIRECTORS
BT Financial's bylaws provide that, with certain exceptions,
nominations of candidates for election as Directors of BT Financial, other than
those made by management of BT Financial, must be in writing and filed with the
Secretary of BT Financial not less than 40 days prior to any shareholders'
meeting called for the election of Directors or ten days after the giving of
notice of such meeting in accordance with Article 33 of the bylaws of BT
Financial, whichever is later. This provision could be viewed as
"anti-takeover" in nature, since it may make it more difficult for shareholders
to nominate candidates and may give an advantage to incumbent management's
nominees.
COMPARISON OF SHAREHOLDERS RIGHTS
The rights of the shareholders of Armstrong are governed by the
Pennsylvania Banking Code and the articles of incorporation and bylaws of
Armstrong. As a result of the Merger, shareholders of Armstrong who receive BT
Financial Common Stock in the merger will become shareholders of BT Financial,
and as such, their rights as shareholders will be governed by the BCL and the
articles and bylaws of BT Financial. Certain differences in the rights of
shareholders of BT Financial and Armstrong arise from the distinctions between
the Banking Code and BCL and the articles and bylaws of each. Although it is
impracticable to note all of the differences, the following is a summary of
certain significant differences.
The Articles of Incorporation of Armstrong authorize the issuance of
8,000 shares of common stock, $50.00 par value per share, all of which are
issued and outstanding. Upon the consummation of the Merger, the shares of
Armstrong Common Stock will be canceled, and the holders of Armstrong Common
Stock will receive shares of BT Financial Common Stock and cash. See "The
Merger Agreement-The Merger." The BT Financial articles authorize the
issuance of 10,000,000 shares of BT Financial Common Stock, par value $5.00 per
share, and 2,000,000 shares of preferred stock, having no par value. On
December 31, 1995, 3,826,581 shares of BT Financial Common Stock and no shares
of Preferred Stock were outstanding.
DIVIDENDS. Holders of Armstrong Common Stock are entitled to
dividends as and when declared by the Board of Directors of Armstrong out of
funds legally available therefor. Subject to such preferences, limitations and
relative rights as may be fixed for any series of preferred stock that may be
issued, holders of BT Financial Common Stock are entitled to receive such
dividends, when, as and if declared by the Board of Directors out of funds
legally available therefor. Cash available for dividend distribution to the
holders of BT Financial's Common Stock and preferred stocks, must initially
come from dividends paid to BT Financial by BT Financial's subsidiaries.
Accordingly, BT Financial's ability to pay cash dividends can be affected by
restrictions on the payment of dividends by BT Financial's subsidiaries. See
"Description of BT Financial Capital Stock--Capital Stock--Dividends."
VOTING; ELECTION OF DIRECTORS. Holders of Armstrong Common Stock and
holders of BT Financial Common Stock are entitled to one vote for each share
held. Holders of Armstrong Common Stock have cumulative voting rights in the
election of directors. Holders of BT Financial Common Stock do not. The
Bylaws of BT Financial provide for the classification of directors into four
classes, as nearly equal in number as possible, with the term of office of one
class expiring in each year. Armstrong's board is not classified and its
directors serve one year terms. Unlike the BT Financial bylaws, the Armstrong
bylaws do not contain a provision limiting shareholder nominations for
elections of directors, although Armstrong's articles do require that directors
be shareholders. Also unlike the BT Financial articles and bylaws, the
Armstrong articles and bylaws have no provisions requiring supermajority votes
on any matters. However, Armstrong's bylaws require that bylaw amendments be
submitted to the Armstrong Board before they are voted on by Shareholders.
- 58 -
<PAGE> 65
LIQUIDATION. As with BT Financial Common Stock, in the event of any
liquidation, dissolution or winding up of Armstrong, holders of Armstrong
Common Stock will be entitled to share ratably in all assets available for
distribution after the payment of debts, liabilities and preferences.
PREEMPTIVE RIGHTS. Like BT Financial Common Stock, Armstrong Common
Stock has no preemptive rights.
ANTI-TAKEOVER PROVISIONS OF THE BCL. Unlike BT Financial, none of the
anti-takeover sections of the BCL apply to Armstrong. However, Section
206 of the Pennsylvania Banking Code is similar to the BCL section
governing approval of transactions with interested shareholders. In addition,
Section 1610 of the Pennsylvania Banking Code is similar to the provision of
the BCL allowing shareholders to put their shares following a control
transaction. See "Description of BT Financial Capital Stock-Provisions
Affecting Business Combinations and Control Share Acquisitions-Pennsylvania
Law" for a description of the relevant BCL provisions.
Section 1610 of the Banking Code, which applies to Armstrong, provides
that any holder of voting shares of a bank that becomes subject to a "control
transaction" may make written demand on, and is entitled to receive cash from,
the control person or group equal to the fair value of each voting share as of
the day prior to the date on which the control transaction occurs. A "control
transaction" refers to the acquisition by a person or group of the status of a
controlling person or group. This status is obtained when a person, or a group
of persons acting in concert, has voting power (which can include an option or
contract) over voting shares of the bank that would entitle the holders thereof
to cast at least 30% of the votes that all shareholders would be entitled to
cast in an election of directors.
Section 112 of the Banking Code is similar, but not identical, to the
Change in Bank Control Act of 1978, as amended, which is described in
"Description of BT Financial Capital Stock--Provisions Affecting Business
Combinations and Control Share Acquisitions." Section 112 requires the approval
of the Pennsylvania Department of Banking before any person can acquire or make
a proposal to acquire more than (a) 10% of any class of outstanding shares of a
bank or (b) 5% of any such class, if the bank had net operating loss
carryforwards in excess of 20% of its total stockholders' equity, as reported in
its latest publicly available annual financial statements.
Additionally, neither the articles nor the bylaws of Armstrong include
provisions limiting transactions with interested persons, prescribing the
factors to be considered by the Armstrong Board with respect to tender offers
or other proposals, requiring a supermajority to amend Armstrong's articles or
bylaws or limiting shareholder nominations of directors. See "Description of
BT Financial Capital Stock - Provisions Affecting Business Combinations and
Control Share Acquisitions." While Armstrong's articles and bylaws do not
prescribe factors to be considered by the Armstrong Board with respect to
tender offers and other proposals, the statutory provisions applicable to banks
permit Armstrong's directors to consider the effects of an action on
constituencies other than shareholders.
APPROVAL OF FUNDAMENTAL CHANGES. Under the Pennsylvania Banking Code,
all mergers and consolidations that will result in institutions that are
subject to the Banking Code must be approved by a majority of the board of
directors and by the shareholders entitled to cast at least two thirds of the
votes which all shareholders are entitled to cast. Under the BCL a proposed
plan of merger or consolidation must be approved by the board of directors and
by a majority of the votes cast by shareholders entitled to vote thereon.
In some cases, the approval of the board is sufficient.
Under the Pennsylvania Banking Code, a plan of dissolution requires
the affirmative vote of two thirds of the votes which all shareholders are
entitled to cast on the plan. Under the BCL, the affirmative vote of a
majority of the votes cast by all shareholders entitled to vote thereon is
required to approve a proposal for voluntary dissolution. In addition, the
proposal of dissolution must be recommended by resolution of the board.
In the case of both mergers and consolidations and voluntary
dissolution under the BCL, the requirement of board approval or recommendation
can be satisfied by the written agreement or consent of all shareholders
entitled to vote thereon. The Pennsylvania Banking Code contains no such
provision.
DISSENTERS' RIGHTS. The Pennsylvania Banking Code incorporates the
dissenters' rights provisions of the BCL. Therefore, the dissenters' rights of
BT Financial shareholders and Armstrong shareholders are governed by the rights
and remedies and limitations on such rights and remedies provided in the BCL.
The BCL provides for dissenters' rights in a variety of transactions including
mergers or consolidations to which a corporation is a party (other than mergers
not requiring a shareholder vote). However, except in the case of a merger or
consolidation in which their shares would be converted into something other
than shares of the surviving or new corporation (or cash in lieu of fractional
shares), shareholders are not entitled to dissenters' rights in any of the
transactions mentioned above if their stock is either listed on a national
securities exchange or held of record by 2,000 or more
- 59 -
<PAGE> 66
shareholders. While BT Financial Common Stock is not listed on the New York or
American Stock Exchanges, BT Financial currently has in excess of 2,000
shareholders of record. Armstrong Common Stock is not listed on the New York
or American Stock Exchanges and is not held by more than 2,000 shareholders of
record, and, therefore, Armstrong shareholders would have dissenters' rights in
circumstances in which BT Financial's Shareholders would not.
RIGHTS. Each share of BT Financial Common Stock has attached to it
one Right issued pursuant to the Rights Agreement. See "Description of BT
Financial Capital Stock - BT Financial Rights." No such rights are attached to
the shares of Armstrong Common Stock.
RIGHT TO CALL A SPECIAL MEETING. The BCL provides that a special
meeting of the shareholders of a registered corporation may be called at any
time (i) by the board of directors, (ii) by such officers or other persons as
may be designated in the bylaws of that corporation, or (iii) by any
shareholder of a registered corporation that is an "interested shareholder" who
is calling a special meeting for the purpose of approving a "business
combination" (both as defined in Section 2553 of the BCL). The bylaws of BT
Financial provide that special meetings of the shareholders of BT Financial may
be called by the Chairman of the BT Financial Board of Directors, the President
of BT Financial, the BT Financial Board of Directors or shareholders entitled
to cast at least one-fifth of the votes which all shareholders are entitled to
cast at an annual or special meeting of shareholders. The bylaws of Armstrong
provide that special meetings of the Shareholders may be called by the Board of
Directors or President of Armstrong and shall be called by the President of
Armstrong upon request in writing of three or more Shareholders.
DUTIES AND LIABILITIES OF DIRECTORS. The BCL permits a corporation to
include in its bylaws a provision adopted by its shareholders which eliminates
the personal liability of directors for monetary damages for any action taken
(or any failure to take any action) unless (i) the directors have breached or
failed to perform the duties of their offices under the BCL and (ii) the
breach or failure to perform constitutes self-dealing, willful misconduct or
recklessness. However, a corporation may not eliminate personal liability
where the responsibility or liability of a director is pursuant to any criminal
statute or is for the payment of taxes pursuant to local, state or federal law.
BT Financial's and Armstrong's bylaws provide that a director will not be
personally liable for monetary damages for any action taken, or failure to take
any action, except that there is no elimination of, or limitation on, the
liability of a director to the extent that such elimination or limitation of
liability is expressly prohibited by law.
The BCL permits a corporation, unless otherwise restricted in its
bylaws, to indemnify any person involved in any third party or derivative
action, by reason of the fact that person is or was a representative of the
corporation or is or was serving at the request of that corporation as a
representative of another corporation or enterprise, against expenses (in both
third party and derivative actions), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection therewith, if
the person acted in good faith and in a manner he 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 the conduct was
unlawful. In general, under the BCL, no indemnification is allowable in
derivative actions to the extent a person has been adjudged liable to the
corporation, unless, and only to the extent that, the applicable court finds
him entitled to indemnification against expenses despite such adjudication. To
the extent that a representative of a corporation has been successful on the
merits or otherwise in defense of any third party or derivative action,
indemnification against expenses is mandatory. The BCL permits a corporation
to provide additional indemnification rights to persons seeking indemnification
whether or not that corporation would have the power to indemnify such persons
under any other provision of the BCL, including with respect to derivative
actions, so long as the act or failure to act giving rise to the
indemnification right did not constitute willful misconduct or recklessness.
Neither the BT Financial articles and bylaws nor the Armstrong bylaws restrict
the indemnification permitted by law.
Under the BCL, unless otherwise provided in the articles of a
corporation, if a bylaw of that corporation adopted by the shareholders
provides for a classified board of directors, directors generally may be
removed from office only for cause by the vote of shareholders entitled to vote
on the matter. The BT Financial Articles and bylaws each provide for a
classified board. The BT Financial Articles contain a provision permitting
removal of directors without cause by the affirmative vote of the holders of at
least 80% of the outstanding shares of capital stock of BT Financial entitled
to vote for the election of directors, given in person or by proxy, at a
meeting duly called for the purpose of voting thereon. Neither the Armstrong
articles nor bylaws contain such a provision. The Pennsylvania Banking Code
allows for removal without cause of the entire board or an individual director.
The removal of the entire board requires a majority vote of shares entitled to
vote. An individual director may not be removed if there are cast against his
removal the votes of a sufficient number of shares which, if cumulatively voted
at an annual election, would be sufficient to elect one or more directors.
Under the BCL, any director or shareholder may apply to a court for
the removal of a director. Under the Pennsylvania Banking Code, a suit must be
filed by a majority of the board of directors or holders of at least 10% of the
outstanding shares.
- 60 -
<PAGE> 67
CERTAIN INFORMATION REGARDING BT FINANCIAL
BUSINESS
BT Financial is a multi-bank holding company located in Johnstown,
Pennsylvania, which was incorporated under the laws of the Commonwealth of
Pennsylvania on December 16, 1982.
BT Financial has three banking subsidiaries: Johnstown Bank, Laurel
Bank and Fayette Bank (referred to as the "Banks"). The Banks' principal
places of business are in Johnstown, Ebensburg and Uniontown, Pennsylvania,
respectively. At September 30, 1995, BT Financial had total assets of $1.1
billion. BT Financial also has two non-banking subsidiaries, Bedford
Associates, Inc., which holds and leases property used by the Banks in their
banking operations, and BT Management Trust Company, a trust company which
provides trust and investment services.
The Banks conduct business through a network of 63 offices located
throughout southwestern Pennsylvania. Each Bank operates under the management
of its own officers and directors, although auditing, marketing, human
resources, investment, accounting, data processing and credit review are
coordinated through BT Financial. In addition, the Banks operate 41 automated
teller machines ("ATM's") at 40 locations which are part of the "Cirrus" and
"MAC" systems. "Cirrus" and "MAC" provide links to national and regional ATM
networks.
The Banks provide a full range of financial services to individuals,
businesses and governmental bodies, including accepting demand, savings and time
deposits, making secured and unsecured loans, and electronic data processing of
payrolls. Lending services include credit cards and consumer, real estate,
commercial and industrial loans. BT Financial, through BT Management Trust
Company, also offers a wide range of corporate pension and personal trust and
trust related services. Each of the Bank's deposits are insured by the FDIC,
the majority by the Bank Insurance Fund ("BIF"), with certain deposits insured
by the Savings Association Insurance Fund ("SAIF"). While each Bank has trust
powers, substantially all trust business of BT Financial's affiliates is
conducted by BT Management Trust Company.
Johnstown Bank was formed in 1934 through the consolidation of five
banks. It is a Pennsylvania bank and trust company and member of the Federal
Reserve System with 39 offices in Allegheny, Armstrong, Bedford, Butler,
Cambria, Indiana, Somerset and Westmoreland Counties. At September 30, 1995,
its assets totaled $594 million.
Laurel Bank is a Pennsylvania bank and trust company and a member of
the Federal Reserve System, with total assets of $230 million at September 30,
1995. Laurel Bank operates 14 offices in Cambria, Blair and Indiana Counties.
It was acquired by BT Financial for cash and stock on January 1, 1985 in a
transaction which was accounted for as a purchase.
Fayette Bank is a Pennsylvania bank and trust company and a member of
the Federal Reserve System. Fayette Bank conducts business at 8 offices
located in Uniontown, Fayette County. Its assets totaled $276 million at
September 30, 1995. BT Financial acquired Fayette Bank for cash and stock on
September 5, 1986 in a transaction which was accounted for as a purchase.
BT Management Trust Company, located in Johnstown, is a Pennsylvania
chartered trust company formed on April 30, 1990. The trust businesses of the
Banks were transferred to BT Management Trust Company at that time.
Bedford Associates, Inc., located in Johnstown, Pennsylvania, is a
wholly-owned non-banking subsidiary of BT Financial. Its assets consist
principally of properties leased to the Banks for use as community banking
offices.
BT Financial and the Banks are subject to competition in all aspects
of their businesses from banks as well as other financial institutions,
including savings and loan associations, savings banks, finance companies,
credit unions, money market mutual funds, brokerage firms, investment
companies, credit companies and insurance companies. They also compete with
nonfinancial institutions, including retail stores that maintain their own
credit programs, and with governmental agencies that make loans available to
certain borrowers. Some of BT Financial's competitors are larger and have
greater financial resources and facilities than BT Financial.
As of September 30, 1995, BT Financial, the Banks and BT Management
Trust Company had a total of 640 full time equivalent banking and
administrative employees. BT Financial's executive offices are located at BT
Financial Plaza, 551 Main Street, Johnstown, Pennsylvania 15901. Its telephone
number is (814) 532-3801.
- 61 -
<PAGE> 68
On December 14, 1995, BT Financial acquired Huntington Bank from
Huntington Bancshares West Virginia, Inc., for $25,500,000 in cash. Huntington
Bank was merged with and into Fayette Bank. As of September 30, 1995,
Huntington Bank had total assets of $106 million, total deposits of
$81 million and total stockholder's equity of $16 million. The acquisition
of Huntington Bank was accounted for under the purchase method of accounting.
BT Financial has also entered into the Moxham Agreement, which
provides for the merger of Moxham with and into BT Financial. At the effective
time of the Moxham Merger, each outstanding share of Moxham Common Stock is to
be converted into 1.15 shares of BT Financial Common Stock, and each share of
Moxham Preferred Stock is to be converted into 6.325 shares of BT Financial
Common Stock. Immediately following the Moxham Merger, Moxham's subsidiary
banks, The Moxham National Bank of Johnstown and The First National Bank of
Garrett, will be merged with and into Johnstown Bank. The acquisition of
Moxham is to be accounted for under the pooling of interests method of
accounting. As of September 30, 1995, Moxham had total assets of
approximately $242 million, total deposits of approximately $217 million
and total shareholders' equity of approximately $19 million. On a pro forma
basis giving effect to BT Financial's acquisition of Huntington Bank and
BT Financial's pending acquisitions of Armstrong and Moxham, BT Financial
would have had, on a consolidated basis as of September 30, 1995,
approximately $1.5 billion in assets, $1.3 billion in deposits and
$125 million in shareholders equity.
PROPERTIES
In February of 1990, BT Financial acquired BT Financial Plaza, an
office building located adjacent to Johnstown Bank's headquarters building.
The building is occupied by BT Financial's executive offices, BT Management
Trust Company, certain other offices of BT Financial, and other business
concerns. The executive offices of Johnstown Bank are located at 532-534 Main
Street, Johnstown, Pennsylvania, in a ten- story building owned by Johnstown
Bank free of liens and encumbrances. The building contains approximately
62,000 usable square feet of space and is totally occupied by Johnstown Bank
and BT Financial. The building was erected in 1908 and most recently
renovated in 1977. In 1987, Johnstown Bank purchased a seven-story building
located on Clinton Street in Johnstown and is using the building as a storage
facility. Some minor renovations were made in 1987. All of the buildings are
in good condition.
The Banks operate 61 banking offices, 44 of which are owned by the
Banks free of liens and encumbrances. All properties and buildings are in good
condition and are continually maintained against normal wear and tear. The
remaining 17 offices are operated under leases which, including renewal
options, expire at various times between 1996 and 2025. Bedford Associates,
Inc. owns 4 of the 17 leased properties, which are leased to the Banks as
community banking offices. All properties of Bedford Associates, Inc. have
been recently purchased (1983 or later), and the buildings are either newly
constructed or have recently undergone major renovation. Fayette acquired
three branch offices with the purchase of The Huntington National Bank of
Pennsylvania in December 1995.
CERTAIN REGULATORY CONSIDERATIONS
As a bank holding company, BT Financial is subject to regulation and
supervision by the Federal Reserve. The Banks and BT Management Trust Company
are subject to supervision and examination by the Federal Reserve, the
Pennsylvania Department of Banking and, to some extent, the FDIC. The Banks are
also subject to various requirements and restrictions under federal and state
law, including requirements to maintain reserves against deposits, restrictions
on the types and amounts of loans that may be granted and the interest that may
be charged thereon, and limitations on the types of investments that may be made
and the types of services that may be offered. Various consumer laws and
regulations also affect the operations of the Banks. In addition to the impact
of regulation, commercial banks are affected significantly by the actions of the
Federal Reserve as it attempts to control the money supply and credit
availability in order to influence the economy.
PAYMENT OF DIVIDENDS AND OTHER RESTRICTIONS
BT Financial is a legal entity separate and distinct from its
subsidiaries, including the Banks. There are various legal and regulatory
limitations under federal and state law on the extent to which BT Financial's
subsidiaries, including the Banks, can finance or otherwise supply funds to BT
Financial.
The principal source of BT Financial's cash revenues is dividends from
its subsidiaries. There are limitations under federal and Pennsylvania law on
the payment of dividends by such subsidiaries. Retained earnings of the Banks
and the other subsidiaries of BT Financial were approximately $60.4 million as
of September 30, 1995. The prior approval of the Federal Reserve is required
- 62 -
<PAGE> 69
if the total of all dividends declared by any state member bank of the Federal
Reserve System in any calendar year exceeds the bank's net profits (as defined
in the applicable law) for that year combined with its retained net profits for
the preceding two calendar years, less any required transfers to surplus or a
fund for the retirement of any preferred stock. Federal and state regulatory
agencies also have authority to prohibit a state member bank from engaging in
what, in the opinion of such regulatory body, constitutes an unsafe or unsound
practice in conducting its business. The payment of dividends could, depending
upon the financial condition of the subsidiary, be deemed to constitute such an
unsafe or unsound practice.
Under the Pennsylvania Banking Code, the board of directors of a
Pennsylvania bank may, from time to time, declare, and that bank may pay,
dividends on its outstanding shares subject to the restrictions described below
and any restrictions in the articles of incorporation of that bank.
The Banking Code permits dividends to be declared and paid only out of
accumulated net earnings and to be paid in cash or other property. A dividend
may not be declared or paid unless (i) any transfer of net earnings to surplus
has been made prior to the declaration of the dividend and (ii) the surplus of
the bank would not be reduced by the payment of the dividend.
The board of directors of a Pennsylvania bank may distribute pro rata
to the holders of any class of its shares from time to time treasury shares and
authorized but unissued shares of that bank, subject to the restrictions
described below and the restrictions, if any, in that bank's articles of
incorporation. No distribution may be made in authorized but unissued shares
of a Pennsylvania bank unless (i) if the distribution is made in shares having
a par value, there can be transferred to capital from accumulated net earnings
an amount equal to the aggregate par value of the shares distributed or (ii) if
the distribution is made in shares without par value, the board of directors
fixes a value for the shares so issued and there can be transferred to capital
at the time of distribution an amount of accumulated net earnings equal to the
aggregate value so fixed, and (iii) immediately after the distribution, surplus
would be at least equal to the amount of capital.
In addition, the Banks are subject to limitations under Sections 23A
and 23B of the Federal Reserve Act with respect to extensions of credit to,
investments in, and certain other transactions with, BT Financial and its other
subsidiaries. Furthermore, loans and extensions of credit are also subject to
various collateral requirements.
There are no dividend restrictions in the articles of incorporation
of any of the Banks.
CAPITAL ADEQUACY
The Federal Reserve has adopted risk-based capital guidelines for bank
holding companies. When the guidelines became fully phased-in as of December
31, 1992, the minimum guidelines for the ratio of total capital ("Total
Capital") to risk-weighted assets (including certain off-balance-sheet items,
such as standby letters of credit) was set at 8%. At least half of Total
Capital must be composed of common stock, minority interests in the equity
accounts of consolidated subsidiaries, noncumulative perpetual preferred stock
and a limited amount of perpetual preferred stock, less goodwill ("Tier 1
Capital"). The remainder may consist of certain subordinated debt, other
preferred stock and a limited amount of loan loss reserves.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio of Tier 1 Capital to total assets, less goodwill (the "Leverage Ratio"),
of 3% for bank holding companies that meet certain specified criteria, including
those having the highest regulatory rating. All other bank holding companies
generally are required to maintain a Leverage Ratio of at least 3%, plus an
additional cushion of 100 to 200 basis points. The guidelines also provide that
bank holding companies experiencing internal growth or making acquisitions will
be expected to maintain strong capital positions substantially above the minimum
supervisory levels without significant reliance on intangible assets.
Furthermore, the Federal Reserve has indicated that it will consider a "tangible
Tier I Capital leverage ratio" (deducting all intangibles) and other indicia of
capital strength in evaluating proposals for expansion or new activities.
Failure to meet capital guidelines could subject a bank to a variety
of enforcement remedies, including the termination of deposit insurance by the
FDIC, and to certain restrictions on its business, which are described below
under "FDICIA."
BT Financial's current capital ratios exceed the current requirements
under these capital guidelines.
- 63 -
<PAGE> 70
SUPPORT OF THE BANKS
Under Federal Reserve policy, BT Financial is expected to act as a
source of financial strength to, and to commit resources to support, each of
the Banks. This support may be required at times when, absent such Federal
Reserve policy, BT Financial might not be inclined to provide it. In the event
of a bank holding company's bankruptcy, any commitment by the bank holding
company to a federal bank regulatory agency to maintain the capital of a
subsidiary bank will be assumed by the bankruptcy trustee and be entitled to
priority of payment.
As a result of the enactment of the Financial Institutions Reform,
Recovery, and Enforcement Act ("FIRREA"), a depository institution insured by
the FDIC can be held liable for any loss incurred by, or reasonably expected to
be incurred by, the FDIC after August 9, 1989 in connection with (i) the default
of a commonly controlled FDIC-insured depository institution or (ii) any
assistance provided by the FDIC to any commonly controlled FDIC-insured
depository institution "in danger of default." The term "in danger of default"
is defined generally as the existence of certain conditions indicating that a
default is likely to occur in the absence of regulatory assistance.
FDIC INSURANCE ASSESSMENTS
The FDIC implemented a risk-based assessment system, effective January
1, 1994, under which a bank's premium assessment is based on the probability
that the BIF will incur a loss with respect to the bank, the likely amount of
any such loss, and the revenue needs of the BIF. As long as BIF's reserve ratio
is less than a specified "designated reserve ratio," currently 1.25%, the total
amount raised from BIF members by the risk-based assessment system may not be
less than the amount that would be raised if the assessment rate for all BIF
members were .023% of deposits. On August 8, 1995, the FDIC announced that the
designated reserve ratio had been achieved and, accordingly, issued final
regulations adopting an assessment rate schedule for BIF members of 4 to 31
basis points effective on June 1, 1995. On November 14, 1995, the FDIC further
reduced deposit insurance premiums to a range of 0 to 27 basis points effective
for the semi-annual period beginning January 1, 1996.
Federal law has established several mechanisms to increase funds to
protect deposits insured by the BIF. The FDIC is authorized to borrow: up to
$30 billion from the United States Treasury; up to 90% of the fair market value
of assets of institutions acquired by the FDIC as receiver from the Federal
Financing Bank; and from depository institutions that are members of the BIF.
Any borrowings not repaid by asset sales are to be repaid through insurance
premiums assessed to member institutions. Such premiums must be sufficient to
repay any borrowed funds within 15 years and provide insurance fund reserves of
$1.25 for each $100 of insured deposits. The result of these provisions is that
the assessment rate on deposits of BIF members could increase in the future.
The FDIC also has authority to impose special assessments against insured
deposits.
During fiscal year 1995, BT Financial's FDIC insurance expense
decreased by $679,000 due to lower premiums and a retroactive deposit insurance
adjustment. The rate adjustment resulted in a $457,000 refund and was received
in the third quarter of 1995.
A number of proposals have recently been introduced in Congress to
address the disparity in bank and thrift deposit insurance premiums paid by bank
members of the BIF and by the savings associations and other members of SAIF. On
September 19, 1995, legislation was introduced and referred to the House Banking
Committee that would, among other things: (i) impose a requirement on all SAIF
member institutions to fully recapitalize the SAIF by paying a one-time special
assessment of approximately 85 basis points on all assessable deposits as of
March 31, 1995, which assessment would be due as of January 1, 1996; (ii) spread
the responsibility for interest payments on obligations of the Financing
Corporation ("FICO") across all FDIC-insured institutions on a pro-rata basis,
subject to certain exceptions; (iii) require that deposit insurance premium
assessment rates applicable to SAIF member institutions be no less than deposit
insurance premium assessment rates applicable to BIF member institutions; (iv)
provide for a merger of the BIF and the SAIF as of January 1, 1998; (v) require
savings associations to divest any activities not permissible for commercial
banks within five years; (vii) eliminate the bad-debt reserve deduction for
savings associations, although savings associations would not be required to
recapture into income their accumulated bad-debt reserves; (vii) provide for the
conversion of savings and loan holding companies into bank holding companies as
of January 1, 1998, although unitary savings and loan holding companies
authorized to engage in activities as of September 13, 1995 would have such
authority grandfathered (subject to certain limitations); and (ix) abolish the
OTS and transfer the OTS' regulatory authority to the other federal banking
agencies. The legislation would also provide that any savings association that
would become undercapitalized under the prompt corrective action regulations as
a result of the special deposit premium assessment could be exempted from
payment of the assessment, provided that the institution would continue to be
subject to the payment of semiannual assessments under the current rate schedule
following the recapitalization of the SAIF. The legislation was considered and
passed by the House Banking Committee's Subcommittee on Financial Institutions
on September 27, 1995, and has not yet been acted on by the full House Banking
Committee.
- 64 -
<PAGE> 71
On September 20, 1995, similar legislation was introduced in the Senate
(although the Senate bill does not include a comprehensive approach, as does the
House bill, for merging the savings association and commercial bank charters).
The Senate bill remains pending before the Senate Banking Committee. A similar
proposal is included in pending comprehensive budget legislation. Enactment of
any of these proposals could result in increased insurance assestments against
the Banks.
In light of ongoing debate over the content and fate of the budget
bill, the different proposals currently under consideration and the uncertainty
of the Congressional budget and legislative processes in general, BT Financial
cannot predict whether any or all of the proposed legislation will be passed,
or in what form. If the proposed legislation is enacted, BT Financial
anticipates a one-time deposit insurance assessment of approximately
$1.4 million in 1996, relating to deposits acquired from savings and
loan institutions.
FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") substantially revised the depository institution regulatory and
funding provisions of the Federal Deposit Insurance Act and made revisions to
several other federal banking statutes.
Among other things, FDICIA requires federal banking regulators to take
prompt corrective action in respect of depository institutions that do not meet
minimum capital requirements. FDICIA establishes five capital tiers: "well
capitalized", "adequately capitalized", "undercapitalized", "significantly
undercapitalized" and "critically undercapitalized." A depository institution
is well capitalized if it significantly exceeds the minimum level required by
regulation for each relevant capital measure, adequately capitalized if it meets
each such measure, undercapitalized if it fails to meet any such measure,
significantly undercapitalized if it is significantly below each such measure
and critically undercapitalized if it fails to meet any critical capital level
set forth in regulations. The critical capital level is a level of tangible
equity equal to not less than 2% of total tangible assets. A depository
institution may be deemed to be in a capitalization category that is lower than
is indicated by its actual capital position if it receives an unsatisfactory
examination rating.
FDICIA generally prohibits a depository institution from making any
capital distribution (including payment of a dividend) or paying any management
fee to its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to
restrictions on borrowing from the Federal Reserve System and to growth
limitations, and are required to submit capital restoration plans. A depository
institution's holding company must guarantee the capital plan, up to an amount
equal to the lesser of 5% of the depository institution's assets at the time it
becomes undercapitalized or the amount of the capital deficiency when the
institution fails to comply with the plan. Federal banking agencies may not
accept a capital plan without determining, among other things, that the plan is
based on realistic assumptions and is likely to succeed in restoring a
depository institution's capital. If a depository institution fails to
submit an acceptable plan, it is treated as if it is significantly
undercapitalized. Significantly undercapitalized depository institutions may be
subject to a number of requirements and restrictions, including orders to sell
sufficient voting stock to become adequately capitalized, requirements to reduce
total assets and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized depository institutions are subject to appointment
of a receiver or conservator.
- 65
<PAGE> 72
CERTAIN INFORMATION REGARDING ARMSTRONG
BUSINESS
Armstrong is a Pennsylvania-chartered bank and trust company organized
in 1902. Its deposits are insured by the FDIC under the BIF. Armstrong is not
a member of the Federal Reserve System. Armstrong has one office located at 227
Market Street, Kittanning, Pennsylvania 16201. Armstrong owns the land and
building on this site. As of December 31, 1995, Armstrong had total assets of
approximately $52 million, total deposits of approximately $39 million and total
shareholders' equity of approximately $8 million.
Armstrong is a commercial bank providing loan and deposit services to
individuals and small to medium sized businesses in its Kittanning,
Pennsylvania market area. Among its services, Armstrong accepts time demand
and savings deposits and makes secured and unsecured commercial, real estate
and consumer loans. Armstrong's business is not seasonal in nature and is not
dependent upon any single customer or small group of customers for deposits or
loans. As of December 31, 1995, Armstrong had 13 full-time employees and two
part-time employees.
COMPETITION
Armstrong competes with other local credit unions, commercial banks,
thrifts and other financial institutions, as well as with major regional
banking and financial institutions. These competitors include First
Commonwealth Financial Corporation, Mellon Bank Corporation, National City
Corporation, Merchants National Bank, Apollo Trust Company, Farmers National
Bank of Kittanning, Elderton State Bank, Peoples Financial Corporation, Inc.,
Peoples National Bank Rural Valley, Armstrong County Building & Loan, PNC Bank
Corporation, S&T Bancorp, Inc., Citizens Incorporated, Pennwood Savings Bank,
and BT Financial Corporation. Armstrong is generally competitive in its
service area with respect to interest rates paid on time and savings, deposits,
service charges on deposit accounts and interest charged on loans.
SUPERVISION AND REGULATION
The operations of Armstrong are subject to federal and state statutes
and regulations applicable to banks chartered under the banking laws of the
Commonwealth of Pennsylvania and to banks whose deposits are insured by the
FDIC. Federal and state banking laws and regulations govern, among other
things, Armstrong's scope of business, investments, reserves against deposits,
loans and collateral, mergers and consolidations and establishment of branches.
All banks in Pennsylvania are permitted to maintain branch offices in any
county of the state. Branches may be established only after approval by the
Department. The Department is required to grant approval only if it finds that
there is a need for banking services or facilities such as are contemplated by
the proposed branch. The Department may disapprove an application if the
applicant bank does not have the requisite capital and surplus or if the
application relates to the establishment of a branch in a county contiguous to
the county in which the applicant's principal place of business is located, and
another banking institution that has its principal place of business in the
county in which the proposed branch would be located has, in good faith,
notified the Department of its intention to establish a branch in the same
municipal location in which the proposed branch would be located.
The laws of Pennsylvania applicable to Armstrong include, among other
things, provisions that: (1) require the maintenance of certain reserves
against deposits; (2) limit the type and amount of loans that may be made and
the interest that may be earned thereon; (3) restrict investments and other
activities; and (4) limit the payment of dividends. The amount of funds that
Armstrong may lend to a single borrower is limited generally under Pennsylvania
law to fifteen percent (15%) of the aggregate of its capital, surplus,
undivided profits, loan loss reserves and capital securities (all as defined by
statute and regulation).
Applicable Pennsylvania law also requires that Armstrong obtain the
approval of the Department prior to effecting any merger where the surviving
bank would be a Pennsylvania-chartered bank. In reviewing any merger
application, the Department would consider, among other things, whether the
merger would be consistent with adequate and sound banking practices and
whether the merger would be in the public interest on the basis of several
factors, including the potential effect of the merger on competition and the
convenience and needs of the area primarily to be served by Armstrong resulting
from the merger.
From time to time, various types of federal and state legislation have
been proposed that could result in additional regulation of, and restrictions
on, the business of Armstrong. It cannot be predicted whether any such
legislation will be adopted or how such legislation would affect the business
of Armstrong. As a consequence of the extensive regulation of commercial
banking activities in the United States, Armstrong's business is particularly
susceptible to being affected by federal legislation and regulations that may
increase the cost of doing business.
- 66 -
<PAGE> 73
EFFECT OF GOVERNMENT MONETARY POLICIES
The earnings of Armstrong are and will be affected by domestic
economic conditions and the monetary and fiscal policies of the United States
government and its agencies.
The monetary policies of the Federal Reserve have had, and will likely
continue to have an important impact on the operating results of commercial
banks through the Federal Reserve's power to implement national monetary policy
in order, among other things, to curb inflation or combat recession. The
Federal Reserve has a major effect upon the levels of bank loans, investments
and deposits through its open market operations in United States government
securities and through its regulation, among other things, of the discount rate
on borrowing of member banks and the reserve requirements against member bank
deposits. It is not possible to predict the nature and impact of future
changes in monetary and fiscal policies.
LEGISLATION AND REGULATORY CHANGES
From time to time, legislation is enacted which has the effect of
increasing the cost of doing business, limiting or expanding permissible
activities or affecting the competitive balance between banks and other
financial institutions. Proposals to change the laws and regulations governing
the operations and taxation of banks, bank holding companies and other
financial institutions are also frequently made in Congress, and before various
bank regulatory agencies. No prediction can be made as to the likelihood of
any major changes or the impact such changes might have on Armstrong.
LEGAL PROCEEDINGS
There are no proceedings pending or, to the knowledge of Armstrong,
threatened against Armstrong or its business, assets, common stock or any of
the transactions contemplated by the Merger Agreement.
ENVIRONMENTAL ISSUES
There are several federal and state statutes that govern the
obligations of financial institutions with respect to environmental issues.
Besides being responsible under such statutes for its own conduct, a bank also
may be held liable under certain circumstances for actions of borrowers or
other third parties on properties that collateralize loans held by the bank.
Such potential liability may far exceed the original amount of the loan made by
the bank. Currently, Armstrong is not a party to any pending legal proceedings
under any environmental statute. Since January 5, 1989, Armstrong has owned
one commercial property that was previously operated as a bulk fuel oil storage
depot. In March, 1994, Armstrong had a Phase I environmental site assessment
performed. The assessment showed no record of any reportable releases of
petroleum products. On February 21, 1996, Armstrong agreed to donate this
property to Havin Inc., a non-profit corporation. Armstrong expects to
complete this transfer at the end of April, 1996.
REGULATORY CAPITAL REQUIREMENTS
The following table presents Armstrong's capital ratios at December
31, 1995.
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
Tier 1 Capital . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,899
Tier 2 Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
Total Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,040
Adjusted Total Average Assets . . . . . . . . . . . . . . . . . . . 50,173
Total Adjusted Risk-Weighted Assets(1) . . . . . . . . . . . . . . 11,281
Tier 1 Risk-Based Capital Ratio(2) . . . . . . . . . . . . . . . . 70.0%
Required Tier 1 Risk-Based Capital Ratio . . . . . . . . . . . . . 4.0%
</TABLE>
- 67 -
<PAGE> 74
<TABLE>
<S> <C>
Excess Tier 1 Risk-Based Capital Ratio . . . . . . . . . . . . . . . . . . . . 66.0%
Total Risk-Based Capital Ratio(3) . . . . . . . . . . . . . . . . . . . . . . . 71.2%
Required Total Risk-Based Capital Ratio . . . . . . . . . . . . . . . . . . . . 8.0%
Excess Total Risk-Based Capital Ratio . . . . . . . . . . . . . . . . . . . . . 63.2%
Tier 1 Leverage Ratio(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.7%
Required Tier 1 Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . 3.0%
Excess Tier 1 Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . 12.7%
__________________________________
<FN>
(1) Includes off-balance sheet items at credit-equivalent values less
intangible assets.
(2) Tier 1 Risk-Based Capital Ratio is defined as the ratio of Tier 1
Capital to Total Adjusted Risk-Weighted Assets.
(3) Total Risk-Based Capital Ratio is defined as the ratio of Tier 1 and
Tier 2 Capital to Total Adjusted Risk-Weighted Assets.
(4) Tier 1 Leverage Ratio is defined as the ratio of Tier 1 Capital to
Adjusted Total Average Assets.
</TABLE>
Armstrong was required to implement, on January 1, 1994, Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("Statement 115"). For regulatory capital
reporting purposes, Statement 115 changed the composition of stockholders'
equity in financial statements prepared in accordance with generally accepted
accounting principles by including as a separate component of equity the amount
of net unrealized holding gains or losses on debt and equity securities that
are deemed to be available-for-sale. The implementation of Statement 115 did
not have a material effect during 1994 on the regulatory capital ratios of
Armstrong.
Effective January 27, 1995, the FDIC issued a final rule with respect
to the implementation of FASB 115 for regulatory capital reporting purposes.
Under this final rule, net unrealized holding losses on available-for-sale
equity securities (but not debt securities) with readily determinable fair
values are included (i.e., deducted) when calculating Armstrong Tier 1 capital.
All other unrealized holding gains and losses on available-for-sale securities
are excluded (i.e., not deducted) from Armstrong's Tier 1 capital. Based upon
the composition of Armstrong's investment portfolio as of December 31, 1995,
such final rule had no material effect on Armstrong's Tier 1 capital.
Armstrong's ability to maintain the required levels of capital is
substantially dependent upon: the success of Armstrong's capital and business
plans; the impact of future economic events on Armstrong loan customers; and
Armstrong's ability to manage its interest rate risk and investment portfolio
and control its growth and other operating expenses.
ARMSTRONG MARKET PRICES AND DIVIDENDS
ARMSTRONG COMMON STOCK PRICES AND COMMON STOCK DIVIDENDS
There is no established public trading market for Armstrong Common
Stock. Occasionally, individuals sell and buy shares of the Armstrong Common
Stock in privately negotiated transactions. Armstrong acts as its own transfer
agent and keeps its own stock transfer ledger. According to such ledger, the
following number of shares were transferred during the years indicated:
<TABLE>
<CAPTION>
Year Number of Shares Transferred
---- ----------------------------
<S> <C>
1993 200
1994 1
1995 2,384
</TABLE>
The lowest and highest prices per share known by the management of
Armstrong for the above years were between $995.14 and $1100 per share,
respectively. These prices may or may not include any mark-up, mark-down or
commission. The sale price per share of Armstrong Common Stock in the last
known trade prior to the execution and delivery of the Merger Agreement and the
public announcement thereof, which trade occurred on November 22, 1995, was
$995.14. This trade occurred pursuant to the
- 68 -
<PAGE> 75
Exchange Agreement. To the knowledge of Armstrong, since the execution and
delivery of the Merger Agreement, there have been no trades of Armstrong
Common Stock, except pursuant to the Exchange Agreement.
The following table shows the per share cash dividends paid by
Armstrong in 1995 and 1994:
<TABLE>
<CAPTION>
CASH DIVIDENDS
DECLARED
----------------------
1995 1994
----------------------
<S> <C> <C>
First Quarter $14.00 $ 5.00
Second Quarter 15.50 17.25
Third Quarter 21.25 8.50
Fourth Quarter 10.00 25.00
</TABLE>
DIVIDEND RESTRICTIONS ON ARMSTRONG
Any future dividends of Armstrong are subject to certain regulatory
considerations and the discretion of its Board of Directors and will depend
upon a number of factors, including operating results, financial conditions and
general business conditions. The shareholders are entitled to receive
dividends as and when declared by the Board of Directors of Armstrong, out of
funds legally available therefor, subject to the restrictions set forth in the
Pennsylvania Banking Code of 1965 (the "Pennsylvania Banking Code") and the
Federal Deposit Insurance Act.
The Pennsylvania Banking Code provides that cash dividends may be
declared and paid only out of accumulated net earnings and that, prior to the
declaration of any dividend, if the surplus of Armstrong is less than the
amount of its capital, Armstrong shall, until surplus is equal to such amount,
transfer to surplus an amount which is at least 10% of the net earnings of
Armstrong for the period since the end of the last fiscal year or for any
shorter period since the declaration of a dividend. If the surplus of
Armstrong is less than 50% of the amount of capital, no dividend may be
declared or paid without the prior approval of the Department until such
surplus is equal to 50% of Armstrong's capital.
The Federal Deposit Insurance Act generally prohibits all payments of
dividends by any bank which is in default on any assessment for deposit
insurance premium to the FDIC.
- 69 -
<PAGE> 76
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF ARMSTRONG
FINANCIAL CONDITION
GENERAL
Total assets during 1995 increased by $10.7 million or 26.3% from
$40.8 million at December 31, 1994, to $51.5 million at December 31, 1995. The
increase in total assets has been primarily in investment securities available
for sale, which increased by $8.3 million or 28.9%. The increase in investment
securities was primarily funded by increased levels of time deposits and other
borrowings.
SECURITIES
Armstrong's intent is to use the securities portfolio to manage
liquidity and interest rate risk by purchasing high quality securities with
medium range maturities. Armstrong has designated substantially all
securities, except those municipal securities in Armstrong's local market, as
being available for sale. The classification provides Armstrong more
flexibility in liquidating securities for interest rate risk management and for
liquidity purposes. In a volatile interest rate environment, securities can be
liquidated to maximize earnings. At the same time, new securities must
generate yields matching current interest rates on deposit products.
At December 31, 1995, Armstrong's total securities amounted to $38.3
million, $36.9 million available for sale and $1.4 million held to maturity.
Total securities are comprised of $21.1 million or 55.3% in U. S. Government
corporation and agencies, $13.7 million or 35.7% in mortgage-backed securities
which are guaranteed by U. S. Government corporations and agencies, $3.1
million or 8.1% in obligations of states and political subdivisions (municipal
tax free securities) and $.4 million or .1% in Federal Home Loan Bank stock.
Armstrong maintains levels of municipal securities to assist in tax planning
strategies to minimize the effects of federal tax expense.
All of the growth in investment securities which occurred in 1995 was
in U. S. Government corporations and agencies.
The fully taxable equivalent yield on investment securities was 7.44%
and 6.59% for the years ended December 31, 1995 and 1994.
LOANS
Total loans net of unearned income amounted to $11.1 million at
December 31, 1995, an increase of $1.9 million or 21.1% over the $9.2 million
level at December 31, 1994. The increase in loans was made up of increases in
mortgage loans of $.9 million and consumer loans to individuals of $1.2 million
offset by a decline in commercial loans of $.2 million.
At December 31, 1995, mortgage loans amounted to $8.0 million or 72.4%
of total loans, consumer loans to individuals amounted to $2.3 million or
20.5%, and commercial loans amounted to $.8 million or 7.1% of total loans.
RISK ELEMENTS OF LOAN PORTFOLIO
The following table identifies nonperforming loans. Past due loans
are loans that were contractually past due 90 days or more as to interest or
principal payments. At December 31, 1994 and 1993, there were no restructured
loans or loans for which terms have been renegotiated to provide a reduction or
deferral of principal or interest as a result of the financial position of the
borrower. At December 31, 1995, Armstrong has no loans which were considered
impaired loans in accordance with Financial Accounting Standards Board
Statement No. 114.
- 70 -
<PAGE> 77
<TABLE>
<CAPTION>
December 31,
1995 1994 1993
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Loans accounted for on a non-accrual basis $ 114 $ 29 $ 6
Accruing loans which are contractually past
due 90 days or more 17 103 --
Impaired or restructured loans -- -- --
------- -------- ------
Total non-performing loans 131 132 6
Real estate owned -- 35 50
------- -------- ------
Total non-performing assets $ 131 $ 167 $ 56
======= ======== ======
Non-performing loans as a percent
of total loans 1.18% 1.45% 0.09%
Non-performing assets as a percent
of total assets 0.25% 0.41% 0.14%
</TABLE>
During the year ended December 31, 1995, interest income of $9,224
would have been recorded on loans accounted for on a non-accrual basis if the
loans had been current throughout the period. The amount of interest received
on non-accrual loans was $6,711 in 1995.
Based upon current information available and upon measures taken to
maintain the allowance for loan losses at an appropriate level, management does
not believe there are any loans classified for regulatory purposes as loss,
doubtful, substandard, special mention, or otherwise which will result in
losses which would reasonably be expected to have a material impact on future
operations, liquidity, or capital reserves. At December 31, 1995, there are no
loans which were not included as past due, nonaccrual, or impaired where known
information about possible credit problems of borrowers causes management to
have serious doubts as to the ability of such borrowers to comply with present
loan repayment terms. Management is not aware of any other information which
causes it to have serious doubts as to the ability of borrowers in general to
comply with repayment terms.
DEPOSITS
Total deposits increased by $5.3 million or 15.9% during 1995. Total
time deposits increased by $8.4 million while other forms of deposits declined
collectively by $3.1 million. Much of the decline in other deposits resulted
in transfers into time deposits as customers desired to lock in at higher rates
in a declining rate environment. The growth in time deposits was spurred by
marketing efforts to bring in new deposit funds by offering a higher rate on
three year instruments. The growth in time deposits was matched off against
investment security purchases with yields to provide an appropriate net return
on assets.
OTHER BORROWINGS
Other Borrowings are comprised of advances made under the Federal Home
Loan Bank Flexline. This Flexline arrangement is a revolving line of credit
and is renewable annually. During 1995 Armstrong had a borrowing limit of
$4,079,600 with a variable rate of interest. This Flexline is utilized as an
additional source of liquidity. At December 31, 1995, Armstrong had $4,000,000
in advances outstanding under this borrowing facility.
STOCKHOLDERS' EQUITY
Total stockholders' equity amounted to $8.4 million at December 31,
1995. This represents an increase of $1.4 million or 19.3%. This increase is
the result of net income of $647,000 and a change in net unrealized gain (loss)
on securities of $1.2 million offset by the payment of cash dividends of
$486,000.
Federal banking regulators have established capital adequacy
requirements for banks based on risk factors. All banks are required to have a
minimum of 4.0% of risk adjusted assets in Tier I capital and 8.0% of risk
adjusted assets in total capital. As of December 31, 1995, the Bank's Tier I
capital was 70.0%, and its total risk based capital was 71.2%.
- 71 -
<PAGE> 78
Additionally, Armstrong is required to maintain a minimum ratio of
leverage capital to adjusted total assets of 3.0% for the top rated
institutions with less highly rated institutions, or those with higher levels
of risk, required to maintain ratios of 100 to 200 basis points above the
minimum level. Armstrong's ratio under these guidelines as of December 31,
1995, is 15.7%.
Two key performance ratios in the banking industry are return on
average assets and return on average equity. Armstrong's return on average
assets for the years ended December 31, 1995 and 1994, are 1.40% and 1.46%.
The Bank's return on equity for the years ended December 31, 1995 and 1994, are
8.41% and 7.95%.
LIQUIDITY
Liquidity refers to the ability of Armstrong to satisfy the financial
needs of its depositors and borrowers. Liquidity can be provided by the sale
or maturity of assets or by the acquisition of additional funds in the form of
deposits or other borrowings.
Management considers its sources of liquidity to be cash and due from
banks, federal funds sold, and investment securities maturing in one year or
less. Considering these sources of liquidity, Armstrong has $2.7 million in
liquid assets at December 31, 1995.
A measure of liquidity is the average loan to deposit ratio. This
ratio was 28.6% at December 31, 1995.
As of December 31, 1995, management believes Armstrong has adequate
liquidity to satisfy its customers' needs. Management is not aware of any
known trends or any known demands, commitments, events or uncertainties that
will result in a material effect on the Armstrong's liquidity.
RESULTS OF OPERATIONS
OVERVIEW
Armstrong had net income of $647,000 for the year ended December 31,
1995, compared to $581,000 for the year ended December 31, 1994. This
represents an increase of $66,000 or 11.3%. The increase in net income for the
year was primarily the result of an increase in net interest income of $93,000.
NET INTEREST INCOME
Total interest income increased by $722,000 from $2,563,000 in 1994 to
$3,285,000 in 1995. There were increases in all categories of interest income
with the exception of federal funds sold. Although the increases were the
result of combined increases in volume and yield, the primary cause of the
increase was the volume increase in investment securities. As mentioned above,
investment securities increased by $8.3 million during 1995 as part of
management's liquidity and interest rate risk strategies.
The increase in total interest income was offset by increased costs of
funds of deposits and borrowings.
These increases were also made up of increases in the rates paid as
well as increases in volume. The most significant factor in the increased cost
of funds was the volume increase in time deposits and borrowings. Time
deposits increased $8.4 million, and borrowings increased by $4 million during
1995. The increase in time deposits is made up of approximately $3.1 million
of funds moving from other deposit sources within Armstrong and approximately
$5.3 million in new funds. These increases in time deposits were mirrored by
purchases of securities with similar maturities. The net interest spread as a
result of these transactions will continue to increase profits in the near
future.
The increase in interest expense on borrowings is based on the
increase of average borrowings to $1.8 million during 1995. Armstrong became a
member of the Federal Home Loan Bank of Pittsburgh in 1995 which provided it
with an additional source of liquidity through the Flexline arrangement.
Management has been able to utilize these funds by purchasing securities or
funding loans at a higher rate of return than the cost of funds associated with
the borrowing.
Net interest income increased by $93,000 to $1.8 million for 1995
from $1.7 million for 1994.
- 72 -
<PAGE> 79
PROVISION FOR LOAN LOSSES
The provision for loan losses amounted to $37,500 for 1995. There was
no provision for loan losses in 1994. The provision for loan losses is an
expense charged to earnings in anticipation of estimated losses attributable to
loans based upon the adequacy of the allowance for loan losses. The adequacy
of the allowance for loan losses is based upon management's assessment of,
among other things, local and national economic conditions, historical losses,
off balance sheet risk and an analysis of loans including specific evaluations
of the financial status, cash flow, and adequacy of collateral of borrowers
with indebtedness to Armstrong and current levels of non-performing loans.
Management uses a specific identification method for large loans, and for loans
which fall outside the parameters for specific identification, amounts are
allocated based upon percentages derived from historical loan loss data for
each category of loans.
The following table presents an analysis of the reserve for loan
losses for the years ended December 31.
<TABLE>
<S> <C> <C> <C>
1995 1994 1993
----------- ---------- ----------
(In thousands)
Loans outstanding at end of period $ 11,055 $ 9,131 $ 6,448
========== ========= =========
Average loans outstanding $ 10,093 $ 7,790 $ 6,333
========== ========= =========
Reserve for allowance for losses on
loans:
Balance, beginning of the period $ 148 $ 148 $ 152
Loans charged off:
Commercial, financial, and
agriculture -- -- --
Installment and charge card -- -- 4
Real estate 35 -- --
---------- --------- ---------
Total loans charged off 35 -- 4
---------- --------- ---------
Recoveries:
Commercial, financial, and
agriculture -- -- --
Installment and charge card -- -- --
Real estate -- -- --
---------- --------- ---------
Total recoveries -- -- --
---------- --------- ---------
Net loans charged off 35 -- 4
---------- --------- ---------
Provisions charged to expense 37 -- --
---------- --------- ---------
Balance, end of period $ 150 $ 148 $ 148
========== ========= =========
Ratios:
Net charge-offs as a percent of
average loans outstanding 0.35% --% 0.06%
Allowance for losses on loans as
a percent of average loans
outstanding 1.49% 1.90% 2.34%
</TABLE>
While management uses available information to make evaluations of the
adequacy of the allowance, future adjustments may be necessary if conditions
differ substantially from the assumptions used in making the evaluation. While
management believes it has identified and provided for losses and that the
allowance for loan losses is adequate, management cannot assure that further
adjustments may not be necessary.
NONINTEREST INCOME
Noninterest income is comprised primarily of service charges on
deposit accounts and investment securities gains, net. Total noninterest
income amounted to $246,000 in 1995 compared to $80,000 in 1994, an increase of
$166,000. Of the $166,000 increase in noninterest income, $157,000 was a
result of the increase in gains on the sale of securities. During 1995
Armstrong recorded $194,000 in net security gains. In an effort to maximize
earnings and to manage the interest rate risk position of Armstrong, investment
activity increased during 1995. Armstrong owned a significant volume of
high-yielding mortgage-backed securities which
- 73 -
<PAGE> 80
in a falling rate environment become highly susceptible to prepayment risk. In
an effort to minimize the effects of rapid repayment, those securities were
liquidated and replaced with average-yielding mortgaged-backed securities.
NONINTEREST EXPENSE
Noninterest expense is primarily made up of salaries and benefits,
occupancy and equipment expense, deposit insurance premium, and other items.
Total noninterest expense amounted to $1,171,000 in 1995 compared to $975,000
in 1994 or an increase of $196,000.
Salaries and employee benefits increased by $52,000 during 1995. This
increase was made up of $29,000 in expense associated with a deferred
compensation arrangement for the prior president of the Bank and $23,000 in
general pay rate increases for the year.
Other expense increased by $142,000 in 1995, which is entirely
comprised of the professional fees for legal and consulting services relating
to the pending merger of Armstrong with BT Financial.
INCOME TAX EXPENSE
Income tax expense amounted to $190,000 in 1995 compared to $230,000
in 1994. The effective tax rate for 1995 was 22.7% compared to 28.4% for 1994.
The decline in the effective tax rate was the result of increased earnings on
tax free securities. Earnings on tax free securities increased by $128,000 or
72.8%.
- 74 -
<PAGE> 81
MANAGEMENT OF ARMSTRONG
DIRECTORS OF ARMSTRONG
The following list sets forth biographical information concerning the
members of the Board of Directors of Armstrong:
<TABLE>
<CAPTION>
Business Experience,
Including Principal
Occupation During Past Five Director
Name and Age Years, and Other Directorships Since
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raymond A. Boarts (60) Secretary, Treasurer & Managing 1986
Partner - Paul's Auto Parts
Coleman J. Clougherty (38) Chairman, President & CEO -
The Armstrong County Trust Company 1994
Byron K. Crolley (48) Comptroller - SPEDD, Inc. (Non-Profit 1993
Economic Development Company)
Lynn Campbell Durham (47) Independent Businessperson/Director-
The Arthur and Pearle Campbell
Charitable Foundation 1995
Othmer K. Heilman (72) Retired President & CEO- 1971
O.K. Heilman, Inc. (Trucking)
Jerome Lombardi (56) Attorney at Law 1993
Louis A. Vidic (58) Chairman & CEO - SPEDD, Inc. 1993
</TABLE>
Principal Officers of Armstrong
The following table sets forth selected information about the
principal officers of Armstrong, each of whom is elected by the Board of
Directors of Armstrong and each of whom holds office at the discretion of the
Board of Directors of Armstrong:
<TABLE>
<CAPTION>
Number
Bank of Shares Age as of
Office/Position with Held Employee Beneficially March/April __,
Name Bank Since Since Owned 1996
---- ---- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Coleman J. President & CEO 1994(1) 1994 1 37
Clougherty
Bonnie Rupp Secretary/Treasurer 0 45
Othmer K. Heilman Vice President 1 72
Lori Guepfert Comptroller 0 35
Faith A. Stitt Consumer 0 35
Loan/Compliance
Officer
<FN>
(1) From 1989-1994, Mr. Clougherty served as the Chief Financial Officer of
Summit Bancorp, Johnstown, Pennsylvania.
</TABLE>
- 75 -
<PAGE> 82
REMUNERATION OF DIRECTORS AND OFFICERS
Generally, in 1995, the Board of Directors met once a month. Each
director received $325 for each Board of Directors meeting that he or she
attended. In addition, each director received $100 for each committee
meeting of Armstrong that he or she attended. During 1995, the Board of
Directors of Armstrong held twelve meetings. In 1995, directors received
$35,675 in the aggregate for attendance at Board Meetings and Committee
Meetings of Armstrong. All of the directors attended at least seventh-five
percent (75%) of the meetings of Armstrong's Board of Directors.
The following table sets forth certain summary information concerning
compensation paid or accrued by Armstrong on behalf of Armstrong's Chief
Executive Officer. The annual salary and bonus of Armstrong's other four most
highly compensated officers did not exceed $100,000 during the last three
fiscal years.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual compensation
-----------------------------------
Other
annual All other
compen- Compen-
Name and Principal Position Year Salary Bonus sation(1) sation(2)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Coleman J. Clougherty, 1995 $72,968 $11,500 $4,075 $1,566
President and Chief Executive 1994 65,965 11,900 3,750 -
Officer and Director 1993 NA NA NA NA
- ---------------------------------------------------------------------------------------------------------
<FN>
(1) Amounts shown represent Board fees. Mr. Clougherty also received certain
perquisites, but the cost of providing such perquisites did not exceed the
lesser of $50,000 or 10% of his salary or bonus.
(2) Represents amounts contributed to Armstrong's 401(k) plan for the account
of Mr. Clougherty for the fiscal year ended December 31, 1995.
</TABLE>
- 76 -
<PAGE> 83
BENEFICIAL OWNERSHIP BY OFFICERS AND DIRECTORS
The following table sets forth as of March/April __, 1996, the amount
and percentage of the Common Stock of Armstrong beneficially owned by each
director and all officers and directors of Armstrong as a group.
<TABLE>
<CAPTION>
Name of Individual Amount and Nature of Percent
Or Identity of Group Beneficial Ownership of Class
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Raymond A. Boarts 50 0.63%
Coleman J. Clougherty 1 0.01%
Byron K. Crolley 1 0.01%
Lynn Campbell Durham 2,762(1) 34.52%
Othmer K. Heilman 1 0.01%
Jerome Lombardi 1,922 24.03%
Louis A. Vidic 418 5.23%
All Directors and Officers
as a Group (10 Persons) 5,155 64.44%
<FN>
(1) Includes 798 shares owned by the Arthur and Pearle Campbell Foundation for
which Ms. Durham serves as a director. Ms. Durham disclaims beneficial
ownership of such shares.
</TABLE>
RETIREMENT PLAN
On March 1, 1995, Armstrong adopted a defined contribution 401K
retirement plan (the "Plan"). An employee who qualifies may elect to
contribute into the Plan an amount up to 15% of his or her annual compensation.
Armstrong matches 50% of an employee's contribution up to a maximum aggregate
amount equal to 4% of an employee's annual compensation. Armstrong's payments
to the Plan in 1995 were $5,733.
CERTAIN TRANSACTIONS
There have been no material transactions, proposed or consummated,
between Armstrong and any director or executive officer of Armstrong, or any
associate of the foregoing persons. Armstrong has had and intends to continue
to have banking and financial transactions in the ordinary course of business
with Directors and Officers of Armstrong and their associates on comparable
terms and with similar interest rates as those prevailing from time to time for
other customers of Armstrong. Total loans outstanding from Armstrong at
December 31, 1995, to Armstrong's Officers and Directors as a group and members
of their immediate families and companies in which they had an ownership
interest of 5% or more was $506,001 or 6.05% of Armstrong's total equity capital
accounts. Such loans do not involve more than the normal risk of collectibility
nor do they present other unfavorable features.
PRINCIPAL OWNERS OF ARMSTRONG VOTING SECURITIES
The following table sets forth, as of March/April __, 1996, the name
and address of each person who owns of record or who is known by the Board of
Directors to be the beneficial owner of five percent (5%) or more of Armstrong's
outstanding Common Stock, the number of shares beneficially owned by such person
and the percentage of the bank's outstanding Common Stock so owned.
<TABLE>
<CAPTION>
Percent of Outstanding
Shares Beneficially Common Stock
Name and Address Owned (1) Beneficially Owned
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Scott Campbell 438 5.48%
P.O. Box 776
Hopeland, CA 95449
Thomas R. Campbell 438 5.48%
7124 Avenida Leon
Alta Loma, CA 91701
The Arthur and Pearle 798 9.98%
Campbell Foundation
201 S. McKean St.
Kittanning, PA 16201
Cheryl E. Curtis 438 5.48%
P.O. Box 15566
Beverly Hills, CA 90209-1566
</TABLE>
- 77 -
<PAGE> 84
<TABLE>
<S> <C> <C>
Lynn Campbell Durham 1,964 24.550
205 Camino Alto,
Suite 225
Mill Valley, CA 94941
Jerome D. Lombardi 1,922 24.550%
201 S. McKean Street
Kittanning, PA 16201
Frank W. Wolfe, III 418 5.225%
725 Route 66
Apollo, PA 15613
<FN>
(1) Based on Armstrong's stock transfer ledger and information furnished
by the respective individuals. Under applicable regulations, shares
are deemed to be beneficially owned by a person if he directly or
indirectly has or shares the power to vote or dispose of the shares,
whether or not he has any economic interest in the shares. Unless
otherwise indicated, the named beneficial owner has sole voting and
dispositive power with respect to the shares.
</TABLE>
LEGAL MATTERS
The validity of the shares of BT Financial Common Stock to be issued
in connection with the Merger and certain other legal matters regarding BT
Financial will be passed upon by Kirkpatrick & Lockhart LLP, Pittsburgh,
Pennsylvania. Certain legal matters regarding Armstrong will be passed upon by
Manatt, Phelps & Phillips LLP, Washington, D.C., and Blank, Rome, Comiskey &
McCauley, Philadelphia, Pennsylvania.
EXPERTS
The consolidated financial statements of BT Financial as of December
31, 1994 and December 31, 1993 and for the three years ended December 31, 1994
incorporated by reference in this Proxy Statement/Prospectus, have been audited
by Coopers & Lybrand LLP, independent certified public accountants, as stated
in their report appearing therein and are incorporated herein by reference in
reliance upon such report and upon the authority of such firm as experts in
auditing and accounting.
The financial statements of Armstrong as of December 31, 1995 and for
the year ended December 31, 1995 included in this Proxy Statement/Prospectus
have been included herein in reliance upon the report of SR Snodgrass,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
The financial statements of Moxham as of December 31, 1995 and December
31, 1994 and for the three years ended December 31, 1995 included in this Proxy
Statement/Prospectus have been included herein in reliance upon the report of
Barnes, Saly & Company, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
- 78 -
<PAGE> 85
INDEX TO ARMSTRONG AND MOXHAM FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Contents Page
- -------------------------------------------------------------------------------
<S> <C>
ARMSTRONG
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . F-2
Balance Sheet at December 31, 1995
(audited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Statements of Income for the year ended December 31,
1995 (audited) and 1994 (unaudited) . . . . . . . . . . . . . . . . . F-4
Statements of Changes in Stockholders' Equity for the year ended
December 31, 1995 (audited) and 1994 (unaudited) . . . . . . . . . . . F-5
Statements of Cash Flows for the year ended December 31,
1995 (audited) and 1994 (unaudited) . . . . . . . . . . . . . . . . . F-6
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . F-7
MOXHAM
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . F-18
Balance Sheet at December 31, 1995 and 1994 (audited) . . . . . . . . . F-19
Statements of Income for the year ended December 31, 1995,
1994 and 1993 (audited) . . . . . . . . . . . . . . . . . . . . . . . F-21
Statement of Stockholder's Equity for the years ended
December 31, 1995, 1994 and 1993 (audited) . . . . . . . . . . . . . . F-23
Statements of cash flows for the year ended
December 31, 1995, 1994 and 1993 (audited) . . . . . . . . . . . . . . F-24
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . F-26
</TABLE>
- -------------------------------------------------------------------------------
F-1
<PAGE> 86
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Armstrong County Trust Company
We have audited the accompanying balance sheet of Armstrong County Trust
Company as of December 31, 1995, and the related statements of income, changes
in stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides 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 Armstrong County Trust Company
as of December 31, 1995, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
As explained in the notes to the financial statements, effective January 1,
1995, the Bank changed its method of accounting for impaired loans and related
credit loss reserves and effective January 1, 1994, changed its method of
accounting for investment securities.
S.R. Snodgrass
Wexford, PA
February 16, 1996
F-2
<PAGE> 87
ARMSTRONG COUNTY TRUST COMPANY
BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1995
------------
<S> <C>
ASSETS
Cash and due from banks $ 1,426,834
Federal funds sold --
Securities available for sale 36,929,936
Investment securities (market value of $1,359,516) 1,355,000
-----------
Total investment securities 38,284,936
Loans (net of unearned income of $212,955) 11,055,188
Less allowance for loan losses 150,474
-----------
Net loans 10,904,714
Premises and equipment 312,535
Accrued interest and other assets 613,540
-----------
TOTAL ASSETS $51,542,559
===========
LIABILITIES
Deposits:
Noninterest-bearing demand $ 4,921,012
Money market 3,405,305
Savings 9,513,030
Time 20,823,328
-----------
Total deposits 38,662,675
Short-term borrowings 4,000,000
Accrued interest and other liabilities 509,177
----------
TOTAL LIABILITIES 43,171,852
-----------
STOCKHOLDERS' EQUITY
Common stock, par value $50; 8,000 shares
issued and outstanding 400,000
Capital surplus 850,000
Retained earnings 6,648,366
Net unrealized gain on securities 472,341
-----------
TOTAL STOCKHOLDERS' EQUITY 8,370,707
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $51,542,559
===========
</TABLE>
See accompanying notes to the financial statements.
F-3
<PAGE> 88
ARMSTRONG COUNTY TRUST COMPANY
STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
---------- ----------
(unaudited)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 840,730 $ 658,636
Federal funds sold 7,368 58,624
Investment securities:
Taxable interest 2,132,098 1,669,381
Tax exempt interest 304,388 176,125
---------- ----------
Total interest income 3,284,584 2,562,766
---------- ----------
INTEREST EXPENSE
Deposits 1,358,466 853,283
Short-term borrowings 126,257 2,350
---------- ----------
Total interest expense 1,484,723 855,633
---------- ----------
NET INTEREST INCOME 1,799,861 1,707,133
Provision for loan losses 37,500 --
---------- ----------
NET INTEREST INCOME AFTER PROVISIONS FOR LOAN LOSSES 1,762,361 1,707,133
---------- ----------
NONINTEREST INCOME
Service charges and fees 30,890 17,329
Investment securities gains, net 193,854 36,865
Other income 21,060 25,343
---------- ----------
Total noninterest income 245,804 79,537
---------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits 473,932 422,158
Occupancy expense 83,911 76,573
Equipment expense 45,975 25,248
Federal deposit insurance 37,976 64,380
Other expense 529,135 386,991
---------- ----------
Total noninterest expense 1,170,929 975,350
---------- ----------
Income before income taxes 837,236 811,320
Income taxes 190,000 230,006
---------- ----------
NET INCOME $ 647,235 $ 581,314
========== ==========
EARNINGS PER SHARE $ 80.90 $ 72.66
AVERAGE SHARES OUTSTANDING 8,000 8,000
</TABLE>
See accompanying notes to the financial statements.
F-4
<PAGE> 89
ARMSTRONG COUNTY TRUST COMPANY
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net Unrealized
Common Capital Retained Gain (Loss)
Stock Surplus Earnings on Securities Total
-------- -------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993,
as previously reported (unaudited) $400,000 $850,000 $6,247,056 $ -- $ 7,497,056
Prior period adjustment,
(see Note 2) 104,760 104,760
-------- -------- ---------- ----------- -----------
Balance, December 31, 1993,
as restated (unaudited) 400,000 850,000 6,351,816 -- 7,601,816
Initial net unrealized gain
on securities 794,587 794,587
Net income 581,314 581,314
Cash dividends declared
($55.75 per share) (446,000) (446,000)
Net unrealized loss on
securities (1,514,962) (1,514,962)
-------- -------- ---------- ----------- -----------
Balance, December 31, 1994 (unaudited) 400,000 850,000 6,487,130 (720,375) 7,016,755
Net income 647,236 647,236
Cash dividends declared
($60.75 per share) (486,000) (486,000)
Net unrealized gain on
securities 1,192,716 1,192,716
-------- -------- ---------- ----------- -----------
Balance, December 31, 1995 $400,000 $850,000 $6,648,366 $ 472,341 $ 8,370,707
======== ======== ========== =========== ===========
</TABLE>
See accompanying notes to the financial statements.
F-5
<PAGE> 90
ARMSTRONG COUNTY TRUST COMPANY
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 647,236 $ 581,314
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 37,500 --
Depreciation and amortization, net 352,549 97,002
Deferred income taxes (20,445) 1,432
Investment securities gains, net (193,854) (36,865)
Decrease (increase) in accrued interest receivable (127,386) 65,260
Increase in accrued interest payable 26,170 57,977
Other, net (14,604) 121,982
------------ ------------
Net cash provided by operating activities 707,166 888,102
------------ ------------
INVESTING ACTIVITIES
Securities available for sale:
Proceeds from sales 26,067,114 23,738,443
Proceeds from maturities or paydown 3,650,928 1,297,251
Purchases of securities (37,699,187) (31,602,717)
Investment securities held to maturity:
Proceeds from maturities or paydown 570,000 763,000
Purchases of securities (350,000) (447,845)
Net loan originations (1,959,675) (2,682,944)
Purchases of premises and equipment (262,139) (159,078)
Other, net (106) 8,701
------------ ------------
Net cash used for investing activities (9,983,065) (9,085,189)
------------ ------------
FINANCING ACTIVITIES
Net increase in deposits 5,316,179 2,100,815
Increase in other borrowings 4,000,000 --
Cash dividends paid (606,000) (446,000)
------------ ------------
Net cash provided by financing activities 8,710,179 1,654,815
------------ ------------
Decrease in cash and cash equivalents (565,720) (6,542,272)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,992,554 8,534,826
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,426,834 $ 1,992,554
============ ===========
</TABLE>
See accompanying notes to the financial statements.
F-6
<PAGE> 91
ARMSTRONG COUNTY TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(All data related to December 31, 1994, and
the year ended December 31, 1994, is unaudited.)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Armstrong County Trust Company (Bank) is a state-chartered bank
located in Kittanning, Pennsylvania. The Bank's principal sources of
revenue emanate from its interest earnings on its investment
securities portfolio, its portfolio of residential real estate,
commercial and consumer loans, as well as a variety of deposit
services offered to its customers. The Bank is subject to regulation
and supervision by the FDIC and the Pennsylvania Department of
Banking.
The financial statements have been prepared in conformity with
generally accepted accounting principles. 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 revenues and expenses for the period. Actual
results could differ significantly from estimates.
A summary of significant accounting and reporting policies applied in
the presentation of the accompanying financial statements follows:
INVESTMENT SECURITIES
The Bank has classified investment securities into held to maturity
and available for sale classifications. Debt securities acquired with
the intent to hold to maturity are stated at cost adjusted for
amortization of premium and accretion of discount which are computed
using the interest method and recognized as adjustments of interest
income. Certain other debt securities have been classified as
available for sale to serve principally as a source of liquidity.
Unrealized holding gains and losses for available for sale securities
are reported as a separate component of stockholders' equity, net of
tax, until realized. Realized security gains and losses are computed
using the specific identification method. Interest and dividends on
investment securities are recognized as income when earned.
LOANS
Loans are reported at their principal amount net of unearned income
and the allowance for loan losses. Interest from certain types of
installment loans is recognized as income over their lives using
methods of amortization which approximate a level yield related to the
principal amounts. Interest on all other loans, including certain
types of installment loans is recognized as income when earned on the
accrual method. Accrual of interest is discontinued when, in the
opinion of management, reasonable doubt exists as to the
collectibility of additional interest. Loans are returned to accrual
status when past due interest is collected, and the collection of
principal is probable.
F-7
<PAGE> 92
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ALLOWANCE FOR LOAN LOSSES
Effective January 1, 1995, the Bank adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan," as amended by Statement No. 118, "Accounting by Creditors
for Impairment of a Loan--Income Recognition and Disclosures." Under
these standards, the Bank estimates credit losses on impaired loans
based on the present value of expected cash flows or the fair value of
the underlying collateral if the loan repayment is expected to come
from the sale or operation of such collateral. Prior to 1995, the
credit losses related to these loans were estimated based on
undiscounted cash flows or the fair value of the underlying
collateral.
Statement 118 amends Statement 114 to permit a creditor to use
existing methods for recognizing interest income on impaired loans
eliminating the income recognition provisions of Statement 114. The
adoption of Statements 114 and 118 have no material effect on the
Bank's financial position or results of operations.
The allowance for loan losses represents the amount which management
estimates is adequate to provide for potential losses in its
portfolio. The Bank uses the allowance method in providing for loan
losses. Accordingly, all loan losses are charged to the allowance, and
all recoveries are credited to it. The allowance for loan losses is
established through a provision for loan losses which is charged to
operations. The provision is based upon management's periodic
evaluation of individual loans, the overall risk characteristics of
the various portfolio segments, past experience with losses, the
impact of economic conditions on borrowers, and other relevant
factors. This evaluation is inherently subjective as it requires
material estimates which may be susceptible to significant change in
the near-term.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed on the straight-line method
over the estimated useful lives of the assets. Expenditures for
maintenance and repairs are charged against income as incurred. Costs
of major additions and improvements are capitalized.
INCOME TAXES
Deferred tax assets or liabilities are computed based on the
difference between the financial statement and income tax basis of
assets and liabilities using the enacted marginal tax rates. Deferred
income tax expense or benefit are based on the changes in the deferred
tax asset or liability from period to period.
EARNINGS PER SHARE
Earnings per share are calculated using the weighted average number of
shares outstanding for the periods.
CASH FLOW INFORMATION
The Bank has defined cash and cash equivalents as those amounts
included in the balance sheet captions cash and due from banks and
federal funds sold.
<TABLE>
<CAPTION>
Cash paid during the year for: 1995 1994
---- ----
<S> <C> <C>
Interest on deposits and borrowings $1,458,553 $797,656
Income taxes 270,457 260,000
</TABLE>
RECLASSIFICATION OF COMPARATIVE AMOUNTS
Certain comparative amounts for the prior year have been reclassified
to conform to current year classifications.
F-8
<PAGE> 93
2. RESTATEMENT
Retained earnings have been retroactively restated as of December 31,
1993, for $104,760, to correct an error in recording the initial
cumulative effect of the adoption of Statement of Financial Accounting
Standards No. 109. The net effect on reported net income for 1993 was
an increase of $104,760 or $13.10 per share.
3. INVESTMENT SECURITIES
Under adoption of Statement 115, the Bank initially transferred from
the investment securities portfolio to the investment securities
available for sale classification securities with an amortized cost of
$21,651,919 and an estimated market value of $22,855,839. This
resulted in an increase to stockholders' equity of $794,587 net of
related federal income taxes.
The amortized cost and estimated market values of investment
securities at December 31, 1995, are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Government corporations
and agencies $ 20,752,058 $ 397,949 $ (3,991) $ 21,146,016
Obligations of states and
political subdivisions 1,615,418 79,080 -- 1,694,498
Mortgage-backed securities 13,430,091 242,631 -- 13,672,722
------------ --------- -------- ------------
Total debt securities 35,797,567 719,660 (3,991) 36,513,236
Equity securities 416,700 -- -- 416,700
------------ --------- -------- ------------
Total $ 36,214,267 $ 719,660 $ (3,991) $ 36,929,936
============ ========= ======== ============
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
HELD TO MATURITY
Obligations of states and
political subdivisions $ 1,355,00 $ 5,440 $ (924) $ 1,359,516
============ ========= ======== ============
</TABLE>
The amortized cost and estimated market values of debt securities at December
31, 1995, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
F-9
<PAGE> 94
3. INVESTMENT SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
Amortized Estimated Amortized Estimated
Cost Market Value Cost Market Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Due in one year or less $ 1,000,000 $ 1,004,063 $ 245,000 $ 245,650
Due after one year through
five years 500,000 511,406 1,010,000 1,011,652
Due after five years
through ten years 16,752,059 17,105,001 100,000 102,213
Due after ten years 4,115,417 4,220,044 -- --
------------ ------------ ------------ ------------
22,367,476 22,840,514 1,355,000 1,359,515
Mortgage-backed securities 13,430,091 13,672,722 -- --
------------ ------------ ------------ ------------
Total $ 35,797,567 $ 36,513,236 $ 1,355,000 $ 1,359,515
============ ============ ============ ============
</TABLE>
Proceeds from the sales of investments in debt securities available for sale
and the gross realized gains and losses for the years ended December 31, 1995
and 1994, are as follows:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Proceeds from sales $ 26,067,114 $ 23,738,443
Gross gains 256,716 314,600
Gross losses 62,862 277,735
</TABLE>
Investment securities with a carrying value of $3,690,814 at December 31, 1995,
were pledged to secure public deposits and other purposes as required by law.
4. LOANS
Major classifications of loans are summarized as follows:
<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Real estate - mortgage $ 8,001,204
Consumer loans to individuals 2,477,022
Commercial 789,917
-----------
11,268,143
Less: Unearned discount 212,955
Allowance for loan losses 150,474
-----------
Net loans $10,904,714
===========
</TABLE>
F-10
<PAGE> 95
4. LOANS (CONTINUED)
As of December 31, 1995, aggregate loans of $60,000 or more extended
to directors, executive officers, and their affiliates were $506,001.
In management's opinion, all of these loans are on substantially the
same terms and conditions as loans to other individuals and businesses
of comparable creditworthiness. A summary of loan activity during the
year is as follows:
<TABLE>
<CAPTION>
Balance Amounts Balance
December 31, 1994 Additions Collected December 31, 1995
----------------- --------- --------- -----------------
<S> <C> <C> <C>
$320,611 437,000 251,610 $506,001
</TABLE>
The Bank grants consumer, commercial, and residential loans to
customers throughout its trade area which is concentrated in Armstrong
County, Pennsylvania. Although the Bank has a diversified loan
portfolio at December 31, 1995, a substantial portion of its debtors'
ability to honor their loan agreements is dependent upon the economic
stability of its immediate trade area.
5. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the years ended December
31, 1995 and 1994, are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Balance, January 1 $ 148,292 $ 148,267
Add:
Provision charged to operations 37,500 --
Recoveries -- 25
Less loans charged off 35,318 --
----------- -----------
Balance, December 31 $ 150,474 $ 148,292
=========== ===========
</TABLE>
6. PREMISES AND EQUIPMENT
Major classifications of premises and equipment are summarized as
follows:
<TABLE>
<CAPTION>
1995
----------
<S> <C>
Land and improvements $ 79,309
Buildings and improvements 274,832
Furniture, fixtures and equipment 640,406
---------
994,547
Less accumulated depreciation 682,012
---------
Total $ 312,535
=========
</TABLE>
Depreciation expense for the years ended December 31, 1995 and 1994,
was $46,334 and $19,632 respectively.
7. DEPOSITS
Time deposits include certificates of deposit in denominations of
$100,000 or more. Such deposits aggregated $4,110,685 at December 31,
1995.
F-11
<PAGE> 96
8. SHORT-TERM BORROWINGS
The Bank's short-term borrowings at December 31, 1995, consists solely
of Federal Home Loan Bank (FHLB) Flexline credit arrangement. During
1995, short-term borrowings also included federal funds purchased.
<TABLE>
<CAPTION>
1995
----------
<S> <C>
Balance at year end $4,000,000
Maximum amount outstanding at any month end 4,950,000
Average balance outstanding during the year 1,922,123
Weighted average interest rate:
As of year end 6.05%
Paid during the year 6.22
</TABLE>
The Flexline credit arrangement with the FHLB is a revolving line of
credit and is renewable annually. During 1995, the Bank had a
borrowing limit of $4,079,600, with a variable rate of interest based
upon the FHLB's cost of funds. Additionally, federal funds purchased
represent funds acquired for various funding requirements. Certain
obligations of U.S. Government corporations and agencies,
mortgage-backed securities, and first mortgage loans are pledged to
secure such borrowings.
9. OTHER EXPENSE
Other expenses for the year ended December 31, 1995 and 1994, consists
of the following:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Professional fees relating to pending merger $142,931 $ --
Advertising 71,487 49,715
Pennsylvania Shares Tax 41,405 44,961
Other 273,312 292,315
-------- --------
$529,135 $386,991
======== ========
</TABLE>
10. INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Current $210,445 $228,574
Deferred (20,445) 1,432
-------- --------
Total $190,000 $230,006
======== ========
</TABLE>
F-12
<PAGE> 97
10. INCOME TAXES (CONTINUED)
The tax effects of deductible and taxable temporary differences that
give rise to significant portions of the deferred tax assets and
deferred tax liabilities, respectively, at December 31, 1995, are as
follows:
<TABLE>
<CAPTION>
1995
-------------
<S> <C>
Deferred Tax Assets:
Deferred compensation $ 9,763
Allowance for loss on other real estate owned 11,900
-------------
Total gross deferred tax assets 21,663
-------------
Deferred Tax Liabilities:
Premises and equipment 14,247
Allowance for loan losses 4,218
Net unrealized gain on securities 243,328
Other, net 151
-------------
Total gross deferred tax liabilities 261,944
-------------
Net deferred tax liability $ (240,281)
=============
</TABLE>
F-13
<PAGE> 98
10. INCOME TAXES (Continued)
The following is a reconciliation of the federal statutory rate and the
Bank's effective income tax rate for the years ended December 31, 1995
and 1994:
<TABLE>
<CAPTION>
1995 1994
------------------------------ -----------------------------
% of % of
Pre-tax Pre-tax
Amount Income Amount Income
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Provision at statutory rate $ 284,660 34.0% $ 275,849 34.0%
Effect of tax free income (106,455) (12.7) (62,629) (7.7)
Non-deductible interest expense 10,016 1.2 5,239 0.6
Other, net 1,779 0.2 11,547 1.5
---------- ----- ----------- ----
Actual tax expense and effective
rate $ 190,000 22.7% $ 230,006 28.4%
========== ===== =========== =====
</TABLE>
11. COMMITMENTS
In the normal course of business, the Bank makes various commitments
which are not reflected in the accompanying financial statements.
These instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the balance
sheet. The Bank's exposure to credit loss in the event of
nonperformance by the other parties to the financial instruments is
represented by the contractual amounts, as disclosed. Losses, if any,
are charged to the allowance for loan losses. The Bank minimizes its
exposure to credit loss under these commitments by subjecting them to
credit approval and review procedures and collateral requirements as
deemed necessary.
The off-balance sheet commitments were comprised of the following:
<TABLE>
<CAPTION>
1995
-------------
<S> <C>
Commitments to extend credit $ 185,766
Standby letters of credit 108,000
</TABLE>
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the loan
agreement. These commitments are comprised primarily of available
commercial lines of credit and mortgage loan commitments. The Bank
uses the same credit policies in making loan commitments and
conditional obligations as it does for on-balance sheet instruments.
The Bank evaluates each customer's creditworthiness on a case by case
basis. The amount of collateral obtained, as deemed necessary, is
based upon management's credit evaluation in compliance with the Bank's
lending policy guidelines. Customers use credit commitments to ensure
that funds will be available for working capital purposes and capital
expenditures and to ensure access to funds at specified terms and
conditions.
Standby letters of credit obligate the Bank to disburse funds to a
third party if the Bank's customer fails to perform under the terms of
the agreement with the beneficiary. These instruments are issued
primarily to support bid or performance-related contracts. The
coverage period for these instruments is typically a one year period
with an annual renewal option subject to prior approval by management.
The Bank holds collateral for these instruments, as deemed necessary,
which are typically Bank deposit instruments or marketable securities.
F-14
<PAGE> 99
12. REGULATORY RESTRICTIONS
CASH AND DUE FROM BANKS
Included in cash and due from banks are required federal reserves of
$25,000 at December 31, 1995, for facilitating the implementation of
monetary policy by the Federal Reserve system. The required reserves
are computed by applying prescribed ratios to the classes of average
deposit balances. These reserves are held in the form of cash on hand.
DIVIDENDS
The Pennsylvania Banking Code restricts the availability of surplus for
dividend purposes. At December 31, 1995, capital surplus funds of
$850,000 were not available for dividends.
CAPITAL REQUIREMENTS (UNAUDITED)
The Bank is subject to risk-based capital rules. These guidelines
include a common framework for defining elements of capital and a
system for relating capital to risk. The minimum total risk-based
capital requirement is 8%, of which at least half must be Tier 1
capital. The Tier 1 and total risk-based capital positions of the
Bank as of December 31, 1995, as calculated by management, amounted to
70.0% and 71.2%, respectively. Additionally, the general regulatory
guidelines establish a minimum ratio of leverage capital to adjusted
total assets of 3.00% for top rated financial institutions with less
highly rated institutions, or those with higher levels of risk, required
to maintain ratios of 100 to 200 basis points above the minimum level.
The Bank's ratios under these guidelines, as calculated by management,
as of December 31, 1995, is 15.74%.
13. FAIR VALUE DISCLOSURE
Financial Accounting Standards Board Statement No. 107, "Disclosure
About Fair Value of Financial Instruments," requires disclosure of the
estimated fair value of the financial instruments. Financial
instruments are defined as cash, evidence of ownership interest in an
entity, or a contract which creates an obligation or right to receive
or deliver cash or another financial instrument from/to a second entity
on potentially favorable or unfavorable terms.
Fair value is defined as the amount at which a financial instrument
could be exchanged in a current transaction between willing parties
other than in a forced or liquidation sale. If a quoted market price
is available for a financial instrument, the estimated fair value would
be calculated based upon the market price per trading unit of the
instrument.
If no readily available market exists, the fair value estimates for
financial instruments should be based upon management's judgment
regarding current economic conditions, interest rate risk, expected
cash flows, future estimated losses, and other factors as determined
through various option pricing formulas or simulation modeling. As
many of these assumptions result from judgments made by management
based upon estimates which are inherently uncertain, the resulting
estimated fair values may not be indicative of the amount realizable in
the sale of a particular financial instrument. In addition, changes in
assumptions on which the estimated fair values are based may have a
significant impact on the resulting estimated fair values.
As certain assets, such as deferred tax assets and premises and
equipment are not considered financial instruments, the estimated fair
value of financial instruments would not represent the full value of
the Bank.
The Bank employed simulation modeling in determining the estimated fair
value of financial instruments for which quoted market prices were not
available based upon the following assumptions:
CASH AND DUE FROM BANKS, ACCRUED INTEREST RECEIVABLE, SHORT-TERM
BORROWINGS, AND ACCRUED INTEREST PAYABLE
The fair value is equal to the current carrying value.
F-15
<PAGE> 100
13. FAIR VALUE DISCLOSURE (CONTINUED)
INVESTMENT SECURITIES
The fair value of securities held as investments is equal to the
available quoted market price. If no quoted market price is available,
fair value is estimated using the quoted market price of similar
securities.
The fair value of securities available for sale is equal to the current
carrying value.
LOANS AND DEPOSITS
The fair value of loans and certificates of deposit are estimated by
discounting the future cash flows using a simulation model which
estimates future cash flows and constructs discount rates that consider
reinvestment opportunities, operating expenses, non-interest income,
credit quality, and prepayment risk. Demand accounts, passbooks, and
money market deposit accounts are valued at the amount payable on
demand as of year end.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
These financial instruments are generally not subject to sale, and
estimated fair values are not readily available. The carrying value,
represented by the net deferred fee arising from the unrecognized
commitment or letter of credit, and the fair value, determined by
discounting the remaining contractual fee over the term of the
commitment using fees currently charged to enter into similar
agreements with similar credit risk, are not considered material for
disclosure. The contractual amounts of unfunded commitments and
letters of credit are presented in Note 11.
F-16
<PAGE> 101
13. FAIR VALUE DISCLOSURE (CONTINUED)
The estimated fair values at December 31, 1995, of the Bank's financial
instruments are as follows:
<TABLE>
<CAPTION>
1995
---------------------------
Carrying Fair
Value Value
----------- -----------
<S> <C> <C>
Financial assets:
Cash and due from banks $ 1,426,834 $ 1,426,834
Securities available for sale 36,929,936 36,929,936
Investment securities 1,355,000 1,359,516
Net loans 10,904,714 11,021,210
Accrued interest receivable 597,713 597,713
----------- -----------
Total $51,214,197 $51,335,209
=========== ===========
Financial liabilities:
Deposits $38,662,675 $39,136,570
Short-term borrowings 4,000,000 4,000,000
Accrued interest payable 216,689 216,689
----------- -----------
Total $42,879,364 $43,353,259
=========== ===========
</TABLE>
14. AGREEMENT AND PLAN OF REORGANIZATION
On October 24, 1995, the Bank entered into an Agreement and Plan of
Reorganization ("Agreement") with BT Financial Corporation ("BTFC").
The Agreement provides for the Bank to be merged with and into
Johnstown Bank and Trust Company, a wholly-owned subsidiary of BTFC.
The Agreement is subject to approval of the shareholders of the Bank
and the appropriate regulatory agencies. Pursuant to the Agreement,
each non-dissenting shareholder will receive 26.5 shares of BTFC common
stock and $596.25 in cash, subject to adjustment, for each share of
common stock of the Bank.
F-17
<PAGE> 102
INDEPENDENT AUDITOR'S REPORT
To The Board of Directors and Stockholders
Moxham Bank Corporation
Johnstown, Pennsylvania
We have audited the accompanying consolidated balance sheets of Moxham
Bank Corporation and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company'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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of the Moxham Bank Corporation and subsidiaries as of December 31, 1995 and
1994, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
As discussed in Notes 1, 3 and 10 to the consolidated financial
statements, in 1994 the Company changed its method of accounting for investment
securities and in 1993 changed its method of accounting for income taxes.
Barnes, Saly & Company
February 15, 1996
F-18
<PAGE> 103
MOXHAM BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS
------
1995 1994
------------ ------------
<S> <C> <C>
Cash and due from banks $ 8,934,600 $ 8,339,500
Interest-bearing deposits with banks 296,600 1,460,400
Federal funds sold 8,665,000 - 0 -
Investment securities available for sale,
at market: (Note 3)
U.S. Treasury 11,549,700 20,372,300
U.S. Government agencies 39,884,300 27,779,500
Obligations of states and political
subdivisions 7,622,000 12,504,800
Other securities 1,018,700 1,369,800
------------ ------------
Total investment securities available
for sale $ 60,074,700 $ 62,026,400
------------ ------------
Loans (Note 4) $154,398,800 $150,197,800
Less allowance for loan losses (Note 5) 1,962,400 1,826,300
------------ ------------
Net loans $152,436,400 $148,371,500
------------ ------------
Premises and equipment, net (Note 6) $ 6,051,800 $ 5,908,800
Accrued income receivable and other assets 4,436,000 5,253,600
------------ ------------
TOTAL ASSETS $240,895,100 $231,360,200
------------ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Deposits: (Note 7)
Non-interest bearing $ 23,103,500 $ 22,262,900
Interest bearing 194,501,800 177,497,100
------------ ------------
Total deposits $217,605,300 $ 199,760,000
Short-term borrowings (Note 8) 100,000 12,060,000
Subordinated capital note (Note 9) 715,000 845,000
Other liabilities 2,396,800 1,720,700
------------ ------------
TOTAL LIABILITIES $220,817,100 $ 214,385,700
----------------- ------------ -------------
Commitments and contingent liabilities
(Notes 12 and 13)
</TABLE>
F-19
<PAGE> 104
<TABLE>
<S> <C> <C>
STOCKHOLDERS' EQUITY:
Preferred stock, no par value,
250,000 shares authorized, 14,000 and
15,000 shares issued and outstanding
at December 31, 1995 and 1994
(Note 14) $ 1,377,700 $ 1,476,100
Common stock, $2 par value,
2,880,000 shares authorized, 903,852
and 888,781 shares issued and outstanding
at December 31, 1995 and 1994 1,807,700 1,777,600
Surplus 3,750,600 3,481,500
Retained earnings (Notes 9 and 17) 12,779,800 11,995,100
Unrealized gain (loss) on securities
available for sale, net 362,200 (1,755,800)
------------ -------------
TOTAL STOCKHOLDERS' EQUITY $ 20,078,000 $ 16,974,500
-------------------------- ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $240,895,100 $231,360,200
------------------------------------------ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-20
<PAGE> 105
MOXHAM BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 14,095,600 $ 12,372,000 $ 11,534,800
Interest on investment
securities and investment
securities available
for sale:
U.S Treasury 871,300 1,075,600 898,900
U.S. Government agencies 2,240,300 1,405,100 966,500
Obligations of state and
political subdivisions 593,000 829,300 993,800
Other 66,400 61,100 53,900
Interest on assets held in
trading account 300 200 - 0 -
Interest on Federal funds sold 138,000 27,000 78,500
Interest on deposits with banks 53,500 83,700 293,100
------------- ------------- -------------
TOTAL INTEREST INCOME $ 18,058,400 $ 15,854,000 $ 14,819,500
------------- ------------- -------------
INTEREST EXPENSE:
Interest on deposits $ 8,994,600 $ 6,688,600 $ 5,956,400
Interest on borrowings 278,200 292,100 95,900
------------- ------------- -------------
TOTAL INTEREST EXPENSE $ 9,272,800 $ 6,980,700 $ 6,052,300
------------- ------------- -------------
Net interest income $ 8,785,600 $ 8,873,300 $ 8,767,200
Provision for loan losses 307,000 263,900 192,900
------------- ------------- -------------
Net interest income after
provision for loan losses $ 8,478,600 $ 8,609,400 $ 8,574,300
------------- ------------- -------------
OTHER INCOME:
Trust department income $ 563,900 $ 502,300 $ 450,700
Service fees 674,100 611,200 578,500
Other income 163,100 165,200 144,000
Security gains 61,700 154,300 137,500
------------- ------------- -------------
TOTAL OTHER INCOME $ 1,462,800 $ 1,433,000 $ 1,310,700
------------- ------------- -------------
OTHER EXPENSES:
Salaries and wages $ 3,402,300 $ 3,195,300 $ 3,047,400
Pension and other employee
benefits 1,189,800 1,137,800 1,075,400
Net occupancy and equipment
expense 1,223,100 1,159,300 1,088,900
Other operating expenses 2,490,200 2,585,900 2,510,300
------------- ------------- -------------
TOTAL OTHER EXPENSES $ 8,305,400 $ 8,078,300 $ 7,722,000
------------- ------------- -------------
</TABLE>
F-21
<PAGE> 106
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
INCOME BEFORE TAXES
AND CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING
PRINCIPLE $ 1,636,000 $ 1,964,100 $ 2,163,000
Provision for income taxes
(Note 10) 161,300 210,900 234,700
------------ ------------- -------------
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING
PRINCIPLE $ 1,474,700 $ 1,753,200 $ 1,928,300
Cumulative effect of change in
accounting principle - adoption
of SFAS #109 (Note 10) $ - 0 - $ - 0 - $ 26,900
------------- ------------- -------------
NET INCOME $ 1,474,700 $ 1,753,200 $ 1,901,400
============= ============= =============
Primary:
Net income per share $ 1.52 $ 1.84 $ 2.03
============= ============= =============
Weighted average number of
shares outstanding 896,592 885,459 875,870
============= ============= =============
Fully Diluted:
Net income per share $ 1.51 $ 1.81 $ 1.98
============= ============= =============
Weighted average number of
shares outstanding 976,342 967,959 958,370
============= ============= =============
Dividends paid per share $ 0.64 $ 0.58 $ 0.56
============= ============= =============
</TABLE>
See notes to consolidated financial statements.
F-22
<PAGE> 107
MOXHAM BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Net
Unrealized
Holdings
Preferred Common Retained Gains
Stock Stock Surplus Earnings (Losses) Total
--------- ------ ------- -------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1992 $1,476,100 $ 790,000 $2,027,100 $11,650,500 $ - 0 - $15,943,700
Net income 1993 -- -- -- 1,901,400 -- 1,901,400
Effect of two-for-one stock split -- 793,000 (793,000) -- --
Common stock issued:
Dividend reinvestment
plan and ESOP -- 17,600 182,400 -- -- 200,000
Cash dividends declared:
Preferred stock ($8.00 per share) -- -- -- (120,000) -- (120,000)
Common stock ($.56 per share) -- -- -- (494,100) -- (494,100)
---------- ---------- ---------- ----------- ----------- -----------
BALANCES, DECEMBER 31, 1993 $1,476,100 $1,600,600 $1,416,500 $12,937,800 $ - 0 - $17,431,000
Net income 1994 -- -- -- 1,753,200 -- 1,753,200
Common stock issued:
Dividend reinvestment
plan and ESOP -- 15,600 168,800 -- -- 184,400
Cash dividends declared:
Preferred stock ($8.00 pre share) -- -- -- (120,000) -- (120,000)
Common stock ($.58 per share) -- -- -- (518,300) (518,300)
Effect of 10% stock dividend -- 161,400 1,896,200 (2,057,600) -- --
Change in unrealized gain (loss)
on securities available-for-sale,
net -- -- -- -- (1,755,800) (1,755,800)
---------- ---------- ---------- ----------- ----------- -----------
BALANCES, DECEMBER 31, 1994 $1,476,100 $1,777,600 $3,481,500 $11,995,100 $(1,755,800) $16,974,500
Net income 1995 -- -- -- 1,474,700 -- 1,474,700
Common stock issued:
Dividend reinvestment
plan and ESOP -- 19,100 181,700 -- -- 200,800
Conversion of preferred stock (98,400) 11,000 87,400 -- -- --
Cash dividends declared:
Preferred stock ($8.00 pre share) -- -- -- (116,000) -- (116,000)
Common stock ($.64 per share) -- -- -- (574,000) -- (574,000)
Change in unrealized gain (loss)
on securities available-for-sale,
net -- -- -- -- 2,118,000 2,118,000
---------- ---------- ---------- ----------- ----------- -----------
BALANCES, DECEMBER 31, 1995 $1,377,700 $1,807,700 $3,750,600 $12,779,800 $ 362,200 $20,078,000
========== ========== ========== =========== =========== ===========
See notes to consolidated financial statements.
</TABLE>
F-23
<PAGE> 108
MOXHAM BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 1,474,700 $ 1,753,200 $ 1,901,400
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for depreciation
and amortization 626,800 569,400 517,900
Provision for possible
loan losses 307,000 263,900 192,900
Amortization of investment
premium, net of accretion
of investment discount 64,800 86,400 289,400
Provision for deferred income
taxes (credit) (196,000) (292,300) (37,100)
Investment securities (gains) (61,700) (154,300) (137,500)
Equity in loss of limited
partnership 171,600 99,100 118,000
(Gain) loss on sale/disposal
of assets 26,100 (4,600) 36,600
(Increase) decrease in accrued
income receivable and other assets 3,800 (11,700) (132,600)
Increase (decrease) in accrued
interest payable and other liabilities 461,400 55,100 149,400
------------ ------------ ------------
Net cash provided by
operating activities $ 2,878,500 $ 2,364,200 $ 2,898,400
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of
investment securities and investment
securities available for sale $ 10,354,500 $ 16,123,100 $ 25,277,500
Proceeds from sales of investment
securities and investment securities
available for sale 18,551,700 8,702,400 3,073,300
Purchase of investment securities
and investment securities available
for sale (23,728,400) (25,274,200) (41,693,900)
Net (increase) decrease in interest
bearing deposits with banks 1,156,000 558,000 10,775,500
Net (increase) decrease in federal funds sold (8,665,000) 2,945,000 (2,945,000)
Proceeds from sale of loans 1,264,500 921,000 415,200
Net (increase) decrease in loans (6,102,900) (16,364,000) (17,397,100)
Investment in limited partnership (144,400) (162,600) (340,400)
Purchase of premises and equipment (582,200) (209,100) (1,576,300)
Proceeds from sale of assets 346,700 187,100 201,200
------------ ------------ ------------
Net cash provided by (used
in) investing activities $ (7,549,500) $(12,573,300) $(24,210,000)
------------ ------------ ------------
</TABLE>
(Continued)
F-24
<PAGE> 109
MOXHAM BANK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits $ 17,845,300 $ 70,500 $ 22,818,400
Net increase (decrease) in short-
term borrowings (11,960,000) 11,960,000 (1,100,000)
Payments on subordinated capital note (130,000) (130,000) (130,000)
Proceeds from sale of common stock 200,800 184,400 200,000
Preferred stock cash dividends paid (116,000) (120,000) (120,000)
Common stock cash dividends paid (574,000) (518,300) (494,100)
------------ ------------ ------------
Net cash provided by (used in)
financing activities $ 5,266,100 $ 11,446,600 $ 21,174,300
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS $ 595,100 $ 1,237,500 $ (137,300)
Cash and due from banks at beginning of year 8,339,500 7,102,000 7,239,300
------------ ------------ ------------
CASH AND DUE FROM BANKS AT END OF YEAR $ 8,934,600 $ 8,339,500 $ 7,102,000
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid on deposits and other
borrowings $ 8,863,800 $ 6,870,000 $ 5,998,700
Federal income taxes paid (net of
refunds) 323,700 343,800 474,900
SUPPLEMENTAL SCHEDULE OF NON CASH
INVESTING AND FINANCING ACTIVITIES:
Other real estate acquired in settle-
ment of loans $ 465,300 $ 150,900 $ 58,700
Net unrealized gains (losses) on
securities available-for-sale
(net of deferred taxes) 2,118,000 (1,755,800) - 0 -
Conversion of preferred stock to
common stock 98,400 - 0 - - 0 -
</TABLE>
See notes to consolidated financial statements.
F-25
<PAGE> 110
MOXHAM BANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting and financial
reporting policies of Moxham Bank Corporation (the Company) and its
subsidiaries whose operations relate primarily to commercial banking activities
which represent one industry segment:
a. Basis of presentation:
The consolidated financial statements of the Company include
the accounts of the Company and its wholly-owned subsidiaries,
Moxham National Bank (Moxham), the First National Bank of
Garrett (Garrett), and Moxham Community Development
Corporation (MCDC). All significant intercompany accounts and
transactions have been eliminated in preparing the
consolidated financial statements.
b. Cash and cash equivalents:
For purposes of reporting cash flows, cash and due from banks
includes cash on hand and amounts due from banks (including
cash items in process of clearing). Cash flows from demand
deposits, NOW accounts, saving accounts, Federal funds
purchased and sold, borrowings from Federal Home Loan Bank,
Federal Reserve Bank and demand note from U.S. Treasury are
reported net since their original maturities are less than
three months. The Company adopted the provisions of Financial
Accounting Standards Board Statement No. 104 "Statement of
Cash Flows - Net Reporting of Certain Cash Receipts and Cash
Payments and Clarification of Cash Flows from Hedging
Transactions" (FASB 104). FASB 104 allows certain banks and
savings institutions to report net cash flows for deposits
placed with other financial institutions, time deposits and
lending activities.
The Company maintains amounts due from banks which, at times,
may exceed federally insured limits. The Company has not
experienced any losses in such accounts.
c. Trust assets:
Assets of the Trust Department, other than trust cash on
deposit at the bank, are not included in these financial
statements because they are not assets of the Company. All
trust fees are recorded on the cash basis which approximates
the accrual basis for such income.
d. Investment securities:
Investment securities consist of debt and equity securities.
Debt securities consist primarily of obligations of the U.S.
government, state governments and domestic corporations.
Equity securities consists primarily of Federal Home Loan Bank
and Federal Reserve Bank stock.
The Company adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 115, Accounting for Certain
Investments in Debt and Equity Securities, as of January 1,
1994. SFAS No. 115 requires that management determine the
appropriate classification of investment securities at the
date of adoption, and thereafter at the date individual
investment securities are acquired. The Company has elected
to classify their entire investment portfolio as
available-for-sale securities.
F-26
<PAGE> 111
Securities classified as available for sale are those debt
securities that the Bank 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 significant movements in
interest rates, changes in the maturity mix of the Bank's
assets and liabilities, liquidity needs, regulatory capital
considerations, and other similar factors. Securities
available for sale are carried at fair value. Unrealized
gains or losses are reported as increases or decreases in
stockholder's equity, net of the related deferred tax effect.
Realized gains or losses, determined on the basis of the cost
of specific securities sold, are included in earnings.
Prior to the adoption of SFAS No. 115, the Company stated its
investment securities at amortized cost. Under both the newly
adopted accounting standard and the Company's former
accounting practices, premiums and discounts on investments in
debt securities are amortized over their contractual lives
computed by both the interest and straight line methods.
Interest and dividends on investment securities is recognized
in income as accrued. Realized gains and losses, including
losses from declines in value of specific securities
determined by management to be other-than-temporary, are
included in income. Realized gains and losses are determined
on the basis of the specific securities sold.
Note 3 to the financial statements provides further
information about the effect of adopting SFAS No. 115.
e. Allowance for possible loan losses:
The allowance for possible loan losses is maintained at a
level considered adequate by management to provide for losses
that can be reasonably anticipated. Amounts are added to the
allowance for loan losses and charges against current income
based on such factors as historical loan loss experience, loan
concentrations, overall portfolio quality, and management's
evaluation of potential losses in the loan portfolio combined
with prevailing and anticipated economic conditions. While
management uses the best information available to make its
evaluation, future adjustments to the allowance may be
necessary if there are significant changes in economic
conditions. In addition, regulatory agencies, as an integral
part of their examination process, periodically review the
Company's allowance for loan losses, and may require the
Company to make additions to the allowance based on their
judgment about information available to them at the time of
their examinations. A charge is made to the allowance for
loan losses when a loan or part thereof is considered by
management to be uncollectible. Recoveries on previous
charge-offs are added back to the allowance.
Effective January 1, 1995, the Company adopted SFAS #114,
"Accounting by Creditors for Impairment of a Loan" which was
subsequently amended by SFAS #118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and
Disclosures". SFAS #114, as amended, addresses the treatment
and disclosure of certain loans where it is probable that the
creditor will be unable to collect all amounts due according
to the contractual terms of the loan agreement. SFAS #114, as
amended, requires that the impairment of loans that have been
separately identified for evaluation is to be measured based
on the present value of expected future cash flows or,
alternatively, the observable market price of the loans or the
fair value of the collateral. However, for those loans that
are collateral dependent (that is, if repayment of those loans
is expected to be provided solely by the underlying
collateral) and for which management has determined
foreclosure is probable, the measure of impairment of those
loans is to be based on the fair value of the collateral.
Statement 114, as amended, also requires certain disclosures
about investments in impaired loans and the allowance for
credit losses and interest income recognized on those loans.
The adoption of SFAS 114 resulted in one loan totaling $97,400
being specifically identified as impaired and a corresponding
allocation reserve of $50,000 was established.
f. Premises and Equipment:
Premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization
of premises, furniture and equipment are computed by both
straight-line and accelerated methods for
F-27
<PAGE> 112
financial reporting and by use of the accelerated cost recovery system
for tax reporting purposes. Listed below are the estimated useful
lives used for financial reporting:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Buildings and improvements 5-40
Furniture and equipment 5-25
Vehicles 3
</TABLE>
Maintenance repairs and minor renewals are charged to income
as incurred. Expenditures for betterments and major renewals
are capitalized and depreciated over their estimated useful
lives.
g. Interest income:
Interest on installment loans is recorded as income in amounts
that will provide an approximate level yield over the terms of
the loans. Accrual of interest on other loans is based
generally on the daily amount of principal outstanding.
Accrual of interest is discontinued on a loan when management
believes, after considering collection efforts and other
factors, that the borrower's financial condition is such that
collection of interest is doubtful. A commercial loan is
placed automatically on non-accrual status when principal or
interest becomes 90 days past due and is not expected to be
brought current within 30 days. All other loans are placed on
non-accrual status when principal or interest becomes 90 days
past due, unless the loan is both well secured and full
payment of interest and principal is expected. A non-accrual
loan may be restored to accrual status when its financial
status has been significantly improved and after becoming
current and remaining current for three consecutive months.
h. Income taxes:
The provision for income taxes relates to items of revenue and
expenses recognized for financial accounting purposes during
each of the years. The actual current tax liability may be
more or less than the charge against earnings due to the
effect of timing differences between financial and tax
accounting resulting in deferred income taxes. The primary
differences result from depreciation, non-qualified deferred
compensation plan, loan loss provisions and deferred loan
fees. In February 1992, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes". The
statement provides that the effect of its adoption may be
recorded entirely in the year of adoption or retroactively by
restating one or more prior years. The Company adopted SFAS
No. 109 as of January 1, 1993 and has recorded the effect of
its adoption entirely in 1993. Under the assets and liability
method provided for by SFAS No. 109, deferred tax assets and
liabilities are recognized for the tax consequences of
temporary differences by applying enacted statutory tax rates
applicable to future years to differences between the
financial statement carrying amounts and the tax bases of
existing assets and liabilities. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. (See
further Note 10.) The Corporation and its subsidiaries file a
consolidated federal income tax return.
i. Shareholders' equity:
On December 30, 1994, a 10 percent stock dividend was
distributed to shareholders of record on December 27, 1994.
Fractional shares were paid in cash. As a result of the stock
dividend, 80,692 additional shares were issued and $2,057,600
was transferred from retained earnings to common stock and
surplus ($25.50 per share).
On December 8, 1992, the Board of Directors authorized a
two-for-one stock split of the Company's common stock,
effected in the form of a stock dividend. The additional
shares were distributed in February 1993 to shareholders of
record on February 1, 1993. As a result of the split, 396,492
additional shares were issued and $793,000 was
F-28
<PAGE> 113
transferred from surplus to common stock. Earnings and
dividends per share included in the consolidated financial
statements have been adjusted to reflect the stock split and
stock dividend.
j. Per share data:
Net income per share amounts are computed by dividing net
income, after deducting preferred stock dividends, by the
weighted average number of shares of common stock outstanding
during each year and is adjusted for the 10 percent stock
dividend and two-for-one stock split. Cash dividends per
share are based on the number of shares outstanding at the
respective declaration date. Fully diluted earnings per share
amounts are calculated assuming that the Series A $8.00
cumulative convertible non-voting preferred stock was
converted at the beginning of the year into 5.5 shares of the
Company's common stock and that no preferred dividends were
paid.
k. Loan fees:
Certain loan and commitment fees and certain direct loan
origination costs are being deferred and the net amount
amortized into interest and fees on loans. Generally these
fees are amortized over the contractual life of the related
loan. Fee amortization is determined by the straight-line
method which approximates the level yield method. The
following fees and costs are being deferred and amortized over
the life of the loan: Dealer retention advances, commercial
loan fees and costs, and home equity third-party origination
costs.
NOTE 2: CASH AND DUE FROM BANKS
Cash and due from banks includes $100,000 at December 31, 1995 and
1994, representing balances required to be maintained with Federal Reserve
Banks.
F-29
<PAGE> 114
NOTE 3: INVESTMENT SECURITIES AND INVESTMENT SECURITIES AVAILABLE FOR SALE
Carrying amounts and fair values of investment securities available
for sale are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1995
-----------------
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $11,519,000 $ 73,300 $ 42,600 $11,549,700
U.S. Government agencies 39,631,100 401,200 148,000 39,884,300
Obligations of states and
political subdivisions 7,344,700 282,100 4,800 7,622,000
Other securities 1,018,700 - 0 - - 0 - 1,018,700
----------- ---------- ---------- -----------
$59,513,500 $ 756,600 $ 195,400 $60,074,700
=========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
-----------------
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $21,121,400 $ - 0 - $ 749,100 $20,372,300
U.S. Government agencies 29,496,700 1,400 1,718,600 27,779,500
Obligations of states and
political subdivisions 12,698,800 69,900 263,900 12,504,800
Other securities 1,369,800 - 0 - - 0 - 1,369,800
----------- ---------- ---------- -----------
$64,686,700 $ 71,300 $2,731,600 $62,026,400
=========== ========== ========== ===========
</TABLE>
The amortized cost and fair value of investment securities available
for sale as of December 31, 1995 by contractual maturity are shown below.
Expected maturities may differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Approximate
Amortized Market
Cost Value
----------- -----------
<S> <C> <C>
Due in one year or less $12,823,400 $12,751,100
Due after one year through 5 years 37,879,200 38,276,200
Due after 5 years through 10 years 1,676,500 1,701,400
Due after 10 years 7,134,400 7,346,000
----------- -----------
$59,513,500 $60,074,700
=========== ===========
</TABLE>
Gross realized gains and losses for the years ended December 31, 1995, 1994 and
1993 are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Investment securities
- ---------------------
Realized gains $ 144,900 $ 193,600 $ 137,500
Realized losses 83,200 39,300 - 0 -
</TABLE>
The other securities category included nonmarketable equity
securities, in the amount of $908,800 and $1,299,900 at December 31, 1995 and
1994 respectively, and consists primarily of Federal Home Loan Bank stock and
Federal Reserve Bank stock.
F-30
<PAGE> 115
Investment securities with a carrying amount of $20,214,500 at
December 31, 1995 and $28,430,800 at December 31, 1994 were pledged to secure
public and trust deposits and for other purposes as required or permitted by
law.
As discussed in Note 1, the Company adopted SFAS No. 115 as of January
1, 1994. In accordance with SFAS No. 115, the 1993 comparative financial
statements have not been restated for the change in accounting principle. The
January 1, 1994 balance of stockholders' equity was increased by $550,000, net
of the $283,300 related deferred tax effect, to recognize the net unrealized
holding gain on securities available for sale at that date.
NOTE 4: LOANS RECEIVABLE
The composition of the Company's loan portfolio at December 31, 1995
and 1994 was as follows:
<TABLE>
<CAPTION>
December 31,
------------
1995 1994
---- ----
<S> <C> <C>
Commercial $ 57,548,700 $ 51,592,500
Real estate - construction 1,300,800 3,823,200
Real estate - mortgage 51,140,000 50,361,600
Consumer 43,249,300 44,119,600
Other 1,160,000 300,900
------------ ------------
$154,398,800 $150,197,800
============ ============
</TABLE>
Included in consumer loans are education loans held-for-sale that
totaled $2,412,500 and $2,404,600 at December 31, 1995 and 1994, respectively.
Loans on which the accrual of interest has been discontinued amounted
to $811,000 and $1,131,700 at December 31, 1995 and 1994, respectively. The
following reflects the effect of non-accrual loans on both interest income and
net interest income for December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Interest income due in accordance
with original terms $ 69,100 $ 100,400
Interest income recorded and reflected
in total operating income 39,900 76,800
--------- ---------
Net reduction in interest income and
net interest income $ 29,200 $ 23,600
========= =========
</TABLE>
In the ordinary course of business, the subsidiaries have transactions,
including loans, with their officers, directors and their affiliated companies.
These transactions were on substantially the same terms as those prevailing at
the time for comparable transactions with unaffiliated parties and do not
involve more than the normal risk. These loans totaled $2,975,000 and
$2,049,300 at December 31, 1995 and 1994, respectively. Aggregate loan
transactions with related parties were as follows:
<TABLE>
<CAPTION>
December 31,
------------
1995 1994
---- ----
<S> <C> <C>
Balance, beginning of year $2,049,300 $2,350,300
New loans 1,341,300 716,800
Payments (415,600) (1,017,800)
---------- ----------
Balance, end of year $2,975,000 $2,049,300
========== ==========
</TABLE>
F-31
<PAGE> 116
NOTE 5: ALLOWANCE FOR POSSIBLE LOAN LOSSES
Transactions in the allowance for possible loan losses were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 1,826,300 $ 1,643,100 $ 1,485,700
Additions:
Provision of loan losses 307,000 263,900 192,900
Recoveries of loans charged
off 37,400 41,100 74,600
Deductions:
Loans charged off (208,300) (121,800) (110,100)
---------- ---------- -----------
Balance at end of year $ 1,962,400 $ 1,826,300 $ 1,643,100
=========== =========== ===========
</TABLE>
NOTE 6: PREMISES AND EQUIPMENT
Major classes of premises and equipment at December 31, 1995 and 1994
were as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Land $ 783,800 $ 783,800
Buildings and leasehold improvements 5,686,100 5,178,500
Furniture and equipment 3,803,000 3,561,000
----------- -----------
$10,272,900 $ 9,523,300
Less: Accumulated depreciation (4,221,100) (3,614,500)
------------ -----------
Premises and equipment, net $ 6,051,800 $ 5,908,800
=========== ===========
</TABLE>
Depreciation of premises and equipment amounted to $595,300 in 1995,
$551,600 in 1994 and $491,600 in 1993.
NOTE 7: DEPOSITS
The composition of deposits is as follows:
<TABLE>
<CAPTION>
December 31,
------------
1995 1994
---- ----
<S> <C> <C>
Demand $ 23,103,500 $ 22,262,900
NOW accounts 17,995,800 19,312,900
Savings 48,803,400 47,568,000
Time certificates, $100,000 or more 13,091,200 13,669,900
Other time deposits 114,611,400 96,946,300
------------ ------------
$217,605,300 $199,760,000
============ ============
</TABLE>
F-32
<PAGE> 117
Interest expense on deposits consisted of the following for the years
ending December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
NOW accounts $ 517,100 $ 431,400 $ 311,600
Savings 1,605,300 1,178,500 1,154,800
Time certificates, $100,000
or more 832,000 728,700 644,400
Other time deposits 6,040,200 4,350,000 3,845,600
---------- ---------- ----------
Total interest on deposits $8,994,600 $6,688,600 $5,956,400
========== ========== ==========
</TABLE>
NOTE 8: SHORT-TERM BORROWINGS
Short-term borrowings at December 31, 1995 and 1994 consisted of the
following:
<TABLE>
<CAPTION>
1995 1994
------------- --------------
Amount Rate Amount Rate
------ ---- ------ ----
<S> <C> <C> <C> <C>
Federal funds
purchased (a)
Year end balance $ - 0 - --- $4,750,000 6.85%
Average during year 2,156,500 6.02% 2,158,400 4.81%
Maximum month-end
balance during
the year 5,050,000 4,750,000
Federal home loan
bank (b)
Year end balance - 0 - --- 7,210,000 6.61%
Average during year 1,233,500 6.10% 2,315,700 5.18%
Maximum month-end
balance during
the year 6,950,000 7,210,000
Other short-term
borrowings (c)
Year end balance 100,000 4.65% 100,000 5.03%
Average during year 97,600 5.90% 128,900 3.76%
Maximum month-end
balance during
the year 1,139,600 850,000
</TABLE>
Average amounts outstanding during the year represent daily averages. Average
interest rates represent interest expense divided by the related average
balances.
(a) Federal funds purchased generally represent the overnight federal fund
transactions of banking subsidiaries with correspondent banks. The
maximum amount available for borrowing is $5,250,000.
F-33
<PAGE> 118
(b) During 1993 the Company's banking subsidiaries established lines of
credit commitments with the Federal Home Loan Bank (FHLB). The
maximum amount available for borrowing under these credit lines was
$23,072,700 and $20,983,700 at December 31, 1995 and 1994,
respectively. The interest rate charged for usage of these lines is
the variable rate posted by FHLB at the date of the drawdown. The
commitment is partially collateralized at the date of drawdown.
Unless extended by the Company in accordance with the terms of the
agreement, $4,448,200 of the lines expire October 2, 1996, and
$18,624,500 of the lines expire January 2, 1997.
(c) Other short borrowings consist primarily of Federal Reserve Bank
borrowings.
NOTE 9: SUBORDINATED CAPITAL NOTE
The subordinated capital note outstanding amounted to $715,000 and
$845,000 at December 31, 1995 and 1994, respectively. The subordinated capital
note requires quarterly payments of $32,500 from July 1, 1991 to April 1, 1998
with a final payment of $390,000 due on January 1, 1999. Interest is payable
monthly at the lending bank's prime rate (8.75% at December 31, 1995) on the
outstanding unpaid principal balance. The weighted average interest rate on
this subordinated capital note was 8.8% during December 31, 1995. The
agreement contains restrictions regarding, among other matters, the pledging of
assets, the issuance of additional debt, the declaration or payment of cash
dividends and the maintenance of certain ratios. As a result, at December 31,
1995, approximately $47,300 of retained net income was available for cash
dividends. For the years ended December 31, 1995 and 1994 the Company was in
compliance with these restrictions.
The principal maturities on the subordinated capital note for each of
the years following at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
<S> <C>
1996 $130,000
1997 130,000
1998 65,000
1999 390,000
--------
$715,000
========
</TABLE>
NOTE 10: INCOME TAXES
The Company adopted SFAS No. 109 as of January 1, 1993 and has
recorded the effect of its adoption entirely in 1993. The adoption of SFAS No.
109 resulted in the recognition of a non-recurring charge of $26,900 or $.03
per share on both a primary and fully diluted basis.
The provision for federal income taxes in the consolidated statement
of income consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Currently paid or payable $ 357,300 $ 503,200 $ 271,800
Deferred (benefit) provision (196,000) (292,300) (37,100)
----------- ----------- ----------
$ 161,300 $ 210,900 $ 234,700
=========== =========== ==========
</TABLE>
F-34
<PAGE> 119
The following is a reconciliation between the amount of income taxes
computed at the Federal statutory rate and the income tax expense reflected in
the financial statements.
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
% of % of % of
------- ------- -------
Amount Pre Tax Amount Pre Tax Amount Pre Tax
------ ------- ------ ------- ------ -------
Income Income Income
------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Provision at
statutory rate $ 556,200 34.0% $ 667,800 34.0% $ 735,400 34.0%
Tax-exempt interest (218,700) (13.4)% (296,100) (15.1)% (367,300) (17.0)%
Scale back of
interest deduction 28,200 1.7% 33,500 1.7% 41,200 1.9%
Tax credits (216,200) (13.2)% (185,400) (9.4%) (191,300) (8.8)%
Other 11,800 0.8% (8,900) (0.5%) 16,700 0.8%
--------- ----- --------- ----- --------- -----
Actual tax expense
and effective rate $ 161,300 9.9% $ 210,900 10.7% $ 234,700 10.9%
========= ===== ========= ===== ========= =====
</TABLE>
Deferred income taxes result from timing differences in the recognition of
revenue and expense for tax and financial reporting purposes. The following is
a summary of these timing differences and the related tax effect of each:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Provision for possible loan
losses $ (46,300) $ (62,300) $(53,500)
Pension expense (31,600) (61,500) (17,400)
Depreciation 12,400 19,200 23,000
Tax credits (123,600) (183,100) -0-
Other (6,900) (4,600) 10,800
--------- --------- --------
$(196,000) $(292,300) $(37,100)
========= ========= ========
</TABLE>
The significant components of the Company's deferred tax liabilities
and assets at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Deferred tax liabilities:
Depreciation $ 130,600 $ 118,800
Deferred loan fees, net 130,100 149,000
Unrealized gains on securities
available for sale 199,000 - 0 -
---------- ----------
Total deferred tax liabilities $ 459,700 $ 267,800
---------- ----------
Deferred tax assets:
Provision for possible loan losses $ 547,800 $ 501,500
Pension expense 210,300 178,800
Non-accrual loan interest 14,700 26,700
Unrealized losses on securities
available for sale - 0 - 904,500
Tax credits 306,700 183,100
Other 26,900 27,300
---------- ----------
Total deferred tax assets $1,106,400 $1,821,900
---------- ----------
Net deferred tax assets $ 646,700 $1,554,100
========== ==========
</TABLE>
F-35
<PAGE> 120
At December 31, 1995, the Company had approximately $169,000 of low
income housing tax credit available for carryforward, with $65,800 expiring in
2009 and $103,200 in 2010. In addition, the Company had $137,800 in
alternative minimum tax credits available for carryforward.
As required by SFAS No. 109, the Company has determined that it is not
required to establish a valuation reserve for the deferred tax asset since it
is more likely than not that the deferred tax asset of $1,106,400 will be
principally realized through future reversals of existing taxable temporary
differences, and to a lesser extent, future taxable income and tax planning
strategies. The Company's conclusion that it is "more likely than not" that
the deferred tax asset will be realized is based on a history of growth in
earnings and prospects for continued growth. Management believes that future
taxable income will be sufficient to realize the benefits of temporary
deductible differences that cannot be realized through the reversal of future
temporary taxable differences. The Company will continue to review the tax
criteria related to the recognition of deferred tax assets on a regular basis.
NOTE 11: EMPLOYEE BENEFIT PLANS
The Company has a noncontributory target benefit pension plan covering
all employees who meet the eligibility requirements. To be eligible, an
employee must be 21 years of age and have completed one year of continuous
service. Contributions are determined by a formula specified in the target
benefit plan based on a participant's annual compensation and years of service.
Plan assets are primarily U.S. Treasury and agency securities, corporate notes
and bonds, listed common stocks and cash surrender value of life insurance.
Contributions to the Company's target benefit plan included in the
consolidated statements of income was $199,500 for 1995, $176,500 for 1994 and
$195,200 for 1993.
The Company also maintains a non-qualified deferred compensation plan
(the plan) for certain employees. To participate in the plan, these employees
must have completed at least twelve consecutive months of service with the
Company. The plan provides payments from the participant's "account", payable
at age sixty-two, or upon the participant's retirement from the Company,
whichever is later, or upon the participant's death or becoming totally
disabled. Payments are to be made from the participant's account in equal
quarterly installments over a period of ten years, or the participant may elect
to receive the payment in a lump sum.
Annually, the Company's Board of Directors determines whether
participants' accounts will receive contributions. The final amount of
contributions to be received is based on a formula specified in the plan.
Contributions to this plan included in the consolidated statements of income
was $61,800 for 1995, $61,700 for 1994 and $38,800 for 1993.
The assets available and liabilities expected under this plan totaled
$628,200 and $552,000 at December 31, 1995 and 1994, respectively, and are
included as other assets and other liabilities on the consolidated balance
sheet.
NOTE 12: LEASE COMMITMENTS
As of December 31, 1995, the Company is obligated under non-cancelable
leases, principally for banking premises and equipment with expiration dates
through 2004. These leases are classified as operating leases.
At December 31, 1995, the minimum future lease payments under
operating leases are as follows:
<TABLE>
<S> <C>
1996 $ 90,400
1997 85,300
1998 73,900
1999 63,900
2000 50,300
Thereafter 62,800
--------
Total minimum payments $426,600
========
</TABLE>
F-36
<PAGE> 121
In addition to the amounts set forth above, certain of the leases
require payments by the Company for taxes, insurance and maintenance.
The accompanying consolidated statements of income include rent
expense of $73,300 for 1995, $60,700 for 1994 and $105,500 for 1993.
NOTE 13: COMMITMENTS AND CONTINGENT LIABILITIES
a. Financial instruments with off-balance-sheet risk:
The Company 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 include commitments to extend credit and standby
letters of credit. Such commitments and standby letters of
credit involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the
consolidated financial statements. The contract amounts of
those instruments reflect the extent of involvement the
Company has in particular classes of financial instruments.
Commitments to extend credit represent the Company's
obligation to fund commercial and real estate loans, including
home equity lines, lines of credit, revolving lines of credit
and other types of commitments. Commitments to extend credit
are agreements to lend to a customer as long as there is no
violation 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 Company evaluates
each customer's credit worthiness on a case-by-case basis.
The amount of collateral obtained if deemed necessary by the
Company upon extension of credit is based on management's
credit evaluation of the counterpart. Collateral held varies,
but may include accounts receivable, inventory and property,
plant and equipment for those commitments for which collateral
is deemed necessary.
Standby letters of credit written are conditional commitments
issued by the Company to guarantee the performance of a
customer to a third party. The credit risk involved in
issuing letters of credit is essentially the same as that
involved in extending loan commitments to customers. Letters
of credit are issued both on an unsecured and secured basis.
Collateral securing these types of transactions is similar to
collateral securing the Company's commercial loans.
The Company'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
written is represented by the contractual amount of those
instruments. The Company uses the same credit policies in
making commitments and conditional obligations as it does for
on-balance-sheet instruments.
The face amounts of financial instruments with
off-balance-sheet risk at December 31, 1995 and 1994 were
as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Loan commitments to extend credit $23,040,200 $24,682,300
Standby letters of credit 926,300 1,658,300
</TABLE>
b. Concentrations of credit risk:
F-37
<PAGE> 122
Most of the Company's loans, commitments to extend credit, and
standby letters of credit have been granted to customers
located within its primary market area, an area that generally
includes the counties of Cambria, Somerset, Westmoreland and
Indiana. The distribution of commitments to extend credit was
directed primarily to commercial borrowers and those secured
by real estate. Standby letters of credit were granted
primarily to commercial borrowers. No specific industry
concentration exceeded 10 percent of total potential exposure.
c. Other Commitment:
At December 31, 1995, as part of its investment in limited
partnerships, the Company is required to make the following
annual capital contributions:
<TABLE>
<S> <C>
1996 $140,600
1997 140,600
1998 140,600
1999 140,600
2000 140,600
Thereafter 274,200
</TABLE>
d. Contingencies:
Due to the nature of its activities, the Company is at various
times engaged in legal proceedings which arise in the normal
course of business. While it is difficult to predict or
determine the outcome of these proceedings, it is the opinion
of management that the ultimate liability, if any, will not
materially affect the Company's financial position.
NOTE 14: PREFERRED STOCK
In July 1992, the Company issued 15,000 shares of Series A $8.00
cumulative convertible non-voting preferred stock (Series A Preferred Stock).
An annual dividend of $8.00 per share, payable quarterly on the last day of
March, June, September and December, commenced September 30, 1992. Cash
dividends on the Series A preferred stock was cumulative from date of issue.
Dividends on Series A preferred stock must be paid or set apart for payment
before any dividends may be paid or set apart for payment on the common stock.
Each share of the Series A preferred stock is convertible at any time into 5.5
shares of the Company's common stock. 1,000 shares of preferred stock was
converted into 5,500 shares of common stock for the year ending December 31,
1995. There were no shares converted for the years ending December 31, 1994
and 1993. The Company may redeem the Series A preferred stock, in whole or in
part, at the following prices plus accrued dividends, if any, if redeemed
during the twelve month period beginning August 1, in each of the following
years:
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
1992 $104.00
1993 103.00
1994 102.00
1995 101.00
1996 100.00
</TABLE>
Any holder of Series A preferred stock who has not redeemed or converted his
shares as of July 31, 1997 must, on that date, convert such shares of preferred
stock into common stock of the corporation at the conversion rate then in
effect as stated above.
The liquidation preference is $100.00 per share, together with accrued
dividends, if involuntary; the redemption price then in effect, together with
accrued dividends, if voluntary. The preferred stock ranks senior to the
common stock in respect of liquidation rights.
F-38
<PAGE> 123
As of December 31, 1995, the Company has reserved 77,000 shares of
authorized and unissued common stock for the conversion of preferred stock.
NOTE 15: EMPLOYEE STOCK OWNERSHIP PLAN
The Company has an employee stock ownership plan for the benefit of
all eligible employees. The purpose of the plan is to enable full-time
employees who are at least 21 years of age and have been employed for at least
one year to acquire stock ownership in the Company. Contributions to the plan
are determined by the Board of Directors. The Company may contribute cash or
shares of company stock to the plan. Employees may also make contributions to
the plan by electing to defer between 1 - 15% of their current compensation or
through voluntary contributions. The Company will provide a matching
contribution of 25% of an employee contribution in the plan up to 4% of
compensation for those electing the deferral option for the years ended
December 31, 1995 and 1994.
The Company's contribution to the plan was $143,200 in 1995, $142,200
in 1994 and $142,200 in 1993. Contributions to the plan are included in
pension and other employee benefits in the consolidated statements of income.
In the event a terminated plan participant desires to sell his or her
shares of the Company's stock, or for certain employees who elect to diversify
their account balances, the Company may decide to purchase the shares from the
participant at their fair market value. At December 31, 1995 and 1994 the Plan
held 45,556 shares and 35,985 shares, respectively, all of which have been
allocated to Plan participants. The fair market value of those shares totaled
$1,685,600 and $863,600 as of December 31, 1995 and 1994, respectively. During
the years ended December 31, 1995, 1994 and 1993, no stock was purchased by the
Company from Plan participants. Dividends paid on the Plan shares are recorded
as a reduction of retained earnings.
NOTE 16: DIVIDEND REINVESTMENT PLAN
A dividend reinvestment plan (the Plan) was adopted by the Company's
Board of Directors on April 9, 1991. The purpose of this plan is to provide
shareholders with a convenient and economical method of increasing their equity
ownership in the Company without payment of any brokerage commission, service
charge or other similar expense. A participant in the plan may elect to
reinvest dividends on all of his shares of common stock. The price of shares
purchased by a participant in the plan will be at fair market value. A
participant may withdraw from the plan at any time. 75,000 shares of Company
stock has been reserved for the plan. At the discretion of the Company's Board
of Directors, shares reserved for the plan may be provided from authorized but
unissued shares or shares bought in the open market. At December 31, 1995, the
Company had 74,772 unissued reserved shares available under the plan.
F-39
<PAGE> 124
NOTE 17: PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
The condensed balance sheets as of December 31, 1995 and 1994, and
statements of income and cash flows for each of the three years in the period
ended December 31, 1995 of Moxham Bank Corporation are presented below.
<TABLE>
<CAPTION>
Balance Sheets
--------------
1995 1994
---- ----
<S> <C> <C>
Assets:
- ------
Cash $ 169,000 $ 189,300
Investment in banking subsidiaries 20,030,700 17,089,700
Investment in non-banking subsidiary 287,000 196,200
Advances to non-banking subsidiary 62,500 238,400
Other assets 250,100 116,700
------------ ------------
Total Assets $ 20,799,300 $ 17,830,300
------------ ============ ============
Liabilities:
- -----------
Capital subordinate note $ 715,000 $ 845,000
Other Liabilities 6,400 10,800
------------ ------------
Total Liabilities $ 721,400 $ 855,800
----------------- ------------ ------------
Stockholders' Equity:
- --------------------
Preferred Stock $ 1,377,700 $ 1,476,100
Capital Stock 1,807,700 1,777,600
Surplus 3,750,600 3,481,500
Retained Earnings 12,779,700 11,995,100
Unrealized gain (loss) on securities
available for sale, net 362,200 (1,755,800)
------------ ------------
Total Stockholder' Equity $ 20,077,900 $ 16,974,500
------------------------- ------------ ------------
Total Liabilities and Stockholders' Equity $ 20,799,300 $ 17,830,300
- ------------------------------------------ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Statements of Income
--------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Dividends from subsidiaries $ 930,000 $ 864,000 $ 1,357,900
Interest Expense 67,400 63,500 61,300
Operating Expense 501,300 492,100 577,600
----------- ----------- -----------
Income before income tax credit
and equity in undistributed
income of subsidiaries $ 361,300 $ 308,400 $ 719,000
Income tax benefit 199,600 188,900 213,900
----------- ----------- -----------
Income before equity in undistributed
income of subsidiaries $ 560,900 $ 497,300 $ 932,900
Equity in undistributed income of
subsidiaries 913,800 1,255,900 968,500
----------- ----------- -----------
Net Income $ 1,474,700 $ 1,753,200 $ 1,901,400
- ---------- =========== =========== ===========
</TABLE>
F-40
<PAGE> 125
<TABLE>
<CAPTION>
Statements of Cash Flows
------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities:
- ------------------------------------
Net income $ 1,474,700 $ 1,753,200 $ 1,901,400
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in undistributed income
of subsidiaries (913,800) (1,255,900) (968,500)
Provision for deferred income taxes (125,100) (78,500) 3,100
Decrease (increase) in other assets (8,300) 122,100 (94,100)
Increase (decrease) in other
liabilities (4,500) (111,600) (5,700)
----------- ----------- ------------
Net cash provided by operating
activities $ 423,000 $ 429,300 $ 836,200
----------- ----------- ------------
Cash Flows from Investing Activities:
- ------------------------------------
Repayments from (advances to)
subsidiaries, net $ 175,900 $ 33,600 $ (242,200)
----------- ----------- ------------
Net cash provided by (used in)
investing activities $ 175,900 $ 33,600 $ (242,200)
----------- ----------- ------------
Cash Flows from Financing Activities:
- ------------------------------------
Payments on subordinated capital
note $ (130,000) $ (130,000) $ (130,000)
Proceeds from sale of stock -
common 200,800 184,400 200,000
Preferred stock cash dividends paid (116,000) (120,000) (120,000)
Common stock cash dividends paid (574,000) (518,300) (494,100)
----------- ----------- ------------
Net cash provided by
(used in) financing
activities $ (619,200) $ (583,900) $ (544,100)
----------- ----------- ------------
Increase (decrease) in cash $ (20,300) $ (121,000) $ 49,900
Cash at beginning of year 189,300 310,300 260,400
----------- ----------- ------------
Cash at end of year $ 169,000 $ 189,300 $ 310,300
=========== =========== ============
</TABLE>
F-41
<PAGE> 126
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the year for:
Interest on subordinated capital
note and long-term debt $ 67,400 $ 63,500 $ 61,300
Federal income taxes paid (net
of refunds) 323,700 343,800 474,900
</TABLE>
The Company's subsidiary banks are subject to legal limitations on the
amount of dividends that can be paid to the parent company. The approval of
the Comptroller of the Currency is required for a national bank to pay
dividends if the total of all dividends declared in any calendar year exceeds
the bank's retained net profits for that year combined with its retained net
profits for the preceding two calendar years. At December 31, 1995, the
subsidiary banks could pay an additional $2,891,600 in cash dividends to the
parent company. In addition, the Federal Reserve Act requires that extensions
of credit by the Company's subsidiary banks to certain affiliates, including
the Company, be secured by specified assets. Further, such extensions of
credit are limited to 10% of the subsidiary bank's capital and surplus and that
extensions of credit to all such affiliates be limited to 20% of capital and
surplus.
Federal regulatory agencies have adopted various capital standards for
financial institutions, including risk-based capital standards. The primary
objectives of the risk-based capital framework are to provide a more consistent
system for comparing capital positions of financial institutions and to take
into account the different risks among financial institutions' assets and
off-balance-sheet items.
Risk-based capital standards have been supplemented with requirements
for a minimum Tier 1 capital to assets ratio (leverage ratio). In addition,
regulatory agencies consider the published capital levels as minimum levels and
may require a Financial Institution to maintain capital at higher levels.
A comparison of the Company's capital as of December 31, 1995 with the
minimum requirements is presented below:
<TABLE>
<CAPTION>
Actual Minimum
------ -------
Requirements
------------
<S> <C> <C>
Leverage Ratio 7.53% 3.00%
Risk Based Capital:
Tier 1 or core capital 11.27% 4.00%
Tier 2 or total capital 13.78% 8.00%
</TABLE>
NOTE 18: DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Statement No. 107, Disclosures about Fair Value of Financial
Instruments, requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it is
practicable to estimate that value. In cases where quoted market prices are
not available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. Changes in the assumptions or methodologies used to estimate fair
values may materially affect the estimated amounts. Also, management is
concerned that there may not be reasonable comparability between institutions
due to the wide range of permitted assumptions and the methodologies in absence
of active markets. This lack of uniformity gives rise to a high degree of
subjectivity in estimating financial instrument fair values. In that regard,
the derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. Statement 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company.
F-42
<PAGE> 127
The following methods and assumptions were used by the Company in
estimating the fair value of its financial instruments:
Cash and short-term investments: The carrying amounts reported in the
balance sheet for cash and short-term instruments approximate their fair
values.
Investment securities (including mortgage-backed securities): Fair
values for investment securities are based on quoted market prices, where
available. If quoted market prices are not available, fair values are based on
quoted market prices of comparable instruments.
Loans receivable: For variable-rate loans that reprice frequently and
with no significant change in credit risk, fair values are based on carrying
values. The fair values for other loans (primarily commercial real estate and
rental property mortgage loans, commercial and industrial loans, financial
institution loans, and agricultural loans) are determined using estimated
future cash flows, discounted at the interest rates currently being offered for
loans with similar terms to borrowers with similar credit quality.
Deposit liabilities: The fair values of demand deposits, savings
accounts and money market deposits equal their carrying amounts which
represents the amount payable on demand. The carrying amounts for
variable-rate time deposits and certificates of deposit approximate their fair
values at the reporting date. Fair values for fixed-rate time deposits and
certificates of deposit are estimated using a discounted cash flow calculation
that applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on time deposits.
Short-term borrowings: The carrying amounts of federal funds
purchased, borrowings under repurchase agreements, and other short-term
borrowings approximate their fair values.
Long-term borrowings: The fair values of the Company's long-term
borrowings (other than deposits) are estimated using rates currently available
to the Company for debt with similar terms and remaining maturities.
Commitments to extend credit and standby letters of credit: The fair
value of commitments and letters of credit is insignificant and are generally
priced at market at the time of funding.
The estimated fair values of the Company's financial instruments are
as follows:
<TABLE>
<CAPTION>
December 31 December 31
----------- -----------
1995 1994
---- ----
Carrying Fair Carrying Fair
-------- ---- -------- ----
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Financial Assets:
Cash and short-term
investments $ 9,231,200 $ 9,231,200 $ 9,799,900 $ 9,799,900
Federal funds sold 8,665,000 8,665,000 --- ---
Investment securities 59,513,500 60,074,700 64,686,700 62,026,400
Loans, net 152,436,400 155,708,000 148,371,500 153,558,000
Financial Liabilities:
Deposits 217,605,300 214,497,000 199,760,000 197,162,800
Short term borrowings 100,000 100,000 12,060,000 12,060,000
Subordinated capital note 715,000 715,000 845,000 845,000
</TABLE>
NOTE 19: RECLASSIFICATIONS
For comparative purposes, reclassifications have been made to certain
amounts previously reported in the consolidated financial statements.
F-43
<PAGE> 128
Note 20: SUBSEQUENT EVENTS
a. Merger
The Company and BT Financial Corporation ("BTFC") announced on
January 11, 1996, that they have reached a definitive merger
agreement effective January 12, 1996, pursuant to which the
Company's two banks, Moxham and Garrett would merge into
BTFC's largest affiliate, Johnstown Bank and Trust Company.
The definitive agreement provides for the payment to the
Company's common and preferred stockholders at the closing of
the merger 1.15 and 6.325 shares of BTFC's common stock,
respectively, for each company share outstanding. The
purchase is expected to be accounted for as a pooling of
interests. The transaction is subject to regulatory approvals
and to the approvals of the stockholders of the Company and BT
Financial Corporation.
b. Branch Disposition
On February 1, 1996, Moxham and NBOC Bank ("NBOC") of Indiana,
Pennsylvania entered into a purchase and assumption agreement
(the "Branch Agreement"), pursuant to which Moxham agreed to
sell certain assets and assign certain liabilities of the
Moxham Branch office located in Delmont, Pennsylvania.
Pursuant to the Branch Agreement, and subject to certain
conditions set forth therein, Moxham will:
(i) Assign certain deposit liabilities and a real estate
lease relating to the Branch (total deposits were
approximately $7,940,000 at December 31, 1995);
(ii) Sell furniture, fixtures and equipment owned or leased
at the Branch;
(iii) Assign contracts that relate to the operation of the
Branch; and
(iv) Sell the vault, teller and ATM cash
The consummation of the Branch disposition is contingent upon,
among other things, receipt of all necessary regulatory
approvals.
F-44
<PAGE> 129
ANNEX A
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
BT FINANCIAL CORPORATION,
JOHNSTOWN BANK AND TRUST COMPANY,
AND
THE ARMSTRONG COUNTY TRUST COMPANY
<PAGE> 130
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
DEFINITIONS
1.01 Definitions . . . . . . . . . . . . . . . . . . 1
1.02 Accounting Terms . . . . . . . . . . . . . . . 4
ARTICLE II
THE MERGER
2.01 Merger . . . . . . . . . . . . . . . . . . . . 5
2.02 Conversion of Shares of Armstrong
Common Stock . . . . . . . . . . . . . . . . 5
2.03 Articles of Incorporation; By-Laws . . . . . . 6
2.04 Directors and Officers . . . . . . . . . . . . 6
2.05 Closing . . . . . . . . . . . . . . . . . . . . 6
2.06 Exchange of Certificates for Stock and Cash . . 7
2.07 Termination of this Reorganization Agreement . 8
2.08 Confidentiality . . . . . . . . . . . . . . . . 10
2.09 Public Disclosure . . . . . . . . . . . . . . . 10
ARTICLE III
SHAREHOLDER APPROVAL
3.01 Armstrong Shareholders Meeting . . . . . . . . 10
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS
4.01 Representations and Warranties of Armstrong . . 10
4.02 Representations and Warranties of BTFC . . . . 22
4.03 Representations and Warranties of Johnstown . . 26
4.04 Covenants of Armstrong . . . . . . . . . . . . 27
4.05 Covenants of All Parties . . . . . . . . . . . 32
4.06 Covenants of BTFC and Johnstown . . . . . . . . 34
ARTICLE V
CONDITIONS PRECEDENT
5.01 Incidental Registration . . . . . . . . . . . . 38
5.02 Registration on Request . . . . . . . . . . . . 39
5.03 Registration Procedures . . . . . . . . . . . . 41
5.04 Underwritten Offerings . . . . . . . . . . . . 45
5.05 Preparation; Reasonable Investigation . . . . . 47
5.06 Rights of Requesting Holders . . . . . . . . . 47
5.07 Indemnification . . . . . . . . . . . . . . . . 47
</TABLE>
i
<PAGE> 131
<TABLE>
<S> <C>
5.08 Rule 144 . . . . . . . . . . . . . . . . . . . 51
ARTICLE VI
CONDITIONS PRECEDENT
6.01 Conditions Precedent to the Obligations of
BTFC and Johnstown . . . . . . . . . . . . . . 51
6.02 Conditions Precedent to the Obligations of
Armstrong . . . . . . . . . . . . . . . . . . 54
6.03 Waivers . . . . . . . . . . . . . . . . . . . . 57
ARTICLE VII
BROKERS AND EXPENSES
7.01 Brokers . . . . . . . . . . . . . . . . . . . . 57
7.02 Expenses . . . . . . . . . . . . . . . . . . . 58
ARTICLE VIII
MISCELLANEOUS
8.01 Further Assurances . . . . . . . . . . . . . . 58
8.02 Survival of Representations, Warranties
and Covenants . . . . . . . . . . . . . . . . 58
8.03 Notices . . . . . . . . . . . . . . . . . . . . 58
8.04 Binding Effect . . . . . . . . . . . . . . . . 59
8.05 Headings . . . . . . . . . . . . . . . . . . . 59
8.06 Counterparts . . . . . . . . . . . . . . . . . 59
8.07 Integration . . . . . . . . . . . . . . . . . 59
8.08 Severability . . . . . . . . . . . . . . . . . 60
8.09 Amendments . . . . . . . . . . . . . . . . . . 60
8.10 Governing Law . . . . . . . . . . . . . . . . . 60
8.11 Incorporation by Reference . . . . . . . . . . 60
Schedules and Exhibits
- ----------------------
Schedule 4.01(a) Armstrong - Power and Authority
Schedule 4.01(d) Armstrong - Financial Statements
Schedule 4.01(k)(ii) Armstrong - Loans
Schedule 4.01(n) Armstrong - Real Property
Schedule 4.01(o) Armstrong - Environmental Conditions
Schedule 4.01(q) Armstrong - Leases
Schedule 4.01(r) Armstrong - Material Contracts
Schedule 4.01(t) Armstrong - Employee Benefits
Schedule 4.01(aa)(iii) Armstrong - Investments
Schedule 4.06(h)(i) Certain Employees
<FN>
- ----------------
*The Table of Contents is not part of this Agreement.
</TABLE>
ii
<PAGE> 132
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION, is made and entered into as of
the ____ day of October, 1995 (the "Reorganization Agreement"), by and among BT
Financial Corporation, a business corporation organized and existing under the
laws of the Commonwealth of Pennsylvania with its principal office at 532-534
Main Street, Johnstown, Pennsylvania 15901 ("BTFC"), Johnstown Bank and Trust
Company, a bank and trust company organized and existing under the laws of the
Commonwealth of Pennsylvania with its principal office at 532-534 Main Street,
Johnstown, Pennsylvania 15901 ("Johnstown"), and The Armstrong County Trust
Company, a bank and trust company organized and existing under the laws of the
Commonwealth of Pennsylvania with its principal office at 227 Market Street,
Kittanning, Pennsylvania 16201 ("Armstrong").
WITNESSETH:
WHEREAS, the respective Boards of Directors of BTFC, Johnstown and
Armstrong have determined that it would be in the best interests of their
respective organizations, shareholders and customers and the communities served
by them for Armstrong to be merged with and into Johnstown (the "Merger")
pursuant to this Reorganization Agreement, whereby the shareholders of Armstrong
will receive shares of common stock of BTFC and cash; and
WHEREAS, the respective Boards of Directors of BTFC, Johnstown and
Armstrong have approved the acquisition of Armstrong by BTFC through the
proposed merger of Armstrong with and into Johnstown upon the terms and
conditions set forth in this Reorganization Agreement in accordance with the
provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code").
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants, conditions and actions hereinafter set forth, the parties
hereto, each intending to be legally bound hereby, agree as follows:
ARTICLE I
DEFINITIONS
1.01. Definitions. The terms defined in this Section 1.01 shall have the
meanings herein specified, unless the context clearly requires otherwise. Other
terms used herein are defined elsewhere in this Reorganization Agreement.
"Affiliate" of a Party means a Person that, directly or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common
control with, such Party.
<PAGE> 133
"Armstrong Common Stock" means the common stock, par value $50.00 per
share, of Armstrong.
"Articles of Merger" means the Articles of Merger delivered to the
Department of State of the Commonwealth of Pennsylvania for filing pursuant to
Sections 1921 et seq. of the BCL.
"Banking Code" means the Pennsylvania Banking Code of 1965, as amended.
"BCL" means the Pennsylvania Business Corporation Law of 1988, as amended.
"BTFC Common Stock" means the common stock, par value $5.00 per share, of
BTFC.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
"Closing Date" shall have the meaning set forth in Section 2.05(a).
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1986.
"Department of Banking" means the Pennsylvania Department of Banking.
"Dissenters' Shares" mean any shares of Armstrong Common Stock in respect
of which the holders thereof shall have objected to the Merger and otherwise
complied with such of the requirements of Sections 1571 et seq. of the BCL as
may be applicable in order to be entitled to the rights and remedies of
dissenting shareholders.
"Effective Time of the Merger" means the date and time the Articles of
Merger are filed with the Secretary of State of the Commonwealth of Pennsylvania
pursuant to the provisions of Sections 1921 et seq. of the BCL, which filing
shall be made on the Closing Date or such later date and time as may be mutually
agreed upon by the Parties and as specified in the Articles of Merger.
"Environmental Condition" shall have the meaning set forth in Section
4.01(o).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
2
<PAGE> 134
"FDIA" means the Federal Deposit Insurance Act, as amended.
"FDIC" means the Federal Deposit Insurance Corporation.
"Federal Reserve Board" means the Board of Governors of the Federal Reserve
System.
"FHLMC" means the Federal Home Loan Mortgage Corporation.
"FNMA" means the Federal National Mortgage Association.
"GNMA" means the Government National Mortgage Association.
"NASD" means the National Association of Securities Dealers, Inc.
"NASDAQ" means the NASD Automated Quotations System.
"Owned Real Property" shall have the meaning set forth in Section 4.01(n).
"Parties" means BTFC, Johnstown, and Armstrong in connection with this
Reorganization Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means a corporation, an association, a partnership, an
organization, a business, an individual, a government or a subdivision thereof
or a governmental agency.
"Prospectus/Proxy Statement" means the Prospectus/Proxy Statement, together
with any supplements thereto, to be sent to the shareholders of Armstrong to
solicit their votes in connection with the transactions contemplated by this
Reorganization Agreement.
"Registrable Securities" means (a) all shares of BTFC Common Stock issued
to shareholders of Armstrong pursuant to this Reorganization Agreement and (b)
any shares of BTFC Common Stock issued or issuable with respect to any BTFC
Common Stock referred to in (a) above by way of stock dividend or stock split or
in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise. As to any particular
Registrable Securities, once issued such securities shall cease to be
Registrable Securities when (w) a registration statement with respect to the
sale of such securities shall have become effective under the Securities Act and
such securities shall have been disposed of in accordance with such registration
statement, (x) they shall have been distributed to the public pursuant to Rule
144 (or any successor provision) under the Securities Act, (y) they shall have
been otherwise transferred, new certificates for them not bearing a
3
<PAGE> 135
legend restricting further transfer shall have been delivered by BTFC and
subsequent disposition of them shall not require registration or qualification
of them under the Securities Act or any similar state law then in force, or (z)
they shall have ceased to be outstanding.
"Registration Expense" means all expenses incident to BTFC's performance of
or compliance with Sections 5.01 through 5.07, including, without limitation,
(i) all registration, filing and NASD fees, (ii) all fees and expenses of
complying with securities or blue sky laws, (iii) all word processing,
duplicating and printing expenses, (iv) all messenger and delivery expenses, (v)
the fees and disbursements of counsel for BTFC and of its independent public
accountants, including the expenses of any special audits or "cold comfort"
letters required by or incident to such performance and compliance, (vi) the
fees and disbursements of any one counsel and any one accountant retained by the
holder or holders of more than 50% of the Registrable Securities being
registered, (vii) premiums and other costs of policies of insurance against
liabilities arising out of the public offering of the Registrable Securities
being registered if BTFC desires such insurance, and (viii) any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities, but excluding underwriting discounts and commissions and transfer
taxes, if any, provided that, in any case where Registration Expenses are not to
be borne by BTFC such expenses shall not include salaries of BTFC personnel or
general overhead expenses of BTFC auditing fees, premiums or other expenses
relating to liability insurance required by underwriters of BTFC or other
expenses for the preparation of financial statements or other data normally
prepared by BTFC in the ordinary course of its business or which BTFC would have
incurred in any event.
"Registration Statement" means the registration statement on Form S-4 (or
other appropriate form) of BTFC, including any amendments or supplements
thereto, as declared effective by the SEC under the Securities Act with respect
to the issuance of BTFC Common Stock in connection with the Merger and the
approval by the shareholders of Armstrong of the transactions contemplated by
this Reorganization Agreement, which Registration Statement shall include the
Prospectus/Proxy Statement.
"Resulting Company" means Johnstown after consummation of the Merger.
"Schedules" means the disclosure schedules attached hereto and made a part
hereof.
"SEC" means the United States Securities and Exchange Commission.
4
<PAGE> 136
"Securities Act" means the Securities Act of 1933, as amended.
"Service" means the United States Internal Revenue Service.
"Subsidiary" means any corporation or other entity, the securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions of such
corporation or other entity are at the time directly or indirectly owned or
controlled by a Party.
"Taxes" means all federal, state and local taxes and similar governmental
charges.
"Transactions" means the negotiation and execution of this Reorganization
Agreement and the consummation of the transactions contemplated hereby, and all
related transactions.
1.02. Accounting Terms. For all purposes of this Reorganization Agreement,
unless the context clearly requires otherwise, any accounting term not
specifically defined in this Reorganization Agreement shall have the meaning
given to it in accordance with generally accepted accounting principles and
practices within the banking industry as in effect as of the date of this
Reorganization Agreement.
ARTICLE II
THE MERGER
2.01. Merger. Upon satisfaction of the conditions set forth herein, at the
Effective Time of the Merger, Armstrong shall merge with and into Johnstown in
accordance with the provisions and procedures set forth herein, and Johnstown
shall be the Resulting Company. At the Effective Time of the Merger, the
separate corporate existence of Armstrong shall cease and Johnstown shall
succeed to all the rights, privileges, immunities and franchises, and all the
property and assets, real, personal and mixed, of Armstrong without the
necessity for any separate conveyance or other transfer. Except as set forth in
Section 4.04(g), the Resulting Company shall thereafter be responsible and
liable for all liabilities and obligations of Armstrong of every kind and
description, and neither the rights of creditors nor any liens on the property
of Armstrong shall be impaired by the Merger.
2.02. Conversion of Shares of Armstrong Common Stock.
(a) At the Effective Time of the Merger, each share of Armstrong Common
Stock then outstanding, except Dissenters' Shares and treasury shares, shall be
converted into the right to receive 26.5 shares of BTFC Common Stock and $596.25
in cash (the
5
<PAGE> 137
"Exchange Ratio"), unless the average closing price per share of BTFC Common
Stock on the NASDAQ National Market as reported in the Wall Street Journal for
the twenty (20) consecutive trading days ending on the fifth trading day
immediately preceding the Closing Date (the "Valuation Period") is less than
$27.50 or more than $34.00. If the average per share price of BTFC Common Stock
is less than $27.50 for the Valuation Period, Armstrong may request that BTFC
adjust the Exchange Ratio by increasing the number of shares of BTFC Common
Stock or the amount of cash included in the Exchange Ratio, or both, so as to
maintain a total consideration of $1,325.00 per share of Armstrong Common Stock
based on the average price per share for BTFC Common Stock for the Valuation
Period and so as not to prevent the rendering of the tax opinion contemplated by
Section 6.01(n). If BTFC does not elect to so adjust the Exchange Ratio,
Armstrong may elect to terminate this Agreement, and neither party shall have
any further liability hereunder. If the average price per share of BTFC Common
Stock for the Valuation Period is more than $34.00, BTFC shall have the option
to adjust the Exchange Ratio by reducing the number of shares of BTFC Common
Stock or cash included in the Exchange Ratio, or both, as determined by
Armstrong, so that the total consideration does not exceed $1,497.25 per share
of Armstrong Common Stock based on the average price per share of BTFC Common
Stock for the Valuation Period and so as not to prevent the rendering of the tax
opinion contemplated by Section 6.01(n); provided, however, that if at any time
prior to the Closing Date or the ninety (90) day period immediately following
the Closing Date, BTFC enters into, or announces its plans to enter into, an
agreement, a letter of intent, or an agreement in principle to merge with
another entity or to sell substantially all of its assets to another entity or
any similar agreement that would result in an acquisition of BTFC or
substantially all of its business by another entity, the Exchange Ratio shall
remain equal to 26.5 shares of BTFC Common Stock and $596.25 in cash for each
share of Armstrong Common Stock. If such an announcement, agreement, letter of
intent, or agreement in principle is made within the ninety (90) day period
following the Closing Date, BTFC shall pay the shareholders of Armstrong as of
the Effective Time of the Merger within thirty (30) days of such announcement,
agreement, letter of intent, or agreement in principle the residual
consideration required to equal a total consideration of 26.5 shares of BTFC
Common Stock and $596.25 in cash for each share of Armstrong Common Stock.
(b) At the Closing Date, by virtue of the Merger, and without any action on
the part of the shareholders of Armstrong, each of the then issued and
outstanding shares of Armstrong Common Stock shall cease to exist and shall be
deemed canceled, retired and eliminated, and all rights in respect thereof
(other than with respect to Dissenters' Shares) shall cease except the herein
described rights to receive BTFC Common Stock and cash,
6
<PAGE> 138
regardless of whether the certificates representing such shares are surrendered
to BTFC by the shareholders of Armstrong.
(c) The Exchange Ratio shall be adjusted at the Effective Time of the
Merger to reflect any consolidation, split-up, other subdivision or combination
of BTFC Common Stock, any dividend payable in BTFC Common Stock, or any capital
reorganization involving the reclassification of BTFC Common Stock subsequent to
the date of this Reorganization Agreement and prior to such time. BTFC shall
register under the Securities Act all shares of BTFC Common Stock to be issued
in the Merger prior to the Effective Time of the Merger.
2.03. Articles of Incorporation; By-Laws. At the Effective Time of the
Merger, the articles of incorporation and bylaws of Johnstown as in effect
immediately prior to the Effective Time of the Merger shall be the articles of
incorporation and bylaws of the Resulting Company.
2.04. Directors and Officers. The directors and principal officers of
Johnstown immediately prior to the Effective Time of the Merger shall be the
directors and principal officers of the Resulting Company from and after the
Effective Time of the Merger.
2.05. Closing.
(a) The closing hereunder ("Closing") shall take place at the offices of
Kirkpatrick & Lockhart LLP, 1500 Oliver Building, Pittsburgh, Pennsylvania
15222, or such other place agreed upon by the Parties, on the Closing Date
selected by the Parties which shall be the latest of:
(i) Any business day within five business days after the receipt of the
approval of the Merger by the Department of Banking;
(ii) Any business day between the thirtieth and thirty-seventh day
following the later to occur of (A) approval by the Federal Reserve
Board and the FDIC or other applicable federal regulatory agency of
the acquisition of control of Armstrong by BTFC or (B) approval of
the Merger by the Federal Reserve Board and the FDIC or other
applicable federal regulatory agency, if all other conditions set
forth in Article VI have been satisfied or waived;
(iii) The fifth business day after any stay of any approval of the
transactions referred to in clause (ii) of this Section 2.05 or any
injunction against consummation of such transactions is
7
<PAGE> 139
lifted, discharged or dismissed, if all other conditions set forth
in Article VI have been satisfied or waived;
(iv) Such other date as shall be mutually agreed to in writing by the
Parties on which all other conditions set forth in Article VI shall
have been satisfied or waived.
(b) Any Party may postpone the Closing Date fixed under Section 2.05(a)
once for a reasonable period of time (which shall be no more than thirty (30)
days but in no event ending later than the day of automatic termination in
accordance with Section 2.07(g)) if necessary to enable it to perform any
obligations hereunder, provided, that such Party provides prompt written notice
to the other Parties of such postponement, stating the reasons therefor. If
Armstrong, Johnstown or BTFC shall fail to close because all the conditions
precedent to its obligation to close shall not have been met on the Closing Date
as postponed, such Party may immediately terminate this Reorganization Agreement
by giving written notice of such termination to the other Parties.
2.06. Exchange of Certificates for Stock and Cash.
(a) Armstrong Common Stock. After the Effective Time of the Merger, each
holder of a certificate for theretofore outstanding shares of Armstrong Common
Stock, upon surrender of such certificate to BTFC or its exchange agent,
together with a duly executed and completed Letter of Transmittal, which shall
be mailed to each holder of a certificate for theretofore outstanding shares of
Armstrong Common Stock by BTFC or its exchange agent promptly following the
Effective Time of the Merger, shall be entitled to receive in exchange therefor
a certificate or certificates representing the number of whole shares of BTFC
Common Stock to which such shareholder is entitled as provided in Section 2.02
and cash (payable by check) in an amount equal to the amount of cash to which
such shareholder is entitled as provided in Section 2.02, plus cash (payable by
check) in lieu of any fractional share of BTFC Common Stock to which such holder
would otherwise be entitled. Neither certificates nor scrip certificates for
fractions of shares of BTFC Common Stock shall be issued, and holders of
Armstrong Common Stock who would but for this Section 2.06(a) be entitled to
receive fractions of shares of BTFC Common Stock shall have none of the rights
with respect to such fractions of shares (including, without limitation, the
right to receive dividends) which a holder shall possess in respect of a full
share of BTFC Common Stock, and each such holder shall receive, in lieu of the
applicable fraction of a share of BTFC Common Stock, a cash payment therefor
equal to such fraction of a share of BTFC Common Stock multiplied by the closing
sales price on NASDAQ for a share
8
<PAGE> 140
of BTFC Common Stock on the Closing Date as reported in the Wall Street Journal,
or, if the BTFC Common Stock is not traded on such date, the next succeeding day
on which such stock is traded. No interest will be paid or accrued on cash
payable upon surrender of certificates previously representing Armstrong Common
Stock.
(b) Failure to Surrender Certificates. Until surrendered in accordance with
the provisions of this Section 2.06, the certificates which immediately prior to
the Effective Time of the Merger represented issued and outstanding shares of
Armstrong Common Stock (except for certificates representing Dissenters' Shares
and treasury shares) shall from and after the Effective Time of the Merger
represent for all purposes only the right to receive BTFC Common Stock and cash
as provided in Section 2.02. Upon surrender of a certificate for theretofore
outstanding shares of Armstrong Common Stock, there shall be paid to the
recordholder of the certificate for shares of BTFC Common Stock issued in
exchange therefor (i) on the date of such exchange, the amount of dividends
theretofore accrued and payable with respect to such full shares of BTFC Common
Stock as of any date subsequent to the Effective Time of the Merger which have
not yet been paid to a public official pursuant to abandoned property laws and
(ii) at the appropriate payment date, the amount of dividends with a record date
after the Effective Time of the Merger but prior to such surrender and a payment
date subsequent to such surrender. No interest shall be payable with respect to
such dividends.
(c) Treasury Shares and Dissenters' Shares. At the Effective Time of the
Merger, each share of Armstrong Common Stock held in treasury shall be canceled,
retired and cease to exist and no consideration shall be paid therefor, and each
Dissenters' Share shall be treated in accordance with Sections 1571 et seq. of
the BCL.
2.07. Termination of this Reorganization Agreement. This Reorganization
Agreement and the transactions contemplated hereby may be terminated:
(a) At any time prior to the Effective Time of the Merger by mutual
consent of the Boards of Directors of BTFC, Johnstown and Armstrong;
(b) As provided in Section 2.02(a);
(c) As provided in Section 2.05(b);
(d) At any time, by either Party hereto in writing, if the applications
for prior approval referred to in Section 4.05(e) hereof have been
denied, and the time period for appeals and requests for
reconsideration has run;
9
<PAGE> 141
(e) At any time, by either Party hereto in writing, if the stockholders
of Armstrong do not approve the transactions contemplated herein at
the annual or special meetings duly called for that purpose;
(f) At any time, by either Party in writing, if any of the conditions
precedent to such Party's obligations to consummate the Merger has
not been satisfied, fulfilled or waived by the Party entitled to so
waive on or before the Closing Date, provided that the terminating
Party has given the other Party written notice with respect thereto
at least 10 days prior to such termination and has given the other
Party a reasonable opportunity to discuss the matter with a view to
achieving a mutually acceptable resolution;
(g) In any event, automatically on March 31, 1996, if the Merger has not
been consummated on or before such date, unless extended by mutual
consent of the Parties.
Upon any termination hereunder,
(i) Sections 2.07 and 2.08 and Article VI hereof shall survive any
termination;
(ii) if BTFC terminates this Reorganization Agreement under Section
2.05(b) due to the failure of any of the conditions set forth in
Section 6.01 (a), (b), (c) or (n) and satisfaction of such condition
was within the control of Armstrong, then Armstrong shall reimburse
BTFC for attorneys' fees and other expenses reasonably incurred in
connection with the Transactions (to the extent not already paid by
Armstrong to BTFC or any of its Subsidiaries), and such failure
shall constitute a breach of this Reorganization Agreement, and BTFC
shall have all rights available in law and at equity for such breach
of contract;
(iii) if Armstrong terminates this Reorganization Agreement under
Section 2.05(b) due to the failure of any of the conditions set
forth in Section 6.02 (a), (b) or (c), and satisfaction of such
condition was within the control of BTFC or any of its Subsidiaries,
then BTFC shall reimburse Armstrong for attorneys' fees and other
expenses reasonably incurred in connection with the Transactions,
and such failure shall constitute a breach of this Reorganization
Agreement, and Armstrong shall have all rights available in law and
at equity for such breach of contract;
(iv) if BTFC terminates this Reorganization Agreement under Section
2.05(b) due to the failure of any of the
10
<PAGE> 142
conditions set forth in Section 6.01 (d), (g), (h), (j), (k), or
(m), then Armstrong shall reimburse BTFC for attorneys' fees and
other expenses reasonably incurred in connection with the
Transactions (to the extent not already paid by Armstrong to BTFC or
any of its Subsidiaries) and upon payment in full thereof, Armstrong
shall have no further liability or obligation hereunder to BTFC; and
(v) if Armstrong terminates this Reorganization Agreement under
Section 2.05(b) due to the failure of any of the conditions set
forth in Section 6.02 (f), (g) or (i), then BTFC shall reimburse
Armstrong for attorneys' fees and other expenses reasonably incurred
in connection with the Transactions and upon payment in full
thereof, BTFC shall have no further liability or obligation
hereunder to Armstrong.
In no event shall the amount reimbursed for attorneys' fees and other expenses
reasonably incurred in connection with the Transactions under clause (iv) or (v)
of this Section 2.07 exceed $150,000.
2.08 Confidentiality. In connection with the Merger, each Party has
furnished and will furnish to the other Party, pursuant to this Reorganization
Agreement or otherwise, confidential information concerning its business and
financial condition. Each Party shall, and shall cause its employees, agents,
accountants, attorneys and investment advisors to, maintain the confidentiality
of such information received from the other Parties and shall not use such
information for any purpose except in furtherance of the Merger and the other
transactions contemplated hereby. In the event of a termination of this
Reorganization Agreement, upon request by a Party, the other Parties shall
return or destroy all copies of written confidential information received from
such Party, whether pursuant to this Reorganization Agreement or otherwise, and
all documents prepared by them which contain such information.
2.09. Public Disclosure. Each Party shall consult with the other Parties
before issuing any press release or making any other public disclosure regarding
the proposed Merger or the other transactions contemplated hereby and shall not
issue any press release or make any other public disclosure prior to such
consultations, except as may be required by law or by the rules of NASD in the
opinion of counsel. A copy of such press release or public disclosure (or, if
not in written form, a written description thereof) shall be provided to the
other Parties prior to the dissemination thereof.
11
<PAGE> 143
ARTICLE III
SHAREHOLDER APPROVAL
3.01. Armstrong Shareholders Meeting. Armstrong shall submit this
Reorganization Agreement to its shareholders for approval in accordance with the
BCL at a meeting duly convened and held on such date as shall be agreed upon by
the Parties. In connection with such meetings, Armstrong shall furnish the
Prospectus/Proxy Statement to its shareholders. The Board of Directors of
Armstrong shall recommend the proposed Merger to its shareholders and use their
best efforts to obtain the affirmative vote of the shareholders required to
approve the transactions contemplated by this Reorganization Agreement.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS
4.01. Representations and Warranties of Armstrong. Armstrong represents and
warrants to BTFC and Johnstown as follows:
(a) Organization and Capitalization. Armstrong is a bank and trust company
duly organized and validly existing under the Banking Code and is not a member
of the Federal Reserve System. Except as set forth in Schedule 4.01(a),
Armstrong has the corporate power and authority to carry on its business as it
is now being operated and to carry out the transactions contemplated by this
Reorganization Agreement. Armstrong's deposits are insured by the Bank Insurance
Fund of the FDIC. The authorized capital stock of Armstrong consists of 8,000
shares of common stock having a par value of $50.00 per share, of which 8,000
shares are issued and outstanding as of the date hereof and no shares are held
in the treasury of Armstrong. To the knowledge of Armstrong, all issued and
outstanding shares of Armstrong Common Stock are validly issued, fully paid and
nonassessable. There is no subscription, option, warrant, call, right, stock
appreciation right or commitment of any kind obligating Armstrong to issue any
of its stock or to acquire any of its stock under any circumstances or to pay
cash on account of stock appreciation.
(b) Authority for Transactions. This Reorganization Agreement has been, and
the Articles of Merger, when executed and delivered, will have been, duly and
validly authorized, executed and delivered by Armstrong, subject only to the
approval of the shareholders of Armstrong, the Department of Banking, the FDIC
or other applicable federal regulatory agency, and each constitutes the valid
and binding obligations of Armstrong and are and will be enforceable in
accordance with their respective terms.
12
<PAGE> 144
(c) No Conflicts. Neither the execution, delivery and performance of this
Reorganization Agreement nor the consummation of the transactions contemplated
hereby, nor compliance by Armstrong with any of the provisions hereof or thereof
will (i) violate, or conflict with, or result in a breach of any provisions of,
or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of Armstrong under
any of the terms, conditions or provisions of, (A) the articles of incorporation
or bylaws, as amended, of Armstrong or (B) any note, bond, mortgage, indenture,
deed of trust, license, lease, agreement or other instrument or obligation to
which Armstrong is a party or by which Armstrong is bound or to which any of
Armstrong's properties or assets may be subject, except for such violations,
conflicts, breaches, defaults, terminations, accelerations, rights or creations
which would not, in the aggregate, have a material adverse effect on Armstrong's
business or financial condition, or (ii) violate any judgment, ruling, order,
writ, injunction, decree, statute, rule or regulation applicable to Armstrong or
any of its properties or assets.
(d) Financial Statements. Armstrong has delivered to BTFC true, correct and
complete copies of its unaudited financial statements for the years ended
December 31, 1992, 1993 and 1994, including its statements of financial
condition, statements of income, statements of stockholders' equity, the notes
thereto, and for the nine months ended September 30, 1994 and 1995, its
statements of financial condition and income. Such financial statements present
fairly, completely and accurately in all material respects Armstrong's financial
position, assets and liabilities and results of operations as of the dates and
for the periods covered thereby and were prepared in accordance with generally
accepted accounting principles and practices within the banking industry
consistently applied, except that any unaudited interim financial statements are
subject to normal recurring year-end audit adjustments and do not contain all
footnotes required under generally accepted accounting principles. To the
knowledge of Armstrong, there are no material obligations or liabilities
(whether absolute, accrued or contingent) which, in accordance with generally
accepted accounting principles, should be reflected in the financial statements
of Armstrong or otherwise disclosed in the footnotes thereto and which are not
so reflected or disclosed, except as set forth in Schedule 4.01(d). Since
December 31, 1994, there has been no material adverse change in the financial
condition, assets, liabilities, income or operations of Armstrong.
13
<PAGE> 145
(e) Certain Changes. Since December 31, 1994, there has been (i) no
material change in the organization, key personnel or method of doing business
of Armstrong, except for changes in the ordinary course of business, none of
which, individually or in the aggregate, has been material to the business or
financial condition of Armstrong; (ii) no material damage, destruction or
casualty loss with respect to property owned or leased by Armstrong (whether or
not covered by insurance) which affected or could affect the business or
financial condition or results of Armstrong; (iii) no changes in the authorized
or issued shares of Armstrong Common Stock and no declaration or payment of
distributions with respect to the Armstrong Common Stock or redemption or
repurchase of any such shares, except for dividends distributed on April 4, July
5 and September 28, 1995 of $14.00, $15.50 and $21.25 per share, respectively;
or (iv) no acquisition by Armstrong of the assets or more than 5% of the
outstanding voting capital stock of another bank or trust company.
(f) Taxes. Armstrong has filed when due all returns ("Returns") for and
paid in full all Taxes to the extent such filings and payments were required
prior to the date of this Reorganization Agreement. Such filings comply with all
applicable laws and are true, correct and complete in all material respects. Any
amounts set up as accruals or reserves in the audited financial statements of
Armstrong are sufficient for the payment of all Taxes, whether or not presently
being asserted or assessed, the liability for which has arisen from any action
of Armstrong prior to the dates of such financial statements. No claims are
currently being made by any taxing authority with respect to any Return, and
Armstrong has no knowledge of any basis for any such claims. Proper and accurate
amounts have been withheld and remitted by Armstrong from and for their
employees for all prior periods in compliance with the tax withholding
provisions of applicable federal, state and local law. Armstrong has not had any
Tax deficiencies proposed or assessed against it and has not executed any waiver
or extended the statute of limitations on the audit of any Return or the
assessment or collection of any Tax. Armstrong has not made any payment, nor is
it obligated to make any payment, nor is it a party to any agreement that under
certain circumstances could obligate it to make any payment, that would not be
deductible under Code Sections 280G or 162(m).
(g) Litigation. No action, suit, investigation, claim or proceeding of any
nature or kind whatsoever, whether civil, criminal or administrative, by or
before any governmental body or arbitrator ("Litigation") is pending or, to the
knowledge of Armstrong, threatened against or affecting Armstrong, its business,
any of Armstrong's assets, any Armstrong Common Stock, or any of the
transactions contemplated by this Reorganization Agreement, and, to the
knowledge of Armstrong, there is no basis for any Litigation. Armstrong has not
been a party to any other
14
<PAGE> 146
Litigation since December 31, 1990. There is presently no outstanding judgment,
decree or order of any governmental body against or affecting Armstrong, its
business, any of Armstrong's assets, any of Armstrong's Common Stock, or any of
the transactions contemplated by this Reorganization Agreement. Armstrong does
not have pending any Litigation against any third party.
(h) Compliance with Laws. To the knowledge of Armstrong, Armstrong is in
compliance in all material respects with all laws and regulations applicable to
its operations or with respect to which compliance is a condition of engaging in
the business thereof. Armstrong has paid all assessments and filed all reports
and statements required to be filed with respect thereto under the rules and
regulations of the Department of Banking and the FDIC.
(i) Agreements with Banking Authorities. Armstrong is not a party to any
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, the Department of Banking, the FDIC or any other regulatory agency
which restricts its activities in any manner, or in any manner relates to the
capital adequacy, credit policies or management of Armstrong, nor has Armstrong
been advised by any such regulatory agency that it is contemplating, issuing or
requesting (or is considering the appropriateness of issuing or requesting) any
such order, directive, agreement, memorandum of understanding, commitment letter
or similar undertaking.
(j) Regulatory Reports. Armstrong has made available for inspection by BTFC
(i) copies of all reports, if any, to the Department of Banking or the FDIC and
(ii) all material notices, reports and review letters received from the FDIC or
any other governmental agency.
(k) Loans. Each loan outstanding on the books of Armstrong is reflected
correctly in all material respects by the loan documentation relating thereto,
was made in the ordinary course of business, was not known to be uncollectible
at the time it was made, and was made in accordance with Armstrong's standard
loan policies. Armstrong has not received notice from any obligor on any such
loan of a dispute with respect to the loan or that the loan may be unenforceable
against the obligor. All loans sold by Armstrong, including whole loans and
participations, were sold without recourse.
As of December 31, 1994, except as set forth in Schedule 4.01(k) attached
hereto, Armstrong: (i) had no loans, of any type or character, in its portfolio
(A) exceeding its lending limits under applicable provisions of Pennsylvania and
federal law, or (B) in violation of Regulation 0 or 12 C.F.R. Part 215, or
15
<PAGE> 147
similar provisions under Pennsylvania law; (ii) had no loan in its portfolio in
excess of $100,000 which was not secured by a mortgage, note, deed of trust,
security agreement or other security and (iii) had no loans, of any type or
character, in its portfolio in excess of $100,000 which were or should have been
as of such date (A) considered non-performing or placed on a non- accrual status
or (B) classified by Armstrong as other loans specially mentioned, substandard,
doubtful or loss loans, except in any case such loans as were listed on
Armstrong's most recent internal classified asset report, a copy of which has
been made available to BTFC. For purposes of this Reorganization Agreement,
"non-performing" and "non-accrual" shall mean any loan delinquent for 90 days or
more as to the payment of interest and/or principal.
(l) Loan Loss Reserve. The loan loss reserve maintained by Armstrong for
all loans in its portfolio is in the best judgment of Armstrong management,
adequate in all material respects under the requirements of generally accepted
accounting principles and practices within the banking industry to cover all
material known and anticipated risks of nonpayment with regard to Armstrong's
loan portfolio.
(m) Core Deposits. Armstrong has delivered to, or made available for
inspection by, BTFC a summary of the total amounts held by depositors that in
the aggregate each have less than $100,000 on deposit with Armstrong ("Core
Deposits"). In addition, Armstrong has delivered to, or made available for
inspection by, BTFC a complete list of all depositors that have monies on
deposit at Armstrong that are not Core Deposits.
(n) Real Property. Armstrong has good and marketable title to the real
property (including real estate owned or acquired through foreclosure) listed in
Schedule 4.01(n) ("Owned Real Property"), free and clear of all material liens,
leases, security interests, title retention agreements, encumbrances,
restrictions, conditions, charges, equities and claims, except those referred to
in Armstrong's statement of financial condition dated December 31, 1994 or the
notes thereto, liens for current Taxes not yet due and payable, any unfilled
mechanics' liens and such encumbrances and imperfections of title, if any, as
are not substantial in character or amount or do not otherwise materially impair
Armstrong. The present uses of the Owned Real Property are in compliance with
the present zoning classifications assigned to such real property, and all
improvements constructed on the land included in the Owned Real Property have
been constructed in all material respects in accordance with the requirements of
all applicable building, health, safety, environmental, zoning and other
federal, state and local laws, ordinances, regulations, codes, licenses or
permits applicable at the time of such construction, do not contain any defect
in design or construction or otherwise, and have access to existing
16
<PAGE> 148
highways, roads and utility services. Armstrong has not received any notice or
request from any governmental authority, utility, insurer, board of fire
authorities or similar organization for the performance of any work or
alteration with respect to the Owned Real Property or for the termination or
limitation of any access, services or insurance with respect thereto. All such
Owned Real Property is adequately insured against loss, except with respect to
Environmental Conditions. Armstrong does not own any real property not listed in
Schedule 4.01(n).
(o) Environmental. Except as disclosed in Schedule 4.01(o) attached hereto:
(i) To the best of Armstrong's knowledge, there are no Environmental
Conditions. The term "Environmental Condition" means (x) the presence in surface
water, groundwater, drinking water supply, land surface, subsurface strata,
above-ground or underground storage tanks or other containers, or ambient air of
any pollutant, contaminant, industrial waste, hazardous waste, polychlorinated
biphenyls, radioactive materials, toxic or hazardous substances ("Hazardous
Substances") or (y) any violation of any statute, ordinance, regulation,
administrative order, judicial order or decree or other governmental requirement
relating to the emission, discharge, deposit, disposal, leaching, migration or
release of any Hazardous Substance into the environment or the generation,
treatment, storage, transportation or disposal of any Hazardous Substance (i)
arising out of or otherwise related to the operations or other activities
(including the disposition of such materials or substances) of Armstrong or of
any predecessor in title, interest or line of business to Armstrong, conducted
or undertaken prior to the Closing, or (ii) existing at or prior to the Closing
at any Owned Real Property, any real property leased by Armstrong ("Leased Real
Property"), any real property securing outstanding loans ("Secured Real
Property"), or any property previously owned, leased, occupied, used or
foreclosed upon ("Prior Property");
(ii) No investigation, administrative order, consent order, agreement,
litigation or settlement with respect to any Environmental Condition is
proposed, threatened or in existence, and Armstrong has received no
communication from or on behalf of any governmental authority that alleges that
any such Environmental Condition exists;
(iii) Armstrong has obtained, holds, and will maintain all permits,
licenses, authorizations, consents, approvals, waivers, variances or exemptions
("Governmental Approvals") issued by any federal, state, local, foreign,
regional or other judicial, governmental, administrative or regulatory authority
or instrumentality ("Governmental Authority") required under any federal, state,
local or foreign statutory or common law, rule, regulation, ordinance, code,
policy, guidelines or Governmental
17
<PAGE> 149
Approvals, relating to Environmental Law for the ownership, use, occupation,
operation and other activities of Armstrong, any Owned Real Property, Leased
Real Property, Secured Real Property and Prior Property. Armstrong has made to
any Governmental Authority all filings, reports, registrations, notices or other
submissions ("Governmental Filings") required under Environmental Laws with
respect to the ownership, use, occupation, operation and other activities of
Armstrong and the Owned Real Property, Leased Real Property, Secured Real
Property and any Prior Property. Such required Governmental Approvals and
Governmental Filings are listed on Schedule 4.01(o) attached hereto. The term
Environmental Law means all statutory and common law, rules, regulations,
ordinances, Governmental Approvals, guidelines, policies, judicial or
administrative orders or decrees of any federal, state or local Governmental
Authority relating to the protection of human health and safety or the
environment.
(iv) Armstrong has not transported or disposed of any Hazardous
Substances or arranged for the transportation or disposal of such Hazardous
Substances to any location which is listed or to the knowledge of Armstrong
proposed for listing under CERCLA, a comparable state statute or other
Environmental Law, or which is the subject of federal, state or local
enforcement actions or other investigations which may lead to claims against
Armstrong for clean-up costs, remedial work, damages to natural resources or for
personal injury claims, including, but not limited to, claims under CERCLA. None
of the Owned Real Property, Leased Real Property, Secured Real Property or Prior
Property is listed or, to the knowledge of Armstrong, proposed for listing under
CERCLA or a comparable state or other Environmental Law.
(v) Each of the Governmental Approvals set forth in Schedule 4.01(o) is
in full force and effect and is final, any fixed period for appeal or review
having elapsed (other than as to ongoing compliance or modification during the
term of such Governmental Approval as otherwise provided by law or as indicated
in Schedule 4.01(o)). No such Governmental Approval is subject to any pending
suit, action, investigation of which Armstrong has notice, proceeding or appeal
(whether judicial, administrative or otherwise) and, to the best of Armstrong's
knowledge, no such matter is threatened.
(vi) To the knowledge of Armstrong, Armstrong, with respect to its
operation or other activities, any Owned Real Property, Leased Real Property,
Secured Real Property or Prior Property, has complied in all material respects
with, and currently is in compliance in all material respects with: (A) the
terms and conditions of all Governmental Approvals issued or required pursuant
to any Environmental Law, and (B) all other limitations, restrictions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in any
18
<PAGE> 150
Environmental Law, or in any written notice, order, or demand letter issued,
entered, promulgated, or approved pursuant to any Environmental Law;
(vii) Armstrong has not received any notice of violation or other
notification from any Governmental Authority, or any written notice from any
third party, alleging that Armstrong is now or has been in violation of any
Environmental Law;
(viii) To the knowledge of Armstrong, no ozone depleting substances
("ODS"), polychlorinated biphenyls ("PCBs"), asbestos containing material
("ACM"), or urea formaldehyde insulation is present on or at any Owned Real
Property, Leased Real Property, Secured Real Property or any Prior Property and
Armstrong has complied with all regulatory requirements relating to the storage,
removal, disposal or release, if any, of ODS, ACM or PCBs which currently are or
may in the past have been located on or at any Owned Real Property, Leased Real
Property, Secured Real Property and any Prior Property.
(ix) To the knowledge of Armstrong, there are not now any underground or
aboveground storage tanks and associated piping ("Storage Tanks") on or at any
Owned Real Property, Leased Real Property, Secured Real Property or Prior
Property, nor has Armstrong owned or operated Storage Tanks at any time.
(x) Armstrong, with respect to the ownership, use, occupation, operation
and other activities of Armstrong, any Owned Real Property, Leased Real
Property, Secured Real Property and any Prior Property, has not received any
written request for information from any Governmental Authority or other Person
related to any site which is, or may be, subject to actions for removal,
response, remediation or cleanup of Hazardous Substances, including, but not
limited to, any information request pursuant to CERCLA, comparable state
statutes, or other Environmental Law;
(xi) Neither Armstrong nor, to the knowledge of Armstrong, any other
Person ever caused or permitted any Hazardous Substances to be placed, stored,
treated, handled or located on, under or at any Owned Real Property, Leased Real
Property, Secured Real Property or Prior Property or any part thereof other than
in the ordinary course of business and in compliance with all Environmental
Laws.
(xii) Armstrong has complied in all material respects with all
applicable provisions of any Environmental Laws that condition, restrict or
prohibit the transfer, sale, lease or closure of any property for environmental
reasons; no environmental lien has attached to any portion of Armstrong or any
Owned Real Property, Leased Real Property, Secured Real Property or Prior
Property, and no governmental actions have been
19
<PAGE> 151
taken or are in progress that could subject any or all of the foregoing to any
such lien.
(xiii) There have been no past and there are no pending or contemplated
claims by Armstrong, under any Environmental Laws based on actions of others
that may have impacted any Owned Real Property, Leased Real Property, Secured
Real Property or Prior Property, and Armstrong has not entered into any
agreement with any Person regarding liabilities or responsibilities with respect
to (i) any Environmental Law, (ii) remedial action or (iii) other environmental
expense (including contingent liabilities).
(xiv) Armstrong has not agreed to retain, assume or guarantee the costs
of any investigation, removal, response, remediation or cleanup of any property.
(xv) Armstrong has provided copies of all material reports, documents
and other information pertaining to compliance with Environmental Laws and
environmental matters or liabilities arising out of, resulting from or in
connection with the operations of Armstrong, any Owned Real Property, Leased
Real Property, Secured Real Property or Prior Property.
(p) Personal Property. All personal property used by Armstrong in its
business is either owned or leased by Armstrong and is suitable for the
operations and business as currently conducted by Armstrong.
(q) Leases. All leased real property and leased personal property of
Armstrong is listed in Schedule 4.01(q) attached hereto. Except as disclosed in
Schedule 4.01(q), no consents or approvals are required under the leases for
such property in connection with the transactions contemplated by this
Reorganization Agreement.
(r) Material Contracts. True, correct and complete copies of all material
contracts, agreements, plans, loans, leases, indentures, mortgages, instruments,
or other commitments, arrangements, understandings, letters of credit or
undertakings, oral or written, formal or informal, to which Armstrong is a party
or otherwise bound or to which its assets may be affected have been submitted or
made available to BTFC or are included as part of Schedule 4.01(r) (hereinafter
referred to individually as a "Contract" and collectively as the "Contracts").
There is no breach or default (or an event which, with notice or lapse of time
or both, would constitute a default) by Armstrong of or with respect to any
provision of any Contract to which Armstrong is a party that could have a
material adverse effect upon the financial condition, operations, results of
operations or business of Armstrong. All such Contracts, including but not
limited to all contracts relating to the purchase and sale of loans, are or will
be assignable to BTFC or Johnstown, as the
20
<PAGE> 152
case may be, without further action thereby effective as of the Closing Date,
except as listed in Schedule 4.01(r). Armstrong is not currently renegotiating
any Contract.
(s) Insurance. Armstrong is not in default with respect to any provisions
of any liability or other forms of insurance held by it or has failed to give
any notice or present any claim thereunder in a due and timely fashion. All
polices of insurance are in full force and effect and are carried in an amount
and are otherwise adequate to protect Armstrong from any material adverse loss
on a consolidated basis. Armstrong has not been denied any application for
insurance or had any policy of insurance terminated during the past three years,
nor has Armstrong been notified of any pending termination.
(t) Employee Benefits.
(i) Benefit Plans; Company Plans. Schedule 4.01(t) discloses all written
and unwritten "employee benefit plans" within the meaning of Section 3(3) of
ERISA, and any other written and unwritten profit sharing, pension, savings,
deferred compensation, consultant, bonus, fringe benefit, insurance, medical,
medical reimbursement, life, disability, accident, post-retirement health or
welfare benefit, stock option, stock purchase, sick pay, vacation, employment,
severance, termination or other incentive, welfare or employee benefit plan,
agreement, contract, policy, trust fund or arrangement (each a "Benefit Plan"),
whether or not funded and whether or not terminated, (i) maintained or sponsored
by Armstrong, or (ii) with respect to which Armstrong has or may have liability
or is obligated to contribute, or (iii) that otherwise covers any of the current
or former employees of Armstrong or their beneficiaries, or (iv) as to which any
such current or former employees or their beneficiaries participated or were
entitled to participate or accrue or have accrued any rights thereunder (each, a
"Company Plan"). For each Company Plan, to the extent applicable to each such
Company Plan, complete copies of the following have been delivered to BTFC (but
in any event, no later than seven (7) days prior to the Closing Date): (i) the
documents embodying the Company Plans, including the plan documents, all
amendments thereto, the related trust or funding agreements, investment
management agreements, administrative service contracts, insurance contracts,
union or trade agreements and, in the case of any unwritten Company Plans,
written descriptions thereof; (ii) annual reports including Forms 5500 and all
schedules thereto for the last three years; (iii) financial statements for the
last three years; (iv) actuarial reports, if applicable, for the last three
years; and (v) each communication (other than routine communications) received
by Armstrong from or furnished by Armstrong to the Service, DOL, PBGC or other
governmental authorities. Armstrong has also furnished to BTFC a copy of the
current summary plan description and each summary of material
21
<PAGE> 153
modification prepared in the last three years for each Company Plan, and all
employee manuals, handbooks, policy statements and other written materials given
to employees relating to any Company Plans. No oral or written representations
or commitments inconsistent with such written materials have been made to any
employee of Armstrong by any member of the Company Group or any employee or
agent thereof.
(ii) Company Group Matters. Armstrong has never been a member of a
controlled group of corporations within the meaning of Sections 414(b), (c), (m)
or (o) of the Code.
(iii) Compliance. Each of the Company Plans and all related trusts,
insurance contracts and funds have been created, maintained, funded and
administered in all material respects in compliance with all applicable Laws
including, without limitation, all applicable requirements of the Code and any
predecessor federal income tax laws, ERISA, the health care continuation
requirements of COBRA, and any applicable collective bargaining agreements.
Without limiting the generality of the foregoing, Armstrong has provided all
notices and other correspondence to employees and former employees required by
the health care continuation provisions of COBRA. Each of the Company Plans and
all related trusts, insurance contracts and funds have also been created,
maintained, funded and administered in all material respects in compliance with
applicable law, the plan document, trust agreement, insurance policy or other
writing creating the same or applicable thereto. To the knowledge of Armstrong,
no Company Plan is or is proposed to be under audit or investigation, and no
completed audit of any Company Plan has resulted in the imposition of any Tax,
fine or penalty.
(iv) Qualified Plans. Schedule 4.01(t) discloses each Company Plan that
purports to be a qualified plan under Section 401(a) of the Code and exempt from
United States federal income tax under Section 501(a) of the Code (a "Qualified
Plan"). Each Qualified Plan has received a determination letter (or opinion or
notification letter, if applicable) from the Service that such plan is qualified
under Section 401(a) of the Code and exempt from federal income tax under
Section 501(a) of the Code. No Qualified Plan has been amended since the date of
the most recent such letter in a manner that might adversely affect the
qualification of such plan under sections 401(c) and 501(a) of the Code. No
member of the Company Group, nor any fiduciary of any Qualified Plan, nor any
agent of any of the foregoing, has done anything that would adversely affect the
qualified status of a Qualified Plan or the qualified status of any related
trust.
(v) Defined Benefit Plans; Multiemployer Plans. Armstrong has never had
a Company Plan that was a defined benefit plan as defined in Section 3(35) of
ERISA (a "Defined Benefit Plan"). No Company Plan is a multiemployer plan as
defined in
22
<PAGE> 154
Section 3(37) or 4001(a)(3) of ERISA. Armstrong has no material liability for
any Company Plan that is not accrued on the December 31, 1994 Balance Sheet or,
that has arisen after December 31, 1994 and on and before the Closing.
(vi) Prohibited Transactions; Fiduciary Duties; Post-Retirement
Benefits. No prohibited transaction (within the meaning of Section 406 of ERISA
and Section 4975 of the Code) with respect to any Company Plan exists or has
occurred that could subject Armstrong, directly or indirectly, to any material
liability or Tax under Part 5 of Title I of ERISA or Section 4975 of the Code.
No reportable event (within the meaning of Section 4043(b) of ERISA) with
respect to any Company Plan exists or has occurred that could result in any tax
or liability material to Armstrong. No member of the Company Group, nor any
administrator or fiduciary of any Company Plan, nor any agent of any of the
foregoing, has engaged in any transaction or acted or failed to act in a manner
that could subject Armstrong, directly or indirectly, to any material liability
for a breach of fiduciary or other duty under ERISA or any other applicable law.
With the exception of the requirements of Section 4980B of the Code, no
post-retirement benefits are provided under any Company Plan that is a welfare
benefit plan as described in ERISA Section 3(1).
(vii) Except as set forth on Schedule 4.01(t), the consummation of the
transactions contemplated hereby will not create, accelerate or increase any
liability under any Company Plan because of the creation, acceleration or
increase of any rights or benefits to which employees are entitled hereunder,
and no payment required under any Company Plan in connection with the
transactions contemplated hereby shall be non-deductible for federal income tax
purposes by reason of Section 280G of the Code.
(u) Labor Relations. There are no pending or threatened labor disputes with
any employees of Armstrong. Armstrong is not a party to a collective bargaining
agreement with any of its employees. Armstrong has no existing employment
contracts with any of its current or former employees, directors or officers.
(v) Related Party Transactions. Armstrong has no current contractual
arrangement with or commitment to or from any of its officers, directors or
employees other than such as are terminable at will. All current extensions of
credit to the shareholders, officers, directors and employees of Armstrong as
well as business organizations and individuals associated with Armstrong have
been made in the ordinary course of Armstrong's business on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other banking customers, and did not, at
the time they were entered into, involve more than the normal risk of
collectibility or present other unfavorable
23
<PAGE> 155
features and are in compliance with all applicable regulations of the FDIC.
Since January 1, 1990, all transactions with the shareholders, officers,
directors and employees of Armstrong have complied in all material respects with
the rules of the FDIC regarding such transactions, including delivery of all
reports required thereunder. The transactions contemplated by this
Reorganization Agreement will not (either alone, or upon the occurrence of any
act or event, lapse of time or the giving of notice or failure to cure) result
in any payment (severance or otherwise) becoming due from any of the Parties to
any director, officer or employee of Armstrong, except as contemplated herein.
(w) Fidelity Bonds. Armstrong maintained continuously fidelity bonds
insuring it against acts of dishonesty by each of its employees in aggregate
amounts as are customary, usual and prudent for banking institutions of its
size, which coverage currently is $1,000,000.00. Since January 1, 1990, there
have been no claims under such bonds, and Armstrong is not aware of any facts
which would form the basis of a claim under such bonds. Armstrong has no reason
to believe that its fidelity coverage will not continue to be available on
substantially the same terms as its existing coverage.
(x) Representations Not Misleading. No representation or warranty by
Armstrong in this Reorganization Agreement contains, and no written statement,
exhibit or schedule furnished to BTFC by or on behalf of Armstrong under this
Reorganization Agreement will contain as of the date thereof, any untrue
statement of a material fact or omits, or will omit, to state a material fact
necessary to make the statements contained herein or therein not misleading in
any material respect, when taken as a whole.
(y) Information Provided by Armstrong. All information to be provided in
writing by Armstrong for use in the Prospectus/Proxy Statement in connection
with the meeting of shareholders of Armstrong contemplated hereby or in any
application made by BTFC to the Service or to any other governmental or
regulatory body in connection with the Merger, and the information to be
provided in writing by Armstrong for use in the Registration Statement,
including any prospectus contained therein, will comply in all material respects
with applicable laws and will not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
made therein, in light of the circumstances under which they are made, not
misleading.
(z) Consents and Approvals. Except for: (i) the filing with any federal or
state governmental authority of a Prospectus/Proxy Statement, a Registration
Statement and any other applicable securities filings relating to the issuance
of BTFC Common Stock and the meeting of the shareholders of Armstrong; (ii) the
approval of the Department of Banking, the
24
<PAGE> 156
Federal Reserve Board and the FDIC of BTFC's acquisition of all of the issued
and outstanding shares of Armstrong; (iii) the approval of the shareholders of
Armstrong; (iv) the obtaining of third party consents as set forth in the
Schedules attached hereto; and (v) the expiration of any regulatory waiting
period, no consents or approvals of or filings or registrations with any third
party or any public body, agency or authority are necessary in connection with
the execution and delivery by Armstrong of this Reorganization Agreement and its
performance of the transactions contemplated hereby.
(aa) Investments. Except as set forth in Schedule 4.01(aa)(iii) attached
hereto: (i) the investments reflected in Armstrong's statement of financial
condition as of December 31, 1994 are a true, correct and complete list of the
investments of Armstrong; (ii) none of such investments are in real estate,
equity securities or corporate debt securities not of investment grade as
defined in Section 28(d) of the FDIA; (iii) no restrictions, contractual,
statutory or other, exist which would impair the ability of BTFC to freely
dispose of such investments at any time; (iv) Armstrong does not engage in
interest rate hedging contracts; (v) Armstrong does not engage in other off-
balance sheet activities requiring disclosure under Statement on Financial
Accounting Standards Number 105; (vi) all mortgage-backed securities contained
in the portfolio of Armstrong are insured or guaranteed by the FHLMC, FNMA, or
GNMA, or qualify as high quality mortgage related securities; and (vii) the
investment portfolio of Armstrong does not contain any agreement, document or
instrument that could be considered a high risk collateralized mortgage
obligation under applicable financial institutions regulatory guidelines.
(bb) Intellectual Property. Armstrong has no (i) patents, trademarks,
tradenames, and copyrights and applications therefor or (ii) trade secrets
(collectively referred to as the "Intellectual Property"). No claim, suit or
action is pending or, to the knowledge of Armstrong, threatened alleging that
Armstrong is infringing upon the intangible property rights of others, or that
their use of the Intellectual Property infringes or conflicts with the rights of
others.
(cc) Minute Books. The minute books of Armstrong, which have been and will
continue to be made available through the Closing Date to BTFC, contain true,
correct and complete records of all meetings of the shareholders, the Board of
Directors and all committees thereof and accurately reflect all of the corporate
action of the shareholders, the Board of Directors and all committees thereof.
(dd) Reverse Repurchase Agreements. Armstrong has no agreements pursuant to
which Armstrong has purchased securities subject to an agreement to resell.
25
<PAGE> 157
(ee) Shareholder and FDIC Reports. Armstrong has delivered to, or made
available for inspection by, BTFC copies of all reports to its shareholders and
the FDIC made by it with respect to the three (3) years ended December 31, 1994
and for all calendar quarters subsequent thereto. All such reports do not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they were made, not misleading.
(ff) Deposit Insurance. The deposits of Armstrong are insured by the Bank
Insurance Fund of the FDIC in accordance with the provisions of the FDIA, and
Armstrong has paid all assessments and filed all reports required by the FDIA.
(gg) Stock Exchange and Redemption Agreement. Armstrong has provided to
BTFC a true, correct and complete copy of the Stock Exchange and Redemption
Agreement dated August 16, 1995 by and between certain shareholders of
Armstrong, The Farmers National Bank of Kittanning ("Farmers") and certain
shareholders of Farmers (the "Stock Exchange and Redemption Agreement") and any
related side agreements between the parties to the Stock Exchange and Redemption
Agreement.
4.02. Representations and Warranties of BTFC. BTFC represents and warrants
to Armstrong as follows:
(a) Organization and Capitalization. BTFC is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Pennsylvania and has full power and authority to carry on its business as it is
now being operated and to carry out the transactions contemplated by this
Reorganization Agreement. The authorized capital stock of BTFC consists of
10,000,000 shares of common stock having a par value of $5.00 per share, of
which 3,826,581 shares are issued and outstanding as of the date hereof and
2,000,000 shares of preferred stock, none of which are issued and outstanding.
All issued and outstanding shares of BTFC Common Stock are validly issued, fully
paid and nonassessable and all shares of BTFC Common Stock to be issued in the
Merger shall be validly issued, fully paid and nonassessable.
(b) Authority for Transactions. This Reorganization Agreement has been and
the Articles of Merger, when executed and delivered, will have been, duly and
validly authorized, executed and delivered by BTFC, subject only to the approval
of the Department of Banking, the Federal Reserve Board and the FDIC, and each
constitute and will constitute the valid and binding obligations of BTFC and are
and will be enforceable in accordance with their respective terms.
26
<PAGE> 158
(c) No Conflicts. Neither the execution, delivery and performance of this
Reorganization Agreement by BTFC, nor the consummation of the transactions
contemplated hereby, nor compliance by BTFC with any of the provisions hereof
will (i) violate, or conflict with, or result in a breach of any provisions of,
or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of BTFC or any of its
Subsidiaries under any of the terms, conditions or provisions of, (A) the
articles of incorporation or bylaws, as amended, of BTFC, or (B) any note, bond,
mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which BTFC or any of its Subsidiaries is a party or
by which any of them is bound or to which any of their respective properties or
assets may be subject, except for such violations, conflicts, breaches,
defaults, terminations, accelerations, rights or creations which would not, in
the aggregate, have a material adverse effect on BTFC's business or financial
condition on a consolidated basis, or (ii) subject to compliance with all
applicable statutes and regulations, violate any judgment, ruling, order, writ,
injunction, decree, statute, rule or regulation applicable to them or any of
their respective properties or assets.
(d) Financial Statements. BTFC has delivered to Armstrong correct and
complete copies of its audited consolidated financial statements, including its
consolidated balance sheets, consolidated statements of income, consolidated
statements of cash flows, consolidated statements of changes in shareholders'
equity and the notes thereto, for the years ended December 31, 1992, 1993 and
1994, and its unaudited interim consolidated balance sheets, statements of
income and statements of cash flow for the six months ended June 30, 1994 and
1995 included in its quarterly report Form 10-Q for the six months then ended as
filed with the SEC. Such financial statements present fairly, completely and
accurately BTFC's consolidated financial position, assets and liabilities and
results of operations as of the dates of and for the periods covered thereby and
were prepared in accordance with generally accepted accounting principles and
practices within the banking industry consistently applied, except that any
unaudited interim financial statements are subject to normal, recurring year-end
adjustments and do not contain all footnotes required under generally accepted
accounting principles. To the knowledge of BTFC, there are no material
obligations or liabilities (whether absolute, accrued or contingent) which, in
accordance with generally accepted accounting principles, should be reflected in
the consolidated financial statements of BTFC or otherwise disclosed in the
footnotes thereto and which are not so reflected or disclosed.
27
<PAGE> 159
Since December 31, 1994, there has been no material adverse change in the
consolidated financial condition, assets, liabilities, income or operations of
BTFC taken as a whole.
(e) Certain Changes. Since December 31, 1994, there has been: (i) no
material adverse change in the organization, key personnel or method of doing
business of BTFC or any of its Subsidiaries, except for changes in the ordinary
course of business, none of which, individually or in the aggregate, has been
material to the business or financial condition of BTFC on a consolidated basis;
(ii) no material damage, destruction or casualty loss with respect to property
owned or leased by BTFC or any of its Subsidiaries (whether or not covered by
insurance) which affected or could affect the business or financial condition or
results of BTFC on a consolidated basis; or (iii) no acquisition by BTFC of the
assets or more than 5% of the outstanding voting capital stock of another
savings association, bank or company, except for the acquisition of The
Huntington National Bank under the Stock Purchase Agreement dated September 1,
1995 by and among Huntington Bancshares West Virginia, Inc., The Huntington
National Bank of Pennsylvania and BTFC, and except for any future acquisitions.
(f) Litigation. There are no suits, actions, investigations (formal or
informal), proceedings or claims pending or, to the knowledge of BTFC,
threatened against BTFC or any of its Subsidiaries or their respective assets or
business or against their respective officers or directors (in their capacity as
such) in law or at equity or before any governmental agency which are reasonably
expected by BTFC to have a material adverse effect on the business, properties,
assets, operations or liabilities of BTFC on a consolidated basis, or its right
to conduct its business as presently conducted. Neither BTFC nor any of its
Subsidiaries is presently subject to any injunction, order or other decree of
any court or other governmental agency of competent jurisdiction.
(g) Compliance with Laws. To the knowledge of BTFC, BTFC and each of its
Subsidiaries are in compliance in all material respects with all laws and
regulations applicable to their respective operations or with respect to which
compliance is a condition of engaging in the business thereof, except for
failures to comply which, in the aggregate, would not have a material adverse
effect on the conduct of, or the financial or other condition of, BTFC's
business on a consolidated basis. BTFC and its Subsidiaries have paid all
assessments and filed all reports and statements required to be filed with
respect thereto under the rules and regulations of the Department of Banking,
the Federal Reserve and the FDIC.
(h) SEC and Shareholder Reports. BTFC has delivered to, or made available
for inspection by, Armstrong of all reports to its
28
<PAGE> 160
shareholders and the SEC made by it with respect to the four (4) years ended
December 31, 1994. All such reports do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
(i) Registration Statement. All information relating to BTFC and its
Subsidiaries which is included in the Registration Statement at the time it
becomes effective and each amendment or supplement thereto will be accurate and
complete, and will not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
(j) Representations Not Misleading. No representation or warranty by BTFC
in this Reorganization Agreement contains, and no written statement, exhibit or
schedule furnished to Armstrong by or on behalf of BTFC under this
Reorganization Agreement will contain as of the date thereof, any untrue
statement of a material fact or omits, or will omit, to state a material fact
necessary to make the statements contained herein or therein not misleading in
any material respect, when taken as a whole.
(k) Information Provided by BTFC. All information to be provided in writing
by BTFC for use in the Prospectus/Proxy Statement in connection with the meeting
of shareholders of Armstrong contemplated hereby or in any application made by
BTFC to the Service or to any other governmental or regulatory body in
connection with the Merger, and the information to be provided in writing by
BTFC for use in the Registration Statement, including any prospectus contained
therein, will comply in all material respects with applicable laws and will not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they are made, not misleading.
(l) Consents and Approvals. Except for: (i) the filing with any federal or
state governmental authority of a Prospectus/Proxy Statement, a Registration
Statement and any other applicable securities filings relating to the issuance
of BTFC Common Stock and the meeting of Armstrong shareholders at which the
Merger is to be considered and the review and clearance thereof by such
governmental authorities, (ii) the approval of the Department of Banking, the
Federal Reserve Board and the FDIC of BTFC's acquisition of all of the issued
and outstanding shares of Armstrong and the Merger, and (iii) the expiration of
any regulatory waiting period, no consents or approvals of or filings or
registrations with any third party or any public body, agency, or authority are
necessary in connection with the execution and
29
<PAGE> 161
delivery by BTFC of this Reorganization Agreement and its performance of the
transactions contemplated hereby.
(m) Taxes. BTFC and its Subsidiaries have filed when due all returns
("Returns") for and paid in full all Taxes to the extent such filings and
payments were required prior to the date of this Reorganization Agreement. Such
filings comply with all applicable laws and are true and correct. Any amounts
set up as accruals or reserves in the audited consolidated financial statements
of BTFC are sufficient for the payment of all Taxes, whether or not presently
being asserted or assessed, the liability for which has arisen from any action
of BTFC or any of its Subsidiaries prior to the dates of such financial
statements. No claims are currently being made by any taxing authority with
respect to any Return, and BTFC has no knowledge of any basis for any such
claims. Proper and accurate amounts have been withheld and remitted by BTFC and
its Subsidiaries from and for their employees for all prior periods in
compliance with the tax withholding provisions of applicable federal, state and
local law. BTFC has not had any Tax deficiencies proposed or assessed against it
and has not executed any waiver or extended the statute of limitations on the
audit for any Return or the assessment or collection of any Tax.
(n) Agreements with Banking Authorities. Neither BTFC nor any of its
Subsidiaries is a party to any 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, the Department of Banking, the Federal
Reserve or the FDIC, which restricts its activities in any manner, or in any
manner relates to the capital adequacy, credit policies or management of BTFC
and its Subsidiaries, nor has BTFC or any of its Subsidiaries been advised by
any such regulatory agency that it is contemplating, issuing or requesting (or
is considering the appropriateness of issuing or requesting) any such order,
directive, agreement, memorandum of understanding, commitment letter or similar
undertaking.
4.03. Representations and Warranties of Johnstown.
(a) Organization and Capitalization. Johnstown is a bank and trust company
duly organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania and is a member of the Federal Reserve System.
Johnstown has full power and authority to carry on its business as it is now
being operated and to carry out the transactions contemplated by this
Reorganization Agreement. The authorized, issued and outstanding capital stock
of Johnstown consists of 981,864 shares of common stock having a par value of
$5.00 per share. All issued and outstanding shares of Johnstown Common Stock are
validly issued, fully paid and nonassessable and are owned of record and
beneficially by BTFC.
30
<PAGE> 162
(b) Authority for Transactions. This Reorganization Agreement has been and
the Articles of Merger, when executed and delivered, will have been, duly and
validly authorized, executed and delivered by Johnstown, subject only to the
approval of the Department of Banking, the Federal Reserve Board and the FDIC,
and constitute and will constitute the valid and binding obligations of
Johnstown and are and will be enforceable in accordance with their respective
terms.
(c) No Conflicts. Neither the execution, delivery and performance of this
Reorganization Agreement by Johnstown, nor the consummation of the transactions
contemplated hereby, nor compliance by Johnstown with any of the provisions
hereof will (i) violate, or conflict with, or result in a breach of any
provisions of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the termination
of, or accelerate the performance required by, or result in a right of
termination or acceleration under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
Johnstown or any of its Subsidiaries under any of the terms, conditions or
provisions of, (A) the articles of incorporation or bylaws, as amended, of
Johnstown, or (B) any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which Johnstown is a party
or by which Johnstown is bound or to which any of its properties or assets may
be subject, except for such violations, conflicts, breaches, defaults,
terminations, accelerations, rights or creations which would not, in the
aggregate, have a material adverse effect on Johnstown's business or financial
condition, or (ii) subject to compliance with all applicable statutes and
regulations, violate any judgment, ruling, order, writ, injunction, decree,
statute, rule or regulation applicable to Johnstown or any of its properties or
assets.
4.04. Covenants of Armstrong. Armstrong hereby covenants and agrees that:
(a) Access to Corporate Records. Until the Closing Date, Armstrong shall
give BTFC and its representatives full access during normal business hours to
all their respective property, documents, contracts and records and such
information with respect to their business affairs and properties as BTFC from
time to time may reasonably request; provided, however, that Armstrong shall not
be required to give such access or information to the extent that it is
prohibited therefrom by a rule, regulation or order of any regulatory body. All
documents, contracts, records or information obtained pursuant to this Section
4.04(a) shall be and remain subject to the confidentiality provisions of Section
2.08 of this Reorganization Agreement.
31
<PAGE> 163
(b) Financial Statements and Internal Audit Reports. Armstrong shall
promptly provide BTFC with copies of its annual, quarterly and monthly financial
statements for the periods ending between the date of this Reorganization
Agreement and the Effective Time of the Merger. Armstrong shall promptly forward
to BTFC copies of its periodic internal audit reports. Armstrong shall also
promptly provide or permit inspection of all reports filed by it during such
period with the Department of Banking and the FDIC and copies of all notices or
reports sent to its shareholders to the extent permitted by law and all material
notices, reports, and review letters received from the Department of Banking and
the FDIC. Until the Closing Date, Armstrong will provide copies of all such
financial statements and notices, reports and review letters to BTFC on a prompt
and timely basis.
(c) Negative Covenants - Conduct of Business. Except with the prior written
consent of BTFC, Armstrong shall not on or after the date hereof:
(i) issue any capital notes or shares of its capital stock, declare or
distribute any dividend, including any stock dividend, authorize a stock
split, or authorize, issue or make any other distribution of, on, or with
respect to, its capital stock; provided, however, that Armstrong shall be
permitted to distribute regular quarterly cash dividends for any full
calendar quarter beginning with the quarter ending December 31, 1995 of the
lesser of $17.25 per share or seventy-five percent (75%) of the net income
earned by Armstrong during that quarter and a closing dividend equal to the
lesser of $17.25 per share or seventy-five percent (75%) of the net income
earned during the period between the end of the last full calendar quarter
for which a dividend was paid and ten (10) days prior to the Closing Date.
(ii) merge with, consolidate with, sell its assets to, or acquire
substantially all the assets of, any other corporation, bank or Person, or
enter into any other transaction not in the ordinary course of business;
(iii) make any direct or indirect redemption, purchase or other
acquisition of any of its capital stock;
(iv) create or award any pension or profit sharing plan, bonus, deferred
compensation, death benefit or retirement plan, or any other employee
benefit, enter into any employment or consulting contract (written or
otherwise), or grant any bonuses to any officer, director or employee;
(v) amend its articles of incorporation or bylaws except as may be
necessary to consummate the transactions
32
<PAGE> 164
contemplated by this Reorganization Agreement or as required by law;
(vi) incur any liability or obligation or make any commitment or
disbursement, acquire or dispose of any property or asset, make any
contract or agreement, or engage in any transaction, except in the ordinary
course of business;
(vii) increase the rate of compensation of any director, officer,
employee or agent or enter into any agreement to increase the rate of
compensation of any director, officer or employee, other than normal
increases in the ordinary course of business and consistent with past
practice;
(viii) unless permitted by BTFC, take any action that would entitle any
employee to receive severance pay prior to the Closing Date;
(ix) intentionally do anything or intentionally fail to do anything
which will cause a breach or a default under any contract, agreement,
commitment or obligation to which it is a party or by which it may be
bound;
(x) except for securities transactions effected in the ordinary course
of business with the prior consent of BTFC (which consent shall not be
unreasonably withheld), make any capital expenditures in excess of $15,000
in the aggregate;
(xi) modify or extend any service bureau contracts, hardware/software
maintenance agreements, lease agreements or other contracts that involve
annual payments by Armstrong that exceed $15,000 per contract or $50,000 in
the aggregate;
(xii) change its lending, borrowing, investment, asset/liability
management or other material banking policies in any material respect
except as may be required by changes in applicable law, regulation or
regulatory directives, except that, in connection with the closing of the
transactions contemplated hereby, Armstrong shall cooperate in good faith
with BTFC to adopt policies, practices and procedures consistent with those
utilized by BTFC and its affiliates;
(xiii) open any branch offices;
(xiv) fail to pay any tax or any other liability or charge when due,
other than charges contested in good faith by appropriate proceedings; or
33
<PAGE> 165
(xv) make, change or revoke any tax election or make any agreement or
settlement with any taxing authority.
(d) Consents and Approvals. Armstrong shall cooperate with BTFC in
furnishing such information concerning Armstrong's business and affairs and its
directors and officers as is reasonably necessary or requested in order to
enable BTFC to prepare and file the Registration Statement and all applications
for regulatory approvals of the Merger, including applications to the Department
of Banking, the Federal Reserve Board and the FDIC, and in obtaining such other
consents required under any agreements which BTFC shall request to be obtained
to the extent required to consummate the Merger. Armstrong shall use its best
efforts to obtain the approval or consent of any federal, state or other
regulatory agency having jurisdiction to the extent that such approvals or
consents are required to effect the Merger and the other transactions
contemplated hereby.
(e) Notice of Changes. Until the Effective Time of the Merger, Armstrong
shall give BTFC prompt written notice of any material change or inaccuracies in
any data previously given or made available to BTFC pursuant to this
Reorganization Agreement. Notice of changes to Schedules 4.01(k) of this
Reorganization Agreement shall be effected by Armstrong by promptly furnishing
to BTFC current monthly lists of doubtful, nonperforming or problem loans.
(f) Acquisition Proposals. Neither Armstrong nor any of its officers,
directors or other affiliates (as defined in Rule 12b-2 under the Exchange Act)
(each, an "Affiliate") shall, and Armstrong shall cause their employees, agents
and representatives (including, without limitation, any investment banking,
legal or accounting firm retained by Armstrong and any individual member or
employee of the foregoing) (each, an "Agent") not to, (i) initiate, solicit or
encourage, directly or indirectly, any inquiries or the making or implementation
of any proposal or offer (including, without limitation, any proposal or offer
to any of them or their respective shareholders) with respect to a merger,
acquisition, consolidation, recapitalization, liquidation, dissolution or
similar transaction involving, or any purchase of all or a substantial portion
of the assets or equity securities of, Armstrong (any such proposal or offer
being hereinafter referred to as an "Acquisition Proposal") or (ii) engage in
any negotiations concerning, or provide any confidential information or data to,
or have any discussions with, any Person relating to an Acquisition Proposal, or
(iii) otherwise cooperate in any effort or attempt to make, implement or accept
an Acquisition Proposal. Notwithstanding the foregoing, nothing herein shall
prohibit Armstrong or its board of directors and officers from: (iv) fulfilling
their fiduciary duties under Pennsylvania or federal law to the shareholders of
Armstrong; or (v) permitting to occur the transactions
34
<PAGE> 166
contemplated by the Stock Exchange and Redemption Agreement dated August 16,
1995 by and between certain shareholders of Armstrong, The Farmers National Bank
of Kittanning ("Farmers") and certain shareholders of Farmers. Armstrong shall
notify BTFC immediately if any inquiries, proposals or offers related to an
Acquisition Proposal are received by, any confidential information or data is
requested from, or any negotiations or discussions related to an Acquisition
Proposal are sought to be initiated or continued with, them or any individual or
entity referred to in the first sentence of this Section 4.04(f).
(g) Indemnification.
(i) Armstrong will indemnify and hold harmless BTFC and Johnstown and
each Person, if any, who controls BTFC or Johnstown within the meaning of the
Securities Act against any losses, claims, damages or liabilities, joint or
several, to which BTFC or such controlling Persons may become subject, under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) (A) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, the Prospectus/Proxy Statement or any amendment
or supplement thereto, or any related preliminary prospectus, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading to the extent that any such statement or omission was provided in
writing by Armstrong to BTFC or (B) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact or any omission or
alleged omission to state a material fact required to be stated or necessary to
make the statements not misleading in any document distributed to any Armstrong
shareholder to the extent that any such statement or omission was provided in
writing by Armstrong to BTFC, and will reimburse BTFC and each such controlling
Person for any legal or other expenses reasonably incurred by BTFC or such
controlling Person in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that Armstrong will not
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in any of the Registration
Statement, the Prospectus/Proxy Statement or any amendment or supplement
thereto, or any related preliminary prospectus that was made or omitted in
reliance upon and in conformity with written information furnished by the other
Parties specifically for use therein. This indemnity agreement will be in
addition to any liability which Armstrong may otherwise have.
(ii) Promptly after receipt by an indemnified party under this Section
4.04(g) of notice of the commencement of any
35
<PAGE> 167
action, such indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party under this Section 4.04(g), notify the
indemnifying party of the commencement thereof; but the omission so to notify
the indemnifying party will not relieve it from any liability which it may have
to any indemnified party otherwise than under this Section 4.04(g). In case any
such action is brought against any indemnified party and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party will
not be liable to such indemnified party under this Section 4.04(g) for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation.
(iii) If recovery is not available under the foregoing indemnification
provisions of this Section 4.04(g) for any reason other than as specified
therein, the parties entitled to indemnification by the terms thereof shall
be entitled to contribution for liabilities and expenses, except to the
extent that contribution is not permitted under Section 11(f) of the
Securities Act. In determining the amount of contribution to which the
respective parties are entitled, there shall be considered the relative
benefits received by each party from the transactions contemplated hereby,
the parties' relative knowledge and access to information concerning the
matter with respect to which the claim was asserted, the opportunity to
correct and prevent any statement or omission, and any other equitable
considerations appropriate under the circumstances. Armstrong, Johnstown
and BTFC agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capital allocations.
(h) Deposits. Armstrong shall offer rates on all deposits which are in
accordance with present institutional guidelines and which are priced within
local competitor offerings. Further, Armstrong shall not accept any broker or
out of area deposits and shall price all "jumbo deposits" in accordance with
existing practice. Such jumbo deposits shall be offered only to local retail,
public or corporate accounts.
(i) Furnishing Information. Armstrong shall cooperate with BTFC in
furnishing such information concerning the business of Armstrong as is
reasonably necessary or requested in order to prepare and file the Registration
Statement and Prospectus/Proxy
36
<PAGE> 168
Statement to be used in connection with the meeting of the stockholders of
Armstrong as provided in Section 3.01 hereof, or to prepare and file any
applications for regulatory or governmental approvals.
(j) Certain Tax Matters.
(i) Tax Returns and Payment of Taxes for Periods Through the Closing
Date. Armstrong shall include its income on its federal income tax return
for all periods up to and including the Closing Date and will pay any tax
due thereon. Armstrong also shall pay its state or local income Tax for all
taxable periods up to and including the Closing Date. The income of
Armstrong shall be apportioned for the period up to and including the
Closing Date and the period after the Closing Date by closing the books of
Armstrong as of the close of business on the Closing Date.
(ii) Carrybacks. If Armstrong is required to carry back any item of
loss, deduction or credit that arises in any taxable period ending after
the Closing Date to a Tax return of Armstrong for any taxable period ending
on or before the Closing Date, BTFC will be entitled to an amount equal to
the refund or credit of taxes realized as a result thereof.
4.05. Covenants of All Parties. Each of the Parties covenants and agrees
that:
(a) Conduct of Business. From and after the date hereof and until the
Closing Date, each Party shall, and shall cause each of its Subsidiaries to:
(i) carry on its business diligently and substantially in the same
manner as heretofore and, except as otherwise provided in this Reorganization
Agreement, will not institute any unusual or novel methods of management or
operation of its properties or business;
(ii) maintain its books and records in the usual, ordinary and normal
course;
(iii) promptly advise the other Parties in writing of (A) the initiation
of any litigation of any kind against it or any litigation by it and (B) the
happening of any event which in the reasonable belief of its management may have
an adverse effect on either Armstrong or BTFC on a consolidated basis, as the
case may be;
37
<PAGE> 169
(iv) continue in effect its present insurance coverage at the present
levels on all properties, assets, business and personnel;
(v) use its best efforts to preserve its business organization intact,
to keep available its present employees, to preserve its relationships with
customers and others having business dealings with it and to maintain all of its
tangible property in customary repair, order and condition (reasonable wear and
tear excepted); and
(vi) ensure that its executive officers shall meet periodically with the
executive officers of the other Parties to exchange information on their
respective institutions, and to facilitate an orderly transition following the
Closing Date.
(b) Environmental Studies.
(i) Within forty-five days following the date of this Reorganization
Agreement, BTFC shall cause to be completed, at its sole cost and expense, a
Phase I environmental assessment ("Phase I assessment") of all real estate owned
by Armstrong other than the Lentz Property referred to in clause (ii) below (the
"Armstrong Premises") and shall deliver a copy of each such Phase I assessment
to Armstrong. If BTFC should determine pursuant to the results of any such Phase
I assessment that (A) there has been an Environmental Condition affecting the
Armstrong Premises or any storage, discharge, disposal, release or emission of
any Hazardous Substance in, on or from the Armstrong Premises and (B) BTFC
reasonably believes that it could become responsible for the remediation of such
storage, discharge, disposal, release or emission or become liable for monetary
damages resulting therefrom, and (C) the remediation costs or potential
liability is greater than $100,000, then BTFC shall inform Armstrong in writing
with specificity, including a good faith estimate of the cost of remediation,
within thirty (30) days of BTFC's receipt of the Phase I assessment, and BTFC
may, in its sole discretion, terminate this Reorganization Agreement.
(ii) Within forty-five days following the date of this Reorganization
Agreement, BTFC shall cause to be completed, at its sole cost and expense, a
Phase II environmental assessment ("Phase II assessment") of Armstrong's Owned
Real Property on Route 66 in Manorville, Pennsylvania (the "Lentz Property") and
shall deliver a copy of such Phase II assessment to Armstrong. If BTFC should
determine pursuant to the results of such Phase II assessment that (A) there has
been an Environmental Condition affecting the Lentz Property or any storage,
discharge, disposal, release or emission of any Hazardous Substance in, on or
from the Lentz Property and (B) BTFC reasonably believes that it could become
responsible for the remediation of such storage, discharge, disposal, release or
emission or become liable for
38
<PAGE> 170
monetary damages resulting therefrom, and (C) remediation costs or potential
liability is greater than $200,000, then BTFC shall inform Armstrong in writing
with specificity, including a good faith estimate of the cost of remediation,
within thirty (30) days of BTFC's receipt of the Phase II assessment, and BTFC
may, in its sole discretion, terminate this Reorganization Agreement.
(c) Mutual Cooperation on Tax Matters. Armstrong and BTFC shall each
provide the other with such assistance as may reasonably be requested by any of
them in connection with the preparation of any Tax return, any Tax audit, or any
judicial or administrative proceedings relating to any Tax, and each will retain
and provide the other with any records or information that may be relevant to
such Tax return, Tax audit, proceeding or determination. The party requesting
assistance hereunder shall reimburse the other for direct expenses incurred in
providing such assistance.
(d) Fulfillment of Agreements. Each party hereto shall use its best efforts
to cause all of those conditions to the obligations of the other under Article
VI that are not beyond its reasonable control to be satisfied on or prior to the
Closing and shall use its best efforts to take, or cause to be taken, all action
and to do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective the transactions contemplated by this
Reorganization Agreement.
(e) Bank Regulatory Applications. As promptly as practicable after the date
hereof, BTFC and/or Johnstown, as appropriate, (i) shall submit any requisite
applications for prior approval of the transactions contemplated herein and in
the Articles of Merger between Armstrong and Johnstown to the appropriate
federal and state (if applicable) financial institution regulatory authorities
depending upon the structure of the Merger, (ii) BTFC shall submit an
application for prior approval of the Merger to the Federal Reserve Board
pursuant to the Bank Merger Act and Section 5(d)(3) of the FDIA, and (iii) each
of the parties hereto shall, and they shall cause their respective Subsidiaries
to, submit any applications, notices or other filings to any other state or
federal government agency, department or body the approval of which is required
for consummation of the Merger. BTFC and Armstrong each represents and warrants
to the other that all information concerning it, its Affiliates and their
respective directors, officers, stockholders and Subsidiaries included (or
submitted for inclusion) in any such application shall be true, correct and
complete in all material respects.
4.06. Covenants of BTFC and Johnstown. BTFC and Johnstown hereby covenant
and agree that:
39
<PAGE> 171
(a) Access to Corporate Records. Until the Closing Date, BTFC and Johnstown
shall give Armstrong and its representatives full access during normal business
hours to all its property, documents, contracts and records and such information
with respect to its business affairs and properties (in each case including
those of its Subsidiaries) as Armstrong from time to time may reasonably
request; provided, however, that BTFC and Johnstown shall not be required to
give such access or information to the extent that it is prohibited therefrom by
a rule, regulation or order of any regulatory body. All documents, contracts,
records or information obtained pursuant to this Section 4.06(a) shall be and
remain subject to the confidentiality provisions of Section 2.08 of this
Reorganization Agreement.
(b) Financial Statements. BTFC shall promptly provide Armstrong with copies
of its annual and quarterly financial statements, as included in its reports on
Form 10-K or 10-Q, respectively, as filed with the SEC pursuant to the
requirements of the Exchange Act, for the periods ending between the date of
this Reorganization Agreement and the Effective Time of the Merger. Until the
Closing Date, BTFC will provide copies of any reports it files with the SEC
under the Exchange Act to Armstrong on a prompt and timely basis.
(c) Consents and Approvals. BTFC and Johnstown shall use their best efforts
to obtain the approval or consent of any federal, state or other regulatory
agency having jurisdiction to the extent that such approvals or consents are
required to effect the Merger and the other transactions contemplated hereby.
(d) Notice of Changes. Until the Effective Time of the Merger, BTFC and
Johnstown shall give Armstrong written notice of any material change or
inaccuracies in any data previously given or made available to Armstrong
pursuant to this Reorganization Agreement.
(e) Furnishing Information. BTFC and Johnstown shall cooperate with
Armstrong in furnishing such information concerning the business of BTFC and
Johnstown as is reasonably necessary or requested in order to prepare and file
the Registration Statement and Prospectus/Proxy Statement to be used in
connection with the meetings of the shareholders of Armstrong as provided in
Section 3.01 hereof, or to prepare and file any applications for regulatory or
governmental approvals. BTFC shall provide to Armstrong and their respective
counsel a copy of the Registration Statement and each application for regulatory
or governmental approval, including all amendments to such documents, in draft
form prior to filing and, as soon as practicable after the date of filing, a
copy of the filing. BTFC shall provide to Armstrong and their respective counsel
a copy of all correspondence to and from the various regulatory agencies
40
<PAGE> 172
with respect to the Registration Statement and the regulatory applications.
(f) Indemnification of and Liability Insurance for Armstrong Officers and
Directors.
(i) After the Effective Time of the Merger, BTFC, as successor to
Armstrong, shall indemnify and hold harmless any former directors, officers,
employees or agents of Armstrong who have rights to indemnification under the
articles of incorporation and bylaws of Armstrong and the BCL from and against
any and all claims, losses, liabilities or damages arising out of or in
connection with any of their activities in such capacities or on behalf of, or
at the request of, Armstrong prior to the Effective Time of the Merger
("Claims") in accordance with and to the extent required under the articles of
incorporation and bylaws of BTFC and the BCL. Further, BTFC shall be obligated
to advance expenses incurred with respect to the foregoing, as they are
incurred, in each case only to the extent such advances are required under the
articles of incorporation and bylaws of BTFC as in effect on the date hereof and
the BCL. The obligations of BTFC specified in the preceding sentences shall
survive the Merger and shall continue in full force and effect following the
Effective Time of the Merger for a period of no more than one year; provided,
that all rights to indemnification in respect of any Claim asserted or made
within such period shall continue until the final disposition of such Claim.
BTFC shall provide officers and directors liability insurance coverage for all
former directors and officers of Armstrong, whether or not they become part of
the BTFC organization after the Effective Time of the Merger, to the same extent
as such coverage is provided to Johnstown's officers and directors for a period
of one year following the Effective Time of the Merger. This section shall not
increase, in any manner, any liabilities or obligations BTFC would otherwise
have as the successor by merger to Armstrong.
(ii) BTFC will indemnify and hold harmless Armstrong and each Person, if
any, who controls Armstrong within the meaning of the Securities Act against any
losses, claims, damages or liabilities, joint or several, to which BTFC or such
controlling Persons may become subject, under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) (A) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Prospectus/Proxy
Statement or any amendment or supplement thereto, or any related preliminary
prospectus, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading to the extent that any such statement
or omission relates to BTFC or (B) arise out of or are based upon
41
<PAGE> 173
any untrue statement or alleged untrue statement of any material fact or any
omission or alleged omission to state a material fact required to be stated or
necessary to make the statements not misleading in any document distributed to
any Armstrong shareholder to the extent that any such statement or omission
relates to BTFC, and will reimburse Armstrong and each such controlling Person
for any legal or other expenses reasonably incurred by Armstrong or such
controlling Person in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that BTFC will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in any of the Prospectus/Proxy
Statement or any amendment or supplement thereto, or any related preliminary
prospectus that was made or omitted in reliance upon and in conformity with
written information furnished by Armstrong specifically for use therein. This
indemnity agreement will be in addition to any liability which BTFC may
otherwise have.
(iii) Promptly after receipt by an indemnified party under this Section
4.06(f) of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 4.06(f), notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under this Section 4.06(f). In case any such action is brought against any
indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section 4.06(f) for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof other
than reasonable costs of investigation.
(iv) If recovery is not available under the foregoing indemnification
provisions of this Section 4.06(f) for any reason other than as specified
therein, the parties entitled to indemnification by the terms thereof shall be
entitled to contribution for liabilities and expenses, except to the extent that
contribution is not permitted under Section 11(f) of the Securities Act. In
determining the amount of contribution to which the respective parties are
entitled, there shall be
42
<PAGE> 174
considered the relative benefits received by each party from the transactions
contemplated hereby, the parties' relative knowledge and access to information
concerning the matter with respect to which the claim was asserted, the
opportunity to correct and prevent any statement or omission, and any other
equitable considerations appropriate under the circumstances. Armstrong,
Johnstown and BTFC agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capital allocations.
(g) Sale of Computer System. At the request of Farmers National Bank of
Kittanning ("Farmers") on or before the Closing, BTFC shall sell to Farmers the
computer system that Farmers has jointly owned with Armstrong for the book value
as of September 30, 1995 of that system.
(h) Employee Matters.
(i) Any full-time employee of Armstrong (except Coleman Clougherty)
whose employment with the Resulting Bank is terminated, other than for
cause, by BTFC within six months after the Effective Time of the Merger,
and not offered a comparable job with BTFC or an affiliate of BTFC, will be
paid severance pay equal to one week's W-2 compensation multiplied by each
year of service with Armstrong not exceeding three months salary (except
that the individuals listed on Schedule 4.06(h) shall be entitled to a
maximum of six months salary). For purposes of this section, a job shall
not be considered comparable if it requires the employee to work less than
30 hours per week or is at a location more than 30 miles from Armstrong's
main office.
(ii) BTFC shall pay Coleman Clougherty severance pay equal to $200,000
on the Closing Date.
(iii) All employees of Armstrong immediately prior to the Effective Time
of the Merger who are employed by Johnstown following the Effective Time of
the Merger ("Transferred Employees") will be entitled to participate in
BTFC's employee benefit plans as to which they are eligible without
fulfilling any vesting requirement but shall not be entitled to any credit
for their length of service, compensation, job classification or position
with Armstrong. BTFC agrees that any pre-existing condition, limitation or
exclusion in its health plans shall not apply to Transferred Employees or
their covered dependents who are covered under a medical or hospitalization
indemnity plan maintained by Armstrong on the date of the Merger and then
change coverage to BTFC's medical or hospitalization indemnity health plan
at the time such Transferred Employees are first given the option to enroll
in BTFC's
43
<PAGE> 175
health plans. Except with respect to any defined benefit pension plan
sponsored by BTFC or an Affiliate of BTFC, a Transferred Employee's service
with Armstrong shall be recognized as service with BTFC for purposes of
eligibility, participation and vesting, but not benefit accruals, subject
to applicable break-in-service rules and to the extent permissible under
all applicable laws and regulations and the terms and benefits of BTFC's
current benefit plans or those of its Affiliates. With respect to any
defined benefit pension plans sponsored by BTFC or an Affiliate of BTFC,
Transferred Employees will be provided such service and benefits
thereunder, if any, as may be required by the Code, ERISA, or other
applicable law.
Nothing contained in this Section shall be deemed to be a contract for
employment nor a guaranty or right to employment with BTFC or its Affiliates for
any Person, nor shall anything contained in this Section constitute an agreement
by BTFC or its Affiliates not to revise, amend, revoke, or terminate any
employee benefit plan or arrangement that it may in the future make available to
its employees, including Transferred Employees. Notwithstanding anything
contained herein to the contrary, the obligations of BTFC contained in this
Section shall survive the Closing.
(i) Registration Statement and Joint Proxy Statement. BTFC shall prepare,
and shall file with the SEC, and shall use its best efforts to cause to become
effective, the Registration Statement covering the shares of BTFC Common Stock
to be delivered pursuant to this Reorganization Agreement and shall use its best
efforts to register or qualify such securities, if required, under applicable
state securities laws. If any material change occurs in the facts set forth in
the Registration Statement, BTFC shall promptly notify Armstrong in writing of
such change (other than with respect to information supplied by Armstrong for
inclusion therein) and shall prepare, in accordance with the requirements of the
Securities Act of 1933, as amended, and file amendments to the Registration
Statement that may be appropriate or required.
ARTICLE V
REGISTRATION RIGHTS
5.01. Incidental Registration.
(a) If prior to three years after the Effective Time of the Merger, BTFC
proposes to register any of its securities under the Securities Act (other than
by a registration on Form S-4, S-8, or any successor or similar forms), whether
or not for sale for its own account, it will at such time give prompt written
notice to all holders of Registrable Securities of its intention to do so
44
<PAGE> 176
and of such holders' rights under this Section 5.01. Upon the written request of
any such holder made within 20 days after the receipt of such notice (which
request shall specify the Registrable Securities intended to be disposed of by
such holder and the intended method of disposition thereof), BTFC will use its
best efforts to effect the registration under the Securities Act of all
Registrable Securities which BTFC has been so requested to register by the
holders thereof, to the extent requisite to permit the disposition (in
accordance with the intended methods thereof as aforesaid) of the Registrable
Securities so to be registered, by inclusion of such Registrable Securities in
the registration statement which covers the securities which BTFC proposes to
register, provided that if, at any time after giving written notice of its
intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, BTFC shall
determine for any reason either not to register or to delay registration of such
securities, BTFC may, at its election, give written notice of such determination
to each holder of Registrable Securities and, thereupon, (i) in the case of a
determination not to register, shall be relieved of its obligation to register
any Registrable Securities in connection with such registration (but not from
its obligation to pay the Registration Expenses in connection therewith),
without prejudice, however, to the rights of any holder or holders of
Registrable Securities entitled to do so to request that such registration be
effected as a registration under Section 5.02, and (ii) in the case of a
determination to delay registering, shall be permitted to delay registering any
Registrable Securities, for the same period as the delay in registering such
other securities. No registration effected under this Section 5.01 shall relieve
BTFC of its obligation to effect any registration upon request under Section
5.02, nor shall any such registration hereunder be deemed to have been effected
pursuant to Section 5.02.
(b) If (i) the registration pursuant to this Section 5.01 involves an
underwritten offering of the securities so being registered, whether or not for
sale for the account of BTFC, to be distributed (on a firm commitment basis) by
or through one or more underwriters of recognized standing under underwriting
terms appropriate for such a transaction, (ii) the Registrable Securities so
requested to be registered for sale for the account of holders of Registrable
Securities are not also to be included in such underwritten offering (either
because BTFC has not been requested so to include such Registrable Securities
pursuant to Section 5.04(b) or, if requested to do so, is not obligated to do so
under Section 5.04(b)), and (iii) the managing underwriter of such underwritten
offering shall inform BTFC and holders of the Registrable Securities requesting
such registration by letter of its belief that the distribution of all or a
specified number of such Registrable Securities concurrently with the securities
45
<PAGE> 177
being distributed by such underwriters would interfere with the successful
marketing of the securities being distributed by such underwriters (such writing
to state the basis of such belief and the approximate number of such Registrable
Securities which may be distributed without such effect), then BTFC may, upon
written notice to all holders of such Registrable Securities, reduce pro rata
(if and to the extent stated by such managing underwriter to be necessary to
eliminate such effect) the number of such Registrable Securities the
registration of which shall have been requested by each holder of Registrable
Securities so that the resultant aggregate number of such Registrable Securities
so included in such registration shall be equal to the number of shares stated
in such managing underwriter's letter.
(c) BTFC shall pay all Registration Expenses in connection with all
registrations requested pursuant to this Section 5.01.
5.02. Registration on Request.
(a) If, at any time prior to three years after the Effective Date of the
Merger, holders of at least a majority (in number of shares) of Registrable
Securities then held, or, at any time during March 1998, any holder of
Registrable Securities then held, requests in writing that BTFC effect the
registration under the Securities Act of all or part of their shares of BTFC
Common Stock, BTFC will promptly give written notice of such requested
registration to all holders of Registrable Securities, and thereupon BTFC will
use its best efforts to effect the registration under the Securities Act of:
(i) the Registrable Securities which BTFC has been so requested to
register by the holders of Registrable Securities,
(ii) all other Registrable Securities the holders of which shall have
made a written request to BTFC for registration thereof within 30 days
after the giving of such written notice by BTFC, and
(iii) all shares of Common Stock which BTFC may elect to register in
connection with the offering of Registrable Securities pursuant to this
Section 5.02,
all to the extent requisite to permit the disposition of the Registrable
Securities and the additional shares of Common Stock, if any, so to be
registered, in an underwritten offering, provided that the shareholders of
Armstrong shall be entitled to not more than one registration upon request, and
provided further that BTFC will not be required to register securities under
this Section 5.02 to the extent that in the opinion of BTFC's counsel, which
shall be reasonably satisfactory to the holders of
46
<PAGE> 178
Registrable Securities, the sale of Registrable Securities covered by the
written request for registration may be affected pursuant to Rule 144 or
otherwise without registration within a 90 day period.
(b) Registrations under this Section 5.02 shall be on such appropriate
registration form of the SEC (i) as shall be selected by BTFC and (ii) as shall
permit the disposition of such Registrable Securities in an underwritten
offering. BTFC agrees to include in any such registration statement all
information which holders of Registrable Securities being registered shall
reasonably request.
(c) BTFC will pay all Registration Expenses in connection with
registrations requested pursuant to this Section 5.02.
(d) A registration requested pursuant to this Section 5.02 shall not be
deemed to have been effected (i) unless a registration statement with respect
thereto has become effective, provided that a registration which does not become
effective after BTFC has filed a registration statement with respect thereto
solely by reason of the refusal to proceed of the holders of Registrable
Securities (other than a refusal to proceed based upon the advice of counsel
relating to a matter with respect to BTFC) shall be deemed to have been effected
by BTFC at the request of the holders of Registrable Securities unless the
holders of Registrable Securities shall have elected to pay all Registration
Expenses in connection with such registration, (ii) if, after it has become
effective, such registration is interfered with by any stop order, injunction or
other order or requirement of the SEC or other governmental agency or court for
any reason, or (iii) the conditions to closing specified in the purchase
agreement or underwriting agreement entered into in connection with such
registration are not satisfied, other than by reason of some act or omission by
the holders of Registrable Securities.
(e) If a requested registration pursuant to this Section 5.02 shall involve
an underwritten offering, the underwriter or underwriters thereof shall be
selected by BTFC and shall be reasonably acceptable to the holders of at least a
majority (by number of shares) of the Registrable Securities as to which
registration has been requested.
(f) If a requested registration pursuant to this Section 5.02 shall involve
an underwritten offering, and the managing underwriter shall advise BTFC in
writing (with a copy to each holder of Registrable Securities requesting
registration) that, in its opinion, the number of securities requested to be
included in such registration (including securities of BTFC which are not
Registrable Securities) exceeds the number which can be sold in such offering
within a price range acceptable to the holders of a
47
<PAGE> 179
majority of the Registrable Securities so requested to be included, BTFC will
include in such registration, to the extent of the number which BTFC is so
advised can be sold in such offering, (i) first, Registrable Securities
requested to be included in such registration by the holder or holders of
Registrable Securities, pro rata among such holders requesting such registration
on the basis of the number of such securities requested to be included by such
holders, (ii) second, other BTFC Common Stock, including that held by the
holders of Registrable Securities, and (iii) third, BTFC Common Stock that BTFC
proposes to sell and other BTFC Common Stock included in such registration by
the holders thereof.
5.03. Registration Procedures. If and whenever (a) BTFC is required to use
its best efforts to effect the registration of any Registrable Securities under
the Securities Act as provided in Sections 5.01 and 5.02 or (b) there is a
Requesting Holder (as defined in Section 5.06) in connection with any other
proposed registration by BTFC under the Securities Act, BTFC shall, as
expeditiously as possible:
(i) prepare and (within 60 days after the request of a holder of
Registrable Securities eligible to make such a request under Sections
5.01 or 5.02 or as soon thereafter as possible) file with the SEC the
requisite registration statement to effect such registration and
thereafter use its best efforts to cause such registration statement to
become and remain effective, provided however that BTFC may discontinue
any registration of its securities which are not Registrable Securities
(and, under the circumstances specified in Section 5.02(a), its
securities which are Registrable Securities) at any time prior to the
effective date of the registration statement relating thereto, provided
further that before filing such registration statement or any amendments
thereto, BTFC will furnish to the counsel selected by the holders of
Registrable Securities which are to be included in such registration,
copies of all such documents proposed to be filed, which documents will
be subject to the review of such counsel;
(ii) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such
registration statement for 60 days after such registration statement
becomes effective;
48
<PAGE> 180
(iii) furnish to each seller of Registrable Securities covered by such
registration statement and each Requesting Holder and each underwriter,
if any, of the securities being sold by such seller such number of
conformed copies of such registration statement and of each such
amendment and supplement thereto (in each case including all exhibits),
such number of copies of the prospectus contained in such registration
statement (including each preliminary prospectus and any summary
prospectus) and any other prospectus filed under Rule 424 under the
Securities Act, in conformity with the requirements of the Securities
Act, and such other documents, as such seller and underwriter, if any,
may reasonably request in order to facilitate the public sale or other
disposition of the Registrable Securities owned by such seller;
(iv) use its best efforts to register or qualify all Registrable
Securities and other securities covered by such registration statement
under such other securities laws or blue sky laws of such jurisdictions
as any seller thereof and any underwriter, if any, of the securities
being sold by such seller and any Requesting Holder shall reasonably
request, to keep such registrations or qualifications in effect for so
long as such registration statement remains in effect, and take any
other action which may be reasonably necessary or advisable to enable
such seller and underwriter, if any, to consummate the disposition in
such jurisdictions of the securities owned by such seller, except that
BTFC shall not for any such purpose be required to qualify generally to
do business as a foreign corporation in any jurisdiction wherein it
would not but for the requirements of this subdivision (iv) be obligated
to be so qualified, to subject itself to taxation in any such
jurisdiction or to consent to general service of process in any such
jurisdiction;
(v) use its best efforts to cause all Registrable Securities covered by
such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable
the seller or sellers thereof to consummate the disposition of such
Registrable Securities;
(vi) furnish to each seller of Registrable Securities and each
Requesting Holder a signed counterpart, addressed to such seller, such
Requesting Holder and the underwriters, if any, of:
49
<PAGE> 181
(x) an opinion of counsel for BTFC, dated the effective date of such
registration statement (and, if such registration includes an
underwritten public offering, an opinion dated the date of the closing
under the underwriting agreement), reasonably satisfactory in form and
substance to such seller, and
(y) a "comfort" letter, dated the effective date of such registration
statement (and, if such registration includes an underwritten public
offering, a letter dated the date of the closing under the underwriting
agreement), signed by the independent public accountants who have
certified BTFC's financial statements included in such registration
statement, covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the
case of the accountants' letter, with respect to events subsequent to
the date of such financial statements, as are customarily covered in
opinions of issuer's counsel and in accountants' letters delivered to
the underwriters in underwritten public offerings of securities and, in
the case of the accountants' letter, such other financial matters, and,
in the case of the legal opinion, such other legal matters, as such
seller or such Requesting Holder or the underwriters, if any may
reasonably request;
(vii) notify the holders of Registrable Securities and the managing
underwriter or underwriters, if any, promptly and confirm such advice in
writing promptly thereafter:
(A) when the registration statement, the prospectus or any prospectus
supplement related thereto or post-effective amendment to the
registration statement has been filed, and, with respect to the
registration statement or any post-effective amendment thereto, when the
same has become effective;
(B) of any request by the SEC for amendments or supplements to the
registration statement or the prospectus or for additional information;
(C) of the issuance by the SEC of any stop order suspending the
effectiveness of the registration or the initiation of any proceedings
by any Person for that purpose;
50
<PAGE> 182
(D) if at any time the representations and warranties of BTFC made as
contemplated by Section 5.04 below cease to be true and correct;
(E) of the receipt by BTFC of any notification with respect to the
suspension of the qualification of any Registrable Securities for sale
under the securities or blue sky laws of any jurisdiction or the
initiation or threat of any proceeding for such purpose; and
(viii) notify each seller of Registrable Securities covered by such
registration statement and each Requesting Holder, at any time when a
prospectus relating thereto is required to be delivered under the
Securities Act, upon BTFC's discovery that, or upon the happening of any
event as a result of which, the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing, and at the request of any such seller or
Requesting Holder promptly prepare and furnish to such seller or Requesting
Holder and each underwriter, if any, a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such securities, such
prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances
then existing;
(ix) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of the registration statement at the earliest
possible moment;
(x) otherwise use its best efforts to comply with all applicable rules and
regulations of the SEC, and make available to its security holders, as soon
as reasonably practicable, an earnings statement covering the period of at
least twelve months, but not more than eighteen months, beginning with the
first full calendar quarter after the effective date of such registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act, and will furnish to each such seller and each
Requesting Holder at least five business days prior to the filing thereof a
copy of any amendment or supplement to such registration statement or
51
<PAGE> 183
prospectus and shall not file any thereof to which the holders of at least
a majority of the Registrable Securities shall have reasonably objected on
the grounds that such amendment or supplement does not comply in all
material respects with the requirements of the Securities Act or of the
rules or regulations thereunder;
(xi) provide and cause to be maintained a transfer agent and registrar for
all Registrable Securities covered by such registration statement from and
after a date not later than the effective date of such registration
statement;
(xii) use its best efforts to list all Registrable Securities covered by
such registration statement on NASDAQ; and
(xiii) use its best efforts to provide a CUSIP number for the Registrable
Securities, not later than the effective date of the registration.
BTFC may require each seller of Registrable Securities as to which any
registration is being effected to furnish BTFC such information regarding such
seller and the distribution of such securities as BTFC may from time to time
reasonably request in writing.
BTFC will not file any registration statement or amendment thereto or any
prospectus or any supplement thereto (including such documents incorporated by
reference and proposed to be filed after the initial filing of the registration)
to which the holders of at least a majority of the Registrable Securities
covered by such registration statement or the underwriter or underwriters, if
any, shall reasonably object, provided that BTFC may file such document in a
form required by law or upon the advice of its counsel.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from BTFC to the effect
that any event of the kind described in subdivision (viii) of this Section 5.03
has or might occur, such holder will forthwith discontinue such holder's
disposition of Registrable Securities pursuant to the registration statement
relating to such Registrable Securities until notified by BTFC that such
disposition may resume and such holder's receipt of the copies of the
supplemented or amended prospectus if required by subdivision (viii) of this
Section 5.03 and, if so directed by BTFC, will deliver to BTFC (at BTFC's
expense) all copies, other than permanent file copies, then in such holder's
possession of the prospectus relating to such Registrable Securities current at
the time of receipt of such notice. In the event BTFC shall give
52
<PAGE> 184
any such notice, the period mentioned in paragraph (ii) of this Section 5.03
shall be extended by the length of the period from and including the date when
each seller of any Registrable Securities covered by such registration statement
shall have received such notice to the date on which each such seller has
received the copies of the supplemented or amended prospectus contemplated by
paragraph (viii) of this Section 5.03.
If any such registration or comparable statement refers to any holder of
Registrable Securities by name or otherwise as the holder of any securities of
BTFC, then such holder shall have the right to require (i) the insertion therein
of language, in form and substance satisfactory to such holder, to the effect
that the holding by such holder of such securities is not to be construed as a
recommendation by such holder of the investment quality of BTFC's securities
covered thereby and that such holding does not imply that such holder will
assist in meeting any future financial requirements of BTFC, or (ii) in the
event that such reference to such holder by name or otherwise is not required by
the Securities Act or any similar federal statute then in force, the deletion of
the reference to such holder.
5.04. Underwritten Offerings.
(a) If requested by the underwriters for any underwritten offering by
holders of Registrable Securities pursuant to a registration requested under
Section 5.02, BTFC will enter into an underwriting agreement with such
underwriters for such offering, such agreement to be satisfactory in substance
and form to BTFC, each such holder and the underwriters, and to contain such
representations and warranties by BTFC and such other terms as are generally
prevailing in agreements of this type, including, without limitation,
indemnities to the effect and to the extent provided in Section 5.07. The
holders of the Registrable Securities will cooperate with BTFC in the
negotiation of the underwriting agreement and will give consideration to the
reasonable suggestions of BTFC regarding the form thereof, provided that nothing
herein contained shall diminish the foregoing obligations of BTFC. The holders
of Registrable Securities to be distributed by such underwriters shall be
parties to such underwriting agreement and shall be required to make such
holder's proportionate share of the representations and warranties contained
therein, provided that the foregoing shall only be applicable if such
underwriting agreement or a separate agreement between BTFC and such holder
shall contain a provision that limits the liability of such holder to the
proceeds to be received by such holder from the sale of such holder's
Registrable Securities and that provides that such holder's liability shall be
pro rata in accordance with the number of Registrable Securities sold by such
holder as compared to the aggregate number of Registrable Securities and other
securities sold in such underwritten offering.
53
<PAGE> 185
(b) If BTFC at any time proposes to register any of its securities under
the Securities Act as contemplated by Section 5.01 and such securities are to be
distributed by or through one or more underwriters, BTFC will, if requested by
any holder of Registrable Securities as provided in Section 5.01 and subject to
the provisions of Section 5.01(b), use its best efforts to arrange for such
underwriters to include all the Registrable Securities to be offered and sold by
such holder among the securities to be distributed by such underwriters,
provided that if the managing underwriter of such underwritten offering shall
inform the holders of the Registrable Securities requesting such registration
and the holders of any other shares of Common Stock which shall have exercised,
in respect of such underwritten offering, registration rights comparable to the
rights under Section 5.01 by letter of its belief that inclusion in such
underwritten distribution of all or a specified number of such Registrable
Securities or of such other shares of Common Stock so requested to be included
would interfere with the successful marketing of the Common Stock (other than
such Registrable Securities and other shares of Common Stock so requested to be
included) by the underwriters (such writing to state the basis of such belief
and the approximate number of such Registrable Securities and shares of other
Common Stock so requested to be included which may be included in such
underwritten offering without such effect), then BTFC may, upon written notice
to all holders of such Registrable Securities and of such other shares of Common
Stock so requested to be included, exclude pro rata from such underwritten
offering (if and to the extent stated by such managing underwriter to be
necessary to eliminate such effect) the number of such Registrable Securities
and shares of such other Common Stock so requested to be included the
registration of which shall have been requested by each holder of Registrable
Securities and by the holders of such other Common Stock so that the resultant
aggregate number of such Registrable Securities and of such other shares of
Common Stock so requested to be included which are included in such underwritten
offering shall be equal to the approximate number of shares stated in such
managing underwriter's letter. The holders of Registrable Securities to be
distributed by such underwriters shall be parties to the underwriting agreement
between BTFC and such underwriters and shall be required to make such holder's
proportionate share of the representations and warranties contained therein,
provided that the foregoing shall only be applicable if such underwriting
agreement or a separate agreement between BTFC and such holder shall contain a
provision that limits the liability of such holder to the proceeds to be
received by such holder from the sale of such holder's Registrable Securities
and that provides that such holder's liability shall be pro rata in accordance
with the number of Registrable Securities sold by such holder as compared to the
aggregate number of Registrable Securities and other securities sold in such
underwritten offering.
54
<PAGE> 186
(c) Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities, if so required by the managing underwriter, not to sell,
make any short sale of, loan, grant any option for the purchase of, effect any
public sale or distribution of or otherwise dispose of any equity securities of
BTFC, during the seven days prior to and the 90 days after any underwritten
registration pursuant to Section 5.01 or 5.02 has become effective, except as
part of such underwritten registration, whether or not such holder participates
in such registration. Each holder of Registrable Securities agrees that BTFC may
instruct its transfer agent to place stop transfer notations in its records to
enforce this Section 5.04(c).
(d) No Person may participate in any underwritten offering hereunder unless
such Person (i) agrees to sell such Person's securities on the basis provided in
any underwriting arrangements approved, subject to the terms and conditions
hereof, by BTFC and the holders of a majority of Registrable Securities to be
included in such underwritten offering, (ii) completes and executes all
questionnaires, indemnities, underwriting agreements and other documents (other
than powers of attorney) required under the terms of such underwriting
arrangements and (iii) makes the representations and warranties provided for in
Section 5.04(a) or 5.04(b), as the case may be.
5.05. Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, BTFC will give the holders of Registrable Securities
registered under such registration statement, their underwriters, if any, each
Requesting Holder and their respective counsel and accountants, the opportunity
to participate in the preparation of such registration statement, each
prospectus included therein or filed with the SEC, and each amendment thereof or
supplement thereto, and will give each of them such access to its books and
records and such opportunities to discuss the business of BTFC with its officers
and the independent public accountants who have certified its financial
statements as shall be necessary, in the opinion of such holders' and such
underwriters' respective counsel, to conduct a reasonable investigation within
the meaning of the Securities Act.
5.06. Rights of Requesting Holders. BTFC will not file any registration
statement under the Securities Act (other than by a registration on Form S-4 or
S-8), unless it shall first have given to each holder of Registrable Securities
at the time outstanding (other than any such Person who acquired all such
securities held by such Person in a public offering registered under the
Securities Act or as the direct or indirect transferee of shares initially
issued in such an offering), at least 20 days prior written notice thereof. Any
such Person who shall so request within 20 days after such notice (a "Requesting
Holder")
55
<PAGE> 187
shall have the rights of a Requesting Holder provided in Sections 5.03, 5.05 and
5.07. In addition, if any such registration statement refers to any Requesting
Holder by name or otherwise as the holder of any securities of BTFC, then such
holder shall have the right to require (a) the insertion therein of language, in
form and substance satisfactory to such holder, to the effect that the holding
by such holder of such securities does not necessarily make such holder a
"controlling Person" of BTFC within the meaning of the Securities Act and is not
to be construed as a recommendation by such holder of the investment quality of
BTFC's debt or equity securities covered thereby and that such holding does not
imply that such holder will assist in meeting any future financial requirements
of BTFC, or (b) in the event that such reference to such holder by name or
otherwise is not required by the Securities Act or any rules and regulations
promulgated thereunder, the deletion of the reference to such holder.
5.07. Indemnification.
(a) In the event of any registration of any securities of BTFC under the
Securities Act, BTFC will, and hereby does, indemnify and hold harmless (i) in
the case of any registration statement filed pursuant to Section 5.01 or 5.02,
the holder of any Registrable Securities covered by such registration statement,
its directors and officers, each other Person who participates as an underwriter
in the offering or sale of such securities and each other Person, if any, who
controls such holder or any such underwriter within the meaning of the
Securities Act, and (ii) in the case of any registration statement of BTFC, any
Requesting Holder, its directors and officers and each other Person, if any, who
controls such Requesting Holder within the meaning of the Securities Act,
against any losses, claims, damages or liabilities, joint or several, to which
such holder or Requesting Holder or any such director or officer or underwriter
or controlling Person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such
securities were registered under the Securities Act, any preliminary prospectus,
final prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and BTFC will reimburse such holder, such Requesting
Holder and each such director, officer, underwriter and controlling Person for
any legal or any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, liability, action or
proceeding, provided
56
<PAGE> 188
that BTFC shall not be liable in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof) or expense
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and in conformity with written information furnished
to BTFC through an instrument duly executed by such holder or Requesting Holder,
as the case may be, specifically stating that it is for use in the preparation
thereof, provided further that BTFC shall not be liable to any Person who
participates as an underwriter in the offering or sale of Registrable Securities
or to any other Person, if any, who controls such underwriter within the meaning
of the Securities Act, in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of such Person's failure to send or give a copy of the final prospectus, as
the same may be then supplemented or amended, within the time required by the
Securities Act to the Person asserting the existence of an untrue statement or
alleged untrue statement or omission or alleged omission at or prior to the
written confirmation of the sale of Registrable Securities to such Person if
such statement or omission was corrected in such final prospectus. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such holder or such Requesting Holder or any such
director, officer, underwriter or controlling Person and shall survive the
transfer of such securities by such holder.
(b) BTFC may require, as a condition to including any Registrable
Securities in any registration statement filed pursuant to Section 5.03, that
BTFC shall have received an undertaking satisfactory to it from the prospective
seller of such Registrable Securities, to indemnify and hold harmless (in the
same manner and to the same extent as set forth in subdivision (a) of this
Section 5.07) BTFC, each director of BTFC, each officer of BTFC and each other
Person, if any, who controls BTFC within the meaning of the Securities Act, with
respect to any statement or alleged statement in or omission or alleged omission
from such registration statement, any preliminary prospectus, final prospectus
or summary prospectus contained therein, or any amendment or supplement thereto,
if such statement or alleged statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to BTFC
through an instrument duly executed by such seller specifically stating that it
is for use in the preparation of such registration statement, preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement. Any
such indemnity shall remain in full force and effect, regardless of any
investigation made by or on behalf of
57
<PAGE> 189
BTFC or any such director, officer or controlling Person and shall survive the
transfer of such securities by such seller.
(c) Promptly after receipt by an indemnified party of notice of the
commencement of any action or proceeding involving a claim referred to in the
preceding subdivisions of this Section 5.07, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such action, provided that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under the preceding
subdivisions of this Section 5.07, except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. In case any such
action is brought against an indemnified party, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, the indemnifying party
shall be entitled to participate in and to assume the defense thereof, jointly
with any other indemnifying party similarly notified, to the extent that the
indemnifying party may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. No indemnifying
party shall, without the consent of the indemnified party, consent to entry of
any judgment or enter into any settlement of any such action which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability in respect to such
claim or litigation. No indemnified party shall consent to entry of any judgment
or enter into any settlement of any such action the defense of which has been
assumed by an indemnifying party without the consent of such indemnifying party.
(d) Indemnification similar to that specified in the preceding subdivisions
of this Section 5.07 (with appropriate modifications) shall be given by BTFC and
each seller of Registrable Securities with respect to any required registration
or other qualification of securities under any Federal or state law or
regulation of any governmental authority, other than the Securities Act.
(e) The indemnification required by this Section 5.07 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or expense, loss, damage or liability
is incurred.
58
<PAGE> 190
(f) If the indemnification provided for in the preceding subdivisions of
this Section 5.07 is unavailable to an indemnified party in respect of any
expense, loss, claim, damage or liability referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such expense, loss, claim, damage or liability (i) in such proportion as is
appropriate to reflect the relative benefits received by BTFC on the one hand
and the holder or underwriter, as the case may be, on the other from the
distribution of the Registrable Securities, or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of BTFC on the one hand and of the holder or
underwriter, as the case may be, on the other in connection with the statements
or omissions which resulted in such expense, loss, damage or liability, as well
as any other relevant equitable considerations. The relative benefits received
by BTFC on the one hand and the holder or underwriter, as the case may be, on
the other in connection with the distribution of the Registrable Securities
shall be deemed to be in the same proportion as the total net proceeds received
by BTFC from the initial sale of the Registrable Securities by BTFC to the
purchasers bear to the gain realized by the selling holder or the underwriting
discounts and commissions received by the underwriter, as the case may be. The
relative fault of BTFC on the one hand and of the holder or underwriter, as the
case may be, on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
omission to state a material fact relates to information supplied by BTFC, by
the holder or by the underwriter and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission, provided that the foregoing contribution agreement shall not inure to
the benefit of any indemnified party if indemnification would be unavailable to
such indemnified party by reason of the provisions contained in the first
sentence of subdivision (a) of this Section 5.07, and in no event shall the
obligation of any indemnifying party to contribute under this subdivision (f)
exceed the amount that such indemnifying party would have been obligated to pay
by way of indemnification if the indemnification provided for under subdivisions
(a) or (b) of this Section 5.07 had been available under the circumstances.
BTFC and the holders of Registrable Securities agree that it would not be
just and equitable if contribution pursuant to this subdivision (f) were
determined by pro rata allocation (even if the holders, Requesting Holders and
any underwriters were treated as one entity for such purpose) or by any other
method of allocation that does not take account of the equitable considerations
referred to in the immediately preceding paragraph
59
<PAGE> 191
and subdivision (c) of this Section 5.07 and any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim.
Notwithstanding the provisions of this subdivision (f), no holder of
Registrable Securities or underwriter shall be required to contribute any amount
in excess of the amount by which (i) in the case of any such holder, the net
proceeds received by such holder from the sale of Registrable Securities or (ii)
in the case of an underwriter, the total price at which the Registrable
Securities purchased by it and distributed to the public were offered to the
public exceeds, in any such case, the amount of any damages that such holder or
underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) the Securities Act) shall
be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
5.08 Rule 144. BTFC will file the reports required to be filed by it under
the Securities Act and the Exchange Act and the rules and regulations adopted by
the SEC thereunder and will take such further action as any holder of
Registrable Securities may reasonably request, all to the extent required from
time to time to enable such holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (b) any similar rule or regulation hereafter adopted by
the SEC. Upon the request of any holder of Registrable Securities, BTFC will
deliver to such holder a written statement as to whether it has complied with
such requirements.
ARTICLE VI
CONDITIONS PRECEDENT
6.01. Conditions Precedent to the Obligations of BTFC and Johnstown. The
obligations of BTFC and Johnstown to consummate the transactions contemplated by
this Reorganization Agreement shall be subject to the satisfaction, on or before
the Closing Date, of each and every one of the following conditions, all or any
of which may be waived, in whole or in part, by BTFC and Johnstown to the extent
permitted by law:
(a) Performance of Covenants. Each of the covenants to be performed by
Armstrong hereunder on or before the Closing Date shall have been duly performed
in all material respects; and the President and Secretary of Armstrong shall
have executed and delivered to BTFC a certificate, dated as of the Closing Date,
to
60
<PAGE> 192
the effect that such officers have no knowledge of the nonfulfillment of the
foregoing condition.
(b) Representations True at Closing. The representations and warranties
made by Armstrong herein and in any certificate provided to BTFC hereunder shall
be true and correct in all material respects on the Closing Date with the same
force and effect as though such representations and warranties had been made on
and as of such time (or as of the date when made in the case of any
representation and warranty which specifically relates to an earlier date),
except that the representations made in Section 4.01(o) shall be modified by the
results of the Phase I assessment referred to in Section 4.05(b)(i) or the Phase
II assessment referred to in Section 4.05(b)(ii), and the President and
Secretary of Armstrong shall have executed and delivered to BTFC a certificate,
dated as of the Closing Date, to the effect that such officers have no knowledge
of the nonfulfillment of the foregoing condition.
(c) Certified Resolutions. Armstrong shall have furnished BTFC with a
certified copy of resolutions duly adopted by its Board of Directors authorizing
and approving this Reorganization Agreement and the transactions contemplated
hereby.
(d) Shareholder Approval. This Reorganization Agreement shall have been
approved by the affirmative vote of a majority of the votes cast by all holders
of Armstrong Common Stock entitled to vote thereon, and Armstrong shall have
furnished BTFC with a certified copy of resolutions duly adopted by its
shareholders authorizing and approving this Reorganization Agreement and the
transactions contemplated hereby.
(e) Government Approvals and Other Consents. BTFC, Johnstown and Armstrong
shall have received in form and substance satisfactory to BTFC all necessary
federal and state governmental and regulatory approvals and other consents
necessary to permit consummation of the Merger and the transactions contemplated
hereby (including but not limited to approvals of the Federal Reserve Board, the
FDIC or other applicable federal regulatory agency and the Department of
Banking). No such approvals and consents shall require BTFC or such Subsidiary
to enter into any agreement or stipulation that is inconsistent with prior FDIC
or Department of Banking practice or procedure, and all applicable waiting
periods required by law shall have expired or elapsed.
(f) No Injunction. No action, proceeding, regulation or legislation shall
have been instituted or threatened before any court, governmental agency or
legislative body to enjoin, restrain or prohibit, or to obtain substantial
damages in respect of, or which is related to or arises out of, this
Reorganization Agreement, the consummation of the transactions contemplated
61
<PAGE> 193
hereby or the Merger, which, in the good faith judgment of BTFC, would make it
inadvisable to consummate such transactions.
(g) No Material Misstatements or Omissions. Subject to the cure provisions
of Section 2.07(f), BTFC shall not have discovered any material error,
misstatement or omission in any information furnished in writing or to be
furnished in writing to BTFC hereunder, or in the information to be furnished by
Armstrong and contained in the Registration Statement.
(h) Changes in Financial Condition. Since the date of this Reorganization
Agreement, there shall not have occurred any material adverse change in the
business, financial condition results of operation or prospects of Armstrong,
other than changes resulting from or attributable to (i) changes in laws or
regulations, generally accepted accounting principles, or interpretations
thereof, that affect the banking industry generally, or (ii) the payment of any
severance benefits to Coleman Clougherty or any other key employee pursuant to
any employment arrangement, if such payment is made by Armstrong at the request
of BTFC.
(i) Registration Statement. The Registration Statement covering the shares
of BTFC Common Stock to be issued to the shareholders of Armstrong under this
Reorganization Agreement shall have been declared effective by the SEC, shall be
exempt or declared effective in each state having jurisdiction thereon, and no
stop order proceeding shall be pending or threatened with respect thereto.
(j) Opinion of Armstrong Counsel. An opinion of Manatt, Phelps & Phillips,
counsel for Armstrong, and Blank, Rome, Comisky & McCauley with respect to the
opinions set forth in the first sentence of (i) and (ii) below, shall have been
delivered to BTFC, dated the Closing Date, and in form and substance
satisfactory to BTFC and its counsel, substantially to the effect that:
(i) Armstrong is a bank and trust company duly incorporated and validly
existing under the Banking Code and has the corporate power and authority
to carry on its business as described in the Prospectus/Proxy Statement and
to carry out the transactions contemplated by this Reorganization
Agreement. The authorized capital stock of Armstrong consists of 8,000
shares of common stock having a par value of $50.00 per share, of which no
more than 8,000 shares are issued and outstanding as of the date hereof and
no shares are held in the treasury of Armstrong. To our knowledge, there is
no subscription, option, warrant, call, right, stock appreciation right or
commitment of any kind obligating Armstrong to issue any of its stock or to
62
<PAGE> 194
acquire any of its stock under any circumstances or to pay cash on account
of stock appreciation.
(ii) The execution and delivery of this Reorganization Agreement and the
Plan of Merger have been duly authorized by all necessary director and
shareholder action. This Reorganization Agreement and the Plan of Merger
have been duly executed and delivered by Armstrong and, assuming due
authorization, execution and delivery by the other parties hereto, this
Reorganization Agreement and the Plan of Merger will constitute valid and
binding obligations of Armstrong, and will be enforceable in accordance
with their respective terms, except as the enforceability of each of the
above documents may be limited by (a) bankruptcy, insolvency, fraudulent
conveyance, moratorium, reorganization, conservatorship, receivership or
other similar laws from time to time in effect affecting the enforcement of
creditors' rights generally or the rights of creditors of banking
institutions, (b) general equitable principles, (c) laws relating to the
safety and soundness of insured depository institutions, (d) the possible
unavailability of certain remedies in the event of non-material breaches
of such agreements, and (e) the effect or availability of equitable
remedies or injunctive relief (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(iii) The execution and delivery by Armstrong of, and the performance by
Armstrong of its agreements in this Reorganization Agreement, do not (i)
violate the articles of incorporation or bylaws, as amended, of Armstrong;
(ii) breach or result in a default under any existing obligation of
Armstrong under any of the agreements identified in an officer's
certificate to be attached to the opinion; or (iii) breach or otherwise
violate any existing obligation of Armstrong under a court order which has
been identified by Armstrong in an officer's certificate to be attached to
the opinion.
In expressing such opinion, Manatt, Phelps & Phillips and Blank, Rome, Comisky &
McCauley may rely on certificates of officers and other representatives of
Armstrong as to matters of fact and certificates of public officials as to
matters within their jurisdiction. Such opinion shall be governed by the Legal
Opinion Accord of the ABA Section of Business Law (1991).
(k) Dissenters' Shares. The number of Dissenters' Shares as of the Closing
Date shall be less than 800 shares of Armstrong Common Stock, but in no event
shall the total cash consideration paid by BTFC for Armstrong County Stock
exceed fifty percent (50%) of the total consideration paid by BTFC.
63
<PAGE> 195
(l) Employment Agreements. Coleman Clougherty shall have waived in writing
all rights to severance pay and any other obligations Armstrong has to him in
exchange for the agreement by BTFC to pay him $200,000.00 on the Closing Date.
(m) Expenses. Armstrong shall have paid all out-of-pocket expenses and
disbursements, including legal, accounting and investment banking fees incurred
by Armstrong in connection with the Transactions, except for reasonable
out-of-pocket expenses actually incurred that the parties acknowledge have not
been billed on or before the Closing Date; and the President and Secretary of
Armstrong shall each have executed and delivered to BTFC a certificate, dated as
of the Closing Date, to the effect that such officers have no knowledge of the
nonfulfillment of the foregoing condition.
(n) Tax Opinion. BTFC shall have received an opinion of Kirkpatrick &
Lockhart LLP, in form and substance reasonably satisfactory to BTFC, dated as of
the Closing Date, substantially to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion, (i) the Merger will
be treated for Federal income tax purposes as a reorganization within the
meaning of Section 368 of the Code and that accordingly no gain or loss will be
recognized by BTFC, Johnstown or Armstrong as a result of the Merger; and (ii)
no gain or loss will be recognized by Armstrong's shareholder as a result of the
receipt of BTFC Common Stock in the Merger. In rendering such opinion,
Kirkpatrick & Lockhart may require and rely upon representations contained in
certificates of officers of BTFC, Armstrong, Johnstown and others.
6.02. Conditions Precedent to the Obligations of Armstrong. The obligations
of Armstrong to consummate the transactions contemplated by this Reorganization
Agreement shall be subject to the satisfaction, on or before the Closing Date,
of each and every one of the following conditions, all or any of which may be
waived, in whole or in part, by Armstrong to the extent permitted by law:
(a) Performance of Covenants. Each of the covenants to be performed by BTFC
and Johnstown hereunder on or before the Closing Date shall have been duly
performed in all material respects; and the President and Secretary of BTFC and
Johnstown shall each have executed and delivered to Armstrong a certificate,
dated as of the Closing Date, to the effect that such officers have no knowledge
of the nonfulfillment of the foregoing condition.
(b) Representations True at Closing. The representations and warranties
made by BTFC and Johnstown herein and in any Certificate provided by BTFC
hereunder shall be true and correct in all material respects on the Closing Date
with the same force
64
<PAGE> 196
and effect as though such representations and warranties had been made on and as
of such time (or as of the date when made in the case of any representation and
warranty which specifically relates to an earlier date), and the President and
Secretary of BTFC and Johnstown shall each have executed and delivered to
Armstrong a certificate, dated as of the Closing Date, to the effect that such
officers have no knowledge of the nonfulfillment of the foregoing condition.
(c) Certified Resolutions. BTFC and Johnstown shall each have furnished
Armstrong with a certified copy of resolutions duly adopted by the Board of
Directors of BTFC and Johnstown authorizing this Reorganization Agreement and
the transactions contemplated hereby and by the shareholder of Johnstown
approving this Reorganization Agreement and the transactions contemplated
hereby.
(d) Government Approvals and Other Consents. BTFC, Johnstown and Armstrong
shall have received in form and substance satisfactory to Armstrong all
necessary federal and state governmental and regulatory approvals, shareholder
approvals and other consents necessary to permit consummation of the Merger
(including but not limited to approvals of the Federal Reserve Board, the FDIC,
the Department of Banking and the shareholders of Armstrong), and all applicable
waiting periods required by law shall have expired or elapsed.
(e) No Injunction. No injunction shall have been issued by any court or
governmental agency which prohibits or restricts the consummation of the
transactions contemplated by this Reorganization Agreement which, in the good
faith judgment of Armstrong, would make it inadvisable to consummate such
transactions.
(f) No Material Misstatements or Omissions. Armstrong shall not have
discovered any material error, misstatement or omission in any information
furnished in writing or to be furnished in writing to Armstrong hereunder, or in
the information to be furnished by BTFC or Johnstown and contained in the
Registration Statement.
(g) Changes in Financial Condition. Since the date of this Reorganization
Agreement, there shall not have occurred any material adverse change in the
financial condition of BTFC on a consolidated basis, other than changes
resulting from or attributable to changes in laws or regulations, generally
accepted accounting principles, or interpretations thereof, that affect the
banking industry generally.
(h) Registration Statement. The Registration Statement covering the shares
of BTFC Common Stock to be issued to the shareholders of Armstrong under this
Reorganization Agreement
65
<PAGE> 197
shall have been declared effective by the SEC, shall be exempt or declared
effective in each state having jurisdiction thereon, and no stop order
proceeding shall be pending or threatened with respect thereto.
(i) Opinion of BTFC and Counsel. An opinion of Kirkpatrick & Lockhart LLP,
counsel for BTFC and Johnstown, shall have been delivered to Armstrong, dated
the Closing Date, and in form and substance satisfactory to Armstrong and its
counsel, substantially to the effect that:
(i) BTFC is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania and has full
power and authority to carry on its business as described in the
Prospectus/Proxy Statement and to carry out the transactions contemplated
by this Reorganization Agreement. The authorized capital stock of BTFC
consists of 10,000,000 shares of common stock having a par value of $5.00
per share, of which 3,826,581 shares are issued and outstanding as of the
date hereof and 2,000,000 shares of preferred stock, no par value, none of
which are issued and outstanding as of the date hereof. All issued and
outstanding shares of BTFC Common Stock are validly issued, fully paid and
nonassessable.
(ii) Johnstown is a bank and trust company duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Pennsylvania and a member of the Federal Reserve System. Johnstown has full
power and authority to carry on its business as described in the
Prospectus/Proxy Statement and to carry out the transactions contemplated
by this Reorganization Agreement. The authorized, issued and outstanding
capital stock of Johnstown consists of 981,864 shares of common stock
having a par value of $5.00 per share. All issued and outstanding shares of
Johnstown Common Stock are validly issued, fully paid and nonassessable.
(iii) This Reorganization Agreement has been, and the Articles of
Merger, when executed and delivered, will have been, duly and validly
authorized, executed and delivered by BTFC and Johnstown, and constitute
and will constitute the valid and binding obligations of BTFC and Johnstown
and are and will be enforceable in accordance with their respective terms,
except as limited by (a) bankruptcy, insolvency, fraudulent conveyance,
moratorium, reorganization, conservatorship, receivership or other similar
laws from time to time in effect affecting the enforcement of creditors'
rights generally or the rights of creditors of insured depository
institutions, (b) general equitable principles, (c) laws relating to the
safety and
66
<PAGE> 198
soundness of insured depository institutions, (d) the possible
unavailability of certain remedies in the event of non-material breaches of
such agreements, and (e) the effect or availability of equitable remedies
or injunctive relief (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(iv) Neither the execution, delivery and performance of this
Reorganization Agreement by BTFC and Johnstown, nor the consummation of the
transactions contemplated hereby, nor compliance by BTFC and Johnstown with
any of the provisions hereof will (i) violate, or conflict with, or result
in a breach of any provisions of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default)
under, or result in the termination of, or accelerate the performance
required by, or result in a right of termination or acceleration under, or
result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of BTFC or any of its
Subsidiaries under any of the terms, conditions or provisions of, (A) the
articles of incorporation or bylaws, as amended, of BTFC or Johnstown, or
(B) any note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which BTFC or any of its
Subsidiaries is a party or by which any of them is bound or to which any of
their respective properties or assets may be subject, except for such
violations, conflicts, breaches, defaults, etc. which would not, in the
aggregate, have a material adverse effect on BTFC's business or financial
condition on a consolidated basis, or (ii) to its knowledge, violate any
judgement, ruling, order, writ, injunction, decree, statute, rule or
regulation applicable to them or any of their respective properties or
assets.
(iv) BTFC and Johnstown has obtained all necessary federal and state
governmental and regulatory approvals in order to consummate the Merger.
(v) The Registration Statement has become effective under the Securities
Act, and, to the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
threatened under the Securities Act.
In expressing such opinion, counsel may rely on opinions of other counsel to
BTFC and Johnstown, certificates of officers and other representatives of BTFC
and Johnstown as to matters of fact and certificates of public officials as to
matters within their jurisdiction.
67
<PAGE> 199
(j) Fairness Opinion. Armstrong shall have received an opinion from Bahia
Advisors, Inc. dated prior to the date of the Prospectus/Proxy Statement that
the consideration to be paid to shareholders of Armstrong pursuant to this
Reorganization Agreement is fair from a financial point of view to the
shareholders of Armstrong.
6.03. Waivers. A condition precedent as set forth in this Article VI shall
be deemed to be satisfied if it has been materially and reasonably satisfied,
and no Party shall fail to consummate the transactions described herein by
reason of a breach of any covenant or the failure to satisfy a condition
precedent unless such breach or failure is material to such transactions as a
whole. Any condition waived in writing by the Party entitled to the benefit
thereof shall thereafter cease to be a condition precedent for purposes of this
Article VI.
ARTICLE VII
BROKERS AND EXPENSES
7.01. Brokers. BTFC represents and warrants to Armstrong that no broker or
finder has acted for it in connection with the execution and delivery of this
Reorganization Agreement or the transactions contemplated hereby, except for
Berwind Financial Group, Inc. Armstrong represents and warrants to BTFC that no
broker or finder has acted for it in connection with the execution and delivery
of this Reorganization Agreement or the transactions contemplated hereby, except
for Bahia Advisors, Inc. Each Party shall be indemnified and held harmless by
the other from any claim, suit, loss or expense resulting from a breach of the
other party's foregoing representation and warranty.
7.02. Expenses. Except as otherwise provided in this Reorganization
Agreement, all expenses incurred by each Party in connection with or related to
the authorization, preparation and execution of this Reorganization Agreement,
the solicitation of shareholder approval and all other matters related to the
closing of the transactions contemplated hereby, including without limiting the
generality of the foregoing, all fees and expenses of agents, representatives,
counsel and accountants employed by any such Party and the broker referred to in
Section 6.01, shall be borne solely and entirely by the Party which has incurred
the same.
ARTICLE VIII
MISCELLANEOUS
8.01 Further Assurances. From time to time as and when requested by BTFC or
Johnstown, or their respective successors or assigns, Armstrong, or the officers
and directors of Armstrong last in office prior to consummation of the Merger,
shall execute and deliver such further agreements, documents, deeds and other
68
<PAGE> 200
instruments and shall take or cause to be taken such other actions, including
those as shall be necessary to vest or perfect in or to confirm of record or
otherwise in the Resulting Company title to and possession of all the property,
interests, assets, rights, privileges, immunities, powers, franchises and
authority of Armstrong, as shall be necessary or advisable to carry out the
purposes of and effect the transactions contemplated by this Reorganization
Agreement.
8.02. Survival of Representations, Warranties and Covenants. All
representations, warranties and covenants in this Reorganization Agreement or in
any instrument delivered pursuant hereto shall expire on, and be terminated and
extinguished on, the Closing Date, other than covenants that by their terms are
to survive or be performed after the Closing Date.
8.03. Notices. All notices, requests, demands, and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered or sent by first-class registered or certified mail, postage prepaid,
with return receipt requested, as follows:
(a) If to Armstrong, to:
Coleman J. Clougherty
Chairman, President and Chief Executive Officer
The Armstrong County Trust Company
227 Market Street
Kittanning, Pennsylvania 16201
with a copy to:
Edward L. Lublin, Esq.
Manatt, Phelps and Phillips
1501 M Street, N.W.
Washington, D.C. 20005
(b) If to BTFC or Johnstown, to:
John H. Anderson
Chairman and Chief Executive Officer
BT Financial Corporation
532-534 Main Street
Johnstown, Pennsylvania 15901
69
<PAGE> 201
with a copy to:
Dennis M. Sheedy, Esquire
Kirkpatrick & Lockhart LLP
1500 Oliver Building
Pittsburgh, Pennsylvania 15222
or to such other address as any such Person may designate in writing to the
other Parties at the addresses listed above, in accordance with this Section.
8.04. Binding Effect. This Reorganization Agreement shall be binding upon
and inure to the benefit of the Parties hereto and their respective successors
and assigns. This Reorganization Agreement may not be assigned by any Party
without the express written consent of the other Parties.
8.05. Headings. The Article, Section, paragraph and other headings in this
Reorganization Agreement are inserted solely as a matter of convenience and for
reference and are not a part of this Reorganization Agreement.
8.06. Counterparts. This Reorganization Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
8.07. Integration; No Third-Party Beneficiaries. This Reorganization
Agreement constitutes the entire understanding of the Parties with respect to
the subject matter hereof and supersedes all prior agreements, arrangements or
communications, oral or written, between the Parties hereto with respect to the
subject matter hereunder. This Agreement is not intended to confer upon any
Person other than the Parties hereto any rights or remedies hereunder, except
for the provisions of Section 4.04(g), 4.06(f) and 4.06(h).
8.08. Severability. If any term or other provision of this Reorganization
Agreement is held by a court of competent jurisdiction to be invalid, illegal or
incapable of being enforced under any rule of law in any particular respect or
under any particular circumstances, such term or provision shall nevertheless
remain in full force and effect in all other respects and under all other
circumstances, and all other terms, conditions and provisions of this
Reorganization Agreement shall nevertheless remain in full force and effect so
long as the economic or legal substance of the transactions contemplated hereby
is not affected in any manner materially adverse to any Party. Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good faith to modify
this Reorganization Agreement so as to effect the original intent of
70
<PAGE> 202
the parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the fullest extent possible.
8.09. Amendments. This Reorganization Agreement may be changed, waived,
discharged or terminated only by an instrument in writing signed by the Party
against which the enforcement of such change, waiver, discharge or termination
is sought. This Agreement is not intended to confer upon any Person other than
the Parties hereto any rights or remedies hereunder, except for the provisions
of Section 4.04(g), 4.06(f) and 4.06(h). Any of the terms or conditions of this
Reorganization Agreement may be waived at any time by the Party which is
entitled to the benefit thereof, or any of such terms or conditions may be
amended or modified in whole or in part at any time before or after the vote of
the shareholders of Armstrong on this Reorganization Agreement to the extent
permitted by law by agreement in writing, executed in the same manner as this
Reorganization Agreement after authorization to do so by the Board of Directors
of each Party; provided, however, that such action shall be taken only if, in
the judgment of the Boards of Directors of each Party taking the action, such
waiver or such amendment or modification will not have a material adverse effect
on the benefits intended under this Reorganization Agreement to such Party and
its shareholders following approval of this Reorganization Agreement by the
shareholders of Armstrong, unless this Reorganization Agreement, as modified, is
resubmitted to the shareholders of Armstrong for their approval.
8.10. Governing Law. This Reorganization Agreement shall be governed by and
construed and enforced in accordance with the laws of the Commonwealth of
Pennsylvania and, where the context so requires, under applicable federal law.
8.11. Incorporation by Reference. Any and all schedules, exhibits, annexes,
statements, reports, certificates or other documents or instruments referred to
herein or attached hereto are incorporated herein by reference thereto as though
fully set forth at the point referred to in this Reorganization Agreement.
71
<PAGE> 203
IN WITNESS HEREOF, each Party hereto has caused this Reorganization
Agreement to be executed on its behalf and its corporate seal to be affixed
hereto by its duly authorized officers, all as of the day and year first above
set forth.
ATTEST: THE ARMSTRONG COUNTY TRUST COMPANY
/s/ BONNIE RUPP By: /s/ COLEMAN J. CLOUGHERTY
- ------------------------------- -----------------------------
Bonnie Rupp Coleman J. Clougherty
Secretary Chairman, President and Chief
Executive Officer
(Corporate Seal)
ATTEST: BT FINANCIAL CORPORATION
/s/ STEVEN C. ACKMANN By: /s/ JOHN H. ANDERSON
- ------------------------------- -----------------------------
Steven C. Ackmann John H. Anderson
President and Chief Operating Chairman and Chief Executive
Officer Officer
(Corporate Seal)
ATTEST: JOHNSTOWN BANK AND TRUST COMPANY
/s/ JOHN W. EGNOT By: /s/ ERIC F. RUMMEL
- ------------------------------- -----------------------------
John W. Egnot Eric F. Rummel
Executive Vice President President
(Corporate Seal)
72
<PAGE> 204
ANNEX B
FIRST AMENDMENT
TO
AGREEMENT AND PLAN OF REORGANIZATION
THIS FIRST AMENDMENT, is made and entered into as of the ____ day of
March, 1996 (the "First Amendment"), by and among BT Financial Corporation, a
business corporation organized and existing under the laws of the Commonwealth
of Pennsylvania with its principal office at 532-534 Main Street, Johnstown,
Pennsylvania 15901 ("BTFC"), Johnstown Bank and Trust Company, a bank and trust
company organized and existing under the laws of the Commonwealth of
Pennsylvania with its principal office at 532-534 Main Street, Johnstown,
Pennsylvania 15901 ("Johnstown"), and The Armstrong County Trust Company, a
bank and trust company organized and existing under the laws of the
Commonwealth of Pennsylvania with its principal office at 227 Market Street,
Kittanning, Pennsylvania 16201 ("Armstrong").
WITNESSETH:
WHEREAS, the above-named entities are parties to that certain Agreement
and Plan of Reorganization dated October 24, 1995 (the "Reorganization
Agreement");
WHEREAS, Section 2.07(g) of the Reorganization Agreement provides that the
Reorganization Agreement and the transactions contemplated thereby may be
terminated, in any event, automatically on March 31, 1996, if the Merger has
not been consummated on or before such date, unless extended by mutual consent
of the Parties;
WHEREAS, the Parties desire to amend Section 2.07(g) of the Reorganization
Agreement as hereinafter provided;
WHEREAS, Section 4.04(c)(i) of the Reorganization Agreement provides that
Armstrong shall not, except with the prior written consent of BTFC, declare or
distribute any dividend besides the regular quarterly cash dividends and
closing dividend described in Section 4.04(c)(i);
WHEREAS, BTFC consents to the distribution of the special dividend
hereinafter described;
WHEREAS, the SEC requires that certain of Armstrong's financial statements
be audited, and such audit will be performed by the accounting firm of S.R.
Snodgrass ("Snodgrass"); and
WHEREAS, BTFC agrees to bear the costs of the Snodgrass audit whether or
not the Reorganization Agreement is terminated;
<PAGE> 205
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements contained herein, the parties hereto, each intending to be legally
bound hereby, agree as follows:
1. Capitalized terms used and not otherwise defined herein shall have
the meanings ascribed to them in the Reorganization Agreement.
2. Section 2.07(g) of the Reorganization Agreement is amended to read as
follows:
In any event, automatically on June 30, 1996, if the Merger has
not been consummated on or before such date, unless extended by
mutual consent of the Parties.
3. Section 4.04(c)(i) of the Reorganization Agreement is amended by
adding at the end thereof:
In addition, Armstrong is permitted to declare and distribute
during the first quarter of 1996 a special cash dividend in the
amount of one hundred sixty-one thousand, two hundred thirty-six
dollars ($161,236.00).
4. Section 7.02 of the Reorganization Agreement is amended by adding at
the end thereof:
Notwithstanding the foregoing, BTFC shall bear the costs of the
audit of Armstrong's financial statements for the year ended
December 31, 1995 by the firm of S. R. Snodgrass, whether or not
the Merger is consummated. BTFC shall pay such costs directly
to S. R. Snodgrass. The costs associated with the audit shall
not be deemed an expense of Armstrong for dividend or other
purposes.
5. Except as hereby amended, the Reorganization Agreement shall remain
in full force and effect.
- 2 -
<PAGE> 206
6. This First Amendment may be executed in one or more duplicate
counterparts, each of which shall constitute an original and all of
which when taken together shall constitute one and the same document.
IN WITNESS WHEREOF, each Party hereto has caused this First Amendment to
be executed on its behalf and its corporate seal to be affixed hereto by its
duly authorized officers, all as of the day and year first above set forth.
ATTEST: THE ARMSTRONG COUNTY TRUST
COMPANY
By:
- ------------------------------- ---------------------------------------
Secretary Coleman J. Clougherty
Chairman, President and Chief Executive
Officer
(Corporate Seal)
ATTEST: BT FINANCIAL CORPORATION
By:
- ------------------------------- ---------------------------------------
Secretary John H. Anderson
Chairman and Chief Executive Officer
(Corporate Seal)
ATTEST: JOHNSTOWN BANK AND TRUST COMPANY
By:
- ------------------------------- ---------------------------------------
Secretary Eric F. Rummel
President
(Corporate Seal)
- 3 -
<PAGE> 207
ANNEX C
October 24, 1995
The Board of Directors
Armstrong County Trust Company
227 Market Street
Kittanning, PA 16201
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the common stockholders of Armstrong County Trust Company ("Armstrong")
of the Consideration (as defined below) to be received by such holders, for the
exchange of Armstrong common stock, par value $50.00 per share (the "Armstrong
Common Stock"), in the proposed acquisition (the "Acquisition") of Armstrong by
BT Financial Corporation ("BT Financial") by means of a merger of Armstrong with
and into Johnstown Bank and Trust Company ("Johnstown B&T"), a wholly owned
subsidiary of BT Financial pursuant to the Agreement and Plan of Reorganization
dated as of October 24, 1995 by and among BT Financial, Johnstown B&T and
Armstrong (the "Agreement"). Under the terms of the Agreement, each outstanding
share of Armstrong Common Stock will be exchanged for 26.5 shares of BT
Financial common stock and $596.25 in cash (the "Consideration"), provided that
BT Financial's common stock price is between $27.50 and $34.00 per share. If BT
Financial's common stock price is above or below this range, the exchange ratio
will be adjusted to a minimum of $1,325.00 per share of Armstrong Common Stock
and a maximum of $1,497.25 per share of Armstrong Common Stock. The terms and
conditions of the Acquisition are more fully set forth in the Agreement.
In arriving at our opinion, we have reviewed and analyzed, among other things,
the following:
(1) the Agreement;
(2) BT Financial's Annual Reports, BT Financial's Annual Reports on Form
10-K and related financial information for the five years ended
December 31, 1994, BT Financial's Quarterly Reports on Form 10-Q and
related unaudited financial information for the three months ended
March 31, 1994, June 30, 1994, September 30, 1994, March 31, 1995 and
June 30, 1995, as well as unaudited financial
<PAGE> 208
Bahia Advisors, Inc.
Armstrong County Trust Company
Fairness Opinion - October 24, 1995
Page 2
information for the one month ended July 31, 1995, August 31, 1995
and September 30, 1995 respectively;
(3) Armstrong's Annual Report and related financial information for the
five years ended December 31, 1994, Armstrong's Quarterly Reports and
related unaudited financial information for the three months ended
March 31, 1994, June 30, 1994, September 30, 1994, March 31, 1995 and
June 30, 1995, as well as unaudited financial information for the one
month ended July 31, 1995, August 31, 1995 and September 30, 1995,
respectively;
(4) Certain other public and non-public information, including financial
and operating forecasts, relating to Armstrong and BT Financial,
including: (i) the historical and current financial condition and
results of operations of Armstrong and BT Financial, including
interest income, interest expense, net interest income, net interest
margin, non-interest income, non-interest expense, earnings,
dividends, internal capital generation, book value, intangible
assets, return on assets, return on stockholders' equity,
capitalization, the amount and type of non-performing assets, loan
losses and the allowance for loan losses; and (ii) the assets and
liabilities of Armstrong and BT Financial, including the loan and
investment portfolios, deposits, other liabilities, historical and
current liability sources and costs and liquidity.
(5) Conducted discussions with members of senior management of Armstrong
and BT Financial concerning the financial condition, business, assets
and prospects of Armstrong and BT Financial, respectively;
(6) The historical market prices and trading activity for BT Financial
common shares;
(7) The valuation of BT Financial common shares, and compared this
valuation with those of certain other publicly traded depository
institutions which we deemed to be relevant;
(8) Compared the results of operation and financial condition of BT
Financial with those of certain publicly traded companies which we
deemed relevant to BT Financial;
(9) Compared the results of operation and financial condition of
Armstrong with those of certain Pennsylvania-based financial
institutions which we deemed relevant to Armstrong;
<PAGE> 209
Bahia Advisors, Inc.
Armstrong County Trust Company
Fairness Opinion - October 24, 1995
Page 3
(10) Compared the proposed financial terms of the Acquisition contemplated
by the Agreement with the financial terms of certain other mergers
and acquisitions which we deemed to be relevant; and
(11) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary to the rendering of this opinion.
In conducting our review and in arriving at our opinion, we have relied upon,
and assumed the accuracy and completeness of, the financial and other
information provided to us or publicly available and have not attempted
independently to verify the same or undertaken an independent evaluation or
appraisal of the assets or liabilities of Armstrong or BT Financial nor have we
been furnished any such evaluation or appraisal. In addition, we have not
examined any individual loan credit files or conducted evaluations of the
adequacy of either company's allowances for loan losses. We have relied upon
the management of Armstrong and of BT Financial as to the reasonableness and
achievablility of the financial and operating forecasts and other financial
information provided to us, and we have assumed that such information reflects
the best currently available estimates and judgments of such managements. It
is understood that we were retained by the Board of Directors of Armstrong and
that our opinion, as expressed herein, is limited to the fairness, from a
financial point of view, to the holders of Armstrong Common Stock of the
Consideration to be received by such holders, in the Acquisition and does not
address Armstrong's underlying business decision to proceed with the
Acquisition. Our opinion has been rendered without regard to the necessity
for, or level of, any restrictions, obligations or undertakings which may be
imposed or required in the course of obtaining regulatory approval for the
Acquisition.
Our opinion is necessarily based on economic, market, monetary and other
conditions as in effect on, and the information made available to us as of, the
date hereof. This letter does not constitute a recommendation to the Board of
Directors or any holder of Armstrong Common Stock with respect to any approval
of the Agreement. Based upon and subject to the foregoing, it is our opinion
that, as of the date hereof, the Consideration is fair, from a financial point
of view, to the holders of Armstrong Common Stock.
Very truly yours,
/s/ BAHIA ADVISORS, INC.
<PAGE> 210
ANNEX D
PENNSYLVANIA BUSINESS CORPORATION LAW OF 1988, AS AMENDED,
PROVISIONS FOR DISSENTING SHAREHOLDERS
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).
(B) PLANS ADOPTED BY DIRECTORS ONLY.--Except as otherwise provided
pursuant to section 1571(c) (relating to grant of optional dissenters rights),
Subchapter D of Chapter 15 shall not apply to any of the shares of a corporation
that is a party to a merger or consolidation pursuant to section 1924(b)(1)(i)
(relating to adoption by board of directors).
(C) CROSS REFERENCES.--See sections 1571(b) (relating to exceptions) and
1904 (relating to de facto transaction doctrine abolished).
SUBCHAPTER D. DISSENTERS RIGHTS
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).
<PAGE> 211
Section 1962(c) (relating to dissenters rights in conversion).
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
- A2 -
<PAGE> 212
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 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
- A3 -
<PAGE> 213
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.
"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 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
- A4 -
<PAGE> 214
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.
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.
- A5 -
<PAGE> 215
(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.
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:
- A6 -
<PAGE> 216
(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 dissenters had
after making demand for payment of their fair value.
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
- A7 -
<PAGE> 217
(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.
(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),
- A8 -
<PAGE> 218
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.
- A9 -
<PAGE> 219
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1741 of the BCL provide that a business corporation
shall have the power to indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such person is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action or proceeding, if such person acted in good faith and in a manner he
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 conduct was unlawful. In the case of an action by or in the
right of the corporation, Section 1742 limits such indemnification to expenses
(including attorneys' fees) actually and reasonably incurred by such person
in connection with the defense or settlement of such action, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person has been adjudged to be liable to the corporation unless,
and only to the extent that, a court determines upon application that, despite
the adjudication of liability but in view of all the circumstances, such
person is fairly and reasonably entitled to indemnity for the expenses that
the court deems proper.
Section 1744 of the BCL provides that, unless ordered by a court, any
indemnification described above shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification is
proper in the circumstances because the indemnitee has met the applicable
standard of conduct. Such determination shall be made:
(1) by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding; or
(2) if such a quorum is not obtainable, or if obtainable and a
majority vote of a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion; or
(3) by the shareholders.
Notwithstanding the above, Section 1743 of the BCL provides that to
the extent a director, officer, employee or agent of a business corporation is
successful on the merits or otherwise in defense of any proceeding referred to
above, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
Section 1745 of the BCL provides that expenses (including attorneys'
fees) incurred by an officer, director, employee or agent of a business
corporation in defending any such action or proceeding may be paid by the
corporation in advance of the final disposition of the action or proceeding upon
receipt of an undertaking to repay the amount advanced if it is ultimately
determined that the indemnitee is not entitled to be indemnified by the
corporation.
Section 1746 of the BCL provides that the indemnification and
advancement of expenses provided by, or granted pursuant to, the provisions
described above are not exclusive of any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under any bylaw,
agreement, vote of shareholders or disinterested directors or otherwise, and
that indemnification may be granted under any bylaw, agreement, vote of
shareholders or directors or otherwise for any action taken or any failure to
take any action whether or not the corporation would have the power to indemnify
the person under any other provision of law and whether or not the indemnified
liability arises or arose from any action by or in the right to the corporation;
provided, however, that no indemnification may be made in any case where 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.
Section 24.1 of the registrant's By-laws provides that the registrant
shall indemnify, to the fullest extent now or hereafter permitted by law, each
director or officer (including each former director or officer) of the
registrant who was or is made a party to or a witness in or is threatened to be
made a party to or a witness in any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he or she is or was an authorized representative of the
registrant, against all expenses (including attorneys' fees and disbursements),
judgments, fines (including excise taxes and penalties) and amounts paid in
settlement actually and reasonably incurred in connection with such action, suit
or proceeding.
Section 24.2 of the registrant's By-laws provides that the registrant
shall pay expenses (including attorneys' fees and disbursements) incurred by a
director or officer of the registrant referred to in Section 24.1 in defending
or appearing as a witness
II-1
<PAGE> 220
in any civil or criminal action, suit or proceeding described in Section 24.1
in advance of the final disposition of such action, suit or proceeding. The
expenses incurred by such director or officer shall be paid by the registrant
in advance of the final disposition of such action, suit or proceeding only
upon receipt of an undertaking by or on behalf of such director or officer to
repay all amounts advanced if it shall ultimately be determined that he is not
entitled to be indemnified by the registrant.
Section 1747 of the BCL permits a Pennsylvania business corporation
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation or other enterprise, against any liability asserted against
such person and incurred by him in any such capacity, or arising out of his
status as such, whether or not the corporation would have the power to
indemnify the person against such liability under the provisions described
above.
Section 24.5 of the registrant's By-laws provides that, except in the
circumstances set forth therein, the registrant shall purchase and maintain
insurance on behalf of each director and officer against any liability asserted
against or incurred by such director or officer in any capacity, or arising out
of such director's or officer's status as such, whether or not the registrant
would have the power to indemnify such person against such liability under the
provisions of the By-laws.
The registrant maintains directors' and officers' liability insurance
covering its directors and officers with respect to liabilities, including
liabilities under the Securities Act, which they may incur in connection with
their serving as such. Such insurance may provide coverage for the directors
and officers against certain liabilities even though such liabilities may not be
covered by the above-described By-law indemnification provision.
As permitted by Section 1713 of the BCL, the By-laws of the registrant
provide that no director shall be personally liable for monetary damages for
any action taken, or failure to take any action, except to the extent that such
elimination or limitation of liability is expressly prohibited by law. The BCL
states that this exculpation from liability does not apply (i) where the
director has breached or failed to perform the duties of his office and the
breach or failure to perform constitutes self-dealing, willful misconduct or
recklessness, and (ii) to the responsibility or liability of a director
pursuant to any criminal statute or the liability of a director for payment of
taxes pursuant to federal, state or local law. It may also not apply to
liabilities imposed upon directors by the federal securities laws.
II-2
<PAGE> 221
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits are filed herewith or incorporated by
reference as part of this Registration Statement:
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
2.1.1 Agreement and Plan of Reorganization dated as of October 24, 1995 by and among BT Financial Corporation,
Johnstown Bank and Trust Company and The Armstrong County Trust Company (a copy of which is attached as
Annex A to the Proxy Statement/Prospectus forming part of this registration statement).
2.1.2 First Amendment to Agreement and Plan of Reorganization dated March __, 1996 by and among BT Financial
Corporation, Johnstown Bank and Trust Company and The Armstrong County Trust Company (a copy of which is
attached as Annex B to the Proxy Statement/Prospectus forming part of this registration statement).
2.2 Agreement and Plan of Reorganization by and between BT Financial Corporation and Moxham Bank Corporation,
dated January 12, 1996.(1)
2.3 Stock Purchase Agreement dated September 1, 1995 by and among Huntington Bancshares West Virginia, Inc.,
The Huntington National Bank of Pennsylvania and BT Financial Corporation.(2)
3.1 Articles of Incorporation of BT Financial Corporation as amended to August 16, 1991.(3)
3.2 By-laws of BT Financial Corporation as amended to September 23, 1992.(4)
5.1 Opinion of Kirkpatrick & Lockhart LLP as to legality of the shares of common stock, par value $5.00 per
share, of BT Financial Corporation being registered.*
8.1 Opinion of Kirkpatrick & Lockhart LLP as to certain tax matters.*
24.1 Consent of Coopers & Lybrand LLP
24.2 Consent of S.R. Snodgrass.
24.3 Consent of Kirkpatrick & Lockhart LLP (included in opinion filed as Exhibit 5.1).*
24.4 Consent of Kirkpatrick & Lockhart LLP (included in opinion filed as Exhibit 8.1).*
24.5 Consent of Bahia Advisors, Inc.
24.6 Consent of Barnes, Saly & Company.
25.1 Power of Attorney (filed herewith).
99.1 Form of Proxy to be delivered to shareholders of The Armstrong County Trust Company
<FN>
- ----------------
(1) Incorporated by reference to Current Report on Form 8-K dated January 12, 1996.
(2) Incorporated by reference to Current Report on Form 8-K dated December 14, 1995 (as amended).
(3) Incorporated by reference to Registration Statement on Form S-4 (No. 33-69112).
(4) Incorporated by reference to Registration Statement on Form S-4 (No. 33-69112).
* To be filed by amendment.
</TABLE>
(b) All financial statement schedules of BT Financial and
Armstrong are omitted because they are not required, are not applicable or
the required information is given in the consolidated financial statements
or notes thereto incorporated by reference herein (in the case of BT Financial
Corporation) or as presented elsewhere herein (in the case of Armstrong).
(c) The opinion of Bahia Advisors, Inc. is included as Annex C to
the Proxy Statement/Prospectus which forms a part of this registration
statement.
II-3
<PAGE> 222
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) 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 the Securities Act of 1933, as amended;
(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.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, 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.
(3) 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.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, as amended, each filing of the registrant's annual
report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, 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 that time
shall be deemed to be the initial bona fide offering thereof.
(5) 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 reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(6) That every prospectus (i) that is filed pursuant to paragraph
(5) immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act of 1933, as amended, and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an 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 Securities Act of 1933, as amended, 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.
(7) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, 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 that 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 that 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 Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This
II-4
<PAGE> 223
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 supply 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-5
<PAGE> 224
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Pittsburgh, Commonwealth
of Pennsylvania, on March 19, 1996.
BT FINANCIAL CORPORATION
By: /s/ JOHN H. ANDERSON
----------------------------------------
John H. Anderson
Chairman and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints, John H. Anderson, Steven Ackman and
Carl J. Motter, Jr. 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 to this registration statement, and to file the same, with all
exhibits thereto, and other documentation in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, 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 their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
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.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ JOHN H. ANDERSON Chairman, Chief Executive March 19, 1996
- ---------------------------------------- Officer and Director
John H. Anderson (Principal Executive Officer)
/s/ MARK L. SOLLENBERGER Executive Vice President, March 19, 1996
- ---------------------------------------- Treasurer and Assistant Secretary
Mark L. Sollenberger (Principal Financial Officer)
/s/ DAVID A. CASADO Vice President and Controller March 19, 1996
- ---------------------------------------- (Principal Accounting Officer)
David A. Casado
/s/ MARTIN L. BEARER Director March 19, 1996
- ----------------------------------------
Martin L. Bearer
/s/ BRUNO DEGOL Director March 19, 1996
- ----------------------------------------
Bruno DeGol
/s/ LOUIS G. GALLIKER Director March 11, 1996
- ----------------------------------------
Louis G. Galliker
</TABLE>
II-6
<PAGE> 225
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ WILLIAM B. KANIA Director March 9, 1996
- ----------------------------------------
William B. Kania
/s/ L. ROBERT KIMBALL Director March 12, 1996
- ----------------------------------------
L. Robert Kimball
/s/ EDWARD L. MEARS Director March 14, 1996
- ----------------------------------------
Edward L. Mears
/s/ ROGER S. NAVE Director March 12, 1996
- ----------------------------------------
Roger S. Nave
/s/ ETHEL J. OTROSINA Director March 9, 1996
- ----------------------------------------
Ethel J. Otrosina
/s/ ROBERT G. SALATHE, JR. Director March 9, 1996
- ----------------------------------------
Robert G. Salathe, Jr.
/s/ WILLIAM R. SNODDY Director March 11, 1996
- ----------------------------------------
William R. Snoddy
/s/ GERALD W. SWATSWORTH Director March 19, 1996
- ----------------------------------------
Gerald W. Swatsworth
/s/ W.A. THOMAS Director March 19, 1996
- ----------------------------------------
W.A. Thomas
/s/ ROWLAND H. TIBBOTT, JR. Director March 9, 1996
- -----------------------------------------
Rowland H. Tibbott, Jr.
</TABLE>
II-7
<PAGE> 226
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Prior Filing
or
Exhibit No. Description Sequential Page Number
- ----------- ----------- ----------------------
<S> <C> <C>
2.1.1 Agreement and Plan of Reorganization dated as of October 24, 1995 by and
among BT Financial Corporation, Johnstown Bank and Trust Company, and The
Armstrong County Trust Company (a copy of which is attached as Annex A to
the Proxy Statement/Prospectus forming part of this registration statement).
2.1.2 First Amendment to Agreement and Plan of Reorganization dated March __, 1996
by and among BT Financial Corporation, Johnstown Bank and Trust Company and
The Armstrong County Trust Company (a copy of which is attached as Annex B to
the Proxy Statement/Prospectus forming part of this registration statement).
2.2 Agreement and Plan of Reorganization by and between BT Financial Corporation Incorporated by
and Moxham Bank Corporation dated January 12, 1996. reference to
Current Report
on Form 8-K
dated January 12,
1996
2.3 Stock Purchase Agreement dated September 1, 1995 by and among Huntington Incorporated by
Bancshares West Virginia, Inc., The Huntington National Bank of reference to
Pennsylvania and BT Financial Corporation. Current Report
on Form 8-K
dated December 14,
1995 (as amended)
3.1 Articles of Incorporation of BT Financial Corporation as amended to August 16, 1991. Incorporated by
reference to
Registration
Statement on Form
S-4 (No. 33-69112)
3.2 By-laws of BT Financial Corporation as amended to September 23, 1992. Incorporated by
reference to
Registration
Statement on Form
S-4 (No. 33-69112)
5.1 Opinion of Kirkpatrick & Lockhart LLP as to legality of the shares of common stock,
par value $5.00 per share, of BT Financial Corporation being registered.*
8.1 Opinion of Kirkpatrick & Lockhart LLP as to certain tax matters.*
24.1 Consent of Coopers & Lybrand.
24.2 Consent of S.R. Snodgrass.
24.3 Consent of Kirkpatrick & Lockhart LLP (included in opinion filed as Exhibit 5.1).*
24.4 Consent of Kirkpatrick & Lockhart LLP (included in opinion filed as Exhibit 8.1).*
24.5 Consent of Bahia Advisors, Inc.
24.6 Consent of Barnes, Saly & Company.
25.1 Power of Attorney (included on page II-3 herewith).
99.1 Form of Proxy to be delivered to shareholders of The Armstrong County Trust Company
<FN>
- --------
* To be filed by amendment.
</TABLE>
II-8
<PAGE> 1
Exhibit 24.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement
dated March 19, 1996 on Form S-4 (concerning the acquisition of The Armstrong
County Trust Company by BT Financial Corporation) of our report dated January
24, 1995, on our audits of the consolidated financial statements of BT Financial
Corporation and subsidiaries as of December 31, 1994 and 1993 and for the years
ended December 31, 1994, 1993 and 1992. We also consent to the reference to our
firm under the caption "Experts".
/s/ COOPERS & LYBRAND LLP
Coopers & Lybrand LLP
600 Grant Street
Pittsburgh, PA
March 19, 1996
<PAGE> 1
Exhibit 24.2
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in the Joint Proxy Statement/Prospectus of The Armstrong
County Trust Company and BT Financial Corporation, to be included with the
Registration Statement on Form S-4 of BT Financial Corporation, to be filed
with the Securities and Exchange Commission, of our report on The Armstrong
County Trust Company dated February 16, 1996.
We also consent to the reference to our firm under the caption of "Experts."
/s/ S. R. SNODGRASS
S. R. Snodgrass
Wexford, PA
March 19, 1996
<PAGE> 1
Exhibit 24.5
Bahia Advisors, Inc.
150 East 58th St.
34th Floor
New York, New York 10155
March 19, 1996
Board of Directors
The Armstrong County Trust Company
227 Market Street
Kittanning, Pennsylvania 16201
Gentlemen:
We hereby consent to the use of our firm's name, Bahia Advisors, Inc.
("Bahia") and references to and inclusion of the fairness opinion provided by
Bahia, in the Form S-4 Registration Statement and any amendments thereto and the
Proxy Statement/Prospectus filed by BT Financial Corporation ("BT Financial"),
in connection with the merger of The Armstrong County Trust Company with
Johnstown Bank and Trust Company, a wholly owned subsidiary of BT Financial.
Sincerely,
/s/ BAHIA ADVISORS, INC.
<PAGE> 1
Exhibit 24.6
[LOGO] BARNES, SALY & COMPANY
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Moxham Bank Corporation
Johnstown, Pennsylvania
We consent to the inclusion in this registration statement dated March
19, 1996 on Form S-4 (concerning the acquisition of The Armstrong County Trust
Company by BT Financial Corporation) of our report dated February 15, 1996 on
our audits of the consolidated financial statements of Moxham Bank Corporation
and subsidiaries as of December 31, 1995 and 1994 and for the three years ended
December 31, 1993. We also consent to the reference to our firm under the
caption "Experts".
/s/ BARNES, SALY & COMPANY
March 19, 1996
<PAGE> 1
Exhibit 99.1
REVOCABLE PROXY
THE ARMSTRONG COUNTY TRUST COMPANY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints __________________ and _______________
as proxies, each with the power to appoint his substitute, and hereby
authorizes said proxies to represent and to vote, as designated on the reverse
hereof, all shares of common stock of The Armstrong County Trust Company held
of record by the undersigned at the close of business on April __, 1996 at the
Special Meeting of Stockholders to be held on April __, 1996 or at any
adjournment or postponement thereof. In their discretion, the proxies are
authorized to vote on such other matters as may properly come before the
meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE PROPOSAL.
<PAGE> 2
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE PROPOSAL DESCRIBED BELOW.
Adoption and approval of an Agreement and Plan of Reorganization dated
as of October 24, 1995, as amended by the First Amendment to Agreement
and Plan of Reorganization dated as of March __, 1996 (the "Merger
Agreement"), by and among The Armstrong County Trust Company, a
Pennsylvania bank and trust company ("Armstrong"), BT Financial
Corporation, a Pennsylvania corporation ("BT Financial") and Johnstown
Bank and Trust Company, a Pennsylvania bank and trust company
wholly-owned by BT Financial ("Johnstown Bank"), pursuant to which
Armstrong will merge with and into Johnstown Bank (the "Merger"), with
Johnstown Bank being the surviving corporation, upon the terms and
subject to the conditions set forth in the Merger Agreement, as more
fully described in the enclosed Proxy Statement/Prospectus, receipt of
which is hereby acknowledged.
For Against Abstain
[ ] [ ] [ ]
Please sign EXACTLY as your name appears on this card.
When signing as trustee, executor, etc., title should
be so stated. If shares are held jointly, only one
signature is required. If a Corporation, please sign in
full corporate name by President or other authorized
officer. If a Partnership, please sign in partnership
name by authorized persons.
Dated: ________________________________________, 1996
-------------------------------------------------------
Authorized Signature(s)
-------------------------------------------------------
Title
