UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No.     )
Filed by the Registrant  ý
Filed by a Party other than the Registrant  o
Check the appropriate box:
ý	Preliminary Proxy Statement
o	Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
o	Definitive Proxy Statement
o	Definitive Additional Materials
o	Soliciting Material Pursuant to §240.14a-12
LOGAN COUNTY BANCSHARES, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
o	No fee required.
ý	Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
	(1)		Title of each class of securities to which transaction applies:
			Common Stock
	(2)		Aggregate number of securities to which transaction applies:
			16,158
	(3)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
			$50.00 (per share price to be paid in transaction)
	(4)		Proposed maximum aggregate value of transaction:
			$807,900
	(5)		Total fee paid:
			$161.58
o	Fee paid previously with preliminary materials.
o	Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
	(1)	Amount Previously Paid:
	(2)	Form, Schedule or Registration Statement No.:
	(3)	Filing Party:
	(4)	Date Filed:
		Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.

 

 

LOGAN COUNTY BANCSHARES, INC.
43 Washington Avenue, P.O. Box 597
Logan, West Virginia 25601

 

            , 2005

 

Dear Fellow Shareholder:

 

You are cordially invited to attend the special meeting of shareholders of Logan County BancShares, Inc. (“Logan”).  The meeting will be held in the lobby of Logan Bank & Trust Company at 43 Washington Avenue, Logan, West Virginia, on Tuesday, June 21, 2005, at 5:00 p.m.

 

At the special meeting you will be asked to consider and vote on a proposed transaction that would allow Logan to suspend its reporting obligations under the Securities Act of 1933 and eliminate significant burdens, risks and expense related to such obligations.  Referred to as “going private,” the proposed transaction is expected to reduce the number of our shareholders of record to fewer than 300 persons, as required for suspension of its reporting obligations.  The reduction in the number of shareholders would be accomplished by a merger of a newly-formed, wholly-owned subsidiary of Logan with and into Logan.

 

Under the terms of the Agreement and Plan of Merger, each share of common stock owned by a record holder of fewer than 200 shares immediately prior to the effective time of the merger would be converted into the right to receive $50.00 per share in cash, and each share of common stock owned by a record holder of 200 or more shares would remain outstanding as Logan common stock after the merger.  In general, a record shareholder is a shareholder who has paper stock certificates issued and registered in the shareholder’s name on Logan’s stock records.  Shareholders who hold shares in “street name” through banks and brokers are not record holders of those shares.  Shares held for customers by banks and brokers are typically held through a depository nominee which is the holder of record of more than 200 shares, and those shares are expected to remain outstanding after the merger.

 

At the special meeting, shareholders will also consider and vote on a proposed amendment to Logan’s Articles of Incorporation.  The amendment would prohibit certain future transfers of shares of Logan’s common stock unless after the transfer the receiving shareholder would own 200 or more shares of record.  This amendment is intended to slow the growth in the number of our shareholders in the future, thus avoiding or delaying the need to again comply with the periodic reporting requirements imposed on Logan pursuant to the Securities Act of 1933.  Approval of the amendment is contingent upon shareholder approval of the Agreement and Plan of Merger.  As a result, the amendment will not become effective unless the merger is approved and is effective.

 

A notice of the special meeting, a proxy for your use in connection with that meeting and a proxy statement providing detailed information about the special meeting and related matters are enclosed.  We urge you to read all of these documents carefully before deciding how to vote your shares.

 

 

Our Board of Directors has approved the going private transaction and the amendment and believes they are in the best interest of all Logan shareholders.  The board recommends that you vote FOR the proposed transaction and FOR the amendment.

 

Your vote is very important.  Whether or not you plan to attend the special meeting, please complete, date and sign the enclosed proxy and return it promptly in the enclosed envelope.  You may revoke your proxy in the manner described in the proxy statement at any time before it is exercised.  If you attend the special meeting, you may vote in person if you wish even if you have previously returned your proxy card.

 

	Sincerely,
	/s/ Eddie Canterbury
	Eddie Canterbury
	Chief Executive Officer
	/s/ Harvey Oakley
	Harvey Oakley
	Chairman of the Board of Directors

 

2

 

LOGAN COUNTY BANCSHARES, INC.
43 Washington Avenue, P.O. Box 597
Logan, West Virginia 25601

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD JUNE 21, 2005

 

A special meeting of shareholders of Logan County BancShares, Inc. (“Logan”) will be held at 5:00 p.m. on Tuesday, June 21, 2005, at the lobby of Logan Bank & Trust Company, 43 Washington Avenue, Logan, West Virginia, for the purpose of considering and voting on the following matters:

 

(1)                                  To consider and vote upon a proposal to approve the Agreement and Plan of Merger, attached as Appendix A to the enclosed proxy statement.  Pursuant to the terms of the Agreement and Plan of Merger:  (a) each share of Logan common stock owned by a record holder of fewer than 200 shares of common stock immediately before the effective time of the merger will be converted into the right to receive from Logan $50.00 cash per share; and (b) each share of Logan common stock owned by a record holder of 200 or more shares of common stock immediately before the effective time of the merger would continue to be one share of Logan common stock after the merger.  This proposal is not contingent on shareholder approval of the proposal to amend Logan’s Articles of Incorporation.

 

(2)                                  To consider and vote upon a proposal to approve an amendment to Logan’s Articles of Incorporation, the text of which can be found in Appendix B to the enclosed proxy statement.  This amendment would prohibit certain future transfers of shares of Logan’s common stock unless after the transfer the receiving shareholder would own 200 or more shares of record.  The amendment is contingent on shareholder approval of the Agreement and Plan of Merger.

 

(3)                                  To transact such other business as may properly come before the meeting.

 

Shareholders of record at the close of business on May 24, 2005, are entitled to notice of and to vote at the meeting and any adjournment of the meeting.

 

Those shareholders who will receive cash if the merger is approved are entitled to dissent and be paid the fair value of their shares by complying with the procedures detailed in Article 13, Chapter 31D of the West Virginia Code, as amended (see pages 34-36).

 

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the merger or the amendment,  passed upon the fairness or merits of the merger or the amendment or passed upon the accuracy or adequacy of the information contained in this notice of special meeting of shareholders and the accompanying proxy statement.  Any representation to the contrary is unlawful.

 

	By	Order of the Board of Directors,
		/s/ Harvey Oakley
		Harvey Oakley, Chairman

 

 

Date:       May 24, 2005

 

Your Vote Is Important

 

You are cordially invited to attend the special meeting in person.  Whether or not you plan to attend the special meeting, please complete, date and sign the enclosed proxy card and return it promptly.  If your shares are held in the name of a broker, trust or other nominee, you will need a proxy or letter from the broker, trustee or nominee in order to vote those shares personally at the special meeting.  Any proxy given pursuant to this solicitation may be revoked in the manner described in the accompanying proxy statement at any time before it is voted at the special meeting.  The enclosed, addressed envelope requires no postage if mailed in the United States.

 

The Board of Directors of Logan has carefully considered the terms of the Agreement and Plan of Merger and the amendment to Logan’s Articles of Incorporation and believes that the merger and the amendment are advisable and in the best interests of Logan and its shareholders.  The Board of Directors unanimously approved the merger and the amendment and unanimously recommends that you vote FOR the approval of the Agreement and Plan of Merger and the amendment to Logan’s Articles of Incorporation.

 

2

 

LOGAN COUNTY BANCSHARES, INC.
43 Washington Avenue, P.O. Box 597
Logan, West Virginia 25601

 

PROXY STATEMENT

 

SPECIAL MEETING OF SHAREHOLDERS

 

To be held June 21, 2005

 

GENERAL INFORMATION

 

This proxy statement and the accompanying notice to holders of common stock of Logan County BancShares, Inc., a West Virginia corporation, are furnished in connection with the solicitation of proxies on behalf of the Board of Directors, to be voted at the special meeting of Logan’s shareholders to be held at 5:00 p.m. on Tuesday, June 21, 2005, in the lobby of Logan Bank & Trust Company, located at 43 Washington Avenue, Logan, West Virginia, or any adjournment of that meeting.  This proxy statement and accompanying proxy card were first sent or given to shareholders on May 24, 2005.

 

Holders of record of common stock at the close of business on May 24, 2005, will be entitled to vote at the special meeting on June 21, 2005, and any adjournment of that meeting.  The purpose of the meeting is to consider and vote on: (i) a proposal to approve the Agreement and Plan of Merger, dated as of April 15, 2005, which will result in the merger of Logan and LCB Merger Company, a newly-formed subsidiary of Logan  organized for the sole purpose of facilitating this proposed transaction; (ii) a proposal to approve an amendment to Logan’s Articles of Incorporation; and (iii) any other business that may properly come before the meeting.  At this time no other business is expected to come before the meeting.  The Agreement and Plan of Merger is attached to this proxy statement as Appendix A.  The text of the proposed amendment to the Articles of Incorporation is attached to this proxy statement as Appendix B.  The proposed merger is not contingent on approval of the amendment to Logan’s Articles of Incorporation.

 

Pursuant to the Agreement and Plan of Merger, LCB Merger Company will merge with and into Logan, with Logan continuing as the surviving corporation after the merger.  If Logan’s shareholders approve the Agreement and Plan of Merger, each shareholder holding of record fewer than 200 shares of common stock immediately before the effective time of the merger will be entitled to receive $50.00 per share in cash, without interest, and each shareholder holding of record 200 or more shares immediately before the effective time of the merger will continue to hold the same number of shares after the merger and will not receive any cash.  The proposed amendment to Logan’s Articles of Incorporation would prohibit future transfers of common stock if, as a result of the transfer, the receiving shareholder in the transaction would own of record fewer than 200 shares of common stock.  The proposed amendment to Logan’s Articles of Incorporation is contingent on shareholder approval of the Agreement and Plan of Merger.

 

 

The merger will be effective when Logan files Articles of Merger with the West Virginia Secretary of State.  After the effective time of the merger, Logan anticipates it will have fewer than 300 shareholders of record.  As a result, Logan would be able to suspend its reporting obligations under the Securities Act of 1933 and eliminate significant related expenses.

 

This document provides you with detailed information about the special meeting, the proposed merger and the proposed amendment.  Please see “Where You Can Find More Information” on page 48 for additional information about Logan on file with the Securities and Exchange Commission.

 

2

 

TABLE OF CONTENTS

 

SUMMARY TERM SHEET
The Companies
The Special Meeting
Shares Entitled to Vote; Quorum and Vote Required
The Merger Transaction
What You will Receive in the Merger
Effects of the Merger
Conditions to the Consummation of the Merger
Termination of Merger Agreement
Material U.S. Federal Income Tax Consequences
Opinion of Financial Advisor
Reasons for the Merger
Appraisal Rights of Shareholders
Recommendation of the Logan Board and Determination of Fairness of the Merger
Effective Time of the Merger
Financing of the Merger
Management After the Merger
Amendment to Logan’s Articles of Incorporation
QUESTIONS AND ANSWERS
PROPOSAL NUMBER 1 — APPROVAL OF AGREEMENT AND PLAN OF MERGER
SPECIAL FACTORS
Background of the Merger
Purpose and Reasons for the Merger
Effects of the Merger
Fairness; Recommendation of Board of Directors
Opinion of Financial Advisor
THE MERGER TRANSACTION
Material Terms
Regulatory Requirements
Certain Consequences of the Merger
Operations of the Company and LB&T Following the Merger
Financing the Merger
Anticipated Accounting Treatment
Suspension of Reporting Obligations Under the Securities Act
INTERESTS OF CERTAIN PERSONS
APPRAISAL RIGHTS
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF MERGER
PROPOSAL NUMBER 2 — AMENDMENT TO THE ARTICLES OF INCORPORATION

 

i

 

SPECIAL MEETING INFORMATION AND VOTING REQUIREMENTS
Introduction
Shareholders Entitled to Vote
Proxies
Vote By Mail
Voting at the Special Meeting
Voting on Other Matters
Required Vote
Cost of Proxy Solicitation
INFORMATION ABOUT LOGAN AND ITS AFFILIATES
General
LCB Merger Co.
Directors and Executive Officers
Past Contacts, Transactions, Negotiations and Agreements
Use of Securities Acquired and Plans or Proposals
Voting Securities and Principal Holders
Stock Repurchases
Market for Common Stock and Dividend Information
Description of Common Stock
FUTURE SHAREHOLDER PROPOSALS
WHERE YOU CAN FIND MORE INFORMATION
DOCUMENTS INCORPORATED BY REFERENCE
INDEX TO FINANCIAL STATEMENTS
SELECTED FINANCIAL INFORMATION
Appendix A
Agreement and Plan of Merger
Appendix B
Proposed Amendment to Articles of Incorporation
Appendix C
Valuation of Common Stock of Logan County BancShares, Inc.
Appendix D
Fairness Opinion
Appendix E
Provisions of the Article 13, Chapter 31D of the West Virginia Code Relating to Appraisal Rights of Objecting Shareholders

 

ii

 

 

The following summary, together with the “Questions and Answers” following this summary, highlights selected information from this proxy statement and may not contain all of the information that is important to you.  We urge you to carefully read this entire document and the other documents that we refer to in this document.  These documents will give you a more complete description of the transaction that we are proposing.  We have included page references in this summary to direct you to other places in this proxy statement where you can find a more complete description of the documents that we have summarized.

 

•               The Companies

 

Logan County BancShares, Inc.

43 Washington Avenue

Post Office Box 597

Logan, West Virginia 25601

 

Logan County BancShares, Inc. (“Logan”) is a bank holding company registered under the Bank Holding Company Act of 1956, as amended.  Logan was organized under the laws of the State of West Virginia in 1985.  Through its wholly-owned subsidiary, Logan Bank & Trust Company (“LB&T”), Logan conducts a complete range of retail banking activities to individuals and small and medium size businesses.  LB&T’s services include checking, savings, NOW, certificates of deposit and money market deposit accounts, business loans, individual loans, mortgage loans, home equity loans, consumer loans for various other purposes, other consumer-oriented financial services including safety deposit box accounts, IRA accounts and night depository.  LB&T operates several automatic teller machines at four strategic locations in Logan County, which provide 24-hour working services to customers of LB&T.  LB&T’s lending activities include short and medium-term loans, letters of credit, inventory and accounts receivable financing and real estate construction lending.

 

LB&T was organized in 1963, and still operates at its original location at the corner of Washington and Main Streets in Logan, West Virginia.  LB&T has a separate drive-up facility and mini-bank which are also located on Main Street in Logan, and a full-service branch in the Man area.  In addition, LB&T operates a full-service branch located in the Fountain Place Mall in Logan, West Virginia, and full services branches on Route 10 North in Harts, West Virginia and Railroad Avenue in Chapmanville, West Virginia.  Logan Bank & Trust Company is a member of the Federal Reserve System and deposits are insured pursuant to the Federal Deposit Insurance Act.

 

At December 31, 2004, Logan had, on a consolidated basis, total assets of $181,668,080, total deposits of $161,211,199 and shareholders’ equity of $17,927,331.

 

LCB Merger Company

43 Washington Avenue, Post Office Box 597

Logan, West Virginia 25601

 

The merger subsidiary is called LCB Merger Company and is a newly-formed West Virginia corporation organized as a wholly-owned subsidiary of Logan for the sole purpose of facilitating the merger.  It has engaged in no business activities or operations other than those incident to its formation.

 

 

•               The Special Meeting (page 41)

 

The special meeting of Logan shareholders will be held on June 21, 2005, at 5:00 p.m., in the lobby of Logan Bank & Trust Company, located at 43 Washington Avenue, Logan, West Virginia.  At the special meeting, you will be asked to consider the following two (2) proposals:

 

•                                            To consider and vote upon a proposal to approve the Agreement and Plan of Merger, attached as Appendix A to the enclosed proxy statement.  Pursuant to the terms of the Agreement and Plan of Merger:  (a) each share of Logan common stock owned by a record holder of fewer than 200 shares of common stock immediately before the effective time of the merger will be converted into the right to receive from Logan $50.00 cash per share; and (b) each share of Logan common stock owned by a record holder of 200 or more shares of common stock immediately before the effective time of the merger would continue to be one share of Logan common stock after the merger.  This proposal is not contingent on shareholder approval of the proposal to amend Logan’s Articles of Incorporation.

 

•                                            To consider and vote upon a proposal to approve an amendment to Logan’s Articles of Incorporation, the text of which can be found in Appendix B to the enclosed proxy statement.  This amendment would prohibit certain future transfers of shares of Logan’s common stock unless after the transfer the receiving shareholder would own 200 or more shares of record.  The amendment is contingent on shareholder approval of the Agreement and Plan of Merger.

 

•               Shares Entitled to Vote; Quorum and Vote Required (page 41)

 

The presence, in person or by proxy, of the holders of a majority of the votes entitled to be cast by the shareholders entitled to vote at the special meeting is necessary to constitute a quorum.  As of the close of business on May 24, 2005, there were 703,991 shares of Logan common stock entitled to notice of and to vote at the special meeting.  All holders of record of Logan common stock as of May 24, 2005, will receive a copy of this proxy statement and are entitled to vote at the special meeting.

 

Approval of (i) the merger agreement, and (ii) the amendment to Logan’s Articles of Incorporation requires approval of the majority of the votes cast at the special meeting at which a quorum exists.

 

•               The Merger Transaction (page 29)

 

We have attached the merger agreement to this document as Appendix A.  Please read the merger agreement.  It is the legal document that governs the merger.

 

The first proposal at the special meeting is a merger whereby LCB Merger Company will merge with and into Logan.  After the merger, Logan expects its business and operations to continue as they are currently being conducted.  Logan will continue to operate as a bank holding company and the parent corporation for LB&T, but will no longer file reports with the SEC.  We expect to complete the merger in July of 2005.

 

2

 

•               What You will Receive in the Merger (page 29)

 

If the merger is completed, shareholders holding fewer than 200 shares of Logan common stock (other than objecting shareholders) will automatically be converted into the right to receive cash in an amount equal to $50.00 per share, without interest.  Shareholders holding 200 or more shares of Logan common stock will continue to hold their outstanding shares of Logan common stock and will not be entitled to receive any cash payment from Logan upon completion of the merger.

 

If you are the holder of less than 200 shares of Logan common stock, you will have to surrender your Logan stock certificates in order to receive the cash consideration for your shares.  Do not send in your certificates until you receive written instructions regarding the certificate exchange process on or after the completion of the merger.

 

•               Effects of the Merger (page 15)

 

As a result of the merger:

 

•                                            Logan will no longer be a reporting company and will suspend indefinitely its filing of annual and periodic reports with the SEC resulting in the elimination of the burdens, risks and expenses associated with its obligations as a reporting company;

 

•                                            cashed-out shareholders will no longer have an interest in or be a stockholder of Logan and, therefore, they will not be able to participate in Logan’s future earnings and growth, if any;

 

•                                            management anticipates that the number of record shareholders will be reduced from approximately 376 to approximately 225, and the number of outstanding shares of Logan common stock will decrease from 703,991 to approximately 687,833;

 

•                                            management anticipates that the percentage of ownership of common stock of Logan beneficially held by the current executive officers and directors of Logan and the Bank, as a group (10 persons), will increase from 27.47% to approximately 28.12%;

 

•                                            aggregate shareholders’ equity of Logan as of December 31, 2004 will be reduced from approximately $17,927,331 on a historical basis to approximately $16,768,331 on a pro forma basis, assuming 16,158 shares are cashed-out in the merger;

 

•                                            the book value per share of Logan common stock as of December 31, 2004 will be reduced from approximately $25.46 per share on a historical basis to approximately $24.51 per share on a pro forma basis, assuming 16,158 shares are cashed-out in the merger; and

 

•                                            the reduction in Logan’s shareholders’ equity described above will cause a corresponding decrease in Logan’s regulatory capital ratios.  Assuming 16,158 shares are cashed-out in the merger, Logan’s leverage capital ratio will decrease from 9.80% on a historical basis to approximately 9.17% on a pro forma basis; its tier 1 capital to risk-weighted assets ratio will be reduced from 19.08% on a historical basis to approximately 17.86% on a pro forma basis; and its total risk-based capital ratio will fall from 20.42% on a historical basis to approximately 19.20% on a pro forma basis.  Logan and LB&T will continue to be “well capitalized” for regulatory capital purposes after the merger.  See “Special Factors—Effects of the Merger.”

 

3

 

•               Conditions to the Consummation of the Merger (page 30)

 

The completion of the merger depends upon the satisfaction of a number of conditions, unless waived, including:

 

•                                            approval of the merger agreement by the majority of the votes cast at the special meeting at which a quorum exists.  The presence, in person or by proxy, of the holders of a majority of the votes entitled to be cast by the shareholders entitled to vote at the special meeting is necessary to constitute a quorum;

 

•                                            absence of pending or threatened litigation regarding the merger; and

 

•                                            approval of the merger by the West Virginia Division of Banking.

 

•               Termination of Merger Agreement (page 30)

 

Either Logan or LCB Merger Company may terminate the merger agreement at any time before the merger is effective.

 

•               Material U.S. Federal Income Tax Consequences (page 38)

 

The receipt of cash in the merger will be taxable for United States federal income tax purposes.  You will be treated as either having sold your shares of Logan common stock for the cash received or as having received the cash as a dividend.  In general, your receipt of cash in exchange for your shares of Logan common stock will be treated as a sale or exchange and you will recognize gain or loss in an amount equal to the cash received less your adjusted tax basis of your shares exchanged for such cash if you actually and constructively own no shares of Logan common stock immediately after the exchange.  If you actually or constructively own shares of Logan common stock after the exchange, your receipt of cash in exchange for your shares of Logan common stock may be taxed as a dividend.  You should consult your personal tax advisor for a full understanding of the merger’s tax consequences.  Shareholders who do not receive cash should not recognize any gain or loss on continuing to hold their shares of Logan common stock as a result of the merger.

 

For a more complete description of the federal income tax consequences to you as a result of the merger, please read the discussion under “Material U.S. Federal Income Tax Consequences of Merger on page 38.”

 

•               Opinion of Financial Advisor (page 22)

 

Southard Financial (“Southard”), financial advisor to the special committee of the Board of Directors of Logan, has delivered a written opinion to the special committee of the Board of Directors of Logan dated March 1, 2005, to the effect that as of the date of the opinion that, the merger consideration is fair to all of the holders of Logan common stock from a financial point of view.  We have attached this opinion to this proxy statement as Appendix D.  You should read this opinion and the section of this proxy statement entitled “Special Factors - Opinion of Financial Advisor” beginning on page 22 to understand the procedures followed, matters considered and limitations on the reviews undertaken by Southard in providing its opinion.

 

4

 

•               Reasons for the Merger (page 14)

 

Our primary reason for the merger is that the successful completion of the merger will enable us to suspend filing periodic and annual reports with the SEC and therefore no longer incur the significant costs of complying with the reporting requirements of the Exchange Act.  For more information on our reasons for the merger, please see “Special Factors - Purpose and Reasons for the Merger” on page 14 of this proxy statement.

 

•               Appraisal Rights of Shareholders (page  35)

 

As a stockholder of Logan, under the provisions of Article 13, Chapter 31D of the West Virginia Code, as amended, you have appraisal rights and the right to obtain payment of the fair value of your shares with respect to the merger.  If the merger is approved by the shareholders and consummated, any stockholder who properly perfects his right to object to the merger will be entitled to receive an amount of cash equal to the fair value of his shares rather than the consideration provided by the merger agreement.

 

•                                            Recommendation of the Logan Board and Determination of Fairness of the Merger Proposal (page  16)

 

Based on the reasons discussed elsewhere in this document, including the opinion of Southard, the Board of Directors of Logan believes that the merger is fair to you and in your best interests, and unanimously recommends that you vote FOR the proposal to approve the merger agreement.  In considering the recommendation of the Board of Directors, you should be aware that the members of the Board and the executive officers of Logan and LB&T (10 persons) control approximately 27.47% of the outstanding shares of Logan common stock and all of such persons are expected to continue as shareholders and control approximately 28.12% of the Logan common stock following the merger.  Also, the executive officers and directors of Logan will continue to be the executive officers and directors of Logan following the merger.  See “Interests of Certain Persons” on page 34 of this proxy statement.

 

•               Effective Time of the Merger (page 30)

 

The merger will become effective at the date and time specified in the Certificate of Merger to be issued by the West Virginia Secretary of State.  If Logan shareholders approve the merger at the special meeting, and if we obtain all required regulatory approvals and the other conditions to the parties’ obligations to effect the merger are met or waived by the party entitled to do so, we anticipate that the merger will be completed in July of 2005, although delays could occur.

 

We cannot assure you that we can obtain the necessary stockholder and regulatory approvals or that the other conditions to completion of the merger can or will be satisfied.

 

•               Financing of the Merger (page 31)

 

We estimate that the maximum total funds required to fund the payment of the consideration to be paid to cashed-out shareholders and to pay fees and expenses relating to the merger will not exceed approximately $1,000,000.  We will fund the purchase of the cashed-out shares and any objecting shares, as well as the fees and expenses relating to the merger, primarily with cash on hand and any excess with earnings generated from our operations.  Although it is not anticipated that Logan will need funds in excess of cash on hand to pay cash-out shareholders in the merger, if additional funds are required it is likely to be a small amount and will be funded inside Logan.

 

5

 

•               Management After the Merger (page 31)

 

The board of directors and executive officers of Logan and LB&T will not be changed by the merger.

 

•               Amendment to Logan’s Articles of Incorporation (page 40)

 

The second proposal at the Special Meeting is the amendment to Logan’s Articles of Incorporation to prohibit certain future transfers of shares of Logan common stock unless after the transfer the receiving shareholder would own 200 or more shares of record.  The text of the proposed amendment is attached to this proxy statement as Appendix B.  The proposed amendment is expected to help slow the growth in the number of shareholders, thus avoiding or delaying the need to again comply with the periodic reporting requirements imposed on Logan pursuant to the Securities Act of 1933 (the “Securities Act”).  The amendment would be effective when Logan files Articles of Amendment to its Articles of Incorporation with the West Virginia Secretary of State promptly following shareholder approval of the amendment proposal.  The amendment is contingent on shareholder approval of the Agreement and Plan of Merger.  Information regarding the proposed amendment appears in this proxy statement under the heading “Proposal Number 2 — Amendment to the Articles of Incorporation.”

 

This proxy statement contains forward-looking statements.

 

The forward-looking statements are based on management’s beliefs, assumptions, current expectations, estimates and projections about the merger, the Agreement and Plan of Merger, the proposed amendment, Logan itself, the economy and the banking industry generally.  Words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “is likely,” “plans,” “predicts,” “projects,” variations of such words and similar expressions are intended to identify such forward-looking statements.  These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions (“risk factors”) that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence.  Actual results and outcomes may materially differ from what may be expressed or forecasted.  Risk factors include, but are not limited to, changes in banking laws and regulations; changes in securities and tax laws; changes in governmental and regulatory policy; changes in the national and local economy; changes in costs and other assumptions used in forecasting management’s expectations concerning the costs and cost savings associated with the merger; the ability of Logan to effectively implement the merger; and the ability to and speed with which Logan may achieve all cost savings anticipated from the merger.  These are representative of the risk factors that could cause a difference between an ultimate actual outcome and a forward-looking statement.

 

6

 

QUESTIONS AND ANSWERS

 

The questions and answers below are a summary of items described in this proxy statement.  To fully understand the merger and the amendment, you are encouraged to read carefully the entire proxy statement.

 

When and where is the special meeting?

 

The special meeting of Logan shareholders will be held on June 21, 2005, at 5:00 p.m., in the lobby of Logan Bank & Trust Company, located at 43 Washington Avenue, Logan, West Virginia.

 

What am I to vote on?

 

The following two (2) proposals are to be voted on by Logan’s shareholders of record as of May 24, 2005:  (i) a proposal to approve the Agreement and Plan of Merger, dated as of April 15, 2005, which will result in the merger of Logan and LCB Merger Company, a newly-formed subsidiary of Logan  organized for the sole purpose of facilitating this proposed transaction; and (ii) a proposal to approve an amendment to Logan’s Articles of Incorporation.

 

Once I have voted, may I change my vote or revoke my proxy?

 

Yes, you may change your vote or revoke your proxy up to the time your shares are voted at the special meeting.  You may do this in any of three ways: (1) by giving written notice of revocation to the Secretary of Logan at our principal executive offices; (2) by executing and delivering a later-dated proxy or (3) by attending the special meeting and voting your shares in person.  Additional information on these procedures appears on page 40 of this proxy statement.

 

What is a merger?

 

A merger is a mechanism by which two companies are effectively combined into a single, surviving company.  One company “survives” (i.e., exists following) a merger.  Logan will be the company that survives the proposed merger.

 

When will this happen?

 

If the shareholders approve the merger and the amendment, the effective time of the merger and the amendment is expected to be in July of 2005.

 

What is “going private?”

 

Logan’s common stock is currently registered under the Securities Act of 1933 (the “Securities Act”).  Registration under the Securities Act requires Logan to file detailed periodic reports with the SEC and to comply with other requirements under the Securities and Exchange Act of 1934 (the “Exchange Act”).  The term “going private” is used within this proxy statement to mean the transformation of Logan from a company that is obligated to file detailed, periodic reports and comply with other requirements under the Securities Act and the Exchange Act (a “reporting company”) to a company with less than 300 shareholders that is no longer subject to those requirements.  This transformation will take place after the effective time of the merger.  Logan has decided to go private to eliminate the burdens, risks and expense associated with being a reporting company.

 

7

 

Why has the Board of Directors chosen to go private?

 

The Board of Directors has recommended the merger so that Logan will no longer incur the burdens, risks and expense associated with its obligations as a reporting company under the Securities Act of 1933.

 

What will happen if I own fewer than 200 shares?

 

Shareholders who hold of record fewer than 200 shares immediately prior to the effective time of the merger will, as a result of the merger, no longer be shareholders of Logan.  This means that they will no longer have voting rights or the right to receive dividends or distributions from Logan.  They will be paid $50.00 in cash for each pre-merger share they held.

 

What if I own 200 or more shares?

 

Shareholders who hold of record 200 or more shares immediately prior to the effective time of the merger will continue to hold the same number of shares following the effective time of the merger.  These shareholders will not receive cash in connection with the merger.

 

What if my shares are held in an account at a bank or brokerage firm?

 

If your shares are held with a bank, brokerage firm or other investment institution and such accounts are registered in the name of the bank, broker, investment institution, or in the name of its depository or nominee (referred to a shares held in “street name”), then the right to retain stock or receive cash as a result of the merger will be determined with reference to the size of the stock holding as it appears on the company’s list of record shareholders as of the effective time.  Thus, the rights of a beneficial owner of shares held in “street name” will be determined with reference to the size of the aggregate record holding of their bank, broker, financial institution or its depository or nominee as that holding appears on the stock records of the Company, and not with reference to the number of shares in the beneficial owner’s street name account.  It is likely that shares held in “street name” will be registered in the name of a nominee that is a record holder of more than 200 shares.  Therefore, it is likely that those shares will remain outstanding following the effective time.  Shareholders holding Common Stock in “street name” should contact their nominees to determine how they will be affected by the merger.

 

How will I receive my cash following the merger?

 

After the effective time of the merger, Logan will send transmittal documents to former shareholders entitled to receive cash.  These documents explain how you should turn in your old share certificates in exchange for cash.  If applicable, Logan will pay you for your old shares after you have surrendered your old share certificates.

 

Should I send in my share certificates now?

 

No.  After the merger is complete, Logan will send written transmittal materials for surrendering share certificates to persons who held of record fewer than 200 shares of common stock immediately before the effective time of the merger.

 

What is the purpose of the amendment?

 

The amendment will allow Logan to slow the future growth of its shareholder base by not allowing transfers of shares to “odd lot” shareholders (i.e., those holding fewer than 200 shares).

 

8

 

Will the Merger affect Logan Bank & Trust Company?

 

No.  Logan Bank & Trust Company will continue to operate as a wholly owned subsidiary of Logan following the merger.

 

What will happen to LCB Merger Company after the merger?

 

LCB Merger Company will be merged with and into Logan and will no longer exist after the merger.

 

If I have additional questions, who can I contact?

 

If you have additional questions regarding the proxy, this proxy statement, the merger, the amendment or related matters, you should contact: Eddie Canterbury, CEO of Logan at (304) 752-1166.

 

9

 

 

SPECIAL FACTORS

 

This portion of the proxy statement presents a detailed discussion of the proposed merger, beginning with an explanation of the background and reasons for the merger.  Following that discussion are sections describing, among other things, the following:

 

•                                 the process by which the merger and the terms of the merger agreement were developed;

 

•                                 the role and conclusion reached by the financial advisor to the Special Committee of our Board of Directors;

 

•                                 analysis of the fairness of the merger;

 

•                                 interests of our directors and executive officers in the merger, which in some cases are in addition to, or different from, those of unaffiliated shareholders;

 

•                                 federal income tax consequences of the merger;

 

•                                 your appraisal rights under West Virginia law;

 

•                                 a description of the material terms of the merger.

 

We encourage you to read the entire discussion, as well as the appendices, to obtain a complete understanding of the merger.

 

Background of the Merger

 

In 1984 Logan formed a multi-bank holding company with two subsidiary banks, the Bank of Chapmanville and LB&T.  This transaction required Logan to register with the United States Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933 (the “Securities Act”).  As a result of that transaction, Logan has been subject to the disclosure and reporting requirements of the SEC under the Securities Act and the Securities and Exchange Act of 1934 (the “Exchange Act”) for the past 19 years.  As an SEC reporting company, Logan is required to prepare and file with the SEC, among other items, the following:

 

•                                 Annual Reports on Form 10-K

 

•                                 Quarterly Reports on Form 10-Q

 

•                                 Periodic Reports on 8-K

 

10

 

The costs associated with these reports and other filing obligations comprise a significant corporate expense.  These costs include counsel fees, auditor fees, cost of printing and mailing the SEC documents and the word processing, specialized software and filing costs associated with the SEC reports and other filings.  These SEC registration-related expenses have been increasing over the years, and the Company believes that they will continue to increase.

 

In July, 2004, Logan working with its outside auditors and specially retained securities counsel learned that it was subject to the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”).  Although Logan had been filing periodic reports with the SEC since 1984, Logan believed that it was not subject to Sarbanes-Oxley because it had fewer than 500 shareholders, which is the threshold number of shareholders necessary for registration to be required under Section 12 of the Securities and Exchange Act of 1934 (the “Exchange Act”).  Moreover, Logan is a small, community bank holding company, the stock of which is thinly-traded and not listed on any exchange.  The Board and management of Logan believed that Logan was not “publicly held” within the meaning of such terms for purposes of Sarbanes-Oxley and that its filing periodic reports with the SEC was on a voluntary basis.  Logan, with the assistance of special securities counsel, determined that Logan is registered with the SEC under the Securities Act of 1933 and is therefore an “issuer” as that term is defined under Sarbanes-Oxley.  Logan meets this definition only because it filed a registration statement in connection with the simultaneous formation of a bank holding company and the acquisition of the Bank of Chapmanville, Chapmanville, West Virginia in 1984.

 

On July 28, 2004, McNeal, Williamson & Co. (“McNeal Williamson”), the independent auditor of Logan, notified Logan that it had received a letter from the SEC concerning McNeal Williamson not being registered with the Public Company Accounting Oversight Board (“PCAOB”).  Among other things, McNeal Williamson indicated that because it was not registered with PCAOB, the activities it could perform for SEC reporting companies, including Logan, were limited.  These limitations included:

 

•                                 An inability to issue audit reports for the Company; and

 

•                                 An inability to perform interim reviews in accordance with SAS 100 for the Company.

 

McNeal Williamson also advised Logan that it should obtain independent accountants registered with the PCAOB to perform these functions.  As a result of these limitations, McNeal Williamson resigned its position as the Company’s certifying accountant on July 28, 2004.

 

On August 10, 2004, Logan engaged S.R. Snodgrass, A.C., as its new independent certifying public accountant.  S.R. Snodgrass, A.C. is registered with the PCAOB.  S.R. Snodgrass, A.C. reviewed all interim periods that were reviewed by McNeal Williamson after the adoption of the Sarbanes-Oxley Act and re-audited the audit report for the period ended December 31, 2003, and reviewed the audit report for the period ended December 31, 2002.

 

With the help of specially retained securities counsel, Logan amended its filings on Form 10-K for the years ending December 31, 2002, and December 31, 2003 and its filings on Form 10-Q for the quarters ending September 30, 2002, March 31, 2003, June 30, 2003, September 30, 2003 and March 31, 2004 to bring these filings into compliance with Sarbanes-Oxley and to revise the financial statements to reflect adjustments made as a result of the re-audit and reviews conducted by S.R. Snodgrass A.C.  There were no restatements of earnings for these periods.

 

At the meeting of Logan’s Board of Directors in November, 2004, the Board discussed the possibility of going private due to the significant burdens imposed by Sarbanes-Oxley.  This Board meeting included a discussion of Section 404 of Sarbanes-Oxley and the level of management time that

 

11

 

would be needed for compliance (no specific estimates of management time were offered, however), the need for external “experts” to help implement the requirements of Section 404 and the likely cost that would need to be incurred.  Specially retained securities counsel was asked to attend a Board meeting held on November 1, 2004, to review and evaluate the possibility of going private and the various alternative means of effectuating a going-private transaction.  Securities counsel reviewed the alternative means of effectuating a going private transaction as well as the fiduciary duties of the Board of Directors.  Securities counsel also discussed applicable corporate and securities law matters applicable to a going private transaction, including the appraisal rights of shareholders.  At this Board Meeting, the Board considered the alternative means of reducing the number of shareholders to a level which would permit it to suspend its SEC reporting obligations.  The Board also considered the direct and indirect costs to the Company of remaining a reporting company.  The Board agreed that the burden on management and the expense of the SEC reporting and other filing obligations outweighed any benefit from the SEC reporting.  After consideration of these matters, the Board of Directors determined that if it were to go forward with the going-private transaction, it would most likely be in the form of a cash-out merger.

 

At the regular Board meeting in January, 2005, in order to ensure the going private transaction was substantively and procedurally fair to the Company’s shareholders, the Board of Directors created a special committee of independent members to engage in the following activities related to the going private transaction:

 

•                                 retain an investment banking firm to provide a fairness opinion on the going private transaction from a financial point of view and retain such other financial advisors as it deems necessary at the Company’s expense;

 

•                                 consider various procedures to structure the going private transaction;

 

•                                 review and negotiate the terms of the going private transaction and consider all proposals and possible alternatives;

 

•                                 seek all relevant operating, financial and analytical information affecting its decision;

 

•                                 retain such advisors at the Company’s expense as is deemed necessary by the special committee; and

 

•                                 determine whether the going private transaction is fair and in the best interest of the shareholders of the Company.

 

The Special Committee was required to meet on an as needed basis, but in no event less than once a month and more often if necessary to accomplish its duties and obligations.  The Special Committee was required to report its progress to the full Board of Directors of the Company at each monthly meeting of the Board of Directors of the Company and to make a report and recommendation of its conclusions to the Board of Directors of the Company for later action by the Board of Directors on the going private transaction.

 

The Company solicited proposals from three firms to provide it with a valuation of the Common Stock of the Company and a fairness opinion.  Following a discussion of the proposals made by the three firms at the January, 2005 meeting of the Special Committee, the Special Committee approved the engagement of Southard Financial to render the Board of Directors a valuation of Logan Common Stock and a fairness opinion.

 

12

 

Southard Financial provided a valuation report to the Special Committee dated February 21, 2005, which was considered at the Special Committee meeting on February 22, 2005.  Southard Financial’s valuation report indicated that the fair value of the Logan’s Common Stock as of January 31, 2005, was $47.00 per share.  A representative of Southard Financial explained the detailed procedures performed and the financial analyses supporting the value.  The members of the Special Committee discussed the different factors involved in these procedures, and a representative of Southard Financial described the sources of information, the assumptions utilized, and the weight assigned to each valuation approach described in the valuation report.  The Special Committee discussed in detail the different valuation approaches described in the valuation report and the weights assigned to each approach.  After a lengthy discussion, the Special Committee unanimously approved the going private transaction by means of the merger pursuant to which shareholders holding less than 200 shares would receive $50.00 per share for their shares of Logan Common Stock.  The per share price of $50.00 represents a $3.00 premium over the value contained in the valuation report that was presented to the Special Committee by Southard Financial.  The purpose of the $3.00 premium is to compensate small shareholders for having their shares purchased against their wishes.  The Special Committee unanimously approved presenting the valuation report of Southard Financial to the Board of Directors and recommending to the Board of Directors a price of $50.00 per share as the fair value of Logan’s Common Stock.

 

The Special Committee presented the valuation of Southard Financial and its conclusion to the full Board of Directors at its meeting on February 22, 2005.  A representative of Southard Financial explained the procedures performed and the financial analyses supporting Southard Financial’s valuation of Logan’s Common Stock at $47.00 per share.  The Board of Directors considered alternative structures for the going private transaction.  After considerable discussion, the Board of Directors unanimously voted in favor of proceeding with the going private transaction via a cash-out merger.  The Board reviewed the shareholder records and determined that shares held of record by shareholders owning fewer than 200 shares should be converted to the right to receive cash in the merger.  The Board selected 200 shares as the minimum number of shares required to remain as stockholder, because it represented a breakpoint among shareholders in order to ensure that, after completion of the merger, the number of record shareholders would be less than the 300 stockholder limit necessary to suspend Logan’s reporting requirements under the Securities Act with the SEC, while at the same time involving a relatively small number of shares (estimated at approximately 20,000, or 2.8%, of Logan’s outstanding shares at the time of the meeting) that would be cashed-out in the proposed merger.  The Board of Directors determined that $50.00 per share would be paid for the shares of Common Stock converted to the right to receive cash in the merger.

 

On February 28, 2005, the Special Committee and the Board of Directors received the opinion of Southard Financial that the $50.00 per share price was fair, from a financial point of view, to the shareholders who would be cashed out in the merger and to the remaining shareholders of Logan.  This opinion is presented in Appendix D to this proxy statement.

 

At a meeting on March 15, 2005, the Special Committee agreed by unanimous vote that $50.00 per share was a fair value to be paid to shareholders who would receive cash in the merger and that the merger transaction was fair to all shareholders of Logan.

 

At a meeting on March 22, 2005, the Board of Directors unanimously agreed that $50.00 per share was a fair value to be paid to shareholders who would receive cash in the merger and that the merger transaction was fair to all shareholders of Logan.  The Board also reviewed a proposed Agreement and Plan of Merger and a proposed amendment to Logan’s Articles of Incorporation that would prohibit certain future transfers of shares of Logan’s Common Stock unless after the transfer the receiving shareholder would own 200 or more shares of record.  The Board unanimously approved resolutions adopting the Agreement and Plan of Merger and the amendment to Logan’s Articles of Incorporation,

 

13

 

authorizing management to proceed with the merger transaction and to seek shareholder approval of the merger proposal and the amendment to Logan’s Articles of Incorporation.

 

At the Board of Director’s meeting on April 26, 2005, specially retained securities counsel presented a draft proxy statement, a transaction statement on Schedule 13E-3, regulatory filings, and discussed the necessary SEC disclosures.  The Board approved the form of proxy statement, the Schedule 13E-3, and the regulatory filings and authorized management to make all necessary filings with the SEC and the banking regulators or otherwise to consummate the proposed going private transaction.  Each director indicated his or her intent to vote as a shareholder in favor of the Agreement and Plan of Merger.

 

Your Board of Directors unanimously recommends that you vote “FOR” approval of the Agreement and Plan of Merger.

 

Purpose and Reasons for the Merger

 

The Board of Directors believes that the benefits derived by Logan County BancShares, Inc. (the “Company” or “Logan”) and its shareholders from being a reporting company are outweighed by the substantial burdens, risks and expense associated with being a reporting company.  The purpose of the proposed merger (the “Merger”) with LCB Merger Company (“LCB Merger Co.”) is to suspend its reporting and other obligations applicable to Logan under Securities Act and the Exchange Act.  The Merger is expected to make that possible by causing the Company to have fewer than 300 shareholders of record.

 

Management estimates that being subject to the reporting obligations of the Securities Act and the Exchange Act presently causes the Company to incur incremental expense for legal, accounting and other direct and indirect costs.  Anticipated external expenses and internal costs for 2005 and 2006 associated with being a reporting company are expected to be approximately $168,300 in 2005 and $206,000 in 2006.  Bases for these estimated costs include management projections and information provided by Logan’s accountants.  Management’s estimates were based on its own assessment of anticipated costs and the information from accountants, which was general in nature.  Costs for 2004 were approximately $157,500.  See “The Merger Transaction - Suspension of Reporting Obligations Under the Securities Act” (pages 32-33).

 

Passage of the Sarbanes-Oxley Act of 2002 has subjected, and will subject, the Company and its directors and officers to additional burdens and expense that are substantial in scope.  The new corporate governance, accounting, internal control and liability provisions of the Sarbanes-Oxley Act, while arguably appropriate for large public companies such as Enron and WorldCom, are believed by the Board of Directors to place a disproportionately high burden on the management and financial resources of relatively small companies such as Logan.  Bank holding companies and banks, such as Logan and LB&T, are already subject to a comparatively high degree of supervision, regulation and examination by state and federal bank regulatory agencies.  Some of these requirements are intended to achieve objectives similar to those of the Sarbanes-Oxley Act.  However, the Sarbanes-Oxley Act imposes additional requirements on Logan that neither Logan nor LB&T are subjected to under banking regulations.  One additional requirement that is very costly under the Sarbanes-Oxley Act is management certification and external auditor attestation of internal control functions under Rule 404 of the Sarbanes-Oxley Act.

 

The Company would be able to suspend its reporting obligations under the Securities Act and the Exchange Act and relieve itself of some of the legal duties, risks and expense associated with its reporting obligations if it had fewer than 300 shareholders of record.  See “The Merger Transaction-Suspension of Reporting Obligations Under the Securities Act (pages 32-33).  As of December 1, 2004, the Company had 401 shareholders of record.  Of those shareholders, approximately 185 shareholders held fewer than

 

14

 

200 shares.  Those numbers changed after the going private transaction was made public.  As of March 29, 2005, the Company had 376 shareholders of record.  Of those shareholders, approximately 151 shareholders held fewer than 200 shares.  The shares held by holders of fewer than 200 shares represent in the aggregate approximately 16,158 shares, or 2.3% of the Company’s outstanding shares.  Ownership of the 97.7% of the Company’s shares held by holders of 200 or more shares is well dispersed, with one shareholder beneficially owning 5.42% of the shares, one shareholder owning 8.05% of the shares, one shareholder owning 13.24% of the shares, one shareholder owning 16.57% of the shares, and no other single shareholder beneficially owning more than 5% of the shares.

 

If Logan ever had 300 or more shareholders at the end of any calendar year, it will again become subject to the SEC’s reporting requirements under the Securities Act.  Therefore, Logan’s Board of Directors believes that it is necessary to reduce Logan’s total number of record shareholders to a number substantially under 300 so that Logan does not become subject to the SEC’s reporting requirements as a result of future small transactions which would expand the number of Logan’s shareholders.

 

The Board of Directors recognizes and has carefully considered the possibility that some holders of fewer than 200 shares would prefer to keep their shares.  The Board of Directors is mindful of the fact that some of its smaller shareholders are both shareholders and Logan Bank & Trust Company (the “Bank”) customers of long standing.  It is expected that some holders of fewer than 200 shares will be able to retain their shares by acquiring additional shares or consolidating family holdings so that they hold of record 200 or more shares.  The Board of Directors sincerely regrets the fact that some smaller shareholders who would prefer to retain their shares will be paid cash for their shares.  The Board of Directors selected the price to be paid for shares in the Merger, which represents a $3.00 premium over Southard Financial’s valuation of Logan’s common stock, in part with the intention of compensating small shareholders for having their shares purchased against their wishes.

 

LCB Merger Co. is a wholly owned subsidiary of the Company and was organized solely for the purpose of facilitating the Merger.  As a result, LCB Merger Co.’s purpose and reasons for engaging in the merger transaction are the same as those set forth above.

 

Effects of the Merger

 

The Merger is a going private transaction because it is intended to and, if completed, will likely enable the Company to suspend the Company’s reporting requirements and the other burdens, risks and expenses associated with being a reporting company under the Securities Act and the Exchange Act.  As a result of the Merger, it is expected that the Company will no longer be subject to the provisions of the Sarbanes-Oxley Act of 2002 or the liability provisions of the Exchange Act that are applicable to Logan because of its registration under the Securities Act.  For more information regarding this registration termination and associated effects, see “The Merger Transaction-Suspension of Reporting Obligations Under the Securities Act” (pages 32-33).  The Merger has been structured with the expectation that upon consummation of the Merger the Company will have fewer than 300 record holders of its shares of Common Stock.  The Company organized LCB Merger Co. solely to facilitate the Merger.  LCB Merger Co. will be merged with and into the Company pursuant to the terms of the Agreement and Plan of Merger (the “Plan of Merger”).  The Company will be the surviving corporation to the Merger.  LCB Merger Co. will cease to exist following the Merger and its outstanding shares of common stock (all of which are held by the Company) will be cancelled for no consideration.  The Merger will be effective when Logan files Articles of Merger with the West Virginia Secretary of State or as otherwise specified in the Articles of Merger (the “Effective Time”).

 

The Merger is expected to benefit the Company by reducing the burdens, risks and expenses associated with being a reporting company.  However, the Merger is also expected to have adverse

 

15

 

effects.  Following suspension of the Company’s reporting obligations, shareholders would have decreased access to information about the Company.  In addition, those shareholders being cashed-out may not wish to do so and would not have the opportunity to participate in the Company’s future growth and earnings (if any).  The Merger may negatively affect the goodwill of some of the Bank’s customers.  See “Special Factors - Fairness; Recommendation of Board of Directors” (pages 16-22).

 

If completed, the Merger will have the following effects.

 

Shareholders Owning Fewer than 200 Shares.  Each share of Common Stock owned of record by a holder of fewer than 200 shares immediately prior to the Effective Time will be converted, pursuant to the terms of the Plan of Merger, into the right to receive a cash payment of $50.00 per share.  As of the Effective Time, holders of these shares will have no further interest in the Company.  These shareholders will not have to pay any service charges or brokerage commissions in connection with the Merger or the cash payments to them, unless a bond is required in the event of a lost stock certificate.  The cash payment will be subject to applicable federal, state and local income taxes.

 

Shareholders Owning 200 or More Shares.  Each share of Common Stock owned of record by a holder of 200 or more shares immediately prior to the Effective Time will remain outstanding and continue to represent one share of Common Stock following the Merger.

 

Beneficial owners of shares held in “street name.”  Some beneficial owners of shares hold shares in accounts with banks, brokerage firms and other investment institutions.  Typically, shares held in such accounts are registered in the name of the bank, broker, investment institution, or in the name of its depository or nominee.  Shares held in this way are referred to as shares held in “street name”.  Typically, these institutions co-mingle the shares held for multiple customers and hold all of them registered in the name of a depository nominee.  The right to retain stock or receive cash as a result of the Merger will be determined with reference to the size of the stock holding as it appears on the company’s list of record shareholders as of the Effective Time.  Thus, the rights of a beneficial owner of shares held in street name will be determined with reference to the size of the aggregate record holding of their bank, broker, financial institution or its depository or nominee as that holding appears on the stock records of the Company, and not with reference to the number of shares in the beneficial owner’s street name account.  It is likely that shares held in “street name” will be registered in the name of a nominee that is a record holder of more than 200 shares.  Therefore, it is likely that those shares will remain outstanding following the Effective Time.  Shareholders holding Common Stock in “street name” should contact their nominees to determine how they will be affected by the Merger.

 

If you want to continue to remain a shareholder of Logan after the Merger, you may do so by purchasing a sufficient number of shares of Common Stock from other shareholders prior to the Effective Time of the merger so that you hold at least 200 shares at the Effective Time of the Merger.  If you hold Common Stock in “street name” you should contact your nominee to determine if your shares will remain outstanding following the Effective Time of the Merger.

 

Fairness; Recommendation of Board of Directors

 

The structure and terms of the Merger were determined by the Special Committee of the Board of Directors and the Board of Directors.  The Special Committee consists of three independent directors.  The Special Committee retained Southard Financial, an independent financial advisor experienced in the financial analysis and valuation of financial institutions, to value the Common Stock.  The cash consideration to be paid for the Common Stock under the Merger was determined by the Board of Directors, in part, based on the recommendation of the Special Committee and Southard Financial’s valuation report.

 

16

 

Based in part on the valuation report and fairness opinion prepared by Southard Financial and the considerations set forth below, the Board of Directors has determined and reasonably believes that the Merger is in the best interests of, and substantively and procedurally fair to, the Company and its unaffiliated shareholders and that the Merger consideration of $50.00 per share payable to the shareholders who will receive the cash in the Merger is fair to those shareholders.  The Board and LCB Merger Co.’s board believe the Merger is substantively and procedurally fair both to unaffiliated shareholders who will retain their interest in the Company and to those who will be cashed out in the Merger.  All directors of LCB Merger Co. are also directors of the Company.  The LCB Merger Co. Board of Directors specifically adopted Logan’s Board of Director’s analyses and conclusions underlying its fairness determination.  Accordingly, the Company’s Board of Directors, including all of the directors who are not employees of the Company or the Bank, unanimously approved the Merger, and recommends that the shareholders vote in favor of the Merger and the Agreement and Plan of Merger.  All of the members of the Board of Directors have expressed an intention to vote in favor of the Agreement and Plan of Merger, including all of the board members who are not employees of either the Company or the Bank.

 

In reaching its decision to approve the Merger and in making its recommendation, the Board of Directors considered a number of material factors as described below.

 

Positive Factors for Shareholders who Receive Cash in the Merger.  The factors that the board considered positive for the unaffiliated shareholders who receive cash in the Merger included:

 

•                                            The cash price per share of $50.00 offered in the Merger represents a premium of $24.26 per share (94.3%) over the January 31, 2005, book value per share of $25.74, a premium of $6.00 (13.6%) over the most recent trading price known to the Company immediately before the board action of $44.00 and a premium of $3.00 per share (6.4%) over the $47.00 fair market value determined in the valuation opinion of Southard Financial.

 

•                                            The Merger consideration is all cash, which provides certainty of value to those shareholders and immediate liquidity for the shareholders who receive cash in the Merger.

 

•                                            No brokerage or other transaction costs are to be incurred by shareholders who receive cash in the Merger, unless a bond is required in the event of a lost stock certificate.

 

Positive Factors for Remaining Shareholders.  The factors that the board considered as positive for the unaffiliated shareholders who will remain shareholders following the Merger included:

 

•                                            Remaining shareholders would realize the potential benefits of the suspension of the Company’s reporting obligations under the Securities Act, including reduced expenses as a result of suspension of such reporting obligations.

 

•                                            Remaining shareholders would have the opportunity to participate in the Company’s future growth and earnings, if any.

 

•                                            The Merger is expected to result in accretion to net income, earnings per share and return on equity; this is a function of the decrease in the number of shares of Common Stock as a result of the Merger as well as cost savings.

 

17

 

 

•                                          Remaining shareholders would not be required to pay income taxes as a result of the Merger.

 

Negative Factors for Shareholders Receiving Cash in the Merger.  The factors that the board considered negative for the unaffiliated shareholders who would receive cash in the Merger included:

 

•                                          These shareholders would not have the opportunity to participate in the Company’s future growth and earnings, if any.

 

•                                          These shareholders will not be able to sell their shares at a time and for a price of their choosing.

 

•                                          These shareholders may be required to pay income tax on the receipt of cash in the Merger.

 

Negative Factors for Remaining Shareholders.  The factors that the board considered negative for the unaffiliated shareholders who will retain their shares in the Merger included:

 

•                                          The Merger may negatively affect good will of certain of LB&T’s customers.

 

•                                          After the suspension of the Company’s reporting obligations, the shareholders will have decreased access to information about the Company.

 

Although the Board of Directors considered the negative factors described above, it concluded that the benefits of the positive factors outweighed the detriments of the negative factors and that the proposed transaction was substantively and procedurally fair to and in the best interest of the Company’s unaffiliated shareholders.

 

Fair Price Considerations.  The Board of Directors selected a price of $50.00 per share as the amount to be paid to shareholders who receive cash for their shares of Common Stock as a result of the Merger.  The Board of Directors selected a price that it believed to be in excess of the fair market value of the shares, intending to at least partially compensate shareholders who receive cash for the fact that they are being required to dispose of their shares when some would probably prefer to keep their shares and that shareholders who receive cash would probably incur some tax as a result of the Merger.

 

The Board of Directors considered numerous factors, discussed below, in reaching its conclusion as to the fairness of the Merger to all of Logan’s shareholders, including its determinations as to the fairness of the Merger to unaffiliated shareholders who will receive cash in the Merger as well as those who will retain their shares of Logan common stock after the Merger.  The Board of Directors did not assign any specific weights to the factors listed below.  Moreover, in their considerations individual directors may have given differing weights to different factors.

 

•                                          Historical Market Prices of Logan Common Stock.  Logan is not listed or quoted on any exchange and has minimal trading activity.  During the 12 months prior to the public announcement of the proposed merger, based on trades known to management of Logan, the stock traded very infrequently.  The Board of Directors reviewed high and low sales prices for Logan common stock from January 1, 2004 to December 14, 2004, which ranged from $44.00 to $47.00 per share.  You should read the discussion under “Information About Logan and Its Affiliates – Market for Common Stock and Dividend Information” for more information about our stock prices.  The last sale price of Logan

 

18

 

common stock known to management that occurred prior to the public announcement of the merger agreement was $44.00 on September 13, 2004.

 

•                                          Net Book Value.  As of January 31, 2005, Logan’s book value per share was $27.83.  In Southard Financial’s valuation report, Southard Financial adjusted Logan’s reported book value of $27.83 per share on January 31, 2005, to derive the market value of Logan’s assets and liabilities.  The objective was to arrive at a net asset value, defined as the difference between the adjusted valuation of all assets and liabilities.  The net asset value reflects the valuation of assets in the context of a going concern.  Southard Financial calculated Logan’s net asset value at $46.53 per share.  This price was a factor that was considered by the Board, among others, in determining the consideration to be paid to cashed-out shareholders in the merger.  The per share cash price of $50.00 payable in the merger reflected a multiple of 1.80 times Logan’s book value per share as of January 31, 2005, and a multiple of 1.07 times Logan’s net asset value per share as of January 31, 2005.

 

•                                          Going Concern Value.  In reviewing the going concern value of Logan’s shares, the Board considered the analyses and conclusions of Southard Financial, which are described under “Opinion of Financial Advisor” below.  The going concern value determined by Southard Financial was $47.00 per share.

 

•                                          Earnings.  The Board reviewed the earnings of Logan for the previous three years.  For the three years ended December 31, 2002, 2003 and 2004, Logan reported net income of approximately $1,842,000, $1,901,000 and $1,558,173, respectively.  The Board believes that Logan’s earnings over the last three years provide a basis for a reasonable expectation of future performance and an expectation of future benefits.

 

•                                          Opinion of Financial Advisor.  The Board considered the valuation report prepared by Southard Financial dated February 21, 2005, as well as the written fairness opinion, dated March 1, 2005, to the effect that, as of the date of such opinion and based upon and subject to certain matters stated therein, the cash consideration to be paid in the Merger is fair, from a financial point of view, to Logan’s shareholders, including unaffiliated shareholders and shareholders who will receive cash in the merger as well as those who will retain their shares after the Merger.  The board also reviewed and considered the financial analyses supporting the opinion of the financial advisor.  You should read the discussion under “Opinion of the Financial Advisor” below and a copy of the opinion of Southard Financial which is attached as Appendix D to this proxy statement.

 

•                                          Liquidity Event.  The board considered the opportunity that the Merger presents for shareholders owning fewer than 200 shares to liquidate their holdings without incurring brokerage costs and/or costs for odd lot transfers, particularly given the relatively illiquid market for shares of Logan common stock at a price that represents a premium over historical sales prices.

 

The Board also recognized that the merger consideration to be paid to the cashed-out shareholders in the merger reflected a premium over the trading prices for the Logan common stock prior to the announcement of the Merger, which trading prices the Board did not find to reflect accurately the fair value of such stock.

 

The Board did not consider historical prices paid by Logan for its shares because Logan has not purchased shares of its common stock from shareholders in the last two (2) years.  Also, the Board did not consider transactions in the Logan common stock which occurred following the announcement of the transaction.  Additionally, certain directors and executive officers of Logan have been involved in the purchase of shares of the Logan common stock in the open market in the two years prior to the announcement of the going private transaction.  While the Board did consider these trades in general

 

19

 

terms in its review of the historical prices of the Logan common stock, the Board did not distinguish between transactions in Logan’s common stock involving directors and officers and those not involving such persons.

 

Although it is quite rare for an insured depository institution to go into voluntary liquidation, the base valuation technique that relates to Logan’s book value is, for the most part, an assumed liquidation value.  Since the price to be paid to the cash-out shareholders in the Merger is in excess of Logan’s book value and because Logan will continue to operate its business following completion of the Merger, the board did not consider Logan’s liquidation value an important factor in determining the fairness of the merger.

 

No firm offers have been made by an unaffiliated person during the preceding two years for (i) the merger or consolidation of Logan into or with such person, (ii) the sale or other transfer of all or any substantial part of the assets of Logan, or (iii) the purchase of a number of shares of common stock that would enable the holder thereof to exercise control of Logan.

 

Your Board of Directors has unanimously determined that the purchase price of $50.00 per share is a fair price.

 

The Board of Directors delegated to the Special Committee, which consists entirely of independent directors authority to (i) investigate the feasibility of going private transactions and (ii) select, engage and incur expenses by financial advisors, accountants and legal professionals (and authorize management to do the same) in order to develop a presentation for the entire Board of Directors and present specific proposals.  The Merger proposal has been approved by the unanimous consent of the members of the Special Committee and the Board of Directors and is recommended by the independent Special Committee as well as the entire Board of Directors.

 

Alternatives Considered.  The 200 share level was chosen by management and recommended to the Board of Directors based on an analysis of the Company’s shareholder list as of September 30, 2004.  Shareholders are free to buy or transfer shares until the Effective Time.  It is expected that some shareholders will acquire additional shares before the Effective Time through market purchases or other transactions in order to be a holder of more than the threshold number of shares and thus remain a shareholder after the Merger.  Because the number of shareholders above the threshold could increase before the Effective Time, it was necessary to select a threshold sufficiently high to make reasonable allowance for changes in the composition of the shareholder list without defeating the purpose of the proposed transaction.  Other lower numbers were considered and rejected as it was believed they would have resulted in an unacceptably high risk that the transaction would not yield the desired result of having less than 300 record shareholders.

 

The Special Committee and the Board of Directors considered the following alternatives to the Merger format:

 

•                                          Reverse Stock Split.  The Special Committee and the Board of Directors considered the use of a process known as a reverse stock split as an alternative to the Merger.  A reverse stock split would have involved a mechanism that proportionately decreased the number of shares of stock held by shareholders.  In a reverse stock split, shareholders receive one share of stock for every 200 (for example) shares owned; those shareholders holding only fractional share interests following the split are cashed out.  As a result, there are fewer shareholders.  The Special Committee did not choose this alternative because it would have resulted in a post-split stock price that would be undesirably high, and because it would have been necessary to require all remaining shareholders to surrender their

 

20

 

existing stock certificates to be exchanged for new stock certificates, which would be relatively burdensome for both shareholders and the Company.

 

•                                          Tender Offer.  The Special Committee and the Board of Directors also considered making a tender offer to purchase outstanding shares of Common Stock from the Company’s shareholders.  This alternative could have reduced the number of shareholders through their sale of Common Stock.  However, it is uncertain whether this process would result in the Company having fewer than 300 shareholders - a threshold that the Company must meet in order to go private and reduce the burdens associated with being a reporting company.  For this reason, the Special Committee and the Board of Directors decided not to use this alternative.

 

The Board of Directors did not consider other methods to reduce expenses other than going private.  Nor did the Board consider the possibility of a third party buy-out.  The Board did not consider these options because (i) it relied in part upon the assessment and recommendation of independent directors; (ii) it was not aware of other methods of achieving expense reductions that were comparable with those reductions possible through the Merger and (iii) no third party expression of interest in acquiring the Company is presently before the Board.

 

Approval of the transaction was recommended by the Special Committee of the Board of Directors.  The Special Committee based its independent analyses on the same information and analyses provided to the Board of Directors, and considered the same factors as the Board when making its recommendation.  The Special Committee is comprised entirely of independent directors.  Shareholders who are expected to receive cash in the Merger represent approximately 2.3% of the Common Stock.  The Merger requires approval by shareholders holding a majority of the votes cast at a meeting of shareholders at which a quorum is present.  Directors and officers as a group beneficially own approximately 27.47% of the outstanding common stock of Logan.  Because (i) the shares held by directors and officers represent a relatively small percentage of votes required to approve the transaction, (ii) the small percentage of shareholders receiving cash in the Merger, and (iii) the Board’s reliance in part upon the assessment and recommendation of independent directors, the board concluded that having an unaffiliated representative act solely on behalf of shareholders who are not directors or officers of Logan and requiring a majority of unaffiliated shareholders to approve the transaction were not necessary to assure fairness.  The only appraisal the Company sought in connection with the Merger was the valuation report provided by Southard Financial.  Neither the Company nor LCB Merger Co. has made any provision in connection with the Merger to grant unaffiliated shareholders access to the Company’s or LCB Merger Co.’s corporate files or to obtain counsel or appraisal services for such shareholders at the Company’s or LCB Merger Co.’s expense.

 

Other Considerations.  It could be argued that directors may have, or appear to have, a conflict of interest in approving and recommending the proposed Merger transaction.  The transaction will result in a slight increase in the percentage of ownership of all directors and officers.  As a group, directors and officers own approximately 27.47% of the outstanding shares of Common Stock; following the Effective Time, the directors and officers would own approximately 28.12% of the shares.  However, this benefit is shared proportionally by all remaining shareholders.

 

The foregoing discussion of the factors considered by the Board of Directors is intended to discuss in reasonable detail the material factors on which the Board of Directors relied; it does not necessarily reflect all factors involved in the process.  In view of the variety of factors considered in connection with their evaluation of the Merger proposal, the Board of Directors did not find it practicable to, and did not quantify or otherwise assign relative weights to the specific factors considered in reaching its determination.  The Board considered all the factors as a whole in reaching its determination.  In

 

21

 

addition, individual members of the Board of Directors may have given different weights to different factors.

 

Opinion of Financial Advisor

 

On January 25, 2005, the Board engaged Southard Financial (“Southard”) to provide a valuation opinion of Logan’s common stock as of January 31, 2005 and a fairness opinion relating to the price to be paid to shareholders receiving cash in the Transaction.

 

Independent Valuation

 

The Board engaged Southard to render a valuation of Logan’s common stock.  Southard’s valuation, presented to the Board on February 21, 2005, indicated that as of January 31, 2005, the cash fair value of Logan’s common stock was $47.00 per share (the “Valuation”).  The Board reviewed the basis for and the methodology used in Southard’s valuation.  The directors determined, after giving careful consideration to a number of factors, to utilize a price of $50.00 per share in the transaction, subject to receipt of a fairness opinion from Southard, and that the Transaction was fair to, and in the best interests of, Logan and its shareholders, including both affiliated and unaffiliated shareholders, and approved the Transaction.  Southard did not recommend the amount of consideration to be paid in the Transaction.

 

Fairness Opinion

 

On February 28, 2005, Southard rendered to the Board, its opinion to the effect that, as of the date of such opinion and based upon and subject to certain matters stated therein, the cash consideration of $50.00 per share to be paid in the Transaction was fair, from a financial point of view, to Logan’s shareholders, including unaffiliated shareholders and both shareholders who will receive cash in the Transaction and those who will retain their shares after the Transaction (the “Fairness Opinion”).  You should read the discussions below under “Valuation Opinion” and “Fairness Opinion” for more information relating to these opinions and the related financial analyses.

 

The full text of the written Fairness Opinion, which sets forth the assumptions made, matters considered and limitations of the review undertaken, is attached as Appendix D hereto and is incorporated herein by reference.  Southard’s opinion is directed to the Board, addresses only the fairness of the cash consideration to be paid in the Transaction from a financial point of view, and does not constitute a recommendation to any shareholder as to how such shareholder should vote at the special shareholders’ meeting.  The summary of the opinion of Southard set forth herein is qualified in its entirety by reference to the full text of such opinion.

 

In connection with the Valuation and its opinion, Southard reviewed and analyzed certain publicly available financial information and other information concerning Logan and certain internal analyses and other information furnished to Southard by Logan.  Southard also held discussions with members of senior management of Logan regarding the business and prospects of Logan.  In addition, Southard performed such other studies and analyses and considered such other factors as Southard deemed appropriate.

 

Opinions of Southard Financial

 

As described in its opinions, Southard assumed and relied upon, without independent verification, the accuracy, completeness and fairness of the information furnished to or otherwise reviewed by or discussed with Southard for purposes of their opinion.  With respect to the information relating to the

 

22

 

prospects of Logan, Southard assumed that such information reflected the best currently available judgments and estimates of the management of Logan as to the likely future financial performance of Logan.  Southard did not verify through independent inspection or examination the specific assets or liabilities of Logan.  Southard did not make nor were they provided with an independent evaluation or appraisal of the assets or liabilities of Logan.  The following is a summary of the material analyses and factors considered by Southard in connection with the Valuation and the Fairness Opinion presented to the Board:

 

Logan’s Board of Directors retained Southard to render its independent determination as to the fair value of the Logan common stock for use in connection with the Board’s consideration of the proposed going-private transaction.  Subsequently, the Board engaged Southard to render a written opinion as to the fairness, from a financial point of view, to all of the shareholders of Logan of the cash consideration to be paid to shareholders who will receive cash in connection with the proposed Transaction.  No limitations were imposed by the Board upon Southard with respect to the investigations made or procedures followed in rendering either the Valuation or its Fairness Opinion.

 

Southard is a specialized consulting and valuation firm focusing on providing stock valuations to companies and financial institutions located throughout the United States, or to groups of individuals associated with U.S.-based companies and financial institutions.  As part of its line of professional services, Southard specializes in rendering valuation opinions of banks and bank holding companies nationwide.  Logan selected Southard to render the Valuation and to serve as its financial advisor based on Southard’s reputation, expertise and familiarity with West Virginia-based financial institutions.

 

In connection with providing the Valuation, the Logan Board provided no specific instructions to Southard, other than to provide the Board with a fair value appraisal of Logan stock.  With the concurrence of Logan and Logan’s counsel, Southard determined that fair value of the Logan stock for the purposes presented would be based on the value of a pro rata share of Logan as a going concern and that no minority, marketability or liquidity discounts would be applied.  In addition, Southard determined it appropriate, in determining the fair value of the Logan stock, to consider all usual and customary approaches to value, including net asset value, investment value and market value.

 

As described above, in addition to providing the Valuation, Logan authorized the engagement of Southard to render its Fairness Opinion.  Southard rendered to Logan’s legal counsel its written opinion dated February 28, 2005, to the effect that, as of such date and based upon and subject to certain matters stated in the Fairness Opinion, the cash consideration to be paid to cashed-out shareholders in the Transaction is fair, from a financial point of view, to the shareholders of Logan, including both the cashed-out shareholders and the shareholders who would not receive cash in the Transaction.

 

A copy of the Fairness Opinion, which sets forth certain assumptions made, matters considered and limits on the review undertaken by Southard is attached as Appendix D to this proxy statement.  You are urged to read the Fairness Opinion in its entirety.  A copy of the Valuation is attached as Appendix C to this proxy statement.  You are urged to read the Valuation in its entirety.  The Fairness Opinion and the Valuation will also be made available for inspection and copying at Logan’s principal executive offices at 43 Washington Avenue, Logan, West Virginia, during regular business hours by any interested shareholder up to the time of the special meeting of shareholders.

 

The following summary of the procedures and analyses performed, and assumptions used, by Southard is qualified in its entirety by reference to the text of the Fairness Opinion and the Valuation.  The Fairness Opinion is directed only to the financial terms of the Transaction, and does not constitute a recommendation to any shareholder as to how such shareholder should vote at the special shareholders’ meeting.

 

23

 

In arriving at the Valuation and the Fairness Opinion, Southard reviewed and analyzed, among other things, the following: (i) the financial statements of Logan and its subsidiaries; (ii) certain other publicly available financial and other information concerning Logan and its subsidiaries; (iii) publicly available information concerning other banks and bank holding companies, the trading markets for their securities and the nature and terms of certain other transactions relevant to Southard’s inquiry; (iv) the competitive and economic outlook for Logan’s trade area; (v) the book value and financial condition of Logan and its subsidiaries; (vi) the future earnings and dividend paying capacity of Logan and its subsidiaries; (vii) previous sales of Logan stock; and (viii) the prevailing market prices for selected banking organizations in West Virginia and the United States.  Southard held discussions with senior management of Logan concerning Logan’s past and current operations, financial condition and prospects, as well as the results of recent bank regulatory examinations.

 

In conducting its review and in arriving at the Valuation and the Fairness Opinion, Southard relied upon and assumed the accuracy and completeness of the financial and other information provided to it or publicly available, and did not attempt to independently verify the same.  Southard did not make or obtain any evaluations or appraisals of the properties of Logan, nor did it examine any individual loan credit files.  For purposes of the Fairness Opinion, Southard assumed that the Transaction will have the tax, accounting and legal effects described in the proxy statement and assumed that the transaction would be consummated on a timely basis in the manner presented by Logan and in compliance with applicable laws and regulations.

 

As more fully discussed below, Southard considered such financial and other factors as it deemed appropriate under the circumstances, including among others the following: (i) the historical and current financial position and results of operations of Logan, including interest income, interest expense, net interest income, net interest margin, provision for loan losses, non-interest income, non-interest expense, earnings, dividends, internal capital generation, book value, intangible assets, return on assets, return on shareholders’ equity, capitalization, the amount and type of non-performing assets, loan losses and the reserve for loan losses, all as set forth in the financial statements for Logan and its subsidiaries; and, (ii) the assets and liabilities of Logan and its subsidiaries, including the loan investment and mortgage portfolios, deposits, other liabilities, historical and current liability sources and costs and liquidity.  Southard also took into account its assessment of general economic, market and financial conditions and its experience in other transactions, as well as its experience in securities valuation and its knowledge of the banking industry generally.  The Valuation and the Fairness Opinion are necessarily based upon conditions as they existed and can be evaluated on the respective dates thereof and the information made available to Southard through such dates.

 

In connection with rendering the Valuation and the Fairness Opinion, Southard performed certain financial analyses, which are summarized below.  Southard believes that its analysis must be considered as a whole, and that selecting portions of such analysis and the factors considered therein, without considering all factors and analysis, could create an incomplete view of the analysis and the processes underlying the Valuation and the Fairness Opinion.  The preparation of a valuation or fairness opinion is a complex process involving subjective judgments and is not necessarily susceptible to partial analysis or summary description.  In its analyses, Southard made numerous assumptions with respect to industry performance, business and economic conditions, and other matters, many of which are beyond the control of Logan.  Any estimates contained in Southard’s analyses are not necessarily indicative of future results or values, which may be significantly more or less favorable than such estimates.  Estimates of values of companies do not purport to be appraisals of such companies or necessarily reflect the prices at which such companies or their securities may actually be sold.

 

24

 

Valuation Opinion

 

In order to determine the fair value of Logan common stock, and as explained below, Southard utilized the following approaches in its Valuation: net asset value, market value and income value.

 

Asset Based Approach.  Net asset value is the value of the net equity of a corporation, including every kind of property and value.  This approach normally assumes liquidation on the date of appraisal with recognition of securities gains or losses, real estate appreciation or depreciation and any adjustments to the loan loss reserve, discounts to the loan portfolio or changes in the net value of other assets.  As such, it is not the best approach to use when valuing a going concern, because it is based on historical costs and varying accounting methods.  Even if the assets and liabilities are adjusted to reflect prevailing prices and yields (which is often of limited accuracy because readily available data is often lacking), it still results in a liquidation value for the concern.  Furthermore, since this method does not take into account the values attributable to the going concern such as the interrelationship among the corporation’s assets, liabilities, customer relations, market presence, image and reputation, and staff expertise and depth, little or no weight is given to the net asset value method of valuation.

 

In utilizing the asset-based approach, Southard adjusted Logan’s reported book value at January 31, 2005 to reflect a deposit premium of 8.0% on non-brokered deposits and the appreciation in the held-to-maturity securities portfolio, net of taxes at 38%.  Utilizing the asset based approach, Southard valued Logan under the asset based method at $31,281,522, or $44.43 per share as of January 31, 2005.

 

Market Approach.  Market value is defined as the price at which property would change hands between a willing seller and a willing buyer when both parties have the same information and neither party is acting under compulsion.  This definition of value produces a result that could be achieved if the property were to be sold in an arm’s-length transaction.  The market value method is frequently used to determine the price of smaller blocks of stock when both the quantity and the quality of the “comparable” data are deemed sufficient.

 

The fair value for Logan using the market value method is based upon a comparison with recent transactions involving the sale of banks and bank holding companies in West Virginia and surrounding states, as well as throughout the United States.  Specifically, Southard developed a list of reasonably comparable whole bank transactions and applied those multiples to Logan.  The focus of the review was banks of similar size, performance, and capitalization (equity/asset ratio).  A complete list of the transactions, as well as selected summary information, is contained in the Valuation.

 

Considering these factors, the base capitalization rates were (a) price/earnings of 18.80x, (b) price/book value of 214.6%, and (c) price/assets of 21.69%, based on the median in 2004 for banks with assets under $1 billion, ROA of 0.90%-1.25%, ROE of 10%-14%, and located in a non-metropolitan area.  Often it is necessary to apply a fundamental discount to the base capitalization factors to reflect the relative attractiveness of LB&T and its market area, as well as its earnings history.  In Southard’s opinion, based upon all of the available data, no discount was necessary.  As a result, the risk adjusted capitalization factors were 18.8 times earnings, 215% of book value, and 21.65% of assets (all rounded).  The average multiples were applied to the appropriate benchmarks for Logan.  The results of the three methods were then assigned weights of 40% for price/earnings, 40% for price/book, and 20% for price/assets.  The analysis is presented in detail in the Valuation.

 

In using the market value method using control transactions, Southard reached a valuation of Logan of $36,829,200, or $52.31 per share, under the price to earnings method, $38,952,844, or $55.33 per share under the price to book value method, and $39,634,439, or $56.30 per share under the price to assets method as of January 31, 2005.  The weighted average of the three methods was $54.32 per share.

 

25

 

The fair value for Logan using the market value method is also based upon a comparison with recent “go-private” transactions involving banks and bank holding companies throughout the United States.  Specifically, Southard developed a list of reasonably comparable go-private transactions and applied those multiples to Logan.  A complete list of the transactions, as well as selected summary information, is contained in the Valuation.

 

In determining base capitalization rates for the go-private transactions method, Southard reviewed go-private transactions throughout the United States.  The resulting median multiples are 20.30 times earnings, 149% of book value, and a 17.6% premium over the recent trading price.  The median multiples were applied to the appropriate benchmarks for Logan.  The results of the three methods were then assigned weights of 40% for price/earnings, 40% for price/book, and 20% for price/trades.  The analysis is presented in detail in the Valuation.

 

In using the market value method using go-private transactions, Southard reached a valuation of Logan of $39,767,700, or $56.49 per share, under the price to earnings method, $26,995,227, or $38.35 per share under the price to book value method, and $51.74 per share under the price to trades method as of January 31, 2005.  The weighted average of the three methods was $48.28 per share.

 

The fair value for Logan using the market value method is also based upon a comparison with market transactions involving banks and bank holding companies throughout the United States.  Specifically, Southard developed a list of reasonably comparable market transactions and applied those multiples to Logan.  The focus of the review was banks of similar size, performance, and capitalization (equity/asset ratio).  A complete list of the transactions, as well as selected summary information, is contained in the Valuation.

 

Considering these factors, the base capitalization rates were (a) price/earnings of 17.21x, and (b) price/book value of 177.50% based on the average in 2004 for banks with positive ROE and market capitalization under $100 million.  Often it is necessary to apply a fundamental discount to the base capitalization factors to reflect the relative attractiveness of LB&T and its market area, as well as its earnings history.  In Southard’s opinion, based upon all of the available data, no discount was necessary.  As a result, the risk adjusted capitalization factors were 17.0 times earnings and 177% of book value (both rounded).  The average multiples were applied to the appropriate benchmarks for Logan.  The analysis is presented in detail in the Valuation.

 

In using the market value method using market transactions, Southard reached a valuation of Logan of $33,303,000, or $47.31 per share, under the price to earnings method, and $31,705,804, or $45.05 per share under the price to book value method as of January 31, 2005.  The average of the two methods was $46.18 per share.

 

Income Approach.  The income approach is sometimes referred to as the investment value or the earnings value.  The investment value is frequently defined as an estimate of the present value of future benefits.  Another popular investment value method is to determine the level of the current annual benefits and then capitalize one or more of the benefit types using an appropriate capitalization rate such as an earnings or dividend yield.  Southard determined the net present value of the projected future benefits to shareholders using a discount rate of 14.3% (within an acceptable range considering the risk-return relationship Southard has observed most investors would demand for an investment of this type, i.e., small to medium-sized community banking companies).

 

In utilizing the income approach, Southard took into account the earnings of LB&T over the 2000-04 period.  Adjustments to the weighted average of reported earnings were made to reflect a peer

 

26

 

level loan loss provision, adjusted for LB&T’s loans/assets ratio, as well as the ongoing expenses of the parent company.  Southard also developed an estimate of the anticipated economies (savings) to a potential acquiror of Logan (synergistic earnings approach).  Based upon Southard’s review, the estimated savings approximated 0.25% of average assets, or $454 thousand (pre-tax).  This analysis is presented in the Valuation.  As a result of the analysis, the ongoing earning power of Logan was estimated at $1,959,000, or $2,240,000 adjusted for anticipated savings.

 

Utilizing the income approaches to value Logan’s stock, Southard determined that the value of Logan’s stock as of January 31, 2005 under the synergistic price/earnings method was $34,720,000, or $49.32 per share and that the value under the discounted future earnings method was $27,316,976, or $38.80 per share.

 

Combined Value.  The various methodologies were assigned weights in arriving at a combined value of Logan as of January 31, 2005.  Southard assigned weights as follows to the methodologies considered above: 15% to the asset based value; 15% to the market approach with control transactions; 20% to the market approach with market transactions; 20% to the market approach with go-private transactions; 15% to the income approach synergistic earnings method; and 15% to the income approach-discounted future earnings method.  Southard believes that the weight assigned to each valuation approach properly reflects the relative importance of that approach for purposes of the Valuation opinion.  Based on the analysis presented above, the combined valuation of Logan was $46.93 per share as of January 31, 2005.

 

As a result of all the analyses performed, Southard determined that the fair value of Logan common stock was $47.00 per share (rounded) as of January 31, 2005.

 

Fairness Opinion

 

On February 28, 2005, Southard issued a Fairness Opinion relative to the proposed Transaction.  The Fairness Opinion was based on financial information through January 31, 2005.  In preparing the Fairness Opinion, Southard determined that the $50.00 per share price being paid to the cashed-out shareholders represented the following pricing ratios:

 

Price/Book Value ($25.74 per share at 1/31/05)		194.3	%
Price/Earnings ($2.21 per share in 2004)		22.62	x
Price/Assets at January 31, 2005		19.23	%
Premium to Recent Market Trade ($44.00 per share)		13.6	%

 

Comparison with Recent Control, Go-Private, and Market Transactions.  The price/book ratio is below the median price/book value ratio for the selected whole-bank transactions during 2004, but is above the median price/book value ratio for selected go-private transactions, and above the average price/book value of market transactions.

 

The price/earnings ratio is above the median price/earnings ratio for the selected whole-bank transactions during 2004; above the median price/earnings ratio for selected go-private transactions; and above the average price/earnings ratio for market transactions.

 

The price/asset ratio is slightly below the average ratio for the selected whole-bank transactions during 2004.  The transaction price also represents a lower premium to recent transactions than the median of selected go-private transactions; however, this difference is due, at least partially, to differences in trading volume.

 

27

 

On balance, the implied pricing ratios are near or above observed market pricing for whole-bank transactions, and not inconsistent with the valuation premise of enterprise value.

 

Analysis of Liquidity.  The Transaction price of $50.00 per share represents a premium of 13.6% to the most recent traded price for Logan common stock ($44.00 per share in the fourth quarter of 2004).  There is no active market for the shares of Logan, and trading volume was very light during 2004.  Thus, the ability to sell a significant block of shares is very limited and would likely result in an adverse impact on the market value of the shares.  Therefore, the proposed transaction price represents, in our opinion, a reasonable premium to the recent trading range.

 

Subsequent to the issuance of Southard’s Fairness Opinion, Southard was made aware of one or two small transactions in Logan common stock at $50.00 per share.  These transactions took place after the terms of the Transaction were made public, and are thus not out of the ordinary.  Further, Logan management believes that the intent of the buying shareholders was to increase their ownership to above the 200-share threshold of the Transaction and thus avoid being cashed-out in the Transaction.

 

Discounted Cash Flow Analysis.  Southard also prepared a pro forma discounted cash flow analysis utilizing the present value of the estimated future dividend stream that Logan would be expected to generate over the next five to 10 year period (including the present value of the value of Logan’s common stock at the end of the five to 10 year period).  To determine a projected dividend stream, Southard Financial used an estimate of ongoing earnings for 2005, assumed annual growth in earnings and assets of between 5% (management’s estimate) and 8% (the high end).  The analysis was performed under two dividend assumptions: (i) that Logan maintains a dividend payout ratio of 60% (the average of the past five years); and, (ii) that Logan pays dividends sufficient to maintain an equity/assets ratio of 8% (a normal level).  The “terminal value” of Logan common stock at the end of the projection period was determined by applying price/earnings multiples of 18-20 (the current range) times projected net income in the final year of the analysis.  The dividend stream and terminal value were discounted to the present using discount rates between 12% and 15%, which Southard Financial viewed as the appropriate discount rate range for a company with Logan’s risk characteristics.  Using this analysis, the implied value of Logan was consistently at or below the proposed Transaction price.

 

Finally, from the perspective of those shareholders of Logan who will remain shareholders of Logan after the Transaction, Southard has concluded, after analysis and conversations with Logan senior management, that those shareholders are forecast to experience earnings per share appreciation, and incur equity per share dilution, on an immediate post-Transaction basis.  Further, going forward the shareholders should see an increase in earnings per share after the transaction, due to there being fewer shares outstanding, and due to lower expenses relative to SEC registration and related costs.

 

Based on all factors that Southard deemed relevant and assuming the accuracy and completeness of the information and data provided, Southard concluded that the cash consideration of $50.00 per share that the cashed-out shareholders are entitled to receive in connection with the Transaction, is fair, from a financial standpoint, to all shareholders of Logan, including those shareholders receiving the cash consideration as well as those shareholders of Logan who will remain shareholders of Logan after the Transaction.

 

Prior to its engagement to assist the Logan Board and management in connection with their analysis of a potential going-private transaction, Southard had not previously provided valuation or other professional services to Logan.  Southard has not previously served as a market maker for Logan’s common stock.  Southard and its employees have no past, present, or future contemplated interest (financial or otherwise) in Logan or its subsidiary.

 

28

 

Logan has agreed to pay Southard $9,500 for rendering the Valuation and the Fairness Opinion.  Logan has also agreed to reimburse Southard for its reasonable out-of-pocket expenses and to indemnify Southard against certain liabilities, including liabilities under the federal securities laws, to the extent permitted by applicable law.

 

THE MERGER TRANSACTION

 

Material Terms

 

The following is a summary of certain provisions of the Agreement and Plan of Merger (the “Plan of Merger”) and certain matters relating to the Merger.  The following summary does not purport to be complete and is qualified in its entirety by reference to the Plan of Merger which is attached as Appendix A to this proxy statement and is incorporated into this proxy statement by reference.  You are urged to read the Plan of Merger in its entirety and to consider it carefully.

 

Brief Description of Merger.  If and when the Merger takes effect, any shareholder who holds of record 200 or fewer shares of Common Stock immediately prior to the Effective Time will no longer be a shareholder of the Company.  These shareholders will instead receive cash for their shares.  All other shareholders will continue to be shareholders of the surviving company, Logan.

 

To implement the Merger fully and achieve the desired goal of decreasing the burdens, risks and expense associated with reporting companies by suspending the Company’s reporting obligations, the following events must occur:  (i) the shareholders must approve the Plan of Merger; (ii) the Company must receive approval from the applicable banking regulators; (iii) Articles of Merger must be filed with the West Virginia Secretary of State; (iv) the Company must file a final amendment to its going private Schedule 13E-3 with the SEC; and (v) the Company must suspend its filing obligations under the Exchange Act by filing a Form 15 with the SEC.

 

Consideration; Conversion and Exchange of Stock Certificates.  Each shareholder holding of record fewer than 200 shares of Common Stock immediately before the Effective Time will be entitled to receive $50.00 in cash, without interest, and each shareholder holding of record 200 or more shares immediately before the Effective Time will continue to hold the same number of shares after the Merger and will not receive any cash.  As soon as practicable after the Merger is completed, the Company will mail to each shareholder who is to receive cash a letter of transmittal and instructions for surrendering their stock certificates.  When the Merger is completed, the shares of Common Stock owned by each shareholder receiving cash will automatically be converted into the right to receive cash.  To receive the cash, however, such shareholders must deliver to Logan their stock certificates along with a letter of transmittal and any other required documents.  No service charge will be payable by shareholders in connection with the cash payments, and all expenses will be borne by the Company, except that a bond may be required for a lost certificate.  PLEASE DO NOT SEND US YOUR STOCK CERTIFICATES UNTIL YOU RECEIVE THE LETTER OF TRANSMITTAL.

 

Dividends and Distributions.  A shareholder will not be entitled to any further dividends or distributions that are declared after the Merger is completed on any shares of Common Stock that are automatically converted into cash as a result of the Merger, regardless of whether the shareholder has or has not surrendered his or her stock certificates to the Company.  Each shareholder will be entitled to dividends and distributions on his or her Common Stock declared with record dates prior to the Effective Time.

 

29

 

Reasons for Engaging in Merger.  See “Special Factors—Purpose and Reasons for the Merger” (pages 14-15).

 

Vote Required.  The Plan of Merger must be approved by holders of a majority of the votes cast at a meeting of shareholders in which a quorum is present.  The presence in person or by properly executed proxy of the holders of a majority of all issued and outstanding shares of Common Stock entitled to vote at the meeting is necessary for a quorum.  As of March 29, 2005, 703,991 shares of Common Stock were issued and outstanding.  Of these shares, the Company’s officers and directors beneficially owned approximately 193,404 (27.47%) of such outstanding shares.

 

Effective Time of the Merger.  The Company expects to complete the Merger during July, 2005.  However, the Company cannot guarantee that the Merger will be effective by the end of July, 2005.

 

The Effective Time will be the time of the filing with and acceptance for record of the Articles of Merger by the West Virginia Secretary of State, or a later time specified in the Articles of Merger.  The Company presently intends to file the Articles of Merger as soon as practicable after the approval of the Plan of Merger proposal by the shareholders at the Special Meeting is obtained and the other conditions precedent to the consummation of the Merger have been satisfied or waived.

 

Conditions to Consummation of the Merger.  The Boards of Directors of the Company and LCB Merger Co. have adopted the Plan of Merger and authorized the consummation of the Merger.  As the sole shareholder of LCB Merger Co., the Company has approved the Merger and the Plan of Merger.  The completion of the Merger depends upon a number of events, including:

 

•                  The approval of the Plan of Merger by the Company’s shareholders.

 

•                  The filing and acceptance of the Articles of Merger with the West Virginia Secretary of State.

 

•                  The receipt of all regulatory approvals.

 

The Merger and Plan of Merger are not contingent on shareholder approval of the amendment to the Company’s Articles of Incorporation (the “Amendment.”).  Therefore, if the shareholders approve the Plan of Merger, the Company and LCB Merger Co. will proceed with the completion of the Merger regardless of whether the shareholders approved the Amendment.

 

Amendment or Termination of the Plan of Merger.  The Plan of Merger may be amended by a written agreement approved by the Boards of Directors of the Company and LCB Merger Co., generally without the necessity of further action by shareholders.  However, shareholder approval is required for any modification or amendment that is made after the shareholder vote and that has any of the following effects:

 

•                  Changes the amount or kind of consideration that you will receive for your shares of Common Stock;

 

•                  Changes any provision of the Company’s Articles of Incorporation; or

 

•                  Adversely affects your rights as a shareholder.

 

30

 

No amendments or modifications to the Plan of Merger are presently contemplated.  However, if there is any material amendment to the Plan of Merger before the Special meeting, the Company will notify you and provide you with information relating to the amendments prior to the meeting.

 

The Merger may be abandoned and the Plan of Merger terminated by the mutual written consent of the Company and LCB Merger Co. as provided in the Plan of Merger.  At this time, the Company has no intention of abandoning the Plan of Merger.

 

Regulatory Requirements

 

The regulatory requirements that must be complied with or approval that must be obtained to complete the Merger are:

 

•                  compliance with federal and state securities laws;

 

•                  approval of the Merger by the West Virginia Division of Banking and Financial Institutions;

 

•                  filing of the Articles of Merger with the West Virginia Secretary of State upon the approval of the Merger by the Company’s shareholders.

 

Certain Consequences of the Merger

 

Pursuant to the terms of the Plan of Merger, following shareholder approval of the Plan of Merger proposal and subject to the fulfillment or waiver of certain conditions, LCB Merger Co. will be merged with and into Logan, and Logan will continue as the surviving company in the Merger.  The Merger is expected to cause a reduction in the number of Logan’s shareholders of record to under 300.  This would permit the Company to suspend its reporting obligations under the Securities Act.  Various advantages and disadvantages of the Merger are discussed above.  See “Special Factors-Fairness; Recommendation of the Board of Directors” (pages 16-22).  The effects of the suspension of the Company’s reporting obligations are discussed below.  See “The Merger Transaction-Suspension of Reporting Obligations Under the Securities Act” (pages 32-33).

 

Operations of the Company and LB&T Following the Merger

 

Following the Merger, the Company and LB&T intend to continue to conduct their existing operations in substantially the same manner as now conducted.  The executive officers and directors immediately prior to the Merger will be the executive officers and directors immediately after the Merger.  Except for the change that would result from the Amendment (if approved by the shareholders), the Company’s and LB&T’s Articles of Incorporation and Bylaws will remain in effect and unchanged by the Merger.  The deposits of LB&T will continue to be insured by the FDIC.  The corporate existence of neither the Company nor LB&T will be affected by the Merger.  The Company and LB&T will continue to be regulated by the same agencies that regulated each entity before the Merger.

 

Financing of the Merger

 

The Company estimates that it will apply approximately $1,000,000 for payment to shareholders whose shares of Common Stock are eliminated in the Merger.  These funds will come from working capital and will reduce shareholders’ equity.

 

31

 

The Company will pay all of the expenses related to the Merger.  The Company estimates that these expenses will be as follows:

 

Legal Fees		$	125,000.00
Accounting Fees		7,000.00
Financial Advisor Fees		10,000.00
Printing, Solicitation and Mailing		7,000.00
Miscellaneous (filing fees, etc.)		1,000.00
Total		$	150,000.00

 

Anticipated Accounting Treatment

 

The Company anticipates that it will account for the purchase of outstanding Logan Common Stock in the merger from shareholders as a purchase and retirement of stock.

 

Suspension of Reporting Obligations Under the Securities Act

 

The Common Stock is currently registered under the Securities Act.  However, the shares of Logan’s Common Stock are infrequently traded in the local over-the-counter market and are not listed on any exchange or national association.  The Company will be permitted to suspend its reporting obligations under the Securities Act and the Exchange Act if there are fewer than 300 record holders of outstanding shares of Common Stock.  Upon the completion of the Merger, the Company expects to have fewer than 300 shareholders of record.  The Company intends to suspend its reporting obligations as promptly as possible after the Effective Time.

 

Suspension of its reporting obligations under the Securities Act and the Exchange Act will substantially reduce the information required to be furnished by the Company to its shareholders and to the SEC, and would decrease greatly burdens placed upon the Company.  For example:

 

•                                          Certain provisions of the Exchange Act would no longer apply to the Company.  These provisions include the requirements to file Forms 10-K, 10-Q and similar reports with the SEC.

 

•                                          The Sarbanes-Oxley Act of 2002 also contains obligations that the Company would no longer need to comply with following deregistration.  Examples of these obligations include CEO and CFO certification of certain matters in periodic reports filed with the SEC, Section 404 compliance (see “Special Factors-Background of the Merger Proposal”) (pages 10-13), Audit Committee requirements (including director independence and financial expert requirements) and expanded reporting obligations.

 

The Company estimates that suspension of its reporting obligations under the Securities Act and the Exchange Act will save the Company’s approximately $150,000 per year in legal, accounting, printing, management time and other expenses.  The following chart provides a breakdown of our historical and estimated external expenses and internal costs related to our SEC reporting obligations:

 

32

 

		2001			2002			2003			2004			Estimated 2005(b)			Estimated 2006
Audit fees		$	32,000		$	32,000		$	36,500	(a)	$	37,500		$	39,500		$	60,000
Legal counsel											90,000			25,000			25,000
Certification of controls program		—			—			—			5,000			53,800			71,100
Total External Expenses		32,000			32,000			36,500			132,500			118,300			138,100
Internal Costs		10,000			10,000			15,000			25,000			50,000			50,000
Total Expenses and Costs		$	42,000		$	42,000		$	51,500		$	157,500		$	168,300		$	206,100

 

(a)                       For purposes of comparison, the audit and related fees for 2003 exclude costs paid to McNeal Williamson & Co. for the original audit of the 2003 consolidated financial statements which was subsequently reperformed by S. R. Snodgrass, A.C.

 

(b)                      The fees estimated for 2005 do not include the legal and accounting costs in connection with the proposed going-private transaction.

 

The bases for the estimates are informal cost estimates provided by Logan’s accountants and internal management assessments.  Management’s estimates were based on its own assessment of anticipated costs and information provided by accountants (which was primarily oral and informal).  Internal costs estimated for 2005 and 2006 securities law compliance amounts to approximately $50,000 per year, the cost to hire another employee to perform the required compliance.  Compliance with the Sarbanes-Oxley Act of 2002 has subjected, and will subject, the Company and its directors and officers to substantial additional burdens and expenses.  A portion of the anticipated expenses associated with being a reporting company in 2005 and 2006 includes one-time costs of $124,900 relating to compliance with the Sarbanes-Oxley Act of 2002.  These projected costs are included in the costs of certification of controls program above and itemized as follows:

 

		External Auditors			Consultants and Internal Auditors
Phase I - establish of timeline, map general ledger to financial statements, assertions and processes		$	1,000		$	52,800
Phase II - validating corporate governance processes and preparing pilot		—			13,200
Phase III - pilot (small-scale) testing of processes and agreement on adequacy		2,000			12,000
Phase IV - initial bank-wide testing		5,000			26,400
Program software		—			12,500
Totals		$	8,000		$	116,900

 

The figures in this table were based in part on input from S.R. Snodgrass, A.C. as a general, informal estimate.

 

33

 

INTERESTS OF CERTAIN PERSONS

 

The executive officers and directors of Logan and LB&T who are also shareholders will participate in the Merger in the same manner and to the same extent as all of the other shareholders of Logan.  If the Merger is completed, the respective ownership percentages of each of the directors and executive officers who retains shares will increase slightly, as will the ownership interests of every other shareholder who retains his or her shares.  As a result of the Merger, the collective ownership interest of the directors and officers is expected to increase from approximately 27.47% to approximately 28.12%.  In addition, it is expected that the transaction will, after it is concluded, reduce the exposure of directors and officers to the risk of litigation and liability to which directors and officers of public companies are exposed.  See “Information About Logan and Its Affiliates-Voting Securities and Principal Holders” (pages 46-48).

 

The executive officers and directors of Logan are not aware of any other benefits or additional compensation in connection with this transaction that will not be shared by the Company’s unaffiliated shareholders generally.  The proposed transaction does not constitute a “change of control” for purposes of any existing employment agreement with the Chief Executive Officer of the Company.  The Company has not and does not anticipate entering into any new employment or other compensation agreements with its executive officers as a result of the Merger.  All of the directors of Logan and LB&T and all of the executive officers have advised the Company that they intend at this time to vote their shares in favor of the proposal to approve the Plan of Merger for the same reasons underlying the Board’s decision to adopt the Agreement and Plan of Merger and approve the going private transaction.

 

34

 

APPRAISAL RIGHTS

 

A shareholder of the Company who owns less than 200 shares and who will receive cash for his or her shares in the Merger has appraisal rights and the right to obtain payment of the fair value of the shareholder’s shares under Article 13 of Chapter 31D of the West Virginia Code.  The following is a summary of the procedures to be followed by such shareholders desiring to exercise their rights of appraisal.  The following is not a complete summary and is qualified in its entirety by reference to the provisions of Article 13 of Chapter 31D of the West Virginia code, the full text of which is attached hereto as Appendix E to this proxy statement.  Since the exercise of appraisal rights requires adherence to the provisions of these laws, each shareholder who desires to exercise such rights should review the laws and strictly follow their requirements.  Shareholders electing to exercise appraisal rights may want to consult an attorney or other advisor regarding the exercise of appraisal rights.  Any shareholder of Logan who fails to strictly comply with the following requirements will result in the loss of appraisal rights and will be bound to the terms of the Merger.

 

(a)                                  Shareholder’s Notice of Intent to Assert Appraisal Rights.  In order for a shareholder to assert his appraisal rights, the shareholder must deliver to the Company prior to the vote on the Merger, written notice of the shareholder’s intent to demand payment if the proposed Merger is consummated.  In addition, the shareholder must not vote or cause or permit to be voted, any shares in favor of the proposed Merger.

 

(b)                                 Appraisal Notice and Form.  The Company will send a written appraisal and form within ten (10) days of the Effective Time of the Merger to all the shareholders that complied with the notice and voting requirements set forth in above.  The form will:

 

•                               specify the date of the first announcement to shareholders of the terms of the Merger;

 

•                               require the shareholders asserting appraisal rights to certify (i) that their shares were acquired before the date of the first announcement to shareholders of the terms of the Merger; and (ii) that the shareholder did not vote for the Merger;

 

•                               inform the shareholders of the address where the shareholders must return the completed form, the date by which the Company must receive the form (not less than forty (40) days and not more than sixty (60) days after the date the form was mailed to the shareholders), the address where the certificates for shares must be deposited, the date by which the certificates must be deposited and the date by which the Company must receive any notice to withdraw;

 

•                               inform the shareholder that the shareholder is deemed to have waived the shareholder’ appraisal rights if the shareholder fails to return the form to the Company by the date set forth in the form; and

 

•                               contain the Company’s estimate of the fair value of the shares.  A copy of Article 13, Chapter 31D of the West Virginia Code regarding appraisal rights will be mailed to the shareholders along with the form.

 

(c)                                  Shareholder’s Exercise of Appraisal Rights; Right to Withdraw.  In order for a shareholder to exercise his appraisal rights and obtain payment for the shareholder’s shares, the shareholder must return the form to the Company and deposit the shareholder’s certificates in accordance

 

35

 

with the terms of the notice and the date referred to in the notice.  Once a shareholder takes these steps, the shareholder loses all rights as a shareholder unless the shareholder withdraws.  A shareholder may decline to exercise the shareholder’s appraisal rights and withdraw from the appraisal process by providing the Company with written notice of the shareholder’s intent to withdraw within the time set forth in the notice.  If the shareholder fails to withdraw from the appraisal process by the date set forth in the notice, the shareholder may not withdraw without the Company’s written consent.

 

(d)                                 Payment.  The Company will pay cash to the shareholders who have returned their form to the Company and who have deposited their certificates in accordance with the terms of the notice and the date referred to in the notice.  The amount paid to the shareholders will be the amount the Company estimates to be the fair value of their shares, plus interest.  The payment to each shareholder will be accompanied by:

 

(i)                                     financial statements of the Company, consisting of a balance sheet as of the end of a fiscal year ending not more than sixteen months before the date of payment, an income statement for that year, a statement of changes in shareholders’ equity for that year and the latest available interim financial statements, if any;

 

(ii)                                  a statement of the Company s estimate of the fair value of the shares, which estimate must equal or exceed the Company ‘s estimate set forth in the form provided to the shareholders; and

 

(iii)                               a statement that shareholders have the right to demand further payment and that if any shareholder does not make a demand for further payment within the time period specified, then the shareholder is deemed to have accepted the payment in full satisfaction of the Company ‘s obligations.

 

(e)                                  After-Acquired Shares.  If a shareholder does not certify that the shareholder’s shares were acquired before the date of the first announcement to shareholders of the terms of the corporate action, the Company will withhold the payment described in subparagraph (f).  The Company will provide any such shareholders within thirty days (30) after the date the form is due with the following:

 

(i)                                     financial statements of the Company, consisting of a balance sheet as of the end of a fiscal year ending not more than sixteen months before the date of payment, an income statement for that year, a statement of changes in shareholders’ equity for that year and the latest available interim financial statements, if any;

 

(ii)                                  a statement of the Company ‘s estimate of the fair value of the shares, which estimate must equal or exceed the Company ‘s estimate set forth in the form provided to the shareholders; and

 

(iii)                               a statement that they may accept the Company’s estimate of fair value, plus interest, in full satisfaction of their demands, or demand payment of the shareholder’s estimate of the fair value of the shares pursuant to subparagraph (h).

 

The shareholders who desire to accept the offer must notify the Company of their acceptance of the Company’s offer within thirty (30) days after receiving the offer.  The Company will pay the full amount of the Company’s offer in cash to each shareholder who agrees to accept the Company’s offer in full satisfaction of the shareholder’s demand, within ten (10) days after receiving the shareholder’s acceptance.

 

36

 

(f)                                    Procedure if Shareholder Dissatisfied with Payment or Offer.  If a shareholder is dissatisfied with the amount of payment, the shareholder must notify the Company in writing of the shareholder’s estimate of the fair value of the shares and demand payment of such estimate (plus interest less any amount already paid by the Company).  If the shareholder did not certify that he acquired his shares prior to the date of the first announcement to shareholders of the terms of the corporate action, and the shareholder was offered payment in accordance with subparagraph (e), the shareholder may reject the offer and demand payment of the shareholder’s estimate of the fair value of the shares plus interest.  If the shareholder fails to notify the Company in writing of the shareholder’s demand to be paid the shareholder’s estimate of the fair value within thirty (30) days after receiving the Company’s payment under paragraph (d) or the Company’s offer under the aforementioned subparagraph (e), then the shareholder waives the right to demand payment and is entitled only to the payment made or offered pursuant to the aforementioned subparagraphs (d) and (e).

 

(g)                                 Judicial Appraisal.  If a shareholder makes a demand on the Company pursuant to paragraph (f) above, which remains unsettled, the Company will commence a proceeding in the circuit court of Logan County, within sixty (60) days after receiving the payment demand, and petition the court to determine the fair value of the shares and accrued interest.  If the Company does not commence the proceeding within the sixty (60) day period, it will pay in cash to each shareholder the amount the shareholder demanded pursuant to subparagraph (f) above, plus interest.

 

All shareholders, whether or not residents of the state of West Virginia, whose demands remain unsettled, will be parties to the proceeding and all parties will be served with a copy of the petition.  Nonresidents may be served by registered or certified mail or by publication as provided by law.

 

Each shareholder made a party to the proceeding is entitled to judgment:

 

(i)                                     for the amount, if any, by which the court finds the fair value of the shareholder’s shares, plus interest, exceeds the amount paid by the Company to the shareholder for the shares; or

 

(ii)                                  for the fair value, plus interest, of the shareholder’s shares for which the Company elected to withhold payment pursuant to subparagraph (e).

 

Pursuing appraisal rights may result in the shareholders receiving MORE OR LESS than the price offered by the Company and may cause the shareholder to incur substantial legal and other expenses.

 

37

 

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF MERGER

 

The following discussion summarizes the material U.S. federal income tax consequences of the Merger.  The discussion is based upon the Internal Revenue Code of 1986, as amended, its legislative history, applicable Treasury regulations, existing administrative interpretations and court decisions currently in effect.  Any of these authorities could be repealed, overruled or modified at any time after the date of this proxy statement, and any such change could be applied retroactively.  This discussion does not address any tax consequences under state, local or foreign laws.

 

The discussion that follows neither binds the IRS nor precludes the IRS from adopting a position contrary to that expressed in this proxy statement, and the Company cannot assure you that such a contrary position could not be asserted successfully by the IRS or adopted by a court if the positions were litigated.  The Company does not intend to obtain a ruling from the IRS with respect to the U.S. federal income tax consequences of the Merger.  In addition, the Company does not intend to obtain an opinion from tax counsel with respect to the federal income tax consequences of the Merger.

 

This discussion assumes that you hold your shares of Common Stock as a capital asset within the meaning of Section 1221 of the Internal Revenue Code.  This discussion does not address all aspects of federal income taxation that may be important to you in light of your particular circumstances or if you are subject to certain rules, such as those rules relating to:

 

•                                          shareholders who are not citizens or residents of the United States;

 

•                                          financial institutions;

 

•                                          tax-exempt organizations and entities, including IRAs;

 

•                                          insurance companies;

 

•                                          dealers in securities; and

 

•                                          shareholders who acquired their shares of Common Stock through the exercise of employee stock options or similar securities or otherwise as compensation.

 

Tax Consequences to Shareholders Who Retain Their Shares.  If you are a shareholder who retains your shares of Common Stock in the Merger and you do not receive any cash or property (including stock) as part of the Merger, you will not recognize gain or loss for U.S. federal income tax purposes as a result of the Merger.  The Merger will not affect the adjusted tax basis or holding period of any shares of Common Stock that you continue to own following the Merger.

 

Tax Consequences to Shareholders Who Receive Cash For Their Shares.  If you are a shareholder who receives cash for your shares of Common Stock in the Merger, you should be treated for federal income tax purposes as having had your shares redeemed by the Company under Section 302 of the Internal Revenue Code.  Unless the cash received is treated as a dividend under Section 301 of the Internal Revenue Code (as discussed below), you will recognize gain or loss for U.S. federal income tax purposes with respect to the cash received for your shares of Common Stock.  The gain or loss will be measured by the difference between the amount of cash received, $50.00 per share, and the adjusted tax basis of your shares of Common Stock.  The gain or loss will be capital gain or loss and will be long-term capital gain or loss if you will have owned your shares of Common Stock for more than one year at the time the Merger is completed.

 

38

 

Section 302 of the Internal Revenue Code provides that the cash distribution will not be treated as a dividend if the distribution is (i) ”not essentially equivalent to a dividend,” (ii) ”substantially disproportionate” with respect to the shareholder, or (iii) completely terminates the shareholder’s interest in the entity.  The constructive ownership rules of Section 318 of the Internal Revenue Code apply in comparing a shareholder’s percentage interest in the Company immediately before and immediately after the Merger.  Generally, the constructive ownership rules under Section 318 treat a shareholder as owning (i) shares of Common Stock owned by certain relatives, related corporations, partnership, estates or trusts, and (ii) shares of Common Stock the shareholder has an option to acquire.  If you receive cash for your Common Stock in the Merger and completely terminate your direct and constructive ownership interest in the Company, you should recognize capital gain or loss as a result of the Merger, and the cash distribution should not be treated as a dividend.  Capital gains and dividends are each taxed at a maximum rate of 15% for federal income tax purposes, but in the case of cash received in the Merger, if taxed as a dividend, you would not be able to offset the amount received by your adjusted tax basis in your shares of Common Stock.

 

Tax Consequences to the Company, LCB Merger Co. and the Bank.  Neither the Company, LCB Merger Co. nor the Bank will recognize gain or loss for U.S. income tax purposes as a result of the Merger.

 

Backup Withholding.  Certain shareholders of the Company may be subject to backup withholding on the cash payments received for their shares of Common Stock.  Backup withholding will not apply, however, if you furnish to the Company a correct taxpayer identification number and certify that you are not subject to backup withholding on the substitute Form W-9 or successor form included in the letter of transmittal to be delivered to you following the date of completion of the Merger (nonresidents should contact their tax advisers).

 

Backup withholding is not an additional tax but is credited against the federal income tax liability of the taxpayer subject to the withholding.  If backup withholding results in an overpayment of a taxpayer’s federal income taxes, that taxpayer may obtain a refund from the IRS.

 

This discussion is not intended to be a complete analysis or description of all potential U.S. federal income tax consequences of the Merger.  In addition, this discussion does not address tax consequences that may vary with, or are contingent on, your individual circumstances.  Moreover, this discussion does not address any non-income tax or any foreign, state or local tax consequences of the Merger.  Accordingly, you are strongly encouraged to consult with your own tax advisor to determine the particular U.S. federal, state, local or foreign income or other tax consequences of the Merger that are applicable to you.

 

39

 

PROPOSAL NUMBER 2- AMENDMENT TO ARTICLES OF INCORPORATION

 

The Company’s Board of Directors has unanimously approved, and recommends that shareholders vote for the proposal to approve the Amendment.  The following discussion summarizes the change to the Company’s existing articles of incorporation that would be effected by the approval and adoption of this proposal.  This summary is qualified in its entirety by reference to the text of proposed new Article Thirteenth, which is included as Appendix B to this proxy statement.

 

Proposed Article Thirteenth would limit the size of the Company’s shareholder base by restricting certain transfers of shares that would create “odd lot” shareholders (i.e., those holding fewer than 200 shares).  As a result of this change, shareholders of the Company following the filing of the Amendment would not be able to transfer shares of Common Stock if, following the transfer, the shareholder receiving the shares would own of record fewer than 200 shares of Common Stock.  The proposed amendment would not generally limit transfers to or among “street name” accounts, as shares held for beneficial owners by banks or brokers are typically held of record by a depository nominee which is the record holder of more than 200 shares.  The restriction imposed by the Amendment would not be binding with respect to shares issued before shareholder approval of the Amendment unless the shareholder voted for the Amendment proposal.

 

Shareholder approval of the Amendment is contingent on shareholder approval of the Plan of Merger and the implementation of the Merger.  As a result, the Amendment will not become effective unless the Plan of Merger is approved and the Merger is carried out, even if shareholders approve the Amendment.  (However, the Merger is not contingent on shareholder approval of the Amendment.)

 

If Logan ever had 300 or more shareholders at the end of any calendar year, it will again become subject to the SEC’s reporting requirements under the Securities Act.  The Amendment, if approved by shareholders, is expected to enable the Company to slow the future growth in the number of its shareholders of record.  This would decrease the likelihood that the Company would become subject to the SEC’s reporting requirements and incur all of the associated burdens, risks and expenses described throughout this proxy statement.  However, the Amendment could have a negative impact on the liquidity of the Common Stock.  The Amendment would also limit the ability of shareholders to make future gifts or sales of fewer than 200 shares of Common Stock.  Therefore, shareholders would not have the same level of flexibility in share transfers that they currently enjoy.

 

Logan’s Board of Directors believes that the Amendment is in the best interest of the Company and its shareholders because it is expected to slow the growth in the number of shareholders in the future, and thus enable the Company to avoid or delay the becoming subject to the SEC’s reporting obligations (which would be required if the number of shareholders of record exceeded 300).

 

Your Board of Directors recommends that you vote FOR the Amendment proposal, which would add Article Thirteenth to the Company’s Articles of Incorporation.

 

40

 

SPECIAL MEETING INFORMATION AND VOTING REQUIREMENTS

 

Introduction

 

This Proxy Statement is furnished by Logan County BancShares, Inc. (“Logan”) in conjunction with the solicitation by its Board of Directors of proxies to be voted at the Special Meeting of Logan’s shareholders and at any adjournment or postponement thereof.  This Proxy Statement, form of proxy and voting instructions are being mailed starting on or about May 27, 2005.

 

You are invited to attend Logan’s Special Meeting of Shareholders on June 21, 2005, beginning at 5:00 p.m.  The meeting will be held at Logan Bank & Trust Company (“LB&T”) located at 43 Washington Avenue, Logan, West Virginia 25601.  At the meeting, the Logan Bank & Trust Company shareholders will consider and vote upon:

 

•              a proposal to approve the Agreement and Plan of Merger, attached as Appendix A to the enclosed proxy statement.  Pursuant to the terms of the Agreement and Plan of Merger:  (a) each share of Logan common stock owned by a record holder of fewer than 200 shares of common stock immediately before the effective time of the merger will be converted into the right to receive from Logan $50.00 cash per share; and (b) each share of Logan common stock owned by a record holder of 200 or more shares of common stock immediately before the effective time of the merger would continue to be one share of Logan common stock after the merger.  This proposal is not contingent on shareholder approval of the proposal to amend Logan’s Articles of Incorporation;

 

•              a proposal to approve an amendment to Logan’s Articles of Incorporation, the text of which can be found in Appendix B to the enclosed proxy statement.  This amendment would prohibit certain future transfers of shares of Logan’s common stock unless after the transfer the receiving shareholder would own 200 or more shares of record.  The amendment is contingent on shareholder approval of the Agreement and Plan of Merger; and

 

•              any other business which may properly come before the Special meeting or any adjournment thereof.  The Board of Directors at present know of no other business to come before the meeting.

 

Shareholders Entitled to Vote

 

Holders of record of Logan common shares at the close of business on May 24, 2005, are entitled to receive this notice and to vote their shares at the Special Meeting.  As of that date, there were 703,991 common shares outstanding.  Each common shares is entitled to one vote one each matter properly brought before the Special Meeting.

 

Proxies

 

Your vote is important.  Shareholders of record may vote their proxies by mail.  If you choose to vote by mail, a postage-paid envelope is provided.

 

Proxies may be revoked at any time before they are exercised by (1) written notice to the Secretary of Logan, (2) timely delivery of a valid, later-dated proxy or (3) voting at the Special Meeting.

 

You may save us the expense of a second mailing by voting promptly.  Choose one of the following voting methods to cast your vote.

 

41

 

Vote By Mail

 

If you choose to vote by mail, simply mark your proxy, date and sign it, and return it to us in the postage-paid envelope provided.

 

Voting at the Special Meeting

 

The method by which you vote now will in no way limit your right to vote at the Special Meeting if you later decide to attend in person.  If your shares are held in the name of a bank, broker or other holder of record, you must obtain a proxy, executed in your favor, from the holder of record to be able to vote at the Special Meeting.

 

All shares that have been properly voted and not revoked will be voted at the Special Meeting in accordance with your instructions.  If you sign your proxy card but do not give voting instructions, the shares represented by that proxy will be voted as recommended by the Board of Directors.

 

Voting on Other Matters

 

If any other matters are properly presented at the Special Meeting for consideration, the persons named in the enclosed form of proxy will have the discretion to vote on those matters for you.  At the date this proxy statement went to press, we do not know of any other matter to be raised at the Special Meeting.

 

Required Vote

 

The presence, in person or by proxy, of the holders of a majority of the votes entitled to be cast by the shareholders entitled to vote at the Special Meeting is necessary to constitute a quorum.  Abstentions and broker “non-votes” are counted as present and entitled to vote for purposes of determining a quorum.  A broker “non-vote” occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power for that particular item and has not received instructions from the beneficial owner.

 

On the record date, there were 703,991 shares of common stock outstanding which are held by approximately _____ shareholders of record.  A majority of the outstanding shares of Logan common stock will constitute a quorum at the meeting.

 

The affirmative vote of a majority of the votes cast is required to approve (i) the Agreement and Plan of Merger; and (ii) the amendment to Logan’s the Articles of Incorporation.  Abstentions and broker “non-votes” are not counted for purposes of approving these matters.

 

Cost of Proxy Solicitation

 

The Company will pay the expenses of soliciting proxies.  Proxies may be solicited on the Company’s behalf by Directors, officers or employees, without additional compensation, in person or by telephone, electronic transmission, or facsimile transmission.  Brokers, fiduciaries, custodians and other nominees have been requested to forward solicitation materials to the beneficial owners of the Logan’s common stock.  Upon request we will reimburse these entities for their reasonable expenses.

 

42

 

INFORMATION ABOUT LOGAN  AND ITS AFFILIATES

 

General

 

The Company is a bank holding company which was organized under the laws of the State of West Virginia in 1985.  On May 17, 1985, the Corporation acquired all the outstanding capital stock of Logan Bank & Trust Company (LB&T) and also all of the outstanding stock of Bank of Chapmanville (BC).  Both of these subsidiaries are banking corporations organized under the laws of the State of West Virginia.  On May 28, 1996, the subsidiary banks, Logan Bank & Trust Company and Bank of Chapmanville entered into a merger agreement whereby they would be merged into Logan Bank & Trust Company.  The merger was completed after proper regulatory approval and was accounted for under the pooling of interest method of accounting.

 

Logan Bank & Trust Company was organized in 1963, and still operates at its original location at the corner of Washington and Main Streets in Logan, West Virginia.  LB&T also has a separate drive-up facility and mini-bank also located on Main Street in Logan, and in early February 1996, opened a new full-service branch in the Man area.  In November 1996, the bank acquired a branch facility from another financial institution located at Harts, West Virginia.  In December, 1999, the Fountain Place Branch was opened.  The facility at Route 10 North, Harts, is operated as a full service branch of the bank.  Logan Bank & Trust Company is a member of the Federal Reserve System and deposits are insured pursuant to the Federal Deposit Insurance Act.

 

Logan Bank & Trust Company provides a complete range of retail banking services to individuals and small and medium size businesses.  Their services include checking, savings, NOW, certificates of deposit and money market deposit accounts, business loans, individual loans, mortgage loans, home equity loans, consumer loans for various other purposes, other consumer-oriented financial services including safety deposit box accounts, IRA accounts and night depository.  LB&T also operates several automatic teller machines at four strategic locations in Logan County, which provide 24-hour working services to customers of Logan Bank & trust Company.  LB&T is a member of the Cirrus ATM network which has over 100 locations in West Virginia and more than 10,000 locations in 47 states.

 

Logan Bank & Trust Company provides depository lending and related financial services to commercial, retail, industrial, financial and governmental customers.  The lending function includes short and medium-term loans, letters of credit, inventory and accounts receivable financing and real estate construction lending.

 

The Company’s address and principal executive offices are located at 43 Washington Avenue, P. O. Box 597, Logan, West Virginia 25601.  Its telephone number is (304) 752-0280.

 

The Company has not been convicted in a criminal proceeding, excluding traffic violations and similar misdemeanors, during the past five years, nor has it been a party to any judicial or administrative proceeding during the past five years that resulted in a judgment, decree or final order enjoining it from future violations of, or prohibiting activities subject to, federal or state securities law, or finding any violation of federal or state securities laws.

 

LCB Merger Co.

 

LCB Merger Co. is a newly-formed West Virginia corporation, and is a wholly-owned subsidiary of the Company.  LCB Merger Co. was organized solely for the purpose of facilitating the Merger.  It is controlled by the Company and its directors are Harvey Oakley and Eddie Canterbury and officers are as

 

43

 

follows: Harvey Oakley is the Chairman of LCB Merger Co., Eddie Canterbury is the President of LCB Merger Co. and Mark Mareske is the Treasurer and Secretary of LCB Merger Co.  It expressly adopts the disclosures, conclusions and analyses of the Company and its Board of Directors.  LCB Merger Co. will merge into the Company and will cease to exist after the Merger.  LCB Merger Co. has not conducted any activities other than those incident to its formation, its execution of the Plan of Merger and its assistance in preparing various SEC filings related to the proposed going private transaction.  LCB Merger Co. has no significant assets, liabilities or shareholders’ equity.  The address and telephone number of LCB Merger Co.’s business and principal executive offices are the same as those of the Company.

 

LCB Merger Co. has not been convicted in a criminal proceeding, excluding traffic violations and similar misdemeanors, during the past five years, nor has it been a party to any judicial or administrative proceeding during the past five years that resulted in a judgment, decree or final order enjoining it from future violations of, or prohibiting activities subject to, federal or state securities law, or finding any violation of federal or state securities laws.

 

Directors and Executive Officers

 

The following sets forth certain information with respect to the Company’s directors and executive officers as of March 29, 2005.

 

Name		Age		Positions with the Company and Logan Bank & Trust Company (“LB&T”)		Name and Address of Current Employer		Business Experience During Last Five Years and Directorships
Harvey Oakley		84		Director of the Company since 1985 and Director of LB&T since 1964; President and Chairman of the Board of Directors of Company since 1985 and Chairman of the Board of LB&T since 1964		Logan County BancShares 43 Washington Avenue Logan, WV 25601		Licensed Attorney at Law; President of the Company since 1985
Clell Peyton		68		Director of the Company since 1985 and Director of LB&T since 1996		Retired		Nationwide Insurance Company from 1966 to 1998; Retired in 1998
Earle B. Queen		77		Director of the Company since 1985 and Director of LB&T since 1964		James Funeral Home P. O. Box 299 Logan, WV 25601		President, James Funeral Home since 1980; Director of West Logan Water Co. since 1956; Queen Brothers, Inc. since 1953 and Funeral Services, Inc.
LaVeta Jean Ray		73		Director of the Company since 1985		Retired		Retired in June, 1995; Counselor, Chapmanville High School from 1966 to 1995
William W. Wagner		72		Director of the Company since 1985 and Director of LB&T since 1976		Retired		Retired in 1996; Former Director and Executive Comm. of United Bankshares, Inc. from 1994 to 1996; and Former Chairman of Eagle Bancorp. Inc. from 1987 to 1994

 

44

 

Name		Age		Positions with the Company and Logan Bank & Trust Company (“LB&T”)		Name and Address of Current Employer		Business Experience During Last Five Years and Directorships
Eddie Canterbury		56		Director and Executive Vice-President and CEO of the Company since 1985; Director of LB&T since 1980; CEO of LB&T since 1982 and President of LB&T since 2000		Logan County BancShares 43 Washington Avenue Logan, WV 25601		Executive Vice President and CEO of the Company and President and CEO of LB&T since 1970; Director of KY/WV Cable, Inc., Greentree Cable of KY, Inc., Louisa Cable & TV, Inc. and Logan County Cable, Inc.
Walter D. Vance		54		Director and Vice President of the Company since 1985		Aracoma Drug Company P. O. Box 1570 Chapmanville, WV 25508		Vice President of the Company; Pharmacist since 1968; and Vice President and Director of Aracoma Drug Company since 1975
Glenn T. Yost		47		Director of the Company and LB&T since 1994		W.W. McDonald Land Co. P. O. Box 1706 Logan, WV 25601		President, W.W. McDonald Land Co. from 1992 to present; President, Triadelphia Land Co.; President, Bruce McDonald Holding Co. from 1992 to present
David McCormick		57		Director of the Company and LB&T since 1994		McCormick’s, Inc. P. O. Box 627 Logan, WV 25601		President, McCormick’s, Inc. since 1969; President, Bodaco, Co. since 1993
Michael Winter		28		Director of the Company and LB&T since May, 2004		Bray & Oakley Insurance Agency, Inc. 213 Main Street Logan, WV 25601		Insurance agent since 1999; Director and Vice-President of Bray & Oakley Insurance Agency, Inc. since 1999

 

All of the above-listed persons are U.S. citizens.  During the past five years, none of them have been a party in any judicial or administrative proceeding that resulted in a judgment, decree, or final order enjoining them from future violations of, or prohibiting activities subject to, federal or state securities laws, or finding any violation with respect to such laws.  Nor have any of them been convicted in any criminal proceeding during the past five years, excluding traffic violations and similar misdemeanors.  The business address and telephone number of each director and executive officer is c/o Logan County BancShares, Inc., 43 Washington Avenue, Logan, P. O. Box 597, Logan West Virginia 25601, (304) 752-0280.

 

Harvey Oakley and Eddie Canterbury are the directors of LCB Merger Co., Harvey Oakley is the Chairman of LCB Merger Co., Eddie Canterbury is the President of LCB Merger Co. and Mark Mareske is the Treasurer and Secretary of LCB Merger Co.

 

Past Contacts, Transactions, Negotiations and Agreements

 

During the past two years, neither the Company nor LCB Merger Co. has engaged in significant transactions with any of their affiliates, executive officers or directors, nor has either entity engaged in negotiations regarding such types of transactions.  There are no agreements between the Company, LCB Merger Co. or the Company’s executive officers and directors and any other person with respect to any

 

45

 

shares of Common Stock.  Directors and officers of the Company and their associates are customers of and have had transactions with the Bank in the ordinary course of business.  All loans and commitments included in such transactions have been made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and did not involve more than the normal risk of collectibility or present other unfavorable features.  No director or executive officer has pledged shares of Common Stock, except (i) William Wagner has pledged 16,121 shares of Common Stock to Logan Bank & Trust Company as security for a line of credit; and (ii) Eddie Canterbury has pledged 7,003 shares of Common Stock to United Bank, Inc. as security for a loan.

 

Use of Securities Acquired and Plans or Proposals

 

The Company will cancel shares of Common Stock acquired for cash pursuant to the Plan of Merger.  These cancelled shares will constitute authorized but unissued Common Stock.

 

The Merger, if carried out, is expected to enable the Company to suspend its obligation to file reports (such as Form 10-Q quarterly and Form 10-K annual reports) under the Securities Act and the Exchange Act.  See “The Merger Transaction-Suspension of Reporting Obligations Under the Securities Act” (pages 32-33).

 

Presently, neither the Company nor LCB Merger Co. has any plans, proposals or negotiations that relate to or would result in: any purchase, sale or transfer of a material amount of assets of the Company or any of its subsidiaries; any material change in the present dividend rate or policy, or indebtedness or capitalization of the Company; any change in the present Board of Directors or management of the Company, including any plans or proposals to change the number or term of directors or to fill any existing vacancies on the board or to change any material term of the employment contract of any executive officer; or any other material change in the Company’s corporate structure or business.

 

Voting Securities and Principal Holders

 

The following table sets forth, as of March 29, 2005, the total number of shares of the Common Stock beneficially owned, and the percent of such shares so owned, by each director and executive officer of the Company.  All directors and executive officers of the Company as a group owned 193,404 shares or 27.47% of the Company’s Common Stock as of March 29, 2005.

 

Position		Name of Beneficial Owner		Amount and Nature of Beneficial Ownership		% of Class
Director of Company and LB&T and President and Chairman of the Board of Directors of Company and Chairman of the Board of LB&T		Harvey Oakley		56,645	(1)	8.05	%
Director of LB&T		Clell Peyton		10,733		1.52	%
Director of LB&T		Earle B. Queen		19,842	(2)	2.82	%
Director of Company		LaVeta Jean Ray		7,110		1.01	%
Director of LB&T		William W. Wagner		18,000	(3)	2.56	%

 

46

 

Position		Name of Beneficial Owner		Amount and Nature of Beneficial Ownership		% of Class
Director and Executive Vice-President and CEO of the Company; Director and President and CEO of LB&T		Eddie Canterbury		8,200	(4)	1.16	%
Director of Company; Vice President of the Company		Walter D. Vance		4,569	(5)	0.65	%
Director of LB&T		Glenn T. Yost		29,762	(6)	4.23	%
Director of LB&T		David McCormick		38,143	(7)	5.42	%
Elected as Director of Company and LB&T at Annual Meeting held on May 25, 2004		Michael Winter		400		.06	%

(1)                            Includes 7,537 shares jointly owned with spouse.

 

(2)                            Includes: 18,000 shares owned by Earle B. Queen, Trust; 355 shares owned by Funeral Services, Inc.; and 400 shares owned by Queen Brothers, Inc.

 

(3)                            Includes 654 shares jointly owned with spouse.

 

(4)                            Includes: 800 shares owned in IRA; and 200 shares as custodian for Alexis Jo Canterbury.

 

(5)                            Includes 849 shares owned by Aracoma Drug Company.

 

(6)                            Includes:  28,762 shares for which voting and investment powers are held by Glenn T. Yost; 22,224 shares owned by W.W. McDonald Land Company; 5,863 shares owned by Bruce McDonald Holding Company; and 675 shares owned by Tridelphia Land Company.

 

(7)                            Includes 37,908 shares owned by Bodaco, Co.

 

The Company is not aware of any arrangements that may result in a change in control of the Company.  During the past 60 days, neither the Company nor its subsidiaries, directors or executive officers has engaged in any transactions involving Common Stock.

 

The following table sets forth, as of March 29, 2005, the names and addresses of all beneficial owners of 5% or more of the Common Stock and shows the amount and nature of such beneficial ownership.

 

Name and Address of Beneficial Owner		Amount and Nature of Beneficial Ownership		% of Class
David McCormick Post Office Box 627 Logan, West Virginia 25601		38,143	(1)	5.42	%
Harvey Oakley 509 Main Street Logan, West Virginia 25601		56,645	(2)	8.05	%
Sarah Matteson Irrevocable Trust 11125 Harbour Estates Circle Ft. Myers, Florida 33908		93,182		13.24	%

 

47

 

Name and Address of Beneficial Owner		Amount and Nature of Beneficial Ownership		% of Class
Paul Clinton Winter Post Office Box 386 Logan, West Virginia 25601		116,619	(3)	16.57	%

(1)                                    Includes 37,908 shares owned by Bodaco Company.

 

(2)                                    Includes 7,537 shares jointly owned with spouse.

 

(3)                                    Includes 18,000 shares held by Bray & Oakley Insurance Agency; 1,063 shares held by Mary O. Winter Trust for Michael P. Winter of which Paul Clinton Winter is the Trustee; and 1,063 shares held by Mary O. Winter for Angela L. Winter of which Paul Clinton Winter is the Trustee.

 

Stock Repurchases

 

During the past two years, the Company has not repurchased any shares of Common Stock of the Company. LCB Merger Co. has not purchased any shares of Common Stock since its incorporation.

 

Market for Common Stock and Dividend Information

 

The shares of Logan County BancShares, Inc. are infrequently traded in the over-the-counter market and are not listed on the National Association of Security Dealers Automated Quotation System (NASDAQ) or on any exchange.  Management is not aware of any security dealer, which makes a market in the stock; therefore, no active trading market should be deemed to exist.

 

The sales price for Logan County BancShares, Inc. stock is determined by negotiations between individual buyers and sellers.  Although company keeps no records of sale prices paid for Company stock and has no direct knowledge of such prices, for purposes of presentation, Corporation’s management estimates the approximate market value ranges for 2004 and 2003 to be as follows:

 

		First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Sale Price
2004 Common Stock		$	44-$47		$	44-$47		$	44-$47		$	44-$47
2003 Common Stock		$	42-$42		$	42-$42		$	42-$42		$	42-$42
Per Share Dividends Declared
2004 Common Stock		$	0.36		$	0.36		$	0.37		$	0.52
2003 Common Stock		$	0.35		$	0.35		$	0.36		$	0.51

 

The payment of dividends by the Company and the Bank is affected by various regulatory requirements and policies, such as the requirement to maintain adequate capital above regulatory guidelines.  The “prompt corrective action” provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) impose further restrictions on the payment of dividends by insured banks which fail to meet specified capital levels and, in some cases, their parent bank holding companies.  FDICIA generally prohibits a depository institution from making any capital distribution (including payment of a dividend) or paying any management fee to its holding company if the depository institution would thereafter be undercapitalized.  These regulations and restrictions may limit the Company’s ability to obtain funds from the Bank for the Company’s cash needs, including funds for acquisitions, payments

 

48

 

of dividends and interest, and the payment of operating expenses.  Based on the Bank’s balance sheet as of December 31, 2004, the Bank could pay a dividend to the Company in the amount of $2,092,000 without prior regulatory approval.

 

After the Merger, the Common Stock will no longer be eligible for trading on an exchange or automated quotation system operated by a national securities association.  The Company will not be required to file reports under the Securities Act and the Exchange Act.  The Common Stock may be quoted in the over-the-counter market, on the “Pink Sheets.”  The “Pink Sheets” is a centralized quotation service that collects and publishes market maker quotes in real time primarily through its website, Pinksheets.com, which provides stock and bond price quotes, financial news and information about securities traded.

 

Description of Common Stock

 

The Company is authorized to issue 780,000 shares of Common Stock, with a par value of $1.67 per share.  As of March 29, 2005, there were 703,991 shares of Common Stock outstanding.  Each share of Common Stock has equal voting rights, preferences and privileges.

 

Number of Shareholders.  As of March 29, 2005, there were approximately 376 shareholders of record.

 

Voting Rights.  Each share of Common Stock has the same rights and is identical in all respects with every other share of Common Stock.  The holders of Common Stock possess all voting rights with respect to the Company.  Each holder of Common Stock is entitled to one vote for each share held of record on all matters submitted to a vote of holders of Common Stock.

 

FUTURE SHAREHOLDER PROPOSALS

 

If the shareholders do not approve the Plan of Merger proposal, or if the Plan of Merger is approved but the Merger is not ultimately completed, shareholders may submit proposals for consideration at the 2006 Annual Meeting of Shareholders.  In order to be eligible for inclusion in the Company’s proxy materials for next year’s Annual Meeting of Shareholders, any shareholder’s proposal to take action at such meeting must have been received at the Company’s home office at 43 Washington Avenue, P. O. Box 597, Logan West Virginia 25601, no later than December 31, 2005.

 

WHERE YOU CAN FIND MORE INFORMATION

 

The Company files reports, proxy statements and other information with the SEC under the Exchange Act.  Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms.  You may read and copy, at the prescribed rates, this information at the SEC’s Public Reference Room, 450 Fifth Street NW, Washington, D.C. 20549.

 

The SEC also maintains an Internet website that contains reports, proxy statements and other information about issuers such as the Company, who file electronically with the SEC.  The address of that site is http://www.sec.gov.

 

The Company and LCB Merger Co. have filed with the SEC a Rule 13e-3 Transaction Statement on Schedule 13E-3 in connection with the transactions described in this proxy statement.  As permitted by the SEC, this proxy statement omits certain information contained in the Schedule 13E-3.  The

 

49

 

Schedule 13E-3, including any amendments and exhibits filed or incorporated by reference as a part thereof, is available for inspection or copying as set forth above or is available electronically at the SEC’s website.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

To “incorporate by reference” information into this document means that the Company is disclosing important information by referring you to another document filed separately with the SEC.  The information incorporated by reference is considered to be a part of this document, except for any information that is superseded by information that is included directly in this document or in any other subsequently filed document that also is incorporated by reference into this document.

 

This document incorporates by reference the documents listed below that the Company has filed previously with the SEC.  They contain important information about the Company and its financial condition.

 

•      Logan’s Annual Report on Form 10-K for the year ended December 31, 2004.

 

The Company also incorporates by reference any additional documents that it may file with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act between the date of this document and the date of the Special Meeting.

 

The Company will provide, without charge, to each person to whom this proxy statement is delivered, upon written or oral request of such person and by first class mail or other equally prompt means within one business day of receipt of such request, a copy of any and all information that has been incorporated by reference, without exhibits unless such exhibits are also incorporated by reference in this proxy statement.  You may obtain a copy of these documents and any amendments thereto by writing to the Company’s Secretary at 43 Washington Avenue, P. O. Box 597, Logan, West Virginia 25601.

 

These documents are also included in the Company’s SEC filings, which you can access electronically at the SEC’s website at http://www.sec.gov.

 

The Company has not authorized anyone to give any information or make any representation about the transaction or us that differs from, or adds to, the information in this proxy statement or in our documents that are publicly filed with the SEC.  If anyone does give you different or additional information, you should not rely on it.

 

50

 

INDEX TO FINANCIAL STATEMENTS

 

Title
Consolidated Selected Financial Data (unaudited)
Pro Forma Consolidated Balance Sheets (unaudited as of December 31, 2004)
Pro Forma Consolidated Statements of Income (unaudited for the year ended December 31, 2004)

 

51

 

SELECTED FINANCIAL DATA (unaudited)

 

The following table summarizes consolidated financial results of the Company for the periods and at the dates indicates and should be read in conjunction with the Company’s consolidated financial statements and the notes to the consolidated financial statements contained in the Company’s annual report on Form 10-K for the fiscal years ended December 31, 2003 and December 31, 2004, previously filed with the SEC.  Those reports contain more detailed financial statements (audited in the case of the Form 10-K), financial statement notes and management’s discussion and analysis of financial condition and results of operations.  Those reports are incorporated by reference in this proxy statement and you are encouraged to refer to the reports (available on the SEC’s website at http://www.sec.gov or upon request from the Company) for more complete financial information.

 

52

 

Logan County BancShares, Inc. and Subsidiary

CONSOLIDATED SELECTED FINANCIAL DATA
(Unaudited)
(In Thousands of Dollars, Except Share and Per Share Data)

 

		Year Ended December 31,
		2004			2003
Income Statement Data:
Total Interest Revenue		$	8,285		$	8,766
Total Interest Expense		1,753			2,087
Net Interest Revenue		6,532			6,679
Provision for Possible Loan Losses		(308		)	3
Net Interest Revenue after Provision for Possible Loan Losses		6,840			6,676
Other Operating Revenue		1,024			986
Other Operating Expense		(5,330		)	(4,728		)
Income Before Income Taxes		2,534			2,934
Income Taxes		976			1,033
Net Income		$	1,558		$	1,091
Per Common Share Net Income		$	2.21		$	2.70
Cash Dividends Declared		$	1.61		$	1.57
Shares Outstanding (actual number)

 

		At December 31,
		2004			2003
Period-End Balance Sheet Data:
Total Loans		$	98,297		$	101,615
Total Assets		181,668			173,603
Total Deposits		161,211			152,255
Short-Term Debt		2,000			3,000
Total Shareholders’ Equity		17,927			17,790
Selected Ratios:
Rate of Return on Average Total Assets		0.86		%	1.06		%
Rate of Return on Average Shareholders’ Equity		9.39		%	10.24		%
Tier 1 Capital to Total Assets at Year End		10.04		%	10.11		%
Average Total Shareholders’ Equity to Average Total Assets		9.10		%	10.25		%
Common Dividend Payment Ratio		72.75		%	58.15		%
Nonaccrual and Restructured Business Loans as a Percentage of Total Loans		0.74		%	1.04		%

 

53

 

LOGAN COUNTY BANCSHARES INC.

PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 

The following unaudited pro forma consolidated balance sheet as of December 31, 2004 and the unaudited pro forma consolidated income statements for the year ended December 31, 2004 give effect to the following:

 

We have assumed that the merger occurred as of January 1, 2004, for purposes of the pro forma consolidated balance sheet as of December 31, 2004, and the consolidated income statements for the year ended December 31, 2004.

 

•                  We have assumed that a total of 20,000 shares are redeemed in the merger at a price of $50.00 per share for a total of $1,000,000. Additionally, we have assumed that we have incurred or will incur $150,000 in expenses specifically related to the merger.

 

•                  We have assumed that the cash required to consummate the merger will be funded entirely through the working capital of the Company.  No borrowing is anticipated.  The following table summarizes the assumed sources and uses of funds from the proposed transaction (in thousands):

 

 

•                  We have assumed that the funds used to fund the transaction were taken from excess federal funds sold as of January 1, 2004.  Therefore, a reduction in interest income on federal funds sold of $1,150,000 was assumed for 2004.  A rate of 1.22% was used in calculating the reduction in interest income as this was the Company’s actual yield on federal funds sold for 2004.  This resulted in an assumed reduction of interest income of $14,000.

 

•                  We have assumed a tax rate of 38.5% for year ended December 31, 2004, which is consistent with our historical effective tax rate.  This results in an assumed reduction of $5,000 in income tax expense for 2004.

 

54

 

•                  The following table summarizes the net adjustment to shareholders’ equity as reported in the December 31, 2004 pro forma consolidated balance sheet (in thousands):

 

 

The transaction is expected to have the following impact on Logan’s regulatory capital ratios at December 31, 2004:

 

 

We have not reflected the anticipated annual cost savings, estimated to be approximately $150,000 per year, that we expect as a result of the merger.

 

The unaudited pro forma information is not necessarily indicative of the results that would have occurred had the merger actually taken place at the time periods specified nor does such information purport to project the results of operations for any future date or period. Significant assumptions and adjustments are disclosed above.

 

The unaudited pro forma financial statements should be read in conjunction with the historical financial statements and accompanying footnotes of Logan County BancShares, Inc. included in our 2004 Annual Report to Stockholders.  These documents may be obtained by contacting Logan County BancShares, Inc.

 

55

 

Logan County BancShares, Inc. and Subsidiary
PRO FORMA CONSOLIDATED BALANCE SHEETS
December 31, 2004
Dollars Expressed in Thousands

 

		Historical			Adjustments			Pro Forma
ASSETS
Cash and due from banks		$	5,995		$	(1,159	)	$	4,836
Federal funds sold		5,990						5,990
Investment securities available for sale		65,920						65,920
Loans, net		97,034						97,034
Premises and equipment, net		3,191						3,191
Accrued interest receivable		675						675
Bank owned life insurance		2,076						2,076
Other assets		787						787
Total assets		$	181,668		$	(1,159	)	$	180,509
LIABILITIES
Noninterest bearing deposits		$	33,991					$	33,991
Interest bearing deposits		127,220						127,220
Total deposits		161,211						161,211
Repurchase agreements		2,000						2,000
Other liabilities		530						530
Total liabilities		163,741						163,741
STOCKHOLDERS’ EQUITY
Common stock		1,300			(33		)	1,267
Treasury Stock		(1,406		)				(1,406		)
Surplus		2,408			(1,117		)	1,291
Retained earnings		15,851			(9		)	15,842
Accumulated other comprehensive loss		(226		)				(226		)
Total stockholders’ equity		17,927			(1,159		)	16,768
Total liabilities and stockholders’ equity		$	181,668		$	(1,159	)	$	180,509
Book Value per share		$	25.46		$	(0.95	)	$	24.51

 

56