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October 30, 1998
First Commonwealth Financial Corporation
Old Courthouse Square
22 North Sixth Street
Indiana, Pennsylvania 15701
Southwest National Corporation
111 S. Main Street
Greensburg, Pennsylvania 15601
Ladies and Gentlemen:
You have requested our opinion regarding certain federal income tax
consequences of the proposed merger of Southwest National Corporation
("Southwest) with and into First Commonwealth Financial Corporation ("First
Commonwealth").
FACTS
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First Commonwealth is a bank holding company incorporated under the laws of
the Commonwealth of Pennsylvania. First Commonwealth's principal bank
subsidiaries are First Commonwealth Bank, a Pennsylvania banking corporation
headquartered in Indiana, Pennsylvania, and First Commonwealth Trust Company, a
Pennsylvania trust company headquartered in Indiana, Pennsylvania (collectively,
the "First Commonwealth Banking Subsidiaries"). Through the First Commonwealth
Banking Subsidiaries, First Commonwealth is engaged in the business of providing
commercial banking services and consumer financial services, including retail
banking, trust and investment management services. First Commonwealth also has
two additional active subsidiaries, Commonwealth Systems Corporation and BSI
Financial Services, Inc., which provide related financial services.
Southwest is a bank holding company incorporated under the laws of the
Commonwealth of Pennsylvania. Southwest's principal subsidiary is Southwest
National Bank of Pennsylvania ("Southwest Bank"), a national banking
association. Southwest Bank provides a wide variety of services, including
secured and unsecured financing services, real estate financing services, retail
banking services, as well as the offering of asset management and fiduciary
services.
The terms of the proposed merger (the "Merger") are contained in the
Agreement and Plan of Merger dated as of July 15, 1998 by and between Southwest
National Corporation and First Commonwealth Financial Corporation, together with
the July 15, 1998 disclosure letters of First Commonwealth and Southwest
(collectively, the "Merger Agreement"). Concurrently with and as a condition to
entering into the Merger Agreement, First Commonwealth and Southwest entered
into a Stock Option Agreement dated as of July 15, 1998 (the "Stock Option
Agreement"), pursuant to which Southwest has granted to First Commonwealth the
option to purchase shares of the Southwest Common Stock (as defined
[LETTERHEAD OF TUCKER ARENSBERG, P.C. ATTORNEYS]
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TUCKER
ARENSBERG, P.C.
ATTORNEYS]
First Commonwealth
Financial Corporation
Southwest National Corporation
October 30, 1998
Page 2
below). Exercise of the options is contingent upon the occurrence of specified
events described therein.
The Merger Agreement and the Stock Option Agreement are collectively
referred to as the "Agreements." Terms not otherwise defined in this letter
shall have the meanings assigned to them in the Merger Agreement.
You have directed us to assume in preparing this opinion that (1) the
Merger will be consummated in accordance with the terms, conditions and other
provisions of the Agreements, and (2) all of the factual information,
descriptions, representations and assumptions set forth or referred to in (a)
this letter, (b) in the letters to us from First Commonwealth dated October 30,
1998, and from Southwest dated October 30, 1998 (the "Letters") and (c) in the
Joint Proxy Statement/Prospectus dated October 30, 1998 (the "Joint Proxy
Statement/Prospectus") and mailed to Southwest and First Commonwealth
shareholders in connection with the special meetings of shareholders to approve
the Merger, are accurate and complete and will be accurate and complete at the
Effective Time.
We have examined the documents referred to above and the originals, or
copies certified or otherwise identified to our satisfaction of such records,
documents, certificates or other instruments and made such other inquiries as in
our judgment are necessary or appropriate to enable us to render the opinions
set forth below. We have not independently verified any factual matters
relating to the Merger with or apart from our preparation of this opinion and,
accordingly, our opinion does not take into account any matters not set forth
herein which might have been disclosed by independent verification.
It is assumed that the Merger will be approved as required by law by the
Southwest shareholders at a special meeting to be held on December 15, 1998, and
by the First Commonwealth shareholders at a special meeting to be held on
December 15, 1998. Holders of Southwest and First Commonwealth stock are not
entitled to exercise dissenters' rights with respect to the Merger.
Subject to the terms and conditions of the Merger Agreement and in
accordance with the Pennsylvania Business Corporation Law, at the Effective
Time, Southwest will merge with and into First Commonwealth. First Commonwealth
will be the surviving entity in the Merger, and will continue its corporate
existence under Pennsylvania law under the name "First Commonwealth Financial
Corporation." At the Effective Time, the separate corporate existence of
Southwest will terminate. The First Commonwealth Articles of Incorporation, as
in effect immediately prior to the Effective Time, will be the Articles of
Incorporation of the
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ARENSBERG, P.C.
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First Commonwealth
Financial Corporation
Southwest National Corporation
October 30, 1998
Page 3
Continuing Corporation, and the By-Laws of First Commonwealth, as in effect
immediately prior to the Effective Time, will be the By-Laws of the Continuing
Corporation.
Upon consummation of the Merger, except as described below, each
outstanding share of common stock, par value $2.50 per share, of Southwest (the
"Southwest Common Stock"), other than shares held in Southwest's treasury or
held by First Commonwealth or any wholly-owned subsidiary of First Commonwealth
or Southwest (except in both cases for shares held in trust, managed, custodial
or nominee accounts and the like, or held by mutual funds for which a subsidiary
of First Commonwealth or Southwest acts as investment advisor that, in any such
case, are beneficially owned by third parties ("Trust Account Shares") and
shares acquired in respect of debts previously contracted ("DPC Shares")), will
be automatically converted into 2.9 fully paid and non-assessable shares of the
common stock, par value $1.00 per share, of First Commonwealth (the "First
Commonwealth Common Stock") (except that cash will be paid in lieu of fractional
shares as described below), subject to possible increase in the rate of exchange
in certain limited circumstances. Any shares of Southwest Common Stock owned
immediately prior to the Effective Time by First Commonwealth, Southwest or
their wholly-owned subsidiaries (other than Trust Account Shares and DPC Shares)
will be cancelled. All shares of First Commonwealth Common Stock owned
immediately prior to the Effective Time by Southwest (other than Trust Account
Shares and DPC Shares) will become treasury stock of First Commonwealth.
Southwest owns no First Commonwealth Common Stock, and First Commonwealth owns
no Southwest Common Stock. The Exchange Ratio was determined through arm's-
length negotiations between First Commonwealth and Southwest.
No fractional Shares of First Commonwealth Common Stock will be issued in
the Merger. Each holder of Southwest Common Stock who otherwise would be
entitled to receive a fraction of a share of First Commonwealth Common Stock
will receive, instead, cash equal to such fraction multiplied by the market
value of one share of First Commonwealth Common Stock at the Effective Time.
The market value of one share of First Commonwealth Common Stock at the
Effective Time will be the average of the closing prices of such stock on the
New York Stock Exchange ("NYSE") Composite Transactions Tape for the ten NYSE
trading days immediately preceding the Effective Time. Except for cash
exchanged in lieu of issuing fractional shares of First Commonwealth Common
Stock, no cash will be exchanged for shares of Southwest Common Stock or shares
of First Commonwealth Common Stock pursuant to the Merger.
We have also relied with your permission on the following additional
representations and/or assumptions and render such opinion subject to the
following limitations:
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ARENSBERG, P.C.
ATTORNEYS]
First Commonwealth
Financial Corporation
Southwest National Corporation
October 30, 1998
Page 4
1. As of the date of this letter and as of the Effective Time of the
Merger, (i) Southwest has no authorized, issued and outstanding stock other than
the Southwest Common Stock and Southwest will not issue any additional shares of
Southwest Common Stock other than pursuant to the Stock Option Agreement, and
(ii) First Commonwealth has no authorized, issued and outstanding stock other
than the First Commonwealth Stock. Except for the Stock Option Agreement, no
options or other Rights to purchase Southwest Common Stock and no securities or
other instruments convertible into Southwest Common Stock will be outstanding at
the Effective Time.
2. The Merger will be a statutory merger in accordance with the applicable
provisions of the Pennsylvania Business Corporation Law, carried out in
accordance with the Merger Agreement and as described in the Joint Proxy
Statement/Prospectus.
3. The fair market value of the First Commonwealth Common Stock and other
consideration received by each Southwest shareholder will be approximately equal
to the fair market value of the Southwest Common Stock surrendered in the
exchange.
4. There is no plan or intention by the shareholders of Southwest to sell,
exchange, transfer by gift or otherwise dispose of a number of shares of First
Commonwealth Common Stock received in the Merger that would reduce the Southwest
shareholders' ownership of the First Commonwealth Common Stock received in the
Merger to a number of shares having an aggregate value, as of the Effective
Time, of less than 50 percent of the value of all of the formerly outstanding
Southwest Common Stock as of the same date. For purposes of this paragraph,
shares of Southwest Common Stock exchanged for cash or other property in lieu of
fractional shares of First Commonwealth Common Stock will be treated as
outstanding Southwest Common stock as of the Effective Time. Moreover, shares
of Southwest Common Stock and shares of First Commonwealth Common Stock held by
Southwest shareholders and otherwise sold, redeemed, or disposed of prior or
subsequent to the Merger are considered for purposes of this paragraph.
5. None of First Commonwealth nor any corporation affiliated with First
Commonwealth has any plan or intention to purchase, redeem or otherwise acquire
any of the First Commonwealth Common stock to be issued in the Merger. Any
acquisitions of First Commonwealth Common Stock by First Commonwealth or any
corporation affiliated with First Commonwealth, whether pursuant to any stock
repurchase program or otherwise, will be directed to First Commonwealth
shareholders generally, and not to shareholders of First Commonwealth who
receive First Commonwealth stock pursuant to the Merger. In the two year period
following the Effective Time of the Merger, any repurchases by First
Commonwealth or its affiliates of First Commonwealth Common Stock in negotiated
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TUCKER
ARENSBERG, P.C.
ATTORNEYS]
First Commonwealth
Financial Corporation
Southwest National Corporation
October 30, 1998
Page 5
transactions will only be from persons each of whom, to the knowledge and belief
of First Commonwealth, was not a shareholder of Southwest immediately prior to
the Effective Time of the Merger.
6. First Commonwealth has no plan or intention to sell, exchange or
otherwise dispose of any of the assets of Southwest acquired in the Merger,
except for (i) dispositions made in the ordinary course of business, (ii)
transfers described in Section 368(a)(2)(C), or (iii) the possible transfer of
trust assets of Southwest to First Commonwealth Trust Company for the business
purpose of centralizing all trust assets and trust business of the First
Commonwealth affiliates.
7. Following the Merger, First Commonwealth will continue the historic
business of Southwest and use a significant portion of Southwest's historic
business assets in a business.
8. The Merger is being effected for bona fide business reasons, and not
for the purpose of avoiding federal income tax.
9. During the two year period ending on the Effective Time of the Merger,
none of First Commonwealth or any entity affiliated with First Commonwealth has
owned or owns, beneficially or of record, any stock or securities of Southwest
or any instruments giving the holder thereof the right to acquire any such stock
or securities, except for: (i) Trust Account Shares and DPC Shares; and (ii)
First Commonwealth's contingent right to acquire Southwest Common Stock pursuant
to the Stock Option Agreement.
10. The liabilities of Southwest assumed by First Commonwealth in the
Merger and the liabilities to which the transferred assets of Southwest are
subject were incurred by Southwest in the ordinary course of its business.
11. The fair market value of the assets of Southwest transferred to First
Commonwealth will equal or exceed the sum of the liabilities assumed by First
Commonwealth, plus the amount of liabilities, it any, to which the transferred
assets are subject.
12. First Commonwealth, Southwest and the shareholders of Southwest will
pay their respective expenses, if any, incurred in connection with the Merger,
except that First Commonwealth and Southwest shall share equally the expenses
incurred in connection with the filing, printing and mailing of the Joint Proxy
Statement and Prospectus and First Commonwealth shall reimburse Southwest for
the fees and expenses of its legal counsel.
13. There is no intercorporate indebtedness existing between First
Commonwealth and Southwest that was issued, acquired or will be settled at a
discount.
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TUCKER
ARENSBERG, P.C.
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First Commonwealth
Financial Corporation
Southwest National Corporation
October 30, 1998
Page 6
14. No two parties to the Merger are investment companies as defined in
Section 368(a)(2)(F)(iii) and (iv).
15. Southwest neither is nor at the Effective Time of the Merger will be
under the jurisdiction of a court in a Title 11 or similar case within the
meaning of Section 368(a)(3)(A).
16. No stock of any First Commonwealth subsidiary will be issued in the
Merger.
17. Except for the possible payment, prior to the Merger, of a dividend to
the shareholders of Southwest to make up for the fact that they would miss the
first quarter dividend of First Commonwealth (which dividend would not be
substantially in excess of the dividend which would have been paid to Southwest
shareholders had such shareholders been entitled to such first quarter
dividend), no dividends or distributions, other than regular or normal dividends
or distributions, will be made with respect to any Southwest stock prior to the
Merger. After the Merger, no dividends or distributions will be made to the
former Southwest shareholders by First Commonwealth, other than regular or
normal dividend distributions made with regard to all shares of First
Commonwealth Common Stock. Southwest has not redeemed any of its Southwest
Common Stock in contemplation or as part of the Merger.
18. None of the compensation to be paid to shareholder-employees of
Southwest will be separate consideration for, or allocable to, any of the shares
of Southwest Common Stock to be surrendered in the Merger. The compensation paid
to such shareholder-employees will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's length for
similar services. None of the First Commonwealth Common Stock received by any
shareholder-employees of Southwest will be in exchange for, or in consideration
of, services rendered to Southwest, First Commonwealth, any subsidiaries of
Southwest or any subsidiaries of First Commonwealth by such shareholder-
employees.
19. The payment of cash in lieu of fractional shares of First Commonwealth
Common Stock is solely for the purpose of avoiding the expense and inconvenience
to First Commonwealth of issuing fractional shares and does not represent
separately bargained-for consideration. In addition, this cash payment will not
be made pro rata to all Southwest and First Commonwealth shareholders. The
total cash consideration that will be paid in the Merger to Southwest
shareholders in lieu of issuing fractional shares of First Commonwealth Common
Stock will not exceed one percent of the total consideration that will be issued
in the Merger to the Southwest shareholders in exchange for their shares of
Southwest Common Stock. The fractional share interests of such Southwest
shareholder will be aggregated, and no Southwest shareholder will receive cash
in an amount equal to or greater than the value of one full share of First
Commonwealth Common Stock.
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ARENSBERG, P.C.
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First Commonwealth
Financial Corporation
Southwest National Corporation
October 30, 1998
Page 7
20. The Southwest shareholders that will receive cash in lieu of
fractional shares of First Commonwealth Common Stock will not have control of
First Commonwealth, for purposes of Section 302(b)(1), following the Merger.
OPINION
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Assuming that the Merger is consummated in accordance with the terms and
conditions set forth in the Agreements and based on the facts set forth or
referred to in the Joint Proxy Statement/Prospectus, the Letters and this letter
(an advance copy of which has been provided to you), including all assumptions
and representations in any such documents, and subject to the qualifications and
other matters set forth herein, it is our opinion that for federal income tax
purposes:
1. The Merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Code, and Southwest and First Commonwealth will each be a
party to that reorganization within the meaning of Section 368(b) of the Code;
2. To the extent Southwest Common Stock is exchanged pursuant to the
Merger for First Commonwealth Common Stock, no gain or loss will be recognized
by the shareholders of Southwest, except as set forth in paragraph 3 below; and
3. Gain or loss, if any, will be recognized by Southwest shareholders upon
the receipt of cash in lieu of fractional shares of First Commonwealth Common
Stock.
Our opinion is limited to the foregoing federal income tax consequences of
the Merger, which are the only matters as to which you have requested our
opinion, and you must judge whether the matters addressed herein are sufficient
for your purposes. We do not address any other federal income tax consequences
of the Merger or other matters of federal law and have not considered matters
(including state or local tax consequences) arising under the laws of any
jurisdiction other than matters of federal law arising under the laws of the
United States.
Our opinion is based on the understanding that the relevant facts are, and
will be as of the Effective Time, as set forth or referred to in this letter. If
this understanding is incorrect or incomplete in any respect, our opinion could
be affected.
Our opinion is also based on the Code, Treasury Regulations, case law, and
Internal Revenue Service rulings and interpretations as they now exist. These
authorities are all subject to change and such change may be made with
retroactive effect. We can give no assurance that after any such changes our
opinion would not be different. Moreover, our opinion will not be binding on the
IRS or the courts.
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TUCKER
ARENSBERG, P.C.
ATTORNEYS]
First Commonwealth
Financial Corporation
Southwest National Corporation
October 30, 1998
Page 8
We undertake no responsibility to update or supplement our opinion. Only
First Commonwealth and Southwest may rely on this opinion, and only with respect
to the proposed Merger described herein. We hereby consent to the filing of
this opinion as an exhibit to the Joint Proxy Statement/Prospectus and to the
use of our name under the captions "The Merger - Certain Federal Income Tax
Consequences" and "Legal Matters" in the Proxy Statement/Prospectus.
Very truly yours,
TUCKER ARENSBERG, P.C.
/s/ Tucker Arensberg, P.C.
BE98806.6