If a certificate for GatewayDNB common stock has been lost, stolen or destroyed, the exchange agent will issue the merger consideration, properly payable underany cash in lieu of fractional shares and any unpaid dividends and distributions on the merger agreementS&T common stock deliverable in respect of each share of DNB common stock to which such DNB common stock is entitled upon receipt of appropriate evidence as to that loss, theft or destruction, appropriate evidence as to the ownership(1) an affidavit of that certificatefact by the claimant and appropriate(2) if reasonably required, such bond as S&T may determine is necessary as indemnity against any claim that may be made against S&T with respect to such lost, stolen or destroyed certificate.
After completion of the merger, there will be no further transfers on the stock transfer books of DNB.
Withholding
The exchange agent (and following the first anniversary of the effective time, S&T) will be entitled to deduct and customary indemnification.withhold from the merger consideration otherwise payable to any DNB shareholder such amounts as the exchange agent or S&T, as applicable, is required to deduct and withhold under any applicable federal, state, local or foreign tax law. If any such amounts are withheld, these amounts will be treated for all purposes of the merger agreement as having been paid to the shareholders from whom they were withheld.
Dividends and DistributionsFractional Shares
Until Gateway common stock certificates are surrendered for exchange, any dividends or other distributions declared after the effective time with respect to S&T common stock into which shares of Gateway common stock
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may have been converted will accrue but will not be paid. S&T will pay to former Gateway shareholders any unpaid dividends or other distributions, without interest, only after they have duly surrendered their Gateway stock certificates.
Prior to the effective time of the merger, Gateway and its subsidiaries may not declare or pay any dividend or distribution on its capital stock or repurchase any shares of its capital stock, other than, if permitted by applicable law or regulation.
Representations and Warranties
The merger agreement contains customary representations and warranties of Gateway and S&T relating to their respective businesses. The representations must be true and correct in all material respects, as of the date of the merger agreement and as of the effective date as though made on and as of the effective date (except that representations and warranties that by their terms speak as of the date of the merger agreement or some other date will be true and correct in all material respects as of such date). The representations and warranties in the merger agreement do not survive the effective time of the merger.
Each of S&T and Gateway has made representations and warranties to the other regarding, among other things:
corporate matters, including due organization and qualification;
authority relative to execution and delivery of the merger agreement and the absence of breach or violations of organizational documents or other obligations as a result of the merger;
required governmental filings and consents;
the timely filing of reports with governmental entities, and the absence of investigations by regulatory agencies;
financial statements, internal controls and accounting;
the absence of circumstances and events reasonably likely to have a material adverse effect;
compliance with applicable laws;
allowance for loan losses;
Bank Secrecy Act and anti-money laundering compliance matters.
In addition, Gateway has made other representations and warranties about itself to S&T as to:
material contracts, exclusivity arrangements, and other certain types of contracts;
absence of actions giving rise to any valid claim for a brokerage commission or finder’s fee;
employee matters, including employee benefit plans;
the inapplicability of state takeover laws;
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risk management arrangements;
maintenance of books and records;
off-balance-sheet transactions;
investment and loan portfolios;
repurchase agreements; and
the receipt of a financial advisor’s fairness opinion.
S&T also has made representations and warranties to Gateway regarding the availability of cash to pay the cash portion of the merger consideration and the authorization and valid issuance of the S&T common stock to pay the stock portion of the merger consideration.
The representations and warranties described above and included in the merger agreement were made by each of S&T and Gateway to the other party. These representations and warranties were made as of specific dates, may be subject to important qualifications and limitations agreed to by S&T and Gateway in connection with negotiating the terms of the merger agreement, and may have been included in the merger agreement for the purpose of allocating risk between S&T and Gateway rather than to establish matters as facts. The merger agreement is described herein, and included asAnnex A, only to provide you with information regarding its terms and conditions, and not to provide any other factual information regarding Gateway, S&T or their respective businesses. Accordingly, the representations and warranties and other provisions of the merger agreement should not be read alone, but instead should be read only in conjunction with the information provided elsewhere in this proxy statement/prospectus and in the documents incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information” on page—.
Covenants and Agreements
Each of Gateway and S&T has undertaken customary covenants that place restrictions on it and its subsidiaries until the effective time of the merger. In general, each of S&T and Gateway agreed to use its reasonable best efforts in good faith to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or desirable, or advisable under applicable laws, so as to permit consummation of the merger as promptly as practicable.
Gateway has agreed to operate its business only in the ordinary course and to use reasonable best efforts to preserve intact its business organization and assets and maintain its rights, franchises, and existing relations with customers, suppliers, employees and business associates. In addition, Gateway has agreed that, with certain exceptions and except with S&T’s prior written consent (which is not to be unreasonably withheld), Gateway will not, and will not permit any of its subsidiaries to, among other things, undertake the following extraordinary actions:
enter into any new material line of business or change its lending, investment, underwriting, risk, asset liability management or other banking and operating policies, except as required by applicable law, regulation, or policies imposed by any governmental authority;
issue, sell or otherwise permit to become outstanding, or authorize the creation of, any additional shares of Gateway common stock other than pursuant to rights outstanding, or permit any additional shares of Gateway common stock to become subject to new grants of employee or director stock options or similar stock-based employee rights;
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make, declare or pay any dividends or other distributions on any shares of its capital stock, except as set forth above in “—Dividends and Distributions”;
take specified actions relating to director and employee compensation, benefits, hiring and promotion;
undertake extraordinary corporate transactions, such as mergers and acquisitions, or other transactions, such as sales of assets outside the ordinary course of business;
amend any provision of its articles of incorporation, by-laws or similar governing documents;
implement or adopt any change in its accounting principles, practices or methods, other than as may be required by United States generally accepted accounting principles or regulatory accounting principles;
other than in the ordinary course of business consistent with past practice, enter into, amend or modify in any material respect or terminate any material contract;
other than in the ordinary course of business consistent with past practice, settle any claim other than payments in cash in an amount that is not material to Gateway and its subsidiaries, and that do not create negative precedent for any other material claim, action or proceeding;
take any action that would, or is reasonably likely to, prevent or impede the merger from qualifying as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code;
take any action that would result in any of the representations and warranties becoming untrue or that would cause the failure of a closing condition or violation of any provision of the merger agreement, except as required by applicable law or regulation;
except pursuant to applicable law or regulation or as required by the OCC or other regulatory authority, implement or adopt any material change in its risk management policies, procedures or practices, or fail to follow its existing policies or practices with respect to risk management, or fail to use commercially reasonable means to avoid any material increase in its aggregate exposure to risk;
incur any indebtedness for borrowed money in excess of $100,000 other than in the ordinary course of business consistent with past practice;
make any capital expenditures or commitments in excess of $25,000 individually, or $100,000 in the aggregate, other than as previously committed;
close or relocate any offices at which business is conducted or open any new offices or ATMs;
make, change or revoke any material tax election, adopt or change an annual tax accounting period, change any tax accounting method, file any material amended tax return, enter into any closing agreement with respect to taxes, settle any material tax claim or surrender any material claim for a refund of taxes; or
agree or commit to do any of the actions prohibited by the preceding items.
S&T has agreed that, except with Gateway’s prior written consent (which is not to be unreasonably withheld), S&T will not takeissue any action that would: (i) result in any of the conditions to the merger not being satisfied; (ii) prevent or impede the merger from qualifying as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code; or (iii) cause any of its representations or warranties to become untrue, or agree to commit to doing any of the foregoing.
The merger agreement also contains mutual covenants relating to the preparation of this proxy statement/prospectus, the regulatory applications and the holding of the special meeting of Gateway’s shareholders, access to information of the other company and public announcements with respect to the transactions contemplated by the merger agreement. Gateway and S&T have also agreed to use all reasonable best efforts to take all actions needed to obtain necessary governmental and third-party consents and to consummate the transactions contemplated by the merger agreement.
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Bank Merger
S&T and Gateway have agreed the interim, wholly-owned subsidiary bank of S&T will merge with and into S&T Bank as soon as practicable after the execution of the merger agreement. The bank merger is intended to become effective as promptly as practicable following the closing of the merger of Gateway and the interim S&T bank subsidiary. The merger agreement contains a covenant by S&T to take all necessary steps to form the interim, wholly-owned subsidiary state-chartered bank to be duly and validly formed, and for such interim bank to execute a joinder to the merger agreement.
Reasonable Best Efforts of Gateway to Obtain the Required Shareholder Vote
Gateway has agreed to hold a meeting of its shareholders as soon as is reasonably practicable for the purpose of obtaining shareholder adoption of the agreement and plan of merger. Gateway will use all reasonable lawful action to obtain such approval. Subject to its fiduciary duties, as determined in good faith after consultation with its outside legal counsel, Gateway’s board of directors has agreed to recommend that its shareholders vote in favor of the agreement and plan of merger.
Agreement Not to Solicit Other Offers
Gateway also has agreed that it, its subsidiaries and their officers, directors, employees, representatives, agents or affiliates will not, directly or indirectly:
initiate, solicit, or encourage any inquiry or proposal that constitutes an Acquisition Proposal (as defined below) or enter into or maintain or continue any discussions or negotiations with respect to such inquiry; or
enter into any agreement regarding any Acquisition Proposal or authorize or permit any of its officers, directors, employees, subsidiaries or any representative to take any such action.
However, Gateway may consider and participate in discussions and negotiations with respect to an unsolicited Acquisition Proposal if the Gateway board of directors determines in good faith (after consultation with outside legal counsel and financial advisors) that failure to take these actions would be reasonably likely to violate its fiduciary duties. In addition, Gateway must not provide confidential information or data to any person in connection with an Acquisition Proposal unless the person has executed a confidentiality agreement on terms at least as favorable as the terms contained in the confidentiality agreement between Gateway and S&T.
Gateway has agreed:
to notify S&T within two business days after receipt of any Acquisition Proposal or any inquiry which could reasonably be expected to lead to an Acquisition Proposal, or any material change to any Acquisition Proposal, or any request for nonpublic information relating to Gateway or any of its subsidiaries or for access to the properties, books or records of Gateway or any of its subsidiaries by any person or entity that informs the board of directors of Gateway that it is considering making, or has made, an Acquisition Proposal, and to provide S&T with relevant information regarding such inquiry, proposal, modification or amendment;
to keep S&T fully informed of the status and details of any such proposal or inquiry and any developments with respect thereto;
not to release any third party from the confidentiality and standstill provisions of any agreement to which Gateway or its subsidiaries is or may become a party and to take all steps necessary to terminate any approval that may have been given under any such provisions authorizing any person to make an Acquisition Proposal; and
to cease any existing discussions or negotiations with any persons with respect to any Acquisition Proposal and to use reasonable best efforts to cause all persons other than S&T who have been furnished with confidential information in connection with an Acquisition Proposal within the 12 months prior to the date of the merger agreement to return or destroy such information.
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Acquisition Proposal means any proposal or offer as to any of the following (other than the merger with S&T) involving Gateway or any of its subsidiaries:
any merger, consolidation, share exchange, business combination or other similar transaction;
any sale, lease, exchange, pledge, transfer or other disposition of 25% or more of its consolidated assets or liabilities in a single transaction or series of transactions;
any tender offer or exchange offer for, or other acquisition of, 25% or more of the outstandingfractional shares of capital stock; or
any public announcement of a proposal, plan or intention to do, or any agreement to engage in, any of the actions listed in the foregoing bullets.
Expenses and Fees
In general, each of S&T and Gateway will be responsible for all expenses incurred by it in connection with the negotiation and completion of the transactions contemplated by the merger agreement.
Employee Matters
All employees of Gateway and its subsidiaries as of immediately prior to the merger will be employed by S&T or one or more of its subsidiaries after the merger and their employment will be subject to S&T’s and its subsidiaries’ usual terms, conditions and policies of employment. To the extent that Gateway employees do not continue to be covered after the merger by Gateway plans that provide medical, dental and other welfare benefits, (i) for the calendar year including the date of merger, Gateway employees will not have to satisfy any deductible, co-payment, out-of-pocket maximum, or similar requirements under the benefit plans maintained by S&T or its subsidiaries that provide medical, dental and other welfare benefits to the extent of amounts previously credited for such purposes under Gateway’s corresponding plans, and (ii) S&T has agreed to waive any waiting periods, pre-existing conditions exclusions and requirements to show evidence of good health under applicable S&T benefit plans, except to the extent any such waiting period, pre-existing condition, exclusion or requirement to show evidence of good health applied under the corresponding Gateway plan. Gateway employees will be given credit for their service with Gateway and its subsidiaries for purposes of eligibility and vesting purposes (but not for benefit accrual purposes) under the S&T benefit plans, solely to the extent permitted under such plans and to the extent that S&T makes such plans available to Gateway employees. S&T and its subsidiaries have no obligation to continue the employment of any Gateway employee for any period following the merger and may amend or terminate employee benefits programs from time to time as they deem appropriate. Any employee whose employment is terminated without cause within eight months of the closing will be entitled to severance benefits based upon their length of service to Gateway.
Additionally, Gateway has agreed to take all actions requested by S&T that may be necessary or appropriate to: (i) terminate Gateway benefit plans; (ii) cause benefit accruals and entitlements under any plan to cease; (iii) cause the continuation of any contract, arrangement, or insurance policy relating to any plan for a period requested by S&T; or (iv) facilitate the merger of any plan into an employee benefit plan maintained by S&T.
Indemnification and Insurance
The merger agreement provides that in the event of any threatened or actual claim, action, suit, proceeding or investigation in which any person who is or has been a director or officer of Gateway or is threatened to be made party based in whole or in part on, or arising in whole or in part out of, or pertaining to (i) the fact that he is or was a director, officer or employee of Gateway or any of its subsidiaries or predecessors, or (ii) the merger agreement, Gateway and S&T will cooperate and use their reasonable best efforts to defend against and respond thereto. S&T has agreed to indemnify and hold harmless each such indemnified party against any losses, claims, damages, liabilities, costs, expenses (including reasonable attorney’s fees and expenses in advance of the final
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disposition of any claim, suit, proceeding or investigation to each party to the fullest extent permitted by law), judgments, fines and amounts paid in settlement in connection with any such threatened or actual claim, action, suit proceeding or investigation. Additionally, the indemnified parties may retain counsel reasonably satisfactory to them after consultation with S&T. However, S&T retains the right to assume the defense thereof and upon such assumption S&T will not be liable to any indemnified party for any legal expenses of other counsel or any other expenses subsequently incurred in connection with the defense thereof, except that if S&T elects not to assume such defense or counsel or the indemnified party reasonably advises that there are issues which raise conflicts of interest between S&T and the indemnified party, the indemnified party may retain counsel reasonably satisfactory to him after notification and S&T will pay the reasonable fees and expenses. Under the merger agreement, S&T is obligated to pay for only one firm of counsel for all indemnified parties, and S&T is not liable for any settlement effected without its prior written consent (which will not be unreasonably withheld). S&T will have no further obligation to any indemnified party when and if a court of competent jurisdiction ultimately determines, and such determination is final and non-appealable, that indemnification is prohibited by law or to any indemnified party that commits fraud. S&T’s indemnification obligations continue for six years after completion of the merger, but the right to indemnification in respect of any claim asserted within that time period continues until the final disposition of the claim.
The merger agreement requires S&T to maintain in effect for six years after completion of the merger the current rights of Gateway directors, officers and employees to indemnification under the Gateway articles of incorporation or the Gateway by-laws or similar governing documents. The merger agreement also provides that, upon completion of the merger, S&T will indemnify and hold harmless, and provide advancement of expenses to, all past and present officers, directors and employees of Gateway and its subsidiaries in their capacities as such against all losses, claims, damages, costs, expenses, liabilities, judgments or amounts paid in settlement to the fullest extent permitted by applicable laws.
The merger agreement provides that S&T will maintain for a period of three years after completion of the merger Gateway’s current directors’ and officers’ liability insurance policies, or policies of at least the same coverage and amount and containing terms and conditions that are not less advantageous than the current policy, with respect to acts or omissions occurring prior to the effective time of the merger, except that S&T is not required to incur an annual premium expense greater than 200% of Gateway’s current annual directors’ and officers’ liability insurance premium.
Conditions to Complete the Merger
Our respective obligations to complete the merger are subject to the fulfillment or waiver of certain conditions, including:
the adoption of the agreement and plan of merger by the requisite vote of Gateway shareholders;
the approval of the listing of S&T common stock to be issued in the merger on The Nasdaq Global Select Market, subject to official notice of issuance;
the effectiveness of the registration statement of which this proxy statement/prospectus ismerger. Instead, a part with respect to the S&T common stock to be issued in the merger under the Securities Act and the absence of any stop order or proceedings initiated or threatened by the SEC for that purpose;
the receipt by each of S&T and Gateway ofDNB shareholder who otherwise would have received a legal opinion with respect to certain United States federal income tax consequences of the merger;
the receipt and effectiveness of all governmental and other approvals, registrations and consents on terms and conditions that would not have a material adverse effect or be unduly burdensome on S&T, and the expiration of all related waiting periods required to complete the merger;
the absence of any law, statute, regulation, judgment, decree, injunction or other order in effect by any court or other governmental entity that prohibits completion of the transactions contemplated by the merger agreement.
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Each of S&T’s and Gateway’s obligations to complete the merger is also separately subject to the satisfaction or waiver of a number of conditions including:
the absence of a material adverse effect on the other party; and
the truth and correctness of the representations and warranties of each other party in the merger agreement, subject to the materiality standard provided in the merger agreement, and the performance by each other party in all material respects of their obligations under the merger agreement and the receipt by each party of certificates from the other party to that effect.
In addition, the obligation of S&T to complete the merger is subject to the expiration or unavailability of rights to demand appraisal under the Pennsylvania Business Corporation Law with respect to at least 90% of the outstanding shares of Gateway common stock (excluding Company-Owned Stock)
We cannot provide assurance as to when or if all of the conditions to the merger can or will be satisfied or waived by the appropriate party. As of the date of this proxy statement/prospectus, we have no reason to believe that any of these conditions will not be satisfied.
Termination of the Merger Agreement
The merger agreement can be terminated at any time prior to completion by mutual consent or by either party in the following circumstances:
if there is a breach by the other party that would cause the failure of the closing conditions, unless the breach is capable of being, and is, cured within 30 days of notice of the breach and the terminating party is not itself in material breach;
if the merger has not been completed by December 31, 2012, unless the failure to complete the merger by that date arises out of or results from the knowing action or inaction of the party seeking to terminate;
if any of the required regulatory approvals are denied (and the denial is final and non-appealable); or
if the common shareholders of Gateway fail to adopt the agreement and plan of merger at the special meeting.
In addition, S&T may terminate the merger agreement if the Gateway board of directors fails to recommend that Gateway shareholders adopt the agreement and plan of merger; withdraws or materially modifies, or proposes to withdraw or materially modify, in a manner adverse to S&T, its recommendation of the merger to shareholders; or recommends a competing merger proposal.
Gateway may terminate the merger agreement within five business days of the Determination Date (Determination Date means the later of (i) the date on which all regulatory approvals, and waivers, if applicable, necessary for consummation of the merger and the transactions contemplated by the merger agreement have been received or (ii) the date of the meeting of Gateway shareholders to consider the merger) if its board of directors determines that both of the following conditions have occurred and gives written notice to S&T of such determination:
the average of the daily closing sales pricesfraction of a share of S&T common stock as reported on Nasdaq forwill receive an amount in cash rounded to the 10 consecutive trading days immediately precedingnearest whole cent. This cash amount will be determined by multiplying (x) the Determination Date is less than 80% of the closing sale price of S&T common stock on the last trading date before the date of the merger agreement; and
the average of the daily closing sales pricesfraction of a share of S&T common stock as reported on Nasdaq for the 10 consecutive trading days immediately preceding the Determination Date is such that the price performance of S&T common stock is lower than the price performance of the Nasdaq Bank Index minus 20%.
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However, Gateway may not terminate in these circumstances if S&T exercises its option to increase the number of S&T common shares to be received by Gateway shareholders such that the implied value of the merger would be equivalent to the lesser of $9.22 or $9.22 multiplied by the percentage by which the Nasdaq Bank Index declines over the period starting on the last trading date before the date of the merger agreement and ending on the Determination Date.
Effect of Termination. If the merger agreement is terminated, it will become void, and there will be no liability on the part of S&T or Gateway, except that (1) both S&T and Gateway will remain liable for any willful breach of the merger agreement and (2) designated provisions of the merger agreement, including the payment of fees and expenses, the confidential treatment of information and publicity restrictions, will survive the termination.
Termination Fee
Gateway will pay S&T a $875,000 termination fee in the event that the merger agreement is terminated because (1) the Gateway board of directors fails to recommend that Gateway shareholders adopt the agreement and plan of merger, withdraws or modifies its recommendation in a manner adverse to S&T, or recommends an alternative business combination proposal or (2) the Gateway shareholders fail to adopt the merger agreement because of an act or omission discussed in subsection (1) of this paragraph.
Amendment, Waiver and Extension of the Merger Agreement
Subject to applicable law, the parties may amend the merger agreement by written agreement between Gateway and S&T executed in the same manner as the merger agreement.
At any time prior to the completion of the merger, each of the parties, by action taken or authorized by their respective board of directors, to the extent legally allowed, may:
extend the time for the performance of any of the obligations or other acts of the other party;
waive any inaccuracies in the representations and warranties of the other party; or
waive compliance by the other party with any of the other agreements or conditions contained in the merger agreement.
However, after any approval of the transactions contemplated by the agreement and plan of merger by the Gateway shareholders, no amendments or waivers may be made that would require resubmission of the agreement and plan of merger to the Gateway shareholders.
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ACCOUNTING TREATMENT
S&T will account for the merger using the acquisition method under U.S. generally accepted accounting principles. Under the acquisition method of accounting, the tangible and identifiable intangible assets and liabilities of Gateway will be recorded, as of completion of the merger, at their respective fair values. The excess of the purchase price over the net assets acquired will be recorded as goodwill to the extent not allocated to core deposit or other intangibles. Goodwill resulting from the merger will not be amortized but will be reviewed for impairment at least annually. Core deposits and other intangibles with finite useful lives recorded in connection with the merger will be amortized.
Financial statements and reported results of operations of S&T issued after completion of the merger will not be restated retroactively to reflect the historical financial position or results of operations of Gateway.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
General
The following is a summary of the anticipated material United States federal income tax consequences of the merger generally applicable to a holder of Gateway common stock. This discussion is based upon provisions of the Internal Revenue Code, applicable current and proposed United States Treasury Regulations, judicial authorities, and administrative rulings and practice, all as in effect as of the date of this proxy statement/prospectus, as well as representations and facts provided by S&T and Gateway to Arnold & Porter LLP, or Arnold & Porter, counsel to S&T. Future legislative, judicial, or administrative changes or interpretations which may or may not be retroactive, or the failure of any such facts or representations to be true, accurate and complete, may affect the statements and conclusions described in this discussion.
This discussion is not intended to be a complete description of all of the United States federal income tax consequences of the merger and no information is provided with respect to the tax consequences of the merger under any other tax laws, including applicable state, local and foreign tax laws. Further, the following discussion may not apply to a holder of Gateway common stock subject to special treatment under the Internal Revenue Code, including but not limited to a holder of Gateway common stock that is:
a dealer or broker in securities or foreign currencies;
a trader in securities who elects mark-to-market accounting;
a tax-exempt organization;
a person who holds shares of Gateway common stock in an individual retirement account (IRA), 401(k) plan or similar tax-favored account;
a person who acquired shares of Gateway common stock on exercise of an employee stock option or otherwise as compensation;
a person whose functional currency for United States federal income tax purposes is not the United States dollar;
a person who is a United States expatriate;
a partnership or other pass-through entity (or a person holding Gateway common stock through a partnership or other pass-through entity); or
a person who holds shares of Gateway common stock as part of a hedge, straddle, conversion or constructive sale transaction.
In addition, this discussion applies only to a holder of Gateway common stock who is holding such stock as a capital asset and who is a “United States person” as defined in Section 7701(a)(30) of the Internal Revenue Code.
No ruling has been or will be requested from the Internal Revenue Service regarding the tax consequences of the merger. Moreover, the opinion of Arnold & Porter described in this discussion is not binding on the Internal Revenue Service, and this opinion would not prevent the Internal Revenue Service from challenging the United States federal income tax treatment of the merger. Because of the complexities of the tax laws in general, and the complexities of the tax consequences associated with the receipt of cash in the merger in particular,
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holders of Gateway common stock should consult their tax advisors with respect to the federal, state, local and foreign tax consequences of the merger as they apply to their specific situations. This section is not intended to be tax advice to any shareholder.
Arnold & Porter’s Tax Opinion
In connection with the filing with the SEC of the registration statement of which this proxy statement/prospectus is a part, Arnold & Porter has delivered its opinion addressing the United States federal income tax consequences of the merger as described below. This opinion is based upon the facts, representations and assumptions set forth or referred to in such opinion. In rendering this opinion, Arnold & Porter has relied on representations and facts provided by S&T and Gateway. This opinion is to the effect that:
the merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code;
each holder of Gateway common stock who receives S&T common stock and cash (other than cash in lieu of a fractional share interest in S&T common stock) in the merger in exchange for the holder’s shares of Gateway common stock will recognize the gain, if any, realized by the holder, in an amount not in excess of the amount of cash received (other than cash received instead of a fractional share interest in S&T common stock), but will not recognize any loss on the exchange; and
holders of Gateway common stock who receive cash instead of a fractional share interest in S&T common stock will recognize gain or loss equal to the difference between the cash received and the portion of the basis of the holders’ shares of Gateway common stock allocable to that fractional share interest.
S&T and Gateway’s obligations to consummate the merger are conditioned on the receipt by S&T and Gateway of an additional opinion of Arnold & Porter, dated the closing date of the merger, substantially to the foregoing effect. That opinion will be subject to and based on facts, representations and assumptions set forth or referred to in the opinion. In rendering its closing date opinion, Arnold & Porter may rely on representations and facts provided by S&T and Gateway.
Character of Gain on Exchange of Gateway Common Stock for S&T Common Stock and Cash
For purposes of calculating gain in this transaction, a Gateway shareholder that receives S&T common stock and cash (other than cash received instead of a fractional interest in S&T common stock) must calculate gain or loss separately for each identifiable block of shares exchanged. Such gain or loss will be equal to the sum of the amount of cash and the fair market value of S&T common stock received with respect to that block of shares minus the shareholder’s adjusted tax basis in that block of shares. In addition, a loss realized on one block of shares may not be used to offset a gain realized on another block of shares.
As noted above, in the case of a Gateway shareholder that exchanges his or her shares of Gateway common stock for a combination of S&T common stock and cash pursuant to the merger, such shareholder will recognize the gain, if any, realized by such shareholder in the exchange but not in excess of the amount of cash received. In general, the determination of whether any gain recognized in the exchange should be treated as capital gain or has the effect of a distribution of a dividend depends upon whether, and to what extent, the exchange reduces the shareholder’s deemed percentage stock ownership of S&T. For purposes of this determination, the shareholder is treated as if he or she first exchanged all of his or her shares of Gateway common stock solely for S&T common stock and then S&T immediately redeemed (in a “deemed redemption”) a portion of such S&T common stock in exchange for the cash the shareholder actually received. The gain recognized in the exchange will be treated as capital gain if the deemed redemption (i) is “substantially disproportionate” with respect to the shareholder or (ii) is not essentially equivalent to a dividend.
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The deemed redemption should generally be “substantially disproportionate” with respect to a shareholder if the percentage of the outstanding stock of S&T the shareholder owns, actually and constructively, immediately after the deemed redemption is less than 80% of the percentage of the outstanding stock of S&T the shareholder is deemed to own, actually and constructively, immediately before the deemed redemption.
Whether the deemed redemption is “not essentially equivalent to a dividend” with respect to a shareholder will depend on the shareholder’s particular circumstances. In order for the deemed redemption to be “not essentially equivalent to a dividend,” the deemed redemption must result in a “meaningful reduction” in the shareholder’s actual and constructive percentage stock ownership of S&T. In general, that determination requires a comparison of the percentage of the outstanding stock of S&T the shareholder is deemed to own, actually and constructively, immediately before the deemed redemption and the percentage of the outstanding stock of S&T the shareholder actually and constructively owns immediately after the deemed redemption. The Internal Revenue Service has ruled that a minority shareholder (i.e., a shareholder whose relative stock interest is minimal in relation to the number of shares outstanding and who exercises no control with respect to corporate affairs) generally is treated as having a “meaningful reduction” in interest if a cash payment results in at least a relatively minor reduction in the shareholder’s actual and constructive percentage ownership.
Tax Basis and Holding Period
The aggregate tax basis of the S&T common stock received by a Gateway shareholder in the merger (including fractional shares deemed received and redeemed as described below) will be the same as the aggregate tax basis of the shares of Gateway common stock surrendered by such shareholder for the S&T common stock, decreased by the amount of any cash received (other than cash received instead of a fractional share interest in S&T common stock) by the shareholder and increased by the amount of income or gain recognized by the shareholder in the exchange (which does not include gain recognized in respect of fractional shares deemed received and redeemed (as described below)).
Each Gateway shareholder’s holding period in any shares of S&T common stock received in the merger (including any fractional shares deemed received and redeemed as described below) will, in each instance, include the period during which the shares of Gateway common stock surrendered in exchange therefor were held, provided that those shares of Gateway common stock were held as capital assets on the effective date of the merger.
Cash Received in Lieu of a Fractional Share Interest
Cash received by a Gateway shareholder in lieu of a fractional share interest in S&T common stock will be treated as though the fractional share had been received and then redeemed for cash, and in general gain or loss will be recognized, measured by the difference between the amount of cash received and the portion of the basis of the shares of Gateway common stock allocable to such fractional interest. Such gain or loss generally will be long-term capital gain or loss if the holding period for such shares of Gateway common stock was more than one year as of the effective date of the merger. If, however, the receipt of cash instead of a fractional share of S&T common stock has the effect of the distribution of a dividend with respect to a shareholder, part or all of the cash received may be treated as a dividend.
S&T and Gateway
S&T and Gateway will each be a party to the reorganization within the meaning of Section 368(b) of the Internal Revenue Code. As a result, no gain or loss will be recognized by S&T or Gateway as a result of the merger (except for amounts resulting from any required change in accounting methods or any income or deferred gain recognized under the relevant consolidated return regulations).
Backup Withholding
Backup withholding at a 28% rate will generally apply to merger consideration that includes cash if the exchanging Gateway shareholder fails to properly certify that it is not subject to backup withholding, generally
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on Internal Revenue Service Form W-9. Certain holders, including, among others, United States corporations, are not subject to backup withholding, but they may still need to furnish a Form W-9 or otherwise establish an exemption. Any amounts withheld from payments to a Gateway shareholder under the backup withholding rules are not additional taxes and will be allowed as a refund or credit against the shareholder’s United States federal income tax liability, provided that the required information is timely furnished to the Internal Revenue Service.
Tax matters are very complicated, and the tax consequences of the merger to each holder of Gateway common stock will depend on the facts of that shareholder’s particular situation. The discussion set forth above does not address all United States federal income tax consequences that may be relevant to a particular holder of Gateway common stock and may not be applicable to holders in special situations. Holders of Gateway common stock are urged to consult their own tax advisors regarding the specific tax consequences of the merger.
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PROPOSAL 2—AUTHORIZATION TO VOTE ON ADJOURNMENT OR OTHER MATTERS
General
If, at the Gateway special meeting, the number of shares of Gateway common stock, present in person or by proxy, is insufficient to constitute a quorum or the number of shares of Gateway common stock voting in favor is insufficient to adopt the merger agreement, Gateway management intends to move to adjourn the special meeting in order to enable the Gateway board of directors more time to solicit additional proxies. In that event, Gateway will ask its shareholders to vote only upon the adjournment proposal and not the proposal relating to adoption of the merger agreement.
In this proposal, Gateway is asking you to grant discretionary authority to the holder of any proxy solicited by the Gateway board of directors so that such holder can vote in favor of the proposal to adjourn the special meeting to solicit additional proxies. If the shareholders of Gateway approve the adjournment proposal, Gateway can adjourn the special meeting, and any adjourned session of the special meeting, and use the additional time to solicit additional proxies, including the solicitation of proxies from shareholders who have previously voted.
If the special meeting is adjourned, no notice of the adjourned meeting is required to be given to shareholders, other than an announcement at the special meeting of the place, date and time to which the meeting is adjourned.holder would otherwise be entitled by (y) the S&T share value.
Vote Required
Pursuant to Gateway’s by-laws, a meeting may be adjourned by the affirmative vote of at least a majority of the votes that all shareholders present at the special meeting, in person or represented by proxy, are entitled to cast. Abstentions and broker non-votes will not affect the vote on the adjournment proposal.
Recommendation of the Gateway Board of Directors
The Gateway Board of Directors recommends a vote “FOR”Immediately following the proposal to authorize the board of directors to adjourn the special meeting of shareholders to alloweffective time, for the further solicitation of proxies to approve the adoption of the merger agreement.
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INFORMATION ABOUT S&T BANCORP, INC.
General
S&T Bancorp, Inc. was incorporated on March 17, 1983, under the laws of the Commonwealth of Pennsylvania as a bank holding company and is headquartered in Indiana, Pennsylvania. S&T provides a full range of financial services through its branch network. S&T provides full service retail and commercial banking products as well as cash management services, insurance, estate planning and administration, employee benefit solutions, investment management and administration, corporate services, and other fiduciary services. S&T earns revenue primarily from interest on loans, security investments and fees charged for financial services provided to our customers. S&T has three wholly-owned subsidiaries: S&T Bank, 9th Street Holdings, Inc. and STBA Capital Trust I. S&T also owns a one-half interest in Commonwealth Trust Credit Life Insurance Company. S&T is registered as a financial holding company with the Board of Governors of the Federal Reserve System under the Bank Holding Company Act of 1956, as amended. S&T’s common stock is traded on The Nasdaq Global Select Market under the symbol “STBA.” S&T’s website is http://www.stbancorp.com.
As of March 31, 2012, S&T had total assets of $4.3 billion, total deposits of $3.5 billion and shareholders’ equity of $504.4 million. S&T Bank deposits are insured by the FDIC to the maximum extent provided by law.
Operating Subsidiaries
S&T Bank, our largest subsidiary, was chartered in 1902. As of March 31, 2012, S&T Bank provided services to its customers through a network of offices located in Allegheny, Armstrong, Blair, Butler, Cambria, Clarion, Clearfield, Indiana, Jefferson and Westmoreland counties of Pennsylvania.
S&T Bank provides a wide range of banking, trust and insurance services for retail and commercial clients in its geographic markets. S&T Bank’s principal operating subsidiaries include:
S&T Bancholdings, Inc., an investment holding company;
S&T Professional Resources Group, LLC, which was formed to market software developed by S&T Bank;
Stewart Capital Advisors, LLC, a registered investment advisor that manages private investment accounts for individuals and institutions and advises the Stewart Capital Mutual Fund; and
S&T Insurance Group, LLC and its wholly owned subsidiary Evergreen Insurance Associates, LLC, which provides insurance programs structured to the individual needs of its customers, and offers a full line of commercial property and casualty insurance, group life and health coverage, employee benefit solutions and personal insurance.
Services
The primary services offered by S&T Bank include:
accepting time and demand deposits;
originating commercial and consumer loans;
providing letters of credit;
offering discount brokerage services;
personal financial planning;
credit card services; and
Additional information about S&T and its subsidiaries is included in documents incorporated by reference in this proxy statement/prospectus. See “Where You Can Find More Information” on page—.
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INFORMATION ABOUT GATEWAY BANK OF PENNSYLVANIA
Business
Gateway is a Pennsylvania corporation headquartered at 3402 Washington Road, McMurray, Pennsylvania, 15317 (tel. (724) 969-1010)). Gateway provides commercial and retail banking services at itswill appoint two offices, which are located in McMurray, Pennsylvania and Cranberry Township, Pennsylvania. At March 31, 2012, Gateway had total assets of $124.1 million, deposits of $100.5 million, and shareholders’ equity of $15.4 million. Gateway’s website is http://www.gatewaybankpa.com.
Gateway was incorporated on June 12, 2003 and opened its McMurray Office for business in May 2004 and its Cranberry Office in November 2007. Its primary market area consists of Washington, Allegheny, Butler, and Beaver counties. Competition for deposit and loan products comes from other insured financial institutions such as commercial banks, thrift institutions and credit unions in Gateway’s market area, as well as from out-of-market financial institutions that offer deposits and loans over the internet and through other delivery channels. Deposit competition also includes a number of insurance products, such as annuities, sold by local agents, and investment products such as mutual funds and other securities sold by local and regional brokers.
Gateway originates loans to commercial businesses, governmental entities, and individuals. As of March 31, 2012, Gateway’s loan portfolio included commercial and multi-family real estate loans, commercial business loans and lines of credit, loans to municipalities, not-for-profit organizations and other governmental entities, home equity term loans and lines of credit, residential and commercial construction loans, automobile loans, and personal loans.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion summarizes Gateway’s results of operations and highlights material changes for the three months ended March 31, 2012 and 2011, the years ended December 31, 2011 and 2010, and its financial condition as of March 31, 2012, December 31, 2011 and December 31, 2010. This discussion is intended to provide additional information which may not be readily apparent from the selected financial data included in this disclosure. Reference should be made to the selected financial data presented for a complete understanding of the following discussion and analysis.
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Executive Overview
Gateway is a Pennsylvania corporation headquartered in McMurray, Pennsylvania. Gateway provides commercial and retail banking services at its two offices, which are located in McMurray, PA and Cranberry Township, PA. Gateway had total assets of $124.1 million, deposits of $100.5 million, and shareholders’ equity of $15.4 million at March 31, 2012 and total assets of $120.3 million, deposits of $96.9 million, and shareholders’ equity of $15.2 million at December 31, 2011. Gateway’s net income, as well as a snapshot of its financial picture, for the period and at the end thereof, as well as certain key ratios, are set forth in the table below:
Executive Overview
Gateway Bank
| | | | | | | | | | | | |
| | | March 31, | | | December 31, | |
| (Dollars in thousands, except per share data) | | 2012 | | | 2011 | | | 2010 | |
For the Period: | | | | | | | | | | | | |
Net income | | $ | 176 | | | $ | 621 | | | $ | 448 | |
Per common share: | | | | | | | | | | | | |
Basic earnings | | $ | 0.10 | | | $ | 0.36 | | | $ | 0.26 | |
Cash dividends | | $ | — | | | $ | — | | | $ | — | |
Book value | | $ | 8.94 | | | $ | 8.84 | | | $ | 8.37 | |
| | | |
Financial Condition at Period-End: | | | | | | | | | | | | |
Assets | | $ | 124,107 | | | $ | 120,261 | | | $ | 122,468 | |
Net Loans | | $ | 100,042 | | | $ | 100,035 | | | $ | 98,308 | |
Deposits | | $ | 100,546 | | | $ | 96,882 | | | $ | 104,459 | |
Stockholders�� Equity | | $ | 15,383 | | | $ | 15,175 | | | $ | 14,299 | |
| | | |
Ratios: | | | | | | | | | | | | |
Return on Average Assets | | | 0.58 | % | | | 0.51 | % | | | 0.36 | % |
Return on Average Equity | | | 4.59 | % | | | 4.21 | % | | | 3.18 | % |
Stockholders’ Equity to Assets | | | 12.39 | % | | | 12.62 | % | | | 11.68 | % |
Gateway’s results of operations depend primarily on net interest income. Net interest income is the difference between interest income earned on interest-earning assets (loans and investment securities) and the interest paid on interest-bearing liabilities (deposits and short-term borrowings). Net interest income is directly impacted by the market interest rate environment, the shape of the market yield curve, timing of placement and repricing of interest-earning assets and interest-bearing liabilities and prepayment of loans. Results of operations are also directly affected by general economic conditions.
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Results of Operations
Gateway Bank
For the three months ended March 31, 2012 as compared to March 31, 2011:
(unaudited)
(dollars in thousands)
| | | | | | | | | | | | | | | | |
| | | 2012 | | | 2011 | | | $ change | | | % change | |
Interest income | | $ | 1,202 | | | $ | 1,277 | | | $ | (75 | ) | | | -5.9 | % |
Interest expense | | | 194 | | | | 264 | | | | (70 | ) | | | -26.6 | % |
| | | | | | | | | | | | | | | | |
Net interest income | | | 1,008 | | | | 1,013 | | | | (5 | ) | | | -0.5 | % |
Provision for loan losses | | | — | | | | 33 | | | | (33 | ) | | | -100.0 | % |
| | | | | | | | | | | | | | | | |
Net interest income after provision for loan losses | | | 1,008 | | | | 980 | | | | 28 | | | | 2.8 | % |
Other operating income | | | 14 | | | | 17 | | | | (3 | ) | | | -17.6 | % |
Other operating expense | | | 846 | | | | 877 | | | | (31 | ) | | | -3.6 | % |
| | | | | | | | | | | | | | | | |
Income before income taxes | | | 176 | | | | 120 | | | | 56 | | | | 46.7 | % |
Income tax expense | | | — | | | | — | | | | — | | | | | |
| | | | | | | | | | | | | | | | |
Net income | | $ | 176 | | | $ | 120 | | | $ | 56 | | | | 46.7 | % |
| | | | | | | | | | | | | | | | |
Net Income. Net income for the first three months of 2012 increased to $176,000 compared to $120,000 for the same period in 2011, an increase of $56,000, or 46.7%. Net income per share improved to $0.10 for the first three months of 2012 compared to $0.07 for the same period in 2011. The improvement in earnings was primarily attributable to lower other operating expenses and a lower provision for loan losses.
Net Interest Income and Margin.Net interest income represents the excess of interest income from earning assets less interest expense on interest bearing liabilities. Net interest margin is the percentage of net interest income to earning assets. Net interest income and net interest margin are affected by fluctuations in interest rates and by changes in the amounts and mix of earning assets and interest bearing liabilities. Net interest income for the three months ended March 31, 2012 decreased slightly by $5,000 or 0.5% compared to the same period in 2011, while the net interest margin increased to 3.43% from 3.38% for the respective periods. The decrease in net interest income was due primarily to a lower volume of average earning assets, the result of lower deposit funding between the periods, offset to some extent by a higher net interest margin, the result of a decrease in the average rate for sources of funds which more than offset a lower yield on earning assets.
Interest Income.Interest income for the three months ending March 31, 2012 decreased by $75,000 or 5.9% to $1,202,000 from $1,277,000 for the same period in 2011. This was due to a decrease in average earning assets and a decrease in the average yield on loans. ‘Average’ earning assets decreased $2.4 million or 2.0%, to $117.6 million for the first three months of 2012 from $120.0 million for the same period in 2011. The average loan yield dropped to 4.61% for the first three months of 2012 versus 4.97% for the same period in 2011. Interest rates have generally declined throughout the periods and are at or near all-time lows. This extremely low interest rate environment is exerting downward pressure on loan yields in three ways. First, as variable rate loans reach repricing dates, yields are reduced. Second, new loans added are at rates lower than those originated in prior years. Finally, borrowers with fixed rates loans refinance existing loans into new lower rate loans. Offsetting the impact of a lower yield on loans to some extent was an increase in average loans outstanding between the periods. ‘Average’ loans were $101.2 million for the first three months of 2012 versus $97.9 million for the same period in 2011, an increase of $3.3 million or 3.4%.
Interest Expense.Interest expense for the three month period ended March 31, 2012 decreased by $70,000 or 26.6% to $194,000 from $264,000 during the same period in 2011. The decrease was due to an overall lower average rate paid and lower overall volume of interest bearing liabilities. The average rate paid on interest bearing liabilities was 0.89% for the first three months of 2012 versus 1.16% for the same period in 2011, while average interest bearing liabilities decreased $4.3 million or 4.7% between the periods.
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Provisions for Loan Losses. Provisions for loan losses charged to operations are based on management’s judgment after considering a variety of factors, including current economic conditions, diversification of the loan portfolio and delinquency status. Also considered by management in determining the amounts charged to operations are the evaluations done by the independent loan review function, regulators’ analysis performed in connection with regulatory examinations, previous experience and the general financial condition of the borrower. No provisions were charged to operations during the first three months of 2012 compared to $33,000 for the same period in 2011. The decrease in the provision for loan losses reflects the adequacy of the allowance for loan losses in relation to the risk inherent within the portfolio. For further comments about Gateway’s credit risk, see the discussion under “Loan Quality and Allowance for Loan Losses.”
Other Operating Income.Other operating income for the three months ended March 31, 2012 was $14,000 compared to $17,000 for the same period in 2011. The decrease is related to timing of cash collection on service charges on deposit accounts and certain other transaction fees.
Operating Expenses. Total operating expenses for the three months ended March 31, 2012 were $846,000 compared to $877,000 for the same period in 2011, a decrease of $31,000 or 3.6%. Decreases in data processing, FDIC insurance premiums and occupancy/equipment costs were partially offset by increases in salaries and benefits and Pennsylvania shares tax expense.
Comparing the three months ended March 31, 2012 with the same period in 2011, the following discussion further breaks down the variances in other operating expenses. Data processing decreased to $57,000 from $75,000, a $18,000 or 24.0% decrease, related to lower costs post an upgrade to the FiServ operating system, which was completed around mid-year 2011. FDIC insurance premiums are down to $15,000 from $32,000, a decrease of $17,000 or 53.1%, the result of a revised FDIC calculation in June 2011 that resulted in adjusted premiums in April 2011 carried forward. Occupancy/equipment costs were $135,000 versus $147,000, a decrease of $12,000 or 8.2%, due to lower depreciation expense on equipment, the terms of which expired during the second half of 2011. Salaries and benefits costs increased to $471,000 from $463,000, a $8,000 or 1.7% increase, which consists of normal increases in salaries and wages, health care insurance and other employee benefits. Pennsylvania shares tax was $39,000 versus $34,000, an increase of $5,000 or 14.7%, due to growth in the shareholders’ equity and in the assets of the company over the five year average from which the tax is based.
Income Taxes. Gateway has been in existence since May 2004 and has accumulated a net operating loss since its inception. As such, there is no tax expense per books at Gateway.
Results of Operations
Gateway Bank
For the years ended December 31, 2011 as compared to December 31, 2010:
(unaudited)
(dollars in thousands)
| | | | | | | | | | | | | | | | |
| | | 2011 | | | 2010 | | | $ change | | | % change | |
Interest income | | $ | 4,998 | | | $ | 5,470 | | | $ | (472 | ) | | | -8.6 | % |
Interest expense | | | 949 | | | | 1,538 | | | | (589 | ) | | | -38.3 | % |
| | | | | | | | | | | | | | | | |
Net interest income | | | 4,049 | | | | 3,932 | | | | 117 | | | | 3.0 | % |
Provision for loan losses | | | 63 | | | | 222 | | | | (159 | ) | | | -71.6 | % |
| | | | | | | | | | | | | | | | |
Net interest income after provision for loan losses | | | 3,986 | | | | 3,710 | | | | 276 | | | | 7.4 | % |
Other operating income | | | 79 | | | | 87 | | | | (8 | ) | | | -9.2 | % |
Other operating expense | | | 3,444 | | | | 3,349 | | | | 95 | | | | 2.8 | % |
| | | | | | | | | | | | | | | | |
Income before income taxes | | | 621 | | | | 448 | | | | 173 | | | | 38.6 | % |
Income tax expense | | | — | | | | — | | | | — | | | | | |
| | | | | | | | | | | | | | | | |
Net income | | $ | 621 | | | $ | 448 | | | $ | 173 | | | | 38.6 | % |
| | | | | | | | | | | | | | | | |
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Net Income. Net income increased to $621,000 for the year ended December 31, 2011 compared to net income of $448,000 for the year ended December 31, 2010, an increase of $173,000, or 38.6%. Net income per share improved to $0.36 for the full year 2011 compared to $0.26 for 2010. The improvement in earnings was primarily attributable to a lower provision for loan losses and higher net interest income offset slightly by higher other operating expenses and lower other operating income.
Net Interest Income and Margin.Net interest income for the year ended December 31, 2011 increased by $117,000 or 3.0% compared to the same period in 2011, while the net interest margin increased to 3.43% from 3.24% for the respective periods. The increase in net interest income and margin was due primarily to a decrease in the average rate paid on interest bearing liabilities, which more than offset a lower yield on earning assets and the negative impact of lower average earning assets. Interest rates were affected by lower overall rates that continued to decline during the year. Earning assets were impacted by lower average interest bearing liabilities between the periods.
Interest Income.Interest income for the year ended December 31, 2011 decreased by $472,000 or 8.6% compared to the same period in 2011. This was due to a decrease in the average yield on loans and investments, and a decrease in average earning assets. The yield on loans averaged 4.85% in 2011 versus 5.12% in 2010 while the investments yield averaged 1.89% in 2011 versus 2.90% in 2010. As noted in previous discussion, interest rates have generally declined throughout the year and affected loan and investment yields in various ways. In addition to lower yields, the level of earning assets decreased to average $118.0 million in 2011 versus $121.2 million in 2010.
Interest Expense.Interest expense for the full year 2011 decreased by $589,000 or 38.3%, to $949,000 in 2011 from $1,538,000 in 2010. The decrease was due to an overall lower average rate paid and lower overall volume of interest bearing liabilities. The average rate paid on interest bearing liabilities was 1.07% for 2011 versus 1.62% for 2010, while average interest bearing liabilities decreased $5.9 million or 6.3% between the periods.
Provisions for Loan Losses. Provisions for loan losses charged to operations are based on management’s judgment after considering a variety of factors, including current economic conditions, diversification of the loan portfolio and delinquency status. Also considered by management in determining the amounts charged to operations are the evaluations done by the independent loan review function, regulators’ analysis performed in connection with regulatory examinations, previous experience and the general financial condition of the borrower. Provision expense was $63,000 in 2011 versus $222,000 in 2010 and reflects the adequacy of the allowance for loan losses in relation to the risk inherent within the portfolio. For further comments about Gateway’s credit risk, see the discussion under “Loan Quality and Allowance for Loan Losses.”
Other Operating Income.Other operating income for 2011 was $79,000 compared to $87,000 in 2011. The decrease is related to timing of cash collection on service charges on deposit accounts and certain other transaction fees.
Other Operating Expenses. Total operating expenses for the year ended December 31, 2011 were $3,444,000 compared to $3,349,000 for the same period in 2011, an increase of $95,000 or 2.8%. Increases in salaries and benefits, data processing, Pennsylvania shares tax expense and certain other operating expenses were partially offset by decreases in FDIC insurance premiums and occupancy/equipment costs.
Comparing the full years 2011 and 2010, the following discussion further breaks down the variances in other operating expenses. Salaries and benefits costs increased to $1,774,000 from $1,685,000, a $89,000 or 5.3% increase, which consists of normal increases in salaries and wages, health care insurance and other employee benefits. Data processing increased to $330,000 from $293,000, a $37,000 or 12.6% increase, related to one-time costs related to a conversion upgrade of the bank’s operating system which was completed mid-year 2011, offset to some extent by lower overall costs under the new system post conversion. Pennsylvania shares tax
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was $139,000 versus $125,000, an increase of $14,000 or 11.2%, due to growth in the shareholders’ equity and the assets of the company over the five years average from which the tax is based. Increased ‘other ‘operating expenses was impacted by certain one-time costs during 2011; these included consulting fees paid related to the sale of the company and employee costs related to the system conversion in 2011 for travel, lodging, etc. FDIC insurance premiums are down to $81,000 from $136,000, a decrease of $55,000 or 40.4%, the result of a revised FDIC calculation in June 2011 that resulted in adjusted premiums in April 2011 carried forward. Occupancy/equipment costs were $555,000 versus $580,000, a decrease of $25,000 or 4.3%, due to lower depreciation expense on equipment, the terms of which expired during the second half of 2011.
Income Taxes. Gateway has been in existence since May 2004 and has accumulated a net operating loss since its inception. As such, there is no tax expense per books at Gateway for either 2011 or 2010.
Financial Condition
Gateway Bank
| | | | | | | | | | | | | | | | |
As of March 31, 2012 and December 31, 2011 (dollars in thousands) | | March 31,
2012 | | | December 31,
2011 | | | $ change | | | % change | |
Cash on hand and in banks | | $ | 12,085 | | | $ | 9,277 | | | $ | 2,808 | | | | 30.3 | % |
Investments | | | 10,013 | | | | 9,018 | | | | 995 | | | | 11.0 | % |
Loans, net | | | 100,042 | | | | 100,035 | | | | 7 | | | | 0.0 | % |
Other assets | | | 1,967 | | | | 1,931 | | | | 36 | | | | 1.9 | % |
| | | | | | | | | | | | | | | | |
Total assets | | $ | 124,107 | | | $ | 120,261 | | | $ | 3,846 | | | | 3.2 | % |
| | | | | | | | | | | | | | | | |
Deposits | | $ | 100,546 | | | $ | 96,882 | | | $ | 3,664 | | | | 3.8 | % |
Borrowed funds | | | 7,984 | | | | 8,032 | | | | (48 | ) | | | -0.6 | % |
Other liabilities | | | 194 | | | | 172 | | | | 22 | | | | 12.8 | % |
Shareholders’ equity | | | 15,383 | | | | 15,175 | | | | 208 | | | | 1.4 | % |
| | | | | | | | | | | | | | | | |
Total liabilities & equity | | $ | 124,107 | | | $ | 120,261 | | | $ | 3,846 | | | | 3.2 | % |
| | | | | | | | | | | | | | | | |
Balance Sheet. Total assets as of March 31, 2012 was $124,107,000, an increase of $3,846,000 or 3.2% compared to total assets of $120,261,000 at December 31, 2011. Total assets increased due to higher cash on hand and in banks and investments due to higher deposits and capital between the periods.
Net loans remained relatively flat between the periods, loans at $100,042,000 at March 31, 2012 and $100,035,000 at year end 2011. Commercial loans increased slightly while consumer loans had a slight decrease.
Total investments increased by $995,000 or 11.0% between the periods. The primary purpose of the investment portfolio is to provide a source of liquidity sufficient to meet loan funding demands and deposit withdrawals, and to secure certain public deposits. Cash on hand and in banks also serves as a source of liquidity and to meet daily operational needs. Cash on hand and in banks can fluctuate on a daily basis and between periods of comparison, depending on these operational needs and customer demands.
Gateway’s deposits are comprised of demand deposits, NOW accounts, money market accounts, savings accounts and other time deposits obtained from individuals and businesses within the communities where branch offices are located. Deposits increased by $3,664,000 or 3.8%, when comparing March 31, 2012 to December 31, 2011. The principal drivers to this increase were higher demand deposits and money market accounts offset slightly by lower NOW accounts and time deposits.
Loan Quality and Allowance for Loan Losses.Gateway did not have any chargeoffs for the first quarter 2012, or past-due or non-accrual loans as of March 31, 2012. The allowance for loan losses at March 31, 2012 was $1,450,000 or 1.43% of total loans outstanding, which remains unchanged from the allowance at December 31, 2011, which also represented 1.43% of total loans outstanding. Management believes reserve levels are adequate to absorb any possible losses in the loan portfolio.
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Financial Condition
Gateway Bank
| | | | | | | | | | | | | | | | |
As of December 31, 2011 and December 31, 2010 (dollars in thousands) | | December 31,
2011 | | | December 31,
2010 | | | $ change | | | % change | |
Cash on hand and in banks | | $ | 9,277 | | | $ | 11,543 | | | $ | (2,266 | ) | | | -19.6 | % |
Investments | | | 9,018 | | | | 10,940 | | | | (1,922 | ) | | | -17.6 | % |
Loans, net | | | 100,035 | | | | 98,308 | | | | 1,727 | | | | 1.8 | % |
Other assets | | | 1,931 | | | | 1,677 | | | | 254 | | | | 15.1 | % |
| | | | | | | | | | | | | | | | |
Total assets | | $ | 120,261 | | | $ | 122,468 | | | $ | (2,207 | ) | | | -1.8 | % |
| | | | | | | | | | | | | | | | |
Deposits | | $ | 96,882 | | | $ | 104,459 | | | $ | (7,577 | ) | | | -7.3 | % |
Borrowed funds | | | 8,032 | | | | 3,477 | | | | 4,555 | | | | 131.0 | % |
Other liabilities | | | 172 | | | | 233 | | | | (61 | ) | | | -26.2 | % |
Shareholders’ equity | | | 15,175 | | | | 14,299 | | | | 876 | | | | 6.1 | % |
| | | | | | | | | | | | | | | | |
Total liabilities & equity | | $ | 120,261 | | | $ | 122,468 | | | $ | (2,207 | ) | | | -1.8 | % |
| | | | | | | | | | | | | | | | |
Balance Sheet. Total assets as of December 31, 2011 was $120,261,000, a decrease of $2,207,000 or 1.8% compared to total assets of $122,468,000 at December 31, 2010. Total assets decreased due to lower cash on hand and in banks and investments due to lower deposits offset to some extent by higher borrowed funds and capital between the periods.
Net loans increased between the periods, rising to $100,035,000 at year end 2011 from $98,308,000 at year end 2010, an increase of $1,727,000 or 1.8%. An increase in commercial loans more than offset a decrease in consumer loans.
Total investments decreased by $1,922,000 or 17.6% between the periods. The primary purpose of the investment portfolio is to provide a source of liquidity sufficient to meet loan funding demands and deposit withdrawals, and to secure certain public deposits. Cash on hand and in banks also serves as a source of liquidity and to meet daily operational needs. Cash on hand and in banks can fluctuate on a daily basis and between periods of comparison, depending on these operational needs and customer demands.
Gateway’s source of funding is deposits and borrowed funds. Deposits are comprised of demand deposits, NOW accounts, money market accounts, savings accounts and other time deposits obtained from individuals and businesses within the communities where branch offices are located and contiguous counties. Deposits decreased by $7,577,000 or 7.3%, when comparing year end 2011 to year end 2010. The principal driver to this decrease was lower time deposits offset to some extent by higher demand deposits. Time deposit runoff related to a 18-month CD special promotion that the bank chose not to continue as these time deposits matured in late 2011. Borrowed funds increased by $4,555,000 or 131.0% between the periods. Borrowed funds consist of term funding from the Federal Home Loan Bank of Pittsburgh and securities sold under agreements to repurchase; both of these sources reflected increases between the periods.
Loan Quality and Allowance for Loan Losses.Gateway did not have any chargeoffs in 2011, or past-due or non-accrual loans as of December 31, 2011. The allowance for loan losses at December 31, 2011 was $1,450,000 or 1.43% of total loans outstanding, versus an allowance of $1,387,000 at December 31, 2010 or 1.39% of total loans. Management believes reserve levels are adequate to absorb any probable losses in the loan portfolio.
Non-Performing Assets
Non-performing assets include non-accrual loans, restructured loans, loans 90 days past due which are still accruing interest and other real estate owned (OREO). Non-accrual loans represent loans where interest accruals
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have been discontinued. Restructured loans are loans in which the borrower has been granted a concession on the interest rate or the original repayment terms due to financial distress and the loan is performing according to the revised terms. Gateway had no non-performing assets as of March 31, 2012, December 31, 2011, or December 31, 2010.
Capital Resources
Gateway seeks to maintain a strong capital base to support growth, to provide stability to current operations and to promote public confidence. Stockholders’ equity at March 31, 2012 increased to $15,383,000 versus $15,175,000 at December 31, 2011 and $14,299,000 at December 31, 2010. Increases in stockholders’ equity result from net income, as Gateway did not pay dividends during the periods. Gateway’s capital position was well above all regulatory requirements as of March 31, 2012, December 31, 2011 and December 31, 2010.
Regulatory Capital
Gateway is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Gateway must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weighting and other factors. Failure to meet capital requirements can initiate regulatory action.
Quantitative measures established by regulators to ensure capital adequacy require the maintenance of minimum amounts and ratios (set forth in the table below) of Total Capital and Tier I Capital (as defined by the regulators) to risk-weighted assets (as defined), and of Tier I Capital (as defined). Management believes, as of March 31, 2012, December 31, 2011 and December 31, 2010, that Gateway meets all capital adequacy requirements to which they are subject.
As of March 31, 2012, December 31, 2011 and December 31, 2010, Gateway was categorized as well capitalized under the regulatory framework for prompt corrective action by regulatory agencies. To be categorized as well capitalized, Gateway must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the following table (dollar figures are in thousands). There are no conditions or events since these periods that management believes have changed those categories.
Capital Ratios
Gateway Bank
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Minimum Amount | | | | |
| (dollars in thousands) | | Actual | | | For capital adequacy purposes | | | To Be Well Capitalized
Under Prompt Corrective
Action Provisions | |
| | | Amount | | | Ratio | | | Amount | | | Ratio | | | Amount | | | Ratio | |
March 31, 2012: | | | | | | | | | | | | | | | | | | | | | | | | |
Total capital (to risk-weighted assets) | | $ | 16,624 | | | | 15.5 | % | | $ | 8,580 | | | | 8.0 | % | | $ | 10,725 | | | | 10.0 | % |
Tier I capital (to risk-weighted assets) | | | 15,373 | | | | 14.3 | % | | | 4,300 | | | | 4.0 | % | | | 6,450 | | | | 6.0 | % |
Tier I capital (to average assets) | | | 15,373 | | | | 12.7 | % | | | 4,842 | | | | 4.0 | % | | | 6,052 | | | | 5.0 | % |
| | | | | | |
December 31, 2011: | | | | | | | | | | | | | | | | | | | | | | | | |
Total capital (to risk-weighted assets) | | $ | 16,503 | | | | 15.4 | % | | $ | 8,574 | | | | 8.0 | % | | $ | 10,718 | | | | 10.0 | % |
Tier I capital (to risk-weighted assets) | | | 15,162 | | | | 14.2 | % | | | 4,287 | | | | 4.0 | % | | | 6,431 | | | | 6.0 | % |
Tier I capital (to average assets) | | | 15,162 | | | | 12.7 | % | | | 4,764 | | | | 4.0 | % | | | 5,955 | | | | 5.0 | % |
| | | | | | |
December 31, 2010: | | | | | | | | | | | | | | | | | | | | | | | | |
Total capital (to risk-weighted assets) | | $ | 15,641 | | | | 15.0 | % | | $ | 8,360 | | | | 8.0 | % | | $ | 10,450 | | | | 10.0 | % |
Tier I capital (to risk-weighted assets) | | | 14,335 | | | | 13.7 | % | | | 4,180 | | | | 4.0 | % | | | 6,270 | | | | 6.0 | % |
Tier I capital (to average assets) | | | 14,335 | | | | 11.4 | % | | | 5,038 | | | | 4.0 | % | | | 6,297 | | | | 5.0 | % |
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Off-Balance Sheet Arrangements
Gateway, in the normal course of business, is party to financial instruments with off-balance sheet risk. These instruments are required to meet the financial needs of its customers and include such items as unused lines of credit, letters of credit, and other loan commitments. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements.
Gateway’s exposure to credit loss, in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, is represented by the contractual or notional amount of those instruments, although losses are not anticipated. Gateway uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. The following table identifies the contract or notional amount of these instruments:
Executive Overview
Gateway Bank
| | | | | | |
| | | March 31, | | December 31, |
| (Dollars in thousands) | | 2012 | | 2011 | | 2010 |
Financial instruments whose contract amounts represent risk: | | | | | | |
Commitments to extend credit | | $ 24,331 | | $ 23,270 | | $ 20,880 |
Interest rate range | | 2.00% to 13.50% | | 2.00% to 13.50% | | 2.00% to 13.50% |
Standby letters of credit | | $ 1,705 | | $ 1,635 | | $ 1,600 |
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Gateway evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by Gateway upon extensions of credit, is based on management’s credit evaluation of the customer. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment and income producing commercial properties. On loans secured by commercial real estate, Gateway generally requires loan to value ratios of no more than 80%. On loans secured by owner-occupied residential properties, Gateway generally requires loan to value ratios not in excess of 90%.
Standby letters of credit are conditional commitments issued by Gateway to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. The terms of the letters of credit vary and may have renewal features. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Gateway holds collateral supporting those commitments for which collateral is deemed necessary.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances net of unearned interest and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan origination fees are deferred and recognized as an adjustment of the yield (interest income) of the related loans. Gateway generally amortizes these amounts over the contractual life of the loan.
The accrual of interest is generally discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest,
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even though the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on non-accrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for loan losses. Interest received on non-accrual loans generally is either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable time and the ultimate collectability of the total contractual principal is no longer in doubt.
Allowance for Loan Losses
The allowance for loan losses represents the amount which management estimates is adequate to provide for probable losses inherent in its loan portfolio. The allowance method is used in providing for loan losses. Accordingly, all loan losses are charged to the allowance, and all recoveries are credited to it. The allowance for loan losses is established through a provision for loan losses charged to operations. The provision for loan losses is based on management’s periodic evaluation of individual loans, economic factors, past loss experience, changes in the composition and volume of the portfolio, and other relevant factors. The estimates used in determining the adequacy of the allowance for loan losses, including the amounts and timing of future cash flows expected on impaired loans, are particularly susceptible to change in the near term.
Impaired loans are commercial and commercial real estate loans for which it is probable that Gateway will not be able to collect all amounts due according to the contractual terms of the loan agreement. Gateway individually evaluates such loans for impairment and does not aggregate loans by major risk classifications. Factors considered by management in determining impairment include payment status and collateral value. The amount of impairment for these types of loans is determined by the difference between the present value of the expected cash flows related to the loan using the original interest rate and its recorded value, or as a practical expedient in the case of collateralized loans, the difference between the fair value of the collateral and the recorded amount of the loans. When foreclosure is probable, impairment is measured based on the fair value of the collateral.
The definition of “impaired loans” is not the same as the definition of “nonaccrual loans,” although the two categories overlap. Gateway may choose to place a loan on nonaccrual status due to payment delinquency or uncertain collectability, while not classifying the loan as impaired, provided the loan is not a commercial or commercial real estate classification.
Loans secured by one-to-four family properties and all consumer loans are large groups of smaller-balance homogeneous loans and are measured for impairment collectively. Loans that experience insignificant payment delays, which are defined as 90 days or less, generally are not classified as impaired. Management determines the significance of payment delays on a case-by-case basis, taking into consideration all circumstances concerning the loan, the creditworthiness and payment history of the borrower, the length of the payment delay, and the amount of shortfall in relation to the principal and interest owed.
The general component covers non-impaired loans, which management determines by segmenting the loan portfolio into the following pools: commercial loans; commercial real estate loans; first lien consumer real estate loans; subordinate lien consumer real estate loans; and consumer loans. Certain qualitative factors are then added to any historical allocation percentage applied to each pool to obtain the adjusted factor to be applied to nonclassified loans. The following qualitative factors are analyzed for each portfolio segment: levels of and trends in delinquencies, trends in volume and terms, trends in credit quality ratings, changes in management and lending staff, economic trends, and concentrations of credit.
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Security Ownership of Certain Beneficial Holders of Gateway
The table below sets forth information, as of the record date, concerning (a) each person that is known to be the beneficial owner of more than 5% of Gateway’s common stock, (b) the beneficial ownership of each of Gateway’s directors and executive officers, and (c) the beneficial ownership of all of Gateway’s directors and executive officers as a group. Unless otherwise indicated, all persons listed below have sole voting and investment power with respect to their shares, except to the extent spouses share authority under applicable law. Beneficial ownership is determined in accordance with the rules of the SEC. At the close of business on the record date, Gateway had— shares of common stock issued and outstanding, which excludes 9,350 shares of restricted common stock. In computing the number and percentage of shares beneficially owned by a person, shares that may be acquired by such person within 60 days of the record date are counted as outstanding, while these shares are not counted as outstanding for computing the percentage ownership of any other person. Unless otherwise indicated, the address of each of the listed stockholders is c/o Gateway Bank of Pennsylvania, 3402 Washington Road, McMurray, PA 15317.
| | | | | | | | |
Name and Address | | Number of
Shares
Beneficially
Owned (1) | | | Percent of
Outstanding
Shares
Beneficially
Owned (2) | |
5% or greater shareholders | | | | | | | | |
| | |
William J. Burt(3) President, CEO, and Director | | | 112,581 | | | | 6.5 | % |
Seneca Capital Partners 1999 Partners’ Liquidating Trust(4) 2591 Wexford-Bayne Road Suite 203 Sewickley, PA 15143 | | | 106,500 | | | | 6.2 | % |
Leonard M. Carroll(5) Director Emeritus | | | 106,500 | | | | 6.2 | % |
Gayland B. Cook(6) Director | | | 106,500 | | | | 6.2 | % |
| | |
Current Officers and Directors (exclusive of Messrs. Carroll, Cook, and Burt, whose beneficial ownership is referenced above) | | | | | | | | |
| | |
Robert S. Kerr(7) Executive Vice President, Chief Operating Officer, and Chief Lending Officer | | | 70,426 | | | | 4.1 | % |
Alan R. Guttman(8) Director | | | 63,358 | | | | 3.7 | % |
Thomas S. Henderson(9) Director | | | 58,207 | | | | 3.4 | % |
F. James McCarl(10) Chairman of the Board | | | 54,855 | | | | 3.2 | % |
Charles J. LaBelle(11) Director | | | 48,000 | | | | 2.8 | % |
Lee W. Baierl(12) Director | | | 43,050 | | | | 2.5 | % |
Frank J. Palermo, Jr.(13) Director | | | 39,369 | | | | 2.3 | % |
Randolph T. Patterson(14) Senior Vice President | | | 38,312 | | | | 2.2 | % |
Dr. Randall L.C. Russell(15) Director | | | 37,357 | | | | 2.2 | % |
Patricia L. Siger(16) Director | | | 36,873 | | | | 2.1 | % |
Nancy L. Rackoff(17) Director | | | 30,500 | | | | 1.8 | % |
Gretchen Snyder(18) Director | | | 7,250 | | | | 0.4 | % |
All directors and officers as a group (15 persons total) | | | 746,638 | | | | 43.4 | %(19) |
(1) | The securities “beneficially owned” by an individual are determined in accordance with the definitions of “beneficial ownership” set forth in the General Rules and Regulations of the Securities and Exchange Commission and may include securities owned by or for the individual’s spouse and minor children and any other relative who has the same home, as well as securities to which the individual has or shares voting or investment power or has the right to acquire beneficial
|
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| ownership within 60 days of April 15, 2012. (References below to vested stock options, vested warrants or restricted stock grants for which the restrictions have lapsed include options and warrants that will vest, and restricted stock for which the restrictions will lapse, on or before June 14, 2012.) Beneficial ownership may be disclaimed as to certain of the securities. Unless otherwise indicated, the individual owns the shares directly. |
(2) | As of April 15, 2012, Gateway had outstanding 1,718,960 shares of Common Stock (excluding 9,350 shares of restricted stock which restrictions will not lapse on or before June 14, 2012) issued and outstanding, the only issued and outstanding class of stock. |
(3) | Consists of 38,031 shares owned by Mr. Burt; 5,000 shares issuable upon the exercise of vested warrants; and 68,425 shares issuable upon the exercise of vested stock options; 125 shares owned by Mr. Burt jointly with his spouse, Donna L. Burt; and 1,000 shares owned by Mr. Burt’s spouse, Donna L. Burt. |
(4) | Consists of 83,500 shares held by Seneca Capital Partners 1999 Partners’ Liquidating Trust; 5,000 shares issuable upon the exercise of vested warrants (of which warrants for 2,500 shares were assigned to Seneca by Mr. Carroll and warrants for 2,500 shares were assigned to Seneca by Mr. Cook); and 18,000 shares issuable upon the exercise of vested stock options (of which options for 4,500 shares were assigned to Seneca by Mr. Carroll and options for 13,500 shares were assigned to Seneca by Mr. Cook). The Trustees are Leonard M. Carroll, Gayland B. Cook and Russell J. Warren. |
(5) | Consists of 83,500 shares owned by Seneca Capital Partners 1999 Partners’ Liquidating Trust;; 5,000 shares issuable upon the exercise of vested warrants; and 18,000 shares issuable upon the exercise of vested stock options. Mr. Carroll is Managing Director, Chairman and Treasurer of Seneca Capital Management, Inc., and a Trustee of Seneca Capital Partners 1999 Partners’ Liquidating Trust. |
(6) | Consists of 83,500 shares owned by Seneca Capital Partners 1999 Partners’ Liquidating Trust;; 5,000 shares issuable upon the exercise of vested warrants; and 18,000 shares issuable upon the exercise of vested stock options. Mr. Cook is Managing Director, President and Secretary of Seneca Capital Management, Inc. and a Trustee of Seneca Capital Partners 1999 Partners’ Liquidating Trust. |
(7) | Consists of 17,738 shares owned by Mr. Kerr; 4,500 shares owned by Robert S. Kerr, IRA; and 48,188 shares issuable upon the exercise of vested stock options. |
(8) | Consists of 40,000 shares owned by 150 Linden Partners, of which Mr. Guttman is a partner; 286 shares owned by Mr. Guttman and 2,572 shares owned by Mr. Guttman jointly with his spouse, Sara Kessler Guttman; 5,000 shares issuable upon the exercise of vested warrants; and 15,500 shares issuable upon the exercise of vested stock options. |
(9) | Consists of 25,207 shares owned by T. S. Henderson Revocable Trust dated March 5, 1998; 5,000 shares owned by Kristina A. Henderson Trust U/D/T dated March 5, 1998; 1,500 shares owned by Mary S. Henderson Trust U/D/T dated 12/13/1996 FBO Mr. Henderson’s mother, of which Mr. Henderson is a trustee; 2,500 shares owned by T.S. Henderson IA Trust FBO Kristina S. Henderson, Mr. Henderson’s daughter, of which Mr. Henderson is the trustee; 2,500 shares owned by T.S. Henderson IA Trust FBO Kimberly W. Henderson, Mr. Henderson’s daughter, of which Mr. Henderson is the trustee; 1,000 shares are owned by Thomas S. Henderson TTEE IA Trust FBO Chloe Roberts, of which Mr. Henderson is the trustee; 1,000 shares are owned by Thomas S. Henderson TTEE IA Trust FBO Haley Roberts, of which Mr. Henderson is the trustee; 1,000 shares are owned by Thomas S. Henderson TTEE IA Trust FBO Kelsey Roberts, of which Mr. Henderson is the trustee; 5,000 shares issuable upon the exercise of vested warrants; and 13,500 shares issuable upon the exercise of vested stock options. |
(10) | Consists of 25,355 shares owned by Mr. McCarl; 5,000 shares owned by F. James McCarl, IRA; 2,000 shares owned by Mr. McCarl’s spouse, Carol A. McCarl; 5,000 shares issuable upon the exercise of vested warrants; and 17,500 shares issuable upon the exercise of vested stock options. |
(11) | Consists of 30,000 shares owned by Irrevocable Agreement of Trust of Angelo M. Falconi; 2,500 shares owned by Mr. LaBelle jointly with his spouse, Janice M. LaBelle; 5,000 shares issuable upon the exercise of vested warrants; and 10,500 shares issuable upon the exercise of vested stock options. |
(12) | Consists of 5,000 shares owned by William R. Baierl in a marital trust, of which Mr. Lee Baierl is co-trustee; 27,300 shares owned by Baierl Chevrolet Inc.; and 10,750 shares issuable upon the exercise of vested stock options. |
(13) | Consists of 13,869 shares owned by Mr. Palermo; 5,000 shares owned by Frank J. Palermo, Jr., IRA; 2,500 shares owned by Amy M. Palermo, IRA FBO Mr. Palermo’s spouse; 500 shares owned jointly with his spouse, Amy M. Palermo, 5,000 shares issuable upon the exercise of vested warrants; and 10,000 shares issuable upon the exercise of vested stock options. |
(14) | Consists of 11,937 shares owned by Mr. Patterson; 1,000 shares owned by Randolph T. Patterson, IRA; and 25,375 shares issuable upon the exercise of vested stock options. |
(15) | Consists of 21,245 shares owned by Dr. Russell jointly with his spouse, Barbara W. Russell; 2,612 shares owned by RLCR Family Trust, of which Mr. Russell is a Trustee; and 10,500 shares issuable upon the exercise of vested stock options. |
(16) | Consists of 21,373 shares owned by Ms. Siger; 5,000 shares issuable upon the exercise of vested warrants; and 8,500 shares issuable upon the exercise of vested stock options. |
(17) | Consists of 20,000 shares owned by Ms. Rackoff jointly with her spouse, William H. Rackoff; and 10,500 shares issuable upon the exercise of vested stock options. |
(18) | Consists of 2,500 shares held by Westmont Limited Partnership, of which Ms. Snyder owns 30%; and 4,750 shares issuable upon the exercise of vested stock options. |
(19) | For purposes of counting total percentage ownership of the officers and directors, the ownership percentages attributed to Messrs. Carroll and Cook by virtue of their ownership in Seneca Capital Partners 1999 Partners’ Liquidating Trust was only counted once. |
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COMPARISON OF SHAREHOLDERS’ RIGHTS
The rights of Gateway shareholders are governed by Pennsylvania law, including the Pennsylvania Business Corporation Law, which we refer to as the PBCL, and Gateway’s articles of incorporation and by-laws. The rights of S&T shareholders are governed by Pennsylvania law, including the PBCL, and S&T’s articles of incorporation and by-laws.
Upon consummation of the merger, Gateway shareholders will become S&T shareholders. Consequently, after the merger, the rights of such shareholders will be governed by the articles of incorporation and by-laws of S&T and Pennsylvania law.
A comparison of the rights of Gateway and S&T shareholders follows. This summary is not intended to be a complete statement of all of such differences or a complete description of the specific provisions referred to therein, and is qualified in its entirety by reference to Pennsylvania law and the respective articles of incorporation and by-laws of Gateway and S&T.
Authorized Capital
Gateway. Gateway is authorized to issue 5,000,000 shares of common stock, $1.00 par value.
S&T. S&T is authorized to issue 50,000,000 shares of common stock, par value $2.50 per share, and 10,000,000 shares of preferred stock, without par value.
Annual Meetings of Shareholders
Gateway. Gateway’s by-laws provide that an annual meeting will be held on the second Thursday in the month of May of each year if not a legal holiday, and if a legal holiday, then on the next business day following, at 2:00 o’clock p.m., or at such date and time as the board of directors may fix from time to time.
S&T. S&T’s by-laws provide that an annual meeting will be held at such date or hour as the board of directors may from time to time determine.
Special Meetings of Shareholders
Gateway. Special meetings of the Gateway shareholders can be called by Gateway’s chairmanmembers of the board of directors its president, a majority of itsDNB to the S&T board of directors, or by the holders of at least 20% of all the shares entitled to vote at the particular meeting.
S&T. Special meetings of the S&T shareholders candirectors. The two appointed members must be called by S&T’s board of directors, its president, or by the shareholders entitled to cast at least one-fifth of the vote which all shareholders are entitled to cast at the particular meeting.
Cumulative Voting
Gateway. Gateway’s articles of incorporation prohibit cumulative voting in the election of directors.
S&T. S&T’s articles of incorporation prohibit cumulative voting in the election of directors.
Shareholder Nomination of Directors
Gateway. Nomination of directors may be made, in writing, by any shareholder to the secretary of Gateway not less than 60 days nor more than 90 days prior to the date of any meeting of shareholders called for the
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election of directors. Nominations must contain the following information to the extent known by the notifying shareholder: (a) the name and address of each proposed nominee; (b) the age of each proposed nominee; (c) the principal occupation of each proposed nominee; (d) the number of shares of Gateway owned by each proposed nominee; (e) the total number of shares that will be voted for each proposed nominee; (f) the name and residence address of the notifying shareholder; and (g) the number of shares of Gateway owned by the notifying shareholder.
S&T. Nomination of directors may be madedesignated by the Nominating and Corporate Governance Committee or by any shareholder of any outstanding class of capital stock of S&T entitled to vote for the election of directors. Nominations, other than those made by the Nominating and Corporate Governance Committee, must be submitted to the Secretary in writing not earlier than the close of business on the 120th day, nor later than the close of business on the 60th day, immediately preceding the date of the meeting.
Number of Directors
Gateway. The number of Gateway directors will be between not less than 5 members and not more than 25 members. The majority of the full board of directors of Gateway may vote, between annual meetings of the shareholders, to increase the membership of the board of directors by no more than 2 members in any one year, provided that such increase will not result in more than 25 members.
S&T. The number of S&T directors will be not less than twelve nor more than 25 as a majority of S&T’s board of directors may determine. S&T’s board currently consists of sixteen directors.
Director Qualifications
Gateway. Each Gateway director must be a citizen of the United States and a shareholder of Gateway, at least 2/3 of whom shall also be residents of the Commonwealth of Pennsylvania.
S&T. Each newly elected or appointed S&T director must be under 75 years of age. Any S&T director who attains the age of 75 years will cease to be a director (without any action on his/her part) as of the next annual meeting. Each S&T director must own the number of shares (if any) required by law to qualify as director.
Election of Directors
Gateway. Gateway board of directors are elected at the annual meeting of shareholders by a majority of the votes cast by the shareholders entitled to vote in person or by proxy, or by a similar vote, at any special meeting called for that purpose. Directors shall be divided into 3 classes, each of which shall consist of 1/3 of the directors as nearly as possible. Class 1 has a 1-year term, Class 2 has a 2-year term, and Class 3 has a 3-year term. At the end of a given term and at the next annual meeting, directors in each class shall be elected every 3 years for 3-year terms.
S&T. The S&T board of directors are elected annually to a one-year term.
Vacancies
Gateway. Gateway’s by-laws provide that vacancies inand must additionally satisfy and comply with applicable governmental and eligibility requirements for service on the S&T board of directors, including vacancies resulting from an increase in the number of directors or the resignation of one or more directors, shall be filled by a majority vote of the remaining members of the board even though less than quorum, or by a sole remaining director. Each person so selected will serve for the balance of the unexpired term and until a successor has been selected and qualified, or until his or her earlier death, resignation, removal or disqualification.
S&T. S&T’s by-laws provide that if a vacancy occurs on the board of directors, including a vacancy resulting from an increase in the number of directors, the board may fill the vacancy, or, if the directors in office
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constitute fewer than a quorum of the board of directors, they may fill the vacancy by the affirmative vote of a majority of all the directors in office. The shareholders may fill a vacancy only if there are no directors in office. A director electeddirectors. Subject to fill a vacancy shall serve only until the election of directors by the shareholders.
Special Meetings of the Board
Gateway. Special meetings of Gateway’s board of directors may be called by the chairman of the board of directors, by the president, or by 3 or more of the directors upon one day’s notice to each director. Notice shall be in writing and sent by (i) messenger, (2) certified, registered, or first-class U.S. mail, (iii) a reliable express delivery service, or (iv) telefacsimile.
S&T.Special meetings of S&T’s board of directors may be called by the President or at the request of three or more members of the board. Written or printed notice of the time and place of the special meeting must be given by the Secretary to each member of the board of directors at least 24 hours before the time of such meeting, and does not need to specify the business to be transacted at the meeting.
Pennsylvania Anti-Takeover Provisions
Under Pennsylvania business corporation law, certain anti-takeover provisions apply to Pennsylvania “registered corporations” (e.g., publicly traded companies) including those relating to (i) control share acquisitions, (ii) disgorgement of profits by certain controlling persons, (iii) business combination transactions with interested shareholders and (iv) the rights of shareholders to demand fair value for their stock following a control transaction. Pennsylvania law allows registered corporations to opt-out of any of these anti-takeover provisions. S&T is a registered corporation under the PBLC and has opted out of the anti-takeover provisions listed in (i) and (ii) above. Gateway is not a registered corporation and is therefore not subject to these anti-takeover provisions. A general summary of the applicable anti-takeover provisions is set forth below.
Control Share Acquisitions. Pennsylvania law limits control share acquisitions relating to the act of acquiring for the first time voting power over voting shares (other than shares owned since January 1, 1988 and any additional shares distributed with respect to such shares) equal to at least 20%, 33 1/3% and 50% of the voting power of the corporation. Once a control share acquisition has occurred, then all shares in excess of the triggering threshold, plus shares purchased at any time with the intention of acquiring such voting power and shares purchased within 180 days of the date the triggering threshold was exceeded, are considered control shares. Control shares cannot vote either until their voting rights have been restored by two separate votes of the shareholders, described below, at a meeting or until they have been transferred to a person who does not thereby also become the holder of control shares.
The holder of control shares may wait until the next annual or special meeting after the acquisition took place to submit the request for the restoration of voting rights to the shareholders, or the acquiring person may accelerate the process by agreeing to underwrite the cost of a special meeting of shareholders for that purpose. In either case, the acquiring person is required to furnish for distribution to the shareholders an information statement containing a detailed disclosure concerning the acquiring person, its intentions with respect to ownership of securities of the corporation and other matters. As an alternative, a person proposing to make a control share acquisition may request prospective approval by the shareholders of the exercise of the voting rights of the shares proposed to be acquired. Two shareholders’ votes are required to approve the restoration of voting rights: (i) the approval of an absolute majority of all voting power must be obtained, and all voting shares are entitled to participate in this vote; and (ii) the approval of an absolute majority of all disinterested shareholders must be obtained.
For a period of 24 months after the later of (i) a control share acquisition by an acquiring person who does not properly request consideration of voting rights, or (ii) the denial of such a request or lapse of voting rights, the corporation may redeem all the control shares at the average public market sales price of the shares on the date notice of the call for redemption is given by the corporation.
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Disgorgement of Profits by Certain Controlling Persons. Pennsylvania law regarding disgorgement of profits by certain controlling persons applies in the event that (i) any person or group publicly discloses that the person or group may acquire control of the corporation, or (ii) a person or group acquires (or publicly discloses an intent to acquire) 20% or more of the voting power of the corporation and, in either case, sells shares within 18 months thereafter. Any profits from sales of equity securities of the corporation received by the person or group during such 18-month period will belong to the corporation if the securities that were sold were acquired during the 18-month period or within 24 months prior thereto.
Business Combination Transactions with Interested Shareholders. Pennsylvania law prohibits certain business combinations with certain ‘interested shareholders,’ persons who acquire the direct or indirect beneficial ownership of shares entitled to cast at least 20% of the votes entitled to be cast for the election of directors. A corporation subject to this provision may not effect mergers or certain other business combinations with the interested shareholder for a period of five years, unless:
the business combination or the acquisition of stock by means of which the interested shareholder became an interested shareholder is approved by the corporation’s board of directors prior to such stock acquisition;
the business combination is approved by the affirmative vote of the holders of all the outstanding common shares of the corporation; or
the business combination is approved by the affirmative vote of the holders of a majority of all shares entitled to vote, excluding votes of shares held by the interested shareholders, and at the time of such vote, the interested shareholder is the beneficial owner of at least 80% of the voting shares of the corporation. This exception applies only if the value of the consideration to be paid by the interested shareholder in connection with the business combination satisfies certain fair price requirements.
After the five-year restricted period, an interested shareholder of the corporation may engage in a business combination with the corporation if (i) the business combination is approved by the affirmative vote of a majority of the shares other than those beneficially owned by the interested shareholder and its affiliates, or (ii) the merger is approved at a shareholders meeting and certain fair price requirements are met.
Rights of Shareholders to Demand Fair Value for Stock Following a Control Transaction.Pennsylvania law regarding the ability of shareholders to dispose of their stock following a control transaction provides, generally, that a person or group that acquires more than 20% of the voting power to elect directors of the corporation is a controlling person and must give prompt notice to each shareholder of record. The other shareholders are then entitled to demand that the controlling person pay them the fair value of their shares under specified procedures. Fair value may not be less than the highest price paid per share by the controlling person at any time during the 90-day period ending on and including the date on which the controlling person became such, plus any increment representing any value, such as a control premium, that is not reflected in such price.
Voting Rights
Amendment of articles of incorporation.
Pennsylvania law provides that shareholders of a registered corporation, such as S&T, are not entitled by statute to propose amendments to the articles of incorporation. By contrast, under Pennsylvania law, an amendment to the articles of incorporation for an “unregistered corporation,” such as Gateway, can only be proposed (1) by adoption by the board of directors of a resolution setting forth the proposed amendment; or (2) unless otherwise provided in the articles, by petition of shareholders entitled to cast at least 10% of the votes that all shareholders are entitled to cast on the proposed amendment. The shareholder petition must set forth the proposed amendment, be directed to the board of directors and filed with the secretary of the corporation.
Except where the approval of the shareholders is unnecessary, the board of directors will then direct that the proposed amendment be submitted to a vote of the shareholders entitled to vote on the proposed amendment. An
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amendment proposed pursuant to paragraph (2) above is required to be submitted to a vote either at the next annual meeting held not earlier than 120 days after the amendment is proposed or at a special meeting of the shareholders called for that purpose by the shareholders.
Under Pennsylvania law, an amendment to the articles of incorporation requires the approval of the board of directors and, exceptof S&T, the two appointed directors will be nominated for election at the next annual meeting of shareholders of S&T.
Officers
The officers of S&T in limited cases where a greater voteoffice immediately prior to the effective time, together with such additional persons as may thereafter be required,appointed, shall serve as the affirmative vote of a majorityofficers of the votes cast by all shareholders entitled to vote onsurviving corporation from and after the mattereffective time of the merger in accordance with the bylaws of S&T.
Treatment of DNB Equity Awards
At the effective time, each restricted stock award in respect of DNB common stock will vest in full and the affirmative voterestrictions thereon will lapse, and will be converted into a right to receive the merger consideration (less applicable tax withholdings) with respect to each share of a majority of the votes cast by all shareholders within each class or series of shares if such class or series is entitled to vote on the matter as a class.
Gateway. Gateway has not opted-out of the statutory process by which shareholders of an unregistered corporation may propose amendments to its articles of incorporation. Certain of Gateway’s articles may not be amended unless first approved by the affirmative vote of (a) the holders of at least 80% of the outstanding shares ofDNB common stock of Gateway; provided, that such transaction has received the prior approval of at least the majority of all members of the board of directors; or (b) the holders of at least 66 2/3% of the outstanding shares of common stock of Gateway; provided, that such transaction has received the prior approval of at least 80% of all of the members of the board of directors.
S&T. S&T’s shareholders are not entitled by statute to propose amendments to the articles of incorporation. S&T’s articles of incorporation may be amended as provided under Pennsylvania law, with the following exception: any amendment to Article 9 (Classification of Directors) or Article 12 (Shareholder Action) requires the affirmative vote of holders of at least 66 2/3% of the votes that all shareholders are entitled to cast thereon at a regular or special meeting of shareholders.
Amendment of by-laws.
Gateway. Gateway’s by-laws may be amended or repealed as the board of directors may deem necessary or desirable (so long as such changes are consistent with the Pennsylvania law and its articles of incorporation) subject to the statutory poweraward.
Closing and Effective Time of the shareholders to change such action, butMerger
The merger will be completed only upon the affirmative vote of the holders of at least 75% of the outstanding shares of Gateway, which votes are cast at a regular or special meeting of the shareholders duly convened after noticeif all conditions to the shareholders of that purpose.
S&T. S&T’s by-laws may be amended by a majority vote of the board of directors at any regular or special meeting of the board duly convened.
Required Vote for Certain Business Combinations.
Gateway. A plan of merger consolidation, share exchange, liquidation, or dissolution of Gateway, or any action that resultsdiscussed in the sale or other disposition of all or substantially all of Gateway’s assets, shall not be valid unless first approved by the affirmative vote of (a) the holders of at least 80% of the outstanding shares of common stock; provided, that such transaction has received the prior approval of at least a majority of the members of the board of directors; or (b) the holders of at least 66 2/3% of the outstanding shares of common stock; provided, that such transaction has received the prior approval of at least 80% of all of the members of the board of directors.
S&T. Any plan or proposal for the merger, consolidation, liquidation or dissolution of S&T, or any action that would result in the sale or other disposition of all or substantially all of the assets of S&T, will require the affirmative vote of the holders of at least 66 2/3% of the outstanding shares of common stock.
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MARKET PRICE AND DIVIDEND INFORMATION
S&T common stock is listed on The Nasdaq Global Select Market under the symbol “STBA.” Gateway’s common stock is not publicly traded on any exchange, and Gateway is not aware of any trading of Gateway common stock through any means. The following table sets forth the high and low sales prices of shares of S&T’s common stock and the quarterly cash dividends declared per share for the periods indicated.
| | | | | | | | | | | | |
| | | S&T Common Stock | |
| | | High | | | Low | | | Dividend | |
2010 | | | | | | | | | | | | |
First Quarter | | $ | 22.22 | | | $ | 15.75 | | | $ | 0.15 | |
Second Quarter | | | 25.84 | | | | 19.52 | | | | 0.15 | |
Third Quarter | | | 22.29 | | | | 16.64 | | | | 0.15 | |
Fourth Quarter | | | 23.91 | | | | 17.00 | | | | 0.15 | |
| | | |
2011 | | | | | | | | | | | | |
First Quarter | | $ | 23.86 | | | $ | 20.90 | | | $ | 0.15 | |
Second Quarter | | | 22.23 | | | | 16.65 | | | | 0.15 | |
Third Quarter | | | 19.46 | | | | 15.21 | | | | 0.15 | |
Fourth Quarter | | | 20.67 | | | | 15.21 | | | | 0.15 | |
| | | |
2012 | | | | | | | | | | | | |
First Quarter | | $ | 23.34 | | | $ | 19.65 | | | $ | 0.15 | |
Second Quarter (through May 15, 2012) | | | 21.98 | | | | 17.73 | | | | — | |
On March 28, 2012, the last full trading day before the public announcement of the merger agreement, the closing price of shares of S&T common stock as reported on The Nasdaq Stock Market was $22.03. On—, 2012, the last practicable trading day before the date of this proxy statement/prospectus, the closing price of shares of S&T common stock as reported on The Nasdaq Stock Market was $ .
Both S&T and S&T Bank are subject to various general regulatory policies relating to the payment of dividends, including requirements to maintain adequate capital above regulatory minimums.
Gateway shareholders are advised to obtain current market quotations for S&T common stock. The market price of S&T common stock will fluctuate between the date of this proxy statement/prospectus and the completion of the merger. No assurance can be given concerning the market price of S&T common stock before or after the effective date of the merger.
As of the record date, there were— shares of Gateway common stock outstanding, which were held by— holders of record.
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LEGAL MATTERS
The validity of the S&T common stock to be issuedset forth in connection with the merger will be passed upon for S&T by Arnold & Porter LLP. Certain U.S. federal income tax consequences relating to the merger will also be passed upon for S&T by Arnold & Porter LLP.
EXPERTS
The consolidated financial statements of S&T Bancorp, Inc. and subsidiaries as of December 31, 2011 and 2010, and for each of the years in the three-year period ended December 31, 2011, and management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2011 have been incorporated by reference herein in reliance upon the reports of KPMG LLP, independent registered public accounting firm, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing.
GATEWAY 2012 ANNUAL MEETING SHAREHOLDER PROPOSALS
Gateway will hold a 2012 annual meeting of shareholders only if the merger is not completed as contemplated by the merger agreement. If it is determined that the merger will not be completed as contemplated by the merger agreement, Gateway will provide notice of the date fixed for the annual meeting.
WHERE YOU CAN FIND MORE INFORMATION
S&T has filed with the SEC a registration statement under the Securities Act that registers the distribution to Gateway shareholders of the shares of S&T common stock to be issued in connection with the merger. This proxy statement/prospectus is a part of that registration statement and constitutes a prospectus of S&T and a proxy statement of Gateway for its special meeting. The registration statement, including the attached exhibits, contains additional relevant information about S&T and Gateway stock. The rules and regulations of the SEC allow us to omit certain information included in the registration statement from this proxy statement/prospectus.
You may read and copy this information at the Public Reference Room of the SEC at 100 F Street, NE, Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the SEC’s Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet website that contains reports, proxy statements and other information about issuers, like S&T, who file electronically with the SEC. The address of the website is http://www.sec.gov. The reports and other information filed by S&T with the SEC are also available at S&T’s internet website. The address of the site is http://www.stbancorp.com.
Gateway is a privately-held company and does not file reports with the SEC. Gateway’s website address is http://www.gatewaybankpa.com.
Information on any S&T or Gateway website is not part of this proxy statement/prospectus and you should not rely on that information in deciding whether to approve any of the proposals described in this proxy statement/prospectus.
The SEC allows S&T to incorporate by reference information in this proxy statement/prospectus. This means that S&T can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is considered to be a part of this proxy statement/prospectus, except for any information that is superseded by information that is included directly in this proxy statement/prospectus.
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The following documents filed by S&T (Commission File No. 000-12508) with the SEC are hereby incorporated in this proxy statement/prospectus:
Annual Report on Form 10-K for the year ended December 31, 2011, filed with the SEC on February 29, 2012;
Definitive Proxy Statement for the 2012 annual meeting of shareholders, filed with the SEC on March 22, 2012;
Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, filed with the SEC on May 10, 2012;
Current Reports filed on Form 8-K dated January 24, 2012, March 7, 2012; March 12, 2012; April 3, 2012; April 24, 2012; April 25, 2012 and May 2, 2012 (in each case except to the extent furnished but not filed); and
The description of the Common Stock which is contained in S&T’s Form 8-K dated January 31, 2008 including any amendment or report filed for the purpose of updating such description.
All documents filed by S&T pursuant to Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934, as amended, after the date of this proxy statement/prospectus but before the earlier of (1) the date of the Gateway special meeting, or (2) the termination of the merger agreement are hereby incorporated by reference into this proxy statement/prospectus and shall be deemed a part of this proxy statement/prospectus from the date they are filed (other than the portions of those documents not deemedeither satisfied or waived. See “—Conditions to be filed). These documents include periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as proxy statements.
Any statement contained in a document incorporated by reference herein shall be deemed to be modified or superseded for purposes of this proxy statement/prospectus to the extent that a statement contained herein or in any subsequently filed document which is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this proxy statement/prospectus.
S&T has supplied all information contained or incorporated by reference in this proxy statement/prospectus relating to S&T, and Gateway has supplied all information relating to Gateway.
Documents incorporated by reference are available from S&T without charge, excluding any exhibits to those documents unless the exhibit is specifically incorporated by reference as an exhibit in this proxy statement/prospectus. You can obtain documents incorporated by reference in this proxy statement/prospectus by requesting them in writing or by telephone from the appropriate company at the following addresses:
S&T Bancorp, Inc.
800 Philadelphia Street
Indiana, PA 15701
Attention: Investor Relations
Telephone: (800) 325-2265
Gateway shareholders requesting documents should do so by , 2012 to receive them before the special meeting. You will not be charged for any of these documents that you request. If you request any incorporated documents, S&T will mail them to you by first class mail, or another equally prompt means after it receives your request.
Neither S&T nor Gateway has authorized anyone to give any information or make any representation about the merger or our companies that is different from, or in addition to, that contained in this proxy statement/prospectus or in anyCompletion of the materials that have been incorporated in this proxy statement/prospectus. Therefore, if anyone does give you information of this sort, you should not rely on it.
Merger.”- 77 -
If you are in a jurisdiction where offers to exchange or sell, or solicitations of offers to exchange or purchase, the securities offered by this proxy statement/prospectus or the solicitation of proxies is unlawful, or if you are a person to whom it is unlawful to direct these types of activities, then the offer presented in this proxy statement/prospectus does not extend to you. The information contained in this proxy statement/prospectus speaks onlymerger will become effective as of the date of this proxy statement/prospectus unless the information specifically indicates that another date applies.
This proxy statement/prospectus contains a description of the representations and warranties that each of S&T and Gateway made to the othertime specified in the merger agreement. Representations and warranties made by S&T, Gateway and other applicable parties are also set forth in contracts and other documents that are attached or filed as exhibits to this proxy statement/prospectus or are incorporated by reference into this proxy statement/prospectus. These representations and warranties were made as of specific dates, may be subject to important qualifications and limitations agreed to between the parties in connection with negotiating the terms of the agreement, and may have been included in the agreement for the purpose of allocating risk between the parties rather than to establish matters as facts. These materials are included or incorporated by reference only to provide you with information regarding the terms and conditions of the agreements, and not to provide any other factual information regarding S&T or its business. Accordingly, the representations and warranties and other provisions of the merger agreement should not be read alone, but instead should be read only in conjunction with the other information provided elsewhere in this proxy statement/prospectus or incorporated by reference into this proxy statement/prospectus.
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ANNEX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF
MARCH 29, 2012
BY AND BETWEEN
S&T BANCORP, INC.,
AND
GATEWAY BANK OF PENNSYLVANIA
TABLE OF CONTENTS
| | | | | | |
| | | | Page | |
| |
ARTICLE I—CERTAIN DEFINITIONS
| | | A-1 | |
Section 1.01
| | Certain Definitions | | | A-1 | |
| |
ARTICLE II—THE MERGER
| | | A-6 | |
Section 2.01
| | The Merger | | | A-6 | |
Section 2.02
| | Effectiveness of the Merger | | | A-6 | |
Section 2.03
| | Effective Date and Effective Time | | | A-6 | |
| |
ARTICLE III—CONSIDERATION; EXCHANGE PROCEDURES
| | | A-7 | |
Section 3.01
| | Merger Consideration | | | A-7 | |
Section 3.02
| | Rights as Shareholders; Stock Transfers | | | A-8 | |
Section 3.03
| | Fractional Shares | | | A-8 | |
Section 3.04
| | Exchange Procedures | | | A-8 | |
Section 3.05
| | Anti-Dilution Provisions | | | A-9 | |
Section 3.06
| | Options; Warrants; Restricted Stock | | | A-9 | |
| |
ARTICLE IV—ACTIONS PENDING ACQUISITION
| | | A-9 | |
Section 4.01
| | Forbearances of Seller | | | A-9 | |
Section 4.02
| | Forbearances of Parent; Adverse Actions | | | A-11 | |
| |
ARTICLE V—REPRESENTATIONS AND WARRANTIES
| | | A-11 | |
Section 5.01
| | Disclosure Schedules | | | A-11 | |
Section 5.02
| | Representations and Warranties of Seller | | | A-12 | |
Section 5.03
| | Representations and Warranties of Parent and Purchaser | | | A-22 | |
| |
ARTICLE VI—COVENANTS
| | | A-26 | |
Section 6.01
| | Reasonable Best Efforts | | | A-26 | |
Section 6.02
| | Shareholder Approval | | | A-27 | |
Section 6.03
| | Registration Statement | | | A-27 | |
Section 6.04
| | Press Releases | | | A-28 | |
Section 6.05
| | Access; Information | | | A-28 | |
Section 6.06
| | Acquisition Proposals | | | A-29 | |
Section 6.07
| | Financial and Other Statements | | | A-30 | |
Section 6.08
| | [Reserved.] | | | A-30 | |
Section 6.09
| | Reports. | | | A-30 | |
Section 6.10
| | Nasdaq Listing | | | A-30 | |
Section 6.11
| | Regulatory Applications | | | A-30 | |
Section 6.12
| | Seller Employees; Director and Management; Indemnification | | | A-31 | |
Section 6.13
| | Notification of Certain Matters | | | A-34 | |
Section 6.14
| | Advisory Board | | | A-34 | |
Section 6.15
| | Tax Treatment | | | A-34 | |
Section 6.16
| | No Breaches of Representations and Warranties | | | A-34 | |
Section 6.17
| | Consents | | | A-34 | |
Section 6.18
| | Insurance Coverage | | | A-34 | |
Section 6.19
| | Correction of Information | | | A-34 | |
Section 6.20
| | Confidentiality | | | A-35 | |
Section 6.21
| | Certain Policies | | | A-35 | |
Section 6.22
| | Formation of Purchaser | | | A-35 | |
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TABLE OF CONTENTS (cont’d)
| | | | | | |
| | | | Page | |
| |
ARTICLE VII—CONDITIONS TO CONSUMMATION OF THE MERGER
| | | A-35 | |
Section 7.01
| | Conditions to Each Party’s Obligation to Effect the Merger | | | A-35 | |
Section 7.02
| | Conditions to Obligation of Seller | | | A-36 | |
Section 7.03
| | Conditions to Obligation of Parent and Purchaser | | | A-36 | |
| |
ARTICLE VIII—TERMINATION
| | | A-37 | |
Section 8.01
| | Termination | | | A-37 | |
Section 8.02
| | Effect of Termination and Abandonment; Enforcement of Agreement | | | A-39 | |
Section 8.03
| | Termination Fee | | | A-39 | |
| |
ARTICLE IX—MISCELLANEOUS
| | | A-39 | |
Section 9.01
| | Survival | | | A-39 | |
Section 9.02
| | Waiver; Amendment | | | A-39 | |
Section 9.03
| | Counterparts | | | A-39 | |
Section 9.04
| | Governing Law | | | A-39 | |
Section 9.05
| | Expenses | | | A-40 | |
Section 9.06
| | Notices | | | A-40 | |
Section 9.07
| | Entire Understanding; No Third Party Beneficiaries | | | A-40 | |
Section 9.08
| | Interpretation; Effect | | | A-40 | |
Section 9.09
| | Waiver of Jury Trial | | | A-41 | |
Section 9.10
| | Severability | | | A-41 | |
Section 9.11
| | Assignment | | | A-41 | |
Section 9.12
| | Time of Essence | | | A-41 | |
Exhibit A Form of Voting Agreement
Exhibit B Form of Joinder to the Agreement and Plan of Merger
Schedule I Certain Shareholders
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, dated as of March 29, 2012 (this “Agreement”), is by and between S&T Bancorp, Inc. (“Parent”), a Pennsylvania corporation, having its principal place of business at 800 Philadelphia Street, Indiana, Pennsylvania 15701-3921, and Gateway Bank of Pennsylvania (“Seller”), a Pennsylvania state-chartered bank, having its principal place of business at 3402 Washington Road, McMurray, Pennsylvania 15317.
RECITALS
A.The Proposed Transaction. The parties intend to effect a business combination through the merger of Seller with and into Purchaser (the “Merger”). For purposes of this Agreement, “Purchaser” shall mean an interim state-chartered bank and wholly owned subsidiary of Parent, to be formed after the date hereof and prior to the Closing. Following the Merger, Parent intends that Purchaser, as the surviving bank in the Merger, shall be merged with and into Bank (as defined below) as soon as practicable.
B.Board Determination. The respective boards of directors of Parent and Seller have each determined that the Merger and the other transactions contemplated hereby are consistent with and will further their respective business strategies and goals and are in the best interests of their respective shareholders and, therefore, have approved the Merger, this Agreement and the plan of merger contained in this Agreement.
C.Intended Tax Treatment. The parties intend the Merger to qualify as a reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”) and intend for this Agreement to constitute a “plan of reorganization” for purposes of Sections 354 and 361 of the Code.
D.Voting Agreement.Parent has required, as a condition to its willingness to enter into this Agreement, that each of the directors and executive officers of Seller identified onSchedule I hereto each enter into a Voting Agreement, dated as of the date hereof, substantially in the form attached as Exhibit A (the “Voting Agreement”).
NOW, THEREFORE, in consideration of the foregoing premises and of the mutual covenants, representations, warranties and agreements contained herein, intending to be legally bound hereby, the parties agree as follows:
ARTICLE I—
CERTAIN DEFINITIONS
Section 1.01Certain Definitions. The following terms are used in this Agreement with the meanings set forth below (such meaning to be equally applicable to both the singular and plural forms of the term defined):
“Acquisition Proposal” has the meaning set forth in Section 6.06(a).
“Advisory Board” has the meaning set forth in Section 6.14.
“Affiliate Agreements” has the meaning set forth in Section 5.02(k)(i)(N).
“Agreement” means this Agreement, as amended or modified from time to time in accordance with Section 9.02.
“Bank”means S&T Bank, a banking corporation organized under the laws of the Commonwealth of Pennsylvania and a wholly-owned subsidiary of Purchaser.
“Banking Department” means the Pennsylvania Department of Banking.
“Banking Code”means the Banking Code of 1965 of the Commonwealth of Pennsylvania.
“BHC Act” means the Bank Holding Company Act of 1956, as amended.
“Cash Consideration” has the meaning set forth in Section 3.01(a)(i).
“Claim” has the meaning set forth in Section 6.12(i).
“Closing” has the meaning set forth in Section 2.03.
“Closing Date” has the meaning set forth in Section 2.03.
“Code” has the meaning set forth in Recital C.
“Common Stock Consideration” has the meaning set forth in Section 3.01(a)(i).
“Common Stock Exchange Ratio” has the meaning set forth in Section 3.01(a)(i).
“Company-Owned Stock” shall mean shares of Seller Common Stock held by Seller or any of its Subsidiaries or by Purchaser or any of its Subsidiaries, in each case other than in a fiduciary capacity or as a result of debts previously contracted in good faith.
“Continuing Employees” has the meaning set forth in Section 6.12(a).
“Covered Parties” has the meaning set forth in Section 6.12(j).
“CRA” has the meaning set forth in Section 5.02(j)(i).
“Disclosure Schedule” has the meaning set forth in Section 5.01.
“Disqualified Individual” has the meaning set forth in Section 6.12(g).
“Dissenting Seller Shares” has the meaning set forth in Section 3.01(d).
“Effective Date” means the date on which the Effective Time occurs, as provided for in Section 2.03.
“Effective Time” means the time on the Effective Date as provided for in Section 2.02.
“Environmental Laws” means all applicable local, state and federal environmental, health and safety laws and regulations, including, without limitation, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Clean Water Act, the Federal Clean Air Act, and the Occupational Safety and Health Act, each as amended, the regulations promulgated thereunder, and their respective state counterparts.
“EPCRS” has the meaning set forth in Section 5.02(m)(vii).
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
“ERISA Affiliate” has the meaning set forth in Section 5.02(m)(i).
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.
“Exchange Agent” has the meaning set forth in Section 6.06(a).
“FDIA” has the meaning set forth in Section 5.02(a).
“FDIC” means the Federal Deposit Insurance Corporation.
“FRB” means the Board of Governors of the Federal Reserve System and/or the Federal Reserve Bank of Cleveland, acting under delegated authority.
“GAAP” means generally accepted accounting principles in the United States applied on a consistent basis.
“Governmental Authority” means any court, administrative agency or commission or other federal, state or local governmental authority or instrumentality.
“Hazardous Material” means, collectively, (i) any “hazardous substance” as defined by CERCLA, (ii) any “hazardous waste” as defined by the Resource Conservation and Recovery Act, as amended through the date hereof, and (iii) other than common office supplies, any pollutant or contaminant or hazardous, dangerous or toxic chemical, material or substance within the meaning of any other applicable Federal, state or local law, regulation, ordinance or requirement (including consent decrees and administrative orders) relating to or imposing liability or standards of conduct concerning any hazardous, toxic or dangerous waste, substance or material, all as now in effect.
“Indemnified Parties” has the meaning set forth in Section 6.12(i).
“Information” has the meaning set forth in Section 6.20.
“Insurance Amount” has the meaning set forth in Section 6.12(k).
“IRS” means the Internal Revenue Service.
“Joinder” has the meaning set forth in Section 6.22.
The term “knowledge” means the actual knowledge after reasonable investigation (i) with respect to Seller, by the directors of Seller and any officer with the title of not less than a vice president and (ii) with respect to Parent, Purchaser or Bank, by any officer with the title of not less than a senior vice president.
“Letter of Transmittal” has the meaning set forth in Section 3.04(b).
“Lien” means any charge, mortgage, pledge, security interest, restriction, claim, lien, or encumbrance of any kind.
“Material Adverse Effect” means, with respect to Seller or Parent, any effect that (i) is material and adverse to the financial position, results of operations or business of Seller and its Subsidiaries taken as a whole, or Parent and its Subsidiaries taken as a whole, respectively, or (ii) would materially impair the ability of either Seller or Parent to perform its obligations under this Agreement or otherwise materially threaten or materially impede the consummation of the Merger and the other transactions contemplated by this Agreement; provided, however, that in determining whether a Material Adverse Effect has occurred there shall be excluded any effect on the referenced party due to (i) any change in banking or similar laws, rules or regulations of general applicability or interpretations thereof by courts or governmental authorities to the extent not affecting such party to a materially greater extent than it affects other Persons in the banking business, (ii) any change in GAAP or regulatory accounting requirements applicable to financial institutions or their holding companies generally, (iii) any change, circumstance, development, condition or occurrence in economic, business, or financial
conditions generally or affecting the banking business, including changes in interest rates to the extent not affecting such party to a materially greater extent than it affects other Persons in the banking business, (iv) actions and omissions of a party hereto (or any of its Subsidiaries) taken at the direction of the other party in contemplation of the transactions contemplated hereby or taken as specifically provided in this Agreement, (v) the direct effects of the announcement of this Agreement and compliance with its terms on the operating performance of the party, including expenses incurred by such party in consummating the transactions contemplated by this Agreement, and (vi) any item Previously Disclosed in a party’s Disclosure Schedule.
“Material Contracts” has the meaning set forth in Section 5.02(k)(ii).
“Merger” has the meaning set forth in Recital A.
“Merger Consideration” has the meaning set forth in Section 3.01(a).
“Nasdaq” means The Nasdaq Stock Market, Inc.
“New Certificates” has the meaning set forth in Section 3.04(a).
“Old Certificates” has the meaning set forth in Section 3.04(a).
“PBCL” means the Pennsylvania Business Corporation Law.
“Parent” has the meaning set forth in the preamble to this Agreement.
“Parent Capital Stock” collectively means the Parent Common Stock and Parent Preferred Stock.
“Parent Common Stock” means the common stock, $2.50 par value, of Parent.
“Parent Preferred Stock” means the preferred stock, no par value, of Parent.
“Parent SEC Documents” has the meaning set forth in Section 5.03(f)(i).
“Parent Share Price” has the meaning set forth in Section 3.01(a)(i).
“Parent Welfare Plans” has the meaning set forth in Section 6.12(a).
“Person” has the meaning set forth in Section 5.02(k)(i)(D).
“Plans” has the meaning set forth in Section 5.02(m)(i).
“Previously Disclosed” by a party shall mean information set forth in its Disclosure Schedule. Disclosure of any information, agreement, or other item in a party’s Disclosure Schedule referenced by a particular Section in this Agreement shall, should the existence of such information, agreement, or other item or its contents be relevant to any other Section, be deemed to be disclosed with respect to that Section if such information is explicitly discussed in that Section of the Disclosure Schedule or if such other Section shall be cross-referenced in another Section of the Disclosure Schedule.
“Proxy/Prospectus” has the meaning set forth in Section 6.03(a).
“Purchaser” has the meaning set forth in Recital A to this Agreement.
“Purchaser Articles” means the Articles of Incorporation of Purchaser.
“Purchaser Bylaws” means the Bylaws of Purchaser.
“RAP Cycle” has the meaning set forth in Section 5.02(m)(vii).
“Registration Statement” has the meaning set forth in Section 6.03(a).
“Regulatory Authority” shall mean any federal or state governmental agency or authority charged with the supervision or regulation of financial institutions and their subsidiaries (including their holding companies) or issuers of securities (including, without limitation, the Banking Department, the FRB, the FDIC, the Department of the Treasury and the SEC).
“Representatives” has the meaning set forth in Section 6.06(a).
“Rights” means, with respect to any Person, securities or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire, or any options, calls or commitments relating to, or any stock appreciation right or other instrument the value of which is determined in whole or in part by reference to the market price or value of, shares of capital stock of such Person.
“SEC” means the Securities and Exchange Commission.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations thereunder.
“Seller” has the meaning set forth in the preamble to this Agreement.
“Seller Articles” means the Articles of Incorporation of Seller, as amended.
“Seller Board” means the Board of Directors of Seller.
“Seller Bylaws” means the Bylaws of Seller.
“Seller Common Stock” means the common stock, par value $0.01 per share, of Seller.
“Seller Common Shareholders” means the holders of the Seller Common Stock.
“Seller Financial Statements” has the meaning set forth in Section 5.02(g)(i).
“Seller Meeting” has the meaning set forth in Section 6.02.
“Seller Off Balance Sheet Transaction” has the meaning set forth in Section 5.02(u).
“Seller Stock Option” has the meaning set forth in Section 3.06.
“Seller Welfare Plans” has the meaning set forth in Section 6.12(a).
“Seller 401(k) Plan” means the Gateway Bank 401(k) Plan.
“Significant Subsidiary” has the meaning set forth in Section 6.06(a).
“Subsidiary,” “Subsidiaries” and “Significant Subsidiary” have the meanings ascribed to them in Rule 1-02 of Regulation S-X of the SEC.
“Surviving Corporation” has the meaning set forth in Section 2.01.
“Takeover Laws” has the meaning set forth in Section 5.02(o).
“Takeover Provisions” has the meaning set forth in Section 5.02(o).
“Tax” or “Taxes” means any and all federal, state, local or foreign taxes, charges, fees, levies, duties, tariffs, imposts, other assessments and other similar fees or similar charges, however denominated (together with any and all interest, penalties, additions to tax and additional amounts imposed with respect thereto), the liability for which is imposed by any government or taxing authority, by contractual agreement, as a result of being a member of any affiliated, consolidated, combined, unitary or similar group, as a successor to or transferee of another person, or otherwise including, without limitation, all income, franchises, windfall or other profits, gross receipts, license, property, sales, use, service, service use, capital stock, payroll, employment, social security, disability, severance, workers’ compensation, employer health, unemployment compensation, net worth, excise, withholding, estimated, severance, occupation, customs, duties, fees, ad valorem, property, environmental, stamp, transfer, value added, gains, license, registration, recording and documentation fees or other taxes, custom duties, fees, assessments or charges of any kind whatsoever.
“Tax Return” or “Tax Returns” means returns, declarations, reports, statements, elections, estimates, claims for refund, information returns or other documents (including, without limitation, any related or supporting schedules, exhibits, statements or information, any amendment to the foregoing, and any sales and use and resale certificates) filed or required to be filed in connection with the determination, assessment, payment, deposit, collection or reporting of any Taxes of any party or the administration of any laws, regulations or administrative requirements relating to any Taxes.
“Termination Fee” has the meaning set forth in Section 8.03(a).
“Voting Agreement” has the meaning set forth in Recital D to this Agreement.
ARTICLE II—
THE MERGER
Section 2.01The Merger. At the Effective Time, (i) Seller shall be merged with and into Purchaser, and (ii) the separate corporate existence of Seller shall cease and Purchaser shall survive and continue to exist as a wholly-owned subsidiary of Parent (Purchaser, as the surviving corporation in the Merger, sometimes being referred to herein as the “Surviving Corporation”). The Purchaser Articles, as in effect immediately prior to the Effective Time, shall be the Articles of Incorporation of the Surviving Corporation, and the Purchaser Bylaws, as in effect immediately prior to the Effective Time, shall be the Bylaws of the Surviving Corporation. Parent may at any time prior to the Effective Time change the method of effecting the Merger (including, without limitation, the provisions of this Article II) if and to the extent it deems such change to be necessary, appropriate or desirable;provided,however, that no such change shall (i) alter or change the amount or kind of consideration to be issued to holders of Seller Common Stock as provided for in Article III of this Agreement (subject to adjustment as provided in Section 3.05), (ii) adversely affect the tax treatment of the Merger as a reorganization under Section 368(a) of the Code, or (iii) materially impede or delay consummation of the transactions contemplated by this Agreement.
Section 2.02Effectiveness of the Merger. Subject to the satisfaction or waiver of the conditions set forth in ARTICLE VII, the Merger shall become effective upon the occurrence of the filing of articles of merger with the Department of State of the Commonwealth of Pennsylvania in accordance with Section 1605Pennsylvania. The closing of the Banking Code, or suchtransactions contemplated by the merger will occur at 10:00 a.m., New York City time, on a date no later date and time as may be set forth in such filings (the time the Merger becomes effective on the Effective Date being referred to as the“Effective Time”).
Section 2.03Effective Date and Effective Time. Subject tothan three business days after the satisfaction or waiver of the conditions set forth in ARTICLE VII, the closing of the Merger (the “Closing”) will take place at such location as the parties
may mutually agree at 11:00 a.m., or another mutually agreeable time, on (i) the date designated by Purchaser that is within five (5) days following the satisfaction or waiverlast of the conditions set forthspecified in ARTICLE VII, otherthe merger agreement (other than those conditions that by their nature are to be satisfied or waived at the Closing (the “Effective Date”);provided,however, that noclosing, but subject to the satisfaction or waiver of such election shall cause the Effective Date to fall after the date specified in Section 8.01(c) hereofconditions), or after the date or dates on which any Regulatory Authority approval or any extension thereof expires, or (ii) such other date to whichas mutually agreed upon by the parties may agreeparties. It currently is anticipated that the completion of the merger will occur in writing (the “Closing Date”).
ARTICLE III—
CONSIDERATION; EXCHANGE PROCEDURES
Section 3.01Merger Consideration.
(a)Consideration
(i) Subjectthe fourth quarter of 2019, subject to the provisionsreceipt of this Agreement, atregulatory approvals and other customary closing conditions, but neither DNB nor S&T can guarantee when or if the Effective Time, automatically by virtuemerger will be completed.
Conversion of the Merger and without any action on the partShares; Exchange of any Person, each shareCertificates
The conversion of Seller Common Stock (excluding Company-Owned Stock) issued and outstanding immediately prior to the Effective Time shall be convertedDNB common stock into the right to receive (i) $3.08the merger consideration will occur automatically at the effective time of the merger. After completion of the merger, the exchange agent will exchange certificates representing shares of DNB common stock for the merger consideration, any cash in cash without interest (the “Cash Consideration”)lieu of fractional shares and (ii) an amountany unpaid dividends and distributions on the S&T common stock deliverable in respect of Parent Common Stock equaleach share of DNB common stock to be received pursuant to the quotient, carried to four decimal places (the “Common Stock Exchange Ratio”) of (A) $9.22 divided by (B) the Parent Share Price (as defined below) of a share of Parent Common Stock (the “Common Stock Consideration”);provided,however, that in no event may the Common Stock Exchange Ratio be less than .3810 or greater than ..4657. If the Common Stock Exchange Ratio otherwise would be less than .3810 or greater than .4657, then .3810 or.4657, respectively, shall be used. For purposes of this Agreement, the “Parent Share Price”terms of the Parent Common Stock shall bemerger agreement.
Letter of Transmittal
As soon as reasonably practicable after the averagecompletion of the highmerger, the exchange agent will mail appropriate transmittal materials and low sale pricesinstructions to those persons who were holders of Parent Common Stock (as reported on Nasdaq or, if not reported thereon, in another authoritative source) for each trading day during the ten (10) trading day period ending the trading day prior to the Closing.
(ii) The Cash Consideration and Common Stock Consideration are sometimes referred to herein collectively as the “Merger Consideration.”
(b)Company-Owned Stock. Each share of Seller Common Stock held as Company-Owned StockDNB common stock immediately prior to the Effective Time shall be canceled and retired atcompletion of the Effective Time and no consideration shall be issuedmerger. These materials will contain instructions on how to surrender shares of DNB common stock in exchange therefor.
(c)Outstanding Parent Common Stock. Each sharefor the merger consideration, any cash in lieu of Parent Common Stock issuedfractional shares and outstanding immediately prior toany unpaid dividends and distributions on the Effective Time shall remain issued and outstanding and unaffected by the Merger.
(d)Dissenting Seller Common Shareholders.
(i) The outstanding shares of Seller Common Stock, the holders of which have timely filed written notices of intention to demand appraisal for their shares (“Dissenting Seller Shares”) pursuant to Subchapter D of the PBCL and have not effectively withdrawn or lost their dissenters’ rights under the PBCL, shall not be converted into or represent a right to receive the Merger Consideration under this Agreement, and the holders thereof shall be entitled only to such rights as are granted by Subchapter D of the PBCL.
(ii) If any such holder of Seller Common Stock shall have failed to perfect or effectively shall have withdrawn or lost such right, the Dissenting Seller Shares held by such holder shall be converted into a right to receive the Merger Consideration in accordance with the applicable provisions of this Agreement.
(iii) All paymentsS&T common stock deliverable in respect of Dissenting Seller Shares,each share of DNB common stock that the holder is entitled to receive under the merger agreement.
