KPMG PEAT MARWICK LLP
October 30, 1995
Board of Directors
Seaboard Savings Bank, Inc., SSB
Post Office Box 127
Plymouth, North Carolina 27962
Board of Directors
United Carolina Bancshares Corporation
127 West Webster Street
Whiteville, North Carolina 28472
Gentlemen:
You have requested our opinion as to the federal and North Carolina income tax
consequences resulting from a plan pursuant to which Seaboard Savings Bank, Inc.
SSB ("Seaboard") will be merged with and into United Carolina Bank ("UCB"), a
wholly-owned subsidiary of United Carolina Bancshares Corporation
("Bancshares"), whereupon the separate existence of Seaboard will cease (the
"Merger"). Pursuant to the Merger, the shareholders of Seaboard will receive
newly issued shares of Bancshares common stock ("Bancshares Stock") in exchange
for their Seaboard common stock ("Seaboard Stock").
You have submitted for our consideration certain representations as to the
proposed transaction, a copy of the Agreement and Plan of Reorganization and
Merger dated as of September 19, 1995 (the "Agreement") and a copy of the Form
S-4 Registration Statement to be filed with the Securities and Exchange
Commission on or about October 30, 1995. We have not reviewed the legal
documents necessary to effectuate the steps to be undertaken and we assume that
all steps will be effectuated under state and federal law and will be consistent
with the legal documentation and with the list of steps submitted to us.
Board of Directors
October 30, 1995
Page 2
Facts
Bancshares is a North Carolina business corporation which is registered with the
Federal Reserve as a bank holding company and is headquartered in Whiteville,
North Carolina. Bancshares' authorized capital stock consists of two classes,
represented by 40,000,000 shares of common stock, $4.00 par value, of which
14,768,740 shares were issued and outstanding at September 30, 1995 and
2,000,000 shares of preferred stock, $10.00 par value, of which there were no
shares issued and outstanding at September 30, 1995. Common shareholders are
entitled to one vote for each share of stock held. UCB, a North Carolina
corporation, is a wholly-owned commercial bank subsidiary of Bancshares.
Seaboard is a North Carolina capital stock savings bank. Its authorized capital
stock consists of two classes, represented by 5,000,000 shares of common stock,
no par value, of which 305,467 shares were issued and outstanding at September
30, 1995 and 1,000,000 shares of preferred stock, no par value, of which there
were no shares issued and outstanding at September 30, 1995.
For valid business purposes, pursuant to the Agreement, Seaboard will be merged
with and into UCB, with UCB as the surviving entity. Upon consummation of the
Merger, each share of Seaboard Stock (excluding any shares held by dissenting
shareholders) will be converted into 0.9104 shares, subject to adjustment as
described below, of Bancshares Stock (the "Exchange Rate"). 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. If there is a change in the number of outstanding shares of Bancshares
Stock or Seaboard Stock prior to the Effective Time, as defined in the
Agreement, 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.
Board of Directors
October 30, 1995
Page 3
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 (the "Option Conversion"), 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.
Under North Carolina law, shareholders of Seaboard will have dissenters' rights
in connection with the Merger. Shareholders who properly exercise their
dissenters' rights will be entitled to receive the fair value of their shares
from Seaboard in accordance with Sections 55-13-01 through 55-13-31 of the North
Carolina General Statutes. A record holder of Seaboard's Stock may assert
dissenters' rights as to fewer than all shares registered in his or her name
only if he or she dissents with respect to all shares beneficially owned by any
one person and notifies Seaboard in writing of the name and address of each
person on whose behalf he or she asserts dissenters' rights.
No fractional shares of Bancshares Stock will be issued in connection with the
Merger. In the event that the Merger results in the creation of fractional
shares, in lieu of the issuance of fractional shares of Bancshares Stock,
Bancshares will deliver cash to its transfer agent in an amount equal to the
aggregate market value of all such fractional shares. The transfer agent will
subsequently divide such cash among and remit it, without interest, to the
former shareholders of Seaboard in accordance with their respective interests.
The Merger is subject to the receipt of regulatory approval from appropriate
parties, including the North Carolina Commissioner of Banks, the North Carolina
State Banking Commission, the Administrator of the North Carolina Savings
Institutions Division and the FDIC.
In addition to the foregoing statement of facts, the following representations
have been made:
(a) The fair market value of Bancshares Stock received by the
shareholders of Seaboard will be approximately equal to the fair market
value of Seaboard Stock surrendered in the exchange.
(b) There is no plan or intention by the shareholders of Seaboard to
sell, exchange or otherwise dispose of any of the Bancshares Stock
received in the Merger.
Board of Directors
October 30, 1995
Page 4
(c) UCB will acquire at least 90% of the fair market value of the net
assets and at least 70% of the fair market value of the gross assets
held by Seaboard immediately prior to the Merger. For purposes of this
representation, amounts paid by Seaboard to dissenters, amounts used by
Seaboard to pay its reorganization expenses, and all redemptions and
distributions (except for regular, normal dividends) made by Seaboard
immediately preceding the Merger will be included as assets of Seaboard
held immediately prior to the Merger.
(d) Prior to the Merger, Bancshares will be in control of UCB within
the meaning of Section 368(c) of the Internal Revenue Code of 1986, as
amended (the "Code").
(e) Following the Merger, UCB will not issue additional shares of its
stock that would result in Bancshares losing control of UCB within the
meaning of Section 368(c).
(f) Bancshares has no plan or intention to reacquire any of its stock
issued in the Merger.
(g) Bancshares has no plan or intention to liquidate UCB; to merge UCB
with and into another corporation; to sell or otherwise dispose of the
stock of UCB; or to cause UCB to sell or otherwise dispose of any of
the assets of Seaboard acquired in the Merger, except for dispositions
made in the ordinary course of business or transfers described in
Section 368(a)(2)(C).
(h) The liabilities of Seaboard assumed by UCB and the liabilities to
which the transferred assets of Seaboard are subject were incurred by
Seaboard in the ordinary course of its business.
(i) Following the Merger, UCB will continue the historical business of
Seaboard or use a significant portion of the historic business assets
of Seaboard in a business.
(j) Bancshares, UCB, Seaboard and the shareholders of Seaboard will pay
their respective expenses, if any, incurred in connection with the
Merger.
(k) There is no intercorporate indebtedness existing between Bancshares
or UCB and Seaboard that was issued, acquired, or will be settled at a
discount.
(l) No two parties to the transaction are investment companies as
defined in Section 368(a)(2)(F)(iii) and (iv).
Board of Directors
October 30, 1995
Page 5
(m) The fair market value of the assets of Seaboard transferred to UCB
will equal or exceed the sum of the liabilities assumed by UCB, plus
the amount of liabilities, if any, to which the transferred assets are
subject.
(n) Seaboard is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
(o) The payment of cash in lieu of fractional shares of Bancshares
Stock is not separately bargained for consideration, rather it is
merely to save the expense and inconvenience of issuing and
transferring fractional share interests. The total cash consideration
in lieu of fractional shares will be less than one percent of the total
consideration paid in the transaction and no Seaboard shareholder who
elects to exchange his or her Seaboard Stock for Bancshares Stock will
receive cash for more than one share of Bancshares Stock.
(p) None of the compensation received by any shareholder-employees of
Seaboard will be separate consideration for, or allocable to, any of
their shares of Seaboard Stock; none of the shares of Bancshares Stock
received by any shareholder-employee of Seaboard will be separate
consideration for, or allocable to, any employment agreement; and the
compensation to be paid to any shareholder-employees of Seaboard will
be for services actually rendered and will be commensurate with amounts
paid to third parties bargaining at arm's length for similar services.
(q) No stock of UCB will be issued in the Merger.
Opinion
FEDERAL INCOME TAX CONSEQUENCES
Based solely on the above facts and representations, it is our opinion that:
1) Provided that the merger of Seaboard with and into UCB, as contemplated by
the Agreement, qualifies as a statutory merger under North Carolina law,
the Merger will constitute a reorganization within the meaning of Section
368(a)(1)(A) and Section 368(a)(2)(D) of the Code.
Board of Directors
October 30, 1995
Page 6
2) Each of Seaboard, UCB and Bancshares will be a party to the reorganization
within the meaning of Section 368(b).
3) No gain or loss will be recognized by Seaboard upon the transfer of its
assets, subject to its liabilities, to UCB in the Merger. Sections 357(a)
and 361(a).
4) No gain or loss will be recognized by UCB or Bancshares upon the receipt of
the assets of Seaboard, subject to Seaboard's liabilities in the Merger.
Rev. Rul. 57-278, 1957-1 C.B. 124.
5) The basis of the assets of Seaboard in the hands of UCB will be the same as
the basis of such assets in the hands of Seaboard immediately prior to the
Merger. Section 362(b).
6) The holding period of the assets of Seaboard in the hands of UCB will
include the period during which such assets were held by Seaboard
immediately prior to the Merger. Section 1223(2).
7) No gain or loss will be recognized by the shareholders of Seaboard upon
receipt of Bancshares Stock (including any fractional share interests to
which they may be entitled) solely in exchange for their holdings of
Seaboard Stock. Section 354(a)(1).
8) The basis of the Bancshares Stock to be received by the shareholders of
Seaboard (and any fractional share interests to which they may be entitled)
will be the same as the basis in Seaboard Stock surrendered in the
exchange. Section 358(a)(1).
9) The holding period of the Bancshares Stock received by the shareholders of
Seaboard (and any fractional share interests to which they may be entitled)
will include the holding period of Seaboard Stock prior to the exchange,
provided that Seaboard Stock is held as a capital asset in the hands of the
shareholders of Seaboard on the date of the exchange. Section 1223(1).
10) The tax attributes enumerated in Section 381(c), including any earnings and
profits or a deficit of earnings and profits, will be taken into account by
UCB following the Merger.
Board of Directors
October 30, 1995
Page 7
11) The payment of cash in lieu of fractional share interests of Bancshares
Stock will be treated as if the fractional shares of Bancshares Stock were
distributed as part of the exchange to Seaboard shareholders and then redeemed
by Bancshares. The cash payments will be treated as having been received as
distributions in full payment for the stock redeemed as provided in Section
302(a) of the Code. Rev. Rul. 66-365, 1966-2 C.B. 116 and Rev. Proc. 77-41,
1977-2 C.B. 574.
12) Where a Seaboard shareholder receives cash by exercising statutory
dissenter's rights, such cash will be treated as having been received by
the shareholder as a distribution in redemption of his or her Seaboard
Stock subject to the provisions and limitations of Section 302 of the Code.
NORTH CAROLINA INCOME TAX CONSEQUENCES
It is our opinion that the State of North Carolina will, for North Carolina
income tax purposes, treat the Merger in an identical manner as it is treated by
the Internal Revenue Service for federal income tax purposes. N.C.G.S.
105-130.2, 105-130.3, 105-130.5, 105-134.1, 105-134.2, 105-134.5, 105-134.6,
105-134.7 and 105-228.23.
THE OPTION CONVERSION
Nothing in the foregoing opinion is to be construed either explicitly or
implicitly as opining on the federal or North Carolina income tax consequences
to the Seaboard option holders of the Option Conversion.
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The opinions expressed above are rendered only with respect to the specific
matters discussed herein, and we express no opinion with respect to any other
federal or state income tax or legal aspect of the offering. If any of the
above-stated facts, circumstances, or assumptions are not entirely complete or
accurate, it is imperative that we be informed immediately, as the inaccuracy or
incompleteness could have a material effect on our conclusions. In rendering our
opinion, we
Board of Directors
October 30, 1995
Page 8
are relying upon the relevant provisions of the Internal Revenue
Code of 1986, as amended, the regulations thereunder, and judicial and
administrative interpretations thereof, which are subject to change or
modification by subsequent legislative, regulatory, administrative, or judicial
decisions. Any such changes could also have an effect on the validity of our
opinion. We assume no duty to inform you of any changes in our opinion due to
any change in law or fact that may subsequently occur or come to our attention.
Sincerely,
KPMG Peat Marwick LLP
(Signature of Sheldon M. Fox)
Sheldon M. Fox, Partner