FORM 10-Q
Securities and Exchange Commission
Washington, D.C. 20549
[ X ] Quarterly Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
For the quarterly period ended: June 30, 1998
or
[ ] Transition Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
For the transition period from to
------- -------
Commission file no.: 0-12377
BT FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Pennsylvania 25-1441348
----------------- ------------
(State of Incorporation) (I.R.S. Employer Identification Number)
551 Main Street, Johnstown, Pennsylvania 15901
-----------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(814) 532-3801
--------------
Registrant's Telephone Number
Indicate by checkmark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date:
12,500,872 shares common stock
($5.00 par value)
as of August 4, 1998
BT FINANCIAL CORPORATION AND AFFILIATES
FORM 10-Q
June 30, 1998
Part I. Financial Information Page No.
------------------------------ --------
Item 1.
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Consolidated Balance Sheet - June 30, 1998
and December 31, 1997 3
Consolidated Statement of Income
Three and Six Months Ended June 30, 1998 and 1997 4
Consolidated Statement of Cash Flows
Six Months Ended June 30, 1998 and 1997 5
Consolidated Statement of Comprehensive Income
Three and Six Months Ended June 30, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
Item 2.
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Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Part II. Other Information
---------------------------
Item 4.
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Submission of Matters to a Vote of Security Holders 23
Item 5.
-------
Other Information 23
Item 6.
-------
Exhibits and Reports on Form 8-K 23
Signatures 24
2
ITEM 1
-------
FINANCIAL STATEMENTS
--------------------
BT FINANCIAL CORPORATION AND AFFILIATES
---------------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
June 30 December 31
1998 1997
(In thousands, except share data) (Unaudited)
- -------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 47,543 $ 52,028
-----------------------
Money market investments:
Interest-bearing deposits with banks 27 424
Federal funds sold 6,000 --
-----------------------
Total money market investments 6,027 424
-----------------------
Securities available-for-sale 299,499 194,852
Securities held-to-maturity (market values
of $130,941 at June 30, 1998 and
$172,305 at December 31, 1997) 130,176 171,081
-----------------------
Total securities 429,675 365,933
-----------------------
Loans 1,186,443 1,125,387
Less: Unearned interest 41,683 58,326
Reserve for loan losses 10,250 9,766
-----------------------
Net loans 1,134,510 1,057,295
-----------------------
Premises and equipment 29,947 30,424
Accrued interest receivable 15,360 10,958
Other assets 37,503 35,859
-----------------------
Total assets $ 1,700,565 $ 1,552,921
=======================
LIABILITIES
Deposits:
Non-interest-bearing $ 187,211 $ 177,756
Interest-bearing 1,169,928 1,168,620
-----------------------
Total deposits 1,357,139 1,346,376
Federal funds purchased and securities
sold under agreements to repurchase 45,347 36,313
Short-term borrowings 27,350 1,871
Accrued interest payable 6,527 5,820
Other liabilities 2,053 2,497
Long-term debt 112,898 14,335
-----------------------
Total liabilities 1,551,314 1,407,212
-----------------------
SHAREHOLDERS' EQUITY
Preferred stock, no par value
2,000,000 shares authorized -- --
Common stock, par value $5 per share,
25,000,000 shares authorized,
shares issued: 12,500,872 at
June 30, 1998 and December 31, 1997 62,504 31,252
Surplus 45,215 76,467
Retained earnings 41,041 37,283
Accumulated other comprehensive income 491 707
-----------------------
Total shareholders' equity 149,251 145,709
-----------------------
Total liabilities and shareholders' equity $ 1,700,565 $ 1,552,921
=======================
The accompanying notes are an integral part of the consolidated
financial statements.
3
BT FINANCIAL CORPORATION AND AFFILIATES
---------------------------------------
CONSOLIDATED STATEMENT OF INCOME
--------------------------------
(Unaudited)
----------
Three months ended Six months ended
(In thousands, except shares June 30 June 30
and per share data) 1998 1997 1998 1997
- --------------------------------------------------------------------------------
INTEREST INCOME
Loans, including fees $ 23,824 $ 22,563 $ 46,857 $ 44,397
Investment securities:
Taxable 6,767 5,354 12,824 10,135
Tax-exempt 661 111 867 241
Deposits with banks 1 4 5 9
Federal funds sold 84 99 98 260
------------------------------------------
Total interest income 31,337 28,131 60,651 55,042
------------------------------------------
INTEREST EXPENSE
Deposits 11,706 10,822 23,386 21,138
Federal funds purchased and securities
sold under agreements to repurchase 447 710 964 977
Short-term borrowings 608 47 872 85
Long-term debt 1,254 290 1,620 575
------------------------------------------
Total interest expense 14,015 11,869 26,842 22,775
------------------------------------------
NET INTEREST INCOME 17,322 16,262 33,809 32,267
Provision for loan losses 1,665 1,045 2,895 2,090
------------------------------------------
Net interest income after
provision for loan losses 15,657 15,217 30,914 30,177
------------------------------------------
OTHER INCOME
Trust income 885 783 1,741 1,529
Fees for other services 2,096 1,909 3,982 3,715
Net security gains (losses) 43 (74) 64 21
Other income 224 186 399 454
------------------------------------------
Total other income 3,248 2,804 6,186 5,719
------------------------------------------
OTHER EXPENSES
Salaries and wages 5,185 4,955 10,621 9,928
Pension and other employee benefits 1,046 822 2,124 1,716
Net occupancy expense 1,063 1,068 2,200 2,131
Equipment expense 1,262 1,119 2,493 2,204
F.D.I.C. insurance 70 67 140 133
Amortization of intangible assets 523 467 1,047 934
Other operating expense 3,284 3,189 6,701 6,237
------------------------------------------
Total other expenses 12,433 11,687 25,326 23,283
------------------------------------------
INCOME BEFORE INCOME TAXES 6,472 6,334 11,774 12,613
Provision for income taxes 1,956 2,140 3,641 4,337
------------------------------------------
NET INCOME $ 4,516 $ 4,194 $ 8,133 $ 8,276
==========================================
Earnings per common share-
Basic and Diluted $ .36 $ .34 $ .65 $ .66
Weighted average common shares
outstanding-Basic 12,500,872 12,500,872 12,500,872 12,500,872
Weighted average common shares
outstanding-Diluted 12,502,044 12,500,872 12,500,872 12,500,872
Dividends paid per common share $ .18 $ .15 $ .35 $ .30
Note: All per share and average share data has been adjusted to reflect the
10% stock dividend distributed on September 15, 1997 and the 2-for-1
stock split effected in the form of a stock dividend distributed on
May 1, 1998. At December 31, 1997, BT Financial Corporation adopted
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings
Per Share". The adoption of this statement did not have any material
impact on the earnings per share computations.
The accompanying notes are an integral part of the consolidated
financial statements.
4
BT FINANCIAL CORPORATION AND AFFILIATES
---------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(Unaudited)
-----------
(In thousands)
--------------
Six months ended
June 30
1998 1997
----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,133 $ 8,276
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 2,895 2,090
Provision for depreciation and amortization 2,170 1,945
Amortization of intangible assets 1,047 934
Amortization of premium, net of accretion of
discount on loans and securities 454 (67)
Deferred income taxes (480) (575)
Realized securities gains (64) (21)
Increase in interest receivable (4,402) (993)
Increase in interest payable 707 484
Equity in loss of limited partnerships 31 33
Other assets and liabilities, net (2,469) (2,089)
-----------------------
Net cash provided by operating activities 8,022 10,017
-----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities 16,581 10,597
Repayments and maturities of securities available-for-
sale 27,648 45,018
Repayments and maturities of securities held-to-
maturity 40,950 7,300
Purchase of securities available-for-sale (148,662) (2,505)
Purchase of securities held-to-maturity -- (98,918)
Net increase in money market investments (5,603) (543)
Proceeds from sales of loans 3,120 2,414
Net increase in loans (83,268) (48,307)
Purchases of premises and equipment and other (1,693) (1,650)
Net increase in investment in limited partnerships (1,044) (141)
Acquisition of branches, net of cash acquired -- 58,819
-----------------------
Net cash used in investing activities (151,971) (27,916)
-----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 10,763 15,577
Net increase (decrease) in Federal Funds purchased and
securities sold under agreements to repurchase 9,034 (2,097)
Net increase in short-term borrowings 25,479 341
Common dividends paid (4,375) (3,807)
Proceeds from long-term debt 100,000 --
Payment on long-term debt (1,437) (1,437)
-----------------------
Net cash provided by financing activities 139,464 8,577
-----------------------
Decrease in cash and cash equivalents (4,485) (9,322)
Cash and cash equivalents at beginning of the year 52,028 65,305
-----------------------
Cash and cash equivalents at end of period $47,543 $55,983
=======================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits and other borrowings $26,135 $22,291
Federal income taxes 3,500 5,303
The accompanying notes are an integral part of the consolidated
financial statements.
5
BT FINANCIAL CORPORTION AND AFFILIATES
--------------------------------------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
----------------------------------------------
(Unaudited)
-----------
(In thousands)
--------------
Three months ended Six months ended
June 30 June 30
1998 1997 1998 1997
-------------------- ------------------
Net income $4,516 $4,194 $8,133 $8,276
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on
securities arising during period 433 701 (174) (470)
Less: Reclassification adjustment for
gains (losses) included in net
income 28 (48) 42 14
------------------- ------------------
Other comprehensive income (loss) 405 749 (216) (484)
------------------- ------------------
Comprehensive income $4,921 $4,943 $7,917 $7,792
=================== ==================
The accompanying notes are an integral part of the consolidated financial
statements.
6
BT FINANCIAL CORPORATION AND AFFILIATES
---------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
1. At the close of business, October 10, 1997,
BT Financial Corporation adopted a single bank charter
for its three affiliate banks. Laurel Bank and Fayette
Bank merged with and into Johnstown Bank and Trust
Company. At the same time, the corporate title of
Johnstown Bank and Trust Company was changed to Laurel
Bank. Additionally, the corporate names of two other
non-bank affiliates were changed from BT Management
Trust Company to Laurel Trust Company and from Moxham
Community Development Corporation to Laurel Community
Development Corporation.
2. In the opinion of the management of BT
Financial Corporation (BT or the Corporation), the
accompanying consolidated financial statements include
all normal recurring adjustments necessary for a fair
presentation of the financial position and results of
operations of BT for the periods presented. All
significant intercompany transactions have been
eliminated in consolidation. The consolidated
financial statements of BT include the accounts of BT
and its wholly owned affiliates, Laurel Bank (Laurel),
Laurel Trust Company (the Trust Company), Bedford
Associates, Inc., and Laurel Community Development
Corporation. Prior to BT's adoption of a single bank
charter (see Note 1 above), the consolidated financial
statements of BT included the banking affiliates'
accounts of Johnstown Bank and Trust Company (Bank and
Trust), the former Laurel Bank, and Fayette Bank
(Fayette). These statements should be read in
conjunction with the financial statements and the notes
thereto included in BT's annual report to the
Securities and Exchange Commission on Form 10-K for the
year ended December 31, 1997. The results of
operations for the six month period ended June 30, 1998
are not necessarily indicative of the results which may
be expected for the full year.
3. Tax provisions for interim financial
statements are based on the estimated effective tax
rates for the full fiscal year. The estimated
effective tax rates may differ from the statutory tax
rate due primarily to tax-exempt interest income.
4. Reserve for loan losses -- The recorded
investment in loans for which impairment has been
recognized in accordance with Statement of Financial
Accounting Standards (SFAS) No. 114 totaled $2.0
million at June 30, 1998, compared to $1.9 million at
December 31, 1997 and $2.5 million at June 30, 1997.
The corresponding loan loss valuation allowance was
$1.4 million, $870,000, and $1.4 million for the same
periods, respectively. BT did not recognize any
interest revenue on impaired loans during the six
months ended June 30, 1998. In the six months ended
June 30, 1997, BT recognized approximately $5,000 of
interest revenue on impaired loans, all of which was
recognized using the cash basis method of income
recognition.
7
5. Earnings Per Share
------------------
In February of 1997, the Financial Accounting
Standards Board (FASB) issued SFAS No. 128 "Earnings Per
Share," which is effective for financial statements issued
for periods ending after December 15, 1997. Effective
December 31, 1997, BT adopted SFAS No. 128. The statement
requires a change in methods used to compute earnings per
share (EPS) and requires restatement of all prior periods.
SFAS No. 128 replaces the presentation of "primary" EPS with
"basic" EPS, with the principal difference being that common
stock equivalents are not considered in computing "basic"
EPS. The statement also requires the replacement of current
"fully diluted" EPS with "diluted" EPS. "Diluted" EPS will
be computed similarly to "fully diluted" EPS. The adoption
of this statement did not have any material impact on BT's
EPS computations.
The following table shows the calculation of
earnings per share and the weighted average number of
shares of dilutive potential common stock. Share and
per share data has been adjusted to reflect the 2-for-1
stock split effected in the form of a stock dividend
distributed on May 1, 1998 and the 10% stock dividend
distributed on September 15, 1997.
Three months ended Six months ended
June 30 June 30
1998 1997 1998 1997
----------------- ------------------
Basic Earnings Per Share:
Net income (in thousands) $4,516 $4,194 $8,133 $8,276
====== ====== ====== ======
Weighted average number
of common shares used
in Basic EPS 12,500,872 12,500,872 12,500,872 12,500,872
Basic Earnings Per Share $ .36 $ .34 $ .65 $ .66
====== ====== ====== ======
Diluted Earnings Per Share:
Net Income (in thousands) $4,516 $4,194 $8,133 $8,276
====== ====== ====== ======
Weighted average number
of common shares used
in Basic EPS 12,500,872 12,500,872 12,500,872 12,500,872
Effect of dilutive
stock options 1,172 -- -- --
----- ------ ------ ------
Weighted average number
of common shares and
dilutive potential
common stock used in
Diluted EPS 12,502,044 12,500,872 12,500,872 12,500,872
========== ========== ========== ==========
Diluted Earnings Per Share $ .36 $ .34 $ .65 $ .66
====== ====== ====== ======
8
6. Comprehensive Income
--------------------
In June of 1997, the FASB issued SFAS No.
130, "Reporting Comprehensive Income," which is
effective for fiscal years beginning after December 15,
1997. BT adopted SFAS No. 130 effective January 1,
1998. SFAS No. 130 establishes standards for the
reporting and the display of comprehensive income and
its components (revenues, expenses, gains, and losses)
in a full set of general purposes financial statements.
SFAS No. 130 requires that all items required to be
recognized under accounting standards as components of
comprehensive income be reported in a financial
statement that is displayed with the same prominence as
other financial statements. SFAS No. 130 requires that
an enterprise (a) classify items of other comprehensive
income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive
income separately from retained earnings and additional
paid-in-capital in the equity section of a statement of
financial position.
The following table sets forth the components
of accumulated other comprehensive income, net-of-tax:
Three months ended June 30, 1998
--------------------------------
Accumulated
Unrealized Other
Gains (Losses) Comprehensive
On Securities Income
------------- ------------
(In thousands)
Beginning balance - April 1, 1998 $ 86 $ 86
Current-period change 405 405
----- -----
Ending balance - June 30, 1998 $ 491 $ 491
===== =====
Six months ended June 30, 1998
------------------------------
Accumulated
Unrealized Other
Gains (Losses) Comprehensive
On Securities Income
------------- ------------
(In thousands)
Beginning balance - January 1, 1998 $ 707 $ 707
Current-period change (216) (216)
----- -----
Ending balance - June 30, 1998 $ 491 $ 491
===== =====
9
The following table sets forth the tax effect
allocated to components of other comprehensive income:
Three months ended June 30, 1998
--------------------------------
Pre-tax Tax Expense Net- of-Tax
Amount (Benefit) Amount
------- ----------- -----------
(In thousands)
Unrealized holding gains on
securities arising during period $ 666 $ 233 $ 433
Less: Reclassification adjustment
for gains included in net
income 43 15 28
---- ---- ----
Other comprehensive income $ 623 $ 218 $ 405
==== ==== ====
Six months ended June 30, 1998
------------------------------
Pre-tax Tax Expense Net-of-Tax
Amount (Benefit) Amount
------- ----------- -----
(In thousands)
Unrealized holding losses on
securities arising during period $(268) $ (94) $(174)
Less: Reclassification adjustment
for gains included in net
income 64 22 42
---- ---- ----
Other comprehensive loss $(332) $(116) $(216)
==== ==== ====
BT's comprehensive income is disclosed in BT's consolidated
statement of comprehensive income.
7. Recent Accounting Pronouncements
--------------------------------
In December of 1996, the FASB issued SFAS No.
127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125." This statement
defers the effective date of SAFS No. 125 by one year
to January 1, 1998 for certain transfer transactions
including repurchase agreements, dollar rolls,
securities lending and similar arrangements. SFAS No.
127 also delays by one year the provisions of SFAS No.
125 for recognition of collateral by secured parties in
conjunction with secured borrowings. BT adopted SFAS
No. 127 on January 1, 1998, and the effect of the
adoption did not have a material impact on the
Corporation's financial position or results of
operations.
In February of 1998, the FASB issued SFAS No.
132 "Employers' Disclosures about Pensions and Other
Postretirement Benefits." SFAS No. 132 revises
employers' disclosures about pension and other
postretirement benefit plans. It does not change the
measurement or recognition of those plans. SFAS No.
132 standardizes the disclosure requirements and
requires additional information on changes in the
benefit obligations and fair value of plan assets that
will facilitate financial analysis, and eliminates
certain disclosures from SFAS No. 87 "Employers
Accounting for Pensions", SFAS No. 88 "Employers
Accounting for Settlements and Curtailments of Defined
10
Benefit Pension Plans and for Termination Benefits,"
and SFAS No. 106 "Employers Accounting for
Postretirement Benefits Other Than Pensions." BT will
adopt SFAS No. 132 for fiscal year 1998 reporting.
Since SFAS No. 132 is a disclosure based statement, it
will not have a material impact on the Corporation's
financial position or results of operations upon
adoption.
In June 1998, the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging
Activities." The statement establishes accounting and
reporting standards for derivative instruments,
including certain derivative instruments embedded in
other contracts, and for hedging activities. It
requires, among other things, that an entity recognizes
all derivatives as either assets or liabilities in the
statement of financial condition and measures those
instruments at fair value. The statement is effective
for all fiscal quarters of fiscal years beginning after
June 15, 1998. Since BT does not currently use
derivative financial instruments, the standard will not
have any impact on BT's results of operations upon
adoption.
8. Pending Acquisition
-------------------
On June 4, 1998, BT announced a merger agreement
between BT, Laurel Bank, and the Peoples National Bank of
Rural Valley (Peoples), Rural Valley, Pennsylvania, whereby
Peoples will merge into Laurel Bank. Peoples operates one
branch with unaudited assets totaling approximately $40
million. The agreement calls for Peoples' shareholders to
receive 11.82 shares of BT common stock for each Peoples
share, valuing the transaction at approximately $13 million
based on BT's recent stock price. The transaction is expected
to be completed during the fourth quarter of 1998 and will
be accounted for as a pooling of interests. The
agreement is subject to Peoples' shareholders and
regulatory approvals and other conditions. Pro forma
results of the pending acquisition would not be
materially different from the results reported.
9. Litigation
----------
A purported class action was instituted in the Court of
Common Pleas of Cambria County, Pennsylvania against Bank &
Trust and Security of America Life Insurance Company (Security)
in November, 1996 alleging various calculation irregularities
in connection with a residential mortgage loan to the plaintiff
in the principal amount of approximately thirteen thousand
dollars resulting in, among other things, overcharges on credit
life and disability insurance coverage and other items. The
plaintiff purports to represent a class of persons who made a
mortgage payment to Bank and Trust or any of its subsidiaries
within six years before November 21, 1996 and/or had credit
life or disability insurance coverage with Security within six
years before November 21, 1996. The complaint seeks
unspecified damages. The Corporation has filed an answer
denying that its actions breached its agreements with
plaintiffs. The class potentially includes the borrowers on
approximately 2,800 accounts, the number of residential
mortgages held by Bank and Trust during the relevant period.
Management intends to oppose certification of the case as a
class action, pursue its affirmative defenses and vigorously
11
defend the lawsuit. The impact of this litigation on BT cannot
be fully assessed at this early stage of the proceedings.
On November 19, 1997, Laurel Capital Group, Inc, and its
wholly-owned subsidiary, Laurel Savings Bank, filed a suit in
the United States District Court in the Western District of
Pennsylvania claiming that Laurel Bank infringed on its common
law trademark and servicemark rights by using the name "Laurel"
and a related logo in an undefined market segment referred to
as the "Pittsburgh area." The suit seeks to enjoin Laurel from
using its name and related logo in the "Pittsburgh area" and
seeks unspecified damages. Laurel Savings Bank is a thrift
institution with five branch locations in the North Hills of
Pittsburgh and one branch in Butler County. Pending a hearing
on plaintiffs' motion for preliminary injunction, Laurel agreed
to refrain from using the "Laurel" name or any related logo on
any bank documents, advertisements, or promotional materials in
the Pittsburgh vicinity. While BT denies the use of the name
"Laurel" and related logo infringes on plaintiff's trademark
and servicemark rights and believes that its rights to the name
"Laurel" and related logo are senior to that of the plaintiffs,
there is a risk that Laurel might be prevented from using the
"Laurel" name and related logo in the Pittsburgh area. The
impact of this litigation on BT cannot be fully assessed at
this early stage of the proceedings.
Due to the nature of their activities, BT and its
subsidiaries are at all times engaged in other various legal
proceedings which arise in the normal course of their
businesses. While it is difficult to predict the outcome of
these proceedings, management believes the ultimate liability,
if any, will not materially affect BT's consolidated financial
position or results of operations.
10. Stock Dividends
---------------
On March 25, 1998, BT's Board of Directors
declared a 2-for-1 stock split effected in the form of a
stock dividend. The dividend was distributed on May 1,
1998, to shareholders of record as of April 8, 1998.
The stock dividend, representing 6,250,436 shares,
increased common shares issued and outstanding to
12,500,872. Accordingly, a transfer of $31,252,180,
representing the par value of additional shares issued,
was made from surplus to common stock. On September 15,
1997, a 10% stock dividend was distributed to
shareholders of record as of August 27, 1997. All share
and per share data in this report has been adjusted to
reflect the stock dividends.
11. Stock Based Compensation Plan
-----------------------------
On May 12, 1998, BT's shareholders approved
the 1998 Equity Incentive Plan (the "1998 Plan"). Under
the 1998 Plan, BT may grant stock options to its
employees and directors for up to 1,200,000 shares of BT
Common Stock. Incentive stock options, non-qualified
stock options and other performance-based incentive
awards may be granted pursuant to the 1998 Plan.
Effective May 12, 1998, BT's Board of Directors granted
non-qualified stock options to purchase 382,000 shares
of common stock at an exercise price of $27.75 per
share, which equaled the market price of the stock on
the date of grant. The stock options became exercisable
on May 13, 1998 and have a maximum term of 10 years.
12
Stock option transactions for the 1998 Plan
are summarized below:
1998
---------------------
Weighted
Shares Average
Under Exercise
Option Price
---------------------
Outstanding at beginning of year -- --
Granted 382,000 $ 27.75
Exercised -- --
Forfeited -- --
--------------------
Outstanding at June 30, 1998 382,000 $ 27.75
========
Options exercisable at June 30, 1998 382,000
Weighted average estimated fair value
of options granted $ 7.21
The following table summarizes information about BT's stock options
outstanding at June 30, 1998:
Options Outstanding Options Exercisable
----------------------------------- -------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Exercise Price Outstanding Life (Years) Price Exercisable Price
-------------- ------------------------------------ -------------------
$ 27.75 382,000 9.9 $ 27.75 382,000 $ 27.75
BT applies Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to
Employees" in accounting for the 1998 Plan.
Accordingly, no compensation expense has been
recognized for the 1998 Plan. Had compensation cost
for the 1998 Plan been determined based on the fair
value at the grant date consistent with SFAS No. 123,
"Accounting for Stock-Based Compensation", BT's net
income and earnings per share would have been reduced
to the pro forma amounts indicated in the table below.
Three months ended June 30, 1998 Six months ended June 30, 1998
-------------------------------- ------------------------------
Net income (in thousands)
As reported $ 4,516 As reported $ 8,133
Pro forma 2,726 Pro forma 6,343
Basic and Diluted earnings per share
As reported $ 0.36 As reported $ 0.65
Pro forma 0.22 Pro forma 0.51
Since all of the outstanding stock options
became exercisable on May 13, 1998, the pro forma
amounts above reflect the recognition of the entire
associated compensation cost in the three months ended
June 30, 1998.
The fair value for the options described above
was estimated at the date of grant using a Black-Scholes
option pricing model. The model was developed for use
in estimating the fair value of traded options which
13
have different characteristics from BT's stock options.
Additionally, the model requires the input of subjective
assumptions which can materially affect the fair value
estimate. In management's opinion, the Black-Scholes
model may not necessarily provide a reliable single
measure of the fair value of BT's stock options.
The fair value of stock options granted during
1998 was estimated on the date of grant using the Black-
Scholes option pricing model with the following weighted
average assumptions: risk free interest rate of 5.62%,
an average life of the options of 6 years, a stock price
volatility factor of 23.9%, and a dividend yield of
2.6%.
14
ITEM 2
------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
----------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The following is Management's Discussion and Analysis of the material
changes in financial position between June 30, 1998 and December 31, 1997,
and the material changes in results of operations comparing the three and
six month periods ending June 30, 1998 with the respective results for the
comparable period of 1997 for BT Financial Corporation. The following
should be read in conjunction with BT's Annual Report on Form 10-K for the
year ended December 31, 1997.
Certain statements contained in this report constitute "forward-looking"
statements with respect to BT Financial Corporation and its subsidiaries.
Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the financial condition and
results of operations of BT Financial Corporation and its subsidiaries to
be materially different from any future financial condition or results of
operations suggested or implied by such forward-looking statements. BT
undertakes no obligation to update any forward-looking statements made
herein. The factors that may cause actual results to differ materially
from the forward-looking statements include: interest rates, market and
monetary fluctuations, monetary and fiscal policies, changes in laws and
regulations, inflation, general economic conditions, competition and
economic conditions in the geographic region and industries in which the
Corporation conducts its operations, introduction and acceptance of new
products and enhancements, mergers and acquisitions and their integration
into BT, and management's ability to manage these and other risks.
FINANCIAL REVIEW
- ----------------
1998 Highlights
- ---------------
On March 25, 1998, BT's Board of Directors declared a 2-for-1 stock split
in the form of a stock dividend that was distributed on May 1, 1998 to
shareholders of record as of April 8, 1998. BT's common stock price
increased 33.2%, adjusted for the stock split, at June 30, 1998 compared to
June 30, 1997. BT's historical stock price performance is not necessarily
indicative of future price performance.
During the first quarter of 1998, several senior officers of BT elected to
retire early. Certain severance and legal costs associated with these
retirements were approximately $337,000 and were recorded in the first
quarter. The retiring officers will not be replaced, and the costs
associated with the early retirements are expected to be recovered by
reduced salary and benefits expense throughout the remainder of 1998. BT
also expensed approximately $348,000 in the first quarter of 1998 in
connection with two legal settlements, their associated costs, and other
legal fees related to various lawsuits. The settlements and their costs
represented the majority of the expensed amount in the first quarter. As a
result of the special charges incurred with early retirements and
litigation costs, BT's 1998 earnings per share through June were reduced by
approximately $.04, adjusted for the 2-for-1 stock split.
During the second quarter of 1998, BT announced plans to close five banking
offices. The branches are located in Duquesne, West Lebanon, Duncansville,
Indiana (Route 286) and Somerset (Route 31), Pennsylvania. The branches
will consolidate into nearby offices. The branch closures are being
undertaken to increase efficiencies within the corporation by eliminating
redundant, underperforming office locations. The closings are scheduled to
take place in the last half of 1998. No employee terminations are
anticipated as a result of the closings with the reduction in staffing
15
levels to be gained through attrition. The costs associated with the
branch closings are not expected to have a material impact on BT's
financial position or results of operations.
Consolidated net income decreased 1.7%, to $8.1 million, or $.65 per share,
in the first six months of 1998 compared to $8.3 million, or $.66 per
share, in the same period of 1997 due to the special charges discussed
earlier. Excluding the special charges, net income for the first six
months of 1998 would have been $8.6 million, or $.69 per share. Increases
in net interest income and non-interest income were offset by increases in
the provision for loan losses and a higher level of other expenses.
Total assets grew to a record $1.70 billion at June 30, 1998 compared to
$1.55 billion at year-end 1997 and June 30, 1997. The growth in the
current period resulted from targeted balance sheet leveraging in 1998
along with loan growth.
BT's organizational realignment in 1997 to a single bank charter, supported
by five marketing regions, has enhanced product delivery channels which
allow BT to focus on its customer needs more effectively. In addition,
resources have been targeted to support the organizational changes through
expanded sales training and incentive programs. As a result of these
measures, BT experienced internal growth in both loans and deposits in the
first six months of 1998.
CHANGES IN FINANCIAL POSITION
Total assets at June 30, 1998 increased $147.6 million compared to year-end
1997 and $147.7 million compared to June 30, 1997. These increases
represent asset growth of 9.5% over both comparison periods. The higher
balance sheet levels over both periods resulted primarily from strong loan
growth and increases in securities levels. Funding for the loan and
security growth was provided mainly by increased short- and long-term
borrowings. The availability of favorably priced wholesale funding sources
has allowed BT to prudently leverage its balance sheet by increasing
earning asset levels in order to enhance income while contributing to the
management of interest rate risk. Funding strategies are managed by BT's
Asset/Liability Committee to ensure adequate liquidity and to control
interest rate risk exposure.
Total shareholders' equity increased $3.5 million, or 2.4%, and $8.8
million, or 6.3%, compared to year-end 1997 and June 30, 1997,
respectively, primarily due to BT's net income.
Period end total loans outstanding, net of unearned interest, increased
$77.7 million, or 7.3%, and $68.7 million, or 6.4%, compared to year-end
1997 and June 30, 1997, respectively. The loan increases were due
primarily to internal growth in both commercial and consumer loans. Loan
expansion has been attributable to increased market demand and aggressive
sales efforts. While recent loan growth has been substantial, BT adheres
to strict underwriting and credit guidelines in its loan review processes
to preserve a quality loan portfolio.
BT's nonperforming assets decreased $773,000, or 6.9%, compared to year-end
1997 and $993,000, or 8.7%, compared to June 30, 1997. The decline in
nonperforming assets compared to year-end 1997 was mainly due to a lower
level of repossessed automobile inventory and a reduction in commercial
loans 90 days or more past-due. These decreases were partially offset
primarily due to an increase in nonaccrual commercial loans. The year-over-
year decrease in nonperforming assets was principally due to a decline of
$731,000, or 7.6%, in the level of nonperforming loans. The ratio of
nonperforming loans to loans, net of unearned interest improved to .78% at
June 30, 1998 from .86% and .89% at year-end 1997 and June 30, 1997,
respectively. BT recently created a Special Assets department to
concentrate on nonperforming commercial loans.
16
Management's policy is to maintain an adequate loan loss reserve to cover
inherent losses in the loan portfolio. The evaluation process to determine
potential losses includes loan reviews, collateral adequacy assessments, an
analysis of specific conditions of the borrower and an assessment of
general economic conditions. The BT Credit and Collection functions
continuously monitor and assess credit quality to minimize exposure to
potential future credit losses. BT's coverage ratio (reserve for loan
losses to nonperforming loans) improved to 1.2x at June 30, 1998 compared
to 1.1x at year-end 1997 and 1.0x at June 30, 1997. The ratio of the
reserve for loan losses to loans, net of unearned interest, was .90% at
June 30, 1998, compared to .92% at year-end 1997 and .90% at June 30, 1997.
The following table provides information with respect to the components of
BT's nonperforming assets and related ratios for the periods indicated.
June 30 December 31 June 30
(In thousands) 1998 1997 1997
----------------------------------
Loans 90 days or more past-due $ 465 $ 1,208 $ 477
Restructured loans 265 266 316
Nonaccrual loans 8,167 7,678 8,835
----------------------------------
Total nonperforming loans 8,897 9,152 9,628
Other real estate owned 685 710 738
Repossessed assets 819 1,312 1,028
----------------------------------
Total nonperforming assets $10,401 $11,174 $11,394
==================================
Nonperforming loans as a % of
loans, net of unearned interest .78% .86% .89%
Reserve for loan losses to
nonperforming loans 1.2x 1.1x 1.0x
Reserve for loan losses as a % of
loans, net of unearned interest .90% .92% .90%
Throughout the first half of 1998, BT's investment portfolio was impacted
by calls of various securities. BT is anticipating additional calls for
the remainder of 1998. Therefore, based on the market outlook, a strategy
was developed to invest in additional securities prior to the actual call
dates of existing securities. More securities were purchased in 1998 as
part of a balance sheet leveraging plan that enables BT to enhance net
interest income by utilizing favorably priced wholesale funding. As a
result, total securities increased $63.7 million, or 17.4%, compared to
year-end 1997 and $89.6 million, or 26.4%, compared to June 30, 1997. The
higher levels were primarily due to purchases of various municipal and U.S.
federal agency securities and Federal Home Loan Bank stock.
Period end deposits increased $10.8 million, or .8%, and $8.2 million, or
.6%, compared to year-end 1997 and June 30, 1997, respectively. Most of
the increase over both periods was due to higher levels of non-interest
bearing accounts.
Short-term borrowings increased $25.5 million compared to year-end 1997 and
$23.0 million compared to June 30, 1997 while long-term debt increased
$98.6 million and $97.1 million over the same periods, respectively. The
higher levels reflect increases in wholesale funding levels used by BT to
support recent loan growth and securities purchases. The wholesale funding
has been provided by the Federal Home Loan Bank (FHLB). In the first
quarter of 1998, the FHLB advanced a $25 million long-term borrowing to BT.
The interest rate on the borrowing at June 30, 1998 was 5.22%. In the
second quarter of 1998, additional long-term borrowings of $25 million and
$50 million were provided by the FHLB with interest rates of 5.24% and
17
5.08%, respectively. The borrowings, all scheduled to mature in the year
2008, will be used for selected loan and investment funding and to enhance
liquidity while mitigating BT's interest rate risk exposure. After an
initial lockout period ranging from one to three years and then quarterly
thereafter, the FHLB has the option to convert the fixed-rate advances to
adjustable rates which reset quarterly. At June 30, 1998, BT's short-term
borrowing with the FHLB amounted to $25 million and matured in July 1998.
The interest rate on this borrowing at June 30, 1998 was 5.57%. The short-
and long-term borrowings are collateralized by BT's residential mortgage
loan portfolio. At the present time, BT does not anticipate additional
increases in current wholesale funding levels in its near-term outlook.
RESULTS OF OPERATIONS
A 2-for-1 stock split effected in the form of a stock dividend was
distributed on May 1, 1998, to shareholders of record at April 8, 1998. A
ten percent stock dividend was distributed on September 15, 1997, to
shareholders of record at August 27, 1997. All per share data in the
following discussion has been adjusted to reflect the stock dividends.
Second Quarter 1998 vs. Second Quarter 1997
In the second quarter of 1998, BT produced net income of $4.5 million, or
$.36 per share compared to $4.2 million, or $.34 per share earned in the
same period of 1997. The earnings improvement was driven by a $1.1
million, or 6.5% increase in net interest income and a $444,000, or 15.8%,
rise in total other income. These advances offset higher levels in the
provision for loan losses and increased total other expenses.
The annualized return on average assets for the second quarters of 1998 and
1997 was 1.07% and 1.11%, respectively. The annualized return on average
shareholders' equity for the second quarter was 12.30% in 1998 and 12.10%
in 1997. The return on average tangible shareholders' equity, which
excludes intangible amortization expense from net income and intangibles
from average shareholders' equity, was 16.18% and 15.89% for the second
quarters of 1998 and 1997, respectively.
Net interest income on a fully taxable equivalent basis was $17.9 million
for the second quarter of 1998 compared to $16.6 million for the same
period in 1997. The increase of $1.3 million was due essentially to a
$179.6 million, or 12.8%, increase in average interest-earning assets in
the second quarter of 1998. The earning asset growth was mainly from
increases of $114.7 million and $65.9 million in average securities and
average loans, respectively. Second quarter net interest margins for 1998
and 1997 were 4.54% and 4.75%, respectively. The decline in the net
interest margin in 1998 is attributable to higher interest rates paid on
deposit accounts and the impact of balance sheet leveraging in which
wholesale funding is utilized to fund increases in interest-earning asset
levels.
The provision for loan losses increased $620,000 in the second quarter of
1998 compared to the second quarter of 1997 based on management's
assessment of the provision necessary to maintain an adequate reserve
against potential future losses based upon the current size and quality of
the loan portfolio. Net charge-offs were $1.3 million in the second
quarter of 1998 compared to $1.1 million in 1997. The higher level of net
charge-offs in 1998 was primarily due to a higher level of commercial
mortgage credit losses which was partially offset by a decline in
commercial loan net charge-offs.
Total other income increased $444,000, or 15.8%, in the second quarter of
1998 compared to the same period in 1997. Trust income increased $102,000,
or 13.0%, due to increased assets under management. Service fees grew
$187,000, or 9.8%, due to increased ATM/debit card revenue and a rise in
loan insurance commissions. Income from securities transactions rose
18
$117,000 and other income gained $38,000 in the second quarter of 1998
compared to the same period in 1997.
Total other expenses increased $746,000, or 6.4%, in the second quarter of
1998 compared to the second quarter of 1997. Salaries and wages increased
4.6% mainly due to periodic merit increases. Employee benefit costs rose
27.3% primarily from increased hospitalization premiums. Equipment expense
was up 12.8% due to higher depreciation levels associated with BT's ongoing
technology investments. Amortization of intangible assets increased 12.0%
due to three branches acquired from National City Bank of Pennsylvania
(National City) in June 1997. Other operating expenses rose 3.0% while
BT's efficiency ratio improved to 59% in the second quarter of 1998
compared to 60% in the second quarter of 1997.
BT's effective tax rate was 30.2% for the second quarter of 1998 compared
to 33.8% in the same period of 1997 due to a higher level of tax-exempt
interest income and increased low income housing tax credits.
Six Months Ended June 30, 1998 vs. Six Months Ended June 30, 1997
In the first quarter of 1998, earnings were impacted by special charges
associated with the retirement of several senior officers of BT and certain
costs in connection with two legal settlements along with other legal fees
related to various lawsuits. The total charges approximated $685,000 and
reduced earnings per share by approximately $.04 in 1998. Excluding these
charges, net income for the six months ended June 30, 1998 was $8.6
million, or $.69 per share, compared to $8.3 million, or $.66 per share
earned for the same period of 1997. The special charges reduced 1998 year-
to-date earnings to $8.1 million, or $.65 per share.
For the first six months of 1998, the annualized return on average assets
was 1.00% compared to 1.11% in 1997. The annualized return on average
shareholders' equity for the first six months of 1998 and 1997 was 11.16%
and 12.00%, respectively. The return on average tangible shareholders'
equity, which excludes intangible amortization expense from net income and
intangibles from average shareholders' equity, was 14.89% for the first
half of 1998 compared to 15.83% in 1997.
Fully taxable equivalent net interest income increased $1.8 million, or
5.5%, to $34.8 million in the first six months of 1998 compared to $33.0
million in 1997. The increase was primarily due to a $151.7 million, or
11.0%, rise in average earning assets in 1998. The earning asset increase
was due to higher levels of securities and loans in 1998. The year-over-
year increase in average securities was $97.3 million, or 30.6%, while
average loans grew $60.6 million, or 5.8%. The net interest margin
compressed 24 basis points in 1998 to 4.58% due to higher rates paid on
interest-bearing liabilities and the impact of BT's balance sheet
leveraging strategy.
The provision for loan losses increased $805,000 in the first six months of
1998, compared to the same period of 1997 due to management's assessment of
the provision necessary to maintain an adequate reserve against potential
future losses based upon current size and quality of the loan portfolio.
Net charge-offs were approximately $2.4 million in 1998 compared to $2.1
million in 1997.
Total other income increased $467,000, or 8.2%, in the first half of 1998
compared to 1997. Trust income gained $212,000, or 13.9%, commensurate with
a greater volume of assets under management. Service fees grew $267,000 or
7.2%, primarily resulting from increased ATM/debit card service revenue and
a rise in loan insurance commissions. Securities transactions income rose
$43,000 while other income declined $55,000 in the first half of 1998
compared to 1997.
19
Total other expenses increased $2.0 million, or 8.8%, in the first half of
1998 compared to the same period of 1997. Salaries and wages rose 7.0%
reflecting the impact of merit increases and special charges of
approximately $322,000 associated with the retirement of several senior
officers of BT. These special charges will be recovered throughout 1998
due to the nonreplacement of the retired senior officers. Full time
equivalent employees declined to 769 in 1998 from 773 in 1997. Employee
benefit costs increased 23.8% mainly due to higher hospitalization expense
resulting from premium increases. Occupancy expense was up 3.2% due to
three branches acquired from National City Bank of Pennsylvania in June
1997. Equipment expense increased 13.1% reflecting higher levels of
ongoing technology-based expenditures. Amortization of intangible assets
rose 12.1% due to the branches acquired from National City. Other
operating expense increased 7.4% largely due to $363,000 in special charges
mentioned earlier in this discussion related to litigation and legal
settlement costs. Excluding the special charges, BT's efficiency ratio was
60% in the first six months of 1998 and 1997.
BT's effective tax rate was 30.9% for the first half of 1998 compared to
34.4% for the same period in 1997. The lower rate in 1998 reflects an
increased application of low income housing tax credits and a higher level
of tax-exempt interest income.
CAPITAL ADEQUACY
At June 30, 1998, BT continued to maintain capital levels well above the
minimum regulatory levels. BT's capital ratios as of June 30, 1998 and
December 31, 1997 are presented in the table below. The required
regulatory ratios, representing the level needed to meet "Adequately
Capitalized" status are also presented.
Regulatory
6-30-98 12-31-97 Requirement
------- -------- -----------
Tier I Risk Based Ratio 10.38% 10.83% 4.00%
Total Capital Risk Based Ratio 11.22 11.70 8.00
Tier I Leverage Ratio 7.55 7.94 4.00
COMMITMENTS AND CONTINGENCIES:
YEAR 2000 ISSUES
In 1996, BT created a special task force to analyze any Year 2000 issues
pertaining to BT's business and operations. Year 2000 issues refer to
uncertainties regarding the ability of various software systems to
interpret dates correctly after the beginning of the Year 2000. BT
utilizes and is dependent upon data processing systems and software in its
normal course of business. BT is in the process of (1) analyzing its
information systems and vendor supplied application systems to address any
Year 2000 issues, (2) developing detailed plans for system corrections and
testing, (3) correcting or replacing all critical applications, and (4)
evaluating the potential effects of Year 2000 issues on customers of Laurel
and the Trust Company.
The ongoing process of analyzing its information systems involves internal
testing of computer hardware and software and the modification and/or
replacement of such systems if necessary. While BT is taking all
appropriate steps to assure Year 2000 compliance, it is dependent on vendor
compliance to a large extent. BT is requiring systems and software vendors
to represent that the services and products provided are, or will be Year
2000 compliant and are tested for such compliance. As of August 1, 1998,
58% of the systems that have been determined would pose a risk to BT and
its affiliates have been certified by the respective vendor or service
provider as being Year 2000 compliant, and additionally, of those systems
20
not yet certified, 37% have a compliance plan in place. Successful
internal unit testing or other internal certification has been performed on
20% of these systems. Management expects to have all or substantially all
systems and applications compliant or near completion of any necessary
remedial actions by the end of 1998. BT's mainframe system, as well as BT's
core business application software packages have been certified by the
respective vendors for Year 2000 compliance. Contingency planning efforts,
specific to critical systems and applications, are underway in the event
that primary systems, although certified, are deemed inadequate for
processing after the beginning of the Year 2000. BT has also contacted its
utility service suppliers and requested written assurance of their Year
2000 compliancy. To date, most vendors have not responded. BT's task
force will assess these vendor relationships upon determination of each
vendor's Year 2000 readiness.
BT estimates that the total cumulative cost of this process will
approximate $756,000, which includes costs associated with modifying the
systems as well as the cost of purchasing or leasing certain hardware and
software. Purchased hardware and software will be capitalized in
accordance with normal policy. Personnel and all other costs related to
this process are being expensed as incurred. As of August 1, 1998,
approximately $232,000 of the estimated total cumulative cost has been
expended. The total cost of this process and the expected completion dates
are based on management's best estimates and are believed to be reasonably
accurate. The expenditure is not expected to be material to the
Corporation's business, operations or financial condition and should have
no material impact on the Corporation's results of operations, liquidity or
capital resources.
BT's process of evaluating potential effects of Year 2000 issues on
customers of Laurel and the Trust Company is in its early stages, and it is
therefore impossible to quantify the potential adverse effects of Year 2000
problems on Laurel's loan customers. Risk assessments are currently being
performed on Laurel's larger commercial borrowers. The failure of a
commercial bank customer to prepare adequately for Year 2000 compatibility
could have a significant adverse effect on such customer's operations and
profitability, in turn inhibiting its ability to repay loans in accordance
with their terms. Until sufficient information is accumulated from
customers of Laurel to enable BT to assess the degree to which customers'
operations are susceptible to potential problems, BT will be unable to
quantify the potential losses, if any, from loans to commercial customers.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Corporation is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments consist of loan commitments and
standby letters of credit.
The Corporation's exposure to loss in the event of nonperformance by the
other party to the financial instrument for loan commitments and standby
letters of credit is represented by the contractual amount of these
instruments. The Corporation 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
June 30, 1998 were as follows:
(In thousands)
Loan commitments $198,698
Standby letters of credit 12,516
Since many of the loan commitments may expire without being drawn upon, the
total commitment amount does not necessarily represent future cash
requirements or loss exposures. The Corporation evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Corporation upon extension of credit,
21
is based on management's credit evaluation of the customer. Standby
letters of credit are unconditional commitments issued by the Corporation
to support the financial obligations of a customer to a third party. These
guarantees are primarily issued to support public and private borrowing
arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loans. The collateral
varies but may include accounts receivable, inventory and property, plant
and equipment for those commitments for which collateral is deemed
necessary.
22
PART II
-------
OTHER INFORMATION
-----------------
ITEM 4
------
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The Annual Meeting of BT Financial Corporation was held on Tuesday,
May 12, 1998, at the Holiday Inn-Downtown Johnstown, 250 Market Street,
Johnstown, Pennsylvania. The following directors were elected:
Name Votes For Votes Withheld Term Expires
---- --------- -------------- ------------
John H. Anderson 4,803,545 387,938 2002
G. Scott Baton, II 4,805,766 385,717 2002
Edward L. Mears 4,758,362 433,121 2002
Roger S. Nave 4,782,765 408,718 2002
At the same meeting, the 1998 Equity Incentive Plan was approved and voted
as follows:
Shares voted FOR 4,442,725
Shares voted AGAINST 250,389
Shares ABSTAINED 498,369
ITEM 5
------
OTHER INFORMATION
-----------------
The information contained in footnote 8 to the Consolidated Balance Sheet
included in Part I of this report on Form 10-Q is incorporated by reference
in response to this item.
ITEM 6
------
EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
--------
Exhibit 10.4 1998 Equity Incentive Plan
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
--------------------
During the second quarter of 1998, the Registrant filed the following
Current Report on Form 8-K:
(1) A report was filed on April 3, 1998, pursuant to Item 5, to
report certain severance and legal charges expensed in the first quarter
of 1998.
23
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
BT FINANCIAL CORPORATION
(Registrant)
Date August 14, 1998 /s/ John H. Anderson
--------------- ----------------------------
John H. Anderson, Chairman
and Chief Executive Officer
Date August 14, 1998 /s/ Mark L. Sollenberger
--------------- -------------------------------
Mark L. Sollenberger,
Executive Vice
President, Treasurer
and Assistant
Secretary
(Principal Financial Officer)
24
BT FINANCIAL CORPORATION
1998 EQUITY INCENTIVE PLAN
EFFECTIVE AS OF MAY 12, 1998
BT FINANCIAL CORPORATION
1998 EQUITY INCENTIVE PLAN
Section 1. Purposes.
--------
The BT Financial Corporation 1998 Equity Incentive Plan
(the "Plan") is effective May 12, 1998. The purposes of the Plan
are to: (a) assist BT Financial Corporation (the "Company") in
recruiting and retaining highly qualified managers, consultants
and staff; (b) provide Employees with an incentive for
productivity; and (c) provide Employees an opportunity to share
in the growth and value of the Company. The equity interests
granted pursuant to the Plan are intended to constitute Incentive
Stock Options within the meaning of section 422 of the Code, Non-
Qualified Stock Options, or other performance-based incentive
awards, as determined by the Committee, or the Board if no
Committee has been appointed at the time of the Award. The type
of equity interests awarded will be specified in the Option
Agreement between the Company and the Participant.
Section 2. Definitions.
-----------
(a) "Affiliate" shall mean, with respect to a Person, a
Person that directly or indirectly controls, or is controlled by,
or is under common control with such Person.
(b) "Award" shall mean a grant of a PSU or an Option or
Options to an Employee pursuant to the provisions of this Plan.
Each separate grant of a PSU, an Option or Options to an Employee
and each group of PSUs or Options which matures on a separate
date, is treated as a separate Award.
(c) "Board" shall mean the Board of Directors of the
Company, as constituted from time to time.
(d) "Cause" shall mean a determination by the Board
that the Participant:
(i) has engaged in any type of disloyalty to the
Company, including without limitation, fraud,
embezzlement, theft, or dishonesty in the
course of his employment or engagement, or
has otherwise breached any duty owed to the
Company;
(ii) has been convicted of a misdemeanor involving
moral turpitude or a felony;
(iii) has pled nolo contendere to a felony;
---------------
(iv) has disclosed trade secrets or confidential
information of the Company; or
(v) has breached any agreement with the Company.
(e) "Change of Control" means the date upon which any
of the following events occurs or conditions first exist:
(i) The Company acquires actual knowledge that
any Person (other than the Company or any
employee benefit plan sponsored by the
Company) has acquired beneficial ownership,
directly or indirectly, of securities of the
Company entitling such Person to 25% or more
of the voting power of the Company;
(ii) (a) A tender offer is made to acquire
securities of the Company entitling the
holders thereof to 50% or more of the voting
power of the Company; or (b) voting
securities of the Company are first purchased
pursuant to any other tender offer;
(iii) At any time less than 51% of the members
of the Board are individuals who were either:
(a) directors of the Company on July 24,
1996; or (b) individuals whose election, or
nomination for election, was approved by a
vote of a majority of the directors then
still in office who were directors on July
24, 1996 or who were so approved;
(iv) The shareholders of the Company approve an
agreement providing for the Company to be
merged, consolidated or otherwise combined
with, or for all or substantially all the
Company's assets or stock to be acquired by,
another Person, as a consequence of which the
former shareholders of the Company will own,
immediately after such merger, consolidation,
combination or acquisition, less than a
majority of the voting power of such
surviving or acquiring Person or the parent
thereof; or
(v) The shareholders of the Company approve any
liquidation of all or substantially all of
the assets of the Company or any distribution
to security holders of assets of the Company
having a value equal to 30% or more of the
total value of all the assets of the Company.
(f) "Code" shall mean the Internal Revenue Code of
1986, as amended.
2
(g) "Committee" shall mean the Committee appointed by
the Board in accordance with Section 4(a) of the Plan, if one is
appointed.
(h) "Common Stock" shall mean the common stock of the
Company, $5.00 par value per Share.
(i) "Company" shall mean BT Financial Corporation.
(j) "Director" shall mean an individual who is a member
of the Board of Directors of the Company or any of its
Subsidiaries.
(k) "Disability" shall mean a disability of an Employee
or a Director which renders such Employee or Director unable to
perform the full extent of his duties and responsibilities by
reason of his illness or incapacity which would entitle that
employee, officer or director to receive Social Security
Disability Income under the Social Security Act, as amended, and
the regulations promulgated thereunder. "Disabled" shall mean
having a Disability. The determination of whether a Participant
is Disabled shall be made by the Committee, whose determination
shall be conclusive; provided that
-------------
(i) if a Participant is bound by the terms of an
employment agreement between the Participant
and the Company or any of its Subsidiaries,
whether the Participant is ADisabled for
purposes of the Plan shall be determined in
accordance with the procedures set forth in
said employment agreement, if such procedures
are therein provided; and
(ii) a Participant bound by such an
employment agreement shall not be determined
to be Disabled under the Plan any earlier
than he would be determined to be disabled
under his employment agreement.
(l) "Employee" shall mean any person employed by the
Company or any of its Subsidiaries.
(m) "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended.
(n) "Fair Market Value Per Share" shall mean the fair
market value of a share of Common Stock, as determined pursuant
to Section 8 hereof.
(o) "Incentive Stock Option" shall mean an Option which
is an incentive stock option as described in Section 422 of the
Code.
3
(p) "Non-Employee Director" shall have the meaning set
forth in Rule 16b-3(b)(3)(i) promulgated by the Securities and
Exchange Commission under the Exchange Act, or any successor
definition adopted by the Securities and Exchange Commission;
provided, however, that the Committee may, in its sole
discretion, substitute the definition of "outside director"
provided in the regulations under Section 162(m) of the Code in
place of the definition of Non-Employee Director contained in the
Exchange Act.
(q) "Non-Qualified Stock Option" means any Option that
is not an Incentive Stock Option.
(r) "Option" shall mean an Incentive Stock Option or a
Non-Qualified Stock Option to purchase Shares that is awarded
pursuant to the Plan, or a Reload Option.
(s) "Option Agreement" shall mean a written agreement
substantially in the form of Exhibit A-1 or A-2, or such other
form or forms as the Committee (subject to the terms and
conditions of this Plan) may from time to time approve evidencing
and reflecting the terms of an Award.
(t) "Participant" shall mean each Employee or Director
of the Company or a Subsidiary to whom an Award is granted
pursuant to this Plan.
(u) "Person" shall mean an individual, partnership,
corporation, limited liability company, trust, joint venture,
unincorporated association, or other entity or association.
(v) "Plan" shall mean this BT Financial Corporation
1998 Equity Incentive Plan, as amended from time to time.
(w) "Pool" shall mean the pool of Shares of Common
Stock subject to the Plan, as described in Section 6 hereof.
(x) "PSU" means a phantom stock unit award made
pursuant to Section 10 hereof, which gives the Participant the
right to receive the Value of such PSU at a specified time, to be
paid in cash.
(y) "Reload Option" is defined in Section 11.
(z) "Securities Act" shall mean the Securities Act of
1933, as amended.
(aa) "Shares" shall mean shares of Common Stock
contained in the Pool, as adjusted in accordance with Section 9
of the Plan.
4
(bb) "Subsidiary" shall mean a subsidiary of the
Company, whether now or hereafter existing, as defined in
sections 424(f) and (g) of the Code.
(cc) "Termination of Employment" means a cessation of
the employer-employee relationship between the Participant and
the Company and any Subsidiary for any reason, including (without
limitation) resignation, discharge, death, Disability, or
retirement. If a Participant transfers employment from the
Company to any Subsidiary, then, unless determined otherwise by
the Board, a Termination of Employment shall not be deemed to
have occurred.
(dd) "Value" means, with respect to a PSU, the Fair
Market Value per Share on the date of exercise of such PSU.
Section 3. Participation.
-------------
Participants in the Plan shall be selected by the
Committee from the Employees. The Board may make Awards at any
time and from time to time to Employees. Any Award may include
or exclude any Employee, as the Board shall determine in its sole
discretion.
Section 4. Administration.
--------------
(a) Structure.
---------
(i) In General. The Plan shall be administered
----------
by the Committee. The Board may at any time delegate its authority to
administer the Plan to a standing committee of the board or to a
special Committee consisting of not less than two persons to
administer the Plan on behalf of the Board, subject to such terms
and conditions as the Board may prescribe. Members of the
Committee shall serve for such period of time as the Board may
determine. Members of the Board or the Committee who are
eligible for Awards or have received Awards may vote on any
matters affecting the administration of the Plan or the Award of
any Options or PSUs pursuant to the Plan, except that no such
member shall act upon the Award of an Option or PSU to himself or
herself, but any such member may be counted in determining the
existence of a quorum at any meeting of the Board or Committee
during which action is taken with respect to the Award of Options
or PSUs to himself or herself.
From time to time the Board may increase the size of
the Committee and appoint additional members thereto, remove
members (with or without cause) and appoint new members in
substitution therefor, fill vacancies however caused, or remove
all members of the Committee and thereafter directly administer
the Plan.
(ii) Committee Powers. If the Board delegates its
----------------
authority to administer the Plan to a Committee, the Committee
shall possess all of the power and authority of, and shall be
authorized to take any and all actions required to be taken
hereunder by, and make any and all determinations required to be
5
taken hereunder by, the Board. If the Board does not delegate
its authority to a Committee, each reference herein to the
Committee will be construed as a reference to the Board unless
the context otherwise requires.
(iii) Company Registered Securities Under Exchange Act.
------------------------------------------------
So long as the Company has a class of equity securities registered
under Section 12 of the Exchange Act, the Committee shall consist
of not less than two persons, each of whom shall be a Non-
Employee Director.
(b) Authority of the Committee. Subject to theprovisions of
--------------------------
the Plan, the Committee shall have the authority, in its
discretion:
(i) to make Awards;
(ii) to select the persons to whom Incentive Stock
Options, Non-Qualified Stock Options, and
PSUs may from time to time be granted
hereunder;
(iii) to determine whether and to what extent
Incentive Stock Options, Non-Qualified Stock
Options, and PSUs, or any combination
thereof, may be granted hereunder;
(iv) to determine the exercise price of any
Options to be awarded in accordance with
Sections 7 and 8 of the Plan;
(v) to determine the number of Shares to be
covered by each such Award granted hereunder;
(vi) to prescribe, amend and rescind rules and
regulations relating to the Plan;
(vii) to determine the terms and provisions of
each Award under the Plan and each Option
Agreement (which need not be identical with
the terms of other Awards and Option
Agreements) and, with the consent of the
Participant, to modify or amend any
outstanding Option or Option Agreement;
(viii)to accelerate the vesting or exercise date
of any Award;
(ix) to interpret the Plan or any agreement
entered into in connection with the Plan;
6
(x) to authorize any person to execute on behalf
of the Company any instrument required to
effectuate an Award or to take such other
actions as may be necessary or appropriate
with respect to the Company's rights pursuant
to Awards or agreements relating to the Award
or exercise thereof; and
(xi) to make such other determinations and
establish such other procedures as it deems
necessary or advisable for the administration
of the Plan.
(c) Effect of the Committee's Decision. All decisions,
----------------------------------
determinations and interpretations of the Committee shall be
final and binding with respect to all Awards under the Plan.
(d) Limitation of Liability. Notwithstanding anything herein to
-----------------------
the contrary (with the exception of Section 31 hereof), no member
of the Board or of the Committee shall be liable for any good
faith determination, act or failure to act in connection with the
Plan or any Award hereunder.
Section 5. Eligibility.
-----------
Awards may be made to Employees and Directors, except
that only a person employed by the Company or any of its
Subsidiaries may receive an Incentive Stock Option. An Employee
or Director who has received an Award, if he or she is otherwise
eligible, may receive additional Awards.
Section 6. Stock Subject to the Plan.
-------------------------
Subject to the provisions of this Section 6 and the
provisions of Section 9 of the Plan, the maximum aggregate number
of Shares which may be awarded and sold under the Plan is 600,000
Shares of Common Stock (collectively, the "Pool"). The maximum
aggregate number of Shares which may be awarded and sold under
the Plan to any individual Participant is 600,000 Shares of
Common Stock. Options awarded from the Pool may be either
Incentive Stock Options or Non-Qualified Stock Options, as
determined by the Committee. If an Option should expire or
become unexercisable for any reason without having been exercised
in full, or if Shares are subsequently repurchased by the
Company, the unpurchased or repurchased Shares which were subject
thereto whether they are retired or held as treasury shares
shall, unless the Plan shall have been terminated, be returned to
the Plan and become available for future Awards under the Plan.
7
Section 7. Terms and Conditions of Options.
-------------------------------
Each Option awarded pursuant to the Plan shall be
authorized by the Committee and shall be evidenced by an Option
Agreement in such form as the Committee may from time to time
determine. Each Option Agreement will incorporate by reference
the terms of the Plan and will include provisions as to the
following:
(a) Number of Shares. The number of Shares subject to the
----------------
Option, which may include fractional Shares.
(b) Option Price. The price per Share payable on the exercise
------------
of any Option which is an Incentive Stock Option shall be stated
in the Option Agreement and shall be no less than the Fair Market
Value Per Share of the Common Stock on the date such Option is
awarded, without regard to any restriction other than a
restriction which will never lapse. Notwithstanding the
foregoing, if an Option which is an Incentive Stock Option shall
be awarded under this Plan to any person who, at the time of the
Award of such Option, owns stock possessing more than 10% of the
total combined voting power of all classes of the Company's
stock, the price per Share payable upon exercise of such
Incentive Stock Option shall be no less than 110 percent (110%)
of the Fair Market Value Per Share of the Common Stock on the
date such Option is awarded. The price per Share payable on the
exercise of an Option which is a Non-Qualified Stock Option shall
be at least $5.00 per Share and shall be stated in the Option
Agreement.
(c) Consideration. The consideration to be paid for the Shares
-------------
to be issued upon the exercise of an Option, including the method
of payment, which shall be determined by the Committee and may
consist entirely of cash, promissory notes or shares of Common
Stock having an aggregate Fair Market Value Per Share on the date
of surrender equal to the aggregate exercise price of the Shares
as to which said Option shall be exercised, or any combination of
such methods of payment, or such other consideration and method
of payment permitted under any laws to which the Company is
subject and which is approved by the Committee. In making its
determination as to the type of consideration to accept, the
Committee shall consider if acceptance of such consideration may
be reasonably expected to benefit the Company.
(i) If the consideration for the exercise of an
Option is a promissory note, it may, in the
discretion of the Committee, be either full
recourse or nonrecourse and shall bear
interest at a per annum rate which is not
less than the applicable federal rate
determined in accordance with section 1274(d)
of the Code as of the date of exercise. In
such an instance the Company may, in its sole
discretion, retain the Shares purchased upon
exercise of the Option in escrow as security
for payment of the promissory note.
8
(ii) If the consideration for the exercise of an
Option is the surrender of previously
acquired and owned shares of Common Stock,
the Participant will make representations and
warranties satisfactory to the Company
regarding his title to the shares of Common
Stock used to effect the purchase (the
"Payment Shares"), including without
limitation, representations and warranties
that the Participant has good and marketable
title to such Payment Shares free and clear
of any and all liens, encumbrances, charges,
equities, claims, security interests, options
or restrictions, and has full power to
deliver such Payment Shares without obtaining
the consent or approval of any person or
governmental authority other than those which
have already given consent or approval in a
manner satisfactory to the Company. The per
share value of the Payment Shares shall be
the Fair Market Value Per Share of such
Payment Shares on the date of exercise as
determined by the Board in its sole
discretion, exercised in good faith. If such
Payment Shares were acquired upon previous
exercise of Incentive Stock Options granted
within two years prior to the exercise of the
Option or acquired by the Participant within
one year prior to the exercise of the Option,
such Participant shall be required, as a
condition to using the Payment Shares in
payment of the exercise price of the Option,
to acknowledge the tax consequences of doing
so, in that such previously exercised
Incentive Stock Options may have, by such
action, lost their status as Incentive Stock
Options, and the Participant may recognize
ordinary income for tax purposes as a result.
(d) Form of Option. Whether the Option awarded is an Incentive
--------------
Stock Option or a Non-Qualified Stock Option, which will
constitute a binding determination as to the form of Option
awarded.
(e) Exercise of Options. Any Option awarded hereunder shall be
-------------------
exercisable at such times and under such conditions as shall be
set forth in the Option Agreement (as may be determined by the
Committee and as shall be permissible under the terms of the
Plan), which may include performance criteria with respect to the
Company and/or the Participant, and as shall be permissible under
the terms of the Plan. An Option shall be deemed to be exercised
when written notice of such exercise has been given to the
Company at its principal executive office in accordance with the
terms of the Option Agreement by the person entitled to exercise
the Option and full payment for the Shares with respect to which
the Option is exercised has been received by the Company,
accompanied by any agreements required by the terms of the Plan
and the applicable Option Agreement. Full payment may consist of
such consideration and method of payment allowable under this
Section 7. No adjustment shall be made for a dividend or other
9
right for which the record date is prior to the date the Option
is exercised, except as provided in Section 9.
(f) Partial Exercise. An Option may be exercised in accordance
----------------
with the provisions of this Plan as to all or any portion of the
Shares then exercisable under an Option from time to time during
the term of the Option. An Option may not be exercised for a
fraction of a Share.
(g) Leave of Absence. Except as may otherwise be provided in an
----------------
Option Agreement, if an Option would first become exercisable
while the Participant is absent from service on an approved leave
of absence, the Participant shall not be permitted to exercise
such Option until the Participant's return to active employment
with the Company. Except as may otherwise be provided in an
Option Agreement, if an Option had become exercisable before or
as of the commencement of an approved leave of absence, the
Participant may exercise such previously vested Option while on
such leave. Whether a Participant is absent on a leave or has
terminated employment shall be determined in accordance with the
Company's regular personnel policies.
(h) Share Certificates. As soon as practicable after any proper
------------------
exercise of an Option in accordance with the provisions of the
Plan, the Company shall, without transfer or issue tax to the
Participant, deliver to the Participant at the principal
executive office of the Company or such other place as shall be
mutually agreed upon between the Company and the Participant, a
certificate or certificates representing the Shares for which the
Option shall have been exercised.
(i) Vesting
-------
(i) Any vesting conditions applicable to the
Options evidenced thereby. To the extent
that no vesting conditions are stated in the
Option Agreement, the Options evidenced
thereby shall be fully vested at grant. Any
Option granted hereunder which is outstanding
but not vested seven (7) years after the date
of Award shall become vested at that time.
Options may be exercised in any order elected
by the Participant whether or not the
Participant holds any unexercised Options
under this Plan or any other plan of the
Company.
(ii) Notwithstanding any other provision of this
Plan, no Option shall be (A) awarded under
this Plan after ten (10) years from the date
10
on which this Plan is adopted by the Board,
or (B) exercisable more than ten (10) years
from the date of Award; provided, however,
-------- -------
that if an Option that is intended to be an
Incentive Stock Option shall be awarded under
this Plan to any person who, at the time of
the Award of such Option, owns stock
possessing more than 10% of the total
combined voting power for all classes of the
Company's stock, the foregoing clause (B)
shall be deemed modified by substituting
"five (5) years" for the term "ten (10) years"
that appears therein.
(iii) No Option awarded to any Participant
shall be treated as an Incentive Stock
Option, to the extent such Option would cause
the aggregate Fair Market Value Per Share
(determined as of the date of Award of each
such Option) of the Shares with respect to
which Incentive Stock Options are exercisable
by such Participant for the first time during
any calendar year to exceed $100,000. For
purposes of determining whether an Incentive
Stock Option would cause such aggregate Fair
Market Value Per Share to exceed the $100,000
limitation, such Incentive Stock Options
shall be taken into account in the order
awarded. For purposes of this subsection,
Incentive Stock Options include all Incentive
Stock Options under all plans of the Company
that are Incentive Stock Option plans within
the meaning of section 422 of the Code.
(j) Termination of Options.
----------------------
(1) Upon the Termination of Employment for any
reason other than death, Disability or Cause,
(A) any Options that were not exercisable at
the date of Termination of Employment will
expire automatically, (B) any exercisable
Option intended to be an Incentive Stock
Option will remain exercisable for ninety
(90) days after the date of Termination of
Employment and (C) any exercisable Option not
intended to be an Incentive Stock Option
shall remain exercisable for twelve (12)
months after the date of Termination of
Employment.
(2) Upon the death of a Participant, (A) any
Options that were not exercisable at the date
of death will expire automatically, (B) any
exercisable Option intended to be an
Incentive Stock Option will remain
exercisable for only ninety (90) days after
the date of Termination of Employment and (C)
any other exercisable Option may be exercised
by the Participant's estate or by a person
11
who acquires the right to exercise such
Option by bequest or inheritance or by reason
of the death of the Participant, provided
that such exercise occurs within both the
remaining term of the Option and one year
after the Participant's death.
(3) Upon the Termination of Employment by reason
of Disability, (A) any Options that were not
exercisable at the date of Termination of
Employment will expire automatically, (B) any
exercisable Option intended to be an
Incentive Stock Option will remain
exercisable for only ninety (90) days after
the date of Termination of Employment any
other exercisable Option may be exercised
within 36 months from the date of Termination
of Employment.
(4) Notwithstanding any other provision of this
Plan, upon the Termination of Employment of
any Participant for ACause, all of that
Participant's unexercised Options will
terminate immediately upon the date such
Termination of Employment and the Participant
shall forfeit all Shares for which the
Company has not yet delivered share
certificates to the Participant. The Company
shall refund to the Participant the Option
purchase price paid to it, if any, in the
same form as it was paid (or in cash at the
Company's discretion). The Company may
withhold delivery of share certificates
pending the resolution of any inquiry that
could lead to a finding that a Termination of
Employment was for Cause.
(k) Reload Options. Whether or not Reload Options are
--------------
authorized with respect to the Options granted thereby.
Section 8. Determination of Fair Market Value Per Share of Common Stock
------------------------------------------------------------
(a) If shares of Common Stock are listed on a national
or regional securities exchange or traded through the NASDAQ
National Market, the Fair Market Value of a share of Common Stock
shall be the closing price for a share of Common Stock on the
exchange or on the NASDAQ National Market, as reported in The
Wall Street Journal on the relevant valuation date, or if
- ------------------
there is no trading on that date, on the next preceding date on
which there were reported share prices. If shares of Common
Stock are traded in the over-the-counter market, the Fair Market
Value Per Share of Common Stock shall be the mean of the bid and
asked prices for a share of Common Stock on the relevant
valuation date as reported in The Wall Street Journal (or, if not so
-----------------------
reported, as otherwise reported by the National Association of
Securities Dealers Automated Quotations ("NASDAQ") System), as
applicable or, if there is no trading on such date, on the next
preceding date on which there were reported share prices.
12
(b) If Fair Market Value Per Share of Common Stock
cannot be determined in accordance with Section 8(a), then the
Fair Market Value Per Share of Common Stock shall be determined
by the Committee in good faith and in its sole discretion. In no
event shall this Section 8(b) require the Committee to obtain any
expert or independent opinion with respect to the Fair Market
Value Per Share of Common Stock.
Section 9. Adjustments.
-----------
(a) Subject to required action by the Shareholders, if
any, the number of Shares in the Pool and the number of Shares
subject to outstanding Options and the Option prices thereof
shall be adjusted proportionately for any increase or decrease in
the number of outstanding Shares of Common Stock of the Company
resulting from stock splits, reverse stock splits, stock
dividends, reclassifications and recapitalizations, merger,
consolidation, exchange of shares, or rights offered to purchase
shares of Common Stock at a price substantially below Fair Market
Value Per Share or any similar change affecting Common Stock.
(b) No fractional Shares shall be issuable on account
of any action mentioned in Section 9(a), and the aggregate number
of Shares into which Shares then covered by the Award, when
changed as the result of such action, shall be reduced to the
number of whole Shares resulting from such action, unless the
Board, in its sole discretion, shall determine to issue scrip
certificates with respect to any fractional Shares, which scrip
certificates, in such event, shall be in a form and have such
terms and conditions as the Board in its discretion shall
prescribe. The Board, in its sole discretion, shall make
appropriate equitable anti-dilution adjustments to the number of
then-outstanding PSUs.
Section 10. Phantom Stock Units.
-------------------
(a) Awards and Administration. A PSU is the right to receive a
-------------------------
cash award in in an amount equal to Value of the PSU on the date
of exercise. The Committee shall determine the persons to whom
and the time or times at which PSUs shall be awarded, the number
of PSUs to be awarded to any such person, the duration of the
period (the "performance period") during which, and the conditions
under which, a Participant's right to PSUs will be vested, and
the other terms and conditions of the award in addition to those
set forth below. The Committee may condition the vesting of PSUs
upon the attainment of specified performance goals or such other
factors or criteria as the Committee shall determine, in its sole
discretion. The provisions of PSU awards need not be the same
with respect to each Participant, and such awards to individual
Participants need not be the same in subsequent years.
(b) Terms and Conditions. PSUs awarded pursuant to this Section
--------------------
10 shall be subject to the following terms and conditions and
such other terms and conditions not inconsistent with this Plan
as the Committee deems desirable:
13
(i) Conditions. At the discretion of the Committee, the
----------
Participant shall have, with respect to each PSU, the right to
receive any distributions or dividends, equal to any
distributions or dividends actually paid in respect of
outstanding shares of Common Stock while a PSU is outstanding.
(ii) Transfer or Assignment. PSUs shall not be
----------------------
transferable nor assignable.
(iii) Vesting. The Board, in its sole discretion, shall
-------
specify the performance period during which, and the conditions
under which, the Participant's right to PSUs will be vested. At
the expiration of the performance period, the Board, in its sole
discretion, shall determine the extent to which the performance
goals have been achieved, and the percentage of the PSUs of each
Participant that have vested.
(iv) Exercise. Upon exercise of a PSU, its Value shall be
--------
payable in cash. As a condition to payment, the Participant
shall make appropriate arrangements to satisfy applicable
federal, state, or local tax withholding requirements. Unless
provided otherwise, PSUs may be exercised only on a December 31
or January 1 of the relevant year.
(v) Termination of Employment. Upon a Participant=s
-------------------------
Termination of Employment, all that Participant's PSUs and any
rights thereunder will be forfeited immediately.
Section 11. Reload Options.
--------------
(a) Authorization of Reload Options. Concurrently with the
-------------------------------
award of Options, the Committee may authorize reload options
("Reload Option") to purchase for cash or shares a number of
shares of Common Stock. The number of Reload Options shall equal
(i) the number of shares of Common Stock used to exercise the
underlying Options and (ii) to the extent authorized by the
Committee, the number of shares of Common Stock used to satisfy
any tax withholding requirement incident to the exercise of the
underlying Stock Options or Incentive Stock Options. The grant
of a Reload Option will become effective upon the exercise of
underlying Options or Reload Options through the use of shares of
Common Stock held by the optionee for at least 12 months.
Notwithstanding the fact that the underlying option may be an
Incentive Stock Option, a Reload Option is not intended to
qualify as an "incentive stock option" under Section 422 of the
Internal Revenue Code of 1986.
(b) Reload Option Amendment. Each Option Agreement shall state
-----------------------
whether the Committee has authorized Reload Options with respect
to the underlying Options. Upon the exercise of an underlying
Option or other Reload Option, the Reload Option will be
evidenced by an amendment to the underlying Option Agreement.
14
(c) Reload Option Price. The option price per share of Common
-------------------
Stock deliverable upon the exercise of a Reload Option shall be
the Fair Market Value per Share of Common Stock on the date the
grant of the Reload Option becomes effective.
(d) Term and Exercise. Each Reload Option shall be fully
-----------------
exercisable six months from the effective date of its grant. The
term of each Reload Option shall be equal to the remaining option
term of the underlying Option.
(e) Termination of Employment. No additional Reload Options
-------------------------
shall be granted to any Optionee upon exercise of Options or
Reload Options following any Termination of Employment.
Section 12. Rights as a Shareholder.
-----------------------
A recipient of an Option Award or PSU shall have no
rights as a Shareholder of the Company and shall neither have the
right to vote nor receive dividends with respect to any Shares
subject to an Option until such Option has been exercised and a
certificate with respect to the Shares purchased upon such
exercise has been issued to him.
Section 13. Time of Awarding Options or PSUs.
--------------------------------
The date of an Award shall, for all purposes, be the
date which the Committee specifies when the Committee makes its
determination that an Award is made or if none is specified, then
the date of the Committee's determination. Notice of the
determination shall be given to each Employee to whom an Award is
made within a reasonable time after the date of such Award.
Section 14. Modification, Extension and Renewal of Award.
--------------------------------------------
Subject to the terms and conditions of the Plan, the
Committee may modify, extend or renew an Award, or accept the
surrender of an Award (to the extent not theretofore exercised).
Notwithstanding the foregoing, (a) no modification of an Award
which adversely affects the Participant shall be made without the
consent of the Participant, and (b) no Incentive Stock Option may
be modified, extended or renewed if such action would cause it to
cease to be an "Incentive Stock Option" within the meaning of
section 422 of the Code, unless the Participant specifically
acknowledges and consents to the tax consequences of such action.
15
Section 15. Purchase for Investment and Other Restrictions.
----------------------------------------------
(a) The obligation of the Company to issue Shares to a
Participant upon the exercise of an Option granted under the Plan
is conditioned upon:
(i) the Company obtaining any required permit or
order from appropriate United States, state
and foreign governmental agencies or stock
exchange or similar body, authorizing the
Company to issue such Shares; and
(ii) such issuance complying with all relevant
provisions of applicable law, including,
without limitation, the Securities Act, the
Exchange Act, the rules and regulations
promulgated thereunder and any applicable
foreign laws.
(b) At the option of the Committee, the obligation of
the Company to issue Shares to a Participant upon the exercise of
an Option granted under the Plan may be conditioned upon
obtaining appropriate representations, warranties, restrictions
and agreements of the Participant. Among other representations,
warranties, restrictions and agreements, the Participant may be
required to represent and agree that the purchase of Shares shall
be for investment, and not with a view to the public resale or
distribution thereof, unless the Shares are registered under the
Securities Act and the issuance and sale of the Shares complies
with all other laws, rules and regulations applicable thereto.
Unless the issuance of such Shares is registered under the
Securities Act (and any similar law of a foreign jurisdiction
applicable to the Participant), the Participant shall acknowledge
that the Shares purchased are not registered under the Securities
Act (or any such other law) and may not be sold or otherwise
transferred unless the Shares have been registered under the
Securities Act (or any such other law) in connection with the
sale or other transfer thereof, or that counsel satisfactory to
the Company has issued an opinion satisfactory to the Company
that the sale or other transfer of such Shares is exempt from
registration under the Securities Act (or any such other law),
and unless said sale or transfer is in compliance with all other
applicable laws, rules and regulations, including all applicable
federal, state and foreign securities laws, rules and
regulations. Unless the Shares subject to an Award are
registered under the Securities Act, the certificates
representing such Shares issued shall contain the following
legend in substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED OR ANY APPLICABLE STATE SECURITIES LAWS. THESE
SHARES HAVE NOT BEEN ACQUIRED WITH A VIEW TO
DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, ASSIGNED,
EXCHANGED, MORTGAGED, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED OR DISPOSED OF, BY GIFT OR
OTHERWISE, OR IN ANY WAY ENCUMBERED WITHOUT AN
16
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY
APPLICABLE STATE SECURITIES LAWS, OR A SATISFACTORY
OPINION OF COUNSEL SATISFACTORY TO BT FINANCIAL
CORPORATION, INC. THAT REGISTRATION IS NOT REQUIRED
UNDER SUCH ACT AND UNDER APPLICABLE STATE SECURITIES
LAWS.
If required under the laws of any jurisdiction in which the
Participant resides, the certificate or certificates may bear any
such legend.
Section 16. Transferability.
---------------
No Option shall be assignable or transferable otherwise
than by will or by the laws of descent and distribution. Options
shall be exercisable only by Participant, or, in the event of his
or her legal incapacity or Disability, then by the Participant's
legal guardian or representative, or by a Participant's executor
or administrator.
Section 17. Other Provisions.
----------------
Each Option Agreement may contain such other provisions
as the Committee in its discretion deems advisable and which are
not inconsistent with the provisions of this Plan, including,
without limitation, restrictions upon or conditions precedent to
the exercise of the Option.
Section 18. Power of Board in Case of Change of Control.
-------------------------------------------
In the event of a Change of Control, the Board shall
have the authority, in its discretion, to accelerate the vesting
of all unmatured Options or to accelerate the expiration date of
all Options, whether or not matured. In addition, in the event
of a Change of Control of the Company by reason of a merger,
consolidation or tax free reorganization or sale of all or
substantially all of the assets of the Company, the Board shall
have the authority, in its discretion, to terminate this Plan and
to (a) exchange all Options for options to purchase common stock
in the successor corporation or (b) distribute to each
Participant cash and/or other property in an amount equal to and
in the same form as the Participant would have received from the
successor corporation if the Participant had owned the Shares
subject to the Option rather than the Option at the time of the
Change of Control, provided that any such amount paid to a
Participant shall reflect the deduction of the exercise price the
Participant would have paid to purchase such Shares. The form of
payment or distribution to the Participant pursuant to this
Section shall be determined by the Board.
17
Section 19. Amendment of the Plan.
---------------------
Insofar as permitted by law and the Plan, the Board may
from time to time suspend, terminate or discontinue the Plan or
revise or amend it in any respect whatsoever with respect to any
Shares at the time not subject to an Option; provided, however,
that without approval of the Shareholders by a majority of the
votes cast at a duly held Shareholder meeting at which a quorum
representing a majority of the Company's outstanding voting
shares is present (either in person or by proxy), within one year
(365 days) of the adoption of an amendment or revision by the
Board, no such amendment or revision may change the aggregate
number of Shares for which Options may be awarded hereunder,
change the designation of the class of Employees eligible to
receive Options or decrease the price at which Options may be
awarded.
The Committee may make Awards hereunder prior to
approval of any amendment; provided, however, that any and all
-----------------
Options so awarded automatically shall be converted into Non-Qualified
Stock Options if the amendment is not approved by such Shareholders within 365
days of its adoption.
Any other provision of this Section 19 notwithstanding,
the Board specifically is authorized to adopt any amendment to
this Plan deemed by the Board to be necessary or advisable to
assure that the Incentive Stock Options or the Non-Qualified
Stock Options available under the Plan continue to be treated as
such, respectively, under all applicable laws.
Section 20. Application of Funds.
--------------------
The proceeds received by the Company from the sale of
Shares pursuant to the exercise of Options shall be used for
general corporate purposes or such other purpose as may be
determined by the Board.
Section 21. No Obligation to Exercise Option.
--------------------------------
The Award of an Option shall impose no obligation upon
the Participant to exercise such Option.
Section 22. Approval of Shareholders.
------------------------
This Plan shall become effective on the date that it is
adopted by the Board; provided, however, that it shall become
-----------------
limited to a Non-Qualified Stock Option plan if it is not approved by
the shareholders of the Company within one year (365 days) of its adoption
by the Board, by a majority of the votes cast at a duly held shareholder
meeting at which a quorum representing a majority of the
Company's outstanding voting shares is present, either in person
or by proxy. The Committee may make Awards hereunder prior to
shareholder approval of the Plan; provided, however, that any and
-----------------
all Options so awarded automatically shall be converted into Non-Qualified
18
Stock Options if the Plan is not approved by such Shareholders
within 365 days of its adoption.
Section 23. Conditions Upon Issuance of Shares.
----------------------------------
Shares shall not be issued pursuant to the exercise of
an Option unless the exercise of such Option and the issuance and
delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the
Securities Act, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock
exchange upon which the Shares may then be listed, and shall be
further subject to the approval of counsel for the Company with
respect to such compliance.
Section 24. Reservation of Shares.
---------------------
The Company shall at all times reserve and keep
available such number of Shares as shall be sufficient to satisfy
the requirements of the Plan.
The Company shall use its best efforts to seek to
obtain from appropriate regulatory agencies any requisite
authorization in order to issue and sell such number of Shares as
shall be sufficient to satisfy the requirements of the Plan. The
inability of the Company to obtain from any such regulatory
agency having jurisdiction the requisite authorization(s) deemed
by the Company's counsel to be necessary for the lawful issuance
and sale of any Shares hereunder, or the inability of the Company
to confirm to its satisfaction that any issuance and sale of any
Shares hereunder will meet applicable legal requirements, shall
relieve the Company of any liability in respect to the failure to
issue or sell such Shares as to which such requisite authority
shall not have been obtained.
Section 25. Stock Option Agreements.
-----------------------
Options shall be evidenced by an Option Agreement in
such form or forms as the Board shall approve from time to time.
Section 26. Taxes, Fees, Expenses and Withholding of Taxes.
----------------------------------------------
(a) The Company shall pay all original issue and
transfer taxes (but not income taxes, if any) with respect to the
Award of Options and/or the issue and transfer of Shares pursuant
to the exercise thereof, and all other fees and expenses
necessarily incurred by the Company in connection therewith, and
will from time to time use its best efforts to comply with all
laws and regulations which, in the opinion of counsel for the
Company, shall be applicable thereto.
19
(b) The Award of Options hereunder and the issuance of
Shares pursuant to the exercise of Options is conditioned upon
the Company's reservation of the right to withhold in accordance
with any applicable law, from any compensation or other amounts
payable to the Participant, any taxes required to be withheld
under federal, state or local law as a result of the Award or
exercise of such Option or the sale of the Shares issued upon
exercise thereof. To the extent that compensation or other
amounts, if any, payable to the Participant is insufficient to
pay any taxes required to be so withheld, the Company may, in its
sole discretion, require the Participant (or such other person
entitled herein to exercise the Option), as a condition of the
exercise of an Option, to pay in cash to the Company an amount
sufficient to cover such tax liability or otherwise to make
adequate provision for the Company's satisfaction of its
withholding obligations under federal, state and local law,
provided that such satisfaction of tax liability is made within
60 days of the date on which written notice of exercise has been
given to the Company.
Section 27. Notices.
-------
Any notice to be given to the Company pursuant to the
provisions of this Plan shall be addressed to the Company in care
of its Secretary (or such other person as the Company may
designate from time to time) at its principal executive office,
and any notice to be given to a Participant shall be delivered
personally or addressed to him or her at the address given
beneath his or her signature on his or her Option Agreement, or
at such other address as such Participant or his or her permitted
transferee (upon the transfer of the Shares) may hereafter
designate in writing to the Company. Any such notice shall be
deemed duly given on the date and at the time delivered via
personal, courier or recognized overnight delivery service or, if
sent via telecopier, on the date and at the time telecopied with
confirmation of delivery or, if mailed, on the date five (5) days
after the date of the mailing (which shall be by regular,
registered or certified mail). Delivery of a notice by telecopy
(with confirmation) shall be permitted and shall be considered
delivery of a notice notwithstanding that it is not an original
that is received. It shall be the obligation of each Participant
and each permitted transferee holding Shares purchased upon
exercise of an Option to provide the Secretary of the Company, by
letter mailed as provided herein, with written notice of his or
her direct mailing address.
Section 28. No Enlargement of Participant Rights.
------------------------------------
This Plan is purely voluntary on the part of the
Company, and the continuance of the Plan shall not be deemed to
constitute a contract between the Company and any Participant, or
to be consideration for or a condition of the employment or
service of any Participant. Nothing contained in this Plan shall
be deemed to give any Participant the right to be retained in the
employ or service of the Company or any Subsidiary, or to
interfere with the right of the Company or any such corporation
to discharge or retire any Participant thereof at any time
subject to applicable law. No Participant shall have any right
to or interest in Awards authorized hereunder prior to the Award
thereof to such Participant, and upon such Award he shall have
20
only such rights and interests as are expressly provided herein,
subject, however, to all applicable provisions of the Company's
Certificate of Incorporation, as the same may be amended from
time to time.
Section 29. Information to Participants.
---------------------------
The Company, upon request, shall provide without charge
to each Participant copies of such annual and periodic reports as
are provided by the Company to its Shareholders generally.
Section 30. Invalid Provisions.
------------------
If any provision of this Plan is found to be invalid or
otherwise unenforceable under any applicable law, such invalidity
or unenforceability shall not be construed as rendering any other
provisions contained herein as invalid or unenforceable, and all
such other provisions shall be given full force and effect to the
same extent as though the invalid or unenforceable provision was
not contained herein.
Section 31. Applicable Law.
--------------
This Plan shall be governed by, construed and enforced
in accordance with the laws of the Commonwealth of Pennsylvania.
Executed this 12 day of May, 1998.
[CORPORATE SEAL] BT FINANCIAL CORPORATION
Attest: /s/ Laura L. Roth By: /s/ John H. Anderson
----------------------------- -------------------------
ADOPTION AND APPROVAL OF PLAN
-----------------------------
Date Plan adopted by Board: November 26, 1997
Date Plan approved by Shareholders: May 12, 1998
Effective Date of Plan: May 12, 1998
21
Exhibit A-1
NON-QUALIFIED STOCK OPTION AGREEMENT UNDER THE
BT FINANCIAL CORPORATION 1998 EQUITY INCENTIVE PLAN
BT Financial Corporation (the "Company"), hereby grants
to [name] (the "Optionee") the option to purchase [number of shares] shares
---- ----------------
of the Company's common stock (the "Option"). The Option is subject to
the terms set forth herein, and in all respects is subject to the
terms and provisions of the BT Financial Corporation 1998 Equity
Incentive Plan (the "Plan") applicable to non-qualified stock
options, which terms and provisions are incorporated herein by
this reference. Unless the context herein requires otherwise,
the terms defined in the Plan shall have the same meanings
herein.
1. NATURE OF THE OPTION. The Option is intended to
be a nonstatutory stock option for federal income tax purposes
and is not intended to be an Incentive Stock Option described by
Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or to otherwise qualify the Optionee for any special tax
benefits.
2. DATE OF GRANT; TERM OF OPTION. This Option is
granted as of (date of grant), and it may not be exercised than
later than the date that is ten (10) years after date of grant,
subject to earlier termination, as provided in the Plan.
3. OPTION EXERCISE PRICE. The exercise price to the Optionee
to purchase, pursuant to this Agreement, one share of common
stock of the Company is $[exercise price].
--------------
4. RELOAD OPTIONS. This Option Agreement does not
provide for the grant of any Reload Options.
5. EXERCISE OF OPTION. The Option shall be
exercisable during its term only in accordance with the terms and
provisions of the Plan and this Option Agreement as follows:
(a) RIGHT TO EXERCISE. The Option shall become exercisable
on [exercise date].
-------------
(b) METHOD OF EXERICSE. The Optionee may
exercise the Option by providing written notice stating the
election to exercise this Option, and making such representations
and agreements as to the Optionee's investment intent with
respect to the shares underlying the Option and to be purchased
(the "Shares") as may be required by the Company hereunder or
pursuant to the provisions of the Plan. Such written notice
shall be signed by the Optionee and shall be delivered in person
or by certified mail to the Secretary of the Company or such
other person as may be designated by the Company. The written
notice shall be accompanied by payment of the exercise price by
check or such other consideration and method of payment as may be
authorized by the Board pursuant to the Plan. The certificate(s)
for the Shares as to which the Option shall be exercised shall be
registered in the name of the Optionee and shall be legended as
may be required under applicable law.
(c) PARTIAL EXERCISE. The Option may be
exercised in whole or in part.
(d) RESTRICTIONS ON EXERCISE. This Option may
not be exercised if the issuance of the Shares upon such exercise
would constitute a violation of any applicable federal or state
securities laws or other laws or regulations. As a condition to
the exercise of this Option, the Company may require the Optionee
to make any representation and warranty to the Company as may be
required by or advisable under any applicable law or regulation.
6. NONTRANSFERABILITY OF OPTION. This Option may not
be sold, pledged, assigned, hypothecated, gifted, transferred or
disposed of in any manner either voluntarily or involuntarily by
operation of law, other than by will or by the laws of descent or
distribution, and may be exercised during the lifetime of the
Optionee only by such Optionee. Subject to the foregoing and the
terms of the Plan, the terms of this Option shall be binding upon
the executors, administrators, heirs, successors and assigns of
the Optionee.
7. CONTINUATION OF EMPLOYMENT OR ENGAGEMENT. Neither
the Plan nor this Option shall confer upon any Optionee any right
to continue in the service of the Company or limit, in any
respect, the right of the Company to discharge the Optionee at
any time, with or without cause and with or without notice.
8. WITHHOLDING. The Company reserves the right to
withhold, in accordance with any applicable laws, from any
consideration payable to Optionee any taxes required to be
withheld by federal, state or local law as a result of the grant
or exercise of this Option or the sale or other disposition of
the Shares issued upon exercise of this Option. If the amount of
any consideration payable to the Optionee is insufficient to pay
such taxes or if no consideration is payable to the Optionee,
upon the request of the Company, the Optionee (or such other
person entitled to exercise the Option pursuant to the Plan)
shall pay to the Company an amount sufficient for the Company to
satisfy any federal, state or local tax withholding requirements
it may incur as a result of the grant or exercise of this Option
or the sale or other disposition of the Shares issued upon the
exercise of this Option.
9. THE PLAN. This Option is subject to, and the
Company and the Optionee agree to be bound by, all of the terms
and conditions of the Plan as such Plan may be amended from time
A-1-2
to time in accordance with the terms thereof, provided that no
such amendment shall deprive the Optionee, without his consent,
of this Option or any rights hereunder. Pursuant to the Plan,
the Board or the Option Committee of the Board is authorized to
adopt rules and regulations not inconsistent with the Plan as it
shall deem appropriate and proper. A copy of the Plan in its
present form is available for inspection during business hours by
the Optionee or the persons entitled to exercise this Option at
the Company's principal office.
10. ENTIRE AGREEMENT. This Agreement, together with
the Plan and the other exhibits attached thereto or hereto,
represents the entire agreement between the parties.
11. GOVERNING LAW. This Agreement shall be governed
by, construed and enforced in accordance with the laws of the
Commonwealth of Pennsylvania.
12. AMENDMENT. Subject to the provisions of the Plan,
this Agreement may only be amended by a writing signed by each of
the parties hereto.
IN WITNESS WHEREOF, this Agreement has been executed by the
parties on the day of , .
---- ------------ ---
BT FINANCIAL CORPORATION
By:
-----------------------------------------
Title: ------------------------------------
OPTIONEE
-----------------------------------------------
Signature
-----------------------------------------------
Printed Name
A-1-3
ACKNOWLEDGMENT
--------------
The Optionee acknowledges receipt of a copy of the
BT Financial Corporation 1998 Equity Incentive Plan (the "Plan"),
a copy of which is attached hereto, and represents that Optionee
has read and is familiar with the terms and provisions thereof,
and hereby accepts this Option subject to all of the terms and
provisions thereof. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of
the Board of Directors or the Committee upon any questions
arising under the Plan.
Date:
------------------------- ------------------------------------
Optionee
Exhibit A-2
INCENTIVE STOCK OPTION AGREEMENT UNDER THE
BT FINANCIAL CORPORATION 1998 EQUITY INCENTIVE PLAN
BT Financial Corporation (the "Company"), hereby grants
to [name] (the "Optionee") the option to purchase [number of shares] shares
---- ----------------
of the Company's common stock (the "Option"). The Option is subject to
the terms set forth herein, and in all respects is subject to the
terms and provisions of the BT Financial Corporation 1998 Equity
Incentive Plan (the "Plan") applicable to non-qualified stock
options, which terms and provisions are incorporated herein by
this reference. Unless the context herein requires otherwise,
the terms defined in the Plan shall have the same meanings
herein.
1. NATURE OF THE OPTION. The Option is intended to
be an Incentive Stock Option described by Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
2. DATE OF GRANT; TERM OF OPTION. This Option is
granted as of [date of grant], and it may not be exercised than
later than the date that is ten (10) years after date of grant,
subject to earlier termination, as provided in the Plan.
3. OPTION EXERCISE PRICE. The exercise price to the Optionee
to purchase, pursuant to this Agreement, one share of common
stock of the Company is $[exercise price].
--------------
4. RELOAD OPTIONS. This Option Agreement does not
provide for the grant of any Reload Options.
5. EXERCISE OF OPTION. The Option shall be
exercisable during its term only in accordance with the terms and
provisions of the Plan and this Option Agreement as follows:
(a) RIGHT TO EXERCISE. The Option shall become
exercisable on [exercise date].
-------------
(b) METHOD OF EXERCISE. The Optionee may
exercise the Option by providing written notice stating the
election to exercise this Option, and making such representations
and agreements as to the Optionee's investment intent with
respect to the shares underlying the Option and to be purchased
(the "Shares") as may be required by the Company hereunder or
pursuant to the provisions of the Plan. Such written notice
shall be signed by the Optionee and shall be delivered in person
or by certified mail to the Secretary of the Company or such
other person as may be designated by the Company. The written
notice shall be accompanied by payment of the exercise price by
check or such other consideration and method of payment as may be
authorized by the Board pursuant to the Plan. The certificate(s)
for the Shares as to which the Option shall be exercised shall be
registered in the name of the Optionee and shall be legended as
may be required under applicable law.
(c) PARTIAL EXERCISE. The Option may be
exercised in whole or in part.
(d) RESTRICTIONS ON EXERCISE. This Option may
not be exercised if the issuance of the Shares upon such exercise
would constitute a violation of any applicable federal or state
securities laws or other laws or regulations. As a condition to
the exercise of this Option, the Company may require the Optionee
to make any representation and warranty to the Company as may be
required by or advisable under any applicable law or regulation.
6. NONTRANSFERABILITY OF OPTION. This Option may not
be sold, pledged, assigned, hypothecated, gifted, transferred or
disposed of in any manner either voluntarily or involuntarily by
operation of law, other than by will or by the laws of descent or
distribution, and may be exercised during the lifetime of the
Optionee only by such Optionee. Subject to the foregoing and the
terms of the Plan, the terms of this Option shall be binding upon
the executors, administrators, heirs, successors and assigns of
the Optionee.
7. CONTINUATION OF EMPLOYMENT OR ENGAGEMENT. Neither
the Plan nor this Option shall confer upon any Optionee any right
to continue in the service of the Company or limit, in any
respect, the right of the Company to discharge the Optionee at
any time, with or without cause and with or without notice.
8. WITHHOLDING. The Company reserves the right to
withhold, in accordance with any applicable laws, from any
consideration payable to Optionee any taxes required to be
withheld by federal, state or local law as a result of the grant
or exercise of this Option or the sale or other disposition of
the Shares issued upon exercise of this Option. If the amount of
any consideration payable to the Optionee is insufficient to pay
such taxes or if no consideration is payable to the Optionee,
upon the request of the Company, the Optionee (or such other
person entitled to exercise the Option pursuant to the Plan)
shall pay to the Company an amount sufficient for the Company to
satisfy any federal, state or local tax withholding requirements
it may incur as a result of the grant or exercise of this Option
or the sale or other disposition of the Shares issued upon the
exercise of this Option.
9. THE PLAN. This Option is subject to, and the
Company and the Optionee agree to be bound by, all of the terms
and conditions of the Plan as such Plan may be amended from time
to time in accordance with the terms thereof, provided that no
A-2-2
such amendment shall deprive the Optionee, without his consent,
of this Option or any rights hereunder. Pursuant to the Plan,
the Board or the Option Committee of the Board is authorized to
adopt rules and regulations not inconsistent with the Plan as it
shall deem appropriate and proper. A copy of the Plan in its
present form is available for inspection during business hours by
the Optionee or the persons entitled to exercise this Option at
the Company's principal office.
10. ENTIRE AGREEMENT. This Agreement, together with
the Plan and the other exhibits attached thereto or hereto,
represents the entire agreement between the parties.
11. GOVERNING LAW. This Agreement shall be governed
by, construed and enforced in accordance with the laws of the
Commonwealth of Pennsylvania, without regard to the application
of the principles of conflicts of laws.
12. AMENDMENT. Subject to the provisions of the Plan,
this Agreement may only be amended by a writing signed by each of
the parties hereto.
13. CONVERSION TO NON-QUALIFIED OPTION.
Notwithstanding anything to the contrary set forth herein, this
Option is being granted subject to the condition that if the Plan
is not approved by the shareholders of the Company within 365
days of the date that the Plan is adopted by the Board of
Directors of the Company, this Option shall automatically be
converted into a non-qualified stock option.
14. EARLY DISPOSITION OF STOCK. Subject to the
fulfillment by Optionee of any conditions limiting the
disposition of Shares received under this Option, Optionee hereby
agrees that if Optionee disposes of any Shares received under
this Option within one (1) year after such Shares were
transferred to Optionee or two (2) years after the date as of
which this Option was granted, Optionee will notify the Company
in writing within thirty (30) days after the date of such
disposition.
A-2-3
IN WITNESS WHEREOF, this Agreement has been executed by the
parties on the day of , .
---- ----------- ----
BT FINANCIAL CORPORATION
By:
--------------------------------------------
Title:
---------------------------------------
OPTIONEE
-------------------------------------------
Signature
-------------------------------------------
Printed Name
A-2-4
ACKNOWLEDGMENT
--------------
The Optionee acknowledges receipt of a copy of the
BT Financial Corporation 1998 Equity Incentive Plan (the "Plan"),
a copy of which is attached hereto, and represents that Optionee
has read and is familiar with the terms and provisions thereof,
and hereby accepts this Option subject to all of the terms and
provisions thereof. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of
the Board of Directors or the Committee upon any questions
arising under the Plan.
Date:
----------------------- ----------------------------------
Optionee
<TABLE> <S> <C>
<ARTICLE> 9
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 47,543
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<TOTAL-ASSETS> 1,700,565
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0
0
<COMMON> 62,504
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<NET-INCOME> 8,133
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<LOANS-NON> 8,167
<LOANS-PAST> 465
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<ALLOWANCE-OPEN> 9,766
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<ALLOWANCE-CLOSE> 10,250
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