As filed with the Securities and Exchange Commission on November 2, 1995
Registration No. 33-_____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
________________
UNITED CAROLINA
BANCSHARES CORPORATION
(Exact name of registrant as specified in its charter)
North Carolina 6025 56-0954530
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code No.) Identification No.)
_________________________
127 West Webster Street
Whiteville, North Carolina 28472
(910) 642-5131
(Address, including Zip Code, and telephone number,
including area code, of registrant's principal executive offices)
_________________________
HOWARD V. HUDSON, JR., Esq.
United Carolina Bancshares Corporation
127 West Webster Street
Whiteville, North Carolina 28472
(910) 642-5131
(Name, address, including Zip Code, and telephone number,
including area code, of agent for service)
Copies to:
William R. Lathan, Jr., Esq. Ronald D. Raxter, Esq.
Raymond W. Hines, Esq. The Sanford Law Firm, PLLC
Ward and Smith, P.A. 234 Fayetteville Street
1001 College Court Suite 100
Post Office Box 867 Raleigh, North Carolina 27602
New Bern, North Carolina 28563 (919) 755-1800
(919) 633-1000
Approximate date of commencement of the proposed sale of the securities to the
public:
As soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Title of Each Proposed Proposed
Class of Maximum Maximum Amount of
Securities to Amount to Offering Price Aggregate Registration
be Registered be Registered Per Share Offering Price Fee (1)
Common Stock,
$4.00 par value 393,900 Not Applicable $6,770,342 $2,335
(1) In accordance with Rule 457(f), the registration fee is based upon
the book value as of September 30, 1995, ($19.56) of a share of the
common stock of Seaboard Savings Bank, Inc., SSB.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a),
may determine.
UNITED CAROLINA BANCSHARES CORPORATION
Cross-Reference Sheet Pursuant to Item 501 of Regulation S-K
Item of Form S-4
Caption in Prospectus/Proxy Statement
PART I - INFORMATION REQUIRED IN THE PROSPECTUS
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus . . . . . . . . . . . . Facing Page of Registration
Statement; Cross-Reference Sheet;
Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus . . . . . . . Inside Front Cover Page of
Prospectus; Available Information;
Incorporation of Certain Documents
by Reference
3. Risk Factors, Ratio of Earnings
to Fixed Charges and Other
Information . . . . . . . . . . . . Summary - Summary of Merger;
Selected Financial Information and
Unaudited Comparative Per Share
Data
4. Terms of the Transaction . . . . . Summary - Summary of Merger;
Proposal 1: The Merger - General, -
Conversion of Seaboard Stock and
Seaboard Options; Exchange Rate, -
Background of and Reasons for the
Merger, - Fairness Opinion, -
Accounting Treatment, - Certain
Income Tax Consequences; Capital
Stock of Bancshares and Seaboard;
Appendix C
5. Pro Forma Financial Information . Not Applicable
6. Material Contracts with the Company
Being Acquired . . . . . . . . . . Proposal 1: The Merger - Interests
of Certain Persons With Respect to
the Merger
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters . . . . Not Applicable
8. Interests of Named Experts and
Counsel . . . . . . . . . . . . . Tax and Legal Matters
9. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities . . . . . . . . . Indemnification
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3
Registrants . . . . . . . . . . . Not Applicable
11. Incorporation of Certain
Information by Reference . . . . . Incorporation of Certain Documents
by Reference
12. Information with Respect to S-2 or
S-3 Registrants . . . . . . . . . Not Applicable
13. Incorporation of Certain
Information by Reference . . . . . Not Applicable
14. Information with Respect to
Registrants Other Than S-2 or S-3
Registrants . . . . . . . . . . . Not Applicable
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3
Companies . . . . . . . . . . . . Not Applicable
16. Information with Respect to S-2 or
S-3 Companies . . . . . . . . . . Not Applicable
17. Information with Respect to
Companies Other than S-2 or S-3
Companies . . . . . . . . . . . . Seaboard Savings Bank, Inc., SSB -
General, - Financial Statements;
Management's Discussion and
Analysis of Seaboard's Financial
Condition and Results of
Operations; Capital Stock of
Bancshares and Seaboard -
Differences in Capital Stock of
Bancshares and Seaboard; Selected
Financial Information and Unaudited
Comparative Per Share Data; Market
and Dividend Information Regarding
Seaboard Stock and Bancshares Stock
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicited Summary - Special Meeting of
Shareholders, - Summary of Merger;
Proposal 1: The Merger - Interests
of Certain Persons With Respect to
the Merger; Rights of Dissenting
Shareholders; Appendix B; United
Carolina Bancshares Corporation and
United Carolina Bank - Beneficial
Ownership of Securities; Seaboard
Savings Bank, Inc., SSB -
Beneficial Ownership of Securities
19. Information if Proxies, Consents or
Authorizations are not to be
Solicited or in an Exchange Offer. Not Applicable
[SEABOARD LETTERHEAD]
______________, 1995
To: The Shareholders of Seaboard Savings Bank, Inc., SSB
A Special Meeting of Shareholders (the "Special Meeting") of Seaboard
Savings Bank, Inc., SSB ("Seaboard") will be held on __________, ________,
1996, at 7:00 p.m., local time, at the main office of Seaboard located at
433 U.S. Highway 64 East, Plymouth, North Carolina. At this important meeting,
shareholders will be asked to approve the agreement pursuant to which Seaboard
will be merged (the "Merger") with and into United Carolina Bank ("UCB"),
the commercial bank subsidiary of United Carolina Bancshares Corporation
("Bancshares").
If the Merger is consummated, each outstanding share of Seaboard common
stock (other than shares held by dissenting shareholders), will be converted
into and exchanged for 0.9104 shares of Bancshares' common stock, $4.00 par
value per share (subject to adjustment as described in the accompanying
Prospectus/Proxy Statement).
In connection with the Merger, you also will be voting upon a proposed
amendment (the "Charter Amendment") to the provisions of Section 8 of
Seaboard's Amended and Restated Certificate of Incorporation. Section 8
currently prohibits the acquisition by any person of more than 10% of any
class of an equity security of Seaboard until May 10, 1996. To consummate
the Merger, both the Agreement and the Charter Amendment must be approved at
the Special Meeting.
Detailed information about the proposed Merger, Seaboard, UCB, Bancshares and
the Charter Amendment are set forth in the accompanying Prospectus/Proxy
Statement. You are urged to study the Prospectus/Proxy Statement before
casting your vote on the Merger and the Charter Amendment. The Board of
Directors of Seaboard has received a written opinion of The Meritas
Group, Inc. that the terms of the Merger are fair, from a financial
point of view, to the shareholders of Seaboard.
Your Board of Directors believes the Merger with UCB is in the best
interests of Seaboard and its shareholders and has unanimously approved
the Agreement and the Charter Amendment. Accordingly, your Board
unanimously recommends that you vote FOR approval of the Agreement and
the Charter Amendment.
Your vote is important, regardless of the number of shares you own.
Approval of the Merger requires the affirmative vote of the holders
of a majority of the outstanding shares of Seaboard common stock
entitled to vote at the Special Meeting. Consequently, failure to
vote will have the same effect as a vote against the Merger.
Therefore, on behalf of your Board of Directors, I urge you to complete,
date and sign the accompanying appointment of proxy and return it
promptly in the enclosed, postage paid envelope as soon as possible
to ensure that your shares will be voted at the Special Meeting. This
will not prevent you from attending the Special Meeting and voting in
person, but will assure that your vote is counted if you are unable to
attend the Special Meeting.
On behalf of the Board of Directors, I urge you to vote FOR
approval of the Agreement and the Charter Amendment.
Sincerely,
Samuel J. Styons
President and Chief Executive Officer
SEABOARD SAVINGS BANK, INC., SSB
433 U.S. Highway 64 East
Plymouth, North Carolina 27962
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NOTICE is hereby given that a Special Meeting of Shareholders (the
"Special Meeting") of Seaboard Savings Bank, Inc., SSB ("Seaboard")
will be held at 7:00 p.m. on __________, January ____, 1996, at
Seaboard's Main Office located at 433 U.S. Highway 64 East, Plymouth,
North Carolina.
The purposes of the meeting are:
1. Proposal to Approve the Merger. To consider and vote on a
proposal to approve the Agreement and Plan of Reorganization and
Merger, dated as of September 19, 1995, and the related Plan
of Merger included therein (collectively, the "Agreement"),
among Seaboard, United Carolina Bank ("UCB") and United
Carolina Bancshares Corporation ("Bancshares") (a copy of which
is attached as Appendix A to the Prospectus/Proxy Statement which
accompanies this Notice), and to approve the transactions
described therein, including, without limitation, the merger of
Seaboard into UCB (the "Merger") with the result that the
outstanding shares of Seaboard's common stock, no par value per
share ("Seaboard Stock"), will be converted into shares of
Bancshares' common stock, $4.00 par value per share, all as
more fully described in the accompanying Prospectus/Proxy
Statement;
2. Proposal to Approve Charter Amendment. To consider and vote
upon a proposal to approve and adopt an amendment (the "Charter
Amendment"), all as more fully described in the accompanying
Prospectus/Proxy Statement, to the provisions of Seaboard's
Amended and Restated Certificate of Incorporation that
currently prohibit the acquisition by any person of more than
10% of any class of an equity security of Seaboard for a period
of three years from May 10, 1993.
3. Other Business. To transact such other business as may properly
come before the Special Meeting or any adjournment thereof.
Management of Seaboard is not aware of any other matters which
may properly come before the Special Meeting.
UNDER NORTH CAROLINA LAW, EACH HOLDER OF SEABOARD STOCK HAS THE
RIGHT TO DISSENT FROM THE MERGER AND TO DEMAND PAYMENT OF THE FAIR
VALUE OF HIS OR HER SHARES OF SEABOARD STOCK IN THE EVENT THE MERGER IS
APPROVED AND CONSUMMATED. A SHAREHOLDER'S RIGHT TO DISSENT IS
CONTINGENT UPON STRICT COMPLIANCE WITH THE REQUIREMENTS OF ARTICLE 13
OF THE NORTH CAROLINA BUSINESS CORPORATION ACT. THE FULL TEXT OF
ARTICLE 13 IS ATTACHED AS APPENDIX B TO THE PROSPECTUS/PROXY
STATEMENT WHICH ACCOMPANIES THIS NOTICE AND IS INCORPORATED HEREIN BY
REFERENCE.
EACH SHAREHOLDER IS INVITED TO ATTEND THE SPECIAL MEETING IN
PERSON. HOWEVER, TO INSURE THAT A QUORUM IS PRESENT AT THE
SPECIAL MEETING, EACH SHAREHOLDER IS URGED TO COMPLETE, DATE, SIGN
AND RETURN PROMPTLY THE ENCLOSED APPOINTMENT OF PROXY IN THE ENCLOSED
PREPAID ENVELOPE. SIGNING AND RETURNING AN APPOINTMENT OF PROXY WILL
NOT AFFECT A SHAREHOLDER'S RIGHT TO ATTEND THE SPECIAL MEETING AND VOTE
IN PERSON.
By Order of the Board of Directors
Beth B. Harrell
Secretary/Treasurer
December ___, 1995
SEABOARD'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE TO APPROVE THE AGREEMENT AND THE CHARTER AMENDMENT.
PROSPECTUS
UNITED CAROLINA
BANCSHARES CORPORATION
393,900 Shares
Common Stock
Par Value $4.00
_________________________
PROXY STATEMENT
For Special Meeting of Shareholders of
Seaboard Savings Bank, Inc., SSB
to be Held on January ___, 1996
_________________________
This Prospectus relates to shares of the common stock, $4.00 par
value per share ("Bancshares Stock"), of United Carolina
Bancshares Corporation ("Bancshares") that will be issued in
connection with the proposed merger (the "Merger") of Seaboard Savings
Bank, Inc., SSB ("Seaboard") into United Carolina Bank ("UCB").
Bancshares is a North Carolina corporation which is registered with
the Board of Governors of the Federal Reserve System (the "Federal
Reserve") as a bank holding company and which is the parent company of
UCB. As described in the Agreement and Plan of Reorganization and
Merger dated as of September 19, 1995, and the related Plan of
Merger included therein (collectively, the "Agreement") among
Seaboard, Bancshares and UCB, it is proposed that Seaboard be merged
into UCB and, upon consummation of the Merger, that the outstanding
shares of Seaboard's common stock, no par value per share
("Seaboard Stock"), be converted into and exchanged for shares of
Bancshares Stock. (See "PROPOSAL 1: THE MERGER.")
Seaboard's shareholders are entitled to exercise their
statutory dissenters' rights in accordance with North Carolina law.
(See "RIGHTS OF DISSENTING SHAREHOLDERS.") In lieu of issuing
fractional shares of Bancshares Stock, cash will be distributed to
each Seaboard shareholder otherwise entitled to receive a fractional
share in an amount equal to that fraction multiplied by the "market
value" of one whole share of Bancshares Stock. (See "PROPOSAL 1:
THE MERGER--Treatment of Fractional Shares.")
This Prospectus also serves as Seaboard's Proxy Statement in
connection with the solicitation of appointments of proxy by the Board
of Directors to be used at a Special Meeting of Seaboard's
shareholders (the "Special Meeting"), including any adjournments
thereof, to be held on January ___, 1996, for the purposes described
herein. (See "SUMMARY--Special Meeting of Shareholders.")
The Prospectus/Proxy Statement and the accompanying form of
appointment of proxy are first being mailed to shareholders of
Seaboard on or about December ___, 1995.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
The date of this Prospectus/Proxy Statement is December ___, 1995.
No person is authorized to give any information or make any
representation other than those contained in this Prospectus/Proxy
Statement, and, if given or made, such information or representation
should not be relied upon as having been authorized by Bancshares, UCB
or Seaboard. This Prospectus/Proxy Statement does not constitute an
offer to sell, or a solicitation of an offer to purchase the
securities offered by this Prospectus/Proxy Statement in any
jurisdiction in which such offer is not authorized or to or from
any person to whom it is unlawful to make such offer or solicitation.
The information contained or incorporated by reference in this
Prospectus/Proxy Statement regarding Bancshares and its affiliates has
been furnished by Bancshares, and the information contained herein
regarding Seaboard has been furnished by Seaboard. Neither the
delivery of this Prospectus/Proxy Statement nor any distribution
of the securities being offered hereunder shall, under any
circumstances, create any implication that there has been no change
in the affairs of Bancshares, UCB or Seaboard since the date of
this Prospectus/Proxy Statement or that the information contained
herein or in the documents incorporated by reference is correct as
of any time subsequent to the date hereof.
THE SHARES OF BANCSHARES STOCK OFFERED HEREBY ARE NOT DEPOSITS OF
ANY BANK OR FINANCIAL INSTITUTION AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
______________________________
TABLE OF CONTENTS
Page Page
AVAILABLE INFORMATION . . . . . . . . . . . . . . . 3 CAPITALIZATION . . . . . . . . . . . . . . . . . 28
INCORPORATION OF CERTAIN UNITED CAROLINA BANCSHARES
DOCUMENTS BY REFERENCE . . . . . . . . . . . . . 3 CORPORATION AND UNITED
SUMMARY . . . . . . . . . . . . . . . . . . . . . . 4 CAROLINA BANK . . . . . . . . . . . . . . . . 28
Special Meeting of Shareholders . . . . . . . . . 4 General . . . . . . . . . . . . . . . . . . . 28
Summary of Merger . . . . . . . . . . . . . . . . 5 Recent Events . . . . . . . . . . . . . . . . 29
Summary of the Charter Amendment . . . . . . . . 8 Beneficial Ownership of Securities . . . . . 30
SELECTED FINANCIAL INFORMATION AND SEABOARD SAVINGS BANK, INC., SSB . . . . . . . 31
UNAUDITED COMPARATIVE PER SHARE DATA . . . . . . 9 General . . . . . . . . . . . . . . . . . . . 31
PROPOSAL 1: THE MERGER . . . . . . . . . . . . . . 12 Financial Statements . . . . . . . . . . . . 31
General . . . . . . . . . . . . . . . . . . . . . 12 Beneficial Ownership of Securities . . . . . 31
Conversion of Seaboard Stock and MANAGEMENT'S DISCUSSION AND
Seaboard Options; Exchange Rate . . . . . . . . . 12 ANALYSIS OF SEABOARD'S FINANCIAL
Surrender and Exchange of Certificates . . . . . 12 CONDITION AND RESULTS OF OPERATIONS . . . . . 32
Treatment of Fractional Shares . . . . . . . . . 13 REGULATION AND SUPERVISION . . . . . . . . . . 39
Background of and Reasons for the Merger . . . . 13 CAPITAL STOCK OF BANCSHARES
Recommendation . . . . . . . . . . . . . . . . . 15 AND SEABOARD . . . . . . . . . . . . . . . . 48
Fairness Opinion . . . . . . . . . . . . . . . . 15 Capital Stock of Bancshares . . . . . . . . . 48
Required Shareholder Approval . . . . . . . . . . 17 Differences in Capital Stock of
Required Regulatory Approvals . . . . . . . . . . 17 Bancshares and Seaboard . . . . . . . . . . 49
Conduct of Business Pending Merger . . . . . . . . 17 INDEMNIFICATION . . . . . . . . . . . . . . . 51
Dividends . . . . . . . . . . . . . . . . . . . . 17 TAX AND LEGAL MATTERS . . . . . . . . . . . . 52
Prohibition on Solicitation . . . . . . . . . . . 18 EXPERTS . . . . . . . . . . . . . . . . . . . 53
Accounting Treatment . . . . . . . . . . . . . . . 18 OTHER MATTERS . . . . . . . . . . . . . . . . . 53
Certain Income Tax Consequences . . . . . . . . . 18 PROPOSALS OF SHAREHOLDERS . . . . . . . . . . . 53
Conditions to Merger . . . . . . . . . . . . . . 19 CONSOLIDATED FINANCIAL STATEMENTS
Waiver; Amendment of Agreement . . . . . . . . . 20 OF SEABOARD SAVINGS BANK,
Termination of Agreement . . . . . . . . . . . . 20 INC., SSB, AND SUBSIDIARY . . . . . . . . . F-1
Closing Date and Effective Time . . . . . . . . . 21 APPENDIX A - Agreement and Plan of
Interests of Certain Persons With Respect Reorganization and Merger . . . . . . . . . A-1
to the Merger . . . . . . . . . . . . . . . . . 21 APPENDIX B - Article 13 of the
Restrictions on Resale of Bancshares Stock North Carolina Business
Received by Certain Persons . . . . . . . . . . 23 Corporation Act Relating to the
Expenses . . . . . . . . . . . . . . . . . . . . 23 Rights of Dissenting Shareholders . . . . . B-1
RIGHTS OF DISSENTING SHAREHOLDERS . . . . . . . . . 23 APPENDIX C - Opinion of
PROPOSAL 2: THE CHARTER AMENDMENT . . . . . . . . 25 The Meritas Group, Inc. . . . . . . . . . . C-1
MARKET AND DIVIDEND INFORMATION . . . . . . . . . 26
2
AVAILABLE INFORMATION
Bancshares is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act") and, in accordance
therewith, files proxy statements, reports and other information with the
Securities and Exchange Commission (the "Commission"). Proxy statements,
reports and other information filed by Bancshares can be inspected and
copied at the public reference facilities maintained by the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549, and
at the Commission's Regional Offices located in Chicago (Citicorp Center,
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661-2511) and in
New York (7 World Trade Center, Suite 1300, New York, New York 10048). Copies
of such material can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, DC 20549, at prescribed rates.
Bancshares has filed with the Commission a Registration Statement on
Form S-4 under the Securities Act of 1933, as amended (the "1933 Act"),
with respect to the Bancshares Stock offered hereby. As permitted by the
rules and regulations of the Commission, this Prospectus/Proxy Statement
does not contain all the information set forth in the Registration Statement
and the exhibits and schedules thereto, all of which may be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, DC 20549, upon payment of the prescribed fees.
AS FURTHER DESCRIBED BELOW, THIS PROSPECTUS/PROXY STATEMENT INCORPORATES BY
REFERENCE DOCUMENTS RELATING TO BANCSHARES WHICH ARE NOT PRESENTED HEREIN
OR DELIVERED HEREWITH. COPIES OF THOSE DOCUMENTS (OTHER THAN EXHIBITS TO SUCH
DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH
DOCUMENTS), WILL BE PROVIDED WITHOUT CHARGE TO ANY BENEFICIAL OWNER OF SHARES
OF SEABOARD STOCK UPON A REQUEST TO HOWARD V. HUDSON, JR., SECRETARY, UNITED
CAROLINA BANCSHARES CORPORATION, P. O. BOX 632, WHITEVILLE, N. C. 28472,
TELEPHONE (910) 642-5131. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS
BEFORE THE SPECIAL MEETING, ANY SUCH REQUEST SHOULD BE MADE BY ____________,
199____.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by Bancshares with the Commission
(SEC File No. 0-5583) are incorporated by reference into this Prospectus/Proxy
Statement: (i) Bancshares' Annual Report on Form 10-K for the fiscal year ended
December 31, 1994, (ii) Bancshares' Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1995, June 30, 1995, and September 30, 1995
(iii) Bancshares' Current Reports on Form 8-K dated May 22, 1995 and
October 19, 1995; and (iv) the description of Bancshares Stock contained in
its Registration Statement on Form 10, as amended by Bancshares' subsequent
reports filed under the 1934 Act.
In addition, all other documents filed by Bancshares
pursuant to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act prior to
final adjournment of the Special Meeting shall be deemed to be
incorporated by reference into this Prospectus/Proxy Statement. Any
statements contained in a document incorporated or deemed to be
incorporated by reference herein will be deemed to be modified or
superseded for purposes of this Prospectus/Proxy Statement to the
extent that a statement contained herein or in any other subsequently
filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as
so modified or superseded, to constitute a part of this
Prospectus/Proxy Statement.
3
SUMMARY
Special Meeting of Shareholders
General. This Prospectus/Proxy Statement is being furnished in
connection with the solicitation by Seaboard's Board of Directors of
appointments of proxy for use at the Special Meeting, and at any
adjournments thereof.
Date, Place and Time. The Special Meeting will be held on
January ___, 1996, at 7:00 p.m. local time, at Seaboard's main office
located at 433 U.S. Highway 64 East, Plymouth, North Carolina.
Purposes of Special Meeting. The purposes of the Special
Meeting are (i) to consider and vote on a proposal to approve the
Agreement, a copy of which is attached as Appendix A to this
Prospectus/Proxy Statement and is incorporated herein by reference,
(ii) to consider and vote on a proposal to amend Section 8 of
Seaboard's Amended and Restated Certificate of Incorporation to
exempt the Agreement from the current prohibition against the
acquisition by any person of more than 10% of any class of an equity
security of Seaboard for a period of three years from May 10, 1993
(the "Charter Amendment"), and (iii) to transact such other business
as may properly come before the Special Meeting. (See PROPOSAL 1:
THE MERGER" and "PROPOSAL 2: THE CHARTER AMENDMENT.")
Solicitation and Voting of Proxies. The persons named to
represent shareholders as proxies at the Special Meeting are Samuel
J. Styons, Gwen L. Edmondson and Beth B. Harrell (the "Proxies").
Shares represented by each appointment of proxy which is properly
executed and returned, and not revoked, will be voted by the Proxies in
accordance with the directions contained therein. If no directions are
given, such shares will be voted by the Proxies "FOR" Proposals 1
and 2. On such other matters that may properly come before the
Special Meeting, the Proxies will be authorized to vote in accordance
with their best judgment.
Record Date. The close of business on ______________, 1995 has
been fixed as the record date (the "Record Date") for the
determination of shareholders entitled to notice of and to vote at the
Special Meeting. Only those shareholders of record on the Record Date
will be eligible to vote on the matters described herein.
Voting Securities. The voting securities of Seaboard are the
shares of Seaboard Stock, of which 305,507 shares were issued and
outstanding on the Record Date. As of September 30, 1995, the directors
and executive officers of Seaboard and their affiliates beneficially
owned and were entitled to vote approximately 24% of the outstanding
shares of Seaboard Stock. The directors and executive officers of
Seaboard are expected to vote their shares in favor of the Agreement
and the Charter Amendment. Information as to the nature of such
persons' beneficial ownership is included in the section of this
Prospectus/Proxy Statement entitled "SEABOARD SAVINGS BANK, INC., SSB
- - Beneficial Ownership of Securities."
Votes Required for Approval. At the Special Meeting, each
shareholder will be entitled to cast one vote for each share of
Seaboard Stock held of record on the Record Date on each matter
submitted for voting. The affirmative vote of the holders of a
majority of the outstanding shares of Seaboard Stock is required to
approve the Agreement. To approve the Charter Amendment, the number
of votes cast in person and by proxy at the Special Meeting in
favor of the Charter Amendment must exceed the number of votes
cast against it. Because the affirmative vote of an absolute
majority of all outstanding shares of Seaboard Stock is required to
approve the Agreement, abstentions, broker nonvotes and shares
otherwise not voted at the Special Meeting will have the same effect
as votes against the Agreement. Provided a quorum is present at
the Special Meeting, abstentions, broker nonvotes and shares otherwise
not voted will have no effect on the voting with respect to the
Charter Amendment. In order to consummate the Merger, both the
Agreement and the Charter Amendment must be approved by Seaboard's
shareholders at the Special Meeting.
Revocation of Appointment of Proxy. Any shareholder who
executes an appointment of proxy has the right to revoke it at
any time before it is exercised by filing with the Secretary of
Seaboard either an instrument revoking it or a duly executed
appointment of proxy bearing a later date, or by attending the Special
Meeting and announcing his intention to vote in person.
4
Proxy Solicitation Expenses. Except under certain circumstances
involving a wrongful termination or breach of the Agreement, the cost of
soliciting proxies will be deemed to be incurred and shall be paid
50% by Seaboard and 50% by Bancshares. In addition to the use of
the mail, appointments of proxy may be solicited personally or by
telephone by Seaboard's officers, directors and employees, none of
whom will be compensated separately for any such solicitation
activities.
Summary of the Merger
The following is a brief summary of information about the
Agreement (a copy of which is attached as Appendix A to this
Prospectus/Proxy Statement) and the transactions described therein and
is not intended to be a complete statement of all material facts
regarding the Merger. This summary is qualified in its entirety by
reference to the more detailed information contained elsewhere herein
(see "PROPOSAL 1: THE MERGER"), the accompanying Appendices, and
the other documents referred to or incorporated herein by reference.
Parties to the Merger. Bancshares is a North Carolina business
corporation which is registered with the Federal Reserve as a bank
holding company and is the parent company of UCB. UCB is a North
Carolina commercial bank. Bancshares' and UCB's principal offices are
located at 127 West Webster Street (Post Office Box 632), Whiteville,
North Carolina 28472, and their telephone number is (910)
642-5131. (See "UNITED CAROLINA BANCSHARES CORPORATION AND UNITED
CAROLINA BANK.") At September 30, 1995, Bancshares' consolidated
financial statements reflected total assets of $3.8 billion, total
deposits of $3.4 billion and total stockholders' equity of $292.3
million.
Seaboard is a North Carolina capital stock savings bank. Its
principal office is located at 433 U.S. Highway 64 East (Post Office
Box 127), Plymouth, North Carolina 27962, and its telephone number is
(919) 793-5188. (See "SEABOARD SAVINGS BANK, INC., SSB.") At
September 30, 1995, Seaboard's consolidated financial statements
reflected total assets of $47.7 million, total deposits of $40.3
million, and total stockholders' equity of $6.0 million.
Effect of Merger. The Merger is provided for in the Agreement
which has been entered into among Bancshares, UCB and Seaboard. At
the time the Merger becomes effective (the "Effective Time"), Seaboard
will be merged into and its corporate existence will be combined with
that of UCB, Seaboard will cease to exist as a separate corporation,
and UCB will be the surviving corporation and continue to conduct
business under its charter and with its then current management.
(See "PROPOSAL 1: THE MERGER--General.")
Conversion of Seaboard Stock. At the Effective Time, each
outstanding share of Seaboard Stock (other than shares as to which
Seaboard's shareholders exercise their "Dissenters' Rights" under North
Carolina law) will be converted into, and thereafter may be exchanged
for, 0.9104 of a share (the "Exchange Rate") of Bancshares Stock.
However, if the average closing price of Bancshares Stock on the
Nasdaq National Market for the 30 consecutive trading days
immediately preceding the date of the final order of the Federal
Deposit Insurance Corporation ("FDIC") approving the Merger (the
"30-Day Average") is greater than $38.50 per share, then the Exchange
Rate will be adjusted to equal the ratio (rounded to four decimal
places) produced by dividing $35.05 by the 30- Day Average, and if the
30-Day Average is less than $25.00 per share, then the Exchange Rate
will be adjusted to equal the ratio (rounded to four decimal
places) produced by dividing $22.76 by the 30-Day Average. (See
"PROPOSAL 1: THE MERGER--Conversion of Seaboard Stock and Seaboard
Options; Exchange Rate.")
Treatment of Fractional Shares. In lieu of issuing fractional
shares of Bancshares Stock, cash will be distributed to each Seaboard
shareholder otherwise entitled to receive a fractional share in an
amount equal to that fraction multiplied by the "market value" of one
whole share of Bancshares Stock. (See "PROPOSAL 1: THE MERGER--
Treatment of Fractional Shares.")
Recommendations and Reasons. SEABOARD'S BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT SEABOARD'S SHAREHOLDERS VOTE TO
APPROVE THE AGREEMENT. Seaboard's Board of Directors has adopted the
Agreement and believes the Merger is in the best interests of
Seaboard and its shareholders and unanimously recommends that
Seaboard's shareholders vote FOR approval of the Agreement. The Board
of Directors considered a variety of factors in approving the
Agreement, including without limitation (i) the amount
5
and nature of the consideration to be received by Seaboard's shareholders,
(ii) the greater liquidity in and potential for increases in the value of
Bancshares Stock as compared to Seaboard Stock, (iii) Bancshares' cash
dividend and earnings record, (iv) the treatment of Seaboard's
officers and employees, (v) the more efficient and profitable
operation of Seaboard through economies of scale, and (vi) the ability
to offer expanded services to Seaboard's customers. (See "PROPOSAL
1: THE MERGER--Recommendation," and "--Background of and Reasons for
the Merger.")
Fairness Opinion. Seaboard's Board of Directors retained
The Meritas Group, Inc. ("Meritas") to provide it with an opinion of
the fairness of the Merger to Seaboard's shareholders from a financial
point of view. After a review of a variety of relevant factors,
Meritas has given the Board of Directors a written opinion dated
December ___, 1995 (the "Fairness Opinion", a copy of which is attached
as Appendix C to this Prospectus/Proxy Statement) to the effect that the
consideration to be received by Seaboard's shareholders in connection
with the Merger as provided in the Agreement is fair from a financial
point of view. For its services, Seaboard has agreed to pay Meritas a
$5,000 retainer and fees of $5,000 each for its advisory services
in connection with the Board of Directors' consideration of the
Merger proposal and for the Fairness Opinion. Seaboard also has
agreed to reimburse Meritas for its out-of-pocket expenses incurred
in connection with activities contemplated by its engagement and to
indemnify Meritas against certain liabilities that may arise in
connection with its engagement. Seaboard's and Bancshares' respective
obligations to consummate the Merger are conditioned on Seaboard's
receipt from Meritas immediately prior to consummation of the Merger
of a letter stating that it remains Meritas' opinion that the terms
of the Merger are fair to Seaboard's shareholders from a financial
point of view. (See "PROPOSAL 1: THE MERGER--Fairness Opinion.")
Required Approval of Seaboard's Shareholders. Under North
Carolina law, the Agreement must be approved by the affirmative vote of
a majority of the total outstanding shares of Seaboard Stock, and the
Charter Amendment must be approved by the affirmative vote of a
majority of the votes cast, in person or by proxy, at the Special
Meeting. Both the Charter Amendment and the Agreement must be
approved in order to consummate the Merger. (See "PROPOSAL 1: THE
MERGER" and "PROPOSAL 2: THE CHARTER AMENDMENT.")
Required Regulatory Approvals. The Merger is subject to
approval by the North Carolina Commissioner of Banks (the
"Commissioner"), the North Carolina State Banking Commission (the
"Banking Commission"), the Administrator of the North Carolina Savings
Institutions Division (the "Administrator"), and the FDIC. Applications
for all such required approvals have been filed and are pending.
While no assurances are or can be given, Bancshares and Seaboard believe
that all such required regulatory approvals will be obtained. (See
"PROPOSAL 1: THE MERGER--Required Regulatory Approvals.")
Conditions to Merger. In addition to required regulatory and
shareholder approvals, consummation of the Merger is conditioned upon
the fulfillment of certain other conditions described in the
Agreement, including without limitation, (i) receipt of an opinion to
the effect that, among other things, for federal income tax purposes
the Merger will constitute a "reorganization" as defined in
(section mark)368(a)(1)(A) of the Internal Revenue Code of 1986,
as amended (the "Code"); (ii) receipt of the Fairness Opinion and
receipt of written confirmation of the Fairness Opinion immediately
prior to the Effective Time; (iii) receipt by Bancshares of an opinion
of KPMG Peat Marwick LLP to the effect that the Merger qualifies for
pooling-of-interests accounting treatment, and (iv) certain other
conditions customary in transactions of this nature. Further,
Seaboard's ability to consummate the Merger is subject to approval of
the Charter Amendment. (See "PROPOSAL 1: THE MERGER--Conditions to
Merger.")
Waiver and Amendment. Prior to the Effective Time, any
provision of the Agreement (other than provisions relating to
regulatory approvals and other approvals required by law) may be
waived by the party entitled to the benefits of such provision.
Additionally, the Agreement may be amended, modified or
supplemented by Bancshares, UCB and Seaboard at any time prior to the
Effective Time, and whether before or after approval by Seaboard's
shareholders, by an agreement in writing approved by a majority of
the members of their respective Boards of Directors. However, except
as otherwise provided in the Agreement, following approval of the
Agreement by Seaboard's shareholders, no such amendment may change the
Exchange Rate without shareholder approval of such change. (See
"PROPOSAL 1: THE MERGER--Waiver; Amendment of Agreement.")
Termination of the Agreement. The Agreement may be terminated
and the Merger abandoned at any time prior to the Effective Time,
whether before or after approval by Seaboard's shareholders, by the
mutual agreement of
6
Bancshares, UCB and Seaboard, and may be terminated by either Bancshares
or Seaboard under certain circumstances described in the Agreement. (See
"PROPOSAL 1: THE MERGER--Termination of Agreement.")
Effective Time. Assuming the receipt of all required
approvals, it currently is expected that the Merger will become
effective during the first quarter of 1996. (See "PROPOSAL 1: THE
MERGER--Closing Date and Effective Time.") The Board of Directors
of either Seaboard or UCB may terminate the Agreement if the
Effective Time shall not have occurred by June 30, 1996. (See
"PROPOSAL 1: THE MERGER--Termination of Agreement.")
Directors and Officers. Following the Effective Time,
Bancshares' and UCB's then current directors and executive officers
will continue to serve for the remainder of their respective terms of
office as the directors and executive officers of Bancshares and UCB.
Interests of Certain Persons. In order to assure itself
of their assistance and continued services during the transition
period following the Effective Time, (i) at the Effective Time UCB
will enter into an employment agreement with each of Samuel J. Styons
(who serves as a director of Seaboard and its President and Chief
Executive Officer) and with Donald A. Hall (who serves as a director of
Seaboard and as Executive Vice President of Seaboard's wholly-owned
subsidiary), and (ii) Seaboard's directors (other than directors who
also are employees of Seaboard or who do not desire to serve as such)
will be appointed to serve as local advisory directors of UCB for
one of UCB's branch offices in Seaboard's former geographic market and
will receive directors' fees for a period of one year in amounts
approximately equal to the amounts of fees they received, respectively,
for services as directors of Seaboard in 1995. Also at the
Effective Time, (i) certain outstanding options to purchase Seaboard
Stock will be converted into options to purchase Bancshares Stock, (ii)
certain outstanding, unvested stock awards held by Seaboard's officers,
employees and directors will become vested, and (iii) UCB will
assume Seaboard's obligations under a Supplemental Income Agreement
currently in effect between Seaboard and Mr. Styons. (See
"PROPOSAL 1: THE MERGER--Interests of Certain Persons With Respect to
the Merger.")
Accounting Treatment. It is a condition to the Agreement that
the Merger be accounted for as a pooling-of-interests for accounting and
financial reporting purposes. Generally, among other criteria, if the
number of fractional shares, shares repurchased by Seaboard or by
Bancshares, shares of Seaboard shareholders who exercise their
dissenters' rights, and the like acquired for cash, together would
represent more than 10% of the shares to be issued by Bancshares
in connection with the Merger, the Merger will not qualify for the
pooling-of- interests method of accounting. If the Merger will not
qualify for the pooling- of-interests method of accounting for any
reason, Bancshares will be entitled to terminate the Agreement and
abandon the Merger. (See "PROPOSAL 1: THE MERGER--Accounting
Treatment," "--Termination of Agreement," and "RIGHTS OF DISSENTING
SHAREHOLDERS.")
Income Tax Consequences. Seaboard and Bancshares have received
an opinion (the "Tax Opinion") from KPMG Peat Marwick LLP, tax
advisors to Bancshares, to the effect that the Merger will
constitute a tax-free reorganization under Sections 368(a)(1)(A) and
368(a)(2)(D) of the Code, with no gain or loss being recognized by
Seaboard's shareholders upon the conversion and exchange of shares of
Seaboard Stock into shares of Bancshares Stock (except with respect
to cash received in lieu of fractional shares of Bancshares Stock or
in redemption of shares of Seaboard Stock as to which dissenters' rights
are exercised). Because of the complexity of federal income tax laws
and because tax consequences may vary depending on a shareholder's
individual circumstances or tax status, it is recommended that each of
Seaboard's shareholders consult his or her own tax advisor
concerning the federal (and applicable state, local or other) tax
consequences of the Merger. (See "PROPOSAL 1: THE MERGER--Certain
Income Tax Consequences.")
Rights of Dissenting Shareholders. Subject to certain
conditions, each Seaboard shareholder has the right under North Carolina
law to assert dissenters' rights and to receive the "fair value" of his
or her shares of Seaboard Stock in cash ("Dissenters' Rights"). Any
shareholder who desires to assert Dissenters' Rights must, among other
things, (i) give to Seaboard, before the vote on the Agreement is
taken, timely written notice of his or her intent to demand payment for
his or her shares if the Merger is consummated, (ii) not vote his
or her shares in favor of the Agreement, (iii) demand payment and
deposit his or her share certificates by the date set forth in and in
accordance with the terms and conditions of a "dissenters' notice" sent
to such shareholder by Seaboard, and (iv) otherwise satisfy the
requirements specified in Appendix B to this Prospectus/Proxy
Statement. Assuming shareholder approval and consummation of the
Merger, a
7
shareholder who properly exercises Dissenters' Rights will be offered
the amount Seaboard estimates to be the fair value of his or her
shares of Seaboard Stock, plus accrued interest to the date of payment,
and will be paid such amount in cash provided the shareholder agrees
in writing to accept such amount in full satisfaction of his or
her demand. In order to exercise Dissenters' Rights, a shareholder
must follow carefully all steps prescribed in Appendix B. (See "RIGHTS
OF DISSENTING SHAREHOLDERS" and Appendix B.) A shareholder who returns
a signed appointment of proxy but fails to provide instructions as to
the manner in which such shares are to be voted will be deemed to have
voted in favor of the Agreement and the Charter Amendment and will not
be entitled to assert Dissenters' Rights.
Differences in Capital Stock of Bancshares and Seaboard. In
connection with the Merger, Seaboard's shareholders (other than
shareholders who exercise Dissenters' Rights) will become shareholders
of Bancshares. There are certain differences between the rights of
shareholders of Bancshares as opposed to shareholders of Seaboard.
Shareholders should consider carefully the differences in Bancshares
Stock and Seaboard Stock under the governing instruments of those
corporations and North Carolina law. (See "CAPITAL STOCK OF
BANCSHARES AND SEABOARD Differences in Capital Stock of Bancshares
and Seaboard.")
Resales of Bancshares Stock Received in Merger. The shares of
Bancshares Stock into which Seaboard Stock will be converted in the
Merger will be freely transferable by the holders thereof except in the
case of shares held by persons who may be deemed to be "Affiliates" of
Seaboard or Bancshares under applicable federal securities laws.
Generally, Seaboard's Affiliates include its directors, executive
officers, principal shareholders and other persons who may be deemed to
"control" Seaboard. (See "PROPOSAL 1: THE MERGER--Restrictions on
Resale of Bancshares Stock Received by Certain Persons.")
Summary of the Charter Amendment
Section 8 of Seaboard's Amended and Restated Certificate of
Incorporation provides that, until May 10, 1996, no person shall
directly or indirectly offer to acquire or acquire beneficial
ownership of more than 10% of any class of Seaboard's equity
securities. In order to consummate the Merger, it will be necessary
to amend Section 8 to rescind the provisions of section 8 as they apply
to the Merger. Therefore, in addition to a proposal to approve the
Agreement, Seaboard's Board of Directors will submit a proposal at the
Special Meeting to approve the Charter Amendment which provides for an
exception to the above prohibitions as they apply only to the Merger
and only pursuant to the terms of the Agreement as described in this
Prospectus/Proxy Statement. If approved by the shareholders at the
Special Meeting, the Charter Amendment will not become effective
until filed with and approved by the Administrator. The Charter
Amendment must be approved by the affirmative vote of the holders
of a majority of the votes cast, in person or by proxy, on the
Charter Amendment at the Special Meeting. SEABOARD'S BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT SEABOARD'S SHAREHOLDERS VOTE TO APPROVE
THE AGREEMENT. (See "PROPOSAL 2: THE CHARTER AMENDMENT.")
8
SELECTED FINANCIAL INFORMATION AND UNAUDITED COMPARATIVE PER SHARE DATA
United Carolina Bancshares Corporation
The following table sets forth certain selected historical
consolidated financial information for Bancshares at the date and for
the periods indicated. This selected financial information has been
derived from and should be read in conjunction with Bancshares'
audited consolidated financial statements and interim unaudited
financial statements, including the related notes thereto, which are
incorporated by reference in this Prospectus/Proxy Statement. (See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.") Management
believes such unaudited consolidated financial statements as of and for
the nine months ended September 30, 1995 and 1994 include all
adjustments (which consist only of normal recurring accruals) necessary
for a fair presentation of such results for such interim periods.
Results for the nine months ended September 30, 1995, are not
necessarily indicative of results that may be expected for any
other interim period or for the full year.
As of and for the
nine months As of and for the
ended September 30, year ended December 31,
(unaudited)
1995 1994 1994 1993 1992 1991 1990
(Dollars in thousands except per share amounts)
Summary of operations:
Interest income . . . . . . . . . . $ 210,509 $ 169,849 $ 231,856 $ 206,452 $ 211,795 $ 234,722 $ 242,349
Interest expense . . . . . . . . . 93,355 62,525 87,021 78,701 91,805 122,807 137,489
Net interest income . . . . . . . 117,154 107,324 144,835 127,751 119,990 111,915 104,860
Provision for credit losses . . . . 4,400 2,771 3,371 4,993 11,920 14,616 17,540
Net interest income after
provision for credit losses . . 112,754 104,553 141,464 122,758 108,070 97,299 87,320
Noninterest income . . . . . . . . 33,355 32,445 43,405 41,671 38,982 35,999 32,099
Noninterest expenses, excluding
restructuring charges . . . . . . 93,894 94,618 125,699 115,970 105,655 100,204 91,829
Restructuring charges . . . . . . . 11,906
Income before income taxes . . . . 52,215 42,380 47,264 48,459 41,397 33,094 27,590
Income tax provision . . . . . . 19,027 15,316 17,198 15,842 12,968 9,713 7,352
Income before cumulative
effects of changes in
accounting methods . . . . . . . 33,188 27,064 30,066 32,617 28,429 23,381 20,238
Cumulative effects of changes
in accounting methods . . . . . . (316) (316) 855
Net income . . . . . . . . . . . . $ 33,188 $ 26,748 $ 29,750 $ 33,472 $ 28,429 $ 23,381 $ 20,238
Per share data:
Income before cumulative
effects of changes in
accounting methods . . . . . . . $ 2.25 $ 1.85 $ 2.05 $ 2.23 $ 1.96 $ 1.61 $ 1.39
Net income . . . . . . . . . . . . $ 2.25 $ 1.83 $ 2.03 $ 2.29 $ 1.96 $ 1.61 $ 1.39
Cash dividends declared . . . . . . $ .72 $ .62 $ .84 $ .76 $ .66 $ .61 $ .60
Book value at end of year . . . . . $ 19.79 $ 18.11 $ 17.92 $ 17.22 $ 15.69 $ 14.37 $ 13.09
Balance sheet data at year-end:
Total assets . . . . . . . . . . . $3,776,643 $3,239,041 $3,331,638 $3,132,849 $2,874,077 $2,679,227 $2,649,379
Total earning assets . . . . . . . 3,513,520 3,001,018 3,085,570 2,873,901 2,644,736 2,451,087 2,297,705
Loans, net of unearned income . . . 2,635,535 2,355,912 2,418,158 2,226,425 1,897,906 1,818,847 1,713,244
Total deposits . . . . . . . . . . 3,398,206 2,885,753 2,940,599 2,811,656 2,540,843 2,424,742 2,412,647
Stockholders' equity . . . . . . . $ 292,315 $ 266,063 $ 263,489 $ 251,915 $ 228,437 $ 208,942 $ 190,256
Average balance sheet data:
Total assets . . . . . . . . . . . $3,545,516 $3,160,194 $3,190,756 $2,932,951 $2,780,564 $2,657,284 $2,531,947
Total earning assets . . . . . . . 3,314,108 2,942,498 2,973,425 2,721,807 2,580,599 2,415,833 2,290,184
Loans, net of unearned income . . . 2,550,155 2,300,535 2,319,309 2,019,087 1,864,292 1,760,035 1,692,848
Total deposits . . . . . . . . . . 3,179,590 2,809,092 2,836,243 2,606,340 2,476,963 2,406,175 2,291,256
Stockholders' equity . . . . . . . $ 275,989 $ 257,212 $ 259,584 $ 239,488 $ 217,779 $ 197,891 $ 184,647
Performance ratios:
Income before cumulative
effects of changes in
accounting methods as a
percent of:
Average stockholders'
equity . . . . . . . . . . . 16.08%(1) 14.07%(1) 11.58% 13.62% 13.05% 11.82% 10.96%
Average total assets . . . . . 1.25%(1) 1.15%(1) .94% 1.11% 1.02% .88% .80%
____________________________________________
(1) Annualized.
9
Seaboard Savings Bank, Inc., SSB
The following table sets forth certain selected historical
consolidated financial information for Seaboard at the dates and for
the periods indicated. This selected financial information has been
derived from and should be read in conjunction with Seaboard's audited
consolidated financial statements and interim unaudited financial
statements, including the related notes thereto, which accompany
this Prospectus/Proxy Statement. (See "CONSOLIDATED FINANCIAL
STATEMENTS OF SEABOARD SAVINGS BANK, INC., SSB, AND SUBSIDIARY.")
Management believes that such unaudited consolidated financial
statements include all adjustments (which consist only of normal
recurring accruals) necessary for a fair presentation of such results
for such interim periods. Results for the nine months ended September
30, 1995, are not necessarily indicative of results that may be
expected for any other interim period or for the full year.
As of and for the
nine months As of and for the
ended September 30, year ended December 31,
(unaudited)
1995 1994 1994 1993(1) 1992(1) 1991(1) 1990(1)
(Dollars in thousands except per share amounts)
Summary of operations:
Interest income . . . . . . . . . . $ 2,735 $ 2,334 $ 3,149 $ 2,913 $ 2,961 $ 3,070 $ 3,025
Interest expense . . . . . . . . . 1,519 1,021 1,426 1,384 1,651 2,025 2,159
Net interest income . . . . . . . 1,216 1,313 1,723 1,529 1,310 1,045 866
Provision for credit losses . . . . 50 17 42 80 83 51 46
Net interest income after
provision for credit losses . . 1,166 1,296 1,681 1,449 1,227 994 820
Noninterest income . . . . . . . . 443 345 453 473 385 399 434
Noninterest expenses . . . . . . . 1,229 1,174 1,589 1,266 1,087 969 865
Income before income taxes . . . . 380 467 545 656 525 424 389
Income tax provision . . . . . . 123 180 228 236 202 156 133
Net income . . . . . . . . . . . . $ 257 $ 287 $ 317 $ 420 $ 323 $ 268 $ 256
Per Share Data:
Net income . . . . . . . . . . . . $ 0.79 $ 0.91 $ 1.00 $ 1.38 $ -- $ -- $ --
Cash dividends declared . . . . . . $ .30 $ 0.30 $ 0.40 $ .20 $ -- $ -- $ --
Book value at end of year . . . . . $ 19.56 $ 18.92 $ 18.71 $ 18.20 $ -- $ -- $ --
Balance sheet data at year-end:
Total assets . . . . . . . . . . . $ 47,672 $ 43,270 $ 43,499 $ 37,815 $ 33,628 $ 31,349 $ 30,212
Total earning assets . . . . . . . 43,968 38,902 40,446 35,501 31,439 29,585 27,790
Loans receivable, net . . . . . . . 36,899 34,149 34,527 29,138 27,219 26,704 25,697
Total deposits . . . . . . . . . . 40,291 34,767 35,354 30,809 29,846 28,808 27,148
Stockholders' equity . . . . . . . $ 5,976 $ 5,761 $ 5,697 $ 5,540 $ 2,414 $ 2,091 $ 1,823
Average balance sheet data:
Total assets . . . . . . . . . . . $ 46,225 $ 39,854 $ 40,057 $ 36,843 $ 32,489 $ 30,781 $ 29,619
Total earning assets . . . . . . . 42,065 37,850 37,748 34,218 31,302 29,360 28,720
Loans receivable, net . . . . . . . 36,493 31,979 32,431 27,998 27,020 26,274 26,223
Total deposits . . . . . . . . . . 38,687 33,767 33,146 31,626 29,561 28,064 26,440
Stockholders' equity . . . . . . . $ 5,910 $ 5,704 $ 5,618 $ 3,977 $ 2,263 $ 1,987 $ 1,695
Performance ratios:
Net Income as a percentage of:
Average stockholders' equity . . 4.34% (2) 5.03% (2) 5.64% 10.56% 14.27% 13.49% 15.10%
Average total assets . . . . . . .56% (2) .72% (2) .79% 1.05% .99% .87% .86%
____________________________________________
(1) Seaboard converted to a stock savings bank on May 10,
1993. Earnings per share amounts in 1995 and 1994 are based upon
weighted average number of shares and dilutive stock options assumed
to be outstanding. The earnings per share computation for 1993
assumes that the shares issued in the conversion had been outstanding
since January 1, 1993, but does not include any assumed earnings which
would have been generated prior to May 10, 1993, the date of the
conversion.
(2) Annualized.
10
Comparative Per Share Data
The following tables set forth Bancshares' and Seaboard's book
values, cash dividends declared and net income per share at the date and
for the periods presented (i) on an historical basis, and (ii) on a pro
forma combined and equivalent per share of Seaboard Stock basis (each
assuming that the Merger became effective on the specified dates and was
accounted for as a "pooling-of-interests"). The following information
does not include the effects of a recently announced merger by
Bancshares which is not considered to be material. See "UNITED CAROLINA
BANCSHARES CORPORATION AND UNITED CAROLINA BANK--Recent Events."
Book value per common share: At September 30, 1995 At December 31, 1994
Bancshares . . . . . . . . . . . . . . . . . $19.79 $17.92
Seaboard . . . . . . . . . . . . . . . . . . 19.56 18.71
Pro forma combined . . . . . . . . . . . . . 19.82 17.97
Equivalent per share for Seaboard (1). . . . 18.04 16.36
(1) Equivalent per share amount is calculated by multiplying the pro
forma combined amount by the Exchange Rate of 0.9104 of a share of
Bancshares Stock for each share of Seaboard Stock.
Nine months ended Year ended December 31,
September 30, 1995 1994 1993 1992
Cash dividends per common share:
Bancshares . . . . . . . . . . . . . . . . . . $ .72 $ .84 $ .76 $ .66
Seaboard . . . . . . . . . . . . . . . . . . . .30 .40 .20 --
Pro forma combined . . . . . . . . . . . . . . .71 .83 .75 .66
Equivalent per share for Seaboard (1). . . . . .65 .76 .68 .60
Income per common share before cumulative effect of
a change in accounting method:
Bancshares . . . . . . . . . . . . . . . . . . $2.25 $2.05 $2.23 $1.96
Seaboard . . . . . . . . . . . . . . . . . . . .79 1.00 1.38 --
Pro forma combined . . . . . . . . . . . . . . 2.23 2.03 2.22 1.98
Equivalent per share for Seaboard (1). . . . . 2.03 1.85 2.02 1.80
(1) Equivalent per share amounts are calculated by multiplying the pro
forma combined amounts by the Exchange Rate of 0.9104 of a share of
Bancshares Stock for each share of Seaboard Stock.
The following table sets forth (i) on an historical basis, the
closing price per share of Bancshares Stock on the Nasdaq National
Market on July 21, 1995 (the last trading date prior to the public
announcement of the Merger), and (ii) the market value of a share of
Seaboard Stock on that date, and (iii) the equivalent pro forma market
value of Seaboard Stock on that date (assuming that the Merger became
effective on that date and was accounted for as a pooling-of-interests).
On , 1995, the last reported sale price for Bancshares Stock on the
Nasdaq National Market was $______. The last trade price of Seaboard
Stock known to management of Seaboard prior to that date was $______.
(See "MARKET AND DIVIDEND INFORMATION REGARDING SEABOARD STOCK AND
BANCSHARES STOCK.")
At July 21, 1995
Bancshares Stock (1) . . . . . . . . . . . . . . . . . . $ 31.25
Seaboard Stock (1) . . . . . . . . . . . . . . . . . . . $ 16.00
Equivalent pro forma Seaboard Stock (2). . . . . . . . . $ 28.45
______________________
(1) The price shown for Bancshares Stock is the closing price on the
Nasdaq National Market on the indicated date. The value shown for
the Seaboard Stock is the last trade price of Seaboard Stock known
to management of Seaboard prior to July 21, 1995.
(2) The equivalent pro forma amount is calculated by multiplying the
closing price of Bancshares Stock on July 21, 1995, by the Exchange
Rate.
11
PROPOSAL 1: THE MERGER
The following is a summary of information about the Merger and
certain of the important terms and conditions of the Agreement and
related matters and is not intended to be a complete description of all
material facts regarding the Merger. This summary is subject to and
qualified in all respects by reference to the Agreement attached hereto
as Appendix A, the statutes regarding Dissenters' Rights attached hereto
as Appendix B, and to the other Appendices to this Prospectus/Proxy
Statement (each of which is incorporated herein by reference). Each
Seaboard Shareholder is urged to read the Agreement, this
Prospectus/Proxy Statement and the other Appendices in their entirety.
General
At the Special Meeting, a proposal will be introduced for
Seaboard's shareholders to approve the Agreement. The Agreement provides
for the Merger of Seaboard into UCB and the conversion and exchange of
the outstanding shares of Seaboard Stock (other than shares held by
Seaboard shareholders who exercise their Dissenters' Rights) into and
for newly issued shares of Bancshares Stock. At the Effective Time, (i)
Seaboard will be merged into and its existence will be combined with
that of UCB, and Seaboard will cease to exist as a separate entity, (ii)
Seaboard's shareholders (other than shareholders who exercise their
Dissenters' Rights) will become shareholders of Bancshares, and (iii)
UCB will be the surviving corporation in the Merger and will continue to
exist (under the management of its current officers and directors) as a
wholly-owned subsidiary of Bancshares and to conduct its business as a
North Carolina banking corporation under the supervision and regulation
of the Commissioner and the FDIC. (See "--Conversion of Seaboard Stock
and Seaboard Options; Exchange Rate" and "RIGHTS OF DISSENTING
SHAREHOLDERS.") Seaboard's deposit accounts will become deposit accounts
of UCB and will continue to be insured by the FDIC to the maximum amount
permitted by law.
Conversion of Seaboard Stock and Seaboard Options; Exchange Rate
At the Effective Time, and without any action on the part of
Bancshares, Seaboard or Seaboard's shareholders, each share of Seaboard
Stock held of record by Seaboard's shareholders (other than shares as to
which a shareholder properly exercises Dissenters' Rights) automatically
will be converted into and become, and thereafter may be exchanged for,
0.9104 of a newly issued share of Bancshares Stock. (See "RIGHTS OF
DISSENTING SHAREHOLDERS.") However, if the 30-Day Average is greater
than $38.50 per share, then the Exchange Rate will be adjusted to equal
the ratio (rounded to four decimal places) produced by dividing $35.05
by the 30-Day Average, and if the 30-Day Average is less than $25.00 per
share, then the Exchange Rate will be adjusted to equal the ratio
(rounded to four decimal places) produced by dividing $22.76 by the
30-Day Average. If there is a change in the number of outstanding
shares of Bancshares Stock or Seaboard Stock prior to the Effective Time
as a result of a stock dividend, stock split, reclassification or other
subdivision or combination of outstanding shares, then an appropriate
and proportionate adjustment will be made in the Exchange Rate as
necessary to eliminate any dilutive or antidilutive effect of such
change in outstanding shares. Management of Bancshares and Seaboard
currently are not aware of any change (completed or proposed) in the
outstanding shares of Bancshares Stock or Seaboard Stock such as would
result in an adjustment in the Exchange Rate.
At the Effective Time, all rights with respect to then outstanding
options held by certain employees and directors of Seaboard to purchase
shares of Seaboard Stock ("Seaboard Options"), whether or not then
exercisable, will be converted into (at the Exchange Rate) and will
become rights with respect to Bancshares Stock, and Bancshares will
assume Seaboard's obligations with respect to each such Seaboard Option
in accordance with the terms of the applicable stock option plan and
agreement under which such Seaboard Option was granted. (See
"--Interests of Certain Persons With Respect to the Merger.")
Surrender and Exchange of Certificates
Following the Effective Time, all certificates formerly evidencing
shares of Seaboard Stock ("Old Certificates") will evidence the right of
the registered holders thereof to receive and may be exchanged for
certificates ("New Certificates") evidencing the number of whole shares
of Bancshares Stock into which such holders' shares of Seaboard Stock
will have been converted.
12
As of the Effective Time, Seaboard's stock transfer books will be
closed and no further transfer of Seaboard Stock or of an Old
Certificate will be recognized or registered on Seaboard's stock
transfer records. As soon as possible following the Effective Time,
Seaboard's shareholders will receive transmittal forms with instructions
for forwarding their Old Certificates for surrender to Bancshares'
exchange agent (the "Exchange Agent"). Upon proper surrender to the
Exchange Agent of their Old Certificates (together with properly
completed transmittal forms), each Seaboard shareholder will be entitled
to receive (i) New Certificates representing the number of whole shares
of Bancshares Stock into which his or her shares of Seaboard Stock will
have been converted, together with cash for any fractional share (see
"--Treatment of Fractional Shares"), or (ii) in the case of a shareholder
properly exercising his or her Dissenters' Rights, the amount of cash
determined as provided in Article 13 of the North Carolina Business
Corporation Act. (See "RIGHTS OF DISSENTING SHAREHOLDERS.")
Until surrendered as described above, each Old Certificate will be
deemed for all corporate purposes to evidence only the right to receive
the number of shares of Bancshares Stock to which the Seaboard
shareholder will have become entitled. However, after the Effective
Time and regardless of whether they have surrendered their Old
Certificates, Seaboard's shareholders will be entitled to vote and to
receive any dividends or other distributions (for which the record date
is after the Effective Time) on the number of whole shares of Bancshares
Stock into which their Seaboard Stock has been converted; provided,
however, that no such dividends or other distributions will be paid to
the holders of such Old Certificates unless and until the Old
Certificates are surrendered. Upon surrender and exchange of each Old
Certificate, there will be paid the amount, without interest thereon, of
dividends and other distributions, if any, which became payable on the
shares of Bancshares Stock represented by such certificate after the
Effective Time but had not been paid to the record owner thereof.
Shareholders whose Old Certificates have been lost, stolen or
destroyed will be required to furnish to Bancshares evidence
satisfactory to the Exchange Agent of ownership of such Old Certificates
and of such loss, theft or destruction, and to furnish appropriate and
customary indemnification (which may include an indemnity bond) in order
to receive the New Certificates and cash to which they are entitled.
SEABOARD'S SHAREHOLDERS SHOULD NOT FORWARD THEIR OLD CERTIFICATES
TO THE EXCHANGE AGENT UNTIL THEY RECEIVE INSTRUCTIONS TO DO SO.
Treatment of Fractional Shares
No fraction of a share of Bancshares Stock, or any script or
certificate representing any such fractional share, will be issued in
connection with the Merger, and no right to vote or to receive any
dividend or other distribution shall attach to any such fractional
share. At the Effective Time, Bancshares will deliver cash to the
Exchange Agent in an amount equal to the aggregate "market value" of all
such fractional shares. Each Seaboard shareholder who otherwise would
be entitled to receive a fraction of a share of Bancshares Stock shall,
upon the surrender and exchange of his or her Old Certificates, and in
lieu of such fractional share, be entitled to receive cash (without
interest) from the Exchange Agent in an amount equal to that fraction
multiplied by the "market value" of one whole share of Bancshares Stock.
As used above, "market value" shall be equal to the average of the
closing prices of Bancshares Stock on the Nasdaq National Market for the
ten consecutive trading days immediately preceding the Closing Date (as
defined below).
Background of and Reasons for the Merger.
Since its organization in 1937, Seaboard has operated as a
community-oriented financial institution serving the Plymouth, North
Carolina market area. This community-oriented banking philosophy has
allowed it to compete effectively and profitably with the other banking
institutions in its local market. During the last ten years, however,
competition has dramatically increased with other types of financial
institutions offering services traditionally offered only by banks, with
an increase in public demand for a broader range of consumer services
from community banking institutions, and with the imposition of
additional regulations by banking regulators. These changes have forced
Seaboard's Board of Directors regularly to evaluate its strategic
alternatives. As a result of these deliberations, Seaboard converted to
stock ownership in 1993 in order to increase its capital and thereby its
ability to offer additional competitive services. Before and after its
stock conversion, Seaboard's President was approached by UCB regarding a
possible merger. Seaboard initially declined to pursue discussions with
UCB because it desired to retain its independence and, after the stock
conversion, was subject to regulatory restrictions on any merger.
13
Even before its stock conversion, Seaboard had begun to provide
services beyond those offered by traditional thrift institutions
(savings accounts and fixed-rate mortgage loans held in portfolio) by
introducing checking accounts, variable-rate mortgage loans and various
consumer loan products. After the stock conversion, Seaboard began to
sell certain of its mortgage loans into the secondary mortgage market.
Seaboard, while remaining profitable, recognized that its existing
markets had limited growth potential and that any significant growth
would have to come from new markets. Seaboard was unsuccessful it its
attempts to purchase branch offices from UCB and other financial
institutions. Ultimately, in 1994, Seaboard elected to open a new
branch in Williamston, North Carolina. The costs of constructing the
new branch and attracting deposits and loans were significant and
resulted in depressed earnings until the branch matured. During this
time period, UCB again approached Seaboard's President about a possible
merger. The Board of Directors engaged an investment advisor and sought
the advice of special legal counsel. However, Seaboard was still
subject to regulatory restrictions on any merger and its Board of
Directors elected to defer any further merger discussions until after
the Williamston branch was operational. Seaboard continued to receive
unsolicited expressions of interest in a merger from various other
banking institutions.
While continuing to remain profitable, by the end of 1994, Seaboard
recognized that remaining an independent institution may not best serve
the long-term interests of Seaboard and its shareholders. Seaboard's
existing markets were not experiencing significant growth, the
Williamston denovo branching experience demonstrated that expansion into
new markets on a denovo basis involved high fixed costs and depressed
earnings, the opportunities to purchase existing branch offices from
another financial institution were not available, and the opportunity to
merge with another community financial institution in or adjacent to its
markets was also unavailable. Seaboard Stock is lightly traded, and,
therefore, Seaboard's shareholders have limited ability to sell their
stock. To increase shareholder value, Seaboard's Board of Directors
determined it needed to expand the banking services currently offered to
include commercial lending to obtain loan growth in its existing market
and to acquire more banking technology to provide competitive banking
services in its local market. Since it has no experience in commercial
lending, Seaboard would have been required to add senior staff
experienced in commercial lending. In addition, banking technology is
expensive and involves significant staff training. The risk of these
responses to competitive pressures was that Seaboard would lose the
benefits of its high capital levels and low cost structure.
Considering these and other factors, in May 1995, after UCB again
approached Seaboard about a possible merger, Seaboard requested that UCB
prepare a formal offer for a merger. After a discussion of various
issues with Seaboard's President, certain members of UCB's senior
management met with Seaboard's Board of Directors on July 14, 1995, and
presented a proposal to merge Seaboard into UCB. Seaboard again engaged
its investment advisor and sought the advice of special legal counsel.
The Board of Directors believed that UCB's proposal was a high offer and
that, considering the expected costs of increasing its loan penetration
or its markets, Seaboard could not create greater shareholder value from
independent operations in the foreseeable future. Seaboard's financial
advisor gave the Board of Directors an opinion that the UCB proposal was
fair, from a financial viewpoint, to Seaboard's shareholders. The Board
of Directors also believed that the merger would give shareholders the
opportunity for growth in a widely traded stock and ownership in a
company with a good history of cash dividends and earnings. Seaboard's
special counsel indicated that a merger with UCB appeared to be a
permissible action under North Carolina law if the prior approval of the
Administrator was obtained. Therefore, on July 20, 1995, the Board of
Directors approved the signing of a Letter of Intent with UCB and
Bancshares.
The Board of Directors considered it important to recognize the
contribution of its employees to the profitability of Seaboard. UCB
offered Seaboard's employees greater professional opportunities,
personal growth and potential rewards for those individuals who remained
with UCB and severance compensation for those who did not. The Board of
Directors also considered the ability of UCB to offer a broader and more
sophisticated range of consumer and commercial services to its markets
and a much larger lending limit. UCB also has the ability to acquire
new banking technology in a cost-efficient manner with economies of
scale. In addition, the Board of Directors believed that Seaboard was
in a position to offer UCB market share that would enhance other UCB
acquisitions and that this value was unique to UCB and would not be as
significant to other potential merger candidates considering the
characteristics of Seaboard's market area. Therefore, the UCB proposal
was in the best interests of the shareholders, the employees and the
customers of Seaboard. Following negotiation of these and other issues
and a review of the corporate records of UCB and Bancshares, on
September 14, 1995, Seaboard's Board of Directors approved the signing
of the Agreement.
14
Recommendation
SEABOARD'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
SEABOARD'S SHAREHOLDERS VOTE TO APPROVE THE AGREEMENT. Seaboard's Board
of Directors has adopted the Agreement and believes the Merger is in the
best interests of Seaboard and its shareholders and unanimously
recommends that Seaboard's shareholders vote FOR approval of the
Agreement.
Fairness Opinion
Engagement of Financial Advisor. Seaboard has retained Meritas to
act as its financial advisor in connection with the Merger. Meritas was
chosen by Seaboard's Board of Directors on the basis of Meritas'
experience in the valuation of securities in connection with mergers and
acquisitions. Meritas is a financial consulting firm that is engaged,
among other things, in the evaluation of thrift and banking institutions
and their securities, the negotiation and structuring of merger and
acquisition transactions, and other financial advisory matters for
financial institutions. Except as described herein, Meritas is not
affiliated in any way with Seaboard, Bancshares or their respective
affiliates.
Representatives of Meritas attended meetings with Seaboard's
management and Board of Directors to consider the proposed Merger,
including a meeting held on July 20, 1995, at which the proposed terms
of the Merger were reviewed and approved. At that meeting, Meritas
rendered its oral opinion that, as of that date, the consideration of
0.9104 of a share of Bancshares Stock for each share of Seaboard Stock
was fair, from a financial point of view, to the holders of Seaboard
Stock; and, Meritas also has delivered the Fairness Opinion to
Seaboard's Board of Directors dated December ___, 1995 to the same
effect. Meritas has agreed to update and confirm the Fairness Opinion
immediately prior to the Effective Time. No limitations were imposed by
Seaboard's Board of Directors upon Meritas with respect to the
investigations made or procedures followed by it in rendering the
Fairness Opinion. The full text of the Fairness Opinion, which sets
forth certain assumptions made, matters considered and limitations on
review undertaken, is attached as Appendix C to this Prospectus/Proxy
Statement and should be read by the shareholders of Seaboard in its
entirety. The summary of the Fairness Opinion set forth in this
Prospectus/Proxy Statement is qualified in its entirety by reference to
the text of the Fairness Opinion which is incorporated herein by
reference.
In arriving at the Fairness Opinion, Meritas reviewed certain
publicly available business and financial information relating to
Bancshares and Seaboard. Meritas also reviewed certain other
information provided to it by Bancshares and Seaboard, and discussed
with Seaboard's management the respective businesses and prospects of
Bancshares and Seaboard. Meritas also considered certain financial and
stock market data of Bancshares and Seaboard, compared that information
with similar data for other publicly held bank holding companies,
thrifts and thrift holding companies and considered the financial terms
of certain other comparable transactions which have recently been
announced or effected, as further discussed below. Meritas also
considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria as it deemed
relevant. In connection with its review, Meritas did not independently
verify any of the foregoing information and Meritas relied on such
information as being complete and accurate in all material respects. In
addition, Meritas did not make an independent evaluation or appraisal of
the assets of Bancshares or Seaboard. In connection with evaluating the
Merger, Meritas was not requested to and did not solicit other third
party indications of interest in acquiring all or any part of Seaboard.
The Fairness Opinion is directed to Seaboard's Board of Directors
only, and is directed only to the fairness, from a financial point of
view, of the Exchange Rate. The terms of the Merger were arrived at by
negotiations between management officials of Seaboard and Bancshares.
Meritas made recommendations to Seaboard regarding terms of the Merger.
However, the Fairness Opinion does not address Seaboard's underlying
business decision to effect the Merger or constitute an endorsement of
the Merger or a recommendation as to how any shareholder of Seaboard
should vote at the Special Meeting.
The receipt of the Fairness Opinion is a condition precedent to
Seaboard's consummating the Merger, but was one of many factors taken
into consideration by Seaboard's Board of Directors in making its
determination to approve the Merger. The opinion of Meritas does not
address the relative merits of the Merger as compared to any alternative
business strategies that might exist for Seaboard or the effect of any
other business combination in which Seaboard might engage.
15
In connection with rendering the Fairness Opinion and preparing its
various presentations to Seaboard's Board of Directors, Meritas
performed a variety of financial analyses, including those summarized
below. The summary set forth below does not purport to be a complete
description of the analyses performed by Meritas in this regard. The
preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant methods of financial analysis and the
application of these methods to the particular circumstances and,
therefore, such an opinion is not readily susceptible to a summary
description. Accordingly, notwithstanding the separate factors
summarized below, Meritas believes that its analyses must be considered
as a whole and that selecting portions of its analyses and the factors
considered by it, without considering all analyses and factors, could
create an incomplete view of the evaluation process underlying the
Fairness Opinion. In performing its analyses, Meritas made numerous
assumptions with respect to regulatory factors, industry performance,
business and economic conditions and other matters, many of which are
beyond Seaboard's or Bancshares' control. The analyses performed by
Meritas are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than
suggested by such analyses. Additionally, analyses relating to the
values of businesses do not purport to be appraisals or to reflect the
prices at which businesses actually may be sold.
Comparable Transaction Analysis. Meritas performed an analysis of
prices paid for selected thrifts and thrift holding companies in order
to obtain a valuation range based upon recent transactions similar to
the Merger. Multiples of market value, book value, adjusted book value,
tangible book value, trailing twelve months earnings and annualized
latest quarter earnings as well as deposit premiums implied by the
consideration to be received by Seaboard's shareholders in the Merger
were compared with certain multiples paid in comparable transactions.
Comparable transactions were considered to include transactions
involving bank holding company acquisitions of thrifts or thrift holding
companies. The comparable transactions included the following pending
or recently consummated transactions: Winton Financial Corporation
purchase of Blue Chip Savings Bank; SGL, Inc. purchase of Am-First
Financial Corporation; Security Bank purchase of United Bank, S.B.;
BancorpSouth, Inc. purchase of First Federal Bank for Savings; Centura
Bank purchase of Cleveland Federal Savings Bank; First Federal Financial
Corporation of Kentucky purchase of Bullitt Federal Savings Bank; First
Citizens Bancshares, Inc. purchase of First Republic Savings Bank FSB;
AmSouth Bancorp purchase of Community Federal Savings Bank; Washington
Federal Savings Bank purchase of Capital Bancshares; and First Financial
Bancorp buying Highland Federal Savings Bank.
Based on the Exchange Rate (0.9104 of a share of Bancshares Stock
quoted at $35.75 for each share of Seaboard Stock as of October 31,
1995), the analysis yielded a range of transaction values (i) to book
value of .99X to 1.86X with a median of 1.47X (compared to 1.66X for the
Merger), (ii) to tangible book value of .99X to 1.86X with a median of
1.47X (compared to 1.66X for the Merger), (iii) to trailing twelve
months earnings of 6.8X to 17.5X with a median of 15.5X (compared to
34.7X for the Merger). Additionally, Meritas examined the consideration
paid less tangible equity as a function of core deposits yielding a
range of values of between 0.08% and 11.95% with a median of 7.73%
compared to 11.71% for the Merger.
Peer Group Financial Comparison. Meritas compared historical stock
price data, earnings and dividend data and financial ratios for
Bancshares to the corresponding data and ratios of Colonial BancGroup
(Alabama), First Commercial Corporation (Arkansas), First National
Bancorp (Georgia), Whitney Holding Company (Louisiana), Citizens Bancorp
(Maryland), BancorpSouth, Inc. (Mississippi), Hancock Holding Company
(Mississippi), Trustmark Corporation (Mississippi), Centura Banks, Inc.
(North Carolina), and One Valley Bancorp of West Virginia, Inc. (West
Virginia) (the "Index Group"). Such data and ratios included
non-performing assets to total assets; Tier 1, risk-based and total
capital ratios; net interest margins; non-interest expense ratios;
return on average assets and return on average equity for the four
quarters ended June 30, 1995; price to book value and price to earnings;
and dividend yield. The financial data and ratios were computed as of
June 30, 1995, and the historical stock price data was computed as of
September 30, 1995. For the 52-week period ended September 30, 1995,
the index of the price of Bancshares Stock traded as high as 122.3%, as
low as 109.8% and on October 31, 1995, closed at 119.5% of the Index
Group composite price index.
Fees. For its services, Seaboard has agreed to pay Meritas a
$5,000 retainer and fees of $5,000 each for its advisory services in
connection with the Board of Directors' consideration of the Merger
proposal and for the Fairness Opinion. Seaboard also has agreed to
reimburse Meritas for its out-of-pocket expenses incurred in connection
with activities contemplated by its engagement and to indemnify Meritas
against certain liabilities that may arise in connection with its
engagement.
16
Required Shareholder Approval
The Agreement must be approved by Seaboard's shareholders before
the Merger may be consummated. Under North Carolina law, the
affirmative vote at the Special Meeting of the holders of at least a
majority of the total outstanding shares of Seaboard Stock is required
to approve the Agreement. Additionally, in order to consummate the
Merger, the Charter Amendment also must be approved by Seaboard's
shareholders at the Special Meeting. (See PROPOSAL 2: THE CHARTER
AMENDMENT.") To approve the Charter Amendment, the number of votes cast
in person and by proxy at the Special Meeting in favor of the Charter
Amendment must exceed the number of votes cast against it.
Required Regulatory Approvals
The Merger is subject to approval by the Commissioner, the Banking
Commission and the FDIC. Additionally, the Administrator must approve
Bancshares' acquisition of Seaboard. Under regulations issued by the
Administrator, no person may acquire beneficial ownership of more than
10% of Seaboard Stock until May 10, 1996, without the prior written
approval of the Administrator. The Administrator will grant approval
only upon a finding that (i) the acquisition is supported by the Board
of Directors of Seaboard, (ii) the person acquiring the Seaboard Stock
is of good character and integrity, possesses satisfactory managerial
skills, and will serve as a source of strength to the resulting entity
after the acquisition, and (iii) the interests of the public will not be
adversely affected. Seaboard has requested the Administrator's approval
for 100% of the Seaboard Stock to be acquired by Bancshares. While the
Board of Directors of Seaboard unanimously approved the Merger and
believes that Bancshares qualifies under the Administrator's
regulations, no assurances can be given that the Administrator will
approve Bancshares' acquisition of 100% of the Seaboard Stock.
The Agreement provides that UCB's obligation to consummate the
Merger is conditioned on receipt of all requisite regulatory approvals.
In addition, such approvals may not contain any terms or conditions that
are reasonably considered by Bancshares or UCB to be materially
disadvantageous or burdensome or to impact so adversely the economic or
business benefits of the Agreement to Bancshares and UCB as to render
consummation of the Merger inadvisable. Applications for all required
regulatory approvals have been filed and currently are pending.
Although no assurances are or can be given that such approvals will be
obtained, Bancshares and Seaboard have no reason to believe that any
such regulatory approval will not be obtained.
After final FDIC approval is received, a 15 to 30-day waiting
period is required prior to consummation of the Merger to allow the
United States Department of Justice to review the transaction for
antitrust considerations.
Conduct of Business Pending the Merger
The Agreement provides that, during the period from the date of the
Agreement to the Effective Time, except as provided in the Agreement,
Seaboard will conduct its business in the regular and usual course in
substantially the same manner as such business previously has been
conducted and, to the extent consistent with such business and within
its ability to do so, Seaboard will, among other things, preserve intact
its business organization, retain the services of its officers and
employees and preserve its business relationships. The Agreement also
provides that, prior to the Effective Time, and except in the ordinary
course of business or as otherwise permitted by the Agreement or as
required by applicable law or regulation, Seaboard will not, among other
prohibited actions, (i) incur indebtedness for borrowed money, (ii)
sell, transfer, mortgage, pledge or otherwise dispose of any of its
properties or assets, or acquire any significant assets, (iii) increase
the compensation or benefits of any of its employees, (iv) settle any
claim, action or proceeding against it involving monetary damages, (v)
make any change in its capital stock, or issue, sell, purchase, redeem
or retire shares of such stock, (vi) amend its charter or bylaws, (vii)
grant or issue any additional options, (viii) enter into any new
employment agreements or adopt any new employee benefit plans, (ix)
change its accounting practices, (x) acquire or open any new branch
offices, or (xi) enter into any contract other than in the ordinary
course of its business.
Dividends
The Agreement provides that Seaboard will not declare or pay any
dividends or make any other distributions on its capital stock. However,
if the Merger is not consummated prior to the January 1996 record date
for Bancshares'
17
regular fourth quarter cash dividend, then, prior to the Effective Time,
and to the extent permitted by applicable law, Seaboard may declare and
pay a cash dividend of $0.10 per share on the outstanding shares of
Seaboard Stock, and, if the Merger is not consummated prior to the April
1996 record date for Bancshares' regular first quarter cash dividend,
Seaboard may declare and pay an additional cash dividend of $0.10 per
share on the outstanding shares of Seaboard Stock.
Prohibition on Solicitation
The Agreement provides that Seaboard will not, directly or
indirectly, encourage, solicit or attempt to initiate or procure
discussions, negotiations or offers with or from any person or entity
other than Bancshares or UCB relating to a merger or other acquisition
of Seaboard or the purchase or acquisition of any Seaboard Stock or any
significant part of Seaboard's assets, or provide assistance to any
person in connection with any such offer. Further, Seaboard will not
disclose to any person or entity any information not customarily
disclosed to the public concerning Seaboard or its business.
Accounting Treatment
The Agreement contemplates that the Merger be treated as a
"pooling-of-interests" for accounting purposes. Accordingly, at the
Effective Time and under generally accepted accounting principles, the
consolidated assets and liabilities of Seaboard will be reported on the
books of Bancshares at their respective book values and Bancshares'
consolidated financial statements for periods prior to the Effective
Time will be restated to reflect Seaboard's consolidated assets,
liabilities and operations for such periods.
Among other requirements, in order for the Merger to qualify for
pooling-of-interests accounting treatment, substantially all (at least
90%) of the outstanding shares of Seaboard Stock must be exchanged for
Bancshares Stock. Generally, if the number of fractional shares of
Bancshares Stock resulting from the Merger for which cash is paid,
shares repurchased by Seaboard or by Bancshares, and shares of holders
of Seaboard Stock who exercise their dissenters' rights together
represent more than 10% of the shares to be issued by Bancshares in
connection with the Merger, then the Merger will not qualify for the
pooling-of-interests method of accounting. Bancshares' and UCB's
obligations to consummate the Merger are conditioned on receipt by
Bancshares of assurances from its independent accountants, KPMG Peat
Marwick LLP, in form and content satisfactory to Bancshares, to the
effect that the Merger will qualify to be treated as a
pooling-of-interests for accounting purposes. If the Merger does not
qualify for pooling-of-interests accounting treatment, then Bancshares
and UCB would be entitled to terminate the Agreement and abandon the
Merger. (See "--Conditions to Merger.")
Certain Income Tax Consequences
The following is a summary discussion of the material federal
income tax consequences of the Merger to Seaboard's shareholders. The
summary is based on the law as currently constituted and is subject to
change in the event of changes in the law, including amendments to
applicable statutes or regulations or changes in judicial or
administrative rulings, some of which could be given retroactive effect.
THIS SUMMARY IS NOT A COMPLETE DESCRIPTION OF ALL TAX CONSEQUENCES
OF THE MERGER. The summary does not address any foreign, state or local
tax consequences, except for certain North Carolina income tax
consequences, nor does it address all aspects of federal income taxation
that may apply to the Merger. Also, the Tax Opinion does not address
income tax considerations that may affect the treatment of a participant
in a Seaboard stock option plan or a Seaboard shareholder who acquired
Seaboard Stock pursuant to such a plan. Each Seaboard shareholder's
individual circumstances may affect the tax consequences of the Merger
to such shareholder. Therefore, Seaboard's shareholders are urged to
consult their own tax advisors as to the specific tax consequences to
them of the Merger and the exchange of their Seaboard Stock for shares
of Bancshares Stock (including, without limitation, tax return reporting
requirements, the application and effect of federal, foreign, state and
local and other tax laws, and the implications of any proposed changes
in the tax laws).
18
Bancshares and Seaboard have received an opinion of KPMG Peat
Marwick LLP (the "Tax Opinion"), tax advisors to Bancshares, which
reaches certain conclusions with respect to certain federal and North
Carolina income tax consequences of the Merger. Where appropriate or
useful, this discussion will refer to the Tax Opinion and particular
conclusions expressed therein. Additionally, the facts upon which the
Tax Opinion is based are set forth in such Tax Opinion which is an
exhibit to Bancshares' Registration Statement. (See "AVAILABLE
INFORMATION.") However, the Tax Opinion represents only that advisor's
best judgment as to the matters expressed therein and has no binding
effect on the Internal Revenue Service (the "IRS") or any official
status of any kind. There is no assurance that the IRS could not
successfully contest in the courts an opinion expressed by the advisor
as set forth in the Tax Opinion or that legislative, administrative or
judicial decisions or interpretations may not be forthcoming that would
significantly change the opinions set forth in the Tax Opinion. The IRS
will not currently issue private letter rulings concerning a
transaction's qualification under certain types of reorganizations or
certain federal income tax consequences resulting from such
qualification. Accordingly, no private letter ruling has been, nor is
it anticipated that such a ruling will be, requested from the IRS with
respect to the Merger.
The Tax Opinion concludes that:
(i) The Merger will constitute a tax-free
reorganization within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(D) of the Code;
(ii) No gain or loss will be recognized by
Bancshares, UCB or Seaboard by reason of the Merger;
(iii) No gain or loss will be recognized by
Seaboard's shareholders upon their receipt of Bancshares Stock
(including any fractional share interests to which they may be entitled)
solely in exchange for their holdings of Seaboard Stock;
(iv) The tax basis in the Bancshares Stock received
by a Seaboard shareholder (including any fractional share interests to
which they may be entitled) will be the same as the tax basis in the
Seaboard Stock surrendered in exchange therefor;
(v) The holding period for Bancshares Stock
received by a Seaboard shareholder (including any fractional share
interests to which they may be entitled) in exchange for Seaboard Stock
will include the period during which the shareholder held the Seaboard
Stock surrendered in the exchange, provided that the Seaboard Stock was
held as a capital asset at the Effective Time;
(vi) The receipt of cash in lieu of a fractional
share of Bancshares Stock will be treated as if the fractional share of
Bancshares Stock was distributed as part of the exchange to the Seaboard
shareholder and then redeemed by Bancshares, resulting in capital gain
or loss measured by the difference, if any, between the amount of cash
received for such fractional share and the shareholder's basis in the
fractional share; and,
(vii) Cash received by a Seaboard shareholder who
exercises his or her Dissenters' Rights will be treated as having been
received by the shareholder as a distribution in redemption of his or
her stock. If the redemption meets one of the four tests set forth in
Section 302 of the Code, it will result in capital gain or loss measured
by the difference, if any, between the amount of cash received and the
shareholder's basis in the stock. If the redemption does not meet one
of the four tests of Section 302, such distribution will be treated as a
dividend pursuant to Section 301.
The Tax Opinion also concludes that the Merger will be treated in
substantially the same manner for North Carolina income tax purposes as
for federal income tax purposes.
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS IN ORDER
TO MAKE AN INDIVIDUAL EVALUATION OF THE FEDERAL, STATE OR LOCAL TAX
CONSEQUENCES OF THE MERGER.
Conditions to Merger
Consummation of the Merger is subject to various conditions
described in the Agreement, including without limitation: (i) approval
of the Agreement by Seaboard's shareholders; (ii) receipt of all
required regulatory approvals
19
without the imposition by any regulatory agency of a condition to any
such approval that is considered by Bancshares or UCB to be materially
disadvantageous or burdensome or to impact the economic or business
benefits of the Merger so adversely that it would not be advisable to
consummate it; (iii) receipt of the Tax Opinion; (iv) receipt of the
Fairness Opinion and confirmation of the Fairness Opinion immediately
prior to the Effective Time; (v) satisfaction of all requirements for
the shares of Bancshares Stock to be issued in connection with the
Merger to be listed on the Nasdaq National Market as of the Effective
Time; and (vi) execution of employment agreements with certain officers
of Seaboard and its wholly-owned subsidiary as of the Effective Time.
Bancshares' and Seaboard's separate obligations under the Agreement
are subject to various other conditions described in the Agreement,
including without limitation: (i) the absence of a material adverse
change in the financial condition, results of operations or business of
the other party; (ii) compliance by the other party with all laws and
regulations applicable to the transactions described in the Agreement;
(iii) the absence of any violation or breach by the other party of any
of its obligations, covenants, agreements, representations or warranties
under the Agreement; and (iv) the receipt of certain certificates and
opinions of the other party's senior officers and legal counsel.
Additionally, Bancshares' obligations are subject to certain
additional conditions, including without limitation: (i) receipt of a
written agreement as to certain matters from persons who are considered
"Affiliates" of Seaboard (see "--Restrictions on Resale of Bancshares
Stock Received by Certain Persons"); (ii) receipt by Bancshares of
certain assurances satisfactory to it to the effect that the Merger may
be treated as a "pooling-of-interests" for accounting purposes; and
(iii) that the aggregate of certain of Seaboard's expenses associated
with the Merger not exceed $100,000.
Waiver; Amendment of Agreement
Prior to the Effective Time, any provision of the Agreement (other
than provisions relating to regulatory approvals and other approvals
required by law) may be waived by the party entitled to the benefits of
such provision. Additionally, the Agreement may be amended, modified or
supplemented by Bancshares, UCB and Seaboard at any time prior to the
Effective Time, and whether before or after approval by Seaboard's
shareholders, by an agreement in writing approved by a majority of the
members of their respective Boards of Directors. However, except as
otherwise provided in the Agreement, following approval of the Agreement
by Seaboard's shareholders, no such amendment may change the Exchange
Rate without shareholder approval of such change.
Termination of Agreement
The Agreement may be terminated and the Merger abandoned at any
time prior to the Effective Time, whether before or after approval by
Seaboard's shareholders, upon the mutual agreement of Bancshares, UCB
and Seaboard, and may be terminated by either Bancshares or Seaboard if,
among other things: (i) the other party shall have violated or failed
to perform fully any of its obligations, covenants or agreements in any
material respect; (ii) any of the other party's representations or
warranties shall have been false or misleading in any material respect
when made, or if there has occurred any event or development or there
exists any condition or circumstance which has caused or, with the lapse
of time or otherwise, may or could cause any such representations or
warranties to become false or misleading; (iii) Seaboard's shareholders
fail to ratify and approve the Agreement, or the Special Meeting is not
held, on or before March 31, 1996; (iv) any condition to the obligations
of the terminating party is not satisfied or effectively waived, or the
Merger has not become effective, by June 30, 1996 (or such later date as
shall be mutually agreeable to Bancshares, UCB and Seaboard).
Additionally, Bancshares and UCB may terminate the Agreement if,
based on the advice of their legal counsel or consultants, they believe
Seaboard, or UCB as the successor to Seaboard, could incur or become
responsible or liable at any time or over a period of time in an amount
of as much as $50,000 for expenses or monetary damages on account of any
and all remediation, corrective action or damages relating to any
discharge, disposal, release or emission by any person of any "hazardous
substance" on, from or relating to any real property belonging to
Seaboard or serving as collateral for any of Seaboard's loans, or
relating to any condition or event with respect to any such real
property which constitutes a violation of any "environmental laws."
In the event of the termination and abandonment of the Merger
pursuant to the termination provisions thereof, the Agreement will
become void and have no effect, except that certain provisions of the
Agreement relating to expenses,
20
indemnification and confidentiality of information obtained pursuant to
the Agreement or in connection with the negotiation thereof will survive
any such termination and abandonment.
Closing Date and Effective Time
Following and subject to the fulfillment of all conditions
described in the Agreement, the closing of the Merger will be held on a
date specified by Bancshares (the "Closing Date") within 30 days after
the expiration of required waiting periods following receipt of
regulatory approvals. The Effective Time of the Merger will be the date
and time specified in Articles of Merger filed with the North Carolina
Secretary of State (or, if a time is not so specified, then at the time
Articles of Merger are so filed). However, in no event may the
Effective Time be more than 10 days following the Closing Date. Although
there is no assurance as to whether or when the Merger will occur, it
currently is expected that the Merger will become effective during the
first quarter of 1996.
Interests of Certain Persons With Respect to the Merger
Certain members of Seaboard's management and Board of Directors
have certain interests in the Merger that are in addition to their
interests as shareholders of Seaboard generally. Seaboard's Board of
Directors was aware of these interests and considered them, among other
things, in adopting the Agreement and recommending the transactions
contemplated thereby.
Indemnification. Pursuant to the Agreement, from and after the
Effective Time UCB will indemnify the present and former officers and
directors of Seaboard and its wholly-owned subsidiary against
liabilities arising from actions or omissions in their official
capacities as officers and directors occurring on or prior to the
Effective Time to the extent they would have had a right to
indemnification from Seaboard or its subsidiary.
Employment Agreements. In order to assure itself of their
assistance and continued services during the transition period following
the Effective Time, UCB has agreed to enter into an employment agreement
with Samuel J. Styons (who currently serves as a director and as
President and Chief Executive Officer of Seaboard) and with Donald A.
Hall (who currently serves as a director of Seaboard and as Executive
Vice President of Seaboard's wholly-owned subsidiary). As currently
proposed, the employment agreements would (i) provide for annual
salaries of $91,000 for Mr. Styons and $52,000 for Mr. Hall, (ii)
provide for terms of approximately five years for Mr. Styons and two
years for Mr. Hall, (iii) provide credit for past full years of service
for participation and vesting under Bancshares' 401(k) savings plan and
defined benefit pension plan and for the determination of eligibility
for and level of benefits under UCB's vacation and sick leave policies
(provided, however, that Messrs. Styons and Hall shall not be credited
for past years of service for purposes of calculating or determining
accrued benefits under such plans), and (iv) contain certain covenants
generally prohibiting Messrs. Styons and Hall from competing against UCB
within Seaboard's former banking market for a period of time following
termination of their employment with UCB. The employment agreement with
Mr. Styons will supersede an employment agreement currently in effect
between Seaboard and Mr. Styons.
The Agreement provides that UCB will assume Seaboard's obligations
under a Supplemental Income Agreement entered into between Seaboard and
Mr. Styons during 1988 and which provides for payments to Mr. Styons (or
to his beneficiaries) aggregating $30,000 per year for a period of
fifteen years following the later of his 60th birthday or his retirement
date or following his death while employed by Seaboard. Also, subject
to certain conditions, Seaboard shall transfer to Mr. Styons at the
Effective Time the title to the automobile then owned by Seaboard and
being used by him.
Seaboard Stock Options. There currently are outstanding Seaboard
Options to purchase up to an aggregate of 40,625 shares of Seaboard
Stock which are held by certain Seaboard employees and directors under
Seaboard's 1993 Incentive Stock Option Plan and 1993 Nonstatutory Stock
Option Plan for Directors. At the Effective Time, each Seaboard Option
previously granted by Seaboard which was outstanding on the date of the
Agreement automatically will be converted into an option to purchase a
number of shares of Bancshares Stock equal to the number of shares of
Seaboard Stock covered by the option at the Effective Time multiplied by
the Exchange Rate. The purchase or exercise price of each share of
Bancshares Stock under each such option shall be equal to the per share
purchase or exercise price of the Seaboard Stock previously covered by
such option divided by the Exchange Rate (and rounded up to the nearest
cent). Bancshares' obligations with respect to each such converted
Seaboard Option shall be in accordance with the terms
21
of the applicable Seaboard option plan and the related option agreement
under which such Seaboard Option originally was granted. From and after
the Effective Time, each Seaboard Option so converted may be exercised
solely for a number of shares of Bancshares Stock and for a purchase
price calculated as described above. Under the Agreement, no further
options to acquire Seaboard Stock may be granted by Seaboard.
Vesting of Stock Awards. Certain officers, employees and directors
of Seaboard currently hold unvested awards covering an aggregate of
6,696 shares of Seaboard Stock previously granted under Seaboard's 1993
Management Recognition Plan (the "MRP"). Under the terms of the MRP, a
recipient's rights in the shares covered by an award granted to him or
her become vested at the rate of 20% on the date of grant and 20% per
year thereafter. However, upon the occurrence of certain "change in
control" events, all unvested shares covered by outstanding awards
immediately become vested. At the Effective Time, the rights of
Seaboard's officers, employees and directors in unvested shares of
Seaboard Stock under the MRP will become vested and such persons will be
entitled to receive the shares of Bancshares Stock into which those
shares are converted.
Advisory Directors. To assure itself of their assistance and
continued services during the transition period following the Effective
Time, Bancshares and UCB have agreed that, following the Effective Time,
and subject to their willingness to serve, each of Seaboard's directors
at the Effective Time (other than directors who also are employees of
Seaboard) will be appointed to serve as a member of the local advisory
board for one of the UCB branches in Seaboard's former geographic
market. For service as an advisory director, each Seaboard director who
serves as an advisory board member for UCB for a period of one year
following the Effective Time will be compensated in an amount equal to
the amount of directors fees paid to such director for services as a
director of Seaboard for 1995. The amounts of those fees for 1995 are
expected to range from $2,100 to $9,300. After the first year following
the Effective Time, Seaboard's directors who continue to serve as
advisory directors will receive fees in accordance with UCB's standard
fee schedule for its local advisory boards.
Other Employees. UCB has agreed that, so long as they remain
employed by Seaboard at the Effective Time, it will attempt in good
faith, but shall have no obligation, to locate suitable employment (at
an office of UCB located within a reasonable commuting distance from
their respective job locations at the Effective Time) for, and to offer
employment to, all employees of Seaboard. Any such employment offered
by UCB will be on an "at will" basis and will be in such a position, at
such location, and for such compensation as UCB shall determine in its
sole discretion. Seaboard will be permitted to pay severance
compensation to any employee of Seaboard at the Effective Time who is
not offered employment by UCB (other than any employee who is party to
an employment agreement with Seaboard). The amount of such compensation
paid to any employee other than a branch manager shall not exceed the
total of (i) one month's salary or normal wages (at the person's then
current salary or wage rate as an employee of Seaboard) plus (ii) one
week's salary or wages (at the person's then current salary or wage rate
as an employee of Seaboard) multiplied by a number (which in no event
shall be less than three or more than 26) equal to the person's number
of complete years of service as an employee of Seaboard. If any of
Seaboard's current branch managers are not offered employment by UCB,
such severance compensation may amount to up to twelve months salary (at
the person's then current salary rate as an employee of Seaboard). If
an employee of Seaboard becomes an employee of UCB and such individual's
employment is terminated without cause within 60 days (twelve months in
the case of Seaboard's branch managers) following the Effective Time,
then such individual will be entitled to receive the severance
compensation described above, less one week's salary or wages (at the
individual's last salary or wage rate as an employee of Seaboard)
multiplied by a number equal to the number of complete weeks following
the Effective Time during which the individual was employed by UCB.
Employee Benefits. Seaboard employees who become employees of UCB
in connection with the Merger ("New Employees") shall become entitled to
receive all employee benefits and to participate in all benefit plans
provided by UCB on the same basis (including costs) and subject to the
same eligibility and vesting requirements, and to the same conditions,
restrictions and limitations, as generally are in effect and applicable
to other newly hired employees of UCB. However, subject to the
requirements of the Employee Retirement Income Security Act of 1974, as
amended, the Code, any governmental rules, regulations and policies
thereunder, or any other law or regulations applicable to the operation
of any such plan or program, each New Employee shall be given credit for
his or her full years of service with Seaboard for purposes of (i)
entitlement to vacation and sick leave, and (ii) eligibility for
participation and vesting in Bancshares' Section 401(k) savings plan and
in its defined benefit pension plan; provided however, that in no event
shall any New
22
Employee be entitled to or be given credit for past service with
Seaboard for purposes of the calculation or determination of benefits
under the pension plan.
Restrictions on Resale of Bancshares Stock Received by Certain Persons
Certain restrictions under the 1933 Act will apply to the resale of
shares of Bancshares Stock issued to certain persons in connection with
the Merger. Any person who was an "Affiliate" of Seaboard at the time
the Agreement is submitted to a vote of Seaboard's shareholders may not
resell or transfer shares of Bancshares Stock received by him during a
period of three years following the Effective Time unless (i) such
person's offer and resale of those shares has been registered under the
1933 Act, (ii) such person's offer and resale is made in compliance with
Rule 145 promulgated under the 1933 Act (which permits limited sales
under certain circumstances), or (iii) another exemption from
registration is available. Additionally, as a condition of treating the
Merger as a pooling-of-interests for accounting purposes, Seaboard's
Affiliates will be prohibited from selling or transferring any shares of
Bancshares Stock until Bancshares shall have published results of its
combined operations for a period covering at least 30 days following the
Effective Time.
An Affiliate of Seaboard, as defined by rules promulgated under the
1933 Act, is a person who directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control
with Seaboard. The above restrictions are expected to apply to the
directors and executive officers of Seaboard (and to any relative or
spouse of any such person or any relative of any such spouse, any of
whom live in the same home as such person, and any trust, estate,
corporation or other entity in which such person has a 10% or greater
beneficial or equity interest), and may apply to any current shareholder
of Seaboard that owns an amount of stock sufficient to be considered to
"control" Seaboard or that otherwise is an Affiliate of Seaboard. Stock
transfer instructions will be given by Bancshares to its stock transfer
agent with respect to the Bancshares Stock to be received by persons
deemed by Bancshares to be subject to these restrictions, and the
certificates for such stock may be appropriately legended.
The Agreement provides that Seaboard will use its best efforts to
cause each person considered by Bancshares to be an Affiliate of
Seaboard to deliver to Bancshares a written agreement (an "Affiliate
Agreement") providing that such person will not offer, sell, pledge,
transfer or otherwise dispose of any shares of Bancshares Stock except
in compliance with the restrictions described above. Bancshares'
obligation to consummate the Merger is conditioned on its receipt of the
Affiliate Agreements.
Persons who are or may be Affiliates of Seaboard should consult
with their own legal counsel regarding the application of the above
restrictions to their Bancshares Stock.
Expenses
The Agreement provides that Seaboard, Bancshares and UCB each will
pay its own legal, accounting and financial advisory fees and all its
other costs and expenses (including filing fees, printing costs and
travel expenses) incurred or to be incurred in connection with the
performance of its obligations under the Agreement or otherwise in
connection with the Merger. Except under certain circumstances
involving a wrongful termination or breach of the Agreement, the cost of
soliciting proxies will be deemed to be incurred and shall be paid 50%
by Seaboard and 50% by Bancshares. However, in the event the Agreement
is terminated following a breach or violation of the Agreement by one
party, then that breaching party will be obligated to reimburse the
other party for up to $100,000 in the above costs and expenses actually
incurred by the terminating party.
RIGHTS OF DISSENTING SHAREHOLDERS
The Merger will give rise to Dissenters' Rights under Article 13 of
the North Carolina Business Corporation Act ("Article 13"). Pursuant to
Article 13, any Seaboard shareholder who objects to the Merger may
exercise Dissenters' Rights and become entitled to be paid the fair
value of such shareholder's shares of Seaboard Stock if the Merger is
consummated. The following is only a summary of the Dissenters' Rights
of Seaboard's shareholders. A complete copy of Article 13 is attached
hereto as Appendix B and incorporated by reference into this
Prospectus/Proxy Statement. Any shareholder who intends to exercise
Dissenters' Rights should review the text of
23
Article 13 carefully and comply exactly with its requirements, and also
should consult with his attorney. Except as provided below, no further
notices will be given to shareholders by Seaboard regarding the
existence of Dissenters' Rights or any time periods within which those
rights must be exercised.
Article 13 provides for shareholders' Dissenters' Rights and the
detailed procedure for exercising those rights that must be followed by
a dissenting shareholder. In summary, that procedure is described
below.
Any shareholder who desires to assert Dissenters' Rights must (i)
give to Seaboard, and Seaboard must actually receive, before the vote on
the Merger is taken, written notice of the shareholder's intent to
demand payment for his shares if the Merger is consummated, and (ii) not
vote his shares in favor of the Merger. Failure by a shareholder to
satisfy both requirements will mean that the shareholder will not be
entitled to assert Dissenters' Rights and obtain payment for his shares
under Article 13. (Shareholders should note that if they sign and
return a blank appointment of proxy with no instructions as to how their
shares should be voted, they will be deemed to have voted in favor of
the Merger and thereafter will not be entitled to assert Dissenters'
Rights.)
If the Agreement is approved by Seaboard's shareholders at the
Special Meeting (or at any adjournments thereof), then, within 10 days
of the date the Merger is consummated, Seaboard must send a written
notice (by registered or certified mail, return receipt requested) to
each shareholder who has taken the actions described above and is
entitled to exercise Dissenters' Rights. That notice will:
(a) State where the dissenting shareholder's payment demand must
be sent, and where and when share certificates must be deposited;
(b) Supply a form for demanding payment;
(c) Set a date by which Seaboard must receive the dissenting
shareholder's payment demand (which may not be fewer than 30 nor more
than 60 days after the date the dissenters' notice is mailed); and,
(d) Be accompanied by a copy of Article 13.
A shareholder who has been sent the dissenters' notice must demand
payment and must deposit his share certificates by the date set forth in
and in accordance with the terms and conditions of the dissenters'
notice; otherwise, such shareholder will not be entitled to payment for
his shares under Article 13. A shareholder who demands payment and
deposits his share certificates as required retains all other rights as
a shareholder until such rights are cancelled or modified by
consummation of the Merger.
As soon as the Merger is consummated or upon receipt of a payment
demand, Seaboard will offer to pay each dissenter who timely demanded
payment and deposited his share certificates the amount Seaboard
estimates to be the fair value of his shares, plus interest accrued to
the date of payment, and will pay this amount to each dissenter who
agrees in writing to accept it in full satisfaction of his demand.
Seaboard's offer of payment will be accompanied by:
(a) Certain of Seaboard's most recent available financial
statements;
(b) A statement of Seaboard's estimate of the fair value of the
shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment if
dissatisfied with Seaboard's offer; and,
(e) A copy of Article 13.
If Seaboard does not consummate the Merger within 60 days after the
date set for demanding payment and depositing share certificates,
Seaboard must return the deposited certificates, and if, thereafter, the
Merger is consummated, Seaboard must send a new dissenters' notice and
repeat the payment demand procedure set forth above.
24
If a dissenter believes that the amount offered by Seaboard as
described above is less than the fair value of his shares or that the
interest due is incorrectly calculated, or if Seaboard fails to make
payment to a dissenter who accepts its offer within 30 days after such
acceptance, or if Seaboard fails to consummate the Merger and does not
return the deposited certificates within 60 days after the date set for
demanding payment, then the dissenter may notify Seaboard in writing of
his own estimate of the fair value of his shares and the amount of
interest due and may demand payment of his estimate, or may reject
Seaboard's offer and demand payment of the fair value of his shares and
interest due. In any such event, if a dissenting shareholder fails to
take any such action within the 30-day period, he will be deemed to have
waived his rights under Article 13 and to have withdrawn his dissent and
demand for payment.
If a dissenter has taken all required actions and his demand for
payment remains unsettled, the dissenter may commence a proceeding
within 60 days after the date of his payment demand and petition the
court to determine the fair value of his shares and accrued interest.
Upon service on it of the petition filed with the court, Seaboard must
pay to the dissenter the amount originally offered by Seaboard. If the
dissenter does not commence the proceeding within said 60-day period, he
has an additional 30 days to either (i) accept in writing the amount
offered by Seaboard, upon which acceptance Seaboard will pay such amount
in full satisfaction of the dissenter's demand, or (ii) withdraw his
demand for payment and resume the status of a nondissenting shareholder.
A dissenter who takes no action within this 30-day period is deemed to
have withdrawn his dissent and demand for payment.
In the court proceeding described above, the court may appoint one
or more persons as appraisers to receive evidence and recommend a
decision on the question of fair value, and has discretion to make all
dissenters whose demands remain unsettled parties to the proceeding.
Each dissenter made a party to the proceeding must be served with a copy
of the petition and is entitled to judgment for the amount, if any, by
which the court finds the fair value of his shares, plus interest, to
exceed the amount paid by Seaboard. Court costs, appraisal and counsel
fees may be assessed by the court as it deems equitable.
Article 13 contains certain additional provisions with respect to
dissent by nominees who hold shares for others, and by beneficial owners
whose shares are held in the name of other persons, and reference is
made to Appendix B for a more complete description thereof.
PROPOSAL 2: THE CHARTER AMENDMENT
Section 8 of Seaboard's Amended and Restated Certificate of
Incorporation (the "Certificate") provides that until May 10, 1996 (the
date three years after the date of Seaboard's conversion from mutual to
stock form), no person shall directly or indirectly offer to acquire or
acquire beneficial ownership of more than 10% of any class of equity
security of Seaboard. As used in Section 8, the term "acquire" includes
every type of acquisition, whether effected by purchase, exchange,
operation of law or otherwise. Shares of Seaboard Stock acquired in
violation of Section 8 are treated as "excess shares" and are not
entitled to vote or be counted as voting shares in connection with
matters submitted to shareholders for a vote. Therefore, in order for
the Merger to be consummated, it is necessary to amend the Certificate.
In addition to Proposal 1 to approve the Agreement, Seaboard's Board of
Directors will submit a separate proposal for voting at the Special
Meeting to approve the Charter Amendment. The Charter Amendment would
provide an exception to the prohibition included in Section 8 to permit
the Merger to be effected in accordance with the terms of the Agreement.
The Charter Amendment would not permit any entity other than Bancshares
to acquire Seaboard and would not permit Bancshares to acquire Seaboard
other than pursuant to the terms of the Agreement. In the event the
Merger is not approved by Seaboard's shareholders at the Special
Meeting, or in the event the Merger is approved but for any reason is
not consummated, then the Board of Directors would abandon the Charter
Amendment and it would not become effective, and Seaboard's Certificate
would remain in effect as it currently exists. Consummation of the
Merger is conditioned upon approval of the Charter Amendment. The
resolutions pertaining to the Charter Amendment to be submitted to
Seaboard's shareholders at the Special Meeting will specifically
authorize the Board of Directors to abandon the Charter Amendment if the
Merger is abandoned or will not be effected.
The Charter Amendment would amend Section 8 by revising the first
sentence thereof to read as follows:
"Notwithstanding anything contained in these Articles of
Incorporation or the savings bank's Bylaws to the contrary,
for a period of three (3) years from the effective date
25
of this Amended and Restated Certificate of Incorporation, no
person shall directly or indirectly offer to acquire or
acquire the beneficial ownership of more than ten percent
(10%) of any class of an equity security of the saving bank
except pursuant to that certain Agreement and Plan of
Reorganization and Merger among Seaboard Savings Bank, Inc.,
SSB, United Carolina Bank and United Carolina Bancshares
Corporation dated September 19, 1995."
If the Charter Amendment is approved by shareholders at the Special
Meeting, it will not become effective until filed with and approved by
the Administrator. Failure to approve the Charter Amendment would
prevent consummation of the Merger regardless of whether the Agreement
is approved by shareholders. To approve the Charter Amendment, the
number of votes cast in person and by proxy at the Special Meeting in
favor of the Charter Amendment must exceed the number of votes cast
against it.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
PROPOSAL TO APPROVE THE CHARTER AMENDMENT.
MARKET AND DIVIDEND INFORMATION REGARDING
SEABOARD STOCK AND BANCSHARES STOCK
On September 30, 1995, there were 305,647 outstanding shares of
Seaboard Stock held by an aggregate of approximately 289 shareholders of
record. There is no established market in which the Seaboard Stock is
regularly traded nor any uniformly quoted price for Seaboard Stock. To
the knowledge of management of Seaboard, the last trade of Seaboard
Stock prior to the date the Merger was publicly announced involved 1,000
shares which were bought and sold on June 21, 1995, for a price of
$16.00 per share. The last trade price of Seaboard Stock known to
management of Seaboard prior to _______, 1995, was $______.
The following table presents the high and low sales price for the
Seaboard Stock known to management of Seaboard for the periods indicated
and the amounts of cash dividends declared, with respect to the Seaboard
Stock for each quarterly period since June 30, 1993. (See "CAPITAL
STOCK OF BANCSHARES AND SEABOARD.")
High Low Cash dividend
Year Quarterly period price price declared
1995 Fourth quarter (through December , 1995) . . . . . . . . . . $ $ $ --
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 0.10
Second quarter. . . . . . . . . . . . . . . . . . . . . . . . . 16.00 16.00 0.10
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . 15.00 14.75 0.10
1994 Fourth quarter. . . . . . . . . . . . . . . . . . . . . . . . . 14.75 14.50 0.10
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 0.10
Second quarter. . . . . . . . . . . . . . . . . . . . . . . . . -- -- 0.10
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . 14.00 13.50 0.10
1993 Fourth quarter. . . . . . . . . . . . . . . . . . . . . . . . . 12.375 12.375 0.10
Third quarter (1) . . . . . . . . . . . . . . . . . . . . . . . 12.50 12.00 0.10
__________________________________
(1) Prior to its conversion to stock form on May 10, 1993, Seaboard was
a mutual savings bank and had no capital stock.
26
The outstanding shares of Bancshares Stock are held by an aggregate
of approximately 7,800 shareholders of record. Bancshares Stock is
traded in the over-the-counter market and is listed on the Nasdaq
National Market. On July 21, 1995, the last trading day before public
announcement of the Merger, the last sale price of Bancshares Stock on
the Nasdaq National Market was $31.25. On ___________, 1995, the last
reported sale price for Bancshares Stock on the Nasdaq National Market
was $______. The following table lists the high and low closing
prices as reported by Nasdaq, and the amounts of cash dividends
declared, with respect to Bancshares Stock for each quarterly period
since January 1, 1993. (See "CAPITAL STOCK OF BANCSHARES AND
SEABOARD.")
High Low Cash
closing closing dividend
Year Quarterly period price price declared
1995 Fourth quarter (through December , 1995) . . . . . . . . . . . $ $ $
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . 36.75 30.25 0.25
Second quarter. . . . . . . . . . . . . . . . . . . . . . . . . . 31.00 29.00 0.25
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . 31.00 24.25 0.22
1994 Fourth quarter. . . . . . . . . . . . . . . . . . . . . . . . . . 27.25 23.00 0.22
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . 27.75 23.00 0.22
Second quarter. . . . . . . . . . . . . . . . . . . . . . . . . . 23.75 20.50 0.20
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . 22.75 21.00 0.20
1993 Fourth quarter. . . . . . . . . . . . . . . . . . . . . . . . . . 25.75 21.50 0.20
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . 25.75 22.00 0.20
Second quarter. . . . . . . . . . . . . . . . . . . . . . . . . . 23.75 20.25 0.18
First quarter. . . . . . . . . . . . . . . . . . . . . . . . . . 23.75 19.75 0.18
27
CAPITALIZATION
The following table sets forth (i) the unaudited historical
capitalization of Bancshares as of September 30, 1995, (ii) the
unaudited historical capitalization of Seaboard as of September 30,
1995, and (iii) the unaudited pro forma capitalization of Bancshares at
September 30, 1995, assuming the Merger had been consummated as of that
date (and with no shareholder of Seaboard exercising Dissenters'
Rights). This financial information is based on and should be read in
conjunction with Bancshares' and Seaboard's interim unaudited financial
statements, including the related notes thereto, which are incorporated
herein by reference or included herein. In addition, the following
information does not include the effects of a recently announced
merger by Bancshares which is not considered to be material. (See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE", "UNITED CAROLINA
BANCSHARES CORPORATION AND UNITED CAROLINA BANK--Recent Events" and
"CONSOLIDATED FINANCIAL STATEMENTS OF SEABOARD SAVINGS BANK, INC., SSB,
AND SUBSIDIARY.")
At September 30, 1995
Bancshares Seaboard Proforma
(actual) (actual) combined(1)
(In thousands)
Preferred Stock:
Par value $10 per share: 2,000,000 shares
authorized, no shares issued . . . . . . . . . . . . . . . . . $ -- $ -- $ --
No par value: 1,000,000 shares authorized, no
shares issued. . . . . . . . . . . . . . . . . . . . . . . . . -- -- --
Common stock:
Par value $4 per share: 40,000,000 shares
authorized, 14,768,740 shares issued . . . . . . . . . . . . . 59,075 -- 60,188
No par value: 5,000,000 shares authorized,
305,647 shares issued. . . . . . . . . . . . . . . . . . . . . -- -- --
Surplus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,441 2,894 44,222
Deferred stock awards. . . . . . . . . . . . . . . . . . . . . . . . -- (54) --
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . 190,045 3,134 193,125
Unrealized gains (losses) on securities
available for sale, net of deferred income taxes . . . . . . . . . 754 2 756
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . $292,315 $5,976 $298,291
(1) Assumes the Merger became effective at September 30, 1995, and that
all shares of Seaboard Stock outstanding on that date (other than
160 shares retired after that date) were converted into 278,261
shares of Bancshares Stock at the Exchange Rate of 0.9104.
28
UNITED CAROLINA BANCSHARES CORPORATION AND UNITED CAROLINA BANK
General
Bancshares is a North Carolina business corporation organized in
19___ and which is registered with the Federal Reserve as a bank holding
company. Bancshares' principal business is providing banking and other
financial services through its two wholly-owned bank subsidiaries, UCB
and United Carolina Bank of South Carolina ("UCBSC"). UCB is a North
Carolina banking corporation which has its principal offices in
Whiteville, North Carolina, and operates 126 banking offices in 29
counties in the southeastern and south central regions of North
Carolina. UCBSC is a South Carolina banking corporation which has its
principal offices in Greer, South Carolina, and operates 14 banking
offices located in three counties in the northwestern and eastern
regions of South Carolina. Bancshares' and UCB's principal offices are
located at 127 West Webster Street, Whiteville, North Carolina.
Recent Events
On October 19, 1995, Bancshares and UCB announced that UCB had
entered into a definitive agreement with Triad Bank, Greensboro, North
Carolina ("Triad"), pursuant to which Triad will merge with and into
UCB. Terms of UCB's agreement with Triad provide for Bancshares to
exchange .569444 shares of Bancshares Stock for each of Triad's
outstanding shares of common stock (1,818,623 shares outstanding at
September 30, 1995), subject to adjustment. At September 30, 1995,
Triad reported $199.2 million in total assets, $128.2 million in loans,
$181.3 million in total deposits, and $15 million in common shareholders'
equity. Triad operates eight branches in Greensboro, two branches in
Winston-Salem, and one branch in Asheboro, North Carolina. Triad also
has loan production offices in Burlington and Kernersville, North
Carolina. Subject to required regulatory approvals and the approval of
Triad's shareholders, it currently is expected that Triad will be merged
into UCB during the second calendar quarter of 1996.
Beneficial Ownership of Securities
The following table gives the number of shares and percentage of
the outstanding Bancshares Stock beneficially owned as of September 30,
1995, by each of Bancshares' directors and certain of its executive
officers individually, and by all Bancshares' directors and executive
officers as a group:
Name of Amount and nature of Percent of
beneficial owner beneficial ownership (1) class
Directors:
J. W. Adams . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,040 (2) .30 %
John V. Andrews . . . . . . . . . . . . . . . . . . . . . . . . . 7,118 .05 %
Russell M. Carter . . . . . . . . . . . . . . . . . . . . . . . . 4,000 .03 %
W. E. Carter. . . . . . . . . . . . . . . . . . . . . . . . . . . 54,771 .37 %
Alfred E. Cleveland . . . . . . . . . . . . . . . . . . . . . . . 15,650 .11 %
James L. Cresimore. . . . . . . . . . . . . . . . . . . . . . . . 23,584 .16 %
Thomas P. Dillon. . . . . . . . . . . . . . . . . . . . . . . . . 6,377 .04 %
C. Frank Griffin. . . . . . . . . . . . . . . . . . . . . . . . . 20,508 .14 %
James C. High . . . . . . . . . . . . . . . . . . . . . . . . . . 8,987 .06 %
E. Rhone Sasser . . . . . . . . . . . . . . . . . . . . . . . . . 74,156 .50 %
Jack E. Shaw. . . . . . . . . . . . . . . . . . . . . . . . . . . 202,885 (3) 1.37 %
Harold B. Wells . . . . . . . . . . . . . . . . . . . . . . . . . 62,725 .42 %
Charles M. Winston. . . . . . . . . . . . . . . . . . . . . . . . 16,449 .11 %
29
Name of Amount and nature of Percent of
beneficial owner beneficial ownership (1) class
Certain non-director executive officers:
Kenneth L. Miller, Jr.. . . . . . . . . . . . . . . . . . . . . . 10,816 .07 %
Jeff D. Etheridge, Jr.. . . . . . . . . . . . . . . . . . . . . . 46,382 .31 %
Ronald C. Monger. . . . . . . . . . . . . . . . . . . . . . . . . 15,587 .10 %
David L. Thomas . . . . . . . . . . . . . . . . . . . . . . . . . 20,667 .14 %
All Bancshares' directors
and executive officers
as a group (22 persons):. . . . . . . . . . . . . . . . . . . . . 702,246 4.75
(1) Except as otherwise noted, and to the best knowledge of management
of Bancshares, each individual and the group has sole voting and
investment power with respect to all shares beneficially owned.
The named individuals and group have shared voting and investment
power as to the following numbers of shares: Mr. Carter - 27,905
shares; Mr. Cleveland - 496 shares; Mr. Cresimore -46 shares;
Mr. High - 85 shares; Mr. Sasser - 417 shares; Mr. Shaw - 34,990
shares; Mr. Wells - 7,353 shares; Mr. Monger - 500 shares; all
directors and executive officers as a group - 78,035 shares. The
named individuals and group have shared voting power only as to the
following numbers of shares held in trust for their respective
accounts pursuant to the terms of Bancshares' 401(k) Savings Plan.
Mr. Sasser - 27,292 shares; Mr. Miller - 8,158 shares; Mr.
Etheridge - 12,213 shares; Mr. Monger - 10,087 shares; Mr. Thomas
-10,772 shares; all directors and executive officers as a group -
110,856 shares.
(2) Includes 9,935 shares held in trust for Mr. Adams and his children.
Mr. Adams has no voting or investment power with respect to those
shares.
SEABOARD SAVINGS BANK, INC., SSB
General
Seaboard is a North Carolina capital stock savings bank which was
organized in 1937 as a North Carolina building and loan association
under the name Plymouth Building and Loan. In 1961, Seaboard amended
its charter to become a state-chartered mutual savings and loan
association and, in conjunction therewith, changed its name to Plymouth
Savings and Loan Association. In 1988, Seaboard converted to a
federally-chartered mutual savings bank under the name Seaboard Federal
Savings Bank and, in December 1992, Seaboard converted to a
state-chartered mutual savings bank under the name Seaboard Savings
Bank, SSB. In 1993, Seaboard converted to a state-chartered capital
stock savings bank under its current name. Seaboard's deposits are
insured by the Savings Association Insurance Fund (the "SAIF") of the
FDIC to the maximum amount permitted by law. Seaboard's principal
offices are located at 433 U.S. Highway 64 East, Plymouth, North
Carolina, and, in addition to its main office, it has two full-service
branch offices which are located in Columbia and Williamston, North
Carolina.
Seaboard is a community-oriented financial institution which offers
a variety of financial services to meet the needs of the communities it
serves and which is primarily engaged in the business of taking deposits
and making loans. Seaboard's principal lending activity is making
residential mortgage loans secured by residential real estate located in
Seaboard's market area. However, Seaboard also offers other types of
loans, including, without limitation, home equity loans (predominantly
second mortgage loans secured by the equity in the home), multi-family
residential mortgage loans, construction/permanent loans, commercial
real estate loans, and automobile and other consumer-type loans.
Seaboard's primary source of revenue is interest income from its real
estate lending activities and, to a lesser extent, from its consumer
lending activities.
Seaboard has a wholly-owned subsidiary, Seaboard Financial Services
Corporation, established in March 1983, which is engaged primarily in
the sale of casualty insurance and annuity products.
30
Financial Statements
Seaboard's consolidated financial statements are presented under
the section of this Prospectus/Proxy Statement captioned "CONSOLIDATED
FINANCIAL STATEMENTS OF SEABOARD SAVINGS BANK, INC., SSB, AND
SUBSIDIARY."
Beneficial Ownership of Securities
As of September 30, 1995, the following persons were known to
management of Seaboard to beneficially own more than 5% of the
outstanding shares of Seaboard Stock:
Name and address of Amount and nature of Percent of
beneficial owner beneficial ownership (1) Class (2)
C. Felix Harvey
Kinston, NC. . . . . . . . . . . . . . . . . . . . . . . . . . . 17,426 5.70%
Dallas G. Waters
Plymouth, NC . . . . . . . . . . . . . . . . . . . . . . . . . . 16,450 5.32%
Samuel J. Styons
Plymouth, NC . . . . . . . . . . . . . . . . . . . . . . . . . . 29,475 9.21%
_________________
(1) Except as otherwise noted, and to the best knowledge of management
of Seaboard, each individual and the group has sole voting and
investment power with respect to all shares beneficially owned.
Certain of the named individuals have shared voting and investment
power as to the following numbers of shares: Mr. Styons - 4,250
shares; Mr. Waters -11,600 shares. Certain of the named
individuals have sole investment power only as to the following
numbers of shares that could be purchased by each individual upon
the exercise of outstanding stock options: Mr. Styons -14,525
shares; Mr. Waters - 3,700 shares.
(2) The calculation of the percentage of class beneficially owned by
each individual is based, in each case, on a number of total
outstanding shares equal to the 305,507 shares outstanding plus the
number of shares capable of being issued to that individual (if
any) upon the exercise of stock options held by each of them (if
any).
The following table sets forth information regarding the beneficial
ownership of Seaboard Stock by each director of Seaboard individually
and by all of Seaboard's directors and the executive officers as a group
as of September 30, 1995:
Name and address of Amount and nature of Percent of
beneficial owner beneficial ownership (1) Class (2)
Samuel J. Styons . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,475 9.21%
Dallas G. Waters . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,450 5.32%
Robert L. Howell . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,850 1.89%
W. Braxton Voliva. . . . . . . . . . . . . . . . . . . . . . . . . . . 5,150 1.67%
E. G. Cantrell . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,200 2.98%
John L. Goodwin. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,944 2.89%
Donald A. Hall . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,009 1.94%
All directors and executive
officers as a group (8 persons). . . . . . . . . . . . . . . . . . . 83,928 24.42%
___________________
(1) Except as otherwise noted, and to the best knowledge of management
of Seaboard, each individual and the group has sole voting and
investment power with respect to all shares beneficially owned. The
named individuals and group have shared voting and investment power
as to the following numbers of shares: Mr. Styons - 4,250 shares;
Mr. Waters -11,600 shares; Mr. Howell - 1,000 shares; Mr. Voliva
- 300 shares; Mr. Cantrell - 4,100 shares; Mr. Godwin - 2,795
shares; all directors and executive officers as a group - 24,345
shares. The named individuals
31
and group have sole investment power only as to the following
numbers of shares that could be purchased by each individual and
the group upon the exercise of outstanding stock options: Mr.
Styons -14,525 shares; Mr. Waters - 3,700 shares; Mr. Howell -
3,700 shares; Mr. Voliva - 3,700 shares; Mr. Cantrell - 3,700
shares; Mr. Godwin - 3,700 shares; Mr. Hall - 3,700 shares; all
directors and executive officers as a group - 38,225 shares.
(2) The calculation of the percentage of class beneficially owned by
each individual and by the group as a whole are based, in each
case, on a number of total outstanding shares equal to the 305,507
shares currently outstanding plus the number of shares capable of
being issued to that individual (if any) and to the group as a
whole upon the exercise of stock options held by each of them (if
any) and by the group, respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF SEABOARD'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this discussion and analysis is to aid in the
understanding and evaluation of the financial condition and changes
therein and the results of operations of Seaboard and its wholly-owned
subsidiary for the years 1994, 1993 and 1992. This discussion and
analysis is intended to complement the audited financial statements and
footnotes and supplemental financial data appearing elsewhere in this
Prospectus/Proxy Statement, and should be read in conjunction therewith.
Comparison of Financial Condition and Operating Results
at and for the Years Ended December 31, 1994, 1993 and 1992
Changes in Financial Condition:
Consolidated assets of Seaboard increased to $43,498,554 at
December 31, 1994, an increase of $5,683,346 or 15.03% from 1993.
Consolidated assets were $37,815,208 at December 31, 1993, which was an
increase of $4,187,185, or 12.5% from total consolidated assets at
December 31, 1992. The growth in assets in 1994 was the result of
several factors. In 1994, as overall market interest rates began to
rise, Seaboard offered higher yields on certain deposits which were
attractive in comparison to alternative yields that could be obtained
elsewhere by investors. In addition, Seaboard opened its new home
office facility in February 1994, which was much more visible and
accessible than its previous location and generated more customer
traffic. Seaboard also entered the Williamston, North Carolina market
during 1994 by opening a temporary branch location and is in the process
of constructing a permanent branch. Management feels that the
Williamston market offers considerable potential for future growth of
Seaboard. Also, management believes that its marketing efforts and
increased contacts within its community contributed to the increase in
assets during 1994. The asset growth in 1993 is primarily attributable
to the stock conversion which was completed on May 10, 1993. The 1992
asset growth is considered moderate and more consistent with historical
levels of asset growth in the markets in which Seaboard operates.
Loans and mortgage-backed securities amounted to $37,183,173 at
December 31, 1994, which is an increase of $5,214,099, net of loan sales
amounting to $2,588,902 in 1994. Seaboard was able to increase the size
of its consumer loan portfolio during 1994 through more aggressive
marketing activities and Seaboard also originated and increased its
portfolio of residential loans. Seaboard's loan portfolio increased by
$3,063,561 during 1993 and while some of the increase was attributable
to the investment of the stock conversion proceeds, 1993 was similar to
1994 in that both years were particularly good years for loan
originations. In addition, in order to manage its interest rate risk,
Seaboard sold substantially all of its long-term fixed rate loans
originated during 1993 and 1994 in the secondary market but continues to
service these loans. Seaboard's portfolio of loans and mortgage-backed
securities grew by $1,343,214, net of loan sales of $419,950 during
1992. Investment securities totalled $1,939,103, $2,344,328 and
$2,532,590 at December 31, 1994, 1993 and 1992, respectively. The
investment portfolios have remained fairly stable during these periods,
primarily due to loan demand and the increased yields available on
mortgage-backed securities.
Savings deposits increased from $30,808,661 at December 31, 1993 to
$35,353,649 at December 31, 1994, an increase of $4,544,988 or 14.8%.
Deposits increased by $962,457 or 3.2% during 1993 from $29,846,204
outstanding at December 31, 1992. In 1992 and 1993, the lower deposit
rates offered during those periods combined with a moderate level of
transfers out of savings by Bank customers who purchased stock in the
1993 stock conversion and resulted in slower deposit growth as investors
sought alternative investments with higher yields or
32
growth potential. In 1994, as overall market interest rates rose,
Seaboard began to offer higher yields on its deposit products, primarily
certificates of deposit, and such yields were attractive to many
investors because of the poor performance by many stock and bond markets
in 1994. Borrowings by Seaboard remained fairly stable during 1994,
1993 and 1992 and amounted to $2,250,000 at December 31, 1994 versus
$1,250,000 at December 31, 1993 and 1992. The overall increase in
deposits from December 31, 1992 to December 31, 1994, supplemented by
periodic borrowings and the stock conversion during 1993, funded the
increased demand for loans and the growth in Seaboard's portfolio of
mortgage-backed securities during 1994 and 1993.
Shareholders' equity, which consisted entirely of retained earnings
at December 31, 1992, amounted to $5,697,146, $5,540,143 and $2,414,048
at December 31, 1994, 1993 and 1992. The increase during 1992 is all
attributable to earnings. Seaboard's stock conversion during 1993
increased its capital by the net proceeds of $2,712,453. During 1994,
Seaboard paid quarterly dividends of $.10 a share. In addition, during
1994 Seaboard adopted the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 115 as described in Note
2 to the financial statements. As a result of the adoption, Seaboard
recorded net unrealized losses, net of tax effects, amounting to $72,435
on its portfolio of available for sale securities. Such losses were not
recognized in income and are shown as a separate component of
shareholders' equity. Bank's return on average assets and average
equity were .78% and 5.65%, respectively, in 1994; 1.18% and 10.57% in
1993; and .98% and 15.26% in 1992. Total shareholders' equity as a
percentage of Seaboard's total consolidated assets at December 31, 1994
was 13.10%.
Comparison of Operating Results:
Net Income. Net income for the years ended December 31, 1994, 1993
and 1992 was $317,278, $420,230 and $322,589, respectively. The growth
in net income during 1993 as compared to 1992 is primarily attributable
to a higher interest rate spread, gains on sale of certain fixed rate
mortgage loans, and the invested proceeds from the stock conversion. The
decrease in net income in 1994 as compared to 1993 is attributable
primarily to increased expenses associated with the move and opening of
Seaboard's new home office facility, Seaboard's entry into the
Williamston market, and certain growth oriented expenses which
management believes will result in the potential for sustained long-term
earnings.
Net Interest Income. Net interest income increased to $1,722,997
in 1994 from $1,528,828 in 1993 and $1,309,705 in 1992. The average
balances of interest earning assets and interest bearing liabilities
increased significantly during 1994 and 1993 and had a significant
impact on Seaboard's net interest income. However, such assets and
liabilities increased only moderately during 1992 and had an
insignificant effect on the increase in net interest income. The
interest rate spread increased in 1994 to 4.24% from 4.14% in 1993, but
the increase in interest rate spread during 1992 was significantly
higher than previous periods and was the primary reason net interest
income increased during that year. The overall decline in market
interest rates during 1993 and 1992 had a more significant effect on
Seaboard's interest-bearing liabilities because such liabilities had
shorter maturities and were able to reprice more quickly in a declining
interest rate environment than Seaboard's interest-earning assets.
Residual effects of declining market rates were experienced during 1994,
and Seaboard's loan portfolio, which has a substantial volume of
adjustable rate loans, tends to lag behind market movements to some
degree. Although, Seaboard's interest rate spread increased slightly
during 1994, the trend near the end of the year was for such spreads to
narrow. During 1994, Seaboard was able to sustain near record lows for
costs of funds on its transaction deposits, but market pressures have
caused Seaboard to raise the rates it pays for certificates of deposit.
Interest Income. Interest income amounted to $3,149,058,
$2,912,919 and $2,960,318 in 1994, 1993 and 1992, respectively. Although
Seaboard experienced consistent and moderate growth in its
interest-earning assets during the three year period, its yields
decreased from a high of 9.46% in 1992 to 8.51% and 8.34% in 1993 and
1994, respectively. The declines reflected the changes in prevailing
market interest rates over the three-year period and were not indicative
of any significant change in the composition of Seaboard's
interest-earning assets. Although market rates began to rise during
1994 and a sizeable portion of Seaboard's loan portfolio is adjustable,
the indexes used by Seaboard to reprice such loans tend to lag behind
market rate movements and Seaboard's portfolio is subject to repricing
at varying times throughout each year. However, a sustained movement of
rates in either direction is ultimately followed by a sizeable portion
of Seaboard's loan portfolio.
33
Interest Expense. Interest expense decreased from a high of
$1,650,613 in 1992 to $1,384,091 in 1993 before increasing to $1,426,061
in 1994. Although Seaboard had a minor amount of growth in savings in
1992 and 1993, it experienced a significant decline in its cost of funds
during those periods, which was primarily responsible for the decline in
its interest expense. Seaboard's average cost of funds declined from a
high of 5.44% in 1992 to 4.38% and 4.10% in 1993 and 1994, respectively.
The declines were caused by a decrease in overall market rates during
the period and were more significant than the declines in interest rates
on Seaboard's interest-earning assets because the shorter maturities of
Seaboard's liabilities allowed them to reprice more quickly in the
declining interest rate environment experienced during that period. The
significantly larger volume of savings deposits and a modest increase in
borrowings during 1994 were the primary factors in the increase in
interest expense in 1994. Although Seaboard's cost of funds decreased
during the entire 1994 period, the increase in overall market rates
experienced during 1994 has caused Seaboard's cost of funds to increase
during the later months of 1994.
The following tables provide additional information concerning
Seaboard's yields on interest-earning assets and costs of funds on
interest-bearing liabilities and the effect that changes in volume and
yields and costs had on Seaboard's net interest income over the three
year period ended December 31, 1994.
1994 1993 1992
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
balances expenses cost balances expenses cost balances expenses cost
Loans. . . . . . . $32,431,114 $2,839,413 8.76% $27,998,318 $2,569,719 9.18% $27,020,431 $2,683,575 9.93%
Investment
securities. . . . 1,991,133 124,767 6.27 2,484,750 148,269 5.97 2,251,466 135,068 6.00
Other interest-
earning assets. . 680,467 27,611 4.06 1,489,042 41,330 2.78 507,160 18,609 3.67
Mortgage-backed
securities. . . . 2,645,408 157,267 5.94 2,245,716 153,601 6.84 1,524,274 123,066 8.07
$37,748,122 $3,149,058 8.34 $34,217,826 $2,912,919 8.51 $31,303,331 $2,960,318 9.46
Savings deposits . $33,146,237 $1,347,434 4.07 $30,375,929 $1,342,905 4.42 $29,561,123 $1,617,355 5.47
Borrowings . . . . 1,645,833 78,627 4.78 1,250,000 41,186 3.29 797,671 33,258 4.17
$34,792,070 $1,426,061 4.10 $ 1,625,929 $1,384,091 4.38 $30,358,794 $1,650,613 5.44
Interest rate
spread . . . . . . 4.24 4.14 4.02
Net interest
income. . . . . . . $1,722,997 $1,528,828 $1,309,705
Net yield on
average interest-
earning assets . . . 4.56% 4.47% 4.18%
34
The following table analyzes the dollar amount of changes in
interest income and interest expense for major components of
interest-earning assets and interest-bearing liabilities. The table
distinguishes between (i) changes attributable to volume (changes in
volume multiplied by the prior period's rate), (ii) changes attributable
to rate (changes in rate multiplied by the prior period's volume), and
(iii) mixed change (changes in volume multiplied by changes in rate).
1994 Versus 1993 1993 Versus 1992
(In Thousands)
Increase (decrease) due to: Increase (decrease) due to:
Rate/ Rate/
Volume Rate Volume Total Volume Rate Volume Total
Interest income:
Loans. . . . . . . . . . . . . . 407 (118) (19) 270 97 (204) (7) (114)
Investment securities. . . . . . (30) 7 (1) (24) 14 (1) - 13
Other interest-earning assets. . (22) 18 (10) (14) 36 (4) (9) 23
Mortgage-backed securities . . . 27 (19) (4) 4 58 (19) (8) 31
Total interest income. . . . . 382 (112) (34) 236 205 (228) (24) (47)
Interest expense:
Savings deposits . . . . . . . . 122 (108) (10) 4 44 (310) (8) (274)
Borrowings . . . . . . . . . . . 13 19 6 38 19 (7) (4) 8
Total interest expense . . . . 135 (89) (4) 42 63 (317) (12) (266)
Net interest income. . . . . . . 247 (23) (30) 194 142 89 (12) 219
Provision for Possible Loan Losses. Seaboard's provision for
possible loan losses decreased from $82,684 in 1992 to $80,000 and
$41,682 in 1993 and 1994, respectively. The provision, which is charged
to operations, and the resulting loan loss allowances are amounts
Seaboard's management believes will be adequate to absorb possible
losses on existing loans that may become uncollectible. Loans are
charged-off against the allowance when management believes that
collectibility is unlikely. The evaluation to increase the provision
and resulting allowances is based both on prior loan loss experience and
other factors, such as changes in the nature and volume of the loan
portfolio, overall portfolio quality, and current economic conditions.
Seaboard's level of nonperforming assets, defined as loans past due
90 days or more, real estate acquired in foreclosure, and certain other
classified assets, has declined over the three year period and amounted
to .38%, .90% and 1.03% as a percentage of total assets at December 31,
1994, 1993 and 1992, respectively. Seaboard has adopted policies which
it believes provides for prudent and adequate levels of loan loss
allowances.
At December 31, 1994, Seaboard's level of general valuation
allowances for possible loan losses amounted to $170,000, which
management believes is adequate to absorb potential losses in its loan
portfolio.
Noninterest Income. Noninterest income amounted to $453,142,
$472,968 and $384,928 in 1994, 1993 and 1992, respectively. Noninterest
income consists primarily of service charges and fees associated with
Seaboard's loan and savings accounts as well as insurance commissions
earned from the sale of casualty policies by Seaboard's wholly-owned
subsidiary which operates as a casualty insurance agency. Gains from
the sale of loans in the secondary market are also a periodic source of
noninterest income. Seaboard's level of noninterest income has remained
fairly stable. In 1993, Seaboard sold loans that resulted in gains of
$71,227 as compared to gains of $9,325 during 1994.
Noninterest Expense. Noninterest expense consists primarily of
operating expenses for compensation and employee benefits, occupancy and
equipment expenses, federal insurance premiums, and data processing
charges. Noninterest expenses amounted to $1,588,954, $1,266,259 and
$1,087,089 in 1994, 1993 and 1992, respectively.
35
Compensation and employee benefits increased from $570,252 in 1992
to $693,976 and $793,936 in 1993 and 1994, respectively. Compensation
expense, separate and apart from other employee benefits, increased by
7.2% in 1993 and by 9.15% in 1992. Compensation expense increased more
significantly during 1994 as a result of the growth in services and
customer activity associated with Seaboard's increase in assets and
deposits, and because of the opening of the Williamston branch. The
increase in the cost of other employee benefits during the three year
period is primarily as a result of increases in retirement and health
insurance costs. During 1994 and 1993, Seaboard also amortized as
compensation expense the vested portion of the deferred stock awards
associated with the stock conversion together with bonuses necessary to
pay the resulting income taxes.
Occupancy and equipment expenses amounted to $205,237, $121,506 and
$105,495 in 1994, 1993 and 1992, respectively, and the increase during
1994 was caused primarily by increased utility and depreciation expense
associated with Seaboard's home office facility and its additional
branch location in Williamston. Federal insurance premium expense is a
factor of the level of Seaboard's savings accounts and the premium rates
charged by the FDIC. Deposit insurance expense remained fairly stable
throughout the three year period. Data processing expenses amounted to
$129,810, $104,429 and $94,717 in 1994, 1993 and 1992, respectively.
The increase in computer related expenses is directly related to the
increase in the number of customer accounts during the three year period
and the increase in servicing fees charged Seaboard by its outside
service bureau. Other operating expenses increased during 1994
primarily due to certain marketing and office related expenses
associated with Seaboard's move and opening of its new home office
facility. A significant amount of this increase is expected to be
nonrecurring.
Income Taxes. Seaboard's effective income tax rate was 41.84%,
35.90% and 38.54% in 1994, 1993 and 1992, respectively. The differences
in rates were due to changes in the components of permanent tax
differences and are described in detail in Note 9 to the financial
statements.
Capital Resources and Liquidity
The objective of Seaboard's liquidity management is to ensure the
availability of sufficient cash flows to meet all financial commitments
and to capitalize on opportunities for expansion. Management of
liquidity addresses Seaboard's ability to meet deposit withdrawals
either on demand or at contractual maturity, to repay borrowings as they
mature and to make new loans and investments as opportunities arise.
A significant liquidity source for Seaboard is cash provided by
operating activities. These operating activities generated cash of
$301,278 in 1994, $669,608 in 1993 and $490,675 in 1992. An additional
source used by Seaboard to fund its asset growth and maintain liquidity
is the ability to generate customer deposits. The net increases in
deposits for the year ended December 31, 1994 was $4,544,988 and the
increase in deposits for the years ended December 31, 1993 and 1992 was
$962,457 and $1,038,029, respectively. The cash provided by operations
and deposit growth has enabled Seaboard to place little dependence on
borrowed funds for its liquidity needs; however, Seaboard does maintain
readily available sources with the FHLB of Atlanta in the event it needs
to borrow funds. These liquidity resources are also supplemented by
Seaboard's ability to sell loans in the secondary market.
Cash provided by operating and financing activities has
historically been used by Seaboard to make new loans to its customers.
Excess cash will be used in the future to make new loans as demand
warrants and to maintain Seaboard's liquid investment portfolios by
offsetting maturities which are timed to provide needed cash flows to
meet anticipated short term liquidity requirements.
As a North Carolina-chartered savings bank, Seaboard must maintain
liquid assets equal to at least 10% of total assets. The computation of
liquidity under North Carolina regulation allows the inclusion of
mortgage-backed securities and investments with readily marketable
value, including investments with maturities in excess of five years.
Seaboard's liquidity ratio on December 31, 1994, as computed under North
Carolina regulations, was approximately 14%. Given its excess
liquidity, Seaboard believes that it will have sufficient funds
available to meet anticipated future loan commitments, unexpected
deposit withdrawals, or other cash requirements.
Asset/Liability Management. Seaboard's asset/liability management,
or interest rate risk management, is focused primarily on evaluating and
managing Seaboard's net interest income given various risk criteria.
Factors
36
beyond Seaboard's control, such as the effects of changes in
market interest rates and competition, may also have an impact on the
management of interest rate risk.
In the absence of other factors, Seaboard's overall yield on
interest-earning assets will increase as will its cost of funds on its
interest-bearing liabilities when market rates increase over an extended
period of time. Inversely, Seaboard's yields and cost of funds will
decrease when market rates decline. Seaboard is able to manage these
swings to some extent by attempting to control the maturity or rate
adjustments of its interest-earning assets and interest-bearing
liabilities over given periods of time. Seaboard's "gap" is typically
described as the difference between the amounts of such assets and
liabilities which reprice within a period of time. In a declining
interest rate environment, a negative gap, or a situation where
Seaboard's interest-bearing liabilities subject to repricing exceed the
level of interest-earning assets which will mature or reprice, will have
a favorable impact on Seaboard's net interest income. At December 31,
1994, Seaboard had a negative gap position. Conversely, an increase in
general market rates over a sustained period of time will tend to affect
adversely Seaboard's net interest income.
To minimize the potential effects of adverse material and prolonged
increases or decreases in market interest rates on Seaboard's
operations, management has implemented an asset/liability program
designed to improve Seaboard's interest rate gap. The program primarily
emphasizes the origination of adjustable rate mortgage loans and shorter
term consumer loans which are held for investment purposes, the sale of
long-term fixed rate mortgages originated, the investment of excess cash
in short or intermediate term interest-earning assets, and the
solicitation of checking or transaction deposit accounts which are less
sensitive to changes in interest rates and can be repriced rapidly.
Although Seaboard's asset/liability management program has
generally helped to decrease the exposure of its earnings to interest
rate increases, Seaboard continues to have a negative gap position which
will be adversely impacted during prolonged periods of rising interest
rates and positively affected during prolonged periods of declining
interest rates.
Impact of Inflation and Changing Prices. The financial statements
and accompanying footnotes have been prepared in accordance with
generally accepted accounting principles ("GAAP"), which require the
measurement of financial position and operating results in terms of
historical dollars without consideration for changes in the relative
purchasing power of money over time due to inflation. The assets and
liabilities of Seaboard are primarily monetary in nature and changes in
market interest rates have a greater impact on Seaboard's performance
than do the effects of inflation.
Comparison of Operating Results for the Nine Months ended September 30,
1995 and 1994
General. Seaboard's net income of $256,781 for the nine months
ended September 30, 1995 was $30,182 or 10.52% less than its net income
of $286,963 for the nine months ended September 30, 1994. The decrease
in net income in 1995 was primarily attributable to a lower level of net
interest income earned during the nine months ended September 30, 1995
versus the same period in 1994 due to an increase in Seaboard's cost of
funds for deposits. In addition, Seaboard's provision for loan losses
was higher in the nine months ended September 30, 1995 in comparison
with the same period in 1994 due to certain conditions which are
explained further in the asset quality section set forth below.
Net Interest Income. Net interest income, which represents
interest income less interest expense, declined by $97,120 for the nine
months ended September 30, 1995 to $1,216,356 compared with $1,313,476
for the same period in 1994. Seaboard experienced a narrowing of its
spread during the nine month period ended September 30, 1995 because the
yield on its interest-earning assets remained relatively flat, 8.77%
versus 8.74% for the nine months ended September 30, 1995 and 1994,
respectively, while the rates paid on its interest-bearing liabilities
increased by .95% from 4.00% for the nine months ended September 30,
1994 to 4.95% for the nine months ended September 30, 1995. Seaboard's
increase in its cost of funds was caused by a rise in overall market
rates between the periods. As a result, the decrease in the interest
rate spread experienced by Seaboard during the nine month period ended
September 30, 1995 versus the same period in 1994 was 1.00%, from 4.74%
to 3.74%. However, management believes that Seaboard's interest rate
spread may increase in the future because its cost of funds is expected
to
37
moderate and a sizeable portion of its portfolio of adjustable rate
loans are expected to reprice at higher rates during the next six months
due to lagging indexes on which the rates on its adjustable rate loans
are based.
In addition, Seaboard entered the Williamston market by opening a
denovo branch, initially in temporary rented space during 1994, and
which was subsequently relocated into a newly constructed facility in
the spring of 1995. The total cost of the facility, including
capitalized costs and expenses of operation, will have a negative impact
on net interest income in the early years of its operation until the
branch reaches a size that contributes to the profitability of Seaboard.
However, management believes that the Williamston market has long range
potential that will ultimately result in increased earnings for
Seaboard.
Asset Quality. Seaboard's provision for loan losses increased from
$17,000 for the nine months ended September 30, 1994 to $50,402 for the
nine months ended September 30, 1995. The provision was proportionally
larger in 1995 because Seaboard had a higher level of charge-offs in
1995, as well as an increased dollar amount of nonperforming loans.
During the nine months ended September 30, 1995, Seaboard charged-off
$128,106 in loans against its allowance, which is considerably higher
than Seaboard's historical experience as shown in the table below.
However, $88,669 or approximately 70% of Seaboard's charged-off loans
during the nine months ended September 30, 1995 are attributable to
several agricultural loans to one loan customer. The amount charged-off
represents the entire amount outstanding from this loan customer.
Seaboard has an insignificant amount of remaining agricultural loans in
its portfolio, all of which are currently considered to be performing
loans.
At September 30, 1995, management believes that it has only one
large lending relationship that could potentially result in the loan
becoming nonperforming in the future. The loan, which has an
outstanding balance of approximately $243,000 at September 30, 1995, is
collateralized by a strip shopping center and a substantial amount of
the space is currently vacant. The borrower has continued to make all
payments and has guaranteed the loan's repayment.
Seaboard's loan loss provision, which is charged to operations, and
the resulting loan loss allowance are amounts Seaboard's management
believes will be adequate to absorb possible losses on existing loans
that may become uncollectible. Loans are charged-off against the
allowance when management believes that collectibility is unlikely. The
evaluation to increase the provision and resulting allowance is based on
factors, such as changes in the nature and volume of the loan portfolio,
overall portfolio quality, and current economic conditions. Seaboard
has adopted policies which it believes provides for prudent and adequate
levels of loan loss allowances.
38
Seaboard's historical changes in its loan loss allowances and its
level of nonperforming assets, defined as loans past due 90 days or more
and real estate acquired in foreclosure, are shown in the table below.
Nine months ended
Years ended December 31, September 30,
1994 1993 1992 1995 1994
Unaudited
(Dollars in Thousands)
Balance at beginning of period . . . . . . . . . . . . $157 $112 $ 68 $170 $157
Provisions charged to operations . . . . . . . . . . 42 80 83 50 17
Charge-offs:
Residential mortgage loans . . . . . . . . . . . - (6) (28) - -
Commercial mortgage loans. . . . . . . . . . . . . - - - - -
Residential construction loans . . . . . . . . . . - - - - -
Consumer loans . . . . . . . . . . . . . . . . . (29) (29) (11) (128) (15)
Recoveries . . . . . . . . . . . . . . . . . . . . - - - - -
Balance at end of period . . . . . . . . . . . . . . . $170 $157 $112 $ 92 $159
Balance at end of period consists of:
Mortgage loans . . . . . . . . . . . . . . . . . . 30 25 30 25 30
Consumer loans . . . . . . . . . . . . . . . . . . 140 132 82 67 129
$170 $157 $112 $ 92 $159
Ratio of allowance for loan losses to total
outstanding loans (gross) at end of period . . . . . . 0.48% 0.53% 0.41% 0.25% 0.47%
Ratio of allowance for loan losses to total
nonperforming loans at end of period . . . . . . . . . 102.58% 46.15% 32.34% 27.32% 56.38%
Ratio of net charge-offs during the period to
average loans outstanding during the period. . . . . . . 0.09% 0.13% 0.14% 0.35% 0.04%
Ratio of nonperforming assets to total
assets at end of period. . . . . . . . . . . . . . . . . 0.38% 0.90% 1.03% 0.70% 0.65%
Noninterest income. Noninterest income increased by $97,847 to
$442,960 for the nine months ended September 30, 1995 from $345,113 for
the nine months ended September 30, 1994. The primary factor for the
increase is attributable to an increase in deposit account fees
associated with Seaboard's higher level of checking accounts outstanding
for the nine month period ended September 30, 1995 and an increase in
insurance commissions earned by Seaboard's wholly-owned subsidiary
between the periods.
Noninterest Expense. Noninterest expense increased by $54,493 for
the nine month periods ended September 30, 1995 versus 1994, when such
expense amounted to $1,228,812 and $1,174,319, respectively.
Fluctuation in expense between the periods resulted primarily from
increased expenses, including compensation, occupancy, and furniture and
fixture expenses, associated with the new Williamston branch which
opened in the spring of 1995. In addition, Seaboard had an increased
number of loan and deposit accounts between the nine month periods ended
September 30, 1995 and 1994 which resulted in a higher level of data
processing and insurance expense in 1995.
REGULATION AND SUPERVISION
Federal and state legislation and regulation have significantly
affected the operations of financial institutions in the past several
years and have increased competition among commercial banks, savings
institutions and other providers of financial services. In addition,
federal legislation has imposed new limitations on the investment
authority of financial institutions and has made other changes that may
adversely affect the future operations and competitiveness of regulated
financial institutions with other financial intermediaries. The
operations of regulated depository institutions and their holding
companies, including Bancshares and its depository institution
subsidiaries, will continue to be subject to changes in applicable
statutes and regulations from time to time.
39
Bancshares. Bancshares is a bank holding company registered under
the Bank Holding Company Act of 1956, as amended (the "BHCA") and is
subject to the regulations of the Federal Reserve. Under the BHCA,
Bancshares' activities and those of its subsidiaries are limited to
banking, managing or controlling banks, furnishing services to or
performing services for its subsidiaries or engaging in any other
activity which the Federal Reserve determines to be so closely related
to banking or managing or controlling banks as to be a proper incident
thereto.
The BHCA prohibits Bancshares from acquiring direct or indirect
control of more than 5% of the outstanding voting stock or substantially
all of the assets of any bank or savings bank or merging or
consolidating with another bank holding company or savings bank holding
company without prior approval of the Federal Reserve. (See "PROPOSAL
1: THE MERGER--Required Regulatory Approvals.") Congress has approved
legislation which permits adequately capitalized and managed bank
holding companies to acquire control of a bank in any state (the
"Interstate Banking Law"). Existing state laws setting minimum age
restrictions on target banks can be retained, so long as the age
requirement does not exceed five years. Acquisitions will be subject to
anti-trust provisions that cap at 10% the portion of the United States'
bank deposits a single bank holding company may control, and cap at 30%
the portion of a state's deposits a single bank holding company may
control. States have the authority to waive the 30% cap.
Under the Interstate Banking Law, beginning on June 1, 1997, banks
also will be permitted to merge with one another across state lines,
subject to concentration, capital and Community Reinvestment Act
requirements and regulatory approval. A state can authorize mergers
earlier than June 1, 1997, or it can opt out of interstate branching by
enacting legislation before June 1, 1997. Effective with the date of
enactment, a state can also choose to permit out-of-state banks to open
new branches within its borders. In addition, if a state chooses to
allow interstate acquisition of branches, then an out-of-state bank also
may acquire branches by merger.
Interstate branches that primarily siphon off deposits without
servicing a community's credit needs will be prohibited. If loans are
less than 50% of the average of all institutions in the state, the
branch will be reviewed to see if it is meeting the community credit
needs. If it is not, the branch may be closed and the bank may be
restricted from opening a new branch in the state.
The Interstate Banking Law also modifies the controversial safety
and soundness provisions contained in Section 39 of the 1991 Banking Law
described below which required the banking regulatory agencies to write
regulations governing such matters as internal controls, loan
documentation, credit underwriting, interest rate exposure, asset
growth, compensation and fees and whatever else those agencies
determined to be appropriate. The legislation exempts bank holding
companies from these provisions and requires the agencies to write
guidelines, as opposed to regulations, dealing with these areas. It
also gives more discretion to the banking regulatory agencies with
regard to prescribing standards for banks' asset quality, earnings and
stock valuation.
The Interstate Banking Law also expands current exemptions from the
requirement that banks be examined on a 12-month cycle. Exempted banks
will be inspected every 18 months. Other provisions address paperwork
reduction and regulatory improvements, small business and commercial
real estate loan securitization, truth-in-lending amendments on high
cost mortgages, strengthening of the independence of certain financial
regulatory agencies, money laundering, flood insurance reform and
extension of certain statutes of limitations. At this time, Bancshares
is unable to predict how the Interstate Banking Law may affect its
operations.
Additionally, the BHCA prohibits Bancshares from engaging in, or
acquiring ownership or control of more than 5% of the outstanding voting
stock of any company engaged in a non-banking business, including
thrifts, unless such business is determined by the Federal Reserve to be
so closely related to banking as to be properly incident thereto. The
BHCA generally does not place territorial restrictions on the activities
of such non-banking related activities.
40
Federal Reserve approval (or, in certain cases, non-disapproval)
also must be obtained prior to any person acquiring control of
Bancshares or one of its depository institution subsidiaries. Control
is conclusively presumed to exist if, among other things, a person
acquires more than 25% of any class of voting stock of the institution
or holding company or controls in any manner the election of a majority
of the directors of the institution or the holding company. Control is
presumed to exist if a person acquires more than 10% of any class of
voting stock and the institution or the holding company has registered
securities under Section 12 of the 1934 Act or the acquiror will be the
largest shareholder after the acquisition.
There are a number of obligations and restrictions imposed on bank
holding companies and their insured depository institution subsidiaries
by law and regulatory policies that are designed to minimize potential
loss to depositors of such depository institutions and the FDIC
insurance funds in the event the depository institution becomes in
danger of default or in default. For example, under the Federal Deposit
Insurance Corporation Improvement Act of 1991 (the "1991 Banking Law"),
to reduce the likelihood of receivership of an insured depository
institution subsidiary, a bank holding company is required to guarantee
the compliance of any insured depository institution subsidiary that may
become "undercapitalized" with the terms of any capital restoration plan
filed by such subsidiary with its appropriate federal banking agency up
to the lesser of (i) an amount equal to 5% of the institution's total
assets at the time the institution became undercapitalized or (ii) the
amount which is necessary (or would have been necessary) to bring the
institution into compliance with all acceptable capital standards as of
the time the institution fails to comply with such capital restoration
plan. Under a policy of the Federal Reserve with respect to bank
holding company operations, a bank holding company is required to serve
as a source of financial strength to its depository institution
subsidiaries and to commit resources to support such institutions in
circumstances where it might not do so absent such policy. Under the
BHCA, the Federal Reserve also has the authority to require a bank
holding company to terminate any activity or to relinquish control of a
nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the
Federal Reserve's determination that such activity or control
constitutes a serious risk to the financial soundness and stability of
any depository institution subsidiary of the bank holding company.
In addition, the "cross-guarantee" provisions of the Federal
Deposit Insurance Act ("FDIA") require insured depository institutions
under common control to reimburse the FDIC for any loss suffered by
either the SAIF or the Bank Insurance Fund ("BIF") of the FDIC as a
result of the default of a commonly controlled insured depository
institution or for any assistance provided by the FDIC to a commonly
controlled insured depository institution in danger of default. The FDIC
may decline to enforce the cross-guarantee provisions if it determines
that a waiver is in the best interest of the SAIF or the BIF or both.
The FDIC's claim is superior to claims of shareholders of the insured
depository institution or its holding company but subordinate to claims
of depositors, secured creditors and holders of subordinated debt (other
than affiliates) of the commonly controlled insured depository
institutions.
Bancshares is subject to the obligations and restrictions described
above, and its depository institution subsidiaries are subject to the
cross-guarantee provisions of the FDIC. However, management of
Bancshares currently does not expect that any of these provisions will
have an impact on the operations of Bancshares or its subsidiaries.
Bank holding companies are required to comply with the Federal
Reserve's risk-based capital guidelines which require a minimum ratio of
total capital to risk-weighted assets (including certain off-balance
sheet activities, such as standby letters of credit) of 8%. At least
half of the total capital is required to be "Tier I capital,"
principally consisting of common shareholders' equity, noncumulative
perpetual preferred stock, and a limited amount of cumulative perpetual
preferred stock, less certain goodwill items. The remainder ("Tier II
capital") may consist of a limited amount of subordinated debt, certain
hybrid capital instruments and other debt securities, perpetual
preferred stock, and a limited amount of the general loan loss
allowance. In addition to the risk-based capital guidelines, the
Federal Reserve has adopted a minimum leverage capital ratio, under
which a bank holding company must maintain a minimum level of Tier I
capital to average total consolidated assets of at least 3% in the case
of a bank holding company which has the highest regulatory examination
rating and is not contemplating significant growth or expansion. All
other bank holding companies are expected to maintain a leverage capital
ratio of at least 1% to 2% above the stated minimum.
41
The following table sets forth Bancshares' regulatory capital
position at September 30, 1995. (For the regulatory capital positions
of Bancshares' depository institution subsidiaries as of September 30,
1995, see the discussions below).
Risk-Based Capital
Leverage Capital Tier I Tier II
% of % of % of
Amount Assets Amount Assets Amount Assets
(Dollars in Thousands)
Actual . . . . . . . . . . . $274,228 7.35% $274,228 10.53% $306,776 11.78%
Minimum capital standard . . 78,116 3.00 104,155 4.00 208,310 8.00
Excess of actual
regulatory capital over
minimum regulatory
capital standard . . . . . $196,112 4.35% $170,073 6.53% $ 98,466 3.78%
Under current federal law, transactions between depository
institutions and any affiliate are governed by Section 23A and 23B of
the Federal Reserve Act. An affiliate of a depository institution is
any company or entity that controls, is controlled by or is under common
control with the institution. In a holding company context, the parent
holding company of a depository institution and any companies which are
controlled by such parent holding company are affiliates of the
depository institution. Generally, Sections 23A and 23B (i) limit the
extent to which the depository institution or its subsidiaries may
engage in "covered transactions" with any one affiliate to an amount
equal to 10% of such institution's capital stock and surplus, and
contain an aggregate limit on all such transactions with all affiliates
to an amount equal to 20% of such capital stock and surplus and (ii)
require that all such transactions be on terms substantially the same,
or at least as favorable, to the institution or the subsidiary as those
provided to a nonaffiliate. The term "covered transaction" includes the
making of loans or other extensions of credit to an affiliate, the
purchase of assets from an affiliate, the purchase of, or an investment
in, the securities of an affiliate, the acceptance of securities of an
affiliate as collateral for a loan or extension of credit to any person,
or issuance of a guarantee, acceptance or letter of credit on behalf of
an affiliate. In addition to the restrictions imposed by Sections 23A
and 23B, no depository institution may (i) loan or otherwise extend
credit to an affiliate, except for any affiliate which engages only in
activities that are permissible for bank holding companies, or (ii)
purchase or invest in any stocks, bonds, debentures, notes or similar
obligations of any affiliate, except for affiliates that are
subsidiaries of the institution.
Additionally, the FDIC has adopted regulations that affect
contracts between a bank holding company or its non-depository
subsidiaries or related interests under common control, and the holding
company's insured depository institution affiliates. Certain types of
contracts between an insured depository institution and any company
which directly or indirectly controls it (or which is under common
control with it) could be considered unsafe and unsound, including those
relating to: (i) making or purchasing loans, (ii) servicing loans, (iii)
performing trust functions, (iv) providing bookkeeping or data
processing services, (v) furnishing management services, (vi) selling or
transferring any department or subsidiary, (vii) payments for intangible
assets, (viii) transferring any asset for less than fair market value as
evidenced by an independent written appraisal, or (ix) prepaying any
liability more than 30 days prior to its due date. The FDIC also has
proposed regulations which would prohibit any insured depository
institution from entering into any contract with any person to provide
goods, products or services if such contract is determined to adversely
affect the safety or soundness of the insured institution.
Section 4(i) of the BHCA authorizes the Federal Reserve to approve
the application of a bank holding company to acquire any savings
institution under Section 4(c)(8) of the BHCA. In approving such an
application, the Federal Reserve is precluded from imposing any
restrictions on transactions between the bank holding company and the
acquired savings institution, except as required by Section 23A or 23B
of the Federal Reserve Act or any other applicable law. Further, the
FDIA, as amended by the 1991 Banking Law, authorizes the merger or
consolidation of any BIF member with any SAIF member, the assumption of
any liability by any BIF member to pay any deposits of any SAIF member
or vice versa, or the transfer of any assets of any BIF member to any
SAIF member in consideration for the assumption of liabilities of such
BIF member or vice versa, provided that certain conditions are met and,
in the case of any acquiring, assuming or resulting depository
institution which is a BIF member, such institution continues to make
payment of SAIF assessments on the portion of liabilities attributable
to any acquired, assumed or merged SAIF-insured institution.
42
As a result of its ownership of a North Carolina-chartered
commercial bank, Bancshares is registered under the bank holding company
laws of North Carolina. Accordingly, Bancshares and UCB are subject to
regulation by the Commissioner. The Commissioner has asserted authority
to examine North Carolina bank holding companies and their affiliates
and is in the process of formulating regulations in this area.
UCB. UCB is organized as a North Carolina commercial bank and is
subject to various statutory requirements and to rules and regulations
promulgated and enforced by the Commissioner and the FDIC. Its deposits
are insured by the BIF, but a small portion of UCB's deposits are
SAIF-insured as a result of an earlier acquisition of a savings
institution. Upon consummation of the Merger, the portion of UCB's
deposits attributable to Seaboard will be SAIF-insured.
North Carolina commercial banks, such as UCB, are subject to legal
limitations on the amounts of dividends they are permitted to pay. Prior
approval of the Commissioner is required if the total of all dividends
declared by UCB in any calendar year exceeds its net profits (as defined
by statute) for that year combined with its retained net profits (as
defined by statute) for the preceding two calendar years, less any
required transfers to surplus. Also, under the 1991 Banking Law an
insured depository institution, such as UCB, is prohibited from making
capital distributions, including the payment of dividends, if, after
making such distribution, the institution would become
"undercapitalized" (as such term is defined in the statute). Based on
its current financial condition, Bancshares does not expect that this
provision will have any impact on UCB's ability to pay dividends.
As an FDIC-insured commercial bank which is not a member of the
Federal Reserve System, UCB is subject to capital requirements imposed
by the FDIC. Under the FDIC's regulations, state nonmember banks that
(a) receive the highest rating during the examination process and (b)
are not anticipating or experiencing any significant growth, are
required to maintain a minimum leverage ratio of 3% of Tier I capital to
average total consolidated assets. All other banks are required to
maintain a minimum ratio of 1% or 2% above the stated minimum, with a
minimum leverage ratio of not less than 4%.
The following table sets forth UCB's regulatory capital positions
at September 30, 1995:
Risk-Based Capital
Leverage Capital Tier I Tier II
% of % of % of
Amount Assets Amount Assets Amount Assets
(Dollars in Thousands)
Actual . . . . . . . . . . $222,547 6.61% $222,547 9.38% $252,215 10.63%
Minimum capital
standard . . . . . . . . 71,203 3.00 94,937 4.00 189,875 8.00
Excess of actual
regulatory capital over
minimum regulatory
capital standard . . . . $151,344 3.61% $127,610 5.38% $ 62,340 2.63%
UCB also is subject to insurance assessments imposed by the FDIC.
Under current law, as amended by the 1991 Banking Law, the insurance
assessment to be paid by BIF-insured institutions shall be as specified
in a schedule required to be issued by the FDIC that would specify, at
semiannual intervals, target reserve ratios designed to increase the
reserve ratio to 1.25% of estimated insured deposits (or such higher
ratio as the FDIC may determine in accordance with the statute) in 15
years. Further, the FDIC is authorized, under the 1991 Banking Law, to
impose one or more special assessments in any amount deemed necessary to
enable repayment of amounts borrowed by the FDIC from the United States
Treasury Department. Effective January 1, 1993, the FDIC replaced the
uniform assessment rate with a transitional risk-based assessment
schedule which became fully effective in January 1994, having
assessments ranging from 0.23% to 0.31 % of an institution's average
assessment base. Effective July 1, 1995, the FDIC reduced assessments
to 0.04% for the strongest banks. The new regulation leaves unchanged the
43
0.31% assessment rate for the weakest banks and does not affect the
deposit premiums paid on SAIF-insured deposits. The actual assessment
to be paid by each BIF member is based on an institution's assessment
risk classification, which is determined based on whether the
institution is considered "well capitalized," "adequately capitalized"
or "under capitalized," as such terms have been defined in applicable
federal regulations adopted to implement the prompt corrective action
provisions of the 1991 Banking Law, and whether such institution is
considered by its supervisory agency to be financially sound or to have
supervisory concerns. (See "--Impact of the 1991 Banking Law".) Based
on the current financial condition and capital levels of UCB, Bancshares
does not expect that the transitional risk-based assessment schedule
will have a material impact on UCB's future earnings.
Various proposals are currently being considered by committees of
the United States Congress concerning a possible merger of the SAIF and
BIF of the FDIC. One of the principal issues under discussion is the
amount of additional funds needed to recapitalize the SAIF prior to such
a merger. Substantially all of the proposals under consideration
contemplate a one-time special assessment to be levied on SAIF-insured
deposits, which assessment has ranged from $.66 to $.85 per $100 of
SAIF-insured deposits maintained by the institution assessed. In
addition, the various proposals differ as to whether the proposed
assessment will be deductible for tax purposes by the institution
assessed. At September 30, 1995, UCB had approximately $125 million of
SAIF-insured deposits which would be subject to such a special
assessment. Due to the uncertainty as to which, if any, of the various
proposals will be adopted and the ultimate amount and tax deductibility
of the assessment to be levied on UCB, the impact of the proposals and
the assessment on UCB is impossible to predict with certainty at this
time.
Further, under current federal law, depository institutions are
subject to the restrictions contained in Section 22(h) of the Federal
Reserve Act with respect to loans to directors, executive officers and
principal shareholders. Under Section 22(h), loans to directors,
executive officers and shareholders who own more than 10% of a
depository institution (18% in the case of institutions located in an
area with less than 30,000 in population), and certain affiliated
entities of any of the foregoing, may not exceed, together with all
other outstanding loans to such person and affiliated entities, the
institution's loan-to-one-borrower limit as established by federal law
(as discussed below). Section 22(h) also prohibits loans above amounts
prescribed by the appropriate federal banking agency to directors,
executive officers and shareholders who own more than 10% of an
institution, and their respective affiliates, unless such loans are
approved in advance by a majority of the board of directors of the
institution. Any "interested" director may not participate in the
voting. The Federal Reserve has prescribed the loan amount (which
includes all other outstanding loans to such person), as to which such
prior board of director approval is required, as being the greater of
$25,000 or 5% of capital and surplus (up to $500,000). Further,
pursuant to Section 22(h), the Federal Reserve requires that loans to
directors, executive officers, and principal shareholders be made on
terms substantially the same as offered in comparable transactions to
other persons.
UCB is subject to FDIC-imposed loan-to-one-borrower limits which
are substantially the same as those applicable to national banks. Under
these limits, no loans and extensions of credit to any borrower
outstanding at one time and not fully secured by readily marketable
collateral shall exceed 15% of the unimpaired capital and unimpaired
surplus of the bank. Loans and extensions of credit fully secured by
readily marketable collateral may comprise an additional 10% of
unimpaired capital and unimpaired surplus. These limits also authorize
banks to make loans to one borrower, for any purpose, in an amount not
to exceed $500,000.
Regulations promulgated by the FDIC pursuant to the 1991 Banking
Law place limitations on the ability of insured depository institutions
to accept, renew or roll over deposits by offering rates of interest
which are significantly higher than the prevailing rates of interest on
deposits offered by other insured depository institutions having the
same type of charter in such depository institution's normal market
area. Under these regulations, "well capitalized" depository
institutions may accept, renew or roll such deposits over without
restriction, "adequately capitalized" depository institutions may
accept, renew or roll such deposits over with a waiver from the FDIC
(subject to certain restrictions on payments of rates), and
"undercapitalized" depository institutions may not accept, renew or roll
such deposits over. The regulations contemplate that the definitions of
"well capitalized," "adequately capitalized" and "undercapitalized" will
be the same as the definition adopted by the agencies to implement the
corrective action provisions of the 1991 Banking Law. (See "--Impact of
the 1991 Banking Law".)
UCB is subject to examination by the FDIC and the Commissioner. In
addition, UCB is subject to various other state and federal laws and
regulations, including state usury laws, laws relating to fiduciaries,
consumer credit
44
and equal credit, fair credit reporting laws and laws relating to branch
banking. UCB, as an insured North Carolina commercial bank, is
prohibited from engaging as a principal in activities that are not
permitted for national banks, unless (i) the FDIC determines that the
activity would pose no significant risk to the appropriate deposit
insurance fund and (ii) the bank is, and continues to be, in compliance
with all applicable capital standards.
Under Chapter 53 of the North Carolina General Statutes, if the
capital stock of a North Carolina commercial bank is impaired by losses
or otherwise, the Commissioner is authorized to require payment of the
deficiency by assessment upon the bank's shareholders, pro rata, and to
the extent necessary, if any such assessment is not paid by any
shareholder, upon 30 days notice, to sell as much as is necessary of the
stock of such shareholder to make good the deficiency. Bancshares is
the sole shareholder of UCB.
Seaboard. Seaboard is a North Carolina stock savings bank and a
member of the Federal Home Loan Bank system (the "FHLB System").
Seaboard's deposits are insured by the FDIC through the SAIF, and it is
subject to examination and regulation by the FDIC and the Administrator
and to regulations governing such matters as capital standards, mergers,
establishment of branch offices, subsidiary investments and activities,
and general investment authority.
As a SAIF-insured institution, Seaboard is subject to insurance
assessments imposed by the FDIC. Under current law, as amended by the
1991 Banking Law, the insurance assessment paid by SAIF-insured
institutions must be the greater of 0.15% of the institution's average
assessment base (as defined) or such rate as the FDIC, in its sole
discretion, determines to be appropriate to be able to increase (or
maintain) the reserve ratio to 1.25% of estimated insured deposits (or
such higher ratio as the FDIC may determine in accordance with the
statute) within a reasonable period of time. Through December 31, 1993,
the assessment rate could not be less than 0.23% of the institution's
average assessment base, and from January 1, 1994 through December 31,
1997, the assessment rate must not be less than 0.18% of the
institution's average assessment base. In each case the assessment rate
may be higher if the FDIC, in its sole discretion, determines such
higher rate to be appropriate. Effective January 1, 1993, the annual
assessment rate is determined pursuant to the transitional risk-based
assessment schedule issued by the FDIC pursuant to the 1991 Banking Law,
which imposes assessments ranging from 0.23% to 0.31% of an
institution's average assessment base. The actual assessment to be paid
by each SAIF member will be based on the institution's assessment risk
classification, which will be determined based on whether the
institution is considered "well capitalized, "adequately capitalized" or
"undercapitalized" (as such terms have been defined in federal
regulations adopted to implement the prompt corrective action provisions
of the 1991 Banking Law), and whether such institution is considered by
its supervisory agency to be financially sound or to have supervisory
concerns. (See "--Impact of the 1991 Banking Law".) Based on its
current financial condition and capital levels, Seaboard does not expect
that the transitional risk-based assessment schedule will have a
material impact on its future earnings.
Various proposals are currently being considered by committees of
the United States Congress concerning a possible merger of the SAIF and
BIF of the FDIC. One of the principal issues under discussion is the
amount of additional funds needed to recapitalize the SAIF prior to such
a merger. Substantially all of the proposals under consideration
contemplate a one-time special assessment to be levied on SAIF-insured
deposits, which assessment has ranged from $.66 to $.85 per $100 of
SAIF-insured deposits maintained by the institution assessed. In
addition, the various proposals differ as to whether the proposed
assessment will be deductible for tax purposes by the institution
assessed. At September 30, 1995, Seaboard had approximately $40 million of
SAIF-insured deposits which would be subject to such a special
assessment. Due to the uncertainty as to which, if any, of the various
proposals will be adopted and the ultimate amount and tax deductibility
of the assessment to be levied on Seaboard, the impact of the proposals
and the assessment on Seaboard is impossible to predict with certainty
at this time.
The FDIC requires Seaboard to have a minimum leverage ratio of Tier
I capital to average total assets of at least 3%; provided, however,
that all institutions, other than those (i) receiving the highest rating
during the examination process and (ii) not anticipating or experiencing
any significant growth, are required to maintain a ratio of 1% or 2%
above the stated minimum, with a minimum leverage ratio of not less than
4%. The FDIC also requires Seaboard to have a ratio of total capital to
risk-weighted assets of at least 8%. The Administrator requires a net
worth equal to at least 5% of total assets. At September 30, 1995,
Seaboard complied with the net worth requirements of the FDIC and the
Administrator.
45
The following table sets forth the consolidated FDIC regulatory
capital positions of Seaboard as of September 30, 1995:
Risk-Based Capital
Leverage Capital Tier I Tier II
% of % of % of
Amount Assets Amount Assets Amount Assets
(Dollars in Thousands)
Actual . . . . . . . . . . $ 5,974 12.72% $ 5,974 20.67% $ 6,066 20.99%
Minimum capital
standard . . . . . . . . 1,409 3.00 1,156 4.00 2,073 8.00
Excess of actual
regulatory capital over
minimum regulatory
capital standard . . . . $ 4,564 9.72% $ 4,818 16.67% $ 3,973 12.99%
Federal Reserve regulations adopted pursuant to the Depository
Institutions Deregulation and Monetary Control Act of 1980 require
savings associations and savings banks to maintain reserves against
their transaction accounts (primarily negotiable order of withdrawal
accounts) and certain nonpersonal time deposits. The reserve
requirements are subject to adjustment by the Federal Reserve. As of
September 30, 1995, Seaboard was in compliance with the applicable
reserve requirements of the Federal Reserve.
Seaboard is subject to North Carolina law which requires that at
least 60% of its assets be investments that qualify under certain
Internal Revenue Service guidelines. As of September 30, 1995, Seaboard
was in compliance with the North Carolina law.
FDIC law and regulations generally provide that state savings
bank's may not engage as principal in any type of activity, or in any
activity in an amount, not permitted for national banks, or directly
acquire or retain any equity investment of a type or in an amount not
permitted for national banks. The FDIC has authority to grant
exceptions to these prohibitions (other than with respect to non-service
corporation equity investments) if it determines no significant risk to
the SAIF is posed by the amount of the investment or the activity to be
engaged in and if the savings bank is and continues to be in compliance
with fully phased-in capital standards. National banks are generally
not permitted to hold equity investments other than shares of service
corporations and certain federal agency securities. Moreover, the
activities in which service corporations are permitted to engage are
limited to those of service corporations for national banks.
The Financial Institutions Reform, Recovery and Enforcement Act of
1989 also generally requires any savings institution that proposes to
establish or acquire a new subsidiary, or to conduct new activities
through an existing subsidiary, to notify the FDIC at least 30 days
prior to the establishment or acquisition of any subsidiary, or at least
30 days prior to conducting any such new activity. Any such activities
must be conducted in accordance with the regulations and orders of the
FDIC and the Administrator.
Seaboard derives its authority from, and is regulated by, the
Administrator. The Administrator has the right to promulgate rules and
regulations necessary for the supervision and regulation of state
savings bank's under his jurisdiction and for the protection of the
public investing in such institutions. The regulatory authority of the
Administrator includes, but is not limited to, (i) the establishment of
reserve requirements, (ii) the regulation of the payment of dividends,
(iii) the regulation of incorporators, shareholders, directors, officers
and employees, (iv) the establishment of permitted types of withdrawable
accounts and types of contracts for savings programs, loans and
investments, and (v) regulation of the conduct and management of savings
banks, chartering and branching of institutions, mergers, conversions
and conflicts of interest. North Carolina law requires that each state
savings bank maintain federal deposit insurance as a condition of doing
business.
The Administrator conducts regular annual examinations of state
savings bank's as well as other state-chartered savings institutions in
North Carolina. The purpose of such examinations is to assure that
institutions are being operated in compliance with applicable North
Carolina law and regulations and in a safe and sound manner.
46
These examinations are usually conducted on a joint basis with the
FDIC. In addition, the Administrator is required to conduct an
examination of any institution when he has good reason to believe the
standing and responsibility of the institution is of doubtful character
or when he otherwise deems it prudent. The Administrator is empowered
to order the revocation of the license of an institution if he finds
that it has violated or is in violation of any North Carolina law or
regulation and that revocation is necessary in order to preserve the
assets of the institution and protect the interest of its depositors.
The Administrator has the power to issue cease and desist orders if any
person or institution is engaging in, or has engaged in, any unsafe or
unsound practice or unfair and discriminatory practice in the conduct of
its business or in violation of any other law, rule or regulation.
A North Carolina savings bank must maintain net worth of 5% of
total assets and liquidity of 10% of total assets, as discussed above.
Additionally, it is required to maintain general valuation allowances
and specific loss reserves in the same amounts as required by the
federal regulators. As of September 30, 1995, Seaboard was in
compliance with such requirements.
A stock state savings bank may not declare or pay a cash dividend
on, or repurchase any of, its capital stock if the effect of such
transaction would be to reduce the net worth of the institution to an
amount which is less than the minimum amount required by applicable
federal and state regulations. Accordingly, Seaboard is prohibited from
making capital distributions, including the payment of dividends, if,
after making such distribution, it would become "undercapitalized" (as
such term is defined in the 1991 Banking Law). In addition, a savings
bank, such as Seaboard, which has converted from mutual form for less
than five years may not, without the prior written approval of the
Administrator, declare or pay a cash dividend on its capital stock in an
amount in excess of one-half of the greater of (i) Seaboard's net income
for the most recent fiscal year or (ii) the average of Seaboard's net
income after dividends for the most recent fiscal year end and not more
than two of the immediately preceding fiscal year ends. During such
five-year period, Seaboard also may not repurchase its capital stock
without the prior written approval of the Administrator.
In addition, under North Carolina law, Seaboard is subject to the
restriction that it is not permitted to declare or pay a cash dividend
on or repurchase any of its capital stock if the effect thereof would be
to cause its net worth to be reduced below the amount for the
liquidation account established in connection with its conversion from
mutual to stock form.
Subject to limitations established by the Administrator, state
savings bank's may make any loan or investment or engage in any activity
which is permitted to federally-chartered savings institutions. In
addition to such lending authority, state savings bank's are authorized
to invest funds, in excess of loan demand, in certain statutorily
permitted investments, including but not limited to (i) obligations of
the United States, or those guaranteed by it; (ii) obligations of the
State of North Carolina; (iii) bank demand or time deposits; (iv) stock
or obligations of the federal deposit insurance fund or FHLB; (v)
savings accounts of any savings and loan association as approved by the
board of directors; and (vi) stock or obligations of any agency of the
State of North Carolina or of the United States or of any corporation
doing business in North Carolina whose principal business is to make
education loans.
North Carolina law provides a procedure by which savings
institutions may consolidate or merge, subject to the approval of the
Administrator. The approval is conditioned upon findings by the
Administrator that, among other things, such merger or consolidation
will promote the best interests of the members or shareholders of the
merging institutions. North Carolina law also provides for simultaneous
mergers and conversions and for supervisory mergers conducted by the
Administrator. In addition, for a period of three years after a savings
bank's conversion to stock form, no person may acquire the beneficial
ownership of more than 10% of Seaboard Stock without the prior written
approval of the Administrator. See "PROPOSAL 1: THE MERGER--Required
Regulatory Approvals."
Impact of the 1991 Banking Law. Among other things, the 1991
Banking Law provides increased funding for the BIF and the SAIF, and
provides for expanded regulation of depository institutions and their
affiliates, including parent holding companies.
The 1991 Banking Law provides authority for special assessments
against insured deposits and for the development of a general risk-based
deposit insurance assessment system which the FDIC implemented on a
47
transitional basis effective January 1, 1993. The BIF and SAIF funding
provisions could result in a significant increase in the assessment rate
on deposits of BIF and SAIF institutions over the next 15 years. No
assurance can be given at this time as to what levels of assessments
against insured deposits will be applied in the future.
The 1991 Banking Law provides the federal banking agencies with
broad powers to take corrective action to resolve the problems of
insured depository institutions. The extent of these powers will depend
upon whether the institutions in question are "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly
undercapitalized," or "critically undercapitalized." In September 1992,
each of the federal banking agencies issued final uniform regulations to
be effective December 19, 1992, which define such capital levels. Under
the final regulations, an institution is considered "well capitalized"
if it has (i) a total risk-based capital ratio of 10% or greater, (ii) a
Tier I risk-based capital ratio of 6% or greater, (iii) a leverage ratio
of 5% or greater and (iv) is not subject to any order or written
directive to meet and maintain a specific capital level for any capital
measure. An "adequately capitalized" institution is defined as one that
has (i) a total risk-based capital ratio of 8% or greater, (ii) a Tier I
risk-based capital ratio of 4% or greater and (iii) a leverage ratio of
4% or greater (or 3% or greater in the case of an institution with the
highest examination rating). An institution is considered (A)
"undercapitalized" if it has (i) a total risk-based capital ratio of
less than 8%, (ii) a Tier I risk-based capital ratio of less than 4% or
(iii) a leverage ratio of less than 4% (or 3% in the case of an
institution with the highest examination rating; (B) "significantly
undercapitalized" if the institution has (i) a total risk-based capital
ratio of less than 6%, or (ii) a Tier I risk-based capital ratio of less
than 3% or (iii) a leverage ratio of less than 3% and (C) "critically
undercapitalized"if the institution has a ratio of tangible equity to
total assets equal to or less than 2%.
The 1991 Banking Law also amended the prior law with respect to the
acceptance of brokered deposits by insured depository institutions to
permit only a "well capitalized" (as defined in the statute as
significantly exceeding each relevant minimum capital level) depository
institution to accept brokered deposits without prior regulatory
approval. In June 1992, the FDIC issued final regulations implementing
these provisions regulating brokered deposits. Under the regulations,
"well-capitalized" banks may accept brokered deposits without
restrictions, "adequately capitalized" banks may accept brokered
deposits with a waiver from the FDIC (subject to certain restrictions on
payment of rates), while "under-capitalized" banks may not accept
brokered deposits. The regulations contemplate that the definitions of
"well capitalized," "adequately capitalized" and "under capitalized" are
the same as the definitions adopted by the agencies to implement the
prompt corrective action provisions of the 1991 Banking Law (as
described in the previous paragraph). Bancshares does not believe that
these regulations have had or will have a material adverse effect on the
current operations of its depository institution subsidiaries.
To facilitate the early identification of problems, the 1991
Banking Law requires the federal banking agencies to review and, under
certain circumstances, prescribe more stringent accounting and reporting
requirements than those required by generally accepted accounting
principles. The FDIC issued a final rule, effective July 2, 1993,
implementing those provisions. The rule, among other things, requires
that management report on the institution's responsibility for preparing
financial statements and establishing and maintaining an internal
control structure and procedures for financial reporting and compliance
with designated laws and regulations concerning safety and soundness,
and that independent auditors attest to and report separately on
assertions in management's reports concerning compliance with such laws
and regulations, using FDIC-approved audit procedures.
The 1991 Banking Law further requires the federal banking agencies
to develop regulations requiring disclosure of contingent assets and
liabilities and, to the extent feasible and practicable, supplemental
disclosure of the estimated fair market value of assets and liabilities.
The 1991 Banking Law also requires annual examinations of all insured
depository institutions by the appropriate federal banking agency, with
some exceptions for small, well-capitalized institutions and state
chartered institutions examined by state regulators. Moreover, the
federal banking agencies are required to set operational and managerial,
asset quality, earnings and stock valuation standards for insured
depository institutions and depository institution holding companies, as
well as compensation standards for insured depository institutions that
prohibit excessive compensation, fees or benefits to officers,
directors, employees, and principal shareholders.
The foregoing necessarily is a general description of certain
provisions of the 1991 Banking Law and does not purport to be complete.
Several of the provisions of the 1991 Banking Law will be implemented
through regulations issued by the various federal banking agencies, only
a portion of which have been adopted in final form.
48
The effect of the 1991 Banking Law on Bancshares and its subsidiaries
will not be fully ascertainable until after all of the provisions are
effective and after all of the regulations are adopted.
CAPITAL STOCK OF BANCSHARES AND SEABOARD
Capital Stock of Bancshares
Authorized Capital. The authorized capital stock of Bancshares
consists of (i) 40,000,000 shares of $4.00 par value common stock (which
is the Bancshares Stock into which outstanding shares of Seaboard Stock
will be converted), of which 14,768,740 shares were issued and
outstanding at September 30, 1995, and (ii) 2,000,000 shares of $10.00
par value preferred stock, of which there were no shares issued and
outstanding at September 30, 1995.
Voting Rights. The holders of Bancshares Stock are entitled to one
vote per share held of record on all matters submitted to a vote of
shareholders. Bancshares' shareholders are not entitled to vote
cumulatively in the election of directors.
Merger, Share Exchange, Sale of Assets and Dissolution. In
general, North Carolina law requires that any merger, share exchange,
voluntary liquidation or transfer of substantially all the assets (other
than in the ordinary course of business) of a business corporation be
approved by the corporation's shareholders by a majority of the votes
entitled to be cast on the proposed transaction. However, Bancshares
charter provides that, except as described below, the affirmative vote
of the holders of not less than 75% of the outstanding shares of each
class of Bancshares' capital stock entitled to vote will be required to
authorize (i) any merger or consolidation of Bancshares into or with any
other corporation, (ii) any sale, lease, exchange, mortgage, transfer or
other disposition of all or any substantial part (more than 10%) of
Bancshares' assets, (iii) the issuance or transfer of any securities of
Bancshares or any subsidiary to an "Interested Shareholder" (any person
who, together with his or its affiliates, beneficially owns 10% or more
of any class of Bancshares' capital stock), (iv) any recapitalization or
reclassification of securities that would have the effect of increasing
the voting power of any Interested Shareholder, or (v) the adoption of
any plan proposed by an Interested Shareholder for Bancshares'
liquidation or dissolution. The above "supermajority" vote will not be
required if the transaction to be approved has been approved by at least
two-thirds of Bancshares' directors and satisfies certain "fair price"
requirements.
Charter Amendments. Subject to certain conditions, an amendment to
Bancshares' charter, including a provision to increase the authorized
capital stock of Bancshares, may be effected if the amendment is
approved by a simple majority of the votes cast on the amendment by
every voting group entitled to vote on the amendment (and by a majority
of the votes entitled to be cast on the amendment by any separate voting
group with respect to which the amendment would create Dissenters'
Rights). However, the affirmative vote of the holders of not less than
75% of the outstanding voting shares of all classes of Bancshares
capital stock is required to approve any modification or amendment of
the "supermajority" provision contained in Bancshares' charter (as
described above). Additionally, North Carolina law allows Bancshares'
Board of Directors, as a condition to its approval of any charter
amendment, to require that the amendment be approved by a vote of
shareholders greater than otherwise would be required by law.
Dividends. Holders of Bancshares Stock are entitled to dividends
when and if declared by Bancshares' Board of Directors from funds
legally available, whether in cash or in stock. (See "--Differences in
Capital Stock of Bancshares and Seaboard.")
Miscellaneous. In accordance with North Carolina law, holders of
Bancshares Stock are entitled, upon dissolution or liquidation, to
participate ratably in the distribution of assets legally available for
distribution to shareholders after payment of debts. Shareholders do
not have preemptive rights to acquire other or additional shares which
might be issued by Bancshares, or any redemption, sinking fund or
conversion rights. Bancshares Stock may not be used as collateral to
secure a loan from UCB.
49
Differences in Capital Stock of Bancshares and Seaboard
Upon consummation of the Merger, Seaboard's shareholders (other
than those shareholders who exercise Dissenters' Rights) will become
shareholders of Bancshares. Certain legal distinctions exist between
owning Bancshares Stock and Seaboard Stock.
Seaboard is a North Carolina savings bank, and the rights of the
holders of Seaboard Stock are governed by Chapter 54C of the North
Carolina General Statutes which is applicable to North Carolina savings
banks ("Chapter 54C") and Chapter 55 of the North Carolina General
Statutes which is applicable to North Carolina business corporations
("Chapter 55"). Bancshares is a North Carolina business corporation and
the rights of the holders of Bancshares Stock are governed solely by
Chapter 55.
Because of differences between Chapter 54C and Chapter 55, the
Merger will result in certain changes in the rights of Seaboard's
shareholders who receive Bancshares Stock in exchange for their Seaboard
Stock. While it is not practical to describe all differences, those
basic differences which will have the most significant effect on the
rights of Seaboard's shareholders if they become shareholders of
Bancshares are discussed below.
The following is only a general summary of certain differences in
the rights of holders of Bancshares Stock and those of holders of
Seaboard Stock. Shareholders should consult with their own legal
counsel with respect to specific differences and changes in their rights
as shareholders which will result from the Merger.
Charter Amendments. Chapter 54C requires that, following
shareholder approval, amendments to Seaboard's charter must be approved
by the Administrator. Amendments to Bancshares' charter are not
required to be approved by the Commissioner or by any other banking
regulator.
Dividends. The shareholders of Bancshares and Seaboard are
entitled to dividends when and if declared by their respective Boards of
Directors, subject to the restrictions described below.
Seaboard is required to obtain prior written approval of the
Administrator before payment of a dividend on the Seaboard Stock.
Regulations promulgated by the Administrator also require the written
approval of the Administrator for a savings bank, such as Seaboard,
which has been converted from mutual form for less than five years to
declare or pay a cash dividend on its capital stock in an amount in
excess of one-half of the greater of (i) Seaboard's net income for the
most recent fiscal year or (ii) the average of Seaboard's net income
after dividends for the most recent fiscal year end and not more than
two of the immediately preceding fiscal year ends. In addition,
pursuant to Chapter 54C, Seaboard may not declare or pay a cash dividend
on its capital stock if the effect of such transaction would be to
reduce the net worth of the institution to an amount which is less than
the minimum amount required by applicable federal and state regulations.
Pursuant to Chapter 55, Bancshares is authorized to pay dividends
as are declared by its Board of Directors, provided that no such
distribution results in its insolvency on a going concern or balance
sheet basis. The principal sources of funds for the payment of
dividends by Bancshares are dividends from UCB. The ability of UCB to
pay dividends is subject to statutory and regulatory restrictions on the
payment of cash dividends, including the requirement under North
Carolina banking laws that cash dividends be paid only out of undivided
profits and only if the bank has surplus of a specified level. Federal
bank regulatory authorities also have the general authority to limit the
dividends paid by insured banks and bank holding companies if such
payment may be deemed to constitute an unsafe and unsound practice.
Merger, Share Exchange, Sale of Assets, or Dissolution. Pursuant
to Chapter 54C, Seaboard may not merge or consolidate with any other
entity, or sell substantially all of its assets to any other entity,
without the prior approval of the holders of at least a majority of its
outstanding shares and the prior written approval of the Administrator.
(See "PROPOSAL 1: THE MERGER--Required Regulatory Approvals.") In
addition, pursuant to Chapter 54C, Seaboard may not be dissolved without
the prior approval of the holders of at least two-thirds of its
outstanding shares. As described above (see "--Capital Stock of
Bancshares"), different levels of shareholder
50
approval are required in order for Bancshares to engage in those
transactions under Chapter 55 and Bancshares' charter.
The prior approval of Bancshares' shareholders is not required to
effect a merger of a bank into UCB or UCBSC provided that Bancshares
remains in control of its subsidiary following consummation of the
merger. Therefore, future acquisitions by Bancshares through the merger
of a third party bank with or into UCB or UCBSC could be effected
without the approval of Bancshares' shareholders.
Repurchase of Capital Stock. Under regulations promulgated by the
Administrator, Seaboard may not purchase any of its capital stock if the
effect of such transaction would be to reduce the net worth of the
institution to an amount which is less than the minimum amount required
by applicable federal and state regulations. In addition, for a period
of five years after a savings bank's conversion to stock form, a savings
bank may not repurchase its capital stock without the prior written
approval of the Administrator.
Under Chapter 55, Bancshares may repurchase its capital stock by
action of its Board of Directors without the prior approval of its
shareholders. However, as a bank holding company, Bancshares is
required to give the Federal Reserve at least 45 days' prior written
notice of the purchase or redemption of any shares of its outstanding
equity securities if the gross consideration to be paid for such
purchase or redemption, when aggregated with the net consideration paid
by Bancshares for all purchases or redemptions of its equity securities
during the 12 months preceding the date of notification, equals or
exceeds 10% of Bancshares' consolidated net worth as of the date of such
notice. The Federal Reserve may permit a purchase or redemption to be
accomplished prior to expiration of the 45-day notice period if it
determines that the repurchase or redemption would not constitute an
unsafe or unsound practice and that it would not violate any applicable
law, rule, regulation or order, or any condition imposed by, or written
agreement with, the Federal Reserve.
Regulation of Transferability. The capital stock of Seaboard,
unlike that of Bancshares, is exempt from the registration requirements
of the 1933 Act and the North Carolina Securities Act. The effect of
such exemptions is to allow Seaboard and its shareholders to sell
Seaboard Stock without registration under such laws. In contrast, the
public sale by Bancshares of its stock, and resales of Bancshares Stock
by certain persons who at the time of resale are "affiliates" of
Bancshares, must be registered under the 1933 Act and the North Carolina
Securities Act or meet certain statutory and regulatory requirements to
qualify for an exemption from registration. The exemption from
registration under the 1933 Act most often used by affiliates of public
corporations is Rule 144 which limits the amount of stock that can be
sold during any three-month period and requires, among other things,
that affiliates' shares be sold in "brokers' transactions" without any
solicitation of offers to purchase such shares.
INDEMNIFICATION
Chapter 55 provides for indemnification by a corporation of its
officers, directors, employees and agents, and any person who is or was
serving at the corporation's request as a director, officer, employee or
agent of another entity or enterprise or as a trustee or administrator
under an employee benefit plan, against liability and expenses,
including reasonable attorney's fees, in any proceeding (including
without limitation a proceeding brought by or on behalf of the
corporation itself) arising out of their status as such or their
activities in any of the foregoing capacities.
Permissible Indemnification. Under Chapter 55, a corporation may,
but is not required to, indemnify or agree to indemnify any such person
against liability and expenses incurred in any such proceeding, provided
such person conducted himself or herself in good faith and (i) in the
case of conduct in his or her official corporate capacity, reasonably
believed that his or her conduct was in the corporation's best
interests, and (ii) in all other cases, reasonably believed that his or
her conduct was at least not opposed to the corporation's best
interests; and, in the case of a criminal proceeding, where he or she
had no reasonable cause to believe his or her conduct was unlawful.
However, a corporation may not indemnify such person either in
connection with a proceeding by or in the right of the corporation in
which such person was adjudged liable to the corporation, or in
connection with any other proceeding charging improper personal benefit
to such person (whether or not involving action in an official capacity)
in which such person was adjudged liable on the basis that personal
benefit was improperly received.
51
Mandatory Indemnification. Unless limited by the corporation's
charter, Chapter 55 requires a corporation to indemnify a director or
officer of the corporation who is wholly successful, on the merits or
otherwise, in the defense of any proceeding to which such person was a
party because he or she is or was a director or officer of the
corporation against reasonable expenses incurred in connection with the
proceeding.
Advance for Expenses. Expenses incurred by a director, officer,
employee or agent of the corporation in defending a proceeding may be
paid by the corporation in advance of the final disposition of the
proceeding as authorized by the board of directors in the specific case,
or as authorized by the charter or bylaws or by any applicable
resolution or contract, upon receipt of an undertaking by or on behalf
of such person to repay amounts advanced unless it ultimately is
determined that such person is entitled to be indemnified by the
corporation against such expenses.
Court-Ordered Indemnification. Unless otherwise provided in the
corporation's charter, a director or officer of the corporation who is a
party to a proceeding may apply for indemnification to the court
conducting the proceeding or to another court of competent jurisdiction.
On receipt of an application, the court, after giving any notice the
court deems necessary, may order indemnification if it determines either
(i) that the director or officer is entitled to mandatory
indemnification as described above, in which case the court also will
order the corporation to pay the reasonable expenses incurred to obtain
the court-ordered indemnification, or (ii) that the director or officer
is fairly and reasonably entitled to indemnification in view of all the
relevant circumstances, whether or not such person met the requisite
standard of conduct or was adjudged liable to the corporation in
connection with a proceeding by or in the right of the corporation or on
the basis that personal benefit was improperly received in connection
with any other proceeding so charging (but if adjudged so liable,
indemnification is limited to reasonable expenses incurred).
Voluntary Indemnification. In addition to and separate and apart
from "permissible" and "mandatory" indemnification described above, a
corporation may, by charter, bylaw, contract or resolution, indemnify or
agree to indemnify any one or more of its officers, directors, employees
and agents against liability and expenses in any proceeding (including
without limitation a proceeding brought by or on behalf of the
corporation itself) arising out of their status as such or their
activities in any of the foregoing capacities. However, the corporation
may not indemnify or agree to indemnify a person against liability or
expenses he or she may incur on account of activities which were at the
time taken known or believed by such person to be clearly in conflict
with the best interests of the corporation. Any provision in a
corporation's charter or bylaws or in a contract or resolution may
include provisions for recovery from the corporation of reasonable
costs, expenses and attorneys' fees in connection with the enforcement
of rights to indemnification granted therein and may further include
provisions establishing reasonable procedures for determining and
enforcing such rights.
Parties Entitled to Indemnification. Chapter 55 defines "director"
to include ex-directors and the estate or personal representative of a
director. Unless its charter provides otherwise, a corporation may
indemnify and advance expenses to an officer, employee or agent of the
corporation to the same extent as to a director and also may indemnify
and advance expenses to an officer, employee or agent who is not a
director to the extent, consistent with public policy, as may be
provided in its charter or bylaws, by general or specific action of its
board of directors, or by contract.
Indemnification by Bancshares and UCB. Subject to such
restrictions as are provided by federal securities law, Bancshares' and
UCB's Bylaws provide for indemnification of their respective directors
and officers to the fullest extent permitted by law and require their
respective Boards of Directors to take all actions necessary and
appropriate to authorize such indemnification. In addition, Bancshares
and UCB currently maintain directors' and officers' liability insurance.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or
persons controlling Bancshares pursuant to the foregoing provisions,
Bancshares has been informed that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as
expressed in said Act and is, therefore, unenforceable.
52
Release of Director Liability. As permitted by Chapter 55,
Bancshares' Articles of Incorporation limit the personal liability of
its directors in any action by or in the right of the corporation or
otherwise for monetary damages for breach of their duties as directors.
TAX AND LEGAL MATTERS
The validity of the shares of Bancshares Stock to be issued to
Seaboard's shareholders in connection with the Merger will be passed
upon for Bancshares by Howard V. Hudson, Jr., Esq., who is employed as
General Counsel and Secretary of Bancshares and UCB and, at September
30, 1995, beneficially owned 16,052 shares of Bancshares Stock. Certain
other legal matters will be passed upon for Bancshares and UCB by Ward
and Smith, P.A., New Bern, North Carolina, which serves as special
counsel to Bancshares and UCB with respect to the Merger. Certain
members of that firm beneficially own an aggregate of approximately
__________ shares of Bancshares Stock. Certain legal matters will be
passed upon for Seaboard by The Sanford Law Firm PLLC, Raleigh, North
Carolina.
The federal and North Carolina income tax consequences of the
Merger have been passed upon by KPMG Peat Marwick LLP, Raleigh, North
Carolina.
EXPERTS
The consolidated financial statements of Bancshares as of December
31, 1994 and 1993, and for each of the years in the three-year period
ended December 31, 1994, have been incorporated by reference herein and
in the Registration Statement in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in
accounting and auditing. The report of KPMG Peat Marwick LLP refers to
the fact that on December 31, 1993, Bancshares adopted the provisions of
the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," and on January 1, 1993, Bancshares adopted
the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." The report of KPMG Peat Marwick LLP also refers to the fact
that on January 1, 1994, Bancshares adopted the provisions of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits."
The consolidated financial statements of Seaboard as of December
31, 1994 and 1993, and for each of the years in the three-year period
ended December 31, 1994, have been included herein in reliance upon the
report of McGladrey & Pullen, LLP, independent auditors, as indicated in
their report which is included herein, and upon the authority of said
firm as experts in auditing and accounting.
OTHER MATTERS
Seaboard's Board of Directors does not intend to bring any matter
before the Special Meeting other than as specifically set forth in this
Prospectus/Proxy Statement, and it knows of no other business that will
be brought before the Special Meeting by any other person. However,
should other matters properly be presented for action at the Special
Meeting, the Proxies or their substitutes, will be authorized to vote
shares represented by appointments of proxy according to their best
judgment on such matters.
PROPOSALS OF SHAREHOLDERS
If for any reason the Merger is not consummated, then a 1996 Annual
Meeting of Seaboard's shareholders likely would be held during April
1996. In such event, any proposal (other than nominations for
directors) of a shareholder intended to be presented at that meeting
would have to have been received by Seaboard at its main office in
Plymouth, North Carolina, no later than December 31, 1995, to be
considered timely received for inclusion in the proxy statement and
appointment of proxy issued in connection with that meeting.
53
Index to Financial Statements
OF SEABOARD SAVINGS BANK, INC. SSB
Page
Independent Auditor's Report:
McGladrey & Pullen, LLP F-2
Financial Statements:
Consolidated statements of financial condition at December 31, 1994 and 1993, F-3
and September 30, 1995 (unaudited)
Consolidated statements of income for years ended December 31, 1994, 1993 and
1992, and the nine-months ended September 30, 1995 and 1994 (unaudited) F-4
Consolidated statements of stockholders' equity for the years ended December 31,
1994, 1993 and 1992, and the nine-months ended September 30, 1995 (unaudited) F-5
Consolidated statements of cash flows for the years ended December 31, 1994, 1993
and 1992, and the nine-months ended September 30, 1995 and 1994 (unaudited) F-6 - F-7
Notes to consolidated financial statements F-8 - F-23
All schedules are omitted because of the absence of the conditions under which
they are required or because the required information is included in the
consolidated financial satements of Seaboard Saving Bank, Inc. SSB or related
notes.
F-1
Independent Auditor's Report
To the Board of Directors
Seaboard Savings Bank, Inc. SSB
We have audited the accompanying consolidated statements of financial condition
of Seaboard Savings Bank, Inc. SSB and subsidiary as of December 31, 1994 and
1993, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the years in the three year period ended December 31,
1994. These financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Seaboard Savings
Bank, Inc. SSB and subsidiary as of December 31, 1994 and 1993, and the results
of their operations and their cash flows for each of the years in the three year
period ended December 31, 1994 in conformity with generally accepted accounting
principles.
As discussed in Note 2 to the consolidated financial statements, the Bank
changed its method of accounting for certain investments in 1994.
[Signature of McGladrey & Pullen, LLP]
Raleigh, North Carolina
January 16, 1995
F-2
SEABOARD SAVINGS BANK, INC. SSB AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
ASSETS December 31, September 30,
1994 1993 1995
- ----------------------------------------------------------------------------------------------------------
(Unaudited)
Cash and short-term cash investments:
Noninterest-bearing deposits $ 423,880 $ 323,516 $ 575,312
Interest-bearing deposits 1,323,453 1,187,643 2,701,017
Investment securities (Note 3):
Held to maturity or for investment 1,676,303 2,081,528 1,652,970
Nonmarketable equity securities 262,800 262,800 274,540
Mortgage-backed securities (Note 5):
Available for sale 1,963,159 --- 1,817,644
Held to maturity or for investment 692,737 2,831,023 623,591
Loans receivable, net (Notes 4 and 8) 34,527,277 29,138,051 36,898,738
Accrued interest receivable:
Loans 336,256 284,484 498,846
Investment securities 30,729 33,329 34,594
Mortgage-backed securities 16,926 17,247 14,807
Property and equipment, net (Note 6) 1,895,963 1,474,986 2,246,057
Prepaid expenses and other assets 290,190 155,220 323,626
Deferred income taxes (Note 9) 58,881 25,381 10,126
-------------------------------------------------
Total assets $ 43,498,554 $ 37,815,208 $ 47,671,868
-------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Savings accounts (Note 7) $ 35,353,649 $ 30,808,661 $ 40,290,643
Advances from the Federal Home Loan Bank (Note 8) 2,250,000 1,250,000 1,250,000
Accounts payable and accrued expenses 197,759 180,061 155,421
Income taxes payable --- 36,343 ---
-------------------------------------------------
Total liabilities 37,801,408 32,275,065 41,696,064
-------------------------------------------------
Commitments and contingencies (Notes 6, 12 and 13)
Stockholders' Equity (Notes 14, 15,and 16):
Capital Stock:
Preferred stock, no par; 1,000,000 shares authorized;
none issued --- --- ---
Common stock, no par; 5,000,000 shares authorized;
304,447 outstanding in 1994 and 1993; 305,647 in 1995 --- --- ---
Additional paid-in capital 2,882,153 2,882,153 2,894,153
Deferred stock awards (81,462) (115,402) (54,187)
Unrealized gains (losses) on available for sale
investment securities, net of tax effects (72,435) --- 1,860
Retained earnings, substantially restricted 2,968,890 2,773,392 3,133,978
-------------------------------------------------
Total stockholders' equity 5,697,146 5,540,143 5,975,804
-------------------------------------------------
$ 43,498,554 $ 37,815,208 $ 47,671,868
-------------------------------------------------
See Notes to Consolidated Financial Statements.
F-3
SEABOARD SAVINGS BANK, INC. SSB AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended
Years Ended December 31, September 30,
1994 1993 1992 1995 1994
- -----------------------------------------------------------------------------------------------------------
Interest and dividend income: (Unaudited)
Loans $ 2,839,413 $ 2,569,719 $ 2,683,575 $ 2,459,756 $ 2,107,858
Investment securities 124,767 148,269 135,068 100,982 93,122
Other interest-bearing deposits 27,611 41,330 18,609 53,632 16,692
Mortgage-backed securities 157,267 153,601 123,066 120,682 116,627
---------------------------------------------------------------
3,149,058 2,912,919 2,960,318 2,735,052 2,334,299
---------------------------------------------------------------
Interest expense:
Savings accounts (Note 7) 1,347,434 1,342,905 1,617,355 1,413,620 975,919
Borrowings 78,627 41,186 33,258 105,076 44,904
---------------------------------------------------------------
1,426,061 1,384,091 1,650,613 1,518,696 1,020,823
---------------------------------------------------------------
Net interest income 1,722,997 1,528,828 1,309,705 1,216,356 1,313,476
Provision for loan losses (Note 4) 41,682 80,000 82,684 50,402 17,000
---------------------------------------------------------------
Net interest income after
provision for loan losses 1,681,315 1,448,828 1,227,021 1,165,954 1,296,476
---------------------------------------------------------------
Noninterest income:
Service charges and other fees 67,548 45,150 38,004 59,687 51,348
Insurance commissions 245,283 256,055 245,115 228,620 185,216
Net gain on sale of loans 9,325 71,227 39,192 20,433
Other 130,986 100,536 101,809 115,461 88,116
---------------------------------------------------------------
453,142 472,968 384,928 442,960 345,113
---------------------------------------------------------------
Noninterest expense:
Compensation and employee benefits 793,936 693,976 570,252 621,998 587,096
Occupancy 92,416 48,148 49,098 85,183 78,913
Federal insurance premiums 73,780 59,087 64,233 61,264 55,104
Data processing 129,810 104,429 94,717 126,293 101,535
Furniture and fixture expense 112,821 73,358 56,397 98,956 73,120
Other 386,191 287,261 252,392 235,118 278,551
---------------------------------------------------------------
1,588,954 1,266,259 1,087,089 1,228,812 1,174,319
---------------------------------------------------------------
Income before income taxes 545,503 655,537 524,860 380,102 467,270
---------------------------------------------------------------
Income taxes (credits) (Note 9):
Current 217,330 250,094 213,849 120,101 171,619
Deferred 10,895 (14,787) (11,578) 3,220 8,688
---------------------------------------------------------------
228,225 235,307 202,271 123,321 180,307
---------------------------------------------------------------
Net income $ 317,278 $ 420,230 $ 322,589 $ 256,781 $ 286,963
---------------------------------------------------------------
Earnings per share - primary $ 1.00 $ 1.38 $ - $ 0.79 $ 0.91
- fully diluted $ 1.00 $ 1.38 $ - $ 0.79 $ 0.91
Cash dividends paid per share $ 0.40 $ 0.20 $ - $ 0.30 $ 0.30
See Notes to Consolidated Financial Statements.
F-4
SEABOARD SAVINGS BANK, INC. SSB AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1994, 1993 and 1992, and
Nine-Months Ended September 30, 1995 (Unaudited)
Net
Additional Deferred Unrealized
Paid in Stock Retained Gain (Loss)
Capital Awards Earnings on Securities Total
- ----------------------------------------------------------------------------------------------------------
Balance at January 1, 1992 $ --- $ --- $ 2,091,459 $ --- $ 2,091,459
Net income --- --- 322,589 --- 322,589
--------------------------------------------------------------------
Balance at December 31, 1992 --- --- 2,414,048 --- 2,414,048
Net income --- --- 420,230 --- 420,230
Issuance of common stock 2,874,770 --- --- --- 2,874,770
Common stock issued to the
Management Recognition Plan 172,500 (172,500) --- --- ---
Conversion cost (162,317) --- --- --- (162,317)
Cancellation of common stock issued to
the Management Recognition Plan (2,800) 2,800 --- --- ---
Amortization of deferred stock
award compensation expense --- 54,298 --- --- 54,298
Cash dividends paid --- --- (60,886) --- (60,886)
--------------------------------------------------------------------
Balance at December 31, 1993 2,882,153 (115,402) 2,773,392 --- 5,540,143
Net income --- --- 317,278 --- 317,278
Amortization of deferred stock
award compensation expense --- 33,940 --- --- 33,940
Cash dividends paid --- --- (121,780) --- (121,780)
Net unrealized loss on available
for sale securities --- --- --- (72,435) (72,435)
---------------------------------------------------------------------
Balance at December 31, 1994 2,882,153 (81,462) 2,968,890 (72,435) 5,697,146
Net income for the nine-months
ended September 30, 1995 --- --- 256,781 --- 256,781
Amortization of deferred stock
award compensation expense --- 27,275 --- --- 27,275
Cash dividends paid --- --- (91,693) --- (91,693)
Exercise of stock options 12,000 --- --- --- 12,000
Net unrealized gain on available
for sale securities --- --- --- 74,295 74,295
---------------------------------------------------------------------
Balance at September 30, 1995 $ 2,894,153 $ (54,187) $ 3,133,978 $ 1,860 $ 5,975,804
---------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
F-5
SEABOARD SAVINGS BANK, INC. SSB AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
Years Ended December 31, September 30,
1994 1993 1992 1995 1994
- -----------------------------------------------------------------------------------------------------------
(Unaudited)
Cash Flows From Operating Activities:
Net income $ 317,278 $ 420,230 $ 322,589 $ 256,781 $ 286,963
Adjustment to reconcile net income to
net cash provided by operating
activities:
Depreciation 97,938 51,679 45,109 90,457 58,125
Gain on disposal of equipment (6,095) --- --- --- ---
Amortization of premiums 8,106 4,362 --- 4,713 6,079
Amortization of stock awards 33,940 54,298 --- 27,275 ---
Provision for loan losses 41,682 80,000 82,684 50,402 17,000
FHLB stock dividends --- (16,100) (13,800) --- (12,075)
Loss (gain) on sale of real estate acquired
in settlement of loans --- 927 13,487 (5,402) ---
Gain on sale of loans (9,325) (71,227) --- (39,192) (20,433)
Origination of loans held for sale (2,588,902) (3,427,423) (419,950) (3,748,771) (2,399,084)
Proceeds from sales of loans 2,598,227 3,498,650 419,950 3,787,963 2,419,517
Changes in assets and liabilities:
(Increase) decrease in:
Accrued interest receivable (48,851) (21,003) (2,951) (164,336) (73,959)
Prepaid expenses and other assets (134,970) 11,369 86,361 (33,436) (59,207)
Deferred income taxes 10,895 (14,787) (11,578) 3,220 8,688
Increase (decrease) in:
Income taxes payable (36,343) (25,406) 48,235 --- (49,055)
Accounts payable and accrued
expenses 17,698 124,039 (79,461) (42,338) (12,405)
---------------------------------------------------------------
Net cash provided by operating activities 301,278 669,608 490,675 187,336 170,154
---------------------------------------------------------------
Cash Flows From Investing Activities:
Proceeds from maturities of held to
maturity investment securities 800,000 200,000 1,000,000 270,000 500,000
Purchase of held to maturity investment
securities (398,594) --- (1,762,535) (250,000) ---
Purchases of mortgage-backed securities --- (1,764,093) (973,174) --- ---
Purchases of available for sale
mortgage-backed securities (456,431) --- --- --- (338,647)
Principal on mortgage-backed securities 510,442 619,656 144,563 137,175 472,790
Net increase in loans receivable (5,430,909) (2,049,494) (597,287) (2,329,765) (5,027,568)
Purchases of property and equipment (602,820) (895,797) (193,634) (440,551) (342,422)
Proceeds from sale of property and
equipment 90,000 --- --- --- ---
Net proceeds from sale of real estate
acquired in settlement of loans --- 49,443 114,080 97,500 ---
---------------------------------------------------------------
Net cash used in investing activities (5,488,312) (3,840,285) (2,267,987) (2,515,641) (4,735,847)
---------------------------------------------------------------
(Continued)
F-6
SEABOARD SAVINGS BANK, INC. SSB AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Nine Months Ended
Years Ended December 31, September 30,
1994 1993 1992 1995 1994
- -----------------------------------------------------------------------------------------------------------
(Unaudited)
Cash Flows From Financing Activities:
Net increase in savings accounts $ 4,544,988 $ 962,457 $ 1,038,029 $ 4,936,994 $ 3,199,002
Proceeds from FHLB advances 2,750,000 1,250,000 1,850,000 --- 2,750,000
Repayment of FHLB advances (1,750,000) (1,250,000) (900,000) (1,000,000) (1,500,000)
Dividends paid (121,780) (60,886) --- (91,693) (91,335)
Issuance of common stock --- 2,712,453 --- 12,000 ---
---------------------------------------------------------------
Net cash provided by financing activities 5,423,208 3,614,024 1,988,029 3,857,301 4,357,667
---------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents 236,174 443,347 210,717 1,528,996 (208,026)
Cash and cash equivalents:
Beginning 1,511,159 1,067,812 857,095 1,747,333 1,511,159
---------------------------------------------------------------
Ending $ 1,747,333 $ 1,511,159 $ 1,067,812 $ 3,276,329 $ 1,303,133
---------------------------------------------------------------
Supplemental Disclosure of Cash Flows
Cash payments for:
Interest $ 1,315,885 $ 1,384,801 $ 1,651,581 $ 1,491,457 $ 1,017,821
---------------------------------------------------------------
Income taxes $ 267,679 $ 275,499 $ 149,551 $ 180,169 $ 197,617
---------------------------------------------------------------
Supplemental Schedule of Noncash Investing
Activities:
Transfers from loans to real estate
acquired in settlement of loans $ - $ 50,370 $ - $ 92,098 $ -
Issuance of common stock for the
Management Recognition Plan - 172,500 - - -
Cancellation of common stock issued for
the Management Recognition Plan - 2,800 - - -
See Notes to Consolidated Financial Statements.
F-7
SEABOARD SAVINGS BANK, INC. SSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies
Nature of business: On May 10, 1993, the Bank converted from a state
chartered mutual savings bank to a state chartered stock savings bank.
The Bank's primary regulators are the Federal Deposit Insurance
Corporation (FDIC) and the North Carolina Savings Institutions
Division. The Bank's deposits are insured by the the Savings
Association Insurance Fund of the FDIC.
A summary of the Bank's significant accounting policies follows:
Principles of consolidation: The consolidated financial statements
include the accounts of the Bank and its wholly-owned subsidiary,
Seaboard Financial Services Corporation. The subsidiary operates
under the name of Seaboard Insurance Agency and its principal
activity is as an independent hazard and casualty insurance agency.
All significant intercompany balances and transactions have been
eliminated in consolidation.
Cash and cash equivalents: For purposes of reporting cash flows,
the Bank considers all interest-bearing deposits with maturities of
less than three months at acquisition, noninterest-bearing deposits, and
cash on hand to be cash equivalents. The Bank maintains excess cash
on deposit in Federal banking agencies, but does not believe such
amounts represent a credit risk.
Investment securities: The Bank adopted Statement of Financial
Accounting Standards (SFAS) No. 115 Accounting for Certain Investments
in Debt and Equity Securities as of January 1, 1994. Prior to its
adoption, debt securities were carried at amortized cost and were
not adjusted to the lower of cost or market because management intended
to hold such investments to maturity and were not aware of any
conditions which would impair its ability to do so. Upon adoption of
SFAS No. 115, the Bank carries its investments at fair market
value or amortized cost depending on its classification of such
securities. See Note 2 for a further explanation of the effects of
the adoption of SFAS No. 115 on Bank's consolidated financial
statements. Gain or loss on sale of securities is recognized when
realized and is based on the specific-identification method.
Mortgage-backed securities: Mortgage-backed securities prior to the
adoption of SFAS No. 115 were carried at amortized cost because
Management had classified such securities as held to maturity and
had the intent and ability to do so. Upon the adoption of SFAS No. 115,
mortgage-backed securities are carried at fair value or amortized cost
depending on its classification of such securities. Amortization of
premiums and accretion of discounts are recognized as
adjustments to interest income using a method which does not
differ significantly from the interest method. Such securities are
Government National Mortgage Association (GNMA), Federal Home Loan
Mortgage Corporation (FHLMC), or Federal National Mortgage Association
(FNMA) mortgage-backed certificates.
Loans receivable: Loans receivable are stated at unpaid principal
balances, less allowance for loan losses and net deferred loan
origination fees. The Bank's loan portfolio consists of long-term
fixed and adjustable mortgages, and other commercial and consumer
loans.
Loan fees: The Bank receives fees for originating mortgage loans.
The Bank defers all origination fees less certain direct costs as an
adjustment to yield with subsequent amortization taken into interest
income over the life of the related loan. The method of amortization
approximates the interest method.
Loan sales: The Bank sells certain fixed rate mortgage loans to
FHLMC. The difference between the cost of the loan originated and the
price paid by FHLMC is recorded as a gain or loss at the time of the
sale. The Bank continues to service the loans sold and gains and
losses are also recognized to the extent that the rate on the loans
sold exceeds the rate guaranteed to the purchaser, adjusted for
normal servicing fees. The loans are sold without recourse. At
December 31, 1994 and 1993, the Bank had in its portfolio an
insignificant amount of loans held for sale and the resulting gain or
loss will be immaterial.
Allowance for loan losses: The allowance for loan losses is established
through a provision for loan losses charged to operations. Loans are
charged off against the allowance when management believes that
collectibility is unlikely. The allowance is an amount that
management believes will be adequate to absorb losses on existing
loans, including capitalized interest, that may become
uncollectible based on evaluations of the collectibility of loans and
prior loan loss experience. The evaluations take into account such
factors as changes in the nature and volume of the loan portfolio,
overall portfolio quality, review of specific problem loans and
current economic conditions that may affect the borrowers' ability to
pay. While management uses the best information available to make
evaluations, future adjustments may be necessary, if economic or other
conditions differ substantially from the assumptions used.
F-8
SEABOARD SAVINGS BANK, INC. SSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies (Continued)
Property, equipment and depreciation: Property and equipment are stated
at cost less accumulated depreciation. The Bank computes depreciation
primarily by use of the straight-line method.
Real estate acquired in settlement of loans: Real estate acquired
through, or in lieu of, loan foreclosure is initially recorded at
fair value at the date of foreclosure establishing a new cost basis.
After foreclosure, valuations of the property are periodically
performed by management and the real estate is carried at the lower of
cost or fair value minus estimated costs to sell. Costs relating to the
development and improvement of the property are capitalized, while
holding costs of the property are charged to expense in the period
incurred.
Income taxes: Deferred income taxes are provided on a liability method
whereby deferred tax assets are recognized for deductible temporary
differences and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are differences between
the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance if in the
opinion of management it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment.
Prior to 1993, deferred income taxes resulted from timing
differences in the recognition of income and expense for tax and
financial statement purposes. The Bank adopted SFAS No. 109 "Accounting
for Income Taxes" in 1993 and the impact of the adoption had an
immaterial effect on prior periods.
Benefit plans: The Bank has a noncontributory defined contribution
plan which covers substantially all of its employees, including
employees of its subsidiary. Contributions to the plan are
determined annually by the Board of Directors. In addition, the Bank
has a 401(k) retirement plan which is available to substantially all
employees. The Bank matches fifty percent of the first three percent
of voluntary contributions by participating employees.
Earnings per share: Earnings per share in 1994 and for the
nine-months ended September 30, 1995 and 1994 (unaudited) is
calculated by dividing net income by the weighted average number of
shares of common stock and dilutive stock options outstanding for the
periods, 316,064, 324,267 and 315,446 shares, respectively. The
earnings per share computation for 1993 assumes that the shares
issued in the conversion had been outstanding since January 1, 1993
but does not include any assumed earnings which would have been
generated prior to May 10, 1993, the date of the conversion. Stock
options did not have a dilutive effect for 1993.
Off-balance-sheet and concentration of credit risk: The Bank
originates single family residential mortgage and other loans within
its primary lending area, Washington, Tyrrell and Martin counties.
Real estate loans are secured by the underlying properties and other
loans are typically secured by other types of collateral.
The Bank is a party to financial instruments with off-balance-sheet risk
such as commitments to extend credit. Management assesses the risk
related to these instruments for potential loss.
Unaudited financial statements: The unaudited financial statements furnished
reflect all adjustments, consisting of normal recurring accruals, which are,
in the opinion of management, necessary for a fair presentation of the
financial position as of September 30, 1995 and the results of operations
and cash flows for the nine-months ended September 30, 1995 and 1994. The
results of operations for the nine-month period ended September 30, 1995 are
not necessarily indicative of the operating results of the Bank for the entire
year.
Note 2. Change in Accounting Method
On January 1, 1994, the Bank adopted SFAS No. 115 Accounting for
Certain Investments in Debt and Equity Securities. The effect of the
adoption was to report the balances of available for sale securities at
their estimated market values. The estimated market value of certain
mortgage-backed securities which were classified as available for
sale at December 31, 1994 was less than amortized cost by $116,830.
All of the Bank's investment securities which were debt instruments at
December 31, 1994 have been classified by the Bank as held to maturity
because the Bank has the ability and the intent to do so. The Bank's
only equity securities at December 31, 1994 are considered to be
nonmarketable and are not subject to classification under SFAS No.
115.
F-9
SEABOARD SAVINGS BANK, INC. SSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The unrealized gains (losses), net of related income tax effects, are
reported as separate component of equity and amounted to $(72,435)
and $1,860 at December 31, 1994 and September 30, 1995, respectively.
Future changes in the market values of these securities will require
adjustment of the separate component of equity and will continue to be
excluded from income until realized.
The classification of securities as required by SFAS No. 115 and the
Bank's accounting policies upon adoption are as follows:
Securities held to maturity: Securities classified as held to maturity
are those debt securities the Bank has both the intent and the ability
to hold to maturity regardless of changes in market conditions,
liquidity needs or changes in general economic conditions. These
securities are carried at cost adjusted for amortization of premiums or
accretion of discounts, computed by a method which approximates the
interest method, over their contractual lives.
Securities available for sale: Securities classified as available for
sale are those debt securities that the Bank intends to hold for an
indefinite period of time but not necessarily to maturity and equity
securities not classified as held for trading. Any decision to sell a
security classified as available for sale would be based on various
factors, including significant movements in interest rates, changes
in the maturity mix of its securities, liquidity needs and other
similar factors. Securities available for sale are carried at fair
value. Unrealized gains and losses are reported as a separate
component of equity, net of related tax effects. Realized gains and
losses are included in earnings.
Securities held for trading: Trading securities are held in
anticipation of short-term market gains. Such securities are carried at
fair value with realized and unrealized gains and losses included in
earnings. The Bank currently has no securities which are classified as
trading.
Note 3. Investment Securities
The amortized cost, estimated market value and gross unrealized gains
and losses of the Bank's investment securities at December 31, 1994 and
1993 and September 30, 1995 (unaudited) are as follows:
December 31, 1994
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Held to maturity:
Debt securities:
US Treasury obligations $1,676,303 $ -- $ (40,676) $1,635,627
Other securities:
Federal Home Loan Bank stock 247,800 -- -- 247,800
USL Savings Institution
Insurance Group LTD 15,000 -- -- 15,000
262,800 -- -- 262,800
$1,939,103 $ -- $ (40,676) $1,898,427
December 31, 1993
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Investment in debt securities:
US Treasury and agency
obligations $2,081,528 $ 53,328 $ -- $ 2,134,856
Other securities:
Federal Home Loan Bank stock 247,800 -- -- 247,800
USL Savings Institution Insurance
Group LTD 15,000 -- -- 15,000
262,800 -- -- 262,800
$2,344,328 $ 53,328 $ -- $ 2,397,656
F-10
SEABOARD SAVINGS BANK, INC. SSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Investment Securities (Continued)
September 30, 1995
(Unaudited)
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Held to maturity:
Debt securities:
US Treasury obligations $1,652,970 $ 20,045 $ -- $1,673,015
Other securities:
Federal Home Loan Bank stock 256,900 -- -- 256,900
USL Savings Institution Insurance
Group LTD 17,640 -- -- 17,640
274,540 -- -- 274,540
$1,927,510 $ -- $ -- $1,947,555
The amortized cost and estimated fair value of debt securities in the
"held to maturity" category at December 31, 1994 and September 30, 1995
(unaudited) by contractual maturity are shown below. The Bank has no
debt securities classified as "available for sale" at December 31, 1994
or September 30, 1995 (unaudited).
December 31, 1994 September 30, 1995
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
(Unaudited)
Held to maturity:
Due in one year or less $ 270,000 $ 269,876 $ -- $ --
Due in one year through
five years 1,406,303 1,365,751 1,652,970 1,673,015
$1,676,303 $1,635,627 $1,652,970 $1,673,015
There were no sales of investment securities in 1994, 1993 or 1992,
or during the nine-month periods ended September 30, 1995 and 1994.
The Bank, as a member of the Federal Home Loan Bank system, is
required to maintain an investment in capital stock of the Federal
Home Loan Bank in an amount equal to the greater of 1% of its
outstanding home loans or one-twentieth of its outstanding advances.
No ready market exists for the bank stock and it has no quoted market
value. For reporting purposes, such stock is assumed to have market
value which is equal to cost.
F-11
SEABOARD SAVINGS BANK, INC. SSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Loans Receivable
Loans receivable consist of the following:
December 31, September 30,
1994 1993 1995
(Unaudited)
First mortgage loans:
Single family, one-to-four units $21,192,431 $19,003,032 $22,232,346
Multifamily 561,005 553,000 587,038
Commercial real estate 2,473,495 2,656,000 2,269,909
Residential construction 1,838,976 1,160,000 1,917,050
Land 1,278,966 914,000 1,140,041
27,344,873 24,286,032 28,146,384
Consumer loans 6,607,576 4,293,000 7,712,564
Home equity loans 1,487,378 1,202,000 1,753,571
35,439,827 29,781,032 37,612,519
Less:
Undisbursed portion of loans in process (663,419) (422,055) (564,402)
Allowance for loan losses (170,000) (156,936) (92,296)
Deferred loan fees (79,131) (63,990) (57,083)
$34,527,277 $ 29,138,051 $36,898,738
Weighted average yield on loans receivable 8.43% 8.53% 8.97%
Certain of the Bank's first mortgage loans are pledged as collateral as
set forth in Note 8.
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. At December 31, 1994
and 1993 and September 30, 1995 (unaudited), the Bank was servicing
loans for the benefit of others with unpaid principal balances
of approximately $6,075,000, $3,847,000 and $9,418,000, respectively.
These loans consist of single family loans sold to FHLMC.
The following summarizes transactions in the Bank's allowance for
loan losses:
Nine Months Ended
Years Ended December 31, September 30,
1994 1993 1992 1995 1994
(Unaudited)
Balance at the beginning of period $156,936 $111,550 $ 67,630 $170,000 $156,936
Provisions charged to operations 41,682 80,000 82,684 50,402 17,000
Charge-offs (28,618) (34,614) (38,764) (128,106) (15,033)
Balance at the end of period $170,000 $156,936 $111,550 $ 92,296 $158,903
At December 31, 1994, 1993 and 1992, and at September 30, 1995 and 1994
(unaudited), the Bank had loans delinquent more than 90 days amounting
to $165,726, $340,195, $346,305, $336,769 and $282,000, respectively.
No interest income was foregone on these loans as management
anticipated full collection of all delinquent interest.
F-12
SEABOARD SAVINGS BANK, INC. SSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Loans Receivable (Continued)
At December 31, 1994 and 1993, and at September 30, 1995 (unaudited), loans to
officers and directors of the Bank totaled approximately $276,000, $299,000 and
$137,000, respectively. In the opinion of management, these loans were made at
normal lending terms and rates and do not involve more than the normal risks of
collectibility.
Note 5. Mortgage-Backed Securities
Mortgage-backed securities consist of the following:
1994
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Held to maturity:
FHLMC P. C. $ 285,871 $ 1,568 $ (2,754) $ 284,685
FNMA securities 406,866 --- (32,081) 374,785
-----------------------------------------------------------
692,737 1,568 (34,835) 659,470
-----------------------------------------------------------
Available for sale:
GNMA securities 1,279,673 1,044 (86,781) 1,193,936
FNMA securities 800,316 1,178 (32,271) 769,223
-----------------------------------------------------------
2,079,989 2,222 (119,052) 1,963,159
-----------------------------------------------------------
$ 2,772,726 $ 3,790 $ (153,887) $ 2,622,629
-----------------------------------------------------------
1993
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Held for investment:
FHLMC P. C. $ 414,012 $ 15,526 $ --- $ 429,538
GNMA securities 1,368,973 10,159 --- 1,379,132
FNMA securities 1,048,038 25,683 --- 1,073,721
-----------------------------------------------------------
$ 2,831,023 $ 51,368 $ --- $ 2,882,391
-----------------------------------------------------------
F-13
SEABOARD SAVINGS BANK, INC. SSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Mortgage-Backed Securities (Continued)
Nine Months Ended September 30, 1995
(Unaudited)
-----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Held to maturity:
FHLMC P. C. $ 273,884 $ 2,787 $ (2,308) $ 274,363
FNMA securities 349,707 --- (2,542) 347,165
-----------------------------------------------------------
623,591 2,787 (4,850) 621,528
-----------------------------------------------------------
Available for sale:
GNMA securities 1,203,175 17,878 (12,674) 1,208,379
FNMA securities 611,470 15,840 (18,045) 609,265
-----------------------------------------------------------
1,814,645 33,718 (30,719) 1,817,644
-----------------------------------------------------------
$ 2,438,236 $ 36,505 $ (35,569) $ 2,439,172
-----------------------------------------------------------
The amortized cost and estimated market value of mortgage-backed
securities at December 31, 1994 and September 30, 1995 (unaudited) by
contractual maturities are shown below:
December 31, 1994 September 30, 1995
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
--------------------------------------------------------
Held to maturity: (Unaudited)
Due in one year or less $ - $ - $ - $ -
Due after one year through five years 163,801 164,055 166,241 167,579
Due after five years through ten years 54,339 51,331 45,835 45,567
Due after ten years 474,597 444,084 411,515 408,382
--------------------------------------------------------
$ 692,737 $ 659,470 $ 623,591 $ 621,528
--------------------------------------------------------
Available for sale:
Due in one year or less $ - $ - $ - $ -
Due after one year through five years 336,566 332,548 289,127 285,790
Due after five years through ten years - - 322,343 323,474
Due after ten years through twenty years - - 1,203,175 1,208,380
Due after twenty years 1,743,423 1,630,611 - -
--------------------------------------------------------
$ 2,079,989 $ 1,963,159 $ 1,814,645 $ 1,817,644
--------------------------------------------------------
Mortgage-backed securities with an amortized cost of $931,271 and $1,955,772
were pledged to secure public deposits at December 31, 1994 and September 30,
1995 (unaudited), respectively.
There were no sales of mortgage-backed securities in 1994, 1993 or 1992, or in
the nine-month periods ended September 30, 1995 and 1994 (unaudited).
F-14
SEABOARD SAVINGS BANK, INC. SSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Mortgage-Backed Securities (Continued)
The change in net unrealized gains and losses shown as a separate component of
equity for the year ended December 31, 1994 and the nine months ended September
30, 1995 (unaudited) is shown below:
Balance in equity component at December 31, 1993 $ -
Unrealized gains 2,222
Unrealized losses (119,052)
-----------------
Unrealized loss on available for sale securities at December 31, 1994 (116,830)
Reduced by related tax benefit 44,395
-----------------
Balance in equity component at December 31, 1994 $ (72,435)
Unrealized gains 75,434
Unrealized losses -
-----------------
Unrealized gain on available for sale securities at September 30, 1995 2,999
Reduced by related tax credit (1,139)
-----------------
Balance in equity component at September 30, 1995 (unaudited) $ 1,860
-----------------
Note 6. Property and Equipment
Property and equipment is summarized as follows:
December 31, September 30,
1994 1993 1995
(Unaudited)
Land $ 245,429 $ 122,834 $ 245,429
Office buildings and improvements 1,207,896 429,113 1,651,207
Furniture and fixtures 531,336 239,910 682,600
Automobiles 75,646 51,302 67,546
Construction in progress 145,924 922,553 ---
--------------------------------------------------
2,206,231 1,765,712 2,646,782
Less: accumulated deprecation 310,268 290,726 400,725
--------------------------------------------------
$ 1,895,963 $ 1,474,986 $ 2,246,057
--------------------------------------------------
During February, 1994, the Bank placed in service its new home office facility.
At December 31, 1994, the Bank was in the process of constructing a branch in
Williamston, North Carolina. The total cost incurred, including land, through
December 31, 1994 for the branch facility amounted to $276,520. The Bank is
currently committed to additional costs under contracts amounting to $88,164,
although certain contracts needed to complete the facility will be entered into
later in 1995. The branch is expected to be completed in the late spring of 1995
and the Bank is currently leasing temporary space in Williamston on a month to
month basis. During 1994 and 1993, the Bank capitalized interest as part of the
construction cost on these two facilities totaling $15,693 and $11,031,
respectively. During the nine month period ended September 30, 1995, the
Williamston branch was placed in service. The total cost associated with the
branch, including land, building, furniture and fixtures, amounted to
approximately $683,000 (unaudited).
F-15
SEABOARD SAVINGS BANK, INC. SSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Savings Accounts
Savings accounts consists of the following:
December 31, September 30,
------------------------------- -------------
1994 1993 1995
-----------------------------------------------
(Unaudited)
Passbook accounts, weighted average rate
of 2.75% (2.75% in 1994 and 1993) $ 3,196,139 $ 2,282,558 $ 3,192,828
NOW checking, weighted average rate
of 2.25% (2.25% in 1994 and 1993) 1,697,883 1,509,843 2,395,145
MMA accounts, weighted average rate
of 2.50% (2.50% and 2.75% in 1994 and 1993) 1,167,542 1,239,311 776,265
Noninterest bearing accounts 360,459 159,151 851,560
Certificates of deposits, weighted average rate
of 5.96% (4.82% and 4.32% in 1994 and 1993) 28,884,768 25,602,489 33,000,748
-----------------------------------------------
35,306,791 30,793,352 40,216,546
Accrued interest on savings 46,858 15,309 74,097
-----------------------------------------------
$ 35,353,649 $ 30,808,661 $ 40,290,643
-----------------------------------------------
Weighted average cost of savings 4.36% 4.00% 5.25%
-----------------------------------------------
Scheduled maturities of certificates of deposit are as follows at December 31,
1994:
Amounts maturing during:
Rate Range 1995 1996 1997 Thereafter Total
Less than 4% $ 5,436,914 $ 177,900 $ 11,337 $ --- $ 5,626,151
4.00% - 5.99% 16,543,583 3,179,325 326,301 182,042 20,231,251
6.00% - 7.99% 1,681,744 1,028,155 317,467 --- 3,027,366
--------------------------------------------------------------------------
$ 23,662,241 $ 4,385,380 $ 655,105 $ 182,042 $ 28,884,768
--------------------------------------------------------------------------
The aggregate amount of certificates of deposit included in the table above with
a minimum denomination of $100,000 was as shown below:
Maturity Amount
Less than 3 months $ 1,360,926
3 to 12 months 3,726,980
More than 12 months 1,271,839
-----------------
$ 6,359,745
-----------------
F-16
SEABOARD SAVINGS BANK, INC. SSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Savings Accounts (Continued):
Interest expense on deposits is summarized below:
Year Ended December 31, Nine Months Ended September 30,
--------------------------------------------------------------------------
1994 1993 1992 1995 1994
(Unaudited)
Passbook accounts $ 78,832 $ 77,150 $ 85,674 $ 64,067 $ 56,187
NOW and MMA accounts 57,553 77,171 83,652 44,643 41,105
Certificate accounts 1,211,049 1,188,584 1,448,029 1,304,910 878,627
--------------------------------------------------------------------------
$ 1,347,434 $ 1,342,905 $ 1,617,355 $ 1,413,620 $ 975,919
--------------------------------------------------------------------------
Note 8. Advances From Federal Home Loan Bank
The Bank's borrowings from the Federal Home Loan Bank consist of the following:
Due in Interest Rate at
Year Ending September 30, December 31 September 30,
December 31, 1995 1994 1993 1995
---------------------------------------------------------------------------------------
Type: (Unaudited)
Variable 1996 6.19% $ 2,250,000 $ 1,250,000 $ 1,250,000
---------------------------------------------------
Advances outstanding at December 31, 1994 and September 30, 1995 (unaudited) are
collateralized by a blanket lien on mortgage loans in an amount equal to 160% of
advances outstanding and by Federal Home Loan Bank stock.
The Bank has available a line of credit of $6,000,000 from the Federal Home Loan
Bank. At September 30, 1995, the Bank had $4,750,000 available under the line of
credit.
Note 9. Income Taxes
Under the Internal Revenue Code, the Bank is allowed a special bad debt
deduction related to additions to tax bad debt reserves established for the
purposes of absorbing losses. The provisions of the Code permit the Bank to
deduct from taxable income an allowance for bad debts based upon a percentage of
taxable income (8%) before such deduction or actual loss experience. The Bank
used the percentage of taxable income method for computing its bad debt
deduction in 1994, 1993 and 1992.
Retained earnings at December 31, 1994 includes additions to bad debt reserves
for income tax purposes of approximately $785,000. If amounts which qualified as
bad debt deductions are used for purposes other than to absorb bad debt losses
or adjustments arising from the carryback of net operating losses, income taxes
may be imposed at the then existing rates. Because the Bank does not intend to
use the reserves for purposes other than to absorb losses, deferred income taxes
have not been provided for these amounts, approximately $275,000, except for
increases in the reserves since 1987 as required by SFAS No. 109. In the future,
if the Bank does not meet the income tax requirements necessary to permit the
deduction of an allowance for bad debts, the Bank's effective tax rate would be
increase to the maximum percent under existing law.
F-17
SEABOARD SAVINGS BANK, INC. SSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9. Income Taxes (Continued):
Income tax expense differs from the federal statutory rate of 35% as follows:
Nine Months Ended
Year Ended December 31, September 30,
--------------------------------------------------------
1994 1993 1992 1995 1994
--------- -------- --------- ----------------------
(Unaudited)
----------------------
Income tax expense at statutory federal rate 35.00 % 35.00 % 35.00 % 35.00 % 35.00 %
Increase (decrease) resulting from:
Nontaxable income (0.67) (0.88) (0.89) (0.75) (0.65)
Nondeductible expenses 0.21 0.10 0.20 0.10 0.20
State taxes, net of federal tax benefit 4.16 4.60 4.27 4.15 4.15
Assessment of additional 1991 taxes 2.74 --- --- --- ---
Other, net 0.40 (2.92) (0.04) (6.06) (0.11)
--------------------------------------------------------
41.84 % 35.90 % 38.54 % 32.44 % 38.59 %
--------------------------------------------------------
Deferred income taxes consist of the following:
December 31, September 30,
----------------------------------
1993 1994 1995
------------------------------------------------
(Unaudited)
--------------
Deferred tax assets:
Deferred compensation $ 16,076 $ 13,074 $ 18,556
Deferred loan fees 8,115 24,316 8,115
Loan loss allowances 64,600 59,636 64,600
Unrealized loss on mortgage-backed securities 44,395 --- ---
Other 5,200 2,900 5,200
------------------------------------------------
138,386 99,926 96,471
------------------------------------------------
Deferred tax liabilities:
Accumulated depreciation 56,257 60,262 61,958
Unrealized gain on mortgage-backed securities --- --- 1,139
Tax bad debt reserves 23,248 14,283 23,248
------------------------------------------------
79,505 74,545 86,345
------------------------------------------------
$ 58,881 $ 25,381 $ 10,126
------------------------------------------------
F-18
SEABOARD SAVINGS BANK, INC. SSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10. Deferred Compensation
The Bank has entered into a deferred compensation agreement with a key executive
officer to ensure a stable and competent management base. The agreement, entered
into on April 21, 1988, provides for the payment of $30,000 annually for fifteen
years commencing with the first day of the month following the employee's 60th
birthday or date of retirement if subsequent to reaching age sixty. Should the
employee die, the officer's beneficiary is eligible to receive the benefits
payable under the agreement and such payments will begin with 6 months from date
of death if the employee had not reached age 60 at date of death.
If the officer terminates employment prior to reaching age sixty, the employee
is entitled to receive a vested percentage of the benefits under the agreement
upon attainment of age sixty. At December 31, 1994, the employee was 87.5%
vested. The agreement requires that the officer be available to render
consulting services to the Bank upon request during the payout period and has a
noncompete clause. Noncompliance with either will trigger termination of
benefits.
The Bank has purchased a life insurance policy on the officer's life which will
ultimately fund the payments. The Bank's deferred compensation expense amounted
to $7,902, $7,183 and $6,530 in 1994, 1993 and 1992, respectively, and $6,526
and $5,926 in the nine-months ended September 30, 1995 and 1994, respectively
(unaudited).
Note 11. Employees' Retirement Plans
The Bank and its subsidiary have established a defined contribution and a 401(k)
retirement plan which cover substantially all employees. The Bank funds
contributions as they accrue and retirement plan expense amounted to $41,538,
$39,921 and $45,190 in 1994, 1993 and 1992, respectively, and $40,347 and
$34,636 in the nine-months ended September 30, 1995 and 1994, respectively
(unaudited).
Note 12. Commitments and Contingencies
The Bank is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit. Those instruments
involve, to varying degrees elements of credit risk and interest rate risk in
excess of the amounts recognized in the statement of financial condition.
Commitments to extend credit (which were substantially on adjustable rate loans)
amounted to approximately $369,400 at December 31, 1994 and $2,593,000 at
September 30, 1995 (unaudited). The Bank also had approximately $278,000 and
$301,000 in unused lines to its credit card customers at December 31, 1994 and
September 30, 1995 (unaudited), respectively. In addition, the Bank had
$1,047,000 and $1,226,000 in unused lines to it home equity loan customers at
December 31, 1994 and September 30, 1995 (unaudited), respectively.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since commitments may expire without being drawn upon,
the total commitment amounts above do not necessarily represent future cash
requirements. The Bank evaluates each customer's creditworthiness on a case by
case basis. The amount of collateral obtained depends upon management's credit
evaluation of the customer. Collateral held varies, but may include residential
real estate, equipment, autos, and income-producing commercial real estate.
Note 13. Employment Agreement
In connection with the conversion to a stock-owned institution, the Bank entered
into an employment agreement with its President in order to provide for his
continued employment with the Bank. The term is for five years with continual
one year extensions unless notice is given by the Board of Directors for
nonrenewal. The agreement provides for a base salary which shall be reviewed no
less frequently than annually by the Board of Directors. The employment
agreement may be terminated for cause, as defined in the agreement. It may also
be terminated by the Board of Directors at their discretion, subject to vested
F-19
SEABOARD SAVINGS BANK, INC. SSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13. Employment Agreement (Continued)
rights of the employee. The agreement also has certain noncompete restrictions
for one year after termination which apply except in cases where the termination
was without cause, voluntary termination due to diminution of the officer's
duties or compensation, or due to change in control of the Bank.
The agreement provides that if the officer is terminated in connection with or
within twenty-four months after a change in control of the Bank, or if the
nature of the officer's compensation or duties is diminished after a change in
control of the Bank, the officer is entitled to receive compensation equal to
2.99 times the officer's salary. Certain terms of the agreement may be modified
if the payment is determined to be an excess parachute payment as defined by the
IRS code.
If the merger as described in note 20 is consumated, the officer has agreed to
relinquish his rights under the terms of this agreement and enter into an
employment agreement with the acquirer.
Note 14. Stockholders' Equity
As a state chartered stock savings bank, Seaboard Savings Bank is subject to the
capital requirements promulgated by the FDIC and the Administrator of the North
Carolina Savings Institutions Division.The FDIC requires Seaboard Savings Bank
to have a minimum leverage ratio of Tier I capital (principally consisting of
retained earnings and contributed shareholders' equity, less any intangible
items) to total assets of 3%. The FDIC also requires the Bank to have a ratio of
total capital to risk-weighted assets of 8%, of which at lease 4% must be in the
form of Tier I capital. The FDIC also has a risk-based capital component that
requires that the Bank's Tier I capital plus Tier II capital equal or exceed 8%
of the Bank's risk-weighted assets and certain off-balance sheet assets. In
addition, the North Carolina Administrator requires Seaboard Savings Bank to
maintain a net worth equal to at least 5% of total assets.
At December 31, 1994 and September 30, 1995 (unaudited), Seaboard Savings Bank
complied with all the capital requirements described above as shown below:
December 31, 1994
Leverage Tier I Risk-
Ratio of Adjusted Risk-Based N. C. Savings
Tier I Capital Capital Capital Bank Capital
Equity (GAAP) $ 5,697,146 $ 5,697,146 $ 5,697,146 $ 5,697,146
Unrealized loss on securities 72,435 72,435 72,435 72,435
Supplemental capital items:
General valuation allowances --- --- 170,000 170,000
------------------------------------------------------------
Regulatory capital 5,769,581 5,769,581 5,939,581 5,939,581
Minimum capital requirement 1,301,520 1,036,446 2,072,891 2,174,928
------------------------------------------------------------
Excess regulatory capital $ 4,468,061 $ 4,733,135 $ 3,866,690 $ 3,764,653
------------------------------------------------------------
Total assets at December 31, 1994 $ 43,498,554
Average assets - quarter ended December 31, 1994 $ 43,384,000
Risk-weighted assets at December 31, 1994 $ 25,911,138 $ 25,911,138
Capital as a percentage of assets:
Actual 13.30% 22.27% 22.92% 13.65%
Required 3.00 4.00 8.00 5.00
------------------------------------------------------------
Excess regulatory capital 10.30% 18.27% 14.92% 8.65%
------------------------------------------------------------
F-20
SEABOARD SAVINGS BANK, INC. SSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14. Stockholders' Equity (Continued):
September 30, 1995
(Unaudited)
------------------------------------------------------------
Leverage Tier I Risk-
Ratio of Adjusted Risk-Based N.C. Savings
Tier I Capital Capital Capital Bank Capital
Equity (GAAP) $ 5,975,804 $ 5,975,804 $ 5,975,804 $ 5,975,804
Unrealized gain on securities (1,860) (1,860) (1,860) (1,860)
Supplemental capital items:
General valuation allowances --- --- 92,296 92,296
------------------------------------------------------------
Regulatory capital 5,973,944 5,973,944 6,066,240 6,066,240
Minimum capital requirement 1,409,468 1,156,176 2,072,891 2,174,928
------------------------------------------------------------
Excess regulatory capital $ 4,564,476 $ 4,817,768 $ 3,993,349 $ 3,891,312
------------------------------------------------------------
Total assets at September 30, 1995 $ 47,671,868
Average assets - quarter ended September 30, 1995 $ 46,982,254
Risk-weighted assets at September 30, 1995 $ 28,904,401 $ 28,904,401
Capital as a percentage of assets:
Actual 12.72% 20.67% 20.99% 12.72%
Required 3.00 4.00 8.00 5.00
------------------------------------------------------------
Excess regulatory capital 9.72% 16.67% 12.99% 7.72%
------------------------------------------------------------
At the time of conversion, the Bank established a liquidation account in the
amount equal to its net worth as of December 31, 1992 for the benefit of all
depositors as of September 30, 1992. In the unlikely event of a complete
liquidation of the Bank, each eligible depositor will be entitled to his or her
interest in the liquidation account prior to any payment to shareholders.
The Bank may not declare or pay a cash dividend if the effect would cause the
regulatory net worth of the Bank to fall below the minimum required by the FDIC
and the Administrative of N.C. Savings Institutions Division, or the amount
required for the liquidation account. A stock savings bank which has been
converted for less than five years, must obtain prior written approval from the
N.C. Administrator before it can declare and pay a cash dividend in an amount
greater than its net income for the most recent fiscal year of the average of
its net income after dividends for the most recent fiscal year and not more than
two of the immediately preceding fiscal years, if applicable.
Note 15. Stock Options
The Bank has an incentive stock option plan (ISO plan) for employees of the Bank
and a nonstatutory stock option plan for its nonemployee directors. An aggregate
of 24,625 and 18,500 options have been reserved and granted under the plans. The
exercise price of the options is not less than 100% of the fair value of the
common stock on date the options were granted. The ISO plan options may be
exercised at anytime after one year from the date of grant and the nonstatutory
plan options are exercisable on the date of grant. Options under both plans
expire if they are not exercised within ten years of grant. At September 30,
1995, all stock options outstanding were exercisable.
F-21
SEABOARD SAVINGS BANK, INC. SSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15. Stock Options (Continued)
Stock option activity was as follows:
Incentive Nonstatutory
Stock Options Stock Options
-------------------------------
Options granted during the year ended December 31, 1993 24,625 18,500
Options expired or forfeited (700) ---
Options exercised --- ---
-------------------------------
Options outstanding at December 31, 1993 23,925 18,500
Options expired or forfeited (600) ---
Options exercised --- ---
-------------------------------
Options outstanding at December 31, 1994 23,325 18,500
Options expired or forfeited --- ---
Options exercised (1,200) ---
-------------------------------
Options outstanding at September 30, 1995 (unaudited) 22,125 18,500
-------------------------------
Note 16. Management Recognition Plan
The Bank has a management recognition plan (MRP) as a means of providing its
directors and employees with an ownership interest in the Bank to encourage such
individuals to continue their service. The Board of Directors administers the
MRP and determines the number of shares to be granted to participants. The Bank
has allocated 17,250 shares under the plan and at September 30, 1995, 16,900
shares are outstanding. In October 1995, another 160 shares from a terminated
employee who had been allocated 200 shares will be forfeited and returned to the
Plan. Twenty percent of the shares vested on the date of the conversion and an
additional 20% will vest on May 11 of each year, the anniversary date of the
conversion. Nonvested shares forfeited are eligible for future grants. In the
event of a change in control of the Bank, all shares allocated to the
participants in the MRP become fully vested.
Seaboard Savings recognizes as compensation expense the amortization of the
stock awards over the periods in which the shares vest. The remaining unvested
and unamortized shares in the MRP are reported as a reduction of shareholders'
equity.
Note 17. Seaboard Financial Services Corporation
The following reflects the condensed financial position and results of
operations of the Bank's wholly-owned subsidiary, Seaboard Financial Services
Corporation:
-------------------------------------- At or for the Nine
At or for the Year ended December 31, Months ended September,
---------------------------------------------------------------
1994 1993 1992 1995 1994
---------------------------------------------------------------
(Unaudited)
-------------------------
Total assets $ 399,297 $ 361,229 $ 329,791 $ 483,641 $ 404,199
---------------------------------------------------------------
Total liabilities $ 66,026 $ 50,603 $ 49,886 $ 88,870 $ 61,273
Total stockholder's equity 333,271 310,626 279,905 394,771 342,926
---------------------------------------------------------------
$ 399,297 $ 361,229 $ 329,791 $ 483,641 $ 404,199
---------------------------------------------------------------
Income $ 264,880 $ 270,139 $ 265,822 $ 243,889 $ 198,685
Expense 242,235 239,418 246,069 182,389 166,386
---------------------------------------------------------------
Net income $ 22,645 $ 30,721 $ 19,753 $ 61,500 $ 32,299
---------------------------------------------------------------
F-22
SEABOARD SAVINGS BANK, INC. SSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 18. Adoption of SFAS No. 114 and 118 (Unaudited)
On January 1, 1995, the Bank was required to adopt Statement of Financial
Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of
a Loan," and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures". SFAS No. 114 requires all creditors to
measure the impairment of a loan based upon the present value of the loan's
future cash flows discounted using the loan's effective interest rate. The loan
can also be valued at its fair value or the market price of its underlying
collateral if the loan is primarily collateral dependent. SFAS No. 118 amended
SFAS No. 114 by adding disclosure requirements for impaired loans and it permits
greater latitude in the manner in which income on impaired loans may be
recognized as long as the creditor's policies are disclosed.
SFAS No. 114 does not apply to large groups of smaller balance homogeneous loans
that are collectively evaluated for impairment, and therefore, did not have an
effect on the Bank's reporting for impaired loans since the majority of the
Bank's loans are collectively assessed and the Bank's impaired loans, all of
which were considered to be those loans delinquent 90 days or more, are
collateral dependent and the fair value of such collateral has been assessed to
be in excess of the carrying basis in such loans. The Bank's average recorded
investment in impaired loans was approximately $280,000 for the nine month
period ended September 30, 1995. The Bank's impaired loans outstanding at
September 30, 1995 amounted to approximately $337,000. There is no specific SFAS
No. 114 allowance associated with these loans.
Note 19. Future Reporting Requirements
The Financial Accounting Standards Board has issued SFAS No. 107, Disclosure
about Fair Value of Financial Instruments, which the Bank has not been required
to adopt as of December 31, 1994 or September 30, 1995.
The Statement, which will be in effect for the Bank's fiscal year ending
December 31, 1995, will require disclosure as to the fair value of all financial
instruments. The Statement will also require disclosure of the methods and
significant assumptions used to estimate the fair value of the financial
instruments. SFAS Statement No. 107 will not affect the Bank's recorded amounts
of financial instruments nor its future reported income.
The Financial Accounting Standards Board has also issued SFAS No. 122,
Accounting for Mortgage Servicing Rights, which the Bank has not been required
to adopt as of September 30, 1995.
The statement, which will be in effect for the Bank's fiscal year ending
December 31, 1996, will require the Bank to recognize as a separate asset the
rights to service mortgage loans for others on a prospective basis for all
mortgage loan sales which occur with servicing retained after adoption of the
statement. The statement is expected to have an immaterial effect on the Bank's
financial statements due to the volume of loans typically sold in any one year.
Note 20. Subsequent Event (Merger -Unaudited)
On September 19, 1995, the Board of Directors of Seaboard Savings Bank adopted
the Agreement and Plan of Reorganization and Merger between Seaboard Savings
Bank, United Carolina Bancshares Corporation (Bancshares), and United Carolina
Bank (UCB). Upon consumation, Seaboard Savings Bank will be merged into UCB and
each share of Seaboard Savings Bank's common stock will be converted into and
exchanged for .9104 shares of Bancshares' stock. The exchange rate is subject to
adjustment as provided for in the agreement. The merger is expected to become
effective during the first quarter of 1996; however, the Agreement and Plan is
subject to approval by regulatory authorities and the stockholders of the Bank
at a special meeting.
F-23
Appendix A
AGREEMENT AND PLAN
OF REORGANIZATION AND MERGER
By and Among
SEABOARD SAVINGS BANK, INC., SSB
and
UNITED CAROLINA BANK
and
UNITED CAROLINA BANCSHARES CORPORATION
September 19, 1995
A-1
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
By and Among
SEABOARD SAVINGS BANK, INC., SSB
and
UNITED CAROLINA BANK
and
UNITED CAROLINA BANCSHARES CORPORATION
THIS AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
(hereinafter called "Agreement") entered into as of the 19th day of September,
1995, by and among SEABOARD SAVINGS BANK, INC., SSB ("Seaboard"), UNITED
CAROLINA BANK ("UCB") and UNITED CAROLINA BANCSHARES CORPORATION ("Bancshares").
WHEREAS, Seaboard is a North Carolina savings bank with its
principal office and place of business located in Plymouth, North Carolina; and,
Seaboard Financial Services Corporation (the "Subsidiary") is a North Carolina
business corporation with its principal office and place of business located in
Plymouth, North Carolina, and is the wholly-owned subsidiary of Seaboard; and,
WHEREAS, UCB is a North Carolina banking corporation with its
principal office and place of business located in Whiteville, North Carolina;
and,
WHEREAS, Bancshares is a North Carolina business corporation
with its principal office and place of business located in Whiteville, North
Carolina, and is the parent company of UCB; and,
WHEREAS, Bancshares, UCB and Seaboard have agreed that it is
in their mutual best interests and in the best interests of their respective
shareholders for Seaboard to be merged into UCB with the effect that each of the
outstanding shares of Seaboard's common stock will be converted into newly
issued shares of Bancshares' common stock, all in the manner and upon the terms
and conditions contained in this Agreement; and,
WHEREAS, to effectuate the foregoing, Bancshares, UCB and
Seaboard desire to adopt this Agreement as a plan of reorganization in
accordance with the provisions of Section 368(a) of the Internal Revenue Code of
1986, as amended; and,
WHEREAS, while Seaboard's Board of Directors has approved this
Agreement, Seaboard has executed this Agreement subject to the approval of its
shareholders and has agreed to call a special meeting of its shareholders for
the purpose of voting on the Agreement and will recommend to its shareholders
that they approve the Agreement and the transactions described herein; and,
WHEREAS, Bancshares and UCB have executed this Agreement
subject to the approval by their respective Boards of Directors of this
Agreement and the transactions described herein, including the issuance by
Bancshares of shares of its common stock to Seaboard's shareholders to
effectuate such transactions; and, Bancshares and
A-2
UCB have agreed to submit this Agreement for such approvals at the next
scheduled meetings of their respective Boards of Directors.
NOW, THEREFORE, in consideration of the premises, the mutual
benefits to be derived from this Agreement, and of the representations,
warranties, conditions, covenants and promises herein contained, and subject to
the terms and conditions hereof, Bancshares, UCB and Seaboard hereby adopt and
make this Agreement and mutually agree as follows:
ARTICLE I. AGREEMENT TO MERGE
1.01. Names of Merging Corporations. The names of the
corporations proposed to be merged are SEABOARD SAVINGS BANK, INC.,
SSB ("Seaboard") and UNITED CAROLINA BANK ("UCB").
1.02. Nature of Transaction. Subject to the provisions of
this Agreement, at the "Effective Time" (as defined in Paragraph
1.07. below), Seaboard shall be merged into and with UCB pursuant
to N.C. GEN. STAT. (Section Mark) 53-12 (the "Merger").
1.03. Effect of Merger; Surviving Corporation. At the Effective Time
and as provided in N.C. GEN. STAT. (Section Mark)53-13, by reason of the Merger
the separate corporate existence of Seaboard shall cease while the corporate
existence of UCB as the surviving corporation in the Merger shall continue with
all of its purposes, objects, rights, privileges, powers and franchises, all of
which shall be unaffected and unimpaired by the Merger. Following the Merger,
UCB shall continue to operate as the wholly-owned banking subsidiary of
Bancshares and, as a North Carolina banking corporation, will continue to
conduct its business and the business of Seaboard at the then legally
established branch and main offices of UCB and Seaboard. The duration of the
corporate existence of UCB, as the surviving corporation, shall be perpetual and
unlimited.
1.04. Assets and Liabilities of the Bank. At the Effective Time and by
reason of the Merger, and in accordance with N.C. Gen. STAT. (Section Mark)
53-13, 53-17 and 55-11-06, all of Seaboard's property, assets and
rights of every kind and character (including without limitation all real,
personal or mixed property, all debts due on whatever account, all other choses
in action and all and every other interest of or belonging to or due to
Seaboard, whether tangible or intangible) shall be transferred to and vest in
UCB, and UCB shall succeed to all the rights, privileges, immunities, powers,
purposes and franchises of a public or private nature (including all trust and
fiduciary properties, powers and rights) of Seaboard, all without any
conveyance, assignment or further act or deed; and, UCB shall become responsible
for all of the liabilities, duties and obligations of every kind, nature and
description (including duties as trustee or fiduciary) of Seaboard as of the
Effective Time.
A-3
1.05. Conversion and Exchange of Stock.
a. Conversion of Seaboard Stock. At the Effective Time,
all rights of Seaboard's shareholders with respect to all then outstanding
shares of Seaboard's no par value common stock ("Seaboard Stock") shall
cease to exist, and, as consideration for and to effectuate the Merger
(and except as otherwise provided below) each such outstanding
share of Seaboard Stock (other than any shares held by Seaboard as
treasury shares or shares held by Bancshares or as to which rights of dissent
and appraisal are properly exercised as provided below) shall be converted,
without any action on the part of the holder of such share, Bancshares, UCB or
Seaboard, into 0.9104 (the "Exchange Rate") newly issued shares of Bancshares'
$4.00 par value common stock ("Bancshares Stock"). Notwithstanding anything
contained herein to the contrary, (i) if the average of the closing prices of
Bancshares Stock on the Nasdaq National Market for the thirty (30) consecutive
trading days immediately preceding the date of issuance of the FDIC's final
order approving the Merger (the "30-Day Average") is greater than $38.50, then
the Exchange Rate shall be adjusted to be equal to the ratio (rounded to four
decimal places) of $35.05 to the 30-Day Average, and (ii) if the 30-Day Average
is less than $25.00, then the Exchange Rate shall be adjusted to be equal to the
ratio (rounded to four decimal places) of $22.76 to the 30-Day Average.
At the Effective Time, and without any action by Seaboard, UCB,
Bancshares or any holder thereof, Seaboard's stock transfer books shall be
closed as to holders of Seaboard Stock immediately prior to the Effective Time
and, thereafter, no transfer of Seaboard Stock by any such holder may be made or
registered; and the holders of shares of Seaboard Stock shall cease to be, and
shall have no further rights as, stockholders of Seaboard other than as provided
herein. Following the Effective Time, certificates representing shares of
Seaboard Stock outstanding at the Effective Time (herein sometimes referred to
as "Old Certificates") shall evidence only the right of the registered holder
thereof to receive, and may be exchanged for, (i) certificates for the number of
whole shares of Bancshares Stock to which such holders shall have become
entitled on the basis set forth above, plus cash for any fractional share
interests as provided herein, (ii) in the case of shares as to which rights of
dissent and appraisal are properly exercised (as provided below), cash as
provided in Article 13 of the North Carolina Business Corporation Act.
b. Issuance of Shares by Bancshares; Exchange Procedures. At
the Effective Time, Bancshares shall issue and deliver to UCB, in its capacity
as Bancshares' agent for purposes of the exchange of Bancshares Stock for
Seaboard Stock (the "Exchange Agent"), one certificate representing the
aggregate number of whole shares of Bancshares Stock into which the outstanding
shares of Seaboard Stock have been converted as provided above. As promptly as
practicable following the Effective Time, Bancshares shall send or cause to be
sent to each former shareholder of Seaboard of record immediately prior to the
A-4
Effective Time written instructions and transmittal materials (a "Transmittal
Letter") for use in surrendering Old Certificates to the Exchange Agent. Upon
the proper delivery to the Exchange Agent (in accordance with the above
instructions, and accompanied by a properly completed Transmittal Letter) by a
former shareholder of Seaboard of his or her Old Certificates, the Exchange
Agent shall register in the name of such shareholder the shares of Bancshares
Stock and deliver said New Certificates to the individual shareholder entitled
thereto upon and in exchange for the surrender and delivery to the Exchange
Agent by said individual shareholder of his or her Old Certificates.
c. Treatment of Fractional Shares. No scrip or certificates
representing fractional shares of Bancshares Stock will be issued to any
former shareholder of Seaboard, and, except as provided below, no such
shareholder will have any right to vote or receive any dividend or
other distribution on, or any other right with respect to, any fraction of a
share of Bancshares Stock resulting from the above exchange. In the event the
exchange of shares would result in the creation of fractional shares, then, in
lieu of the issuance of fractional shares of Bancshares Stock, Bancshares shall
deliver cash to the Exchange Agent in an amount equal to the aggregate market
value of all such fractional shares, and the Exchange Agent shall divide such
cash among and remit it (without interest) to the former shareholders of
Seaboard in accordance with their respective interests. For purposes of this
Paragraph 1.05.c., the "aggregate market value" of all fractional shares of
Bancshares Stock shall be equal to the total of such fractional shares
multiplied by the average of the closing prices of Bancshares Stock on the
Nasdaq National Market for the ten consecutive (10) trading days immediately
preceding the second trading day prior to the Closing Date (as defined below).
d. Surrender of Certificates. Subject to Paragraph 1.05.f.
below, no certificate for any shares, or cash for any fractional share, of
Bancshares Stock shall be delivered to any former shareholder of Seaboard unless
and until such shareholder shall have properly surrendered to the Exchange Agent
the Old Certificate(s) formerly representing his or her shares of Seaboard
Stock, together with a properly completed Transmittal Letter in such form as
shall be provided to the shareholder by Bancshares for that purpose. Further,
until such Old Certificate(s) are so surrendered, no dividend or other
distribution payable to holders of record of Bancshares Stock as of any date
subsequent to the Effective Time shall be delivered to the holder of such Old
Certificate(s). However, upon the proper surrender of such Old Certificate(s)
the Exchange Agent shall pay to the registered holder of the shares of
Bancshares Stock represented by such Old Certificate(s) the amount of any such
cash, dividends or distributions which have accrued but remain unpaid with
respect to such shares. Neither Bancshares, UCB, Seaboard, nor the Exchange
Agent, shall have any obligation to pay any interest on any such cash, dividends
or distributions for any period prior to such payment. Further, and
notwithstanding any other provision of this Agreement, neither Bancshares, UCB,
Seaboard, nor the Exchange
A-5
Agent shall be liable to a former holder of Seaboard Stock for any amount paid
or property delivered in good faith to a public official pursuant to any
applicable abandoned property, escheat, or similar law.
e. Antidilutive Adjustments. If, following the date of this
Agreement, Bancshares shall change the number of outstanding shares of
Bancshares Stock as a result of a dividend payable in shares of Bancshares
Stock, a stock split, a reclassification or other subdivision or combination of
outstanding shares, and if the record date of such event occurs prior to the
Effective Time, then an appropriate and proportionate adjustment will be made to
increase or decrease the number of shares of Bancshares Stock to be issued in
exchange for each of the shares of Seaboard Stock.
f. Dissenters. Any shareholder of Seaboard who has and
properly exercises the right of dissent and appraisal with respect to the Merger
as provided in Article 13 of the North Carolina Business Corporation Act
("Dissenters Rights") shall be entitled to receive payment of the fair value of
his or her shares of Seaboard Stock in the manner and pursuant to the procedures
provided therein. Shares of Seaboard Stock held by persons who exercise
Dissenters Rights shall not be converted into Bancshares Stock as provided in
Paragraph 1.05.a. above. However, if any shareholder of Seaboard who exercises
Dissenters Rights shall fail to perfect his or her right to receive cash as
provided above, or effectively shall waive or lose such right, then each of his
or her shares of Seaboard Stock, at Bancshares' sole option, shall be deemed to
have been converted into the right to receive Bancshares Stock as of the
Effective Time as provided in Paragraph 1.05.a. above. Any shares of Bancshares
Stock authorized to be issued pursuant to this Agreement but not exchanged for
shares of Seaboard Stock because of the exercise of Dissenters Rights may be
sold by the Exchange Agent at public auction or by private sale, or through a
dealer or by any other reasonable method, at its election, for the best
available price, and the net proceeds of any such sale shall be retained by
Bancshares.
g. Lost Certificates. Any shareholder of Seaboard
whose certificate evidencing shares of Seaboard Stock has been
lost, destroyed, stolen or otherwise is missing shall be entitled
to receive a certificate representing the shares of Bancshares
Stock to which he or she is entitled in accordance with and upon
compliance with conditions imposed by the Exchange Agent or
Bancshares pursuant to the provisions of N.C. GEN. STAT (Section Mark) 25-8-405
and N.C. GEN. STAT. (Section Mark) 25-8-104 (including without limitation a
requirement that the shareholder provide a lost instruments
indemnity or surety bond in form, substance and amount satisfactory
to the Exchange Agent and Bancshares).
h. Treatment of Seaboard's Stock Options. At the
Effective Time, each option previously granted by Seaboard to
purchase shares of Seaboard Stock and which is outstanding on the
date of this Agreement automatically shall be converted into an
option to purchase a number of shares of Bancshares Stock equal to
A-6
the number of shares of Seaboard Stock originally covered by the option
multiplied by the Exchange Rate; provided, however, in no event shall options to
purchase more than 40,625 shares of Seaboard Stock be converted into options to
purchase Bancshares Stock. The purchase or exercise price of each share of
Bancshares Stock under each such option shall be equal to the per share purchase
or exercise price of Seaboard Stock previously covered by such option divided by
the Exchange Rate (and rounded up to the nearest cent). All other terms of each
such stock option shall apply to the purchase of Bancshares Stock thereunder and
shall be unaffected by the Merger or conversion.
i. Outstanding Bancshares and UCB Stock. The status
of the shares of Bancshares Stock and the shares of the capital
stock of UCB which are outstanding immediately prior to the Effective Time shall
not be affected by the Merger.
1.06. Articles, By-Laws and Management. The Articles of
Incorporation and By-Laws of UCB in effect at the Effective Time
shall be the Articles of Incorporation and By-Laws of UCB as the surviving
corporation. The officers and directors of UCB in office at the Effective Time
shall continue to hold such offices until removed as provided by law or until
the election or appointment of their respective successors.
1.07. Closing; Articles of Merger; Effective Time. The closing of the
transactions contemplated by this Agreement (the "Closing") shall take place at
the offices of Ward and Smith, P.A. in Raleigh, North Carolina, or at such other
place as Bancshares shall designate, on a date specified by Bancshares (the
"Closing Date") after the expiration of any and all required waiting periods
following the effective date of required approvals of the Merger by governmental
or regulatory authorities (but in no event more than thirty (30) days following
the expiration of all such required waiting periods). At the Closing,
Bancshares, UCB and Seaboard shall take such actions (including without
limitation the delivery of certain closing documents) as are required herein and
as shall otherwise be required by law to consummate the Merger and cause it to
become effective, and shall execute Articles of Merger under North Carolina law
which shall contain a "Plan of Merger" substantially in the form attached as
Schedule A hereto.
Subject to the terms and conditions set forth herein (including without
limitation the receipt of all required approvals of government and regulatory
authorities), the Merger shall be effective on the date and at the time (the
"Effective Time") designated in the Articles of Merger executed at the Closing
and filed with the North Carolina Secretary of State in accordance with law;
provided, however, that the date and time so specified as the Effective Time
shall in no event be more than ten days following the Closing Date. If the
Articles of Merger do not designate a date or specific time as the Effective
Time, then the Effective Time shall be that date and time when the Articles of
Merger are properly filed with the North Carolina Secretary of State.
A-7
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF SEABOARD
Except as otherwise specifically provided herein or as "Previously
Disclosed" (as defined in Paragraph 10.01. below) to UCB, Seaboard hereby makes
the following representations and warranties to UCB and Bancshares.
2.01. Organization; Standing; Power. Seaboard and the
Subsidiary each (i) is duly organized and incorporated, validly existing and in
good standing (as a savings bank and a business corporation, respectively) under
the laws of North Carolina; (ii) has all requisite power and authority
(corporate and other) to own, lease and operate its properties and to carry on
its business as now being conducted; (iii) is duly qualified to do business and
is in good standing in each other jurisdiction in which the character of the
properties owned, leased or operated by it therein or in which the transaction
of its business makes such qualification necessary, except where failure so to
qualify would not have a material adverse effect on Seaboard; and, (iv) is not
transacting business or operating any properties owned or leased by it in
violation of any provision of federal or state law or any rule or regulation
promulgated thereunder, which violation would have a material adverse effect on
Seaboard.
2.02 Capital Stock. Seaboard's authorized capital stock
consists of 5,000,000 shares of common stock, no par value per share and
1,000,000 shares of preferred stock, no par value per share. As of the date of
this Agreement, 305,507 shares of Seaboard Stock are issued and outstanding and
no shares of preferred stock have been issued.
The Subsidiary's authorized capital stock consists
of 100,000 shares of common stock, $1.00 par value per share ("Subsidiary
Stock"), of which 100,000 shares are issued and outstanding and constitute the
Subsidiary's only outstanding securities. All outstanding shares of Subsidiary
Stock are owned of record and beneficially by Seaboard.
Each outstanding share of Seaboard Stock and
Subsidiary Stock, respectively, (i) has been duly authorized and are validly
issued and outstanding, and is fully paid and nonassessable, (ii) has not been
issued in violation of the preemptive rights of any shareholder, and (iii) has
been issued pursuant to and in compliance with the requirement of an applicable
exemption from registration requirements under the Securities Act of 1933, as
amended (the "1933 Act").
2.03. Principal Shareholders. No person or entity is
known to Seaboard to beneficially own, directly or indirectly, more
than 5% of the outstanding shares of Seaboard Stock.
2.04. Subsidiaries. Seaboard is the record and
beneficial owner of all of the issued and outstanding shares
capital stock of the Subsidiary. Otherwise, neither Seaboard nor
the Subsidiary has any subsidiary (direct or indirect), nor owns
A-8
any stock or other equity interest in any corporation, service corporation,
joint venture, partnership or other entity.
2.05. Convertible Securities, Options, Etc.. With the
exception of options to purchase an aggregate of 40,625 shares of Seaboard Stock
which have been issued and are outstanding under Seaboard's 1993 Incentive Stock
Option and Nonstatutory Stock Option Plans, neither Seaboard nor the Subsidiary
has any outstanding (i) securities or other obligations (including debentures or
other debt instruments) which are convertible into shares of Seaboard Stock or
Subsidiary Stock or any other securities of Seaboard or the Subsidiary, (ii)
options, warrants, rights, calls or other commitments of any nature which
entitle any person to receive or acquire any shares of Seaboard Stock or
Subsidiary Stock or any other securities of Seaboard or the Subsidiary, or (iii)
plan, agreement or other arrangement pursuant to which shares of Seaboard Stock
or Subsidiary Stock or any other securities of Seaboard or the Subsidiary, or
options, warrants, rights, calls or other commitments of any nature pertaining
thereto, have been or may be issued.
2.06. Authorization and Validity of Agreement. This Agreement
has been duly and validly approved by Seaboard's Board of Directors and executed
and delivered on Seaboard's behalf. Subject only to approval of this Agreement
by the shareholders of Seaboard in the manner required by law (as contemplated
by Paragraph 6.01.a. below), (i) Seaboard has the corporate power and authority
to execute and deliver this Agreement and to perform its obligations and
agreements and carry out the transactions described herein, (ii) all corporate
proceedings and approvals required to authorize Seaboard to enter into this
Agreement and to perform its obligations and agreements and carry out the
transactions described herein have been duly and properly completed or obtained,
and (iii) this Agreement has been executed on behalf of Seaboard and constitutes
a valid and binding agreement of Seaboard enforceable in accordance with its
terms (except to the extent enforceability may be limited by (A) applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws from time to
time in effect which affect creditors' rights generally, (B) by legal and
equitable limitations on the availability of injunctive relief, specific
performance and other equitable remedies, and (C) general principles of equity
and applicable laws or court decisions limiting the enforceability of
indemnification provisions).
2.07. Validity of Transactions; Absence of Required Consents
or Waivers. Except where the same would not have a material adverse effect on
Seaboard and the Subsidiary considered as one enterprise, neither the execution
and delivery of this Agreement, nor the consummation of the transactions
described herein, nor compliance by Seaboard with any of its obligations or
agreements contained herein, will: (i) conflict with or result in a breach of
the terms and conditions of, or constitute a default or violation under any
provision of, Seaboard's Articles of Incorporation or Bylaws, or any contract,
agreement, lease, mortgage, note, bond, indenture, license, or obligation or
A-9
understanding (oral or written) to which Seaboard or the Subsidiary is bound or
by which it, its business, capital stock or any of its properties or assets may
be affected; (ii) result in the creation or imposition of any lien, claim,
interest, charge, restriction or encumbrance upon any of Seaboard's or the
Subsidiary's properties or assets; (iii) violate any applicable federal or state
statute, law, rule or regulation, or any judgment, order, writ, injunction or
decree of any court, administrative or regulatory agency or governmental body;
(iv) result in the acceleration of any obligation or indebtedness of Seaboard or
the Subsidiary; or, (v) interfere with or otherwise adversely affect Seaboard's
or the Subsidiary's ability to carry on its business as presently conducted, or
interfere with or otherwise adversely affect the ability of Bancshares or UCB to
carry on such business after the Effective Time.
No consents, approvals or waivers are required to be obtained
from any person or entity in connection with Seaboard's execution and delivery
of this Agreement, or the performance of its obligations or agreements or the
consummation of the transactions described herein, except for required approvals
of Seaboard's shareholders as described in Paragraph 7.01.c. below and of
governmental or regulatory authorities as described in Paragraph 7.01.a. below.
2.08. Seaboard Books and Records. Seaboard's and the
Subsidiary's books of account and business records have been maintained in
substantial compliance with all applicable legal and accounting requirements and
in accordance with good business practices, and such books and records are
complete and reflect accurately in all material respects Seaboard's and the
Subsidiary's respective items of income and expense and all of their respective
assets, liabilities and stockholders' equity. The respective minute books of
Seaboard and the Subsidiary accurately reflect in all material respects the
corporate actions which their respective shareholders and board of directors,
and all committees thereof, have taken during the time periods covered by such
minute books. All such minute books have been or will be made available to UCB
and its representatives.
2.09. Seaboard Reports. Since January 1, 1990, and where the
failure to file has had or could have a material and adverse effect on Seaboard
and its Subsidiary considered as one enterprise, Seaboard and the Subsidiary
each has filed all reports, registrations and statements, together with any
amendments required to be made with respect thereto, that were required to be
filed with (i) the Federal Deposit Insurance Corporation (the "FDIC"), (ii) the
Office of Thrift Supervision ("OTS"), (iii) the Administrator of the North
Carolina Savings Institutions Division (the "Administrator"), or (iv) any other
governmental or regulatory authorities having jurisdiction over Seaboard or the
Subsidiary. All such reports, registrations and statements filed by Seaboard
with the FDIC, the OTS, the Administrator or other such regulatory authority are
collectively referred to herein as the "Seaboard Reports." As of their
respective dates, each Seaboard Report
A-10
complied in all material respects with all the statutes, rules and regulations
enforced or promulgated by the regulatory authority with which it was filed and
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; and, neither Seaboard nor the Subsidiary has been notified that any
such Seaboard Report was deficient in any material respect as to form or
content. Following the date of this Agreement, Seaboard shall deliver to
Bancshares, simultaneous with the filing thereof, a copy of each report,
registration, statement or other regulatory filing made by it or the Subsidiary
with the FDIC, the Administrator or any other such regulatory authority.
Seaboard does not have a class of equity securities registered
under the Securities Exchange Act of 1934 and is not subject to the periodic
reporting requirements of that Act.
2.10. Seaboard Financial Statements. Seaboard has delivered to
UCB a copy of (i) its consolidated balance sheets as of December 31, 1993 and
December 31, 1994, and its consolidated statements of operations, changes in
stockholders' equity and cash flows for the years ended December 31, 1992,
December 31, 1993 and December 31, 1994, together with notes thereto (the
"Seaboard Financial Statements"), and (ii) a copy of its balance sheet as of
June 30, 1995 and its statement of operations for the six months ended June 30,
1995 (the "Seaboard Interim Financial Statements"); and, following the date of
this Agreement, Seaboard promptly will deliver to UCB all other annual or
interim financial statements prepared by or for Seaboard. The Seaboard Financial
Statements and Seaboard Interim Financial Statements (including any related
notes and schedules thereto) (i) are in accordance with Seaboard's books and
records, and (ii) were prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods
indicated and present fairly Seaboard's consolidated financial condition, assets
and liabilities, results of operations, changes in stockholders' equity and
changes in cash flows as of the dates indicated and for the periods specified
therein. The Seaboard Financial Statements have been audited and certified by
Seaboard's independent certified public accountants, McGladrey & Pullen, LLP.
2.11. Tax Returns and Other Tax Matters. (i) Seaboard and the
Subsidiary each has timely filed or caused to be filed all federal, state and
local tax returns and reports which are required by law to have been filed, and,
to the best knowledge and belief of management of Seaboard, all such returns and
reports were true, correct and complete and contained all material information
required to be contained therein; (ii) all federal, state and local income,
profits, franchise, sales, use, occupation, property, excise and other taxes
(including interest and penalties), charges and assessments which have become
due from or been assessed or levied against Seaboard or the Subsidiary or their
property have been fully paid, and, with respect to any such taxes to become due
from Seaboard or the Subsidiary for any period or
A-11
periods through and including June 30, 1995, adequate provision has been made
for the payment of all such taxes and such provision is reflected in the
Seaboard Interim Financial Statements; (iii) Seaboard's and the Subsidiary's tax
returns and reports have been examined or closed by applicable statutes of
limitations through the tax year ended December 31, 1990, and neither Seaboard
nor the Subsidiary has received any indication of the pendency of any audit or
examination in connection with any tax return or report and has no knowledge
that any such return or report is subject to adjustment; and (iv) neither
Seaboard nor the Subsidiary has executed any waiver or extended the statute of
limitations (or been asked to execute a waiver or extend a statute of
limitation) with respect to any tax year, the audit of any tax return or report
or the assessment or collection of any tax. Any deferred taxes of Seaboard or
the Subsidiary have been provided for in the Seaboard Financial Statements and
Seaboard Interim Financial Statements in all material respects.
2.12. Absence of Material Adverse Changes or Certain
Other Events.
(i) Since December 31, 1994, Seaboard and the Subsidiary
have conducted their respective businesses only in the ordinary course, and
there has been no material adverse change, and there has occurred no event or
development and, to the best knowledge of management of Seaboard, there
currently exists no condition or circumstance which, with the lapse of time or
otherwise, may or could cause, create or result in a material adverse change, in
or affecting the financial condition of Seaboard or the Subsidiary or in their
results of operations, prospects, business, assets, loan portfolio, investments,
properties or operations.
(ii) Since December 31, 1994, and other than in the ordinary
course of its business, neither Seaboard nor the Subsidiary has incurred any
material liability or engaged in any material transaction or entered into any
material agreement, increased the salaries, compensation or general benefits
payable to its employees, suffered any loss, destruction or damage to any of its
properties or assets, or made a material acquisition or disposition of any
assets or entered into any material contract or lease.
2.13. Absence of Undisclosed Liabilities. Neither Seaboard nor
the Subsidiary has any liabilities or obligations, whether known or unknown,
matured or unmatured, accrued, absolute, contingent or otherwise, whether due or
to become due (including without limitation tax liabilities or unfunded
liabilities under employee benefit plans or arrangements), other than (i) those
reflected in Seaboard Interim Financial Statements, or (ii) obligations or
liabilities incurred in the ordinary course of their business since June 30,
1995 and which are not, individually or in the aggregate, material to Seaboard.
A-12
2.14. Compliance with Existing Obligations. Seaboard and the
Subsidiary each has performed in all material respects all obligations required
to be performed by it under, and it is not in default in any respect under, or
in violation in any respect of, the terms and conditions of its Articles of
Incorporation or Bylaws, and/or any contract, agreement, lease, mortgage, note,
bond, indenture, license, obligation, understanding or other undertaking
(whether oral or written) to which Seaboard or the Subsidiary is bound or by
which it, its business, capital stock or any of its properties or assets may be
affected.
2.15. Litigation and Compliance with Law.
(i) There are no actions, suits, arbitrations, controversies
or other proceedings or investigations (or, to the best knowledge and belief of
management of Seaboard or the Subsidiary, any facts or circumstances which
reasonably could result in such), including without limitation any such action
by any governmental or regulatory authority, which currently exists or is
ongoing, pending or, to the best knowledge and belief of management of Seaboard
or the Subsidiary, threatened, contemplated or probable of assertion, against,
relating to or otherwise affecting Seaboard or the Subsidiary or any of their
properties or assets which, if determined adversely, could result in liability
on the part of Seaboard or the Subsidiary for, or subject it to, monetary
damages, fines or penalties, an injunction, or which could have a material
adverse effect on Seaboard's or the Subsidiary's financial condition, results of
operations, prospects, business, assets, loan portfolio, investments, properties
or operations or on the ability of Seaboard to consummate the Merger;
(ii) Seaboard and the Subsidiary each has all licenses,
permits, orders, authorizations or approvals ("Permits") of any federal, state,
local or foreign governmental or regulatory body that are material to or
necessary for the conduct of its business or to own, lease and operate its
properties; all such Permits are in full force and effect; no violations are or
have been recorded in respect of any such Permits; and no proceeding is pending
or, to the best knowledge of management of Seaboard and the Subsidiary,
threatened or probable of assertion to suspend, cancel, revoke or limit any
Permit;
(iii) neither Seaboard nor the Subsidiary is subject to any
supervisory agreement, enforcement order, writ, injunction, capital directive,
supervisory directive, memorandum of understanding or other similar agreement,
order, directive, memorandum or consent of, with or issued by any regulatory or
other governmental authority (including without limitation the FDIC or the
Administrator) relating to its financial condition, directors or officers,
operations, capital, regulatory compliance or otherwise; there are no judgments,
orders, stipulations, injunctions, decrees or awards against Seaboard or the
Subsidiary which in any manner limit, restrict, regulate, enjoin or prohibit any
present or past business or practice of Seaboard or the Subsidiary; and, neither
Seaboard nor the Subsidiary has been
A-13
advised or has any reason to believe that any regulatory or other governmental
authority or any court is contemplating, threatening or requesting the issuance
of any such agreement, order, injunction, directive, memorandum, judgment,
stipulation, decree or award;
(iv) neither Seaboard nor the Subsidiary is in
violation or default in any material respect under, and each has complied in all
material respects with, all laws, statutes, ordinances, rules, regulations,
orders, writs, injunctions or decrees of any court or federal, state, municipal
or other governmental or regulatory authority having jurisdiction or authority
over it or its business operations, properties or assets (including without
limitation all provisions of North Carolina law relating to usury, the Consumer
Credit Protection Act, and all other laws and regulations applicable to
extensions of credit by Seaboard) and there is no basis for any claim by any
person or authority for compensation, reimbursement or damages or otherwise for
any violation of any of the foregoing.
2.16. Real Properties. Seaboard has Previously Disclosed to
UCB a listing of all real property owned or leased by Seaboard or the Subsidiary
(including Seaboard's banking facilities and all other real estate or foreclosed
properties owned by Seaboard) (the "Real Property") and all leases, if any,
pertaining to any such Real Property to which Seaboard or the Subsidiary is a
party (the "Real Property Leases"). With respect to all Real Property owned by
Seaboard, Seaboard has good and marketable fee simple title to such Real
Property and owns the same free and clear of all mortgages, liens, leases,
encumbrances, title defects and exceptions to title other than (i) the lien of
current taxes not yet due and payable, and (ii) such imperfections of title and
restrictions, covenants and easements (including utility easements) which do not
affect materially the value of the Real Property and which do not and will not
materially detract from, interfere with or restrict the present or future use of
the properties subject thereto or affected thereby. With respect to each Real
Property Lease (i) such lease is valid and enforceable in accordance with its
terms, (ii) there currently exists no circumstance or condition which
constitutes an event of default by Seaboard or its lessor or which, with the
passage of time or the giving of required notices will or could constitute such
an event of default, and (iii) subject to any required consent of Seaboard's
lessor, each such Real Property Lease may be assigned to UCB and the execution
and delivery of this Agreement does not constitute an event of default
thereunder.
To the best of the knowledge and belief of
management of Seaboard, the Real Property complies in all material respects with
all applicable federal, state and local laws, regulations, ordinances or orders
of any governmental authority, including those relating to zoning, building and
use permits, and the Real Property may be used under applicable zoning
ordinances for commercial banking facilities as a matter of right rather than as
a conditional or nonconforming use.
A-14
All improvements and fixtures included in or on the
Real Property are in good condition and repair, ordinary wear and tear excepted,
and there does not exist any condition which interferes with Seaboard's (or will
interfere with UCB's) use or affects the economic value thereof.
2.17. Loans, Accounts, Notes and Other Receivables.
(i) All loans, accounts, notes and other
receivables reflected as assets on Seaboard's books and records (A) have
resulted from bona fide business transactions in the ordinary course of
Seaboard's operations, (B) in all material respects were made in accordance with
Seaboard's standard loan policies and procedures, and (C) are owned by Seaboard
free and clear of all liens, encumbrances, assignments, participation or
repurchase agreements or other exceptions to title or to the ownership or
collection rights of any other person or entity.
(ii) All records of Seaboard regarding all
outstanding loans, accounts, notes and other receivables, and all other real
estate owned, are accurate in all material respects, and, with respect to each
loan which Seaboard's loan documentation indicates is secured by any real or
personal property or property rights ("Loan Collateral"), such loan is secured
by valid, perfected and enforceable liens on all such Loan Collateral having the
priority described in Seaboard's records of such loan.
(iii) To the best knowledge of management of
Seaboard, each loan reflected as an asset on Seaboard's books, and each guaranty
therefor, is the legal, valid and binding obligation of the obligor or guarantor
thereon, and no defense, offset or counterclaim as been asserted with respect to
any such loan or guaranty.
(iv) Seaboard has Previously Disclosed to UCB a
listing of (A) each loan, extension of credit or other asset of Seaboard which,
as of June 30, 1995, is classified by the FDIC, the Administrator or by Seaboard
as "Loss", "Doubtful", "Substandard" or "Special Mention" (or otherwise by words
of similar import), or which Seaboard has designated as a special asset or for
special handling or placed on any "watch list" because of concerns regarding the
ultimate collectibility or deteriorating condition of such asset or any obligor
or Loan Collateral therefor, and (B) each loan or extension of credit of
Seaboard which, as of July 31, 1995, was past due as to the payment of principal
and/or interest, or as to which any obligor thereon (including the borrower or
any guarantor) otherwise was in default, is the subject of a proceeding in
bankruptcy or otherwise has indicated any inability or intention not to repay
such loan or extension of credit. Each such listing is accurate and complete as
of the date indicated.
(v) To the best knowledge and belief of Seaboard's
management, each of Seaboard's loans and other extensions of credit (with the
exception of those loans and extensions of credit specified in the written
listings described in Subparagraph (iv)
A-15
above) is collectible in the ordinary course of Seaboard's business in an amount
which is not less than the amount at which it is carried on Seaboard's books and
records.
(vi) Seaboard's reserve for possible loan losses
(the "Loan Loss Reserve") shown in the Seaboard Interim Financial Statements has
been established in conformity with GAAP, sound banking practices and all
applicable requirements of the FDIC and rules and policies of the Administrator
and, in the best judgment of Seaboard's management, is reasonable in view of the
size and character of Seaboard's loan portfolio, current economic conditions and
other relevant factors, and is adequate to provide for losses relating to or the
risk of loss inherent in Seaboard's loan portfolio and other real estate owned.
2.18. Securities Portfolio and Investments. All securities
owned by Seaboard or the Subsidiary (whether owned of record or beneficially)
are held free and clear of all mortgages, liens, pledges, encumbrances or any
other restriction or rights of any other person or entity, whether contractual
or statutory, which would materially impair the ability of Seaboard or the
Subsidiary to dispose freely of any such security and/or otherwise to realize
the benefits of ownership thereof at any time (other than pledges of securities
in the ordinary course of Seaboard's business to secure public funds deposits).
There are no voting trusts or other agreements or undertakings to which Seaboard
or the Subsidiary is a party with respect to the voting of any such securities.
With respect to all "repurchase agreements" to which Seaboard or the Subsidiary
has "purchased" securities under agreement to resell (if any), Seaboard and the
Subsidiary has a valid, perfected first lien or security interest in the
government securities or other collateral securing the repurchase agreement, and
the value of the collateral securing each such repurchase agreement equals or
exceeds the amount of the debt owed to Seaboard or the Subsidiary which is
secured by such collateral.
Except for fluctuations in the market values of United States Treasury and
agency or municipal securities, since June 30, 1995, there has been no
significant deterioration or material adverse change in the quality, or any
material decrease in the value, of Seaboard's or the Subsidiary's securities
portfolio.
2.19. Personal Property and Other Assets. All assets of
Seaboard and the Subsidiary (including without limitation all banking equipment,
data processing equipment, vehicles, and all other personal property located in
or used in the operation of each office of Seaboard or the Subsidiary or
otherwise used by Seaboard or the Subsidiary in the operation of its business)
are owned by Seaboard and the Subsidiary free and clear of all liens, leases,
encumbrances, title defects or exceptions to title. All Seaboard's banking
equipment is in good operating condition and repair, ordinary wear and tear
excepted.
2.20. Patents and Trademarks. Seaboard and the
Subsidiary each owns, possesses or has the right to use any and all
A-16
patents, licenses, trademarks, trade names, copyrights, trade secrets and
proprietary and other confidential information necessary to conduct its business
as now conducted; and, neither Seaboard nor the Subsidiary has violated, and
neither of them currently are in conflict with, any patent, license, trademark,
trade name, copyright or proprietary right of any other person or entity.
2.21. Environmental Matters.
(i) Seaboard has Previously Disclosed and
provided to UCB copies of all written reports, correspondence, notices or other
materials, if any, in its possession pertaining to environmental reports,
surveys, assessments, notices of violation, notices of regulatory requirements,
penalty assessments, claims, actions or proceedings, past or pending, of the
Real Property or any of its Loan Collateral and any improvements thereon, or to
any violation of Environmental Laws (as defined below) on, affecting or
otherwise involving the Real Property, any Loan Collateral or otherwise
involving Seaboard or the Subsidiary.
(ii) There has been no presence, use,
production, generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, reporting, testing, processing, emission, discharge,
release, threatened release, control or clean-up in a reportable or regulated
quantity of any hazardous, toxic or otherwise regulated materials, substances or
wastes, chemical substances or mixtures, pesticides, pollutants, contaminants,
toxic chemicals, oil or other petroleum products or byproducts, asbestos or
materials containing (or presumed to contain) asbestos, polychlorinated
biphenyls, or radiation ("Hazardous Substances") by any person on, from or
relating to any parcel of the Real Property since the date Seaboard first
acquired or occupied such parcel or, to the best of the knowledge and belief of
management of Seaboard, at any time prior thereto.
(iii) Neither Seaboard nor the Subsidiary has
violated any federal, state or local law, rule, regulation, order, permit or
other requirement relating to health, safety or the environment or imposing
liability, responsibility or standards of conduct applicable to environmental
conditions (all such laws, rules, regulations, orders and other requirements
being herein collectively referred to as "Environmental Laws"), and there has
been no violation of any Environmental Laws (including, to the best knowledge of
management of Seaboard, any violation with respect to or relating to any Loan
Collateral) by any other person or entity for whose liability or obligation with
respect to any particular matter or violation Seaboard or the Subsidiary is or
may be responsible or liable.
(iv) Neither Seaboard nor the subsidiary is
subject to any claims, demands, causes of action, suits, proceedings, losses,
damages, penalties, liabilities, obligations, costs or expenses of any kind and
nature which arise out of, under or in connection with, or which result from or
are based upon the
A-17
presence, use, production, generation, handling, transportation, treatment,
storage, disposal, distribution, labeling, reporting, testing, processing,
emission, discharge, release, threatened release, control or clean-up of any
Hazardous Substances on, from or relating to the Real Property or, to the best
knowledge of management of Seaboard, any Loan Collateral, by Seaboard or the
Subsidiary or any other person or entity.
(v) No facts, events or conditions relating to the Real
Property or, to the best knowledge of management of Seaboard, any Loan
Collateral, or the operations of Seaboard or the Subsidiary at any of its office
locations, will prevent, hinder or limit continued compliance with Environmental
Laws, or give rise to any investigatory, remedial or corrective actions,
obligations or liabilities (whether accrued, absolute, contingent, unliquidated
or otherwise) pursuant to Environmental Laws.
For purposes of this Agreement, "Environmental Laws" shall
include:
(i) all federal, state and local statutes,
regulations, ordinances, orders, decrees, and similar provisions
having the force or effect of law,
(ii) all contractual agreements, and
(iii) all common law,
concerning public health and safety, worker health and safety, and pollution or
protection of the environment, including without limitation all standards of
conduct and bases of obligations relating to the presence, use, production,
generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, reporting, testing, processing, discharge, release,
threatened release, control or clean-up of any Hazardous Substances (including
without limitation the Comprehensive Environmental Response, Compensation and
Liability Act, the Superfund Amendment and Reauthorization Act, the Federal
Insecticide, Fungicide and Rodenticide Act, the Hazardous Materials
Transportation Act, the Resource Conservation and Recovery Act, the Clean Water
Act, the Clean Air Act, the Toxic Substances Control Act, the Oil Pollutant Act,
the Coastal Zone Management Act, any "Superfund" or "Superlien" law, the North
Carolina Oil Pollution and Hazardous Substances Control Act, the North Carolina
Water and Air Resources Act and the North Carolina Occupational Safety and
Health Act, including any amendments thereto from time to time).
2.22. Absence of Brokerage or Finders Commissions. (i) All
negotiations relative to this Agreement and the transactions described herein
have been carried on by Seaboard directly with UCB and Bancshares; (ii) no
person or firm has been retained by or has acted on behalf of, pursuant to any
agreement, arrangement or understanding with, or under the authority of,
Seaboard or its Board of Directors, as a broker, finder or agent or has
performed similar functions or otherwise is or may be entitled
A-18
to receive or claim a brokerage fee or other commission in connection with the
transactions described herein; and, (iii) Seaboard has not agreed to pay any
brokerage fee or other commission to any person or entity in connection with the
transactions described herein.
2.23. Material Contracts. Neither Seaboard nor the Subsidiary
is a party to or bound by any agreement (i) involving money or other property in
an amount or with a value in excess of $50,000, (ii) which is not to be
performed in full prior to December 31, 1995, (iii) which calls for the
provision of goods or services to Seaboard or the Subsidiary and cannot be
terminated without material penalty upon written notice to the other party
thereto, (iv) which is material to Seaboard or the Subsidiary and was not
entered into in the ordinary course of business, (v) which involves hedging,
options or any similar trading activity, or interest rate exchanges or swaps,
(vi) which commits Seaboard or the Subsidiary to extend any loan or credit (with
the exception of letters of credit, lines of credit and loan commitments
extended in the ordinary course of Seaboard's business), (vii) which involves
the purchase or sale of any assets of Seaboard or the Subsidiary, or the
purchase, sale, issuance, redemption or transfer of any capital stock or other
securities of Seaboard or the Subsidiary, or (viii) with any director, officer
or principal shareholder of Seaboard or the Subsidiary (including without
limitation any employment or consulting agreement, but not including any
agreement relating to loans or other banking services which were made in the
ordinary course of Seaboard's business and on substantially the same terms and
conditions as were prevailing at that time for similar agreements with unrelated
persons).
Neither Seaboard nor the Subsidiary is in default in any
material respect, and there has not occurred any event which with the lapse of
time or giving of notice or both would constitute such a default, under any
contract, lease, insurance policy, commitment or arrangement to which it is a
party or by which it or its property is or may be bound or affected or under
which it or its property receives benefits, where the consequences of such
default would have a material adverse effect on the financial condition, results
of operations, prospects, business, assets, loan portfolio, investments,
properties or operations of Seaboard or the Subsidiary.
2.24. Employment Matters; Employee Relations. Seaboard and the
Subsidiary each (i) has paid in full to or accrued on behalf of all its
directors, officers and employees all wages, salaries, commissions, bonuses,
fees and other direct compensation for all services performed by them to the
date of this Agreement and (ii) is in compliance with all federal, state and
local laws, statutes, rules regulations with regard to employment and employment
practices, terms and conditions, and wages and hours and other compensation
matters; and, no person has, to the knowledge of management of Seaboard or the
Subsidiary, asserted that Seaboard or the Subsidiary is liable in any amount for
any arrearages in wages
A-19
or employment taxes or for any penalties for failure to comply with
any of the foregoing.
There is no action, suit or proceeding by any person pending or, to the
best knowledge of management of Seaboard or the Subsidiary, threatened, against
Seaboard or the Subsidiary (or any of their respective employees), involving
employment discrimination, sexual harassment, wrongful discharge or similar
claims.
Neither Seaboard nor the Subsidiary is a party to or bound by any
collective bargaining agreement with any of its employees, any labor union or
any other collective bargaining unit or organization. There is no pending or
threatened labor dispute, work stoppage or strike involving Seaboard or the
Subsidiary and any of its employees, or any pending or threatened proceeding in
which it is asserted that Seaboard or the Subsidiary has committed an unfair
labor practice; and, neither Seaboard nor the Subsidiary is aware of any
activity involving it or any of its employees seeking to certify a collective
bargaining unit or engaging in any other labor organization activity.
2.25. Employment Agreements; Employee Benefit Plans.
(i) Neither Seaboard nor the Subsidiary is a party
to or bound by any employment agreements with any of its directors,
officers or employees.
(ii) Seaboard has Previously Disclosed to UCB a
listing of all bonus, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock
purchase, restricted stock and stock option plans; all employment and severance
contracts; all medical, dental, health, and life insurance plans; all vacation,
sickness, disability and death benefit plans; and all other employee benefit
plans, contracts, or arrangements maintained or contributed to by Seaboard or
the Subsidiary for the benefit of any employees, former employees, directors,
former directors or any of their beneficiaries (collectively, the "Plans"). True
and complete copies of all Plans, including, but not limited to, any trust
instruments and/or insurance contracts, if any, forming a part thereof, and all
amendments thereto, previously have been supplied to UCB. Except as Previously
Disclosed to UCB, neither Seaboard nor the Subsidiary maintains, sponsors,
contributes to or otherwise participates in any "Employee Benefit Plan" within
the meaning of (Section Mark)3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), any "Multiemployer Plan" within the meaning of
(Section Mark)3(37) of ERISA, or any "Multiple Employer Welfare Arrangement"
within the meaning of (Section Mark)3(40) of ERISA. Each Plan which is an
"employee pension benefit plan" within the meaning of (Section Mark)3(2) of
ERISA and which is intended to be qualified under (Section Mark)401(a) of the
Internal Revenue Code of 1986, as amended (the "Code") has received a favorable
determination letter from the Internal Revenue Service, and neither Seaboard nor
the Subsidiary is aware of any circumstances reasonably likely to result in the
revocation or
A-20
denial of any such favorable determination letter. All reports and returns with
respect to the Plans (and any Plans previously maintained by Seaboard or the
Subsidiary) required to be filed with any governmental department, agency,
service or other authority, including without limitation Internal Revenue
Service Form 5500 (Annual Report), have been properly and timely filed.
(iii) All "Employee Benefit Plans" maintained by or
otherwise covering employees or former employees of Seaboard or the Subsidiary,
to the extent subject to ERISA, currently are, and at all times have been, in
compliance with all material provisions and requirements of ERISA. There is no
pending or threatened litigation relating to any Plan or any such Plan
previously maintained by Seaboard or the Subsidiary. Neither Seaboard nor the
Subsidiary has engaged in a transaction with respect to any Plan that could
subject Seaboard or the Subsidiary to a tax or penalty imposed by either
(Section Mark)4975 of the Code, or (Section Mark)502(i) of ERISA.
(iv) Seaboard has delivered to UCB a true, correct
and complete copy (including copies of all amendments thereto) of the Seaboard
Federal Savings Bank Profit Sharing Plan (the "Profit Sharing Plan"), together
with true, correct and complete copies of the summary plan description relating
to the Profit Sharing Plan, the most recent determination letter received from
the Internal Revenue Service (the "IRS") regarding the Profit Sharing Plan, and
the most recent Annual Report (Form 5500 series) and related schedules, if any,
for the Profit Sharing Plan.
The Profit Sharing Plan is qualified under the
provisions of (Section Mark) 401(a) of the Code, the trust under the Profit
Sharing Plan is an exempt trust under (Section Mark) 501(a) of the Code, and
Seaboard has received a determination letter with respect to the Profit Sharing
Plan to said effect, including a determination letter covering the current terms
and provisions of the Profit Sharing Plan. There are no issues relating to said
qualification or exemption of the Profit Sharing Plan currently pending before
the IRS, the United States Department of Labor, the Pension Benefit Guaranty
Corporation or any court. The Profit Sharing Plan and the administration thereof
meet (and have met since the establishment of the Profit Sharing Plan) all of
the applicable requirements of ERISA, the Code and all other laws, rules and
regulations applicable to the Profit Sharing Plan and do not violate (and since
the establishment of the Profit Sharing Plan have not violated) any of the
applicable provisions of ERISA, the Code and such other laws, rules and
regulations. Without limiting the generality of the foregoing, all reports and
returns with respect to the Profit Sharing Plan required to be filed with any
governmental department, agency, service or other authority have been properly
and timely filed. There are no issues or disputes with respect to the Profit
Sharing Plan or the administration thereof currently existing between Seaboard,
or any trustee or other fiduciary thereunder, and any governmental agency, any
current or former employee of Seaboard or beneficiary of any such employee or
any other person or entity. No "reportable event" within the meaning of Section
4043(b) of
A-21
ERISA has occurred at any time with respect to the Profit Sharing Plan.
(v) No liability under subtitle C or D of Title IV of ERISA has been or is
expected to be incurred by Seaboard or the Subsidiary with respect to the Profit
Sharing Plan or with respect to any other ongoing, frozen or terminated defined
benefit pension plan currently or formerly maintained by Seaboard. Neither
Seaboard nor the Subsidiary presently contributes to a "Multiemployer Plan" or
has contributed to such a plan within the five calendar years since December 31,
1990. All contributions required to be made the terms of each of the Plans
(including without limitation the Plan and any other "pension plan" (as defined
in (Section Mark) 3(2) of ERISA) maintained by Seaboard or the Subsidiary) have
been timely made. Neither the Profit Sharing Plan nor any other "Pension Plan"
maintained by Seaboard or the Subsidiary has an "accumulated funding deficiency"
(whether or not waived) within the meaning of (Section Mark) 412 of the Code or
(Section Mark)302 of ERISA. Neither Seaboard nor the Subsidiary has provided, or
is required to provide, security to any "Pension Plan" or to any "Single
Employer Plan pursuant to (Section Mark) 401(a)(29) of the Code. Under the
Profit Sharing Plan and any other "Pension Plan" maintained by Seaboard or the
Subsidiary, as of the last day of the most recent plan year ended prior to the
date hereof, the actuarially determined present value of all "benefit
liabilities," within the meaning of (Section Mark) 4001(a)(16) of ERISA (as
determined on the basis of the actuarial assumptions contained in the plan's
most recent actuarial valuation) did not exceed the then current value of the
assets of such plan, and there has been no material change in the financial
condition of any such plan since the last day of the most recent plan year.
(vi) There are no restrictions on the rights of Seaboard to
amend or terminate any Plan without incurring any liability thereunder. Neither
the execution and delivery of this agreement nor the consummation of the
transactions contemplated hereby will (except as otherwise specifically provided
herein) (A) result in any payment to any person (including without limitation
any severance compensation or payment, unemployment compensation, "golden
parachute" or "change in control" payment, or otherwise) becoming due under any
plan or agreement to any director, officer, employee or consultant, (B) increase
any benefits otherwise payable under any plan or agreement, or (C) result in any
acceleration of the time of payment or vesting of any such benefit.
2.26. Insurance. Seaboard and the Subsidiary have in effect a
"banker's blanket bond" and such other policies of general liability, casualty,
directors and officers liability, employee fidelity, errors and omissions and
other property and liability insurance as have been Previously Disclosed to UCB
(the "Policies"). The Policies provide coverage in such amounts and against such
liabilities, casualties, losses or risks as is customary or reasonable for
entities engaged in Seaboard's and the Subsidiary's businesses or as is required
by applicable law or
A-22
regulation; and, in the reasonable opinion of management of Seaboard and the
Subsidiary, the insurance coverage provided under the Policies is considered
reasonable and adequate in all respects for Seaboard and the Subsidiary. Each of
the Policies is in full force and effect and is valid and enforceable in
accordance with its terms, and is underwritten by an insurer of recognized
financial responsibility and which is qualified to transact business in North
Carolina; and, Seaboard and the Subsidiary each has taken all requisite actions
(including the giving of required notices) under each such Policy in order to
preserve all rights thereunder with respect to all matters. Neither Seaboard nor
the Subsidiary is in default under the provisions of, has not received notice of
cancellation or nonrenewal of or any premium increase on, or has any knowledge
of any failure to pay any premium on or any inaccuracy in any application for
any Policy. There are no pending claims with respect to any Policy (and neither
Seaboard nor the Subsidiary is aware of any facts which would form the basis of
any such claim), and neither Seaboard nor the Subsidiary has any knowledge of
any state of facts or of the occurrence of any event that is reasonably likely
to form the basis for any such claim.
2.27. Insurance of Deposits. All deposits of Seaboard are
insured by the Savings Association Insurance Fund of the FDIC to the maximum
extent permitted by law, all deposit insurance premiums due from Seaboard to the
FDIC have been paid in full in a timely fashion, and, to the best of the
knowledge and belief of Seaboard's executive officers, no proceedings have been
commenced or are contemplated by the FDIC or otherwise to terminate such
insurance.
2.28. Affiliates. Seaboard has Previously Disclosed to UCB a
listing of those persons deemed by Seaboard and its counsel as of the date of
this Agreement to be "Affiliates" of Seaboard (as that term is defined in Rule
405 promulgated under the Securities Act of 1933), including persons, trusts,
estates, corporations or other entitles related to persons deemed to be
Affiliates of Seaboard.
2.29. Obstacles to Regulatory Approval, Accounting Treatment
or Tax Treatment. To the best of the knowledge and belief of management of
Seaboard and the Subsidiary, there exists no fact or condition (including
Seaboard's record of compliance with the Community Reinvestment Act) relating to
Seaboard or the Subsidiary that may reasonably be expected to (i) prevent or
materially impede or delay Bancshares, UCB or Seaboard from obtaining the
regulatory approvals required in order to consummate transactions described
herein, (ii) prevent the Merger from being treated as a "pooling of interests"
for accounting purposes, or (iii) prevent the Merger from qualifying to be a
tax-free reorganization under Section 368(a)(1)(A) of the Code; and, if any such
fact or condition becomes known to Seaboard, Seaboard shall promptly (and in any
event within three days after obtaining such knowledge) communicate such fact or
condition to the President of Bancshares.
A-23
2.30. Disclosure. To the best of the knowledge and belief of
Seaboard, no written statement, certificate, schedule, list or other written
information furnished by or on behalf of Seaboard or the Subsidiary at any time
to Bancshares or UCB in connection with this Agreement (including without
limitation information "Previously Disclosed" by Seaboard), when considered as a
whole, contains or will contain any untrue statement of a material fact or omits
or will omit to state a material fact necessary in order to make the statements
herein or therein, in light of the circumstances under which they were made, not
misleading. Each document delivered or to be delivered by Seaboard or the
Subsidiary to Bancshares or UCB is or will be a true and complete copy of such
document, unmodified except by another document delivered by Seaboard.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF UCB AND BANCSHARES
Except as otherwise specifically described herein or as "Previously
Disclosed" (as defined in Paragraph 10.01. below) to Seaboard, UCB and
Bancshares each hereby makes the following representations and warranties to
Seaboard.
3.01. Organization; Standing; Power. UCB and Bancshares each
(i) is duly organized and incorporated, validly existing and in good standing
(as a banking corporation and a business corporation, respectively) under the
laws of North Carolina, (ii) has all requisite power and authority (corporate
and other) to own its respective properties and conduct its respective
businesses as now being conducted, (iii) is duly qualified to do business and is
in good standing in each other jurisdiction in which the character of the
properties owned or leased by it therein or in which the transaction of its
respective businesses makes such qualification necessary, except where failure
so to qualify would not have a material adverse effect on Bancshares and its
subsidiaries considered as one enterprise, and (iv) is not transacting business,
or operating any properties owned or leased by it, in violation of any provision
of federal or state law or any rule or regulation promulgated thereunder, which
violation would have a material adverse effect on Bancshares and its
subsidiaries considered as one enterprise.
3.02. Capital Stock. Bancshares' authorized capital stock
consists of 40,000,000 shares of Bancshares Stock and 2,000,000 shares of no par
Preferred Stock. As of the date of this Agreement, an aggregate of 14,768,740
shares of Bancshares Stock were issued and outstanding, and no shares of
Preferred Stock were issued or outstanding. Bancshares' outstanding capital
stock has been duly authorized and validly issued, and is fully paid and
nonassessable, and the shares of Bancshares Stock issued to Seaboard's
shareholders pursuant to this Agreement, when issued as described herein, will
be duly authorized, validly issued, fully paid and nonassessable.
A-24
All outstanding shares of UCB's common stock ("UCB Stock")
have been validly issued and are owned by Bancshares.
3.03. Authorization and Validity of Agreement. Subject only to
approval of this Agreement by their respective Boards of Directors in the manner
required by law (as contemplated by Paragraph 7.01.c. below), (i) Bancshares and
UCB each has the corporate power and authority to execute and deliver this
Agreement and to perform its obligations and agreements and carry out the
transactions described herein, (ii) all corporate proceedings required to be
taken to authorize Bancshares and UCB to enter into this Agreement and to
perform its obligations and agreements and carry out the transactions described
herein have been duly and properly taken, and (iii) this Agreement constitutes
the valid and binding agreement of the Bancshares and UCB enforceable in
accordance with its terms (except to the extent enforceability may be limited by
(A) applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws from time to time in effect which affect creditors' rights generally, (B)
by legal and equitable limitations on the availability of injunctive relief,
specific performance and other equitable remedies, and (C) general principles of
equity and applicable laws or court decisions limiting the enforceability of
indemnification provisions).
3.04. Validity of Transactions; Absence of Required Consents
or Waivers. Except where the same would not have a material adverse effect on
Bancshares and its subsidiaries considered as one enterprise, neither the
execution and delivery of this Agreement, nor the consummation of the
transactions described herein, nor compliance by Bancshares or UCB with any of
its obligations or agreements contained herein, will: (i) conflict with or
result in a breach of the terms and conditions of, or constitute a default or
violation under any provision of, Bancshares' or UCB's Articles of Incorporation
or Bylaws, or any contract, agreement, lease, mortgage, note, bond, indenture,
license, or obligation or understanding (oral or written) to which Bancshares or
UCB is bound or by which it, its business, capital stock or any of its
properties or assets may be affected; (ii) result in the creation or imposition
of any lien, claim, interest, charge, restriction or encumbrance upon any of
Bancshares' or UCB's properties or assets; (iii) violate any applicable federal
or state statute, law, rule or regulation, or any order, writ, injunction or
decree of any court, administrative or regulatory agency or governmental body;
(iv) result in the acceleration of any obligation or indebtedness of Bancshares
or UCB; or, (v) interfere with or otherwise adversely affect Bancshares' or
UCB's ability to carry on its business as presently conducted.
No consents, approvals or waivers are required to be obtained
from any person or entity in connection with Bancshares' or UCB's execution and
delivery of this Agreement, or the performance of its obligations or agreements
or the consummation of the transactions described herein, except for the
approval of the respective Boards of Directors of Bancshares and UCB as
described
A-25
in Paragraph 7.01.c. below and required approvals of governmental
or regulatory authorities described in Paragraph 7.01.a. below.
3.05. Bancshares Reports. Since January 1, 1990, and where the
failure to file has had or could have a material and adverse effect on
Bancshares and its subsidiaries considered as one enterprise, Bancshares and its
consolidated subsidiaries have filed all reports, registrations and statements,
together with any amendments that were required to be made with respect thereto,
that were required to be filed with (i) the Securities and Exchange Commission
(the "SEC"), (ii) the Board of Governors of the Federal Reserve System (the
"FRB"), (iii) the FDIC, (iv) the North Carolina Commissioner of Banks (the
"Commissioner"), and (v) any other governmental or regulatory authorities having
jurisdiction over Bancshares or its subsidiaries. All such reports and
statements filed with the SEC, the FRB, the FDIC, the Commissioner or other such
regulatory authority are collectively referred to herein as the "Bancshares
Reports." As of their respective dates, the Bancshares Reports complied in all
material respects with all the statutes, rules and regulations enforced or
promulgated by the regulatory authority with which they were filed and did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading; and, Bancshares has not been notified that any such Bancshares
Reports were deficient in any material respect as to form or content. Following
the date of this Agreement, Bancshares shall deliver to Seaboard upon its
request a copy of any report, registration, statement or other regulatory filing
made by Bancshares or UCB with the SEC, the FRB, the FDIC, the Commissioner or
any other such regulatory authority.
3.06. Bancshares Financial Statements. Bancshares has
delivered to Seaboard (i) a copy of Bancshares' consolidated balance sheets as
of December 31, 1993 and December 31, 1994, and its consolidated statements of
income, changes in shareholders' equity, and cash flows for the years ended
December 31, 1992, December 31, 1993 and December 31, 1994 (the "Bancshares
Financial Statements"), and (ii) a copy of Bancshares' balance sheet as of June
30, 1995 and its statement of operations for the six months ended June 30, 1995
(the "Bancshares Interim Financial Statements"). The Bancshares Financial
Statements were prepared in accordance with GAAP applied on a consistent basis
throughout the periods indicated and have been audited and certified by
Bancshares' independent accountants, KPMG Peat Marwick LLP, and both the
Bancshares Financial Statements and the Bancshares Interim Financial Statements
present fairly Bancshares' consolidated financial condition, assets and
liabilities, results of operations, changes in stockholders' equity and changes
in cash flows as of the dates and for the periods specified therein.
3.07. Absence of Material Adverse Changes. Since
June 30, 1995, there has been no material adverse change, and there
has occurred no event or development and, to the best knowledge of
management of Bancshares or UCB, there currently exists no
A-26
condition or circumstance which, with the lapse of time or otherwise, may or
could cause, create or result in a material adverse change, in or affecting
Bancshares' consolidated financial condition or results of operations, or in its
prospects, business, assets, loan portfolio, investments, properties or
operations.
3.08. Litigation and Compliance with Law.
(i) There are no actions, suits, arbitrations, controversies
or other proceedings or investigations (or, to the best knowledge and belief of
management of Bancshares or UCB, any facts or circumstances which reasonably
could result in such), including without limitation any such action by any
governmental or regulatory authority, which currently exists or is ongoing,
pending or, to the best knowledge and belief of management of Bancshares or UCB,
threatened, contemplated or probable of assertion, against, relating to or
otherwise affecting Bancshares or UCB or any of their properties or assets
which, if determined adversely, could result in liability on the part of
Bancshares or UCB for, or subject it to, monetary damages, fines or penalties,
an injunction, or which could have a material adverse change, in or affecting
Bancshares' consolidated financial condition or results of operations, or in its
prospects, business, assets, loan portfolio, investments, properties or
operations or on the ability of Bancshares or UCB to consummate the Merger;
(ii) Bancshares and UCB each has all licenses,
permits, orders, authorizations or approvals ("Permits") of any federal, state,
local or foreign governmental or regulatory body that are material to or
necessary for the conduct of its business or to own, lease and operate its
properties; all such Permits are in full force and effect; no violations are or
have been recorded in respect of any such Permits; and no proceeding is pending
or, to the best knowledge of management of Bancshares or UCB, threatened or
probable of assertion to suspend, cancel, revoke or limit any Permit; and,
(iii) neither Bancshares nor UCB is subject to
any supervisory agreement, enforcement order, writ, injunction, capital
directive, supervisory directive, memorandum of understanding or other similar
agreement, order, directive, memorandum or consent of, with or issued by any
regulatory or other governmental authority (including without limitation the
FDIC, the FRB or the Commissioner) relating to its financial condition,
directors or officers, operations, capital, regulatory compliance or otherwise;
there are no judgments, orders, stipulations, injunctions, decrees or awards
against Bancshares or UCB which in any manner limit, restrict, regulate, enjoin
or prohibit any present or past business or practice of Bancshares or UCB; and,
neither Bancshares nor UCB has been advised or has any reason to believe that
any regulatory or other governmental authority or any court is contemplating,
threatening or requesting the issuance of any such agreement, order, injunction,
directive, memorandum, judgment, stipulation, decree or award
A-27
3.09. Absence of Brokerage or Finders Commissions. (i) All
negotiations relative to this Agreement and the transactions described herein
have been carried on by Bancshares and UCB directly with Seaboard; (ii) no
person or firm has been retained by or has acted on behalf of, pursuant to any
agreement, arrangement or understanding with, or under the authority of,
Bancshares or UCB or their respective Boards of Directors, as a broker, finder
or agent or has performed similar functions or otherwise is or may be entitled
to receive or claim a brokerage fee or other commission in connection with the
transactions described herein; and, (iii) neither Bancshares nor UCB has agreed
to pay any brokerage fee or other commission to any person or entity in
connection with the transactions described herein.
3.10. Obstacles to Regulatory Approval, Accounting Treatment
or Tax Treatment. To the best of the knowledge and belief of the executive
officers of Bancshares and UCB, no fact or condition (including UCB's record of
compliance with the Community Reinvestment Act) relating to Bancshares or UCB
exists that may reasonably be expected to (i) prevent or materially impede or
delay Bancshares, UCB or Seaboard from obtaining the regulatory approvals
required in order to consummate the transactions described herein, (ii) prevent
the Merger from being treated as a "pooling of interests" for accounting
purposes, or (iii) prevent the Merger from qualifying to be a tax-free
reorganization under Section 368(a)(1)(A) of the Code; and, if any such fact or
condition becomes known to the executive officers of Bancshares or UCB, it
promptly (and in any event within three days after obtaining such knowledge)
shall communicate such fact or condition to the President of Seaboard.
3.11. Disclosure. To the best of the knowledge and belief of
Bancshares and UCB, no written statement, certificate, schedule, list or other
written information furnished by or on behalf of Bancshares or UCB at any time
to Seaboard in connection with this Agreement (including without limitation
information "Previously Disclosed" by Bancshares and UCB), when considered as a
whole, contains or will contain any untrue statement of a material fact or omits
or will omit to state a material fact necessary in order to make the statements
herein or therein, in light of the circumstances under which they were made, not
misleading. Each document delivered or to be delivered by Bancshares or UCB to
Seaboard is or will be a true and complete copy of such document, unmodified
except by another document delivered by Bancshares or UCB.
ARTICLE IV. COVENANTS OF SEABOARD
4.01. Affirmative Covenants of Seaboard. Seaboard hereby
covenants and agrees as follows with Bancshares and UCB.
a. "Affiliates" of Seaboard. Seaboard will use its
best efforts to cause each person who shall be deemed by Bancshares
or its counsel, in their sole discretion, to be an Affiliate of
A-28
Seaboard (as defined in Paragraph 2.28 above), to execute and deliver to
Bancshares prior to the Closing a written agreement (the "Affiliates'
Agreement") relating to restrictions on shares of Bancshares Stock to be
received by such Affiliates pursuant to this Agreement and which Affiliates'
Agreement shall be in form and content reasonably satisfactory to Bancshares and
substantially in the form attached as Schedule B to this Agreement. Certificates
for the shares of Bancshares Stock issued to Affiliates of Seaboard shall bear a
restrictive legend (substantially in the form as shall be set forth in the
Affiliates' Agreement) with respect to the restrictions applicable to such
shares.
b. Conduct of Business Prior to Effective Time. While
the parties recognize that the operation of Seaboard and the
Subsidiary until the Effective Time is the responsibility of
Seaboard and the Subsidiary and their respective Boards of
Directors and officers, Seaboard agrees that, between the date of
this Agreement and the Effective Time, Seaboard will carry on its
business, and it will cause the Subsidiary to carry on its
business, in and only in the regular and usual course in
substantially the same manner as such business heretofore was
conducted, and, to the extent consistent with such business and
within its ability to do so, Seaboard agrees that it will:
(i) preserve intact its present business
organization, keep available its present officers and employees, and preserve
its relationships with customers, depositors, creditors, correspondents,
suppliers, and others having business relationships with it;
(ii) maintain all its properties and equipment in
customary repair, order and condition, ordinary wear and tear
excepted;
(iii) maintain its books of account and records in
the usual, regular and ordinary manner in accordance with sound
business practices applied on a consistent basis;
(iv) comply with all laws, rules and regulations
applicable to it, its properties and to the conduct of its
business;
(v) continue to maintain in force insurance such as
is described in Paragraph 2.26. above; will not modify any bonds or policies of
insurance in effect as of the date hereof unless the same, as modified, provides
substantially equivalent coverage; and, will not cancel, allow to be terminated
or, to the extent available, fail to renew, any such bond or policy of insurance
unless the same is replaced with a bond or policy providing substantially
equivalent coverage; and,
(vi) promptly provide to Bancshares and UCB such
information about Seaboard and the Subsidiary and their financial
condition, results of operations, prospects, businesses, assets,
A-29
loan portfolio, investments, properties or operations, as they
reasonably shall request.
c. Periodic Information Regarding Loans. All new
extensions of credit in excess of $250,000 will be submitted by
Seaboard to UCB on an after-the-fact basis for UCB's review within
10 business days of the date of the extension of credit.
Additionally, Seaboard agrees to make available and provide
to Bancshares and UCB the following information with respect to Seaboard's loans
and other extensions of credit (such assets herein referred to as "Loans") as of
August 31, 1995 and each month thereafter until the Effective Time, such
information for each month to be in form and substance as is usual and customary
in the conduct of Seaboard's business and to be furnished within twenty (20)
days of the end of each month ending after the date hereof:
(i) a list of Loans past due for sixty (60) days
or more as to principal or interest;
(ii) an analysis of the Loan Loss Reserve and
management's assessment of the adequacy
of the Loan Loss Reserve, which analysis
and assessment shall include a list of
all classified or "watch list" Loans,
along with the outstanding balance and
amount specifically allocated to the Loan
Loss Reserve for each such classified or
"watch list" Loan;
(iii) a list of Loans in nonaccrual status;
(iv) a list of all Loans over $50,000 without
principal reduction for a period of longer
than one year;
(v) a list of all foreclosed real property or
other real estate owned and all repossessed
personal property;
(vi) a list of reworked or restructured Loans
over $50,000 and still outstanding,
including original terms, restructured terms
and status; and
(vii) a list of any actual or threatened
litigation by or against Seaboard pertaining
to any Loans or credits, which list shall
contain a description of circumstances
surrounding such litigation, its present
status and management's evaluation of such
litigation.
d. Notice of Certain Changes or Events. Following the
execution of this Agreement and up to the Effective Time, Seaboard
A-30
promptly will notify UCB in writing of and provide to it such information as it
shall request regarding (i) any material adverse change in its or the
Subsidiary's financial condition, results of operations, prospects, business,
assets, loan portfolio, investments, properties or operations, or of the actual
or prospective occurrence of any condition or event which, with the lapse of
time or otherwise, may or could cause, create or result in any such material
adverse change, or of (ii) the actual or prospective existence or occurrence of
any condition or event which, with the lapse of time or otherwise, has caused or
may or could cause any statement, representation or warranty of Seaboard herein,
or the Bank Disclosure Statement, to be or become inaccurate, misleading or
incomplete, or which has resulted or may or could cause, create or result in the
breach or violation of any of Seaboard's covenants or agreements contained
herein or in the failure of any of the conditions described in Paragraphs 7.01.
or 7.03. below.
e. Accruals for Loan Loss Reserve and Expenses. Seaboard will
cooperate with Bancshares and UCB and make such appropriate accounting entries
in its books and records and take such other actions as UCB shall, in its sole
discretion, deem to be necessary or desirable in anticipation of the Merger,
including without limitation additional provisions to Seaboard's Loan Loss
Reserve or accruals or the creation of reserves for employee benefit and
Merger-related expenses.
f. Consents to Assignment of Leases. Seaboard will use its
best efforts to obtain all required consents of its landlords to the assignment
to UCB of Seaboard's rights and obligations under the Real Property Leases, each
of which consents shall be in such form as shall be specified by UCB.
g. Further Action; Instruments of Transfer, etc. Seaboard
covenants and agrees with Bancshares and UCB that it (i) will use its best
efforts in good faith to take or cause to be taken all action required of it
hereunder as promptly as practicable so as to permit the consummation of the
transactions described herein at the earliest possible date, (ii) shall perform
all acts and execute and deliver to Bancshares and UCB all documents or
instruments required herein or as otherwise shall be reasonably necessary or
useful to or requested by either of them in consummating such transactions, and,
(iii) will cooperate with Bancshares and UCB in every way in carrying out, and
will pursue diligently the expeditious completion of, such transactions.
4.02. Negative Covenants of Seaboard. Seaboard hereby
covenants and agrees that, between the date hereof and the
Effective Time, Seaboard will not do any of the following things or
take any of the following actions without the prior written consent
and authorization of the President of Bancshares.
a. Amendments to Articles of Incorporation or Bylaws.
Neither Seaboard nor the Subsidiary will amend its Articles of
Incorporation or Bylaws.
A-31
b. Change in Capital Stock. Neither Seaboard nor the
Subsidiary will (i) make any change in its authorized capital stock, or create
any other or additional authorized capital stock or other securities, or (ii)
issue, sell, purchase, redeem, retire, reclassify, combine or split any shares
of its capital stock or other securities, other than the issuance of shares upon
the exercise of stock options which are outstanding as of the date of this
Agreement (including securities convertible into capital stock), or enter into
any agreement or understanding with respect to any such action.
c. Options, Warrants and Rights. Neither Seaboard nor the
Subsidiary will grant or issue any options, warrants, calls, puts or other
rights of any kind relating to the purchase, redemption or conversion of shares
of its capital stock or any other securities (including securities convertible
into capital stock) or enter into any agreement or understanding with respect to
any such action.
d. Dividends. Seaboard will not declare or pay any dividends
or make any other distributions on or in respect of any shares of its capital
stock or otherwise to its shareholders. However, to the extent permitted by
applicable law and regulations, during October 1995 Seaboard may pay its
customary third quarter cash dividend of $.10 per share on its outstanding
shares of Seaboard Stock. If the Merger is not consummated prior to the January
1996 record date for Bancshares' regular fourth quarter cash dividend, then,
prior to the Effective Time, Seaboard shall be permitted to declare and pay a
cash dividend of $.10 per share on the outstanding shares of Seaboard Stock. If
the Merger is not consummated prior to the April 1996 record date for
Bancshares' regular first quarter cash dividend, then, prior to the Effective
Time, Seaboard shall be permitted to declare and pay a cash dividend of $.10 per
share on the outstanding shares of Seaboard Stock.
e. Employment, Benefit or Retirement Agreements or Plans.
Except as required by law, neither Seaboard nor the Subsidiary will (i) enter
into or become bound by any contract, agreement or commitment for the employment
or compensation of any officer, employee or consultant which is not immediately
terminable by Seaboard or the Subsidiary without cost or other liability on no
more than thirty (30) days notice; (ii) adopt, enter into or become bound by any
new or additional profit-sharing, bonus, incentive, change in control or "golden
parachute", stock option, stock purchase, pension, retirement, insurance
(hospitalization, life or other) or similar contract, agreement, commitment,
understanding, plan or arrangement (whether formal or informal) with respect to
or which provides for benefits for any of its current or former directors,
officers, employees or consultants; (iii) enter into or become bound by any
contract with or commitment to any labor or trade union or association or any
collective bargaining group.
f. Increase in Compensation; Additional Compensation.
Except as otherwise provided herein, neither Seaboard nor the
A-32
Subsidiary will increase the compensation or benefits of, or pay any bonus or
other special or additional compensation to, any of its directors, officers,
employees or consultants. Notwithstanding anything contained herein to the
contrary, this Paragraph 4.02.f. shall not prohibit annual merit increases in
the salaries of its employees or other payments made to employees or directors
in connection with existing compensation or benefit plans so long as such
increases or payments are effected at such times and in such manner and amounts
as shall be consistent with Seaboard's past compensation policies and practices
and, in the case of payments made pursuant to compensation or benefit plans,
consistent with the terms of those plans.
g. Accounting Practices. Neither Seaboard nor the
Subsidiary will make any changes in its accounting methods,
practices or procedures or in depreciation or amortization
policies, schedules or rates heretofore applied (except as required
by generally accepted accounting principles or governmental
regulations).
h. Acquisitions; Additional Branch Offices. Neither Seaboard
nor the Subsidiary will directly or indirectly (i) acquire or merge with, or
acquire any branch or all or any significant part of the assets of, any other
person or entity, (ii) open any new branch office, or (iii) enter into or become
bound by any contract, agreement, commitment or letter of intent relating to, or
otherwise take or agree to take any action in furtherance of, any such
transaction or the opening of a new branch office.
i. Changes in Business Practices. Except as may be
required by the FDIC, the Administrator any other governmental or
other regulatory agency or as shall be required by applicable law,
regulation or this Agreement, neither Seaboard nor the Subsidiary
will (i) change in any material respect the nature of its business
or the manner in which it conducts its business, (ii) discontinue
any material portion or line of its business, or (iii) change in
any material respect its lending, investment, asset-liability
management or other material banking or business policies (except
to the extent required by Paragraph 4.01.b. above).
j. Exclusive Merger Agreement. Neither Seaboard nor the
Subsidiary will, directly or indirectly, through any person (i) encourage,
solicit or attempt to initiate or procure discussions, negotiations or offers
with or from any person or entity (other than Bancshares or UCB) relating to a
merger or other acquisition of Seaboard or the Subsidiary, or the purchase or
acquisition of any Seaboard Stock or Subsidiary Stock, any branch office of
Seaboard or all or any significant part of Seaboard's or the Subsidiary's
assets; or provide assistance to any person in connection with any such offer;
(ii) disclose to any person or entity any information not customarily disclosed
to the public concerning Seaboard or the Subsidiary or their business, or afford
to any other person or entity access to its properties, facilities, books or
records; (iii) sell or transfer any branch office of Seaboard or all or any
significant part of its or the Subsidiary's
A-33
assets to any other person or entity, or (iv) enter into or become bound by any
contract, agreement, commitment or letter of intent relating to, or otherwise
take or agree to take any action in furtherance of, any such transaction.
k. Acquisition or Disposition of Assets. Neither
Seaboard nor the Subsidiary will:
(i) sell or lease (as lessor), or enter into or
become bound by any contract, agreement, option or commitment relating to the
sale, lease (as lessor) or other disposition of any real estate; or sell or
lease (as lessor), or enter into or become bound by any contract, agreement,
option or commitment relating to the sale, lease (as lessor) or other
disposition of any equipment or any other fixed or capital asset (other than
real estate) having a value on Seaboard's or the Subsidiary's books or a fair
market value, whichever is greater, of more than $10,000 for any individual item
or asset, or more than $25,000 in the aggregate for all such items or assets;
(ii) purchase or lease (as lessee), or enter into
or become bound by any contract, agreement, option or commitment relating to the
purchase, lease (as lessee) or other acquisition of any real property; or
purchase or lease (as lessee), or enter into or become bound by any contract,
agreement, option or commitment relating to the purchase, lease (as lessee) or
other acquisition of any equipment or any other fixed assets (other than real
estate) having a purchase price, or involving aggregate lease payments, in
excess of $10,000 for any individual item or asset, or more than $25,000 in the
aggregate for all such items or assets;
(iii) enter into any purchase commitment for
supplies or services which calls for prices of goods or fees for services
materially higher than current market prices or fees or which obligates Seaboard
or the Subsidiary for a period longer than 12 months;
(iv) sell, purchase or repurchase, or enter into
or become bound by any contract, agreement, option or commitment to sell,
purchase or repurchase, any loan or other receivable or any participation in any
loan or other receivable (with the exception of residential mortgage loans sold
in the ordinary course of Seaboard's business); or
(v) sell or dispose of, or enter into or become
bound by any contract, agreement, option or commitment relating to the sale or
other disposition of, any other asset of Seaboard or the Subsidiary (whether
tangible or intangible, and including without limitation any trade name,
copyright, service mark or intellectual property right or license); or assign
its right to or otherwise give any other person its permission or consent to use
or do business under Seaboard's or the Subsidiary's corporate name or any name
similar thereto; or release, transfer or waive any license or right granted to
it by any other person to use any trademark, trade name, copyright or
intellectual property right.
A-34
l. Debt; Liabilities. Except in the ordinary course of its
business consistent with its past practices (including routine borrowings for
liquidity purposes from the Federal Home Loan Bank of Atlanta), neither Seaboard
nor the Subsidiary will (i) enter into or become bound by any promissory note,
loan agreement or other agreement or arrangement pertaining to its borrowing of
money, (ii) assume, guarantee, endorse or otherwise become responsible or liable
for any obligation of any other person or entity, or (iii) incur any other
liability or obligation (absolute or contingent).
m. Liens; Encumbrances. Neither Seaboard nor the Subsidiary
will mortgage, pledge or subject any of its assets to, or permit any of its
assets to become or (except as Previously Disclosed) remain subject to, any lien
or any other encumbrance (other than in the ordinary course of business
consistent with its past practices in connection with securing of public funds
deposits, repurchase agreements or other similar operating matters).
n. Waiver of Rights. Neither Seaboard nor the Subsidiary will
waive, release or compromise any material rights in its favor (except in the
ordinary course of business) except in good faith for fair value in money or
money's worth, nor waive, release or compromise any rights against or with
respect to any of its officers, directors or shareholders or members of families
of officers, directors or shareholders.
o. Other Contracts. Neither Seaboard nor the Subsidiary will
enter into or become bound by any contracts, agreements, commitments or
understandings (other than those described elsewhere in this Paragraph 4.02.)
(i) for or with respect to any charitable contributions; (ii) with any
governmental or regulatory agency or authority; (iii) pursuant to which Seaboard
or the Subsidiary would assume, guarantee, endorse or otherwise become liable
for the debt, liability or obligation of any other person; (iv) which is entered
into other than in the ordinary course of its business; or (v) which, in the
case of any one contract, agreement, commitment or understanding and whether or
not in the ordinary course of its business, would obligate or commit Seaboard or
the Subsidiary to make expenditures of more than $10,000 (other than contracts,
agreements, commitments or understandings entered into in the ordinary course of
Seaboard's lending operations).
ARTICLE V. COVENANTS OF UCB AND BANCSHARES
UCB and Bancshares each hereby covenants and agrees as follows with
Seaboard.
5.01. Ratification of Agreement by Boards of
Directors. Bancshares and UCB each will submit this Agreement to
their respective Boards of Directors for ratification and approval
A-35
at their next regularly scheduled meetings following the date
hereof.
5.02. Local Advisory Board. Each of the members of Seaboard's
Board of Directors at the Effective Time (other than directors who also are
employees of Seaboard or who do not desire to serve as such) shall be appointed
to serve at UCB's pleasure as members of a local advisory board for one of UCB's
branch offices in Seaboard's former geographic market. Each former Seaboard
director who serves as an advisory board member for UCB for a period of one year
following the Effective Time (and who during that period discharges his duties
in that capacity and promotes in good faith UCB's best interests) will be paid
fees for such service (payable at the end of the one-year period) in the same
amount as that person was paid by Seaboard for service as a director of Seaboard
for 1995. Following the one-year transition period, each such director who
continues to serve as an advisory direct will receive fees for such service in
accordance with UCB's then current schedule of advisory board fees. Each such
director's service as an advisory director will be at UCB's pleasure and will be
subject to UCB's normal policies and procedures regarding the appointment and
service of advisory directors, including retirement policies. However, for a
period of one year following the Effective Time, UCB's normal policy of
retirement at age 70 will be waived.
5.03. Nasdaq Notification of Listing of Additional Shares of
Bancshares Stock. On or before the fifteenth day prior to the Effective Time,
Bancshares shall file with Nasdaq such notifications and other materials (and
shall pay such fees) as shall be required for the listing on the Nasdaq National
Market of the shares of Bancshares Stock to be issued to Seaboard's shareholders
at the Effective Time.
ARTICLE VI. MUTUAL AGREEMENTS
6.01. Shareholders' Meeting; Registration Statement; Proxy
Statement/Prospectus.
a. Meeting of Shareholders. Seaboard shall cause a meeting of
its shareholders (the "Shareholder Meeting", which may be a regular annual
meeting or a specially called meeting) to be held as soon as reasonably possible
(but in no event less than 20 days following the mailing to Seaboard's
shareholders of the "Proxy Statement/Prospectus" described below or, without
UCB's approval, later than March 31, 1996) for the purpose of Seaboard's
shareholders voting on the approval of the Agreement and the Merger. In
connection with the call and conduct of and all other matters relating to the
Shareholder Meeting (including the solicitation of proxies), Seaboard shall
fully comply with all provisions of applicable law and regulations and with
Seaboard's Articles of Incorporation and By-laws.
A-36
b. Preparation and Distribution of Proxy Statement/Prospectus.
Bancshares and Seaboard jointly will prepare a "Proxy Statement/Prospectus" for
distribution to Seaboard's shareholders as Seaboard's proxy statement relating
to Seaboard's solicitation of proxies for use at the Shareholder Meeting and as
Bancshares' prospectus relating to the offer and distribution of Bancshares
Stock as described herein. The Proxy Statement/ Prospectus shall be in such form
and shall contain or be accompanied by such information regarding the
Shareholder Meeting, this Agreement, the parties hereto, the Merger and other
transactions described herein as is required by applicable law and regulations
and otherwise as shall be agreed upon by Bancshares and Seaboard. Bancshares
shall include the Proxy Statement/Prospectus as the prospectus in its
"Registration Statement" described below; and, each party hereto will cooperate
with the other in good faith and will use their best efforts to cause the Proxy
Statement/Prospectus to comply with any comments of the SEC thereon.
Bancshares and Seaboard will mail the Proxy
Statement/Prospectus to Seaboard's shareholders not less than 20 days prior to
the scheduled date of the Shareholder Meeting; provided, however, that no such
materials shall be mailed to Seaboard's shareholders unless and until Bancshares
shall have determined to its own satisfaction that the conditions specified in
Paragraph 7.03.d. below have been satisfied and shall have approved such
mailing.
c. Registration Statement and "Blue Sky" Approvals. As
soon as practicable following the execution of this Agreement,
Bancshares will prepare and file with the SEC a registration
statement on Form S-4 (or on such other form as Bancshares shall
determine to be appropriate) (the "Registration Statement")
covering the Bancshares Stock to be issued to shareholders of
Seaboard pursuant to this Agreement. Additionally, Bancshares
shall take all such other actions, if any, as shall be required by
applicable state securities or "blue sky" laws (i) to cause the
Bancshares Stock to be issued upon consummation of the Merger, at
the time of the issuance thereof, to be duly qualified or
registered (unless exempt) under such laws, (ii) to cause all
conditions to any exemptions from qualification or registration
under such laws to have been satisfied, and (iii) to obtain any and
all required approvals or consents to the issuance of such stock.
d. Recommendation of Seaboard's Board of Directors. Unless,
due to a material change in circumstances or for any other reason Seaboard's
Board of Directors reasonably believes that such a recommendation would violate
the directors' duties or obligations as such to Seaboard or to its shareholders,
Seaboard's Board of Directors will recommend to and actively encourage
Seaboard's shareholders that they vote their shares of Seaboard Stock at the
Shareholder Meeting to ratify and approve this Agreement and the Merger, and the
Proxy Statement/Prospectus mailed to Seaboard's shareholders will so indicate
and state that Seaboard's Board of
A-37
Directors considers the Merger to be advisable and in the best interests of
Seaboard and its shareholders.
e. Information for Proxy Statement/Prospectus and Registration
Statement. Bancshares, UCB and Seaboard each agrees to respond promptly, and to
use its best efforts to cause its directors, officers, accountants and
affiliates to respond promptly, to requests by any other such party and its
counsel for information for inclusion in the various applications for regulatory
approvals and in the Proxy Statement/Prospectus. Bancshares, UCB and Seaboard
each hereby covenants with the others that none of the information provided by
it for inclusion in the Proxy Statement/Prospectus will, at the time of its
mailing to Seaboard's shareholders, contain any untrue statement of a material
fact or omit any material fact required to be stated therein or necessary in
order to make the statements contained therein, in light of the circumstances
under which they were made, not false or misleading; and, at all times following
such mailing up to and including the Effective Time, none of such information
contained in the Proxy Statement/Prospectus, as it may be amended or
supplemented, will contain an untrue statement of a material fact or omit any
material fact required to be stated therein or necessary in order to make the
statements contained therein, in light of the circumstances under which they
were made, not false or misleading.
6.02. Regulatory Approvals. Promptly following the date of this
Agreement, UCB, Bancshares and Seaboard each shall use their respective best
efforts in good faith to (i) prepare and file, or cause to be prepared and
filed, all applications for regulatory approvals and actions as may be required
of them, respectively, by applicable law and regulations with respect to the
transactions described herein (including applications to the FDIC, the
Commissioner and the North Carolina State Banking Commission, the Administrator,
and to any other applicable federal or state banking, securities or other
regulatory authority), and (ii) obtain all necessary regulatory approvals
required for consummation of the transactions described herein. Each such party
shall cooperate with each other party in the preparation of all applications to
regulatory authorities and, upon request, promptly shall furnish all documents,
information, financial statements or other material that may be required by any
other party to complete any such application; and, before the filing therefore,
each party to this Agreement shall have the right to review and comment on the
form and content of any such application to be filed by any other party. Should
the appearance of any of the officers, directors, employees or counsel of any of
the parties hereto be requested by any other party or by any governmental agency
at any hearing in connection with any such application, such party shall
promptly use its best efforts to arrange for such appearance.
6.03. Access. Following the date of this Agreement and to
and including the Effective Time, Seaboard shall provide Bancshares
and UCB and their employees, accountants and counsel, access to all
its books, records, files and other information (whether maintained
A-38
electronically or otherwise), to all its properties and facilities, and to all
its employees, accountants, counsel and consultants, for purposes of the conduct
of such reasonable investigation and review as they shall, in their sole
discretion, consider to be necessary or appropriate; provided, however, that any
such review conducted by Bancshares and UCB shall be performed in such a manner
as will not interfere unreasonably with Seaboard's normal operations, or with
Seaboard's relationship with its customers or employees, and shall be conducted
in accordance with procedures established by the parties having due regard for
the foregoing.
6.04. Costs. Subject to the provisions of Paragraph 8.03. below, and
whether or not this Agreement shall be terminated or the Merger shall be
consummated, Seaboard, Bancshares and UCB each shall pay its own legal,
accounting and financial advisory fees and all its other costs and expenses
incurred or to be incurred in connection with the execution and performance of
its obligations under this Agreement or otherwise in connection with this
Agreement and the transactions described herein (including without limitation
all accounting fees, legal fees, filing fees, printing costs, travel expenses,
and, in the case of Seaboard, all fees owed to The Meritas Group, Inc.
("Meritas") and the cost of Seaboard's "Fairness Opinion" described in Paragraph
7.01.d. below, and, in the case of Bancshares and UCB, the cost of the
"Environmental Survey" described in Paragraph 6.06. below). However, subject to
the provisions of Paragraph 8.03. below, all costs incurred in connection with
the printing and mailing of the Proxy Statement/Prospectus shall be deemed to be
incurred and shall be paid fifty percent (50%) by Seaboard and fifty percent
(50%) by Bancshares.
6.05. Announcements. Seaboard, Bancshares and UCB each agrees that no
person other than the parties to this Agreement is authorized to make any public
announcements or statements about this Agreement or any of the transactions
described herein, and that, without the prior review and consent of the others
(which consent shall not unreasonably be denied or delayed), no party hereto may
make any public announcement, statement or disclosure as to the terms and
conditions of this Agreement or the transactions described herein, except for
such disclosures as may be required incidental to obtaining the prior approval
of any regulatory agency or official to the consummation of the transactions
described herein. However, notwithstanding anything contained herein to the
contrary, prior review and consent shall not be required if in the good faith
opinion of counsel to Bancshares any such disclosure by Bancshares or UCB is
required by law or otherwise is prudent.
6.06. Environmental Studies. At its option UCB may cause to be
conducted Phase I environmental assessments of the Real Property, the real
estate subject to any Real Property Lease, or the Loan Collateral, or any
portion thereof, together with such other studies, testing and intrusive
sampling and analyses as Bancshares or UCB shall deem necessary or desirable
(collectively, the "Environmental Survey"). UCB shall attempt in good faith to
complete all such Phase I environmental assessments within sixty
A-39
(60) days following the date of this Agreement and thereafter to conduct and
complete any such additional studies, testing, sampling and analyses as promptly
as practicable. Subject to the provisions of Paragraph 8.03. below, the costs of
the Environmental Survey shall be paid by Bancshares and UCB. If (i) the final
results of any Environmental Survey (or any related analytical data) reflect
that there likely has been any discharge, disposal, release or emission by any
person of any Hazardous Substance on, from or relating to any of the Real
Property, real estate subject to a Real Property Lease or Loan Collateral at any
time prior to the Effective Time, or that any action has been taken or not
taken, or a condition or event likely has occurred or exists, with respect to
any of the Real Property, real estate subject to a Real Property Lease or Loan
Collateral which constitutes or would or may constitute a violation of any
Environmental Laws, and if, (ii) based on the advice of their legal counsel or
other consultants, Bancshares or UCB believes that Seaboard, the Subsidiary or
either of them could become responsible for the remediation of such discharge,
disposal, release or emission or for other corrective action with respect to any
such violation, or that Seaboard, the Subsidiary or either of them could become
liable for monetary damages (including without limitation any civil or criminal
penalties or assessments) resulting therefrom (or that, in the case of any of
the Loan Collateral, Seaboard could incur any such liability if it acquired
title to such Loan Collateral), and if, (iii) based on the advice of their legal
counsel or other consultants, Bancshares or UCB believes the amount of expenses
or liability which Seaboard, the Subsidiary or either of them could incur or for
which Seaboard, the Subsidiary or either of them could become responsible or
liable on account of any and all such remediation, corrective action or monetary
damages at any time or over any period of time could equal or exceed an
aggregate of $50,000, then Bancshares or UCB shall give Seaboard prompt written
notice thereof (together with all information in its possession relating
thereto) and, at Bancshares' or UCB's sole option and discretion, at any time
thereafter and up to the Effective Time, Bancshares or UCB may terminate this
Agreement without further obligation or liability to Seaboard or its
shareholders.
6.07. Employees; Severance Payments; Employee Benefits.
a. Employment Agreements. Provided they remain employed by
Seaboard at the Effective Time in their current positions, then (i) UCB shall
enter into an employment agreement with Samuel J. Styons as of the Effective
Time which shall contain substantially the same terms and conditions and be in
substantially the same form as is attached as Schedule C to this Agreement, and
(ii) UCB shall enter into an employment agreement with Donald A. Hall as of the
Effective Time which shall contain substantially the same terms and conditions
(including a two-year term of employment) and be in substantially the same form
as is attached as Schedule D to this Agreement.
b. Employment of Other Seaboard Employees. Provided
they remain employed by Seaboard at the Effective Time, UCB will
A-40
attempt in good faith, but shall have no obligation, to locate suitable
positions for and to offer employment (at an office of UCB located within a
reasonable commuting distance from their respective job locations at the
Effective Time) to, all other employees of Seaboard. Any employment so offered
by UCB to an employee of Seaboard shall be in such a position, at such location
within UCB's state-wide branch system, and for such rate of compensation as UCB
shall determine in its sole discretion. Each such person's employment with UCB
shall be on an "at-will" basis, and nothing in this Agreement shall be deemed to
constitute an employment agreement with any such person or to obligate UCB to
employ any such person for any specific period of time or in any specific
position or to restrict UCB's right to terminate the employment of any such
person at any time and for any reason satisfactory to it.
c. Severance Compensation. Seaboard will be permitted to pay
severance compensation to any employee of Seaboard at the Effective Time who is
not offered employment by UCB (other than any employee who is party to an
employment agreement with Seaboard). The amount of such compensation paid to any
employee shall not exceed the total of (i) one month's salary or normal wages
(at the person's then current salary or wage rate as an employee of Seaboard)
plus (ii) one week's salary or wages (at the person's then current salary or
wage rate as an employee of Seaboard) multiplied by a number (which in no event
shall be less than 3 or more than 26) equal to the person's number of complete
years of service as an employee of Seaboard. In the case of any employee of
Seaboard at the Effective Time who is offered employment by and becomes an
employee of UCB (a "New Employee"), UCB agrees that, if such New Employee's
employment is terminated by UCB within sixty (60) days following the Effective
Time without cause, then UCB will pay to such terminated New Employee severance
compensation in an amount equal to the amount of severance compensation such
person would have received from Seaboard as provided above if he or she had not
been offered employment with UCB, less one week's salary or wages (at the
person's last salary or wage rate as an employee of Seaboard) multiplied by a
number equal to the number of complete weeks following the Effective Time during
which the New Employee was employed by UCB. The determination of whether there
exists cause for UCB's termination of any New Employee's employment shall be
made by and solely within the discretion of UCB's Director of Human Resources.
In the case of Janet J. Jones, Gwen L. Edmondson and Barbara
S. Everett, in the event any such person who is employed by Seaboard at the
Effective Time is not offered employment by UCB, then Seaboard will be permitted
to pay severance compensation to such employee in an amount not to exceed the
total of twelve month's salary (at the person's then current salary rate as an
employee of Seaboard). In the case of any such person who becomes a New
Employee, UCB agrees that, if such New Employee's employment is terminated by
UCB within twelve months following the Effective Time without cause (determined
in the manner described above), then UCB will pay to such terminated New
Employee severance compensation
A-41
in an amount equal to the amount of severance compensation such person would
have received from Seaboard as provided above if he or she had not been offered
employment with UCB, less one week's salary or wages (at the person's last
salary or wage rate as an employee of Seaboard) multiplied by a number equal to
the number of complete weeks following the Effective Time during which the New
Employee was employed by UCB.
In addition, in the case of certain employees of Seaboard who
will not be offered employment with UCB following the Effective Time or who will
be offered employment with UCB but at salary or wage rates that are lower than
their rates as employees of Seaboard, UCB may specifically request in writing
that such employees remain employed by Seaboard until the Effective Time and, in
the case of each such employee who does remain so employed until the Effective
Time, then (whether or not such person becomes a New Employee) UCB will pay to
such employee as a bonus an amount equal to 10% of the employees' then current
annual salary or wage rate as an employee of Seaboard. No such bonus shall be
payable to any employee unless UCB shall have specifically requested in writing
that such employee remain until the Effective Time (and which written request
shall specifically refer to such bonus). Employees of Seaboard who receive such
a written request but who terminate their employment prior to the Effective Time
shall not be entitled to receive such bonus payment.
UCB shall attempt in good faith to determine which
of Seaboard's employees will and will not be offered employment with UCB
following the Effective Time and, within 75 days following the date of this
Agreement, to notify each of Seaboard's employees of its determination with
respect to that employee and to issue the written requests described above to
certain of Seaboard's employees. Notwithstanding anything contained herein to
the contrary, no payment of severance compensation shall be made to any person
who does not remain an employee of Seaboard at the Effective Time.
d. Employee Benefits. Except as otherwise provided herein, any
New Employee shall become entitled to receive all employee benefits and to
participate in all benefit plans provided by UCB on the same basis (including
costs) and subject to the same eligibility and vesting requirements, and to the
same conditions, restrictions and limitations, as generally are in effect and
applicable to other newly hired employees of UCB. However, each New Employee
shall be given credit for his or her full years of service with Seaboard for
purposes of (i) entitlement to vacation and sick leave, and (ii) eligibility for
participation and vesting in Bancshares' Section 401(k) savings plan and in its
defined benefit pension plan (the "Pension Plan"); provided however, that in no
event shall any New Employee be entitled to or be given credit for past service
with Seaboard for purposes of the calculation or determination of benefits under
the Pension Plan. Notwithstanding anything contained herein to the contrary, if
UCB shall believe in good faith that the granting of any such past service
credit would not be permissible under the terms and
A-42
requirements of ERISA, the Code, any governmental rules, regulations and
policies thereunder, or any other law or regulations applicable to the operation
of any such plan or program, or otherwise would expose any such plan or program
or UCB or Bancshares to any penalty, then UCB shall not be required to give any
New Employee any such credit for past service with Seaboard.
The number of days of vacation and sick leave, respectively,
which shall be available to any New Employee during 1996 as an employee of UCB
shall be reduced by the number of days of vacation or sick leave used by such
New Employee during 1996 prior to the Effective Time as an employee of Seaboard,
and, except as provided below, the New Employee shall not be entitled to any
credit with UCB for unused vacation leave, sick leave or other paid leave from
Seaboard for 1995 or years prior thereto.
e. Other Agreements. At the Effective Time, UCB will assume
Seaboard's obligations under that certain Supplemental Income Agreement dated
April 21, 1988, between Seaboard and Samuel J. Styons. Also, UCB hereby agrees
that, immediately prior to the Effective Time, Seaboard may transfer to Samuel
J. Styons title to the automobile then owned by Seaboard and being used by him
provided that the original cost of such automobile shall not have been
materially higher than the original cost of the automobile owned by the Bank and
being used by him as of the date of this Agreement.
6.08. Confidentiality. Bancshares, UCB and Seaboard each agrees that it
will treat as confidential and not disclose to any unauthorized person any
documents or other information obtained from or learned about the others during
the course of the negotiation of this Agreement and the carrying out of the
events and transactions described herein (including any information obtained
during the course of any due diligence investigation or review provided for
herein or otherwise) and which documents or other information relates in any way
to the business, operations, personnel, customers or financial condition of such
other parties; and, that it will not use any such documents or other information
for any purpose except for the purposes for which such documents and information
were provided to it and in furtherance of the transactions described herein.
However, the above obligations of confidentiality shall not prohibit the
disclosure of any such document or information by any party to this Agreement to
the extent (i) such document or information is then available generally to the
public or is already known to the person or entity to whom disclosure is
proposed to be made (other than through the previous actions of such party in
violation of this Paragraph 6.08), (ii) such document or information was
available to the disclosing party on a nonconfidential basis prior to the same
being obtained pursuant to this Agreement, (iii) disclosure is required by
subpoena or order of a court or regulatory authority of competent jurisdiction,
or by the SEC or regulatory authorities in connection with the transactions
described herein, or (iv) to the extent that,
A-43
in the reasonable opinion of legal counsel to such party, disclosure otherwise
is required by law.
In the event this Agreement is terminated for any reason, then
each of the parties hereto immediately shall return to the other parties all
copies of any and all documents or other written materials or information of or
relating to such other parties which were obtained from them during the course
of the negotiation of this Agreement and the carrying out of the events and
transactions described herein (whether during the course of any due diligence
investigation or review provided for herein or otherwise) and which documents or
other information relates in any way to the business, operations, personnel,
customers or financial condition of such other parties.
The parties' obligations of confidentiality under this
Paragraph 6.08 shall survive and remain in effect following any termination of
this Agreement
6.09. Tax-Free Reorganization. Bancshares, UCB and Seaboard each undertakes
and agrees to use its best efforts to cause the Merger to qualify as a tax-free
"reorganization" within the meaning of Section 368(a)(1)(A) of the Code, and
that it will not intentionally take any action that would cause the Merger to
fail to so qualify.
6.10. Accounting Treatment. Bancshares, UCB and Seaboard each
undertakes and agrees to use its best efforts to cause the Merger
to qualify to be treated as a pooling-of-interests for accounting
purposes and that it will not intentionally take any action that
would cause the Merger to fail to so qualify.
6.11. Directors' and Officers' Liability Insurance. Bancshares, UCB and
Seaboard agree that, to the extent the same can be purchased at a reasonable
cost, then immediately prior to the Closing Date Seaboard shall purchase "tail"
coverage under and in the same amount of coverage as is provided by its then
current directors' and officers' liability insurance policy, effective as of the
Effective Time.
ARTICLE VII. CONDITIONS PRECEDENT TO MERGER
7.01. Conditions to all Parties' Obligations. Notwithstanding any other
provision of this Agreement to the contrary, the obligations of each of the
parties to this Agreement to consummate the transactions described herein shall
be conditioned upon the satisfaction of each of the following conditions
precedent on or prior to the Closing Date.
a. Approval by Governmental or Regulatory Authorities;
No Disadvantageous Conditions. (i) The Merger and other
transactions described herein shall have been approved, to the
extent required by law, by the FDIC, the Commissioner and the North
Carolina State Banking Commission, the Administrator, and by all
A-44
other governmental or regulatory agencies or authorities having jurisdiction
over such transactions, (ii) no governmental or regulatory agency or authority
shall have withdrawn its approval of such transactions or imposed any condition
on such transactions or conditioned its approval thereof, which condition is
reasonably deemed by Bancshares or UCB to be materially disadvantageous or
burdensome or to impact so adversely the economic or business benefits of this
Agreement to Bancshares and UCB as to render it inadvisable for them to
consummate the Merger; (iii) all waiting periods required following necessary
approvals by governmental or regulatory agencies or authorities shall have
expired, and, in the case of the waiting period following approval by the FDIC,
no unwithdrawn objection to the Merger shall have been raised by the U.S.
Department of Justice; and (iv) all other consents, approvals and permissions,
and the satisfaction of all of the requirements prescribed by law or regulation,
necessary to the carrying out of the transactions contemplated herein shall have
been procured.
b. Adverse Proceedings, Injunction, Etc. There shall not be
(i) any order, decree or injunction of any court or agency of competent
jurisdiction which enjoins or prohibits the Merger or any of the other
transactions described herein or any of the parties hereto from consummating any
such transaction, (ii) any pending or threatened investigation of the Merger or
any of such other transactions by the U.S. Department of Justice, or any actual
or threatened litigation under federal antitrust laws relating to the Merger or
any other such transaction; or (iii) any suit, action or proceeding by any
person (including any governmental, administrative or regulatory agency),
pending or listed on the Nasdaq National Market as of the Effective Time.
h. Employment Agreement. The employment agreements
described in Paragraph 6.07. above shall have been executed by the
parties thereto.
7.02. Additional Conditions to Seaboard's Obligations. Notwithstanding
any other provision of this Agreement to the contrary, Seaboard's separate
obligation to consummate the transactions described herein shall be conditioned
upon the satisfaction of each of the following conditions precedent on or prior
to the Closing Date.
a. Material Adverse Change. There shall not have been any
material adverse change in the consolidated financial condition, results of
operations, prospects, businesses, assets, loan portfolio, investments,
properties or operations of Bancshares and its consolidated subsidiaries
considered as one enterprise, and there shall not have occurred any event or
development and there shall not exist any condition or circumstance which, with
the lapse of time or otherwise, may or could cause, create or result in any such
material adverse change.
b. Compliance with Laws. Bancshares and UCB shall have
complied in all material respects with all federal and state laws
and regulations applicable to the transactions described herein and
A-45
where the violation of or failure to comply with any such law or regulation
could or may have a material adverse effect on the consolidated financial
condition, results of operations, prospects, businesses, assets, loan portfolio,
investments, properties or operations of Bancshares and its consolidated
subsidiaries considered as one enterprise.
c. Bancshares' and UCB's Representations and Warranties and
Performance of Agreements; Officers' Certificate. Unless waived in writing by
Seaboard as provided in Paragraph 10.03. below, each of the respective
representations and warranties of Bancshares and UCB contained in this Agreement
shall have been true and correct as of the date hereof and shall remain true and
correct on and as of the Effective Time with the same force and effect as though
made on and as of such date, except (i) for changes which are not, in the
aggregate, material and adverse to the consolidated financial condition, results
of operations, prospects, businesses, assets, loan portfolio, investments,
properties or operations of Bancshares and its consolidated subsidiaries
considered as one enterprise, and (ii) as otherwise contemplated by this
Agreement; and Bancshares and UCB each shall have performed in all material
respects all its respective obligations, covenants and agreements hereunder to
be performed by it on or before the Closing Date.
Seaboard shall have received a certificate dated as
of the Closing Date and executed by Bancshares and UCB and their respective
Presidents and Chief Financial Officers to the foregoing effect.
d. Legal Opinion of Bancshares and UCB Counsel. Seaboard shall
have received from Howard V. Hudson, Esq., General Counsel of Bancshares and
UCB, a written opinion dated as of the Closing Date and substantially in the
form of Schedule E attached hereto or otherwise in form and substance reasonably
satisfactory to Seaboard.
e. Other Documents and Information from Bancshares and UCB.
Bancshares and UCB shall have provided to Seaboard correct and complete copies
of their respective Bylaws, Articles of Incorporation and board resolutions (all
certified by their respective Secretaries), together with certificates of the
incumbency of their respective officers and such other closing documents and
information as may be reasonably requested by Seaboard or its counsel.
f. Articles of Merger; Other Actions. Articles of
Merger in the form described in Paragraph 1.07. above shall have
been duly executed and delivered by UCB as provided in that
Paragraph.
g. Acceptance by Seaboard's Counsel. The form and
substance of all legal matters described herein or related to the
transactions contemplated herein shall be reasonably acceptable to
Seaboard's legal counsel.
A-46
7.03. Additional Conditions to Bancshares' and UCB's Obligations.
Notwithstanding any other provision of this Agreement to the contrary,
Bancshares' and UCB's separate obligations to consummate the transactions
described herein shall be conditioned upon the satisfaction of each of the
following conditions precedent on or prior to the Closing Date.
a. Material Adverse Change. There shall not have occurred any
material adverse change in the financial condition, results of operations,
prospects, businesses, assets, loan portfolio, investments, properties or
operations of Seaboard, and there shall not have occurred any event or
development and there shall not exist any condition or circumstance which, with
the lapse of time or otherwise, may or could cause, create or result in any such
material adverse change.
b. Compliance with Laws; Adverse Proceedings, Injunction, Etc.
Seaboard shall have complied in all material respects with all federal and state
laws and regulations applicable to the transactions described herein and where
the violation of or failure to comply with any such law or regulation could or
may have a material adverse effect on the financial condition, results of
operations, prospects, businesses, assets, loan portfolio, investments,
properties or operations of Seaboard.
c. Seaboard's Representations and Warranties and Performance
of Agreements; Officers' Certificate. Unless waived in writing by Bancshares or
UCB as provided in Paragraph 10.03. below, each of the representations and
warranties of Seaboard contained in this Agreement shall have been true and
correct as of the date hereof and shall remain true and correct on and as of the
Effective Time with the same force and effect as though made on and as of such
date, except (i) for changes which are not, in the aggregate, material and
adverse to the financial condition, results of operations, prospects,
businesses, assets, loan portfolio, investments, properties or operations of
Seaboard, and (ii) as otherwise contemplated by this Agreement; and Seaboard
shall have performed in all material respects all its obligations, covenants and
agreements hereunder to be performed by it on or before the Closing Date.
Bancshares and UCB shall have received a certificate
dated as of the Closing Date and executed by Seaboard and its President and
Chief Financial Officer to the foregoing effect and as to such other matters as
may be reasonably requested by Bancshares and UCB.
d. Effectiveness of Registration Statement; Compliance with
Securities and Other "Blue Sky" Requirements. The Registration Statement shall
be effective under the 1933 Act and no stop order suspending the effectiveness
of the Registration Statement shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC. Bancshares shall
have taken all such other actions, if any, as it shall consider to be required
by applicable state securities laws
A-47
(i) to cause the Bancshares Stock to be issued upon consummation of the Merger,
at the time of the issuance thereof, to be duly qualified or registered (unless
exempt) under such laws, (ii) to cause all conditions to any exemptions from
qualification or registration under such laws to have been satisfied, and (iii)
to obtain any and all required approvals or consents with respect to the
issuance of such stock, and any such required approvals or consents shall have
been obtained and shall remain in effect.
e. Agreements from Seaboard Affiliates. Bancshares
shall have received the written Affiliates' Agreements in form and
content satisfactory to Bancshares and signed by all persons who
are deemed by Bancshares or its counsel to be Affiliates of
Seaboard as provided in Paragraph 4.01.a. above.
f. Accounting Treatment. (i) Bancshares shall have received
assurances from KPMG Peat Marwick LLP, in form and content satisfactory to it,
to the effect that the Merger will qualify to be treated as a
"pooling-of-interests" for accounting purposes; (ii) if requested by Bancshares,
Seaboard's independent public accountants shall have delivered to Bancshares a
letter in form and content satisfactory to it to the effect that such
accountants are not aware of any facts or circumstances that might cause the
Merger not to qualify for such treatment; and (iii) it shall not have come to
the attention of management of Bancshares that any event has occurred or that
any condition or circumstance exists that makes it likely that the Merger may
not so qualify.
g. Legal Opinion of Seaboard Counsel. Bancshares and UCB shall
have received from Seaboard's special counsel, The Sanford Law Firm PLLC, a
written opinion, dated as of the Closing Date and substantially in the form of
Schedule F attached hereto or otherwise in form and substance reasonably
satisfactory to Bancshares and UCB.
h. Other Documents and Information from Seaboard. Seaboard
shall have provided to Bancshares and UCB correct and complete copies of
Seaboard's Articles of Incorporation, Bylaws and board and shareholder
resolutions (all certified by Seaboard's Secretary), together with certificates
of the incumbency of Seaboard's officers and such other closing documents and
information as may be reasonably requested by the Bancshares or UCB or its
counsel.
i. Consents to Assignment of Real Property Leases. Seaboard
shall have obtained all required consents to the assignment to UCB of its rights
and obligations under the Real Property Leases, and such consents shall be in
such form and substance as shall be satisfactory to Bancshares and UCB; and,
each of Seaboard's lessors shall have confirmed in writing that Seaboard is not
in default under the terms and conditions of the Real Property Lease between
such lessor and Seaboard.
j. Articles of Merger; Other Actions. Articles of
Merger in the form described in Paragraph 1.07. above shall have
A-48
been duly executed and delivered by Seaboard as provided in that
Paragraph.
k. Acceptance by the Bancshares' and UCB's Counsel. The form
and substance of all legal matters described herein or related to the
transactions contemplated herein shall be reasonably acceptable to Bancshares'
and UCB's legal counsel.
l. Certain Merger Expenses. The aggregate of amounts
paid or payable by Seaboard for legal and accounting fees
(including amounts payable for the Fairness Opinion described in
Paragraph 7.01.d. above) shall not exceed $100,000.
ARTICLE VIII. TERMINATION; BREACH; REMEDIES
8.01. Mutual Termination. At any time prior to the
Effective Time (and whether before or after approval hereof by the
shareholders of Seaboard), this Agreement may be terminated by the
mutual agreement of Bancshares, UCB and Seaboard. Upon any such
mutual termination, all obligations of Seaboard, Bancshares and UCB
hereunder shall terminate and each party shall pay costs and
expenses as provided in Paragraph 6.04. above.
8.02. Unilateral Termination. This Agreement may be
terminated by either Bancshares, UCB or Seaboard (whether before or
after approval hereof by Seaboard's shareholders) upon written
notice to the other parties and under the circumstances described
below.
a. Termination by Bancshares or UCB. This Agreement
may be terminated by Bancshares or UCB by action of its respective
Board of Directors or Executive Committee:
(i) if Seaboard shall have violated or failed
to fully perform any of its obligations, covenants or agreements
contained in Article IV or Article VI herein in any material
respect;
(ii) if Bancshares or UCB determines at any
time that any of Seaboard's representations or warranties contained in Article
II or in any other certificate or writing delivered pursuant to this Agreement
shall have been false or misleading in any material respect when made, or that
there has occurred any event or development or that there exists any condition
or circumstance which has caused or, with the lapse of time or otherwise, may or
could cause any such representations or warranties to become false or misleading
in any material respect;
(iii) if, notwithstanding Bancshares'
satisfaction of its obligations under Paragraphs 6.01.b., 6.01.c.
and 6.01.e. above, Seaboard's shareholders do not ratify and
approve this Agreement and approve the Merger at the Shareholder
Meeting, or if the Shareholder Meeting is not held on or before
March 31, 1996;
A-49
(iv) if, upon its consideration of this
Agreement as provided in Paragraph 5.01.a. above, the Board of
Directors of either Bancshares or UCB expressly declines to ratify
and approve this Agreement;
(v) under the circumstances described in
Paragraph 6.06. above; or,
(vi) if any of the conditions of the
obligations of Bancshares or UCB (as set forth in Paragraph 7.01. or 7.03.
above) shall not have been satisfied or effectively waived in writing by
Bancshares and UCB, or if the Merger shall not have become effective, on or
before June 30, 1996, unless such date is extended as evidenced by the written
mutual agreement of the parties hereto.
However, before Bancshares or UCB may terminate this Agreement
for any of the reasons specified above in (i) or (ii) of this Paragraph 8.02.a.,
it shall give written notice to Seaboard as provided herein stating its intent
to terminate and a description of the specific breach, default, violation or
other condition giving rise to its right to so terminate, and, such termination
by Bancshares or UCB shall not become effective if, within thirty (30) days
following the giving of such notice, Seaboard shall cure such breach, default or
violation or satisfy such condition to the reasonable satisfaction of Bancshares
and UCB.
b. Termination by Seaboard. This Agreement may be
terminated by Seaboard by action of its Board of Directors:
(i) if Bancshares or UCB shall have violated
or failed to fully perform any of their respective obligations, covenants or
agreements contained in Article V or VI herein in any material respect;
(ii) if Seaboard determines that any of
Bancshares' or UCB's respective representations and warranties contained in
Article III herein or in any other certificate or writing delivered pursuant to
this Agreement shall have been false or misleading in any material respect when
made, or that there has occurred any event or development or that there exists
any condition or circumstance which has caused or, with the lapse of time or
otherwise, may or could cause any such representations or warranties to become
false or misleading in any material respect;
(iii) if, subject to Seaboard's satisfaction of
its obligations contained in Paragraphs 6.01.a., 6.01.b., 6.01.d. and 6.01.e
above, its shareholders do not ratify and approve this Agreement and approve the
Merger at the Shareholder Meeting, or if the Shareholder Meeting is not held on
or before March 31, 1996; or,
(iv) if any of the conditions of the
obligations of Seaboard (as set forth in Paragraph 7.01. or 7.02.
above) shall not have been satisfied or effectively waived in
A-50
writing by Seaboard, or if the Merger shall not have become effective, on or
before June 30, 1996, unless such date is extended as evidenced by the written
mutual agreement of the parties hereto.
However, before Seaboard may terminate this
Agreement for any of the reasons specified above in clause (i) or (ii) of this
Paragraph 8.02.b., it shall give written notice to Bancshares and UCB as
provided herein stating its intent to terminate and a description of the
specific breach, default, violation or other condition giving rise to its right
to so terminate, and, such termination by Seaboard shall not become effective
if, within thirty (30) days following the giving of such notice, Bancshares or
UCB shall cure such breach, default or violation or satisfy such condition the
reasonable satisfaction of Seaboard.
c. Extension of Expiration Date. Except as otherwise shall be
agreed among the parties, in the event Bancshares, UCB and Seaboard mutually
shall agree to extend the June 30, 1996 expiration date described in Paragraphs
8.02.a.vi and 8.02.b.iv above, then, notwithstanding anything contained in this
Agreement to the contrary and to the extent permitted by applicable law and
regulations, during the period beginning July 1, 1996, and ending at the
Effective Time, Seaboard shall be permitted to declare and pay quarterly cash
dividends to its shareholders in amounts not to exceed $.10 per share on the
outstanding shares of Seaboard Stock; provided, however, that in no event may
Seaboard declare or pay a cash dividend for a calendar quarter if the Effective
Time will have occurred prior to the record date for the determination of
shareholders entitled to receive Bancshares' regular cash dividend for that same
quarter (it being the intent of the parties that Seaboard's shareholders not
become entitled to receive a cash dividend from both Seaboard and Bancshares for
the same calendar quarter).
8.03. Breach; Remedies. Except as otherwise provided below, (i) in the
event of a breach by Seaboard of any of its representations or warranties
contained in Article II of this Agreement, or in the event of its failure to
perform or violation of any of its obligations, agreements or covenants
contained in Articles IV or VI of this Agreement, then Bancshares' and UCB's
sole right and remedy shall be to terminate this Agreement prior to the
Effective Time as provided in Paragraph 8.02. above, or, in the case of a
failure to perform or violation of any obligations, agreements or covenants, to
seek specific performance thereof; and (ii) in the event of any such termination
of this Agreement by Bancshares or UCB, then Seaboard shall be obligated to
reimburse Bancshares and UCB for up to (but not more than) $100,000 in expenses
described in Paragraph 6.04. which actually have been incurred by them.
Likewise, and except as otherwise provided below, in the event
of a breach by Bancshares or UCB of any of its representations or warranties
contained in Article III of this
A-51
Agreement, or in the event of its failure to perform or violation of any of its
obligations, agreements or covenants contained in Articles V or VI of this
Agreement, then Seaboard's sole right and remedy shall be to terminate this
Agreement prior to the Effective Time as provided in Paragraph 8.02. above, or,
in the case of a failure to perform or violation of any obligations, agreements
or covenants, to seek specific performance thereof. In the event of any such
termination of this Agreement by Seaboard, then Bancshares and UCB shall be
obligated to reimburse Seaboard for up to (but not more than) $100,000 in
expenses described in Paragraph 6.04. which actually have been incurred by
Seaboard.
Notwithstanding anything contained herein to the contrary, if
any party to this Agreement breaches this Agreement by wilfully or intentionally
failing to perform or violating any of its obligations, agreements or covenants
contained in Articles IV, V or VI of this Agreement, such party shall be
obligated to pay all expenses of the other party(ies) described in Paragraph
6.04., together with other damages recoverable at law or in equity.
ARTICLE IX. INDEMNIFICATION
9.01. Indemnification Following Termination of Agreement. Seaboard,
Bancshares and UCB each hereby agree that in event this Agreement is terminated
for any reason and the Merger is not consummated, then they will indemnify each
other as provided below.
a. By Seaboard. Seaboard shall indemnify, hold harmless and
defend Bancshares and UCB from and against any and all claims, demands, causes
of action, suits, proceedings, losses, damages, liabilities, obligations, costs
and expenses of every kind and nature, together with reasonable attorneys' fees
and legal costs in connection therewith, whether known or unknown, and whether
now existing or hereafter arising, which Bancshares or UCB may receive, suffer,
pay or incur:
(i) in connection with or which arise
out of or result from or are based upon (A) Seaboard's or the Subsidiary's
operations or business transactions or their relationship with any of their
employees, or (B) Seaboard's or the Subsidiary's failure to comply with any
statute or regulation of any federal, state or local government or agency (or
any political subdivision thereof) in connection with the transactions described
in this Agreement;
(ii) in connection with or which
arise out of or result from or are based upon any fact, condition or
circumstance that constitutes a breach by Seaboard of, or any inaccuracy in, any
of its representations or warranties under or in connection with this Agreement,
or any failure of Seaboard to perform any of it covenants, agreements or
obligations under or in connection with this Agreement;
(iii) in connection with or which arise
out of or result from or are based upon any information about or provided
A-52
by Seaboard which is included in the Proxy Statement/Prospectus and which
information causes the Proxy Statement/Prospectus at the time of its mailing to
Seaboard's shareholders to contain any untrue statement of a material fact or to
omit any material fact required to be stated therein or necessary in order to
make the statements contained therein, in light of the circumstances under which
they were made, not false or misleading; and,
(iv) in connection with or which arise
out of or result from or are based upon the presence, use, production,
generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, reporting, testing, processing, emission, discharge,
release, threatened release, control or clean-up on, from or relating to the
Real Property by Seaboard or the Subsidiary or any other person of any Hazardous
Substances, or any action taken or any event or condition occurring or existing
with respect to the Real Property which constitutes a violation of any
Environmental Laws by Seaboard or the Subsidiary or any other person.
b. By Bancshares and UCB. UCB shall indemnify, hold harmless
and defend Seaboard from and against any and all claims, demands, causes of
action, suits, proceedings, losses, damages, liabilities, obligations, costs and
expenses of every kind and nature, together with reasonable attorneys' fees and
legal costs in connection therewith, whether known or unknown, and whether now
existing or hereafter arising, which Seaboard may receive, suffer, pay or incur:
(i) in connection with or which arise
out of or result from or are based upon (A) Bancshares' or UCB's operations or
business transactions or their relationship with any of their employees, or (B)
Bancshares' or UCB's failure to comply with any statute or regulation of any
federal , state or local government or agency (or any political subdivision
thereof) in connection with the transactions described in this Agreement;
(ii) in connection with or which arise
out of or result from or are based upon any fact, condition or circumstance that
constitutes a breach by Bancshares or UCB of any of their respective
representations or warranties under or in connection with this Agreement, or any
failure of Bancshares or UCB to perform any of their respective covenants,
agreements or obligations under or in connection with this Agreement; and,
(iii) in connection with or which arise
out of or result from or are based upon any information about or provided by
them which is included in the Proxy Statement/Prospectus and which information
causes the Proxy Statement/Prospectus at the time of its mailing to Seaboard's
shareholders to contain any untrue statement of a material fact or to omit any
material fact required to be stated therein or necessary in order to make the
statements contained therein, in light of the circumstances under which they
were made, not false or misleading.
A-53
9.02. Indemnification Following Effective Time. Following the
Effective Time, UCB agrees that, to the extent they would have
had a right to indemnification from Seaboard or the Subsidiary,
then UCB will indemnify Seaboard's and the Subsidiary's former
officers and directors against liabilities arising from actions in
their official capacities as officers and directors of Seaboard or the
Subsidiary.
9.03. Procedure for Claiming Indemnification. Any party
seeking to be indemnified hereunder promptly shall give written
notice and furnish adequate documentation to the other party of any
claims in respect of which indemnity is sought. The indemnifying
party, through its own counsel and at its own expense, shall defend
any such claim and shall have exclusive control over the
investigation, preparation, and defense of such claim and all
negotiations relating to its settlement or compromise. The
obligations of either party to indemnify the other hereunder apply
only if the party seeking to be indemnified cooperates with and
assists the indemnifying party in all reasonably necessary respects
in the conduct of the suit.
ARTICLE X. MISCELLANEOUS PROVISIONS
10.01. "Previously Disclosed" Information. "Previously
Disclosed" shall mean, as to Seaboard or as to Bancshares and UCB, the
disclosure of information in a letter delivered by such party to the
other prior to the date of this Agreement and which specifically
refers to this Agreement and is arranged in paragraphs
corresponding to the Paragraphs, subparagraphs and items of this
Agreement applicable thereto.
Information disclosed in either party's letter described above
shall be deemed to have been Previously Disclosed by such party for the purpose
of any given Paragraph, subparagraph or item of this Agreement only to the
extent that information is expressly set forth in such party's letter described
above and that, in connection with such disclosure, a specific reference is made
in the letter to that Paragraph, subparagraph or item.
10.02. Survival of Representations, Warranties,
Indemnification and Other Agreements.
a. Representations, Warranties and Other Agreements.
None of the representations, warranties or agreements herein shall
survive the effectiveness of the Merger, and no party shall have
any right after the Effective Time to recover damages or any other
relief from any other party to this Agreement by reason of any
breach of representation or warranty, any nonfulfillment or
nonperformance of any agreement contained herein, or otherwise;
provided, however, that the parties agreements contained in
Paragraph 6.08. above, and Bancshares' representation and warranty
contained in Paragraph 3.02. above, shall survive the effectiveness
of the Merger.
A-54
b. Indemnification. The parties' indemnification agreements
and obligations pursuant to Paragraph 9.1. above shall become effective only in
the event this Agreement is terminated, and neither of the parties shall have
any obligations under that Paragraph in the event of or following consummation
of the Merger. UCB's indemnification agreements and obligations pursuant to
Paragraph 9.2. above shall become effective only at the Effective Time, and UCB
shall not have any obligation under that Paragraph prior to the Effective Time
or in the event of or following termination of this Agreement.
10.03. Waiver. Any term or condition of this Agreement may be waived
(except as to matters of regulatory approvals and approvals required by law),
either in whole or in part, at any time by the party which is, and whose
shareholders are, entitled to the benefits thereof; provided, however, that any
such waiver shall be effective only upon a determination by the waiving party
(through action of its Board of Directors) that such waiver would not adversely
affect the interests of the waiving party or its shareholders; and, provided
further, that no waiver of any term or condition of this Agreement by any party
shall be effective unless such waiver is in writing and signed by the waiving
party, or be construed to be a waiver of any succeeding breach of the same term
or condition. No failure or delay of any party to exercise any power, or to
insist upon a strict compliance by any other party of any obligation, and no
custom or practice at variance with any terms hereof, shall constitute a waiver
of the right of any party to demand a full and complete compliance with such
terms.
10.04. Amendment. This Agreement may be amended, modified or
supplemented at any time or from time to time prior to the Effective Time, and
either before or after its approval by the shareholders of Seaboard, by an
agreement in writing approved by a majority of the Board of Directors of
Bancshares, UCB and Seaboard executed in the same manner as this Agreement;
provided however, that, except with the further approval of Seaboard's
shareholders of that change or as otherwise provided herein, following approval
of this Agreement by the shareholders of Seaboard no change may be made in the
number of shares of Bancshares Stock into which each share of Seaboard Stock
will be converted.
10.05. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly
given if delivered personally or by courier, or mailed by certified
mail, postage prepaid, as follows:
a. If to Seaboard, to:
Seaboard Savings Bank, Inc., SSB
433 US Highway 64 East
Post Office Box 127
Plymouth, North Carolina 27962
Attention: Samuel J. Styons, President
A-55
With copy to: Ronald D. Raxter, Esq.
The Sanford Law Firm PLLC
234 Fayetteville Street Mall
Suite 100
Raleigh, North Carolina 27601
b. If to either Bancshares or UCB, to:
United Carolina Bancshares Corporation
127 West Webster Street
Post Office Box 632
Whiteville, North Carolina 28472
Attention: David L. Thomas, Exec. Vice President
With copy to: William R. Lathan, Jr., Esq.
Ward and Smith, P.A.
1001 College Court
Post Office Box 867
New Bern, North Carolina 28563
10.06. Further Assurance. Seaboard, Bancshares and UCB each agree to
furnish to the others such further assurances with respect to the matters
contemplated herein and their respective agreements, covenants, representations
and warranties contained herein, including the opinion of legal counsel, as such
other parties may reasonably request.
10.07. Headings and Captions. Headings and captions of
the sections and paragraphs of this Agreement have been inserted
for convenience of reference only and do not constitute a part
hereof.
10.08. Entire Agreement. This Agreement (including all schedules and
exhibits attached hereto and all documents incorporated herein by reference)
contains the entire agreement of the parties with respect to the transactions
described herein and supersedes any and all other oral or written agreement(s)
heretofore made, and there are no representations or inducements by or to, or
and agreements between, any of the parties hereto other than those contained
herein in writing.
10.09. Severability of Provisions. The invalidity or
unenforceability of any term, phrase, clause, paragraph,
restriction, covenant, agreement or other provision hereof shall in
no way affect the validity or enforceability of any other provision
or part hereof.
10.10. Assignment. This Agreement may not be assigned by
any party hereto except with the prior written consent of the other
parties hereto.
10.11. Counterparts. Any number of counterparts of this
Agreement may be signed and delivered, each of which shall be
A-56
considered an original and which together shall constitute one
agreement.
10.12. Governing Law. This Agreement is made in and shall
be construed and enforced in accordance with the laws of North
Carolina.
IN WITNESS WHEREOF, Seaboard, Bancshares and UCB each has caused this
Agreement to be executed in its name by its duly authorized officers as of the
date first above written.
UNITED CAROLINA BANK
By:
David Thomas
ATTEST: Executive Vice President
Secretary
UNITED CAROLINA BANCSHARES CORPORATION
By:
David Thomas
ATTEST: Executive Vice President
Secretary
SEABOARD SAVINGS BANK, INC., SSB
By:
Samuel J. Styons
ATTEST: President
Secretary
A-57
With respect to the above Agreement and Plan of Reorganization and
Merger (the "Agreement"), each of the individuals signing below agrees as
follows:
1. As a director of SEABOARD SAVINGS BANK, INC., SSB ("Seaboard"),
unless there has been a material change in circumstances since the date of such
Agreement or for any reason it would, in my reasonable opinion, violate my duty
or obligations as a director to the Bank or to its shareholders, I will:
a. Recommend to Seaboard's shareholders that they vote
their shares in favor of ratification and approval of the Agreement
and approval of the Merger described therein;
b. Vote against any action on the part of Seaboard that
would be in violation of the Agreement; and
c. Vote in favor of any action on the part of Seaboard
that is necessary or appropriate to carry out the intent and
purposes or the Agreement.
2. Further, in my individual capacity, I will:
a. Vote all shares of Seaboard's common stock which I
have the power to vote in favor of ratification and approval of the
Agreement and approval of the Merger described therein; and
b. During a period commencing on the date of this Agreement
and ending two (2) years following the Effective Time (the "Restriction
Period"), I will not "Compete" (as defined below), directly or indirectly, with
Seaboard, the Subsidiary or UCB in the geographic area consisting of Washington,
Martin, Bertie and Tyrrell Counties, North Carolina (the "Relevant Market").
I hereby acknowledge and agree that the Relevant
Market and Restriction Period are limited in scope to the geographic territory
and period of time reasonably necessary to protect UCB's economic interest to be
acquired in connection with the Merger.
For the purposes of this Paragraph 2(b), the
following terms shall have the meanings set forth below:
Compete. The term "Compete" means: (i)
soliciting or securing deposits from any Person residing in the Relevant Market
for any Financial Institution; (ii) soliciting any Person residing in the
Relevant Market to become a borrower from any Financial Institution, or
assisting (other than through the performance of ministerial or clerical duties)
any Financial Institution in making loans to any such Person; (iii) soliciting
any Person residing in the Relevant Market to purchase an insurance policy from
or through any insurance agent or agency other than the Subsidiary or UCB; (iv)
prior to the Effective Time, inducing or attempting to induce any Person who is
a Customer of Seaboard or the Subsidiary to change any depository, loan and/or
other banking
A-58
relationship of the Customer from Seaboard to another Financial Institution, or
to change any insurance relationship from the Subsidiary to another insurance
agent or agency; (iv) after the Effective Time, inducing or attempting to induce
any Person who was a Customer of Seaboard or the Subsidiary at the Effective
Time or who is a Customer of UCB to change any depository, loan and/or other
banking relationship of the Customer from UCB to another Financial Institution,
or to change any insurance relationship from the Subsidiary or UCB to another
insurance agent or agency; (v) acting as a consultant, officer, director
(including an advisory or "local" director), independent contractor, or employee
of any Financial Institution that has its main or principal office in the
Relevant Market, or, in acting in any such capacity with any other Financial
Institution, to maintain an office or be employed at or assigned to or to have
any direct involvement in the management, supervision, business or operation of
any office of such Financial Institution located in the Relevant Market; or (vi)
prior to the Effective Time, communicating to any Financial Institution the
names or addresses or any financial information concerning any Person who is a
Customer of Seaboard or the Subsidiary; (vi) after the Effective Time,
communicating to any Financial Institution the names or addresses or any
financial information concerning any Person who was a Customer of Seaboard or
the Subsidiary at the Effective Time or who is a Customer of UCB.
Customer. The terms "Customer of Seaboard",
"Customer of the Subsidiary" and "Customer of UCB" mean any Person with whom
Seaboard, the Subsidiary or UCB, respectively, has a depository, loan, insurance
and/or other banking or financial service relationship.
Financial Institution. The term "Financial
Institution" means any federal or state chartered bank, savings bank, savings
and loan association or credit union, or any holding company for or corporation
that owns or controls any such entity, or any other Person engaged in the
business of making loans of any type or receiving deposits, other than Seaboard,
UCB or one of their affiliated corporations.
Person. The term "Person" means any natural
person or any corporation, partnership, proprietorship, joint venture, trust,
estate, governmental agency or instrumentality, fiduciary, unincorporated
association or other entity.
This Paragraph 2.b. shall not apply to Samuel J. Styons or
Donald A. Hall who shall be subject to separate covenants regarding
competition contained in their employment agreements with UCB.
A-59
WITNESS our hands and seals this the date first above written.
(Seal) (Seal)
E. G. Cantrell Samuel J. Styons
(Seal) (Seal)
John L. Goodwin W. Braxton Voliva
(Seal) (Seal)
Donald A. Hall Dallas G. Waters
(Seal)
Robert L. Howell
A-60
SCHEDULES TO AGREEMENT AND PLAN OF
REORGANIZATION AND MERGER
SCHEDULE DESCRIPTION
A Plan of Merger
B Form of Affiliate's Letter
C Form of Employment Agreement with
Samuel J. Styons
D Form of Employment Agreement with
Donald A. Hall
E Form of Legal Opinion of Counsel
for Bancshares and UCB
F Form of Legal Opinion of Counsel
for Seaboard
Seaboard Savings Bank, Inc., SSB, agrees to furnish supplementally a copy of any
omitted schedule upon request
APPENDIX B
APPENDIX B
EXCERPT FROM NORTH CAROLINA BUSINESS CORPORATION ACT
ARTICLE 13.
Dissenters' Rights.
Part 1. Right to Dissent and Obtain Payment for Shares.
(section mark) 55-13-01. Definitions.
In this Article:
(1) "Corporation" means the issuer of the shares held by a
dissenter before the corporate action, or the surviving or
acquiring corporation by merger or share exchange of that
issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent
from corporate action under G.S. 55-13-02 and who exercises
that right when and in the manner required by G.S. 55-13-20
through 55-13-28.
(3) "Fair value", with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the
corporate action to which the dissenter objects, excluding any
appreciation or depreciation in anticipation of the corporate
action unless exclusion would be inequitable.
(4) "Interest" means interest from the effective date of the
corporate action until the date of payment, at a rate that is
fair and equitable under all the circumstances, giving due
consideration to the rate currently paid by the corporation on
its principal bank loans, if any, but not less than the rate
provided in G.S. 24-1.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial
owner of shares to the extent of the rights granted by a
nominee certificate on file with a corporation.
(6) "Beneficial shareholder" means the person who is a beneficial
owner of shares held in a voting trust or by a nominee as the
record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
(section mark) 55-13-02. Right to dissent.
(a) In addition to any rights granted under Article 9, a
shareholder is entitled to dissent from, and obtain payment of the fair
value of his shares in the event of, any of the following corporate
actions:
(1) Consummation of a plan of merger to which the corporation
(other than a parent corporation in a merger under G.S.
55-11-04) is a party unless (i) approval by the shareholders
of that corporation is not required under G.S. 55-11-03(g) or
(ii) such shares are then redeemable by the corporation at a
price not greater than the cash to be received in exchange for
such shares;
(2) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be
acquired, unless such shares are then redeemable by the
corporation at a price not greater than the cash to be
received in exchange for such shares;
B-1
(3) Consummation of a sale or exchange of all, or substantially
all, of the property of the corporation other than as
permitted by G.S. 55-12-01, including a sale in dissolution,
but not including a sale pursuant to court order or a sale
pursuant to a plan by which all or substantially all of the
net proceeds of the sale will be distributed in cash to the
shareholders within one year after the date of sale;
(4) An amendment of the articles of incorporation that materially
and adversely affects rights in respect of a dissenter's
shares because it (i) alters or abolishes a preferential right
of the shares; (ii) creates, alters, or abolishes a right in
respect of redemption, including a provision respecting a
sinking fund for the redemption or repurchase, of the shares;
(iii) alters or abolishes a preemptive right of the holder of
the shares to acquire shares or other securities; (iv)
excludes or limits the right of the shares to vote on any
matter, or to cumulate votes; (v) reduces the number of shares
owned by the shareholder to a fraction of a share if the
fractional share so created is to be acquired for cash under
G.S. 55-6-04; or (vi) changes the corporation into a nonprofit
corporation or cooperative organization;
(5) Any corporate action taken pursuant to a shareholder vote to
the extent the articles of incorporation, bylaws, or a
resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent and obtain
payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his
shares under this Article may not challenge the corporate action
creating his entitlement, including without limitation a merger solely
or partly in exchange for cash or other property, unless the action is
unlawful or fraudulent with respect to the shareholder or the
corporation.
(section mark) 55-13-03. Dissent by nominees and beneficial owners.
(a) A record shareholder may assert dissenters' rights as to fewer
than all the shares registered in his name only if he dissents with
respect to all shares beneficially owned by any one person and notifies
the corporation in writing of the name and address of each person on
whose behalf he asserts dissenters' rights. The rights of a partial
dissenter under this subsection are determined as if the shares as to
which he dissents and his other shares were registered in the names of
different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to
shares held on his behalf only if:
(1) He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial
shareholder asserts dissenters' rights; and
(2) He does so with respect to all shares of which he is the
beneficial shareholder.
Part 2. Procedure for Exercise of Dissenters' Rights.
(section mark) 55-13-20. Notice of dissenters' rights.
(a) If proposed corporate action creating dissenters' rights under
G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, the
meeting notice must state that shareholders are or may be entitled to
assert dissenters' rights under this Article and be accompanied by a
copy of this Article.
(b) If corporate action creating dissenters' rights under G.S.
55-13-02 is taken without a vote of shareholders, the corporation shall
no later than 10 days thereafter notify in writing all shareholders
entitled to assert dissenters' rights that the action was taken and send
them the dissenters' notice described in G.S. 55-13-22.
(c) If a corporation fails to comply with the requirements of this
section, such failure shall not invalidate any corporate action taken;
but any shareholder may recover from the corporation any damage which he
suffered from such failure in a civil action brought in his own name
within three years after the taking of the corporate action creating
dissenters' rights under G.S. 55-13-02 unless he voted for such
corporate action.
B-2
(section mark) 55-13-21. Notice of intent to demand payment.
(a) If proposed corporate action creating dissenters' rights under
G.S. 55-13-02 is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert dissenters' rights:
(1) Must give to the corporation, and the corporation must
actually receive, before the vote is taken written notice of
his intent to demand payment for his shares if the proposed
action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of
subsection (a) is not entitled to payment for his shares under this
Article.
(section mark) 55-13-22. Dissenters' notice.
(a) If proposed corporate action creating dissenters' rights
under G.S. 55-13-02 is authorized at a shareholders' meeting, the
corporation shall mail by registered or certified mail, return receipt
requested, a written dissenters' notice to all shareholders who
satisfied the requirements of G.S. 55-13-21.
(b) The dissenters' notice must be sent no later than 10 days
after the corporate action was taken, and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment
demand is received;
(3) Supply a form for demanding payment;
(4) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than 30 nor more than 60
days after the date the subsection (a) notice is mailed; and
(5) Be accompanied by a copy of this Article.
(section mark) 55-13-23. Duty to demand payment.
(a) A shareholder sent a dissenters' notice described in G.S.
55-13-22 must demand payment and deposit his share certificates in
accordance with the terms of the notice.
(b) The shareholder who demands payment and deposits his share
certificates under subsection (a) retains all other rights of a
shareholder until these rights are cancelled or modified by the taking
of the proposed corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for his share under this Article.
(section mark) 55-13-24. Share restrictions.
(a) The corporation may restrict the transfer of uncertificated
shares from the date the demand for their payment is received until the
proposed corporate action is taken or the restrictions released under
G.S. 55-13-26.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until
these rights are cancelled or modified by the taking of the proposed
corporate action.
B-3
(section mark) 55-13-25. Offer of payment.
(a) As soon as the proposed corporate action is taken, or upon
receipt of a payment demand, the corporation shall offer to pay each
dissenter who complied with G.S. 55-13-23 the amount the corporation
estimates to be the fair value of his shares, plus interest accrued to
the date of payment, and shall pay this amount to each dissenter who
agrees in writing to accept it in full satisfaction of his demand.
(b) The offer of payment must be accompanied by:
(1) The corporation's most recent available balance sheet as of
the end of a fiscal year ending not more than 16 months before
the date of offer of payment, an income statement for that
year, a statement of cash flows for that year, and the latest
available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of
the shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under
G.S. 55-13-28; and
(5) A copy of this Article.
(section mark) 55-13-26. Failure to take action.
(a) If the corporation does not take the proposed action within 60
days after the date set for demanding payment and depositing share
certificates, the corporation shall return the deposited certificates
and release the transfer restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing
transfer restrictions, the corporation takes the proposed action, it
must sent a new dissenters' notice under G.S. 55-13-22 and repeat the
payment demand procedure.
(section mark) 55-13-28. Procedure if shareholder dissatisfied with
corporation's offer or failure to perform.
(a) A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of interest due, and
demand payment of his estimate or reject the corporation's offer under
G.S. 55-13-25 and demand payment of the fair value of his shares and
interest due, if:
(1) The dissenter believes that the amount offered under G.S.
55-13-25 is less than the fair value of his shares or that the
interest due is incorrectly calculated;
(2) The corporation fails to make payment to a dissenter who
accepts the corporation's offer under G.S. 55-13-25 within 30
days after the dissenter's acceptance; or
(3) The corporation, having failed to take the proposed action,
does not return the deposited certificates or release the
transfer restrictions imposed on uncertificated shares within
60 days after the date set for demanding payment.
(b) A dissenter waives his right to demand payment under this
section unless he notifies the corporation of his demand in writing (i)
under subdivision (a)(1) within 30 days after the corporation offered
payment for his shares or (ii) under subdivisions (a)(2) and (a)(3)
within 30 days after the corporation has failed to perform timely. A
dissenter who fails to notify the corporation of his demand under
subsection (a) within such 30-day period shall be deemed to have
withdrawn his dissent and demand for payment.
B-4
Part 3. Judicial Appraisal of Shares.
(section mark) 55-13-30. Court action.
(a) If a demand for payment under G.S. 55-13-28 remains unsettled,
the dissenter may commence a proceeding within 60 days after the date of
his payment demand under G.S. 55-13-28 and petition the court to
determine the fair value of the shares and accrued interest. Upon
service upon it of the petition filed with the court, the corporation
shall pay to the dissenter the amount offered by the corporation under
G.S. 55-13-25.
(a1) If the dissenter does not commence the proceeding within the
60-day period, the dissenter shall have an additional 30 days to either
(i) accept in writing the amount offered by the corporation under G.S.
55-13-25, upon which the corporation shall pay such amount to the
dissenter in full satisfaction of his demand, or (ii) withdraw his
demand for payment and resume the status of a nondissenting shareholder.
A dissenter who takes no action within such 30-day period shall be
deemed to have withdrawn his dissent and demand for payment.
(b) Reserved for future codification purposes.
(c) The court shall have the discretion to make all dissenters
(whether or not residents of this State) whose demands remain unsettled
parties to the proceeding as in an action against their shares and all
parties must be served with a copy of the petition. Nonresidents may be
served by registered or certified mail or by publication as provided by
law.
(d) The jurisdiction of the court in which the proceeding is
commenced under subsection (b) is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and
recommend decision on the question of fair value. The appraisers have
the powers described in the order appointing them, or in any amendment
to it. The parties are entitled to the same discovery rights as parties
in other civil proceedings. However, in a proceeding by a dissenter in
a public corporation, there is no right to a trial by jury.
(e) Each dissenter made a party to the proceeding is entitled to
judgment for the amount, if any, by which the court finds the fair value
of his shares, plus interest, exceeds the amount paid by the
corporation.
(section mark) 55-13-31. Court costs and counsel fees.
(a) The court in an appraisal proceeding commenced under G.S.
55-13-30 shall determine all costs of the proceeding, including the
reasonable compensation and expenses of appraisers appointed by the
court, and shall assess the costs as it finds equitable.
(b) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds
equitable:
(1) Against the corporation and in favor of any or all dissenters
if the court finds the corporation did not substantially
comply with the requirements of G.S. 55-13-20 through
55-13-28; or
(2) Against either the corporation or a dissenter, in favor of
either or any other party, if the court finds that the party
against whom the fees and expenses are assessed acted
arbitrarily, vexatiously, or not in good faith with respect to
the rights provided by this Article.
(c) If the court finds that the services of counsel for any
dissenter were of substantial benefit to other dissenters similarly
situated, and that the fees for those services should not be assessed
against the corporation, the court may award to these counsel reasonable
fees to be paid out of the amounts awarded the dissenters who were
benefited.
B-5
APPENDIX C
EXPECTED FORM OF FORMAL OPINION
FOR INCLUSION AS EXHIBIT IN PROSPECUTS/PROXY STATEMENT
_______, 1995
Board of Directors
Seaboard Savings Bank, Inc. SSB
P.O. Box 127
Plymouth, North Carolina 27962
Members of the Board:
Seaboard Savings Bank, Inc. SSB ("Seaboard Savings Bank") and United Carolina
Bancshares Corporation ("Bancshares") have entered into an Agreement and Plan
Reorganization and Merger, dated as of September 19, 1995 (the "Merger
Agreement"), pursuant to which Bancshares will acquire Seaboard Savings Bank by
means of a merger ("the Merger") of Seaboard Savings Bank into United Carolina
Bank ("UCB") and the exchange by Bancshares of .9104 shares of Bancshares stock
for each of the outstanding no par value shares of common stock of Seaboard
Savings Bank.
The Meritas Group, Inc., as a customary part of its financial advisory
consulting business, is engaged in the valuation of commercial banking and
thrift institutions and their securities in connection with mergers and
acquisitions, conversions from mutual to stock form, private placements and
valuations for corporate and other purposes.
You have requested our opinion as to the fairness, from a financial point of
view, to Seaboard Savings Bank and its shareholders of the proposed exchange of
each share of common stock of Seaboard Savings Bank for .9104 shares of
Bancshares common stock pursuant to the terms of Merger Agreement.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed Seaboard Savings Bank' Annual Reports to Stockholders and
related financial information for the two fiscal years ended December
31, 1994 and for the quarters and nine month periods ended September
30, 1995;
(2) Compared the results of operations of Seaboard Savings Bank with
those of certain financial institutions which we deemed to be
reasonably similar to Seaboard Savings Bank;
(3) Conducted discussions with members of senior management of Seaboard
Savings Bank concerning the current business and prospects;
(4) Reviewed the historical market prices and trading activity for the
shares of Bancshares common stock and compared them with those certain
publicly-traded bank holding companies which we deemed to be reasonably
similar to Bancshares;
(5) Reviewed Bancshares's Annual Reports to Stockholders, Annual
Reports on Form 10-K and related financial information for the three
fiscal years ended December 31, 1994;and the first quarter ended March
31, 1995;and for the quarter and six months ended June 30, 1995;
(6) Reviewed the Merger Agreement;
(7) Compared the proposed financial terms of the transaction
contemplated by the Merger Agreement with the financial terms of
certain other mergers and acquisitions which we deemed to be relevant
and;
C-2
Board of Directors
_______, 1995
Page 2
(8) Reviewed other financial data, including data regarding
Bancshares's financial ratios and stock trading data, compared such
information to similar information for certain other companies and
performed such other investigations and took into account such other
matters as we deemed necessary.
In preparing our opinion, we have relied on the accuracy and completeness of all
information supplied or otherwise made available to us by Seaboard Savings Bank
and Bancshares, including the representations and warranties of such parties
included in the Merger Agreement, and we have not independently verified such
information or undertaken an independent appraisal of the assets of Seaboard
Savings Bank.
It should be noted that this opinion is based on market conditions and other
circumstances existing on the date hereof.
Consummation of the Merger is subject to the receipt of final regulatory
approvals and approval of the stockholders of Seaboard Savings Bank.
It is understood that this opinion may be included in its entirety in any
communication by Seaboard Savings Bank or its Board of Directors to the
stockholders of Seaboard Savings Bank. This opinion may not, however, be
summarized, excerpted from or otherwise publicly referred to without our prior
written consent.
On the basis of, and subject to the foregoing, we are of the opinion that as of
the date hereof, the terms of the Merger Agreement are fair, from a financial
point of view, to the holders of Seaboard Savings Bank common stock including
shares resulting from the conversion of the Seaboard Savings Bank convertible
preferred stock.
THE MERITAS GROUP, INC.
C-2
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
The North Carolina Business Corporation Act (the "NCBCA") provides
for indemnification by a corporation of its officers, directors,
employees and agents, and any person who is or was serving at the
corporation's request as a director, officer, employee or agent of
another entity or enterprise or as a trustee or administrator under an
employee benefit plan, against liability and expenses, including
reasonable attorney's fees, in any proceeding (including without
limitation a proceeding brought by or on behalf of the corporation
itself) arising out of their status as such or their activities in any
of the foregoing capacities.
Permissible Indemnification. Under the NCBCA, a corporation may,
but is not required to, indemnify or agree to indemnify any such person
against liability and expenses incurred in any such proceeding, provided
such person conducted himself or herself in good faith and (i) in the
case of conduct in his or her official corporate capacity, reasonably
believed that his or her conduct was in the corporation's best
interests, and (ii) in all other cases, reasonably believed that his or
her conduct was at least not opposed to the corporation's best
interests; and, in the case of a criminal proceeding, where he or she
had no reasonable cause to believe his or her conduct was unlawful.
However, a corporation may not indemnify such person either in
connection with a proceeding by or in the right of the corporation in
which such person was adjudged liable to the corporation, or in
connection with any other proceeding charging improper personal benefit
to such person (whether or not involving action in an official capacity)
in which such person was adjudged liable on the basis that personal
benefit was improperly received.
Mandatory Indemnification. Unless limited by the corporation's
charter, the NCBCA requires a corporation to indemnify a director or
officer of the corporation who is wholly successful, on the merits or
otherwise, in the defense of any proceeding to which such person was a
party because he or she is or was a director or officer of the
corporation against reasonable expenses incurred in connection with the
proceeding.
Advance for Expenses. Expenses incurred by a director, officer,
employee or agent of the corporation in defending a proceeding may be
paid by the corporation in advance of the final disposition of the
proceeding as authorized by the board of directors in the specific case,
or as authorized by the charter or bylaws or by any applicable
resolution or contract, upon receipt of an undertaking by or on behalf
of such person to repay amounts advanced unless it ultimately is
determined that such person is entitled to be indemnified by the
corporation against such expenses.
Court-Ordered Indemnification. Unless otherwise provided in the
corporation's charter, a director or officer of the corporation who is a
party to a proceeding may apply for indemnification to the court
conducting the proceeding or to another court of competent jurisdiction.
On receipt of an application, the court, after giving any notice the
court deems necessary, may order indemnification if it determines either
(i) that the director or officer is entitled to mandatory
indemnification as described above, in which case the court also will
order the corporation to pay the reasonable expenses incurred to obtain
the court-ordered indemnification, or (ii) that the director or officer
is fairly and reasonably entitled to indemnification in view of all the
relevant circumstances, whether or not such person met the requisite
standard of conduct or was adjudged liable to the corporation in
connection with a proceeding by or in the right of the corporation or on
the basis that personal benefit was improperly received in connection
with any other proceeding so charging (but if adjudged so liable,
indemnification is limited to reasonable expenses incurred).
Voluntary Indemnification. In addition to and separate and apart
from "permissible" and "mandatory" indemnification described above, a
corporation may, by charter, bylaw, contract or resolution,m "indemnify
or agree to indemnify any one or more of its officers, directors,
employees and agents against liability
II-1
and expenses in any proceeding (including without limitation a
proceeding brought by or on behalf of the corporation itself) arising
out of their status as such or their activities in any of the foregoing
capacities. However, the corporation may not indemnify or agree to
indemnify a person against liability or expenses he may incur on account
of activities which were at the time taken known or believed by such
person to be clearly in conflict with the best interests of the
corporation. Any provision in a corporation's charter or bylaws or in a
contract or resolution may include provisions for recovery from the
corporation of reasonable costs, expenses and attorneys' fees in
connection with the enforcement of rights to indemnification granted
therein and may further include provisions establishing reasonable
procedures for determining and enforcing such rights.
Parties Entitled to Indemnification. The NCBCA defines "director"
to include ex-directors and the estate or personal representative of a
director. Unless its charter provides otherwise, a corporation may
indemnify and advance expenses to an officer, employee or agent of the
corporation to the same extent as to a director and also may indemnify
and advance expenses to an officer, employee or agent who is not a
director to the extent, consistent with public policy, as may be
provided in its charter or bylaws, by general or specific action of its
board of directors, or by contract.
Indemnification by Registrant. Subject to such restrictions as are
provided by federal securities law, Registrant's Bylaws provide for
indemnification of its directors and officers to the fullest extent
permitted by law and require its Board of Directors to take all actions
necessary and appropriate to authorize such indemnification. In
addition, Registrant currently maintain directors' and officers'
liability insurance.
Item 21. Exhibits and Financial Statement Schedules.
The following exhibits and financial statement schedules are filed
as part of this Registration Statement.
(a) Exhibits
Exhibit Number
pursuant to
Item 601 of
Regulation S-K Description of Exhibit
2 Agreement and Plan of Reorganization
and Merger by and among Seaboard
Savings Bank, Inc., SSB, United
Carolina Bancshares Corporation and
United Carolina Bank (included as
and incorporated from Appendix A of
the Prospectus/Proxy Statement
filed as part of the Registration
Statement)
5 Opinion and Consent of Howard V.
Hudson, Esq., as to legality of
shares being registered
8 Opinion of KPMG Peat Marwick LLP as
to tax matters
10.1 Form of proposed Employment
Agreement between United Carolina
Bank and Samuel J. Styons
10.2 Form of proposed Employment
Agreement between United Carolina
Bank and Donald A. Hall
23.1 Consent of Howard V. Hudson, Jr.,
Esq. (included in Exhibit 5)
23.2 Consents of KPMG Peat Marwick LLP
23.3 Consent of McGladrey & Pullen, LLP
II-2
23.4 Consent of The Meritas Group, Inc.
24 Power of Attorney
99 Form of appointment of proxy to be
used in connection with the Special
Meeting of Shareholders of the
Seaboard Savings Bank, Inc., SSB
_______________________
* Filed previously
(b) Financial Statement Schedules.
All financial statement schedules are omitted as substantially all
the required information is contained in the Registrant's consolidated
financial statements which are incorporated herein by reference or is
not applicable.
Item 22. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales
are being made, a post-effective amendment to this registration
statement: (i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933; (ii) to reflect in the
prospectus any facts or events arising after the effective date
of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information
set forth in the registration statement; and (iii) to include
any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) that, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof;
(3) to remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933,
each filing of the registrant's annual report pursuant to
section 13(a) or section 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted
to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the
Securities and Exchange
II-3
Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction, the
question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
(d) The registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the
Prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form,
within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally
prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration
Statement through the date of responding to the request.
(e) The registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a
transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration
statement when it became effective.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Whiteville, State of North Carolina, on October 31, 1995.
UNITED CAROLINA BANCSHARES CORPORATION
BY: /s/ E. Rhone Sasser
E. Rhone Sasser
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ E. Rhone Sasser Chairman of the Board, October 31, 1995
E. Rhone Sasser President and Chief Executive
Officer (principal executive
officer)
/s/ Ronald C. Monger Executive Vice President and October 31, 1995
Ronald C. Monger Chief Financial Officer
(principal financial officer)
/s/ John F. Watson Controller (principal October 31, 1995
John F. Watson accounting officer)
/s/ J. W. Adams Director October 31, 1995
J. W. Adams
/s/ John V. Andrews Director October 31, 1995
John V. Andrews
/s/ Russell M. Carter Director October 31, 1995
Russell M. Carter
W. E. Carter Director October __, 1995
/s/ Alfred E. Cleveland Director October 31, 1995
Alfred E. Cleveland
/s/ James L. Cresimore Director October 31, 1995
James L. Cresimore
II-5
/s/ Thomas P. Dillon Director October 31, 1995
Thomas P. Dillon
/s/ C. Frank Griffin Director October 31, 1995
C. Frank Griffin
/s/ James C. High Director October 31, 1995
James C. High
/s/ Jack E. Shaw Director October 31, 1995
Jack E. Shaw
/s/ Harold B. Wells Director October 31, 1995
Harold B. Wells
/s/ Charles M. Winston Director October 31, 1995
Charles M. Winston
II-6
EXHIBIT INDEX
Exhibit Number
pursuant to
Item 601 of
Regulation S-K Description of Exhibit
2 Agreement and Plan of Reorganization and Merger by and
among Seaboard Savings Bank, Inc., SSB, United Carolina
Bancshares Corporation and United Carolina Bank (included
as and incorporated from Appendix A of the Prospectus/Proxy
Statement filed as part of the Registration Statement)
5 Opinion and Consent of Howard V. Hudson, Jr., Esq., as to
legality of shares being registered
8 Form of Opinion of KPMG Peat Marwick LLP as to tax matters
10.1 Form of proposed Employment Agreement between United
Carolina Bank and Samuel J. Styons
10.2 Form of proposed Employment Agreement between United
Carolina Bank and Donald A. Hall
23.1 Consent of Howard V. Hudson, Jr., Esq. (included in Exhibit
5)
23.2 Consents of KPMG Peat Marwick LLP
23.3 Consent of McGladrey & Pullen, LLP
23.4 Consent of The Meritas Group, Inc.
24 Power of Attorney
99 Form of appointment of proxy to be used in connection with
the Special Meeting of Shareholders of the Seaboard Savings
Bank, Inc., SSB